<PAGE>
PAINEWEBBER BALANCED FUND SEMIANNUAL REPORT
April 15, 2000
Dear Shareholder,
We are pleased to present you with the semiannual report for PaineWebber
Balanced Fund (the "Fund") for the six-month period ended February 29, 2000.
MARKET REVIEW
- --------------------------------------------------------------------------------
Technology stocks continued to lead the equity markets during the six months
ended February 29, 2000. The NASDAQ Composite, one of the most technology-heavy
of the major market indices, surged 71.45% for the period. On the other hand,
the Standard and Poor's 500 Index (S&P 500) gained only 4.10% for the period,
and the Dow Jones Industrial Average lost 5.73%.
Other trends of recent years also continued: an ever-smaller number of stocks
accounted for most of the market's gains, while day-to-day price fluctuations
became more volatile. In January 2000, the market briefly rewarded investors who
owned more cyclical, value-oriented stocks, but high-growth technology stocks
resumed their predominance in February.
OUTLOOK
The near-term outlook for the market appears uncertain in light of recent
volatility among technology stocks and the likelihood that the Federal Reserve
(the Fed) will continue to raise interest rates. We are therefore concerned that
the stock market currently appears somewhat overvalued. Offsetting our concern,
however, expectations for corporate profits are rising. If these higher profit
expectations prove correct, then we believe the market can "grow into" its
current price levels without significant downside risk--barring an inflationary
shock.
Despite some uncertainty, the longer-term picture looks positive. The consensus
estimate of real GDP growth in 2000 stands at about 3.4%; early estimates for
real GDP growth in 2001 stand at about 3.5%. It seems likely that the economy
will remain healthy, with tolerable inflation of around 2.5% per year. Long-term
interest rates, as gauged by the 30-year U.S. Treasury bond, have been dipping
below six percent. We believe the combination of lower long-term rates and
higher profit expectations will help support stock prices over the longer term.
- --------------------------------------------------------------------------------
PAINEWEBBER
BALANCED FUND
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
- --------------------------------------------------------------------------------
1
<PAGE>
PAINEWEBBER BALANCED FUND SEMIANNUAL REPORT
PORTFOLIO REVIEW
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN, PERIODS ENDED 2/29/00
<TABLE>
<CAPTION>
6 Months 1 Year 5 Years 10 Years Inception(degree)
<S> <C> <C> <C> <C>
Class A* 1.08% 2.19% 14.42% N/A 11.25%
Class B** 0.69 1.44 13.57 10.68% 9.46
Before Deducting
Maximum Sales Charge Class C+ 0.70 1.43 13.55 N/A 10.44
Class Y++ 1.34 2.56 N/A N/A 3.50
Class A* -3.50 -2.45 13.38 N/A 10.66
After Deducting Class B** -3.90 -3.17 13.33 10.68 9.46
Maximum Sales Charge
Class C+ -0.21 0.51 13.55 N/A 10.44
S&P 500 Index 4.10 11.73 25.13 18.03 17.12
Lehman Brothers Intermediate
Term Gov't/Corporate Index 1.45 1.79 6.40 7.34 7.29
90 Day T-Bill 2.58 4.92 5.10 4.92 5.44
Lipper Balanced Funds Median 3.22 6.27 14.18 11.57 11.14
</TABLE>
Past performance is no guarantee of future performance. 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. Six-month and one-year returns are cumulative.
(degree) Inception: since commencement of issuance on July 1, 1991 for Class
A shares, December 12, 1986 for Class B shares, July 2, 1992 for
Class C shares and March 26, 1998 for Class Y shares. Index and
Lipper median inception returns are as of oldest share class
inception.
* 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.
PORTFOLIO HIGHLIGHTS
The Fund underperformed its benchmarks and its Lipper median for the six months
ended February 29, 2000. There were several reasons for the Fund's
underperformance. First, the equity portion of the Fund uses a value-oriented
investment style; value-oriented stocks lagged throughout the period as
investors concentrated on growth-oriented stocks. Second, our search for value
led us to many small-capitalization stocks, which lagged larger-cap stocks
during the period.
The Fund's equity allocation decreased to 40% for November; for the rest of the
period, however, the Fund's equity allocation was at or above the neutral 60%
weighting. As of period-end, the equity and bond allocations had declined
somewhat: the equity allocation fell to 55.8% and the bond allocation fell to
32.9%, while the cash allocation rose to 11.3%.
During the period the Fund continued to emphasize technology and consumer
cyclical companies, though we began to reduce the Fund's exposure to technology
stocks. The Fund's equity investment
- --------------------------------------------------------------------------------
How the Fund Works
The Balanced 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 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. The Fund's performance standard over time is a
portfolio that is allocated 60% to stocks, 35% to bonds and 5% to cash.
- --------------------------------------------------------------------------------
2
<PAGE>
PAINEWEBBER BALANCED FUND SEMIANNUAL REPORT
models have identified a number of attractively priced financial services
stocks. We see indications of positive price momentum among brokerage companies,
which continue to report significantly better than expected earnings. We feel
there is opportunity here and believe these stocks will garner interest once
investors get a sense that the Fed is nearly finished raising interest rates.
Financial stocks tend to gain in anticipation of the last Fed rate hike.
PORTFOLIO STATISTICS
Characteristics(1) 2/29/00 8/31/99
- --------------------------------------------------------------------------------
Net Assets ($mm) $ 216.2 $ 245.8
Number of Securities 147 164
12-Month Beta(2) 0.50 0.62
Dividend Yield 2.99% 2.52%
Stocks 55.8% 55.2%
Bonds 32.9% 32.7%
Cash 11.3% 12.1%
- --------------------------------------------------------------------------------
Top Five Equity Sectors(1) 12/29/00 8/31/99
- --------------------------------------------------------------------------------
Technology 16.9% Consumer Cyclicals 14.2%
Consumer Cyclicals 10.7 Technology 10.4
Financial Services 8.3 Financial Services 7.3
Energy 4.9 Healthcare 4.7
Utilities 4.7 Utilities 4.7
- --------------------------------------------------------------------------------
Total 45.5% Total 41.3%
Top Ten Equity Holdings(1) 12/29/00 8/31/99
- --------------------------------------------------------------------------------
Cisco Systems, Inc. 3.5% Cisco Systems, Inc. 1.7%
JDS Uniphase Corp. 3.0 United Technologies Corp. 1.6
Citigroup, Inc. 2.2 Tyco International Ltd. 1.6
MCI Worldcom, Inc. 2.1 Chase Manhattan Corp. 1.5
Applied Materials, Inc. 1.9 Applied Materials, Inc. 1.4
Boeing Co. 1.7 Unisys Corp. 1.3
Chase Manhattan Corp. 1.5 Biogen Inc. 1.2
Tosco Corp. 1.4 Dayton Hudson Corp. 1.2
Morgan Stanley Dean Witter & Co. 1.3 JDS Uniphase Corp. 1.2
United Technologies Corp. 1.3 Microsoft Corp. 1.1
- --------------------------------------------------------------------------------
Total 19.9% Total 13.8%
(1) Weightings represent percentages of portfolio assets. The Fund's portfolio
is actively managed and its composition will vary over time.
(2) Source: Lipper Analytical Services, Inc. Beta is a measure of a stock
portfolio's risk relative to the overall market, as measured by the S&P
500 Index. The market has a Beta of 1. If a portfolio has a Beta greater
than 1, it is riskier than the market; if it has a Beta less than 1, it is
less risky than the market.
3
<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,(3) please contact your Financial Advisor.
Sincerely,
/s/ Margo Alexander
MARGO ALEXANDER
Chairman and Chief Executive Officer
Mitchell Hutchins Asset Management Inc.
/s/ Brian M. Storms
BRIAN M. STORMS
President and Chief Operating 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.
This letter is intended to assist shareholders in understanding how the
Fund performed during the six-month period ended February 29, 2000 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) 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.
4
<PAGE>
PAINEWEBBER BALANCED FUND SEMIANNUAL REPORT
PERFORMANCE RESULTS (unaudited)
<TABLE>
<CAPTION>
Net Asset Value Total Return(1)
---------------------------------------------- ---------------------------------------------
12 Months 6 months
02/29/00 08/31/99 02/28/99 Ended 02/29/00 Ended 02/29/00
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A Shares $10.62 $11.60 $ 11.57 2.19% 1.08%
- ------------------------------------------------------------------------------------------------------------------------------------
Class B Shares 10.88 11.84 11.81 1.44 0.69
- ------------------------------------------------------------------------------------------------------------------------------------
Class C Shares 10.63 11.60 11.58 1.43 0.70
- ------------------------------------------------------------------------------------------------------------------------------------
</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
- ------------------------------------------------------------------------------------------------------------------------------------
1999 12.00 11.04 0.9723 0.2366 2.42
- ------------------------------------------------------------------------------------------------------------------------------------
01/01/00-02/29/00 11.04 10.62 -- -- (3.80)
- ------------------------------------------------------------------------------------------------------------------------------------
Totals: $7.5031 $2.2911
- ------------------------------------------------------------------------------------------------------------------------------------
Cumulative Total Return as of 02/29/00: 152.14%
- ------------------------------------------------------------------------------------------------------------------------------------
</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
- ------------------------------------------------------------------------------------------------------------------------------------
1999 12.26 11.32 0.9723 0.1349 1.66
- ------------------------------------------------------------------------------------------------------------------------------------
01/01/00-02/29/00 11.32 10.88 -- -- (3.89)
- ------------------------------------------------------------------------------------------------------------------------------------
Totals: $7.8025 $3.8160
- ------------------------------------------------------------------------------------------------------------------------------------
Cumulative Total Return as of 02/29/00: 230.74%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Performance Summary Class C Shares
<TABLE>
<CAPTION>
Net Asset Value
--------------------------- Capital Gains Dividends Total
Period Covered Beginning Ending Distributed Paid Return(1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
07/02/92-12/31/92 $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
- ------------------------------------------------------------------------------------------------------------------------------------
1999 12.02 11.07 0.9723 0.1506 1.76
- ------------------------------------------------------------------------------------------------------------------------------------
01/01/00-02/29/00 11.07 10.63 -- -- (3.97)
- ------------------------------------------------------------------------------------------------------------------------------------
Totals: $7.5031 $1.2901
- ------------------------------------------------------------------------------------------------------------------------------------
Cumulative Total Return as of 02/29/00: 114.11%
- ------------------------------------------------------------------------------------------------------------------------------------
</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 FEDRUARY 29, 2000 (unaudited)
Number of
Shares Value
--------- -----
COMMON STOCKS--59.31%
Airlines--0.60%
28,200 Delta Air Lines, Inc. ............................. $1,286,625
----------
Alcohol--0.24%
8,000 Anheuser-Busch Companies, Inc. .................... 513,000
----------
Banks--4.29%
42,900 Chase Manhattan Corp. ............................. 3,415,912
98,715 CitiGroup, Inc. ................................... 5,102,332
23,100 Wells Fargo and Co. ............................... 763,744
----------
9,281,988
----------
Chemicals--0.33%
6,600 Dow Chemical Co. .................................. 716,100
----------
Computer Hardware--4.16%
60,500 Cisco Systems, Inc.* .............................. 7,997,344
24,400 Dell Computer Corp.* .............................. 995,825
----------
8,993,169
----------
Computer Software--4.23%
22,800 BMC Software, Inc.* ............................... 1,048,800
65,600 Compuware Corp.* .................................. 1,451,400
12,981 IBM Corp. ......................................... 1,324,062
29,200 Microsoft Corp.* .................................. 2,609,750
90,300 Unisys Corp.* ..................................... 2,703,356
----------
9,137,368
----------
Construction--0.16%
17,517 Lafarge Corp. ADR ................................. 344,866
----------
Consumer Durables--0.37%
14,700 Whirlpool Corp. ................................... 798,394
----------
Defense & Aerospace--2.32%
105,463 Boeing Co. ........................................ 3,888,948
8,166 General Dynamics Corp. ............................ 353,180
16,300 TRW Inc. ......................................... 782,400
----------
5,024,528
----------
Diversified Retail--2.30%
41,400 Federated Department Stores, Inc.* ................ 1,518,862
50,000 Target Corp. ...................................... 2,950,000
10,500 Wal-Mart Stores, Inc. ............................. 511,219
----------
4,980,081
----------
Drugs & Medicine--2.39%
25,700 Biogen Inc.*(1) ................................... 2,773,994
7,200 Pharmacia & UpJohn, Inc. ADR ...................... 342,900
31,100 Schering-Plough Corp. ............................. 1,084,612
11,200 Warner Lambert Co. ................................ 958,300
----------
5,159,806
----------
Electric Utilities--0.82%
18,200 Duke Energy Corp. ................................. 882,700
42,900 Energy East Corp. ................................. 900,900
----------
1,783,600
----------
Electrical Equipment--1.77%
24,400 Honeywell, Inc. ................................... 1,174,250
11,725 Motorola, Inc. .................................... 1,999,112
13,647 Tellabs, Inc.* .................................... 655,056
----------
3,828,418
----------
Energy Reserves & Production--2.12%
35,128 Exxon Mobil Corp. ................................. 2,645,577
36,800 Royal Dutch Petroleum Co. ADR ..................... 1,932,000
----------
4,577,577
----------
Financial Services--0.51%
30,900 MBNA Corp. ........................................ 702,975
6,000 Providian Financial Corp. ......................... 388,875
----------
1,091,850
----------
Food Retail--0.52%
75,300 Kroger Co.* ....................................... 1,120,088
----------
Forest Products, Paper--1.98%
25,200 Champion International Corp. ...................... 1,304,100
33,300 Georgia-Pacific Corp. ............................. 1,155,094
15,500 International Paper Co. ........................... 570,594
24,200 Weyerhaeuser Co. .................................. 1,241,762
----------
4,271,550
----------
Gas Utility--0.20%
7,150 Columbia Gas System Inc. .......................... 421,850
----------
Industrial Parts--3.67%
11,700 American Standard Companies Inc.* ................. 408,038
37,000 Ingersoll Rand Co. ................................ 1,417,562
56,200 Mettler-Toledo International Inc. ADR* ............ 2,170,725
10,769 SPX Corp.* ........................................ 937,576
58,900 United Technologies Corp.(1) ...................... 3,000,219
----------
7,934,120
----------
Industrial Services & Supplies--0.90%
14,800 Hertz Corp. ....................................... 530,025
37,508 Tyco International Ltd. ........................... 1,422,960
----------
1,952,985
----------
Information & Computer Services--0.37%
29,000 Valassis Communications Inc.* ..................... 802,938
----------
Life Insurance--1.61%
31,100 American General Corp.(1) ......................... 1,623,031
31,900 AXA Financial Inc. ................................ 955,006
11,432 Lincoln National Corp. ............................ 317,953
26,600 Protective Life Corp.(1) .......................... 585,200
----------
3,481,190
----------
6
<PAGE>
PAINEWEBBER BALANCED FUND
Number of
Shares Value
--------- -----
COMMON STOCK--(concluded)
Long Distance & Phone Companies--3.70%
16,200 AT&T Corp. ........................................ $ 800,888
35,900 BellSouth Corp. ................................... 1,462,925
17,300 GTE Corp. ......................................... 1,020,700
105,676 MCI WorldCom, Inc.* ............................... 4,715,791
------------
8,000,304
------------
Media--0.59%
14,500 Comcast Corp., Class A ............................ 616,250
20,700 Infinity Broadcasting Corp., Class A* ............. 661,106
------------
1,277,356
------------
Medical Products--0.44%
17,500 Baxter International, Inc. ........................ 953,750
------------
Metals and Mining--0.76%
24,018 Alcoa, Inc.(1) .................................... 1,645,233
-----------
Motor Vehicles--1.34%
12,500 Borg Warner Automotive, Inc. ...................... 400,000
12,667 Delphi Automotive Systems Corp. ................... 211,381
35,500 Ford Motor Co. .................................... 1,477,687
10,645 General Motors Corp. .............................. 809,685
-----------
2,898,753
-----------
Oil Refining--2.81%
34,900 Atlantic Richfield Co. ............................ 2,477,900
21,200 Conoco, Inc., Class B ............................. 417,375
118,900 Tosco Corp. ....................................... 3,180,575
------------
6,075,850
------------
Oil Services--0.31%
17,600 Halliburton Co. ................................... 672,100
------------
Other Insurance--1.01%
35,400 Ambac Financial Group Inc. ........................ 1,555,387
19,900 Travelers Property Casualty Corp. ................. 629,338
------------
2,184,725
------------
Publishing--1.16%
38,100 Knight Ridder, Inc. ............................... 1,785,937
16,900 New York Times Co., Class A ....................... 714,025
------------
2,499,962
------------
Restaurants--0.30%
29,900 Brinker International Inc.* ....................... 650,325
------------
Securities & Asset Management--1.38%
42,500 Morgan Stanley Dean Witter & Co. .................. 2,993,594
------------
Semiconductor--7.76%
24,300 Applied Materials, Inc.*(1) ....................... 4,445,381
39,700 Atmel Corp.*(1) ................................... 1,965,150
15,500 Intel Corp. ....................................... 1,751,500
25,900 JDS Uniphase Corp.* ............................... 6,827,888
17,300 Vitesse Semiconductor Corp.* ...................... 1,795,956
------------
16,785,875
------------
Specialty Retail--1.62%
23,100 Circuit City Stores, Inc. ......................... 932,662
30,748 Home Depot, Inc. .................................. 1,777,619
29,700 Staples, Inc.* .................................... 801,900
------------
3,512,181
------------
Wireless Telecommunications--0.27%
17,300 Centurytel, Inc. .................................. 581,713
------------
Total Common Stocks (cost--$111,549,726) ......................... 128,233,812
------------
Principal
Amount Maturity Interest
(000) Dates Rates
--------- -------- --------
CORPORATE BONDS--15.85%
Banks--1.03%
$ 670 Bank One Corp. ................ 08/01/06 6.875% 637,874
1,700 Providian National Bank ....... 02/01/04 6.650 1,593,264
---------
2,231,138
---------
Beverages & Entertainment--0.51%
1,180 Seagram Joseph E. & Sons, Inc. 12/15/05 6.625 1,113,712
---------
Cable--0.36%
800 Telecommunications Inc. ....... 05/01/03 6.375 777,896
---------
Defense & Aerospace--0.39%
860 Lockheed Martin Corp. ......... 12/01/05 7.950 845,694
---------
Diversified Retail--0.20%
450 Wal-Mart Stores, Inc. ......... 08/10/09 6.875 431,635
---------
7
<PAGE>
PAINEWEBBER BALANCED FUND
<TABLE>
<CAPTION>
Principal
Amount Maturity Interest
(000) Dates Rates Value
- --------- -------- -------- -----
<S> <C> <C> <C>
CORPORATE BONDS--(concluded)
Electric Utilities--0.55%
$ 1,215 Edison International ................................. 09/15/04 6.875% $ 1,184,335
-----------
Financial Services--3.23%
1,915 Associates Corp. NA .................................. 11/01/08 6.250 1,720,373
1,500 AT&T Capital Corp. ................................... 01/16/01 6.875 1,499,054
1,615 Ford Motor Credit Co. ................................ 01/14/03 to 01/12/09 5.800 to 6.000 1,534,110
1,850 Heller Financial Inc. ................................ 03/19/04 6.000 1,744,557
510 Norwest Financial Inc. ............................... 07/15/04 6.625 492,746
-----------
6,990,840
-----------
Industrial Services & Supplies--0.44%
965 Tyco International Group SA .......................... 06/15/01 6.125 950,048
-----------
Insurance--2.14%
2,000 American Re Corp. .................................... 12/15/26 7.450 1,921,034
700 Hartford Financial Services Group Inc. ............... 11/01/08 6.375 626,406
800 Loews Corp. .......................................... 12/15/06 6.750 749,410
1,350 Lumbermen's Mutual Casualty Co. ...................... 07/01/26 9.150 1,329,117
-----------
4,625,967
-----------
Media--0.27%
620 News America Holdings Inc. ........................... 10/17/96 8.250 574,949
-----------
Securities & Asset Management--2.43%
1,315 FMR Corp. ............................................ 06/15/29 7.570 1,250,285
1,350 Lehman Brothers Holdings Inc. ........................ 04/01/04 6.625 1,289,205
1,200 Merrill Lynch & Company Inc. ......................... 02/17/09 6.000 1,055,152
1,775 Morgan Stanley Dean Witter & Co.(1) .................. 01/20/04 5.625 1,662,032
-----------
5,256,674
-----------
Telecommunications--0.99%
2,345 US West Capital Funding Inc. ......................... 07/15/08 6.375 2,132,754
-----------
Tobacco--0.61%
1,400 Philip Morris Companies Inc. ......................... 07/01/08 to 01/15/27 7.650 to 7.750 1,312,992
-----------
Yankee--2.70%
693 Abbey National Capital ............................... 06/30/30++ 8.963 691,853
995 Canadian Imperial Bank Commerce ...................... 08/01/00 6.200 992,622
2,000 Household International Netherlands BV ............... 12/01/03 6.200 1,911,180
1,400 Imperial Tobacco Overseas BV ......................... 04/01/09 7.125 1,267,420
1,000 Sony Corp. ........................................... 03/04/03 6.125 970,657
-----------
5,833,732
-----------
Total Corporate Bonds (cost--$36,504,942) ........................... 34,262,366
-----------
SHORT TERM U.S. GOVERNMENT AGENCY OBLIGATIONS--4.60%
10,000 Student Loan Marketing Association Discount Notes
(cost--$9,957,850) ................................. 03/28/00 5.620@ 9,957,850
-----------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS--10.05%
45 Federal Home Loan Mortgage Corporation ............... 03/18/08 6.220 41,594
4,230 Federal National Mortgage Association+++ ............. 01/15/09 5.250 3,669,584
360 Federal National Mortgage Association ................ 08/15/04 6.500 351,219
2,570 International Bank For Reconstruction & Development .. 03/17/03 5.625 2,475,255
6,150 U.S. Treasury Bonds(1)+++ ............................ 08/15/13 to 02/15/29 5.250 to 12.000 7,850,431
3,804 U.S. Treasury Inflation Index Notes .................. 07/15/02 3.625 3,770,827
</TABLE>
8
<PAGE>
PAINEWEBBER BALANCED FUND
<TABLE>
<CAPTION>
Principal
Amount Maturity Interest
(000) Dates Rates Value
- --------- -------- -------- -----
<S> <C> <C> <C>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS--(concluded)
$ 3,800 U.S. Treasury Notes ................................................... 05/15/08 5.625% $ 3,560,125
-------------
Total U.S. Government and Agency Obligations (cost--$22,783,529) .................. 21,719,035
-------------
MORTGAGE BACKED SECURITIES--9.13%
Collateralized Mortgage Obligation--1.58%
217 CS First Boston Mortgage Securities Corp.,
Series 1997-2, Class A+ ............................................. 06/01/20 7.500 213,378
175 FDIC REMIC Trust, Series 1996-C1, Class 1A ............................ 05/25/26 6.750 171,455
24 FNMA REMIC Trust, Series 1996-M6, Class E ............................. 09/17/19 7.750 24,485
1,400 LB Commercial Conduit Mortgage Trust, Series 1998-C4, Class A1-B ...... 10/15/08 6.210 1,272,782
145 Morgan Stanley Capital I Inc., Series 1997-C1, Class A1-A ............. 02/15/20 6.850 144,724
537 Morgan Stanley Capital I Inc., Series 1997-WF1, Class A1+ ............. 10/15/06 6.830 526,835
1,050 Standard Credit Card Master Trust I, Series 1994-4, Class A ........... 11/07/03 8.250 1,067,703
-------------
3,421,362
-------------
Federal Home Loan Mortgage Corporation--1.27%
1,780 FHLMC 30 Yr TBA ....................................................... TBA 6.500 1,664,300
1,139 FHLMC 30 Yr TBA ....................................................... TBA 7.000 1,091,661
-------------
2,755,961
-------------
Federal National Mortgage Association--5.34%
524 FNMA .................................................................. 09/01/28 6.500 490,699
743 FNMA .................................................................. 01/01/26 to 02/01/26 7.500 731,024
2,720 FNMA 15 Yr TBA ........................................................ TBA 6.500 2,612,048
7,475 FNMA 30 Yr TBA ........................................................ TBA 6.000 6,771,887
995 FNMA 30 Yr TBA ........................................................ TBA 6.500 929,081
-------------
11,534,739
-------------
Government National Mortgage Association--0.94%
1,980 GNMA .................................................................. 11/15/17 8.500 2,036,116
-------------
Total Mortgage Backed Securities (cost--$19,894,456) .............................. 19,748,178
-------------
REPURCHASE AGREEMENTS--7.38%
7,000 Repurchase Agreement dated 2/29/00 with State Street Bank & Trust Co.,
collateralized by $6,060,000 U.S. Treasury Bonds, 8.25% due 8/15/19
(value--$7,143,225); proceeds: $7,001,118 (cost--$7,000,000) ........ 03/01/00 5.750 7,000,000
8,953 Repurchase Agreement dated 2/29/00 with Zion Bancorp, collateralized
by $6,060,000 U.S. Treasury Bonds, 6.25% due 8/31/00
(value--$9,136,435); proceeds: $8,954,430 (cost--$8,953,000) ........ 03/01/00 5.750 8,953,000
-------------
Total Repurchase Agreements (cost--$15,953,000) ................................... 15,953,000
-------------
Total Investments (cost--$216,643,503)--106.32% ................................... 229,874,241
Liabilities in excess of other assets--(6.32%) (13,668,629)
-------------
Net Assets--100.00% ............................................................... 216,205,612
=============
</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.
++ Maturity date shown is the callable date for perpetual rewriting
securities.
+++ Entire or partial amount pledged as collateral for futures transactions.
@ Interest rate shown is the discount rate at date of purchase.
ADR American Depositary Receipt.
TBA To Be Assigned - Securities are purchased on a forward commitment with an
approximated principal amount (generally +/-1.0%) and no defined 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 a portion thereof, was on loan at February 29, 2000.
See accompanying notes to financial statements
9
<PAGE>
PAINEWEBBER BALANCED FUND
FUTURES CONTRACTS
<TABLE>
<CAPTION>
Number of In Expiration Unrealized
Contracts Exchange For Dates Appreciation
- --------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
31 Contracts to deliver--S&P 500 Index ....................... $11,051,500 March 2000 $ 418,500
198 Contracts to deliver--U.S. 5 Year Treasury Notes .......... 19,263,234 June 2000 38,672
78 Contracts to receive--U.S. 10 Year Treasury Notes ......... 7,383,188 June 2000 57,281
71 Contracts to receive--U.S. 30 Year Treasury Bonds ......... 6,660,055 June 2000 62,758
----------
$ 577,211
==========
</TABLE>
See accompanying notes to financial statements
10
<PAGE>
PAINEWEBBER BALANCED FUND
STATEMENT OF ASSETS AND LIABILITIES FEBRUARY 29, 2000 (unaudited)
<TABLE>
<S> <C>
Assets
Investments in securities, at value (cost--$216,643,503) ...................................... $229,874,241
Investment of cash collateral for securities loaned (cost--$15,814,700) ....................... 15,814,700
Cash .......................................................................................... 337
Receivable for investments sold ............................................................... 5,029,557
Dividends and interest receivable ............................................................. 1,014,703
Receivable for fund shares sold ............................................................... 960
Other assets .................................................................................. 2,518
------------
Total assets .................................................................................. 251,737,016
------------
Liabilities
Collateral for securities loaned .............................................................. 15,814,700
Payable for investments purchased ............................................................. 18,324,186
Payable for fund shares repurchased ........................................................... 933,209
Payable to affiliates ......................................................................... 195,952
Payable for variation margin .................................................................. 126,136
Accrued expenses and other liabilities ........................................................ 137,221
------------
Total liabilities ............................................................................. 35,531,404
------------
Net Assets
Capital Stock--$0.001 par value ............................................................... 195,042,603
Undistributed net investment income ........................................................... 488,331
Accumulated net realized gains from investments and futures ................................... 6,866,729
Net unrealized appreciation of investments and futures ........................................ 13,807,949
------------
Net assets .................................................................................... $216,205,612
============
Class A:
Net assets .................................................................................... $177,210,306
------------
Shares outstanding ............................................................................ 16,680,983
------------
Net asset value and redemption value per share ................................................ $10.62
======
Maximum offering price per share (net asset value plus sales charge of 4.50% of offering price) $11.12
======
Class B:
Net assets .................................................................................... $ 22,119,213
------------
Shares outstanding ............................................................................ 2,032,892
------------
Net asset value and offering price per share .................................................. $10.88
======
Class C:
Net assets .................................................................................... $ 16,434,927
------------
Shares outstanding ............................................................................ 1,545,546
------------
Net asset value and offering price per share .................................................. $10.63
======
Class Y:
Net assets .................................................................................... $ 441,166
------------
Shares outstanding ............................................................................ 41,558
------------
Net asset value, offering price and redemption value per share ................................ $10.62
======
</TABLE>
See accompanying notes to financial statements
11
<PAGE>
PAINEWEBBER BALANCED FUND
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Six
Months Ended
February 29, 2000
(unaudited)
-----------------
<S> <C>
Investment income:
Interest ......................................................... $ 2,956,780
Dividends ........................................................ 650,519
------------
3,607,299
------------
Expenses:
Investment advisory and administration ........................... 866,182
Service fees--Class A ............................................ 233,323
Service and distribution fees--Class B ........................... 127,575
Service and distribution fees--Class C ........................... 91,702
Transfer agency and service ...................................... 89,477
Custody and accounting ........................................... 71,893
Legal and audit .................................................. 40,186
Reports and notices to shareholders .............................. 34,836
State registration ............................................... 26,544
Directors fees and expenses ...................................... 6,750
Other expenses ................................................... 1,643
------------
1,590,111
Less: Fee waivers from investment advisor ........................ (2,405)
------------
Net expenses ..................................................... 1,587,706
------------
Net investment income ............................................ 2,019,593
------------
Realized and unrealized gains (losses) from investment activities:
Net realized gains (losses) from:
Investment transactions ........................................ 10,687,927
Futures ........................................................ (2,588,801)
Net change in unrealized appreciation/depreciation of:
Investments .................................................... (8,133,136)
Futures ........................................................ 577,211
------------
Net realized and unrealized gains from investment activities ..... 543,201
------------
Net increase in net assets resulting from operations ............. $ 2,562,794
============
</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 29, 2000 Ended August 31,
(unaudited) 1999
----------------- ----------------
<S> <C> <C>
From operations:
Net investment income ....................................................... $ 2,019,593 $ 4,184,069
Net realized gains from investment and futures transactions ................. 8,099,126 18,273,326
Net change in unrealized appreciation/depreciation of investments and futures (7,555,925) 13,576,016
------------- -------------
Net increase in net assets resulting from operations ........................ 2,562,794 36,033,411
------------- -------------
Dividends and distributions to shareholders from:
Net investment income--Class A .............................................. (2,223,084) (3,728,464)
Net investment income--Class B .............................................. (164,727) (327,440)
Net investment income--Class C .............................................. (143,536) (237,032)
Net investment income--Class Y .............................................. (6,064) (7,148)
Net realized gains from investment transactions--Class A .................... (15,640,408) (19,640,106)
Net realized gains from investment transactions--Class B .................... (2,099,141) (2,933,076)
Net realized gains from investment transactions--Class C .................... (1,613,410) (1,816,995)
Net realized gains from investment transactions--Class Y .................... (37,624) (24,554)
------------- -------------
Total dividends and distributions to shareholders ........................... (21,927,994) (28,714,815)
------------- -------------
From capital stock transactions:
Net proceeds from sale of shares ............................................ 7,956,987 36,103,042
Cost of shares repurchased .................................................. (38,234,976) (47,257,223)
Proceeds from dividends reinvested .......................................... 20,033,036 26,107,944
------------- -------------
Net increase (decrease) in net assets from capital stock transactions ....... (10,244,953) 14,953,763
------------- -------------
Net increase (decrease) in net assets ....................................... (29,610,153) 22,272,359
Net assets:
Beginning of the period ..................................................... 245,815,765 223,543,406
------------- -------------
End of the period (including undistributed net investment income
of $488,331 and $1,006,149, respectively) ................................. $ 216,205,612 $ 245,815,765
============= =============
</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)
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 29, 2000, the Fund owed Mitchell Hutchins $129,097 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 six months ended February 29, 2000,
Mitchell Hutchins waived $2,405.
For the six months ended February 29, 2000, the Fund paid $6,095 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 29, 2000, the Fund owed Mitchell
Hutchins $66,351 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 29, 2000, it received $52,997 in sales charges.
SECURITY LENDING
The Fund may lend securities up to 331/3% of its total assets to qualified
institutions. The loans are secured at all times by cash or U.S. government
securities in an amount at least equal to the market value of the securities
loaned, plus accrued interest 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 $9,546 as compensation from the Fund for the six months ended February
29, 2000. At February 29, 2000, the Fund owed PaineWebber $504 in security
lending fees. For the six months ended February 29, 2000 the Fund earned $26,595
from security lending transactions.
16
<PAGE>
NOTES TO FINANCIAL STATEMENTS (unaudited)
At February 29, 2000, the Fund's custodian held cash having an aggregate
value of $15,814,700 as collateral for portfolio securities loaned having a
market value of $15,489,953 which was invested as follows:
<TABLE>
<CAPTION>
Number of
Shares Value
- --------- -----
<S> <C> <C>
7,780,710 Liquid Assets Portfolio ................................... $ 7,780,710
3,491,789 MH Private Money Market Fund LLC .......................... 3,491,789
4,542,201 Scudder Institutional Money Fund Incorporated ............. 4,542,201
-----------
Total investments of cash collateral for securities
loaned (cost--$15,814,700) .............................. $15,814,700
===========
</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 29, 2000, 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 29, 2000, PaineWebber received approximately 51%
of the total service fees collected by PFPC, Inc.
INVESTMENTS IN SECURITIES
For federal income tax purposes, the cost of securities owned at February
29, 2000 was substantially the same as the cost of securities for financial
statement purposes.
At February 29, 2000, the components of net unrealized appreciation of
investments were as follows:
<TABLE>
<S> <C>
Gross appreciation (investments having an excess of value over cost) ........ $ 27,160,115
Gross depreciation (investments having an excess of cost over value) ........ (13,929,377)
---------------
Net unrealized appreciation of investments .................................. $ 13,230,738
===============
</TABLE>
For the six months ended February 29, 2000, total aggregate purchases and
sales of portfolio securities, excluding short-term securities, were
$179,876,359 and $210,304,709, respectively.
17
<PAGE>
FEDERAL TAX STATUS
The Fund intends to distribute substantially all of its taxable income and
to comply with the other requirements of the Internal Revenue Code applicable to
regulated investment companies. Accordingly, no provision for federal income
taxes is required. In addition, by distributing during each calendar year
substantially all of its net investment income, capital gains and certain other
amounts, if any, the Fund intends not to be subject to a federal excise tax.
CAPITAL STOCK
There are 10 billion shares of $0.001 par value common stock authorized
for Master Series, of which 4 billion is allocated to Balanced Fund.
Transactions in shares of common stock were as follows:
<TABLE>
<CAPTION>
Class A Class B Class C Class Y
For the Six Months Ended ------------------------- ------------------------ ----------------------- -------------------
February 29, 2000: Shares Amount Shares Amount Shares Amount Shares Amount
--------- ------------ ------- ------------ ------- ------------ ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold ............ 236,899 $ 2,644,933 94,527 $ 1,076,946 360,431 $ 3,973,130 23,638 $ 261,978
Shares repurchased ..... (2,255,177) (25,163,955) (470,083) (5,338,342) (677,981) (7,385,361) (30,670) (347,318)
Shares converted from
Class B to Class A ... 204,374 2,298,198 (200,035) (2,298,198) -- -- -- --
Dividends reinvested ... 1,538,151 16,412,067 182,282 1,996,000 148,078 1,584,437 3,802 40,532
--------- ------------ ------- ------------ ------- ------------ ------ ----------
Net decrease ........... (275,753) $ (3,808,757) (393,309) $ (4,563,594) (169,472) $ (1,827,794) (3,230) $ (44,808)
========= ============ ======== ============ ======== ============ ====== ==========
<CAPTION>
Class A Class B Class C Class Y
For the Year Ended ------------------------- ------------------------ ----------------------- -------------------
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)
Shares converted from
Class B to Class A ... 459,550 5,425,191 (450,660) (5,425,191) -- -- -- --
Dividends reinvested ... 1,886,980 21,391,988 245,010 2,837,840 162,571 1,846,494 2,785 31,622
--------- ------------ ------- ------------ ------- ------------ ------ ----------
Net increase ........... 777,444 $ 8,248,796 123,723 $ 1,335,189 422,488 $ 5,026,619 29,271 $ 343,159
========= ============ ======== ============ ======== ============ ====== ==========
</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 For the For the
Six Months Six Years
Ended For the Years Ended Months Ended
February 29, August 31, Ended February 28 or 29,
2000 --------------------------------- August 31, ----------------------
(unaudited) 1999 1998 1997 1996 (2) 1996 1995
----------- -------- -------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ..... $ 11.60 $ 11.27 $ 12.50 $ 10.27 $ 10.85 $ 9.80 $ 12.04
-------- -------- -------- -------- -------- -------- --------
Net investment income .................... 0.11++ 0.22++ 0.23++ 0.23++ 0.12++ 0.27++ 0.26
Net realized and unrealized gains (losses)
from investments, futures and options .. 0.02++ 1.56++ 0.31++ 2.79++ (0.12)++ 1.84++ (1.07)
-------- -------- -------- -------- -------- -------- --------
Net increase (decrease) from investment
operations ............................. 0.13 1.78 0.54 3.02 0.00 2.11 (0.81)
-------- -------- -------- -------- -------- -------- --------
Dividends from net investment income ..... (0.14) (0.22) (0.22) (0.24) (0.10) (0.31) (0.23)
Distributions from net realized gains
from investment transactions ........... (0.97) (1.23) (1.55) (0.55) (0.48) (0.75) (1.20)
-------- -------- -------- -------- -------- -------- --------
Total dividends and distributions
to shareholders ........................ (1.11) (1.45) (1.77) (0.79) (0.58) (1.06) (1.43)
-------- -------- -------- -------- -------- -------- --------
Net asset value, end of period ........... $ 10.62 $ 11.60 $ 11.27 $ 12.50 $ 10.27 $ 10.85 $ 9.80
======== ======== ======== ======== ======== ======== ========
Total investment return (1) .............. 1.08% 16.20% 4.69% 30.67% 0.03% 22.08% (6.02)%
======== ======== ======== ======== ======== ======== ========
Ratios/supplemental data:
Net assets, end of period (000's) ........ $177,210 $196,684 $182,362 $176,403 $157,525 $171,609 $174,761
Expenses to average net assets,
net of waivers from adviser (3) ........ 1.23%* 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) 1.90%* 1.81% 1.88% 2.02% 2.19%* 2.55% 2.41%
Portfolio turnover rate .................. 82% 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 any applicable sales charges or program fees; results would be
lower if they 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 period ended February 29, 2000 and for 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%.
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 For the For the
Six Months Six Years
Ended For the Years Ended Months Ended
February 29, August 31, Ended February 28 or 29,
2000 --------------------------------- August 31, ----------------------
(unaudited) 1999 1998 1997 1996 (2) 1996 1995
----------- -------- -------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ..... $ 11.84 $ 11.48 $ 12.70 $ 10.42 $ 11.00 $ 9.90 $ 12.10
------- ------- ------- ------- ------- ------- -------
Net investment income .................... 0.06++ 0.13++ 0.14++ 0.14++ 0.08++ 0.19++ 0.44
Net realized and unrealized gains (losses)
from investments, futures and options ... 0.03++ 1.59++ 0.31++ 2.84++ (0.11)++ 1.86++ (1.32)
------- ------- ------- ------- ------- ------- -------
Net increase (decrease) from investment
operations .............................. 0.09 1.72 0.45 2.98 (0.03) 2.05 (0.88)
------- ------- ------- ------- ------- ------- -------
Dividends from net investment income ..... (0.08) (0.13) (0.12) (0.15) (0.07) (0.20) (0.12)
Distributions from net realized gains
from investment transactions ............ (0.97) (1.23) (1.55) (0.55) (0.48) (0.75) (1.20)
------- ------- ------- ------- ------- ------- -------
Total dividends and distributions
to shareholders ......................... (1.05) (1.36) (1.67) (0.70) (0.55) (0.95) (1.32)
------- ------- ------- ------- ------- ------- -------
Net asset value, end of period ........... $ 10.88 $ 11.84 $ 11.48 $ 12.70 $ 10.42 $ 11.00 $ 9.90
======= ======= ======= ======= ======= ======= =======
Total investment return (1) .............. 0.69% 15.28% 3.87% 29.70% (0.30)% 21.20% (6.68)%
======= ======= ======= ======= ======= ======= =======
Ratios/supplemental data:
Net assets, end of period (000's) ........ $22,119 $28,719 $26,425 $22,768 $22,307 $26,627 $37,104
Expenses to average net assets,
net of waivers from adviser (3) ........ 2.02%* 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) ....................... 1.10%* 1.04% 1.13% 1.27% 1.43%* 1.81% 1.60%
Portfolio turnover rate .................. 82% 234% 190% 188% 103% 188% 107%
</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 any applicable sales charges or program fees; results would be
lower if they 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 period ended February 29, 2000 and for 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
<TABLE>
<CAPTION>
Class C
--------------------------------------------------------------------------------------
For the For the For the
Six Months Six Years
Ended For the Years Ended Months Ended
February 29, August 31, Ended February 28 or 29,
2000 ----------------------------------- August 31, --------------------
(unaudited) 1999 1998 1997 1996 (2) 1996 1995
------------ -------- -------- ------- ---------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ..... $ 11.60 $ 11.28 $ 12.52 $ 10.29 $ 10.88 $ 9.82 $ 12.03
------- -------- -------- ------- ------- ------- -------
Net investment income .................... 0.06++ 0.14++ 0.14++ 0.14++ 0.08++ 0.19++ 0.19
Net realized and unrealized gains (losses)
from investments, futures and options ... 0.03++ 1.56++ 0.31++ 2.80++ (0.12)++ 1.84++ (1.07)
------- -------- -------- ------- ------- ------- -------
Net increase (decrease) from investment
operations .............................. 0.09 1.70 0.45 2.94 (0.04) 2.03 (0.88)
------- -------- -------- ------- ------- ------- -------
Dividends from net investment income ..... (0.09) (0.15) (0.14) (0.16) (0.07) (0.22) (0.13)
Distributions from net realized gains
from investment transactions ............ (0.97) (1.23) (1.55) (0.55) (0.48) (0.75) (1.20)
------- -------- -------- ------- ------- ------- -------
Total dividends and distributions
to shareholders ......................... (1.06) (1.38) (1.69) (0.71) (0.55) (0.97) (1.33)
------- -------- -------- ------- ------- ------- -------
Net asset value, end of period ........... $ 10.63 $ 11.60 $ 11.28 $ 12.52 $ 10.29 $ 10.88 $ 9.82
======= ======== ======== ======= ======= ======= =======
Total investment return (1) .............. 0.70% 15.34% 3.89% 29.70% (0.38)% 21.12% (6.69)%
======= ======== ======== ======= ======= ======= =======
Ratios/supplemental data:
Net assets, end of period (000's) ........ $16,435 $ 19,894 $ 14,581 $ 8,736 $ 6,979 $ 7,469 $ 8,525
Expenses to average net assets,
net of waivers from adviser (3) ........ 1.98%* 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) ....................... 1.14%* 1.08% 1.18% 1.27% 1.44%* 1.77% 1.62%
Portfolio turnover rate .................. 82% 234% 190% 188% 103% 188% 107%
<CAPTION>
Class Y
-----------------------------------------
For the For the
Six Months For the Period
Ended Year March 26, 1998+
February 29, Ended through
2000 August 31, August 31,
(unaudited) 1999 1998
------------- ---------- ---------------
<S> <C> <C> <C>
Net asset value, beginning of period ..... $ 11.59 $ 11.27 $ 12.55
------- ------- -------
Net investment income .................... 0.12 0.26++ 0.11++
Net realized and unrealized gains (losses)
from investments, futures and options ... 0.04 1.55++ (1.28)++
------- ------- -------
Net increase (decrease) from investment
operations .............................. 0.16 1.81 (1.17)
------- ------- -------
Dividends from net investment income ..... (0.16) (0.26) (0.11)
Distributions from net realized gains
from investment transactions ............ (0.97) (1.23) --
------- ------- -------
Total dividends and distributions
to shareholders ......................... (1.13) (1.49) (0.11)
------- ------- -------
Net asset value, end of period ........... $ 10.62 $ 11.59 $ 11.27
======= ======= =======
Total investment return (1) .............. 1.34% 16.42% (9.41)%
======= ======= =======
Ratios/supplemental data:
Net assets, end of period (000's) ........ $ 441 $ 519 $ 175
Expenses to average net assets,
net of waivers from adviser (3) ........ 0.98%* 0.96% 0.89%*
Net investment income to average
net assets, net of waivers
from adviser (3) ....................... 2.17%* 2.11% 2.48%*
Portfolio turnover rate .................. 82% 234% 190%
</TABLE>
21
<PAGE>
[This Page Intentionally left blank.]
22
<PAGE>
BOARD OF TRUSTEES
E. Garrett Bewkes, Jr.
Chairman
Margo N. Alexander
Richard Q. Armstrong
Richard R. Burt
Mary C. Farrell
Meyer Feldberg
George W. Gowen
Frederic V. Malek
Carl W. Schafer
Brian M. Storms
PRINCIPAL OFFICERS
Margo N. Alexander
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.
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 Enhanced S&P 500 Fund
o Enhanced Nasdaq-100 Fund
o Financial Services Growth Fund
o Grbowth 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
PAINEWEBBER MONEY MARKET FUND
PaineWebber
(Copyright)2000 PaineWebber Incorporated
All Rights Reserved
Member SIPC
PaineWebber
- --------------------------------------------------------------------------------
BALANCED
FUND
FEBRUARY 29, 2000
SEMIANNUAL REPORT
