<PAGE>
SEMIANNUAL REPORT
November 16, 1998
Dear Shareholder,
We are pleased to present you with the semiannual report for the PaineWebber
Financial Services Growth Fund Inc. and the PaineWebber Utility Income Fund for
the six-month period ended September 30, 1998.
GENERAL MARKET OVERVIEW
- --------------------------------------------------------------------------------
[LOGO]
The market environment was extremely volatile over the six-month period. Adverse
developments in Russia's financial and political systems spread to other
emerging markets, particularly Brazil and Venezuela. Concerns over the impact of
a global recession on corporate earnings caused the U.S. stock market, as
measured by the S&P 500 Index, to lose 6.93% for the six-month period. Fears
about exposure to over-leveraged hedge funds and to emerging markets led to a
sell-off in financial-services stocks. The S&P Financial Index lost 18.84% for
the period. Utility stocks, as measured by the S&P Utility Index, provided some
relief from the downturn, gaining 5.90% for the period.
PORTFOLIO REVIEW
- --------------------------------------------------------------------------------
[LOGO] PAINEWEBBER FINANCIAL SERVICES GROWTH FUND
Performance--The Fund's total return consists of the net asset value
change with dividends reinvested. For the six-month period ended September 30,
1998, without deducting sales charges, Class A shares lost 15.61%, Class B
shares lost 15.94%, Class C shares lost 15.94% and Class Y shares lost 15.52%.
The Fund's total return may be lower for shareowners who purchased or
redeemed shares during the period. After deducting the maximum applicable sales
charges, Class A shares lost 19.41%, Class B shares lost 20.14% and Class C
shares lost 16.78%. Class Y shares are not subject to sales charges.
Portfolio Highlights--While financial services stocks suffered across
the board during the period, the Fund performed better than most of its
competitors due to its:
. Long-term strategy to diversify broadly within the financial services sector
. Emphasis on quality companies, as the sector experienced a "flight to quality"
. Relatively small positions in companies with large global exposure.
The Fund's discipline continues to incorporate fundamental analysis,
economic and demographic trends, and assessments of earnings potential. We took
advantage of the market's volatility to increase our exposure to companies with
PAINEWEBBER
FINANCIAL SERVICES GROWTH FUND INC.
FUND PROFILE
[RIGHT ARROW] Goal:
Long-term capital
appreciation
[RIGHT ARROW] Portfolio Manager:
Karen L. Finkel,
Mitchell Hutchins
Asset Management
Inc.
[RIGHT ARROW] Total Net Assets:
$474.2 million as of
September 30, 1998
[RIGHT ARROW] Dividend Payments:
Annually
1
<PAGE>
SEMIANNUAL REPORT
PAINEWEBBER
FINANCIAL
SERVICES
GROWTH FUND
INC
Top Five Sectors
September 30, 1998/1/
Insurance 30.9%
Regional Banks 30.0%
Misc. Financial
Services 12.2%
Thrifts 7.5%
Real Estate 5.5%
strong top-line growth and high earnings visibility. We increased positions in
Wachovia (1.6%)/1/ and Exel (1.6%), two of the new purchases that were
highlighted in the March 31, 1998 annual report.
We moved away from those areas that we consider vulnerable to downside
earnings surprises, mainly due to the global crises, including the multinational
banks and other companies heavily dependent on capital markets revenues. We
continue to like specialty insurers, certain regional banks and companies that
are benefiting from favorable mortgage and housing trends, such as Federal
National Mortgage Association (1.8%), Federal Home Loan Mortgage Corp. (1.6%)
and Countrywide Credit Industries Inc. (1.2%).
Going Forward--Consolidation in the financial services industry is
taking many new forms, with mergers now seen between companies once perceived as
unlikely candidates, and with previously limiting factors such as geographic
separation no longer an impediment. We believe consolidation will reduce
competition, benefiting those firms that remain, and may benefit shareholders of
the better-managed companies in which the Fund invests. In the near term, we are
looking to invest in companies that seemed too expensive before the market
correction, as well as companies that we believe are unlikely to suffer reduced
earnings in the wake of global economic uncertainty.
PAINEWEBBER FINANCIAL SERVICES GROWTH FUND INC.
Top Ten Holdings, September 30, 1998/1/
- ------------------------------------------------------
Life Re Corp. 2.1%
Federal National Mortgage Association 1.8
Ambac Financial Group Inc. 1.7
Associates First Capital Corp. 1.7
Enhance Financial Services Group Inc. 1.7
Wachovia Corp. 1.6
Exel Ltd. 1.6
Fleet Financial Group, Inc. 1.6
Dime Bancorp. Inc. 1.6
Everest Reinsurance Holdings Inc. 1.6
- ------------------------------------------------------
/1/ All weightings represent percentages of net assets as of September 30, 1998.
The Fund is actively managed and all weightings are subject to change.
2
<PAGE>
SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
PAINEWEBBER UTILITY INCOME FUND
Performance--The Fund's total return consists of the net asset value
change with dividends reinvested. For the six-month period ended September 30,
1998, without deducting sales charges, Class A shares lost 1.00%, Class B shares
lost 1.38% and Class C shares lost 1.43%. Class Y shares commenced issuance on
September 10, 1998; for that 20-day period they gained 7.84%.
The Fund's total return may be lower for shareowners who purchased or
redeemed shares during the period. After deducting the maximum applicable sales
charges, Class A shares lost 5.46%, Class B shares lost 6.25% and Class C shares
lost 2.40%. Class Y shares are not subject to sales charges.
Portfolio Highlights--While the market was volatile during the period,
the Fund was bolstered by its high-dividend-yield stocks. All share classes
outperformed the S&P 500 Index for the six-month period ended September 30,
1998. As of September 30, the Fund's portfolio consisted of 83.5% stocks, 10.9%
bonds and 5.6% cash and cash equivalents./1/
As the period began, electric utilities stocks represented the Fund's
biggest sector weighting at 35.1% of net assets. During the period we increased
this weighting to 42.8%, and it remained the Fund's biggest weighting at period-
end. We like the electric utilities sector for the wide range of investment
options it offers as companies pursue different business strategies in response
to deregulation. After solid price gains during the quarter some of our holdings
are trading at the upper end of their ranges relative to the S&P 500 Index. We
intend to pare these fully valued stocks and increase those that we believe
could make further price gains.
Telecommunications (21.7%) is another of our favorite sectors for its
predictable, visible earnings, high dividend yields and manageable exposure to
non-U.S. markets. The regional Bell companies are expanding into long distance,
Internet access, data transmission, toll-free numbers and call-waiting. These
services are highly profitable and are becoming mainstays of the business world.
The telecommunications industry also is consolidating, and shareholders may
benefit from this trend.
When prices of gas utilities dipped in the latter part of the period, we
took advantage of the bargains to acquire good names among the pipeline
companies. Additions to the Fund's holdings included Coastal Corp. (1.7%), El
Paso Energy Co. (1.9%) and Columbia Energy (1.7%). At period-end the Fund's gas
utility weighting was 9.5%. During the period, we sold most of the Fund's real
estate investment trust (REIT) positions as we saw little near-term potential
for them.
Going Forward--Consolidation is exerting a strong impact on the utility
sector. As companies compete for market share and expand into new businesses,
productivity and management skill become increasingly important. We believe the
Fund is well positioned to benefit from this trend, and we do not expect to
change its portfolio significantly over the near term.
PAINEWEBBER UTILITY
INCOME FUND
FUND PROFILE
[RIGHT ARROW] Goal:
Current income and
capital appreciation
[RIGHT ARROW] Portfolio Managers:
Karen L. Finkel,
Julieanna M. Berry
and James F. Keegan,
Mitchell Hutchins
Asset Management
Inc.
[RIGHT ARROW] Total Net Assets:
$34.7 million as of
September 30, 1998
[RIGHT ARROW] Dividend Payments:
Quarterly
PAINEWEBBER
UTILITY INCOME
FUND
Asset Allocation
September 30, 1998/1/
Stocks 83.5%
Bonds 10.9%
Cash 5.6%
3
<PAGE>
SEMIANNUAL REPORT
PAINEWEBBER
UTILITY INCOME
FUND
Top Five Stock Holdings
September 30, 1998/1/
American Water
Works Co. Inc. 2.7%
BellSouth Corp. 2.4%
Carolina Power
and Light 2.4%
PECO Energy 2.4%
FPL Group 2.3%
Our ultimate objective in managing your investments is to help you
successfully meet your financial goals. We thank you for your continued support
and welcome any comments or questions you may have.
For a quarterly Fund Profile on PaineWebber Financial Services Growth
Fund, PaineWebber Utility Income Fund or another fund in the PaineWebber Family
of Funds,2 please contact your investment executive.
Sincerely,
/s/ MARGO ALEXANDER /s/ KAREN L. FINKEL
MARGO ALEXANDER KAREN L. FINKEL
President, Senior Vice President
Mitchell Hutchins Asset Management Inc. Mitchell Hutchins Asset
Management, Inc.
Portfolio Manager,
PaineWebber Financial Services
Growth Fund, Inc. and
PaineWebber Utility Income Fund
/s/ JAMES F. KEEGAN /s/ JULIEANNA M. BERRY
JAMES F. KEEGAN JULIEANNA M. BERRY
Senior Vice President First Vice President
Mitchell Hutchins Asset Management Inc. Mitchell Hutchins Asset
Management Inc.
Portfolio Manager, PaineWebber
Utility Income Fund
Portfolio Manager,
PaineWebber Utility Income Fund
This letter is intended to assist shareholders in understanding how the Funds
performed during the six-month period ended September 30, 1998, and reflects our
views at the time of writing this report. Of course, these views may change in
response to changing circumstances. We encourage you to consult your investment
executive regarding your personal investment program.
/1/ All weightings represent percentages of net assets as of September 30, 1998.
The Fund is actively managed and all weightings are subject to change.
/2/ 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 FINANCIAL SERVICES GROWTH FUND INC.
PERFORMANCE RESULTS
(UNAUDITED)
NET ASSET VALUE TOTAL RETURN/1/
-------------------------- -----------------------------
12 MONTHS 6 MONTHS
09/30/98 03/31/98 09/30/97 ENDED 09/30/98 ENDED 09/30/98
- ------------------------------------------------------------------------
Class A Shares $28.32 $33.56 $30.52 (1.67)% (15.61)%
- ------------------------------------------------------------------------
Class B Shares 27.42 32.62 29.70 (2.43) (15.94)
- ------------------------------------------------------------------------
Class C Shares 27.37 32.56 29.66 (2.41) (15.94)
- ------------------------------------------------------------------------
PERFORMANCE SUMMARY CLASS A SHARES
NET ASSET VALUE
---------------- CAPITAL GAINS DIVIDENDS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED PAID RETURN/1/
- ---------------------------------------------------------------------
05/22/86-12/31/86 $9.25 $8.31 -- -- (10.16)%
- ---------------------------------------------------------------------
1987 8.31 6.88 $0.2265 $0.3703 (11.05)
- ---------------------------------------------------------------------
1988 6.88 7.70 -- 0.2375 15.38
- ---------------------------------------------------------------------
1989 7.70 9.08 -- 0.2900 21.71
- ---------------------------------------------------------------------
1990 9.08 7.73 -- 0.2410 (12.33)
- ---------------------------------------------------------------------
1991 7.73 12.55 -- 0.2070 65.37
- ---------------------------------------------------------------------
1992 12.55 17.38 -- 0.0237 38.68
- ---------------------------------------------------------------------
1993 17.38 17.22 1.8425 0.0820 10.32
- ---------------------------------------------------------------------
1994 17.22 15.68 1.2660 0.1345 (0.75)
- ---------------------------------------------------------------------
1995 15.68 20.57 2.2099 0.2942 47.46
- ---------------------------------------------------------------------
1996 20.57 22.80 3.3870 0.2300 28.96
- ---------------------------------------------------------------------
1997 20.80 31.24 1.5895 0.2068 45.20
- ---------------------------------------------------------------------
01/01/98-09/30/98 31.24 28.32 -- -- (9.35)
- ---------------------------------------------------------------------
Totals: $10.5214 $2.3170
- ---------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 09/30/98: 518.35%
- ---------------------------------------------------------------------
PERFORMANCE SUMMARY CLASS B SHARES
NET ASSET VALUE
---------------- CAPITAL GAINS DIVIDENDS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED PAID RETURN/1/
- ---------------------------------------------------------------------
07/01/91-12/31/91 $10.24 $12.56 -- $0.0640 23.30%
- ---------------------------------------------------------------------
1992 12.56 17.31 -- -- 37.82
- ---------------------------------------------------------------------
1993 17.31 17.04 $1.8425 0.0571 9.57
- ---------------------------------------------------------------------
1994 17.04 15.47 1.2660 0.0344 (1.53)
- ---------------------------------------------------------------------
1995 15.47 20.21 2.2099 0.1766 46.36
- ---------------------------------------------------------------------
1996 20.21 22.32 3.3870 0.0592 28.00
- ---------------------------------------------------------------------
1997 22.32 30.42 1.5895 0.0884 44.10
- ---------------------------------------------------------------------
01/01/98-09/30/98 30.42 27.42 -- -- (9.86)
- ---------------------------------------------------------------------
Totals: $10.2949 $0.4797
- ---------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 09/30/98: 350.24%
- ---------------------------------------------------------------------
/1/FIGURES ASSUME REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAIN 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 FINANCIAL SERVICES GROWTH FUND INC.
PERFORMANCE RESULTS
(CONCLUDED) (UNAUDITED)
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 $14.61 $17.32 -- $0.0359 18.80%
- ---------------------------------------------------------------------
1993 17.32 17.03 $1.8425 0.0691 9.52
- ---------------------------------------------------------------------
1994 17.03 15.48 1.2660 0.0209 (1.50)
- ---------------------------------------------------------------------
1995 15.48 20.21 2.2099 0.1819 46.30
- ---------------------------------------------------------------------
1996 20.21 22.29 3.3870 0.0861 27.99
- ---------------------------------------------------------------------
1997 22.29 30.37 1.5895 0.0938 44.09
- ---------------------------------------------------------------------
01/01/98-09/30/98 30.37 27.37 -- -- (9.88)
- ---------------------------------------------------------------------
Totals: $10.2949 $0.4877
- ---------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 09/30/98: 211.65%
- ---------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
% RETURN AFTER
DEDUCTING
% RETURN WITHOUT MAXIMUM SALES
SALES CHARGE CHARGE
--------------------- ---------------------
CLASS CLASS
--------------------- ---------------------
A* B** C*** A* B** C***
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Twelve Months Ended 09/30/98 (1.67)% (2.43)% (2.41)% (6.10)% (7.04)% (3.33)%
- -----------------------------------------------------------------------------
Five Years Ended 09/30/98 18.77 17.87 17.87 17.68 17.67 17.87
- -----------------------------------------------------------------------------
Ten Years Ended 09/30/98 20.65 N/A N/A 20.10 N/A N/A
- -----------------------------------------------------------------------------
Commencement of Operations
Through 09/30/98+ 15.87 23.04 19.94 15.43 23.04 19.94
- -----------------------------------------------------------------------------
</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
would be lower if sales charges were included.
* 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 6 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 1 year. Class C shares bear ongoing 12b-1 distribution
and service fees.
+ Commencement of issuance dates are May 22, 1986, July 1, 1991 and July 2,
1992 for Class A, Class B and Class C shares, respectively.
Note: The Fund offers Class Y shares to a limited group of eligible investors,
including participants in certain investment programs that are sponsored by
PaineWebber and may invest in PaineWebber mutual funds. For the six months
ended September 30, 1998 and since inception, March 30, 1998 through September
30, 1998, Class Y shares has a total return of (15.52)% and (14.66)%,
respectively. Class Y shares do not have initial or contingent deferred sales
charges or ongoing distribution and service fees.
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.
6
<PAGE>
PAINEWEBBER UTILITY INCOME FUND
PERFORMANCE RESULTS
(UNAUDITED)
<TABLE>
<CAPTION>
NET ASSET VALUE TOTAL RETURN/1/
-------------------------------- -----------------------------
12 MONTHS 6 MONTHS
09/30/98 03/31/98 09/30/97 ENDED 09/30/98 ENDED 09/30/98
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A Shares $13.43 $13.79 $11.75 17.61% (1.00)%
- ---------------------------------------------------------------------------------
Class B Shares 13.43 13.79 11.75 16.75 (1.38)
- ---------------------------------------------------------------------------------
Class C Shares 13.41 13.78 11.74 16.73 (1.43)
- ---------------------------------------------------------------------------------
PERFORMANCE SUMMARY CLASS A SHARES
<CAPTION>
NET ASSET VALUE
------------------ CAPITAL GAINS DIVIDENDS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED PAID RETURN/1/
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
07/02/93-12/31/93 $10.00 $9.70 -- $0.2340 (0.70)%
- ---------------------------------------------------------------------------------
1994 9.70 8.28 -- 0.4829 (9.71)
- ---------------------------------------------------------------------------------
1995 8.28 10.14 -- 0.4662 28.82
- ---------------------------------------------------------------------------------
1996 10.14 10.56 -- 0.3530 7.90
- ---------------------------------------------------------------------------------
1997 10.56 12.90 -- 0.3299 25.75
- ---------------------------------------------------------------------------------
01/01/98-09/30/98 12.90 13.43 -- 0.2928 6.39
- ---------------------------------------------------------------------------------
Totals: $0.0000 $2.1588
- ---------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 09/30/98: 66.70%
- ---------------------------------------------------------------------------------
PERFORMANCE SUMMARY CLASS B SHARES
<CAPTION>
NET ASSET VALUE
------------------ CAPITAL GAINS DIVIDENDS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED PAID RETURN/1/
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
07/02/93-12/31/93 $10.00 $9.70 -- $0.2010 (1.02)%
- ---------------------------------------------------------------------------------
1994 9.70 8.28 -- 0.4169 (10.40)
- ---------------------------------------------------------------------------------
1995 8.28 10.14 -- 0.3980 27.87
- ---------------------------------------------------------------------------------
1996 10.14 10.56 -- 0.2756 7.06
- ---------------------------------------------------------------------------------
1997 10.56 12.90 -- 0.2427 24.78
- ---------------------------------------------------------------------------------
01/01/98-09/30/98 12.90 13.43 -- 0.2168 5.79
- ---------------------------------------------------------------------------------
Totals: $0.0000 $1.7510
- ---------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 09/30/98: 60.28%
- ---------------------------------------------------------------------------------
PERFORMANCE SUMMARY CLASS C SHARES
<CAPTION>
NET ASSET VALUE
------------------ CAPITAL GAINS DIVIDENDS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED PAID RETURN/1/
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
07/02/93-12/31/93 $10.00 $9.70 -- $0.2020 (1.01)%
- ---------------------------------------------------------------------------------
1994 9.70 8.28 -- 0.4158 (10.41)
- ---------------------------------------------------------------------------------
1995 8.28 10.14 -- 0.3970 27.86
- ---------------------------------------------------------------------------------
1996 10.14 10.56 -- 0.2766 7.07
- ---------------------------------------------------------------------------------
1997 10.56 12.89 -- 0.2459 24.72
- ---------------------------------------------------------------------------------
01/01/98-09/30/98 12.89 13.41 -- 0.2217 5.76
- ---------------------------------------------------------------------------------
Totals: $0.0000 $1.7590
- ---------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 09/30/98: 60.14%
- ---------------------------------------------------------------------------------
</TABLE>
/1/FIGURES ASSUME REINVESTMENT OF ALL DIVIDENDS AND OTHER DISTRIBUTIONS AT NET
ASSET VALUE ON THE PAYABLE DATES AND DO NOT INCLUDE SALE CHARGES; RESULTS
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.
7
<PAGE>
PAINEWEBBER UTILITY INCOME FUND
PERFORMANCE RESULTS
(CONCLUDED) (UNAUDITED)
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
% RETURN AFTER
DEDUCTING
% RETURN WITHOUT MAXIMUM SALES
SALES CHARGE CHARGE
------------------- -------------------
CLASS CLASS
------------------- -------------------
A* B** C*** A* B** C***
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Twelve Months Ended 09/30/98 17.61% 16.75% 16.73% 12.36% 11.75% 15.73%
- -----------------------------------------------------------------------------
Five Years Ended 09/30/98 10.07 9.25 9.23 9.07 8.97 9.23
- -----------------------------------------------------------------------------
Commencement of Operations Through
09/30/98+ 10.22 9.40 9.38 9.26 9.27 9.38
- -----------------------------------------------------------------------------
</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.
* 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 6 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 1 year. Class C shares bear ongoing 12b-1 distribution
and service fees.
+ Commencement of issuance date is July 2, 1993 for Class A, Class B and Class
C shares.
Note: The Fund offers Class Y shares to a limited group of investors, including
participants in certain investment programs that are sponsored by PaineWebber
and may invest in PaineWebber mutual funds. For the period September 10, 1998
(commencement of issuance) through September 30, 1998, Class Y shares had a
total return of 7.84%. Class Y shares do not have initial or contingent
deferred sales charges or ongoing distribution and service fees.
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.
8
<PAGE>
PAINEWEBBER FINANCIAL SERVICES GROWTH FUND INC.
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- ------------
<S> <C> <C>
COMMON STOCKS -- 87.63%
BUSINESS SERVICES -- 0.66%
90,000 Sterling Commerce Inc.*............................... $ 3,116,250
------------
FINANCIAL SERVICES -- 12.15%
65,000 American Express Co. ................................. 5,045,625
125,000 Associates First Capital Corp. ....................... 8,156,250
200,000 Capital Trust*........................................ 1,300,000
65,000 CCC Information Services Group, Inc.*................. 812,500
280,000 CIT Group Inc. ....................................... 7,175,000
150,000 Conning Corp. ........................................ 1,968,750
140,000 Countrywide Credit Industries, Inc. .................. 5,827,500
150,000 Federal Home Loan Mortgage Corp. ..................... 7,415,625
130,000 Federal National Mortgage Association................. 8,352,500
141,000 Finova Group Inc. .................................... 7,041,187
200,000 Long Beach Financial Corp. ........................... 1,850,000
62,500 Morgan Stanley, Dean Witter & Co. .................... 2,691,406
------------
57,636,343
------------
INSURANCE -- 30.92%
180,000 ACE Ltd. ............................................. 5,400,000
155,000 Allstate Corp. ....................................... 6,461,563
170,000 Ambac Financial Group Inc. ........................... 8,160,000
112,500 American General Corp. ............................... 7,185,938
40,000 American International Group Inc. .................... 3,080,000
170,000 Amerin Corp.*......................................... 3,208,750
175,000 AmerUs Life Holdings Inc. (1)......................... 3,839,063
110,000 Conseco Inc. ......................................... 3,361,875
265,000 Enhance Financial Services Group Inc. (1)............. 7,834,063
200,000 Everest Reinsurance Holdings Inc. .................... 7,462,500
107,500 Executive Risk Inc. .................................. 4,844,219
120,000 Exel Ltd. ............................................ 7,560,000
60,000 Hartford Financial Services Group Inc. ............... 2,846,250
70,000 Hartford Life Inc. ................................... 2,957,500
225,000 Horace Mann Educators Corp. .......................... 6,750,000
110,000 Liberty Financial Companies, Inc. .................... 2,901,250
110,000 Life Re Corp. ........................................ 10,113,125
116,000 Nationwide Financial Services Inc. ................... 5,270,750
202,500 Old Republic International Corp. ..................... 4,556,250
200,000 Protective Life Corp. ................................ 7,200,000
125,000 Reinsurance Group of America, Inc. ................... 7,367,187
170,000 Reliastar Financial Corp. ............................ 6,630,000
60,800 SunAmerica Inc. ...................................... 3,708,800
230,000 Travelers Property Casualty Corp. (1)................. 7,345,625
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- ------------
<C> <S> <C>
INSURANCE (CONCLUDED)
90,000 Travelers Group Inc. ................................. $ 3,375,000
145,000 UNUM Corp. ........................................... 7,204,687
------------
146,624,395
------------
MONEY CENTER BANKS -- 0.96%
50,000 Republic New York Corp. .............................. 1,975,000
60,000 The Chase Manhattan Corp. ............................ 2,595,000
------------
4,570,000
------------
REAL PROPERTY -- 5.53%
110,000 Arden Realty Inc. .................................... 2,454,375
160,000 Cabot Industrial Trust................................ 3,380,000
175,000 CB Richard Ellis Services Inc.*....................... 3,510,937
125,000 Carramerica Realty Corp. ............................. 2,851,563
150,000 Excel Legacy Corp.*................................... 435,938
125,000 Manufactured Home Communitities Inc. ................. 3,179,687
156,000 New Plan Excel Realty Trust Inc. ..................... 3,636,750
125,000 Resource Asset Investment Trust....................... 1,781,250
60,000 Vornado Realty Trust.................................. 1,987,500
175,000 Westfield America Inc. ............................... 2,996,875
------------
26,214,875
------------
REGIONAL BANKS -- 30.04%
169,000 Banc One Corp. ....................................... 7,203,625
100,000 BankBoston Corp. ..................................... 3,300,000
65,600 BankNorth Group Inc. ................................. 1,918,800
160,000 BB & T Corp. ......................................... 4,790,000
65,000 CCB Financial Corp. .................................. 6,548,750
58,593 Chittenden Corp. ..................................... 1,757,790
120,000 Comerica Inc. ........................................ 6,577,500
40,000 Commerce Bancorp, Inc. ............................... 1,582,500
125,000 Cullen Frost Bankers Inc. ............................ 6,031,250
110,000 Fifth Third Bancorp................................... 6,325,000
70,000 First American Corp. of Tennessee..................... 2,686,250
105,000 First Security Corp. ................................. 1,758,750
32,500 First Western Bancorp Inc. ........................... 788,125
102,000 Fleet Financial Group, Inc. .......................... 7,490,625
167,375 HUBCO, Inc. (1)....................................... 4,247,141
15,500 M & T Bank Corp. ..................................... 7,145,500
82,500 Marshall and Ilsley Corp. ............................ 3,939,375
125,000 Mellon Bank Corp. .................................... 6,882,812
75,000 Northern Trust Corp. ................................. 5,118,750
190,000 Norwest Corp. ........................................ 6,804,375
60,774 Old Kent Financial Corp. ............................. 1,800,430
75,000 Seacoast Banking Corp. of Florida..................... 2,231,250
172,500 SouthTrust Corp. ..................................... 6,026,719
</TABLE>
9
<PAGE>
PAINEWEBBER FINANCIAL SERVICES GROWTH FUND INC.
See accompanying notes to financial statements
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- ------------
<C> <S> <C>
COMMON STOCKS (CONCLUDED)
REGIONAL BANKS (CONCLUDED)
101,000 Summit Bancorp, Inc. ................................. $ 3,787,500
155,000 Texas Regional Bankshares Inc. ....................... 3,506,875
90,000 US Bancorp of Oregon, Inc. ........................... 3,200,625
90,000 Wachovia Corp. ....................................... 7,672,500
12,000 Wells Fargo and Co. .................................. 4,260,000
100,000 West Coast Bancorp Oregon New......................... 1,675,000
250,000 Westamerica Bancorporation (1)........................ 7,234,375
55,000 Wilmington Trust Corp. ............................... 2,860,000
130,000 Zions Bancorporation.................................. 5,305,625
------------
142,457,817
------------
THRIFT INSTITUTIONS -- 7.37%
82,500 Bank United Corp. .................................... 2,954,531
199,500 Charter One Financial Inc. (1)........................ 4,962,563
295,000 Dime Bancorp Inc. New................................. 7,467,187
50,000 First Palm Beach Bancorp Inc.* ....................... 1,750,000
150,000 Golden State Bancorp Inc.*............................ 2,990,625
160,000 Greenpoint Financial Corp. ........................... 5,100,000
57,500 H F Ahmanson & Co. ................................... 3,191,250
150,000 PBOC Holdings Inc. ................................... 1,650,000
120,000 Queens County Bancorp Inc. ........................... 3,210,000
50,000 Washington Mutual, Inc. .............................. 1,687,500
------------
34,963,656
------------
Total Common Stocks (cost -- $381,551,942)....................... 415,583,336
------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- --------
<C> <S> <C>
RIGHTS AND WARRANTS -- 0.16%
20,000 Coast Federal Litigation Contingent Payment Rights....... $176,250
135,000 Golden State Bancorp Inc. Litigation Tracking Warrants... 569,531
--------
Total Rights and Warrants (cost -- $770,102)........................ 745,781
--------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES
--------- -------- --------
<C> <S> <C> <C> <C>
REPURCHASE AGREEMENTS -- 11.79%
$20,000 Repurchase Agreement dated 9/30/98
with Deutsche Bank, collateralized
by $12,583,000 U.S. Treasury
Bonds, 11.750% due 11/15/14 (val-
ue --$20,400,189); proceeds;
$20,003,056....................... 10/01/98 5.500% 20,000,000
20,000 Repurchase Agreement dated 9/30/98
with State Street Bank & Trust
Co., collateralized by $16,210,000
U.S. Treasury Bonds, 7.125% due
02/15/23 (value -- $20,404,338);
proceeds; $20,003,028............. 10/01/98 5.450 20,000,000
15,884 Repurchase Agreement dated 9/30/98
with JP Morgan Securities, collat-
eralized by $15,089,000 U.S. Trea-
sury Notes, 6.250% due 06/30/02
(value --$16,201,814); proceeds;
$15,886,316....................... 10/01/98 5.250 15,884,000
------------
Total Repurchase Agreements (cost --
$55,884,000)................................ 55,884,000
------------
Total Investments (cost -- $438,206,044) --
99.58%...................................... 472,213,117
Other assets in excess of liabilities --
0.42%....................................... 1,997,581
------------
Net Assets 100.00%............................ $474,210,698
============
</TABLE>
- ---------
*NON-INCOME PRODUCING SECURITY
(1)SECURITY, OR PORTION THEREOF, WAS ON LOAN AT SEPTEMBER 30, 1998.
10
<PAGE>
PAINEWEBBER UTILITY INCOME FUND
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- -----------
<C> <S> <C>
COMMON STOCKS -- 83.47%
ELECTRIC UTILITIES -- 42.78%
11,000 AES Corp.*............................................. $ 407,688
12,500 Allegheny Energy Inc................................... 394,531
17,500 BEC Energy............................................. 762,344
20,000 Baltimore Gas & Electric Co. .......................... 667,500
18,000 Carolina Power & Light Co.............................. 831,375
15,000 Cilcorp Inc. .......................................... 786,562
14,000 CMS Energy Corp........................................ 609,875
37,500 DPL Inc. .............................................. 735,937
20,000 DQE Inc. .............................................. 772,500
5,000 Duke Energy Corp. ..................................... 330,938
20,000 El Paso Energy Corp. .................................. 648,750
15,000 Energy East Corp. ..................................... 765,000
15,000 First Energy Corp. .................................... 465,938
11,500 FPL Group, Inc. ....................................... 801,406
15,000 Illinova Corp. ........................................ 430,313
15,000 Interstate Energy Corp. ............................... 480,937
15,000 New Century Energies Inc. ............................. 730,312
24,000 NIPSCO Industries Inc. ................................ 789,000
22,500 PECO Energy Co. ....................................... 822,656
30,000 Public Service Co. of New Mexico....................... 665,625
20,000 Puget Sound Power & Light Co. ......................... 555,000
21,000 SCANA Corp. ........................................... 704,812
17,500 Sierra Pacific Resources............................... 679,219
-----------
14,838,218
-----------
ELECTRICAL EQUIPMENT -- 0.36%
6,000 Global Crossing Ltd.*.................................. 125,250
-----------
FINANCIAL SERVICES -- 1.59%
20,000 Indymac Mortgage Holdings, Inc. ....................... 405,000
9,300 Medallion Financial Corp. ............................. 146,475
-----------
551,475
-----------
GAS UTILITY -- 9.48%
30,000 AGL Resources Inc. .................................... 581,250
17,000 Coastal Corp........................................... 573,750
10,000 Columbia Energy Group.................................. 586,250
7,000 K N Energy Corp. ...................................... 358,750
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- -----------
<C> <S> <C>
GAS UTILITY (CONCLUDED)
17,500 NICOR Inc. ............................................ $ 725,156
20,000 Public Service Co. of North Carolina................... 462,500
-----------
3,287,656
-----------
LONG DISTANCE & PHONE COMPANIES -- 17.39%
8,000 Ameritech Corp. ....................................... 379,000
15,376 Bell Atlantic Corp. ................................... 744,775
11,000 BellSouth Corp. ....................................... 827,750
15,000 Century Telephone Enterprises, Inc. ................... 708,750
10,000 GTE Corp. ............................................. 550,000
20,000 ITC Deltacom*.......................................... 415,000
12,463 MCI Worldcom Inc.*..................................... 609,149
13,500 Qwest Communications International Inc. ............... 422,719
9,000 SBC Communications Inc. ............................... 399,937
25,000 Smartalk Teleservices Inc.*............................ 185,938
15,000 US West Inc. .......................................... 786,563
-----------
6,029,581
-----------
MEDIA -- 0.86%
10,000 Univision Communications Inc.*......................... 297,500
-----------
REAL PROPERTY -- 8.30%
20,000 Clarion Commercial Holdings Inc........................ 231,250
27,500 Excel Legacy Corp.*.................................... 79,922
33,000 New Plan Excel Realty Trust Inc. ...................... 769,312
8,500 Starwood Lodging Corp. ................................ 259,250
10,000 Storage USA Inc. ...................................... 346,250
18,000 Sun Communties......................................... 604,125
10,000 Vornado Realty Trust................................... 331,250
15,000 Westfield America Inc. ................................ 256,875
-----------
2,878,234
-----------
WATER -- 2.71%
30,000 American Water Works Co. Inc. ......................... 941,250
-----------
Total Common Stocks (cost -- $21,111,069)......................... 28,949,164
-----------
</TABLE>
11
<PAGE>
PAINEWEBBER UTILITY INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
--------- -------------------- -------------- -----------
<C> <S> <C> <C> <C>
CORPORATE BONDS -- 8.64%
CABLE -- 2.05%
$550 TCI Communications,
Inc.................... 03/31/27 9.650% $ 712,187
-----------
ELECTRIC UTILITIES -- 3.41%
639 Georgia Power Co........ 02/01/23 7.950 670,618
500 Texas Utilities Electric
Capital................ 01/30/37 8.175 512,735
-----------
1,183,353
-----------
ENTERTAINMENT -- 0.65%
200 Time Warner Inc......... 01/15/08 7.480 225,416
-----------
PUBLISHING -- 2.53%
800 News America Holdings
Inc. .................. 12/01/95 to 10/17/96 7.900 to 8.250 876,383
-----------
Total Corporate Bonds (cost --
$2,679,788)...................... 2,997,339
-----------
CONVERTIBLE BONDS -- 2.28%
CABLE -- 2.28%
650 International Cabletel
Inc.+ (cost --
$650,000)............. 06/15/08 7.000 792,188
-----------
REPURCHASE AGREEMENTS -- 6.49%
1,250 Repurchase Agreement
dated 09/30/98 with SG
Warburg, collateralized
by 746,000 U.S.
Treasury Bonds, 11.250%
due 02/15/15 (value --
$1,276,593) proceeds:
$1,250,191............. 10/01/98 5.500 1,250,000
1,000 Repurchase Agreement
dated 09/30/98 with JP
Morgan Securities,
collateralized by
950,000 U.S Treasury
Notes, 6.250% due
10/31/01 (value --
$1,020,063) proceeds:
$1,000,146............. 10/01/98 5.250 1,000,000
-----------
Total Repurchase Agreements
(cost -- $2,250,000).............. 2,250,000
-----------
Total Investments (cost --
$26,690,857) -- 100.88%.......... 34,988,691
Liabilities in excess of other as-
sets -- (0.88)%................... (306,390)
-----------
Net Assets -- 100.00%.............. $34,682,301
===========
</TABLE>
- ---------
* NON-INCOME PRODUCING SECURITY
+ SECURITY EXEMPT FROM REGISTRATION UNDER 144A OF THE SECURITIES ACT OF 1933.
THIS SECURITY MAY BE RESOLD IN TRANSACTIONS EXEMPT FROM REGISTRATION,
NORMALLY TO QUALIFIED INSTITUTIONAL BUYERS.
See accompanying notes to financial statements
12
<PAGE>
PAINEWEBBER
STATEMENTS OF ASSETS AND LIABILITIES SEPTEMBER 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
FINANCIAL UTILITY
SERVICES INCOME
GROWTH FUND FUND
------------ -----------
<S> <C> <C>
ASSETS:
Investments in securities, at value (cost--
$438,206,044 and $26,690,857, respectively)........ $472,213,117 $34,988,691
Investments of cash collateral received for
securities loaned, at value (cost -- $11,192,931
and $0, respectively).............................. 11,192,931 --
Receivable for fund shares sold..................... 1,363,385 11,868
Receivable for investments sold..................... 1,328,156 --
Dividends and interest receivable................... 576,673 135,680
Other assets........................................ 89,230 80,505
------------ -----------
Total assets........................................ 486,763,492 35,216,744
------------ -----------
LIABILITIES:
Cash collateral for securities loaned............... 11,192,931 --
Dividend payable.................................... -- 219,825
Payable for fund shares repurchased................. 704,012 131,444
Payable to affiliates............................... 600,293 42,474
Accrued expenses and other liabilities.............. 55,558 140,700
------------ -----------
Total liabilities................................... 12,552,794 534,443
------------ -----------
NET ASSETS:
Capital Stock/Beneficial Interest shares of $0.001
par value outstanding.............................. 423,648,875 28,156,347
Accumulated net investment income................... 3,131,092 4,681
Accumulated net realized gains (losses) from
investments........................................ 13,423,658 (1,776,561)
Net unrealized appreciation of investments.......... 34,007,073 8,297,834
------------ -----------
Net assets.......................................... $474,210,698 $34,682,301
============ ===========
CLASS A:
Net assets.......................................... $196,914,376 $ 7,480,534
------------ -----------
Shares outstanding.................................. 6,953,700 557,074
------------ -----------
Net asset and redemption value per share............ $28.32 $13.43
====== ======
Maximum offering price per share (net asset value
plus sales charge of 4.50% of offering price)...... $29.65 $14.06
====== ======
CLASS B:
Net assets.......................................... $197,793,526 $19,561,443
------------ -----------
Shares outstanding.................................. 7,214,725 1,456,237
------------ -----------
Net asset value and offering price per share........ $27.42 $13.43
====== ======
CLASS C:
Net assets.......................................... $ 76,258,847 $ 7,631,389
------------ -----------
Shares outstanding.................................. 2,786,038 568,878
------------ -----------
Net asset value and offering price per share........ $27.37 $13.41
====== ======
CLASS Y:
Net assets.......................................... $ 3,243,949 $ 8,935
------------ -----------
Shares outstanding.................................. 114,418 666
------------ -----------
Net asset value, offering price and redemption value
per share.......................................... $28.35 $13.42
====== ======
</TABLE>
See accompanying notes to financial statements
13
<PAGE>
PAINEWEBBER
STATEMENTS OF FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1998 (UNAUDITED)
OPERATIONS
<TABLE>
<CAPTION>
FINANCIAL UTILITY
SERVICES INCOME
GROWTH FUND FUND
------------ ----------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends (net of withholding tax)............... $ 4,625,344 $ 700,364
Interest......................................... 1,685,181 190,452
------------ ----------
6,310,525 890,816
------------ ----------
EXPENSES:
Investment advisory and administration fees...... 1,815,554 122,279
Service fees--Class A............................ 276,551 9,487
Service and distribution fees--Class B........... 1,082,244 99,102
Service and distribution fees--Class C........... 394,640 37,623
Transfer agency and service fees................. 171,789 18,264
Custody and accounting........................... 155,619 11,546
Federal and state registration fees.............. 82,705 27,810
Reports and notices to shareholders.............. 35,868 10,564
Legal and audit.................................. 31,110 33,765
Directors/Trustees' fees......................... 5,250 5,250
Amortization of organizational expenses.......... -- 7,099
Other expenses................................... 14,210 5,636
------------ ----------
4,065,540 388,425
------------ ----------
NET INVESTMENT INCOME............................ 2,244,985 502,391
------------ ----------
REALIZED AND UNREALIZED GAINS/LOSSES FROM
INVESTMENT TRANSACTIONS:
Net realized gains from investment transactions.. 7,977,434 2,081,689
Net change in unrealized
appreciation/depreciation of investments........ (99,399,036) (3,098,370)
------------ ----------
NET REALIZED AND UNREALIZED LOSSES FROM
INVESTMENT TRANSACTIONS......................... (91,421,602) (1,016,681)
------------ ----------
NET DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS...................................... $(89,176,617) $ (514,290)
============ ==========
</TABLE>
See accompanying notes to financial statements
14
<PAGE>
PAINEWEBBER FINANCIAL SERVICES GROWTH FUND INC.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS
ENDED FOR THE
SEPTEMBER 30, YEAR ENDED
1998 MARCH 31,
(UNAUDITED) 1998
------------- -------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income............................ $ 2,244,985 $ 1,940,220
Net realized gains from investment transactions.. 7,977,434 14,829,192
Net change in unrealized
appreciation/depreciation of investments........ (99,399,036) 91,444,229
------------ -------------
Net increase(decrease) in net assets resulting
from operations................................. (89,176,617) 108,213,641
------------ -------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income--Class A................... -- (1,011,267)
Net investment income--Class B................... -- (359,882)
Net investment income--Class C................... -- (124,042)
Net investment income--Class Y................... -- --
Net realized gains from investment transactions--
Class A......................................... -- (7,772,773)
Net realized gains from investment transactions--
Class B......................................... -- (6,470,964)
Net realized gains from investment transactions--
Class C......................................... -- (2,101,970)
Net realized gains from investment transactions--
Class Y......................................... -- --
------------ -------------
Total dividends and distributions to
shareholders.................................... -- (17,840,898)
------------ -------------
FROM CAPITAL STOCK TRANSACTIONS:
Net proceeds from the sale of shares............. 248,284,367 400,986,234
Cost of shares repurchased....................... (156,998,530) (174,767,137)
Proceeds from dividends reinvested............... -- 15,912,449
------------ -------------
Net increase in net assets from capital stock
transactions.................................... 91,285,837 242,131,546
------------ -------------
Net increase in net assets....................... 2,109,220 332,504,289
NET ASSETS:
Beginning of period.............................. 472,101,478 139,597,189
------------ -------------
End of period (including undistributed net
investment income of
$3,131,092 and $886,107, respectively).......... $474,210,698 $ 472,101,478
============ =============
</TABLE>
See accompanying notes to financial statements
15
<PAGE>
PAINEWEBBER UTILITY INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS
ENDED FOR THE
SEPTEMBER 30, YEAR ENDED
1998 MARCH 31,
(UNAUDITED) 1998
------------- ------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income.............................. $ 502,391 $ 701,190
Net realized gains from investment transactions.... 2,081,689 1,915,598
Net change in unrealized appreciation/depreciation
of investments.................................... (3,098,370) 8,396,302
----------- ------------
Net increase (decrease) in net assets resulting
from operations................................... (514,290) 11,013,090
----------- ------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income--Class A..................... (125,288) (191,756)
Net investment income--Class B..................... (249,742) (438,848)
Net investment income--Class C..................... (100,805) (159,880)
Net investment income--Class Y..................... (76) --
----------- ------------
Total dividends to shareholders.................... (475,911) (790,484)
----------- ------------
FROM BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from the sale of shares............... 2,514,604 15,590,114
Cost of shares repurchased......................... (4,186,389) (23,344,027)
Proceeds from dividends reinvested................. 190,047 667,446
----------- ------------
Net decrease in net assets from beneficial interest
transactions...................................... (1,481,738) (7,086,467)
----------- ------------
Net increase (decrease) in net assets.............. (2,471,939) 3,136,139
NET ASSETS:
Beginning of period................................ 37,154,240 34,018,101
----------- ------------
End of period (including undistributed net
investment income of $4,681 at September 30,
1998)............................................. $34,682,301 $ 37,154,240
=========== ============
</TABLE>
See accompanying notes to financial statements
16
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
PaineWebber Financial Services Growth Fund Inc. ("Financial Services Growth
Fund") and PaineWebber Utility Income Fund ("Utility Income Fund") (collective-
ly, the "Funds") are registered with the Securities and Exchange Commission un-
der the Investment Company Act of 1940, as amended, as diversified open-end
management investment companies. Financial Services Growth Fund was incorpo-
rated in the state of Maryland on February 13, 1986, and Utility Income Fund is
a series of PaineWebber Managed Investments Trust (the "Trust") which was orga-
nized under Massachusetts law by a Declaration of Trust dated November 21,
1986. Organizational costs have been deferred and are being amortized using the
straight line method over a period not to exceed 60 months from the date the
Funds commenced operations.
Each Fund offers Class A, Class B, Class C and Class Y shares. Each class rep-
resents interests in the same assets of the applicable 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 addi-
tion, Class B shares and all corresponding reinvested dividend shares automati-
cally convert to Class A shares approximately six years after issuance. All
classes of shares have equal voting privileges except that each class has ex-
clusive voting rights with respect to its service and/or distribution plan, if
any.
The preparation of financial statements in accordance with generally accepted
accounting principles requires Fund management to make estimates and assump-
tions that affect the reported amounts and disclosures in the financial state-
ments. 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 sales 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 as the primary market by Mitchell Hutchins Asset Man-
agement Inc. ("Mitchell Hutchins"), a wholly owned asset management subsidiary
of PaineWebber Incorporated ("PaineWebber") and investment adviser, administra-
tor and distributor of the Funds. Securities traded in the over-the-counter
("OTC") market and listed on the Nasdaq Stock Market, Inc. ("Nasdaq") are val-
ued at the last available sales 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 values of the securities in the judgement of Mitch-
ell Hutchins. When market quotations are not readily available, securities are
valued based upon appraisals derived from information concerning those securi-
ties or similar securities received from recognized dealers in those securi-
ties. The amortized cost method of valuation is used to value short-term debt
instruments with sixty days or less remaining to maturity. Securities for which
market quotations are not readily available including restricted securities
subject to limitations as to their sale are valued at fair value as determined
in good faith by, or under the direction of, the Fund's/Trust's Board of
Directors/Trustees.
Repurchase Agreements--Each Fund's custodian takes possession of the collat-
eral pledged for investments in repurchase agreements. The underlying collat-
eral is valued daily on a mark-to-market basis to ensure that the value, in-
cluding accrued interest, is at least equal to the repurchase price. In the
event
17
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
of default of the obligation to repurchase, each Fund has the right to liqui-
date 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. Each Fund occasionally participates in joint re-
purchase agreement transactions with other funds managed by Mitchell Hutchins.
Investment Transactions and Investment Income--Investment transactions are re-
corded on the trade date. Realized gains and losses from investment transac-
tions are calculated using the identified cost method. Interest income is re-
corded on an accrual basis. Dividend income is recorded on the ex-dividend
date. Discounts are accreted and premiums are amortized as adjustments to in-
terest income and the identified costs 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 (af-
ter adjusting for current capital share activity of the respective classes).
Class-specific expenses are charged directly to the applicable class of shares.
Dividends and Distributions--Dividends and distributions to shareholders are
recorded on the ex- dividend date. 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" differ-
ence 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 dif-
ferences do not require reclassification.
CONCENTRATION OF RISK
Financial Services Growth Fund invests primarily in equity securities of fi-
nancial services companies and Utility Income Fund invests primarily in securi-
ties of utility companies. Economic, legislative and regulatory developments
impacting those industries may affect the market value of each Fund's invest-
ments. In addition, each Fund's ability to invest in U.S. dollar-denominated
foreign equity securities and ability to use options and futures contracts also
entail special risks.
INVESTMENT ADVISER AND ADMINISTRATOR
Each Fund has an Investment Advisory and Administration Contract ("Advisory
Contract") with Mitchell Hutchins, under which Mitchell Hutchins serves as in-
vestment adviser and administrator of the Funds. In accordance with the Advi-
sory Contracts, Financial Services Growth Fund and Utility Income Fund pay
Mitchell Hutchins an investment advisory and administration fee, which is ac-
crued daily and paid monthly, at the annual rate of 0.70% of each Funds' aver-
age daily net assets. At September 30, 1998, Financial Services Growth Fund and
Utility Income Fund owed Mitchell Hutchins $272,039, and $19,180, respectively,
in investment advisory and administration fees.
For the six months ended September 30, 1998, Financial Services Growth Fund
and the Utility Income Fund paid no brokerage commissions to PaineWebber for
transactions executed on behalf of the Funds.
18
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
DISTRIBUTION PLANS
Mitchell Hutchins is the distributor of each Fund's shares and has appointed
PaineWebber as the exclusive dealer for the sale of those shares. Under sepa-
rate plans of service and/or distribution pertaining to Class A, Class B and
Class C shares, the Funds pay Mitchell Hutchins monthly service fees at an an-
nual 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. At September 30, 1998,
Financial Services Growth Fund and Utility Income Fund owed Mitchell Hutchins
$264,509 and $22,951, respectively, 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 each Fund that for the six
months ended September 30, 1998, it earned $705,225 and $15,711 in sales
charges for the Financial Services Growth Fund and Utility Income Fund, respec-
tively.
SECURITY LENDING
Each 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 se-
curities in an amount at least equal to the market value of the securities
loaned, plus accrued interest, determined on a daily basis and adjusted accord-
ingly. Each Fund will regain record ownership of loaned securities to exercise
certain beneficial rights, however, each Fund may bear the risk of delay in re-
covery of, or even loss of rights in, the securities loaned should the borrower
fail financially. Each Fund receives compensation, which is included in inter-
est income, for lending its securities from interest earned on the cash or U.S.
government securities held as collateral, net of fee rebates paid to the bor-
rower plus reasonable administrative and custody fees. Each Fund's lending
agent is PaineWebber, which received compensation from the Funds for the six
months ended September 30, 1998 as follows:
<TABLE>
<S> <C>
Financial Services Growth Fund............. $5,167
Utility Income Fund........................ $2,138
</TABLE>
At September 30, 1998, Financial Services Growth Fund and the Utility Income
Fund owed PaineWebber $711 and $343, respectively, in security lending fees.
As of September 30, 1998, the Financial Services Growth Fund's custodian held
cash and/or cash equivalents having an aggregate value of $11,192,931 as col-
lateral for portfolio securities loaned having a market value of $10,454,615.
The cash collateral was invested in the following money market funds:
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
---------- -----------
<C> <S> <C>
11,093,413 Liquid Assets Portfolio............ $11,093,413
90,604 Prime Portfolio.................... 90,604
8,032 TempCash Portfolio................. 8,032
882 TempFund Portfolio................. 882
-----------
Total investments of cash collateral received
for securities loaned (cost--$11,192,931) $11,192,931
===========
</TABLE>
19
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
BANK LINE OF CREDIT
Each Fund may participate with other funds managed by Mitchell Hutchins in a
$200 million committed credit facility ("Facility") to be utilized for tempo-
rary financing until the settlement of sale or purchase of portfolio securi-
ties, the repurchase or redemption of shares of each Fund at the request of the
shareholders and other temporary or emergency purposes. In connection there-
with, each Fund has agreed to pay a commitment fee, pro rata, based on the rel-
ative asset size of the Funds in the Facility. Interest is charged to each Fund
at rates based on prevailing market rates in effect at the time of borrowings.
For the six months ended September 30, 1998, the Funds did not borrow under the
Facility.
TRANSFER AGENCY RELATED SERVICE FEES
PaineWebber provides certain transfer agency related services to each 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 Funds. For
the six months ended September 30, 1998, PaineWebber received from PFPC, Inc.,
not the Funds, approximately 50% and 55% for Financial Services Growth Fund and
Utility Income Fund, respectively, of the total service fees collected by PFPC,
Inc.
INVESTMENTS IN SECURITIES
For federal income tax purposes, the cost of securities owned at September 30,
1998 was substantially the same as the cost of securities for financial state-
ment purposes.
At September 30, 1998, the components of net unrealized appreciation of in-
vestments were as follows:
<TABLE>
<CAPTION>
FINANCIAL
SERVICES UTILITY
GROWTH INCOME
FUND FUND
------------ ----------
<S> <C> <C>
Gross appreciation (investments having an excess of
value over cost).................................... $ 62,246,878 $8,856,789
Gross depreciation (investments having an excess of
cost over value).................................... (28,239,805) (558,955)
------------ ----------
Net unrealized appreciation of investments........... $ 34,007,073 $8,297,834
============ ==========
</TABLE>
For the six months ended September 30, 1998, total aggregate purchases and
sales of portfolio securities, excluding short-term securities, were as fol-
lows:
<TABLE>
<CAPTION>
FINANCIAL
SERVICES UTILITY
GROWTH INCOME
FUND FUND
------------ ----------
<S> <C> <C>
Purchases............................................... $180,549,222 $4,654,327
Sales................................................... $ 92,220,966 $7,135,788
</TABLE>
20
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
FEDERAL TAX STATUS
The Funds intend to distribute substantially all of their 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 sub-
stantially all of their net investment income, capital gains and certain other
amounts, if any, the Funds intend not to be subject to a federal excise tax.
At March 31, 1998, Utility Income Fund had a net capital loss carryforward of
$3,858,250 which will expire by March 31, 2003. To the extent such losses are
used, as provided in the regulations, to offset future net realized capital
gains, it is probable these gains will not be distributed.
21
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
CAPITAL STOCK/BENEFICIAL INTEREST
There are 300 million shares of $0.001 par value common stock authorized for
the Financial Services Growth Fund. Transactions in common stock were as fol-
lows:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS Y
------------------------ ----------------------- ------------------------ -------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ------------ --------- ------------ ---------- ------------ ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FINANCIAL SERVICES GROWTH FUND
FOR THE SIX MONTHS ENDED SEPTEMBER
30, 1998
Shares sold..... 3,564,820 $115,807,272 2,285,662 $ 72,708,890 1,754,735 $ 55,721,524 123,859 $4,046,681
Shares
repurchased.... (3,044,080) (97,665,289) (969,347) (29,874,877) (928,177) (29,160,056) (9,495) (298,308)
Shares converted
from Class B to
Class A........ 181,124 5,855,748 (186,616) (5,855,748) -- -- -- --
Dividends
reinvested..... -- -- -- -- -- -- -- --
---------- ------------ --------- ------------ ---------- ------------ ------- ----------
Net increase.... 701,864 $ 23,997,731 1,129,699 $ 36,978,265 826,558 $ 26,561,468 114,364 $3,748,373
========== ============ ========= ============ ========== ============ ======= ==========
FOR THE YEAR ENDED
MARCH 31, 1998
Shares sold..... 5,407,560 $158,699,017 5,117,213 $148,855,573 3,254,668 $ 93,429,844 54 $ 1,800
Shares
repurchased.... (3,295,366) (96,214,614) (827,002) (23,973,587) (1,909,873) (54,578,936) -- --
Shares converted
from Class B to
Class A........ 230,973 6,872,851 (237,222) (6,872,851) -- -- -- --
Dividends
reinvested..... 249,050 7,491,415 213,881 6,266,712 73,652 2,154,322 -- --
---------- ------------ --------- ------------ ---------- ------------ ------- ----------
Net increase.... 2,592,217 $ 76,848,669 4,266,870 $124,275,847 1,418,447 $ 41,005,230 54 $ 1,800
========== ============ ========= ============ ========== ============ ======= ==========
There is an unlimited amount of $0.001 par value shares of beneficial interest
authorized for the Utility Income Fund. Transactions in shares of beneficial
interest were as follows:
<CAPTION>
CLASS A CLASS B CLASS C CLASS Y
------------------------ ----------------------- ------------------------ -------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ------------ --------- ------------ ---------- ------------ ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
UTILITY INCOME
FUND
FOR THE SIX MONTHS ENDED SEPTEMBER
30, 1998
Shares sold..... 10,653 $ 142,022 57,652 $ 754,918 120,280 $ 1,609,310 666 $ 8,354
Shares
repurchased.... (45,737) (607,777) (153,225) (2,033,767) (115,990) (1,544,845) -- --
Shares converted
from Class B to
Class A........ 18,648 249,762 (18,645) (249,762) -- -- -- --
Dividends
reinvested..... 3,825 51,033 7,305 97,449 3,118 41,565 -- --
---------- ------------ --------- ------------ ---------- ------------ ------- ----------
Net increase
(decrease)..... (12,611) $ (164,960) (106,913) $ (1,431,162) 7,408 $ 106,030 666 $ 8,354
========== ============ ========= ============ ========== ============ ======= ==========
FOR THE YEAR
ENDED MARCH 31,
1998
Shares sold..... 98,175 $ 1,159,314 124,629 $ 1,530,954 1,084,440 $ 12,899,846
Shares
repurchased.... (198,661) (2,252,444) (594,162) (6,745,575) (1,211,968) (14,346,008)
Shares converted
from Class B to
Class A........ 63,785 757,256 (63,778) (757,256) -- --
Dividends
reinvested..... 14,319 167,830 31,301 364,143 11,616 135,473
---------- ------------ --------- ------------ ---------- ------------
Net decrease.... (22,382) $ (168,044) (502,010) $ (5,607,734) (115,912) $ (1,310,689)
========== ============ ========= ============ ========== ============
</TABLE>
22
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
23
<PAGE>
PAINEWEBBER FINANCIAL SERVICES GROWTH FUND INC.
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
IS PRESENTED BELOW:
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------------------
FOR THE
SIX MONTHS
ENDED
SEPTEMBER 30, FOR THE YEARS ENDED MARCH 31,
1998 --------------------------------------------
(UNAUDITED) 1998 1997 1996 1995 1994
------------- -------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $33.56 $23.41 $21.16 $17.11 $16.92 $19.45
-------- -------- ------- ------- ------- -------
Net investment income... 0.19 0.20 0.18 0.30 0.25 0.15
Net realized and
unrealized gains
(losses) from
investments............ (5.43) 11.75 5.69 6.25 1.34 (0.76)
-------- -------- ------- ------- ------- -------
Net increase (decrease)
from investment
operations............. (5.24) 11.95 5.87 6.55 1.59 (0.61)
-------- -------- ------- ------- ------- -------
Dividends from net
investment income...... -- (0.21) (0.23) (0.29) (0.13) (0.08)
Distributions from net
realized gains from
investment
transactions........... -- (1.59) (3.39) (2.21) (1.27) (1.84)
-------- -------- ------- ------- ------- -------
Total dividends and
distributions.......... -- (1.80) (3.62) (2.50) (1.40) (1.92)
-------- -------- ------- ------- ------- -------
Net asset value, end of
period................. $28.32 $33.56 $23.41 $21.16 $17.11 $16.92
======== ======== ======= ======= ======= =======
Total investment return
(1).................... (15.61)% 51.92% 28.72% 39.02% 10.22% (3.14)%
======== ======== ======= ======= ======= =======
Ratios/Supplemental
Data:
Net assets, end of
period (000's)......... $196,914 $209,818 $85,661 $64,003 $49,295 $48,032
Expenses to average net
assets................. 1.13%* 1.17% 1.52% 1.37% 1.45% 1.44%
Net investment income to
average net assets..... 1.31%* 1.12% 0.90% 1.50% 1.40% 0.76%
Portfolio turnover...... 21% 23% 40% 53% 14% 22%
</TABLE>
- ---------
* ANNUALIZED
+ COMMENCEMENT OF ISSUANCE OF SHARES
(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 RETURNS FOR PERIODS
LESS THAN ONE YEAR HAVE NOT BEEN ANNUALIZED.
24
<PAGE>
<TABLE>
<CAPTION>
CLASS B CLASS C
- --- ---------------------------------------------------------- ------------------------------------------------------
FOR THE FOR THE
SIX MONTHS SIX MONTHS
ENDED ENDED
SEPTEMBER 30, FOR THE YEARS ENDED MARCH 31, SEPTEMBER 30, FOR THE YEARS ENDED MARCH 31,
- --- 1998 -------------------------------------------- 1998 ----------------------------------------
(UNAUDITED) 1998 1997 1996 1995 1994 (UNAUDITED) 1998 1997 1996 1995 1994
- --- ------------- -------- ------- ------- ------- ------- ------------- ------- ------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$32.62 $22.87 $20.75 $16.85 $16.71 $19.34 $32.56 $22.84 $20.75 $16.86 $16.71 $19.34
-------- -------- ------- ------- ------- ------- ------- ------- ------- ------ ------ ------
0.08 0.09 0.04 0.13 0.11 0.02 0.08 0.12 0.06 0.12 0.11 0.01
(5.28) 11.34 5.53 6.16 1.33 (0.75) (5.27) 11.28 5.51 6.16 1.33 (0.73)
-------- -------- ------- ------- ------- ------- ------- ------- ------- ------ ------ ------
(5.20) 11.43 5.57 6.29 1.44 (0.73) (5.19) 11.40 5.57 6.28 1.44 (0.72)
-------- -------- ------- ------- ------- ------- ------- ------- ------- ------ ------ ------
-- (0.09) (0.06) (0.18) (0.03) (0.06) -- (0.09) (0.09) (0.18) (0.02) (0.07)
-- (1.59) (3.39) (2.21) (1.27) (1.84) -- (1.59) (3.39) (2.21) (1.27) (1.84)
-------- -------- ------- ------- ------- ------- ------- ------- ------- ------ ------ ------
-- (1.68) (3.45) (2.39) (1.30) (1.90) -- (1.68) (3.48) (2.39) (1.29) (1.91)
-------- -------- ------- ------- ------- ------- ------- ------- ------- ------ ------ ------
$27.42 $32.62 $22.87 $20.75 $16.85 $16.71 $27.37 $32.56 $22.84 $20.75 $16.86 $16.71
======== ======== ======= ======= ======= ======= ======= ======= ======= ====== ====== ======
(15.94)% 50.80% 27.74% 37.97% 9.37% (3.83)% (15.94)% 50.76% 27.74% 37.92% 9.34% (3.76)%
======== ======== ======= ======= ======= ======= ======= ======= ======= ====== ====== ======
$197,794 $198,473 $41,579 $28,147 $16,368 $11,517 $76,259 $63,809 $12,357 $6,989 $4,160 $4,370
1.90%* 1.92% 2.27% 2.12% 2.22% 2.16% 1.90%* 1.92% 2.28% 2.14% 2.23% 2.17%
0.53%* 0.37% 0.15% 0.74% 0.67% 0.05% 0.51%* 0.36% 0.15% 0.72% 0.61% 0.03%
21% 23% 40% 53% 14% 22% 21% 23% 40% 53% 14% 22%
<CAPTION>
CLASS Y
- ---- -------------------------------
FOR THE
SIX MONTHS
ENDED
SEPTEMBER 30, FOR THE PERIOD
- ---- 1998 MARCH 30, 1998+
(UNAUDITED) TO MARCH 31, 1998
- ---- ------------- -----------------
<S> <C> <C>
$33.56 $33.22
------------- -----------------
0.13 0.00
(5.34) 0.34
------------- -----------------
(5.21) 0.34
------------- -----------------
-- 0.00
-- 0.00
------------- -----------------
-- 0.00
------------- -----------------
$28.35 $33.56
============= =================
(15.52)% 1.02%
============= =================
$3,244 $2
0.88%* 0.80%*
1.42%* 0.00%*
21% 23%
</TABLE>
25
<PAGE>
PAINEWEBBER UTILITY INCOME FUND
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
PERIOD IS PRESENTED BELOW:
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------------------------------
FOR THE
SIX MONTHS FOR THE FOR THE FOR THE YEARS FOR THE PERIOD
ENDED YEARS ENDED FOUR MONTHS ENDED JULY 2, 1993+
SEPTEMBER 30, MARCH 31, ENDED NOVEMBER 30, TO
1998 -------------- MARCH 31, ----------------- NOVEMBER 30,
(UNAUDITED) 1998 1997 1996 1995 1994 1993
------------- ------ ------ ----------- ------- ------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $13.79 $10.20 $ 9.76 $ 9.77 $ 8.31 $ 9.66 $10.00
------ ------ ------ ------ ------- ------- -------
Net investment income... 0.23 0.33 0.34 0.15 0.47 0.48 0.20
Net realized and
unrealized gains
(losses) from
investments............ (0.37) 3.61 0.41 -- 1.44 (1.31) (0.39)
------ ------ ------ ------ ------- ------- -------
Net increase (decrease)
from investment
operations............. (0.14) 3.94 0.75 0.15 1.91 (0.83) (0.19)
------ ------ ------ ------ ------- ------- -------
Dividends from net
investment income...... (0.22) (0.35) (0.31) (0.16) (0.45) (0.52) (0.15)
------ ------ ------ ------ ------- ------- -------
Net asset value, end of
period................. $13.43 $13.79 $10.20 $ 9.76 $ 9.77 $ 8.31 $ 9.66
====== ====== ====== ====== ======= ======= =======
Total investment return
(1).................... (1.00)% 39.15% 7.83% 1.46% 23.64% (8.76)% (1.95)%
====== ====== ====== ====== ======= ======= =======
Ratios/Supplemental
Data:
Net assets, end of
period (000's)......... $7,481 $7,856 $6,039 $9,416 $10,750 $12,532 $16,224
Expenses to average net
assets, net of waivers
from adviser........... 1.63%* 1.92% 1.93% 1.09%* 1.49% 1.58% 1.55%*
Expenses to average net
assets, before waivers
from adviser........... 1.63%* 1.92% 2.00% 1.44%* 1.49% 1.58% 1.55%*
Net investment income to
average net assets, net
of waivers from
adviser................ 3.45%* 2.77% 3.27% 4.26%* 5.13% 5.49% 5.38%*
Net investment income to
average net assets,
before waivers from
adviser................ 3.45%* 2.77% 3.20% 3.91%* 5.13% 5.49% 5.38%*
Portfolio turnover...... 14% 10% 41% 21% 30% 92% 13%
</TABLE>
- ---------
* ANNUALIZED
+ COMMENCEMENT OF OPERATIONS
(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 OR PROGRAM
FEES WERE INCLUDED. TOTAL INVESTMENT RETURNS FOR PERIODS OF LESS THAN ONE
YEAR HAVE NOT BEEN ANNUALIZED.
26
<PAGE>
<TABLE>
<CAPTION>
CLASS B
- ------------------------------------------------------------------------------
FOR THE
SIX MONTHS FOR THE FOR THE FOR THE YEARS FOR THE PERIOD
ENDED YEARS ENDED FOUR MONTHS ENDED JULY 2, 1993+
SEPTEMBER 30, MARCH 31, ENDED NOVEMBER 30, TO
1998 ---------------- MARCH 31, ---------------- NOVEMBER 30,
(UNAUDITED) 1998 1997 1996 1995 1994 1993
- ------------- ------- ------- ----------- ------- ------- --------------
<S> <C> <C> <C> <C> <C> <C>
$13.79 $10.20 $ 9.75 $ 9.77 $ 8.31 $ 9.65 $10.00
------- ------- ------- ------- ------- ------- -------
0.18 0.25 0.26 0.12 0.40 0.42 0.17
(0.37) 3.60 0.42 (0.01) 1.45 (1.31) (0.39)
------- ------- ------- ------- ------- ------- -------
(0.19) 3.85 0.68 0.11 1.85 (0.89) (0.22)
------- ------- ------- ------- ------- ------- -------
(0.17) (0.26) (0.23) (0.13) (0.39) (0.45) (0.13)
------- ------- ------- ------- ------- ------- -------
$13.43 $13.79 $10.20 $ 9.75 $ 9.77 $ 8.31 $ 9.65
======= ======= ======= ======= ======= ======= =======
(1.38)% 38.13% 7.05% 1.10% 22.73% (9.35)% (2.29)%
======= ======= ======= ======= ======= ======= =======
$19,561 $21,562 $21,071 $34,765 $37,554 $37,156 $45,382
2.39%* 2.68% 2.69% 1.85%* 2.23% 2.33% 2.29%*
2.39%* 2.68% 2.76% 2.20%* 2.23% 2.33% 2.29%*
2.73%* 2.05% 2.51% 3.51%* 4.37% 4.72% 4.67%*
2.73%* 2.05% 2.44% 3.16%* 4.37% 4.72% 4.67%*
14% 10% 41% 21% 30% 92% 13%
</TABLE>
27
<PAGE>
PAINEWEBBER UTILITY INCOME FUND
FINANCIAL HIGHLIGHTS (CONCLUDED)
<TABLE>
<CAPTION>
CLASS C CLASS Y
--------------------------------------------------------------------------- --------------
FOR THE FOR THE PERIOD
SIX MONTHS FOR THE FOR THE FOR THE YEARS FOR THE PERIOD SEPTEMBER 10,
ENDED YEARS ENDED FOUR MONTHS ENDED JULY 2, 1993+ 1998++ TO
SEPTEMBER 30, MARCH 31, ENDED NOVEMBER 30, TO SEPTEMBER 30,
1998 -------------- MARCH 31, ---------------- NOVEMBER 30, 1998
(UNAUDITED) 1998 1997 1996 1995 1994 1993 (UNAUDITED)
------------- ------ ------ ----------- ------- ------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $13.78 $10.20 $ 9.75 $ 9.77 $ 8.31 $ 9.65 $10.00 $12.55
------ ------ ------ ------- ------- ------- ------- ------
Net investment income... 0.17 0.23 0.25 0.12 0.40 0.42 0.16 0.02
Net realized and
unrealized gains
(losses) from
investments............ (0.37) 3.61 0.43 (0.01) 1.45 (1.31) (0.38) 0.96
------ ------ ------ ------- ------- ------- ------- ------
Net increase (decrease)
from investment
operations............. (0.20) 3.84 0.68 0.11 1.85 (0.89) (0.22) 0.98
------ ------ ------ ------- ------- ------- ------- ------
Dividends from net
investment income...... (0.17) (0.26) (0.23) (0.13) (0.39) (0.45) (0.13) (0.11)
------ ------ ------ ------- ------- ------- ------- ------
Net asset value, end of
period................. $13.41 $13.78 $10.20 $ 9.75 $ 9.77 $ 8.31 $ 9.65 $13.42
====== ====== ====== ======= ======= ======= ======= ======
Total investment return
(1).................... (1.43)% 38.09% 7.06% 1.10% 22.71% (9.36)% (2.28)% 7.84%
====== ====== ====== ======= ======= ======= ======= ======
Ratios/Supplemental
Data:
Net assets, end of
period (000's)......... $7,631 $7,736 $6,909 $11,072 $12,222 $13,922 $17,866 $9
Expenses to average net
assets, net of waivers
from adviser........... 2.39%* 2.68% 2.70% 1.85%* 2.24% 2.32% 2.29%* 1.38%*
Expenses to average net
assets, before waivers
from adviser........... 2.39%* 2.68% 2.76% 2.20%* 2.24% 2.32% 2.29%* 1.38%*
Net investment income to
average net assets, net
of waivers from
adviser................ 2.69%* 1.99% 2.51% 3.50%* 4.37% 4.69% 4.67%* 2.24%*
Net investment income to
average net assets,
before waivers from
adviser................ 2.69%* 1.99% 2.44% 3.15%* 4.37% 4.69% 4.67%* 2.24%*
Portfolio turnover...... 14% 10% 41% 21% 30% 92% 13% 14%
</TABLE>
- ---------
* ANNUALIZED
+ COMMENCEMENT OF OPERATIONS
++ COMMENCEMENT OF ISSUANCE OF SHARES
(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 RETURNS FOR PERIODS
OF LESS THAN ONE YEAR HAVE NOT BEEN ANNUALIZED.
28
<PAGE>
SEMIANNUAL REPORT
DIRECTORS/TRUSTEES
E. Garrett Bewkes, Jr. Mary C. Farrell
Chairman
Meyer Feldberg
Margo N. Alexander George W. Gowen
Richard Q. Armstrong Frederic V. Malek
Richard R. Burt Carl W. Schafer
PRINCIPAL OFFICERS
Margo N. Alexander Julieanna M. Berry
President Vice President
Victoria E. Schonfeld Karen L. Finkel
Vice President Vice President
Dianne E. O'Donnell James F. Keegan
Vice President and Secretary Vice President
Paul H. Schubert
Vice President and Treasurer
INVESTMENT ADVISER,
ADMINISTRATOR AND DISTRIBUTOR
Mitchell Hutchins Asset Management Inc.
1285 Avenue of the Americas
New York, New York 10019
This report is not to be used in connection with the offering of shares of the
Funds unless accompanied or preceded by an effective prospectus.
The financial information included herein is taken from the records of the Funds
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 investment executive or
correspondent firm. Read the prospectus carefully before investing.
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PaineWebber offers a family of 27 funds which
encompass a diversified range of investment goals.
BOND FUNDS
. High Income Fund
. Investment Grade Income Fund
. Low Duration U.S. Government Income Fund
. Strategic Income Fund
. U.S. Government Income Fund
TAX-FREE BOND FUNDS
. California Tax-Free Income Fund
. Municipal High Income Fund
. National Tax-Free Income Fund
. New York Tax-Free Income Fund
STOCK FUNDS
. Financial Services Growth Fund
. Growth Fund
. Growth and Income Fund
. Mid Cap Fund
. Small Cap Fund
. S&P 500 Index Fund
. Tax-Managed Equity Fund
. Utility Income Fund
ASSET ALLOCATION FUNDS
. Balanced Fund
. Tactical Allocation Fund
GLOBAL FUNDS
. Asia Pacific Growth Fund
. Emerging Markets Equity Fund
. Global Equity Fund
. Global Income Fund
MITCHELL HUTCHINS PORTFOLIOS
. Aggressive Portfolio
. Moderate Portfolio
. Conservative Portfolio
PAINEWEBBER MONEY MARKET FUND
PainWebber
(C)1998 PaineWebber Incorporated
Member SIPC
PainWebber
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FINANCIAL
SERVICES
GROWTH FUND INC.
UTILITY
INCOME FUND
SEMIANNUAL REPORT
SEPTEMBER 30, 1998
