A N N U A L R E P O R T A U G U S T 15, 1996
D E A R S H A R E H O L D E R,
We are pleased to present you with the Annual Report for PaineWebber
Emerging Markets Equity Fund for the year ended June 30, 1996. As we mentioned
in our Semiannual Report, 1995 was a disappointing year for most emerging
markets. Unlike previous years, when emerging markets crowded the list of best
performing markets, during 1995 they were more evident among the worst
performing markets of the world. However, performance improved dramatically in
many emerging markets during the first half of 1996. Latin American markets, in
particular, rebounded strongly from the lows reached in 1995 after the Mexican
peso devaluation.
The Fund's total return for the twelve months ended June 30, 1996, without
deducting sales charges, was 3.39% for Class A shares, 2.79% for Class C shares
and 3.69% for Class Y shares. The Fund's total return for this period, after
deducting the maximum applicable sales charges, was (1.28)% for Class A shares,
1.79% for Class C shares and 3.69% for Class Y shares. In comparison, the IFC
Global Composite Index ("Composite Index") returned 8.50%.
<PAGE>
P O R T F O L I O R E V I E W
Several factors affected the Fund's underperformance of the Composite Index
during the twelve-month period. The Composite Index includes returns for China
based primarily on local markets that are mostly inaccessible to foreign
investors. The Chinese market performed particularly well during the first half
of the year, but unfortunately many of the stocks are not available to
foreigners. In addition, during the first half of the Fund's fiscal year, the
Fund was underweighted in South Africa (one of the better performing markets
during that period) and overweighted in Korea, one of the worst performing
markets. The strongest returns during the first half of 1996 were in Venezuela,
China, Hungary, Taiwan, Brazil and Poland. The Fund was overweighted in most of
these countries (particularly Taiwan and Brazil) and was underweighted in two of
the major underperformers South Africa and Turkey.
The Fund remains overweighted in Eastern Europe, which has continued its
strong performance throughout the first half of the year. However, portfolio
positions were recently reduced slightly due to somewhat more expensive
valuations. In addition, despite Yeltsin's recent electoral victory, Russia's
political uncertainty does not appear to be easing. Latin America continues to
rebound, with growth momentum on the upswing. Drivers include rising corporate
profits, subdued inflation and lower interest rates and productivity gains from
continuing restructuring efforts.
2
<PAGE>
P O R T F O L I O R E V I E W
Emerging Markets Management ("EMM"), the Fund's sub-adviser, feels that
there is good reason to be concerned about the impact a significant correction
in the U.S. market would have on world equity markets, including Hong Kong,
South East Asia and major Latin American markets. This potential correction has
kept EMM from overweighting Latin America. It has also titled the portfolio away
from larger exposures in late-cycle, overvalued markets in South East Asia
toward markets in East Asia, Eastern Europe and Africa (with the exception of
South Africa). While many emerging markets are, of course, not immune to a sharp
drop in the U.S. market, EMM believes that if and when the inevitable correction
comes, emerging markets have the potential to outperform the major industrial
markets just as they underperformed these past two years.
A focus on "value" in country selection, combined with fundamental analysis
of individual countries rather than market sentiment and liquidity flows, has
generally worked well in emerging markets. However, this focus has not added
value over the past one to two years. While this has been frustrating, EMM has
learned from past experience (through up and down market cycles) that a strategy
focusing on value and "unpopular" stocks or markets will eventually reward
long-term emerging market investors.
With world economic growth better than expected, continued strong
fundamentals in emerging markets and attractive market valuations, EMM believes
that, after some volatility if there is a major U.S. correction, the outlook for
emerging markets remains good. EMM expects them to outperform the U.S. and
European markets over the next 6-18 months.
3
<PAGE>
P O R T F O L I O R E V I E W
The first half of 1996 was marked by volatility in most financial markets.
At times like these, remember the importance of working with your Investment
Executive to help you find investments that are consistent with your risk
tolerance and time horizon.
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.
Sincerely,
/s/ MARGO ALEXANDER /s/ ANTOINE W. VAN AGTMAEL
----------------------- ----------------------------
MARGO ALEXANDER ANTOINE W. VAN AGTMAEL
President, Portfolio Manager,
Mitchell Hutchins Asset PaineWebber Emerging Markets
Management Inc. Equity Fund
4
<PAGE>
BOARD OF TRUSTEES
TRUSTEES
Margo N. Alexander Meyer Feldberg
Richard Q. Armstrong George W. Gowen
E. Garrett Bewkes, Jr. Frederic V. Malek
Richard R. Burt Carl W. Schafer
Mary C. Farrell John R. Torell III
OFFICERS
Margo N. Alexander Dianne E. O'Donnell
President Vice President and Secretary
Victoria E. Schonfeld Julian F. Sluyters
Vice President Vice President and Treasurer
INVESTMENT ADVISER,
ADMINISTRATOR AND DISTRIBUTOR
Mitchell Hutchins Asset Management Inc.
1285 Avenue of the Americas
New York, New York 10019
INVESTMENT SUB-ADVISER
Emerging Markets Management
1001 Nineteenth Street North
Arlington, Virginia 22209-1722
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.
This report is not to be used in connection with the offering of shares of the
Fund unless accompanied or preceded by an effective prospectus.
<PAGE>
Comparison of the change of a $10,000 Investment in
Emerging Markets Equity Fund and the IFC Global Composite Index
$12,000
$11,000
$10,000 $9,721
$9,000 [GRAPH]
$8,000 $8,445
$8,252
$7,000 $8,013
$6,000
1/19/94 6/94 12/94 6/95 12/95 6/96
- -------- PaineWebber Emerging Markets Equity Fund Class A Shares
........ PaineWebber Emerging Markets Equity Fund Class A Shares
. . . . PaineWebber Emerging Markets Equity Fund Class A Shares
.-.-.-.- IFC Global Composite Index
PART PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
THE PERFORMANCE OF THE OTHER CLASS WILL VARY FROM THE PERFORMANCE OF THE CLASSES
SHOWN BASED ON THE DIFFERENCE IN SALES CHARGES AND FEES PAID BY SHAREHOLDERS
INVESTING IN DIFFERENT CLASSES.
The following graph depicts
the PaineWebber the performance of the
PaineWebber Emerging
n89171md.g01,2920,2280,H
Markets Equity Fund versus the IFC Global Composite Index. It is important to
note that the PaineWebber Emerging Markets Equity Fund is a professionally
managed mutual fund while the index is not available for investment and is
unmanaged. The comparison is shown for illustrative purposes only.
AVERAGE ANNUAL RETURN
<TABLE>
<CAPTION>
% RETURN WITHOUT DEDUCTING % RETURN AFTER DEDUCTING
MAXIMUM SALES CHARGE MAXIMUM SALES CHARGE
---------------------------- ----------------------------
CLASS CLASS
---------------------------- ----------------------------
A* B** C*** A* B** C***
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------
Twelve Months Ended 06/30/96 3.39% N/A 2.79% (1.28)% N/A 1.79%
- ---------------------------------------------------------------------------------------------
Commencement of Operations
Through 06/30/96+ (6.73)% N/A (7.39)% (8.48)% N/A (7.39)%
- ---------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
* 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 5.0% and is reduced to 0%
after 6 years. Class B shares bear ongoing 12b-1 distribution and service fees.
*** Maximum contingent deferred sales charge for Class C shares is 1% and is reduced to 0%
after 1 year. Class C shares bear ongoing 12b-1 distribution and service fees.
+ Commencement of operations dates are January 19, 1994, December 5, 1995 and January 19,
1994 for Class A, Class B and Class C, respectively.
Note: The Fund offers Class Y (formerly Class C) shares primarily to INSIGHT Program
participants. For the twelve months ended June 30, 1996, and since inception,
January 19, 1994 through June 30, 1996, Class Y shares have a total return of
3.69% and (15.11)%, respectively. For the twelve months ended June 30, 1996, and
for the period since inception through June 30, 1996, Class Y shares have an
average annual return of 3.69% and (6.47)%, respectively. Class Y shares do not
have initial or contingent deferred sales charges or ongoing distribution and
service fees.
</TABLE>
- --------------------------------------------------------------------------------
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 Emerging Markets Equity Fund
- --------------------------------------------------------------------------------
PERFORMANCE RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
NET ASSET VALUE TOTAL RETURN1
---------------------------------- --------------------------------
12 MONTHS 6 MONTHS
06/30/96 12/31/95 06/30/95 ENDED 06/30/96 ENDED 06/30/96
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
Class A Shares $10.06 $ 9.26 $ 9.73 3.39% 8.64%
- -------------------------------------------------------------------------------------------------------------
Class B Shares 9.94 9.18 N/A N/A 8.28
- -------------------------------------------------------------------------------------------------------------
Class C Shares2 9.94 9.18 9.67 2.79 8.28
- -------------------------------------------------------------------------------------------------------------
</TABLE>
PERFORMANCE SUMMARY CLASS A SHARES
<TABLE>
<CAPTION>
NET ASSET VALUE
-------------------- CAPITAL GAINS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID RETURN1
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
01/19/94 - 12/31/94 $ 12.00 $10.49 -- -- (12.58)%
- ------------------------------------------------------------------------------------------------------------------------
1995 10.49 9.26 -- $0.0517 (11.20)
- ------------------------------------------------------------------------------------------------------------------------
01/01/96 - 06/30/96 9.26 10.06 -- -- 8.64
- ------------------------------------------------------------------------------------------------------------------------
Total: $0.0000 $0.0517
- ------------------------------------------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 06/30/96: (15.67)%
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
PERFORMANCE SUMMARY CLASS B SHARES
<TABLE>
<CAPTION>
NET ASSET VALUE
-------------------- CAPITAL GAINS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID RETURN1
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
12/05/95 - 12/31/95 $ 9.13 $9.18 -- -- 0.55%
- ------------------------------------------------------------------------------------------------------------------------
01/01/96 - 06/30/96 9.18 9.94 -- -- 8.28
- ------------------------------------------------------------------------------------------------------------------------
Total: $0.0000 $0.0000
- ------------------------------------------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 06/30/96: 8.87%
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
PERFORMANCE SUMMARY CLASS C SHARES2
<TABLE>
<CAPTION>
NET ASSET VALUE
-------------------- CAPITAL GAINS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID RETURN1
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
01/19/94 - 12/31/94 $ 12.00 $10.42 -- -- (13.17)%
- ------------------------------------------------------------------------------------------------------------------------
1995 10.42 9.18 -- $0.0034 (11.87)
- ------------------------------------------------------------------------------------------------------------------------
01/01/96 - 06/30/96 9.18 9.94 -- -- 8.28
- ------------------------------------------------------------------------------------------------------------------------
Total: $0.0000 $0.0034
- ------------------------------------------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 06/30/96: (17.13)%
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
1 Figures assume reinvestment of all dividends and 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.
2 Formerly Class B shares
6
<PAGE>
PaineWebber Emerging Markets Equity Fund
- --------------------------------------------------------------------------------
Portfolio of Investments
June 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ---------- -----------
<C> <S> <C>
COMMON STOCKS--78.07%
ARGENTINA--1.80%
CONSTRUCTION--0.48%
8,680 Dycasa S.A........................................................... $ 40,378
27,713 Perez Companc (cia Naviera) Class B.................................. 181,593
-----------
221,971
-----------
FOOD, BEVERAGE & TOBACCO--0.29%
2,410 Buenos Aires Embotelladora Series B ADR*............................. 31,933
20,315 Cinba................................................................ 35,565
2,900 Disco S.A. ADR*...................................................... 64,162
-----------
131,660
-----------
OIL & GAS--0.71%
59,850 Astra CIA Argentina de Petro Class B................................. 141,901
8,167 YPF Sociedad Anonima Series D ADR.................................... 183,758
-----------
325,659
-----------
METALS & MINING--0.04%
7,460 Siderar S.A.*+....................................................... 19,180
-----------
REAL ESTATE--0.28%
38,992 IRSA Inversiones y Representaciones S.A. Class B..................... 130,675
-----------
Total Argentina Common Stocks..................................................... 829,145
-----------
BANGLADESH--0.04%
CHEMICALS--0.04%
10,500 Beximco Pharmaceuticals.............................................. 16,908
-----------
BRAZIL--2.91%
COMMUNICATIONS--1.18%
2,600 Companhia de Telecomucicacion ADR.................................... 255,125
4,900,000 Telebras............................................................. 287,890
9,514 Telesp............................................................... 1,677
-----------
544,692
-----------
ELECTRIC, GAS & SANITARY PRODUCTS--0.03%
60,000 Electrobras*......................................................... 16,132
-----------
FOOD, BEVERAGE & TOBACCO--0.15%
38,948,410 Avipal S.A........................................................... 67,875
-----------
INVESTMENT COMPANIES--1.00%
1,285 Eternity Fund ADR*................................................... 462,719
-----------
METALS & MINING--0.25%
4,460,000 Cia Siderurgica Nacional............................................. 113,698
-----------
RETAIL--0.19%
9,200 Makro S.A. GDR*+..................................................... 86,940
-----------
</TABLE>
7
<PAGE>
PaineWebber Emerging Markets Equity Fund
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ---------- -----------
COMMON STOCKS--(CONTINUED)
<C> <S> <C>
BRAZIL--(CONCLUDED)
UTILITIES--ELECTRIC--0.11%
1,801 Companhia Energetica de Minas Gerais ADR............................. $ 51,103
-----------
Total Brazil Common Stocks........................................................ 1,343,159
-----------
CHILE--2.71%
CHEMICALS--0.69%
5,900 Sociedad Quimica y Minera de Chile S.A. Series B ADR................. 320,075
-----------
FOOD STORES--0.31%
5,100 Santa Isabel S.A. ADR................................................ 141,525
-----------
UTILITIES--ELECTRIC--1.71%
5,300 Chilectra S.A. ADR................................................... 294,150
15,900 Enersis S.A. ADR..................................................... 492,900
-----------
787,050
-----------
Total Chile Common Stocks......................................................... 1,248,650
-----------
CHINA--6.14%
AGRICULTURE--2.09%
2,436,000 CP Pokphand Company.................................................. 967,691
-----------
COMMUNICATIONS--0.41%
1,622,101 Champion Technology Holdings......................................... 190,692
-----------
CONGLOMERATES--0.76%
312,016 Guangdong Investments Limited........................................ 197,509
660,000 Pacific Concord Holding.............................................. 151,767
-----------
349,276
-----------
ELECTRONICS--0.74%
426,000 Kingboard Chemical................................................... 59,986
134,000 Varitronix International............................................. 279,571
-----------
339,557
-----------
FURNITURE & FIXTURES--0.22%
286,000 Lamex Holdings Limited............................................... 99,757
-----------
LEATHER PRODUCTS--0.00%
802 KTP Holdings Limited................................................. 30
-----------
MISCELLANEOUS MANUFACTURING--0.62%
192,000 Lung Kee............................................................. 49,111
538,000 Sinocan Holdings Limited............................................. 236,306
-----------
285,417
-----------
RAILROAD TRANSPORTATION--0.30%
7,300 Guangshen RY Limited ADR*............................................ 139,613
-----------
</TABLE>
8
<PAGE>
PaineWebber Emerging Markets Equity Fund
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ---------- -----------
COMMON STOCKS--(CONTINUED)
<C> <S> <C>
CHINA--(CONCLUDED)
REAL ESTATE--0.00%
500 Tian An China Investments............................................ $ 68
-----------
TRANSPORTATION--0.48%
104,200 New World Infrastructure Limited*.................................... 222,109
72,400 Singamas Container................................................... 262
-----------
222,371
-----------
TRANSPORTATION EQUIPMENT--0.52%
15,600 China Yuchai International Limited................................... 118,950
356,000 Qingling Motors Company Class H...................................... 119,574
-----------
238,524
-----------
Total China Common Stocks......................................................... 2,832,996
-----------
COLOMBIA--0.96%
HOLDING & OTHER INVESTMENT OFFICES--0.27%
6,992 Suramericana......................................................... 124,474
-----------
RETAIL--0.13%
7,208 Carulla & Cia Series B ADR........................................... 61,268
-----------
STONE, CLAY & GLASS PRODUCTS--0.33%
7,400 Cementos Argos....................................................... 41,255
2,700 Cementos Paz del Rio S.A. GDS*....................................... 36,450
5,500 Cementos Paz del Rio S.A. ADR*....................................... 74,250
-----------
151,955
-----------
TIRE & RUBBER--0.13%
32,000 Pavco................................................................ 59,966
-----------
TOBACCO PRODUCTS--0.10%
15,874 Coltabaco............................................................ 47,595
-----------
Total Colombia Common Stocks...................................................... 445,258
-----------
CZECH REPUBLIC--1.78%
CHEMICALS--0.45%
2,458 Deza Valasske Meririci*.............................................. 205,481
-----------
COMMUNICATIONS--0.44%
1,680 SPT Telecom A.S.*.................................................... 205,168
-----------
HOLDING & OTHER INVESTMENT OFFICES--0.19%
3,602 Zivnobanka Investicni Fond*.......................................... 64,805
1,850 Zivnobanka Podilovy.................................................. 25,081
-----------
89,886
-----------
MACHINERY--INDUSTRIAL--0.24%
1,886 Zavody Presneho Stro................................................. 108,651
-----------
</TABLE>
9
<PAGE>
PaineWebber Emerging Markets Equity Fund
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ---------- -----------
COMMON STOCKS--(CONTINUED)
<C> <S> <C>
CZECH REPUBLIC--(CONCLUDED)
UTILITIES-ELECTRIC--0.46%
4,048 Cez*................................................................. $ 161,108
1,240 Cez GDR*............................................................. 51,925
-----------
213,033
-----------
Total Czech Republic Common Stocks................................................ 822,219
-----------
ESTONIA--0.43%
DEPOSITORY INSTITUTIONS--0.43%
28,200 Hansabank*........................................................... 198,885
-----------
ECUADOR--0.10%
STONE, CLAY & GLASS PRODUCTS--0.10%
256 Le Cemento Nacional de Ecuador GDR................................... 46,336
-----------
GHANA--0.50%
METALS & MINING--0.50%
11,700 Ashanti Goldfield Company Limited GDR................................ 231,075
-----------
GREECE--2.90%
BANKS--0.65%
5,650 Alpha Credit Bank.................................................... 298,320
-----------
COMMUNICATIONS--0.16%
4,440 Hellenic Telecom..................................................... 73,652
-----------
CONSTRUCTION--1.12%
6,900 General Construction S.A.*........................................... 80,323
4,380 Helliniki Technodom*................................................. 76,481
30,830 Michaniki S.A........................................................ 358,250
-----------
515,054
-----------
FOOD, BEVERAGE & TOBACCO--0.56%
5,710 AB Vassilopoulos*.................................................... 81,900
5,360 Hellenic Bottling Company............................................ 178,050
-----------
259,950
-----------
WATER TRANSPORTATION--0.41%
28,300 Attica Enterprises*.................................................. 189,428
-----------
Total Greece Common Stocks........................................................ 1,336,404
-----------
HUNGARY--2.76%
CHEMICALS & ALLIED PRODUCTS--0.56%
5,000 Borsodchem RT GDR+................................................... 97,500
5,113 Graboplast........................................................... 116,471
1,206 Primagaz Hungaria Rights............................................. 44,180
-----------
258,151
-----------
</TABLE>
10
<PAGE>
PaineWebber Emerging Markets Equity Fund
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ---------- -----------
COMMON STOCKS--(CONTINUED)
<C> <S> <C>
HUNGARY--(CONCLUDED)
DEPOSITORY INSTITUTIONS--0.15%
280 Inter Europa Bank.................................................... $ 68,072
-----------
OIL & GAS--0.41%
2,700 Mol Magyar Olaj Es Gazipari.......................................... 30,033
7,400 Mol Magyar Olaj Es Gazipari GDR*..................................... 81,770
7,100 Mol Magyar Olaj Es Gazipari GDR...................................... 78,455
-----------
190,258
-----------
PLASTICS--0.28%
4,840 Pannonplast.......................................................... 130,562
-----------
RETAIL--1.36%
19,610 Julius Meinl International AG........................................ 626,453
-----------
Total Hungary Common Stocks....................................................... 1,273,496
-----------
INDIA--5.91%
CONGLOMERATES--0.51%
12,600 Grasim Industries Limited GDS........................................ 233,100
-----------
CONSTRUCTION--0.51%
4,200 Larsen & Toubro Limited GDS*......................................... 78,750
1,700 Larsen & Toubro Limited GDR*......................................... 31,875
6,600 Larsen & Toubro Limited GDR*+........................................ 123,750
-----------
234,375
-----------
ELECTRIC, GAS & SANITARY SERVICES--0.50%
12,100 BSES Limited GDR*+................................................... 232,925
-----------
HOTELS--0.19%
3,110 East India Hotels GDR*............................................... 85,929
-----------
INVESTMENT COMPANIES--0.00%
3,364 Himalayan Fund Warrants*............................................. 875
-----------
METALS & MINING--0.93%
6,100 Hindalco Industries Limited GDR*..................................... 231,800
13,600 Steel Authority India GDR*+.......................................... 195,500
-----------
427,300
-----------
STONE, CLAY & GLASS PRODUCTS--1.16%
25,400 Gujarat Ambuja Cement GDR*........................................... 317,500
32,500 India Cement Limited GDR............................................. 182,975
6,300 India Cement Limited GDR*............................................ 35,469
-----------
535,944
-----------
</TABLE>
11
<PAGE>
PaineWebber Emerging Markets Equity Fund
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ---------- -----------
COMMON STOCKS--(CONTINUED)
<C> <S> <C>
INDIA--(CONCLUDED)
TRANSPORTATION EQUIPMENT--1.72%
27,680 Tata Engineering & Locomotive Company Limited GDR.................... $ 498,240
16,392 Tata Engineering & Locomotive Company Limited GDR*................... 295,056
-----------
793,296
-----------
UTILITIES-ELECTRIC--0.39%
350 Tata Electric Companies GDR*......................................... 182,000
-----------
Total India Common Stocks......................................................... 2,725,744
-----------
INDONESIA--2.68%
AGRICULTURE--0.20%
47,000 Chareon Pokphand Indonesia........................................... 90,870
-----------
BANKS--0.30%
28,000 P.T. Bank International Indonesia.................................... 138,346
-----------
CONGLOMERATES--0.24%
80,000 P.T. Bakrie & Brothers............................................... 113,426
-----------
CONSTRUCTION--0.05%
25,000 Petrosea............................................................. 21,482
-----------
ELECTRONICS--0.34%
121,500 P.T. Astra Graphia................................................... 156,606
-----------
FINANCIAL SERVICES--0.37%
255,500 P.T. Dharmala Sakti Sejahtera........................................ 172,895
-----------
HOTELS--0.06%
119,250 P.T. Jakarta International Hotel..................................... 26,899
-----------
LOCAL & INTERURBAN PASSENGER TRANSIT--0.23%
83,500 Steady Safe*......................................................... 107,626
-----------
REAL ESTATE--0.42%
35,500 P.T. Modernland Realty Limited....................................... 38,894
425,000 P.T. Pakuwon Jati.................................................... 155,209
-----------
194,103
-----------
STONE, CLAY & GLASS PRODUCTS--0.28%
86,070 Mulia Industrindo.................................................... 127,580
-----------
TRANSPORTATION EQUIPMENT--0.19%
59,000 P.T. Astra International............................................. 85,553
-----------
Total Indonesia Common Stocks..................................................... 1,235,386
-----------
</TABLE>
12
<PAGE>
PaineWebber Emerging Markets Equity Fund
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ---------- -----------
COMMON STOCKS--(CONTINUED)
<C> <S> <C>
KOREA--12.52%
BANKS--1.86%
17,420 Housing and Commercial Bank*......................................... $ 405,865
3,310 Kook Min Bank*....................................................... 61,206
21,460 Shinhan Bank......................................................... 391,529
-----------
858,600
-----------
CHEMICALS--0.50%
2,250 Korea Chemical....................................................... 231,601
-----------
COMMUNICATIONS--0.60%
170 Korea Mobile Telecom................................................. 134,122
8,400 Korea Mobile Telecom GDR*............................................ 142,170
-----------
276,292
-----------
CONSTRUCTION--0.83%
9,182 Hyundai Engineering & Construction Company*.......................... 381,451
-----------
ELECTRONICS--2.01%
1,551 Samsung Display Devices.............................................. 110,532
5,238 Samsung Electronics Company.......................................... 437,235
5,122 Samsung Electronics Company GDR...................................... 137,290
10,107 Samsung Electronics Company GDS...................................... 245,095
-----------
930,152
-----------
FINANCIAL SERVICES--0.00%
76 Daewoo Securities.................................................... 1,771
-----------
INSURANCE--0.57%
400 Samsung Fire & Marine Insurance...................................... 262,327
-----------
INVESTMENT COMPANIES--0.95%
20,740 Korea Fund ADR....................................................... 438,133
-----------
METALS & MINING--2.12%
30,300 Pohang Iron & Steel Limited ADR...................................... 738,563
7,704 Seah Steel Corporation............................................... 239,845
-----------
978,408
-----------
RETAIL--0.11%
1,660 Shinwon Corporation*................................................. 50,750
38 Taegu Department Stores.............................................. 735
-----------
51,485
-----------
STONE, CLAY & GLASS PRODUCTS--0.07%
500 Keumkang............................................................. 31,805
-----------
TRANSPORTATION--0.14%
1,760 Korea Express........................................................ 64,004
-----------
</TABLE>
13
<PAGE>
PaineWebber Emerging Markets Equity Fund
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ---------- -----------
COMMON STOCKS--(CONTINUED)
<C> <S> <C>
KOREA--(CONCLUDED)
TRANSPORTATION EQUIPMENT--0.64%
7,120 Hyundai Motor Company*............................................... $ 268,580
1,900 Hyundai Motor Company GDR*+.......................................... 23,997
100 Hyundai Motor Company GDR*........................................... 1,263
-----------
293,840
-----------
UTILITIES-ELECTRIC--2.12%
26,260 Korea Electric Power Corporation..................................... 906,410
2,900 Korea Electric Power Corporation ADR*................................ 70,325
-----------
976,735
-----------
Total Korea Common Stocks......................................................... 5,776,604
-----------
MALAYSIA--2.80%
AGRICULTURE--0.24%
29,000 Perlis Plantations................................................... 111,606
-----------
COMMUNICATIONS--0.11%
15,000 Technology Resources Industries Berhad*.............................. 52,315
-----------
CONSTRUCTION--0.56%
24,000 Ekran Berhad......................................................... 91,401
97,000 IJM Corporation...................................................... 167,986
-----------
259,387
-----------
DEPOSITORY INSTITUTIONS--0.33%
25,000 Commerce Asset Holdings.............................................. 152,335
-----------
ELECTRIC, GAS & SANITARY SERVICES--0.27%
29,000 Malakoff Berhad*..................................................... 126,719
-----------
HOLDING & OTHER INVESTMENT OFFICES--0.26%
27,000 Road Builder*........................................................ 120,144
-----------
HOTELS--0.19%
3,800 Genting Berhad....................................................... 29,705
10,000 Resorts World Berhad*................................................ 57,326
-----------
87,031
-----------
INSURANCE--0.11%
13,071 Arab Malaysian Corporation........................................... 51,351
-----------
PACKAGING & CONTAINERS--0.44%
49,000 Malaysian Pacific Industries Berhad.................................. 204,289
-----------
TELECOMMUNICATIONS--0.29%
15,000 Telekom Malaysia..................................................... 133,494
-----------
Total Malaysia Common Stocks...................................................... 1,298,671
-----------
</TABLE>
14
<PAGE>
PaineWebber Emerging Markets Equity Fund
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ---------- -----------
<C> <S> <C>
COMMON STOCKS--(CONTINUED)
MEXICO--6.66%
AUTOMOTIVE--0.51%
75,000 Grupo Industrial Saltillo, S.A. de C.V............................... $ 237,310
-----------
BANKS--0.46%
222,200 Grupo Financiero Banorte, S.A. Series B*............................. 213,851
-----------
COMMUNICATIONS--0.48%
6,547 Telefonos de Mexico, S.A. de C.V. Series L ADR....................... 219,325
-----------
CONSTRUCTION--0.68%
18,600 Empresa Ica Sociedad Contro ADR*..................................... 258,075
4,000 Empresa Ica Sociedad Contro*......................................... 56,058
-----------
314,133
-----------
FOOD, BEVERAGE & TOBACCO--0.61%
61,000 Fomento Economico Mexicano, S.A. de C.V. Series B.................... 175,320
8,000 Sigma Alimentos Series B............................................. 71,193
45,000 Sistema Argos, S.A. de C.V. Series B*................................ 35,597
-----------
282,110
-----------
GENERAL BUILDING CONTRACTORS--0.25%
26,000 Corporacion Geo S.A. de C.V. Series B*............................... 115,517
-----------
HOLDING COMPANIES--0.43%
36,000 Desc- Sociedad de Fomento Industrial, S.A. de C.V. Series B*......... 194,120
750 Desc- Sociedad de Fomento Industrial, S.A. de C.V. Series C*......... 3,905
-----------
198,025
-----------
HOTELS--0.34%
285,357 Grupo Posada, S.A. de C.V. Series A*................................. 127,912
3,400 Grupo Posada, S.A. de C.V. GDR*...................................... 30,396
-----------
158,308
-----------
METALS & MINING--0.29%
45,000 Grupo Mexico, S.A. de C.V. Series B*................................. 134,674
-----------
MISCELLANEOUS RETAIL--0.24%
58,000 Farmacia Benavides S.A. de C.V. Series B............................. 112,406
-----------
PAPER PRODUCTS--0.28%
53,000 Empaques Ponderosa, S.A. de C.V. Series B*........................... 127,172
-----------
RETAIL--0.71%
16,000 Cifra, S.A. de C.V. Series B*........................................ 23,162
214,000 Cifra, S.A. de C.V. Series C*........................................ 305,271
-----------
328,433
-----------
STONE, CLAY & GLASS PRODUCTS--0.98%
125,075 Cementos Mexicanos, S.A. de C.V...................................... 450,289
-----------
</TABLE>
15
<PAGE>
PaineWebber Emerging Markets Equity Fund
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ---------- -----------
COMMON STOCKS--(CONTINUED)
MEXICO--(CONCLUDED)
<C> <S> <C>
TRANSPORTATION--0.40%
4,000 Grupo Condumex, S.A. Series A........................................ $ 18,088
420,000 Industrias Automotriz Class A*....................................... 63,678
16,000 Transportacion Maritima Mexicana S.A. de C.V. Series A............... 101,252
-----------
183,018
-----------
Total Mexico Common Stocks........................................................ 3,074,571
-----------
MOROCCO--0.39%
HOLDING COMPANIES--0.39%
3,900 Omnium Nord Africain*................................................ 178,840
-----------
NEW GUINEA--0.29%
METALS & MINING--0.29%
63,545 Niugini Mining*...................................................... 132,333
-----------
PAKISTAN--0.67%
BANKS--0.02%
13,530 Bank of Punjab*...................................................... 7,634
-----------
CHEMICALS--0.14%
14,432 Engro Chemicals...................................................... 66,790
-----------
OIL & GAS--0.18%
7,092 Pakistan State Oil................................................... 83,674
-----------
TELECOMMUNICATIONS--0.15%
280 Pakistan Telecommunications Company GDR.............................. 36,580
310 Pakistan Telecommunications Company GDR*............................. 33,040
-----------
69,620
-----------
TEXTILES--0.07%
85,067 Nishat Textile Mills*................................................ 34,022
-----------
UTILITIES-ELECTRIC--0.11%
2,100 Hub Power Company Limited GDR*....................................... 52,238
-----------
Total Pakistan Common Stocks...................................................... 313,978
-----------
PERU--1.20%
COMMUNICATIONS--0.12%
27,525 Telefonica del Peru Class B.......................................... 55,884
-----------
FOOD, BEVERAGE & TOBACCO--0.13%
157,886 Compania Nacional de Cerveza Class Trabajo........................... 59,458
-----------
HOLDING & OTHER INVESTMENT OFFICES--0.37%
8,698 Credicorp Limited ADR................................................ 172,873
-----------
</TABLE>
16
<PAGE>
PaineWebber Emerging Markets Equity Fund
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ---------- -----------
COMMON STOCKS--(CONTINUED)
<C> <S> <C>
PERU--(CONCLUDED)
METALS & MINING--0.58%
19,403 Minas Buenaventura S.A............................................... $ 174,719
5,794 Southern Peru Copper ADR............................................. 91,256
-----------
265,975
-----------
Total Peru Common Stocks.......................................................... 554,190
-----------
PHILIPPINES--1.14%
BANKS--0.19%
3,192 Metropolitan Bank & Trust Company.................................... 89,546
-----------
CONGLOMERATES--0.17%
10,100 Benpres Holdings Corporation GDR*.................................... 80,800
-----------
CONSTRUCTION--0.00%
100 Engineering Equipment, Incorporated.................................. 9
-----------
HOLDING COMPANIES--0.17%
32,704 First Philippine Holdings Corporation Class B........................ 79,888
-----------
METALS & MINING--0.15%
548,800 Philex Mining Corporation Class B*................................... 70,171
-----------
REAL ESTATE--0.28%
71,087 Ayala Land Incorporated Class B...................................... 127,522
-----------
TELECOMMUNICATIONS--0.08%
600 Philippine Long Distance ADR......................................... 34,875
-----------
UTILITIES-ELECTRIC--0.10%
4,200 Manila Electric Company Class B...................................... 44,084
-----------
Total Philippines Common Stocks................................................... 526,895
-----------
POLAND--1.80%
CHEMICALS & ALLIED PRODUCTS--0.06%
1,874 Jelfa*............................................................... 26,209
-----------
CONSTRUCTION--0.60%
26,163 Exbud S.A.*.......................................................... 279,241
-----------
DEPOSITORY INSTITUTIONS--0.50%
183,425 Bank Inicjatyw Gospodarczy*.......................................... 229,526
-----------
FOOD, BEVERAGE & TOBACCO--0.15%
4,566 Drosed*.............................................................. 68,731
-----------
INDUSTRIAL MACHINERY & EQUIPMENT--0.22%
17,598 Rafako*.............................................................. 104,276
-----------
METALS & MINING--0.27%
1,974 Kety S.A.*........................................................... 124,233
-----------
Total Poland Common Stocks........................................................ 832,216
-----------
</TABLE>
17
<PAGE>
PaineWebber Emerging Markets Equity Fund
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ---------- -----------
COMMON STOCKS--(CONTINUED)
<C> <S> <C>
PORTUGAL--2.10%
BANKS--0.57%
9,300 Banco Comercial Portugues............................................ $ 109,936
2,174 Banco Comercial Portugues (new)*..................................... 25,699
7,980 Banco Espirito Santo Comercial de Lisboa............................. 128,190
-----------
263,825
-----------
COMMUNICATIONS--0.15%
2,600 Portugal Telecom..................................................... 67,999
-----------
CONSTRUCTION--0.33%
6,972 Engil Sociedade de Constrcao Civil S.A............................... 56,132
7,830 Sempa Soc Invest..................................................... 95,061
-----------
151,193
-----------
FOOD STORES--0.09%
500 Jeronimo Martins SGPS................................................ 45,048
-----------
FURNITURE & FIXTURES--0.10%
5,968 Cinca................................................................ 45,761
-----------
LUMBER & WOOD PRODUCTS--0.23%
4,160 Sonae Investimento................................................... 108,187
-----------
MISCELLANEOUS MANUFACTURING--0.19%
7,694 Corticiera Amorim S.A................................................ 86,674
-----------
PACKAGING & CONTAINERS--0.00%
4 Barbosa E Almeida S.A................................................ 76
-----------
PRINTING & PUBLISHING--0.09%
1,200 Investec Consult*.................................................... 39,872
-----------
REAL ESTATE--0.35%
4,400 Lusotur Sociedade*................................................... 75,911
3,500 Mundicenter Sociedade Imobilaria S.A................................. 84,984
-----------
160,895
-----------
Total Portugal Common Stocks...................................................... 969,530
-----------
RUSSIA--2.41%
COMMUNICATIONS--2.34%
80,000 Global Telesystems Group ADR*........................................ 1,080,000
-----------
UTILITIES-ELECTRIC--0.07%
1,100 AO Mosenergo ADR*+................................................... 31,900
-----------
Total Russia Common Stocks........................................................ 1,111,900
-----------
SINGAPORE--1.29%
BUSINESS SERVICES--0.21%
91,000 Datacraft Asia ADR*.................................................. 98,280
-----------
</TABLE>
18
<PAGE>
PaineWebber Emerging Markets Equity Fund
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ---------- -----------
COMMON STOCKS--(CONTINUED)
<C> <S> <C>
SINGAPORE--(CONCLUDED)
CONSTRUCTION--0.17%
28,000 IPCO International ADR............................................... $ 80,640
-----------
ELECTRONICS--0.26%
41,000 GP Batteries International Limited ADR............................... 120,540
-----------
MISCELLANEOUS MANUFACTURING--0.65%
196,608 San Teh Limited*..................................................... 150,487
47,184 San Teh Limited Warrants*............................................ 23,408
62,000 Venture Manufacturing Limited........................................ 114,245
15,500 Venture Manufacturing Limited (rights)*.............................. 10,985
-----------
299,125
-----------
Total Singapore Common Stocks..................................................... 598,585
-----------
SLOVAKIA--1.15%
METALS & MINING--0.40%
414 Drotovna A.S.*....................................................... 12,706
8,048 VSZ A.S.............................................................. 174,199
-----------
186,905
-----------
TRANSPORTATION EQUIPMENT--0.19%
1,293 Slovenske Lodenice*.................................................. 88,013
-----------
UTILITIES-ELECTRIC--0.56%
3,212 Nafta................................................................ 259,417
-----------
Total Slovakia Common Stocks...................................................... 534,335
-----------
SOUTH AFRICA--3.03%
CHEMICALS--0.52%
22,015 Sasol................................................................ 238,796
-----------
CONGLOMERATES--0.39%
4,900 Anglovaal............................................................ 178,675
-----------
FOOD, BEVERAGE & TOBACCO--0.25%
3,900 South African Breweries.............................................. 114,309
-----------
INDUSTRIAL MACHINERY & EQUIPMENT--0.28%
12,200 Barlow Limited....................................................... 127,406
-----------
</TABLE>
19
<PAGE>
PaineWebber Emerging Markets Equity Fund
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ---------- -----------
COMMON STOCKS--(CONTINUED)
<C> <S> <C>
SOUTH AFRICA--(CONCLUDED)
METALS & MINING--1.59%
2,200 Anglo American Corporation S.A....................................... $ 139,372
7,700 De Beers............................................................. 261,228
11,100 Driefontein.......................................................... 148,581
33,200 Gencor Limited....................................................... 122,594
17,300 Gencor Limited ADR*.................................................. 63,145
2,800 Iscor................................................................ 2,191
-----------
737,111
-----------
Total South Africa Common Stocks.................................................. 1,396,297
-----------
SRI LANKA--0.26%
FINANCIAL SERVICES--0.22%
7,506 Development Finance Corporation of Ceylon............................ 40,705
15,100 National Development Bank............................................ 53,049
24,300 Vanik Incorporated*.................................................. 5,144
-----------
98,898
-----------
HOTELS--0.04%
7,470 Aitken Spence........................................................ 20,322
-----------
Total Sri Lanka Common Stocks..................................................... 119,220
-----------
TAIWAN--3.29%
BUILDING MATERIALS--0.71%
22,900 Hocheng Corporation GDR.............................................. 283,388
3,523 Hocheng Corporation GDR*............................................. 43,597
-----------
326,985
-----------
ELECTRONICS--1.24%
3,008 GVC Corporation GDR*................................................. 20,308
59,800 Siliconware Precision GDR*........................................... 470,925
10,080 Siliconware Precision GDR*+.......................................... 79,380
-----------
570,613
-----------
METALS & MINING--1.34%
24,300 China Steel Corporation GDS*......................................... 619,650
-----------
Total Taiwan Common Stocks........................................................ 1,517,248
-----------
</TABLE>
20
<PAGE>
PaineWebber Emerging Markets Equity Fund
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ---------- -----------
COMMON STOCKS--(CONTINUED)
<C> <S> <C>
THAILAND--2.62%
BANKS--0.99%
3,500 Bangkok Bank Company Limited......................................... $ 47,430
77,900 Bank of Asia......................................................... 167,246
11,900 Bank of Ayudhya Limited.............................................. 65,629
4,650 Bank of Ayudhya Limited (rights attached)*........................... 13,738
153,000 Siam City Bank plc................................................... 164,241
-----------
458,284
-----------
CONSTRUCTION--0.17%
55,600 Siam Syntech Construction Company Limited............................ 77,755
-----------
ELECTRONICS--0.47%
32,300 Hana Microelectronic................................................. 217,581
-----------
STONE, CLAY & GLASS PRODUCTS--0.53%
3,100 Siam Cement Company.................................................. 152,161
39,500 Thai-German Ceramic Industry Company Limited......................... 91,806
-----------
243,967
-----------
TELECOMMUNICATIONS--0.25%
53,500 Telecom Asia Corporation*............................................ 113,807
-----------
TRANSPORTATION--0.21%
22,900 Precious Shipping Limited............................................ 95,623
-----------
1,207,017
Total Thailand Common Stocks......................................................
-----------
TURKEY--0.71%
BANKS--0.28%
1,096,200 Akbank............................................................... 132,153
-----------
HOLDING COMPANIES--0.34%
861,480 Alarko Holding....................................................... 157,358
-----------
INSURANCE--0.07%
145,000 Aksigorta*........................................................... 31,783
-----------
NON-DEPOSITORY INSTITUTIONS--0.02%
285,840 Aktif Finans Factori................................................. 8,093
-----------
329,387
Total Turkey Common Stocks........................................................
-----------
UNITED KINGDOM--0.35%
HOLDING & OTHER INVESTMENT OFFICES--0.35%
56,300 Lonrho............................................................... 161,756
-----------
</TABLE>
21
<PAGE>
PaineWebber Emerging Markets Equity Fund
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ---------- -----------
COMMON STOCKS--(CONCLUDED)
<C> <S> <C>
VENEZUELA--1.60%
METALS & MINING--0.14%
45,700 Sivensa.............................................................. $ 30,199
1,872 Venprecar ADR*....................................................... 9,922
4,200 Venprecar GDS........................................................ 22,260
-----------
62,381
-----------
STONE, CLAY & GLASS PRODUCTS--0.47%
79,249 Venezolana de Cementos Class I....................................... 151,190
64,600 Ceramica Carabobo Class B ADR*....................................... 67,830
-----------
219,020
-----------
UTILITIES-ELECTRIC--0.99%
548,657 Electricidad de Caracas.............................................. 456,113
-----------
Total Venezuela Common Stocks..................................................... 737,514
-----------
ZIMBABWE--0.17%
HOLDING COMPANY--0.17%
53,300 Trans Zambezi Industries Limited..................................... 79,950
-----------
Total Common Stocks (cost--$35,353,888)........................................... 36,036,698
-----------
<CAPTION>
NUMBER OF
SHARES
- ----------
PREFERRED STOCKS--6.19%
BRAZIL--5.95%
BANKS--0.31%
<C> <S> <C>
17,421,727 Banco Bradesco S.A................................................... 142,261
-----------
CHEMICALS--0.02%
752,000 IAP S.A.*............................................................ 8,050
-----------
COMMUNICATIONS--0.81%
5,343,880 Telebras............................................................. 373,039
-----------
DEPOSITORY INSTITUTIONS--0.45%
7,740,000 Unibanco............................................................. 209,570
-----------
ELECTRIC, GAS & SANITARY SERVICES--0.06%
800,000 CESP Cia Energy SP*.................................................. 27,883
-----------
FOOD, BEVERAGE & TOBACCO--0.62%
269,610 Brahma............................................................... 160,821
183,000 Sadia Concordia...................................................... 127,564
-----------
288,385
-----------
MACHINERY-INDUSTRIAL--0.33%
157,162 Dixie Toga S.A....................................................... 151,810
-----------
</TABLE>
22
<PAGE>
PaineWebber Emerging Markets Equity Fund
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ---------- -----------
PREFERRED STOCKS--(CONCLUDED)
BRAZIL--(CONCLUDED)
<C> <S> <C>
METALS & MINING--0.40%
9,500 Vale Rio Doce........................................................ $ 184,002
-----------
MISCELLANEOUS MANUFACTURING--0.23%
306,000 Nakata............................................................... 106,652
-----------
PAPER PRODUCTS--0.05%
504,000 Melpaper S.A.*....................................................... 22,585
-----------
PETROLEUM & COAL PRODUCTS--0.76%
2,850,000 Petrobras............................................................ 350,503
-----------
RETAIL--0.01%
636,950 Mesbla S.A.*......................................................... 3,489
-----------
TEXTILE MILL PRODUCTS--0.24%
280,000 Coteminas............................................................ 110,137
-----------
TIRE & RUBBER--0.37%
839,900 Marcopolo S.A. Class B............................................... 173,132
-----------
UTILITIES-ELECTRIC--1.29%
8,748,000 Cemig................................................................ 232,595
906,000 Iven S.A.*........................................................... 360,884
-----------
593,479
-----------
Total Brazil Preferred Stocks..................................................... 2,744,977
-----------
GREECE--0.02%
PLASTICS--0.02%
2,819 A.G. Petzetakis S.A.*................................................ 7,852
-----------
KOREA--0.03%
FINANCIAL SERVICES--0.03%
1,050 Daewoo Securities.................................................... 15,403
-----------
PHILIPPINES--0.19%
COMMUNICATIONS--0.19%
2,500 Philippine Long Distance GDS......................................... 85,625
-----------
Total Preferred Stocks (cost--$2,791,281)......................................... 2,853,857
-----------
</TABLE>
23
<PAGE>
PaineWebber Emerging Markets Equity Fund
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000)** DATES RATES VALUE
- ----------- -------- -------- -----------
<C> <S> <C> <C> <C>
CONVERTIBLE BONDS--5.61%
CHINA--0.32%
REAL ESTATE--0.20%
110 Henderson Capital International................... 03/28/97 1.000% $ 92,263
-----------
TRANSPORTATION--0.12%
56 New World Infrastructure Limited.................. 07/15/01 5.000 53,690
-----------
Total China Convertible Bonds................................... 145,953
-----------
INDONESIA--0.10%
REAL ESTATE--0.10%
IDR 172,800 P.T. Modernland................................... 01/04/03 6.000 47,330
-----------
PHILIPPINES--0.11%
BANKS--0.07%
25 Metropolitan Bank & Trust Company................. 09/10/00 2.750 30,562
-----------
REAL ESTATE--0.04%
12 Ayala Corporation................................. 06/08/00 3.000 19,200
-----------
Total Philippines Convertible Bonds............................. 49,762
-----------
TAIWAN--4.99%
ELECTRONICS--1.19%
427 United Microelectronics Corporation............... 06/08/04 1.250 547,628
-----------
MACHINERY--1.10%
590 Teco.............................................. 04/15/04 2.750 508,875
-----------
PETROLEUM & COAL PRODUCTS--1.56%
665 Nan Ya Plastics................................... 07/19/01 1.750 721,525
-----------
TRANSPORTATION--1.14%
586 U-Ming Marine..................................... 02/07/01 1.500 527,400
-----------
Total Taiwan Convertible Bonds.................................. 2,305,428
-----------
THAILAND--0.09%
BANKS--0.09%
38 Bangkok Bank Company Limited...................... 03/03/04 3.250 43,510
-----------
Total Convertible Bonds (cost--$2,681,406)...................... 2,591,983
-----------
</TABLE>
24
<PAGE>
PaineWebber Emerging Markets Equity Fund
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000)** DATES RATES VALUE
- ----------- -------- -------- -----------
REPURCHASE AGREEMENT--4.68%
<C> <S> <C> <C> <C>
2,159 Repurchase Agreement dated 06/28/96 with State
Street Bank & Trust Company, collateralized by
$2,160,000 U.S. Treasury Bonds, 6.000%, due
08/31/97; proceeds: $2,159,855
(cost--$2,159,000)............................... 07/01/96 4.750% $ 2,159,000
-----------
Total Investments (cost--$42,985,575)--94.55%................... 43,641,538
Other assets in excess of liabilities--5.45%.................... 2,515,423
-----------
Net Assets--100.00%............................................. $46,156,961
-----------
-----------
</TABLE>
- ------------
<TABLE>
<S> <C>
Note: The Portfolio of Investments is listed by the security issuer's country of origin.
* Non-income producing security
** In local currency unless otherwise indicated
+ Security exempt from registration under Rule 144A of the Securities Act of 1933. This
security may be resold in transactions exempt from registration, normally to qualified
institutional buyers.
ADR American Depositary Receipts
GDR Global Depositary Receipts
GDS Global Depositary Shares
</TABLE>
See accompanying notes to financial statements
25
<PAGE>
PaineWebber Emerging Markets Equity Fund
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
June 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost--$42,985,575)....................................... $43,641,538
Cash denominated in foreign currencies, at value (cost--$820,204)............... 820,632
Receivable for investments sold................................................. 2,045,213
Dividends and interest receivable............................................... 343,107
Receivable for shares of beneficial interest sold............................... 127,079
Deferred organizational expenses................................................ 141,729
Due from adviser................................................................ 200,781
Other assets.................................................................... 38,771
-----------
Total assets.............................................................. 47,358,850
-----------
LIABILITIES
Payable for shares of beneficial interest repurchased........................... 299,135
Payable for investments purchased............................................... 652,629
Payable to affiliate............................................................ 42,519
Accrued expenses and other liabilities.......................................... 207,606
-----------
Total liabilities......................................................... 1,201,889
-----------
NET ASSETS
Beneficial interest shares of $0.001 par value outstanding (unlimited amount
authorized)..................................................................... 60,985,402
Accumulated net investment loss................................................. (126,114)
Accumulated net realized losses from investment and foreign currency
transactions.................................................................... (15,315,737)
Net unrealized appreciation of investments and other assets and liabilities
denominated in
foreign currencies............................................................. 613,410
-----------
Net assets................................................................ $46,156,961
-----------
-----------
CLASS A:
Net assets...................................................................... $20,680,296
-----------
Shares outstanding.............................................................. 2,055,050
-----------
Net asset value and redemption value per share.................................. $10.06
Maximum offering price per share (net asset value plus sales charge of 4.50% of
offering price)................................................................. $10.53
CLASS B:
Net assets...................................................................... $ 936,078
-----------
Shares outstanding.............................................................. 94,155
-----------
Net asset value and offering price per share.................................... $9.94
CLASS C:
Net assets...................................................................... $11,561,437
-----------
Shares outstanding.............................................................. 1,163,677
-----------
Net asset value and offering price per share.................................... $9.94
CLASS Y:
Net assets...................................................................... $12,979,150
-----------
Shares outstanding.............................................................. 1,283,838
-----------
Net asset value, offering price and redemption value per share.................. $10.11
</TABLE>
See accompanying notes to financial statements
26
<PAGE>
PaineWebber Emerging Markets Equity Fund
- --------------------------------------------------------------------------------
Statement of Operations
June 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of foreign withholding taxes of $77,615).......................... $ 850,111
Interest......................................................................... 193,054
-----------
1,043,165
-----------
EXPENSES:
Investment advisory and administration fees...................................... 867,093
Service fees--Class A............................................................ 65,762
Service and distribution fees--Class B........................................... 2,704
Service and distribution fees--Class C........................................... 144,997
Custody and accounting........................................................... 417,705
Reports and notices to shareholders.............................................. 110,313
Legal and audit.................................................................. 84,877
Transfer agency fees and expenses................................................ 73,454
State registration fees.......................................................... 63,912
Amortization of organizational expenses.......................................... 57,173
Trustees' fees and expenses...................................................... 10,129
Other expenses................................................................... 25,901
-----------
1,924,020
Less: Fee waivers................................................................ (538,618)
-----------
Net expenses............................................................... 1,385,402
-----------
NET INVESTMENT LOSS.............................................................. (342,237)
-----------
REALIZED AND UNREALIZED GAINS (LOSSES) FROM INVESTMENT TRANSACTIONS:
Net realized gains (losses) from:
Investment transactions.................................................... (6,654,434)
Foreign currency transactions.............................................. (191,127)
Net change in unrealized appreciation/depreciation of:
Investments................................................................ 8,571,981
Other assets and liabilities denominated in foreign currencies............. (50,722)
-----------
NET REALIZED AND UNREALIZED GAINS FROM INVESTMENT TRANSACTIONS................... 1,675,698
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............................. $ 1,333,461
-----------
-----------
</TABLE>
See accompanying notes to financial statements
27
<PAGE>
PaineWebber Emerging Markets Equity Fund
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
JUNE 30,
------------------------------
<S> <C> <C>
1996 1995
------------- -------------
FROM OPERATIONS:
Net investment loss............................................ $ (342,237) $ (722,359)
Net realized losses from investment transactions............... (6,654,434) (7,704,890)
Net realized losses from foreign currency transactions......... (191,127) (185,851)
Net change in unrealized appreciation/depreciation of:
Investments................................................... 8,571,981 1,768,294
Other assets and liabilities denominated in foreign
currencies..................................................... (50,722) 19,491
------------- -------------
Net increase (decrease) in net assets resulting from
operations..................................................... 1,333,461 (6,825,315)
------------- -------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income--Class A................................. -- (184,109)
Net investment income--Class B................................. -- --
Net investment income--Class C................................. -- (6,584)
Net investment income--Class Y................................. -- (87,871)
------------- -------------
-- (278,564)
------------- -------------
FROM BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from the sale of shares........................... 13,661,073 18,199,542
Proceeds from dividends reinvested............................. -- 272,835
Cost of shares repurchased..................................... (32,764,223) (36,356,442)
------------- -------------
Net decrease in net assets from beneficial interest
transactions................................................... (19,103,150) (17,884,065)
------------- -------------
Net decrease in net assets..................................... (17,769,689) (24,987,944)
NET ASSETS:
Beginning of period............................................ 63,926,650 88,914,594
------------- -------------
End of period.................................................. $ 46,156,961 $ 63,926,650
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to financial statements
28
<PAGE>
PaineWebber Emerging Markets Equity Fund
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
PaineWebber Emerging Markets Equity Fund (formerly Mitchell Hutchins/Kidder,
Peabody Emerging Markets Equity Fund) (the "Fund") is a series of PaineWebber
Investment Trust II (formerly Mitchell Hutchins/Kidder, Peabody Investment Trust
II), which is registered with the Securities and Exchange Commission under the
Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company. Organizational costs have been deferred and are
being amortized using the straight-line method over a period of benefit not to
exceed 60 months from the date the Fund commenced operations.
Currently, the Fund offers Class A, Class B, Class C (formerly Class B) and
Class Y (formerly Class C) shares. Effective November 10, 1995, the Fund began
using industry standardized nomenclatures and Class B and Class C were renamed
Class C and Class Y, respectively. In addition, a new Class B was created. 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 dividend reinvested shares
automatically convert to Class A shares approximately six years after initial
issuance. All classes of shares have equal voting privileges, except that each
class has exclusive voting rights with respect to its service and/or
distribution plan.
At a meeting held on December 13, 1995, the Fund's board of trustees elected to
change the Fund's fiscal year from June 30th to October 31st, effective October
31, 1996.
The preparation of financial statements in accordance with generally accepted
accounting principles requires the Fund's management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
Valuation of Investments--Securities which are listed on U.S. and foreign 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
generally valued on the exchange designated by Mitchell Hutchins Asset
Management Inc. ("Mitchell Hutchins"), a wholly owned subsidiary of PaineWebber
Incorporated ("PaineWebber") and investment adviser and administrator of the
Fund, and Emerging Markets Management ("EMM"), the sub-adviser to 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 trade
price on Nasdaq prior to the time of valuation; other OTC securities are valued
at the average of the quoted last bid and asked prices available in the OTC
market prior to the time of valuation. The amortized cost method of valuation,
which approximates market value, is used to value short-term debt instruments
with sixty days or less remaining to maturity unless the Fund's board of
trustees determines that this does not represent fair value. Securities and
assets 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
board of trustees.
29
<PAGE>
PaineWebber Emerging Markets Equity Fund
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
All investments quoted in foreign currencies are valued daily in U.S. dollars on
the basis of the foreign currency exchange rates prevailing at the time such
valuation is determined by the Fund's custodian. Foreign currency exchange rates
are generally determined prior to the close of the New York Stock Exchange
("NYSE"). Occasionally, events affecting the value of foreign investments and
such exchange rates occur between the time at which they are determined and the
close of the NYSE, which will not be reflected in a computation of the Fund's
net asset value. If events materially affecting the value of such investments or
currency exchange rates occur during such time period, the investments are
valued at their fair value as determined in good faith by or under the direction
of the Fund's board of trustees.
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 obligations. 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.
Investment Transactions and Investment Income--Investment transactions are
recorded on the trade date. Realized gains and losses from investment and
foreign exchange transactions are calculated using the identified cost method.
Dividend income is recorded on the ex-dividend date (except in the case of
certain foreign dividends which are recorded as soon after the ex-dividend date
as the Fund becomes aware of such dividend). Interest income is recorded on an
accrual basis. 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.
Foreign Currency Translation--The books and records of the Fund are maintained
in U.S. dollars. Foreign currency amounts are translated into U.S. dollars on
the following basis:
(1) market value of investment securities, other assets and
liabilities--at the exchange rates prevailing at the end of the
period.
(2) purchases and sales of investment securities, income and expenses--at
the exchange rates prevailing on the respective dates of such
transactions.
Although the net assets and the market value of the Fund are presented at the
foreign exchange rates at the end of the period, the Fund does not generally
isolate the effect of fluctuations in foreign exchange rates from the effect of
the changes in market prices of securities. However, the Fund does isolate the
30
<PAGE>
PaineWebber Emerging Markets Equity Fund
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
effect of fluctuations in foreign exchange rates when determining the realized
gain or loss upon the sale or maturity of foreign currency denominated debt
obligations. Realized currency gain/loss on investment transactions includes
realized foreign exchange gains/losses from the sale of portfolio securities,
sales of foreign currencies, currency gains/losses realized between the trade
and settlement dates on securities transactions, the difference between the
amounts of dividends, interest and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent of the amounts received or paid.
Gains/losses from translating foreign currency denominated assets and
liabilities at year-end exchange rates are included in the change in unrealized
appreciation/depreciation of other assets and liabilities denominated in foreign
currencies.
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 reclassifications. Dividends and distributions which
exceed net investment income and net realized capital gains for financial
reporting purposes, but not for tax purposes, are reported as dividends in
excess of net investment income or distributions in excess of net realized
capital gains. To the extent they exceed net investment income and net realized
capital gains for tax purposes, they are reported as distributions of
paid-in-capital.
CONCENTRATION OF RISK
Investing in securities of foreign issuers and currency transactions may involve
certain considerations and risks not typically associated with investments in
the United States. These risks include revaluation of currencies, adverse
fluctuations in foreign currency values and possible adverse political, social
and economic developments, including those particular to a specific industry,
country or region, which could cause the securities and their markets to be less
liquid and prices more volatile than those of comparable U.S. companies and U.S.
government securities. These risks are greater with respect to securities of
issuers located in emerging market countries. The ability of the issuers of debt
securities held by the Fund to meet their obligations may be affected by
economic and political developments in a specific industry, country or region.
INVESTMENT ADVISER AND ADMINISTRATOR
The Fund's board of trustees 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, Mitchell Hutchins receives
compensation from the Fund, computed daily and paid monthly, at an annual rate
of 1.62% of the Fund's average daily net assets up to $100 million and 1.50%
thereafter. At June 30, 1996, the Fund owed Mitchell Hutchins $42,519 in
investment advisory and administration fees.
31
<PAGE>
PaineWebber Emerging Markets Equity Fund
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Under a separate contract with Mitchell Hutchins ("Sub-Advisory Contract"), EMM
serves as the Fund's sub-adviser. Under the Sub-Advisory Contract, Mitchell
Hutchins (not the Fund) will pay the Sub-Adviser a fee, computed daily and paid
monthly, at the annual rate of 1.12% of the Fund's average daily net assets up
to $100 million and 0.90% thereafter.
In compliance with applicable state securities laws, Mitchell Hutchins will
reimburse the Fund if and to the extent that the aggregate operating expenses in
any fiscal year, exclusive of taxes, interest, brokerage fees, distribution fees
and extraordinary expenses, exceed limitations imposed by various state
regulations. Currently, the most restrictive limitation applicable to the Fund
is 2.5% of the first $30 million of average daily net assets, 2.0% of the next
$70 million and 1.5% of any excess over $100 million. For the year ended June
30, 1996, Mitchell Hutchins waived a portion of its investment advisory fee.
DISTRIBUTION PLAN
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 distribution pertaining to Class A, Class B and Class C (formerly Class
B) shares, the Fund pays Mitchell Hutchins monthly service fees at the 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.
Mitchell Hutchins also receives the proceeds of the initial sales charges paid
by the shareholders upon the purchase of Class A shares and the contingent
deferred sales charges paid by the shareholders upon certain redemptions of
Class B and Class C shares. Mitchell Hutchins has informed the Fund that for the
year ended June 30, 1996, it had earned approximately $27,000 in sales charges.
INVESTMENTS IN SECURITIES
For federal income tax purposes, the cost of securities owned at June 30, 1996
was substantially the same as the cost of securities for financial statement
purposes.
At June 30, 1996, the components of the net unrealized appreciation of
investments were as follows:
<TABLE>
<S> <C>
Gross appreciation (investments having an excess of value over cost)......... $ 5,562,818
Gross depreciation (investments having an excess of cost over value)......... (4,906,855)
-----------
Net unrealized appreciation of investments................................... $ 655,963
-----------
-----------
</TABLE>
For the year ended June 30, 1996, aggregate purchases and sales of portfolio
securities, excluding short-term securities, were $35,474,739 and $58,232,040,
respectively.
32
<PAGE>
PaineWebber Emerging Markets Equity Fund
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SHARES OF BENEFICIAL INTEREST
At June 30, 1996, there was an unlimited amount of $0.001 par value shares of
beneficial interest authorized. Transactions in shares of beneficial interest
were as follows:
<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>
Year ended June 30,
1996:
Shares sold............. 310,914 $ 3,098,378 100,302 $985,160 631,864 $ 6,160,591 349,064 $ 3,416,944
Dividends reinvested.... -- -- -- -- -- -- -- --
Shares repurchased...... (1,653,023) (15,971,690) (6,147) (60,876) (1,385,687) (13,506,039) (330,645) (3,225,618)
---------- ------------ ------- -------- ---------- ------------ -------- -----------
Net increase
(decrease).............. (1,342,109) $(12,873,312) 94,155 $924,284 (753,823) $ (7,345,448) 18,419 $ 191,326
---------- ------------ ------- -------- ---------- ------------ -------- -----------
---------- ------------ ------- -------- ---------- ------------ -------- -----------
Year ended June 30,
1995:
Shares sold............. 1,014,098 $ 11,084,369 -- -- 432,605 $ 4,522,619 242,720 $ 2,592,554
Dividends reinvested.... 20,613 180,155 -- -- 749 6,520 9,847 86,160
Shares repurchased...... (1,971,947) (21,159,863) -- -- (1,001,168) (10,754,854) (416,367) (4,441,725)
---------- ------------ ------- -------- ---------- ------------ -------- -----------
Net decrease............ (937,236) $ (9,895,339) -- -- (567,814) $ (6,225,715) (163,800) $(1,763,011)
---------- ------------ ------- -------- ---------- ------------ -------- -----------
---------- ------------ ------- -------- ---------- ------------ -------- -----------
</TABLE>
FEDERAL INCOME 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.
At June 30, 1996, the Fund had a net capital loss carryforward of $10,315,396.
In subsequent years, this carryforward loss is available as a reduction, to the
extent provided in the regulations, of future net realized capital gains and
will expire between June 30, 2003 and June 30, 2004.
To the extent that such losses are used to offset future capital gains, it is
probable that the gains so offset will not be distributed to shareholders.
In accordance with U.S. Treasury regulations, the Fund has elected to defer
realized foreign currency losses of $103,487 and capital losses of $4,231,246
arising after October 31, 1995. Such losses have been treated for tax purposes
as arising on July 1, 1996.
To reflect reclassifications arising from permanent "book/tax" differences for
the year ended June 30, 1996, the Fund's accumulated net realized loss was
increased by $278,157; accumulated net investment loss was reduced by $277,750
and beneficial interest was increased by $407.
33
<PAGE>
PaineWebber Emerging Markets Equity Fund
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
Selected data for a share of beneficial interest outstanding throughout each
period is presented below:
<TABLE>
<CAPTION>
CLASS A
----------------------------------
FOR THE YEARS CLASS B
ENDED FOR THE ---------------
JUNE 30, PERIOD ENDED FOR THE
------------------ JUNE 30, PERIOD ENDED
1996 1995 1994+ JUNE 30, 1996++
------- ------- ------------ ---------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period........... $ 9.73 $ 10.79 $ 12.00 $ 9.13
------- ------- ------------ -------
Net investment income (loss)................... (0.14) (0.04) 0.04 (0.01)
Net realized and unrealized gains (losses)
from investment and foreign currency
transactions.................................. 0.47 (0.97) (1.25) 0.82
------- ------- ------------ -------
Net increase (decrease) from investment
operations..................................... 0.33 (1.01) (1.21) 0.81
------- ------- ------------ -------
Dividends from net investment income........... -- (0.05) -- --
------- ------- ------------ -------
Net asset value, end of period................. $ 10.06 $ 9.73 $ 10.79 $ 9.94
------- ------- ------------ -------
------- ------- ------------ -------
Total investment return (1).................... 3.39% (9.29)% (10.08)% 8.87%
------- ------- ------------ -------
------- ------- ------------ -------
Ratios/Supplemental Data:
Net assets, end of period (000's).............. $20,680 $33,043 $ 46,758 $ 936
Expenses, net of fee waivers, to average net
assets......................................... 2.44% 2.44% 2.47%* 3.19%*
Expenses, before fee waivers, to average net
assets......................................... 3.42% 2.54% 2.47%* 4.97%*
Net investment income (loss), net of fee
waivers, to average net assets................ (0.52)% (0.76)% 0.72%* (0.21)%*
Net investment income (loss), before fee
waivers, to average net assets................ (1.50)% (0.86)% 0.72%* (1.99)%*
Portfolio turnover............................. 69% 76% 8% 69%
</TABLE>
- ------------
<TABLE>
<C> <S>
+ For the period January 19, 1994 (commencement of operations) to June 30, 1994.
++ For the period December 5, 1995 (commencement of offering of shares) to June 30, 1996.
* Annualized
** Formerly Class B shares
*** Formerly Class C shares
(1) Total investment return is calculated assuming a $1,000 investment on the first day of
each period reported, reinvestment of all dividends 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 for each class (except Class Y) would be
lower if sales charges were included. Total investment return for periods of less than
one year have not been annualized.
</TABLE>
34
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS C** CLASS Y***
- --------------------------------------------- -----------------------------------------------
FOR THE YEARS ENDED FOR THE FOR THE YEARS ENDED FOR THE
JUNE 30, PERIOD ENDED JUNE 30, PERIOD ENDED
- ---------------------------- JUNE 30, ------------------------------ JUNE 30,
1996 1995 1994+ 1996 1995 1994+
- ------------- ---------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
$ 9.67 $ 10.75 $ 12.00 $ 9.75 $ 10.80 $ 12.00
- ------------- ---------- ------------ ------------- ------------ ------------
(0.24) (0.17) -- (0.01) 0.01 0.05
0.51 (0.90) (1.25) 0.37 (0.99) (1.25)
- ------------- ---------- ------------ ------------- ------------ ------------
0.27 (1.07) (1.25) 0.36 (0.98) (1.20)
- ------------- ---------- ------------ ------------- ------------ ------------
-- (0.01) -- -- (0.07) --
- ------------- ---------- ------------ ------------- ------------ ------------
$ 9.94 $ 9.67 $ 10.75 $ 10.11 $ 9.75 $ 10.80
- ------------- ---------- ------------ ------------- ------------ ------------
- ------------- ---------- ------------ ------------- ------------ ------------
2.79% (10.01)% (10.42)% 3.69% (9.03)% (10.00)%
- ------------- ---------- ------------ ------------- ------------ ------------
- ------------- ---------- ------------ ------------- ------------ ------------
$11,561 $ 18,551 $ 26,721 $12,979 $ 12,332 $ 15,435
3.19% 3.19% 3.22%* 2.19% 2.19% 2.22%*
4.17% 3.29% 3.22%* 3.29% 2.29% 2.22%*
(1.28)% (1.50)% (0.03)%* (0.15)% (0.51)% 0.97%*
(2.26)% (1.60)% (0.03)%* (1.25)% (0.61)% 0.97%*
69% 76% 8% 69% 76% 8%
</TABLE>
35
<PAGE>
PaineWebber Emerging Markets Equity Fund
- --------------------------------------------------------------------------------
Report of Ernst & Young LLP, Independent Auditors
- --------------------------------------------------------------------------------
The Board of Trustees and Shareholders,
PaineWebber Emerging Markets Equity Fund:
We have audited the accompanying statement of assets and liabilities of
PaineWebber Emerging Markets Equity Fund as of June 30, 1996, including the
portfolio of investments and the related statements of operations and changes in
net assets, and the financial highlights for the year then ended. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audit. The statement
of changes in net assets for the year ended June 30, 1995 and the financial
highlights for each of the periods then ended were audited by other auditors
whose report dated August 25, 1995 expressed an unqualified opinion on that
statement and financial highlights.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of June
30, 1996, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the 1996 financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of PaineWebber Emerging Markets Equity Fund at June 30, 1996, the
results of its operations, changes in its net assets, and the financial
highlights for the year then ended, in conformity with generally accepted
accounting principles.
/s/ ERNST & YOUNG LLP
New York, New York
August 15, 1996
36
<PAGE>
PaineWebber Emerging Markets Equity Fund
- --------------------------------------------------------------------------------
Tax Information
- --------------------------------------------------------------------------------
We are required by subchapter M of the Internal Revenue Code of 1986, as
amended, to advise you within 60 days of the Fund's fiscal year end (June 30,
1996) as to the federal tax status of distributions received by shareholders
during such fiscal year. Accordingly, we are advising you that no distributions
were paid by the Fund during the period.
Because the Fund's fiscal year is not the calendar year, another notification
will be sent in respect of calendar 1996. The second notification, which will
reflect the amount to be used by calendar year taxpayers on their federal income
tax returns, will be made in conjunction with Form 1099 DIV and will be mailed
in January 1997. Shareholders are advised to consult their own tax advisers with
respect to the tax consequences of their investment in the Fund.
37
<PAGE>
PaineWebber Emerging Markets Equity Fund
- --------------------------------------------------------------------------------
Shareholder Information
- --------------------------------------------------------------------------------
A Special Meeting of Shareholders was held on April 10, 1996, at which the
following proposals were approved for the Fund.
PROPOSAL 1
<TABLE>
<CAPTION>
SHARES SHARES WITHHOLD
To elect ten members of its Board of Trustees: VOTED FOR AUTHORITY
--------- ---------------
<S> <C> <C>
Margo N. Alexander................................................ 2,554,627 95,208
Richard Q. Armstrong.............................................. 2,554,627 95,208
E. Garrett Bewkes, Jr............................................. 2,554,627 95,208
Richard R. Burt................................................... 2,554,627 95,208
Mary C. Farrell................................................... 2,554,627 95,208
Meyer Feldberg.................................................... 2,554,627 95,208
George W. Gowen................................................... 2,554,627 95,208
Frederic V. Malek................................................. 2,554,627 95,208
Carl W. Schafer................................................... 2,554,627 95,208
John R. Torell III................................................ 2,554,627 95,208
</TABLE>
PROPOSAL 2
To vote for or against the ratification of the selection of Ernst & Young LLP as
the independent auditors for the Fund's fiscal year ended June 30, 1996:
<TABLE>
<CAPTION>
SHARES SHARES SHARES
VOTED FOR VOTED AGAINST ABSTAIN
--------- ------------- -------
<S> <C> <C> <C>
2,554,627 0 95,208
</TABLE>
PROPOSAL 3
To vote for or against each of the following changes to the Fund's fundamental
investment restrictions and policies:
<TABLE>
<CAPTION>
SHARES SHARES SHARES
VOTED FOR VOTED AGAINST ABSTAIN
--------- ------------- -------
<S> <C> <C> <C>
Modification of Fundamental Restriction on Portfolio
Diversification for Diversified Funds....................... 2,496,329 32,342 121,164
Modification of Fundamental Restriction on Concentration..... 2,496,329 32,342 121,164
Modification of Fundamental Restriction on Senior Securities
and Borrowing............................................... 2,496,329 32,342 121,164
Modification of Fundamental Restriction on Making Loans...... 2,496,329 32,342 121,164
Modification of Fundamental Restriction on Underwriting
Securities.................................................. 2,496,329 32,342 121,164
Modification of Fundamental Restriction on Real Estate
Investments................................................. 2,496,329 32,342 121,164
Modification of Fundamental Restriction on Investing in
Commodities................................................. 2,496,329 32,342 121,164
Elimination of Fundamental Restriction on Margin
Transactions................................................ 2,496,329 32,342 121,164
Elimination of Fundamental Restriction on Short Sales........ 2,496,329 32,342 121,164
Elimination of Fundamental Restriction on Investments in Oil,
Gas and Mineral Leases and Programs......................... 2,496,329 32,342 121,164
</TABLE>
- ------------
(Broker non-votes and abstentions are included within the "Shares Withhold
Authority" and "Shares Abstain" totals.)
38
<PAGE>
BOARD OF TRUSTEES
TRUSTEES
Margo N. Alexander Meyer Feldberg
Richard Q. Armstrong George W. Gowen
E. Garrett Bewkes, Jr. Frederic V. Malek
Richard R. Burt Carl W. Schafer
Mary C. Farrell John R. Torell III
OFFICERS
Margo N. Alexander Dianne E. O'Donnell
President Vice President and Secretary
Victoria E. Schonfeld Julian F. Sluyters
Vice President Vice President and Treasurer
INVESTMENT ADVISER,
ADMINISTRATOR AND DISTRIBUTOR
Mitchell Hutchins Asset Management Inc.
1285 Avenue of the Americas
New York, New York 10019
INVESTMENT SUB-ADVISER
Emerging Markets Management
1001 Nineteenth Street North
Arlington, Virginia 22209-1722
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.
This report is not to be used in connection with the offering of shares of the
Fund unless accompanied or preceded by an effective prospectus.
<PAGE>
PaineWebber offers a family of 21 mutual funds which encompass a diversified
range of investment goals. Investors may exchange their Fund shares with other
Funds within the family for a $5 exchange fee.
B o n d F u n d s
- - High Income Fund
- - Investment Grade Income Fund
- - Low Duration U.S. Government Income Fund PAINEWEBBER
- - Strategic Income Fund
- - U.S. Government Income Fund
T a x - F r e e B o n d F u n d s
- - California Tax-Free Income Fund ANNUAL REPORT
- - Municipal High Income Fund
- - National Tax-Free Income Fund
- - New York Tax-Free Income Fund
S t o c k F u n d s
- - Capital Appreciation Fund EMERGING
- - Financial Services Growth Fund MARKETS
- - Growth Fund EQUITY
- - Growth and Income Fund FUND
- - Small Cap Fund
- - Utility Income Fund
A s s e t A l l o c a t i o n F u n d s
- - Balanced Fund
- - Tactical Allocation Fund
G l o b a l F u n d s
- - Emerging Markets Equity Fund
- - Global Equity Fund JUNE 30, 1996
- - Global Income Fund
P a i n e W e b b e r M o n e y M a r k e t F u n d
(C)1996 PaineWebber Incorporated
Member SIPC
