<PAGE>
PAINEWEBBER STRATEGIC INCOME FUND
PERFORMANCE RESULTS(UNAUDITED)
<TABLE>
<CAPTION>
TOTAL RETURN/1/
NET ASSET VALUE -----------------------------
----------------------------- 12 MONTHS 6 MONTHS
05/31/97 11/30/96 05/31/96 ENDED 05/31/97 ENDED 05/31/97
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CLASS A SHARES $ 9.37 $ 9.37 $ 8.90 13.36% 3.70%
- ---------------------------------------------------------------------------------
CLASS B SHARES 9.36 9.36 8.89 12.51 3.30
- ---------------------------------------------------------------------------------
CLASS C SHARES 9.36 9.37 8.89 12.80 3.32
- ---------------------------------------------------------------------------------
PERFORMANCE SUMMARY CLASS A SHARES
<CAPTION>
NET ASSET VALUE
----------------- CAPITAL GAINS DIVIDENDS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED PAID/2/ RETURN/1/
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
02/07/94-12/31/94 $ 10.00 $ 8.56 -- $0.5792 (8.76)%
- ---------------------------------------------------------------------------------
1995 8.56 8.79 -- 0.9392 14.12
- ---------------------------------------------------------------------------------
1996 8.79 9.34 -- 0.6352 14.00
- ---------------------------------------------------------------------------------
01/01/97-05/31/97 9.34 9.37 -- 0.2823 3.40
- ---------------------------------------------------------------------------------
TOTAL: $0.0000 $2.4359
- ---------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 05/31/97: 22.74%
- ---------------------------------------------------------------------------------
PERFORMANCE SUMMARY CLASS B SHARES
<CAPTION>
NET ASSET VALUE
----------------- CAPITAL GAINS DIVIDENDS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED PAID/2/ RETURN/1/
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
02/07/94-12/31/94 $ 10.00 $ 8.55 -- $0.5242 (9.41)%
- ---------------------------------------------------------------------------------
1995 8.55 8.78 -- 0.8733 13.29
- ---------------------------------------------------------------------------------
1996 8.78 9.33 -- 0.5727 13.23
- ---------------------------------------------------------------------------------
01/01/97-05/31/97 9.33 9.36 -- 0.2519 3.07
- ---------------------------------------------------------------------------------
TOTAL: $0.0000 $2.2221
- ---------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 05/31/97: 19.78%
- ---------------------------------------------------------------------------------
PERFORMANCE SUMMARY CLASS C SHARES
<CAPTION>
NET ASSET VALUE
----------------- CAPITAL GAINS DIVIDENDS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED PAID/2/ RETURN/1/
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
02/07/94-12/31/94 $ 10.00 $ 8.56 -- $0.5424 (9.13)%
- ---------------------------------------------------------------------------------
1995 8.56 8.79 -- 0.8951 13.56
- ---------------------------------------------------------------------------------
1996 8.79 9.33 -- 0.5934 13.36
- ---------------------------------------------------------------------------------
01/01/97-05/31/97 9.33 9.36 -- 0.2621 3.18
- ---------------------------------------------------------------------------------
TOTAL: $0.0000 $2.2930
- ---------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 05/31/97: 20.70%
- ---------------------------------------------------------------------------------
</TABLE>
/1/FIGURES ASSUME REINVESTMENT OF ALL DIVIDENDS AND OTHER DISTRIBUTIONS AT NET
ASSET VALUE ON THE PAYABLE DATES AND DO NOT INCLUDE SALES CHARGES; RESULTS
WOULD BE LOWER IF SALES CHARGES WERE INCLUDED.
/2/INCLUDES FOREIGN EXCHANGE GAIN DISTRIBUTIONS, IF ANY.
THE DATA ABOVE REPRESENTS PAST PERFORMANCE OF THE FUND'S SHARES, WHICH IS NO
GUARANTEE OF FUTURE RESULTS. THE PRINCIPAL VALUE OF AN INVESTMENT IN THE FUND
WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE
OR LESS THAN THEIR ORIGINAL COST.
5
<PAGE>
PAINEWEBBER STRATEGIC INCOME FUND
PERFORMANCE RESULTS (UNAUDITED) (CONCLUDED)
AVERAGE ANNUAL RETURN
<TABLE>
<CAPTION>
% RETURN AFTER
DEDUCTING
% RETURN WITHOUT MAXIMUM SALES
SALES CHARGE CHARGE
------------------------ ----------------------
CLASS CLASS
------------------------ ----------------------
A* B** C*** A* B** C***
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
TWELVE MONTHS ENDED 06/30/97 14.01% 13.15% 13.56% 9.47% 8.15% 12.81%
- --------------------------------------------------------------------------------
COMMENCEMENT OF OPERATIONS
THROUGH 06/30/97+ 6.71 5.92 6.20 5.42 5.41 6.20
- --------------------------------------------------------------------------------
</TABLE>
* MAXIMUM SALES CHARGE FOR CLASS A SHARES IS 4.0% 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 0.75% AND IS
REDUCED TO 0% AFTER 1 YEAR. CLASS C SHARES BEAR ONGOING 12B-1 DISTRIBUTION
AND SERVICE FEES.
+ COMMENCEMENT OF OPERATIONS FOR ALL THREE CLASSES OF SHARES WAS FEBRUARY 7,
1994.
THE DATA ABOVE REPRESENTS PAST PERFORMANCE OF THE FUND'S SHARES, WHICH IS NO
GUARANTEE OF FUTURE RESULTS. THE PRINCIPAL VALUE OF AN INVESTMENT IN THE FUND
WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE
OR LESS THAN THEIR ORIGINAL COST.
6
<PAGE>
PAINEWEBBER STRATEGIC INCOME FUND
PORTFOLIO OF INVESTMENTS MAY 31, 1997(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) MATURITY DATES INTEREST RATES VALUE
---------- -------------------- --------------- -----------
<S> <C> <C> <C>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS -- 27.55%
FEDERAL NATIONAL MORTGAGE ASSOCIATION CERTIFICATES -- 25.24%
$11,278 FNMA........................................ 03/01/26 TO 12/01/26 7.000% $10,971,064
5,408 FNMA........................................ 01/01/26 TO 12/01/26 7.500 5,387,303
-----------
TOTAL FEDERAL NATIONAL MORTGAGE ASSOCIATION CERTIFICATES
(COST -- $16,213,152).................................. 16,358,367
-----------
SHORT-TERM U.S. GOVERNMENT OBLIGATION -- 2.31%
1,500 UNITED STATES TREASURY BILLS(1)
(COST--$1,499,229)......................... 06/05/97 4.630@ 1,499,229
-----------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS
(COST -- $17,712,381).................................. 17,857,596
-----------
GLOBAL DEBT SECURITIES -- 25.73%
ARGENTINA -- 2.11%
1,600 REPUBLIC OF ARGENTINA DISC.................. 03/31/23 6.875++++ 1,366,000
-----------
BRAZIL -- 2.24%
2,200 FEDERAL REPUBLIC OF BRAZIL PAR.............. 04/15/24 5.250(B) 1,449,250
-----------
HUNGARY -- 2.25%
275,000* GOVERNMENT OF HUNGARY....................... 04/12/99 16.500 1,456,974
-----------
ITALY -- 6.97%
7,345,000* REPUBLIC OF ITALY........................... 02/01/99 9.500 4,518,966
-----------
NEW ZEALAND -- 4.41%
3,750* GOVERNMENT OF NEW ZEALAND................... 03/15/02 10.000 2,858,379
-----------
POLAND -- 4.70%
3,610 REPUBLIC OF POLAND, PDI..................... 10/27/14 4.000(B) 3,045,937
-----------
UNITED KINGDOM -- 3.05%
1,080* UNITED KINGDOM GILT......................... 07/14/00 TO 12/07/15 8.000 TO 13.000 1,975,345
-----------
TOTAL GLOBAL DEBT SECURITIES (COST -- $15,236,247)...... 16,670,851
-----------
HIGH YIELD SECURITIES -- 45.67%
CORPORATE BONDS -- 42.51%
AIRLINES -- 0.85%
500 AIRPLANE PASS THROUGH TRUST................. 03/15/19 10.875 550,000
-----------
CABLE -- 5.07%
500 INTERNATIONAL CABLETEL**.................... 02/15/07 10.000 502,500
500 TCI SATELLITE ENTERTAINMENT INCORPORATED**.. 02/15/07 12.250+ 285,000
1,250 TELEWEST PLC................................ 10/01/07 11.000+ 868,750
1,000 TEVECAP S.A. ............................... 11/26/04 12.625 1,062,500
1,000 UIH AUSTRALIA PACIFIC INCORPORATED.......... 05/15/06 14.000+ 567,500
-----------
3,286,250
-----------
</TABLE>
7
<PAGE>
PAINEWEBBER STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) MATURITY DATES INTEREST RATES VALUE
---------- -------------- -------------- -----------
<S> <C> <C> <C>
CORPORATE BONDS -- (CONTINUED)
COMMUNICATIONS -- 8.76%
$2,000 COLT TELECOM GROUP PLC.. 12/15/06 12.000%+ $ 1,270,000
500# GLOBALSTAR L.P. ........ 02/15/04 11.375 506,250
500 GST USA INCORPORATED.... 12/15/05 13.875+ 292,500
250 ITC DELTACOM
INCORPORATED**......... 06/01/07 11.000 255,000
1,000 NEXTEL COMMUNICATIONS
INCORPORATED........... 08/15/04 9.750+ 760,000
1,250 RSL COMMUNICATIONS
LIMITED................ 11/15/06 12.250 1,262,500
2,000 VIATEL INCORPORATED..... 01/15/05 15.000+ 1,330,000
-----------
5,676,250
-----------
CONSUMER MANUFACTURING -- 3.10%
900 APPAREL VENTURES
INCORPORATED........... 12/31/00 12.250 783,000
653 CHATTEM INCORPORATED.... 06/15/04 12.750 722,381
500 EKCO GROUP INCORPORATED. 04/01/06 9.250 505,000
-----------
2,010,381
-----------
ENTERTAINMENT -- 0.73%
491 UNITED ARTISTS THEATRE
CIRCUIT................ 07/01/15 9.300 474,368
-----------
FINANCE -- 0.76%
500 OLYMPIC FINANCIAL
LIMITED................ 03/15/07 11.500 495,000
-----------
FOOD & BEVERAGE -- 2.32%
2,245 IOWA SELECT FARMS++..... 02/15/04 17.250+ 1,505,722
-----------
GAMING -- 0.00%
1,106# GRAND PALSIS CASINO
INCORPORATED++......... 11/01/97 18.250(A) 0
-----------
GENERAL INDUSTRIAL -- 2.37%
1,000 POINDEXTER J.B.
INCORPORATED........... 05/15/04 12.500 995,000
500 POLYSINDO INTERNATIONAL
FINANCE COMPANY B.V. .. 06/15/06 11.375 543,750
-----------
1,538,750
-----------
MEDIA -- 4.50%
500 AFFILIATED NEWSPAPER
INVESTMENTS............ 07/01/06 13.250+ 438,750
1,000 GRUPO TELEVISA S.A. DE
C.V. .................. 05/15/08 13.250+ 702,500
750 SUN MEDIA CORPORATION**. 05/15/07 9.500 750,000
1,000 T.V. AZTECA S.A. DE
C.V.**................. 02/15/07 10.500 1,026,250
-----------
2,917,500
-----------
METALS & MINING -- 1.61%
500 ALTOS HORNOS DE MEXICOS
S.A. DE C.V.**......... 04/30/04 11.875 527,500
500 WCI STEEL INCORPORATED.. 12/01/04 10.000 515,000
-----------
1,042,500
-----------
PACKAGING -- 1.97%
750 FSW INTERNATIONAL
FINANCE COMPANY B.V. .. 11/01/06 12.500 753,750
500 VICAP, S.A. DE C.V. .... 05/15/07 11.375 520,000
-----------
1,273,750
-----------
</TABLE>
8
<PAGE>
PAINEWEBBER STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) MATURITY DATES INTEREST RATES VALUE
--------- -------------- -------------- -----------
<S> <C> <C> <C>
CORPORATE BONDS -- (CONCLUDED)
RETAIL -- 2.79%
$ 750 CHIEF AUTO PARTS
INCORPORATED........... 05/15/05 10.500% $ 757,500
1,000 CSK AUTO INCORPORATED**. 11/01/06 11.000 1,047,500
-----------
1,805,000
-----------
SUPERMARKETS & DRUGSTORES -- 1.15%
700 DI GIORGIO CORPORATION.. 02/15/03 12.000 742,000
-----------
TECHNOLOGY -- 2.63%
2,000 ELECTRONIC RETAILING
SYSTEMS
INTERNATIONAL**........ 02/01/04 13.250+ 1,370,000
750 INTER ACT SYSTEMS
INCORPORATED........... 08/01/03 14.000+ 337,500
-----------
1,707,500
-----------
TRANSPORTATION NON-AIR -- 2.90%
750 ATLANTIC EXPRESS
TRANSPORTATION
CORPORATION**.......... 02/01/04 10.750 780,000
1,000 GEARBULK HOLDING
LIMITED................ 12/01/04 11.250 1,100,000
-----------
1,880,000
-----------
UTILITIES -- 1.00%
624 PANDA FUNDING
CORPORATION............ 08/20/12 11.625 645,552
-----------
TOTAL CORPORATE BONDS (COST --
$27,875,348)...................... 27,550,523
-----------
CONVERTIBLE BONDS -- 0.82%
COMMUNICATIONS -- 0.13%
110 GST TELECOMMUNICATIONS
INCORPORATED........... 12/15/05 13.875+ 82,500
-----------
RETAIL -- 0.69%
500 MICHAELS STORES
INCORPORATED........... 01/15/03 6.750 445,000
-----------
TOTAL CONVERTIBLE BONDS (COST --
$514,052)......................... 527,500
-----------
<CAPTION>
NUMBER OF
SHARES
---------
<S> <C>
COMMON STOCK(A) -- 1.47%
COMMUNICATIONS -- 0.54%
2,625 PAGEMART NATIONWIDE INCORPORATED........................ 15,422
1,250 RSL COMMUNICATIONS LIMITED.............................. 25,000
48,133 VIATEL INCORPORATED..................................... 312,864
-----------
353,286
-----------
GAMING -- 0.93%
58,152 CASINO AMERICA INCORPORATED............................. 136,294
102,958 COLORADO GAMING & ENTERTAINMENT COMPANY................. 463,311
-----------
599,605
-----------
TOTAL COMMON STOCK (COST -- $981,703)............................. 952,891
-----------
</TABLE>
9
<PAGE>
PAINEWEBBER STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
NUMBER OF
WARRANTS VALUE
---------- -----------
<S> <C>
WARRANTS(A) -- 0.87%
CONSUMER MANUFACTURING -- 0.42%
1,000 AVI HOLDINGS INCORPORATED.............................. $ 5,000
1,280 CHATTEM INCORPORATED................................... 15,680
2,000 ICON HEALTH & FITNESS CORPORATION...................... 250,000
-----------
270,680
-----------
FOOD & BEVERAGE -- 0.11%
30,000 IOWA SELECT FARMS++.................................... 75,000
-----------
GAMING -- 0.03%
10,294 CASINO AMERICA INCORPORATED............................ 18,529
-----------
MEDIA -- 0.31%
2,000 AFFILIATED NEWSPAPER INVESTMENTS....................... 200,000
-----------
TECHNOLOGY -- 0.00%
750 INTERACT SYSTEMS INCORPORATED.......................... 1,875
-----------
TOTAL WARRANTS (COST -- $366,410)................................. 566,084
-----------
TOTAL HIGH YIELD SECURITIES (COST -- $29,737,513)................. 29,596,998
-----------
<CAPTION>
PRINCIPAL
AMOUNT
(000) MATURITY DATES INTEREST RATES
---------- -------------- --------------
<S> <C> <C> <C>
REPURCHASE AGREEMENTS -- 6.99%
$2,000 REPURCHASE AGREEMENT
DATED 05/30/97
WITH CITICORP
SECURITIES,
INCORPORATED;
COLLATERALIZED BY
$1,820,000
U.S. TREASURY BONDS,
8.125% DUE 05/15/21;
PROCEEDS: $2,000,923.. 06/02/97 5.540% 2,000,000
2,533 REPURCHASE AGREEMENT
DATED 05/30/97
WITH DRESDNER
SECURITIES (USA)
INCORPORATED;
COLLATERALIZED BY
$2,742,000
U.S. TREASURY NOTES,
5.625% DUE 02/15/06;
PROCEEDS: $2,534,165.. 06/02/97 5.520 2,533,000
-----------
TOTAL REPURCHASE AGREEMENTS
(COST -- $4,533,000)............... 4,533,000
-----------
INVESTMENTS OF CASH COLLATERAL FOR
SECURITIES LOANED -- 2.36%
<CAPTION>
NUMBER OF
SHARES
----------
<S> <C>
MONEY MARKET FUND -- 2.36%
1,528 LIQUID ASSETS PORTFOLIO (COST -- $1,528,125)........... 1,528,125
-----------
TOTAL INVESTMENTS (COST -- $68,747,266) -- 108.30%................ 70,186,570
LIABILITIES IN EXCESS OF OTHER ASSETS -- (8.30)%.................. (5,381,912)
-----------
NET ASSETS -- 100.00%............................................. $64,804,658
===========
</TABLE>
- ---------
NOTE: THE GLOBAL DEBT SECTION OF THE PORTFOLIO OF INVESTMENTS IS LISTED BY THE
ISSUER'S COUNTRY OF ORIGIN.
* STATED IN LOCAL CURRENCY
** SECURITY EXEMPT FROM REGISTRATION UNDER RULE 144A OF THE SECURITIES ACT OF
1933. THESE SECURITIES MAY BE RESOLD IN TRANSACTIONS EXEMPT FROM
REGISTRATION, NORMALLY TO QUALIFIED INSTITUTIONAL BUYERS.
# SECURITY REPRESENTS A UNIT WHICH IS COMPOSED OF THE STATED BOND WITH
ATTACHED WARRANTS OR COMMON STOCK
@ YIELD TO MATURITY FOR DISCOUNTED SECURITIES
+ DENOTES A STEP-UP BOND OR A ZERO COUPON BOND THAT CONVERTS TO THE NOTED
FIXED RATE AT A DESIGNATED FUTURE DATE
++ ILLIQUID SECURITIES REPRESENTING 2.3% OF PORTFOLIO ASSETS
++++VARIABLE RATE SECURITY, INTEREST RATE NOTED IS CURRENT RATE AT MAY 31,
1997.
(A) NON-INCOME PRODUCING
(B) REFLECTS RATE AT MAY 31, 1997, ON STEP COUPON RATE INSTRUMENTS
(1) SECURITY WAS ON LOAN AT MAY 31, 1997
DISC - DISCOUNT BONDS
PAR - PAR BONDS
PDI - PAST DUE INTEREST
10
<PAGE>
PAINEWEBBER STRATEGIC INCOME FUND
FORWARD FOREIGN CURRENCY CONTRACTS
<TABLE>
<CAPTION>
UNREALIZED
CONTRACT TO IN EXCHANGE MATURITY APPRECIATION
DELIVER FOR DATE (DEPRECIATION)
------------- -------------- -------- --------------
<S> <C> <C> <C> <C>
ITALIAN LIRA.............. 7,508,000,000 US$ 4,503,305 06/30/97 $ 77,083
NEW ZEALAND DOLLARS....... 4,045,000 US$ 2,801,135 06/19/97 13,690
SPANISH PESETAS........... 205,000,000 US$ 1,580,327 10/15/97 158,819
U.S. DOLLARS.............. 1,565,603 SP 205,000,000 10/15/97 (144,094)
---------
$ 105,498
=========
</TABLE>
- ---------
CURRENCY TYPE ABBREVIATION:
SP - SPANISH PESETAS
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
11
<PAGE>
PAINEWEBBER STRATEGIC INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES MAY 31, 1997(UNAUDITED)
<TABLE>
<S> <C>
ASSETS
INVESTMENTS IN SECURITIES, AT VALUE (COST -- $68,747,266)........ $70,186,570
INTEREST RECEIVABLE.............................................. 931,787
RECEIVABLE FOR SHARES OF BENEFICIAL INTEREST SOLD................ 169,242
UNREALIZED APPRECIATION ON FORWARD FOREIGN CURRENCY CONTRACTS.... 249,592
DEFERRED ORGANIZATIONAL COSTS.................................... 100,874
OTHER ASSETS..................................................... 54,405
-----------
TOTAL ASSETS..................................................... 71,692,470
-----------
LIABILITIES
PAYABLE FOR INVESTMENTS PURCHASED................................ 4,834,002
PAYABLE FOR CASH COLLATERAL ON SECURITIES LOANED................. 1,528,125
PAYABLE FOR SHARES OF BENEFICIAL INTEREST REPURCHASED............ 162,729
UNREALIZED DEPRECIATION ON FORWARD FOREIGN CURRENCY CONTRACTS.... 144,094
PAYABLE TO AFFILIATE............................................. 83,279
ACCRUED EXPENSES AND OTHER LIABILITIES........................... 135,583
-----------
TOTAL LIABILITIES................................................ 6,887,812
-----------
NET ASSETS
BENEFICIAL INTEREST -- $0.001 PAR VALUE (UNLIMITED AMOUNT
AUTHORIZED)..................................................... 71,748,742
DISTRIBUTIONS IN EXCESS OF NET INVESTMENT INCOME................. (98,385)
ACCUMULATED NET REALIZED LOSSES FROM INVESTMENTS, FOREIGN
CURRENCY AND FUTURES TRANSACTIONS............................... (8,389,395)
NET UNREALIZED APPRECIATION OF INVESTMENTS, OTHER ASSETS,
LIABILITIES AND FORWARD CONTRACTS DENOMINATED IN FOREIGN
CURRENCIES...................................................... 1,543,696
-----------
NET ASSETS....................................................... $64,804,658
===========
CLASS A:
NET ASSETS....................................................... $12,890,637
-----------
SHARES OUTSTANDING............................................... 1,376,418
-----------
NET ASSET AND REDEMPTION VALUE PER SHARE......................... $9.37
=====
MAXIMUM OFFERING PRICE PER SHARE (NET ASSET VALUE PLUS SALES
CHARGE OF 4.00% OF OFFERING PRICE).............................. $9.76
=====
CLASS B:
NET ASSETS....................................................... $35,075,824
-----------
SHARES OUTSTANDING............................................... 3,749,278
-----------
NET ASSET VALUE AND OFFERING PRICE PER SHARE..................... $9.36
=====
CLASS C:
NET ASSETS....................................................... $16,838,197
-----------
SHARES OUTSTANDING............................................... 1,798,720
-----------
NET ASSET VALUE AND OFFERING PRICE PER SHARE..................... $9.36
=====
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
12
<PAGE>
PAINEWEBBER STRATEGIC INCOME FUND
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS
ENDED
MAY 31, 1997
(UNAUDITED)
------------
<S> <C>
INVESTMENT INCOME:
INTEREST (NET OF FOREIGN WITHHOLDING TAXES)........................ $2,837,322
----------
EXPENSES:
INVESTMENT ADVISORY AND ADMINISTRATION............................. 234,868
SERVICE FEES -- CLASS A............................................ 14,108
SERVICE AND DISTRIBUTION FEES -- CLASS B........................... 174,640
SERVICE AND DISTRIBUTION FEES -- CLASS C........................... 61,564
LEGAL AND AUDIT.................................................... 60,280
REPORTS AND NOTICES TO SHAREHOLDERS................................ 57,961
STATE REGISTRATION FEES............................................ 49,881
TRANSFER AGENCY AND SERVICE FEES................................... 31,292
AMORTIZATION OF ORGANIZATIONAL EXPENSES............................ 30,000
CUSTODY AND ACCOUNTING............................................. 13,981
TRUSTEES' FEES..................................................... 6,125
OTHER EXPENSES..................................................... 10,958
----------
745,658
----------
NET INVESTMENT INCOME.............................................. 2,091,664
----------
REALIZED AND UNREALIZED GAINS (LOSSES) FROM INVESTMENT ACTIVITIES:
NET REALIZED GAINS (LOSSES) FROM:
INVESTMENT TRANSACTIONS........................................... 929,821
FOREIGN CURRENCY TRANSACTIONS..................................... (12,312)
FUTURES CONTRACTS................................................. (119,664)
NET CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION OF:
INVESTMENTS....................................................... (956,468)
OTHER ASSETS, LIABILITIES AND FORWARD CONTRACTS DENOMINATED IN
FOREIGN CURRENCIES............................................... 120,323
----------
NET REALIZED AND UNREALIZED LOSS FROM INVESTMENT ACTIVITIES........ (38,300)
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............... $2,053,364
==========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
13
<PAGE>
PAINEWEBBER STRATEGIC INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS FOR THE PERIOD
ENDED FEBRUARY 1, 1996
MAY 31, 1997 THROUGH
(UNAUDITED) NOVEMBER 30, 1996
------------ -----------------
<S> <C> <C>
FROM OPERATIONS:
NET INVESTMENT INCOME.......................... $ 2,091,664 $ 3,862,593
NET REALIZED GAINS (LOSSES) FROM INVESTMENT
TRANSACTIONS.................................. 929,821 (480,825)
NET REALIZED GAINS (LOSSES) FROM FOREIGN
CURRENCY TRANSACTIONS......................... (12,312) 212,221
NET REALIZED LOSSES FROM FUTURES CONTRACTS..... (119,664) --
NET CHANGE IN UNREALIZED
APPRECIATION/DEPRECIATION OF INVESTMENTS...... (956,468) 3,207,717
NET CHANGE IN UNREALIZED
APPRECIATION/DEPRECIATION OF OTHER ASSETS,
LIABILITIES AND FORWARD CONTRACTS DENOMINATED
IN FOREIGN CURRENCIES......................... 120,323 (261,752)
----------- ------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS.................................... 2,053,364 6,539,954
----------- ------------
DIVIDENDS TO SHAREHOLDERS FROM:
NET INVESTMENT INCOME -- CLASS A............... (412,110) (610,827)
NET INVESTMENT INCOME -- CLASS B............... (1,136,389) (2,231,468)
NET INVESTMENT INCOME -- CLASS C............... (555,560) (1,065,791)
----------- ------------
TOTAL DIVIDENDS TO SHAREHOLDERS................ (2,104,059) (3,908,086)
----------- ------------
FROM BENEFICIAL INTEREST TRANSACTIONS:
NET PROCEEDS FROM THE SALE OF SHARES........... 10,528,358 6,348,425
COST OF SHARES REPURCHASED..................... (10,993,862) (16,393,834)
PROCEEDS FROM DIVIDENDS REINVESTED............. 1,026,729 1,981,768
----------- ------------
NET INCREASE (DECREASE) IN NET ASSETS FROM
BENEFICIAL INTEREST TRANSACTIONS.............. 561,225 (8,063,641)
----------- ------------
NET INCREASE (DECREASE) IN NET ASSETS.......... 510,530 (5,431,773)
NET ASSETS:
BEGINNING OF PERIOD............................ 64,294,128 69,725,901
----------- ------------
END OF PERIOD.................................. $64,804,658 $ 64,294,128
=========== ============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
14
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
PaineWebber Securities Trust ("Trust") was organized under Massachusetts law
by a Declaration of Trust dated December 3, 1992 and is registered with the Se-
curities and Exchange Commission under the Investment Company Act of 1940, as
amended, as an open-end, diversified investment company. The Trust is a series
mutual fund with two funds: PaineWebber Strategic Income Fund (the "Fund") and
PaineWebber Small Cap Fund. The financial statements of PaineWebber Small Cap
Fund are not included herein.
Costs incurred by the Fund in connection with its organization have been de-
ferred and are being amortized using the straight-line method over a period not
to exceed sixty months from the commencement of operations.
Currently, the Fund offers Class A, Class B, Class C and Class Y (no Class Y
shares were outstanding during the period) shares. Each class represents inter-
ests in the same assets of the Fund, and the classes are identical except for
differences in their sales charge structures, ongoing service and distribution
charges and certain transfer agency expenses. In addition, Class B shares and
all corresponding reinvested dividend shares automatically convert to Class A
shares approximately six years after issuance. All classes of shares have equal
voting privileges, except that each class has exclusive voting rights with re-
spect to its service and/or distribution plan.
The preparation of financial statements in accordance with generally accepted
accounting principles requires Fund management to make estimates and assump-
tions that affect the reported amounts and disclosures in the financial state-
ments. Actual results could differ from those estimates. The following is a
summary of significant accounting policies:
Valuation of Investments -- Securities which are listed on 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 se-
curities are valued on the exchange designated by Mitchell Hutchins Asset Man-
agement Inc. ("Mitchell Hutchins"), a wholly owned subsidiary of PaineWebber
Incorporated ("PaineWebber") and investment adviser and administrator of the
Fund, as the primary market. Securities traded in the over-the-counter ("OTC")
market and listed on The Nasdaq Stock Market ("Nasdaq") are valued at the last
trade price on Nasdaq prior to the time of valuation; other OTC securities are
valued at the last bid price available in the OTC market prior to the time of
valuation. The amortized cost method of valuation is used to value short-term
debt instruments with sixty days or less remaining to maturity. Securities and
assets for which market quotations are not readily available (including re-
stricted securities subject to limitations as to their sale) are valued at fair
value as determined in good faith by a management committee under the direction
of the Trust's board of trustees. All investments quoted in foreign currencies
will be valued daily in U.S. dollars on the basis of the foreign currency ex-
change 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
the computation of the Fund's net asset value. If events materially affecting
the value of such securities or currency exchange rates occur during such time
period, the securities will be valued at their fair value as determined in good
faith by or under the direction of the Trust's board of trustees.
15
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
Repurchase Agreements -- The Fund's custodian takes possession of the collat-
eral pledged for investments in repurchase agreements. The underlying collat-
eral is valued daily on a mark-to-market basis to ensure that the value, in-
cluding accrued interest, is at least equal to the repurchase price. In the
event of default of the obligation to repurchase, the Fund has the right to
liquidate the collateral and apply the proceeds in satisfaction of the obliga-
tion. Under certain circumstances, in the event of default or bankruptcy by the
other party to the agreement, realization and/or retention of the collateral
may be subject to legal proceedings. The Fund occasionally participates in
joint repurchase agreement transactions with other funds managed by Mitchell
Hutchins.
Investment Transactions and Investment Income -- Investment transactions are
recorded on the trade date. Realized gains and losses from investment transac-
tions and foreign exchange transactions are calculated using the identified
cost method. Interest income is recorded on an accrual basis. Discounts are ac-
creted 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 (af-
ter 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 main-
tained in U.S. dollars. Foreign currency amounts are translated into U.S. dol-
lars 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 rates of exchange prevailing on the respective dates of such transac-
tions.
Although the Fund's net assets including the market values of the Fund's in-
vestments are presented at the foreign exchange rates at the close of the peri-
od, 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 effect of fluctuations in foreign exchange
rates when determining the gain or loss upon the sale or maturity of foreign
currency-denominated debt obligations pursuant to federal income tax regula-
tions.
Forward Foreign Currency Contracts -- The Fund may enter into forward foreign
currency exchange contracts ("forward contracts") in connection with planned
purchases or sales of securities or to hedge the U.S. dollar value of portfolio
securities denominated in a particular currency.
The Fund has no specific limitation on the percentage of assets which may be
committed to such contracts. The Fund may enter into forward contracts or main-
tain a net exposure to forward contracts only if (1) the consummation of the
contracts would not obligate the Fund to deliver an amount of foreign currency
in excess of the value of the position being hedged by such contracts or (2)
the Fund maintains cash, U.S. government securities or liquid debt securities
in a segregated account in an amount not less than the value of its total as-
sets committed to the consummation of the forward contracts and not covered as
provided in (1) above, as marked-to-market daily.
Risks may arise upon entering into forward contracts from the potential in-
ability of counterparties to meet the terms of their forward contracts and from
unanticipated movements in the value of foreign currencies relative to the U.S.
dollar.
16
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
Fluctuations in the value of forward contracts are recorded for book purposes
as unrealized gains or losses by the Fund. Realized gains and losses include
net gains and losses recognized by the Fund on contracts which have matured.
Futures Contracts -- Upon entering into a financial futures contract, the Fund
is required to pledge to a broker an amount of cash and/or U.S. Government se-
curities equal to a certain percentage of the contract amount. This amount is
known as the "initial margin." Subsequent payments, known as "variation mar-
gin," are made or received by the Fund each day, depending on the daily fluctu-
ations in the value of the underlying financial futures contracts. Such varia-
tion margin is recorded for financial statement purposes on a daily basis as
unrealized gain or loss until the financial futures contract is closed, at
which time the net gain or loss is reclassified to realized.
Using financial futures contracts involves various market risks. The maximum
amount at risk from the purchase of a futures contract is the contract value.
The Fund primarily used financial futures contracts for hedging purposes and
not for leverage. However, imperfect correlations between futures contracts and
the portfolio securities being hedged or, market disruptions, do not normally
permit full control of these risks at all times.
Dividends and Distributions to Shareholders -- 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 re-
classified within the capital accounts based on their federal tax-basis treat-
ment; temporary differences do not require reclassification.
CONCENTRATION OF RISK
Investing in securities of foreign issuers and currency transactions may in-
volve certain considerations and risks not typically associated with invest-
ments in the United States. These risks include revaluation of currencies, ad-
verse fluctuations in foreign currency values and possible adverse political,
social and economic developments, including those particular to a specific in-
dustry, 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. compa-
nies and U.S. government securities. These risks are greater with respect to
securities of issuers located in emerging market countries in which the Fund is
authorized to invest. The ability of the issuers of debt securities held by the
Fund to meet their obligations may be affected by economic and political devel-
opments particular to a specific industry, country or region.
INVESTMENT ADVISER AND ADMINISTRATOR
The Trust's board of trustees has approved an Investment Advisory and Adminis-
tration Contract ("Advisory Contract") with Mitchell Hutchins, under which
Mitchell Hutchins serves as investment adviser and administrator of the Fund.
In accordance with the Advisory Contract, the Fund pays Mitchell Hutchins an
investment advisory and administration fee, which is accrued daily and paid
monthly, at the annual rate of 0.75% of the Fund's average daily net assets. At
May 31, 1997, the Fund owed Mitchell Hutchins $40,021 in investment advisory
and administration fees.
DISTRIBUTION PLANS
Mitchell Hutchins is the distributor of the Fund's shares and has appointed
PaineWebber as the exclusive dealer for the sale of those shares. Under sepa-
rate plans of distribution pertaining to Class A, Class B and Class C shares,
the Fund pays Mitchell Hutchins monthly service fees at an annual rate of 0.25%
of the average daily net assets of Class A, Class B and
17
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
Class C shares and monthly distribution fees at an annual rate of 0.75% and
0.50% of the average daily net assets of Class B shares and Class C shares, re-
spectively. At May 31, 1997, the Fund owed Mitchell Hutchins $41,979 in service
and distribution fees.
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 de-
ferred sales charges paid by the shareholders upon certain redemptions of Class
A, Class B and Class C shares. Mitchell Hutchins has informed the Fund that for
the six months ended May 31, 1997, it earned $90,702 in sales charges.
SECURITY LENDING
The Fund may lend up to 33 1/3% of its total assets to qualified institutions.
The loans are secured at all times by cash or U.S. government securities in an
amount at least equal to the market value of the securities loaned, plus ac-
crued interest, determined on a daily basis and adjusted accordingly. The Fund
will regain record ownership of loaned securities to exercise certain benefi-
cial rights, however, the Fund may bear the risk of delay in recovery of, or
even loss of rights in, the securities loaned should the borrower fail finan-
cially. The Fund receives compensation, which is included in interest income,
for lending its securities from interest earned on the cash or U.S. government
securities held as collateral, net of fee rebates paid to the borrower plus
reasonable administrative and custody fees. The Fund's lending agent is
PaineWebber, who received $136 from the Fund for the six months ended May 31,
1997.
As of May 31, 1997, the Fund's custodian held cash and cash equivalents having
an aggregate value of $1,528,125 as collateral for portfolio securities loaned
having a market value of $1,498,965.
TRANSFER AGENCY SERVICE FEES
The Fund pays PaineWebber an annual fee of $4.00 per active PaineWebber share-
holder account for certain services not provided by the Fund's transfer agent.
For these services for the six months ended May 31, 1997, PaineWebber earned
$7,806 in transfer agency service fees from the Fund. At May 31, 1997, the Fund
owed PaineWebber $1,279 for transfer agency service fees.
INVESTMENTS IN SECURITIES
For federal income tax purposes, the cost of securities owned at May 31, 1997,
was substantially the same as the cost of securities for financial statement
purposes.
At May 31, 1997, the components of the net unrealized appreciation of invest-
ments were as follows:
<TABLE>
<S> <C>
GROSS APPRECIATION (INVESTMENTS HAVING AN EXCESS OF VALUE OVER
COST)............................................................ $ 3,584,288
GROSS DEPRECIATION (INVESTMENTS HAVING AN EXCESS OF COST OVER
VALUE)........................................................... (2,144,984)
-----------
NET UNREALIZED APPRECIATION OF INVESTMENTS........................ $ 1,439,304
===========
</TABLE>
For the six months ended May 31, 1997, total aggregate purchases and sales of
portfolio securities, excluding short-term securities, were as follows:
<TABLE>
<S> <C>
PURCHASES........................................................... $37,217,655
SALES............................................................... $34,432,915
</TABLE>
18
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
FEDERAL TAX STATUS
The Fund intends to distribute all of its taxable income and to comply with
the other requirements of the Internal Revenue Code applicable to regulated in-
vestment companies. Accordingly, no provision for federal income taxes is re-
quired. 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 November 30, 1996, the Fund had a net capital loss carryforward of
$9,187,240 that will expire between November 30, 2002 and November 30, 2004.
This loss carryforward is available as a reduction, to the extent provided in
the regulations, of future net realized capital gains. To the extent that such
losses are used to offset future net realized capital gains, it is probable
these gains will not be distributed.
SHARES OF BENEFICIAL INTEREST
There is 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
--------------------- ----------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
-------- ----------- ---------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
FOR THE SIX MONTHS ENDED
MAY 31, 1997:
SHARES SOLD............. 447,373 $ 4,179,690 449,735 $ 4,190,465 231,864 $ 2,158,203
SHARES REPURCHASED...... (220,941) (2,060,732) (663,185) (6,169,568) (296,489) (2,763,562)
SHARES CONVERTED FROM
CLASS B TO CLASS A..... 66,575 619,614 (66,646) (619,614) -- --
DIVIDENDS REINVESTED.... 22,370 208,301 50,221 467,288 37,725 351,140
-------- ----------- ---------- ----------- -------- -----------
NET INCREASE (DECREASE). 315,377 $ 2,946,873 (229,875) $(2,131,429) (26,900) $ (254,219)
======== =========== ========== =========== ======== ===========
FOR THE PERIOD FEBRUARY
1, 1996 THROUGH
NOVEMBER 30, 1996:
SHARES SOLD............. 149,291 $ 1,348,065 434,010 $ 3,888,650 123,465 $ 1,111,710
SHARES REPURCHASED...... (299,165) (2,692,557) (1,012,635) (9,087,640) (514,689) (4,613,637)
SHARES CONVERTED FROM
CLASS B TO CLASS A..... 80,606 726,982 (80,695) (726,982) -- --
DIVIDENDS REINVESTED.... 35,352 317,151 109,948 984,803 75,838 679,814
-------- ----------- ---------- ----------- -------- -----------
NET DECREASE............ (33,916) $ (300,359) (549,372) $(4,941,169) (315,386) $(2,822,113)
======== =========== ========== =========== ======== ===========
</TABLE>
19
<PAGE>
PAINEWEBBER STRATEGIC INCOME FUND
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
PERIOD IS PRESENTED BELOW:
<TABLE>
<CAPTION>
CLASS A
-----------------------------------------------------------------
FOR THE SIX FOR THE PERIOD FOR THE PERIOD
MONTHS ENDED FEBRUARY 1, 1996 FOR THE FEBRUARY 7, 1994+
MAY 31, 1997 THROUGH YEAR ENDED THROUGH
(UNAUDITED) NOVEMBER 30, 1996 JANUARY 31, 1996 JANUARY 31, 1995
------------ ----------------- ---------------- -----------------
<S> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD.... $ 9.37 $ 8.99 $ 8.60 $10.00
------ ------ ------ ------
NET INVESTMENT INCOME... 0.34 0.57 0.67 0.74
NET REALIZED AND
UNREALIZED GAINS
(LOSSES) FROM
INVESTMENTS, FOREIGN
CURRENCY AND FUTURES... 0.00 0.39 0.59 (1.49)
------ ------ ------ ------
NET INCREASE (DECREASE)
FROM INVESTMENT
OPERATIONS............. 0.34 0.96 1.26 (0.75)
------ ------ ------ ------
DIVIDENDS FROM NET
INVESTMENT INCOME...... (0.34) (0.58) (0.77) (0.65)
DISTRIBUTIONS FROM NET
REALIZED GAINS FROM
FOREIGN CURRENCY
TRANSACTIONS........... -- -- (0.10) --
------ ------ ------ ------
TOTAL DIVIDENDS AND
DISTRIBUTIONS TO
SHAREHOLDERS........... (0.34) (0.58) (0.87) (0.65)
------ ------ ------ ------
NET ASSET VALUE, END OF
PERIOD................. $ 9.37 $ 9.37 $ 8.99 $ 8.60
====== ====== ====== ======
TOTAL INVESTMENT
RETURN(1).............. 3.70% 11.14% 15.27% (7.61)%
====== ====== ====== ======
RATIOS/SUPPLEMENTAL
DATA:
NET ASSETS, END OF
PERIOD (000'S)......... $12,891 $9,944 $9,841 $11,148
EXPENSES TO AVERAGE NET
ASSETS................. 1.83%* 1.89%* 1.74% 1.49%*
NET INVESTMENT INCOME TO
AVERAGE NET ASSETS..... 7.23%* 7.69%* 8.52% 8.06%*
PORTFOLIO TURNOVER RATE. 58% 101% 91% 117%
</TABLE>
- ---------
+ COMMENCEMENT OF OPERATIONS
* ANNUALIZED
(1) TOTAL INVESTMENT RETURN IS CALCULATED ASSUMING A $1,000 INVESTMENT ON THE
FIRST DAY OF THE PERIOD, REINVESTMENT OF ALL DIVIDENDS AND OTHER
DISTRIBUTIONS AT NET ASSET VALUE ON THE PAYABLE DATES AND A SALE AT NET
ASSET VALUE ON THE LAST DAY OF EACH PERIOD REPORTED. THE FIGURES DO NOT
INCLUDE SALES CHARGES; RESULTS FOR EACH CLASS WOULD BE LOWER IF SALES
CHARGES WERE INCLUDED. TOTAL INVESTMENT RETURN FOR PERIODS OF LESS THAN ONE
YEAR HAS NOT BEEN ANNUALIZED.
20
<PAGE>
<TABLE>
<CAPTION>
CLASS B
------------------------------------------------------------------
FOR THE SIX FOR THE PERIOD FOR THE PERIOD
MONTHS ENDED FEBRUARY 1, 1996 FOR THE FEBRUARY 7, 1994+
MAY 31, 1997 THROUGH YEAR ENDED THROUGH
(UNAUDITED) NOVEMBER 30, 1996 JANUARY 31, 1996 JANUARY 31, 1995
------------ ----------------- ---------------- -----------------
<S> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD.... $ 9.36 $ 8.98 $ 8.60 $10.00
------ ------ ------ ------
NET INVESTMENT INCOME... 0.30 0.51 0.60 0.66
NET REALIZED AND
UNREALIZED GAINS
(LOSSES) FROM
INVESTMENTS, FOREIGN
CURRENCY AND FUTURES... 0.00 0.39 0.59 (1.47)
------ ------ ------ ------
NET INCREASE (DECREASE)
FROM INVESTMENT
OPERATIONS............. 0.30 0.90 1.19 (0.81)
------ ------ ------ ------
DIVIDENDS FROM NET
INVESTMENT INCOME...... (0.30) (0.52) (0.71) (0.59)
DISTRIBUTIONS FROM NET
REALIZED GAINS FROM
FOREIGN CURRENCY
TRANSACTIONS........... -- -- (0.10) --
------ ------ ------ ------
TOTAL DIVIDENDS AND
DISTRIBUTIONS TO
SHAREHOLDERS........... (0.30) (0.52) (0.81) (0.59)
------ ------ ------ ------
NET ASSET VALUE, END OF
PERIOD................. $ 9.36 $ 9.36 $ 8.98 $ 8.60
====== ====== ====== ======
TOTAL INVESTMENT
RETURN(1).............. 3.30% 10.46% 14.37% (8.22)%
====== ====== ====== ======
RATIOS/SUPPLEMENTAL
DATA:
NET ASSETS, END OF
PERIOD (000'S)......... $35,076 $37,249 $40,653 $40,710
EXPENSES TO AVERAGE NET
ASSETS................. 2.58%* 2.63%* 2.49% 2.24%*
NET INVESTMENT INCOME TO
AVERAGE NET ASSETS..... 6.47%* 6.93%* 7.77% 7.46%*
PORTFOLIO TURNOVER RATE. 58% 101% 91% 117%
<CAPTION>
CLASS C
-----------------------------------------------------------------
FOR THE SIX FOR THE PERIOD FOR THE PERIOD
MONTHS ENDED FEBRUARY 1, 1996 FOR THE FEBRUARY 7, 1994+
MAY 31, 1997 THROUGH YEAR ENDED THROUGH
(UNAUDITED) NOVEMBER 30, 1996 JANUARY 31, 1996 JANUARY 31, 1995
------------ ----------------- ---------------- -----------------
<S> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD.... $ 9.37 $ 8.98 $ 8.60 $10.00
------ ------ ------ ------
NET INVESTMENT INCOME... 0.31 0.53 0.62 0.69
NET REALIZED AND
UNREALIZED GAINS
(LOSSES) FROM
INVESTMENTS, FOREIGN
CURRENCY AND FUTURES... 0.00 0.40 0.59 (1.48)
------ ------ ------ ------
NET INCREASE (DECREASE)
FROM INVESTMENT
OPERATIONS............. 0.31 0.93 1.21 (0.79)
------ ------ ------ ------
DIVIDENDS FROM NET
INVESTMENT INCOME...... (0.32) (0.54) (0.73) (0.61)
DISTRIBUTIONS FROM NET
REALIZED GAINS FROM
FOREIGN CURRENCY
TRANSACTIONS........... -- -- (0.10) --
------ ------ ------ ------
TOTAL DIVIDENDS AND
DISTRIBUTIONS TO
SHAREHOLDERS........... (0.32) (0.54) (0.83) (0.61)
------ ------ ------ ------
NET ASSET VALUE, END OF
PERIOD................. $ 9.36 $ 9.37 $ 8.98 $ 8.60
====== ====== ====== ======
TOTAL INVESTMENT
RETURN(1).............. 3.32% 10.80% 14.63% (8.02)%
====== ====== ====== ======
RATIOS/SUPPLEMENTAL
DATA:
NET ASSETS, END OF
PERIOD (000'S)......... $16,838 $17,101 $19,232 $21,208
EXPENSES TO AVERAGE NET
ASSETS................. 2.33%* 2.38%* 2.24% 1.98%*
NET INVESTMENT INCOME TO
AVERAGE NET ASSETS..... 6.73%* 7.19%* 8.03% 7.62%*
PORTFOLIO TURNOVER RATE. 58% 101% 91% 117%
</TABLE>
21
