<PAGE>
REGIONAL FINANCIAL GROWTH FUND INC.
PAINEWEBBER
RECENT PERFORMANCE RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
NET ASSET VALUE TOTAL RETURN/1/
-------------------------------- -----------------------------
12 MONTHS 6 MONTHS
09/30/95 03/31/95 09/30/94 ENDED 09/30/95 ENDED 09/30/95
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A Shares $ 21.68 $ 17.11 $ 18.14 30.27% 26.71%
- ------------------------------------------------------------------------------
Class B Shares 21.27 16.85 17.84 29.31 26.23
- ------------------------------------------------------------------------------
Class D Shares 21.28 16.86 17.84 29.26 26.22
- ------------------------------------------------------------------------------
</TABLE>
Performance Summary Class A Shares
<TABLE>
<CAPTION>
NET ASSET VALUE
----------------- CAPITAL GAINS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID RETURN/1/
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
05/22/86 - 12/31/86 $ 9.25 $ 8.31 -- -- (10.16)%
- -------------------------------------------------------------------------------
1987 8.31 6.88 $ 0.2265 $ 0.3703 (13.10)
- -------------------------------------------------------------------------------
1988 6.88 7.70 -- 0.2375 15.39
- -------------------------------------------------------------------------------
1989 7.70 9.08 -- 0.2900 21.71
- -------------------------------------------------------------------------------
1990 9.08 7.73 -- 0.2410 (12.33)
- -------------------------------------------------------------------------------
1991 7.73 12.55 -- 0.2070 65.37
- -------------------------------------------------------------------------------
1992 12.55 17.38 -- 0.0237 38.68
- -------------------------------------------------------------------------------
1993 17.38 17.22 1.8425 0.0820 10.32
- -------------------------------------------------------------------------------
1994 17.22 15.68 1.2660 0.1345 (0.75)
- -------------------------------------------------------------------------------
01/01/95 - 09/30/95 15.68 21.68 -- -- 38.27
- -------------------------------------------------------------------------------
Total: $ 3.3350 $ 1.5860
- -------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF
09/30/95: 241.56%
- -------------------------------------------------------------------------------
</TABLE>
Performance Summary Class B Shares
<TABLE>
<CAPTION>
NET ASSET VALUE
------------------- CAPITAL GAINS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID RETURN/1/
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
07/01/91 - 12/31/91 $ 10.24 $ 12.56 -- $ 0.0640 23.30%
- --------------------------------------------------------------------------------
1992 12.56 17.31 -- -- 37.82
- --------------------------------------------------------------------------------
1993 17.31 17.04 $ 1.8425 0.0571 9.57
- --------------------------------------------------------------------------------
1994 17.04 15.47 1.2660 0.0344 (1.53)
- --------------------------------------------------------------------------------
01/01/95 - 09/30/95 15.47 21.27 -- -- 37.49
- --------------------------------------------------------------------------------
Total: $ 3.1085 $ 0.1555
- --------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF
09/30/95: 152.09%
- --------------------------------------------------------------------------------
</TABLE>
Performance Summary Class D Shares
<TABLE>
<CAPTION>
NET ASSET VALUE
-------------------
PERIOD CAPITAL GAINS TOTAL
COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID RETURN/1/
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
07/02/92 -
12/31/92 $ 14.61 $ 17.32 -- $ 0.0359 18.80%
- ------------------------------------------------------------------------
1993 17.32 17.03 $ 1.8425 0.0691 9.52
- ------------------------------------------------------------------------
1994 17.03 15.48 1.2660 0.0209 (1.50)
- ------------------------------------------------------------------------
01/01/95 -
09/30/95 15.48 21.28 -- -- 37.47
- ------------------------------------------------------------------------
Total: $ 3.1085 $ 0.1259
- ------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF
09/30/95: 76.18%
- ------------------------------------------------------------------------
</TABLE>
Average Annual Return
<TABLE>
<CAPTION>
% RETURN AFTER DEDUCTING
% RETURN WITHOUT SALES CHARGE MAXIMUM SALES CHARGE
--------------------------------------------------------
CLASS CLASS
--------------------------------------------------------
A* B** D*** A* B** D***
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Twelve Months Ended
09/30/95 30.27% 29.31% 29.26% 24.43% 24.31% 29.26%
- -----------------------------------------------------------------------------
Five Years Ended
09/30/95 31.09 N/A N/A 29.90 N/A N/A
- -----------------------------------------------------------------------------
Commencement of
Operations Through
09/30/95+ 14.02 24.27 19.04 13.45 24.04 19.04
- -----------------------------------------------------------------------------
</TABLE>
/1/Figures assume reinvestment of all dividends and capital gains distributions
at net asset value on the payable dates and do not include sales charges;
results would be lower for Class A and Class B shares if sales charges were
included.
* Maximum sales charge for Class A shares is 4.5% of the public offering
price. Class A shares bear ongoing 12b-1 service fees.
** Maximum contingent deferred sales charge for Class B shares is 5% and is
reduced to 0% after 6 years. Class B shares bear ongoing 12b-1 distribution
and service fees.
*** Class D shares are sold without initial or contingent deferred sales
charges but bear ongoing 12b-1 distribution and service fees.
+ Commencement of operations dates are May 22, 1986, July 1, 1991 and July 2,
1992 for Class A, Class B and Class D shares, respectively.
The data above represents past performance of the Fund's shares, which is no
guarantee of future results. The investment return and 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.
1
<PAGE>
REGIONAL FINANCIAL GROWTH FUND INC.
PAINEWEBBER
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- -----------
COMMON STOCKS - 79.17%
REGIONAL BANKS - 53.29%
EASTERN REGION - 17.10%
<C> <S> <C>
Delaware - 1.23%
40,000 Wilmington Trust Corporation........................... $ 1,180,000
-----------
Maine - 0.99%
100,000 Atlantic Bancorp*...................................... 950,000
-----------
Massachusetts - 1.50%
19,000 BayBanks, Inc. ........................................ 1,441,626
-----------
New Jersey - 2.78%
32,000 Bankers Corp. ......................................... 576,000
41,250 HUBCO, Inc. ........................................... 814,689
40,000 UJB Financial Corp. ................................... 1,280,000
-----------
2,670,689
-----------
New York - 5.99%
40,000 The Bank of New York Company, Inc. .................... 1,860,000
10,500 First Empire State Corporation......................... 1,995,000
40,000 GP Financial Corp. .................................... 1,105,000
20,000 Queens County Bancorp Inc. ............................ 797,500
-----------
5,757,500
-----------
Pennsylvania - 0.92%
26,250 First Western Bancorp, Inc. ........................... 885,939
-----------
Rhode Island - 1.57%
40,000 Fleet Financial Group, Inc. ........................... 1,510,000
-----------
Vermont - 2.12%
32,800 Banknorth Group, Inc. ................................. 1,090,600
37,500 Chittenden Corporation................................. 956,250
-----------
2,046,850
-----------
Total Eastern Region.............................................. 16,442,604
-----------
SOUTHERN REGION - 9.80%
District of Columbia - 1.34%
100,000 Riggs National Corporation*............................ 1,287,500
-----------
Florida - 1.98%
20,000 Barnett Banks, Inc. ................................... 1,132,500
35,000 Seacoast Banking Corporation of Florida................ 770,000
-----------
1,902,500
-----------
</TABLE>
2
<PAGE>
REGIONAL FINANCIAL GROWTH FUND INC.
PAINEWEBBER
PORTFOLIO OF INVESTMENTS (CONTINUED) SEPTEMBER 30, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- -----------
COMMON STOCKS - (CONTINUED)
REGIONAL BANKS - (CONTINUED)
SOUTHERN REGION - (CONCLUDED)
<C> <S> <C>
Georgia - 1.52%
56,100 Synovus Financial Corp................................. $ 1,465,614
-----------
Kentucky - 0.74%
40,000 Trans Financial Bancorp, Inc........................... 710,000
-----------
North Carolina - 1.86%
35,000 CCB Financial Corporation.............................. 1,789,376
-----------
South Carolina - 0.79%
50,000 American Federal Bank, FSB............................. 762,500
-----------
Tennessee - 1.57%
35,000 First American Corporation of Tennessee................ 1,509,376
-----------
Total Southern Region............................................. 9,426,866
-----------
MIDWESTERN REGION - 15.14%
Illinois - 2.42%
50,000 Heritage Financial Services, Inc....................... 950,000
30,000 Northern Trust Corporation............................. 1,380,000
-----------
2,330,000
-----------
Michigan - 4.64%
42,000 Comerica Incorporated.................................. 1,527,750
22,526 First of America Bank Corp............................. 968,619
36,748 First Michigan Bank Corporation........................ 964,636
26,250 Old Kent Financial Corporation......................... 1,000,782
-----------
4,461,787
-----------
Minnesota - 2.04%
60,000 Norwest Corporation.................................... 1,965,000
-----------
Missouri - 3.30%
37,800 Commerce Bancshares, Inc............................... 1,493,100
37,500 Mercantile Bancorporation Inc.......................... 1,678,126
-----------
3,171,226
-----------
Ohio - 1.04%
33,750 Charter One Financial, Inc............................. 995,626
-----------
Wisconsin - 1.70%
65,000 Marshall and Ilsley Corporation........................ 1,633,125
-----------
Total Midwestern Region........................................... 14,556,764
-----------
</TABLE>
3
<PAGE>
REGIONAL FINANCIAL GROWTH FUND INC.
PAINEWEBBER
PORTFOLIO OF INVESTMENTS (CONTINUED) SEPTEMBER 30, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- -----------
COMMON STOCKS - (CONTINUED)
REGIONAL BANKS - (CONCLUDED)
WESTERN REGION - 11.25%
<C> <S> <C>
Alaska - 1.19%
750 First National Bank of Anchorage....................... $ 1,140,000
-----------
California - 3.78%
60,000 Coast Savings Financial Inc.*.......................... 1,575,000
55,000 Glendale Federal Bank, FSB*............................ 907,500
30,000 Westamerica Bancorporation............................. 1,155,000
-----------
3,637,500
-----------
Hawaii - 1.84%
35,000 Bancorp Hawaii Inc..................................... 1,181,250
20,000 First Hawaiian Inc. ................................... 590,000
-----------
1,771,250
-----------
Idaho - 1.04%
25,000 West One Bancorp....................................... 1,003,125
-----------
Texas - 0.39%
20,000 Benson Financial Corp.................................. 375,000
-----------
Utah - 3.01%
33,750 First Security Corporation............................. 1,058,907
30,000 Zions Bancorporation................................... 1,837,500
-----------
2,896,407
-----------
Total Western Region.............................................. 10,823,282
-----------
Total Regional Banks (cost - $29,701,746)......................... 51,249,516
-----------
MONEY CENTER BANKS - 6.11%
30,000 Chemical Banking Corporation........................... 1,826,250
22,500 Citicorp............................................... 1,591,875
26,250 Republic New York Corporation.......................... 1,535,625
15,000 The Chase Manhattan Corporation........................ 916,875
-----------
Total Money Center Banks (cost - $2,914,472)...................... 5,870,625
-----------
FINANCIAL SERVICES - 14.06%
20,000 Ceridian Corporation*.................................. 887,500
50,000 Comdata Holdings Corp.*................................ 1,218,750
20,000 Federal Home Loan Mortgage Corporation................. 1,382,500
17,000 Federal National Mortgage Association.................. 1,759,500
25,000 Finova Group Inc. ..................................... 1,112,500
25,000 First Data Corporation................................. 1,550,000
25,000 Green Tree Financial................................... 1,525,000
50,000 The BISYS Group, Inc.*................................. 1,275,000
70,000 Union Acceptance Corp.*................................ 1,312,500
105,000 World Acceptance Corporation*.......................... 1,496,250
-----------
Total Financial Services (cost - $6,757,969)...................... 13,519,500
-----------
</TABLE>
4
<PAGE>
REGIONAL FINANCIAL GROWTH FUND INC.
PAINEWEBBER
PORTFOLIO OF INVESTMENTS (CONCLUDED) SEPTEMBER 30, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- -----------
COMMON STOCKS - (CONCLUDED)
INSURANCE - 5.71%
<C> <S> <C>
22,500 American Re Corporation................................ $ 866,250
12,500 CIGNA Corporation...................................... 1,301,562
15,750 Frontier Insurance Group, Inc. ........................ 476,437
60,000 PennCorp Financial Group, Inc. ........................ 1,432,500
40,000 Reinsurance Group of America, Incorporated............. 1,410,000
-----------
Total Insurance (cost - $4,526,243)............................... 5,486,749
-----------
Total Common Stocks (cost - $43,900,430).......................... 76,126,390
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES
--------- -------------------- --------------
CONVERTIBLE BOND - 1.64%
MONEY CENTER BANK - 1.64%
<C> <S> <C> <C> <C>
$1,500 Mitsubishi Bank (cost -
$1,500,000)............ 11/30/02 3.000% 1,575,000
-----------
U.S. GOVERNMENT OBLIGATIONS - 17.62%
U.S. Treasury Bills
17,000 (cost - $16,947,965).... 10/19/95 to 10/26/95 5.090 to 5.405 16,947,965
-----------
REPURCHASE AGREEMENT - 3.25%
3,124 Repurchase Agreement
dated 09/29/95, with
Salomon Brothers, Inc.
collateralized by
$3,186,000 U.S.
Treasury Notes, 5.125%
due 04/30/98; proceeds:
$3,125,653 (cost -
$3,124,000)............. 10/02/95 6.350 3,124,000
-----------
Total investments (cost -
$65,472,395) - 101.68%............. 97,773,355
Liabilities in excess of other as-
sets - (1.68)%.................... (1,614,243)
-----------
Net assets - 100.00%............... $96,159,112
===========
</TABLE>
- -------
* Non-income producing security
See accompanying notes to financial statements
5
<PAGE>
REGIONAL FINANCIAL GROWTH FUND INC.
PAINEWEBBER
STATEMENT OF ASSETS AND LIABILITIES SEPTEMBER 30, 1995 (UNAUDITED)
<TABLE>
<S> <C>
Assets
Investments in securities, at value (cost - $65,472,395)........... $97,773,355
Dividends and interest receivable.................................. 151,220
Receivable for fund shares sold.................................... 82,019
Other assets....................................................... 42,881
-----------
Total assets....................................................... 98,049,475
-----------
Liabilities
Payable for investments purchased.................................. 1,500,000
Payable for fund shares repurchased................................ 133,789
Payable to affiliates.............................................. 95,042
Accrued expenses and other liabilities............................. 161,532
-----------
Total liabilities.................................................. 1,890,363
-----------
Net Assets
Capital stock--$0.001 par value outstanding (300,000,000 shares
authorized)....................................................... 54,777,751
Undistributed net investment income................................ 1,039,488
Accumulated net realized gains from investment transactions........ 8,040,913
Net unrealized appreciation of investments......................... 32,300,960
-----------
Net assets......................................................... $96,159,112
===========
Class A:
Net assets......................................................... $63,988,749
-----------
Shares outstanding................................................. 2,951,365
-----------
Net asset value and redemption value per share..................... $21.68
======
Maximum offering price per share (net asset value plus sales charge
of 4.50% of offering price)....................................... $22.70
======
Class B:
Net assets......................................................... $25,339,833
-----------
Shares outstanding................................................. 1,191,353
-----------
Net asset value and offering price per share....................... $21.27
======
Class D:
Net assets......................................................... $ 6,830,530
-----------
Shares outstanding................................................. 321,030
-----------
Net asset value, offering price and redemption value per share..... $21.28
======
</TABLE>
See accompanying notes to financial statements
6
<PAGE>
REGIONAL FINANCIAL GROWTH FUND INC.
PAINEWEBBER
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1995 (UNAUDITED)
<TABLE>
<S> <C>
Investment Income:
Dividends.......................................................... $ 769,786
Interest........................................................... 400,359
-----------
1,170,145
-----------
Expenses:
Investment advisory and administration............................. 280,933
Service fees--Class A.............................................. 68,950
Service and distribution fees--Class B............................. 99,983
Service and distribution fees--Class D............................. 25,552
Transfer agency and service fees................................... 42,161
Custody and accounting............................................. 34,997
Reports and notices to shareholders................................ 28,961
Legal and audit.................................................... 29,532
Federal and state registration..................................... 26,108
Directors' fees.................................................... 6,233
Other expenses..................................................... 10,645
-----------
654,055
-----------
Net investment income.............................................. 516,090
-----------
Realized and unrealized gains from investment activities:
Net realized gains from investment transactions.................... 5,120,503
Net change in unrealized appreciation/depreciation of investments.. 13,294,949
-----------
Net realized and unrealized gains from investment activities....... 18,415,452
-----------
Net increase in net assets resulting from operations............... $18,931,542
===========
</TABLE>
See accompanying notes to financial statements
7
<PAGE>
REGIONAL FINANCIAL GROWTH FUND INC.
PAINEWEBBER
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS ENDED FOR THE
SEPTEMBER 30, 1995 YEAR ENDED
(UNAUDITED) MARCH 31, 1995
------------------ --------------
<S> <C> <C>
From operations:
Net investment income........................ $ 516,090 $ 820,652
Net realized gains from investment
transactions................................ 5,120,503 5,705,424
Net change in unrealized
appreciation/depreciation of investments.... 13,294,949 (603,893)
----------- ------------
Net increase in net assets resulting from
operations.................................. 18,931,542 5,922,183
----------- ------------
Dividends and distributions to shareholders
from:
Net investment income--Class A............... -- (370,765)
Net investment income--Class B............... -- (28,954)
Net investment income--Class D............... -- (6,039)
Net realized gains from investment
transactions--Class A....................... -- (3,489,874)
Net realized gains from investment
transactions--Class B....................... -- (1,065,578)
Net realized gains from investment
transactions--Class D....................... -- (365,811)
----------- ------------
Total dividends and distributions to
shareholders................................ -- (5,327,021)
----------- ------------
From capital stock transactions:
Net proceeds from the sale of shares......... 15,618,919 38,743,085
Cost of shares repurchased................... (8,214,747) (37,610,660)
Proceeds from dividends reinvested........... -- 4,176,675
----------- ------------
Net increase in net assets from capital stock
transactions................................ 7,404,172 5,309,100
----------- ------------
Net increase in net assets................... 26,335,714 5,904,262
Net Assets:
Beginning of period.......................... 69,823,398 63,919,136
----------- ------------
End of period (including undistributed net
investment income of
$1,039,488 and $523,398, respectively)...... $96,159,112 $ 69,823,398
=========== ============
</TABLE>
See accompanying notes to financial statements
8
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(UNAUDITED)
PAINEWEBBER
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
PaineWebber Regional Financial Growth Fund Inc. (the "Fund") was incorporated
in the state of Maryland on February 13, 1986 and is registered with the
Securities and Exchange Commission under the Investment Company Act of 1940, as
amended, as an open-end, diversified management investment company.
The Fund offers Class A, Class B and Class D shares. Each class represents
interests in the same assets of the Fund and the classes are identical except
for differences in their sales charge structure, ongoing service/distribution
charges and transfer agency expenses. In addition, Class B shares automatically
convert to Class A shares approximately six years after initial issuance. All
classes of shares have equal rights as to voting privileges, except that each
class has exclusive voting rights with respect to its service/distribution
plan. Effective November 10, 1995, the Fund began using industry standardized
nomenclature and Class D shares were renamed Class C shares.
Valuation of Investments - Securities which are listed on U.S. 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"), an affiliate and wholly owned subsidiary of PaineWebber
Incorporated ("PaineWebber") and investment adviser, administrator and
distributor of the Fund, as the primary market. Securities traded in the over-
the-counter ("OTC") market and listed on the National Association of Securities
Dealers Quotation System ("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 generally 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 are valued at fair
value as determined in good faith by or under the direction of the Fund's Board
of Directors.
The Fund follows an investment policy of investing primarily in equity
securities of regional banks and thrift institutions. Economic changes
affecting that industry, or the various regions within which it invests, may
affect the market value of the Fund's investments.
Repurchase Agreements - The Fund's custodian takes possession of the collateral
pledged for investments in repurchase agreements. The underlying collateral is
valued daily on a mark-to-market basis to ensure that the value, including
accrued interest, is at least equal to the repurchase price. In the event of
default of the obligation to repurchase, the Fund has the right to liquidate
the collateral and apply the proceeds in satisfaction of the obligation. Under
certain circumstances, in the event of default or bankruptcy by the other party
to the agreement,
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
PAINEWEBBER
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 trade date. Realized gains and losses on sales of investments are
calculated using the identified cost method. Interest income is recorded on an
accrual basis and dividend income is recorded on the ex-dividend date.
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.
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 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 federal
excise tax.
Dividends and Distributions - Dividends and distributions to shareholders are
recorded on the ex-dividend date. The amount of dividends and distributions
from net investment income and net realized capital gains 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.
INVESTMENT ADVISER AND ADMINISTRATOR
The Fund has entered into an Investment Advisory and Administrative Contract
("Advisory Contract") with Mitchell Hutchins. 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 0.70% of the Fund's average daily net assets. At September 30, 1995, the
Fund owed Mitchell Hutchins $54,296 in investment advisory and administration
fees.
10
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
PAINEWEBBER
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, distribution fees, interest, brokerage
fees and extraordinary expenses, exceed limitations imposed by various state
regulations. Currently, the most restrictive limitations 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 six months ended
September 30, 1995, no reimbursements were required pursuant to the above
limitations.
DISTRIBUTION PLANS
Mitchell Hutchins is the distributor of the Fund's shares and has appointed
PaineWebber as the exclusive dealer for the sale of those shares. Under
separate plans of service/distribution pertaining to the Class A, Class B and
Class D shares, each class of shares of 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 D shares and monthly distribution fees at the annual
rate of 0.75% of the average daily net assets of Class B and Class D shares. At
September 30, 1995, the Fund owed Mitchell Hutchins $38,544 in service and
distribution fees.
Mitchell Hutchins also receives the proceeds of the initial sales charges paid
upon the purchase of Class A shares and the contingent deferred sales charges
paid upon certain redemptions of Class B shares. Mitchell Hutchins has informed
the Fund that for the six months ended September 30, 1995, it earned the
following amounts in sales charges:
<TABLE>
<S> <C>
Initial sales charges - Class A........................................ $25,784
Contingent deferred sales charges - Class B............................ $38,226
</TABLE>
TRANSFER AGENCY SERVICE FEES
The Fund pays PaineWebber an annual fee of $4.00 per active PaineWebber
shareholder account for certain services not provided by the Fund's transfer
agent. For these services during the six months ended September 30, 1995,
PaineWebber earned $12,088. At September 30, 1995, PaineWebber was owed $2,202
by the Fund for transfer agency service fees.
INVESTMENT IN SECURITIES
For federal income tax purposes, the cost of securities owned at September 30,
1995, was substantially the same as the cost of securities for financial
statement purposes.
11
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
PAINEWEBBER
At September 30, 1995 the components of net unrealized appreciation
of investments were as follows:
<TABLE>
<CAPTION>
<S> <C>
Gross appreciation (investments having an excess of value
over cost)............................................... $32,350,960
Gross depreciation (investments having an excess of cost
over value).............................................. (50,000)
-----------
Net unrealized appreciation of investments................ $32,300,960
===========
</TABLE>
For the six months ended September 30, 1995, total aggregate
purchases and sales of portfolio securities, excluding short-term
securities, were $15,742,718 and $14,600,023, respectively.
CAPITAL STOCK
There were 300 million shares of $0.001 par value common stock
authorized. Transactions in common stock were as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS D
---------------------- --------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
-------- ------------ -------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
SIX MONTHS ENDED SEPTEM-
BER 30, 1995:
Shares sold............. 291,204 $ 5,773,057 384,329 $ 7,446,127 121,804 $ 2,399,735
Shares repurchased...... (232,431) (4,424,544) (152,875) (2,883,278) (47,585) (906,925)
Shares converted from
Class B to Class A..... 11,457 225,321 (11,657) (225,321) -- --
-------- ------------ -------- ----------- ---------- -----------
Net increase............ 70,230 $ 1,573,834 219,797 $ 4,337,528 74,219 $ 1,492,810
======== ============ ======== =========== ========== ===========
YEAR ENDED MARCH 31,
1995:
Shares sold............. 508,824 $ 9,068,374 709,241 $12,410,410 1,002,718 $17,264,301
Shares repurchased...... (682,798) (11,909,882) (459,550) (7,887,316) (1,037,124) (17,813,462)
Shares converted from
Class B to Class A..... 31,172 533,063 (31,586) (533,063) -- --
Dividends reinvested.... 185,598 2,889,768 64,096 985,110 19,623 301,797
-------- ------------ -------- ----------- ---------- -----------
Net increase (decrease). 42,796 $ 581,323 282,201 $ 4,975,141 (14,783) $ (247,364)
======== ============ ======== =========== ========== ===========
</TABLE>
12
<PAGE>
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13
<PAGE>
REGIONAL FINANCIAL GROWTH FUND INC.
PAINEWEBBER
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT
EACH PERIOD IS PRESENTED BELOW:
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------------------
FOR THE
SIX MONTHS
ENDED
SEPTEMBER 30, FOR THE YEAR ENDED MARCH 31,
1995 --------------------------------------------
(UNAUDITED) 1995 1994 1993 1992 1991
------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period..... $17.11 $16.92 $19.45 $13.36 $ 9.50 $8.63
------ ------ ------ ------ ------ -----
Net investment income
(loss).................. 0.14 0.25 0.15 0.10 0.15 0.25
Net realized and
unrealized gains
(losses) from investment
transactions............ 4.43 1.34 (0.76) 6.01 3.92 0.86
------ ------ ------ ------ ------ -----
Total increase/decrease
from investment
operations.............. 4.57 1.59 (0.61) 6.11 4.07 1.11
------ ------ ------ ------ ------ -----
Dividends from
investment income....... -- (0.13) (0.08) (0.02) (0.21) (0.24)
Distributions from
realized gains on
investments............. -- (1.27) (1.84) -- -- --
------ ------ ------ ------ ------ -----
Total dividends and
distributions........... -- (1.40) (1.92) (0.02) (0.21) (0.24)
------ ------ ------ ------ ----- -----
Net asset value, end of
period.................. $21.68 $17.11 $16.92 $19.45 $13.36 $9.50
====== ====== ====== ====== ====== =====
Total investment
return(1)............... 26.71% 10.22% (3.14)% 46.79% 42.23% 13.33%
====== ====== ====== ====== ====== =====
Ratios/Supplemental
Data:
Net assets, end of
period (000's).......... $63,989 $49,295 $48,032 $61,645 $44,867 $43,131
Expenses to average net
assets.................. 1.40%* 1.45% 1.44% 1.87% 1.72% 1.67%
Net investment income
(loss) to average net
assets.................. 1.53%* 1.40% 0.76% 0.60% 1.32% 2.56%
Portfolio turnover...... 22% 14% 22% 28% 31% 19%
- ---------------------
</TABLE>
* Annualized
+ Commencement of offering of shares
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each period reported, reinvestment of all dividends and
capital gain distributions at net asset value on the payable date, and a
sale at net asset value on the last day of each period reported. The
figures do not include sales charges: results for Class A and Class B
shares would be lower if sales charges were included. Total investment
return information for periods less than one year is not annualized.
14
<PAGE>
REGIONAL FINANCIAL GROWTH FUND INC.
PAINEWEBBER
<TABLE>
<CAPTION>
CLASS B CLASS D
- ------------------------------------------------------------ -------------------------------------------------
FOR THE FOR THE
SIX MONTHS SIX MONTHS
ENDED FOR THE YEAR ENDED FOR THE YEAR
SEPTEMBER 30, ENDED MARCH 31, FOR THE PERIOD SEPTEMBER 30, ENDED MARCH 31, FOR THE PERIOD
1995 -------------------------- JULY 1, 1991+ TO 1995 ---------------- JULY 2, 1992+ TO
(UNAUDITED) 1995 1994 1993 MARCH 31, 1992 (UNAUDITED) 1995 1994 MARCH 31, 1993
- ------------- ------- ------- ------- ---------------- ------------- ------- ------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$16.85 $16.71 $19.34 $13.36 $10.24 $16.86 $16.71 $19.34 $14.61
------ ------ ------ ------ ------ ------ ------ ------ ------
0.05 0.11 0.02 (0.01) -- 0.05 0.11 0.01 --
4.37 1.33 (0.75) 5.99 3.18 4.37 1.33 (0.73) 4.77
------ ------ ------ ------ ------ ------ ------ ------ ------
4.42 1.44 (0.73) 5.98 3.18 4.42 1.44 (0.72) 4.77
------ ------ ------ ------ ------ ----- ------ ------ ------
-- (0.03) (0.06) -- (0.06) -- (0.02) (0.07) (0.04)
-- (1.27) (1.84) -- -- -- (1.27) (1.84) --
------ ------ ------ ------ ------ ------ ------ ------ ------
-- (1.30) (1.90) -- (0.06) -- (1.29) (1.91) (0.04)
------ ------ ------ ------ ------ ------ ------ ------ ------
$21.27 $16.85 $16.71 $19.34 $13.36 $21.28 $16.86 $16.71 $19.34
====== ====== ====== ====== ====== ====== ====== ====== ======
26.23% 9.37% (3.83)% 44.76% 31.16% 26.22% 9.34% (3.76)% 32.66%
====== ====== ====== ====== ====== ====== ====== ====== ======
$25,340 $16,368 $11,517 $10,364 $ 765 $6,831 $4,160 $ 4,370 $4,636
2.14%* 2.22% 2.16% 2.45% 2.72%* 2.17%* 2.23% 2.17% 2.36%*
0.76%* 0.67% 0.05% (0.03)% 0.14%* 0.73%* 0.61% 0.03% 0.01%*
22% 14% 22% 28% 31% 22% 14% 22% 28%
</TABLE>
15
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