<PAGE>
FINANCIAL SERVICES GROWTH FUND INC.
PAINEWEBBER
PERFORMANCE RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
NET ASSET VALUE TOTAL RETURN/1/
-------------------------------- -----------------------------
12 MONTHS 6 MONTHS
09/30/96 03/31/96 09/30/95 ENDED 09/30/96 ENDED 09/30/96
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A Shares $23.82 $21.16 $21.68 23.50% 12.57%
- -------------------------------------------------------------------------------------
Class B Shares 23.27 20.75 21.27 22.57 12.14
- -------------------------------------------------------------------------------------
Class C Shares 23.27 20.75 21.28 22.54 12.14
- -------------------------------------------------------------------------------------
Performance Summary Class A Shares
<CAPTION>
NET ASSET VALUE
------------------ CAPITAL GAINS
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID TOTAL 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 (11.05)
- -------------------------------------------------------------------------------------
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)
- -------------------------------------------------------------------------------------
1995 15.68 20.57 2.2099 0.2942 47.46
- -------------------------------------------------------------------------------------
01/01/96 - 09/30/96 20.57 23.82 -- -- 15.80
- -------------------------------------------------------------------------------------
Total: $5.5449 $1.8802
- -------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF
09/30/96: 321.84%
- -------------------------------------------------------------------------------------
Performance Summary Class B Shares
<CAPTION>
NET ASSET VALUE
------------------ CAPITAL GAINS
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID TOTAL 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)
- -------------------------------------------------------------------------------------
1995 15.47 20.21 2.2099 0.1766 46.36
- -------------------------------------------------------------------------------------
01/01/96 - 09/30/96 20.21 23.27 -- -- 15.14
- -------------------------------------------------------------------------------------
Total: $5.3184 $0.3321
- -------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF
09/30/96: 208.99%
- -------------------------------------------------------------------------------------
Performance Summary Class C Shares
<CAPTION>
NET ASSET VALUE
------------------ CAPITAL GAINS
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID TOTAL RETURN/1/
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
07/02/92 - 12/31/92 $14.61 $17.32 $ -- $0.0359 18.80%
- -------------------------------------------------------------------------------------
1993 17.32 17.03 1.8425 0.0691 9.52
- -------------------------------------------------------------------------------------
1994 17.03 15.48 1.2660 0.0209 (1.50)
- -------------------------------------------------------------------------------------
1995 15.48 20.21 2.2099 0.1819 46.30
- -------------------------------------------------------------------------------------
01/01/96 - 09/30/96 20.21 23.27 -- -- 15.14
- -------------------------------------------------------------------------------------
Total: $5.3184 $0.3078
- -------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF
9/30/96: 115.90%
- -------------------------------------------------------------------------------------
</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 each class if sales charges were included.
5
<PAGE>
FINANCIAL SERVICES GROWTH FUND INC.
PAINEWEBBER
PERFORMANCE RESULTS (CONCLUDED)
Average Annual Return
<TABLE>
<CAPTION>
% RETURN AFTER DEDUCTING
% RETURN WITHOUT SALES CHARGE MAXIMUM SALES CHARGE
-------------------------------------------------------
CLASS CLASS
-------------------------------------------------------
A* B** C*** A* B** C***
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Twelve Months Ended
09/30/96 23.50% 22.57% 22.54% 17.95% 17.57% 21.54%
- ----------------------------------------------------------------------------
Five Years Ended
09/30/96 22.94 22.07 N/A 21.82 21.89 N/A
- ----------------------------------------------------------------------------
Ten Years Ended
09/30/96 16.37 N/A N/A 15.84 N/A N/A
- ----------------------------------------------------------------------------
Commencement of
Operations Through
09/30/96+ 14.90 23.93 19.84 14.38 23.78 19.84
- ----------------------------------------------------------------------------
</TABLE>
* 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 1.00% and is
reduced to 0% after 1 year. Class C shares bear ongoing 12b-1 distribution
and service fees.
+ Commencement of issuance dates are May 22, 1986, July 1, 1991 and July 2,
1992 for Class A, Class B and Class C shares, respectively.
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>
FINANCIAL SERVICES GROWTH FUND INC.
PAINEWEBBER
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- ------------
<C> <S> <C>
COMMON STOCKS - 86.85%
Business Services - 1.03%
10,000 CCC Information Services Group, Incorporated*......... $ 210,000
4,000 Sterling Commerce Incorporated*....................... 118,000
10,000 Sterling Software Incorporated*....................... 763,750
------------
1,091,750
------------
Financial Services - 10.62%
42,500 Ceridian Corporation*................................. 2,125,000
15,000 Contifinancial Corporation*........................... 427,500
18,000 Federal Home Loan Mortgage Corporation................ 1,761,750
46,500 Federal National Mortgage Association................. 1,621,688
35,000 Finova Group Incorporated............................. 2,100,000
25,000 First Data Corporation................................ 2,040,625
25,000 RAC Financial Group Incorporated*..................... 1,140,625
------------
11,217,188
------------
Insurance - 12.72%
25,000 ACE Limited........................................... 1,321,875
22,500 Allstate Corporation.................................. 1,108,125
6,200 CNA Financial Corporation*............................ 594,425
30,000 Enhance Financial Services Group Incorporated......... 990,000
20,000 Equitable of Iowa Companies........................... 830,000
17,325 Frontier Insurance Group Incorporated................. 690,834
20,000 ITT Hartford Group, Incorporated...................... 1,180,000
55,000 PennCorp Financial Group, Incorporated................ 1,773,750
38,300 Prudential Reinsurance Holdings, Inc. ................ 947,925
40,000 Reinsurance Group of America, Incorporated............ 1,755,000
30,000 Reliastar Financial Corporation....................... 1,425,000
30,000 Travelers Aetna Property Casualty Corporation......... 825,000
------------
13,441,934
------------
Money Center Banks - 4.37%
18,000 The Chase Manhattan Corporation....................... 1,442,250
15,000 Citicorp.............................................. 1,359,375
26,250 Republic New York Corporation......................... 1,814,531
------------
4,616,156
------------
Real Estate - 0.79%
20,000 Starwood Lodging Trust................................ 837,500
------------
Regional Banks - 49.87%
100,000 Atlantic Bancorp*..................................... 990,000
35,000 Bancorp Hawaii Incorporated........................... 1,365,000
10,000 Bank of Boston Corporation............................ 578,750
68,000 Bank of New York Company, Incorporated................ 1,997,500
32,800 Banknorth Group, Incorporated......................... 1,225,900
66,000 Barnett Banks, Incorporated........................... 2,227,500
35,000 CCB Financial Corporation............................. 1,916,250
46,875 Chittenden Corporation................................ 1,183,594
</TABLE>
7
<PAGE>
FINANCIAL SERVICES GROWTH FUND INC.
PAINEWEBBER
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- ------------
<C> <S> <C>
COMMON STOCKS - (CONCLUDED)
Regional Banks - (concluded)
32,000 Comerica Incorporated................................. $ 1,648,000
45,000 Corestates Financial Corporation...................... 1,946,250
25,000 Crestar Financial Corporation......................... 1,475,000
50,000 Cullen Frost Bankers Incorporated..................... 1,506,250
35,000 First American Corporation of Tennessee............... 1,680,000
8,500 First Empire State Corporation........................ 2,116,500
30,000 First Hawaiian Incorporated........................... 930,000
51,446 First Michigan Bank Corporation....................... 1,273,288
45,000 First Security Corporation............................ 1,237,500
39,375 First Western Bancorp, Incorporated................... 1,013,906
25,000 Fleet Financial Group, Incorporated................... 1,112,500
50,000 Heritage Financial Group, Incorporated................ 1,050,000
41,250 HUBCO, Incorporated................................... 881,719
55,000 Marshall and Ilsley Corporation....................... 1,656,875
20,000 Mercantile Bancorporation, Incorporated............... 1,040,000
30,000 Northern Trust Corporation............................ 1,972,500
50,000 Norwest Corporation................................... 2,043,750
27,562 Old Kent Financial Corporation........................ 1,167,940
100,000 Riggs National Corporation............................ 1,662,500
35,000 Seacoast Banking Corporation of Florida............... 822,500
25,000 Southern National Corporation......................... 831,250
50,000 Summit Bancorp, Incorporated.......................... 1,987,500
74,150 Synovus Financial Corporation......................... 1,927,900
30,000 Texas Regional Bankshares Incorporated................ 862,500
40,000 Trans Financial Bancorp, Incorporated................. 800,000
36,750 US Bancorp of Oregon.................................. 1,451,625
30,000 Westamerica Bancorporation............................ 1,515,000
45,000 Wilmington Trust Corporation.......................... 1,608,750
22,500 Zions Bancorporation.................................. 1,991,250
------------
52,697,247
------------
Thrift Institutions - 7.45%
50,000 American Federal Bank, FSB............................ 881,250
35,000 Bank United Corporation*.............................. 870,625
35,437 Charter One Financial, Incorporated................... 1,417,480
45,000 Coast Savings Financial, Incorporated................. 1,440,000
50,000 Commonwealth Bancorp Incorporated..................... 593,750
30,000 First Palm Beach Bancorp Incorporated................. 697,500
55,000 Glendale Federal Bank FSB*............................ 976,250
26,666 Queens County Bancorp Incorporated.................... 993,309
------------
7,870,164
------------
Total Common Stocks (cost - $53,088,222)......................... 91,771,939
------------
</TABLE>
8
<PAGE>
FINANCIAL SERVICES GROWTH FUND INC.
PAINEWEBBER
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
--------- -------- -------- ------------
<C> <S> <C> <C> <C>
U.S. GOVERNMENT OBLIGATIONS - 4.71%
U.S. Treasury Bills (cost -
$5,000 $4,974,563)...................... 11/07/96 4.950%@ $ 4,974,563
------------
REPURCHASE AGREEMENTS - 8.16%
4,627 Repurchase Agreement dated
09/30/96, with Citicorp Inc.,
collateralized by $4,090,000 U.S.
Treasury Bonds, 8.125% due
05/15/21;
proceeds: $4,627,735.............. 10/01/96 5.720 4,627,000
4,000 Repurchase Agreement dated 09/30/96
with Chicago First National Bank,
collateralized by $3,970,000 U.S.
Treasury Notes, 6.750% due
06/30/99; proceeds: $4,000,633.... 10/01/96 5.700 4,000,000
------------
Total Repurchase Agreements (cost -
$8,627,000)................................... 8,627,000
------------
Total Investments (cost - $66,689,785) -
99.72%....................................... 105,373,502
Other assets in excess of liabilities -
0.28%........................................ 298,718
------------
Net Assets - 100%............................. $105,672,220
============
</TABLE>
- -------
*Non-income producing security
@Yield to maturity at date of purchase
See accompanying notes to financial statements
9
<PAGE>
FINANCIAL SERVICES GROWTH FUND INC.
PAINEWEBBER
STATEMENT OF ASSETS AND LIABILITIES SEPTEMBER 30, 1996 (UNAUDITED)
<TABLE>
<S> <C>
Assets
Investments in securities, at value (cost - $66,689,785).......... $105,373,502
Dividends and interest receivable................................. 158,176
Receivable for fund shares sold................................... 275,952
Other assets...................................................... 67,861
------------
Total assets...................................................... 105,875,491
------------
Liabilities
Payable to affiliates............................................. 103,060
Payable for fund shares repurchased............................... 66,196
Accrued expenses and other liabilities............................ 34,015
------------
Total liabilities................................................. 203,271
------------
Net Assets
Capital stock--$0.001 par value (300,000,000 shares authorized)... 54,540,508
Undistributed net investment income............................... 894,589
Accumulated net realized gains from investment transactions....... 11,553,406
Net unrealized appreciation of investments........................ 38,683,717
------------
Net assets........................................................ $105,672,220
============
Class A:
Net assets........................................................ $ 69,330,780
------------
Shares outstanding................................................ 2,910,894
------------
Net asset value and redemption value per share.................... $23.82
======
Maximum offering price per share (net asset value plus sales
charge of 4.50% of offering price)............................... $24.94
======
Class B:
Net assets........................................................ $ 28,550,784
------------
Shares outstanding................................................ 1,226,941
------------
Net asset value and offering price per share...................... $23.27
======
Class C:
Net assets........................................................ $ 7,790,656
------------
Shares outstanding................................................ 334,781
------------
Net asset value and offering price per share...................... $23.27
======
</TABLE>
See accompanying notes to financial statements
10
<PAGE>
FINANCIAL SERVICES GROWTH FUND INC.
PAINEWEBBER
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED)
<TABLE>
<S> <C>
Investment Income:
Dividends.......................................................... $ 975,149
Interest........................................................... 262,918
-----------
1,238,067
-----------
Expenses:
Investment advisory and administration............................. 345,531
Service fees--Class A.............................................. 80,999
Service and distribution fees--Class B............................. 135,558
Service and distribution fees--Class C............................. 34,066
Reports and notices to shareholders................................ 60,803
Transfer agency and service fees................................... 56,348
Legal and audit.................................................... 52,161
Federal and state registration..................................... 38,487
Custody and accounting............................................. 34,893
Directors' fees.................................................... 7,875
Other expenses..................................................... 13,625
-----------
860,346
-----------
Net investment income.............................................. 377,721
-----------
Realized and unrealized gains from investment activities:
Net realized gains from investment transactions.................... 5,083,814
Net change in unrealized appreciation/depreciation of investments.. 6,178,903
-----------
Net realized and unrealized gains from investment activities....... 11,262,217
-----------
Net increase in net assets resulting from operations............... $11,640,438
===========
</TABLE>
See accompanying notes to financial statements
11
<PAGE>
FINANCIAL SERVICES GROWTH FUND INC.
PAINEWEBBER
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED FOR THE YEAR
SEPTEMBER 30, 1996 ENDED
(UNAUDITED) MARCH 31, 1996
------------------ --------------
<S> <C> <C>
From operations:
Net investment income........................ $ 377,721 $ 1,104,736
Net realized gains from investment
transactions................................ 5,083,814 13,255,578
Net change in unrealized
appreciation/depreciation of investments.... 6,178,903 13,498,803
------------ ------------
Net increase in net assets resulting from
operations.................................. 11,640,438 27,859,117
------------ ------------
Dividends and distributions to shareholders
from:
Net investment income--Class A............... -- (835,012)
Net investment income--Class B............... -- (213,796)
Net investment income--Class C............... -- (62,458)
Net realized gains from investment
transactions--Class A....................... -- (6,272,236)
Net realized gains from investment
transactions--Class B....................... -- (2,675,354)
Net realized gains from investment
transactions--Class C....................... -- (758,806)
------------ ------------
Total dividends and distributions to
shareholders................................ -- (10,817,662)
------------ ------------
From capital stock transactions:
Net proceeds from the sale of shares......... 7,491,955 26,551,641
Cost of shares repurchased................... (12,599,312) (23,163,766)
Proceeds from dividends reinvested........... -- 8,886,411
------------ ------------
Net increase (decrease) in net assets from
capital stock transactions.................. (5,107,357) 12,274,286
------------ ------------
Net increase in net assets................... 6,533,081 29,315,741
Net Assets:
Beginning of period.......................... 99,139,139 69,823,398
------------ ------------
End of period (including undistributed net
investment income of
$894,589 and $516,868, respectively)........ $105,672,220 $ 99,139,139
============ ============
</TABLE>
See accompanying notes to financial statements
12
<PAGE>
NOTES TO FINANCIAL STATEMENTS - (UNAUDITED)
PAINEWEBBER
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
PaineWebber Financial Services 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.
Currently, the Fund offers Class A, Class B, Class C, and Class Y shares (no
Class Y shares were outstanding during the period). 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 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 rights as to voting privileges, except that each class has
exclusive voting rights with respect 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
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates. The following is
a summary of significant accounting policies:
Valuation of Investments - Securities which are listed on stock exchanges are
valued at the last sale price on the day the securities are being valued or,
lacking any sales on such day, at the last available bid price. In cases where
securities are traded on more than one exchange, the securities are valued on
the exchange designated by Mitchell Hutchins Asset Management Inc. ("Mitchell
Hutchins"), a wholly owned subsidiary of PaineWebber Incorporated
("PaineWebber") and investment adviser, administrator and distributor of the
Fund. Securities traded in the over-the-counter ("OTC") market and listed on
the Nasdaq Stock Market ("Nasdaq") are valued at the last available sale price,
or last bid price available if no sale occurs, on Nasdaq prior to the time of
valuation. Where market quotations are readily available, debt securities are
valued thereon, provided such quotations adequately reflect the fair value of
the securities in the judgment of Mitchell Hutchins. When market quotations are
not readily available, securities are valued based upon appraisals derived from
information concerning those securities or similar securities received from
recognized dealers in those securities. All other securities are valued at fair
value as determined in good faith by, or under the direction of, the Fund's
Board of Directors. The amortized cost method of valuation is used to value
short-term debt instruments with sixty days or less remaining to maturity,
unless the Board of Directors determines that this does not represent fair
value.
13
<PAGE>
PAINEWEBBER
Repurchase Agreements - The Fund's custodian takes possession of the collateral
pledged for investments in repurchase agreements. The underlying collateral is
valued daily on a mark-to-market basis to ensure that the value, including
accrued interest, is at least equal to the repurchase price. In the event of
default of the obligation to repurchase, the Fund has the right to liquidate
the collateral and apply the proceeds in satisfaction of the obligation. Under
certain circumstances, in the event of default or bankruptcy by the other party
to the agreement, realization and/or retention of the collateral may be subject
to legal proceedings. The Fund occasionally participates in joint repurchase
agreement transactions with other funds managed by Mitchell Hutchins.
Investment Transactions and Investment Income - Investment transactions are
recorded on trade date. Realized gains and losses from investment transactions
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.
Premiums are amortized and discounts are accreted 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.
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.
CONCENTRATION OF RISK
The Fund follows an investment policy of investing primarily in equity
securities of financial services companies. Economic, legislative and
regulatory developments impacting that industry may affect the market value of
the Fund's investments.
INVESTMENT ADVISER AND ADMINISTRATOR
The Fund's board of directors has approved an Investment Advisory and
Administrative Contract ("Advisory Contract") with Mitchell Hutchins, under
which Mitchell Hutchins serves as investment adviser and administrator of the
Fund. In
14
<PAGE>
PAINEWEBBER
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, 1996, the Fund owed Mitchell Hutchins $58,672 in investment
advisory and administration fees.
For the six months ended September 30, 1996, the Fund paid $600 in brokerage
commissions to PaineWebber for transactions executed on behalf of the Fund.
DISTRIBUTION PLANS
Mitchell Hutchins is the distributor of the Fund's shares and has appointed
PaineWebber as the exclusive dealer for the sale of those shares. Under
separate plans of distribution pertaining to Class A, Class B and Class C
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. At September 30, 1996, the Fund owed
Mitchell Hutchins $42,253 in service and distribution fees.
Mitchell Hutchins also receives the proceeds of the initial sales charges paid
by shareholders upon the purchase of Class A shares and the contingent deferred
sales charges paid by shareholders upon certain redemptions of Class A, Class B
and Class C shares. Mitchell Hutchins has informed the Fund that, for the six
months ended September 30, 1996, it earned $93,650 in sales charges.
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 for the six months ended September 30, 1996,
PaineWebber earned $17,979. At September 30, 1996, the Fund owed PaineWebber
$2,135 for transfer agency service fees.
15
<PAGE>
PAINEWEBBER
INVESTMENTS IN SECURITIES
For federal income tax purposes, the cost of securities owned at
September 30, 1996, was substantially the same as the cost of
securities for financial statement purposes.
At September 30, 1996, 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)............................................... $38,792,064
Gross depreciation (investments having an excess of cost
over value).............................................. (108,347)
-----------
Net unrealized appreciation of investments................ $38,683,717
===========
</TABLE>
For the six months ended September 30, 1996, total aggregate
purchases and sales of portfolio securities, excluding short-term
securities, were $5,772,687 and $13,922,446, respectively.
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 a federal excise tax.
CAPITAL STOCK
There are 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 C
--------------------- --------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
-------- ----------- -------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
SIX MONTHS ENDED SEPTEM-
BER 30, 1996:
Shares sold............. 78,398 $ 1,718,486 133,769 $ 2,907,113 127,753 $ 2,866,356
Shares repurchased...... (219,703) (4,766,916) (234,819) (4,978,734) (129,719) (2,853,662)
Shares converted from
Class B to Class A..... 27,698 606,825 (28,300) (606,825) -- --
-------- ----------- -------- ----------- -------- -----------
Net increase (decrease)
....................... (113,607) $(2,441,605) (129,350) $(2,678,446) (1,966) $ 12,694
======== =========== ======== =========== ======== ===========
YEAR ENDED MARCH 31,
1996:
Shares sold............. 442,357 $ 8,961,983 677,102 $13,511,924 202,522 $ 4,077,734
Shares repurchased...... (600,457) (12,204,953) (394,042) (7,888,316) (152,237) (3,070,497)
Shares converted from
Class B to Class A..... 29,539 603,210 (30,078) (603,210) -- --
Dividends and
distributions
reinvested............. 271,927 5,487,484 131,753 2,612,655 39,651 786,272
-------- ----------- -------- ----------- -------- -----------
Net increase ........... 143,366 $ 2,847,724 384,735 $ 7,633,053 89,936 $ 1,793,509
======== =========== ======== =========== ======== ===========
</TABLE>
16
<PAGE>
[This Page Intentionally Left Blank]
17
<PAGE>
FINANCIAL SERVICES 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 Years Ended March 31,
1996 --------------------------------------------
(unaudited) 1996 1995 1994 1993 1992
------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period..... $21.16 $17.11 $16.92 $19.45 $13.36 $ 9.50
------ ------ ------ ------ ------ ------
Net investment income
(loss).................. 0.12 0.30 0.25 0.15 0.10 0.15
Net realized and
unrealized gains
(losses) from
investment
transactions........... 2.54 6.25 1.34 (0.76) 6.01 3.92
------ ------ ------ ------ ------ ------
Net increase (decrease)
from investment
operations.............. 2.66 6.55 1.59 (0.61) 6.11 4.07
------ ------ ------ ------ ------ ------
Dividends from net
investment income....... -- (0.29) (0.13) (0.08) (0.02) (0.21)
Distributions from net
realized gains from
investment
transactions........... -- (2.21) (1.27) (1.84) -- --
------ ------ ------ ------ ------ ------
Total dividends and
distributions to
shareholders............ -- (2.50) (1.40) (1.92) (0.02) (0.21)
------ ------ ------ ------ ------ ------
Net asset value, end of
period.................. $23.82 $21.16 $17.11 $16.92 $19.45 $13.36
====== ====== ====== ====== ====== ======
Total investment
return(1)............... 12.57% 39.02% 10.22% (3.14)% 46.79% 42.23%
====== ====== ====== ====== ====== ======
Ratios/supplemental
data:
Net assets, end of
period (000's).......... $69,331 $64,003 $49,295 $48,032 $61,645 $44,867
Expenses to average net
assets.................. 1.49%* 1.37% 1.45% 1.44% 1.87% 1.72%
Net investment income
(loss) to average net
assets.................. 1.03%* 1.50% 1.40% 0.76% 0.60% 1.32%
Portfolio turnover
rate.................... 7% 53% 14% 22% 28% 31%
Average commission rate
per share of common
stock investments
purchased/sold(2) ..... $0.0600 -- -- -- -- --
- ---------------------
</TABLE>
+ Commencment of issuance of shares
* Annualized
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each period, reinvestment of all dividends and distributions
at net asset value on the payable dates and a sale at net asset value on
the last day of each period reported. The figures do not include sales
charges; results for each class would be lower if sales charges were
included. Total investment returns for periods less than one year have not
been annualized.
(2) Disclosure effective for fiscal years beginning on or after September 1,
1995.
18
<PAGE>
FINANCIAL SERVICES GROWTH FUND INC.
PAINEWEBBER
<TABLE>
<CAPTION>
CLASS B CLASS C
- --------------------------------------------------------------------- ----------------------------------------------------------
For the For the
Six Months Six Months
Ended For the Years Ended For the Years
September 30, Ended March 31, For the Period September 30, Ended March 31, For the Period
1996 ----------------------------------- July 1, 1991+ to 1996 ------------------------- July 2, 1992+ to
(unaudited) 1996 1995 1994 1993 March 31, 1992 (unaudited) 1996 1995 1994 March 31, 1993
- ------------- ------- ------- ------- ------- ---------------- ------------- ------- ------- ------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 20.75 $ 16.85 $ 16.71 $ 19.34 $ 13.36 $ 10.24 $ 20.75 $ 16.86 $ 16.71 $ 19.34 $ 14.61
-------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
0.03 0.13 0.11 0.02 (0.01) -- 0.03 0.12 0.11 0.01 --
2.49 6.16 1.33 (0.75) 5.99 3.18 2.49 6.16 1.33 (0.73) 4.77
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
2.52 6.29 1.44 (0.73) 5.98 3.18 2.52 6.28 1.44 (0.72) 4.77
------ ------ ------ ------ ------ ------ ----- ----- ------ ------ ------
-- (0.18) (0.03) (0.06) -- (0.06) -- (0.18) (0.02) (0.07) (0.04)
-- (2.21) (1.27) (1.84) -- -- -- (2.21) (1.27) (1.84) --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
-- (2.39) (1.30) (1.90) -- (0.06) -- (2.39) (1.29) (1.91) (0.04)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
$ 23.27 $20.75 $16.85 $16.71 $19.34 $13.36 $23.27 $20.75 $16.86 $16.71 $19.34
======== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
12.14% 37.97% 9.37% (3.83)% 44.76% 31.16% 12.14% 37.92% 9.34% (3.76)% 32.66%
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
$ 28,551 $28,147 $16,368 $11,517 $10,364 $ 765 $ 7,791 $ 6,989 $ 4,160 $ 4,370 $ 4,636
2.25%* 2.12% 2.22% 2.16% 2.45% 2.72%* 2.26%* 2.14% 2.23% 2.17% 2.36%*
0.27%* 0.74% 0.67% 0.05% (0.03)% 0.14%* 0.26%* 0.72% 0.61% 0.03% 0.01%*
7% 53% 14% 22% 28% 31% 7% 53% 14% 22% 28%
$ 0.0600 -- -- -- -- -- $0.0600 -- -- -- --
</TABLE>
19
<PAGE>
FINANCIAL SERVICES GROWTH FUND INC.
PAINEWEBBER
SHAREHOLDER INFORMATION
A Special Meeting of shareholders of the Fund was held on April
10, 1996. At the meeting the following proposals were approved.
PROPOSAL 1
<TABLE>
<CAPTION>
SHARES
SHARES VOTED WITHHOLD
FOR AUTHORITY
------------ ---------
<S> <C> <C>
To elect ten members of its Board of Directors:
Margo N. Alexander..................................... 2,340,810 101,493
Richard Q. Armstrong................................... 2,340,810 101,493
E. Garrett Bewkes, Jr. ................................ 2,340,810 101,493
Richard R. Burt........................................ 2,340,810 101,493
Mary C. Farrell........................................ 2,340,810 101,493
Meyer Feldberg......................................... 2,340,810 101,493
George W. Gowen........................................ 2,340,810 101,493
Frederic V. Malek...................................... 2,340,810 101,493
Carl W. Schafer........................................ 2,340,810 101,493
John R. Torell III..................................... 2,340,810 101,493
</TABLE>
PROPOSAL 2
To vote for or against the ratification of the selection of Ernst & Young LLP
as the independent auditors for the Funds' current fiscal year ending March 31,
1997:
<TABLE>
<CAPTION>
SHARES VOTED SHARES SHARES
FOR AGAINST ABSTAIN
------------ ------- -------
<S> <C> <C>
2,340,024 4,568 97,711
</TABLE>
PROPOSAL 3
To vote for or against the following changes to the Fund's fundamental
investment restrictions and policies.
For each of the following proposals, the votes were as follows:
<TABLE>
<CAPTION>
SHARES VOTED SHARES SHARES
FOR AGAINST ABSTAIN
------------ ------- -------
<S> <C> <C> <C>
Modification of fundamental restriction on
portfolio diversification........................ 2,287,157 41,127 114,019
Modification of fundamental restriction on
concentration.................................... 2,287,157 41,127 114,019
Modification of fundamental restriction on senior
securities and borrowing......................... 2,287,157 41,127 114,019
Modification of fundamental restriction on making
loans............................................ 2,287,157 41,127 114,019
Modification of fundamental restriction on
underwriting securities.......................... 2,287,157 41,127 114,019
Modification of fundamental restriction on real
estate investments............................... 2,287,157 41,127 114,019
Modification of fundamental restriction on
investing in commodities......................... 2,287,157 41,127 114,019
Elimination of fundamental restriction on margin
transactions..................................... 2,287,157 41,127 114,019
Elimination of fundamental restriction on short
sales............................................ 2,287,157 41,127 114,019
Elimination of fundamental restriction on
investments in oil, gas and mineral leases and
programs......................................... 2,287,157 41,127 114,019
Elimination of fundamental restriction on
investments in other investment companies........ 2,287,157 41,127 114,019
</TABLE>
- -------
(Broker non-votes and abstentions are included within the "Shares Withhold
Authority" or "Shares Abstain" totals.)
20
