<PAGE>
ANNUAL REPORT
PAINEWEBBER FINANCIAL SERVICES GROWTH FUND
PERFORMANCE AT A GLANCE
================================================================================
Comparison of the change of a $10,000 investment in PaineWebber Financial
Services Growth Fund (A) and the S&P 500 Index
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
<TABLE>
<CAPTION>
PaineWebber Financial Services Growth Fund S&P 500 Index
- --------------------------------------------------------------------------------
<S> <C> <C>
3/88 9,556 10,111
- --------------------------------------------------------------------------------
3/89 10,872 11,812
- --------------------------------------------------------------------------------
3/90 11,653 14,083
- --------------------------------------------------------------------------------
3/91 13,211 16,108
- --------------------------------------------------------------------------------
3/92 18,924 17,882
- --------------------------------------------------------------------------------
3/93 27,588 20,602
- --------------------------------------------------------------------------------
3/94 26,723 20,903
- --------------------------------------------------------------------------------
3/95 29,453 24,152
- --------------------------------------------------------------------------------
3/96 40,945 31,897
- --------------------------------------------------------------------------------
3/97 52,702 28,218
- --------------------------------------------------------------------------------
3/98 80,065 56,549
- --------------------------------------------------------------------------------
</TABLE>
Past performance is not predictive of future performance.
The performance of the other classes will vary from the performance of the class
shown based on the difference in sales charges and fees paid by shareholders
investing in different classes.
The graph depicts the performance of PaineWebber Financial Services Growth Fund
Inc. (A) versus the S&P 500 Index. It is important to note PaineWebber Financial
Services Growth Fund Inc. is a professionally managed mutual fund while the
index is not available for investment and is unmanaged. The comparison is shown
for illustrative purposes only.
<TABLE>
<CAPTION>
============================
AVERAGE ANNUAL TOTAL RETURN
============================
- --------------------------------------------------------------------------------------------------------
Commencement of
Twelve Months Five Years Ten Years Operations
Ended 3/31/98 Ended 3/31/98 Ended 3/31/98 Through 3/31/98
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A* 51.92% 23.75% 23.69% 18.27%
% Return Without Deducting
Maximum Sales Charge Class B** 50.80% 22.83% N/A 28.12%
Class C*** 50.76% 22.82% N/A 25.59%
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
Class A* 45.10% 22.61% 23.12% 17.81%
% Return After Deducting
Maximum Sales Charge Class B** 45.80% 22.65% N/A 28.12%
Class C*** 49.76% 22.82% N/A 25.59%
- --------------------------------------------------------------------------------------------------------
</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 1.0% and is
reduced to 0% after 1 year. Class C shares bear ongoing 12b-1 distribution
and service fees.
+ Commencement of operations was May 22,1986, July 1, 1991 and July 2, 1992
for Class A, Class B and Class C shares, respectively.
The investment return and 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.
1
<PAGE>
ANNUAL REPORT
PAINEWEBBER MID CAP FUND
PERFORMANCE AT A GLANCE
================================================================================
Comparison of the change of a $10,000 investment in PaineWebber Mid Cap Fund (A)
and the S&P 400 Midcap Index
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
<TABLE>
<CAPTION>
PaineWebber Mid Cap Fund (A) S&P Midcap 400 Index
- --------------------------------------------------------------------------------
<S> <C> <C>
4/7/92 9,550 9,881
- --------------------------------------------------------------------------------
3/93 10,530 11,617
- --------------------------------------------------------------------------------
3/94 11,650 12,331
- --------------------------------------------------------------------------------
3/95 12,857 13,358
- --------------------------------------------------------------------------------
3/96 16,478 17,179
- --------------------------------------------------------------------------------
3/97 16,443 19,004
- --------------------------------------------------------------------------------
3/98 23,267 28,322
- --------------------------------------------------------------------------------
</TABLE>
Past performance is not predictive of future performance.
The performance of the other classes will vary from the performance of the class
shown based on the difference in sales charges and fees paid by shareholders
investing in different classes.
The graph depicts the performance of PaineWebber Mid Cap Fund (A) versus the S&P
400 Midcap Index. It is important to note PaineWebber MidCap Fund is a
professionally managed mutual fund while the index is not available for
investment and is unmanaged. The comparison is shown for illustrative purposes
only.
<TABLE>
<CAPTION>
============================
AVERAGE ANNUAL TOTAL RETURN
============================
- ---------------------------------------------------------------------------------------------
Commencement of
Twelve Months Five Years Operations
Ended 3/31/98 Ended 3/31/98 Through 3/31/98
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A* 41.50% 17.18% 16.04%
% Return Without Deducting
Maximum Sales Charge Class B** 40.39% 16.30% 15.16%
Class C*** 40.46% 16.30% 17.32%
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
Class A* 35.17% 16.10% 15.15%
% Return After Deducting
Maximum Sales Charge Class B** 35.39% 16.08% 15.07%
Class C*** 39.46% 16.30% 17.32%
- ---------------------------------------------------------------------------------------------
</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 1.0% and is
reduced to 0% after 1 year. Class C shares bear ongoing 12b-1 distribution
and service fees.
+ Commencement of operations was April 7, 1992, April 7, 1992 and July 2,
1992 for Class A, Class B and Class C shares, respectively.
The investment return and 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.
2
<PAGE>
ANNUAL REPORT
PAINEWEBBER UTILITY INCOME FUND
PERFORMANCE AT A GLANCE
================================================================================
Comparison of the change of a $10,000 investment in PaineWebber Utility Income
Fund (A) and the S&P 500 Index and the S&P Utility Index
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
<TABLE>
PaineWebber Utility S&P Utility
Income Fund (A) S&P 500 Index Income Fund
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
7/2/93 9,551 9,960 10,232
- --------------------------------------------------------------------------------
3/94 8,789 10,098 9,257
- --------------------------------------------------------------------------------
3/95 9,052 11,667 9,930
- --------------------------------------------------------------------------------
3/96 10,719 15,409 12,486
- --------------------------------------------------------------------------------
3/97 11,558 18,463 13,063
- --------------------------------------------------------------------------------
3/98 16,083 27,318 17,798
- --------------------------------------------------------------------------------
</TABLE>
Past performance is not predictive of future performance.
The performance of the other classes will vary from the performance of the class
shown based on the difference in sales charges and fees paid by shareholders
investing in different classes.
The graph depicts the performance of PaineWebber Utility Income Fund (A) versus
the S&P 500 Index and the S&P 500 Utility Index. It is important to note
PaineWebber Utility Income Fund is a professionally managed mutual fund while
the index is not available for investment and is unmanaged. The comparison is
shown for illustrative purposes only.
<TABLE>
<CAPTION>
============================
AVERAGE ANNUAL TOTAL RETURN
============================
- ------------------------------------------------------------------------------------------
Commencement of
Twelve Months Three Years Operations
Ended 3/31/98 Ended 3/31/98 Through 3/31/98
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A* 39.15% 21.12% 11.59%
% Return Without Deducting
Maximum Sales Charge Class B** 38.13% 20.24% 10.76%
Class C*** 38.09% 20.23% 10.75%
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
Class A* 32.90% 19.26% 10.52%
% Return After Deducting
Maximum Sales Charge Class B** 33.13% 19.54% 10.47%
Class C*** 37.09% 20.23% 10.75%
- ------------------------------------------------------------------------------------------
</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 1.0% and is
reduced to 0% after 1 year. Class C shares bear ongoing 12b-1 distribution
and service fees.
+ Commencement of operations was July 2, 1993, for Class A, Class B and Class
C shares.
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.
3
<PAGE>
ANNUAL REPORT
May 15, 1998
Dear Shareholder,
We are pleased to present you with the annual report for the PaineWebber
Financial Services Growth Fund Inc., the PaineWebber Mid Cap Fund (formerly
Capital Appreciation Fund) and the PaineWebber Utility Income Fund for the
fiscal year ended March 31, 1998.
GENERAL MARKET OVERVIEW
================================================================================
[GRAPHIC]
The implosion of the Asian markets in October 1997 caused worldwide
sell-offs in the stock markets and a "flight to quality" into the U.S. Treasury
bond market. As events unfolded, investors refocused on the underlying strength
of the U.S. economy and caused the stock market to stage a comeback to November.
Volatility returned to the stock market in December as analysts lowered
their earnings estimates for 1998. The outlook turned more positive in January,
however, and the market stabilized by month-end. Sectors that fared poorly at
the end of 1997 turned in outstanding performances in early 1998. Technology
stocks, department stores, auto supply companies and airlines all rebounded
sharply from year-end slumps. Financial services companies did reasonably well.
Energy stocks performed the worst as weakening economies in Asia drove down oil
prices. Consumer nondurables, a traditionally defensive sector, continued to
lag.
PORTFOLIO REVIEW
================================================================================
[GRAPHIC]
Performance--The Fund's total return (the net asset value change with
dividends reinvested) for the fiscal year ended March 31, 1998, without
deducting sales charges, was 51.92% for Class A shares, 50.80% for Class B
shares and 50.76% for Class C shares. The commencement of issuance for Class Y
shares is March 30, 1998. The total return for the two-day period ended March
31, 1998 was 1.02% with and without deduction of sales charges.
For shareowners who purchased or redeemed Fund shares during the period,
the Fund's total return may be lower; for example, after deducting the maximum
applicable sales charges, the Fund's total return for the period was 45.10% for
Class A shares, 45.80% for Class B shares and 49.76% for Class C shares. The
commencement of issuance for Class Y shares is March 30, 1998. The total return
for the two-day period ended March 31, 1998 was 1.02% with and without deduction
of sales charges.
Portfolio Highlights--Financial stocks, a standout all through the bull
market, rose 10.9% in the first quarter of 1998, trailing the broad S&P 500
Index 13.9% return. This lag may be at
==================================
PAINEWEBBER
FINANCIAL SERVICES
GROWTH FUND
FUND PROFILE
(ARROW) Goal:
Long-term capital
appreciation
(ARROW) Portfolio Manager:
Karen L. Finkel,
Mitchell Hutchins
Asset Management,
Inc.
(ARROW) Total Net Assets:
$472.1 million as of
March 31, 1998
(ARROW) Dividend Payments:
Annually
==================================
4
<PAGE>
ANNUAL REPORT
least partially attributable to the slowing of the bond market. In general, bank
stocks outperformed nonbanks and larger financial services companies
outperformed smaller ones.
Consolidation is under way in the financial services industry, as companies
compete to sell more products in more markets: the recently announced
Citicorp/Travelers merger is just the latest and largest confirmation of this
trend. The House of Representatives recently voted to overturn the
Glass-Steagall Act and allow more firms to sell more kinds of products. If the
House legislation is enacted, it will further blur the distinctions among banks,
securities firms and insurers. Industry consolidation is likely to speed up as a
result.
We seek to diversify the Fund's portfolio--as much as is possible in a
sector fund --by investing in banks and nonbanks, which should benefit from
liberalized regulation, mergers and acquisitions and, most important, rising
demand for financial services from an aging U.S. population.
Recent purchases include Fremont General (1.25% of net assets on March 31,
1998), a West Coast workers' compensation insurer serving markets where pricing
is improving dramatically; Exel Limited (1.15%), a Bermuda insurer whose
competitive edge is derived from superior management as well as tax advantages;
and Wachovia (1.26%), a Southeast based bank focused on expanding in its
traditional markets.
- ----------------------------------
PAINEWEBBER
FINANCIAL
SERVICES
GROWTH FUND
Top five sectors
as percent of net assets,
March 31, 1998*
Insurance 31.4%
Regional Banks 29.1%
Financial Services 10.9%
Real Property 8.6%
Thrift Institutions 6.6%
*Allocations subject to change
- ----------------------------------
================================================================================
PAINEWEBBER MID-CAP FUND (FORMERLY CAPITAL APPRECIATION FUND)
Performance--The Mid Cap Fund's total return (the net asset value change
with dividends reinvested) for the fiscal year ended March 31, 1998, without
deducting sales charges, was 41.50% for Class A shares, 40.39% for Class B
shares and 40.46% for Class C shares. The commencement of issuance date for
Class Y shares is March 17, 1998. The total return for the 15-day period ended
March 31, 1998 was 0.67% for Class Y shares, with and without deduction of sales
charges.
For shareowners who purchased or redeemed Fund shares during the period the
Fund's total return may be lower; for example, after deducting the maximum
applicable sales charges, the Fund's total return for the period was 35.17% for
Class A shares, 35.39% for Class B shares and 39.46% for Class C shares. The
commencement of issuance date for Class Y shares is March 17, 1998. The total
return for the 15-day period ended March 31, 1998 was 0.67% for Class Y shares,
with and without deduction of sales charges.
Management Change--The Fund's performance was in line with the S&P 400
Midcap Index during the quarter. The Fund's long-term performance, however, had
been disappointing relative to its benchmark and its peer group. As a result, on
May 1, 1998, Mitchell Hutchins Asset Management took over day-to-
==================================
PAINEWEBBER MID CAP
FUND (FORMERLY CAPITAL
APPRECIATION FUND)
FUND PROFILE
(ARROW) Goal:
Long-term capital
appreciation
(ARROW) Portfolio Manager:
Mark A. Tincher,
Christopher G. Altschul
and Antony J. Scott,
Mitchell Hutchins Asset
Management, Inc.
(ARROW) Total Net Assets:
$276.6 million as of
March 31, 1998
(ARROW) Dividend Payments:
Annually
==================================
5
<PAGE>
ANNUAL REPORT
- -----------------------------------
PAINEWEBBER
MID CAP FUND
(FORMERLY
CAPITAL
APPRECIATION
FUND)
Top five sectors
as percent of net assets,
March 31, 1998*
Consumer Cyclicals 33.5%
Technology 18.6%
Healthcare 14.7%
Utilities 7.5%
Capital Goods 6.8%
*Allocations subject to change.
Note new management effective
May 1, 1998 will restructure
about 50% of portfolio; substantial
changes are likely.
- -----------------------------------
day management of the Fund from Denver Investment Advisors, and implemented a
new investment discipline.
Mitchell Hutchins has developed a strong equity management team over the
past three years, headed by Chief Investment Officer of Equities Mark A.
Tincher. Prior to joining the firm he directed U.S. equity funds management and
equity research for Chase Manhattan Private Bank.
Along with Mr. Tincher, Portfolio Managers Christopher G. Altschul and
Antony J. Scott will be responsible for day-to-day management of the Fund. Mr.
Altschul joined the team in 1995. He maintains the quantitative equity valuation
model used to develop investment ideas for the Fund. Prior to joining Mitchell
Hutchins Mr. Altschul was a stock analyst at Chase Manhattan Bank. Mr. Scott
joined the firm in 1996 as an analyst; he covers the technology, media,
entertainment and medical products industries. Formerly he was an analyst at
Morgan Stanley.
The Fund's new investment discipline:
o Seeks investments primarily in mid-cap companies with market capitalizations
between $750 million and $6 billion at the time of purchase.
o Relies on the Mitchell Hutchins Factor Valuation Model, which screens a
universe of companies from ten business sectors to identify undervalued
companies with strong earnings momentum. Stocks must rank well based on
valuation and earnings momentum measures, as well as economic sensitivity
measures.
o The Mitchell Hutchins Equity Research Team applies fundamental analysis to all
purchase candidates.
Mitchell Hutchins expects to restructure about half of the Fund's portfolio
to reflect the new investment approach. During this restructuring period, the
Fund is closed to new purchases and exchanges from May 1, 1998 to June 24, 1998.
Fund shares may be redeemed during this period. We expect the Fund to pay a
capital gains distribution to shareholders of record on June 16, 1998. The Fund
will reopen to new purchases and exchanges into the Fund on June 25, 1998.
Portfolio Highlights--The Fund benefited from its holdings in technology,
telecommunications and specialty retailers. Among these (as percent of net
assets on March 31, 1998) were Concentric Network Corp. Delaware (0.2%), an
internet networking firm; WorldCom, Inc. (4.3%), an integrated long distance and
internet provider; and TJX Companies, Inc. (0.6%), the holding company for the
TJ Maxx and Marshall's stores.
6
<PAGE>
ANNUAL REPORT
================================================================================
PAINEWEBBER UTILITY INCOME FUND
Performance--The Fund's total return (the net asset value change with
dividends reinvested) for the fiscal year ended March 31, 1998, without
deducting sales charges, was 39.15% for Class A shares, 38.13% for Class B
shares and 38.09% for Class C shares. There were no Class Y shares outstanding
during the year ended March 31, 1998.
For shareowners who purchased or redeemed Fund shares during the period the
Fund's total return may be lower; for example, after deducting the maximum
applicable sales charges, the Fund's total return for the period was 32.90% for
Class A shares, 33.13% for Class B shares and 37.09% for Class C shares.
Portfolio Highlights--At the end of January, investors confidently looked
beyond Asia'a negative impact on corporate earnings and shifted away from
defensive sectors such as utilities. The utility sector, as measured by the New
York Stock Exchange Utilities Index, returned 14.3% for the first quarter of
1998, in line with the S&P 500 return of 13.9% but down dramatically from its
ten-percentage point lead over the S&P 500 in the fourth quarter of 1997.
We think deregulation of the telecommunications industry will redistribute
assets among long distance and local telephone companies. In the first quarter
the Fund benefited from Qwest Communications International's proposed
acquisition of LCI International Inc. Both companies are long distance providers
competing to build integrated networks that offer telephone and Internet
services. LCI represented 2.1% of the Fund's net assets on March 31, 1998.
The Fund's performance was hurt somewhat by its exposure to real estate
investment trusts (REITs) during the last quarter. Nonetheless, we still believe
that selected REITs offer attractive total return potential. Our holdings are
positioned in industries with strong dynamics, particularly the hotel and office
property industries, which are benefiting from limited supply and growing
demand.
One-third of the portfolio is currently invested in electric utilities
serving strong regional economies, companies that are becoming more productive
ahead of deregulation.
OUTLOOK
================================================================================
[GRAPHIC]
With inflation nearly absent, we expect the Federal Reserve to remain on
hold, and anticipate a fairly stable interest rate environment. In these
conditions stock selection--particularly attempting to avoid companies that may
produce negative surprises--will be of critical importance.
Meanwhile, the extent of the economic turmoil in Asia and its ultimate impact
on corporate profits remain unclear. We are cautious in the near term and expect
continued choppy markets ahead as the effect of negative earnings announce-ments
takes its toll. Over the longer term, however, we see little cause for the
market to lose strength.
==================================
PAINEWEBBER UTILITY
INCOME FUND
FUND PROFILE
(ARROW) Goal:
Current income and
capital appreciation
(ARROW) Portfolio Managers:
Karen L. Finkel,
Juieanna M. Berry and
James F. Keegan,
Mitchell Hutchins Asset
Management Inc.
(ARROW) Total Net Assets:
$37.2 million as of
March 31, 1998
(ARROW) Dividend Payments:
Quarterly
==================================
- ----------------------------------
PAINEWEBBER
UTILITY INCOME
FUND
Asset allocation
as percent of netassets
March 31, 1998*
[THE FOLLOWING DATA WAS
REPRESENTED BY A PIE CHART
IN THE PRINTED MATERIAL.]
<TABLE>
<S> <C>
Equities 87.4%
Bonds 10.1%
Cash & Cash
Equivalents 2.5%
</TABLE>
*Allocations subject to
change
- ----------------------------------
7
<PAGE>
ANNUAL REPORT
Our ultimate objective in managing your investments is to help you
successfully meet your financial goals. We thank you for your continued support,
and welcome any comments or questions you may have.
For a quarterly Fund Profile on the PaineWebber Financial Services Growth
Fund, the PaineWebber Mid Cap Fund or the PaineWebber Utility Income Fund, or
other funds in the PaineWebber Family of Funds,(1) please contact your
investment executive.
Sincerely,
<TABLE>
<S> <C>
/s/ Margo Alexander /s/ Karen L.Finkel
MARGO ALEXANDER KAREN L. FINKEL
President, Senior Vice President,
Mitchell Hutchins Asset Management Inc. Mitchell Hutchins Asset Management Inc.
Portfolio Manager,
PaineWebber Financial Services Growth Fund Inc. and
PaineWebber Utility Income Fund
/s/ Mark A. Tincher
MARK A. TINCHER
Managing Director and Chief Investment Officer--
Equities /s/ C.G. Altschul
Mitchell Hutchins Asset Management Inc. CHRISTOPHER G. ALTSCHUL
Portfolio Manager, PaineWebber Mid Cap Fund First Vice President,
Mitchell Hutchins Asset Management Inc.
Portfolio Manager/Research Analyst,
PaineWebber Mid Cap Fund
/s/ A.J. Scott
ANTONY J. SCOTT
First Vice President,
Mitchell Hutchins Asset Management Inc. /s/ Julieanna M. Berry
Portfolio Manager/Research Analyst, JULIEANNA M. BERRY
PaineWebber Mid Cap Fund First Vice President,
Mitchell Hutchins Asset Management Inc.
Portfolio Manager, PaineWebber Utility Income Fund
/s/ James F. Keegan
JAMES F. KEEGAN
Senior Vice President,
Mitchell Hutchins Asset Management Inc.
Portfolio Manager, PaineWebber Utility Income Fund
</TABLE>
This letter is intended to assist shareholders in understanding how the Funds
performed during the fiscal year ended March 31, 1998, and reflects our views at
the time we are writing this report. Of course, these views may change in
response to changing circumstances. We encourage you to consult your investment
executive regarding your personal investment program.
(1) Mutual funds are sold by prospectus only. The prospectuses for the funds
contain more complete information regarding risks, charges and expenses, and
should be read carefully before investing.
8
<PAGE>
PAINEWEBBER FINANCIAL SERVICES GROWTH FUND INC.
PERFORMANCE RESULTS
(UNAUDITED)
<TABLE>
<CAPTION>
NET ASSET VALUE TOTAL RETURN/1/
-------------------------------- -----------------------------
12 MONTHS 6 MONTHS
03/31/98 09/30/97 03/31/97 ENDED 03/31/98 ENDED 03/31/98
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A Shares $33.56 $30.52 $23.41 51.92% 16.53%
- ---------------------------------------------------------------------------------
Class B Shares 32.62 29.70 22.87 50.80 16.12
- ---------------------------------------------------------------------------------
Class C Shares 32.56 29.66 22.84 50.76 16.10
- ---------------------------------------------------------------------------------
PERFORMANCE SUMMARY CLASS A SHARES
<CAPTION>
NET ASSET VALUE
------------------ CAPITAL GAINS DIVIDENDS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED PAID RETURN/1/
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
05/22/86-12/31/86 $9.25 $8.31 -- -- (10.16)%
- ---------------------------------------------------------------------------------
1987 8.31 6.88 $0.2265 $0.3703 (11.05)
- ---------------------------------------------------------------------------------
1988 6.88 7.70 -- 0.2375 15.38
- ---------------------------------------------------------------------------------
1989 7.70 9.08 -- 0.2900 21.71
- ---------------------------------------------------------------------------------
1990 9.08 7.73 -- 0.2410 (12.33)
- ---------------------------------------------------------------------------------
1991 7.73 12.55 -- 0.2070 65.37
- ---------------------------------------------------------------------------------
1992 12.55 17.38 -- 0.0237 38.68
- ---------------------------------------------------------------------------------
1993 17.38 17.22 1.8425 0.0820 10.32
- ---------------------------------------------------------------------------------
1994 17.22 15.68 1.2660 0.1345 (0.75)
- ---------------------------------------------------------------------------------
1995 15.68 20.57 2.2099 0.2942 47.46
- ---------------------------------------------------------------------------------
1996 20.57 22.80 3.3870 0.2300 28.96
- ---------------------------------------------------------------------------------
1997 20.80 31.24 1.5895 0.2068 45.20
- ---------------------------------------------------------------------------------
01/01/98-03/31/98 31.24 33.56 -- -- 7.43
- ---------------------------------------------------------------------------------
Totals: $10.5214 $2.3170
- ---------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 03/31/98: 632.77%
- ---------------------------------------------------------------------------------
PERFORMANCE SUMMARY CLASS B SHARES
<CAPTION>
NET ASSET VALUE
------------------ CAPITAL GAINS DIVIDENDS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED PAID RETURN/1/
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
07/01/91-12/31/91 $10.24 $12.56 -- $0.0640 23.30%
- ---------------------------------------------------------------------------------
1992 12.56 17.31 -- -- 37.82
- ---------------------------------------------------------------------------------
1993 17.31 17.04 $1.8425 0.0571 9.57
- ---------------------------------------------------------------------------------
1994 17.04 15.47 1.2660 0.0344 (1.53)
- ---------------------------------------------------------------------------------
1995 15.47 20.21 2.2099 0.1766 46.36
- ---------------------------------------------------------------------------------
1996 20.21 22.32 3.3870 0.0592 28.00
- ---------------------------------------------------------------------------------
1997 22.32 30.42 1.5895 0.0884 44.10
- ---------------------------------------------------------------------------------
01/01/98-03/31/98 30.42 32.62 -- -- 7.23
- ---------------------------------------------------------------------------------
Totals: $10.2949 $0.4797
- ---------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 03/31/98: 433.55%
- ---------------------------------------------------------------------------------
</TABLE>
/1/ FIGURES ASSUME REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS
AT NET ASSET VALUE ON THE PAYABLE DATES AND DO NOT INCLUDE SALES CHARGES;
RESULTS FOR EACH CLASS WOULD BE LOWER IF SALES CHARGES WERE INCLUDED.
THE DATA ABOVE REPRESENTS PAST PERFORMANCE OF THE FUND'S SHARES, WHICH IS NO
GUARANTEE OF FUTURE RESULTS. THE PRINCIPAL VALUE OF AN INVESTMENT IN THE FUND
WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE
OR LESS THAN THEIR ORIGINAL COST.
9
<PAGE>
PAINEWEBBER FINANCIAL SERVICES GROWTH FUND INC.
PERFORMANCE RESULTS
(UNAUDITED) (CONCLUDED)
PERFORMANCE SUMMARY CLASS C SHARES
<TABLE>
<CAPTION>
NET ASSET VALUE
---------------- CAPITAL GAINS DIVIDENDS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED PAID RETURN/1/
- ---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
07/02/92-12/31/92 $14.61 $17.32 -- $0.0359 18.80%
- ---------------------------------------------------------------------
1993 17.32 17.03 $1.8425 0.0691 9.52
- ---------------------------------------------------------------------
1994 17.03 15.48 1.2660 0.0209 (1.50)
- ---------------------------------------------------------------------
1995 15.48 20.21 2.2099 0.1819 46.30
- ---------------------------------------------------------------------
1996 20.21 22.29 3.3870 0.0861 27.99
- ---------------------------------------------------------------------
1997 22.29 30.37 1.5895 0.0938 44.09
- ---------------------------------------------------------------------
01/01/98-03/31/98 30.37 32.56 -- -- 7.21
- ---------------------------------------------------------------------
Totals: $10.2949 $0.4877
- ---------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 03/31/98: 270.75%
- ---------------------------------------------------------------------
</TABLE>
/1/ FIGURES ASSUME REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS
AT NET ASSET VALUE ON THE PAYABLE DATES AND DO NOT INCLUDE SALES CHARGES;
RESULTS WOULD BE LOWER IF SALES CHARGES WERE INCLUDED.
NOTE: THE FUND OFFERS CLASS Y SHARES TO A LIMITED GROUP OF ELIGIBLE INVESTORS,
INCLUDING PARTICIPANTS IN CERTAIN INVESTMENT PROGRAMS THAT ARE SPONSORED BY
PAINEWEBBER AND MAY INVEST IN PAINEWEBBER MUTUAL FUNDS. FOR THE PERIOD MARCH
30, 1998 (COMMENCEMENT OF ISSUANCE) THROUGH MARCH 31, 1998, CLASS Y SHARES HAVE
A TOTAL RETURN OF 1.02%. CLASS Y SHARES DO NOT HAVE INITIAL OR CONTINGENT
DEFERRED SALES CHARGES OR ONGOING DISTRIBUTION AND SERVICE FEES.
THE DATA ABOVE REPRESENTS PAST PERFORMANCE OF THE FUND'S SHARES, WHICH IS NO
GUARANTEE OF FUTURE RESULTS. THE PRINCIPAL VALUE OF AN INVESTMENT IN THE FUND
WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE
OR LESS THAN THEIR ORIGINAL COST.
10
<PAGE>
PAINEWEBBER MID CAP FUND
PERFORMANCE RESULTS
(UNAUDITED)
<TABLE>
<CAPTION>
NET ASSET VALUE TOTAL RETURN/1/
-------------------------------- -----------------------------
12 MONTHS 6 MONTHS
03/31/98 09/30/97 03/31/97 ENDED 03/31/98 ENDED 03/31/98
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A Shares $15.00 $18.61 $ 13.44 41.50% 2.19%
- ---------------------------------------------------------------------------------
Class B Shares 15.07 18.75 13.59 40.39 1.75
- ---------------------------------------------------------------------------------
Class C Shares 14.07 17.75 12.87 40.46 1.85
- ---------------------------------------------------------------------------------
PERFORMANCE SUMMARY CLASS A SHARES
<CAPTION>
NET ASSET VALUE
------------------ CAPITAL GAINS DIVIDENDS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED PAID RETURN/1/
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
04/07/92-12/31/92 $9.55 $10.50 -- -- 9.95%
- ---------------------------------------------------------------------------------
1993 10.50 12.19 -- -- 16.10
- ---------------------------------------------------------------------------------
1994 12.19 11.98 $0.0433 -- (1.36)
- ---------------------------------------------------------------------------------
1995 11.98 14.67 0.7480 -- 28.79
- ---------------------------------------------------------------------------------
1996 14.67 14.92 2.3244 -- 17.87
- ---------------------------------------------------------------------------------
1997 14.92 13.55 3.4608 -- 15.14
- ---------------------------------------------------------------------------------
01/01/98-03/31/98 13.55 15.00 -- -- 10.70
- ---------------------------------------------------------------------------------
Totals: $6.5765 $0.0000
- ---------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 03/31/98: 143.63%
- ---------------------------------------------------------------------------------
PERFORMANCE SUMMARY CLASS B SHARES
<CAPTION>
NET ASSET VALUE
------------------ CAPITAL GAINS DIVIDENDS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED PAID RETURN/1/
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
04/07/92-12/31/92 $10.00 $10.93 -- -- 9.30%
- ---------------------------------------------------------------------------------
1993 10.93 12.59 -- -- 15.19
- ---------------------------------------------------------------------------------
1994 12.59 12.28 $0.0433 -- (2.03)
- ---------------------------------------------------------------------------------
1995 12.28 14.94 0.7480 -- 27.73
- ---------------------------------------------------------------------------------
1996 14.94 15.11 2.3244 -- 17.01
- ---------------------------------------------------------------------------------
1997 15.11 13.64 3.4608 -- 14.28
- ---------------------------------------------------------------------------------
01/01/98-03/31/98 13.64 15.07 -- -- 10.48
- ---------------------------------------------------------------------------------
Totals: $6.5765 $0.0000
- ---------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 03/31/98: 132.76%
- ---------------------------------------------------------------------------------
PERFORMANCE SUMMARY CLASS C SHARES
<CAPTION>
NET ASSET VALUE
------------------ CAPITAL GAINS DIVIDENDS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED PAID RETURN/1/
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
07/02/92-12/31/92 $8.89 $10.46 -- -- 17.66%
- ---------------------------------------------------------------------------------
1993 10.46 12.05 -- -- 15.20
- ---------------------------------------------------------------------------------
1994 12.05 11.75 $0.0433 -- (2.13)
- ---------------------------------------------------------------------------------
1995 11.75 14.26 0.7480 -- 27.82
- ---------------------------------------------------------------------------------
1996 14.26 14.31 2.3244 -- 16.98
- ---------------------------------------------------------------------------------
1997 14.31 12.74 3.4608 -- 14.39
- ---------------------------------------------------------------------------------
01/01/98-03/31/98 12.74 14.07 -- -- 10.44
- ---------------------------------------------------------------------------------
Totals: $6.5765 $0.0000
- ---------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 03/31/98: 150.58%
- ---------------------------------------------------------------------------------
</TABLE>
/1/ FIGURES ASSUME REINVESTMENT OF ALL DIVIDENDS AND DISTRIBUTIONS, IF ANY, AT
NET ASSET VALUE ON THE PAYABLE DATES AND DO NOT INCLUDE SALES CHARGES
RESULTS FOR EACH CLASS WOULD BE LOWER IF SALES CHARGES WERE INCLUDED.
NOTE: THE FUND OFFERS CLASS Y SHARES TO A LIMITED GROUP OF INVESTORS INCLUDING
PARTICIPANTS IN CERTAIN INVESTMENT PROGRAMS THAT ARE SPONSORED BY PAINEWEBBER
AND MAY INVEST IN PAINEWEBBER MUTUAL FUNDS. FOR THE PERIOD MARCH 17, 1998
(COMMENCEMENT OF ISSUANCE) THROUGH MARCH 31, 1998, CLASS Y SHARES HAVE A TOTAL
RETURN OF 0.67%. CLASS Y SHARES DO NOT HAVE INITIAL OR CONTINGENT DEFERRED
SALES CHARGES OR ONGOING DISTRIBUTION OR SERVICES FEES.
THE DATA ABOVE REPRESENTS PAST PERFORMANCE OF THE FUND'S SHARES, WHICH IS NO
GUARANTEE OF FUTURE RESULTS. THE PRINCIPAL VALUE OF AN INVESTMENT IN THE FUND
WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE
OR LESS THAN THEIR ORIGINAL COST.
11
<PAGE>
PAINEWEBBER UTILITY INCOME FUND
PERFORMANCE RESULTS
(UNAUDITED)
<TABLE>
<CAPTION>
NET ASSET VALUE TOTAL RETURN/1/
-------------------------------- -----------------------------
12 MONTHS 6 MONTHS
03/31/98 09/30/97 03/31/97 ENDED 03/31/98 ENDED 03/31/98
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A Shares $13.79 $11.75 $10.20 39.15% 18.81%
- ---------------------------------------------------------------------------------
Class B Shares 13.79 11.75 10.20 38.13 18.38
- ---------------------------------------------------------------------------------
Class C Shares 13.78 11.74 10.20 38.09 18.42
- ---------------------------------------------------------------------------------
PERFORMANCE SUMMARY CLASS A SHARES
<CAPTION>
NET ASSET VALUE
------------------ CAPITAL GAINS DIVIDENDS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED PAID RETURN/1/
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
07/02/93-12/31/93 $10.00 $9.70 -- $0.2340 (0.70)%
- ---------------------------------------------------------------------------------
1994 9.70 8.28 -- 0.4829 (9.71)
- ---------------------------------------------------------------------------------
1995 8.28 10.14 -- 0.4662 28.82
- ---------------------------------------------------------------------------------
1996 10.14 10.56 -- 0.3530 7.90
- ---------------------------------------------------------------------------------
1997 10.56 12.90 -- 0.3299 25.75
- ---------------------------------------------------------------------------------
01/01/98-03/31/98 12.90 13.79 -- 0.0728 7.46
- ---------------------------------------------------------------------------------
Totals: $0.0000 $1.9388
- ---------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 03/31/98: 68.39%
- ---------------------------------------------------------------------------------
PERFORMANCE SUMMARY CLASS B SHARES
<CAPTION>
NET ASSET VALUE
------------------ CAPITAL GAINS DIVIDENDS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED PAID RETURN/1/
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
07/02/93-12/31/93 $10.00 $9.70 -- $0.2010 (1.02)%
- ---------------------------------------------------------------------------------
1994 9.70 8.28 -- 0.4169 (10.40)
- ---------------------------------------------------------------------------------
1995 8.28 10.14 -- 0.3980 27.87
- ---------------------------------------------------------------------------------
1996 10.14 10.56 -- 0.2756 7.06
- ---------------------------------------------------------------------------------
1997 10.56 12.90 -- 0.2427 24.78
- ---------------------------------------------------------------------------------
01/01/98-03/31/98 12.90 13.79 -- 0.0477 7.27
- ---------------------------------------------------------------------------------
Totals: $0.0000 $1.5819
- ---------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 03/31/98: 62.51%
- ---------------------------------------------------------------------------------
PERFORMANCE SUMMARY CLASS C SHARES
<CAPTION>
NET ASSET VALUE
------------------ CAPITAL GAINS DIVIDENDS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED PAID RETURN/1/
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
07/02/93-12/31/93 $10.00 $9.70 -- $0.2020 (1.01)%
- ---------------------------------------------------------------------------------
1994 9.70 8.28 -- 0.4158 (10.41)
- ---------------------------------------------------------------------------------
1995 8.28 10.14 -- 0.3970 27.86
- ---------------------------------------------------------------------------------
1996 10.14 10.56 -- 0.2766 7.07
- ---------------------------------------------------------------------------------
1997 10.56 12.89 -- 0.2459 24.72
- ---------------------------------------------------------------------------------
01/01/98-03/31/98 12.89 13.78 -- 0.0496 7.29
- ---------------------------------------------------------------------------------
Totals: $0.0000 $1.5869
- ---------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 03/31/98: 62.46%
- ---------------------------------------------------------------------------------
</TABLE>
/1/ FIGURES ASSUME REINVESTMENT OF ALL DIVIDENDS AND OTHER DISTRIBUTIONS AT NET
ASSET VALUE ON THE PAYABLE DATES AND DO NOT INCLUDE SALE CHARGES; RESULTS
WOULD BE LOWER IF SALES CHARGES WERE INCLUDED.
THE DATA ABOVE REPRESENTS PAST PERFORMANCE OF THE FUND'S SHARES, WHICH IS NO
GUARANTEE OF FUTURE RESULTS. THE PRINCIPAL VALUE OF AN INVESTMENT IN THE FUND
WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE
OR LESS THAN THEIR ORIGINAL COST.
12
<PAGE>
PAINEWEBBER FINANCIAL SERVICES GROWTH FUND INC.
PORTFOLIO OF INVESTMENTS MARCH 31, 1998
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- ------------
<C> <S> <C>
COMMON STOCKS -- 88.84%
BUSINESS SERVICES -- 0.88%
90,000 Sterling Commerce Inc.*............................... $ 4,173,750
------------
FINANCIAL SERVICES -- 10.93%
57,500 American Express Co. ................................. 5,286,406
65,000 CCC Information Services Group, Inc.*................. 1,787,500
210,000 CIT Group Inc. ....................................... 6,851,250
175,000 Capital Trust*........................................ 1,706,250
126,000 Conning Corporation................................... 2,520,000
120,000 Countrywide Credit Industries......................... 6,382,500
80,000 Federal Home Loan Mortgage Corp. ..................... 3,795,000
45,000 Federal National Mortgage
Association.......................................... 2,846,250
120,000 Finova Group Inc. .................................... 7,065,000
200,000 Long Beach Financial Corporation*..................... 2,550,000
125,000 Medallion Financial Corp. ............................ 3,390,625
82,500 Moneygram Payment Systems Inc.*....................... 1,247,813
57,500 Morgan Stanley, Dean Witter, Discover & Co. .......... 4,190,312
30,000 SLM Holding Corp. .................................... 1,308,750
25,000 Waddell & Reed Financial, Inc. ....................... 650,000
------------
51,577,656
------------
INSURANCE -- 31.35%
170,000 ACE Limited........................................... 6,406,875
57,500 Allstate Corp. ....................................... 5,286,406
122,500 Ambac Financial Group Inc. ........................... 7,158,594
92,500 American General Corp. ............................... 5,983,594
160,000 Amerin Corp.*......................................... 4,820,000
145,000 AmerUs Life Holdings Inc. ............................ 4,694,375
105,000 W.R. Berkley Corp. ................................... 4,974,375
25,000 Chubb Corp. .......................................... 1,959,375
92,500 Conseco Inc. ......................................... 5,237,813
100,000 Enhance Financial Services Group Inc.(1).............. 6,943,750
150,000 Everest Reinsurance Holdings Inc. .................... 6,168,750
72,500 Executive Risk Inc. .................................. 5,165,625
70,000 Exel Ltd.(1).......................................... 5,425,000
100,000 Fremont General Corp. ................................ 5,881,250
30,000 Hartford Financial Services Group Inc. ............... 3,255,000
65,000 Hartford Life Inc. ................................... 3,026,563
162,500 Horace Mann Educators Corp. .......................... 5,707,813
110,000 Liberty Financial Companies, Inc. .................... 4,351,875
95,000 Life Re Corp. ........................................ 7,012,187
105,000 Nationwide Financial Services Inc. ................... 4,554,375
135,000 Old Republic International Corp. ..................... 5,982,187
120,000 Orion Capital Corp. .................................. 6,562,500
30,000 Penncorp Financial Group, Inc.(1)..................... 866,250
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- ------------
<C> <S> <C>
INSURANCE (CONCLUDED)
65,000 Protective Life Corporation........................... $ 4,745,000
112,500 Reinsurance Group of America, Inc. ................... 5,625,000
145,000 Reliastar Financial Corp.(1).......................... 6,679,062
90,000 SunAmerica Inc. ...................................... 4,308,750
80,000 Travelers Group Inc. ................................. 4,800,000
100,000 Travelers Property Casualty Corp. .................... 4,400,000
------------
147,982,344
------------
MONEY CENTER BANKS -- 1.37%
28,500 Republic New York Corp. .............................. 3,786,938
20,000 The Chase Manhattan Corp.............................. 2,697,500
------------
6,484,438
------------
REAL PROPERTY -- 8.64%
110,000 Arden Realty Inc. .................................... 3,135,000
145,000 Cabot Industrial Trust................................ 3,452,813
150,000 CB Commercial Real Estate Services Group*............. 6,000,000
200,000 Cornerstone Properties Inc. .......................... 3,625,000
85,000 Crescent Real Estate Equities(1)...................... 3,060,000
150,000 Excel Realty Trust Inc. .............................. 5,343,750
100,000 Resource Asset Investment Trust....................... 1,825,000
75,000 Spieker Properties Inc. .............................. 3,093,750
85,000 Starwood Hotels & Resorts............................. 4,536,875
5,000 Trammell Crow Co.*.................................... 142,500
80,000 Vornado Realty Trust.................................. 3,485,000
175,000 Westfield America Inc. ............................... 3,084,375
------------
40,784,063
------------
REGIONAL BANKS -- 29.11%
80,000 BankAmerica Corp. .................................... 6,610,000
40,000 BankBoston Corp. ..................................... 4,410,000
32,800 BankNorth Group, Inc. ................................ 2,394,400
72,500 BB&T Corp.(1)......................................... 4,907,344
60,000 CCB Financial Corp. .................................. 6,633,750
58,593 Chittenden Corp. ..................................... 2,189,913
60,000 Comerica Inc. ........................................ 6,348,750
12,500 CoreStates Financial Corp. ........................... 1,121,875
95,000 Crestar Financial Corp. .............................. 5,616,875
75,000 Cullen Frost Bankers Inc. ............................ 4,429,688
70,000 First American Corp. of Tennessee..................... 3,430,000
14,000 First Empire State Corp. ............................. 6,998,250
105,000 First Security Corp. ................................. 2,500,313
20,000 First Union Corp. .................................... 1,135,000
59,062 First Western Bancorp, Inc. .......................... 1,782,934
25,000 Fleet Financial Group, Inc. .......................... 2,126,563
</TABLE>
13
<PAGE>
PAINEWEBBER FINANCIAL SERVICE GROWTH FUND INC.
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- ------------
<C> <S> <C>
COMMON STOCKS (CONCLUDED)
REGIONAL BANKS (CONCLUDED)
155,000 HUBCO, Inc.(1)........................................ $ 5,938,437
50,000 Marshall and Ilsley Corp. ............................ 2,900,000
67,500 Northern Trust Corp. ................................. 5,045,625
152,500 Norwest Corp. ........................................ 6,338,281
57,880 Old Kent Financial Corp. ............................. 2,228,380
68,500 Seacoast Banking Corp. of Florida..................... 2,534,500
132,500 SouthTrust Corp. ..................................... 5,548,437
63,750 Summit Bancorp, Inc. ................................. 3,191,484
105,000 Texas Regional Bankshares Inc. ....................... 3,524,063
78,000 Trans Financial, Inc. ................................ 3,373,500
40,000 US Bancorp............................................ 4,990,000
70,000 Wachovia Corp. ....................................... 5,936,875
15,500 Wells Fargo and Co. .................................. 5,134,375
100,000 West Coast Bancorp Oregon............................. 2,500,000
200,000 Westamerica Bancorporation............................ 6,675,000
50,000 Wilmington Trust Corp. ............................... 3,318,750
107,500 Zions Bancorporation.................................. 5,630,312
------------
137,443,674
------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- ------------
<C> <S> <C>
THRIFT INSTITUTIONS -- 6.56%
65,000 Bank United Corp...................................... $ 3,250,000
70,000 Charter One Financial, Inc............................ 4,690,000
20,000 Coast Federal Litigation Contingent Payment Rights.... 325,000
125,000 Dime Bancorp Inc. .................................... 3,757,812
50,000 First Palm Beach Bancorp Inc.......................... 2,012,500
65,000 Golden State Bancorp Inc.*............................ 2,482,188
130,000 Greenpoint Financial Corp............................. 4,671,875
46,164 H F Ahmanson & Co..................................... 3,577,710
80,000 Queens County Bancorp Inc............................. 3,520,000
37,500 Washington Mutual, Inc(1)............................. 2,689,453
------------
30,976,538
------------
Total Common Stocks (cost -- $286,016,354)....................... 419,422,463
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MATURITY INTEREST
AMOUNT (000) DATES RATES
------------ -------- ----------------
<C> <S> <C> <C> <C>
U.S. GOVERNMENT OBLIGATION -- 2.95%
$ 14,000 U.S. Treasury Bills
(cost -- $13,954,582).. 04/23/98 5.240 to 5.360%@ 13,954,582
------------
REPURCHASE AGREEMENTS -- 8.28%
18,969 Repurchase agreement
dated 03/31/98 with
Salomon Smith
Barney, Inc., collater-
alized by $14,210,000
U.S. Treasury Bonds,
9.250% due 02/15/16
(value--$19,363,967);
proceeds; $18,972,030.. 04/01/98 5.750 18,969,000
20,104 Repurchase agreement
dated 03/31/98 with
State Street
Bank & Trust Co., col-
lateralized by
$18,395,000
U.S. Treasury Bonds,
7.875% due 11/15/07
(value--$20,510,425);
proceeds; $20,107,211.. 04/01/98 5.750 20,104,000
------------
Total Repurchase Agreements (cost --
$39,073,000)........................ 39,073,000
------------
<CAPTION>
NUMBER OF
SHARES
---------
<C> <S> <C> <C> <C>
INVESTMENTS OF CASH COLLATERAL FOR
SECURITIES LOANED -- 2.92%
MONEY MARKET FUNDS -- 2.92%
13,776,156 Liquid Assets Portfolio. 13,776,156
7,217 TempCash Portfolio...... 7,217
1,127 TempFund Portfolio...... 1,127
------------
Total Investments of Cash Collateral
for Securities Loaned (cost --
$13,784,500)........................ 13,784,500
------------
Total Investments (cost --
$352,828,436) -- 102.99%............ 486,234,545
Liabilities in excess of other
assets -- (2.99)%.................... (14,133,067)
------------
Net Assets 100.00%.................... $472,101,478
============
</TABLE>
- ---------
*NON-INCOME PRODUCING SECURITY
@YIELD TO MATURITY AT DATE OF PURCHASE
(1)SECURITY, OR PORTION THEREOF, WAS ON LOAN AT MARCH 31, 1998
See accompanying notes to financial statements
14
<PAGE>
PAINEWEBBER MID CAP FUND
PORTFOLIO OF INVESTMENTS MARCH 31, 1998
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- -----------
<C> <S> <C>
COMMON STOCKS -- 96.83%
AGRICULTURE, FOOD & BEVERAGE -- 0.51%
38,100 Coca-Cola Enterprises Inc. ............................ $ 1,397,794
-----------
AIRLINES -- 0.87%
31,650 Southwest Airlines Co. ................................ 935,653
19,200 US Airways Group, Inc.*................................ 1,423,200
-----------
2,358,853
-----------
APPAREL, RETAIL -- 1.06%
17,800 Payless Shoesource Inc.*............................... 1,339,450
34,600 TJX Companies, Inc. ................................... 1,565,650
-----------
2,905,100
-----------
APPAREL, TEXTILES -- 0.85%
21,600 Gymboree Corp.*........................................ 558,900
42,550 Unifi Inc. ............................................ 1,584,988
5,800 Westpoint Stevens Inc.*................................ 166,025
-----------
2,309,913
-----------
BANKS -- 0.61%
22,400 Northern Trust Corp. .................................. 1,674,400
-----------
CHEMICALS -- 1.74%
12,600 Avery Dennison Corp. .................................. 672,525
46,900 Crompton & Knowles Corp. .............................. 1,357,169
26,100 Cytec Industries Inc.*................................. 1,437,131
9,700 Sealed Air Corp.*...................................... 635,350
7,800 W.R. Grace & Co. ...................................... 652,762
-----------
4,754,937
-----------
COMPUTER HARDWARE -- 1.85%
36,900 Ascend Communications Inc.*............................ 1,397,587
80,800 Cabletron Systems, Inc.* (1)........................... 1,176,650
46,600 EMC Corp.*............................................. 1,762,062
42,500 Fore Systems*.......................................... 669,375
9,700 Sync Research Inc.*.................................... 25,463
-----------
5,031,137
-----------
COMPUTER SOFTWARE -- 7.19%
40,400 BMC Software Inc.*..................................... 3,386,025
83,600 Cadence Design Systems Inc.*........................... 2,894,650
36,600 Compuware Corp.*....................................... 1,807,125
21,950 Harbinger Corp.*....................................... 828,613
26,700 JD Edwards & Co.*...................................... 872,756
23,950 Networks Associated Inc.*.............................. 1,586,687
95,500 Peoplesoft Inc.*....................................... 5,031,656
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- -----------
<C> <S> <C>
COMPUTER SOFTWARE (CONCLUDED)
47,500 Sandisk Corp.*......................................... $ 1,181,563
43,300 Sterling Commerce Inc.*................................ 2,008,037
-----------
19,597,112
-----------
CONSUMER DURABLES -- 1.79%
25,400 Furniture Brands International Inc.*................... 817,563
24,000 Interface, Inc. ....................................... 997,500
24,200 Leggett & Platt Inc. .................................. 1,244,787
66,750 Pier 1 Imports Inc. ................................... 1,810,594
-----------
4,870,444
-----------
DEFENSE/AEROSPACE -- 0.85%
53,700 Gulfstream Aerospace Corp.*............................ 2,329,238
-----------
DIVERSIFIED RETAIL -- 3.39%
125,900 Family Dollar Stores Inc. ............................. 4,784,200
31,000 Kohls Corp.* .......................................... 2,534,250
23,000 Proffitts Inc.*........................................ 833,750
43,000 Saks Holdings Inc.*.................................... 1,075,000
-----------
9,227,200
-----------
DRUGS & MEDICINE -- 5.31%
35,000 Alza Corp.*............................................ 1,568,437
9,300 Biogen Inc.*........................................... 448,144
36,400 Centocor Inc.*......................................... 1,624,350
105,600 Forest Labs Inc.*...................................... 3,960,000
30,200 Health Care & Retirement Corp.*........................ 1,296,713
59,700 Mylan Labs Inc. ....................................... 1,373,100
52,500 North American Vaccine Inc.* (1)....................... 918,750
90,880 Watson Pharmaceuticals, Inc.*.......................... 3,271,680
-----------
14,461,174
-----------
ELECTRIC UTILITIES -- 1.64%
85,304 AES Corp.*............................................. 4,473,128
-----------
ELECTRICAL EQUIPMENT -- 3.97%
35,200 Ciena Corp.*........................................... 1,500,400
11,200 Comverse Technology Inc.*.............................. 547,400
19,600 Hadco Corp.*........................................... 776,650
31,400 Natural Microsystems Corp.*............................ 1,244,225
107,600 Pairgain Technologies Inc.*............................ 2,582,400
14,700 Premisys Communications Inc.*.......................... 421,707
59,300 SCI Systems Inc.* (1).................................. 2,112,562
38,900 Solectron Corp.*....................................... 1,643,525
-----------
10,828,869
-----------
</TABLE>
15
<PAGE>
PAINEWEBBER MID CAP FUND
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- -----------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
ENERGY RESERVES & PRODUCTION -- 1.25%
57,800 Enron Corp. ........................................... $ 2,680,475
28,900 Pioneer Natural Resources Co. ......................... 718,888
-----------
3,399,363
-----------
ENTERTAINMENT -- 2.74%
53,600 CBS Corp.*............................................. 1,819,050
27,200 Viacom, Inc.*.......................................... 1,462,000
135,100 Westwood One Inc.*..................................... 4,188,100
-----------
7,469,150
-----------
ENVIRONMENTAL SERVICES -- 1.97%
83,600 Newpark Resources Inc.*................................ 1,525,700
86,600 Philip Services Corp.*................................. 903,887
65,900 USA Waste Services Inc.*............................... 2,936,669
-----------
5,366,256
-----------
FINANCIAL SERVICES -- 1.52%
81,032 Mutual Risk Management Ltd. (1)........................ 2,744,959
26,260 Renaissance Worldwide Inc.*............................ 720,509
26,400 Waddell & Reed Financial Inc. ......................... 686,400
-----------
4,151,868
-----------
FOREST PRODUCTS, PAPER -- 0.51%
24,500 Bowater Inc. .......................................... 1,382,719
-----------
FREIGHT, AIR, SEA & LAND -- 0.30%
22,800 US Freightways Corp. .................................. 820,800
-----------
HOTELS -- 0.98%
39,100 Four Seasons Hotels Inc. .............................. 1,334,287
68,900 Prime Hospitality Corp.* (1)........................... 1,343,550
-----------
2,677,837
-----------
HOUSEHOLD PRODUCTS -- 1.45%
16,500 Clorox Co. ............................................ 1,413,844
52,500 Newell Co. ............................................ 2,542,968
-----------
3,956,812
-----------
INDUSTRIAL PARTS -- 0.47%
15,100 Ionics Inc.*........................................... 650,244
27,400 Rental Service Corp.*.................................. 637,050
-----------
1,287,294
-----------
INDUSTRIAL SERVICES/SUPPLIES -- 5.29%
48,400 Apollo Group Inc.* (1)................................. 2,329,250
211,340 Cendant Corp.*......................................... 8,374,347
27,500 Chancellor Media Corp.*................................ 1,261,563
72,200 Corrections Corp. of America*.......................... 2,463,825
-----------
14,428,985
-----------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- -----------
<C> <S> <C>
INFORMATION & COMPUTER SERVICES -- 7.07%
51,900 A. C. Nielson Corp.*................................... $ 1,372,106
43,800 America Online Inc.*................................... 2,992,087
1,900 Cambridge Technology Partners*......................... 94,169
18,900 CKS Group Inc.*........................................ 355,556
39,400 Comdisco Inc. ......................................... 1,718,825
19,300 Concord EFS Inc.*...................................... 667,056
25,900 Fiserv Inc.*........................................... 1,641,413
73,100 HBO & Co. ............................................. 4,413,412
85,800 Snyder Communications Inc.* (1)........................ 4,021,875
19,200 Sylvan Learning Systems Inc.*.......................... 904,800
41,125 Technology Solutions Co.*.............................. 1,089,813
-----------
19,271,112
-----------
LEISURE -- 0.57%
39,100 Mattel Inc. ........................................... 1,549,338
-----------
LONG DISTANCE & PHONE COMPANIES -- 4.34%
274,592 WorldCom, Inc.*........................................ 11,824,618
-----------
MEDIA -- 5.06%
33,800 Clear Channel Communications* (1)...................... 3,312,400
88,800 Tele-Communications, Inc.*............................. 2,761,125
21,800 Tribune Co. ........................................... 1,536,900
226,900 USA Networks Inc.*..................................... 6,183,025
-----------
13,793,450
-----------
MEDICAL PRODUCTS -- 3.17%
21,100 Arrow International Inc. .............................. 725,313
22,100 Boston Scientific Corp.*............................... 1,491,750
25,300 Guidant Corp. ......................................... 1,856,387
46,200 Lifecore Biomedical Inc.*.............................. 1,079,925
111,000 Sybron International Corp.*............................ 2,899,875
49,400 Vivus Inc.* (1)........................................ 580,450
-----------
8,633,700
-----------
MEDICAL PROVIDERS -- 6.81%
38,000 Access Health Inc.*.................................... 1,396,500
42,200 Alternative Living Services Inc.* (1).................. 1,397,875
49,895 Concentra Managed Care Inc.* (1)....................... 1,534,271
100,500 FPA Medical Management Inc.* (1)....................... 1,551,469
75,430 Health Management Associates Inc.*..................... 2,159,184
36,600 HEALTHSOUTH Corp.*..................................... 1,027,088
111,600 Loewen Group Inc. ..................................... 2,817,900
69,500 Orthodontic Centers America Inc.*...................... 1,507,281
27,300 Pediatrix Medical Group*............................... 1,269,450
15,600 Sunrise Assisted Living Inc.*.......................... 698,100
42,500 Total Renal Care Holdings Inc.*........................ 1,415,781
26,400 Wellpoint Health Networks Inc.*........................ 1,782,000
-----------
18,556,899
-----------
</TABLE>
16
<PAGE>
PAINEWEBBER MID CAP FUND
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- ----------
<C> <S> <C>
COMMON STOCKS (CONCLUDED)
MOTOR VEHICLES -- 1.00%
48,800 Gentex Corp.*........................................... $1,656,150
19,200 Lear Corp.*............................................. 1,082,400
----------
2,738,550
----------
OIL REFINING -- 1.41%
4,800 KN Energy Inc. ......................................... 283,500
120,352 R&B Falcon Corp.*....................................... 3,565,428
----------
3,848,928
----------
OIL SERVICES -- 2.56%
60,600 BJ Services Co.* (1).................................... 2,208,113
36,100 Camco International Inc. ............................... 2,184,050
84,900 Noble Drilling Corp.*................................... 2,594,756
----------
6,986,919
----------
OTHER INSURANCE -- 2.83%
13,200 Ambac Inc. ............................................. 771,375
15,000 Executive Risk Inc. .................................... 1,068,750
40,576 Frontier Insurance Group Inc. .......................... 1,120,912
18,900 Hartford Life Inc. ..................................... 880,031
38,300 MGIC Investment Corp. .................................. 2,515,831
16,900 PMI Group Inc. (1)...................................... 1,364,675
----------
7,721,574
----------
REAL PROPERTY -- 0.23%
25,500 Wilmar Industries Inc.*................................. 634,313
----------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- ------------
<C> <S> <C>
SEMICONDUCTOR -- 2.52%
61,100 Atmel Corp.*.......................................... $ 920,319
31,300 Maxim Integrated Productions Inc.*.................... 1,140,494
25,600 Microchip Technology Inc.*............................ 537,600
61,000 Micron Technology, Inc.* (1).......................... 1,772,812
51,800 National Semiconductor Corp.*......................... 1,084,562
33,600 Uniphase Corp.*....................................... 1,413,300
------------
6,869,087
------------
SPECIALTY RETAIL -- 9.32%
61,000 Bed, Bath & Beyond Inc.*.............................. 2,817,437
107,800 Consolidated Stores Corp.*............................ 4,628,662
160,135 Dollar General Corp. ................................. 6,195,223
19,100 Fastenal Co.* (1)..................................... 828,463
70,800 Lowe's Companies Inc. ................................ 4,969,275
16,300 MSC Industrial Direct Inc.*........................... 883,256
106,800 Petsmart Inc.*........................................ 1,141,425
124,150 United States Office Products Co.*.................... 2,358,850
54,900 Zale Corp.*........................................... 1,585,238
------------
25,407,829
------------
WIRELESS TELECOMMUNICATIONS -- 1.83%
36,700 Advanced Fibre Communications*........................ 1,334,963
26,900 Concentric Network Corp. Delaware*.................... 524,550
50,100 Nextel Communications Inc.*........................... 1,690,874
20,800 Premiere Technologies Inc.* (1)....................... 720,200
38,400 USN Communications Inc.* ............................. 705,600
------------
4,976,187
------------
Total Common Stocks (cost -- $173,041,323)....................... 263,972,887
------------
</TABLE>
<TABLE>
<C> <S> <C> <C> <C>
INVESTMENTS OF CASH COLLATERAL FOR
SECURITIES LOANED -- 9.17%
MONEY MARKET FUNDS -- 9.17%
13,095,475 Liquid
Assets
Portfolio. 13,095,475
11,579,934 Prime
Portfolio. 11,579,934
74,466 TempCash
Portfolio. 74,466
261,725 TempFund
Portfolio. 261,725
----------
Total Investments of
Cash Collateral for
Securities Loaned
(cost -- $25,011,600). 25,011,600
----------
</TABLE>
17
<PAGE>
PAINEWEBBER MID CAP FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATE RATE VALUE
--------- -------- -------- ------------
<C> <S> <C> <C> <C>
REPURCHASE AGREEMENT -- 0.62%
$1,680 Repurchase Agreement dated 03/31/98
with State Street Bank
& Trust Company, collateralized by
$1,680,000 U.S. Treasury
Notes, 6.375% due 07/15/99 (value
$1,717,800);
proceeds: $1,680,233 (cost --
$1,680,000)...................... 04/01/98 5.000% $ 1,680,000
------------
Total Investments (cost -- $199,732,923) --
106.62%...................................... 290,664,487
Liabilities in excess of other assets --
(6.62)%...................................... (18,059,101)
------------
Net Assets -- 100.00%......................... $272,605,386
============
</TABLE>
- ---------
*NON-INCOME PRODUCING SECURITY
(1)SECURITY, OR PORTION THEREOF, WAS ON LOAN AT MARCH 31, 1998
See accompanying notes to financial statements
18
<PAGE>
PAINEWEBBER UTILITY INCOME FUND
PORTFOLIO OF INVESTMENTS MARCH 31, 1998
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- -----------
<C> <S> <C>
COMMON STOCKS -- 87.44%
ELECTRIC UTILITIES -- 35.08%
12,500 Allegheny Energy Inc. ................................. $ 419,531
20,000 Baltimore Gas & Electric Co. .......................... 653,750
17,500 Boston Edison Co. ..................................... 733,906
18,000 Carolina Power & Light Co. ............................ 814,500
15,000 Cilcorp Inc. .......................................... 723,750
14,000 CMS Energy Corp. ...................................... 657,125
37,500 DPL Inc. .............................................. 731,250
20,000 DQE Inc. .............................................. 745,000
20,000 Edison International, Inc. ............................ 587,500
15,000 First Energy Corporation............................... 462,188
11,500 FPL Group, Inc. ....................................... 738,875
15,000 New Century Energies Inc. ............................. 755,625
24,000 NIPSCO Industries Inc. ................................ 672,000
22,500 PECO Energy Co. ....................................... 497,812
30,000 Public Service Co. of New Mexico....................... 733,125
20,000 Puget Sound Power & Light Co. ......................... 563,750
21,000 SCANA Corp. ........................................... 649,687
17,500 Sierra Pacific Resources............................... 657,344
22,500 Southern Co. .......................................... 622,969
20,000 Wisconsin Energy Corp. ................................ 613,750
-----------
13,033,437
-----------
FINANCIAL SERVICES -- 2.81%
20,000 INMC Mortgage Holdings Inc. ........................... 500,000
20,000 Medallion Financial Corp. ............................. 542,500
-----------
1,042,500
-----------
GAS UTILITY -- 10.44%
30,000 AGL Resources Inc. .................................... 645,000
25,000 CMS Energy Corp., Class G.............................. 632,813
10,000 El Paso Natural Gas Co. ............................... 705,625
20,000 MCN Energy Group Inc. ................................. 747,500
17,500 NICOR Inc. ............................................ 739,375
20,000 Public Service Co. of North Carolina................... 410,000
-----------
3,880,313
-----------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- ----------
<C> <S> <C>
LONG DISTANCE & PHONE COMPANIES -- 22.59%
15,000 Ameritech Corp. ........................................ $ 741,563
5,688 Bell Atlantic Corp. .................................... 583,020
11,000 BellSouth Corp. ........................................ 743,188
10,000 Century Telephone Enterprises, Inc. .................... 611,250
10,000 GTE Corp. .............................................. 598,750
10,000 ITC Deltacom*........................................... 321,250
20,000 LCI International Inc.*................................. 770,000
7,500 MCI Communications Corp. ............................... 371,250
18,000 SBC Communications Inc. ................................ 785,250
25,000 Smartalk Teleservices Inc.*(1).......................... 798,437
12,000 Teleport Communications Inc.*........................... 705,000
15,000 US West Communications Group............................ 821,250
12,564 WorldCom, Inc.*......................................... 541,037
----------
8,391,245
----------
MEDIA -- 1.00%
10,000 Univision Communications Inc.*.......................... 372,500
----------
REAL PROPERTY -- 12.97%
25,000 Ambassador Apartments Inc. ............................. 512,500
27,500 Excel Realty Trust Inc. ................................ 979,687
22,500 Franchise Finance Corp. of America...................... 625,781
15,000 Spieker Properties Inc. ................................ 618,750
7,000 Starwood Lodging Corp. ................................. 374,063
10,000 Storage USA Inc. ....................................... 383,750
18,000 Sun Communities......................................... 625,500
10,000 Vornado Realty Trust.................................... 435,625
15,000 Westfield America Inc. ................................. 264,375
----------
4,820,031
----------
WATER -- 2.55%
30,000 American Water Works Co. Inc. .......................... 946,875
----------
Total Common Stocks (cost -- $21,532,693).......................... 32,486,901
----------
</TABLE>
19
<PAGE>
PAINEWEBBER UTILITY INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
--------- -------------------- -------------- -----------
<C> <S> <C> <C> <C>
CORPORATE BONDS -- 7.89%
CABLE -- 2.36%
$750 TCI Communications,
Inc. .................. 03/31/27 9.650% $ 878,195
-----------
ELECTRIC UTILITIES -- 3.18%
639 Georgia Power Co. ...... 02/01/23 7.950 669,022
500 Texas Utilities Electric
Capital................ 01/30/37 8.175 510,934
-----------
1,179,956
-----------
PUBLISHING -- 2.35%
800 News America Holdings
Inc. .................. 12/01/95 to 10/17/96 7.900 to 8.250 873,440
-----------
Total Corporate Bonds (cost --
$2,657,783)...................... 2,931,591
-----------
<CAPTION>
CONVERTIBLE BONDS -- 2.20%
<C> <S> <C> <C> <C>
CABLE -- 2.20%
650 International Cabletel
Inc.+ (cost --
$650,000)............. 06/15/08 7.000 818,188
-----------
<CAPTION>
REPURCHASE AGREEMENT -- 2.44%
<C> <S> <C> <C> <C>
905 Repurchase agreement
dated 03/31/98 with
State Street Bank and
Trust Company,
collateralized by
$828,750 U.S. Treasury
Notes, 6.3750%, due
07/15/99 (value --
$847,397) and $73,750
U.S. Treasury Notes,
9.000% due 05/15/98
(value -- $76,543)
proceeds: $905,126
(cost -- $905,000)..... 04/01/98 5.000 905,000
-----------
Total Investments (cost --
$25,745,476) -- 99.97%........... 37,141,680
Other assets in excess of liabili-
ties -- 0.03%..................... 12,560
-----------
Net Assets -- 100.00%.............. $37,154,240
===========
</TABLE>
- ---------
*NON-INCOME PRODUCING SECURITY
+ SECURITY EXEMPT FROM REGISTRATION UNDER RULE 144A OF THE SECURITIES ACT OF
1933. THIS SECURITY MAY BE RESOLD IN TRANSACTIONS EXEMPT FROM REGISTRATION,
NORMALLY TO QUALIFIED INSTITUTIONAL BUYERS.
(1)SECURITY, OR PORTION THEREOF, WAS ON LOAN AT MARCH 31, 1998.
See accompanying notes to financial statements
20
<PAGE>
PAINEWEBBER
STATEMENT OF ASSETS AND LIABILITIES MARCH 31, 1998
<TABLE>
<CAPTION>
FINANCIAL UTILITY
SERVICES MID CAP INCOME
GROWTH FUND FUND FUND
------------ ------------ -----------
<S> <C> <C> <C>
ASSETS
Investments in securities, at value
(cost--$352,828,436, $199,732,923 and
$25,745,476, respectively)............ $486,234,545 $290,664,487 $37,141,680
Cash................................... 1,148,734 -- --
Receivable for fund shares sold........ 5,262,419 71,366 47,500
Receivable for investments sold........ 564,311 11,446,787 --
Dividends and interest receivable...... 591,892 125,282 149,782
Deferred organizational expenses....... -- -- 7,099
Other assets........................... 75,638 54,082 45,089
------------ ------------ -----------
Total assets........................... 493,877,539 302,362,004 37,391,150
------------ ------------ -----------
LIABILITIES
Collateral for securities loaned....... 13,784,500 25,011,600 --
Payable for investments purchased...... 6,431,539 2,989,255 --
Payable for fund shares repurchased.... 839,427 1,085,360 44,060
Payable to affiliates.................. 511,434 398,805 47,973
Accrued expenses and other liabilities. 209,161 271,598 144,877
------------ ------------ -----------
Total liabilities...................... 21,776,061 29,756,618 236,910
------------ ------------ -----------
NET ASSETS
Capital Stock/Beneficial Interest
shares of $0.001 par value
outstanding........................... 332,363,038 158,293,293 29,638,085
Accumulated (overdistributed) net
investment income..................... 886,107 -- (21,799)
Accumulated net realized gains (losses)
from investments...................... 5,446,224 23,380,529 (3,858,250)
Net unrealized appreciation of
investments........................... 133,406,109 90,931,564 11,396,204
------------ ------------ -----------
Net assets............................. $472,101,478 $272,605,386 $37,154,240
============ ============ ===========
CLASS A:
Net assets............................. $209,817,835 $101,698,036 $ 7,855,561
------------ ------------ -----------
Shares outstanding..................... 6,251,836 6,780,071 569,685
------------ ------------ -----------
Net asset and redemption value per
share................................. $33.56 $15.00 $13.79
====== ====== ======
Maximum offering price per share (net
asset value plus sales charge of 4.50%
of offering price).................... $35.14 $15.71 $14.44
====== ====== ======
CLASS B:
Net assets............................. $198,473,305 $143,058,160 $21,562,342
------------ ------------ -----------
Shares outstanding..................... 6,085,026 9,491,635 1,563,150
------------ ------------ -----------
Net asset value and offering price per
share................................. $32.62 $15.07 $13.79
====== ====== ======
CLASS C:
Net assets............................. $ 63,808,520 $ 27,814,274 $ 7,736,337
------------ ------------ -----------
Shares outstanding..................... 1,959,481 1,976,313 561,470
------------ ------------ -----------
Net asset value and offering price per
share................................. $32.56 $14.07 $13.78
====== ====== ======
CLASS Y:
Net assets............................. $ 1,818 $ 34,916
------------ ------------
Shares outstanding..................... 54 2,328
------------ ------------
Net asset value, offering price and
redemption value per share............ $33.56 $15.00
====== ======
</TABLE>
See accompanying notes to financial statements
21
<PAGE>
PAINEWEBBER
STATEMENT OF OPERATIONS FOR THE YEAR ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
FINANCIAL UTILITY
SERVICES MID CAP INCOME
GROWTH FUND FUND FUND
------------ ----------- -----------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends (net of withholding tax)....... $ 3,971,051 $ 505,353 $ 1,183,668
Interest................................. 2,167,168 437,622 368,602
------------ ----------- -----------
6,138,219 942,975 1,552,270
------------ ----------- -----------
EXPENSES:
Investment advisory and administration... 1,912,197 2,680,122 235,331
Service fees--Class A.................... 344,946 231,601 16,318
Service and distribution fees--Class B... 1,023,922 1,478,236 202,158
Service and distribution fees--Class C... 328,008 269,903 68,760
Transfer agency and service.............. 176,397 235,590 40,440
Custody and accounting................... 163,903 165,724 22,035
Federal and state registration fees...... 119,802 98,148 87,686
Reports and notices to shareholders...... 55,086 91,886 50,309
Legal and audit.......................... 50,619 96,895 69,520
Directors/Trustees' fees................. 10,500 10,500 10,500
Amortization of organizational expenses.. -- -- 28,192
Other expenses........................... 12,619 36,493 19,831
------------ ----------- -----------
4,197,999 5,395,098 851,080
------------ ----------- -----------
NET INVESTMENT INCOME (LOSS)............. 1,940,220 (4,452,123) 701,190
------------ ----------- -----------
REALIZED AND UNREALIZED GAINS FROM
INVESTMENT ACTIVITIES:
Net realized gains from investment
transactions............................ 14,829,192 58,100,065 1,915,598
Net change in unrealized
appreciation/depreciation of
investments............................. 91,444,229 35,069,089 8,396,302
------------ ----------- -----------
NET REALIZED AND UNREALIZED GAINS FROM
INVESTMENT ACTIVITIES................... 106,273,421 93,169,154 10,311,900
------------ ----------- -----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS.............................. $108,213,641 $88,717,031 $11,013,090
============ =========== ===========
</TABLE>
See accompanying notes to financial statements
22
<PAGE>
PAINEWEBBER FINANCIAL SERVICES GROWTH FUND INC.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
MARCH 31,
---------------------------
1998 1997
------------- ------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income............................. $ 1,940,220 $ 701,720
Net realized gains from investment transactions... 14,829,192 15,834,386
Net change in unrealized appreciation/depreciation
of investments................................... 91,444,229 9,457,066
------------- ------------
Net increase in net assets resulting from
operations....................................... 108,213,641 25,993,172
------------- ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income--Class A.................... (1,011,267) (672,645)
Net investment income--Class B.................... (359,882) (73,321)
Net investment income--Class C.................... (124,042) (31,544)
Net investment income--Class Y.................... -- --
Net realized gains from investment transactions--
Class A.......................................... (7,772,773) (9,905,437)
Net realized gains from investment transactions--
Class B.......................................... (6,470,964) (4,194,912)
Net realized gains from investment transactions--
Class C.......................................... (2,101,970) (1,240,890)
Net realized gains from investment transactions--
Class Y.......................................... -- --
------------- ------------
Total dividends and distributions to shareholders. (17,840,898) (16,118,749)
------------- ------------
FROM CAPITAL STOCK TRANSACTIONS:
Net proceeds from the sale of shares.............. 400,986,234 72,986,530
Cost of shares repurchased........................ (174,767,137) (55,705,343)
Proceeds from dividends reinvested................ 15,912,449 13,302,440
------------- ------------
Net increase in net assets from capital stock
transactions..................................... 242,131,546 30,583,627
------------- ------------
Net increase in net assets........................ 332,504,289 40,458,050
NET ASSETS:
Beginning of year................................. 139,597,189 99,139,139
------------- ------------
End of year (including undistributed net
investment income of
$886,107 and $441,078, respectively)............. $ 472,101,478 $139,597,189
============= ============
</TABLE>
See accompanying notes to financial statements
23
<PAGE>
PAINEWEBBER MIDCAP FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE
YEARS ENDED
MARCH 31,
--------------------------
1998 1997
------------ ------------
<S> <C> <C>
FROM OPERATIONS:
Net investment loss................................ $ (4,452,123) $ (4,625,849)
Net realized gains from investment transactions.... 58,100,065 43,647,978
Net change in unrealized appreciation/depreciation
of investments.................................... 35,069,089 (39,065,630)
------------ ------------
Net increase (decrease) in net assets resulting
from operations................................... 88,717,031 (43,501)
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net realized gains from investment transactions--
Class A........................................... (19,367,061) (11,486,154)
Net realized gains from investment transactions--
Class B........................................... (29,491,494) (21,420,626)
Net realized gains from investment transactions--
Class C........................................... (5,842,338) (4,124,987)
Net realized gains from investment transactions--
Class Y........................................... -- --
------------ ------------
Total distributions to shareholders................ (54,700,893) (37,031,767)
------------ ------------
FROM BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from the sale of shares............... 37,895,804 49,527,172
Cost of shares repurchased......................... (87,095,316) (72,555,703)
Proceeds from dividends reinvested................. 51,574,852 35,137,523
------------ ------------
Net increase in net assets from beneficial interest
transactions...................................... 2,375,340 12,108,992
------------ ------------
Net increase (decrease) in net assets.............. 36,391,478 (24,966,276)
NET ASSETS:
Beginning of year.................................. 236,213,908 261,180,184
------------ ------------
End of year (including undistributed net investment
income of $629 at March 31, 1997)................. $272,605,386 $236,213,908
============ ============
</TABLE>
See accompanying notes to financial statements
24
<PAGE>
PAINEWEBBER UTILITY INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
MARCH 31,
--------------------------
1998 1997
------------ ------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income.............................. $ 701,190 $ 1,140,891
Net realized gains from investment transactions.... 1,915,598 3,613,062
Net change in unrealized appreciation/depreciation
of investments.................................... 8,396,302 (1,498,897)
------------ ------------
Net increase in net assets resulting from
operations........................................ 11,013,090 3,255,056
------------ ------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income--Class A..................... (191,756) (235,539)
Net investment income--Class B..................... (438,848) (647,343)
Net investment income--Class C..................... (159,880) (212,445)
------------ ------------
Total dividends to shareholders.................... (790,484) (1,095,327)
------------ ------------
FROM BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from the sale of shares............... 15,590,114 5,928,914
Cost of shares repurchased......................... (23,344,027) (30,023,725)
Proceeds from dividends reinvested................. 667,446 700,359
------------ ------------
Net decrease in net assets from beneficial interest
transactions...................................... (7,086,467) (23,394,452)
------------ ------------
Net increase (decrease) in net assets.............. 3,136,139 (21,234,723)
NET ASSETS:
Beginning of year.................................. 34,018,101 55,252,824
------------ ------------
End of year (including undistributed net investment
income of
$67,495 for March 31, 1997)....................... $ 37,154,240 $ 34,018,101
============ ============
</TABLE>
See accompanying notes to financial statements
25
<PAGE>
NOTES TO FINANCIAL STATEMENTS
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
PaineWebber Financial Services Growth Fund Inc. ("Financial Services Growth
Fund"), PaineWebber Mid Cap Fund ("Mid Cap Fund", which prior to May 1, 1998
was known as the PaineWebber Capital Appreciation Fund) and PaineWebber Utility
Income Fund ("Utility Income Fund") (collectively, the "Funds") are registered
with the Securities and Exchange Commission under the Investment Company Act of
1940, as amended, as diversified open-end management investment companies. Fi-
nancial Services Growth Fund was incorporated in the state of Maryland on Feb-
ruary 13, 1986, Mid Cap Fund is a series of PaineWebber Managed Assets Trust
and Utility Income Fund is a series of PaineWebber Managed Investments Trust
(collectively, the "Trusts") which were organized under Massachusetts law by a
Declaration of Trust dated August 9, 1991 and November 21, 1986, respectively.
Organizational costs have been deferred and are being amortized using the
straight line method over a period not to exceed 60 months from the date the
Funds commenced operations.
Currently, each Fund offers Class A, Class B, Class C and Class Y shares.
Utility Income Fund had no Class Y shares outstanding during the period. Each
class represents interests in the same assets of the applicable Fund, and the
classes are identical except for differences in their sales charge structures,
ongoing service and distribution charges and certain transfer agency expenses.
In 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 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 assump-
tions that affect the reported amounts and disclosures in the financial state-
ments. Actual results could differ from those estimates. The following is a
summary of significant accounting policies:
Valuation of Investments--Securities which are listed on stock exchanges are
valued at the last sales price on the day the securities are being valued or,
lacking any sales on such day, at the last available bid price. In cases where
securities are traded on more than one exchange, the securities are valued on
the exchange designated as the primary market by Mitchell Hutchins Asset Man-
agement Inc. ("Mitchell Hutchins"), an asset management subsidiary of
PaineWebber Incorporated ("PaineWebber") and investment adviser, administrator
and distributor of the Funds'. Prior to May 1, 1998, when Mitchell Hutchins as-
sumed the day to day management responsibility, Denver Investment Advisors,
LLC, served as Mid Cap Funds' sub-adviser. Securities traded in the over-the-
counter ("OTC") market and listed on the Nasdaq Stock Market, Inc. ("Nasdaq")
are valued at the last available sales price, or last bid price available if no
sale occurs on Nasdaq prior to the time of valuation. Where market quotations
are readily available, debt securities are valued thereon, provided such quota-
tions adequately reflect the fair values of the securities in the judgement of
Mitchell Hutchins. When market quotations are not readily available, securities
are valued based upon appraisals derived from information concerning those se-
curities or similar securities received from recognized dealers in those secu-
rities. The amortized cost method of valuation is used to value short-term debt
instruments with sixty days or less remaining to maturity. Securities for which
market quotations are not readily available including restricted securities
subject to limitations as to their sale are valued at fair value as determined
in good faith by, or under the direction of, the Fund's/Trusts' Board of
Directors/Trustees.
26
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Repurchase Agreements--Each Fund's custodian takes possession of the collat-
eral pledged for investments in repurchase agreements. The underlying collat-
eral is valued daily on a mark-to-market basis to ensure that the value, in-
cluding accrued interest, is at least equal to the repurchase price. In the
event of default of the obligation to repurchase, each 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. Each Fund occasionally participates in
joint repurchase agreement transactions with other funds managed by Mitchell
Hutchins.
Investment Transactions and Investment Income--Investment transactions are re-
corded on the trade date. Realized gains and losses from investment transac-
tions are calculated using the identified cost method. Interest income is re-
corded on an accrual basis. Dividend income is recorded on the ex-dividend
date. Discounts are accreted and premiums are amortized as adjustments to in-
terest income and the identified costs of investments.
Income, expenses (excluding class-specific expenses) and realized/unrealized
gains/losses are allocated proportionately to each class of shares based upon
the relative net asset value of outstanding shares (or the value of dividend-
eligible shares, as appropriate) of each class at the beginning of the day (af-
ter adjusting for current capital share activity of the respective classes).
Class-specific expenses are charged directly to the applicable class of shares.
Dividends and Distributions--Dividends and distributions to shareholders are
recorded on the ex- dividend date. The amount of dividends and distributions
are determined in accordance with federal income tax regulations, which may
differ from generally accepted accounting principles. These "book/tax" differ-
ence are either considered temporary or permanent in nature. To the extent
these differences are permanent in nature, such amounts are reclassified within
the capital accounts based on their federal tax-basis treatment; temporary dif-
ferences do not require reclassification.
CONCENTRATION OF RISK
Financial Services Growth Fund invests primarily in equity securities of fi-
nancial services companies and Utility Income Fund invests primarily in securi-
ties of utility companies. Economic, legislative and regulatory developments
impacting those industries may affect the market value of each Fund's invest-
ments. The Mid Cap Fund invests primarily in equity securities of medium-sized
companies, which may entail greater market volatility and risks of adverse fi-
nancial developments than is the case for securities of larger companies. In
addition, each Fund's ability to invest in U.S. dollar-denominated foreign eq-
uity securities and ability to use options and futures contracts also entail
special risks.
INVESTMENT ADVISER AND ADMINISTRATOR
Each Fund has an Investment Advisory and Administration Contract ("Advisory
Contract") with Mitchell Hutchins, under which Mitchell Hutchins serves as in-
vestment adviser and administrator of the Funds. In accordance with the Advi-
sory Contracts, Financial Services Growth Fund, Mid Cap Fund and Utility Income
Fund pay Mitchell Hutchins an investment advisory and administration fee, which
is accrued daily and paid monthly, at the annual rate of 0.70%, 1.00% and
0.70%, respectively, of
27
<PAGE>
NOTES TO FINANCIAL STATEMENTS
each Funds' average daily net assets. At March 31,1998, Financial Services
Growth Fund, Mid Cap Fund and Utility Income Fund owed Mitchell Hutchins
$262,646, $230,149, and $21,634, respectively, in investment advisory and ad-
ministration fees.
Prior to May 1, 1998, Denver Investment Advisors served as the sub-adviser to
the Mid Cap Fund pursuant to a sub-advisory contract with Mitchell Hutchins.
Mitchell Hutchins (not the Fund) paid Denver a monthly fee in an amount equal
to 50% of the fee paid to Mitchell Hutchins under the Advisory Contract.
For the year ended March 31, 1998, Financial Services Growth Fund, Mid Cap
Fund and the Utility Income Fund paid $17,496, $0 and $0, respectively, in bro-
kerage commissions to PaineWebber for transactions executed on behalf of the
Fund.
DISTRIBUTION PLANS
Mitchell Hutchins is the distributor of each Fund's shares and has appointed
PaineWebber as the exclusive dealer for the sale of those shares. Under sepa-
rate plans of service and/or distribution pertaining to Class A, Class B and
Class C shares, the Funds pay Mitchell Hutchins monthly service fees at an an-
nual rate of 0.25% of the average daily net assets of Class A, Class B and
Class C shares and monthly distribution fees at the annual rate of 0.75% of the
average daily net assets of Class B and Class C shares. At March 31, 1998, Fi-
nancial Services Growth Fund, Mid Cap Fund and Utility Income Fund owed Mitch-
ell Hutchins $247,803, $165,797 and $26,048, respectively, in service and dis-
tribution fees.
Mitchell Hutchins also receives the proceeds of the initial sales charges paid
by shareholders upon the purchase of Class A shares and the contingent deferred
sales charges paid by shareholders upon certain redemptions of Class A, Class B
and Class C shares. Mitchell Hutchins has informed each Fund that for the year
ended March 31, 1998, it earned $2,215,324, $288,384, and $89,852 in sales
charges for the Financial Services Growth Fund, Mid Cap Fund and Utility Income
Fund, respectively.
SECURITY LENDING
Each Fund may lend securities up to 33 1/3% of its total assets to qualified
institutions. The loans are secured at all times by cash or U.S. government se-
curities in an amount at least equal to the market value of the securities
loaned, plus accrued interest, determined on a daily basis and adjusted accord-
ingly. Each Fund will regain record ownership of loaned securities to exercise
certain beneficial rights, however, each Fund may bear the risk of delay in re-
covery of, or even loss of rights in, the securities loaned should the borrower
fail financially. Each Fund receives compensation, which is included in inter-
est income, for lending its securities from interest earned on the cash or U.S.
government securities held as collateral, net of fee rebates paid to the bor-
rower plus reasonable administrative and custody fees. Each Fund's lending
agent is PaineWebber, which received compensation from the Funds for the year
ended March 31, 1998 as follows:
<TABLE>
<S> <C>
Financial Services Growth Fund............ $24,841
Mid Cap Fund.............................. $40,205
Utility Income Fund....................... $ 1,817
</TABLE>
28
<PAGE>
NOTES TO FINANCIAL STATEMENTS
At March 31, 1998, Financial Services Growth Fund, Mid Cap Fund and the Util-
ity Income Fund owed PaineWebber $985, $2,859 and $291, respectively, in com-
pensation as security lending agent.
As of March 31, 1998, the Financial Services Growth Fund and the Mid Cap Fund
held cash and/or cash equivalents as collateral for market values of securities
loaned as follows:
<TABLE>
<CAPTION>
COLLATERAL MARKET VALUE
FOR SECURITIES OF SECURITIES
LOANED LOANED
-------------- -------------
<S> <C> <C>
Financial Services Growth Fund. $13,784,500 $13,467,303
Mid Cap Fund................... $25,011,600 $24,148,563
</TABLE>
As of March 31, 1998, the Utility Income Fund held the following securities as
non-cash collateral for portfolio securities loaned having a market value of
$718,594:
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST MARKET
(000) DATES RATES VALUE
--------- -------- -------- --------
<C> <S> <C> <C> <C>
$77 U.S. Treasury Bond. 8/15/26 6.750% $ 84,828
650 U.S. Treasury Bond. 2/15/26 6.000 650,126
--------
$734,954
========
</TABLE>
BANK LINE OF CREDIT
Each Fund may participate with other funds managed by Mitchell Hutchins in a
$200 million committed credit facility ("Facility") to be utilized for tempo-
rary financing until the settlement of sale or purchase of portfolio securi-
ties, the repurchase or redemption of shares of each Fund at the request of the
shareholders and other temporary or emergency purposes. In connection there-
with, each Fund has agreed to pay a commitment fee, pro rata, based on the rel-
ative asset size of the Funds in the Facility. Interest is charged to each Fund
at rates based on prevailing market rates in effect at the time of borrowings.
For the year ended March 31, 1998, the Funds did not borrow under the Facility.
TRANSFER AGENCY SERVICE FEES
Prior to August 1, 1997, each Fund paid 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 four months ended July 31,
1997, PaineWebber earned $14,088, $28,077 and $4,244 from Financial Services
Growth Fund, Mid Cap Fund and Utility Income Fund, respectively. Beginning on
August 1, 1997, PaineWebber provides transfer agency related services to each
Fund pursuant to a delegation of authority from PFPC, Inc., the Fund's transfer
agent, and is compensated for these services by PFPC, Inc., not the Funds. For
the period August 1, 1997 through March 31, 1998, PaineWebber received from
PFPC, Inc., not the Funds, approximately 51%, 56% and 54% for Financial Serv-
ices Growth Fund, Mid Cap Fund and Utility Income Fund, respectively, of the
total transfer agency fees collected by PFPC, Inc. from the Funds.
29
<PAGE>
NOTES TO FINANCIAL STATEMENTS
INVESTMENTS IN SECURITIES
For federal income tax purposes, the cost of securities owned at March 31,
1998 was substantially the same as the cost of securities for financial state-
ment purposes.
At March 31, 1998, the components of net unrealized appreciation of invest-
ments were as follows:
<TABLE>
<CAPTION>
FINANCIAL
SERVICES UTILITY
GROWTH MID CAP INCOME
FUND FUND FUND
------------ ----------- -----------
<S> <C> <C> <C>
Gross appreciation (investments having
an excess of value over cost)......... $134,290,982 $96,850,424 $11,544,192
Gross depreciation (investments having
an excess of cost over value)......... (884,873) (5,918,860) (147,988)
------------ ----------- -----------
Net unrealized appreciation of
investments........................... $133,406,109 $90,931,564 $11,396,204
============ =========== ===========
</TABLE>
For the year ended March 31, 1998, total aggregate purchases and sales of
portfolio securities, excluding short-term securities, were as follows:
<TABLE>
<CAPTION>
FINANCIAL
SERVICES UTILITY
GROWTH MID CAP INCOME
FUND FUND FUND
------------ ------------ -----------
<S> <C> <C> <C>
Purchases................................. $252,109,134 $167,960,770 $ 3,220,970
Sales..................................... $ 55,770,835 $224,710,849 $11,043,945
</TABLE>
FEDERAL TAX STATUS
The Funds intend to distribute substantially all of their taxable income and
to comply with the other requirements of the Internal Revenue Code applicable
to regulated investment companies. Accordingly, no provision for federal income
taxes is required. In addition, by distributing during each calendar year sub-
stantially all of their net investment income, capital gains and certain other
amounts, if any, the Funds intend not to be subject to a federal excise tax.
At March 31, 1998, Utility Income Fund had a net capital loss carryforward of
$3,858,250 which will expire by March 31, 2003. To the extent such losses are
used, as provided in the regulations, to offset future net realized capital
gains, it is probable these gains will not be distributed.
To reflect reclassification for the Mid Cap Fund arising from permanent
"book/tax" differences for the year ended March 31, 1998, undistributed net in-
vestment income was increased by $4,451,494 and capital stock was decreased by
$4,451,494 to reclassify the net operating loss for the fiscal year ended March
31, 1998.
30
<PAGE>
NOTES TO FINANCIAL STATEMENTS
CAPITAL STOCK/BENEFICIAL INTEREST
There are 300 million shares of $0.001 par value common stock authorized for
the Financial Services Growth Fund. Transactions in common stock were as fol-
lows:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS Y
------------------------ ----------------------- ------------------------ -------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ------------ --------- ------------ ---------- ------------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FINANCIAL SERVICES
GROWTH FUND
FOR THE YEAR
ENDED MARCH 31, 1998
Shares sold........... 5,407,560 $158,699,017 5,117,213 $148,855,573 3,254,668 $ 93,429,844 54 $1,800
Shares repurchased.... (3,295,366) (96,214,614) (827,002) (23,973,587) (1,909,873) (54,578,936) - -
Shares converted from
Class B to Class A... 230,973 6,872,851 (237,222) (6,872,851) - - - -
Dividends reinvested.. 249,050 7,491,415 213,881 6,266,712 73,652 2,154,322 - -
---------- ------------ --------- ------------ ---------- ------------ --- ------
Net increase.......... 2,592,217 $ 76,848,669 4,266,870 $124,275,847 1,418,447 $ 41,005,230 54 $1,800
========== ============ ========= ============ ========== ============ === ======
FOR THE YEAR
ENDED MARCH 31, 1997
Shares sold........... 1,113,912 $ 26,533,887 776,675 $ 18,827,973 1,174,919 $ 27,624,670
Shares repurchased.... (946,302) (22,225,854) (398,605) (9,493,411) (1,023,207) (23,986,078)
Shares converted from
Class B to Class A... 92,207 2,144,531 (94,299) (2,144,531) - -
Dividends reinvested.. 375,301 8,305,421 178,094 3,859,299 52,575 1,137,720
---------- ------------ --------- ------------ ---------- ------------
Net increase.......... 635,118 $ 14,757,985 461,865 $ 11,049,330 204,287 $ 4,776,312
========== ============ ========= ============ ========== ============
</TABLE>
There is an unlimited amount of $0.001 par value shares of beneficial interest
authorized for the Mid Cap Fund and the Utility Fund. Transactions in shares of
beneficial interest were as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS Y
------------------------ ------------------------ ------------------------ ----------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------ ---------- ------------ ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MID CAP FUND
FOR THE YEAR ENDED MARCH
31, 1998
Shares sold............. 1,152,078 $ 18,144,195 435,394 $ 7,043,465 876,575 $ 12,661,915 3,103 $ 46,229
Shares repurchased...... (2,175,121) (33,257,452) (2,312,967) (35,407,408) (1,284,257) (18,418,905) (775) (11,551)
Shares converted from
Class B to Class A..... 658,362 10,279,880 (653,737) (10,279,880) -- -- -- --
Dividends reinvested.... 1,422,364 18,376,942 2,125,930 27,658,352 455,931 5,539,558 -- --
---------- ------------ ---------- ------------ ---------- ------------ ----- --------
Net increase (decrease). 1,057,683 $ 13,543,565 (405,380) $(10,985,471) 48,249 $ (217,432) 2,328 $ 34,678
========== ============ ========== ============ ========== ============ ===== ========
FOR THE YEAR ENDED MARCH
31, 1997
Shares sold............. 1,503,465 $ 24,453,506 836,560 $ 13,630,373 750,047 $ 11,443,293
Shares repurchased...... (1,739,943) (28,153,504) (1,892,839) (30,262,849) (929,189) (14,139,350)
Shares converted from
Class B to Class A..... 303,527 4,759,952 (299,572) (4,759,952) -- --
Dividends reinvested.... 750,634 10,974,277 1,361,871 20,169,309 284,672 3,993,937
---------- ------------ ---------- ------------ ---------- ------------
Net increase (decrease). 817,683 $ 12,034,231 6,020 $ (1,223,119) 105,530 $ 1,297,880
========== ============ ========== ============ ========== ============
</TABLE>
31
<PAGE>
NOTES TO FINANCIAL STATEMENTS
CAPITAL STOCK/BENEFICIAL INTEREST (CONCLUDED)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
--------------------- ------------------------ -----------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
-------- ----------- ---------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
UTILITY INCOME FUND
FOR THE YEAR ENDED MARCH
31, 1998
Shares sold............. 98,175 $ 1,159,314 124,629 $ 1,530,954 1,084,440 $12,899,846
Shares repurchased...... (198,661) (2,252,444) (594,162) (6,745,575) (1,211,968) (14,346,008)
Shares converted from
Class B to Class A..... 63,785 757,256 (63,778) (757,256) -- --
Dividends reinvested.... 14,319 167,830 31,301 364,143 11,616 135,473
-------- ----------- ---------- ------------ ---------- -----------
Net decrease............ (22,382) $ (168,044) (502,010) $ (5,607,734) (115,912) $(1,310,689)
======== =========== ========== ============ ========== ===========
FOR THE YEAR ENDED MARCH
31, 1997
Shares sold............. 31,806 $ 320,817 105,433 $ 1,042,199 438,359 $ 4,565,898
Shares repurchased...... (451,582) (4,514,693) (1,612,857) (16,178,370) (911,460) (9,330,662)
Shares converted from
Class B to Class A..... 32,221 326,093 (32,241) (326,093) -- --
Dividends reinvested.... 14,673 145,098 40,939 404,457 15,259 150,804
-------- ----------- ---------- ------------ ---------- -----------
Net decrease............ (372,882) $(3,722,685) (1,498,726) $(15,057,807) (457,842) $(4,613,960)
======== =========== ========== ============ ========== ===========
</TABLE>
32
<PAGE>
[This Page Intentionally Blank]
33
<PAGE>
PAINEWEBBER FINANCIAL SERVICES GROWTH FUND INC.
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
IS PRESENTED BELOW:
<TABLE>
<CAPTION>
CLASS A
--------------------------------------------------
FOR THE YEARS ENDED MARCH 31,
--------------------------------------------
1998 1997 1996 1995 1994
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period.................. $23.41 $21.16 $17.11 $16.92 $19.45
-------- ------- ------- ------- -------
Net investment income....... 0.20 0.18 0.30 0.25 0.15
Net realized and unrealized
gains (losses) from
investments................ 11.75 5.69 6.25 1.34 (0.76)
-------- ------- ------- ------- -------
Net increase (decrease) from
investment operations...... 11.95 5.87 6.55 1.59 (0.61)
-------- ------- ------- ------- -------
Dividends from net
investment income.......... (0.21) (0.23) (0.29) (0.13) (0.08)
Distributions from net
realized gains from
investment transactions.... (1.59) (3.39) (2.21) (1.27) (1.84)
-------- ------- ------- ------- -------
Total dividends and
distributions.............. (1.80) (3.62) (2.50) (1.40) (1.92)
-------- ------- ------- ------- -------
Net asset value, end of
period..................... $33.56 $23.41 $21.16 $17.11 $16.92
======== ======= ======= ======= =======
Total investment return (1). 51.92% 28.72% 39.02% 10.22% (3.14)%
======== ======= ======= ======= =======
Ratios/Supplemental Data:
Net assets, end of period
(000's).................... $209,818 $85,661 $64,003 $49,295 $48,032
Expenses to average net
assets..................... 1.17% 1.52% 1.37% 1.45% 1.44%
Net investment income to
average net assets......... 1.12% 0.90% 1.50% 1.40% 0.76%
Portfolio turnover rate..... 23% 40% 53% 14% 22%
Average commission rate paid
(2)........................ $0.0595 $0.0600 -- -- --
</TABLE>
- ---------
* ANNUALIZED
+ COMMENCEMENT OF ISSUANCE OF SHARES
(1) TOTAL INVESTMENT RETURN IS CALCULATED ASSUMING A $1,000 INVESTMENT ON THE
FIRST DAY OF EACH PERIOD REPORTED, REINVESTMENT OF ALL DIVIDENDS AND
DISTRIBUTIONS AT NET ASSET VALUE ON THE PAYABLE DATES AND A SALE AT NET
ASSET VALUE ON THE LAST DAY OF EACH PERIOD REPORTED. THE FIGURES DO NOT
INCLUDE SALES CHARGES OR PROGRAM FEES; RESULTS WOULD BE LOWER IF SALES
CHARGES OR PROGRAM FEES WERE INCLUDED. TOTAL INVESTMENT RETURN FOR PERIODS
LESS THAN ONE YEAR HAS NOT BEEN ANNUALIZED.
(2) EFFECTIVE FOR FISCAL YEARS BEGINNING ON OR AFTER SEPTEMBER 1, 1995, THE
FUND IS REQUIRED TO DISCLOSE THE AVERAGE COMMISSION RATE PAID PER SHARE OF
COMMON STOCK INVESTMENTS PURCHASED OR SOLD.
34
<PAGE>
<TABLE>
<CAPTION>
CLASS B CLASS C CLASS Y
- --- -------------------------------------------- ---------------------------------------- -----------------
FOR THE YEARS ENDED MARCH 31, FOR THE YEARS ENDED MARCH 31, FOR THE PERIOD
- --- -------------------------------------------- ---------------------------------------- MARCH 30, 1998+
1998 1997 1996 1995 1994 1998 1997 1996 1995 1994 TO MARCH 31, 1998
- --- -------- ------- ------- ------- ------- ------- ------- ------ ------ ------ -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$22.87 $20.75 $16.85 $16.71 $19.34 $22.84 $20.75 $16.86 $16.71 $19.34 $ 33.22
-------- ------- ------- ------- ------- ------- ------- ------ ------ ------ -------
0.09 0.04 0.13 0.11 0.02 0.12 0.06 0.12 0.11 0.01 0.00
11.34 5.53 6.16 1.33 (0.75) 11.28 5.51 6.16 1.33 (0.73) 0.34
-------- ------- ------- ------- ------- ------- ------- ------ ------ ------ -------
11.43 5.57 6.29 1.44 (0.73) 11.40 5.57 6.28 1.44 (0.72) 0.34
-------- ------- ------- ------- ------- ------- ------- ------ ------ ------ -------
(0.09) (0.06) (0.18) (0.03) (0.06) (0.09) (0.09) (0.18) (0.02) (0.07) 0.00
(1.59) (3.39) (2.21) (1.27) (1.84) (1.59) (3.39) (2.21) (1.27) (1.84) 0.00
-------- ------- ------- ------- ------- ------- ------- ------ ------ ------ -------
(1.68) (3.45) (2.39) (1.30) (1.90) (1.68) (3.48) (2.39) (1.29) (1.91) 0.00
-------- ------- ------- ------- ------- ------- ------- ------ ------ ------ -------
$32.62 $22.87 $20.75 $16.85 $16.71 $32.56 $22.84 $20.75 $16.86 $16.71 $ 33.56
======== ======= ======= ======= ======= ======= ======= ====== ====== ====== =======
50.80% 27.74% 37.97% 9.37% (3.83)% 50.76% 27.74% 37.92% 9.34% (3.76)% 1.02%
======== ======= ======= ======= ======= ======= ======= ====== ====== ====== =======
$198,473 $41,579 $28,147 $16,368 $11,517 $63,809 $12,357 $6,989 $4,160 $4,370 $2
1.92% 2.27% 2.12% 2.22% 2.16% 1.92% 2.28% 2.14% 2.23% 2.17% 0.80%*
0.37% 0.15% 0.74% 0.67% 0.05% 0.36% 0.15% 0.72% 0.61% 0.03% 0.00%*
23% 40% 53% 14% 22% 23% 40% 53% 14% 22% 23%
$0.0595 $0.0600 -- -- -- $0.0595 $0.0600 -- -- -- $0.0595
</TABLE>
35
<PAGE>
PAINEWEBBER MID CAP FUND
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
PERIOD IS PRESENTED BELOW:
<TABLE>
<CAPTION>
CLASS A
------------------------------------------------
FOR THE YEARS ENDED MARCH 31,
------------------------------------------------
1998 1997 1996 1995 1994
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of period.................. $13.44 $15.61 $12.81 $11.65 $10.53
-------- ------- ------- ------- -------
Net investment loss......... (0.13) (0.17) (0.16) (0.09) (0.09)
Net realized and unrealized
gains from investments..... 5.15 0.32 3.71 1.29 1.21
-------- ------- ------- ------- -------
Net increase from investment
operations................. 5.02 0.15 3.55 1.20 1.12
-------- ------- ------- ------- -------
Distributions from net
realized gains from
investments................ (3.46) (2.32) (0.75) (0.04) --
-------- ------- ------- ------- -------
Net asset value, end of
period..................... $15.00 $13.44 $15.61 $12.81 $11.65
======== ======= ======= ======= =======
Total investment return (1). 41.50 % (0.21)% 28.16 % 10.36 % 10.64 %
======== ======= ======= ======= =======
Ratios/Supplemental Data:
Net assets, end of period
(000's).................... $101,698 $76,909 $76,558 $62,673 $58,523
Expenses to average net
assets..................... 1.51 % 1.60 % 1.58 % 1.58 % 1.54 %
Net investment loss to
average net assets......... (1.16)% (1.20)% (1.11)% (0.79)% (0.84)%
Portfolio turnover rate..... 64 % 56 % 57 % 42 % 60 %
Average commission rate paid
(2)........................ $0.0479 $0.0475 -- -- --
</TABLE>
- ---------
* ANNUALIZED
+ COMMENCEMENT OF ISSUANCE OF SHARES
(1) TOTAL INVESTMENT RETURN IS CALCULATED ASSUMING A $1,000 INVESTMENT ON THE
FIRST DAY OF EACH PERIOD REPORTED, REINVESTMENT OF ALL DIVIDENDS AND
DISTRIBUTIONS, IF ANY, AT NET ASSET VALUE ON THE PAYABLE DATES, AND A SALE
AT NET ASSET VALUE ON THE LAST DAY OF EACH PERIOD REPORTED. THE FIGURES DO
NOT INCLUDE SALES CHARGES OR PROGRAM FEES; RESULTS WOULD BE LOWER IF SALES
CHARGES OR PROGRAM FEES WERE INCLUDED. TOTAL INVESTMENT RETURN FOR PERIOD
OF LESS THAN ONE YEAR HAS NOT BEEN ANNUALIZED.
(2) EFFECTIVE FOR FISCAL YEARS BEGINNING ON OR AFTER SEPTEMBER 1, 1995, THE
FUND IS REQUIRED TO DISCLOSE THE AVERAGE COMMISSION RATE PAID PER SHARE OF
COMMON STOCK INVESTMENTS PURCHASED OR SOLD.
36
<PAGE>
<TABLE>
<CAPTION>
CLASS B CLASS C CLASS Y
- ---------------------------------------------------- ----------------------------------------------- ------------------
FOR THE PERIOD
FOR THE YEARS ENDED MARCH 31, FOR THE YEARS ENDED MARCH 31, MARCH 17, 1998+ TO
- ---------------------------------------------------- ----------------------------------------------- MARCH 31,
1998 1997 1996 1995 1994 1998 1997 1996 1995 1994 1998
- -------- -------- -------- -------- -------- ------- ------- ------- ------- ------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$13.59 $15.88 $13.11 $12.02 $10.94 $12.87 $15.14 $12.54 $11.50 $10.47 $14.90
- -------- -------- -------- -------- -------- ------- ------- ------- ------- ------- -------
(0.31) (0.31) (0.29) (0.20) (0.17) (0.26) (0.29) (0.27) (0.19) (0.10) (0.00)
5.25 0.34 3.81 1.33 1.25 4.92 0.34 3.62 1.27 1.13 0.10
- -------- -------- -------- -------- -------- ------- ------- ------- ------- ------- -------
4.94 0.03 3.52 1.13 1.08 4.66 0.05 3.35 1.08 1.03 0.10
- -------- -------- -------- -------- -------- ------- ------- ------- ------- ------- -------
(3.46) (2.32) (0.75) (0.04) -- (3.46) (2.32) (0.75) (0.04) -- (0.00)
- -------- -------- -------- -------- -------- ------- ------- ------- ------- ------- -------
$15.07 $13.59 $15.88 $13.11 $12.02 $14.07 $12.87 $15.14 $12.54 $11.50 $15.00
======== ======== ======== ======== ======== ======= ======= ======= ======= ======= =======
40.39 % (0.99)% 27.28 % 9.46 % 9.87 % 40.46 % (0.91)% 27.16 % 9.45 % 9.84 % 0.67 %
======== ======== ======== ======== ======== ======= ======= ======= ======= ======= =======
$143,058 $134,495 $157,021 $139,302 $133,828 $27,814 $24,810 $27,601 $24,993 $29,884 $35
2.28 % 2.36 % 2.34 % 2.34 % 2.30 % 2.29 % 2.37 % 2.36 % 2.35 % 2.28 % 1.22 %*
(1.92)% (1.95)% (1.87)% (1.56)% (1.60)% (1.94)% (1.97)% (1.89)% (1.57)% (1.58)% 0.00 %*
64 % 56 % 57 % 42 % 60 % 64 % 56 % 57 % 42 % 60 % 64 %
$ 0.0479 $ 0.0475 -- -- -- $0.0479 $0.0475 -- -- -- $0.0479
</TABLE>
37
<PAGE>
PAINEWEBBER UTILITY INCOME FUND
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
PERIOD IS PRESENTED BELOW:
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------------------
FOR THE FOR THE FOR THE YEARS FOR THE PERIOD
YEARS ENDED FOUR MONTHS ENDED JULY 2, 1993+
MARCH 31, ENDED NOVEMBER 30, TO
---------------- MARCH 31, ----------------- NOVEMBER 30,
1998 1997 1996 1995 1994 1993
------- ------- ----------- ------- ------- --------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $10.20 $ 9.76 $ 9.77 $ 8.31 $ 9.66 $10.00
------- ------- ------- ------- ------- -------
Net investment income... 0.33 0.34 0.15 0.47 0.48 0.20
Net realized and
unrealized gains
(losses) from
investments............ 3.61 0.41 -- 1.44 (1.31) (0.39)
------- ------- ------- ------- ------- -------
Net increase (decrease)
from investment
operations............. 3.94 0.75 0.15 1.91 (0.83) (0.19)
------- ------- ------- ------- ------- -------
Dividends from net
investment income...... (0.35) (0.31) (0.16) (0.45) (0.52) (0.15)
------- ------- ------- ------- ------- -------
Net asset value, end of
period................. $13.79 $10.20 $ 9.76 $ 9.77 $ 8.31 $ 9.66
======= ======= ======= ======= ======= =======
Total investment return
(1).................... 39.15% 7.83% 1.46% 23.64% (8.76)% (1.95)%
======= ======= ======= ======= ======= =======
Ratios/Supplemental
Data:
Net assets, end of
period (000's)......... $7,856 $6,039 $9,416 $10,750 $12,532 $16,224
Expenses to average net
assets, net of waivers
from adviser........... 1.92% 1.93% 1.09%* 1.49% 1.58% 1.55%*
Expenses to average net
assets, before waivers
from adviser........... 1.92% 2.00% 1.44%* 1.49% 1.58% 1.55%*
Net investment income to
average net assets, net
of waivers from
adviser................ 2.77% 3.27% 4.26%* 5.13% 5.49% 5.38%*
Net investment income to
average net assets,
before waivers from
adviser................ 2.77% 3.20% 3.91%* 5.13% 5.49% 5.38%*
Portfolio turnover rate. 10% 41% 21% 30% 92% 13%
Average commission rate
paid (2)............... $0.0589 $0.0600 $0.0600 -- -- --
</TABLE>
- ---------
* ANNUALIZED
+ COMMENCEMENT OF OPERATIONS
(1) TOTAL INVESTMENT RETURN IS CALCULATED ASSUMING A $1,000 INVESTMENT ON THE
FIRST DAY OF EACH PERIOD REPORTED, REINVESTMENT OF ALL DIVIDENDS AND
DISTRIBUTIONS AT NET ASSET VALUE ON THE PAYABLE DATES, AND A SALE AT NET
ASSET VALUE ON THE LAST DAY OF EACH PERIOD REPORTED. THE FIGURES DO NOT
INCLUDE SALES CHARGES; RESULTS WOULD BE LOWER IF SALES CHANGES WERE
INCLUDED. TOTAL INVESTMENT RETURN FOR PERIODS OF LESS THAN ONE YEAR HAS NOT
BEEN ANNUALIZED.
(2) EFFECTIVE FOR FISCAL YEARS BEGINNING ON OR AFTER SEPTEMBER 1, 1995, THE
FUND IS REQUIRED TO DISCLOSE THE AVERAGE COMMISSION RATE PAID PER SHARE OF
COMMON STOCK INVESTMENTS PURCHASED OR SOLD.
38
<PAGE>
<TABLE>
<CAPTION>
CLASS B CLASS C
- --------------------------------------------------------------- ---------------------------------------------------------------
FOR THE FOR THE FOR THE YEARS FOR THE PERIOD FOR THE FOR THE FOR THE YEARS FOR THE PERIOD
YEARS ENDED FOUR MONTHS ENDED JULY 2, 1993+ YEARS ENDED FOUR MONTHS ENDED JULY 2, 1993+
MARCH 31, ENDED NOVEMBER 30, TO MARCH 31, ENDED NOVEMBER 30, TO
- ---------------- MARCH 31, ---------------- NOVEMBER 30, ---------------- MARCH 31, ---------------- NOVEMBER 30,
1998 1997 1996 1995 1994 1993 1998 1997 1996 1995 1994 1993
- ------- ------- ----------- ------- ------- -------------- ------- ------- ----------- ------- ------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$10.20 $ 9.75 $ 9.77 $ 8.31 $ 9.65 $10.00 $10.20 $ 9.75 $ 9.77 $ 8.31 $ 9.65 $10.00
- ------ ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
0.25 0.26 0.12 0.40 0.42 0.17 0.23 0.25 0.12 0.40 0.42 0.16
3.60 0.42 (0.01) 1.45 (1.31) (0.39) 3.61 0.43 (0.01) 1.45 (1.31) (0.38)
- ------ ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
3.85 0.68 0.11 1.85 (0.89) (0.22) 3.84 0.68 0.11 1.85 (0.89) (0.22)
- ------ ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
(0.26) (0.23) (0.13) (0.39) (0.45) (0.13) (0.26) (0.23) (0.13) (0.39) (0.45) (0.13)
- ------ ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
$13.79 $10.20 $ 9.75 $ 9.77 $ 8.31 $ 9.65 $13.78 $10.20 $ 9.75 $ 9.77 $ 8.31 $ 9.65
====== ======= ======= ======= ======= ======= ======= ======= ======= ======= ======= =======
38.13% 7.05% 1.10% 22.73% (9.35)% (2.29)% 38.09% 7.06% 1.10% 22.71% (9.36)% (2.28)%
====== ======= ======= ======= ======= ======= ======= ======= ======= ======= ======= =======
$21,562 $21,071 $34,765 $37,554 $37,156 $45,382 $ 7,736 $6,909 $11,072 $12,222 $13,922 $17,866
2.68% 2.69% 1.85%* 2.23% 2.33% 2.29%* 2.68% 2.70% 1.85%* 2.24% 2.32% 2.29%*
2.68% 2.76% 2.20%* 2.23% 2.33% 2.29%* 2.68% 2.76% 2.20%* 2.24% 2.32% 2.29%*
2.05% 2.51% 3.51%* 4.37% 4.72% 4.67%* 1.99% 2.51% 3.50%* 4.37% 4.69% 4.67%*
2.05% 2.44% 3.16%* 4.37% 4.72% 4.67%* 1.99% 2.44% 3.15%* 4.37% 4.69% 4.67%*
10% 41% 21% 30% 92% 13% 10% 41% 21% 30% 92% 13%
$0.0589 $0.0600 $0.0600 -- -- -- $0.0589 $0.0600 $0.0600 -- -- --
</TABLE>
39
<PAGE>
PAINEWEBBER FINANCIAL SERVICES GROWTH FUND INC.
PAINEWEBBER MID CAP FUND
PAINEWEBBER UTILITY INCOME FUND
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Boards of Trustees/Directors and Shareholders
We have audited the accompanying statement of assets and liabilities, includ-
ing the portfolios of investments, of PaineWebber Financial Services Growth
Fund, Inc., PaineWebber Mid Cap Fund (formerly the PaineWebber Capital Appreci-
ation Fund), and PaineWebber Utility Income Fund as of March 31, 1998, and the
related statement of operations for the year then ended and the statements of
changes in net assets for each of the two years in the period then ended and
the financial highlights for each of the periods indicated therein. These fi-
nancial statements and financial highlights are the responsibility of the
Funds' management. Our responsibility is to express an opinion on these finan-
cial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements and financial high-
lights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
investments owned at March 31, 1998, by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall fi-
nancial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
PaineWebber Financial Services Growth Fund, Inc., PaineWebber Mid Cap Fund and
PaineWebber Utility Income Fund at March 31, 1998, the results of their opera-
tions for the year then ended and the changes in their net assets for each of
the two years in the period then ended and the financial highlights for each of
the indicated periods, in conformity with generally accepted accounting princi-
ples.
/s/ Ernst & Young LLP
New York, New York
May 13, 1998
40
<PAGE>
PAINEWEBBER FINANCIAL SERVICES GROWTH FUND INC. PAINEWEBBER MID CAP FUND
PAINEWEBBER UTILITY INCOME FUND
TAX INFORMATION (UNAUDITED)
We are required by Subchapter M of the Internal Revenue Code of 1986, as
amended, to advise you within 60 days of each Fund's fiscal year end (March 31,
1998) as to federal tax status of distributions received by shareholders during
such fiscal year. Accordingly, we are advising you that the following distribu-
tions paid during the fiscal year by the Funds were derived from the following
sources:
<TABLE>
<CAPTION>
FINANCIAL
SERVICES UTILITY
GROWTH MID CAP INCOME
PER SHARE DATA: FUND FUND FUND
- --------------- --------- ------- -------
<S> <C> <C> <C>
Net investment income*
Class A........................................... $0.2068 -- $0.3472
Class B........................................... 0.0884 -- 0.2572
Class C........................................... 0.0938 -- 0.2627
Class Y........................................... -- -- --
Short-term capital gains*......................... 0.2443 -- --
Long-term capital gains:
Taxable at 20% maximum rate..................... 0.8764 $1.8245 --
Taxable at 28% maximum rate..................... 0.4688 1.6363 --
Percentage of ordinary income dividends qualifying
for the dividends received deduction available
to corporate shareholders........................ 74.17% -- 100.00%
</TABLE>
*Taxable as ordinary income
Dividends received by tax-exempt recipients (e.g., IRAs and Keoghs) need not
be reported as taxable income. Some retirement trusts (e.g., corporate, Keogh
and 403(b)(7) plans) may need this information for their annual information re-
porting.
Since each Fund's fiscal year is not the calendar year, another notification
will be sent with respect to calendar year 1998. Such notifications, which will
reflect the amount to be used by calendar year taxpayers on their federal in-
come tax returns, will be made in conjunction with Form 1099 DIV and will be
mailed in January 1999. Shareholders are advised to consult their own tax ad-
visers with respect to the tax consequences of their investment in each of the
Funds.
41
<PAGE>
ANNUAL REPORT
================================================================================
DIRECTORS/TRUSTEES
E. Garrett Bewkes, Jr. Mary C. Farrell
Chairman
Meyer Feldberg
Margo N. Alexander
George W. Gowen
Richard Q. Armstrong
Frederic V. Malek
Richard R. Burt
Carl W. Schafer
PRINCIPAL OFFICERS
Margo N. Alexander Julieanna M. Berry
President Vice President
Victoria E. Schonfeld Karen L. Finkel
Vice President Vice President
Dianne E. O'Donnell James F. Keegan
Vice President and Secretary Vice President
Paul H. Schubert
Vice President and Treasurer
INVESTMENT ADVISER,
ADMINISTRATOR AND DISTRIBUTOR
Mitchell Hutchins Asset Management Inc.
1285 Avenue of the Americas
New York, New York 10019
This report is not to be used in connection with the offering of shares of the
Funds unless accompanied or preceded by an effective prospectus.
A prospectus containing more complete information for any of the Funds listed on
the back cover can be obtained from a PaineWebber investment executive or
correspondent firm. Read the prospectus carefully before investing.
<PAGE>
=====
PaineWebber offers a family of 26 funds which
encompass a diversified range of investment goals.
BOND FUNDS
[] High Income Fund
[] Investment Grade Income Fund
[] Low Duration U.S. Government Income Fund
[] Strategic Income Fund
[] U.S. Government Income Fund
TAX-FREE BOND FUNDS
[] California Tax-Free Income Fund
[] Municipal High Income Fund
[] National Tax-Free Income Fund
[] New York Tax-Free Income Fund
STOCK FUNDS
[] Financial Services Growth Fund
[] Growth Fund
[] Growth and Income Fund
[] Mid Cap Fund
[] Small Cap Fund
[] S&P 500 Index Fund
[] Utility Income Fund
ASSET ALLOCATION FUNDS
[] Balanced Fund
[] Tactical Allocation Fund
GLOBAL FUNDS
[] Asia Pacific Growth Fund
[] Emerging Markets Equity Fund
[] Global Equity Fund
[] Global Income Fund
MITCHELL HUTCHINS PORTFOLIOS
[] Aggressive Portfolio
[] Moderate Portfolio
[] Conservative Portfolio
PAINEWEBBER MONEY MARKET FUND
[LOGO]
(C)1998 PaineWebber Incorporated
Member SIPC
PaineWebber
====================================
ANNUAL REPORT
FINANCIAL
SERVICES
GROWTH FUND INC.
MID CAP
FUND
(FORMERLY CAPITAL
APPRECIATION FUND)
UTILITY
INCOME FUND
MARCH 31, 1998
====================================
