<PAGE>
CAPITAL APPRECIATION FUND
PAINEWEBBER
RECENT PERFORMANCE RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
NET ASSET VALUE TOTAL RETURN/1/
-------------------------- -----------------------------
12 MONTHS 6 MONTHS
09/30/95 03/31/95 09/30/94 ENDED 09/30/95 ENDED 09/30/95
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A Shares $15.26 $12.81 $12.22 25.33% 19.13%
- ------------------------------------------------------------------------
Class B Shares 15.56 13.11 12.56 24.33 18.69
- ------------------------------------------------------------------------
Class D Shares 14.89 12.54 12.02 24.34 18.74
- ------------------------------------------------------------------------
</TABLE>
Performance Summary Class A Shares
<TABLE>
<CAPTION>
NET ASSET VALUE
---------------- CAPITAL GAINS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID RETURN/1/
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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)
- -----------------------------------------------------------------------------
01/01/95 - 09/30/95 11.98 15.26 -- -- 27.38
- -----------------------------------------------------------------------------
Total: $0.0433 --
- -----------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF
09/30/95: 60.38%
- -----------------------------------------------------------------------------
Performance Summary Class B Shares
<CAPTION>
NET ASSET VALUE
---------------- CAPITAL GAINS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS 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)
- -----------------------------------------------------------------------------
01/01/95 - 09/30/95 12.28 15.56 -- -- 26.71
- -----------------------------------------------------------------------------
Total: $0.0433 --
- -----------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF
09/30/95: 56.15%
- -----------------------------------------------------------------------------
Performance Summary Class D Shares
<CAPTION>
NET ASSET VALUE
---------------- CAPITAL GAINS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS 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)
- -----------------------------------------------------------------------------
01/01/95 - 09/30/95 11.75 14.89 -- -- 26.72
- -----------------------------------------------------------------------------
Total: $0.0433 --
- -----------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF
09/30/95: 68.12%
- -----------------------------------------------------------------------------
</TABLE>
/1/Figures assume reinvestment of all dividends and capital gains distributions,
if any, at net asset value on the payable date and do not include sales
charges; results for Class A and Class B shares would be lower if sales
charges were included.
1
<PAGE>
CAPITAL APPRECIATION FUND
PAINEWEBBER
RECENT PERFORMANCE RESULTS (CONCLUDED)
Average Annual Return
<TABLE>
<CAPTION>
% RETURN WITHOUT SALES CHARGE % RETURN WITH SALES CHARGE
-------------------------------- -----------------------------
CLASS CLASS
-------------------------------- -----------------------------
A* B** D*** A* B** D***
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Twelve Months
Ended 09/30/95 25.33% 24.33% 24.34% 19.66% 19.33% 24.34%
- -------------------------------------------------------------------------------
Five Years
Ended 09/30/95 N/A N/A N/A N/A N/A N/A
- -------------------------------------------------------------------------------
Commencement of
Operations
Through
09/30/95+ 14.53 13.65 17.34 13.02 13.23 17.34
- -------------------------------------------------------------------------------
</TABLE>
/1Figures/assume reinvestment of all dividends and capital gains distributions
at net asset value on the payable dates, and do not include sales charges;
results for Class A and Class B shares would be lower if sales charges were
included.
* Maximum sales charge for Class A shares is 4.5% of the public offering
price. Class A shares bear ongoing 12b-1 service fees.
** Maximum contingent deferred sales charge for Class B shares is 5% and is
reduced to 0% after 6 years. Class B shares bear ongoing 12b-1 distribution
and service fees.
*** Class D shares are sold without an initial or a contingent deferred sales
charge but bear ongoing 12b-1 distribution and service fees.
+ Commencement of operations dates are April 7, 1992 for Class A and Class B
shares and July 2, 1992 for Class D shares.
The data above represents past performance of the Fund's shares, which is no
guarantee of future results. The investment return and principal value of an
investment in the Fund will fluctuate, so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
2
<PAGE>
CAPITAL APPRECIATION FUND
PAINEWEBBER
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- ------------
COMMON STOCKS - 99.05%
<C> <S> <C>
Air Transport - 1.28%
21,200 Atlantic Southeast Airlines Incorporated.............. $ 495,550
24,750 Comair Holdings Incorporated.......................... 655,875
83,950 Southwest Airlines Company............................ 2,119,738
------------
3,271,163
------------
Apparel, Textiles - 1.09%
14,500 Cole Kenneth Productions Incorporated*................ 509,312
65,850 Unifi Incorporated.................................... 1,613,325
28,000 Warnaco Group Incorporated............................ 672,000
------------
2,794,637
------------
Banks - 0.82%
13,400 Cullen Frost Bankers Incorporated..................... 623,100
44,800 Norwest Corporation................................... 1,467,200
------------
2,090,300
------------
Business Machines - 4.69%
41,000 SCI Systems Incorporated*............................. 1,414,500
65,900 Silicon Graphics Incorporated*........................ 2,265,313
97,600 Storage Technology Corporation*....................... 2,391,200
24,200 Sun Microsystems Incorporated*........................ 1,524,600
97,200 3Com Corporation*..................................... 4,422,600
------------
12,018,213
------------
Chemicals - 3.43%
40,300 Airgas Incorporated*.................................. 1,072,987
11,100 Cytec Industries Incorporated*........................ 642,412
26,750 Engelhard Corporation................................. 678,781
17,900 Georgia Gulf Corporation.............................. 617,550
20,400 IMC Global Incorporated............................... 1,292,850
35,300 Millipore Corporation................................. 1,323,750
40,400 Sybron International Corporation*..................... 1,626,100
38,100 Union Carbide Corporation............................. 1,514,475
------------
8,768,905
------------
Domestic Petroleum Reserves - 1.11%
42,500 Apache Corporation.................................... 1,115,625
86,100 Parker and Parsley Petroleum Company.................. 1,722,000
------------
2,837,625
------------
</TABLE>
3
<PAGE>
CAPITAL APPRECIATION FUND
PAINEWEBBER
PORTFOLIO OF INVESTMENTS (CONTINUED) SEPTEMBER 30, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- ------------
COMMON STOCKS - (CONTINUED)
<C> <S> <C>
Drugs, Medicine - 2.85%
18,300 Amgen Incorporated*................................... $ 912,712
42,400 Centocor Incorporated*................................ 461,100
55,900 Diametrics Medical Incorporated*...................... 635,862
13,700 Idexx Labs Incorporated*.............................. 510,325
62,200 North American Vaccine Incorporated*.................. 691,975
32,100 Northfield Laboratories Incorporated*................. 593,850
34,000 R.P. Scherer Corporation*............................. 1,474,750
49,240 Watson Pharmaceuticals Incorporated*.................. 2,018,840
------------
7,299,414
------------
Electric Utilities - 0.64%
35,800 AES China Generating Company, Class A*................ 322,200
69,902 AES Corporation*...................................... 1,328,138
------------
1,650,338
------------
Electronics - 11.68%
67,400 Analog Devices Incorporated*.......................... 2,333,725
28,600 Arrow Electronics Incorporated*....................... 1,555,125
34,600 Atmel Corporation*.................................... 1,167,750
14,500 Avid Technology Incorporated*......................... 623,500
40,800 AVX Corporation New................................... 1,366,800
31,500 Bay Networks Incorporated*............................ 1,681,312
9,100 Cascade Communications Corporation*................... 448,175
22,650 Credence Systems Corporation*......................... 821,062
22,400 KLA Instruments Corporation*.......................... 1,797,600
29,000 Level One Communications Incorporated*................ 681,500
76,400 Linear Technology Corporation......................... 3,170,600
32,100 LSI Logic Corporation*................................ 1,853,775
4,800 Mattson Technology Incorporated*...................... 204,000
43,900 MEMC Electronic Materials Incorporated*............... 1,190,787
42,600 Microchip Technology Incorporated*.................... 1,613,475
57,031 Molex Incorporated.................................... 1,910,547
68,250 Sensormatic Electronics Corporation................... 1,569,750
24,300 Stratacom Incorporated*............................... 1,342,575
25,400 Synopsys Incorporated*................................ 781,050
15,800 Ultratech Stepper Incorporated*....................... 667,550
64,800 Xilinx Incorporated*.................................. 3,118,500
------------
29,899,158
------------
Healthcare (Non-drug) - 10.73%
23,140 Apria Healthcare Group Incorporated*.................. 572,715
16,400 Arrow International Incorporated...................... 709,300
75,400 Biomet Incorporated*.................................. 1,300,650
80,150 Health Management Associates*......................... 2,574,819
27,500 Healthsouth Corporation*.............................. 701,250
35,200 Integrated Health Services Incorporated............... 994,400
44,600 Medtronic Incorporated................................ 2,397,250
52,900 Mid-Atlantic Medical Services Incorporated*........... 1,038,162
</TABLE>
4
<PAGE>
CAPITAL APPRECIATION FUND
PAINEWEBBER
PORTFOLIO OF INVESTMENTS (CONTINUED) SEPTEMBER 30, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- ------------
COMMON STOCKS - (CONTINUED)
<C> <S> <C>
Healthcare (Non-drug) - (concluded)
200,700 Oxford Health Plans Incorporated*..................... $ 14,600,925
35,850 Phycor Incorporated*.................................. 1,227,862
27,400 United HealthCare Corporation......................... 1,339,175
------------
27,456,508
------------
Hotels, Restaurants - 5.63%
167,700 HFS Incorporated*..................................... 8,783,288
110,100 La Quinta Inns Incorporated........................... 3,082,800
36,200 Mirage Resorts Incorporated*.......................... 1,190,075
132,500 Prime Hospitality Corporation*........................ 1,358,125
------------
14,414,288
------------
Leisure, Luxury - 0.83%
31,000 Callaway Golf Company................................. 480,500
35,300 Department 56 Incorporated*........................... 1,650,275
------------
2,130,775
------------
Life Insurance - 0.53%
78,800 Life Partners Group Incorporated...................... 1,359,300
------------
Media - 5.93%
89,000 Comcast Corporation................................... 1,780,000
44,362 Cox Communications Incorporated*...................... 898,331
40,500 Evergreen Media*...................................... 1,154,250
104,800 Infinity Broadcasting Corporation*.................... 3,432,200
57,275 Tele-Communications Incorporated*..................... 1,532,106
75,700 Tele-Communications Incorporated, Class A*............ 1,324,750
66,200 Viacom Incorporated, Class B*......................... 3,293,450
99,000 Westwood One Incorporated*............................ 1,782,000
------------
15,197,087
------------
Miscellaneous Finance - 5.26%
49,350 Advanta Corporation................................... 2,097,375
65,200 Charles Schwab Corporation............................ 1,825,600
20,200 Credit Acceptance Corporation*........................ 545,400
213,900 Mercury Finance Company............................... 5,213,812
39,800 Olympic Financial Limited*............................ 1,089,525
44,300 United Asset Management Corporation................... 1,777,538
64,500 World Acceptance Corporation*......................... 919,125
------------
13,468,375
------------
Motor Vehicles - 2.07%
24,900 APS Holding Corporation*.............................. 603,825
14,100 Exide Corporation..................................... 705,000
28,500 General Motors Corporation, Class H................... 1,168,500
24,600 Gentex Corporation*................................... 590,400
12,000 Insurance Auto Auctions Incorporated*................. 111,000
</TABLE>
5
<PAGE>
CAPITAL APPRECIATION FUND
PAINEWEBBER
PORTFOLIO OF INVESTMENTS (CONTINUED) SEPTEMBER 30, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- ------------
COMMON STOCKS - (CONTINUED)
<C> <S> <C>
Motor Vehicles - (concluded)
20,900 OEA Incorporated...................................... $ 684,475
40,700 Wabash National Corporation........................... 1,439,763
------------
5,302,963
------------
Oil Service - 1.19%
60,600 Input/Output Incorporated*............................ 2,325,525
15,300 Production Operators Corporation...................... 470,475
7,600 Sonat Offshore Drilling Incorporated.................. 247,950
------------
3,043,950
------------
Other Insurance - 1.82%
39,500 AFLAC Incorporated.................................... 1,639,250
47,262 Frontier Insurance Group Incorporated................. 1,429,676
27,600 MGIC Investment Corporation........................... 1,580,100
------------
4,649,026
------------
Paper - 1.52%
71,600 Federal Paper Board Incorporated...................... 2,747,650
59,900 Stone Container Corporation........................... 1,138,100
------------
3,885,750
------------
Producers Goods - 7.24%
23,200 ADC Telecommunications Incorporated*.................. 1,055,600
17,600 Adtran Incorporated*.................................. 611,600
105,200 American Power Conversion Corporation*................ 1,288,700
2,500 Asyst Technologies Incorporated*...................... 114,687
28,000 DSC Communications Corporation*....................... 1,659,000
38,100 Duracell International Incorporated................... 1,709,738
32,100 Foster Wheeler Corporation............................ 1,135,538
29,200 Greenfield Industries................................. 897,900
35,800 Ionics Incorporated*.................................. 1,490,175
13,000 Picturetel Corporation*............................... 588,250
31,800 Summa Four Incorporated*.............................. 763,200
15,000 United States Robotics Corporation*................... 1,278,750
184,826 Worldcom Incorporated*................................ 5,937,535
------------
18,530,673
------------
Retail (Food) - 0.02%
2,600 Caseys General Stores Incorporated.................... 58,825
------------
</TABLE>
6
<PAGE>
CAPITAL APPRECIATION FUND
PAINEWEBBER
PORTFOLIO OF INVESTMENTS (CONTINUED) SEPTEMBER 30, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- ------------
COMMON STOCKS - (CONCLUDED)
<C> <S> <C>
Retail (All Other) - 7.48%
52,800 Autozone Incorporated*................................ $ 1,346,400
23,600 Bed Bath and Beyond Incorporated*..................... 719,800
114,800 Consolidated Stores Corporation*...................... 2,654,750
18,100 Discount Auto Parts Incorporated*..................... 547,525
49,022 Dollar General Corporation............................ 1,440,021
25,700 Gymboree Corporation*................................. 774,213
126,700 Home Shopping Network Incorporated*................... 1,171,975
34,500 Kohls Corporation*.................................... 1,789,688
49,800 Lowes Companies Incorporated.......................... 1,494,000
26,300 Nordstrom Incorporated................................ 1,098,025
81,375 Office Depot Incorporated*............................ 2,451,422
36,400 Sports Authority Incorporated*........................ 1,005,550
18,000 Talbots Incorporated.................................. 713,250
31,800 Tandy Corporation..................................... 1,931,850
------------
19,138,469
------------
Services - 17.35%
39,700 Adobe Systems Incorporated............................ 2,054,475
23,000 Alternative Resources Corporation*.................... 736,000
48,200 BMC Software Incorporated*............................ 2,217,200
49,000 Broderbund Software Incorporated*..................... 3,730,125
241,612 CUC International Incorporated*....................... 8,426,219
65,700 First Financial Management Corporation................ 6,413,962
51,900 HBO & Company......................................... 3,243,750
18,000 Intuit Incorporated*.................................. 846,000
164,500 Loewen Group Incorporated............................. 6,785,625
69,400 Medaphis Corporation*................................. 1,943,200
50,850 Mutual Risk Management Limited........................ 2,008,575
156,700 Oracle Systems Corporation*........................... 6,013,363
------------
44,418,494
------------
Soaps, Houseware - 0.25%
26,000 Newell Company........................................ 643,500
------------
Telephone & Telegraph - 3.61%
8,100 LCI International Incorporated*....................... 317,925
64,700 MFS Communications Company Incorporated*.............. 2,830,625
74,100 Mobile Telecommunications Technologies Corporation*... 2,287,838
29,300 Paging Network Incorporated*.......................... 1,406,400
58,200 Vodafone Group, plc ADR............................... 2,386,200
------------
9,228,988
------------
Total Common Stocks (cost - $163,257,598)........................ 253,556,724
------------
</TABLE>
7
<PAGE>
CAPITAL APPRECIATION FUND
PAINEWEBBER
PORTFOLIO OF INVESTMENTS (CONCLUDED) SEPTEMBER 30, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- ------------
<S> <C>
Preferred Stock- 0.00%
Publishing - 0.00%
Times Mirror Company, New Series B
3 (cost - $65)..................... $ 72
------------
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATE RATE
--------- -------- --------
<C> <S> <C> <C> <C>
Repurchase Agreement - 1.25%
$3,191 Repurchase Agreement dated
09/29/95 with State Street Bank
and Trust Company, collateralized
by $2,935,000 U.S. Treasury
Bonds, 7.500%, due 11/15/16,
proceeds: $3,192,396 (cost -
$3,191,000)..................... 10/02/95 5.250% 3,191,000
------------
Total Investments (cost - $166,448,663) -
100.30%.................................... 256,747,796
Liabilities in excess of other assets -
(0.30)%.................................... (768,387)
------------
Net Assets - 100.00%......................... $255,979,409
============
</TABLE>
- -------
*Non-income producing security
ADR American Depositary Receipt
See accompanying notes to financial statements
8
<PAGE>
CAPITAL APPRECIATION FUND
PAINEWEBBER
STATEMENT OF ASSETS AND LIABILITIES SEPTEMBER 30, 1995 (UNAUDITED)
<TABLE>
<S> <C>
Assets
Investments at value (cost--$166,448,663)........................ $256,747,796
Cash............................................................. 193
Receivable for investments sold.................................. 3,053,865
Receivable for shares of beneficial interest sold................ 253,420
Dividends and interest receivable................................ 73,011
Deferred organizational expenses................................. 72,373
Other assets..................................................... 44,033
------------
Total assets.................................................. 260,244,691
------------
Liabilities
Payable for investments purchased................................ 3,155,574
Payable for shares of beneficial interest repurchased............ 602,009
Payable to affiliate............................................. 383,464
Accrued expenses and other liabilities........................... 124,235
------------
Total liabilities............................................. 4,265,282
------------
Net Assets
Beneficial interest shares of $0.001 par value outstanding
(unlimited amount authorized)................................... 157,444,217
Accumulated net investment loss.................................. (1,860,845)
Accumulated net realized gains from investment transactions...... 10,096,904
Net unrealized appreciation of investments....................... 90,299,133
------------
Net assets.................................................... $255,979,409
============
Class A:
Net assets....................................................... $ 72,955,435
------------
Shares outstanding............................................... 4,780,800
------------
Net asset value and redemption value per share................... $15.26
======
Maximum offering price per share (net asset value plus sales
charge of 4.50% of offering price).............................. $15.98
======
Class B:
Net assets....................................................... $156,029,566
------------
Shares outstanding............................................... 10,024,891
------------
Net asset value and offering price per share..................... $15.56
======
Class D:
Net assets....................................................... $ 26,994,408
------------
Shares outstanding............................................... 1,813,493
------------
Net asset value, offering price and redemption value per share... $14.89
======
</TABLE>
See accompanying notes to financial statements
9
<PAGE>
CAPITAL APPRECIATION FUND
PAINEWEBBER
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1995 (UNAUDITED)
<TABLE>
<S> <C>
Investment income:
Dividends................ $ 511,813
Interest................. 150,248
-----------
662,061
-----------
Expenses:
Investment advisory and
administration fees..... 1,183,452
Service fees--Class A.... 83,161
Service and distribution
fees--Class B........... 722,871
Service and distribution
fees--Class D........... 127,938
Transfer agency and
service fees............ 143,087
Reports and notices to
shareholders............ 72,784
Legal and audit.......... 52,669
Custody and accounting... 50,207
Federal and state
registration fees....... 40,836
Amortization of
organizational expenses. 23,951
Trustees' fees and
expenses................ 10,625
Other expenses........... 10,729
-----------
2,522,310
-----------
Net investment loss...... (1,860,249)
-----------
Realized and unrealized
gains from investment
transactions:
Net realized gains from
investment transactions. 11,179,776
Net change in unrealized
appreciation/depreciation
of investments.......... 31,675,259
-----------
Net realized and
unrealized gains from
investment transactions. 42,855,035
-----------
Net increase in net
assets resulting from
operations.............. $40,994,786
===========
</TABLE>
See accompanying notes to financial statements
10
<PAGE>
CAPITAL APPRECIATION FUND
PAINEWEBBER
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE YEAR
SEPTEMBER 30, ENDED
1995 MARCH 31,
(UNAUDITED) 1995
------------- ------------
<S> <C> <C>
From operations:
Net investment loss............................... $ (1,860,249) $ (2,926,875)
Net realized gains (losses) from investment
transactions..................................... 11,179,776 (912,595)
Net change in unrealized appreciation/depreciation
of investments................................... 31,675,259 24,069,375
------------ ------------
Net increase in net assets resulting from
operations....................................... 40,994,786 20,229,905
------------ ------------
Dividends and distributions to shareholders from:
Net realized gains from investment transactions--
Class A.......................................... -- (211,540)
Net realized gains from investment transactions--
Class B.......................................... -- (461,992)
Net realized gains from investment transactions--
Class D.......................................... -- (93,302)
------------ ------------
-- (766,834)
------------ ------------
From beneficial interest transactions:
Net proceeds from the sale of shares.............. 25,680,093 60,709,970
Cost of shares repurchased........................ (37,663,635) (76,165,555)
Proceeds from dividends and distributions
reinvested....................................... -- 726,370
------------ ------------
Net decrease in net assets derived from beneficial
interest transactions............................ (11,983,542) (14,729,215)
------------ ------------
Net increase in net assets........................ 29,011,244 4,733,856
Net assets:
Beginning of period............................... 226,968,165 222,234,309
------------ ------------
End of period..................................... $255,979,409 $226,968,165
============ ============
</TABLE>
See accompanying notes to financial statements
11
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
PAINEWEBBER
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
PaineWebber Capital Appreciation Fund (the "Fund") is a diversified series of
PaineWebber Managed Assets Trust (the "Trust"), which was organized as a
business trust under the laws of the Commonwealth of Massachusetts by a
Declaration of Trust dated August 9, 1991 and is registered with the Securities
and Exchange Commission under the Investment Company Act of 1940, as amended
("1940 Act"), as a diversified, open-end management investment company.
Organizational Matters - Prior to commencing operations on April 7, 1992, the
Fund had no activities other than organizational matters and activities related
to the initial public offering and the issuance, at net asset value, of 5,236
Class A shares and 5,000 Class B shares of the Fund for a total of $100,000 to
Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins"), a wholly-owned
subsidiary of PaineWebber Incorporated ("PaineWebber") and investment adviser,
administrator and distributor of the Fund. The Fund incurred costs of $242,000
in connection with the organization of the Fund and the registration of its
shares. Such costs have been deferred and are being amortized using the
straight-line method over the period of benefit, not to exceed five years,
beginning with the commencement of operations of the Fund.
The Fund offers Class A, Class B and Class D shares. Each class represents
interests in the same assets of the Fund and the classes are identical except
for differences in their sales charge structure, ongoing distribution charges
and transfer agency expenses. In addition, Class B shares, along with their
pro-rata reinvested dividends shares, automatically convert to Class A shares
approximately six years after initial issuance. All classes of shares have
equal rights as to voting privileges, except that each class has exclusive
voting rights with respect to its distribution plan. Effective November 10,
1995, the Fund began using industry standardized nomenclatures and Class D
shares were renamed Class C shares.
Valuation of Investments - Securities which are listed on U.S. and foreign
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 generally valued on the exchange designated by Denver Investment
Advisors, LLC, the sub-adviser of the Fund ("Sub-Adviser"), as the primary
market. Securities traded in the over-the-counter ("OTC") market and listed on
the National Association of Securities Dealers Quotation System ("NASDAQ") are
valued at the last trade price on NASDAQ prior to the time of valuation; other
OTC securities are valued at the last bid price available in the OTC market
prior to the time of valuation. The amortized cost method of valuation is used
to value short-term debt instruments with sixty days or less remaining to
maturity. Securities and
12
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
PAINEWEBBER
assets for which market quotations are not readily available (including
restricted securities subject to limitations as to their sale) are valued at
fair value as determined in good faith by or under the direction of the Trust's
Board of Trustees.
Repurchase Agreements - The Fund's custodian takes possession of the collateral
pledged for investments in repurchase agreements. The underlying collateral is
valued daily on a mark-to-market basis to ensure that the value, including
accrued interest, is at least equal to the repurchase price. In the event of
default of the obligation to repurchase, the Fund has the right to liquidate
the collateral and apply the proceeds in satisfaction of the obligation. Under
certain circumstances, in the event of default or bankruptcy by the other party
to the agreement, realization and/or retention of the collateral may be subject
to legal proceedings. The Fund occasionally participates in joint repurchase
agreement transactions with other funds managed by Mitchell Hutchins.
Investment Transactions and Investment Income - Investment transactions are
recorded on trade date. Realized gains and losses on sales of investments are
calculated using the identified cost method. Interest income is recorded on an
accrual basis and dividend income is recorded on the ex-dividend date.
Income, expenses (excluding class-specific expenses) and realized and
unrealized gains and losses are allocated proportionately to each class of
shares based upon the relative net asset value of outstanding shares (or the
value of dividend-eligible shares, as appropriate) of each class at the
beginning of the day (after adjusting for current capital share activity of the
respective classes). Class-specific expenses are charged directly to the
applicable class of shares.
Federal Tax Status - The Fund intends to distribute substantially all of its
taxable income and to comply with the other requirements of the Internal
Revenue Code applicable to regulated investment companies. Accordingly, no
provision for federal income taxes is required. In addition, by distributing
during each calendar year substantially all of its net investment income,
capital gains and certain other amounts, if any, the Fund intends not to be
subject to a federal excise tax.
At March 31, 1995, the Fund had a net capital loss carryforward of $134,660.
The loss carryforward is available as a reduction, to the extent provided in
the regulations, of future net realized capital gains, and will expire by March
31, 2003.
Dividends and Distributions - Dividends and distributions to shareholders are
recorded on the ex-dividend date. Dividends from net investment income and
distributions from net realized capital gains are determined in accordance with
federal income tax regulations, which may differ from generally accepted
accounting principles. These "book/tax" differences are either considered
13
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
PAINEWEBBER
temporary or permanent in nature. To the extent these differences are permanent
in nature, such amounts are reclassified within the capital accounts based on
their federal tax-basis treatment; temporary differences do not require
reclassification. Dividends and distributions which exceed net investment
income and net realized capital gains for financial reporting purposes but not
for tax purposes are reported as dividends in excess of net investment income
or distributions in excess of net realized capital gains. To the extent they
exceed net investment income and net realized capital gains for tax purposes,
they are reported as distributions of paid-in-capital.
CONCENTRATION OF RISK
Investing in securities of medium-sized and smaller companies entails greater
market volatility and risks of adverse financial developments than is the case
for securities of larger companies. In addition, the Fund's ability to invest
in U.S. dollar-denominated foreign equity securities and ability to use options
and futures contracts also entail special risks.
INVESTMENT ADVISER AND ADMINISTRATOR
The Fund has an Investment Advisory and Administration Contract ("Advisory
Contract") with Mitchell Hutchins. In accordance with the Advisory Contract,
the Fund pays Mitchell Hutchins an investment advisory and administration fee,
which is accrued daily and paid monthly, at the annual rate of 1.00% of the
Fund's average daily net assets.
At September 30, 1995, the Fund owed Mitchell Hutchins $210,143 in investment
advisory and administration fees.
Under a separate contract, Mitchell Hutchins (not the Fund) pays the Sub-
Adviser a monthly fee in an amount equal to 50% of the fee paid to Mitchell
Hutchins under the Advisory Contract.
In compliance with applicable state securities laws, Mitchell Hutchins will
reimburse the Fund if, and to the extent that, the aggregate operating expenses
in any fiscal year, exclusive of taxes, distribution fees, interest, brokerage
fees and extraordinary expenses, exceed limitations imposed by various state
regulations. Currently, the most restrictive limitation applicable to the Fund
is 2.5% of the first $30 million of average daily net assets, 2.0% of the next
$70 million and 1.5% of any excess over $100 million. For the six months ended
September 30, 1995, no reimbursements were required pursuant to the above
limitation.
14
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
PAINEWEBBER
DISTRIBUTION PLANS
Mitchell Hutchins is the distributor of the Fund's shares and has appointed
PaineWebber as the exclusive dealer for the sale of those shares. Under
separate plans of distribution pertaining to the Class A, Class B and Class D
shares, each class of shares of each Fund pays Mitchell Hutchins monthly
service fees at an annual rate of up to 0.25% of the average daily net assets
of Class A, Class B and Class D shares and monthly distribution fees at the
annual rate of up to 0.75% of the average daily net assets on Class B and Class
D shares. At September 30, 1995, the Fund owed Mitchell Hutchins $165,512 in
service and distribution fees.
Mitchell Hutchins also receives the proceeds of the initial sales charges paid
upon the purchase of Class A shares and the contingent deferred sales charge
paid upon certain redemptions of Class B shares. Mitchell Hutchins has informed
the Fund that for the six months ended September 30, 1995, it earned the
following amounts in sales charges:
<TABLE>
<S> <C>
Initial sales charges--Class A........................................ $ 47,433
Contingent deferred sales charges--Class B............................ $289,854
</TABLE>
TRANSFER AGENCY SERVICE FEES
The Fund pays PaineWebber an annual fee of $4.00 per active PaineWebber
shareholder account for certain services not provided by the Fund's transfer
agent. For these services for the six months ended September 30, 1995,
PaineWebber earned $47,886 from the Fund. At September 30, 1995, the Fund owed
PaineWebber $7,809 for transfer agency service fees.
INVESTMENTS IN SECURITIES
For federal income tax purposes, the cost of securities owned at September 30,
1995 was substantially the same as the cost of securities for financial
statement purposes.
At September 30, 1995, the components of net unrealized appreciation of
investments were as follows:
<TABLE>
<S> <C>
Gross appreciation (investments having an excess of
value over cost).................................................. $94,369,706
Gross depreciation (investments having an excess of
cost over value).................................................. (4,070,573)
-----------
Net unrealized appreciation of investments......................... $90,299,133
===========
</TABLE>
For the six months ended September 30, 1995, aggregate purchases and sales of
portfolio securities, excluding short-term securities, were $68,883,529 and
$82,211,633, respectively.
15
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
PAINEWEBBER
SHARES OF BENEFICIAL INTEREST
There is an unlimited amount of $0.001 par value shares of beneficial interest
authorized. Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS D
SIX MONTHS ENDED ------------------------ ------------------------ ------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
SEPTEMBER 30, 1995: ---------- ------------ ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold............. 415,404 $ 5,770,021 967,456 $ 13,840,132 455,277 $ 6,069,940
Shares repurchased...... (566,792) (7,741,951) (1,528,852) (21,430,600) (634,469) (8,491,084)
Dividends and
distributions
reinvested ............ -- -- -- -- -- --
Shares converted from
Class B to Class A..... 38,706 505,319 (37,362) (505,319) -- --
---------- ------------ ---------- ------------ ---------- ------------
Net decrease............ (112,682) $ (1,466,611) (598,758) $ (8,095,787) (179,192) $ (2,421,144)
========== ============ ========== ============ ========== ============
YEAR ENDED
MARCH 31, 1995:
Shares sold............. 1,128,965 $ 13,488,888 2,498,776 $ 30,671,219 1,419,592 $ 16,549,863
Shares repurchased...... (1,424,925) (16,920,379) (2,901,275) (35,430,825) (2,033,268) (23,814,351)
Dividends and
distributions
reinvested............. 16,909 200,035 35,933 436,234 7,761 90,101
Shares converted from
Class B to Class A..... 149,411 1,760,450 (145,260) (1,760,450) -- --
---------- ------------ ---------- ------------ ---------- ------------
Net decrease............ (129,640) $ (1,471,006) (511,826) $ (6,083,822) (605,915) $ (7,174,387)
========== ============ ========== ============ ========== ============
</TABLE>
16
<PAGE>
CAPITAL APPRECIATION FUND
PAINEWEBBER
[This Page Intentionally Left Blank]
17
<PAGE>
CAPITAL APPRECIATION FUND
PAINEWEBBER
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
SIX MONTHS FOR THE YEARS PERIOD
ENDED ENDED APRIL 7,
SEPTEMBER 30, MARCH 31, 1992+ TO
1995 ----------------- MARCH 31,
(UNAUDITED) 1995 1994 1993
------------- ------- ------- ---------
<S> <C> <C> <C> <C>
Net asset value, beginning of
period........................ $12.81 $11.65 $10.53 $ 9.55
------- ------- ------- -------
Net investment loss............ (0.07) (0.09) (0.09) (0.06)
Net realized and unrealized
gains from investment
transactions.................. 2.52 1.29 1.21 1.04
------- ------- ------- -------
Net increase from investment
operations.................... 2.45 1.20 1.12 0.98
------- ------- ------- -------
Distributions from net realized
gains......................... -- (0.04) -- --
------- ------- ------- -------
Net asset value, end of period. $15.26 $12.81 $11.65 $10.53
======= ======= ======= =======
Total investment return (1).... 19.13 % 10.36 % 10.64 % 10.26 %
======= ======= ======= =======
Ratios/Supplemental Data:
Net assets, end of period
(000's)....................... $72,955 $62,673 $58,523 $48,582
Ratio of expenses to average
net assets.................... 1.58 %* 1.58 % 1.54 % 1.72 %*
Ratio of net investment loss to
average net assets............ (1.02)%* (0.79)% (0.84)% (0.78)%*
Portfolio turnover rate........ 30 % 42 % 60 % 51 %
</TABLE>
- ---------
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each period reported, reinvestment of all dividends and
capital gain distributions, if any, at net asset value on the payable date,
and a sale at net asset value on the last day of each period reported. The
figures do not include sales charges; results for Class A and Class B
shares would be lower if sales charges were included. Total investment
return information for periods of less than one year have not been
annualized.
* Annualized
+ Commencement of offering of shares
18
<PAGE>
CAPITAL APPRECIATION FUND
PAINEWEBBER
<TABLE>
<CAPTION>
CLASS B CLASS D
- ---------------------------------------------- -------------------------------------------
FOR THE FOR THE FOR THE FOR THE
SIX MONTHS FOR THE YEARS PERIOD SIX MONTHS FOR THE YEARS PERIOD
ENDED ENDED APRIL 7, ENDED ENDED JULY 2,
SEPTEMBER 30, MARCH 31, 1992+ TO SEPTEMBER 30, MARCH 31, 1992+ TO
1995 ------------------- MARCH 31, 1995 ----------------- MARCH 31,
(UNAUDITED) 1995 1994 1993 (UNAUDITED) 1995 1994 1993
- ------------- -------- -------- --------- ------------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
$13.11 $12.02 $10.94 $10.00 $12.54 $11.50 $10.47 $ 8.89
-------- -------- -------- -------- ------- ------- ------- -------
(0.14) (0.20) (0.17) (0.11) (0.14) (0.19) (0.10) (0.05)
2.59 1.33 1.25 1.05 2.49 1.27 1.13 1.63
-------- -------- -------- -------- ------- ------- ------- -------
2.45 1.13 1.08 0.94 2.35 1.08 1.03 1.58
-------- -------- -------- -------- ------- ------- ------- -------
-- (0.04) -- -- -- (0.04) -- --
-------- -------- -------- -------- ------- ------- ------- -------
$15.56 $13.11 $12.02 $10.94 $14.89 $12.54 $11.50 $10.47
======== ======== ======== ======== ======= ======= ======= =======
18.69 % 9.46 % 9.87 % 9.40 % 18.74 % 9.45 % 9.84 % 17.77 %
======== ======== ======== ======== ======= ======= ======= =======
$156,030 $139,302 $133,828 $105,490 $26,994 $24,993 $29,884 $13,806
2.34 %* 2.34 % 2.30 % 2.49 %* 2.37 %* 2.35 % 2.28 % 2.31 %*
(1.78)%* (1.56)% (1.60)% (1.55)%* (1.81)%* (1.57)% (1.58)% (1.53)%*
30 % 42 % 60 % 51 % 30 % 42 % 60 % 51 %
</TABLE>
19
<PAGE>
CAPITAL APPRECIATION FUND
PAINEWEBBER
SHAREHOLDER INFORMATION
A special meeting of shareholders of the Fund was held on March 1, 1995. At the
meeting, shareholders approved a new Sub-Advisory Contract among Mitchell
Hutchins, Denver Investment Advisors, LLC ("DIA, LLC") and the Fund.
The vote was as follows:
<TABLE>
<CAPTION>
ALL SHARES OF THE FUND VOTING AS A SINGLE
CLASS
------------------------------------------
SHARES SHARES SHARES
VOTED FOR VOTED AGAINST WITHHOLD AUTHORITY
--------- ------------- ------------------
<S> <C> <C> <C>
Approval of Sub-Advisory Contract.... 7,843,910 213,637 766,921
</TABLE>
Broker non-votes and abstentions are included within the "Shares Withhold
Authority" totals.
Shareholders of the Fund were asked to approve the new Sub-Advisory Contract,
because some of the principal officers of Denver Investment Advisors, Inc., the
Fund's sub-adviser ("DIA, Inc.") had been in negotiations with First Interstate
BanCorp to purchase certain assets and assume certain liabilities of DIA, Inc.
Pursuant to the transaction, the principal officers and substantially all of
the employees of DIA, Inc. were to be employed by the purchasing entity, DIA,
LLC. A new Sub-Advisory Contract among the Fund, Mitchell Hutchins and DIA, LLC
had to be approved by shareholders of the Fund because the consummation of the
transaction would have caused the Fund's Sub-Advisory Contract with DIA, Inc.
to terminate automatically under the terms of that contract and the 1940 Act.
20
