<PAGE>
PAINEWEBBER CAPITAL APPRECIATION FUND
PERFORMANCE RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
NET ASSET VALUE TOTAL RETURN/1/
-------------------------- -----------------------------
12 MONTHS 6 MONTHS
03/31/96 09/30/95 03/31/95 ENDED 03/31/96 ENDED 03/31/96
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A Shares $15.61 $15.26 $12.81 28.16% 7.59%
- -------------------------------------------------------------------------
Class B Shares 15.88 15.56 13.11 27.28 7.24
- -------------------------------------------------------------------------
Class C Shares* 15.14 14.89 12.54 27.16 7.09
- -------------------------------------------------------------------------
</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)
- -----------------------------------------------------------------------------
1995 11.98 14.67 0.7480 -- 28.79
- -----------------------------------------------------------------------------
01/01/96 - 03/31/96 14.67 15.61 -- -- 6.41
- -----------------------------------------------------------------------------
Total: $0.7913 --
- -----------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF
03/31/96: 72.54%
- -----------------------------------------------------------------------------
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)
- -----------------------------------------------------------------------------
1995 12.28 14.94 0.7480 -- 27.73
- -----------------------------------------------------------------------------
01/01/96 - 03/31/96 14.94 15.88 -- -- 6.29
- -----------------------------------------------------------------------------
Total: $0.7913 --
- -----------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF
03/31/96: 67.45%
- -----------------------------------------------------------------------------
Performance Summary Class C 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)
- -----------------------------------------------------------------------------
1995 11.75 14.26 0.7480 -- 27.82
- -----------------------------------------------------------------------------
01/01/96 - 03/31/96 14.26 15.14 -- -- 6.17
- -----------------------------------------------------------------------------
Total: $0.7913 --
- -----------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF
03/31/96: 80.03%
- -----------------------------------------------------------------------------
</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 each Class would be lower if sales charges were
included.
* Formerly 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. Capital gain
distributions realized on the sale of Fund shares are taxable.
1
<PAGE>
PAINEWEBBER CAPITAL APPRECIATION FUND
PORTFOLIO OF INVESTMENTS MARCH 31, 1996
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- ------------
COMMON STOCKS - 99.60%
<C> <S> <C>
Air Transport - 0.65%
48,850 Comair Holdings Incorporated.......................... $ 1,697,538
------------
Apparel, Textiles - 1.09%
28,400 Intimate Brands Incorporated.......................... 550,250
65,850 Unifi Incorporated.................................... 1,621,556
28,000 Warnaco Group Incorporated............................ 675,500
------------
2,847,306
------------
Banks - 0.88%
13,400 Cullen Frost Bankers Incorporated..................... 659,950
44,800 Norwest Corporation................................... 1,646,400
------------
2,306,350
------------
Beverages - 0.69%
43,400 Ionics Incorporated*.................................. 1,811,950
------------
Business Machines - 4.30%
97,200 3Com Corporation*..................................... 3,875,850
15,500 Ascend Communications Incorporated*................... 835,063
60,350 Bay Networks Incorporated*............................ 1,855,762
19,400 Fore Systems*......................................... 1,387,100
25,600 PSINET Incorporated*.................................. 248,000
43,600 Storage Technology Corporation*....................... 1,139,050
43,200 Sun Microsystems Incorporated*........................ 1,890,000
------------
11,230,825
------------
Chemicals - 3.27%
33,800 Airgas Incorporated*.................................. 1,343,550
15,200 Cytec Industries Incorporated*........................ 1,284,400
41,900 IMC Global Incorporated............................... 1,529,350
10,400 Olin Corporation...................................... 904,800
35,200 Praxair Incorporated.................................. 1,403,600
41,900 Union Carbide Corporation............................. 2,079,287
------------
8,544,987
------------
Consumer Durables - 0.90%
44,500 Bed Bath & Beyond Incorporated*....................... 2,347,375
------------
Domestic Petroleum Reserves - 1.08%
122,100 Parker and Parsley Petroleum Company.................. 2,808,300
------------
</TABLE>
2
<PAGE>
PAINEWEBBER CAPITAL APPRECIATION FUND
MARCH 31, 1996
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- ------------
COMMON STOCKS - (CONTINUED)
<C> <S> <C>
Drugs, Medicine - 3.53%
14,700 Amgen Incorporated*................................... $ 854,437
16,200 BioChem Pharmaceuticals Incorporated*................. 664,200
21,400 Biogen Incorporated*.................................. 1,273,300
42,400 Centocor Incorporated*................................ 1,531,700
17,600 Idexx Labs Incorporated*.............................. 739,200
71,200 North American Vaccine Incorporated*.................. 979,000
28,200 Northfield Laboratories Incorporated*................. 535,800
39,700 Physio Control International Corporation*............. 794,000
45,940 Watson Pharmaceuticals Incorporated*.................. 1,837,600
------------
9,209,237
------------
Electric Utilities - 0.67%
69,902 AES Corporation*...................................... 1,738,812
------------
Electronics - 7.46%
23,200 ADC Telecommunications Incorporated................... 800,400
60,500 American Power Conversion Corporation*................ 605,000
77,100 Analog Devices Incorporated*.......................... 2,158,800
28,600 Arrow Electronics Incorporated*....................... 1,344,200
22,800 Atmel Corporation*.................................... 581,400
40,800 AVX Corporation New................................... 892,500
43,900 MEMC Electronic Materials Incorporated*............... 1,596,862
45,800 Microchip Technology Incorporated*.................... 1,259,500
57,031 Molex Incorporated.................................... 1,824,992
41,000 SCI Systems Incorporated*............................. 1,501,625
27,000 Solectron Corporation*................................ 1,188,000
63,600 Stratacom Incorporated*............................... 2,329,350
15,400 United States Robotics Corporation*................... 1,990,450
44,500 Xilinx Incorporated*.................................. 1,412,875
------------
19,485,954
------------
Healthcare (Non-Drug) - 14.15%
29,400 Access Health Incorporated*........................... 1,139,250
16,900 American Oncology Resources Incorporated*............. 718,250
20,200 Arrow International Incorporated...................... 840,825
64,900 Biomet Incorporated*.................................. 908,600
12,200 Diametrics Medical Incorporated*...................... 73,200
57,100 Guidant Corporation................................... 3,090,537
110,025 Health Management Associates*......................... 3,850,875
34,400 Healthsource Incorporated*............................ 1,333,000
27,500 Healthsouth Corporation*.............................. 935,000
35,300 Millipore Corporation................................. 1,350,225
26,000 Nellcor Incorporated*................................. 1,670,500
149,900 Oxford Health Plans Incorporated*..................... 13,153,725
51,850 Phycor Incorporated*.................................. 2,281,400
80,800 Sybron International Corporation Wisconsin*........... 1,979,600
</TABLE>
3
<PAGE>
PAINEWEBBER CAPITAL APPRECIATION FUND
MARCH 31, 1996
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- ------------
COMMON STOCKS - (CONTINUED)
<C> <S> <C>
Healthcare (Non-Drug) - (concluded)
42,800 U.S. Healthcare Incorporated.......................... $ 1,963,450
27,400 United HealthCare Corporation......................... 1,685,100
------------
36,973,537
------------
Hotels, Restaurants - 7.89%
92,400 Brinker International Incorporated*................... 1,547,700
242,500 HFS*.................................................. 11,791,562
81,100 La Quinta Inns Incorporated........................... 2,382,312
19,300 MGM Grand Incorporated*............................... 740,638
53,600 Mirage Resorts Incorporated*.......................... 2,351,700
132,500 Prime Hospitality Corporation*........................ 1,805,313
------------
20,619,225
------------
Leisure, Luxury - 0.66%
64,600 Callaway Golf Company................................. 1,728,050
------------
Media - 6.61%
137,100 Comcast Corporation................................... 2,424,956
16,300 E.W. Scripps Company, Class A......................... 682,563
70,400 Evergreen Media*...................................... 2,534,400
142,000 Infinity Broadcasting Corporation*.................... 6,159,250
36,300 Spectrian Corporation*................................ 807,675
57,275 Tele-Communications Incorporated*..................... 1,510,628
15,800 Viacom Incorporated, Class B*......................... 665,575
134,800 Westwood One Incorporated*............................ 2,476,950
------------
17,261,997
------------
Miscellaneous - 0.34%
22,200 Sterling Commerce Incorporated*....................... 682,650
13,200 Sync Research Incorporated*........................... 207,900
------------
890,550
------------
Miscellaneous Finance - 3.43%
49,350 Advanta Corporation................................... 2,344,125
65,200 Charles Schwab Corporation............................ 1,670,750
20,200 Credit Acceptance Corporation*........................ 373,700
217,450 Mercury Finance Company............................... 3,071,481
39,800 Olympic Financial Limited*............................ 771,125
64,500 World Acceptance Corporation*......................... 717,563
------------
8,948,744
------------
Motor Vehicles - 2.34%
24,900 APS Holding Corporation*.............................. 429,525
25,600 Fleetwood Enterprises Incorporated.................... 633,600
44,900 General Motors Corporation, Class H................... 2,839,925
36,200 Gentex Corporation*................................... 1,076,950
</TABLE>
4
<PAGE>
PAINEWEBBER CAPITAL APPRECIATION FUND
MARCH 31, 1996
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- ------------
COMMON STOCKS - (CONTINUED)
<C> <S> <C>
Motor Vehicles - (concluded)
20,900 OEA Incorporated...................................... $ 762,850
19,100 Wabash National Corporation........................... 360,513
------------
6,103,363
------------
Oil Service - 1.78%
121,200 Input/Output Incorporated*............................ 3,757,200
29,100 Production Operators Corporation...................... 902,100
------------
4,659,300
------------
Other Insurance - 1.84%
59,250 AFLAC Incorporated.................................... 1,851,562
47,262 Frontier Insurance Group Incorporated................. 1,447,399
27,600 MGIC Investment Corporation........................... 1,504,200
------------
4,803,161
------------
Paper - 0.48%
33,400 Bowater Incorporated.................................. 1,244,150
------------
Pollution Control - 1.04%
106,200 USA Waste Services Incorporated*...................... 2,708,100
------------
Producers' Goods - 1.50%
17,600 Adtran Incorporated*.................................. 805,200
47,500 Foster Wheeler Corporation............................ 2,107,813
29,200 Greenfield Industries................................. 1,011,050
------------
3,924,063
------------
Publishing - 0.63%
138,900 National Education Corporation*....................... 1,632,075
------------
Retail (All Other) - 8.27%
95,400 Autozone Incorporated*................................ 3,231,675
114,800 Consolidated Stores Corporation*...................... 3,845,800
21,100 Discount Auto Parts Incorporated*..................... 588,163
123,322 Dollar General Corporation............................ 3,576,338
182,200 Home Shopping Network Incorporated*................... 1,844,775
34,500 Kohls Corporation*.................................... 2,186,438
49,800 Lowes Companies Incorporated.......................... 1,780,350
26,300 Nordstrom Incorporated................................ 1,273,906
81,375 Office Depot Incorporated*............................ 1,596,984
36,400 Sports Authority Incorporated*........................ 996,450
18,000 Talbots Incorporated.................................. 684,000
------------
21,604,879
------------
Retail (Food) - 1.28%
19,900 Caseys General Stores Incorporated.................... 467,650
115,100 General Nutrition Companies Incorporated*............. 2,877,500
------------
3,345,150
------------
</TABLE>
5
<PAGE>
PAINEWEBBER CAPITAL APPRECIATION FUND
MARCH 31, 1996
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- ------------
COMMON STOCKS - (CONCLUDED)
<C> <S> <C>
Services - 16.18%
23,000 Alternative Resources Corporation*.................... $ 747,500
29,900 Broderbund Software Incorporated*..................... 1,128,725
241,612 CUC International Incorporated*....................... 7,067,151
104,193 First Data Corporation................................ 7,345,606
21,800 HBO & Company......................................... 2,054,650
44,300 Informix Corporation*................................. 1,168,413
18,000 Intuit Incorporated*.................................. 810,000
164,500 Loewen Group Incorporated............................. 4,811,625
18,200 Macromedia Incorporated*.............................. 778,050
69,400 Medaphis Corporation*................................. 3,365,900
50,850 Mutual Risk Management Limited........................ 2,103,919
156,700 Oracle Systems Corporation*........................... 7,384,487
38,800 Sybase Incorporated*.................................. 902,100
25,200 Sylvan Learning Systems Incorporated*................. 900,900
25,400 Synopsys Incorporated*................................ 812,800
32,300 Technology Solutions Company*......................... 876,138
------------
42,257,964
------------
Soaps, Houseware - 0.50%
26,200 Duracell International Incorporated................... 1,300,175
------------
Telephone, Telegraph - 6.16%
41,100 Frontier Corporation.................................. 1,294,650
16,200 LCI International Incorporated*....................... 396,900
64,700 MFS Communications Company Incorporated*.............. 4,027,575
47,300 Paging Network Incorporated*.......................... 1,182,500
18,300 Vodafone Group, plc ADR............................... 686,250
184,826 Worldcom Incorporated Georgia*........................ 8,501,996
------------
16,089,871
------------
Total Common Stocks (cost - $165,194,883)........................ 260,122,988
------------
Total Investments (cost - $165,194,883) - 99.60%................. 260,122,988
Other assets in excess of liabilities - 0.40%.................... 1,057,196
------------
Net Assets - 100.00%............................................. $261,180,184
============
</TABLE>
- -------
*Non-income producing security
ADR American Depositary Receipt
See accompanying notes to financial statements
6
<PAGE>
PAINEWEBBER CAPITAL APPRECIATION FUND
STATEMENT OF ASSETS AND LIABILITIES MARCH 31, 1996
<TABLE>
<S> <C>
Assets
Investments in securities, at value (cost--$165,194,883).......... $260,122,988
Receivable for investments sold................................... 2,150,959
Receivable for shares of beneficial interest sold................. 176,018
Dividends and interest receivable................................. 17,162
Deferred organizational expenses.................................. 48,422
Other assets...................................................... 70,630
------------
Total assets................................................... 262,586,179
------------
Liabilities
Payable for shares of beneficial interest repurchased............. 495,281
Payable to affiliate.............................................. 399,010
Payable for investments purchased................................. 265,632
Accrued expenses and other liabilities............................ 246,072
------------
Total liabilities.............................................. 1,405,995
------------
Net Assets
Beneficial interest shares of $0.001 par value outstanding
(unlimited amount authorized).................................... 152,886,933
Accumulated net realized gains from investment transactions....... 13,365,146
Net unrealized appreciation of investments........................ 94,928,105
------------
Net assets..................................................... $261,180,184
============
Class A:
Net assets........................................................ $ 76,558,166
------------
Shares outstanding................................................ 4,904,705
------------
Net asset value and redemption value per share.................... $15.61
======
Maximum offering price per share (net asset value plus sales
charge of 4.50% of offering price)............................... $16.35
======
Class B:
Net assets........................................................ $157,020,835
------------
Shares outstanding................................................ 9,890,995
------------
Net asset value and offering price per share...................... $15.88
======
Class C:
Net assets........................................................ $ 27,601,183
------------
Shares outstanding................................................ 1,822,534
------------
Net asset value and offering price per share...................... $15.14
======
</TABLE>
See accompanying notes to financial statements
7
<PAGE>
PAINEWEBBER CAPITAL APPRECIATION FUND
STATEMENT OF OPERATIONS FOR THE YEAR ENDED MARCH 31, 1996
<TABLE>
<S> <C>
Investment income:
Dividends (net of foreign
withholding taxes)...... $ 928,317
Interest................. 233,900
-----------
1,162,217
-----------
Expenses:
Investment advisory and
administration fees..... 2,443,715
Service fees--Class A.... 174,543
Service and distribution
fees--Class B........... 1,486,770
Service and distribution
fees--Class C........... 258,773
Transfer agency and
service fees............ 279,940
Reports and notices to
shareholders............ 153,960
Custody and accounting... 105,801
Legal and audit.......... 105,740
Federal and state
registration fees....... 80,989
Amortization of
organizational expenses. 47,764
Trustees fees' and
expenses................ 21,250
Other expenses........... 37,569
-----------
5,196,814
-----------
Net investment loss...... (4,034,597)
-----------
Realized and unrealized
gains from investment
activities:
Net realized gains from
investment transactions. 26,600,960
Net change in unrealized
appreciation/depreciation
of investments.......... 36,304,231
-----------
Net realized and
unrealized gains from
investment transactions. 62,905,191
-----------
Net increase in net
assets resulting from
operations.............. $58,870,594
===========
</TABLE>
See accompanying notes to financial statements
8
<PAGE>
PAINEWEBBER CAPITAL APPRECIATION FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED MARCH 31,
------------------------------
1996 1995
-------------- --------------
<S> <C> <C>
From operations:
Net investment loss............................ $ (4,034,597) $ (2,926,875)
Net realized gains (losses) from investment
transactions.................................. 26,600,960 (912,595)
Net change in unrealized
appreciation/depreciation of investments...... 36,304,231 24,069,375
-------------- --------------
Net increase in net assets resulting from
operations.................................... 58,870,594 20,229,905
-------------- --------------
Dividends and distribution to shareholders
from:
Net realized gains from investment
transactions--Class A......................... (3,552,293) (211,540)
Net realized gains from investment
transactions--Class B......................... (7,311,218) (461,992)
Net realized gains from investment
transactions--Class C......................... (1,289,431) (93,302)
-------------- --------------
(12,152,942) (766,834)
-------------- --------------
From beneficial interest transactions:
Net proceeds from sale of shares............... 47,945,159 60,709,970
Cost of shares repurchased..................... (71,953,763) (76,165,555)
Proceeds from dividends reinvested............. 11,502,971 726,370
-------------- --------------
Net decrease in net assets derived from
beneficial interest transactions.............. (12,505,633) (14,729,215)
-------------- --------------
Net increase in net assets..................... 34,212,019 4,733,856
Net assets:
Beginning of period............................ 226,968,165 222,234,309
-------------- --------------
End of period.................................. $ 261,180,184 $ 226,968,165
============== ==============
</TABLE>
See accompanying notes to financial statements
9
<PAGE>
PAINEWEBBER NOTES TO FINANCIAL STATEMENTS
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.
Currently, the Fund offers Class A, Class B and Class C (formerly Class D)
shares. Effective November 10, 1995, the Fund began using industry standardized
nomenclatures, and Class D shares were renamed Class C shares. Each Class
represents interests in the same assets of the Fund and the Classes are
identical except for differences in their sales charge structures, ongoing
service and distribution charges and certain transfer agency expenses. In
addition, Class B shares automatically convert to Class A shares approximately
six years after initial 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. 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 Fund commenced operations.
The preparation of financial statements in accordance with generally accepted
accounting principles requires Fund management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
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 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, which approximates market value, is used to value short-term debt
instruments with sixty days or less remaining to maturity unless the Trust's
board of trustees determines that this does not represent fair value.
Securities and assets for which market quotations are not readily available
(including restricted securities subject to limitations as to their
10
<PAGE>
PAINEWEBBER
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 Asset
Management Inc. ("Mitchell Hutchins").
Investment Transactions and Investment Income - Investment transactions are
recorded on trade date. Realized gains and losses from investment transactions
are calculated using the identified cost method. Interest income is recorded on
an accrual basis. Dividend income is recorded on the ex-dividend date.
Income, expenses (excluding Class-specific expenses) and realized/unrealized
gains/losses are allocated proportionately to each Class of shares based upon
the relative net asset value of outstanding shares (or the value of dividend-
eligible shares, as appropriate) of each Class at the beginning of the day
(after adjusting for current capital share activity of the respective Classes).
Class-specific expenses are charged directly to the applicable Class of shares.
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
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.
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.
11
<PAGE>
PAINEWEBBER
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 payable monthly, at the annual rate of 1.00% of the
Fund's average daily net assets.
At March 31, 1996, the Fund owed Mitchell Hutchins $219,973 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 year ended March
31 1996, no reimbursements were required pursuant to the above limitation.
DISTRIBUTION PLANS
Mitchell Hutchins is the distributor of the Fund's shares and has appointed
PaineWebber as dealer for the sale of those shares. Under separate plans of
distribution pertaining to Class A, Class B and Class C shares, each Class of
shares of the 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 C shares and monthly distribution fees at the annual rate of up to 0.75%
of the average daily net assets of Class B and Class C shares. At March 31,
1996, the Fund owed Mitchell Hutchins $171,504 in service and distribution
fees.
Mitchell Hutchins also receives the proceeds of the initial sales charges paid
by shareholders upon the purchase of Class A shares and the contingent deferred
sales charges paid by shareholders upon certain redemptions of Class A, Class B
and Class C shares. Mitchell Hutchins has informed the Fund that, for the year
ended March 31, 1996, it earned $578,777 in sales charges from the Fund.
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 year ended March 31, 1996, PaineWebber earned
$93,745 from the Fund. At March 31, 1996, the Fund owed PaineWebber $7,533 for
transfer agency service fees.
12
<PAGE>
PAINEWEBBER
INVESTMENTS IN SECURITIES
For federal income tax purposes, the cost of securities owned at March 31,
1996, was substantially the same as the cost of securities for financial
statement purposes.
At March 31, 1996, the components of net unrealized appreciation of investments
were as follows:
<TABLE>
<S> <C>
Gross appreciation (investments having an excess of
value over cost).................................................. $99,154,463
Gross depreciation (investments having an excess of
cost over value).................................................. (4,226,358)
-----------
Net unrealized appreciation of investments......................... $94,928,105
===========
</TABLE>
For the year ended March 31, 1996, aggregate purchases and sales of portfolio
securities, excluding short-term securities, were $137,414,940 and
$164,206,394, respectively.
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.
To reflect reclassifications arising from permanent "book tax" differences for
the year ended March 31, 1996, the Fund's accumulated net investment loss was
reduced by $4,035,193 and beneficial interest was reduced by $4,035,193.
Permanent book/tax differences are attributable to net operating losses for the
current year.
13
<PAGE>
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 C
YEAR ENDED ------------------------ ------------------------ ------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
MARCH 31, 1996: ---------- ------------ ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold............. 730,390 $ 10,497,557 1,605,219 $ 23,592,780 991,579 $ 13,854,822
Shares repurchased...... (1,026,858) (14,663,492) (2,732,552) (39,817,740) (1,250,272) (17,472,531)
Dividends and
distributions
reinvested ............ 234,863 3,396,117 465,533 6,861,967 88,541 1,244,887
Shares converted from
Class B to Class A..... 72,828 1,019,696 (70,854) (1,019,696) -- --
---------- ------------ ---------- ------------ ---------- ------------
Net increase (decrease). 11,223 $ 249,878 (732,654) $(10,382,689) (170,152) $ (2,372,822)
========== ============ ========== ============ ========== ============
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>
14
<PAGE>
[This page intentionally left blank]
15
<PAGE>
PAINEWEBBER CAPITAL APPRECIATION 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,
---------------------------
FOR THE PERIOD
APRIL 7, 1992+ TO
1996 1995 1994 MARCH 31, 1993
------- ------- ------- -----------------
<S> <C> <C> <C> <C>
Net asset value, beginning of
period...................... $12.81 $11.65 $10.53 $ 9.55
------- ------- ------- -------
Net investment loss.......... (0.16) (0.09) (0.09) (0.06)
Net realized and unrealized
gains from investment
transactions................ 3.71 1.29 1.21 1.04
------- ------- ------- -------
Net increase from investment
operations.................. 3.55 1.20 1.12 0.98
------- ------- ------- -------
Distributions from net
realized gains.............. (0.75) (0.04) -- --
------- ------- ------- -------
Net asset value, end of
period...................... $15.61 $12.81 $11.65 $10.53
======= ======= ======= =======
Total investment return (1).. 28.16 % 10.36 % 10.64 % 10.26 %
======= ======= ======= =======
Ratios/Supplemental Data:
Net assets, end of period
(000's)..................... $76,558 $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....... (1.11)% (0.79)% (0.84)% (0.78)%*
Portfolio turnover rate...... 57 % 42 % 60 % 51 %
</TABLE>
- ---------
+ Commencement of operations
# Commencement of offering of shares,
* Annualized
** Formerly Class D shares
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each period reported, reinvestment of all dividends and
capital gains 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 each Class
would be lower if sales charges were included. Total investment return
information for periods of less than one year have not been annualized.
16
<PAGE>
PAINEWEBBER CAPITAL APPRECIATION FUND
<TABLE>
<CAPTION>
CLASS B CLASS C**
- -------------------------------------------------- ----------------------------------------------
FOR THE YEARS ENDED FOR THE YEARS ENDED
MARCH 31, MARCH 31,
- ------------------------------ ---------------------------
FOR THE PERIOD FOR THE PERIOD
APRIL 7, 1992+ TO JULY 2, 1992# TO
1996 1995 1994 MARCH 31, 1993 1996 1995 1994 MARCH 31, 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
- -------- -------- -------- -------- ------- ------- ------- -------
(0.29) (0.20) (0.17) (0.11) (0.27) (0.19) (0.10) (0.05)
3.81 1.33 1.25 1.05 3.62 1.27 1.13 1.63
- -------- -------- -------- -------- ------- ------- ------- -------
3.52 1.13 1.08 0.94 3.35 1.08 1.03 1.58
- -------- -------- -------- -------- ------- ------- ------- -------
(0.75) (0.04) -- -- (0.75) (0.04) -- --
- -------- -------- -------- -------- ------- ------- ------- -------
$15.88 $13.11 $12.02 $10.94 $15.14 $12.54 $11.50 $10.47
======== ======== ======== ======== ======= ======= ======= =======
27.28 % 9.46 % 9.87 % 9.40 % 27.16 % 9.45 % 9.84 % 17.77 %
======== ======== ======== ======== ======= ======= ======= =======
$157,021 $139,302 $133,828 $105,490 $27,601 $24,993 $29,884 $13,806
2.34 % 2.34 % 2.30 % 2.49 %* 2.36 % 2.35 % 2.28 % 2.31 %*
(1.87)% (1.56)% (1.60)% (1.55)%* (1.89)% (1.57)% (1.58)% (1.53)%*
57 % 42 % 60 % 51 % 57 % 42 % 60 % 51 %
</TABLE>
17
<PAGE>
PAINEWEBBER CAPITAL APPRECIATION FUND
REPORT OF INDEPENDENT AUDITORS
The Board of Trustees and Shareholders of
PaineWebber Capital Appreciation Fund
We have audited the accompanying statement of assets and
liabilities of PaineWebber Capital Appreciation Fund (sole
portfolio constituting the PaineWebber Managed Assets Trust),
including the portfolio of investments, as of March 31, 1996, and
the related statement of operations for the year then ended, the
statement 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 financial statements and
financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities
owned at March 31, 1996 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 financial 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 Capital Appreciation Fund at
March 31, 1996, the results of its operations for the year then
ended, the changes in its 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 principles.
/s/ Ernst & Young LLP
New York, New York
May 14, 1996
18
<PAGE>
PAINEWEBBER CAPITAL APPRECIATION FUND
TAX INFORMATION
We are required by Subchapter M of the Internal Revenue Code of 1986, as
amended, to advise you within 60 days of the Fund's fiscal year end (March 31,
1996) as to federal tax status of distributions received by shareholders during
such fiscal year. Accordingly, we are advising you that all of the
distributions paid by the Fund during the year were derived from long-term
capital gains and are taxable as capital gain net income. Additionally, none of
these distributions qualify for the dividends received deduction available to
corporate shareholders.
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 reporting.
Since the Fund's fiscal year is not the calendar year, another notification
will be sent in respect of calendar 1996. The second notification, which will
reflect the amount to be used by calendar year taxpayers on their federal
income tax returns, will be made in conjunction with Form 1099 DIV and will be
mailed in January 1997. Shareholders are advised to consult their own tax
advisers with respect to the tax consequences of their investment in the Fund.
19
