<PAGE>
CAPITAL APPRECIATION FUND
PAINEWEBBER
PERFORMANCE RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
NET ASSET VALUE TOTAL RETURN/1/
-------------------------- -----------------------------
12 MONTHS 6 MONTHS
09/30/96 03/31/96 09/30/95 ENDED 09/30/96 ENDED 09/30/96
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A Shares $17.18 $15.61 $15.26 18.41% 10.06%
- ------------------------------------------------------------------------
Class B Shares 17.41 15.88 15.56 17.57 9.63
- ------------------------------------------------------------------------
Class C Shares 16.61 15.14 14.89 17.49 9.71
- ------------------------------------------------------------------------
</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 - 09/30/96 14.67 17.18 -- -- 17.11
- -----------------------------------------------------------------------------
Total: $0.7913 $0.0000
- -----------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF
09/30/96: 89.89%
- -----------------------------------------------------------------------------
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 - 09/30/96 14.94 17.41 -- -- 16.53
- -----------------------------------------------------------------------------
Total: $0.7913 $0.0000
- -----------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF
09/30/96: 83.59%
- -----------------------------------------------------------------------------
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 - 09/30/96 14.26 16.61 -- -- 16.48
- -----------------------------------------------------------------------------
Total: $0.7913 $0.0000
- -----------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF
09/30/96: 97.51%
- -----------------------------------------------------------------------------
</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.
5
<PAGE>
CAPITAL APPRECIATION FUND
PAINEWEBBER
PERFORMANCE RESULTS (UNAUDITED) (CONCLUDED)
Average Annual Return
<TABLE>
<CAPTION>
% Return After Deducting
% Return Without Sales Charge Maximum Sales Charge
-------------------------------------------------------
Class A* B** C*** A* B** C***
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Twelve Months Ended
09/30/96 18.41% 17.57% 17.49% 13.07% 12.57% 16.49%
- ----------------------------------------------------------------------------
Commencement of
Operations Through
09/30/96+ 15.37% 14.51% 17.36% 14.19% 14.23% 17.36%
- ----------------------------------------------------------------------------
</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 dates are April 7, 1992 for Class A and Class B
shares and July 2, 1992 for 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.
6
<PAGE>
CAPITAL APPRECIATION FUND
PAINEWEBBER
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- ------------
COMMON STOCKS - 98.43%
<C> <S> <C>
Agriculture, Food & Beverage - 0.19%
14,600 Richfood Holdings Incorporated........................ $ 543,850
------------
Airlines - 0.51%
60,525 Comair Holdings Incorporated.......................... 1,422,338
------------
Apparel, Retail - 2.10%
27,500 Intimate Brands Incorporated.......................... 501,875
13,900 Jones Apparel Group Incorporated*..................... 886,125
29,600 Stein Mart Incorporated*.............................. 654,900
39,800 TJX Companies Incorporated............................ 1,427,825
63,750 Unifi Incorporated.................................... 1,753,125
27,100 Warnaco Group Incorporated, Class A................... 643,625
------------
5,867,475
------------
Apparel, Textiles - 0.18%
19,100 Designer Holdings Limited*............................ 498,987
------------
Banks - 0.28%
26,000 Cullen Frost Bankers Incorporated..................... 783,250
------------
Chemicals - 2.26%
65,500 Airgas Incorporated*.................................. 1,662,063
44,100 Cytec Industries Incorporated*........................ 1,714,387
16,100 IMC Global Incorporated............................... 629,913
10,100 Olin Corporation...................................... 848,400
34,100 Praxair Incorporated.................................. 1,466,300
------------
6,321,063
------------
Communications Equipment - 0.16%
35,200 Spectrian Corporation*................................ 440,000
------------
Computer Hardware - 4.33%
6,800 Ascend Communications Incorporated*................... 449,650
25,300 Cisco Systems Incorporated*........................... 1,570,181
40,100 Fore Systems*......................................... 1,659,137
41,800 Sun Microsystems Incorporated*........................ 2,596,825
12,800 Sync Research Incorporated*........................... 198,400
94,100 3Com Corporation*..................................... 5,651,881
------------
12,126,074
------------
Computer Software - 6.58%
22,300 Alternative Resources Corporation*.................... 627,187
27,500 Broderbund Software Incorporated*..................... 797,500
43,900 Compuserve Incorporated*.............................. 592,650
41,000 Electronic Arts Incorporated*......................... 1,532,375
12,300 Harbinger Corporation*................................ 307,500
68,000 Informix Corporation*................................. 1,895,500
25,100 Mcafee Associates Incorporated*....................... 1,731,900
</TABLE>
7
<PAGE>
CAPITAL APPRECIATION FUND
PAINEWEBBER
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- ------------
COMMON STOCKS - (CONTINUED)
<C> <S> <C>
Computer Software - (concluded)
183,750 Oracle Systems Corporation*........................... $ 7,820,859
13,000 Peoplesoft Incorporated*.............................. 1,082,250
24,800 PSINet Incorporated*.................................. 269,700
21,500 Sterling Commerce Incorporated*....................... 634,250
24,600 Synopsys Incorporated*................................ 1,134,675
------------
18,426,346
------------
Diversified Retail - 1.34%
66,800 Kohls Corporation*.................................... 2,404,800
38,600 Saks Holdings Incorporated*........................... 1,351,000
------------
3,755,800
------------
Drugs & Medicine - 3.30%
46,000 BioChem Pharmaceuticals Incorporated*................. 1,845,750
43,900 Biogen Incorporated*.................................. 3,336,400
69,000 North American Vaccine Incorporated*.................. 1,932,000
56,440 Watson Pharmaceuticals Incorporated*.................. 2,116,500
------------
9,230,650
------------
Electric Utilities - 0.95%
67,702 AES Corporation*...................................... 2,665,766
------------
Energy Reserves & Production - 2.83%
162,200 Apache Corporation.................................... 4,825,450
118,300 Parker & Parsley Petroleum Company.................... 3,090,587
------------
7,916,037
------------
Entertainment - 1.32%
26,500 Harrah's Entertainment Incorporated*.................. 493,563
18,700 MGM Grand Incorporated*............................... 790,075
130,600 Westwood One Incorporated*............................ 2,399,775
------------
3,683,413
------------
Environmental Services - 2.16%
21,600 Newpark Resources Incorporated*....................... 785,700
213,000 Philip Environmental Incorporated*.................... 2,023,500
102,900 USA Waste Services Incorporated*...................... 3,241,350
------------
6,050,550
------------
Financial Services - 1.51%
30,050 Advanta Corporation, Class B.......................... 1,284,637
19,600 Credit Acceptance Corporation*........................ 539,000
89,650 Mercury Finance Company............................... 1,075,800
38,500 Olympic Financial Limited*............................ 948,063
62,500 World Acceptance Corporation*......................... 367,187
------------
4,214,687
------------
Forest Products, Paper - 0.50%
27,900 Alco Standard Corporation............................. 1,391,513
------------
</TABLE>
8
<PAGE>
CAPITAL APPRECIATION FUND
PAINEWEBBER
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- ------------
<C> <S> <C>
COMMON STOCKS - (CONTINUED)
Freight: Air, Sea, Land - 0.45%
33,700 Tidewater Incorporated........................... $ 1,259,537
------------
Hotels - 4.14%
141,500 HFS Incorporated*................................ 9,462,813
128,300 Prime Hospitality Corporation*................... 2,116,950
------------
11,579,763
------------
Household Products - 1.09%
101,900 Newell Company................................... 3,057,000
------------
Industrial Services/Supplies - 0.52%
20,100 MSC Industrial Direct Incorporated, Class A*..... 716,062
32,900 Wilmar Industries Incorporated*.................. 748,475
------------
1,464,537
------------
Information & Computer Services - 8.43%
32,300 American Management Systems Incorporated*........ 904,400
234,012 CUC International Incorporated*.................. 9,331,228
33,600 Dun & Bradstreet Corporation..................... 2,003,400
54,793 First Data Corporation........................... 4,472,479
25,300 HBO & Company.................................... 1,688,775
94,800 Medaphis Corporation*............................ 1,422,000
16,400 National Techteam Incorporated*.................. 444,850
41,300 Sylvan Learning Systems Incorporated*............ 1,693,300
46,950 Technology Solutions Company*.................... 1,637,381
------------
23,597,813
------------
Leisure - 1.01%
62,600 Callaway Golf Company............................ 2,136,225
33,000 International Game Technology.................... 676,500
------------
2,812,725
------------
Long Distance & Phone Companies - 5.13%
Intermedia Communications of Florida
25,500 Incorporated*................................... 745,875
15,700 LCI International Incorporated*.................. 494,550
125,400 MFS Communications Company*...................... 5,470,575
358,052 WorldCom Incorporated*........................... 7,653,362
------------
14,364,362
------------
Manufacturing - General - 1.67%
46,000 Foster Wheeler Corporation....................... 2,012,500
28,300 Greenfield Industries Incorporated............... 679,200
42,000 Ionics Incorporated*............................. 1,979,250
------------
4,670,950
------------
Manufacturing - High Technology - 4.15%
22,500 ADC Telecommunications Incorporated*............. 1,440,000
9,400 Adtran Incorporated*............................. 472,350
117,400 Input/Output Incorporated*....................... 3,492,650
34,200 Millipore Corporation............................ 1,350,900
</TABLE>
9
<PAGE>
CAPITAL APPRECIATION FUND
PAINEWEBBER
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- ------------
COMMON STOCKS - (CONTINUED)
<C> <S> <C>
Manufacturing - High Technology - (concluded)
39,700 SCI Systems Incorporated*............................. $ 2,233,125
26,200 Solectron Corporation*................................ 1,283,800
20,700 United States Robotics Corporation*................... 1,337,737
------------
11,610,562
------------
Media - 3.66%
81,600 Evergreen Media*...................................... 2,550,000
67,400 ICG Communications, Inc.*............................. 1,415,400
158,000 Infinity Broadcasting Corporation, Class A*........... 4,977,000
30,700 Qualcomm Incorporated*................................ 1,304,750
------------
10,247,150
------------
Medical Products - 3.62%
29,900 Arrow International Incorporated...................... 1,031,550
42,800 Guidant Corporation................................... 2,364,700
35,400 Idexx Labs Incorporated*.............................. 1,601,850
29,600 Nellcor Incorporated*................................. 651,200
38,500 Physio-Control International*......................... 972,125
23,200 Sola International Incorporated*...................... 864,200
9,600 St. Jude Medical Incorporated*........................ 387,600
78,300 Sybron International Corporation*..................... 2,270,700
------------
10,143,925
------------
Medical Providers - 12.59%
28,500 Access Health Incorporated*........................... 1,603,125
86,500 Genesis Health Ventures Incorporated*................. 2,432,813
123,687 Health Management Associates Incorporated*............ 3,076,714
26,600 HEALTHSOUTH Corporation*.............................. 1,020,775
159,300 Loewen Group Incorporated............................. 6,670,687
276,600 Oxford Health Plans Incorporated*..................... 13,760,850
17,300 Pediatrix Medical Group*.............................. 867,162
105,075 Phycor Incorporated*.................................. 3,999,417
58,600 Physician Reliance Network Incorporated*.............. 893,650
22,800 Total Renal Care Holdings Incorporated*............... 906,300
------------
35,231,493
------------
Motor Vehicles & Parts - 2.00%
24,100 APS Holding Corporation, Class A*..................... 701,913
24,800 Fleetwood Enterprises Incorporated.................... 762,600
29,800 General Motors Corporation, Class H................... 1,720,950
70,200 Gentex Corporation*................................... 1,597,050
20,200 OEA Incorporated...................................... 802,950
------------
5,585,463
------------
Oil Services - 0.89%
40,600 BJ Services Company*.................................. 1,471,750
28,200 Production Operators Corporation...................... 1,029,300
------------
2,501,050
------------
</TABLE>
10
<PAGE>
CAPITAL APPRECIATION FUND
PAINEWEBBER
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- ------------
<C> <S> <C>
COMMON STOCKS - (CONCLUDED)
Other Insurance - 2.32%
20,400 Executive Risk Incorporated....................... $ 785,400
50,338 Frontier Insurance Group Incorporated............. 2,007,228
26,700 MGIC Investment Corporation....................... 1,798,912
65,666 Mutual Risk Management Limited.................... 1,904,314
------------
6,495,854
------------
Precious Metals - 0.45%
26,600 Newmont Mining Corporation........................ 1,256,850
------------
Publishing - 2.03%
175,900 National Education Corporation*................... 3,364,088
10,500 Scholastic Corporation*........................... 761,250
19,800 Tribune Company................................... 1,544,400
------------
5,669,738
------------
Restaurants - 0.54%
89,500 Brinker International Incorporated*............... 1,521,500
------------
Securities & Asset Management - 0.52%
63,200 Charles Schwab Corporation........................ 1,461,500
------------
Semiconductor - 1.39%
23,100 Atmel Corporation*................................ 713,213
31,600 MEMC Electronic Materials Incorporated*........... 730,750
19,800 Microchip Technology Incorporated*................ 740,025
26,000 Uniphase Corporation*............................. 1,098,500
17,600 Xilinx Incorporated*.............................. 598,400
------------
3,880,888
------------
Specialty Retail - 10.48%
110,300 Autozone Incorporated*............................ 3,198,700
86,200 Bed, Bath & Beyond Incorporated*.................. 2,359,725
111,200 Consolidated Stores Corporation*.................. 4,448,000
20,400 Discount Auto Parts Incorporated*................. 520,200
149,277 Dollar General Corporation........................ 4,646,247
111,500 General Nutrition Companies Incorporated*......... 1,958,219
231,500 Home Shopping Network Incorporated*............... 2,401,813
94,600 Lowe's Companies Incorporated..................... 3,866,775
34,200 Melville Corporation.............................. 1,509,075
86,800 Pier 1 Imports Incorporated....................... 1,399,650
52,950 Sports Authority Incorporated*.................... 1,409,794
73,000 Zale Corporation*................................. 1,596,875
------------
29,315,073
------------
Wireless Telecommunications - 0.85%
32,500 Nokia Corporation ADR............................. 1,438,125
39,500 Teleport Communications*.......................... 933,188
------------
2,371,313
------------
Total Common Stocks (cost - $173,964,047).................... 275,436,845
------------
</TABLE>
11
<PAGE>
CAPITAL APPRECIATION FUND
PAINEWEBBER
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATE RATE VALUE
--------- -------- -------- ------------
<C> <S> <C> <C> <C>
Repurchase Agreement - 1.74%
$4,879 Repurchase Agreement dated
09/30/96 with State Street Bank &
Trust Company, collateralized by
$4,985,000 U.S. Treasury Notes,
6.000%,
due 09/30/98, proceeds:
$4,879,644 (cost - $4,879,000)... 10/01/96 4.750% $ 4,879,000
------------
Total Investments (cost - $178,843,047) -
100.17%.................................... 280,315,845
Liabilities in excess of other assets -
(0.17)%.................................... (467,964)
------------
Net Assets - 100.00%......................... $279,847,881
============
</TABLE>
- -------
*Non-income producing security
ADR American Depositary Receipt
See accompanying notes to financial statements
12
<PAGE>
CAPITAL APPRECIATION FUND
PAINEWEBBER
STATEMENT OF ASSETS AND LIABILITIES SEPTEMBER 30, 1996 (UNAUDITED)
<TABLE>
<S> <C>
Assets
Investments, at value (cost - $178,843,047)...................... $280,315,845
Cash............................................................. 541
Receivable for investments sold.................................. 2,377,576
Receivable for shares of beneficial interest sold................ 284,629
Dividends and interest receivable................................ 22,588
Deferred organizational expenses................................. 24,471
Other assets..................................................... 62,366
------------
Total assets..................................................... 283,088,016
------------
Liabilities
Payable for shares of beneficial interest repurchased............ 350,986
Payable for investments purchased................................ 2,361,421
Payable to affiliate............................................. 395,897
Accrued expenses and other liabilities........................... 131,831
------------
Total liabilities................................................ 3,240,135
------------
Net Assets
Beneficial interest shares of $0.001 par value outstanding
(unlimited amount authorized)................................... 146,493,831
Accumulated net investment loss.................................. (2,277,750)
Accumulated net realized gains from investments ................. 34,159,002
Net unrealized appreciation of investments....................... 101,472,798
------------
Net assets....................................................... $279,847,881
============
Class A:
Net assets....................................................... $ 85,932,163
------------
Shares outstanding............................................... 5,000,593
------------
Net asset and redemption value per share......................... $17.18
======
Maximum offering price per share (net asset value plus sales
charge of 4.50% of offering price).............................. $17.99
======
Class B:
Net assets....................................................... $163,842,611
------------
Shares outstanding............................................... 9,410,335
------------
Net asset value and offering price per share..................... $17.41
======
Class C:
Net assets....................................................... $ 30,073,107
------------
Shares outstanding............................................... 1,810,686
------------
Net asset value and offering price per share..................... $16.61
======
</TABLE>
See accompanying notes to financial statements
13
<PAGE>
CAPITAL APPRECIATION FUND
PAINEWEBBER
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED)
<TABLE>
<S> <C>
Investment income:
Dividends (net of foreign
withholding taxes of
$2,718).................. $ 374,362
Interest................. 252,538
-----------
626,900
-----------
Expenses:
Investment advisory and
administration fees...... 1,342,970
Service fees--Class A.... 101,236
Service and distribution
fees--Class B............ 795,683
Service and distribution
fees--Class C............ 142,340
Transfer agency and
service fees............. 148,160
Reports and notices to
shareholders............. 110,170
Custody and accounting... 89,278
Legal and audit.......... 60,943
Federal and state
registration fees........ 50,843
Amortization of
organizational expenses.. 23,951
Trustees fees' and
expenses................. 7,875
Other expenses........... 31,201
-----------
2,904,650
-----------
Net investment loss...... (2,277,750)
-----------
Realized and unrealized
gains from investment
transactions:
Net realized gains from
investment transactions.. 20,793,856
Net change in unrealized
appreciation/depreciation
of investments........... 6,544,693
-----------
Net realized and
unrealized gains from
investment transactions.. 27,338,549
-----------
Net increase in net
assets resulting from
operations............... $25,060,799
===========
</TABLE>
See accompanying notes to financial statements
14
<PAGE>
CAPITAL APPRECIATION FUND
PAINEWEBBER
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE YEAR
SEPTEMBER 30, ENDED
1996 MARCH 31,
(UNAUDITED) 1996
------------- -----------------
<S> <C> <C>
From operations:
Net investment loss........................... $ (2,277,750) $ (4,034,597)
Net realized gains from investment
transactions................................. 20,793,856 26,600,960
Net change in unrealized
appreciation/depreciation of investments..... 6,544,693 36,304,231
------------ ------------
Net increase in net assets resulting from
operations................................... 25,060,799 58,870,594
------------ ------------
Distributions to shareholders from:
Net realized gains from investment
transactions--Class A........................ -- (3,552,293)
Net realized gains from investment
transactions--Class B........................ -- (7,311,218)
Net realized gains from investment
transactions--Class C........................ -- (1,289,431)
------------ ------------
-- (12,152,942)
------------ ------------
From beneficial interest transactions:
Net proceeds from the sale of shares.......... 25,643,734 47,945,159
Cost of shares repurchased.................... (32,036,836) (71,953,763)
Proceeds from dividends reinvested............ -- 11,502,971
------------ ------------
Net decrease in net assets derived from
beneficial interest transactions............. (6,393,102) (12,505,633)
------------ ------------
Net increase in net assets.................... 18,667,697 34,212,019
Net assets:
Beginning of period........................... 261,180,184 226,968,165
------------ ------------
End of period................................. $279,847,881 $261,180,184
============ ============
</TABLE>
See accompanying notes to financial statements
15
<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 an open-end management investment company. 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.
Currently, the Fund offers Class A, Class B and 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 and all corresponding dividend reinvested 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.
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 sale price on the day the securities are
being valued or, lacking any sales on such day, at the last available bid
price. In cases where securities are traded on more than one exchange, the
securities are generally valued on the exchange designated by 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 Stock Market, Inc. ("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 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 sale) are
valued at fair value as determined in good faith by or under the direction of
the Trust's board of trustees.
16
<PAGE>
PAINEWEBBER
Repurchase Agreements - The Fund's custodian takes possession of the collateral
pledged for investments in repurchase agreements. The underlying collateral is
valued daily on a mark-to-market basis to ensure that the value, including
accrued interest, is at least equal to the repurchase price. In the event of
default of the obligation to repurchase, the Fund has the right to liquidate
the collateral and apply the proceeds in satisfaction of the obligation. Under
certain circumstances, in the event of default or bankruptcy by the other party
to the agreement, realization and/or retention of the collateral may be subject
to legal proceedings. The Fund occasionally participates in joint repurchase
agreement transactions with other funds managed by Mitchell Hutchins 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.
17
<PAGE>
PAINEWEBBER
INVESTMENT ADVISER AND ADMINISTRATOR
The Fund has an Investment Advisory and Administration Contract ("Advisory
Contract") with Mitchell Hutchins, under which Mitchell Hutchins serves as
investment adviser and administrator of the Fund. 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 September 30, 1996, the Fund owed Mitchell Hutchins $219,582 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.
DISTRIBUTION PLANS
Mitchell Hutchins is the distributor of the Fund's shares and has appointed
PaineWebber as the exclusive dealer for the sale of those shares. Under
separate plans of distribution pertaining to Class A, Class B and Class C
shares, each class of shares of the Fund pays Mitchell Hutchins monthly service
fees at an annual rate of 0.25% of the average daily net assets of Class A,
Class B and Class C shares and monthly distribution fees at the annual rate of
0.75% of the average daily net assets of Class B and Class C shares. At
September 30, 1996, the Fund owed Mitchell Hutchins $168,869 in service and
distribution fees.
Mitchell Hutchins also receives the proceeds of the initial sales charges paid
by shareholders upon the purchase of Class A shares and the contingent deferred
sales charges paid by shareholders upon certain redemptions of Class A, Class B
and Class C shares. Mitchell Hutchins has informed the Fund that, for the six
months ended September 30, 1996, it earned approximately $202,000 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 six months ended September 30, 1996,
PaineWebber earned $45,038 from the Fund. At September 30, 1996, the Fund owed
PaineWebber $7,446 for transfer agency service fees.
18
<PAGE>
PAINEWEBBER
INVESTMENTS IN SECURITIES
For federal income tax purposes, the cost of securities owned at September 30,
1996 was substantially the same as the cost of securities for financial
statement purposes.
At September 30, 1996, the components of net unrealized appreciation of
investments were as follows:
<TABLE>
<S> <C>
Gross appreciation (investments having an excess of
value over cost)................................................. $106,358,297
Gross depreciation (investments having an excess of
cost over value)................................................. (4,885,499)
------------
Net unrealized appreciation of investments........................ $101,472,798
============
</TABLE>
For the six months ended September 30, 1996, aggregate purchases and sales of
portfolio securities, excluding short-term securities, were $73,618,655 and
$85,643,347, 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.
19
<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
SIX MONTHS ENDED ------------------------ ------------------------ ------------------------
SEPTEMBER 30, 1996: SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold............. 709,580 $ 11,564,856 495,587 $ 8,191,481 373,423 $ 5,887,397
Shares repurchased...... (730,874) (11,867,140) (860,776) (14,111,495) (385,271) (6,058,201)
Dividends and
distributions
reinvested............. -- -- -- -- -- --
Shares converted from
Class B to Class A..... 117,182 1,921,292 (115,471) (1,921,292) -- --
---------- ------------ ---------- ------------ ---------- ------------
Net increase (decrease). 95,888 $ 1,619,008 (480,660) $ (7,841,306) (11,848) $ (170,804)
========== ============ ========== ============ ========== ============
<CAPTION>
YEAR ENDED
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)
========== ============ ========== ============ ========== ============
</TABLE>
20
<PAGE>
[This Page Intentionally Left Blank]
21
<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
SIX MONTHS
ENDED FOR THE YEARS ENDED FOR THE PERIOD
SEPTEMBER 30, MARCH 31, APRIL 7, 1992+
1996 --------------------------- TO
(UNAUDITED) 1996 1995 1994 MARCH 31, 1993
------------- ------- ------- ------- --------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period... $15.61 $12.81 $11.65 $10.53 $ 9.55
------- ------- ------- ------- -------
Net investment loss.... (0.09) (0.16) (0.09) (0.09) (0.06)
Net realized and
unrealized gains from
investment
transactions.......... 1.66 3.71 1.29 1.21 1.04
------- ------- ------- ------- -------
Net increase from
investment operations. 1.57 3.55 1.20 1.12 0.98
------- ------- ------- ------- -------
Distributions from net
realized gains........ -- (0.75) (0.04) -- --
------- ------- ------- ------- -------
Net asset value, end of
period................ $17.18 $15.61 $12.81 $11.65 $10.53
======= ======= ======= ======= =======
Total investment return
(1)................... 10.06% 28.16 % 10.36 % 10.64 % 10.26 %
======= ======= ======= ======= =======
Ratios/Supplemental
Data:
Net assets, end of
period (000's)........ $85,932 $76,558 $62,673 $58,523 $48,582
Expenses to average net
assets................ 1.63 %* 1.58 % 1.58 % 1.54 % 1.72 %*
Net investment loss to
average net assets.... (1.16)%* (1.11)% (0.79)% (0.84)% (0.78)%*
Portfolio turnover..... 28 % 57 % 42 % 60 % 51 %
Average commission rate
paid per share of
common stock
investments
purchased/sold (2).... $0.0480 -- -- -- --
</TABLE>
- ---------
* Annualized
+ Commencement of operations
# Commencement of offering of shares
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each period reported, reinvestment of all dividends and
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; results for each class would be lower if sales
charges were included. Total investment returns for periods of less than
one year have not been annualized.
(2) Disclosure effective for fiscal years beginning on or after September 1,
1995.
22
<PAGE>
<TABLE>
<CAPTION>
CLASS B CLASS C
- -------------------------------------------------------------- ----------------------------------------------------------
FOR THE FOR THE
SIX MONTHS SIX MONTHS
ENDED FOR THE YEARS ENDED FOR THE PERIOD ENDED FOR THE YEARS ENDED FOR THE PERIOD
SEPTEMBER 30, MARCH 31, APRIL 7, 1992+ SEPTEMBER 30, MARCH 31, JULY 2, 1992#
1996 ------------------------------ TO 1996 --------------------------- TO
(UNAUDITED) 1996 1995 1994 MARCH 31, 1993 (UNAUDITED) 1996 1995 1994 MARCH 31, 1993
- ------------- -------- -------- -------- -------------- ------------- ------- ------- ------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$15.88 $13.11 $12.02 $10.94 $10.00 $15.14 $12.54 $11.50 $10.47 $ 8.89
-------- -------- -------- -------- -------- ------- ------- ------- ------- -------
(0.18) (0.29) (0.20) (0.17) (0.11) (0.15) (0.27) (0.19) (0.10) (0.05)
1.71 3.81 1.33 1.25 1.05 1.62 3.62 1.27 1.13 1.63
-------- -------- -------- -------- -------- ------- ------- ------- ------- -------
1.53 3.52 1.13 1.08 0.94 1.47 3.35 1.08 1.03 1.58
-------- -------- -------- -------- -------- ------- ------- ------- ------- -------
-- (0.75) (0.04) -- -- -- (0.75) (0.04) -- --
-------- -------- -------- -------- -------- ------- ------- ------- ------- -------
$17.41 $15.88 $13.11 $12.02 $10.94 $16.61 $15.14 $12.54 $11.50 $10.47
======== ======== ======== ======== ======== ======= ======= ======= ======= =======
9.63% 27.28 % 9.46 % 9.87 % 9.40 % 9.71% 27.16 % 9.45 % 9.84 % 17.77 %
======== ======== ======== ======== ======== ======= ======= ======= ======= =======
$163,843 $157,021 $139,302 $133,828 $105,490 $30,073 $27,601 $24,993 $29,884 $13,806
2.38 %* 2.34 % 2.34 % 2.30 % 2.49 %* 2.39 %* 2.36 % 2.35 % 2.28 % 2.31 %*
(1.92)%* (1.87) (1.56)% (1.60)% (1.55)%* (1.93)%* (1.89)% (1.57)% (1.58)% (1.53)%*
28 % 57 % 42 % 60 % 51 % 28 % 57 % 42 % 60 % 51 %
$ 0.0480 -- -- -- -- $0.0480 -- -- -- --
</TABLE>
23
<PAGE>
CAPITAL APPRECIATION FUND
PAINEWEBBER
SHAREHOLDER INFORMATION
A special meeting of shareholders was held on April 15, 1996, at
which the following proposals were approved:
PROPOSAL 1
<TABLE>
<CAPTION>
SHARES
SHARES VOTED WITHHOLD
FOR AUTHORITY
------------ ---------
<S> <C> <C>
To elect ten members of its Board of Directors:
Margo N. Alexander..................................... 7,782,755 703,365
Richard Q. Armstrong................................... 7,783,474 702,646
E. Garrett Bewkes, Jr. ................................ 7,768,513 717,607
Richard R. Burt........................................ 7,783,156 702,964
Mary C. Farrell........................................ 7,782,838 703,282
Meyer Feldberg......................................... 7,776,560 709,560
George W. Gowen........................................ 7,773,407 712,713
Frederic V. Malek...................................... 7,774,526 711,594
Carl W. Schafer........................................ 7,778,455 707,665
John R. Torell III..................................... 7,778,716 707,404
</TABLE>
PROPOSAL 2
Ratification of the selection of Ernst & Young LLP as the independent auditors
for its current fiscal year:
<TABLE>
<CAPTION>
SHARES VOTED SHARES SHARES
FOR AGAINST ABSTAIN
------------ ------- -------
<S> <C> <C>
7,769,945 20,433 695,742
</TABLE>
PROPOSAL 3
Approval of the proposed changes to the Fund's fundamental investment
restrictions and policies:
For each of the following proposals, the votes were as follows:
<TABLE>
<CAPTION>
SHARES VOTED SHARES SHARES
FOR AGAINST ABSTAIN
------------ ------- -------
<S> <C> <C> <C>
Modification of fundamental restriction on
portfolio diversification for diversified funds.. 7,629,330 90,662 766,128
Modification of fundamental restriction on
concentration.................................... 7,629,330 90,662 766,128
Modification of fundamental restriction on senior
securities and borrowing......................... 7,629,330 90,662 766,128
Modification of fundamental restriction on making
loans............................................ 7,629,330 90,662 766,128
Modification of fundamental restriction on
underwriting securities.......................... 7,629,330 90,662 766,128
Modification of fundamental restriction on real
estate investments............................... 7,629,330 90,662 766,128
Modification of fundamental restriction on
investing in commodities......................... 7,629,330 90,662 766,128
Elimination of fundamental restriction on margin
transactions..................................... 7,629,330 90,662 766,128
Elimination of fundamental restriction on short
sales............................................ 7,629,330 90,662 766,128
Elimination of fundamental restriction on
investments in oil, gas and mineral leases and
programs......................................... 7,629,330 90,662 766,128
Elimination of fundamental restriction on
investments in other investment companies........ 7,629,330 90,662 766,128
</TABLE>
- -------
(Broker non-votes and abstentions are included within the "Shares Withhold
Authority" and "Shares Abstain" totals.)
24
