<PAGE>
PaineWebber Capital Appreciation Fund Annual Report
Performance at a Glance
- --------------------------------------------------------------------------------
Comparison of the change of a $10,000 investment in PaineWebber Capital
Appreciation Fund (A) and the S&P 400 Midcap Index.
[LINE GRAPH]
S&P 400 PaineWebber
Midcap Index Capital Appreciation Fund (A)
------------ -----------------------------
7/31/92 10000 9550
12/31/92 10957 10805
12/31/93 12241 12545
12/31/94 11563 12329
12/31/95 14866 15097
12/31/96 17441 15354
3/31/97 17118 16443
- ----------
Past performance is not predictive of future performance.
The performance of the other classes will vary from the performance of the class
shown based on the difference in sales charges and fees paid by shareholders
investing in difference classes.
- --------------------------------------------------------------------------------
The graph depicts the performance of PaineWebber Capital Appreciation Fund (A)
versus the S&P 400 Midcap Index. It is important to note PaineWebber Capital
Appreciation Fund is a professionally managed mutual fund while the index is not
available for investment and is unmanaged. The comparison is shown for
illustrative purposes only.
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN
- ---------------------------
Commencement of
Twelve Months Operations
Ended 3/31/97 Through 3/31/97+
------------- ----------------
% Return Without | Class A* -0.2% 11.5%
Deducting Maximum | Class B** -1.0% 10.7%
Sales Charge | Class C*** -0.9% 13.0%
- -------------------------------------------------------------------------
% Return After | Class A* -4.7% 10.5%
Deducting Maximum | Class B** -6.0% 10.4%
Sales Charge | Class C*** -1.9% 13.0%
- ----------
* Maximum sales charge for Class A shares is 4.5% of the public offering
price. Class A shares bear ongoing 12b-1 service fees.
** Maximum contingent deferred sales charge for Class B shares is 5.0% and is
reduced to 0% after 6 years. Class B shares bear ongoing 12b-1 distribution
and service fees.
*** Maximum contingent deferred sales charge for Class C shares is 1.0% and is
reduced to 0% after 1 year. Class C shares bear ongoing 12b-1 distribution
and service fees.
+ Commencement of operations was April 7, 1992, April 7, 1992 and July 2,
1992 for Class A, Class B and Class C shares, respectively.
The investment return and the principal value of an investment in the Fund will
fluctuate, so that an investor's shares, when redeemed, may be worth more or
less than their original cost.
- --------------------------------------------------------------------------------
PaineWebber Capital Appreciation
Fund Profile
o Goal:
Long-term capital appreciation
o Portfolio Manager:
Todger Anderson/
Denver Investment Advisors LLC
o Total Net Assets:
$236.2 million
o Dividend Payments:
Annually
- --------------------------------------------------------------------------------
1
<PAGE>
Annual Report
- --------------------------------------------------------------------------------
[BAR CHART]
PAINWEBBBER CAPITAL
APPRECIATION FUND
Top Ten Holdings*
(% of net assets as of
March 31, 1997)
Oxford Health Plans, Inc. 5.3%
WorldCom Inc. 4.9%
HFS Inc. 3.2%
Dollar General Corporation 2.3%
Apache Corporation 2.2%
Loewen Group Inc. 2.0%
Consolidated Stores 2.0%
CUC International Inc. 1.9%
Oracle Corp. 1.6%
Parker & Parsley Petroleum 1.6%
*Holdings subject to change
- --------------------------------------------------------------------------------
May 14, 1997
Dear Shareholder,
PaineWebber Capital Appreciation Fund's total return for the twelve months ended
March 31, 1997, without deducting sales charges, was -0.2% for Class A shares,
- -1.0% for Class B shares and -0.9% for Class C shares. If you bought or sold the
Fund during this time period and the effect of maximum sales charges is taken
into account, the total return for this period was lower: -4.7% for Class A
shares, -6.0% for Class B shares and -1.9% for Class C shares.
We're disappointed to report that the Fund's performance fell well short of the
Russell Midcap Index, which returned 11.3% during the twelve months (keep in
mind that the indexes are unmanaged, do not charge management fees or other
expenses, and are not generally available for direct investment). Comparable
mutual funds in the Lipper Capital Appreciation Average returned 5.0%.
The MarketPlace
- --------------------------------------------------------------------------------
During the first quarter, the stock market (as measured by the
S&P 500 index) turned in a lackluster performance after roaring out of the
starting gate in January and February. Why the turnaround from last year's
blistering pace? Investors, initially optimistic about the prospects for stocks
in a moderate growth, low inflation economy, turned pessimistic as the Federal
Reserve hinted it would raise short-term interest rates. When the move came,
stock prices tumbled to their first 10% correction in years. However, the
pessimism may have been short-lived. At this writing, following a string of
benign economic reports, stocks had recovered all the ground they lost, and then
some.
Portfolio Review
- --------------------------------------------------------------------------------
What Could Have Gone Better.
The Fund emphasizes growth stocks (those with the potential to increase
earnings more quickly than the general market) and that's the principal reason
for our performance shortfall. The stock market's performance has not been even
across the board. Value stocks (those whose prices are cheap considering their
historic or true worth) handily outperformed growth
2
<PAGE>
PaineWebber Capital Appreciation Fund Annual Report
issues (stocks of companies we expect will have above-average earning growth
levels): The Russell Midcap Value Index returned 15.8% while the Russell Midcap
Growth Index returned only 6.3%.
Additionally, we don't own as many financial services stocks as are
represented in the index (4% compared to 18%, respectively). Those stocks
dominated the market for the second consecutive year with a return of about 30%;
not owning them hurt our performance, especially compared to the index. We stand
by this decision for the long haul, however, because it is consistent with our
philosophy of sticking to stocks that we believe have above-average, long-term
earnings growth prospects. In today's market, financial service companies tend
to be value stocks; and they are cyclical in nature because their earnings are
dependent on interest rates and the financial health of borrowers, which in turn
depends on the state of the economy.
We do own some financial service companies that meet our growth criterion
and we will continue to look at others that may be able to limit the cyclicality
of their earnings. At this point, we believe there is no hurry to add financial
service stocks since the interest rate trend may have turned against them.
WHAT WORKED.
Despite our subpar performance, several of our stocks in a wide variety of
industries were excellent performers during the 12 months ended March 31, 1997.
At the top of the list was AES (1.5% of net assets on March 31, 1997). AES is an
independent electric power producer which can very efficiently supply
turbine-driven electricity using natural gas as fuel. The company has benefitted
from deregulation in the utility industry and from growing power demand in
developing countries. The stock rose 195% in the twelve months ended March 31,
1997.
The Fund had several good performers in the retail category. Dollar General
(2.3% of net assets) rose 69% as the company continued to expand its store base
while producing increasing sales in existing stores. Dollar General has little
competition in its market niche, which is small, general-merchandise stores
serving low-income consumers. The stores provide value pricing and convenience
to consumers who often lack transportation. Kohls (0.6% of net assets) is a
midwestern chain of mini-department stores that carry only apparel and
housewares. The number of departments is limited but the selection of goods is
impressive and the prices are below those of department stores. Kohls'
successful merchandising caused its stock to return 33% last year.
Phillips Environmental (1.3% of net assets), a collector and recycler of
metals, plastics and solvents expanded its operations rapidly during the year
through acquisition of companies in related markets. As a result, the stock
returned nearly 90% during the twelve months ended March 31, 1997.
3
<PAGE>
Annual Report
Outlook
- --------------------------------------------------------------------------------
Looking ahead, we think the outlook for midcap stocks is excellent since
they have performed worse than the S&P 500 Index and Dow Jones Industrial
Average (two large-cap barometers) for the past several years. Historically,
that pattern has been reversed. And the price/earnings ratio for many midcap
stocks is low considering their potential earnings growth, a valuation that is
especially attractive when compared to the high P/Es that investors have been
paying for the slower growth potential of large stocks. At some point, we
believe that investors who have concentrated on a handful of large companies
will lock in their profits and move money into the relatively ignored small- and
mid-cap segments of the market. This pattern has occurred many times in the past
and we feel confident that history will repeat itself. Therefore, we are
optimistic about the prospects for the PaineWebber Capital Appreciation Fund
over the coming year. Of course, the return prospect for all stocks is dependent
on the Federal Reserve making sure that inflation remains subdued while the
economy continues to grow.
Our ultimate objective in managing your investments is to help you
successfully meet your financial goals. We thank you for your continued support,
and welcome any comments or questions you may have.
Sincerely,
/s/ Margo N. Lexander /s/ Todger Anderson
MARGO N. LEXANDER TODGER ANDERSON
President, President
Mitchell Hutchins Denver Investment Advisors LLC
Asset Management Inc.
Portfolio Manager,
PaineWebber Capital
Appreciation Fund
4
<PAGE>
PAINEWEBBER CAPITAL APPRECIATION FUND
PERFORMANCE RESULTS(unaudited)
NET ASSET VALUE TOTAL RETURN1
------------------------------- ------------------------
03/31/97 09/30/96 03/31/96 12 MONTHS 6 MONTHS
ENDED ENDED
03/31/97 03/31/97
Class A Shares $13.44 $17.18 $15.61 (0.21)% (9.33)%
Class B Shares 13.59 17.41 15.88 (0.99) (9.69)
Class C Shares 12.87 16.61 15.14 (0.91) (9.68)
PERFORMANCE SUMMARY CLASS A SHARES
PERIOD COVERED NET ASSET VALUE CAPITAL
----------------- GAINS DIVIDENDS TOTAL
BEGINNING ENDING DISTRIBUTED PAID RETURN1
04/07/92 - 12/31/92 $ 9.55 $10.50 -- -- 9.95%
1993 10.50 12.19 -- -- 16.10
1994 12.19 11.98 $0.0433 -- (1.36)
1995 11.98 14.67 0.7480 -- 28.79
1996 14.67 14.92 2.3244 -- 17.87
01/01/97 - 03/31/97 14.92 13.44 -- -- (9.92)
Total: $3.1157 $ 0.0000
CUMULATIVE TOTAL RETURN AS OF 03/31/97: 72.17%
PERFORMANCE SUMMARY CLASS B SHARES
PERIOD COVERED NET ASSET VALUE CAPITAL
----------------- GAINS DIVIDENDS TOTAL
BEGINNING ENDING DISTRIBUTED PAID RETURN1
04/07/92 - 12/31/92 $10.00 $10.93 -- -- 9.30%
1993 10.93 12.59 -- -- 15.19
1994 12.59 12.28 $0.0433 -- (2.03)
1995 12.28 14.94 0.7480 -- 27.73
1996 14.94 15.11 2.3244 -- 17.01
01/01/97 - 03/31/97 15.11 13.59 -- -- (10.06)
Total: $3.1157 $ 0.0000
CUMULATIVE TOTAL RETURN AS OF 03/31/97: 65.80%
PERFORMANCE SUMMARY CLASS C SHARES
PERIOD COVERED NET ASSET VALUE CAPITAL
----------------- GAINS DIVIDENDS TOTAL
BEGINNING ENDING DISTRIBUTED PAID RETURN1
07/02/92 - 12/31/92 $ 8.89 $10.46 -- -- 17.66%
1993 10.46 12.05 -- -- 15.20
1994 12.05 11.75 $0.0433 -- (2.13)
1995 11.75 14.26 0.7480 -- 27.82
1996 14.26 14.31 2.3244 -- 16.98
01/01/97 - 03/31/97 14.31 12.87 -- -- (10.06)
Total: $3.1157 $ 0.0000
CUMULATIVE TOTAL RETURN AS OF 03/31/97: 78.39%
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.
The data above represents past performance of the Fund's shares, which is no
guarantee of future results. The principal value of an investment in the Fund
will fluctuate, so that an investor's shares, when redeemed, may be worth more
or less than their original cost.
5
<PAGE>
PAINEWEBBER CAPITAL APPRECIATION FUND
PORTFOLIO OF INVESTMENTS MARCH 31, 1997
NUMBER OF
SHARES VALUE
- --------- ------------
COMMON STOCKS - 96.35%
AGRICULTURE, FOOD & BEVERAGE - 0.52%
65,000 Richfood Holdings Incorporated.......... $ 1,218,750
------------
AIRLINES - 0.27%
29,200 Comair Holdings Incorporated............ 635,100
------------
APPAREL, RETAIL - 0.84%
12,100 Stein Mart Incorporated*................ 344,850
37,700 TJX Companies Incorporated.............. 1,611,675
------------
1,956,525
------------
APPAREL, TEXTILES - 1.52%
26,400 Jones Apparel Group Incorporated*....... 980,100
60,450 Unifi Incorporated...................... 1,843,725
25,700 Warnaco Group Incorporated, Class A..... 764,575
------------
3,588,400
------------
CHEMICALS - 0.93%
19,900 Cytec Industries Incorporated*.......... 753,713
32,300 Praxair Incorporated.................... 1,449,462
------------
2,203,175
------------
COMPUTER HARDWARE - 1.85%
19,600 Ascend Communications Incorporated*
(1)................................... 798,700
11,100 Cisco Systems Incorporated*............. 534,188
38,000 Fore Systems*........................... 570,000
22,000 Gateway 2000 Incorporated*.............. 1,127,500
27,500 Sun Microsystems Incorporated*.......... 794,062
12,100 Sync Research Incorporated*............. 38,002
26,800 Xylan Corporation* (1).................. 515,900
------------
4,378,352
------------
COMPUTER SOFTWARE - 6.36%
52,500 Cadence Design Systems Incorporated*.... 1,804,687
62,800 Electronic Arts Incorporated*........... 1,672,050
22,050 Harbinger Corporation*.................. 485,100
35,750 Mcafee Associates Incorporated*......... 1,581,938
100,250 Oracle Systems Corporation*............. 3,865,891
66,100 Peoplesoft Incorporated*................ 2,644,000
19,900 Renaissance Solutions Incorporated*..... 502,475
18,400 Security Dynamics Technology
Incorporated*......................... 450,800
69,600 Sterling Commerce Incorporated*......... 2,018,400
------------
15,025,341
------------
6
<PAGE>
PAINEWEBBER CAPITAL APPRECIATION FUND
NUMBER OF
SHARES VALUE
- --------- ------------
COMMON STOCKS - (CONTINUED)
DIVERSIFIED RETAIL - 1.02%
32,100 Kohls Corporation*...................... $ 1,360,238
36,600 Saks Holdings Incorporated* (1)......... 1,052,250
------------
2,412,488
------------
DRUGS & MEDICINE - 4.88%
55,900 Biochem Pharmaceuticals
Incorporated* ........................ 2,403,700
43,800 Biogen Incorporated*.................... 1,637,025
68,000 Forest Labs Incorporated*............... 2,558,500
30,000 Idec Pharmaceuticals Corporation*....... 714,375
65,400 North American Vaccine Incorporated*
(1) .................................. 1,316,175
14,400 Vertex Pharmaceuticals Incorporated*.... 579,600
64,140 Watson Pharmaceuticals Incorporated* ... 2,293,005
------------
11,502,380
------------
ELECTRICAL POWER - 1.52%
64,302 AES Corporation*........................ 3,600,912
------------
ENERGY RESERVES & PRODUCTION - 5.53%
58,600 Anadarko Petroleum Corporation.......... 3,288,925
157,000 Apache Corporation...................... 5,259,500
30,100 Chesapeake Energy Corporation* (1)...... 628,337
132,100 Parker & Parsley Petroleum Company...... 3,896,950
------------
13,073,712
------------
ENTERTAINMENT - 0.27%
17,700 MGM Grand Incorporated*................. 641,625
------------
ENVIRONMENTAL SERVICES - 5.57%
34,700 Culligan Water Technologies
Incorporated*......................... 1,357,637
39,900 Ionics Incorporated*.................... 1,850,363
26,200 Newpark Resources Incorporated*......... 1,146,250
202,000 Philip Environmental Incorporated*...... 3,055,250
20,400 Republic Industries Incorporated*....... 707,625
51,200 United States Filter Corporation* (1)... 1,580,800
97,600 USA Waste Services Incorporated*........ 3,464,800
------------
13,162,725
------------
FINANCIAL SERVICES - 1.24%
18,600 Credit Acceptance Corporation*.......... 330,150
62,266 Mutual Risk Management Limited.......... 2,257,142
59,300 World Acceptance Corporation*........... 333,563
------------
2,920,855
------------
FREIGHT, AIR, SEA, LAND - 0.32%
28,800 US Freightways Corporation.............. 745,200
------------
7
<PAGE>
PAINEWEBBER CAPITAL APPRECIATION FUND
NUMBER OF
SHARES VALUE
- --------- ------------
COMMON STOCKS - (CONTINUED)
HOTELS - 3.94%
19,100 Four Seasons Hotels Incorporated*....... $ 439,300
126,300 HFS Incorporated*....................... 7,435,912
91,700 Prime Hospitality Corporation* (1)...... 1,432,813
------------
9,308,025
------------
HOUSEHOLD PRODUCTS - 0.92%
64,700 Newell Company.......................... 2,167,450
------------
INDUSTRIAL SERVICE/SUPPLIES - 1.00%
39,300 Ikon Office Solutions Incorporated...... 1,316,550
19,100 MSC Industrial Direct Incorporated,
Class A*.............................. 556,288
31,300 Wilmar Industries Incorporated*......... 485,150
------------
2,357,988
------------
INFORMATION & COMPUTER SERVICES - 3.16%
39,800 A.C. Nielson Corporation*............... 597,000
46,300 American Management Systems
Incorporated*......................... 1,018,600
24,000 Concord EFS Incorporated*............... 450,000
41,200 HBO & Company........................... 1,957,000
89,900 Medaphis Corporation*................... 921,475
25,200 National Techteam Incorporated*......... 390,600
19,300 Precision Response Corporation*......... 455,962
44,550 Technology Solutions Company*........... 1,230,694
34,700 West Teleservices Corporation*.......... 446,763
------------
7,468,094
------------
LEISURE - 0.72%
59,400 Callaway Golf Company................... 1,700,325
------------
LONG DISTANCE & PHONE COMPANIES - 5.64%
33,900 ICG Communications Incorporated*........ 385,612
24,200 Intermedia Communications of Florida
Incorporated*......................... 402,325
37,400 Teleport Communications Group
Incorporated*......................... 860,200
530,992 WorldCom Incorporated* (1).............. 11,681,824
------------
13,329,961
------------
MANUFACTURING - GENERAL - 0.25%
26,800 Greenfield Industries Incorporated...... 586,250
------------
8
<PAGE>
PAINEWEBBER CAPITAL APPRECIATION FUND
NUMBER OF
SHARES VALUE
- --------- ------------
COMMON STOCKS - (CONTINUED)
MANUFACTURING - HIGH TECHNOLOGY - 2.96%
42,700 ADC Telecommunications Incorporated*.... $ 1,147,562
16,500 Adtran Incorporated*.................... 412,500
24,400 KLA Instruments Corporation*............ 890,600
22,200 Pairgain Technologies Incorporated*..... 657,675
4,200 QualComm Incorporated*.................. 236,775
37,600 SCI Systems Incorporated*............... 1,903,500
24,900 Solectron Corporation*.................. 1,248,112
4,600 Tellabs Incorporated*................... 166,175
6,100 United States Robotics Corporation*..... 337,788
------------
7,000,687
------------
MEDIA - 3.02%
24,400 CKS Group Incorporated* (1)............. 512,400
125,750 Home Shopping Network Incorporated*..... 3,159,469
123,900 Westwood One Incorporated*.............. 2,292,150
66,338 Westinghouse Electric Corporation....... 1,177,500
------------
7,141,519
------------
MEDICAL PRODUCTS - 2.38%
28,400 Arrow International Incorporated........ 859,100
20,400 Guidant Corporation..................... 1,254,600
33,600 Idexx Labs Incorporated*................ 470,400
34,100 Physio-Control International*........... 473,137
22,000 Sola International Incorporated*........ 508,750
74,300 Sybron International Corporation*....... 2,061,825
------------
5,627,812
------------
MEDICAL PROVIDERS - 12.11%
36,900 Access Health Incorporated*............. 530,438
82,100 Genesis Health Ventures
Incorporated* (1)..................... 2,565,625
89,187 Health Management Associates
Incorporated*......................... 2,118,191
50,600 HEALTHSOUTH Corporation*................ 967,725
151,100 Loewen Group Incorporated............... 4,816,312
214,000 Oxford Health Plans Incorporated*....... 12,545,750
39,700 Pediatrix Medical Group*................ 1,305,137
99,675 Phycor Incorporated*.................... 2,716,144
34,300 Total Renal Care Holdings
Incorporated*......................... 1,041,863
------------
28,607,185
------------
MOTOR VEHICLES & PARTS - 0.98%
77,200 Gentex Corporation*..................... 1,524,700
19,200 OEA Incorporated........................ 801,600
------------
2,326,300
------------
9
<PAGE>
PAINEWEBBER CAPITAL APPRECIATION FUND
NUMBER OF
SHARES VALUE
- --------- ------------
COMMON STOCKS - (CONTINUED)
OIL SERVICES - 6.32%
48,600 BJ Services Company*.................... $ 2,326,725
2,200 Camco International Incorporated........ 96,800
55,900 Falcon Drilling*........................ 2,068,300
95,600 Nabors Industries Incorporated*......... 1,864,200
106,300 Noble Drilling Corporation*............. 1,833,675
27,300 Production Operators Corporation........ 1,545,863
75,700 Reading & Bates Corporation*............ 1,712,712
32,600 Tidewater Incorporated.................. 1,499,600
35,200 Transocean Offshore Incorporated........ 1,975,600
------------
14,923,475
------------
OTHER INSURANCE - 2.23%
19,400 Executive Risk Incorporated............. 899,675
47,738 Frontier Insurance Group Incorporated... 2,076,603
32,300 MGIC Investment Corporation............. 2,285,225
------------
5,261,503
------------
PUBLISHING - 2.33%
14,800 Apollo Group Incorporated*.............. 362,600
166,800 National Education Corporation*......... 2,105,850
61,250 Sylvan Learning Systems Incorporated*... 1,515,937
37,500 Tribune Company......................... 1,518,750
------------
5,503,137
------------
RESTAURANTS - 0.25%
26,000 Lone Star Steakhouse & Saloon*.......... 594,750
------------
SECURITIES & ASSET MANAGEMENT - 0.81%
60,000 Charles Schwab Corporation.............. 1,912,500
------------
SEMICONDUCTOR - 2.76%
25,200 Applied Materials Incorporated*......... 1,168,650
15,300 ETEC Systems Incorporated*.............. 483,863
14,100 Lattice Semiconductor Corporation*...... 645,075
26,400 Maxim Integrated Productions
Incorporated*......................... 1,277,100
28,200 Microchip Technology Incorporated*...... 846,000
36,900 Uniphase Corporation*................... 1,365,300
15,000 Xilinx Incorporated*.................... 731,250
------------
6,517,238
------------
10
<PAGE>
PAINEWEBBER CAPITAL APPRECIATION FUND
NUMBER OF
SHARES VALUE
- --------- ------------
COMMON STOCKS - (CONTINUED)
SPECIALTY RETAIL - 10.36%
81,800 Bed, Bath & Beyond Incorporated*........ $ 1,978,537
131,900 Consolidated Stores Corporation*........ 4,649,475
195,818 CUC International Incorporated*......... 4,405,905
32,400 CVS Corporation* (1).................... 1,494,450
177,071 Dollar General Corporation.............. 5,533,469
89,700 Lowe's Companies Incorporated........... 3,352,537
101,800 Pier 1 Imports Incorporated............. 1,794,225
69,300 Zale Corporation*....................... 1,273,388
------------
24,481,986
------------
WIRELESS TELECOMMUNICATIONS - 1.57%
32,925 Brightpoint Incorporated*............... 535,031
30,900 Nokia Corporation ADR (1)............... 1,799,925
107,000 Paging Network Incorporated*............ 869,375
25,700 Premiere Technologies Incorporated*..... 497,937
------------
3,702,268
------------
Total Common Stocks (cost - $171,721,518).......... 227,583,993
------------
INVESTMENTS OF CASH COLLATERAL FOR SECURITIES
LOANED - 4.58%
MONEY MARKET FUNDS - 4.58%
9,275,804 Liquid Assets Portfolio................. 9,275,804
1,551,998 TempCash Portfolio...................... 1,551,998
------------
Total Investments of Cash Collateral for Securities
Loaned (cost - $10,827,802)........................ 10,827,802
------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
- ----------- ------------ ------------ -------------
<S> <C> <C> <C>
REPURCHASE AGREEMENTS - 5.98%
$8,169 Repurchase Agreement dated 03/31/97 with State Street Bank
& Trust Company, collateralized by $8,334,739 U.S.
Treasury Bonds, 7.500% due 11/15/16; proceeds:
$8,170,135.............................................. 04/01/97 5.000% 8,169,000
5,954 Repurchase Agreement dated 03/31/97 with Union Bank of
Switzerland, collateralized by $6,073,080 U.S. Treasury
Notes, 6.875% due 05/15/06; proceeds: $5,955,058 (2).... 04/01/97 6.400 5,954,000
------------
Total Repurchase Agreements (cost - $14,123,000)....................... 14,123,000
------------
Total Investments (cost - $196,672,320) - 106.91%...................... 252,534,795
Liabilities in excess of other assets - (6.91%)........................ (16,320,887)
------------
Net Assets - 100.00%................................................... $236,213,908
------------
------------
</TABLE>
- ------------
* Non-Income producing security
ADR American Depositary Receipt
(1) Security, or portion thereof, was loaned out at March 31, 1997.
(2) Security, or portion thereof represents investment of cash collateral
for securities loaned at March 31, 1997.
11
<PAGE>
PAINEWEBBER CAPITAL APPRECIATION FUND
STATEMENT OF ASSETS AND LIABILITIES MARCH 31, 1997
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost - $196,672,320)........................................................... $252,534,795
Cash.................................................................................................. 1,067
Receivable for investments sold....................................................................... 1,606,903
Receivable for shares of beneficial interest sold..................................................... 89,002
Dividends and interest receivable..................................................................... 132,227
Deferred organizational expenses...................................................................... 650
Other assets.......................................................................................... 31,147
------------
Total assets.......................................................................................... 254,395,791
------------
LIABILITIES
Payable for shares of beneficial interest repurchased................................................. 532,663
Payable for investments purchased..................................................................... 280,453
Collateral for securities loaned...................................................................... 16,769,400
Payable to affiliates................................................................................. 391,997
Accrued expenses and other liabilities................................................................ 207,370
------------
Total liabilities..................................................................................... 18,181,883
------------
NET ASSETS
Beneficial interest shares of $0.001 par value outstanding (unlimited amount authorized).............. 160,369,447
Accumulated undistributed net investment income....................................................... 629
Accumulated undistributed net realized gains from investments......................................... 19,981,357
Net unrealized appreciation of investments............................................................ 55,862,475
------------
Net assets............................................................................................ $236,213,908
------------
------------
CLASS A:
Net assets............................................................................................ $ 76,909,379
------------
Shares outstanding.................................................................................... 5,722,388
------------
Net asset and redemption value per share.............................................................. $13.44
------------
------------
Maximum offering price per share (net asset value plus sales charge of 4.50% of offering price)....... $14.07
------------
------------
CLASS B:
Net assets............................................................................................ $134,494,950
------------
Shares outstanding.................................................................................... 9,897,015
------------
Net asset value and offering price per share.......................................................... $13.59
------------
------------
CLASS C:
Net assets............................................................................................ $ 24,809,579
------------
Shares outstanding.................................................................................... 1,928,064
------------
Net asset value and offering price per share.......................................................... $12.87
------------
------------
</TABLE>
12
<PAGE>
PAINEWEBBER CAPITAL APPRECIATION FUND
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED
MARCH 31, 1997
--------------
<S> <C>
INVESTMENT INCOME:
Dividends (net of foreign withholding taxes of $7,867)............................................. $ 668,525
Interest........................................................................................... 418,052
--------------
1,086,577
--------------
EXPENSES:
Investment advisory and administration fees........................................................ 2,684,390
Service fees--Class A.............................................................................. 207,015
Service and distribution fees--Class B............................................................. 1,570,953
Service and distribution fees--Class C............................................................. 285,378
Transfer agency and service fees................................................................... 243,107
Reports and notices to shareholders................................................................ 219,739
Custody and accounting............................................................................. 164,451
Legal and audit.................................................................................... 108,892
Federal and state registration fees................................................................ 106,504
Amortization of organizational expenses............................................................ 47,772
Trustees' fees and expenses........................................................................ 15,750
Other expenses..................................................................................... 58,475
--------------
5,712,426
--------------
NET INVESTMENT LOSS................................................................................ (4,625,849)
--------------
REALIZED AND UNREALIZED GAINS/LOSSES FROM INVESTMENT TRANSACTIONS:
Net realized gains from investment transactions.................................................... 43,647,978
Net change in unrealized appreciation/depreciation of investments.................................. (39,065,630)
--------------
NET REALIZED AND UNREALIZED GAINS FROM INVESTMENT TRANSACTIONS..................................... 4,582,348
--------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS............................................... $ (43,501)
--------------
--------------
</TABLE>
13
<PAGE>
PAINEWEBBER CAPITAL APPRECIATION FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
MARCH 31,
--------------------------
1997 1996
------------ ------------
<S> <C> <C>
FROM OPERATIONS:
Net investment loss................................................................ $(4,625,849) $(4,034,597)
Net realized gains from investment transactions.................................... 43,647,978 26,600,960
Net change in unrealized appreciation/depreciation of investments.................. (39,065,630) 36,304,231
------------ ------------
Net increase (decrease) in net assets resulting from operations.................... (43,501) 58,870,594
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net realized gains from investment transactions--Class A........................... (11,486,154) (3,552,293)
Net realized gains from investment transactions--Class B........................... (21,420,626) (7,311,218)
Net realized gains from investment transactions--Class C........................... (4,124,987) (1,289,431)
------------ ------------
(37,031,767) (12,152,942)
------------ ------------
FROM BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from the sale of shares............................................... 49,527,172 47,945,159
Cost of shares repurchased......................................................... (72,555,703) (71,953,763)
Proceeds from dividends reinvested................................................. 35,137,523 11,502,971
------------ ------------
Net increase (decrease) in net assets derived from beneficial interest
transactions..................................................................... 12,108,992 (12,505,633)
------------ ------------
Net increase (decrease) in net assets.............................................. (24,966,276) 34,212,019
NET ASSETS:
Beginning of period................................................................ 261,180,184 226,968,165
------------ ------------
End of period...................................................................... $236,213,908 $261,180,184
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to financial statements
14
<PAGE>
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 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. The following is a summary of
significant accounting policies:
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.
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
15
<PAGE>
NOTES TO FINANCIAL STATEMENTS
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.
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 March 31, 1997,
the Fund owed Mitchell Hutchins $214,998 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.
During the year ended March 31, 1997 the Fund paid $350 in
brokerage commissions to PaineWebber for transactions executed on
behalf of the Portfolio.
SECURITIES LENDING
The Fund may lend up to 33 1/3% of its total assets to
qualified institutions. The loans are secured at all times by cash
or U.S. government securities in an amount at least equal to the
market value of the securities loaned, plus accrued interest and
dividends, determined on a daily basis and adjusted
16
<PAGE>
NOTES TO FINANCIAL STATEMENTS
accordingly. The Fund will regain record ownership of loaned
securities to exercise certain beneficial rights, however, the
Fund may bear the risk of delay in recovery of, or even loss of
rights in, the securities loaned should the borrower fail
financially. The Fund receives compensation, which is included in
interest income, for lending its securities from interest earned
on the cash or U.S. government securities held as collateral, net
of fee rebates paid to the borrower plus reasonable administrative
and custody fees. The Fund's lending agent is PaineWebber Global
Security Lending, a wholly owned subsidiary of PaineWebber, who
received no compensation from the Fund for the year ended March
31, 1997.
As of March 31, 1997, the Fund's custodian held cash and cash
equivalents having an aggregate value of $16,769,400 as collateral
for portfolio securities loaned having a market value of
$15,281,062.
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 pay 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 March 31, 1997, the Fund owed Mitchell Hutchins
$169,748 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, 1997, it earned approximately $371,000 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 year
ended March 31, 1997, PaineWebber earned $89,240 from the Fund. At
March 31, 1997, the Fund owed PaineWebber $7,251 for transfer
agency service fees.
INVESTMENTS IN SECURITIES
For federal income tax purposes, the cost of securities owned
at March 31, 1997, was substantially the same as the cost of
securities for financial statement purposes.
At March 31, 1997, the components of net unrealized
appreciation of investments were as follows:
<TABLE>
<S> <C>
Gross appreciation (investments having an excess of value over cost)... $ 68,502,371
Gross depreciation (investments having an excess of cost over value)... (12,639,896)
------------
Net unrealized appreciation of investments............................. $ 55,862,475
------------
------------
</TABLE>
For the year ended March 31, 1997, aggregate purchases and
sales of portfolio securities, excluding short-term securities,
were $145,469,904 and $182,404,967, respectively.
17
<PAGE>
NOTES TO FINANCIAL STATEMENTS
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, 1997, the Fund's
accumulated net investment loss was reduced by $4,626,478 and
beneficial interest was reduced by $4,626,478.
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 ------------------------ ------------------------- ------------------------
MARCH 31, 1997: SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ----------- ---------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Shares sold..... 1,503,465 $24,453,506 836,560 $ 13,630,373 750,047 $11,443,293
Shares
repurchased... (1,739,943) (28,153,504) (1,892,839) (30,262,849) (929,189) (14,139,350)
Dividends and
distributions
reinvested.... 750,634 10,974,277 1,361,871 20,169,309 284,672 3,993,937
Shares converted
from Class B
to Class A.... 303,527 4,759,952 (299,572) (4,759,952) -- --
---------- ----------- ---------- ------------ ---------- -----------
Net increase
(decrease).... 817,683 $12,034,231 6,020 $ (1,223,119) 105,530 $ 1,297,880
---------- ----------- ---------- ------------ ---------- -----------
---------- ----------- ---------- ------------ ---------- -----------
YEAR ENDED
MARCH 31, 1996:
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>
18
<PAGE>
This Page Intentionally Left Blank.
19
<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+
1997 1996 1995 1994 TO 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.................................... (0.17) (0.16) (0.09) (0.09) (0.06)
Net realized and unrealized gains from investments..... 0.32 3.71 1.29 1.21 1.04
------- ------- ------- ------- -------
Total increase from investment operations.............. 0.15 3.55 1.20 1.12 0.98
------- ------- ------- ------- -------
Distributions from net realized gains from
investments.......................................... (2.32) (0.75) (0.04) -- --
------- ------- ------- ------- -------
Net asset value, end of period......................... $ 13.44 $ 15.61 $ 12.81 $ 11.65 $ 10.53
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Total investment return (1)............................ (0.21)% 28.16% 10.36% 10.64% 10.26%
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Ratios/Supplemental Data:
Net assets, end of period (000's).................... $76,909 $76,558 $62,673 $58,523 $48,582
Expenses to average net assets....................... 1.60% 1.58% 1.58% 1.54% 1.72%*
Net investment loss to average net assets............ (1.20)% (1.11)% (0.79)% (0.84)% (0.78)%*
Portfolio turnover................................... 56% 57% 42% 60% 51%
Average commission rate paid (2)..................... $0.0475 -- -- -- --
20
<PAGE>
PAINEWEBBER CAPITAL APPRECIATION FUND
</TABLE>
<TABLE>
<CAPTION>
CLASS B
-----------------------------------------------------------------------
FOR THE YEARS ENDED
MARCH 31, FOR THE PERIOD
----------------------------------------------- APRIL 7, 1992+
1997 1996 1995 1994 TO MARCH 31, 1993
-------- -------- -------- -------- -------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period................... $ 15.88 $ 13.11 $ 12.02 $ 10.94 $ 10.00
-------- -------- -------- -------- --------
Net investment loss.................................... (0.31) (0.29) (0.20) (0.17) (0.11)
Net realized and unrealized gains from investments..... 0.34 3.81 1.33 1.25 1.05
-------- -------- -------- -------- --------
Total increase from investment operations.............. 0.03 3.52 1.13 1.08 0.94
-------- -------- -------- -------- --------
Distributions from net realized gains from
investments.......................................... (2.32) (0.75) (0.04) -- - -
-------- -------- -------- -------- --------
Net asset value, end of period......................... $ 13.59 $ 15.88 $ 13.11 $ 12.02 $ 10.94
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Total investment return (1)............................ (0.99)% 27.28% 9.46% 9.87% 9.40%
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Ratios/Supplemental Data:
Net assets, end of period (000's).................... $134,495 $157,021 $139,302 $133,828 $ 105,490
Expenses to average net assets....................... 2.36% 2.34% 2.34% 2.30% 2.49%*
Net investment loss to average net assets............ (1.95)% (1.87)% (1.56)% (1.60)% (1.55)%*
Portfolio turnover................................... 56% 57% 42% 60% 51%
Average commission rate paid (2)..................... $ 0.0475 -- -- -- --
<CAPTION>
CLASS C
--------------------------------------------------------------
FOR THE YEARS ENDED
MARCH 31, FOR THE PERIOD
------------------------------------------- JULY 2, 1992#
1997 1996 1995 1994 TO MARCH 31, 1993
------- ------- ------- ------- -----------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period................... $ 15.14 $ 12.54 $ 11.50 $ 10.47 $ 8.89
------- ------- ------- ------- -------
Net investment loss.................................... (0.29) (0.27) (0.19) (0.10) (0.05)
Net realized and unrealized gains from investments..... 0.34 3.62 1.27 1.13 1.63
------- ------- ------- ------- -------
Total increase from investment operations.............. 0.05 3.35 1.08 1.03 1.58
------- ------- ------- ------- -------
Distributions from net realized gains from
investments.......................................... (2.32) (0.75) (0.04) -- --
------- ------- ------- ------- -------
Net asset value, end of period......................... $ 12.87 $ 15.14 $ 12.54 $ 11.50 $ 10.47
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Total investment return (1)............................ (0.91)% 27.16% 9.45% 9.84% 17.77%
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Ratios/Supplemental Data:
Net assets, end of period (000's).................... $24,810 $27,601 $24,993 $29,884 $13,806
Expenses to average net assets....................... 2.37% 2.36% 2.35% 2.28% 2.31%*
Net investment loss to average net assets............ (1.97)% (1.89)% (1.57)% (1.58)% (1.53)%*
Portfolio turnover................................... 56% 57% 42% 60% 51%
Average commission rate paid (2)..................... $0.0475 -- -- -- --
</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) Effective for fiscal years beginning on or after September 1, 1995, the
Fund is required to disclose the average commission rate paid per share
of common stock investments purchased or sold.
21
<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, 1997, 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 and financial highlights. Our procedures included
confirmation of securities owned as of March 31, 1997 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 as of March 31, 1997, 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 13, 1997
22
<PAGE>
PAINEWEBBER CAPITAL APPRECIATION FUND
TAX INFORMATION (unaudited)
We are required by Subchapter M of the Internal Revenue Code of
1986, as amended, to advise you within 60 days of the Fund's
fiscal year end (March 31, 1997) 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 1997. 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
1998. Shareholders are advised to consult their own tax advisers
with respect to the tax consequences of their investment in the
Fund.
23
<PAGE>
This Page Intentionally Left Blank.
24
<PAGE>
This Page Intentionally Left Blank.
25
<PAGE>
This Page Intentionally Left Blank.
26
<PAGE>
- --------------------------------------------------------------------------------
BOARD OF TRUSTEES
E. Garrett Bewkes, Jr. Meyer Feldberg
Chairman
George W. Gowen
Margo N. Alexander
Frederic V. Malek
Richard Q. Armstrong
Carl W. Schafer
Richard R. Burt
Mary C. Farrell
PRINCIPAL OFFICERS
Margo N. Alexander Julian F. Sluyters
President Vice President and Treasurer
Victoria E. Schonfeld Todger Anderson
Vice President Vice President
Dianne E. O'Donnell
Vice President and Secretary
INVESTMENT ADVISER,
ADMINISTRATOR AND DISTRIBUTOR
Mitchell Hutchins Asset Management Inc.
1285 Avenue of the Americas
New York, New York 10019
SUB-ADVISOR
Denver Investment Advisors, LLC
1225 17th St., 26th Floor
Denver, CO 80202
A prospectus containing more complete information for any of the Funds listed on
the back cover can be obtained from a PaineWebber investment executive or
correspondent firm. Read the prospectus carefully before investing.
This report is not to be used in connection with the offering of shares of the
Fund unless accompanied or preceded by an effective prospectus.
<PAGE>
PaineWebber offers a family of 22 funds which encompass a diversified range of
investment goals.
Bond Funds
o High Income Fund
o Investment Grade Income Fund
o Low Duration U.S. Government Income Fund
o Strategic Income Fund
o U.S. Government Income Fund
Tax-Free Bond Funds
o California Tax-Free Income Fund
o Municipal High Income Fund
o National Tax-Free Income Fund
o New York Tax-Free Income Fund
Stock Funds
o Capital Appreciation Fund
o Financial Services Growth Fund
o Growth Fund
o Growth and Income Fund
o Small Cap Fund
o Utility Income Fund
Asset Allocation Funds
o Balanced Fund
o Tactical Allocation Fund
Global Funds
o Asia Pacific Growth Fund
o Emerging Markets Equity Fund
o Global Equity Fund
o Global Income Fund
PaineWebber Money Market Fund
PaineWebber
(c) 1997 PaineWebber Incorporated
Member SIPC
PaineWebber
Capital Appreciation Fund
Annual Report
March 31, 1997
