<PAGE>
PAINEWEBBER MID CAP FUND ANNUAL REPORT
PERFORMANCE AT A GLANCE
- -------------------------------------------------------------------------------
Comparison of the change of a $10,000 investment in PaineWebber Mid Cap Fund
(A) and the S&P 400 Mid Cap Index.
[CHART]
S&P 400 PaineWebber
Mid Cap Index Mid Cap Fund (A)
4/7/92 $ 9,881 $ 9,550
9,974 9,280
8/31/92 9,927 8,950
10,883 10,100
2/28/93 11,229 10,150
11,829 10,780
8/31/93 12,355 11,400
12,249 11,560
2/28/94 12,930 12,330
12,305 11,640
8/31/94 12,927 12,280
12,927 11,710
2/28/95 13,142 12,506
13,142 12,857
8/31/95 15,578 14,794
15,578 15,577
2/29/96 16,975 16,245
16,975 18,008
8/31/96 17,429 16,889
17,429 18,430
2/28/97 19,850 17,629
21,202 19,097
8/31/97 23,926 21,214
24,559 20,749
2/28/98 27,100 22,336
27,542 21,778
8/31/98 $21,682 $16,913
The graph depicts the performance of PaineWebber Mid Cap Fund (A) versus the
S&P 400 Mid Cap Index. It is important to note PaineWebber Mid Cap 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.
Past performance is not predictive of future performance.
The performance of the classes will vary based on the performance of the class
shown because of differences in sales charges and fees paid by shareholders
investing in different classes.
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
One Year Five Years Commencement of
Ended Ended Operations
8/31/98 8/31/98 Through 8/31/98****
<S> <C> <C> <C> <C>
Class A* -20.28% 8.21% 9.33%
% Return Without Deducting Class B** -20.91% 7.39% 8.50%
Maximum Sales Charge Class C*** -20.89% 7.38% 10.14%
Class A* -23.88% 7.21% 8.55%
% Return After Deducting Class B** -23.20% 7.18% 8.50%
Maximum Sales Charge Class C*** -21.33% 7.38% 10.14%
</TABLE>
* Maximum sales charge for Class A shares is 4.5% of the public offering
price. Class A shares bear ongoing 12b-1 services fees.
** Maximum contingent deferred sales charge for Class B shares is 5.0% and
is reduced to 0% after six years. Class B shares bear ongoing 12b-1
service fees.
*** Maximum contingent deferred sales charge for Class C shares is 1.0% and
is reduced to 0% after one year. Class C shares bear ongoing 12b-1
services fees.
**** Commencement of issuance was April 7, 1992 for Class A and Class B shares
and July 2, 1992 for Class C shares.
The Fund offers Class Y shares to a limited group of eligible investors,
including participants in certain investment programs sponsored by PaineWebber
that may invest in PaineWebber mutual funds. Since inception on March 17, 1998
to August 31, 1998, Class Y shares have lost 26.82%. Class Y shares do not
bear initial or contingent deferred sales charges or ongoing distribution and
service fees.
The investment return and the principal value of an investment in the Fund
will fluctuate, so that an investor's shares, when redeemed, may be worth more
or less than their original cost.
1
<PAGE>
ANNUAL REPORT
October 15, 1998
Dear Shareholder,
We are pleased to present you with the annual report for the PaineWebber
Mid Cap Fund (the "Fund"), covering the five months ended August 31, 1998.
Since the last annual report for the fiscal year ended March 31, 1998, the
Fund's fiscal year-end has changed to August 31. Therefore, the next
semiannual report will cover the six-month period ending February 28, 1999.
GENERAL MARKET OVERVIEW
[PICTURE]
- -------------------------------------------------------------------------------
The Fund's fiscal year ended on a tumultuous note as investors reacted to
global uncertainty by pulling money out of the stock market. Concerns about
exposure to over-leveraged hedge funds and emerging markets caused a sell-off
in financial stocks as investors backed away from credit-quality and liquidity
problems. Weakness in global markets also hurt economically sensitive
companies in the United States as concern spread about a potential pullback of
consumer spending. Mid-cap and small-cap stocks generally lagged large caps,
reflecting intense liquidity pressures. As stocks became more volatile,
investors shifted some of their assets into bonds, causing yields to fall and
prices to rise.
PORTFOLIO REVIEW
[PICTURE]
- -------------------------------------------------------------------------------
PERFORMANCE
Total return (the net asset value change with dividends reinvested) for the
five months ended August 31, 1998: Class A shares lost 27.31%, Class B shares
lost 27.54%, Class C shares lost 27.58% and Class Y shares lost 27.31%,
without deducting sales charges.
The Fund's total return may be lower for shareowners that purchased or
redeemed Fund shares during the period. After deducting the maximum applicable
sales charges, Class A shares lost 30.60%, Class B shares lost 30.19% and
Class C shares lost 28.09%. Class Y shares are not subject to sales charges.
PORTFOLIO
HIGHLIGHTS
When Mitchell Hutchins took over day-to-day management of the Fund on May 1,
it held more than 140 stocks -- a few very large positions such as WorldCom
Inc. (4.3% of net assets), and numerous small positions. We immediately cut
the total number of stocks and reduced the larger cap and oversized positions.
By August 31, the Fund held about 108 stocks and its biggest position was
Tele-Communications, Inc.(1.8%).1
The Fund was trimmed to better conform to its new investment discipline -- a
combination of the Mitchell Hutchins Factor Valuation Model and fundamental
analysis of companies highlighted by the Model. We adjusted sector weightings
to bring them closer into line with the Fund's benchmark, the S&P 400 Mid Cap
Index. We then began to apply our new investment policy to
PAINEWEBBER
MID CAP FUND
FUND PROFILE
[ARROW] GOAL:
Long-term capital appreciation
[ARROW] Portfolio Managers:
Mark A. Tincher, Christopher G. Altschul and Antony J. Scott, Mitchell
Hutchins Asset Management Inc.
[ARROW] Total Net Assets:
$162.6 million as of August 31, 1998
[ARROW] Dividend Payments:
Annually
PAINEWEBBER
MID CAP FUND
Top 10 Holdings
August 31, 1998(1)
Tele-Communications Inc. 1.8%
Food Lion Inc. 1.6%
Federal Mogul Corp. 1.6%
Commerce Bancorp Inc. 1.6%
Watson Pharmaceuticals, Inc. 1.5%
Mutual Risk Management Ltd. 1.5%
Universal Corp. 1.5%
Minnesota Power & Light Co. 1.4%
Westamerica Bancorporation 1.4%
Protective Life Corp. 1.4%
(1) Unless otherwise noted, all portfolio weightings represent percentages of
net assets as of August 31, 1998. The Fund is actively managed and all
holdings are subject to change.
2
<PAGE>
PAINEWEBBER MID CAP FUND ANNUAL REPORT
sector weightings. We intend to over- or underweight sectors depending on our
assessment of relative attractiveness.
We are moving to stocks that the Factor Valuation Model has identified as
attractive. Among the companies we like are Food Lion Inc. (1.6%), a grocery
store chain in the mid-Atlantic states, and Commerce Bancorp. Inc. (1.6%), a
New Jersey regional bank benefiting from consolidation within the banking
industry.
During the period the Fund was moderately overweighted in consumer cyclicals
and financial stocks because of attractive valuations. Both sectors weakened
in August and hurt the Fund's performance.
As of August 31, the Fund's largest sector weightings were in consumer
cyclicals (23.7%) and technology (20.6%). The consumer cyclical position
included Federal Mogul Corp. (1.6%) and Borg Warner Automotive Inc. (0.9%),
both value-oriented auto parts suppliers standing to benefit from continued
consolidation of the sector. Another holding, Maytag Corp. (1.1%), has
benefited from the strength of mortgage refinancing. The Fund's technology
holdings included Compuware Corp. (1.3%) and BMC Software Inc. (1.2%), both
makers of software for managing computer systems.
The Fund retains a few stocks from the previous sub-adviser. Even though they
are not "Model" names, these stocks fit well enough into our strategy that we
are comfortable holding them.
OUTLOOK
[PICTURE]
- --------------------------------------------------------------------------------
It seems likely that we will encounter more volatility over the next six
months -- emerging market and hedge fund pressures are not likely to subside
quickly. We intend to maintain a defensive posture, perhaps adding to
utilities and buying stocks with lower-than-market valuations and little or no
exposure to emerging markets or hedge funds. It is our view that investors
eventually will seek out those sectors of the market that offer good value,
such as small- and mid-cap companies, once the larger cap stocks fully
correct.
We may further reduce our exposure to airlines and increase exposure to energy
stocks. If energy prices show an upward bias as we expect, then airline
earnings should fall. Earnings in the two industries tend to move counter to
each other, and it is possible to benefit from rising or falling energy prices
by gradually adjusting the mix of airline and energy stocks.
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.
PAINEWEBBER
MID CAP FUND
[BAR GRAPH]
Top Five Sectors
August 31, 1998(1)
Consumer cyclicals 23.7%
Technology 20.6%
Financial Services 18.2%
Capital goods 6.8%
Transportation 4.8%
3
<PAGE>
ANNUAL REPORT
For a quarterly Fund Profile on PaineWebber Mid Cap Fund or another fund in
the PaineWebber Family of Funds,(2) please contact your investment executive.
Sincerely,
/s/ Margo Alexander /s/ Mark A. Tincher
- ------------------------------------ ---------------------------------
MARGO ALEXANDER MARK A. TINCHER
President, Managing Director and
Mitchell Hutchins Asset Management Inc. Chief Investment Officer--Equities
Mitchell Hutchins Asset Management Inc.
Portfolio Manager, PaineWebber Mid
Cap Fund
/s/ Christopher G. Altschul /s/ Antony J. Scott
- ------------------------------------ ----------------------------------
CHRISTOPHER G. ALTSCHUL ANTONY J. SCOTT
First Vice President First Vice President
Mitchell Hutchins Asset Management Inc. Mitchell Hutchins Asset Management Inc.
Portfolio Manager/Research Analyst, Portfolio Manager/Research Analyst,
PaineWebber Mid Cap Fund PaineWebber Mid Cap Fund
(2) Mutual funds are sold by prospectus only. The prospectuses for the funds
contain more complete information regarding risks, charges and expenses, and
should be read carefully before investing.
This letter is intended to assist shareholders in understanding how the Fund
performed during the five-month period ended August 31, 1998, and reflects
our views at the time of writing this report. Of course, these views may
change in response to changing circumstances. We encourage you to consult
your investment executive regarding your personal investment program.
4
<PAGE>
PAINEWEBBER MID CAP FUND
PERFORMANCE RESULTS (unaudited)
<TABLE>
<CAPTION>
Net Asset Value Total Return(1)
---------------------------------------- -----------------------------------
12 Months 5 months
08/31/98 03/31/98 08/31/97 Ended 08/31/98 Ended 08/31/98
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A Shares $7.97 $15.00 $17.34 (20.28)% (27.31)%
- ---------------------------------------------------------------------------------------------------------------------------
Class B Shares 7.99 15.07 17.48 (20.91) (27.54)
- ---------------------------------------------------------------------------------------------------------------------------
Class C Shares 7.26 14.07 16.55 (20.89) (27.58)
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Performance Summary Class A Shares
Net Asset Value
----------------------- Capital Gains Dividends Total
Period Covered Beginning Ending Distributed Paid Return(1)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
04/07/92-12/31/92 $ 9.55 $10.50 -- -- 9.95%
- ---------------------------------------------------------------------------------------------------------------------------
1993 10.50 12.19 -- -- 16.10
- ---------------------------------------------------------------------------------------------------------------------------
1994 12.19 11.98 $ 0.0433 -- (1.36)
- ---------------------------------------------------------------------------------------------------------------------------
1995 11.98 14.67 0.7480 -- 28.79
- ---------------------------------------------------------------------------------------------------------------------------
1996 14.67 14.92 2.3244 -- 17.87
- ---------------------------------------------------------------------------------------------------------------------------
1997 14.92 13.55 3.4608 -- 15.14
- ---------------------------------------------------------------------------------------------------------------------------
01/01/98-08/31/98 13.55 7.97 3.8500 -- (19.53)
- ---------------------------------------------------------------------------------------------------------------------------
Totals: $10.4265 $0.0000
- ---------------------------------------------------------------------------------------------------------------------------
Cumulative Total Return
as of 08/31/98: 77.09%
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Performance Summary Class B Shares
Net Asset Value
----------------------- Capital Gains Dividends Total
Period Covered Beginning Ending Distributed Paid Return(1)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
04/07/92-12/31/92 $10.00 $10.93 -- -- 9.30%
- ---------------------------------------------------------------------------------------------------------------------------
1993 10.93 12.59 -- -- 15.19
- ---------------------------------------------------------------------------------------------------------------------------
1994 12.59 12.28 $ 0.0433 -- (2.03)
- ---------------------------------------------------------------------------------------------------------------------------
1995 12.28 14.94 0.7480 -- 27.73
- ---------------------------------------------------------------------------------------------------------------------------
1996 14.94 15.11 2.3244 -- 17.01
- ---------------------------------------------------------------------------------------------------------------------------
1997 15.11 13.64 3.4608 -- 14.28
- ---------------------------------------------------------------------------------------------------------------------------
01/01/98-08/31/98 13.64 7.99 3.8500 -- (19.94)
- ---------------------------------------------------------------------------------------------------------------------------
Totals: $10.4265 $0.0000
- ---------------------------------------------------------------------------------------------------------------------------
Cumulative Total Return
as of 08/31/98: 68.66%
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Performance Summary Class C Shares
Net Asset Value
----------------------- Capital Gains Dividends Total
Period Covered Beginning Ending Distributed Paid Return(1)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
07/02/92-12/31/92 $ 8.89 $10.46 -- -- 17.66%
- ---------------------------------------------------------------------------------------------------------------------------
1993 10.46 12.05 -- -- 15.20
- ---------------------------------------------------------------------------------------------------------------------------
1994 12.05 11.75 $ 0.0433 -- (2.13)
- ---------------------------------------------------------------------------------------------------------------------------
1995 11.75 14.26 0.7480 -- 27.82
- ---------------------------------------------------------------------------------------------------------------------------
1996 14.26 14.31 2.3244 -- 16.98
- ---------------------------------------------------------------------------------------------------------------------------
1997 14.31 12.74 3.4608 -- 14.39
- ---------------------------------------------------------------------------------------------------------------------------
01/01/98-08/31/98 12.74 7.26 3.8500 -- (20.02)
- ---------------------------------------------------------------------------------------------------------------------------
Totals: $10.4265 $0.0000
- ---------------------------------------------------------------------------------------------------------------------------
Cumulative Total Return
as of 08/31/98: 81.48%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Figures assume reinvestment of all dividends and distributions, if any,
at net asset value on the payable dates and do not include sales charges;
results for each class would be lower if sales charges were included.
Note: The Fund offers Class Y Shares to a limited group of investors
including participants in certain investment programs that are sponsored
by PaineWebber and may invest in PaineWebber mutual funds. For the five
months ended August 31, 1998, and since March 17, 1998 (commencement of
issuance) through August 31, 1998, Class Y Shares had a total return of
(27.31)% and (26.82)%. Class Y Shares do not have initial or contingent
deferred sales charges or ongoing distribution or service fees.
The data above represents past performance of the Fund's shares, which is no
guarantee of future results. The principal value of an investment in the Fund
will fluctuate, so that an investor's shares, when redeemed, may be worth more
or less than their original cost.
5
<PAGE>
PAINEWEBBER MID CAP FUND
PORTFOLIO OF INVESTMENTS AUGUST 31, 1998
Number of
Shares Value
------ -----
COMMON STOCK--93.93%
Airlines--3.86%
24,000 Alaska Air Group Inc..........$ 934,500
40,000 Comair Holdings Inc........... 1,017,500
50,000 Northwest Airlines Corp.*..... 1,390,625
30,000 UAL Corp.*.................... 1,809,375
19,200 US Airways Group, Inc.*....... 1,118,400
-----------
6,270,400
-----------
Apparel, Retail--0.95%
69,200 TJX Companies, Inc............ 1,544,025
-----------
Apparel, Textiles--0.55%
30,000 Westpoint Stevens Inc.*....... 888,750
-----------
Banks--5.23%
75,000 Commerce Bancorp, Inc......... 2,634,375
4,000 M & T Bank Corp.*............. 1,640,000
95,000 Westamerica Bancorporation.... 2,303,750
50,000 Zions Bancorporation.......... 1,918,750
-----------
8,496,875
-----------
Chemicals--1.45%
46,900 Crompton & Knowles Corp....... 685,913
130,000 W.R. Grace & Co.*............. 1,673,750
-----------
2,359,663
-----------
Computer Hardware--2.68%
46,900 Ascend Communications Inc.*... 1,641,500
20,000 EMC Corp.*.................... 903,750
265,600 Maxtor Corp.*................. 1,809,400
-----------
4,354,650
-----------
Computer Software--6.94%
40,000 Autodesk, Inc................. 935,000
47,000 BMC Software Inc.*............ 1,988,687
93,600 Cadence Design Systems Inc.*.. 1,977,300
46,600 Compuware Corp.*.............. 2,117,387
56,025 Harbinger Corp.*.............. 385,172
60,000 Networks Associated Inc.* (1). 1,935,000
48,000 Peoplesoft Inc.*.............. 1,350,000
29,000 Sterling Software Inc.*....... 596,313
-----------
11,284,859
-----------
Consumer Durables--3.43%
125,000 Dal-Tile International Inc.*.. 1,062,500
20,000 Furniture Brands International
Inc.*....................... 447,500
68,200 Interface, Inc................ 835,450
40,000 Maytag Corp................... 1,725,000
100,000 Shaw Industries Inc........... 1,512,500
-----------
5,582,950
-----------
Defense/Aerospace--2.72%
53,700 Gulfstream Aerospace Corp.*... $1,886,212
40,000 Lucasvarity PLC............... 1,405,000
30,000 Precision Castparts Corp...... 1,130,625
-----------
4,421,837
-----------
Diversified Retail--1.21%
80,000 Family Dollar Stores Inc. (1). 1,015,000
37,500 Proffitts Inc.*............... 956,250
-----------
1,971,250
-----------
Drugs & Medicine--3.32%
45,000 Biogen Inc.*.................. 2,081,250
55,000 ICN Pharmaceuticals Inc....... 845,625
55,000 Watson Pharmaceuticals, Inc.*. 2,478,437
-----------
5,405,312
-----------
Electric Utilities--3.51%
50,000 AES Corp...................... 1,362,500
55,000 Minnesota Power & Light Co.... 2,340,937
100,000 Public Service Co. of New
Mexico...................... 2,000,000
-----------
5,703,437
-----------
Electrical Equipment--2.50%
107,600 Pairgain Technologies Inc.*... 948,225
66,000 SCI Systems Inc.*............. 1,513,875
38,900 Solectron Corp.*.............. 1,607,056
-----------
4,069,156
-----------
Environmental Services--1.84%
65,000 Allied Waste Industries Inc.*. 1,235,000
39,900 Waste Management Inc.*........ 1,760,588
-----------
2,995,588
-----------
Financial Services--2.71%
77,000 C.I.T. Group Inc.............. 1,977,938
81,032 Mutual Risk Management
Ltd(1)...................... 2,430,960
-----------
4,408,898
-----------
Forest Products, Paper--1.20%
33,000 United Stationers Inc.*....... 1,955,250
-----------
Food Retail--1.65%
260,000 Food Lion Inc.*............... 2,681,250
-----------
Freight, Air, Sea & Land--0.90%
75,000 Airbourne Freight Corp........ 1,462,500
-----------
Household Products--0.81%
50,000 Premark International Inc..... 1,321,875
-----------
6
<PAGE>
PAINEWEBBER MID CAP FUND
Number of
Shares Value
------ -----
COMMON STOCK--(continued)
Industrial Parts--1.88%
40,000 American Standard Companies
Inc (1)................... $1,565,000
30,000 SPX Corp.* (1).............. 1,492,500
-----------
3,057,500
-----------
Industrial Services/Supplies--2.92%
80,000 Avis Rental Inc.*.......... 1,255,000
35,000 Borg Warner Automotive
Inc. (1).................. 1,417,500
100,000 Viad Corp................... 2,075,000
-----------
4,747,500
-----------
Information & Computer Services--6.05%
51,900 A.C. Nielson Corp.*......... 1,041,244
25,000 America Online Inc.*........ 2,048,437
1,000 Broadcast Common Inc........ 37,875
34,400 Cambridge Technology .......
Partners*................. 1,118,000
21,300 Computer Sciences Corp.*.... 1,204,781
28,950 Concord EFS Inc.*........... 571,762
38,850 Fiserv Inc.*................ 1,515,150
1,000 Geocities*.................. 18,063
78,000 HBO & Co.................... 1,657,500
28,800 Sylvan Learning Systems
Inc.*..................... 615,600
-----------
9,828,412
-----------
Leisure--0.70%
75,000 Family Golf Centers
Inc.* (1)................. 1,134,375
-----------
Life Insurance--2.99%
40,000 Conseco Inc................. 1,105,000
73,000 Protective Life Corp........ 2,253,875
30,000 Reinsurance Group of
America, Inc.............. 1,500,000
-----------
4,858,875
-----------
Long Distance & Phone Companies--1.06%
41,992 WorldCom, Inc.*............. 1,719,048
-----------
Manufacturing--General--0.89%
85,700 Mettler Toledo International
Inc.*..................... 1,446,188
-----------
Manufacturing--High Technology--0.33%
30,000 ASM Lithography Holdings
N.V.* (1)................. 528,750
-----------
Media--3.40%
40,000 Chancellor Media Corp.*..... 1,427,500
31,200 Comcast Corp................ 1,166,100
88,800 Tele-Communications, Inc.*.. 2,930,400
-----------
5,524,000
-----------
Medical Products--0.96%
25,300 Guidant Corp................ 1,562,275
-----------
Mining & Metals--2.10%
29,000 Martin Marietta Inc......... $1,236,125
60,000 Texas Industries Inc........ 2,171,250
-----------
3,407,375
-----------
Motor Vehicles--2.68%
40,000 Dura Automotive Systems,
Inc.*..................... 880,000
50,000 Federal Mogul Corp.......... 2,668,750
20,000 Lear Corp.*................. 811,250
-----------
4,360,000
-----------
Oil Services--0.83%
70,000 Ensco International Inc..... 735,000
40,000 EVI Weatherford Inc.*....... 610,000
-----------
1,345,000
-----------
Other Insurance--5.60%
32,000 Ambac Inc................... 1,510,000
40,000 Executive Risk Inc.......... 1,440,000
42,300 First American Financial
Corp...................... 1,089,225
50,000 Fremont General Corp........ 2,137,500
38,300 MGIC Investment Corp........ 1,589,450
35,920 Orion Capital Corp.......... 1,338,020
-----------
9,104,195
-----------
Real Property--0.57%
40,000 Masco Corp.................. 920,000
-----------
Restaurants--1.95%
80,000 Brinker International
Inc.*..................... 1,370,000
60,000 Outback Steakhouse Inc.*.... 1,803,750
-----------
3,173,750
-----------
Semiconductor--2.17%
31,300 Maxim Integrated Productions
Inc.*..................... 860,750
41,000 Micron Technology, Inc...... 932,750
43,600 Uniphase Corp.*............. 1,741,275
-----------
3,534,775
-----------
Specialty Retail--5.34%
60,000 Bed, Bath & Beyond Inc.*.... 1,083,750
85,000 Central Garden & Pet Co.*... 1,200,625
80,000 Claire's Stores Inc......... 1,200,000
50,000 Lowe's Companies Inc........ 1,753,125
40,000 Office Depot Inc.* (1)...... 1,020,000
50,000 Williams Sonoma Inc.*....... 1,275,000
50,000 Zale Corp.*................. 1,150,000
-----------
8,682,500
-----------
7
<PAGE>
PAINEWEBBER MID CAP FUND
Number of
Shares Value
------ -----
COMMON STOCK--(concluded)
Telecommunications--0.91%
110,000 Advanced Fibre
Communications*........... $ 783,750
39,000 Global Crossing Ltd.*....... 692,250
-----------
1,476,000
-----------
Thrift--1.69%
65,000 Dime Bancorp Inc............ 1,235,000
60,000 Greenpoint Financial Corp... 1,511,250
-----------
2,746,250
-----------
Tobacco--1.45%
75,000 Universal Corp.............. $ 2,362,500
-----------
Total Common Stock
(cost--$174,943,054).................... 152,697,793
-----------
<TABLE>
<CAPTION>
Principal
Amount Maturity Interest
(000) Dates Rates
----- ----- -----
<S> <C> <C> <C>
Repurchase Agreements--6.76%
$ 5,992 Repurchase Agreement dated 08/31/98 with Dresdner Bank,
collateralized by $4,271,000 U.S. Treasury Bonds, 8.750%
due 05/15/20 (value--$6,112,741); proceeds: $5,992,952................. 09/01/98 5.720% 5,992,000
5,000 Repurchase Agreement dated 08/31/98 with Salomon Smith Barney,
collateralized by $3,365,000 U.S. Treasury Bonds, 12.000% due
08/15/13 (value--$5,106,051); proceeds: $5,000,792..................... 09/01/98 5.700 5,000,000
------------
Total Repurchase Agreements (cost--$10,992,000)...................................................................... 10,992,000
------------
Total Investments (cost--$185,935,054)--100.69%...................................................................... 163,689,793
Liabilities in excess of other assets--(0.69)%....................................................................... (1,121,953)
------------
Net Assets--100.00%.................................................................................................. $162,567,840
============
</TABLE>
- ----------------------
* Non-income producing security
(1) Security, or portion thereof, was on loan at August 31, 1998.
See accompanying notes to financial statements
8
<PAGE>
PAINEWEBBER MID CAP FUND
STATEMENT OF ASSETS AND LIABILITIES AUGUST 31, 1998
<TABLE>
<S> <C>
Assets:
Investments in securities, at value (cost--$185,935,054)........................................ $ 163,689,793
Investments of cash collateral for securities loaned, at value
(cost--$12,018,800)........................................................................... 12,018,800
Receivable for investments sold................................................................. 1,621,647
Dividends and interest receivable............................................................... 105,917
Receivable for fund shares sold................................................................. 34,854
Other assets.................................................................................... 43,298
-------------
Total assets.................................................................................... 177,514,309
-------------
Liabilities:
Collateral for securities loaned................................................................ 12,018,800
Payable for investments purchased............................................................... 2,078,109
Payable for fund shares repurchased............................................................. 454,141
Payable to affiliates........................................................................... 268,931
Accrued expenses and other liabilities.......................................................... 126,488
-------------
Total liabilities............................................................................... 14,946,469
-------------
Net Assets:
Beneficial interest shares of $0.001 par value outstanding...................................... 172,509,331
Accumulated net realized gains from investments................................................. 12,303,770
Net unrealized depreciation of investments...................................................... (22,245,261)
-------------
Net assets...................................................................................... $ 162,567,840
=============
Class A:
Net assets...................................................................................... $ 90,649,781
-------------
Shares outstanding.............................................................................. 11,378,816
-------------
Net asset and redemption value per share........................................................ $ 7.97
=============
Maximum offering price per share (net asset value plus sales
charge of 4.50% of offering price).............................................................. $ 8.35
=============
Class B:
Net assets...................................................................................... $ 54,978,174
-------------
Shares outstanding.............................................................................. 6,885,222
-------------
Net asset value and offering price per share.................................................... $ 7.99
=============
Class C:
Net assets...................................................................................... $ 16,874,646
-------------
Shares outstanding.............................................................................. 2,325,519
-------------
Net asset value and offering price per share.................................................... $ 7.26
=============
Class Y:
Net assets...................................................................................... $ 65,239
-------------
Shares outstanding.............................................................................. 8,188
-------------
Net asset value, offering price, and redemption value per share................................. $ 7.97
=============
</TABLE>
See accompanying notes to financial statements
9
<PAGE>
PAINEWEBBER MID CAP FUND
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Five For the
Months Ended Year Ended
August 31, 1998 March 31, 1998
--------------- --------------
<S> <C> <C>
Investment income:
Dividends (net of withholding tax of $4,197 and $4,366, respectively).............. $ 446,683 $ 505,353
Interest........................................................................... 385,597 437,622
------------- ------------
832,280 942,975
------------- ------------
Expenses:
Investment advisory and administration fees........................................ 964,741 2,680,122
Service fees--Class A.............................................................. 130,218 231,601
Service and distribution fees--Class B............................................. 345,115 1,478,236
Service and distribution fees--Class C............................................. 98,551 269,903
Transfer agency and service fees................................................... 91,165 235,590
Custody and accounting............................................................. 60,490 165,724
Legal and audit.................................................................... 43,239 96,895
Reports and notices to shareholders................................................ 35,600 91,886
Federal and state registration fees................................................ 16,210 98,148
Trustees' fees..................................................................... 7,200 10,500
Other expenses..................................................................... 4,178 36,493
------------- ------------
1,796,707 5,395,098
------------- ------------
Net investment loss................................................................ (964,427) (4,452,123)
------------- ------------
Realized and unrealized gains (losses) from investment transactions:
Net realized gains from investment transactions.................................... 50,055,407 58,100,065
Net change in unrealized appreciation/depreciation of investments.................. (113,176,825) 35,069,089
------------- ------------
Net realized and unrealized gains (losses) from investment transactions............ (63,121,418) 93,169,154
------------- ------------
Net increase (decrease) in net assets resulting from operations.................... $ (64,085,845) $ 88,717,031
============= ============
</TABLE>
See accompanying notes to financial statements
10
<PAGE>
PAINEWEBBER MID CAP FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Years Ended
For the Five March 31,
Months Ended ----------------------
August 31, 1998 1998 1997
-------------- -------- ---------
<S> <C> <C> <C>
From operations:
Net investment loss ................................................. $ (964,427) $ (4,452,123) $ (4,625,849)
Net realized gains from investment transactions...................... 50,055,407 58,100,065 43,647,978
Net change in unrealized appreciation/depreciation of investments.... (113,176,825) 35,069,089 (39,065,630)
-------------- ------------- -------------
Net increase (decrease) in net assets resulting from operations...... (64,085,845) 88,717,031 (43,501)
-------------- ------------- -------------
Distributions to shareholders from:
Net realized gains from investment transactions--Class A............. (33,325,298) (19,367,061) (11,486,154)
Net realized gains from investment transactions--Class B............. (21,180,778) (29,491,494) (21,420,626)
Net realized gains from investment transactions--Class C............. (6,615,466) (5,842,338) (4,124,987)
Net realized gains from investment transactions--Class Y............. (10,624) -- --
-------------- ------------- -------------
Total distributions to shareholders.................................. (61,132,166) (54,700,893) (37,031,767)
-------------- ------------- -------------
From beneficial interest transactions:
Net proceeds from the sale of shares................................. 32,729,553 37,895,804 49,527,172
Cost of shares repurchased........................................... (75,586,995) (87,095,316) (72,555,703)
Proceeds from dividends reinvested................................... 58,037,907 51,574,852 35,137,523
-------------- ----------- -------------
Net increase in net assets from beneficial interest transactions..... 15,180,465 2,375,340 12,108,992
-------------- ------------- -------------
Net increase (decrease) in net assets................................ (110,037,546) 36,391,478 (24,966,276)
-------------- ------------- -------------
Net assets:
Beginning of period.................................................. 272,605,386 236,213,908 261,180,184
-------------- ------------- -------------
End of period (including undistributed net investment income
of $629 at March 31, 1997)........................................... $ 162,567,840 $ 272,605,386 $ 236,213,908
============== ============= =============
</TABLE>
See accompanying notes to financial statements
11
<PAGE>
NOTES TO FINANCIAL STATEMENTS
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
PaineWebber Mid Cap Fund (the "Fund", which prior to May 1, 1998 was known
as the PaineWebber Capital Appreciation Fund) is registered with the
Securities and Exchange Commission under the Investment Company Act of 1940,
as amended, as a diversified open-end management investment company. The Fund
is a series of PaineWebber Managed Assets Trust (the "Trust") which is
organized under Massachusetts law by a Declaration of Trust. At a meeting held
on August 19, 1998, the Trust's board of trustees elected to change the
Trust's fiscal year end from March 31st to August 31st, effective August 31,
1998.
The Fund offers Class A, Class B, Class C and Class Y 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 reinvested dividend shares
automatically convert to Class A shares approximately six years after
issuance. All classes of shares have equal voting privileges, except that
Class A, Class B and Class C shares have 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 stock exchanges
are valued at the last sales price on the day the securities are being valued
or, lacking any sales on such day, at the last available bid price. In cases
where securities are traded on more than one exchange, the securities are
valued on the exchange designated as the primary market by Mitchell Hutchins
Asset Management Inc. ("Mitchell Hutchins"), a wholly owned asset management
subsidiary of PaineWebber Incorporated ("PaineWebber"), and investment adviser
and administrator of the Fund. Prior to May 1, 1998, when Mitchell Hutchins
assumed the day to day management responsibility, Denver Investment Advisors,
LLC, served as the Fund's sub-adviser. Securities traded in the
over-the-counter ("OTC") market and listed on the Nasdaq Stock Market, Inc.
("Nasdaq") are valued at the last available sales price, or last bid price
available if no sale occurs on Nasdaq prior to the time of valuation. Where
market quotations are readily available, debt securities are valued thereon,
provided such quotations adequately reflect the fair values of the securities
in the judgment of Mitchell Hutchins. When market quotations are not readily
available, securities are valued based upon appraisals derived from
information concerning those securities or similar securities received from
recognized dealers in those securities. The amortized cost method of valuation
is used to value short-term debt instruments with sixty days or less remaining
to maturity. Securities for which market quotations are not readily available
including restricted securities subject to limitations as to their sale are
valued at fair value as determined in good faith by, or under the direction of
the Fund's board of trustees.
Repurchase Agreements--The Fund's custodian takes possession of the
collateral pledged for investments in repurchase agreements. The underlying
collateral is valued daily on a mark-to-market basis to ensure that the value,
including accrued interest, is at least equal to the repurchase price. In the
event of default of the obligation to repurchase, the Fund has the right to
liquidate the collateral and apply the proceeds in satisfaction of the
obligation. Under certain circumstances, in the event of default or bankruptcy
by the other party to the agreement, realization and/or retention of the
collateral may be subject to legal proceedings. The Fund occasionally
participates in joint repurchase agreement transactions with other funds
managed by Mitchell Hutchins.
12
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Investment Transactions and Investment Income--Investment transactions are
recorded on the 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. Discounts are accreted and premiums are amortized as
adjustments to interest income and the identified costs of investments.
Income, expenses (excluding class-specific expenses) and
realized/unrealized gains/losses are allocated proportionately to each class
of shares based upon the relative net asset value of outstanding shares (or
the value of dividend-eligible shares, as appropriate) of each class at the
beginning of the day (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. The amount of dividends and
distributions are determined in accordance with federal income tax
regulations, which may differ from generally accepted accounting principles.
These "book/tax" 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
The Fund invests primarily in equity securities of medium-sized companies,
which may entail greater market volatility and risks of adverse financial
developments than is the case for securities of larger companies. In addition,
the Fund has the ability to invest in U.S. dollar-denominated foreign equity
securities and the 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 paid monthly, at the annual
rate of 1.00%, of the Fund's average daily net assets. At August 31, 1998, Mid
Cap Fund owed Mitchell Hutchins $168,240 in investment advisory and
administration fees.
Prior to May 1, 1998, Denver Investment Advisors served as the sub-adviser
to the Mid Cap Fund pursuant to a sub- advisory contract with Mitchell
Hutchins. Mitchell Hutchins (not the Fund) paid Denver a monthly fee in an
amount equal to 50% of the fee paid to Mitchell Hutchins under the Advisory
Contract.
For the five months ended August 31, 1998 and the year ended March 31,
1998, Mid Cap Fund paid no brokerage commissions to PaineWebber for
transactions executed on behalf of the Fund.
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 service and/or distribution pertaining to Class A, Class B
and Class C shares, 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 August 31,
1998, Mid Cap Fund owed Mitchell Hutchins $97,418 in service and distribution
fees.
13
<PAGE>
NOTES TO FINANCIAL STATEMENTS
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 five months ended August 31, 1998 and the year ended March 31, 1998,
it earned $109,534 and $288,384, respectively, in sales charges.
SECURITY LENDING
The Fund may lend securities up to 33 1/3% of its total assets to qualified
institutions. The loans are secured at all times by cash or U.S. government
securities in an amount at least equal to the market value of the securities
loaned, plus accrued interest, determined on a daily basis and adjusted
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, which received $8,609 and $2,859,
respectively, in compensation from the Fund for the five months ended August
31, 1998 and the year ended March 31, 1998. At August 31, 1998, Mid Cap Fund
owed PaineWebber $3,273 in compensation as security lending agent.
As of August 31, 1998, the Fund's custodian held cash and cash equivalents
having an aggregate value of $12,018,800 as collateral for portfolio
securities loaned having a market value of $10,763,500 which was invested in
the following money market funds:
Number of
Shares Value
------ -----
9,141,530 Liquid Assets Portfolio........................ $ 9,141,530
2,446,356 Prime Portfolio................................ 2,446,356
430,914 TempFund Portfolio............................. 430,914
-------------
Total investments in cash collateral for
securities loaned (cost--$12,018,800).......... $ 12,018,800
=============
BANK LINE OF CREDIT
The Fund may participate with other funds managed by Mitchell Hutchins in a
$200 million committed credit facility ("Facility") to be utilized for
temporary financing until the settlement of sale or purchase of portfolio
securities, the repurchase or redemption of shares of each Fund at the request
of the shareholders and other temporary or emergency purposes. In connection
therewith, the Fund has agreed to pay a commitment fee, pro rata, based on the
relative asset size of the funds in the Facility. Interest is charged to the
fund at rates based on prevailing market rates in effect at the time of
borrowings. For the five months ended August 31, 1998 and the year ended March
31, 1998, the Fund did not borrow under the Facility.
14
<PAGE>
NOTES TO FINANCIAL STATEMENTS
TRANSFER AGENCY RELATED SERVICE FEES
Prior to August 1, 1997, the Fund paid PaineWebber an annual fee of $4.00
per active PaineWebber shareholder account for certain services not provided
by the Fund's transfer agent. For these services for the four months ended
July 31, 1997, PaineWebber earned $28,077 from the Fund. PaineWebber provides
certain transfer agency related services to the Fund pursuant to a delegation
of authority from PFPC, Inc., the Fund's transfer agent, and is compensated
for these services by PFPC, Inc., not the Fund. For the five months ended
August 31, 1998 and for the period August 1, 1997 through March 31, 1998,
PaineWebber received approximately 56% of the total service fees collected by
PFPC, Inc.
INVESTMENTS IN SECURITIES
For federal income tax purposes, the cost of securities owned at August 31,
1998 was substantially the same as the cost of securities for financial
statement purposes.
At August 31, 1998, the components of net unrealized depreciation of
investments were as follows:
Gross appreciation (investments having an excess of value
over cost)................................................ $ 14,365,244
Gross depreciation (investments having an excess of cost
over value)................................................ (36,610,505)
--------------
Net unrealized depreciation of investments.................... $(22,245,261)
==============
For the five months ended August 31, 1998, aggregate purchases and sales of
portfolio securities, excluding short-term securities, were $173,575,877 and
$221,729,620, respectively.
FEDERAL TAX STATUS
The Fund intends to distribute substantially all of their taxable income
and to comply with the other requirements of the Internal Revenue Code
applicable to regulated investment companies. Accordingly, no provision for
federal income taxes is required. In addition, by distributing during each
calendar year 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 five months ended August 31, 1998, undistributed net investment loss
was increased by $964,427 and beneficial interest was decreased by $964,427 to
reclassify the accumulated operating loss for the five months ended August 31,
1998.
15
<PAGE>
NOTES TO FINANCIAL STATEMENTS
BENEFICIAL INTEREST
There was 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 Class Y
-------------------- --------------------- --------------------- ------------------
Shares Amount Shares Amount Shares Amount Shares Amount
-------- ---------- -------- ---------- --------- --------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
For the Five Months
Ended August 31, 1998
Shares sold................. 2,182,101 $24,315,812 354,492 $ 3,832,818 383,808 $ 4,499,817 7,738 $ 81,106
Shares repurchased.......... (4,267,087) (50,849,996) (1,267,833) (16,289,937) (687,258) (8,417,661) (2,894) (29,401)
Shares converted from
Class B to Class A........ 3,641,925 52,669,649 (3,596,252) (52,669,649) -- -- -- --
Dividends reinvested 3,041,806 31,817,286 1,903,180 19,983,663 652,656 6,226,334 1,016 10,624
---------- ----------- ----------- ------------ --------- ----------- ------- --------
Net increase (decrease)..... 4,598,745 $57,952,751 (2,606,413) $(45,143,105) 349,206 $ 2,308,490 5,860 $ 62,329
========= =========== =========== ============ ========= =========== ======= ========
For the Year Ended
March 31, 1998
Shares sold................. 1,152,078 $18,144,195 435,394 $ 7,043,465 876,575 $12,661,915 3,103 $ 46,229
Shares repurchased.......... (2,175,121) (33,257,452) (2,312,967) (35,407,408) (1,284,257) (18,418,905) (775) (11,551)
Shares converted from
Class B to Class A........ 658,362 10,279,880 (653,737) (10,279,880) -- -- -- --
Dividends reinvested........ 1,422,364 18,376,942 2,125,930 27,658,352 455,931 5,539,558 -- --
---------- ----------- ----------- ------------ --------- ----------- ------- --------
Net increase (decrease)..... 1,057,683 $13,543,565 (405,380) $(10,985,471) 48,249 $ (217,432) 2,328 $ 34,678
========= =========== =========== ============ ========= =========== ======= ========
For the Year Ended
March 31, 1997
Shares sold................. 1,503,465 $24,453,506 836,560 $ 13,630,373 750,047 $11,443,293
Shares repurchased.......... (1,739,943) (28,153,504) (1,892,839) (30,262,849) (929,189) (14,139,350)
Shares converted from
Class B to Class A........ 303,527 4,759,952 (299,572) (4,759,952) -- --
Dividends reinvested........ 750,634 10,974,277 1,361,871 20,169,309 284,672 3,993,937
---------- ----------- ----------- ------------ --------- -----------
Net increase (decrease)..... 817,683 $12,034,231 6,020 $ (1,223,119) 105,530 $ 1,297,880
========= =========== =========== ============ ========= ===========
</TABLE>
16
<PAGE>
PAINEWEBBER MID CAP FUND
FINANCIAL HIGHLIGHTS
Selected data for a beneficial interest outstanding throughout each period is
presented below:
<TABLE>
<CAPTION>
Class A
-------------------------------------------------------------
For the
Five
Months
Ended For the Years Ended March 31,
August 31, -----------------------------------------------
1998# 1998 1997 1996 1995 1994
----- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ........................... $ 15.00 $ 13.44 $ 15.61 $ 12.81 $ 11.6 $ 10.53
--------- -------- -------- ------- ------- -------
Net investment loss............................................. (0.03) (0.13) (0.17) (0.16) (0.09) (0.09)
Net realized and unrealized gains (losses) from investments..... (3.15) 5.15 0.32 3.71 1.29 1.21
--------- -------- -------- ------- ------- -------
Net increase (decrease) from investment operations.............. (3.18) 5.02 0.15 3.55 1.20 1.12
--------- -------- -------- ------- ------- -------
Distributions from net realized gains from investments.......... (3.85) (3.46) (2.32) (0.75) (0.04) --
--------- -------- --------- ------- ------- -------
Net asset value, end of period.................................. $ 7.97 $ 15.00 $ 13.44 $ 15.61 $ 12.81 $ 11.65
========= ======== ======== ======= ======= =======
Total investment return (1)..................................... (27.31)% 41.50% (0.21)% 28.16% 10.36% 10.64%
========= ======== ======== ======= ======= =======
Ratios/Supplemental Data:
Net assets, end of period (000's)............................... $ 90,650 $101,698 $ 76,909 $76,558 $62,673 $58,523
Expenses to average net assets.................................. 1.48%* 1.51% 1.60% 1.58% 1.58% 1.54%
Net investment loss to average net assets....................... (0.61)%* (1.16)% (1.20)% (1.11)% (0.79)% (0.84)%
Portfolio turnover.............................................. 80% 64% 56% 57% 42% 60%
</TABLE>
- ---------------------
* Annualized
# Effective May 1, 1998, Mitchell Hutchins took over day-to-day management
of the Fund's assets.
(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 would be lower if sales
charges were included. Total investment return for period of less than
one year has not been annualized.
17
<PAGE>
PAINEWEBBER MID CAP FUND
FINANCIAL HIGHLIGHTS
Selected data for a beneficial interest outstanding throughout each period is
presented below:
<TABLE>
<CAPTION>
Class B
-----------------------------------------------------------------
For the
Five
Months
Ended For the Years Ended March 31,
August 31, ----------------------------------------------------
1998# 1998 1997 1996 1995 1994
------- -------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period........................... $ 15.07 $ 13.59 $ 15.88 $ 13.11 $ 12.02 $ 10.94
------- -------- ------- -------- -------- --------
Net investment loss............................................ (0.07) (0.31) (0.31) (0.29) (0.20) (0.17)
Net realized and unrealized gains (losses) from investments.... (3.16) 5.25 0.34 3.81 1.33 1.25
------- -------- ------- -------- -------- --------
Net increase (decrease) from investment operations............. (3.23) 4.94 0.03 3.52 1.13 1.08
------- -------- ------- -------- -------- --------
Distributions from net realized gains from investments......... (3.85) (3.46) (2.32) (0.75) (0.04) --
------- -------- ------- -------- -------- --------
Net asset value, end of period................................. $ 7.99 $ 15.07 $ 13.59 $ 15.88 $ 13.11 $ 12.02
======= ======== ======= ======== ======== ========
Total investment return (1).................................... (27.54)% 40.39% (0.99)% 27.28% 9.46% 9.87%
======= ======== ======= ======== ======== ========
Ratios/Supplemental Data:
Net assets, end of period (000's).............................. $54,978 $143,058 $134,495 $157,021 $139,302 $133,828
Expenses to average net assets................................. 2.32%* 2.28% 2.36% 2.34% 2.34% 2.30%
Net investment loss to average net assets...................... (1.48)%* (1.92)% (1.95)% (1.87)% (1.56)% (1.60)%
Portfolio turnover............................................. 80% 64% 56% 57% 42% 60%
</TABLE>
- ------------------
* Annualized
# Effective May 1, 1998, Mitchell Hutchins took over day-to-day management
of the Fund's assets.
+ Commencement of issuance of shares
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each period reported, reinvestment of all dividends and
distributions, if any, at net asset value on the payable dates, and a
sale at net asset value on the last day of each period reported. The
figures do not include sales charges or program fees; results would be
lower if sales charges or program fees were included. Total investment
returns for period of less than one year have not been annualized.
18
<PAGE>
<TABLE>
<CAPTION>
Class C
---------------------------------------------------------------------------------------
For the
Five
Months
Ended For the Years Ended March 31,
August 31, ------------------------------------------------------------------------
1998# 1998 1997 1996 1995 1994
---------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period........................... $ 14.07 $ 12.87 $ 15.14 $ 12.54 $ 11.50 $ 10.47
--------- ---------- ---------- ---------- --------- --------
Net investment loss................... (0.06) (0.26) (0.29) (0.27) (0.19) (0.10)
Net realized and unrealized gains
(losses) from investments........... (2.90) 4.92 0.34 3.62 1.27 1.13
--------- ---------- ---------- ---------- --------- --------
Net increase (decrease) from
investment operations............... (2.96) 4.66 0.05 3.35 1.08 1.03
--------- ---------- ---------- ---------- --------- --------
Distributions from net realized
gains from investments.............. (3.85) (3.46) (2.32) (0.75) (0.04) --
--------- ---------- ---------- ---------- --------- --------
Net asset value, end of period........ $ 7.26 $ 14.07 $ 12.87 $ 15.14 $ 12.54 $ 11.50
========= ========== ========== ========== ========= ========
Total investment return (1)........... (27.58)% 40.46% (0.91)% 27.16% 9.45% 9.84%
========= ========== ========== ========== ========= ========
Ratios/Supplemental Data:
Net assets, end of period (000's)..... $ 16,875 $ 27,814 $ 24,810 $ 27,601 $ 24,993 $ 29,884
Expenses to average net assets........ 2.28%* 2.29% 2.37% 2.36% 2.35% 2.28%
Net investment loss to average
net assets.......................... (1.42)%* (1.94)% (1.97)% (1.89)% (1.57)% (1.57)%
Portfolio turnover.................... 80% 64% 56% 57% 42% 60%
<CAPTION>
Class Y
---------------------
For the For the
Five Period
Months March 17,
Ended 1998+ to
August 31, March 31,
1998# 1998
----- ----
<S> <C> <C>
Net asset value, beginning of period........................... $ 15.00 $ 14.90
------- -------
Net investment loss............................................ (0.01) 0.00
Net realized and unrealized gains (losses) from investments.... (3.17) 0.10
------- -------
Net increase (decrease) from investment operations............. (3.18) 0.10
------- -------
Distributions from net realized gains from investments......... (3.85) --
------- -------
Net asset value, end of period................................. $ 7.97 $ 15.00
======= =======
Total investment return (1).................................... (27.31)% 0.67%
======= =======
Ratios/Supplemental Data:
Net assets, end of period (000's).............................. $ 65 $ 35
Expenses to average net assets................................. 1.23%* 1.22%*
Net investment loss to average net assets...................... (0.29)%* 0.00%*
Portfolio turnover............................................. 80% 64%
</TABLE>
19
<PAGE>
PAINEWEBBER MID CAP FUND
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Boards of Trustees and Shareholders
PaineWebber Mid Cap Fund
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of PaineWebber Mid Cap Fund at August
31, 1998, and the related statements of operations for the five months ended
August 31, 1998 and for the year ended March 31, 1998, and the statements of
changes in net assets 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 the 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 audits 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 investments owned at August 31, 1998, by correspondence with
the custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall 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 Mid Cap Fund at August 31, 1998, the results of its operations for
the five months ended August 31, 1998 and for the year ended March 31, 1998,
and the changes in its net assets 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
October 16, 1998
20
<PAGE>
PAINEWEBBER MID CAP 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 (August
31, 1998) as to federal tax status of distributions received by shareholders
during such fiscal year. Accordingly, we are advising you that the following
distributions paid during the fiscal year by the Fund were derived from the
following sources:
<TABLE>
<CAPTION>
Per Share Data:
---------------
<S> <C>
Long-term capital gains:
Taxable at 20% maximum rate ............................................ $3.8500
Percentage of ordinary income dividends qualifying for the
dividends received deduction available to corporate shareholders........ --
</TABLE>
Dividends received by tax-exempt recipients (e.g., IRAs and Keoghs) need
not be reported as taxable income. Some retirement trusts (e.g., corporate,
Keogh and 403(b)(7) plans) may need this information for their annual
information reporting.
Since the Fund's fiscal year is not the calendar year, another notification
will be sent with respect to calendar year 1998. Such notifications, which
will reflect the amount to be used by calendar year taxpayers on their federal
income tax returns, will be made in conjunction with Form 1099 DIV and will be
mailed in January 1999. Shareholders are advised to consult their own tax
advisers with respect to the tax consequences of their investment in the Fund.
21
<PAGE>
[This Page Intentionally Left Blank]
<PAGE>
TRUSTEES
E. Garrett Bewkes, Jr. Mary C. Farrell
Chairman Meyer Feldberg
Margo N. Alexander George W. Gowen
Richard Q. Armstrong Frederic V. Malek
Richard R. Burt Carl W. Schafer
PRINCIPAL OFFICERS
Margo N. Alexander Paul H. Schubert
President Vice President and Treasurer
Victoria E. Schonfeld Mark A. Tincher
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
This report is not to be used in conjunction with the offering of shares of
the Fund unless accompanied or preceded by an effective prospectus.
A prospectus containing more complete information for any of the Funds listed
on the back cover can be obtained from a PaineWebber investment executive or
corresponding firm. Read the prospectus carefully before investing.
<PAGE>
PaineWebber offers a family of 27 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 Financial Services Growth Fund
o Growth Fund
o Growth and Income Fund
o Mid Cap Fund
o Small Cap Fund
o S&P 500 Index Fund
o Tax-Managed Equity 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
MITCHELL HUTCHINS PORTFOLIOS
o Aggressive Portfolio
o Moderate Portfolio
o Conservative Portfolio
PAINEWEBBER MONEY MARKET FUND
PaineWebber
(Copyright) 1998 PaineWebber Incorporated
Member SIPC
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PaineWebber
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MID CAP
FUND
ANNUAL REPORT
AUGUST 31, 1998
