<PAGE>
PAINEWEBBER SMALL CAP VALUE FUND
RECENT PERFORMANCE RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
NET ASSET VALUE TOTAL RETURN/1/
-------------------------- ------------------------------
12 MONTHS 6 MONTHS
07/31/95 01/31/95 07/31/94 ENDED 07/31/95 ENDED 07/31/95
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A Shares $11.30 $10.00 $10.27 15.80% 13.00%
- -------------------------------------------------------------------------
Class B Shares 11.15 9.91 10.22 14.86 12.51
- -------------------------------------------------------------------------
Class D Shares 11.14 9.90 10.22 14.76 12.53
- -------------------------------------------------------------------------
</TABLE>
Performance Summary Class A Shares
<TABLE>
<CAPTION>
NET ASSET VALUE
---------------- CAPITAL GAINS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID RETURN/1/
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
02/01/93 - 12/31/93 $10.00 $10.62 $0.0168 $0.1281 7.68%
- ----------------------------------------------------------------------------
1994 10.62 9.97 0.5208 -- (1.20)
- ----------------------------------------------------------------------------
01/01/95 - 07/31/95 9.97 11.30 -- -- 13.34
- ----------------------------------------------------------------------------
Totals: $0.5376 $0.1281
- ----------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF
07/31/95: 20.58%
- ----------------------------------------------------------------------------
</TABLE>
Performance Summary Class B Shares
<TABLE>
<CAPTION>
NET ASSET VALUE
---------------- CAPITAL GAINS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID RETURN/1/
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
02/01/93 - 12/31/93 $10.00 $10.61 $0.0168 $0.0631 6.91%
- ----------------------------------------------------------------------------
1994 10.61 9.88 0.5208 -- (1.96)
- ----------------------------------------------------------------------------
01/01/95 - 07/31/95 9.88 11.15 -- -- 12.85
- ----------------------------------------------------------------------------
Totals: $0.5376 $0.0631
- ----------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF
07/31/95: 18.29%
- ----------------------------------------------------------------------------
</TABLE>
Performance Summary Class D Shares
<TABLE>
<CAPTION>
NET ASSET VALUE
---------------- CAPITAL GAINS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID RETURN/1/
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
02/01/93 - 12/31/93 $10.00 $10.61 $0.0168 $0.0682 6.97%
- ----------------------------------------------------------------------------
1994 10.61 9.88 0.5208 -- (1.96)
- ----------------------------------------------------------------------------
01/01/95 - 07/31/95 9.88 11.14 -- -- 12.75
- ----------------------------------------------------------------------------
Totals: $0.5376 $0.0682
- ----------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF
07/31/95: 18.25%
- ----------------------------------------------------------------------------
</TABLE>
/1Figures/assume reinvestment of all dividends and capital gains
distributions at net asset value on the payable dates and do not include
sales charges; results would be lower for Class A and Class B shares if
sales charges were included.
1
<PAGE>
PAINEWEBBER SMALL CAP VALUE FUND
PORTFOLIO OF INVESTMENTS JULY 31, 1995
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- ---------
COMMON STOCKS - 90.23%
<C> <S> <C>
Apparel & Footwear - 4.15%
82,800 Delta Woodside Industries, Inc. ......................... $ 724,500
24,100 Fab Industries, Inc. .................................... 750,112
45,000 Oshkosh B'Gosh, Inc. (Class A)*.......................... 765,000
15,400 Russell Corp. ........................................... 435,050
57,300 The Stride Rite Corp. ................................... 637,463
---------
3,312,125
---------
Auto Products & Services - 0.95%
77,800 TBC Corp.*............................................... 758,550
---------
Banks - 1.29%
9,700 State Street Boston Corp. ............................... 343,138
7,000 U. S. Trust Corp.*....................................... 532,000
5,300 Wilmington Trust Corp.................................... 155,025
---------
1,030,163
---------
Building Materials - 2.86%
35,300 CalMat Co. .............................................. 666,288
36,000 Florida Rock Industries, Inc. ........................... 1,017,000
35,000 Juno Lighting Inc.*...................................... 603,750
---------
2,287,038
---------
Business Products & Related Services - 6.26%
7,100 BIC Corp................................................. 275,125
37,700 Bowne & Co., Inc. ....................................... 692,737
28,400 Hunt Manufacturing Co. .................................. 397,600
10,600 John H. Harland Co. ..................................... 234,525
19,400 McClatchy Newspapers, Inc. (Class A)..................... 424,375
18,400 New England Business Services, Inc. ..................... 393,300
31,900 Scitex Ltd.*............................................. 638,000
52,800 The Standard Register Co.*............................... 1,128,600
4,300 Wallace Computer Services, Inc. ......................... 251,012
30,000 Wang Labs, Inc.*......................................... 562,500
---------
4,997,774
---------
Chemicals - 1.97%
38,100 Lawter International, Inc. .............................. 438,150
24,000 LeaRonal, Inc. .......................................... 582,000
33,500 Quaker Chemical Corp..................................... 552,750
---------
1,572,900
---------
</TABLE>
2
<PAGE>
PAINEWEBBER SMALL CAP VALUE FUND
PORTFOLIO OF INVESTMENTS (CONTINUED) JULY 31, 1995
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- ----------
COMMON STOCKS - (CONTINUED)
<C> <S> <C>
Consumer Durables - 5.42%
20,000 Arctco Inc.............................................. $ 232,500
40,000 Ethan Allen Interiors Inc. ............................. 745,000
32,300 Kimball International, Inc. (Class B)................... 819,613
7,400 La Z Boy Chair Co. ..................................... 200,725
18,000 National Presto Industries, Inc. ....................... 837,000
27,200 Sturm Ruger & Co., Inc. ................................ 890,800
97,000 Topps, Inc.* ........................................... 606,250
----------
4,331,888
----------
Distributors - 1.64%
41,700 Handleman Co. .......................................... 432,638
15,500 NCH Corp. .............................................. 879,625
----------
1,312,263
----------
Energy - 4.18%
14,600 Ashland Coal, Inc. ..................................... 417,925
8,450 Barrett Resources Corp.* ............................... 189,069
35,400 Cliffs Drilling Co.*.................................... 481,219
20,000 Devon Energy Corp. ..................................... 392,500
37,300 Oceaneering International, Inc.* ....................... 349,687
19,500 Parker & Parsley Petroleum Co. ......................... 377,812
12,730 Penn Virginia Corp.*.................................... 380,309
30,000 Reading & Bates Corp. .................................. 300,000
48,000 Santa Fe Energy Resources, Inc. ........................ 450,000
----------
3,338,521
----------
Financial Services - 2.39%
22,300 Duff & Phelps Corp. .................................... 239,725
5,766 Duff & Phelps Credit Rating Co. ........................ 75,679
14,800 Pioneer Group Inc.* .................................... 425,500
23,800 Raymond James Financial Inc. ........................... 517,650
23,700 Student Loan Corp. ..................................... 648,787
----------
1,907,341
----------
Food & Related Services - 3.98%
6,500 Farmer Bros. Co. ....................................... 754,000
24,000 Flowers Industries, Inc. ............................... 441,000
34,600 International Dairy Queen, Inc.* ....................... 726,600
25,500 Lance, Inc. ............................................ 452,625
26,875 Rykoff-Sexton, Inc. .................................... 547,578
7,210 Tootsie Roll Industries Inc. ........................... 259,560
----------
3,181,363
----------
Health Care - 2.31%
14,890 Block Drug Inc. ........................................ 543,485
35,000 Haemonetics Corp. Massachusetts......................... 774,375
2,200 Life Technologies Inc.* ................................ 49,500
20,000 Marquette Electronics Inc.* ............................ 310,000
6,800 Spacelabs Inc.*......................................... 169,575
----------
1,846,935
----------
</TABLE>
3
<PAGE>
PAINEWEBBER SMALL CAP VALUE FUND
PORTFOLIO OF INVESTMENTS (CONTINUED) JULY 31, 1995
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- -----------
COMMON STOCKS - (CONTINUED)
<C> <S> <C>
Industrial Products & Services - 9.76%
30,000 BWIP Holding, Inc. (Class A) .......................... $ 570,000
35,000 Camco International, Inc. ............................. 800,625
20,000 Giddings & Lewis, Inc. ................................ 332,500
34,100 P.H. Glatfelter Co. ................................... 745,938
19,600 Greif Bros. Corp. (Class A)............................ 448,350
11,200 Joslyn Corp. .......................................... 414,400
26,200 Kaydon Corp. .......................................... 733,600
22,600 Lawson Products, Inc................................... 607,375
53,750 Lilly Industries Inc. (Class A) ....................... 705,469
15,000 Lincoln Electric Co.* ................................. 431,250
23,500 Oregon Steel Mills Inc. ............................... 390,687
17,500 Precision Castparts Corp. ............................. 623,437
92,800 Rollins Environmental Services, Inc. .................. 452,400
6,800 Tecumseh Products Co. (Class A)* ...................... 324,700
10,000 Wausau Paper Mills Co. ................................ 220,000
-----------
7,800,731
-----------
Insurance - 16.82%
4,243 Alleghany Corp. ....................................... 691,609
29,900 Argonaut Group, Inc. .................................. 911,950
24,700 W R Berkley Corp. ..................................... 947,862
40,700 E. W. Blanch Holdings, Inc. ........................... 696,987
20,500 Capital Re Corp. ...................................... 543,250
10,000 CMAC Investment Corp. ................................. 491,250
42,000 Commerce Group, Corp. ................................. 761,250
22,000 Fremont General Corp. ................................. 591,250
8,000 Harleysville Group, Inc. .............................. 206,000
61,300 Hilb, Rogal & Hamilton Co. ............................ 750,925
12,300 Horace Mann Educators Corp. ........................... 315,188
10,000 Leucadia National Corp. ............................... 566,250
12,000 Mid Ocean Limited...................................... 399,000
20,706 Orion Capital Corp. ................................... 861,887
28,200 Partner RE Holding..................................... 712,050
25,875 RLI Corp. ............................................. 595,125
7,800 Transatlantic Holdings, Inc. .......................... 514,800
14,900 Trenwick Group Inc. ................................... 692,850
7,000 Wesco Financial Corp. ................................. 887,250
47,100 Willis Corroon Group, plc, ADR ........................ 547,538
35,000 Zenith National Insurance Corp. ....................... 756,875
-----------
13,441,146
-----------
Real Estate Holdings & Services - 1.70%
10,000 Florida East Coast Industries, Inc. ................... 675,000
52,100 Newhall Land & Farming Co. LP.......................... 683,813
-----------
1,358,813
-----------
</TABLE>
4
<PAGE>
PAINEWEBBER SMALL CAP VALUE FUND
PORTFOLIO OF INVESTMENTS (CONTINUED) JULY 31, 1995
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- -----------
COMMON STOCKS - (CONTINUED)
<C> <S> <C>
Retail & Mail Order - 11.56%
18,800 Blair Corp. ........................................... $ 646,250
84,000 Charming Shoppes, Inc.................................. 409,500
40,800 Claire's Stores, Inc. ................................. 816,000
4,500 Dart Group Corp. (Class A)............................. 385,875
108,000 The Dress Barn*........................................ 1,147,500
54,900 Family Dollar Stores, Inc.............................. 1,001,925
15,000 Fingerhut Cos, Inc. ................................... 251,250
7,800 Land's End, Inc.*...................................... 119,925
14,000 Longs Drug Stores Corp. ............................... 512,750
54,000 Mikasa, Inc. (Class B)................................. 837,000
37,400 Neiman Marcus Group, Inc. ............................. 575,025
88,095 Pier 1 Imports, Inc. .................................. 858,926
42,100 Russ Berrie and Co., Inc............................... 610,450
30,000 Shopko Stores, Inc. ................................... 386,250
21,200 Stanhome, Inc. ........................................ 681,050
-----------
9,239,676
-----------
Services - 10.01%
10,000 Acordia, Inc. ......................................... 282,500
19,200 ADVO, Inc. ............................................ 352,800
16,800 Angelica Corp. ........................................ 424,200
40,500 Comdisco, Inc.*........................................ 1,301,062
69,200 Crawford & Co. (Class A)............................... 1,029,350
51,700 Dames & Moore, Inc. ................................... 710,875
9,100 FlightSafety International, Inc. ...................... 417,463
3,875 Grey Advertising, Inc.................................. 724,625
20,800 Jenny Craig, Inc. ..................................... 158,600
15,100 National Service Industries, Inc. ..................... 445,450
16,400 SEI Corp............................................... 354,650
80,800 Sotheby's Holdings, Inc. .............................. 1,080,700
22,900 Stone & Webster, Inc. ................................. 712,762
-----------
7,995,037
-----------
Transportation - 2.98%
31,650 Air Express International Corp......................... 795,206
20,000 Arnold Industries Inc.................................. 365,000
23,000 Atlantic Southeast Airlines Inc........................ 632,500
5,000 Comair Holdings Inc. .................................. 166,250
24,800 The Harper Group....................................... 424,700
-----------
2,383,656
-----------
Total Common Stocks (cost - $66,753,814)......................... 72,095,920
-----------
</TABLE>
5
<PAGE>
PAINEWEBBER SMALL CAP VALUE FUND
PORTFOLIO OF INVESTMENTS (CONCLUDED) JULY 31, 1995
<TABLE>
<CAPTION>
PRINCIPAL MATURITY INTEREST
AMOUNT DATES RATES VALUE
- ---------- -------- -------- -----
U.S.(GOVERNMENT0SECURITIES - 6.08%00)
<C> <S> <C> <C> <C>
United States Treasury Bills (cost -
$5,000 $4,857,148)............................ 02/08/96 5.385% $ 4,855,955
-----------
REPURCHASE AGREEMENT - 2.77%
2,210 Repurchase Agreement dated 07/31/95 with
Salomon Brothers, Inc, collateralized
by $2,182,000 U.S. Treasury Notes,
6.625% due 05/31/97; proceeds:
$2,210,355 (cost - $2,210,000)......... 08/01/95 5.790 2,210,000
-----------
Total Investments (cost - $73,820,962) - 99.08%. 79,161,875
Other assets in excess of liabilities - 0.92%... 737,213
-----------
Net Assets - 100.00%............................ $79,899,088
===========
</TABLE>
- -------
* Non-income producing security
ADR American Depositary Receipts
See accompanying notes to financial statements
6
<PAGE>
PAINEWEBBER SMALL CAP VALUE FUND
STATEMENT OF ASSETS AND LIABILITIES JULY 31, 1995
<TABLE>
<S> <C>
Assets
Investments, at value (cost - $73,820,962)......................... $79,161,875
Cash............................................................... 701
Receivable for investments sold.................................... 1,106,984
Dividends and interest receivable.................................. 40,906
Receivable for shares of beneficial interest sold.................. 53,425
Deferred organizational expenses................................... 125,392
Other assets....................................................... 39,064
-----------
Total assets...................................................... 80,528,347
-----------
Liabilities
Payable for investments purchased.................................. 168,917
Payable for shares of beneficial interest repurchased.............. 113,431
Payable to affiliate............................................... 125,451
Accrued expenses and other liabilities............................. 221,460
-----------
Total liabilities................................................. 629,259
-----------
Net Assets
Beneficial interest shares of $0.001 par value outstanding
(unlimited amount authorized)..................................... 70,888,087
Accumulated net realized gains from investments.................... 3,670,088
Net unrealized appreciation of investments......................... 5,340,913
-----------
Net assets......................................................... $79,899,088
===========
Class A:
Net assets......................................................... $20,493,902
-----------
Shares outstanding................................................. 1,814,102
-----------
Net asset and redemption value per share........................... $11.30
======
Maximum offering price per share (net asset value plus sales charge
of 4.50% of offering price)....................................... $11.83
======
Class B:
Net assets......................................................... $46,141,774
-----------
Shares outstanding................................................. 4,138,255
-----------
Net asset value and offering price per share....................... $11.15
======
Class D:
Net assets......................................................... $13,263,412
-----------
Shares outstanding................................................. 1,190,191
-----------
Net asset value, offering price and redemption value per share..... $11.14
======
</TABLE>
See accompanying notes to financial statements
7
<PAGE>
PAINEWEBBER SMALL CAP VALUE FUND
STATEMENT OF OPERATIONS FOR THE YEAR ENDED JULY 31, 1995
<TABLE>
<S> <C>
Investment income:
Dividends (net of foreign
withholding taxes of
$9,514)................. $ 1,581,013
Interest................. 404,083
-----------
1,985,096
-----------
Expenses:
Investment advisory and
administration.......... 829,906
Distribution fees--Class
A....................... 52,327
Distribution fees--Class
B....................... 477,586
Distribution fees--Class
D....................... 143,010
Custody and accounting... 139,228
Transfer agency and
service fees............ 122,846
Reports and notices to
shareholders............ 108,283
Federal and state
registration fees....... 86,953
Legal and audit.......... 82,435
Amortization of
organizational expenses. 51,800
Trustees' fees and
expenses................ 10,000
Other expenses........... 8,379
-----------
2,112,753
-----------
Net investment loss...... (127,657)
-----------
Realized and unrealized
gains from investment
transactions:
Net realized gains from
investment transactions. 4,379,410
Net change in unrealized
appreciation/depreciation
of investments.......... 7,078,454
-----------
Net realized and
unrealized gains from
investment transactions. 11,457,864
-----------
Net increase in net
assets resulting from
operations.............. $11,330,207
===========
</TABLE>
See accompanying notes to financial statements
8
<PAGE>
PAINEWEBBER SMALL CAP VALUE FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR FEBRUARY 1, 1994
ENDED THROUGH
JULY 31, 1995 JULY 31, 1994
------------- ----------------
<S> <C> <C>
From operations:
Net investment loss............................ $ (127,657) $ (87,690)
Net realized gains from investment
transactions.................................. 4,379,410 3,747,222
Net change in unrealized
appreciation/depreciation of investments...... 7,078,454 (7,290,945)
------------ ------------
Net increase (decrease) in net assets resulting
from operations............................... 11,330,207 (3,631,413)
------------ ------------
Dividends to shareholders from:
Net realized gains from investment
transactions--Class A......................... (1,099,875) --
Net realized gains from investment
transactions--Class B......................... (2,545,115) --
Net realized gains from investment
transactions--Class D......................... (770,850) --
------------ ------------
(4,415,840) --
------------ ------------
From beneficial interest transactions:
Net proceeds from the sale of shares........... 8,287,256 8,753,590
Cost of shares repurchased..................... (31,154,154) (19,525,015)
Proceeds from dividends reinvested............. 4,095,250 --
------------ ------------
Net decrease in net assets from beneficial
interest transactions......................... (18,771,648) (10,771,425)
------------ ------------
Net decrease in net assets..................... (11,857,281) (14,402,838)
Net assets:
Beginning of period............................ 91,756,369 106,159,207
------------ ------------
End of period.................................. $ 79,899,088 $ 91,756,369
============ ============
</TABLE>
See accompanying notes to financial statements
9
<PAGE>
PAINEWEBBER NOTES TO FINANCIAL STATEMENTS
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
PaineWebber Small Cap Value Fund (the "Fund") is a diversified series of
PaineWebber Securities Trust (the "Trust"), which was organized under
Massachusetts law by a Declaration of Trust dated December 3, 1992 and is
registered with the Securities and Exchange Commission under the Investment
Company Act of 1940, as amended, as an open-end management investment company.
The Trust currently offers another series of shares, PaineWebber Strategic
Income Fund, whose financial statements are not included herein.
Organizational Matters - Prior to commencing investment operations on February
1, 1993, the Fund had no activities other than organizational matters and
activities related to the initial public offering and issuance, at net asset
value, of 10,003 Class A shares, one Class B share and one Class D share of the
Fund for a total of $100,050 to Mitchell Hutchins Asset Management Inc.
("Mitchell Hutchins"), a wholly owned subsidiary of PaineWebber Incorporated
("PaineWebber") and investment adviser, administrator and distributor of the
Fund. The Fund incurred costs of $259,000 in connection with the organization
of the Fund and the registration of its shares. Such costs have been deferred
and are being amortized using the straight-line method over a period of 60
months, beginning with the commencement of investment operations of the Fund.
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
distribution charges and transfer agency expenses. In addition, Class B shares
automatically convert to Class A shares approximately six years after initial
issuance. All Classes of shares may be obtained through an exchange of shares
of the corresponding class of other PaineWebber mutual funds. All Classes of
shares have equal rights as to voting privileges, except that each Class has
exclusive voting rights with respect to its distribution plan.
Upon approval by the board of trustees of the Trust, the Fund's fiscal year end
was changed from January 31 to July 31.
Valuation of Investments - Securities which are listed on U.S. exchanges are
valued at the last sales price on the day the securities are being valued or,
lacking any sales on such day, at the last available bid price. In cases where
securities are traded on more than one exchange, the securities are generally
valued on the exchange designated by Quest Advisory Corp. (the "Sub-Adviser"),
the sub-adviser of the Fund, as the primary market. Securities traded in the
over-the-counter ("OTC") market and listed on the National Association of
Securities Dealers Quotation System ("NASDAQ") are valued at the last trade
price on NASDAQ prior to the time of valuation; other OTC securities are valued
at the last bid price available on the OTC market prior to the time of
valuation. The amortized cost
10
<PAGE>
PAINEWEBBER NOTES TO FINANCIAL STATEMENTS (CONTINUED)
method of valuation is used to value short-term debt instruments with 60 days
or less remaining to maturity. Securities and assets for which market
quotations are not readily available are valued at fair value as determined in
good faith by or under the direction of the Fund's trustees.
Investment Transactions and Investment Income - Investment transactions are
recorded on the trade date. Realized gains and losses on sales of investments
are calculated using the identified cost method. Interest income is recorded on
an accrual basis and dividend income is recorded on the ex-dividend date.
Income, expenses (excluding class-specific expenses), realized gains/losses and
unrealized appreciation/depreciation are allocated proportionately to each
class of shares based upon the relative net assets 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.
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.
Federal Tax Status - The Fund intends to distribute 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.
Dividends and Distributions - Dividends and distributions are recorded on the
ex-dividend date. Net capital gains, if any, will be distributed at least
annually but the Fund may make more frequent distribution of such gains if
necessary, to avoid income or excise taxes. 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. Dividends and distributions
11
<PAGE>
PAINEWEBBER NOTES TO FINANCIAL STATEMENTS (CONTINUED)
which exceed net investment income and net realized capital gains for financial
reporting purposes but not for tax purposes are reported as dividends in excess
of net investment income or distributions in excess of net realized capital
gains. To the extent they exceed net investment income and net realized capital
gains for tax purposes, they are reported as distributions of paid-in-capital.
For the period ended July 31, 1995 the effect of such permanent differences
totalled $127,657, which was reclassified from net investment loss to
accumulated net realized gains.
CONCENTRATION OF RISK
Small cap companies may be more vulnerable than larger companies to adverse
business or economic developments. Small cap companies may also have limited
product lines, markets or financial resources, and may be dependent on a
relatively small management group. Securities of such companies may be less
liquid and more volatile than securities of larger companies or the market
averages in general and therefore may involve greater risk than investing in
larger companies. In addition, small cap companies may not be well-known to the
investing public, may not have institutional ownership and may have only
cyclical, static or moderate growth prospects.
INVESTMENT ADVISER AND ADMINISTRATOR
The Fund has an Investment Advisory and Administration Contract ("Advisory
Contract") with Mitchell Hutchins. In accordance with the Advisory Contract the
Fund pays Mitchell Hutchins an investment advisory and administration fee,
which is accrued daily and payable monthly, at the annual rate of 1.00% of the
Fund's average daily net assets. At July 31, 1995, the Fund owed Mitchell
Hutchins $67,484 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 July 31, 1995, the Fund paid $665 in brokerage
commissions to PaineWebber for transactions executed on behalf of the Fund.
In compliance with applicable state securities laws, Mitchell Hutchins will
reimburse the Fund if and to the extent that the aggregate operating expenses
in any year, exclusive of taxes, distribution fees, interest, brokerage fees
and certain extraordinary expenses, exceed limitations imposed by various state
regulations. Currently, the most restrictive limitation applicable to the Fund
is 2.5% of the first $30 million of average daily net assets, 2.0% of the next
$70 million and 1.5% of net assets in excess of $100 million. For the year
ended July 31, 1995, no reimbursements were required pursuant to the above
limitation.
12
<PAGE>
PAINEWEBBER NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 D
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 D shares
and monthly distribution fees at the annual rate of 0.75% of the average daily
net assets of Class B and Class D shares. At July 31, 1995, the Fund owed
Mitchell Hutchins $57,967 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 charge paid by shareholders upon certain redemptions of Class B shares.
Mitchell Hutchins has informed the Fund that for the year ended July 31, 1995,
it earned the following amounts in sales charges:
<TABLE>
<S> <C>
Initial sales charges--Class A........................................ $ 41,750
Contingent deferred sales charges--Class B............................ $344,638
</TABLE>
TRANSFER AGENCY SERVICE FEES
The Fund pays PaineWebber an annual fee of $4.00 per active PaineWebber
shareholder account for certain services not provided by the Fund's transfer
agent. For these services for the year ended July 31, 1995, PaineWebber earned
$72,929 from the Fund. At July 31, 1995, PaineWebber was owed $23,272 by the
Fund for transfer agency service fees.
INVESTMENTS IN SECURITIES
For federal income tax purposes, the cost of securities owned at July 31, 1995
was substantially the same as the cost of securities for financial statement
purposes.
At July 31, 1995, the components of net unrealized appreciation of investments
were as follows:
<TABLE>
<S> <C>
Gross appreciation (investments having an excess of value over
cost)............................................................. $9,030,545
Gross depreciation (investments having an excess of cost over val-
ue)............................................................... (3,689,632)
----------
Net unrealized appreciation of investments......................... $5,340,913
==========
</TABLE>
For the year ended July 31, 1995, aggregate purchases and sales of portfolio
securities, excluding short-term securities, were $14,348,746 and $35,816,279,
respectively.
13
<PAGE>
PAINEWEBBER NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
SHARES OF BENEFICIAL INTEREST
There is an unlimited amount of $0.001 par value shares of beneficial interest
authorized. Of the 7,142,548 shares outstanding at July 31, 1995, Mitchell
Hutchins owned 10,003 shares of Class A, one share of Class B and one share of
Class D.
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS D
--------------------- ------------------------ ---------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
-------- ----------- ---------- ------------ -------- -----------
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED JULY 31, 1995:
Shares sold.................... 189,244 $ 1,961,312 400,320 $ 4,097,889 219,759 $ 2,228,055
Shares repurchased............. (700,760) (7,226,007) (1,650,145) (16,841,037) (694,404) (7,087,110)
Dividends reinvested........... 101,765 1,017,208 239,421 2,375,883 70,815 702,159
-------- ----------- ---------- ------------ -------- -----------
Net decrease................... (409,751) $(4,247,487) (1,010,404) $(10,367,265) (403,830) $(4,156,896)
======== =========== ========== ============ ======== ===========
FOR THE PERIOD FEBRUARY 1, 1994
THROUGH JULY 31, 1994:
Shares sold.................... 190,773 $ 1,999,071 384,573 $ 4,017,799 260,481 $ 2,736,720
Shares repurchased............. (344,260) (3,583,842) (897,152) (9,313,493) (643,459) (6,627,680)
-------- ----------- ---------- ------------ -------- -----------
Net decrease................... (153,487) $(1,584,771) (512,579) $ (5,295,694) (382,978) $(3,890,960)
======== =========== ========== ============ ======== ===========
</TABLE>
14
<PAGE>
[This Page Intentionally Left Blank]
<PAGE>
PAINEWEBBER SMALL CAP VALUE FUND
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING
THROUGHOUT EACH PERIOD IS PRESENTED BELOW:
<TABLE>
<CAPTION>
CLASS A
---------------------------------
FOR THE
PERIOD
FOR THE FEBRUARY 1, FOR THE
YEAR 1994 YEAR
ENDED THROUGH ENDED
JULY 31, JULY 31, JANUARY 31,
1995 1994 1994
-------- ----------- -----------
<S> <C> <C> <C>
Net asset value, beginning of period.......... $ 10.27 $10.61 $10.00
------- ------- -------
Income from investment operations:
Net investment income........................ 0.05 0.02 0.13
Net realized and unrealized gains (losses)
from investment transactions................ 1.50 (0.36) 0.62
------- ------- -------
Total income (loss) from investment
operations................................... 1.55 (0.34) 0.75
------- ------- -------
Less dividends and distributions to
shareholders from:
Net investment income........................ -- -- (0.12)
Net realized gains on investment
transactions................................ (0.52) -- (0.02)
------- ------- -------
Total dividends and distributions............. (0.52) -- (0.14)
------- ------- -------
Net asset value, end of period................ $ 11.30 $10.27 $10.61
======= ======= =======
Total investment return (1)................... 15.80% (3.20)% 7.58 %
======= ======= =======
Ratios/Supplemental data:
Net assets, end of period (000's)............ $20,494 $22,848 $25,226
Ratio of expenses to average net assets...... 1.98% 1.91%* 1.75 %
Ratio of net investment income (loss) to
average net assets.......................... 0.41% 0.41%* (1.41)%
Portfolio turnover rate...................... 19% 20% 98 %
- ---------------------
</TABLE>
* Annualized
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each period reported, reinvestment of all dividends and other
distributions at net asset value on the payable date and a sale at net
asset value on the last day of each period reported. The figures do not
include sales charges; results for Class A and Class B shares would be
lower if sales charges were included. Total investment return for periods
of less than one year have not been annualized.
16
<PAGE>
PAINEWEBBER SMALL CAP VALUE FUND
<TABLE>
<CAPTION>
CLASS B CLASS D
------------------------------------ ------------------------------------
FOR THE FOR THE
PERIOD PERIOD
FOR THE FEBRUARY 1, FOR THE FOR THE FEBRUARY 1, FOR THE
YEAR 1994 YEAR YEAR 1994 YEAR
ENDED THROUGH ENDED ENDED THROUGH ENDED
JULY 31, JULY 31, JANUARY 31, JULY 31, JULY 31, JANUARY 31,
1995 1994 1994 1995 1994 1994
-------- ----------- ----------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$ 10.22 $10.60 $10.00 $ 10.22 $10.59 $10.00
------- ------- ------- ------- ------- -------
(0.04) (0.02) 0.06 (0.05) (0.02) 0.06
1.49 (0.36) 0.62 1.49 (0.35) 0.62
------- ------- ------- ------- ------- -------
1.45 (0.38) 0.68 1.44 (0.37) 0.68
------- ------- ------- ------- ------- -------
-- -- (0.06) -- -- (0.07)
(0.52) -- (0.02) (0.52) -- (0.02)
------- ------- ------- ------- ------- -------
(0.52) -- (0.08) (0.52) -- (0.09)
------- ------- ------- ------- ------- -------
$ 11.15 $10.22 $10.60 $ 11.14 $10.22 $10.59
======= ======= ======= ======= ======= =======
14.86 % (3.58)% 6.81 % 14.76 % (3.49)% 6.77 %
======= ======= ======= ======= ======= =======
$46,142 $52,624 $59,993 $13,263 $16,285 $20,941
2.74 % 2.69 %* 2.50% 2.73 % 2.69 %* 2.50%
(0.35)% (0.37)%* 0.67% (0.34)% (0.36)%* 0.64%
19 % 20 % 98% 19 % 20 % 98%
</TABLE>
17
<PAGE>
PAINEWEBBER SMALL CAP VALUE FUND
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Trustees of
PaineWebber Small Cap Value Fund
In our opinion, the accompanying statement of assets and
liabilities, including the portfolio of investments, and the
related statements of operations and of changes in net assets and
the financial highlights present fairly, in all material respects,
the financial position of PaineWebber Small Cap Value Fund (the
"Fund") at July 31, 1995, the results of its operations for the
year then ended, the changes in its net assets for the period
February 1, 1994 through July 31, 1994 and for the year ended July
31, 1995 and the financial highlights for the year ended January
31, 1994, for the period February 1, 1994 through July 31, 1994
and for the year ended July 31, 1995, in conformity with generally
accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We
believe that our audits, which included confirmation of securities
at July 31, 1995 by correspondence with the custodian and brokers,
provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036 September 20, 1995
18
<PAGE>
PAINEWEBBER SMALL CAP VALUE FUND
TAX INFORMATION
We are required by Subchapter M of the Internal Revenue Code of
1986, as amended, to advise you within 60 days of the Fund's
fiscal year end (July 31, 1995), as to the federal tax status of
distributions received by shareholders during such fiscal year.
Accordingly, we are advising you that the distributions made
during the fiscal year were derived from ordinary income and long-
term capital gains in the amount of $0.3916 per share and $0.1292
per share, respectively. Additionally, 45.69% of the distributions
paid qualifies for the dividend received deduction available to
corporate shareholders.
Dividends received by tax-exempt recipients 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.
Because the Fund's fiscal year is not the calendar year, another
notification will be sent in respect of calendar year 1995. The
second notification, which reflects the amount to be used by
calendar year taxpayers on their federal income tax returns, is
made in conjunction with Form 1099 DIV and mailed in January 1996.
Shareholders are advised to consult their own tax advisers with
respect to the tax consequences of their investment in the Fund.
19
<PAGE>
PAINEWEBBER SMALL CAP VALUE FUND
SHAREHOLDER INFORMATION
A special meeting of shareholders of PaineWebber Small Cap Value Fund (the
"Fund") a series of PaineWebber Securities Trust, was held on May 18, 1995. At
the meeting Richard Q. Armstrong, E. Garret Bewkes, Jr., Richard R. Burt, John
R. Torell III and William D. White were elected as trustees to serve for an
indefinite term, or until their successors are elected and qualified. In
addition, the selection of Price Waterhouse LLP as the Fund's independent
accountants was ratified.
The votes were as follows:
<TABLE>
<CAPTION>
ALL SHARES VOTING AS A
SINGLE CLASS
----------------------------
SHARES SHARES
VOTED FOR WITHHOLD AUTHORITY
--------- ------------------
<S> <C> <C>
Richard Q. Armstrong............................... 3,653,009 270,061
E. Garret Bewkes, Jr. ............................. 3,636,238 286,833
Richard R. Burt.................................... 3,648,774 274,296
John R. Torell III................................. 3,646,143 276,927
William D. White................................... 3,627,309 295,762
</TABLE>
<TABLE>
<CAPTION>
ALL SHARES VOTING AS A SINGLE CLASS
------------------------------------------
SHARES SHARES SHARES
VOTED FOR VOTED AGAINST WITHHOLD AUTHORITY
--------- ------------- ------------------
<S> <C> <C> <C>
Ratification of the selection of
Price Waterhouse LLP............... 3,666,436 48,803 207,831
</TABLE>
Broker non-votes and abstentions are included within the "Shares Withhold
Authority" totals.
20
