<PAGE>
PAINEWEBBER SMALL CAP VALUE FUND
PERFORMANCE RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
NET ASSET VALUE TOTAL RETURN/1/
-------------------------- -----------------------------
12 MONTHS 6 MONTHS
01/31/96 07/31/95 01/31/95 ENDED 01/31/96 ENDED 01/31/96
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A Shares $10.72 $11.30 $10.00 15.49% 2.20%
- ---------------------------------------------------------------------------
Class B Shares 10.53 11.15 9.91 14.61 1.87
- ---------------------------------------------------------------------------
Class C Shares/2/ 10.52 11.14 9.90 14.63 1.87
- ---------------------------------------------------------------------------
</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)
- -----------------------------------------------------------------------------
1995 9.97 10.81 0.8306 -- 16.81
- -----------------------------------------------------------------------------
01/01/96 - 01/31/96 10.81 10.72 -- -- (0.83)
- -----------------------------------------------------------------------------
Total: $1.3682 $0.1281
- -----------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF
01/31/96: 23.24%
- -----------------------------------------------------------------------------
</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)
- -----------------------------------------------------------------------------
1995 9.88 10.62 0.8306 -- 15.90
- -----------------------------------------------------------------------------
01/01/96 - 01/31/96 10.62 10.53 -- -- (0.85)
- -----------------------------------------------------------------------------
Total: $1.3682 $0.0631
- -----------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF
01/31/96: 20.50%
- -----------------------------------------------------------------------------
</TABLE>
Performance Summary Class C Shares/2/
<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)
- -----------------------------------------------------------------------------
1995 9.88 10.61 0.8306 -- 15.84
- -----------------------------------------------------------------------------
01/01/96 - 01/31/96 10.61 10.52 -- -- (0.85)
- -----------------------------------------------------------------------------
Total: $1.3682 $0.0682
- -----------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF
01/31/96: 20.46%
- -----------------------------------------------------------------------------
</TABLE>
Average Annual Returns
<TABLE>
<CAPTION>
% RETURN AFTER
% RETURN WITHOUT DEDUCTING
SALES CHARGE MAXIMUM SALES CHARGE
--------------------- ---------------------
CLASS CLASS
--------------------- ---------------------
A* B** C/2/*** A* B** C/2/***
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Twelve Months Ended 12/31/95 16.81% 15.90% 15.84% 11.55% 10.90% 14.84%
- --------------------------------------------------------------------------------
Five Years Ended 12/31/95 N/A N/A N/A N/A N/A N/A
- --------------------------------------------------------------------------------
Commencement of Operations+ Through
12/31/95 7.74% 6.90% 6.91% 6.05% 5.99% 6.91%
- --------------------------------------------------------------------------------
</TABLE>
/1/ Figures assume reinvestment of all dividends and capital gains
distributions at net asset value on the payable date and do not include
sales charges; results for each class would be lower if sales charges were
included.
/2/ Formerly Class D shares
* Maximum sales charge for Class A shares is 4.5% of the public offering
price. Class A shares bear ongoing 12b-1 service fees.
** Maximum contingent deferred sales charge for Class B shares is 5.0% and is
reduced to 0% after 6 years. Class B shares bear ongoing 12b-1 distribution
and service fees.
*** Maximum contingent deferred sales charge for Class C shares is 1.0% and is
reduced to 0% after 1 year. Class C shares bear ongoing 12b-1 distribution
and service fees.
+ Commencement of operations was February 1, 1993 for Class A, Class B and
Class C shares.
- --------------------------------------------------------------------------------
The data above represents past performance of the Fund's shares, which is no
guarantee of future results.
The investment return and principal value of an investment in the Fund will
fluctuate, so that an investor's shares, when redeemed, may be worth more or
less than their original cost.
1
<PAGE>
PAINEWEBBER SMALL CAP VALUE FUND
PORTFOLIO OF INVESTMENTS (UNAUDITED) JANUARY 31, 1996
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- -----------
COMMON STOCKS - 92.43%
<C> <S> <C>
Apparel & Footwear - 3.97%
82,800 Delta Woodside Industries Incorporated (New)........... $ 558,900
24,100 Fab Industries Incorporated............................ 744,087
45,000 Oshkosh B'Gosh, Incorporated (Class A)................. 765,000
15,400 Russell Corporation.................................... 423,500
45,400 Stride Rite Corporation................................ 374,550
-----------
2,866,037
-----------
Building Materials - 2.26%
35,300 CalMat Company......................................... 639,812
36,000 Florida Rock Industries, Incorporated.................. 990,000
-----------
1,629,812
-----------
Business Products & Related Services - 4.35%
30,700 Bowne & Company Incorporated........................... 575,625
10,600 John H. Harland Company................................ 233,200
19,300 McClatchy Newspapers Incorporated (Class A)............ 439,075
18,400 New England Business Services Incorporated............. 326,600
39,000 Scitex Limited......................................... 546,000
52,800 Standard Register Company.............................. 1,016,400
-----------
3,136,900
-----------
Chemicals - 1.74%
38,100 Lawter International Incorporated...................... 414,337
15,000 LeaRonal Incorporated.................................. 399,375
33,500 Quaker Chemical Corporation............................ 443,875
-----------
1,257,587
-----------
Consumer Durables - 8.46%
20,000 Arctco Incorporated.................................... 222,500
40,000 Ethan Allen Interiors Incorporated*.................... 935,000
47,000 Juno Lighting Incorporated............................. 763,750
32,300 Kimball International, Incorporated (Class B).......... 912,475
22,400 La Z Boy Chair Company................................. 705,600
18,000 National Presto Industries, Incorporated............... 787,500
22,200 Sturm Ruger & Company Incorporated..................... 707,625
77,800 TBC Corporation*....................................... 554,325
97,000 Topps Incorporated*.................................... 509,250
-----------
6,098,025
-----------
</TABLE>
2
<PAGE>
PAINEWEBBER SMALL CAP VALUE FUND
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- ----------
COMMON STOCKS - (CONTINUED)
<C> <S> <C>
Distributors - 2.06%
20,000 Marshall Industries..................................... $ 637,500
15,500 NCH Corporation......................................... 848,625
----------
1,486,125
----------
Energy - 4.78%
14,600 Ashland Coal, Incorporated.............................. 308,425
8,450 Barrett Resources Corporation*.......................... 215,475
32,400 Cliffs Drilling Company*................................ 473,850
20,000 Devon Energy Corporation................................ 492,500
23,100 Oceaneering International, Incorporated*................ 303,187
19,500 Parker & Parsley Petroleum Company...................... 416,812
12,730 Penn Virginia Corporation............................... 432,820
20,000 Reading & Bates Corporation*............................ 340,000
48,000 Santa Fe Energy Resources, Incorporated*................ 462,000
----------
3,445,069
----------
Financial Services - 3.11%
22,300 Duff & Phelps Corporation............................... 153,312
5,766 Duff & Phelps Credit Rating Company..................... 88,652
15,000 John Nuveen Company..................................... 382,500
14,800 Pioneer Group Incorporated.............................. 440,300
9,500 Raymond James Financial Incorporated.................... 209,000
18,500 Student Loan Corporation................................ 626,687
7,000 U.S. Trust Corporation (New)............................ 343,000
----------
2,243,451
----------
Food & Related Services - 3.79%
6,500 Farmer Bros. Company.................................... 864,500
16,000 Flowers Industries, Incorporated........................ 212,000
34,600 International Dairy Queen Incorporated*................. 752,550
25,500 Lance, Incorporated..................................... 433,500
11,875 Rykoff-Sexton, Incorporated............................. 190,000
7,210 Tootsie Roll Industries Incorporated.................... 281,190
----------
2,733,740
----------
Healthcare - 2.89%
15,336 Block Drug Incorporated................................. 605,293
28,000 Haemonetices Corporation*............................... 486,500
30,000 Kinetic Concepts Incorporated........................... 371,250
2,200 Life Technologies Incorporated.......................... 56,650
20,000 Marquette Electronics Incorporated*..................... 380,000
6,800 Spacelabs Incorporated*................................. 183,600
----------
2,083,293
----------
</TABLE>
3
<PAGE>
PAINEWEBBER SMALL CAP VALUE FUND
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- -----------
COMMON STOCKS - (CONTINUED)
<C> <S> <C>
Industrial Products & Services - 10.62%
30,000 BWIP Holding Incorporated (Class A).................... $ 435,000
35,000 Camco International, Incorporated...................... 936,250
15,000 Crompton & Knowles Corporation......................... 206,250
20,000 Giddings & Lewis Incorporated.......................... 307,500
10,600 Greif Bros. Corporation (Class A)...................... 300,775
26,200 Kaydon Corporation..................................... 766,350
22,600 Lawson Products Incorporated........................... 542,400
53,750 Lilly Industries Incorporated (Class A)................ 692,031
20,000 Lincoln Electric Company............................... 480,000
23,500 Oregon Steel Mills Incorporated........................ 331,938
34,100 P.H. Glatfelter Company................................ 583,963
17,500 Precision Castparts Corporation........................ 697,813
92,800 Rollins Environmental Services, Incorporated*.......... 208,800
6,800 Tecumseh Products Company (Class A).................... 385,900
27,000 W. H. Brady Company.................................... 597,375
8,000 Wausau Paper Mills Company............................. 188,000
-----------
7,660,345
-----------
Insurance - 17.98%
3,743 Alleghany Corporation*................................. 750,939
29,900 Argonaunt Group, Incorporated.......................... 960,538
10,000 Arthur J. Gallagher & Company.......................... 372,500
7,500 CMAC Investment Corporation............................ 431,250
9,500 Capital Re Corporation................................. 287,375
31,000 Commerce Group, Corporation............................ 600,625
40,700 E.W. Blanch Holdings, Incorporated..................... 986,975
18,000 Fremont General Corporation............................ 648,000
8,000 Harleysville Group, Incorporated....................... 240,000
52,400 Hilb, Rogal & Hamilton Company......................... 681,200
15,000 Leucadia National Corporation.......................... 421,875
20,706 Orion Capital Corporation.............................. 926,594
18,200 Partner RE Holding..................................... 507,325
6,000 Pennsylvania Manufacturers Corporation................. 112,500
25,875 RLI Corporation........................................ 653,344
6,800 Transatlantic Holdings, Incorporated................... 486,200
12,400 Trenwick Group Incorporated............................ 672,700
11,700 W R Berkley Corporation................................ 587,925
6,300 Wesco Financial Corporation............................ 1,086,750
60,300 Willis Corroon Group, plc, ADR......................... 708,525
36,000 Zenith National Insurance Corporation.................. 846,000
-----------
12,969,140
-----------
</TABLE>
4
<PAGE>
PAINEWEBBER SMALL CAP VALUE FUND
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- -----------
COMMON STOCKS - (CONCLUDED)
<C> <S> <C>
Real Estate Holdings & Services - 2.24%
10,000 Florida East Coast Industries Incorporated............. $ 688,750
52,100 Newhall Land & Farming Company LP...................... 924,775
-----------
1,613,525
-----------
Retail & Mail Order - 11.54%
18,800 Blair Corporation...................................... 592,200
84,000 Charming Shoppes, Incorporated*........................ 231,000
29,800 Claire's Stores, Incorporated.......................... 569,925
4,500 Dart Group Corporation (Class A)....................... 425,250
108,000 Dress Barn*............................................ 1,012,500
41,600 Family Dollar Stores, Incorporated..................... 494,000
15,000 Fingerhut Companies Incorporated....................... 204,375
35,700 Land's End, Incorporated*.............................. 522,113
14,000 Longs Drug Stores Corporation.......................... 633,500
54,000 Mikasa, Incorporated*.................................. 681,750
32,400 Neiman Marcus Group Incorporated*...................... 583,200
75,095 Pier 1 Imports, Incorporated........................... 882,366
32,100 Russ Berrie and Company, Incorporated.................. 421,313
30,000 Shopko Stores Incorporated............................. 352,500
26,700 Stanhome, Incorporated................................. 714,225
-----------
8,320,217
-----------
Services - 9.91%
10,000 Acordia, Incorporated.................................. 296,250
16,800 Angelica Corporation................................... 340,200
40,750 Comdisco, Incorporated................................. 871,031
69,200 Crawford & Company (Class A)........................... 1,141,800
42,200 Dames & Moore, Incorporated............................ 511,675
9,100 FlightSafety International, Incorporated............... 453,863
3,375 Grey Advertising Incorporated.......................... 690,188
20,800 Jenny Craig, Incorporated*............................. 202,800
10,100 National Service Industries, Incorporated.............. 352,238
16,400 SEI Corporation........................................ 369,000
80,800 Sotheby's Holdings, Incorporated....................... 1,201,900
20,900 Stone & Webster Incorporated........................... 715,825
-----------
7,146,770
-----------
Transportation - 2.73%
26,650 Air Express International Corporation.................. 572,975
33,400 Arnold Industries Incorporated......................... 486,387
26,000 Atlantic Southeast Airlines Incorporated............... 479,375
24,800 Harper Group........................................... 430,900
-----------
1,969,637
-----------
Total Common Stocks (cost - $62,609,132).......................... 66,659,673
-----------
</TABLE>
5
<PAGE>
PAINEWEBBER SMALL CAP VALUE FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
--------- -------- -------- -----------
U.S. GOVERNMENT OBLIGATIONS - 4.16%
<C> <S> <C> <C> <C>
U.S. Treasury Bills (cost -
$3,000 $2,996,859)....................... 02/08/96 5.385% $ 2,997,330
-----------
REPURCHASE AGREEMENT - 3.98%
2,872 Repurchase Agreement dated 01/31/96
with State Street Bank & Trust
Company, collateralized by
$2,830,000 U.S. Treasury Notes,
6.125%, due 05/15/98; proceeds:
$2,872,463 (cost - $2,872,000).... 02/01/96 5.800 2,872,000
-----------
Total Investments (cost - $68,477,991) -
100.57%...................................... 72,529,003
Liabilities in excess of other assets -
(0.57)%...................................... (410,543)
-----------
Net Assets - 100.00%.......................... $72,118,460
===========
</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 JANUARY 31, 1996 (UNAUDITED)
<TABLE>
<S> <C>
Assets
Investments, at value (cost - $68,477,991)........................ $72,529,003
Cash.............................................................. 955
Dividends and interest receivable................................. 47,489
Receivable for shares of beneficial interest sold................. 16,775
Deferred organizational expenses.................................. 100,068
Other assets...................................................... 45,506
-----------
Total assets..................................................... 72,739,796
-----------
Liabilities
Payable for shares of beneficial interest repurchased............. 305,022
Payable to affiliates............................................. 113,534
Accrued expenses and other liabilities............................ 202,780
-----------
Total liabilities................................................ 621,336
-----------
Net Assets
Beneficial interest shares of $0.001 par value outstanding
(unlimited amount authorized).................................... 67,024,928
Accumulated net investment loss................................... (29,924)
Accumulated net realized gains from investment transactions....... 1,072,444
Net unrealized appreciation of investments........................ 4,051,012
-----------
Net assets....................................................... $72,118,460
===========
Class A:
Net assets........................................................ $19,639,810
-----------
Shares outstanding................................................ 1,831,614
-----------
Net asset value and redemption value per share.................... $10.72
======
Maximum offering price per share (net asset value plus sales
charge of 4.50% of offering price)............................... $11.23
======
Class B:
Net assets........................................................ $40,875,625
-----------
Shares outstanding................................................ 3,881,699
-----------
Net asset value and offering price per share...................... $10.53
======
Class C:
Net assets........................................................ $11,603,025
-----------
Shares outstanding................................................ 1,102,701
-----------
Net asset value and offering price per share...................... $10.52
======
</TABLE>
See accompanying notes to financial statements
7
<PAGE>
PAINEWEBBER SMALL CAP VALUE FUND
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JANUARY 31, 1996 (UNAUDITED)
<TABLE>
<S> <C>
Investment Income:
Dividends (net of foreign withholding taxes of $4,024)........... $ 726,422
Interest......................................................... 189,399
-----------
915,821
-----------
Expenses:
Investment advisory and administration fees...................... 382,812
Service fees--Class A............................................ 25,834
Service and distribution fees--Class B........................... 217,755
Service and distribution fees--Class C........................... 61,716
Transfer agency and service fees................................. 54,613
Reports and notices to shareholders.............................. 50,138
Federal and state registration fees.............................. 46,168
Custody and accounting........................................... 43,543
Legal and audit.................................................. 31,615
Amortization of organizational expenses.......................... 25,324
Trustees' fees and expenses...................................... 5,027
Other expenses................................................... 1,200
-----------
945,745
-----------
Net investment loss.............................................. (29,924)
-----------
Realized and unrealized gains (losses) from investment
transactions:
Net realized gains from investment transactions.................. 2,798,990
Net change in unrealized appreciation/depreciation of
investments..................................................... (1,289,901)
-----------
Net realized and unrealized gains from investment transactions... 1,509,089
-----------
Net increase in net assets resulting from operations............. $ 1,479,165
===========
</TABLE>
See accompanying notes to financial statements
8
<PAGE>
PAINEWEBBER SMALL CAP VALUE FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS
ENDED FOR THE
JANUARY 31, 1996 YEAR ENDED
(UNAUDITED) JULY 31, 1995
---------------- -------------
<S> <C> <C>
From operations:
Net investment loss............................ $ (29,924) $ (127,657)
Net realized gains from investment
transactions.................................. 2,798,990 4,379,410
Net change in unrealized
appreciation/depreciation of investments...... (1,289,901) 7,078,454
------------ ------------
Net increase in net assets resulting from
operations.................................... 1,479,165 11,330,207
------------ ------------
Distributions to shareholders from:
Net realized gains from investment
transactions--Class A......................... (1,468,335) (1,099,875)
Net realized gains from investment
transactions--Class B......................... (3,074,141) (2,545,115)
Net realized gains from investment
transactions--Class C......................... (854,158) (770,850)
------------ ------------
(5,396,634) (4,415,840)
------------ ------------
From beneficial interest transactions:
Net proceeds from the sale of shares........... 3,264,859 8,287,256
Cost of shares repurchased..................... (12,172,604) (31,154,154)
Proceeds from dividends reinvested............. 5,044,586 4,095,250
------------ ------------
Net decrease in net assets derived from
beneficial interest transactions.............. (3,863,159) (18,771,648)
------------ ------------
Net decrease in net assets..................... (7,780,628) (11,857,281)
Net Assets:
Beginning of period............................ 79,899,088 91,756,369
------------ ------------
End of period.................................. $ 72,118,460 $ 79,899,088
============ ============
</TABLE>
See accompanying notes to financial statements
9
<PAGE>
PAINEWEBBER NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
PaineWebber Small Cap Value Fund (the "Fund") is a diversified series of
PaineWebber Securities Trust ("Trust"), which was organized under Massachusetts
law by a Declaration of Trust dated December 3, 1992 and 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. The Fund incurred costs of
$259,000 in connection with its organization and the registration of its
shares. Such costs have been deferred and are being amortized using the
straight-line method over a period of benefit of 60 months, beginning with the
commencement of investment operations of the Fund.
Currently, the Fund offers Class A, Class B and Class C (formerly Class D)
shares. Effective November 10, 1995, the Fund began using industry standardized
nomenclatures and Class D was renamed Class C. 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
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 initial issuance. All classes of shares
have equal voting privileges, except that each class has exclusive voting
rights with respect to its distribution plan.
The preparation of financial statements in accordance with generally accepted
accounting principles requires Fund management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
Valuation of Investments - Securities which are listed on stock exchanges are
valued at the last sale price on the day the securities are being valued or,
lacking any sales on such day, at the last available bid price. In cases where
securities are traded on more than one exchange, the securities are generally
valued on the exchange considered by Mitchell Hutchins Asset Management Inc.
("Mitchell Hutchins"), a wholly owned subsidiary of PaineWebber Incorporated
("PaineWebber") or Quest Advisory Corp. ("Sub-Adviser"), the sub-adviser of the
Fund, as the primary market. Securities traded in the over-the-counter ("OTC")
market and listed on Nasdaq are valued at the last available trade price on
Nasdaq prior to the time of valuation; other OTC securities are valued at the
last bid price available prior to valuation. The amortized cost method of
valuation, which approximates market value, is used to value debt obligations
with sixty days or less remaining to maturity unless the Fund's board of
trustees determines that this does not represent fair value. 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 board
of trustees.
Repurchase Agreements - The Fund's custodian takes possession of the collateral
pledged for investments in repurchase agreements. The underlying collateral is
10
<PAGE>
PAINEWEBBER
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 the
investment adviser, administrator and distributor of the Fund.
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 and dividend income is recorded on the ex-
dividend date.
Income, expenses (excluding class-specific expenses) and realized and
unrealized gains and 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. Dividends and distributions 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.
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.
11
<PAGE>
PAINEWEBBER
INVESTMENT ADVISER AND ADMINISTRATOR
The Fund has an Investment Advisory and Administration Contract ("Advisory
Contract") with Mitchell Hutchins. In accordance with the Advisory Contract the
Fund pays Mitchell Hutchins an investment advisory and administration fee,
which is computed daily and payable monthly, at the annual rate of 1.00% of the
Fund's average daily net assets. At January 31, 1996, the Fund owed Mitchell
Hutchins $61,547 in investment advisory and administration fees.
Under a separate contract ("Sub-Advisory 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. Effective April 1, 1996,
the Fund has terminated the Sub-Advisory Contract with the Sub-Adviser, and
Mitchell Hutchins will take over the responsibility for the day-to-day
management of the Fund's assets.
In compliance with applicable state securities laws, Mitchell Hutchins will
reimburse the Fund if and to the extent that the aggregate operating expenses
in any fiscal year, exclusive of taxes, distribution fees, interest, brokerage
fees and extraordinary expenses, exceed limitations imposed by various state
regulations. Currently, the most restrictive limitation applicable to the Fund
is 2.5% of the first $30 million of average daily net assets, 2.0% of the next
$70 million and 1.5% of any excess of $100 million. For the six months ended
January 31, 1996, no reimbursements were required pursuant to the above
limitation.
DISTRIBUTION PLANS
Mitchell Hutchins is the distributor of the Fund's shares and has appointed
PaineWebber as the exclusive dealer for the sale of those shares. Under
separate plans of distribution pertaining to Class A, Class B and Class C
(formerly 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 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 January 31,
1996, the Fund owed Mitchell Hutchins $48,887 in service and distribution fees.
Mitchell Hutchins also receives the proceeds of the initial sales charges paid
by shareholders upon the purchase of Class A shares and the contingent deferred
sales charges paid by the shareholders upon certain redemptions of Class B and
Class C shares. Mitchell Hutchins has informed the Fund that for the six months
ended January 31, 1996, it earned approximately $6,800 in initial sales charges
and approximately $98,800 in contingent deferred sales charges for the Fund.
TRANSFER AGENCY SERVICE FEES
The Fund pays PaineWebber an annual fee of $4.00 per active PaineWebber
shareholder account for certain services not provided by the Fund's transfer
agent. For these services for the six months ended January 31, 1996,
PaineWebber
12
<PAGE>
PAINEWEBBER
earned $19,441 from the Fund. At January 31, 1996, the Fund owed
PaineWebber $3,100 for shareholder service fees.
INVESTMENTS IN SECURITIES
For federal income tax purposes, the cost of securities owned at
January 31, 1996 was substantially the same as the cost of
securities for financial statement purposes.
At January 31, 1996, the components of net unrealized appreciation
of investments were as follows:
<TABLE>
<S> <C>
Gross appreciation (investments having an excess of
value over cost).................................... $ 9,352,418
Gross depreciation (investments having an excess of
cost over value).................................... (5,301,406)
-----------
Net unrealized appreciation of investments........... $ 4,051,012
===========
</TABLE>
For the six months ended January 31, 1996, aggregate purchases and
sales of portfolio securities, excluding short-term securities,
were $4,893,778 and $11,837,450, respectively.
FEDERAL TAX STATUS
The Fund intends to distribute substantially all of its taxable
income and to comply with the other requirements of the Internal
Revenue Code applicable to regulated investment companies.
Accordingly, no provision for federal income taxes is required. In
addition, by distributing during each calendar year substantially
all of its net investment income, capital gains and certain other
amounts, if any, the Fund intends not to be subject to a federal
excise tax.
SHARES OF BENEFICIAL INTEREST
There is an unlimited amount of $0.001 par value shares of
beneficial interest authorized. Of the 6,816,014 shares
outstanding at January 31, 1996, Mitchell Hutchins owned 10,003
shares of Class A, one share of Class B and one share of Class C.
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
--------------------- ------------------------ ---------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
-------- ----------- ---------- ------------ -------- -----------
<S> <C> <C> <C> <C> <C> <C>
FOR THE SIX MONTHS ENDED
JANUARY 31, 1996:
Shares sold............. 64,877 $ 733,603 130,393 $ 1,434,096 100,971 $ 1,097,160
Shares repurchased...... (270,712) (3,027,905) (562,942) (6,223,516) (263,350) (2,921,183)
Shares converted from
Class B to Class A..... 92,870 1,063,031 (94,195) (1,063,031) -- --
Dividends reinvested.... 130,477 1,401,320 270,188 2,853,188 74,889 790,078
-------- ----------- ---------- ------------ -------- -----------
Net increase (decrease). 17,512 $ 170,049 (256,556) $ (2,999,263) (87,490) $(1,033,945)
======== =========== ========== ============ ======== ===========
<CAPTION>
CLASS A CLASS B CLASS C
--------------------- ------------------------ ---------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
-------- ----------- ---------- ------------ -------- -----------
<S> <C> <C> <C> <C> <C> <C>
FOR THE 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)
======== =========== ========== ============ ======== ===========
</TABLE>
13
<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
FOR THE PERIOD
SIX MONTHS FEBRUARY
ENDED FOR THE YEAR 1, 1994 FOR THE YEAR
JANUARY 31, ENDED THROUGH ENDED
1996 JULY 31, JULY 31, JANUARY 31,
(UNAUDITED) 1995 1994 1994
----------- ------------ -------- ------------
<S> <C> <C> <C> <C>
Net asset value, beginning of
period........................ $11.30 $10.27 $10.61 $10.00
------- ------- ------- -------
Net investment income (loss)... 0.02 0.05 0.02 0.13
Net realized and unrealized
gains (losses) from investment
transactions.................. 0.23 1.50 (0.36) 0.62
------- ------- ------- -------
Net increase (decrease) from
investment operations......... 0.25 1.55 (0.34) 0.75
------- ------- ------- -------
Dividends from net investment
income........................ -- -- -- (0.12)
Distributions from net realized
gains......................... (0.83) (0.52) -- (0.02)
------- ------- ------- -------
Total dividends and
distributions................. (0.83) (0.52) 0.00 (0.14)
------- ------- ------- -------
Net asset value, end of period. $10.72 $11.30 $10.27 $10.61
======= ======= ======= =======
Total investment return (1).... 2.20% 15.80% (3.20)% 7.58%
======= ======= ======= =======
Ratios/Supplemental Data:
Net assets, end of period
(000's)....................... $19,640 $20,494 $22,848 $25,226
Expenses to average net assets. 1.90%* 1.98% 1.91%* 1.75%
Net investment income (loss) to
average net assets............ 0.49%* 0.41% 0.41%* 1.41%
Portfolio turnover............. 7% 19% 20% 98%
- ---------------------
</TABLE>
* Annualized
** Formerly Class D shares
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each period reported, reinvestment of all dividends and
capital gain distributions, if any, at net asset value on the payable
dates, and a sale at net asset value on the last day of each period
reported. The figures do not include sales charges; results for each class
would be lower if sales charges were included. Total investment returns for
periods of less than one year have not been annualized.
14
<PAGE>
<TABLE>
<CAPTION>
CLASS B CLASS C**
- -------------------------------------------------- --------------------------------------------------
FOR THE FOR THE
FOR THE PERIOD FOR THE PERIOD
SIX MONTHS FEBRUARY SIX MONTHS FEBRUARY
ENDED FOR THE YEAR 1, 1994 FOR THE YEAR ENDED FOR THE YEAR 1, 1994 FOR THE YEAR
JANUARY 31, ENDED THROUGH ENDED JANUARY 31, ENDED THROUGH ENDED
1996 JULY 31, JULY 31, JANUARY 31, 1996 JULY 31, JULY 31, JANUARY 31,
(UNAUDITED) 1995 1994 1994 (UNAUDITED) 1995 1994 1994
- ----------- ------------ -------- ------------ ----------- ------------ -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
$11.15 $10.22 $10.60 $10.00 $11.14 $10.22 $10.59 $10.00
------- ------- ------- ------- ------- ------- ------- -------
(0.02) (0.04) (0.02) 0.06 (0.02) (0.05) (0.02) 0.06
0.23 1.49 (0.36) 0.62 0.23 1.49 (0.35) 0.62
------- ------- ------- ------- ------- ------- ------- -------
0.21 1.45 (0.38) 0.68 0.21 1.44 (0.37) 0.68
------- ------- ------- ------- ------- ------- ------- -------
-- -- -- (0.06) -- -- -- (0.07)
(0.83) (0.52) -- (0.02) (0.83) (0.52) -- (0.02)
------- ------- ------- ------- ------- ------- ------- -------
(0.83) (0.52) 0.00 (0.08) (0.83) (0.52) 0.00 (0.09)
------- ------- ------- ------- ------- ------- ------- -------
$10.53 $11.15 $10.22 $10.60 $10.52 $11.14 $10.22 $10.59
======= ======= ======= ======= ======= ======= ======= =======
1.87 % 14.86 % (3.58)% 6.81% 1.87% 14.76 % (3.49)% 6.77%
======= ======= ======= ======= ======= ======= ======= =======
$40,876 $46,142 $52,624 $59,993 $11,603 $13,263 $16,285 $20,941
2.67 %* 2.74 % 2.69 %* 2.50% 2.69 %* 2.73 % 2.69 %* 2.50%
(0.28)%* (0.35)% (0.37)%* 0.67% (0.31)%* (0.34)% (0.36)%* 0.64%
7 % 19 % 20 % 98% 7 % 19 % 20 % 98%
</TABLE>
15
