<PAGE>
PAINEWEBBER SMALL CAP FUND SEMIANNUAL REPORT
March 15, 1999
Dear Shareholder,
We are pleased to present you with the semiannual report for the PaineWebber
Small Cap Fund (the "Fund") for the six-month period ended January 31, 1999.
MARKET REVIEW
- --------------------------------------------------------------------------------
Global stock markets became extremely volatile in August when investors
pulled money out of stocks in response to increased uncertainty. Concerns about
exposure to over-leveraged hedge funds and emerging markets caused a sell-off in
financial-services stocks as investors backed away from potential credit quality
and liquidity problems. Weakness in global markets also hurt U.S. companies
sensitive to export growth. The U.S. stock market rallied, however, after the
Federal Reserve cut interest rates in September, October and November, and other
central banks followed suit in anticipation of the new euro currency. As
measured by the S&P 500 Index, the U.S. stock market gained 15.02% for the
six-month period ended January 31, 1999.
Despite the broader market gains, small-capitalization stocks continued to
post losses. As measured by the S&P 600 Index, small-cap stocks lost 0.55% for
the period. Many sectors, especially technology and financial services, which
had lagged from August through October, rebounded by period-end. January saw
renewed volatility across the stock market in response to concerns about higher
U.S. interest rates and the devaluation of Brazil's currency.
OUTLOOK
Small-cap stocks continue to trade at a discount to large caps, a condition
that persisted through the six-month period. Based on earnings estimates for the
next fiscal year, small caps are trading at about three-quarters of the level of
large-cap stocks -- near historical lows. While we cannot guarantee future
performance, we believe current small-cap valuations leave plenty of room for
improvement.
PORTFOLIO REVIEW
- --------------------------------------------------------------------------------
PERFORMANCE
The Fund's total return consists of the change in net asset value with
dividends reinvested. For the six-month period ended January 31, 1999, without
deducting sales charges, Class A shares lost 9.20%, Class B shares lost 9.61%,
Class C shares lost 9.54% and Class Y shares lost 9.06%.
The Fund's total return may be lower for shareowners who purchased or
redeemed Fund shares during the period. After deducting the maximum applicable
sales charges, Class A shares lost 13.29%, Class B shares lost 13.67% and Class
C shares lost 10.35%. Class Y shares are not subject to sales charges.
- --------------------------------------------------------------------------------
PAINEWEBBER SMALL CAP FUND
Top Five Sectors*
Consumer Cyclical 32.1%
Technology 25.9%
Healthcare 9.7%
Capital Goods 8.6%
Financial Services 8.4%
PAINEWEBBER SMALL CAP FUND
Top Ten Holdings*
Fresh America Corp. 3.1%
First Cash Financial Services 3.0%
Central Garden & Pet Co. 2.7%
Wackenhut Corp., Class B 2.6%
Cornell Corrections, Inc. 2.4%
Quadramed Corp. 2.3%
Curative Health Services, Inc. 2.3%
Hooper Holmes, Inc. 2.2%
Stericycle, Inc. 2.2%
Orbotech Ltd. 2.1%
* Portfolio weightings represent percentages of net assets as of January 31,
1999. The Fund's portfolio is actively managed and its composition will vary
over time.
1
<PAGE>
PAINEWEBBER SMALL CAP FUND SEMIANNUAL REPORT
HIGHLIGHTS
Size was everything during the period: the largest of the
small-capitalization stocks outperformed the smallest, and the Fund's emphasis
on smaller issues hurt its return. The Fund was helped, however, by its
overweighting in the consumer cyclical sector, which continues to benefit from
strong consumer spending. The Fund's biggest holding was in the foods sector:
Fresh America Corp. (3.1%*), a distributor of perishable food items to
supermarkets and food service companies.
We made several significant changes to the Fund's sector allocations during
the period. The technology weighting rose from 17.7% as of July 31, 1998 to
25.9% as of January 31, 1999. During the same period we cut the Fund's financial
services weighting almost in half, from 16.2% to 8.4%. The Fund's top five
sectors remained the same for the period, though their order changed (see bar
chart, "Top Five Sectors").
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.
For a Quarterly Review on PaineWebber Small Cap Fund or another fund in the
PaineWebber Family of Funds(1), please contact your Financial Advisor.
Sincerely,
MARGO ALEXANDER DONALD R. JONES
President and Portfolio Manager,
Chief Executive Officer PaineWebber Small Cap Fund
Mitchell Hutchins Asset Management Inc.
MARK A. TINCHER
Managing Director and
Chief Investment Officer--
Equity Investments,
Mitchell Hutchins Asset Management Inc.
* Portfolio weightings represent percentages of net assets as of January 31,
1999. The Fund's portfolio is actively managed and its composition will
vary over time.
(1) 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 six-month period ended January 31, 1999, 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 Financial Advisor regarding your personal investment program.
- --------------------------------------------------------------------------------
PAINEWEBBER
SMALL CAP FUND
FUND PROFILE
Goal:
Long-term capital appreciation through small-cap investing
Portfolio Manager:
Donald R. Jones,
Mitchell Hutchins Asset
Management Inc.
Total Net Assets:
$111.8 million as of January 31, 1999
Dividend Payment:
Annually
PAINEWEBBER
SMALL CAP FUND
PW Small S&P 600
Cap Fund Index
-----------------------------
Avg. Market Cap $298mm $568mm
Price/Earnings Ratio 12.8x 16.4x
Price/Book Ratio 2.9x 3.0x
Dividend Yield 0.4% 0.9%
Projected EPS Growth 21.2% 17.7%
2
<PAGE>
PAINEWEBBER SMALL CAP FUND
PERFORMANCE RESULTS (unaudited)
<TABLE>
<CAPTION>
Net Asset Value Total Return(1)
---------------------------------------- -----------------------------------
12 Months 6 Months
01/31/99 07/31/98 01/31/98 Ended 01/31/99 Ended 01/31/99
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A Shares $10.94 $13.34 $13.02 (6.97)% (9.20)%
Class B Shares 10.38 12.78 12.52 (7.73) (9.61)
Class C Shares 10.37 12.76 12.50 (7.66) (9.54)
<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>
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
1996 10.81 11.40 1.1566 -- 17.45
1997 11.40 13.31 1.1735 -- 27.38
1998 13.31 11.21 1.1141 -- (6.75)
01/01/99-01/31/99 11.21 10.94 -- -- (2.41)
Totals: $4.8124 $0.1281
Cumulative Total Return as of 01/31/99: 69.19%
<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>
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
1996 10.62 11.08 1.1566 -- 16.50
1997 11.08 12.80 1.1735 -- 26.45
1998 12.80 10.64 1.1141 -- (7.49)
01/01/99-01/31/99 10.64 10.38 -- -- (2.44)
Totals: $4.8124 $0.0631
Cumulative Total Return as of 01/31/99: 61.56%
<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>
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
1996 10.61 11.07 1.1566 -- 16.52
1997 11.07 12.79 1.1735 -- 26.47
1998 12.79 10.63 1.1141 -- (7.49)
01/01/99-01/31/99 10.63 10.37 -- -- (2.45)
Totals: $4.8124 $0.0682
Cumulative Total Return as of 01/31/99: 61.57%
</TABLE>
(1) Figures assume reinvestment of all dividends and distributions at net asset
value on the payable dates and do not include sales charges; results would
be lower if sales charges were included. Total investment return for periods
of less than one year has not been annualized.
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.
3
<PAGE>
PAINEWEBBER SMALL CAP FUND
PERFORMANCE RESULTS (unaudited) (concluded)
Average Annual Returns
<TABLE>
<CAPTION>
% Return After Deducting
% Return Without Sales Charge Maximum Sales Charge
------------------------------------ ------------------------------------
Class Class
A* B** C*** A* B** C***
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Twelve Months Ended 12/31/98 (6.75)% (7.49)% ( 7.49)% (10.96)% (11.65)% (8.32)%
Five Years Ended 12/31/98 9.99 9.15 9.14 8.99 8.86 9.14
Commencement of Operations+
Through 12/31/98 9.74 8.90 8.90 8.90 8.79 8.90
</TABLE>
* Maximum sales charge for Class A shares is 4.5% of the public offering
price. Class A shares bear ongoing 12b-1 service fees.
** Maximum contingent deferred sales charge for Class B shares is 5.0% and is
reduced to 0% after 6 years. Class B shares bear ongoing 12b-1
distribution and service fees.
*** Maximum contingent deferred sales charge for Class C shares is 1.0% and is
reduced to 0% after 1 year. Class C shares bear ongoing 12b-1 distribution
and service fees.
+ Commencement of operations was February 1, 1993 for Class A, Class B and
Class C shares.
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 that may invest in PaineWebber mutual funds. For the six months ended
January 31, 1999 and since inception, July 26, 1996 through January 31, 1999,
Class Y shares had a total return of (9.06)% and 34.87%, respectively. For the
twelve months ended December 31, 1998, and since inception, July 26, 1996
through December 31, 1998, Class Y shares have an average annual total return of
(6.49)% and 14.16%, respectively. Class Y shares do not have initial or
contingent deferred sales charges or ongoing distribution and 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.
4
<PAGE>
PaineWebber Small Cap Fund
Portfolio of Investments January 31, 1999 (unaudited)
Number of
Shares Value
- --------- ----------
COMMON STOCKS--98.89%
Agriculture, Food & Beverage--3.75%
532,000 Creative Bakeries, Inc.* ..................... $ 764,750
195,600 Fresh America Corp.* ......................... 3,423,000
----------
4,187,750
----------
Apparel, Retail--2.45%
21,500 Goodys Family Clothing, Inc.* ................ 231,797
33,500 Pacific Sunwear of California, Inc.* ......... 847,969
218,300 Paul Harris Stores, Inc.* .................... 1,664,537
----------
2,744,303
----------
Banks--0.26%
7,500 GBC Bancorp .................................. 166,875
4,788 Texas Regional Bankshares, Inc. .............. 119,700
----------
286,575
----------
Computer--Business Services--0.55%
53,800 Box Hill Systems Corp.* ...................... 305,988
15,000 SMART Modular Technologies, Inc.* ............ 307,500
----------
613,488
----------
Computer Hardware--2.36%
9,000 Bell Microproducts, Inc.* .................... 81,563
300,000 Oshap Technologies Ltd.* ..................... 2,287,500
57,500 SED International Holdings, Inc.* ............ 269,531
----------
2,638,594
----------
Computer Software--7.08%
23,000 Avid Technology, Inc.* ....................... 669,875
14,500 AVT Corp.* ................................... 395,125
12,000 Clarify, Inc.* ............................... 320,250
1,200 Covad Communications Group, Inc.* ............ 63,300
12,000 Engineering Animation, Inc.*(1) .............. 607,500
24,000 MAPICS, Inc.* ................................ 258,000
9,000 Metro Information Services, Inc.* ............ 309,375
7,500 Open Text Corp.* ............................. 170,625
15,880 Platinum Software Corp.* ..................... 171,702
92,000 Quadramed Corp.*(1) .......................... 2,610,500
15,000 Software Spectrum, Inc.* ..................... 245,625
18,000 SPSS, Inc.* .................................. 362,250
117,224 Tecnomatix Technologies Ltd.*(1) ............. 1,729,054
----------
7,913,181
----------
Construction--1.43%
32,800 Elcor Corp. .................................. $1,135,700
21,600 Meritage Corp. ............................... 319,950
4,000 United States Home Corp. ..................... 142,000
----------
1,597,650
----------
Consumer Durables--0.97%
72,500 CHS Electronics, Inc.*(1) .................... 1,082,969
----------
Defense/Aerospace--0.15%
12,000 Herley Industries, Inc.* ..................... 169,500
----------
Diversified Retail--1.28%
45,000 Shopko Stores, Inc. .......................... 1,428,750
----------
Drugs & Medicine--0.03%
45,000 IVC Industries, Inc.* ........................ 30,938
----------
Electrical Equipment--4.19%
105,400 Brown & Sharpe Manufacturing Co.* ............ 816,850
81,500 Davox Corp.* ................................. 702,937
75,000 DII Group, Inc. *(1) ......................... 2,128,125
68,000 IFR Systems, Inc. ............................ 382,500
8,800 Thermedics Detection, Inc. ................... 73,700
55,000 Thermo Ecotek Corp.* ......................... 574,063
----------
4,678,175
----------
Electrical Power--2.92%
49,150 AFC Cable Systems, Inc.* ..................... 1,732,537
10,400 Calpine Corp.* ............................... 384,800
45,000 Hughes Supply, Inc. .......................... 1,141,875
----------
3,259,212
----------
Electronic Components--1.85%
134,500 DSP Group, Inc.* ............................. 2,067,937
----------
Electronic Components & Instruments--2.06%
55,000 Orbotech Ltd.* ............................... 2,299,687
----------
Entertainment--1.04%
60,200 Funco, Inc.* ................................. 805,175
15,000 Imax Corp.*(1) ............................... 360,000
----------
1,165,175
----------
5
<PAGE>
PAINEWEBBER SMALL CAP FUND
Number of
Shares Value
- --------- ----------
COMMON STOCKS--(continued)
Environmental Services--0.47%
163,000 Thermatrix, Inc.* .................................. $ 529,750
----------
Financial Services--5.61%
78,643 DVI, Inc.* ......................................... 1,061,680
262,000 First Cash Financial Services* ..................... 3,406,000
22,000 Imperial Credit Industries Financial Services* ..... 170,500
50,600 Litchfield Financial Corp. ......................... 1,043,625
16,300 Resource Bancshares Mortgage Group, Inc. ........... 242,463
12,000 Southwest Securities Group, Inc. ................... 347,250
----------
6,271,518
----------
Food Retail--0.33%
12,600 Performance Food Group Co.* ........................ 370,913
----------
Forest Products, Paper--1.88%
38,000 Daisytek International Corp.* ...................... 750,500
48,000 Greif Brothers Corp. ............................... 1,353,000
----------
2,103,500
----------
Freight, Air, Sea & Land--1.56%
16,000 Allied Holdings, Inc.* ............................. 224,000
9,000 Mark VII, Inc.* .................................... 153,000
120,000 Smithway Motor Xpress Corp.* ....................... 1,035,000
15,000 US Xpress Enterprises, Inc.* ....................... 251,250
7,000 USA Truck, Inc.* ................................... 82,250
----------
1,745,500
----------
Health & Personal Care--0.65%
58,300 Twinlab Corp.* ..................................... 728,750
----------
Heavy Machinery--0.61%
6,000 Gehl Co.* .......................................... 100,500
70,000 Titan International, Inc. .......................... 581,875
----------
682,375
----------
Household Products--1.02%
33,000 Ultralife Batteries, Inc.* ......................... 177,375
62,500 Watsco, Inc. ....................................... 960,937
----------
1,138,312
----------
Human Resources--0.22%
15,000 Romac International, Inc.* ......................... 247,500
----------
Industrial Parts--1.62%
15,000 International Comfort Products Corp.* .......... $ 110,625
158,000 Powell Industries, Inc.* ....................... 1,698,500
----------
1,809,125
----------
Industrial Services/Supplies--6.15%
38,000 Childrens Comprehensive Services* .............. 508,250
138,700 Cornell Corrections, Inc.* ..................... 2,721,987
41,700 Correctional Services Corp.* ................... 469,125
85,000 FTI Consulting, Inc.* .......................... 260,313
144,200 Wackenhut Corp., Class B ....................... 2,920,050
----------
6,879,725
----------
Information & Computer Services--4.82%
16,800 4Front Technologies, Inc.* ..................... 168,000
12,000 Barra, Inc.* ................................... 256,500
29,000 Caere Corp.* ................................... 496,625
6,200 Computer Task Group, Inc. ...................... 162,363
15,000 Cotelligent, Inc.* ............................. 314,062
80,000 Health Management Systems, Inc.* ............... 620,000
10,000 Hutchinson Technology, Inc.* ................... 461,250
7,500 Kronos, Inc.* .................................. 354,375
75,000 Lanvision Systems, Inc.* ....................... 203,906
7,850 NVIDIA Corp.* .................................. 149,150
85,900 Pomeroy Computer Resources* .................... 1,825,375
15,000 Right Management Consultants, Inc.* ............ 231,563
15,000 SCB Computer Technology, Inc.* ................. 146,250
----------
5,389,419
----------
Leisure--0.67%
15,000 Activision, Inc.* .............................. 187,500
41,300 Meade Instruments Corp.* ....................... 557,550
----------
745,050
----------
Long Distance & Phone Companies--0.95%
41,000 Davel Communications, Inc.* .................... 556,062
41,000 Norstan, Inc. * ................................ 507,375
----------
1,063,437
----------
Manufacturing--High Technology--0.28%
5,000 Gilat Satellite Networks Ltd.* ................. 314,688
----------
6
<PAGE>
PAINEWEBBER SMALL CAP FUND
Number of
Shares Value
- --------- ----------
COMMON STOCKS--(continued)
Medical Products--3.90%
73,900 American Science & Engineering, Inc.* ............ $ 863,706
120,800 Chronimed, Inc.* ................................. 1,283,500
10,500 Conmed Corp.* .................................... 343,875
33,000 ICU Medical, Inc.* ............................... 651,750
16,900 Minntech Corp. ................................... 230,263
30,000 PolyMedica Corp.* ................................ 262,500
59,000 Theragenics Corp.* ............................... 394,562
25,000 Young Innovations, Inc.* ......................... 328,125
----------
4,358,281
----------
Medical Providers--8.98%
238,700 Counsel Corp.* ................................... 1,999,113
84,000 Curative Health Services, Inc.* .................. 2,514,750
86,500 Hooper Holmes, Inc. .............................. 2,465,250
72,800 Physicians Specialty Corp.* ...................... 600,600
148,100 Stericycle, Inc. *(1) ............................ 2,462,162
----------
10,041,875
----------
Mining & Metals--2.30%
22,500 Atchison Casting Corp.* .......................... 219,375
48,400 Texas Industries, Inc. ........................... 1,282,600
125,000 Wyman Gordon Co.* ................................ 1,070,312
----------
2,572,287
----------
Motor Vehicles--1.07%
60,000 Keystone Automotive Industries, Inc.* ............ 1,200,000
----------
Oil Refining--0.58%
149,100 Kaneb Services, Inc. ............................. 652,313
----------
Oil Services--0.23%
40,000 Pride International, Inc.* ....................... 255,000
----------
Other Insurance--2.55%
19,900 Capital Re Corp. ................................. 361,931
12,500 Landamerica Financial Group, Inc. ................ 624,219
33,500 Medical Assurance, Inc.* ......................... 1,021,750
10,000 MFC Bancorp Ltd. ................................. 77,500
16,000 Philadelphia Consolidated Holding Corp.* ......... 385,500
7,100 Stewart Information Services Corp. ............... 379,850
----------
2,850,750
----------
Publishing--0.14%
10,000 CCC Information Services Group, Inc.* .......... $ 155,000
Railroads--0.44%
25,000 Greenbrier Companies, Inc. ..................... 300,000
6,000 MotivePower Industries, Inc.* .................. 187,875
----------
487,875
----------
Real Property--4.99%
7,000 Beazer Homes USA, Inc.* ........................ 189,000
64,500 Cameron Ashley Building Products, Inc.* ........ 862,688
10,000 Crossmann Community, Inc.* ..................... 267,500
5,000 M.D.C. Holdings, Inc. .......................... 105,000
17,000 Newhall Land & Farming Co. ..................... 420,750
137,775 Nobility Homes, Inc.* .......................... 1,739,409
32,500 NVR, Inc.* ..................................... 1,450,312
27,000 Schottenstein Homes, Inc. ...................... 543,375
----------
5,578,034
----------
Restaurants--0.22%
60,000 Casa Ole Restaurants, Inc.* .................... 243,750
----------
Specialty Retail--12.55%
190,000 Central Garden & Pet Co.*(1) ................... 3,051,875
99,500 DM Management Co.* ............................. 1,741,250
243,500 Florsheim Group, Inc.* ......................... 1,826,250
60,000 Inacom Corp.*(1) ............................... 783,750
13,000 Jo-Ann Stores, Inc.* ........................... 164,125
40,000 K-Swiss, Inc. .................................. 1,430,000
41,400 Movado Group, Inc. ............................. 1,053,112
67,500 Musicland Stores Corp.* ........................ 822,656
187,800 Piercing Pagoda, Inc.* ......................... 1,831,050
38,300 The Bon-Ton Stores, Inc.* ...................... 301,613
51,500 Trans World Entertainment Corp.* ............... 759,625
90,000 West Coast Entertainment Corp.* ................ 109,688
9,000 Whitehall Jewellers, Inc.* ..................... 148,500
----------
14,023,494
----------
Tobacco--0.14%
5,000 Universal Corp. ................................ 151,563
----------
Water--1.07%
15,000 Aquarion Co. ................................... 578,438
15,000 E'Town Corp. ................................... 621,562
----------
1,200,000
----------
7
<PAGE>
PAINEWEBBER SMALL CAP FUND
Number of
Shares Value
- --------- ----------
COMMON STOCKS--(concluded)
Wireless Telecommunications--0.52%
3,100 Mosaix, Inc.* ................................ $ 29,063
18,000 Proxim, Inc.* ................................ 492,187
2,700 Teltrend, Inc.* .............................. 65,138
-----------
586,388
-----------
Total Common Stocks (cost--$117,219,310) ...................... 110,540,056
-----------
Number of
Warrants Value
- --------- ------------
WARRANTS--0.01%
Agriculture, Food & Beverage--0.01%
350,000 Creative Bakeries Inc.*, ....................
strike price of $3.00 expiring ..............
December 31, 2000(2) (cost--$171,500)........ $ 17,500
------------
Principal
Amount Maturity Interest
(000) Date Rate
- --------- -------- --------
REPURCHASE AGREEMENT--2.07%
$ 2,311 Repurchase Agreement
dated 01/29/99 with
Deutsche Bank,
collateralized by
$2,265,000 U.S.
Treasury Note, 5.50%
due 05/31/03
(value--$2,357,231);
proceeds: $2,311,905
(cost--$2,311,000) 2/01/99 4.700% 2,311,000
------------
Total Investments (cost--$119,701,810)--100.97% .................. 112,868,556
Liabilities in excess of other assets--(0.97)% ................... (1,087,212)
Net Assets--100.00% .............................................. $111,781,344
------------
- ---------------------
* Non-Income producing security
(1) Security, or a portion thereof, was on loan at January 31, 1999.
(2) Illiquid security representing 0.01% of net assets.
See accompanying notes to financial statements
8
<PAGE>
PAINEWEBBER SMALL CAP FUND
STATEMENT OF ASSETS AND LIABILITIES JANUARY 31, 1999 (unaudited)
<TABLE>
<CAPTION>
Assets
<S> <C>
Investments, at value (cost--$119,701,810) ........................................................ $112,868,556
Investments of cash collateral for securities loaned (cost--$9,062,100) ........................... 9,062,100
Cash .............................................................................................. 969
Receivable for shares of beneficial interest sold ................................................. 181,810
Dividends and interest receivable ................................................................. 48,488
Receivable for investments sold ................................................................... 8,925
Other assets ...................................................................................... 38,444
------------
Total assets ...................................................................................... 122,209,292
------------
Liabilities
Cash collateral for securities loaned ............................................................. 9,062,100
Payable for shares of beneficial interest repurchased ............................................. 646,429
Payable for investments purchased ................................................................. 303,679
Payable to affiliates ............................................................................. 163,555
Accrued expenses and other liabilities ............................................................ 252,185
------------
Total liabilities ................................................................................. 10,427,948
------------
Net Assets
Beneficial interest shares of $0.001 par value outstanding (unlimited amount authorized) .......... 116,798,624
Accumulated net investment loss ................................................................... (706,573)
Accumulated net realized gains from investments ................................................... 2,522,547
Net unrealized depreciation of investments ........................................................ (6,833,254)
------------
Net assets ........................................................................................ $111,781,344
============
Class A:
Net assets ........................................................................................ $ 46,804,309
------------
Shares outstanding ................................................................................ 4,276,772
------------
Net asset and redemption value per share .......................................................... $10.94
======
Maximum offering price per share (net asset value plus sales charge of 4.50% of offering price) ... $11.46
======
Class B:
Net assets ........................................................................................ $ 34,460,822
------------
Shares outstanding ................................................................................ 3,318,788
------------
Net asset value and offering price per share ...................................................... $10.38
======
Class C:
Net assets ........................................................................................ $ 24,873,602
------------
Shares outstanding ................................................................................ 2,398,694
------------
Net asset value and offering price per share ...................................................... $10.37
======
Class Y:
Net assets ........................................................................................ $ 5,642,611
------------
Shares outstanding ................................................................................ 511,815
------------
Net asset value, offering price and redemption value per share .................................... $11.03
======
</TABLE>
See accompanying notes to financial statements
9
<PAGE>
PAINEWEBBER SMALL CAP FUND
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Six
Months Ended
January 31, 1999
(unaudited)
----------------
<S> <C>
Investment income:
Dividends ............................................................. $ 390,955
Interest .............................................................. 85,848
------------
476,803
------------
Expenses:
Investment advisory and administration fees ........................... 580,011
Services fees--Class A ................................................ 50,283
Service and distribution fees--Class B ................................ 214,357
Service and distribution fees--Class C ................................ 130,857
Transfer agency and service fees ...................................... 71,625
Custody and accounting ................................................ 35,746
Legal and audit ....................................................... 31,933
Reports and notices to shareholders ................................... 30,231
Federal and state registration fees ................................... 21,671
Trustees' fees and expenses ........................................... 6,750
Other expenses ........................................................ 9,912
------------
1,183,376
------------
Net investment loss ................................................... (706,573)
------------
Realized and unrealized gain (loss) from investment transactions:
Net realized gain from investment transactions ........................ 135,092
Net change in unrealized appreciation/depreciation of investments ..... (13,267,192)
------------
Net realized and unrealized loss from investment transactions ......... (13,132,100)
------------
Net decrease in net assets resulting from operations .................. $(13,838,673)
============
</TABLE>
See accompanying notes to financial statements
10
<PAGE>
PAINEWEBBER SMALL CAP FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Six
Months Ended For the
January 31, 1999 Year Ended
(unaudited) July 31, 1998
---------------- -------------
<S> <C> <C>
From operations:
Net investment loss ............................................................ $ (706,573) $ (1,962,672)
Net realized gain from investment transactions ................................. 135,092 17,477,609
Net change in unrealized appreciation/depreciation of investments .............. (13,267,192) (9,803,079)
-------------- -------------
Net increase (decrease) in net assets resulting from operations ................ (13,838,673) 5,711,858
-------------- -------------
Distributions to shareholders from:
Net realized gain from investment transactions-Class A ......................... (3,700,009) (3,468,839)
Net realized gain from investment transactions-Class B ......................... (4,415,748) (4,427,192)
Net realized gain from investment transactions-Class C ......................... (2,637,230) (2,421,561)
Net realized gain from investment transactions-Class Y ......................... (637,228) (224,585)
-------------- -------------
Total distributions to shareheolders (11,390,215) (10,542,177)
-------------- -------------
From beneficial interest transactions:
Net proceeds from the sale of shares ........................................... 17,292,286 93,251,454
Cost of shares repurchased ..................................................... (32,650,180) (52,192,558)
Proceeds from dividends reinvested ............................................. 10,797,893 10,046,028
-------------- -------------
Net increase (decrease) in net assets from beneficial interest transactions .... (4,560,001) 51,104,924
-------------- -------------
Net increase (decrease) in net assets .......................................... (29,788,889) 46,274,605
Net Assets:
Beginning of period ............................................................ 141,570,233 95,295,628
-------------- -------------
End of period .................................................................. $111,781,344 $141,570,233
============== =============
</TABLE>
See accompanying notes to financial statements
11
<PAGE>
NOTES TO FINANCIAL STATEMENTS (unaudited)
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
PaineWebber Small Cap 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 currently 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 dividend reinvested shares
automatically convert to Class A shares approximately six years after initial
issuance. All classes of shares have equal voting privileges, except that Class
A, Class B and Class C shares have exclusive voting rights with respect to their
service and/or distribution plan, if any.
The preparation of financial statements in accordance with generally accepted
accounting principles requires Fund management to make estimates and assumptions
that affect the reported amounts and disclosures in the financial statements.
Actual results could differ from those estimates. The following is a summary of
significant accounting policies:
Valuation of Investments--Securities which are listed on U.S. and foreign
stock exchanges are valued at the last sale price on the day the securities are
being valued or, lacking any sales on such day, at the last available bid price.
In cases where securities are traded on more than one exchange, the securities
are generally valued on the exchange designated 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. Securities traded in the
over-the-counter ("OTC") market and listed on The Nasdaq Stock Market, Inc.
("Nasdaq") are valued at the last trade price on Nasdaq prior to the time of
valuation; other OTC securities (other than short term debt securities described
below) are valued at the last quoted bid price in the OTCMarket. The amortized
cost method of valuation, which approximates market value, is used to value
short-term debt instruments with sixty days or less remaining to maturity unless
the Trust's board of trustees determines that this does not represent fair
value. Securities and assets for which market quotations are not readily
available (including restricted securities subject to limitations as to their
sale) are valued at fair value as determined in good faith by or under the
direction of the 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.
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.
12
<PAGE>
NOTES TO FINANCIAL STATEMENTS (unaudited)
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
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 under which Mitchell Hutchins serves as
investment adviser and administrator of the Fund. In accordance with the
Advisory Contract the Fund pays Mitchell Hutchins an investment advisory and
administration fee, which is accrued daily and payable monthly, at the annual
rate of 1.00% of the Fund's average daily net assets. At January 31, 1999, the
Fund owed Mitchell Hutchins $98,143 in investment advisory and administration
fees.
DISTRIBUTION PLANS
Mitchell Hutchins is the distributor of the Fund's shares and has appointed
PaineWebber as the exclusive dealer for the sale of those shares. Under separate
plans of distribution pertaining to Class A, Class B and Class C shares, 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, 1999, the Fund owed Mitchell Hutchins
$63,136 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 A, Class B and Class C shares. Mitchell Hutchins has informed the Fund
that for the six months ended January 31, 1999, it received $91,741 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 and dividends, determined on a daily basis and
adjusted accordingly. The Fund will retain 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 for lending its
securities
13
<PAGE>
NOTES TO FINANCIAL STATEMENTS (unaudited)
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. For the six months ended January 31, 1999, the
Fund earned $51,310 for lending its securities and PaineWebber earned $17,102 as
the Fund's lending agent. At January 31, 1999, the Fund owed PaineWebber $2,276
in security lending fees.
At January 31, 1999, the Fund's custodian held cash having an aggregate value
of $9,062,100 as collateral for portfolio securities loaned having a market
value of $8,286,658 which was invested in the following money market funds:
<TABLE>
<CAPTION>
Number of
Shares Value
---------- ----------
<S> <C> <C>
5,685,170 Janus Money Market Fund .......................... $5,685,170
3,252,015 Liquid Assets Money Market Portfolio ............. 3,252,015
124,915 TempFund Money Market Portfolio .................. 124,915
----------
$9,062,100
==========
</TABLE>
One of the securities out on loan was sold prior to January 31, 1999, and
therefore is not included in the Fund's portfolio of investments.
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 settlement of sales or purchases of portfolio securities, the
repurchase or redemption of shares of the 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 six months ended January 31, 1999, the Fund did not borrow under the
Facility.
TRANSFER AGENCY RELATED SERVICE FEES
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 six months ended January 31, 1999, PaineWebber received approximately 54% of
the total service fees collected by PFPC, Inc.
INVESTMENTS IN SECURITIES
For federal income tax purposes, the cost of securities owned at January 31,
1999 was substantially the same as the cost of securities for financial
statement purposes.
<TABLE>
<CAPTION>
<S> <C>
At January 31, 1999, the components of net unrealized depreciation of
investments were as follows:
Gross appreciation (investments having an excess
of value over cost) .......................................... $ 15,405,939
Gross depreciation (investments having an excess
of cost over value) .......................................... (22,239,193)
------------
Net unrealized depreciation of investments ..................... $ (6,833,254)
============
</TABLE>
For the six months ended January 31, 1999, aggregate purchases and sales of
portfolio securities, excluding short-term securities, were $35,708,070 and
$52,781,362, respectively.
14
<PAGE>
NOTES TO FINANCIAL STATEMENTS (unaudited)
FEDERAL INCOME 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 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>
For the Six Months Ended Class A Class B Class C Class Y
January 31, 1999: ----------------------- ------------------ ------------------- -------------------
Shares Amount Shares Amount Shares Amount Shares Amount
--------- ----------- -------- ----------- ---------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold 247,854 $ 2,739,071 292,498 $ 3,094,078 869,975 $ 8,909,288 236,637 $ 2,549,849
Shares repurchased (750,898) (8,177,834) (748,422) (7,871,762) (1,246,605) (12,957,615) (319,122) (3,642,969)
Shares converted from
Class B to Class A 871,200 9,660,186 (917,252) (9,660,186) - - - -
Dividends reinvested 342,408 3,557,623 416,167 4,107,567 254,305 2,504,908 60,019 627,795
--------- ----------- -------- ----------- ---------- ----------- -------- -----------
Net increase (decrease) 710,564 $ 7,779,046 (957,009) $(10,330,303) (122,325) $(1,543,419) (22,466) $ (465,325)
========= =========== ======== =========== ========== =========== ======== ===========
<CAPTION>
For the Year Ended Class A Class B Class C Class Y
July 31, 1999: ----------------------- ------------------ ------------------- -------------------
Shares Amount Shares Amount Shares Amount Shares Amount
--------- ----------- --------- ---------- ---------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold 1,362,532 $19,796,327 1,742,368 $ 24,487,702 3,044,346 $ 42,744,818 428,236 $ 6,222,607
Shares repurchased (723,529) (10,351,967) (716,153) (9,862,362) (2,161,063) (30,292,135) (116,604) (1,686,094)
Shares converted from
Class B to Class A 211,961 3,030,032 (220,238) (3,030,032) - - - -
Dividends reinvested 259,054 3,341,792 334,318 4,148,894 188,344 2,335,453 16,980 219,889
--------- ----------- --------- ------------ ---------- ----------- -------- -----------
Net increase 1,110,018 $15,816,184 1,140,295 $15,744,202 1,071,627 $ 14,788,136 328,612 $4,756,402
========= =========== ========= =========== ========== =========== ======== ===========
</TABLE>
15
<PAGE>
PAINEWEBBER SMALL CAP FUND
FINANCIAL HIGHLIGHTS
Selected data for a beneficial interest outstanding throughout each period is
presented below:
<TABLE>
<CAPTION>
Class A
------------------------------------------------------------------
For the Six
Months Ended For the Years Ended
January 31, July 31,
1999 ---------------------------------------------------
(unaudited) 1998 1997 1996# 1995
------------ -------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ...................... $ 13.34 $ 13.42 $ 10.22 $ 11.30 $ 10.27
-------- -------- -------- ------- --------
Net investment income (loss) .............................. (0.04) (0.13) (0.14) 0.00@ 0.05
Net realized and unrealized gains (losses)
from investments......................................... (1.25) 1.22 3.75 0.50@ 1.50
-------- -------- -------- ------- --------
Net increase (decrease) from investment operations ........ (1.29) 1.09 3.61 0.50 1.55
-------- -------- -------- ------- --------
Dividends from net investment income ...................... -- -- -- -- --
Distributions from net realized gains from investments .... (1.11) (1.17) (0.41) (1.58) (0.52)
-------- -------- -------- ------- --------
Total dividends and distributions ......................... (1.11) (1.17) (0.41) (1.58) (0.52)
-------- -------- -------- ------- --------
Net asset value, end of period ............................ $ 10.94 13.34 13.42 10.22 11.30
======== ======== ======== ======= ========
Total investment return (1) ............................... (9.20)% 8.45% 36.11% 4.69% 15.80%
======== ======== ======== ======= ========
Ratios/Supplemental Data:
Net assets, end of period (000's) ......................... $ 46,804 $ 47,589 $ 32,968 $ 30,675 $ 20,494
Expenses to average net assets ............................ 1.59%* 1.56% 2.00% 2.11% 1.98%
Net investment income (loss) to average net assets ........ (0.78)%* (0.99)% (1.16)% 0.02% 0.41%
Portfolio turnover ........................................ 31% 45% 54% 84% 19%
<CAPTION>
Class A
------------------------------
Period Year
Ended Ended
July 31, January 31,
1994+ 1994
--------- ------------
<S> <C> <C>
Net asset value, beginning of period ...................... $ 10.61 $ 10.00
-------- --------
Net investment income (loss) .............................. 0.02 0.13
Net realized and unrealized gains (losses)
from investments......................................... (0.36) 0.62
-------- --------
Net increase (decrease) from investment operations ........ (0.34) 0.75
-------- --------
Dividends from net investment income ...................... -- (0.12)
Distributions from net realized gains from investments .... -- (0.02)
-------- --------
Total dividends and distributions ......................... 0.00 (0.14)
Net asset value, end of period ............................ 10.27 10.61
======== ========
Total investment return (1) ............................... (3.20)% 7.58%
======== ========
Ratios/Supplemental Data:
Net assets, end of period (000's) ......................... $ 22,848 $ 22,226
Expenses to average net assets ............................ 1.91% 1.75%
Net investment income (loss) to average net assets ........ 0.41% 1.41%
Portfolio turnover ........................................ 20% 98%
</TABLE>
- ---------------
* Annualized
+ For the period February 1, 1994 to July 31, 1994.
# Effective April 1, 1996, Mitchell Hutchins took over day-to-day management
of the Fund's assets.
@ Calculated using the average shares outstanding for the period.
(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 periods of less than one
year has not been annualized.
16
<PAGE>
PAINEWEBBER SMALL CAP FUND
<TABLE>
<CAPTION>
Class B
-------------------------------------------------------------------
For the Six
Months Ended For the Years Ended
January 31, July 31,
1999 ----------------------------------------------------
(unaudited) 1998 1997 1996# 1995
----------- -------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ...................... $ 12.78 $ 13.00 $ 9.98 $ 11.15 $ 10.22
-------- -------- -------- -------- --------
Net investment income (loss) .............................. (0.10) (0.22) (0.23) (0.09)@ (0.04)
Net realized and unrealized gains (losses) (1.19) 1.17 3.66 0.50 @ 1.49
from investments......................................... -------- -------- -------- -------- --------
(1.29) 0.95 3.43 0.41 1.45
Net increase (decrease) from investment operations ........ -------- -------- -------- -------- --------
-- -- -- -- --
Dividends from net investment income ...................... (1.11) (1.17) (0.41) (1.58) (0.52)
Distributions from net realized gains from investments .... -------- -------- -------- -------- --------
(1.11) (1.17) (0.41) (1.58) (0.52)
Total dividends and distributions ......................... -------- -------- -------- -------- --------
Net asset value, end of period ............................ $ 10.38 $ 12.78 $ 13.00 $ 9.98 $ 11.15
======== ======== ======== ======== ========
Total investment return (1) ............................... (9.61)% 7.60% 35.16% 3.90% 14.86%
========= ======== ======== ======== ========
Ratios/Supplemental Data:
Net assets, end of period (000's) ......................... $ 34,461 $ 54,639 $ 40,749 $ 36,612 $ 46,142
Expenses to average net assets ............................ 2.39%* 2.3% 2.75% 2.90% 2.74%
Net investment income (loss) to average net assets ........ (1.55)%* (1.75)% (1.91)% (0.78)% (0.35)%
Portfolio turnover ........................................ 31% 45% 54% 84% 19%
<CAPTION>
Class B
--------------------------
For the For the
Period Year
Ended Ended
July 31, January 31,
--------------------------
1994+ 1994
--------- --------
<S> <C> <C>
Net asset value, beginning of period ...................... $ 10.60 $ 10.00
-------- --------
Net investment income (loss) .............................. (0.02) 0.06
Net realized and unrealized gains (losses)
from investments......................................... (0.36) 0.62
-------- --------
Net increase (decrease) from investment operations ........ (0.38) 0.68
-------- --------
Dividends from net investment income ...................... -- (0.06)
-------- --------
Distributions from net realized gains from investments .... -- (0.02)
-------- --------
Total dividends and distributions ......................... 0.00 (0.08)
Net asset value, end of period ............................ $ 10.22 $ 10.60
======== ========
Total investment return (1) ............................... (3.58)% 6.81%
======== ========
Ratios/Supplemental Data:
Net assets, end of period (000's) ......................... $ 52,624 $ 59,993
Expenses to average net assets ............................ 2.69%* 2.50%
Net investment income (loss) to average net assets ........ 0.37)%* 0.67%
Portfolio turnover ........................................ 20% 98%
</TABLE>
17
<PAGE>
PAINEWEBBER SMALL CAP FUND
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout each
period is presented below:
<TABLE>
<CAPTION>
Class C
----------------------------------------------------------------------------
For the Six For the For the
Months Ended For the Years Ended Period Year
January 31, July 31, Ended Ended
1999 -------------------------------------- July 31, January 31,
(unaudited) 1998 1997 1996# 1995 1994+ 1994
------------ ------- ------ ------- ------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ................ $ 12.76 $ 12.98 $ 9.97 $ 11.14 $ 10.22 $ 10.59 $ 10.00
------- ------- ------ ------- ------- ------- -------
Net investment income (loss) ........................ (0.09) (0.21) (0.24) (0.08) (0.05) (0.02) 0.06
Net realized and unrealized gains (losses)
from investments .................................. (1.19) 1.16 3.66 0.49@ 1.49 (0.35) 0.62
------- ------- ------ ------- ------- ------- -------
Net increase (decrease) from investment
operations ........................................ (1.28) 0.95 3.42 0.41 1.44 (0.37) 0.68
------- ------- ------ ------- ------- ------- -------
Dividends from net investment income ................ -- -- -- -- -- -- (0.07)
Distributions from net realized gains from
investments ....................................... (1.11) (1.17) (0.41) (1.58) (0.52) -- (0.02)
------- ------- ------ ------- ------- ------- -------
Total dividends and distributions ................... (1.11) (1.17) (0.41) (1.58) (0.52) 0.00 (0.09)
------- ------- ------ ------- ------- ------- -------
Net asset value, end of period ...................... $ 10.37 $ 12.76 $ 12.98 $ 9.97 $ 11.14 $ 10.22 $ 10.59
======= ======= ====== ======= ======= ======= =======
Total investment return (1) ......................... (9.54)% 7.61% 35.09% 3.90% 14.76% (3.49)% 6.77%
======= ======= ====== ======= ======= ======= =======
Ratios/Supplemental Data:
Net assets, end of period (000's) ................... $24,874 $32,174 $18,812 $18,606 $13,263 $16,285 $20,941
Expenses to average net assets ...................... 2.37%* 2.32% 2.77% 2.91% 2.73% 2.69%* 2.50%
Net investment income (loss) to average
net assets ........................................ (1.56)%* (1.75)% (1.93)% (0.77)% (0.34)% (0.36)%* 0.64%
Portfolio turnover .................................. 31% 45% 54% 84% 19% 20% 98%
</TABLE>
- --------------
* Annualized
+ For the period February 1, 1994 to July 31, 1994.
++ For the period July 26, 1996 (commencement of offering shares) to July 31,
1996.
# Effective April 1, 1996, Mitchell Hutchins took over day-to-day management
of the Fund's assets.
@ Calculated using the average shares outstanding for the period.
(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 return for periods
of less than one year has not been annualized.
18
<PAGE>
PAINEWEBBER SMALL CAP FUND
<TABLE>
<CAPTION>
Class C
------------------------------------------------------------
For the Six
Months Ended For the Years Ended
January 31, July 31, For the
1999 --------------------- Period Ended
(unaudited) 1998 1997 July 31, 1996
----------- ------- ------- -------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period ................ $ 13.42 $ 13.46 $ 10.21 $ 10.23
------- ------- ------- -------
Net investment income (loss) ........................ (0.02) (0.07) (0.11) 0.00@
Net realized and unrealized gains (losses)
from investments .................................. (1.26) 1.20 3.77 (0.02)@
------- ------- ------- -------
Net increase (decrease) from investment
operations ........................................ (1.28) 1.13 3.66 (0.02)
------- ------- ------- -------
Dividends from net investment income ................ -- -- -- --
Distributions from net realized gains from
investments ....................................... (1.11) (1.17) (0.41) --
------- ------- ------- -------
Total dividends and distributions ................... (1.11) (1.17) (0.41) 0.00
------- ------- ------- -------
Net asset value, end of period ...................... 11.03 $ 13.42 $ 13.46 $ 10.21
======= ======= ======= =======
Total investment return (1) ......................... (9.06)% 8.74% 36.65% (0.20)%
======= ======= ======= =======
Ratios/Supplemental Data:
Net assets, end of period (000's) ................... $ 5,643 $ 7,169 $ 2,768 $ 2,801
Expenses to average net assets ...................... 1.27%* 1.39% 1.72% 1.72%*
Net investment income (loss) to average
net assets ........................................ (0.43)%* (0.83)% (0.88)% 0.07%*
Portfolio turnover .................................. 31% 45% 54% 84%
</TABLE>
19
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TRUSTEES
E. Garrett Bewkes, Jr.
Chairman
Margo N. Alexander
Richard Q. Armstrong
Richard R. Burt
Mary C. Farrell
Meyer Feldberg
George W. Gowen
Frederic V. Malek
Carl W. Schafer
PRINCIPAL OFFICERS
Margo N. Alexander
President
Victoria E. Schonfeld
Vice President
Dianne E. O'Donnell
Vice President and Secretary
Paul H. Schubert
Vice President and Treasurer
Mark A. Tincher
Vice President
Donald R. Jones
Vice President
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.
The financial information included herein is taken from the records of the Fund
without examination by independent auditors who do not express an opinion
thereon.
A prospectus containing more complete information for any of the Funds listed on
the back cover can be obtained from a PaineWebber Financial Advisor 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
/x/ High Income Fund
/x/ Investment Grade Income Fund
/x/ Low Duration U.S. Government Income Fund
/x/ Strategic Income Fund
/x/ U.S. Government Income Fund
TAX-FREE BOND FUNDS
/x/ California Tax-Free Income Fund
/x/ Municipal High Income Fund
/x/ National Tax-Free Income Fund
/x/ New York Tax-Free Income Fund
STOCK FUNDS
/x/ Financial Services Growth Fund
/x/ Growth Fund
/x/ Growth and Income Fund
/x/ Mid Cap Fund
/x/ Small Cap Fund
/x/ S&P 500 Index Fund
/x/ Tax-Managed Equity Fund
/x/ Utility Income Fund
ASSET ALLOCATION FUNDS
/x/ Balanced Fund
/x/ Tactical Allocation Fund
GLOBAL FUNDS
/x/ Asia Pacific Growth Fund
/x/ Emerging Markets Equity Fund
/x/ Global Equity Fund
/x/ Global Income Fund
MITCHELL HUTCHINS PORTFOLIOS
/x/ Aggressive Portfolio
/x/ Moderate Portfolio
/x/ Conservative Portfolio
PAINEWEBBER MONEY MARKET FUND
PaineWebber
(c)1999 PaineWebber Incorporated
Member SIPC
- --------------------------------------------------------------------------------
PAINEWEBBER
- ----------------------------------
SMALL
CAP
FUND
SEMIANNUAL REPORT
JANUARY 31, 1999
