PAINEWEBBER SMALL CAP FUND ANNUAL REPORT
PERFORMANCE AT A GLANCE
================================================================================
Comparison of the change of a $10,000 investment in PaineWebber Small Cap
Fund (Classes A, B and C), the S&P 600 Index and the Russell 2000 Index
for the period from February 1, 1993 through July 31, 2000
[Figures below represent a line chart in the printed piece.]
<TABLE>
<CAPTION>
Class A Class B Class C Russell 2000 Index S & P 600 Index
<S> <C> <C> <C> <C> <C>
Jan-93 10,000 10,000 10,000 10,000 10,000
Feb-93 $9,589 $10,040 $10,040 $9,769 $9,715
Mar-93 $9,685 $10,130 $10,130 $10,086 $10,086
Apr-93 $9,570 $10,010 $10,010 $9,809 $9,719
May-93 $9,723 $10,150 $10,150 $10,243 $10,241
Jun-93 $9,761 $10,180 $10,180 $10,306 $10,305
Jul-93 $9,771 $10,190 $10,190 $10,448 $10,412
Aug-93 $9,981 $10,400 $10,400 $10,900 $10,961
Sep-93 $9,981 $10,400 $10,400 $11,207 $11,359
Oct-93 $10,076 $10,490 $10,490 $11,495 $11,577
Nov-93 $9,981 $10,380 $10,380 $11,117 $11,163
Dec-93 $10,284 $10,691 $10,697 $11,497 $11,567
Jan-94 $10,275 $10,681 $10,677 $11,858 $11,840
Feb-94 $10,323 $10,722 $10,727 $11,816 $11,806
Mar-94 $10,062 $10,450 $10,445 $11,192 $10,958
Apr-94 $9,946 $10,319 $10,324 $11,258 $11,122
May-94 $9,916 $10,278 $10,273 $11,132 $10,902
Jun-94 $9,839 $10,198 $10,193 $10,753 $10,498
Jul-94 $9,946 $10,298 $10,304 $10,930 $10,629
Aug-94 $10,333 $10,681 $10,687 $11,538 $11,353
Sep-94 $10,188 $10,530 $10,535 $11,500 $11,294
Oct-94 $10,190 $10,523 $10,528 $11,455 $11,181
Nov-94 $9,948 $10,270 $10,265 $10,993 $10,754
Dec-94 $10,161 $10,482 $10,487 $11,288 $11,014
Jan-95 $10,192 $10,513 $10,508 $11,146 $10,858
Feb-95 $10,518 $10,842 $10,838 $11,610 $11,306
Mar-95 $10,579 $10,895 $10,891 $11,809 $11,534
Apr-95 $10,834 $11,150 $11,156 $12,072 $11,791
May-95 $10,946 $11,256 $11,251 $12,279 $11,977
Jun-95 $11,262 $11,585 $11,581 $12,917 $12,633
Jul-95 $11,517 $11,829 $11,825 $13,660 $13,599
Aug-95 $11,649 $11,956 $11,952 $13,943 $13,894
Sep-95 $11,863 $12,179 $12,175 $14,193 $14,249
Oct-95 $11,364 $11,649 $11,644 $13,558 $13,546
Nov-95 $11,670 $11,956 $11,952 $14,128 $14,081
Dec-95 $11,869 $12,153 $12,149 $14,501 $14,314
Jan-96 $11,770 $12,050 $12,046 $14,485 $14,344
Feb-96 $12,045 $12,324 $12,321 $14,937 $14,814
Mar-96 $12,199 $12,473 $12,469 $15,242 $15,131
Apr-96 $12,682 $12,954 $12,950 $16,057 $16,000
May-96 $13,220 $13,492 $13,488 $16,690 $16,568
Jun-96 $12,967 $13,229 $13,225 $16,004 $15,918
Jul-96 $12,056 $12,290 $12,286 $14,607 $14,823
Aug-96 $12,599 $12,832 $12,828 $15,455 $15,739
Sep-96 $13,130 $13,374 $13,370 $16,059 $16,430
Oct-96 $12,918 $13,152 $13,149 $15,812 $16,317
Nov-96 $13,496 $13,719 $13,716 $16,464 $17,164
Dec-96 $13,940 $14,158 $14,155 $16,895 $17,364
Jan-97 $14,209 $14,426 $14,424 $17,233 $17,653
Feb-97 $13,952 $14,158 $14,155 $16,816 $17,287
Mar-97 $13,280 $13,468 $13,465 $16,022 $16,400
Apr-97 $13,096 $13,276 $13,273 $16,067 $16,602
May-97 $14,515 $14,707 $14,692 $17,854 $18,553
Jun-97 $15,505 $15,691 $15,690 $18,620 $19,373
Jul-97 $16,410 $16,611 $16,597 $19,485 $20,592
Aug-97 $16,973 $17,161 $17,147 $19,932 $21,110
Sep-97 $18,844 $19,039 $19,027 $21,391 $22,506
Oct-97 $18,098 $18,285 $18,273 $20,452 $21,534
Nov-97 $17,780 $17,940 $17,927 $20,319 $21,376
Dec-97 $17,756 $17,902 $17,902 $20,674 $21,808
Jan-98 $17,369 $17,511 $17,496 $20,348 $21,383
Feb-98 $18,984 $19,119 $19,120 $21,851 $23,331
Mar-98 $19,851 $19,986 $19,974 $22,751 $24,222
Apr-98 $20,104 $20,224 $20,212 $22,877 $24,365
May-98 $18,970 $19,063 $19,050 $21,644 $23,074
Jun-98 $19,197 $19,287 $19,274 $21,689 $23,138
Jul-98 $17,796 $17,874 $17,860 $19,932 $21,371
Aug-98 $13,674 $13,720 $13,717 $16,061 $17,246
Sep-98 $14,074 $14,098 $14,095 $17,319 $18,301
Oct-98 $14,781 $14,811 $14,795 $18,026 $19,151
Nov-98 $15,902 $15,930 $15,915 $18,970 $20,229
Dec-98 $16,558 $16,561 $16,562 $20,144 $21,519
Jan-99 $16,160 $16,156 $16,157 $20,412 $21,250
Feb-99 $14,682 $14,662 $14,661 $18,759 $19,336
Mar-99 $13,708 $13,689 $13,695 $19,052 $19,585
Apr-99 $14,609 $14,588 $14,568 $20,759 $20,880
May-99 $15,347 $15,326 $15,300 $21,062 $21,387
Jun-99 $15,805 $15,783 $15,736 $22,014 $22,604
Jul-99 $16,204 $16,181 $16,141 $21,410 $22,405
Aug-99 $15,126 $15,105 $15,035 $20,618 $21,419
Sep-99 $14,623 $14,603 $14,536 $20,622 $21,509
Oct-99 $14,313 $14,293 $14,225 $20,705 $21,456
Nov-99 $15,716 $15,695 $15,611 $21,941 $22,359
Dec-99 $16,928 $16,904 $16,796 $24,425 $24,190
Jan-00 $16,795 $16,771 $16,655 $24,031 $23,440
Feb-00 $17,592 $17,568 $17,434 $27,999 $26,579
Mar-00 $18,789 $18,763 $18,603 $26,154 $25,595
Apr-00 $18,213 $18,188 $18,026 $24,579 $25,158
May-00 $17,267 $17,243 $17,076 $23,146 $24,413
Jun-00 $18,080 $18,055 $17,871 $25,165 $25,856
Jul-00 $18,154 $18,129 $17,917 $24,355 $25,222
</TABLE>
The graph depicts the performance of PaineWebber Small Cap Fund (Classes A, B
and C) versus the S&P 600 Index and the Russell 2000 Index. It is important to
note PaineWebber Small Cap Fund is a professionally managed mutual fund while
the Index is not available for investment and is unmanaged. The comparison is
shown for illustrative purposes only.
Past performance is no guarantee of future performance.
---------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN, PERIODS ENDED 7/31/00
--------------------------------------------------------------------------------
6 Months 1 Year 5 Years Inception#
--------------------------------------------------------------------------------
Before Deducting CLASS A* 8.09% 12.03% 9.53% 8.94%
Maximum Sales Charge CLASS B** 7.58 11.00 8.91 8.25
CLASS C+ 7.58 11.00 8.67 8.08
CLASS Y++ 8.19 12.20 N/A 10.96
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
After Deducting CLASS A* 3.19 6.96 8.53 8.27
Maximum Sales Charge CLASS B** 2.58 6.00 8.63 8.25
CLASS C+ 6.58 10.00 8.67 8.08
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
S&P 600 Index 7.59 12.57 13.15 13.13
Russell 2000 Index 1.35 13.77 12.26 12.60
Lipper Small-Cap Value Funds 10.36 6.22 10.79 10.88
Median
--------------------------------------------------------------------------------
The investment return and the principal value of an investment in the Fund will
fluctuate, so that an investor's shares, when redeemed, may be worth more or
less than their original cost. Six-month and one-year returns are cumulative.
# Inception: since commencement of issuance on February 1, 1993 for Class A,
Class B and Class C shares and on July 26, 1996 for Class Y shares. Index
performance is shown as of inception of oldest share class.
* 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% and is
reduced to 0% after six years. Class B shares bear ongoing 12b-1
distribution and service fees.
+ Maximum contingent deferred sales charge for Class C shares is 1% and is
reduced to 0% after one year. Class C shares bear ongoing 12b-1
distribution and service fees.
++ The Fund offers Class Y shares to a limited group of eligible investors,
including participants in certain investment programs that are sponsored by
PaineWebber and that may invest in PaineWebber mutual funds. Class Y shares
do not bear initial or contingent deferred sales charges or ongoing 12b-1
distribution and service fees.
1
<PAGE>
ANNUAL REPORT
September 15, 2000
--------------------------------------------
PAINEWEBBER
SMALL CAP FUND
INVESTMENT OBJECTIVE:
Long-term capital appreciation
through small-cap investing
PORTFOLIO MANAGER:
Donald R. Jones
Mitchell Hutchins
Asset Management Inc.
COMMENCEMENT:
February 1, 1993 (Classes A, B and C)
July 26, 1996 (Class Y)
DIVIDEND PAYMENTS:
Annually, if any
--------------------------------------------
Dear Shareholder,
We are pleased to present you with the annual report for PaineWebber Small
Cap Fund (the "Fund") for the fiscal year ended July 31, 2000.
MARKET REVIEW
================================================================================
[GRAPHIC OMITTED]
The first six months of the reporting period saw all the major equity
markets gaining, but none more than the NASDAQ Composite, which, propelled by
technology stocks, gained 49.34%. The second half of the Fund's fiscal year gave
the U.S. equity markets a wilder ride. Investors seemed to change their focus
daily while technology stocks, in particular, rode a roller coaster. Early in
2000, value-oriented, cyclical stocks rewarded investors and NASDAQ continued
its torrid increase before a correction knocked down stock prices in general
through May. Rising interest rates and high stock valuations contributed to the
decline, but performance recovered somewhat in June and July. For the Fund's
fiscal year, the S&P 500 gained 8.97% and the NASDAQ was up 42.77%, despite a
4.4% dip in the second half of the Fund's fiscal year.
During this twelve-month period, small cap stocks as measured by the S&P
600 gained 12.57%, surpassing the large-cap equities of the S&P 500. As measured
by the Russell 2000 Index, small caps gained 13.77% for the period.
2
<PAGE>
PAINEWEBBER SMALL CAP FUND ANNUAL REPORT
PORTFOLIO REVIEW
================================================================================
PORTFOLIO HIGHLIGHTS
For the year ended July 31, 2000, Fund shares slightly lagged the S&P 600
Index but outperformed the Lipper Small Cap Value Funds Median. The Fund's
value-oriented investment style detracted from performance, as investors showed
a preference for growth companies.
We have continued to reduce the Fund's technology sector holdings,
generally due to valuation concerns, and have instead concentrated on adding to
our investments in capital goods, energy and financials. Despite its
underweighting, the Fund benefited from selected technology and healthcare
stocks, including Alpha Industries (sold in January) and Noven Pharmaceuticals
(2.2%).(1) Merger and acquisition activity also contributed to the return, as
Cameron Ashley Building Products, Caere Corp, DII Group and DSP Group received
takeover bids.
In keeping with the goal of repositioning the Fund to profit from market
changes, we purchased such companies as heavy machinery maker Manitowoc (1.8%),
asset manager Affiliated Managers Group (2.3%), diversified manufacturer
Carlisle Companies (1.6%) and Swift Energy (1.1%). During the period we sold
such stocks as Alpha Industries, Viatel, PC Connection, Watsco, Transworld
Entertainment, Texas Industries, DII Group, DSP Group and ShopKo Stores.
PORTFOLIO STATISTICS
CHARACTERISTICS* 7/31/00 1/31/00
--------------------------------------------------------------------------------
Approximate No. of Securities 77 84
Average Market Cap. ($mm) $720 $649
Price/Earnings Ratio (next fiscal year EPS)(2) 12.9x 13.7x
Dividend Yield 0.5% 0.2%
Net Assets ($mm) $66.6 $71.2
Equities 95.2% 94.9%
Cash and Equivalents 4.8% 5.1%
--------------------------------------------------------------------------------
TOP FIVE SECTORS* 7/31/00 1/31/00
--------------------------------------------------------------------------------
Consumer Cyclical 24.0% Consumer Cyclical 26.8%
Technology 21.8 Technology 26.4
Healthcare 11.9 Healthcare 10.9
Financial Services 10.8 Financial Services 9.1
Energy 6.7 Capital Goods 6.6
--------------------------------------------------------------------------------
Total 75.2 Total 79.8
----------
* Weightings represent percentages of net assets as of the dates indicated.
The Fund is actively managed and its composition will vary over time.
(1) Weightings represent percentages of net assets as of July 31, 2000. The
Portfolio is actively managed and its composition will vary over time.
(2) Sources: I/B/E/S and Mitchell Hutchins. I/B/E/S determines the mean values
of brokerage analysts' earnings-per- share estimates and projected three-
to five-year earnings-per-share growth rates. The investment advisor
calculates the Fund's projected earnings per share growth by taking the
simple average of the I/B/E/S means for the Fund's holdings.
3
<PAGE>
ANNUAL REPORT
TOP TEN STOCKS* 7/31/00 1/31/00
--------------------------------------------------------------------------------
Stericycle 3.5% Metris Companies 3.5%
Patterson Energy 3.5 Orbotech 3.2
Pomeroy Computer Resources 3.4 Quadramed 3.0
SCP Pool 3.3 First Cash Financial Services 2.9
Metris Companies 3.2 Piercing Pagoda 2.9
Equitable Resources 3.0 Stericycle 2.9
Piercing Pagoda 3.0 Tecnomatix Technologies 2.9
Performance Food Group 2.8 Maximus 2.6
Orbotech 2.7 Calpine 2.4
Teleflex 2.6 Pomeroy Computer Resources 2.2
--------------------------------------------------------------------------------
Total 31.0 Total 28.5
OUTLOOK
================================================================================
[GRAPHIC OMITTED]
The stock market's big picture still appears positive. Corporate profit
growth estimates for the second half of 2000 are strong, productivity is good
and inflation appears to be under control. Equity valuations seem high to us,
but we believe the market can achieve returns in keeping with corporate profit
growth.
We expect technology sector earnings to remain strong as overseas demand
for U.S. technology products continues to expand. The growing global economy may
benefit U.S. cyclical and capital goods firms that earn significant revenue from
exports. We believe that the advent of more stable global economies may further
broaden investor interest beyond the perceived safety and liquidity of larger
growth stocks and toward small cap and value stocks.
We plan to continue our focus on undervalued small cap stocks. We continue
to believe that attractively valued stocks exist at both the upper and lower
ends of our capitalization range. The Fund is overweighted in the consumer
cyclical sector, where we are emphasizing selected retailing, homebuilding,
restaurants and business service stocks. We believe positive employment and wage
trends will promote consumer spending, which is likely to benefit these
companies.
----------
* Weightings represent percentages of net assets as of the dates indicated.
The Fund is actively managed and its composition will vary over time.
4
<PAGE>
PAINEWEBBER SMALL CAP FUND ANNUAL REPORT
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,(3) please contact your Financial Advisor.
Sincerely,
/s/ Margo Alexander
MARGO ALEXANDER
Chairman and Chief Executive Officer
Mitchell Hutchins Asset Management Inc.
/s/ Brian M. Storms /s/ Donald R. Jones
BRIAN M. STORMS DONALD R. JONES
President and Chief Operating Officer Portfolio Manager
Mitchell Hutchins Asset Management Inc. PaineWebber Small Cap Fund
Mitchell Hutchins Asset Management Inc.
This letter is intended to assist shareholders in understanding how the Fund
performed during the fiscal year ended July 31, 2000, and reflects our views at
the time of its writing. Of course, these views may change in response to
changing circumstances. We encourage you to consult your Financial Advisor
regarding your personal investment program.
(3) 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.
5
<PAGE>
PAINEWEBBER SMALL CAP FUND
PERFORMANCE RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
NET ASSET VALUE TOTAL RETURN1
-------------------------------------------- -------------------------------------
12 MONTHS 6 MONTHS
7/31/00 01/31/00 07/31/99 ENDED 07/31/00 ENDED 07/31/00
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A Shares $12.29 $11.37 $10.97 12.03% 8.09%
------------------------------------------------------------------------------------------------------------------
Class B Shares 11.50 10.69 10.36 11.00 7.58
------------------------------------------------------------------------------------------------------------------
Class C Shares 11.50 10.69 10.36 11.00 7.58
------------------------------------------------------------------------------------------------------------------
PERFORMANCE SUMMARY CLASS A SHARES
NET ASSET VALUE
-------------------------
CAPITAL GAINS DIVIDENDS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED PAID RETURN1
------------------------------------------------------------------------------------------------------------------
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)
------------------------------------------------------------------------------------------------------------------
1999 11.21 11.46 -- -- 2.23
------------------------------------------------------------------------------------------------------------------
01/01/2000-7/31/00 11.46 12.29 -- -- 7.24
------------------------------------------------------------------------------------------------------------------
Totals: $4.8124 $0.1281
------------------------------------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 07/31/00: 90.07%
------------------------------------------------------------------------------------------------------------------
PERFORMANCE SUMMARY CLASS B SHARES
NET ASSET VALUE
-------------------------
CAPITAL GAINS DIVIDENDS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED PAID RETURN1
------------------------------------------------------------------------------------------------------------------
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)
------------------------------------------------------------------------------------------------------------------
1999 10.64 10.78 -- -- 1.32
------------------------------------------------------------------------------------------------------------------
01/01/00-07/31/00 10.78 11.50 -- -- 6.68
------------------------------------------------------------------------------------------------------------------
Totals: $4.8124 $0.0631
------------------------------------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 07/31/00: 81.29%
------------------------------------------------------------------------------------------------------------------
PERFORMANCE SUMMARY CLASS C SHARES
NET ASSET VALUE
-------------------------
CAPITAL GAINS DIVIDENDS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED PAID RETURN1
------------------------------------------------------------------------------------------------------------------
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)
------------------------------------------------------------------------------------------------------------------
1999 10.63 10.78 -- -- 1.41
------------------------------------------------------------------------------------------------------------------
01/01/00-07/31/00 10.78 11.50 -- -- 6.68
------------------------------------------------------------------------------------------------------------------
Totals: $4.8124 $0.0682
------------------------------------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 07/31/00: 79.17%
------------------------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
PAINEWEBBER SMALL CAP FUND
PERFORMANCE RESULTS (UNAUDITED) (CONCLUDED)
AVERAGE ANNUAL TOTAL RETURN(1)
<TABLE>
<CAPTION>
% RETURN WITHOUT DEDUCTING % RETURN AFTER DEDUCTING
MAXIMUM SALES CHARGE MAXIMUM SALES CHARGE
------------------------------- ---------------------------------
CLASS CLASS
------------------------------- ---------------------------------
A* B** C*** A* B** C***
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Twelve Months Ended 06/30/00 14.39% 13.35% 13.56% 9.29% 8.35% 12.56%
---------------------------------------------------------------------------------------------------------------------
Five Years Ended 06/30/00 9.93 9.28 9.06 8.92 9.00 9.06
---------------------------------------------------------------------------------------------------------------------
Commencement of Operations Through 06/30/00+ 8.99 8.29 8.14 8.31 8.29 8.14
</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.
* 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% 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% and is
reduced to 0% after 1 year. Class C shares bear ongoing 12b-1 distribution
and service fees.
+ Commencement of issuance date is February 1, 1993, for all classes.
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 year ended July 31,
2000 and since inception, July 26, 1996 through July 31, 2000, Class Y shares
had a total return of 12.20% and 51.87%, respectively. Class Y shares do not
have initial or contingent deferred sales charges or ongoing 12b-1 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.
7
<PAGE>
PAINEWEBBER SMALL CAP FUND
PORTFOLIO OF INVESTMENTS JULY 31, 2000
NUMBER OF
SHARES VALUE
-------- -----------
COMMON STOCKS--95.22%
AGRICULTURE, FOOD & BEVERAGE--5.81%
46,700 Cadiz, Inc.* ......................................... $ 449,488
18,200 Canandaigua Wine, Inc.*(1) ........................... 898,625
882,000 Creative Bakeries, Inc.* ............................. 689,062
55,600 Performance Food Group Co.* .......................... 1,831,325
-----------
3,868,500
-----------
APPAREL, RETAIL--2.51%
125,500 Florsheim Group, Inc.* ............................... 223,547
78,789 Wilsons The Leather Experts, Inc.* ................... 1,447,748
-----------
1,671,295
-----------
CHEMICALS--3.62%
8,100 Brady Corp. .......................................... 246,544
24,200 Carlisle Companies, Inc. ............................. 1,095,050
39,700 Spartech Corp. ....................................... 1,064,456
-----------
2,406,050
-----------
COMPUTER SOFTWARE--2.05%
156,317 Quadramed Corp.* ..................................... 371,253
46,426 Tecnomatix Technologies Ltd.* ........................ 719,603
8,900 TTI Team Telecom International Ltd.* ................. 273,119
-----------
1,363,975
-----------
CONSTRUCTION--3.88%
13,300 D.R. Horton, Inc. .................................... 206,150
24,950 Elcor Corp. .......................................... 478,728
12,000 M/I Schottenstein Homes, Inc. ........................ 216,000
166,875 Nobility Homes, Inc.* ................................ 943,887
12,000 NVR Inc.* ............................................ 739,500
-----------
2,584,265
-----------
CONSUMER DURABLES--0.26%
11,600 Furniture Brands International, Inc.* ................ 171,825
-----------
DRUGS & MEDICINE--3.29%
11,400 Alpharma, Inc. ....................................... 746,700
50,771 Noven Pharmaceuticals, Inc.* ......................... 1,440,627
-----------
2,187,327
-----------
ELECTRICAL EQUIPMENT--8.35%
34,700 Artesyn Technologies, Inc.* .......................... 1,179,800
7,700 DSP Group, Inc.* ..................................... 322,919
21,500 Orbotech Ltd.*(1) .................................... 1,771,062
36,000 Rogers Corp.* ........................................ 1,287,000
4,000 Technitrol, Inc.* .................................... 441,000
18,600 Thermo Ecotek Corp.* ................................. 160,425
11,600 Xircom, Inc.* ........................................ 396,575
-----------
5,558,781
-----------
ENERGY RESERVES & PRODUCTION--5.72%
20,000 Comstock Resources, Inc.* ............................ $ 138,750
92,100 Patterson Energy, Inc.* .............................. 2,296,744
27,900 Pioneer Natural Resources Co.* ....................... 299,925
19,000 Remington Oil Gas Corp.* ............................. 116,375
32,200 Swift Energy Co.* .................................... 706,387
13,700 Vintage Petroleum, Inc. .............................. 246,600
-----------
3,804,781
-----------
ENVIRONMENTAL SERVICES--3.55%
94,150 Stericycle, Inc.* .................................... 2,353,750
27,800 Thermatrix, Inc.* .................................... 11,148
-----------
2,364,898
-----------
FINANCIAL SERVICES--5.66%
31,700 Americredit Corp.*(1) ................................ 657,775
11,600 Doral Financial Corp. ................................ 150,800
279,500 First Cash Financial Services, Inc.* ................. 847,234
72,000 Metris Companies, Inc.(1) ............................ 2,110,500
-----------
3,766,309
-----------
FOREST PRODUCTS, PAPER--1.83%
44,930 Greif Brothers Corp., Class A ........................ 1,140,099
9,000 Mercer International, Inc.* .......................... 77,906
-----------
1,218,005
-----------
GAS UTILITY--2.99%
38,200 Equitable Resources, Inc. ............................ 1,988,787
-----------
INDUSTRIAL PARTS--2.06%
49,500 Manitowoc Company, Inc. .............................. 1,218,938
3,800 Mettler-Toledo International, Inc., ADR* ............. 153,900
-----------
1,372,838
-----------
INDUSTRIAL SERVICES & SUPPLIES--4.75%
53,400 AHL Services, Inc.* .................................. 433,875
178,620 Cornell Corrections, Inc.* ........................... 1,149,866
31,700 Correctional Services Corp.* ......................... 146,612
144,882 Wackenhut Corp., Class B* ............................ 1,430,710
-----------
3,161,063
-----------
INFORMATION & COMPUTER SERVICES--9.80%
1,580 Avici Systems, Inc.* ................................. 155,433
49,700 Maximus, Inc.* ....................................... 1,186,587
134,300 Pomeroy Computer Resources, Inc* ..................... 2,283,100
135,978 Right Management Consultants, Inc.* .................. 1,359,780
46,461 Sun Guard Data Systems, Inc.* ........................ 1,536,117
-----------
6,521,017
-----------
8
<PAGE>
PAINEWEBBER SMALL CAP FUND
NUMBER OF
SHARES VALUE
-------- -----------
COMMON STOCKS--(CONCLUDED)
LEISURE--3.27%
82,750 SCP Pool Corp.* ...................................... $ 2,178,652
-----------
MEDICAL PRODUCTS--6.58%
28,000 American Science & Engineering, Inc.* ................ 175,000
30,200 Biomatrix, Inc.*(1) .................................. 628,537
25,800 Patterson Dental Co.* ................................ 683,700
23,300 Pharmaceutical Product
Development, Inc.* ................................... 498,037
46,900 Teleflex, Inc. ....................................... 1,700,125
29,000 Theragenics Corp.* ................................... 215,688
23,500 Young Innovations, Inc.* ............................. 478,813
-----------
4,379,900
-----------
MEDICAL PROVIDERS--2.06%
238,700 Counsel Corp.* ....................................... 611,669
62,000 Hooper Holmes, Inc. .................................. 759,500
-----------
1,371,169
-----------
MINING & METALS--0.23%
9,000 Consol Energy, Inc. .................................. 154,688
-----------
OIL REFINING--0.97%
153,800 Kaneb Services, Inc.* ................................ 644,038
-----------
OTHER INSURANCE--1.43%
15,600 Radian Group, Inc. ................................... $ 949,650
-----------
RESTAURANTS--2.34%
18,000 Applebees International, Inc. ........................ 399,375
53,900 Jack in the Box, Inc.* ............................... 1,155,481
-----------
1,554,856
-----------
SECURITIES & ASSET MANAGEMENT--3.68%
31,900 Affiliated Managers Group, Inc.* ..................... 1,513,256
7,800 Eaton Vance Corp.* ................................... 404,138
21,400 Raymond James Financial, Inc. ........................ 535,000
-----------
2,452,394
-----------
SEMICONDUCTOR--1.55%
68,800 Richardson Electronics Ltd. .......................... 1,032,000
-----------
SPECIALTY RETAIL--6.98%
118,100 Intertan, Inc.*(1) ................................... 1,387,675
93,500 Musicland Stores, Inc.*(1) ........................... 736,312
133,917 Piercing Pagoda, Inc.* ............................... 1,975,276
23,572 REX Stores Corp.*(1) ................................. 412,510
3,600 Zale Corp.* .......................................... 134,550
-----------
4,646,323
-----------
Total Common Stocks (cost--$63,249,468) ........................... 63,373,386
-----------
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATE RATE
-------- -------- --------
REPURCHASE AGREEMENT--4.14%
$ 2,756 Repurchase Agreement dated
07/31/00 with Societe General,
collateralized by $2,118,000
U.S. Treasury Notes, 8.875%
due 08/15/17 (value-$2,811,645);
proceeds:
$2,756,498 (cost-$2,756,000) ..... 08/01/00 6.500% 2,756,000
-----------
Total Investments (cost--$66,005,468)--99.36% ..................... 66,129,386
Other assets in excess of liabilities--0.64% ...................... 424,800
-----------
Net Assets--100.00% ............................................... $66,554,186
===========
----------
* Non-Income producing security.
(1) Security, or a portion thereof, was on loan at July 31, 2000.
ADR American Depositary Receipt
See accompanying notes to financial statements
9
<PAGE>
PAINEWEBBER SMALL CAP FUND
STATEMENT OF ASSETS AND LIABILITIES JULY 31, 2000
ASSETS
Investments in securities, at value (cost--$66,005,468) .......... $66,129,386
Investments of cash collateral for securities
loaned, at value (cost--$5,116,400) ............................ 5,116,400
Receivable for investments sold .................................. 1,856,936
Dividends and interest receivable ................................ 25,178
Receivable for shares of beneficial interest sold ................ 25,088
Other assets ..................................................... 5,533
-----------
Total assets ..................................................... 73,158,521
-----------
LIABILITIES
Due to custodian ................................................. 129,832
Cash collateral for securities loaned ............................ 5,116,400
Payable for investments purchased ................................ 999,959
Payable for shares of beneficial interest repurchased ............ 136,776
Payable to affiliates ............................................ 89,699
Accrued expenses and other liabilities ........................... 131,669
-----------
Total liabilities ................................................ 6,604,335
-----------
NET ASSETS
Beneficial interest shares of $0.001 par value outstanding
(unlimited amount authorized) .................................. 66,430,268
Net unrealized appreciation of investments ....................... 123,918
-----------
Net assets ....................................................... $66,554,186
===========
CLASS A:
Net assets ....................................................... $40,482,113
-----------
Shares outstanding ............................................... 3,294,688
-----------
Net asset value and redemption value per share ................... $12.29
===========
Maximum offering price per share (net asset value plus
sales charge of 4.50% of offering price) ....................... $12.87
===========
CLASS B:
Net assets ....................................................... $11,592,905
-----------
Shares outstanding ............................................... 1,008,312
-----------
Net asset value and offering price per share ..................... $11.50
===========
CLASS C:
Net assets ....................................................... $12,648,217
-----------
Shares outstanding ............................................... 1,099,604
-----------
Net asset value and offering price per share ..................... $11.50
===========
CLASS Y:
Net assets ....................................................... $1,830,951
-----------
Shares outstanding ............................................... 147,392
-----------
Net asset value, offering price and redemption value per share ... $12.42
===========
See accompanying notes to financial statements
10
<PAGE>
PAINEWEBBER SMALL CAP FUND
STATEMENT OF OPERATIONS
FOR THE
YEAR ENDED
JULY 31, 2000
-------------
INVESTMENT INCOME:
Dividends ..................................................... $ 117,212
Interest ...................................................... 162,027
-----------
279,239
-----------
EXPENSES:
Investment advisory and administration fees ................... 729,053
Service fees--Class A ......................................... 104,642
Service and distribution fees--Class B ........................ 131,930
Service and distribution fees--Class C ........................ 146,936
Transfer agency and service fees .............................. 116,884
Legal and audit ............................................... 58,415
Reports and notices to shareholders ........................... 50,590
Custody and accounting ........................................ 45,823
Trustees' fees ................................................ 13,500
Other expenses ................................................ 5,294
-----------
1,403,067
Less: Fee waivers from adviser ................................ (2,129)
-----------
Net expenses .................................................. 1,400,938
-----------
Net investment loss ........................................... (1,121,699)
-----------
REALIZED AND UNREALIZED GAINS (LOSSES)
FROM INVESTMENT TRANSACTIONS:
Net realized gain from investment transactions ................ 9,753,603
Net change in unrealized appreciation/depreciation
of investments .............................................. (1,650,030)
-----------
NET REALIZED AND UNREALIZED GAIN FROM
INVESTMENT TRANSACTIONS ..................................... 8,103,573
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS .......... $ 6,981,874
===========
See accompanying notes to financial statements
11
<PAGE>
PAINEWEBBER SMALL CAP FUND
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS
ENDED JULY 31,
---------------------------
2000 1999
----------- ------------
FROM OPERATIONS:
Net investment loss ............................. $(1,121,699) $ (1,243,383)
Net realized gains (losses) from
investment transactions ....................... 9,753,603 (9,769,687)
Net change in unrealized appreciation/
depreciation of investments ................... (1,650,030) (4,659,990)
----------- ------------
Net increase (decrease) in net assets
resulting from operations ..................... 6,981,874 (15,673,060)
----------- ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net realized gain from investment
transactions--Class A ......................... -- (3,700,009)
Net realized gain from investment
transactions--Class B ......................... -- (4,415,748)
Net realized gain from investment
transactions--Class C ......................... -- (2,637,230)
Net realized gain from investment
transactions--Class Y ......................... -- (637,228)
----------- ------------
Total distributions to shareholders ............. -- (11,390,215)
----------- ------------
FROM BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from the sale of shares ............ 15,839,446 25,989,556
Cost of shares repurchased ...................... (45,264,993) (62,296,548)
Proceeds from dividends reinvested .............. -- 10,797,893
----------- ------------
Net decrease in net assets from beneficial
interest transactions ......................... (29,425,547) (25,509,099)
----------- ------------
Net decrease in net assets ...................... (22,443,673) (52,572,374)
NET ASSETS:
Beginning of year ............................... 88,997,859 141,570,233
----------- ------------
End of year ..................................... $66,554,186 $ 88,997,859
=========== ============
See accompanying notes to financial statements
12
<PAGE>
NOTES TO FINANCIAL STATEMENTS
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.
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--The Fund calculates its net asset value based on
the current market value for its portfolio securities. The Fund normally obtains
market values for its securities from independent pricing sources. Independent
pricing sources may use reported last sale prices, current market quotations or
valuations from computerized "matrix" systems that derive values based on
comparable securities. Securities traded in the over-the-counter ("OTC") market
and listed on The Nasdaq Stock Market, Inc. ("Nasdaq") normally are valued at
the last sale price on Nasdaq prior to valuation. Other OTC securities are
valued at the last bid price available prior to valuation. Securities which are
listed on U.S. and foreign stock exchanges normally are valued at the last sale
price on the day the securities are valued or, lacking any sales on such day, at
the last available bid price. In cases where securities are traded on more than
one exchange, the securities are valued on the exchange designated as the
primary market by Mitchell Hutchins Asset Management Inc., the investment
adviser and administrator of the Fund ("Mitchell Hutchins"), a wholly owned
asset management subsidiary of PaineWebber Incorporated ("PaineWebber"), a
wholly owned subsidiary of PaineWebber Group Inc. ("PW Group"). If a market
value is not available from an independent pricing source for a particular
security, that security is valued at fair value as determined in good faith by
or under the direction of the Fund's board of trustees (the "board"). The
amortized cost method of valuation, which approximates market value, generally
is used to value short-term debt instruments with sixty days or less remaining
to maturity, unless the board determines that this does not represent fair
value.
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.
13
<PAGE>
NOTES TO FINANCIAL STATEMENTS
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 July 31, 2000, the Fund
owed Mitchell Hutchins $58,368 in investment advisory and administration fees.
Mitchell Hutchins waived a portion of its investment advisory and administration
fees in connection with the Fund's investment of cash collateral from security
lending in the Mitchell Hutchins Private Money Market Fund LLC. For the year
ended July 31, 2000, Mitchell Hutchins waived $2,129.
For the year ended July 31, 2000, the Fund paid no brokerage commissions to
PaineWebber.
On July 12, 2000, PW Group and UBS AG ("UBS") announced that they had
entered into an agreement and plan of merger under which PW Group will merge
into a wholly owned subsidiary of UBS. If all required approvals are obtained
and the required conditions are satisfied, PW Group and UBS expect to complete
the transaction in the fourth quarter of 2000. UBS, with headquarters in Zurich,
Switzerland, is an internationally diversified organization with operations in
many areas of the financial services industry.
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 July 31, 2000, the Fund owed Mitchell Hutchins
$30,359 in service and distribution fees.
14
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Mitchell Hutchins also receives the proceeds of the initial sales charges
paid by shareholders upon the purchase of Class A shares and the contingent
deferred sales charges paid by the shareholders upon certain redemptions of
Class A, Class B and Class C shares. Mitchell Hutchins has informed the Fund
that for the year ended July 31, 2000, it received $81,685 in sales charges.
SECURITY LENDING
The Fund may lend securities up to 331/3% 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 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 year ended July 31, 2000, the Fund
earned $45,900 for lending its securities and PaineWebber earned $16,366 as the
Fund's lending agent. At July 31, 2000, the Fund owed PaineWebber $972 in
security lending fees.
At July 31, 2000, the Fund's custodian held cash having an aggregate value
of $5,116,400 as collateral for portfolio securities loaned having a market
value of $4,968,638 which was invested in the following money market funds:
NUMBER OF
SHARES VALUE
---------- ----------
480,900 AIM Liquid Assets Portfolio $ 480,900
1,688,000 AIM Prime Portfolio 1,688,000
2,947,500 Mitchell Hutchins Private Money Market Fund LLC 2,947,500
----------
Total investments of cash collateral for
securities loaned (cost--$5,116,400) $5,116,400
==========
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 year ended July 31, 2000, 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 year ended July 31, 2000, PaineWebber received approximately 47% of the
total fees collected by PFPC, Inc.
INVESTMENTS IN SECURITIES
For federal income tax purposes, the cost of securities owned at July 31,
2000 was substantially the same as the cost of securities for financial
statement purposes.
15
<PAGE>
NOTES TO FINANCIAL STATEMENTS
At July 31, 2000, the components of net unrealized appreciation of
investments were as follows:
Gross appreciation (investments having an excess
of value over cost) ............................... $ 10,882,900
Gross depreciation (investments having an excess
of cost over value) ............................... (10,758,982)
------------
Net unrealized appreciation of investments .......... $ 123,918
============
For the year ended July 31, 2000, aggregate purchases and sales of
portfolio securities, excluding short-term securities, were $59,258,972 and
$92,180,105, respectively.
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.
To reflect reclassifications arising from permanent "book/tax" differences
for the year ended July 31, 2000, the Fund's accumulated net realized gains were
decreased by $22,652, accumulated net investment loss was reduced by $1,121,699
and beneficial interest was decreased by $1,099,047. Permanent book/tax
differences are primarily attributable to net operating losses.
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>
CLASS A CLASS B CLASS C CLASS Y
YEAR ENDED ------------------------- ------------------------- ------------------------- ----------------------
JULY 31, 2000: SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------ ---------- ------------ -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold ........... 309,851 $ 3,480,040 157,329 $ 1,674,869 872,992 $ 9,487,156 111,789 $ 1,197,381
Shares repurchased .... (1,577,490) (17,456,757) (593,740) (6,138,728) (1,599,795) (17,054,443) (420,118) (4,615,065)
Shares converted
from Class B to
Class A ............. 308,040 3,339,561 (327,142) (3,339,561) -- -- -- --
Dividends reinvested .. -- -- -- -- -- -- -- --
---------- ------------ ---------- ------------ ---------- ------------ -------- -----------
Net decrease .......... (959,599) $(10,637,156) (763,553) $ (7,803,420) (726,803) $ (7,567,287) (308,329) $(3,417,684)
========== ============ ========== ============ ========== ============ ======== ===========
CLASS A CLASS B CLASS C CLASS Y
YEAR ENDED ------------------------- ------------------------- ------------------------- ----------------------
JULY 31, 1999: SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------ ---------- ------------ -------- -----------
Shares sold ........... 464,017 $ 4,930,773 444,517 $ 4,538,969 1,209,782 $ 12,273,496 404,894 $ 4,246,318
Shares repurchased .... (1,944,337) (20,168,102) (1,440,167) (14,391,448) (2,158,699) (21,775,911) (543,473) (5,961,087)
Shares converted
from Class B to
Class A ............. 1,825,991 19,603,262 (1,924,449) (19,603,262) -- -- -- --
Dividends reinvested .. 342,408 3,557,623 416,167 4,107,567 254,305 2,504,908 60,019 627,795
---------- ------------ ---------- ------------ ---------- ------------ -------- -----------
Net increase
(decrease) .......... 688,079 $ 7,923,556 (2,503,932) $(25,348,174) (694,612) $ (6,997,507) (78,560) $(1,086,974)
========== ============ ========== ============ ========== ============ ======== ===========
</TABLE>
16
<PAGE>
[This Page Intentionally Left Blank]
17
<PAGE>
PAINEWEBBER SMALL CAP FUND
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout each
year is presented below:
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------------------
FOR THE YEARS ENDED JULY 31,
----------------------------------------------------------------
2000 1999 1998 1997 1996#
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ............. $ 10.97 $ 13.34 $ 13.42 $ 10.22 $ 11.30
-------- -------- -------- -------- --------
Net investment income (loss) ................... (0.14)@ (0.08) (0.13) (0.14) 0.00@
Net realized and unrealized gains
(losses) from investments ...................... 1.46@ (1.18) 1.22 3.75 0.50@
-------- -------- -------- -------- --------
Net increase (decrease) from
investment operations ........................ 1.32 (1.26) 1.09 3.61 0.50
-------- -------- -------- -------- --------
Distributions from net realized gains
from investments ............................. -- (1.11) (1.17) (0.41) (1.58)
-------- -------- -------- -------- --------
Net asset value, end of year ................... $ 12.29 $ 10.97 $ 13.34 $ 13.42 $ 10.22
======== ======== ======== ======== ========
Total investment return(1) ..................... 12.03% (8.95)% 8.45% 36.11% 4.69%
======== ======== ======== ======== ========
Ratios/Supplemental Data:
Net assets, end of year (000's) ................ $ 40,482 $ 46,680 $ 47,589 $ 32,968 $ 30,675
Expenses to average net assets,
net of waivers from adviser(2) ............... 1.63% 1.59% 1.56% 2.00% 2.11%
Net investment income (loss) to
average net assets, net of
waivers from adviser(2) ...................... (1.22)% (0.77)% (0.99)% (1.16)% 0.02%
Portfolio turnover rate ........................ 83% 61% 45% 54% 84%
</TABLE>
----------
# Effective April 1, 1996, Mitchell Hutchins took over day-to-day management
of the Fund's assets.
@ Calculated using the average monthly shares outstanding for the period.
(1) Total investment return is calculated assuming a $10,000 investment on the
first day of each year 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 year reported. The figures do
not include sales charge; results would be lower if sales charges were
included.
(2) During the years ended July 31, 2000 and July 31,1999, Mitchell Hutchins
waived a portion of its advisory and administration fees. The ratios
excluding the waiver would be the same since the fee waiver represents less
than 0.005%.
18
<PAGE>
<TABLE>
<CAPTION>
CLASS B CLASS C
-------------------------------------------------------------- ------------------------------------------------------------
FOR THE YEARS ENDED JULY 31, FOR THE YEARS ENDED JULY 31,
-------------------------------------------------------------- ------------------------------------------------------------
2000 1999 1998 1997 1996# 2000 1999 1998 1997 1996#
---------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 10.36 $ 12.78 $ 13.00 $ 9.98 $ 11.15 $ 10.36 $ 12.76 $ 12.98 $ 9.97 $ 11.14
---------- -------- -------- -------- -------- -------- -------- -------- -------- --------
(0.22)@ (0.29) (0.22) (0.23) (0.09)@ (0.22)@ (0.20) (0.21) (0.24) (0.08)@
1.36@ (1.02) 1.17 3.66 0.50@ 1.36@ (1.09) 1.16 3.66 0.49@
---------- -------- -------- -------- -------- -------- -------- -------- -------- --------
1.14 (1.31) 0.95 3.43 0.41 1.14 (1.29) 0.95 3.42 0.41
---------- -------- -------- -------- -------- -------- -------- -------- -------- --------
-- (1.11) (1.17) (0.41) (1.58) -- (1.11) (1.17) (0.41) (1.58)
---------- -------- -------- -------- -------- -------- -------- -------- -------- --------
$ 11.50 $ 10.36 $ 12.78 $ 13.00 $ 9.98 $ 11.50 $ 10.36 $ 12.76 $ 12.98 $ 9.97
========== ======== ======== ======== ======== ======== ======== ======== ======== ========
11.00% (9.79)% 7.60% 35.16% 3.90% 11.00% (9.63)% 7.61% 35.09% 3.90%
========== ======== ======== ======== ======== ======== ======== ======== ======== ========
$ 11,593 $ 18,361 $ 54,639 $ 40,749 $ 36,612 $ 12,648 $ 18,913 $ 32,174 $ 18,812 $ 18,606
2.46% 2.43% 2.33% 2.75% 2.90% 2.41% 2.39% 2.32% 2.77% 2.91%
(2.09)% (1.62)% (1.75)% (1.91)% (0.78)% (2.03)% (1.59)% (1.75)% (1.93)% (0.77)%
83% 61% 45% 54% 84% 83% 61% 45% 54% 84%
</TABLE>
19
<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 Y
----------------------------------------------------------
FOR THE
FOR THE YEARS ENDED JULY 31, PERIOD ENDED
-------------------------------------------- JULY 31,
2000 1999 1998 1997 1996+
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period .................................. $ 11.07 $ 13.42 $ 13.46 $ 10.21 $ 10.23
------- ------- ------- ------- -------
Net investment income (loss) .......................................... (0.12)@ (0.07) (0.07) (0.11) 0.00@
Net realized and unrealized gains (losses) from investments ........... 1.47@ (1.17) 1.20 3.77 (0.02)@
------- ------- ------- ------- -------
Net increase (decrease) from investment operations .................... 1.35 (1.24) 1.13 3.66 (0.02)
------- ------- ------- ------- -------
Distributions from net realized gains from investments ................ -- (1.11) (1.17) (0.41) --
------- ------- ------- ------- -------
Net asset value, end of period ........................................ $ 12.42 $ 11.07 $ 13.42 $ 13.46 $ 10.21
======= ======= ======= ======= =======
Total investment return(1) ............................................ 12.20% (8.73)% 8.74% 36.65% (0.20)%
======= ======= ======= ======= =======
Ratios/Supplemental Data:
Net assets, end of period (000's) ..................................... $ 1,831 $ 5,044 $ 7,169 $ 2,768 $ 2,801
Expenses to average net assets, net of waivers from adviser(2) ........ 1.35% 1.31% 1.39% 1.72% 1.72%*
Net investment income (loss) to average net assets, net of
waivers from adviser(2) ............................................. (1.04)% (0.50)% (0.83)% (0.88)% 0.07%*
Portfolio turnover rate ............................................... 83% 61% 45% 54% 84%
</TABLE>
----------
* Annualized
+ For the period July 26, 1996 (commencement of offering shares) to July 31,
1996.
@ Calculated using the average monthly shares outstanding for the period.
(1) Total investment return is calculated assuming a $10,000 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 any applicable program fees; results would be lower if they
were included. Total investment return for periods of less than one year
has not been annualized.
(2) During the years ended July 31, 2000 and July 31, 1999, Mitchell Hutchins
waived a portion of its advisory and administration fees. The ratios
excluding the waiver would be the same since the fee waiver represents less
than 0.005%.
20
<PAGE>
PAINEWEBBER SMALL CAP FUND
REPORT OF PRICEWATERHOUSECOOPERS LLP
INDEPENDENT ACCOUNTANTS
To the Shareholders and Trustees of
PaineWebber Small Cap Fund
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of PaineWebber Small Cap Fund (the
"Fund") at July 31, 2000, the results of its operations for the year then ended,
the changes in its net assets for each of the two years in the period then ended
and the financial highlights for each of the periods indicated, in conformity
with accounting principles generally accepted in the United States. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with auditing standards generally accepted in the United States which require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included confirmation
of securities at July 31, 2000 by correspondence with the custodian and brokers,
provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
September 25, 2000
21
<PAGE>
[This Page Intentionally Left Blank]
22
<PAGE>
PAINEWEBBER SMALL CAP FUND
PAINEWEBBER SMALL CAP FUND
TRUSTEES
E. Garrett Bewkes, Jr. Meyer Feldberg
CHAIRMAN George W. Gowen
Margo N. Alexander Frederic V. Malek
Richard Q. Armstrong Carl W. Schafer
Richard R. Burt Brian M. Storms
OFFICERS
Margo N. Alexander Mark A. Tincher
PRESIDENT VICE PRESIDENT
Dianne E. O'Donnell Donald R. Jones
VICE PRESIDENT AND SECRETARY VICE PRESIDENT
Paul H. Schubert
VICE PRESIDENT AND TREASURER
INVESTMENT ADVISER,
ADMINISTRATOR AND DISTRIBUTOR
Mitchell Hutchins Asset Management Inc.
51 West 52nd Street
New York, New York 10019
THIS REPORT IS NOT TO BE USED IN CONNECTION WITH THE OFFERING OF SHARES OF THE
FUND UNLESS ACCOMPANIED OR PRECEDED BY AN EFFECTIVE PROSPECTUS. 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.
23
<PAGE>
==========
PaineWebber offers a family of 26 funds which encompass a diversified range of
investment goals.
BOND FUNDS
o High Income Fund
o Investment Grade Income Fund
o Low Duration U.S. Government Income Fund
o Strategic Income Fund
o U.S. Government Income Fund
TAX-FREE BOND FUNDS
o California Tax-Free Income Fund
o Municipal High Income Fund
o National Tax-Free Income Fund
o New York Tax-Free Income Fund
STOCK FUNDS
o Enhanced S&P 500 Fund
o Enhanced Nasdaq-100 Fund
o Financial Services Growth Fund
o Growth Fund
o Growth and Income Fund
o Mid Cap Fund
o Small Cap Fund
o S&P 500 Index Fund
o Strategy Fund
o Tax-Managed Equity Fund
ASSET ALLOCATION FUNDS
o Balanced Fund
o Tactical Allocation Fund
GLOBAL FUNDS
o Asia Pacific Growth Fund
o Emerging Markets Equity Fund
o Global Equity Fund
o Global Income Fund
PAINEWEBBER MONEY MARKET FUND
PaineWebber
ANNUAL REPORT
==============================
SMALL
CAP
FUND
[PAINEWEBBER LOGO]
(C)2000 PaineWebber Incorporated
All rights reserved
Member SIPC
JULY 31, 2000
