<PAGE>
PAINEWEBBER MUTUAL FUNDS
PAINEWEBBER OFFERS A FAMILY OF 22 MUTUAL FUNDS WHICH ENCOMPASS A DIVERSIFIED
RANGE OF INVESTMENT GOALS. INVESTORS MAY EXCHANGE THEIR FUND SHARES WITH OTHER
FUNDS WITHIN THE FAMILY.
INCOME FUNDS
o GLOBAL INCOME FUND
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 INCOME 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
GROWTH FUNDS
o CAPITAL APPRECIATION FUND
o EMERGING MARKETS EQUITY FUND
o FINANCIAL SERVICES GROWTH FUND
o GLOBAL EQUITY FUND
o GROWTH FUND
o SMALL CAP GROWTH FUND
o SMALL CAP VALUE FUND
GROWTH AND INCOME FUNDS
o BALANCED FUND
o GROWTH AND INCOME FUND
o TACTICAL ALLOCATION FUND
o UTILITY INCOME FUND
PAINEWEBBER MONEY MARKET FUND
- ------------------
(COPYRIGHT)1996 PAINEWEBBER INCORPORATED
[LOGO] PRINTED ON
RECYCLED PAPER
PAINEWEBBER
SMALL CAP
GROWTH FUND
SEMI-ANNUAL REPORT
January 31, 1996
<PAGE>
- --------------------------------------------------------------------------------
March 15, 1996
Dear Shareholder,
During the six months ended January 31, 1996, the pace of economic growth
slackened. The Federal Reserve's 0.25% cut in the Federal Funds rate in July
1995 had the intended effect early in the period, boosting GDP growth to 3% in
the third quarter. However, this impact faded as the Federal Reserve remained on
the sidelines until December 19, 1995, when the Federal Funds rate was decreased
by another 0.25%. In the fourth quarter, estimated GDP growth fell to just 1%,
indicating a significant softening in the economy. Inflation was just 2.5% for
the year; 1995 was the fifth consecutive year in which consumer price inflation
remained under 3%. Citing low inflation, the Federal Reserve Board trimmed
short-term interest rates by another 0.25% on January 31, 1996, bringing the
Federal Funds rate down to 5.25%.
ECONOMIC OVERVIEW
Politics dominated the U.S. financial markets during the six month period,
as budget negotiations first raised hopes for a balanced budget, then stalled
late in 1995. The federal government shut down in November and December,
dampening an already sluggish economy. The U.S. government's focus on fiscal
responsibility, combined with the slower growth and low inflation environment,
created a very favorable climate for the bond market. Long-term interest rates
declined sharply during the second half of the year, as they had throughout
1995.
The stock market benefitted from the bond market's strength, rallying to
new heights throughout the final months of 1995. Large cap indices showed
impressive gains, with the S&P 500 Index up 14.53% for the six months ended
January 31, 1996. Small cap stocks, as represented by the Russell 2000 Index,
were up less sharply but still achieved a return of 6.03% for the period.
Smaller stocks outperformed larger caps early in the six-month period, but
lagged during the final months of 1995 and early 1996. Within the smaller
capitalization universe, value-oriented stocks outperformed growth stocks. The
Russell 2000 Value Index was up 8.27% for the period, versus 3.98% for its
Growth counterpart. Late in the year, technology stocks made a sharp retreat
from highs reached in September. Healthcare and energy stocks led the market in
the fourth quarter of 1995, as retail stocks took a beating in what became a
very weak holiday buying season.
PORTFOLIO REVIEW
Within the small cap universe, 'value' underperformed 'growth' in 1995;
however, during the six months ended January 31, 1996, the small cap market
favored value investing. During the final months of 1995 and early in 1996,
there was a noticeable and significant penalty for investing in smaller stocks
in almost every market sector. In particular, the small capitalization growth
stocks that this Fund targets showed sharply negative returns. As a result, the
Fund's return for the six months ended January 31, 1996, without deducting sales
charges, was (7.19)% for Class A shares, 0.40% for Class B shares (from
commencement of operations on January 30, 1996 through January 31, 1996),
(7.51)% for Class C (formerly Class B) shares and (7.09)% for Class Y (formerly
Class C) shares. The Fund's total return for this period, after deducting the
maximum applicable sales charges, was (11.38)% for Class A shares, 0.40% for
Class B shares (from commencement of operations), (8.51)% for Class C shares and
(7.09)% for Class Y shares.
The primary reason for the Fund's underperformance of the Russell 2000
Growth Index was the Fund's significant overweighting in the technology sector
(17.4% of net assets on January 31, 1996).
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
During the fourth quarter of 1995, technology stocks made a sharp retreat from
highs reached in September. The companies in the portfolio are exhibiting price
characteristics of cyclical stocks. The market appears to be assuming that these
companies are showing peak earnings and have significantly reduced their
price/earnings ('P/E') multiples. We are aware that an increasing number of
technology companies have pre-announced disappointing results or have guided
analysts' P/E estimates lower, due to component shortages, softening demand, or
product transitions. While disturbing overall, we believe the long-term secular
growth rates for most technology industries remain unchanged. It is not often
that an aggressive growth manager can buy such quality companies at such a low
multiple to their expected growth rates.
Effective April 1, 1996, Mitchell Hutchins Asset Management Inc. will
assume responsibility for the portfolio management of the Fund from the current
sub-adviser, George D. Bjurman J. Associates. Donald R. Jones, a first vice
president of Mitchell Hutchins, will serve as the Fund's portfolio manager.
Prior to joining Mitchell Hutchins in February 1996, Mr. Jones was a vice
president in the asset management group of First Fidelity Bancorporation. At
First Fidelity since 1983, Mr. Jones was a member of the Value Discipline Stock
Selection Committee and Small Capitalization Stock Selection Committee and
served as a co-manager or assistant manager of mutual funds and personal trust
commingled funds with aggregate assets of approximately $215 million.
Mr. Jones reports directly to Mark Tincher, Chief Investment
Officer--Equities. Formerly at Chase Manhattan Private Bank, Mr. Tincher was
Vice President and head of the U.S. Funds Management and Equity Research area.
While at Chase, Mr. Tincher had experience managing a small-cap fund and also
created a computer program to screen for value stocks with momentum. In managing
the Fund, Mr. Jones will utilize the Factor Valuation Model that has been
successfully incorporated into the management of the PaineWebber equity funds.
The Model will allow him to focus on different investment objectives, such as
growth and value. In terms of management style, Mr. Tincher and Mr. Jones strive
for 'value at the right growth.' To achieve this, they will rely on both
traditional valuation measures and earnings-momentum models as well as Mitchell
Hutchins' economic outlook. This approach combines both quantitative and
fundamental research.
We value you as a shareholder and as a client, and thank you for your
continued support. We welcome any questions or comments you may have.
Sincerely,
/s/ Margo Alexander /s/ Mark A. Tincher
----------------------------- ------------------------------
MARGO ALEXANDER MARK A. TINCHER
President, Managing Director and
Mitchell Hutchins Asset Management Inc. Chief Investment Officer--
Equity Investments,
Mitchell Hutchins Asset
Management Inc.
- --------------------------------------------------------------------------------
2
<PAGE>
PAINEWEBBER SMALL CAP GROWTH FUND
- --------------------------------------------------------------------------------
Performance Results (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURN(1)
-----------------------------
NET ASSET VALUE 12 MONTHS 6 MONTHS
---------------------------- ENDED ENDED
01/31/96 07/31/95 01/31/95 01/31/96 01/31/96
<S> <C> <C> <C> <C> <C>
Class A Shares $12.77 $13.76 $10.42 22.55% (7.19)%
Class B Shares(2) 12.56 -- -- N/A N/A
Class C Shares(3) 12.56 13.58 10.32 21.71 (7.51)
</TABLE>
PERFORMANCE SUMMARY CLASS A SHARES
<TABLE>
<CAPTION>
NET ASSET VALUE CAPITAL
----------------- GAINS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID RETURN(1)
<S> <C> <C> <C> <C> <C>
11/04/93 - 12/31/93 $12.00 $12.07 -- -- 0.58%
1994 12.07 10.80 -- -- (10.52)
1995 10.80 13.39 -- -- 23.98
01/01/96 - 01/31/96 13.39 12.77 -- -- (4.63)
</TABLE>
CUMULATIVE TOTAL RETURN AS OF 01/31/96: 6.42%
PERFORMANCE SUMMARY CLASS C SHARES(3)
<TABLE>
<CAPTION>
NET ASSET VALUE CAPITAL
----------------- GAINS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID RETURN(1)
<S> <C> <C> <C> <C> <C>
11/04/93 - 12/31/93 $12.00 $12.05 -- -- 0.42%
1994 12.05 10.70 -- -- (11.20)
1995 10.70 13.18 -- -- 23.18
01/01/96 - 01/31/96 13.18 12.56 -- -- (4.70)
CUMULATIVE TOTAL RETURN AS OF 01/31/96: 4.67%
</TABLE>
AVERAGE ANNUAL RETURNS
<TABLE>
<CAPTION>
% RETURN AFTER
DEDUCTING
% RETURN WITHOUT MAXIMUM SALES
SALES CHARGE CHARGE
------------------- -------------------
CLASS CLASS
------------------- -------------------
A* B** C*** A* B** C***
<S> <C> <C> <C> <C> <C> <C>
Twelve Months Ended
12/31/95 23.98% N/A 23.18% 18.39% N/A 22.18%
Commencement of
Operations Through
12/31/95+ 5.21% N/A 4.45% 2.97% N/A 4.45%
</TABLE>
(1) Figures assume reinvestment of all dividends and capital gains
distributions, if any, at net asset value on the payable date, and do not
include sales charges; results for each class would be lower if sales
charges were included.
(2) Commencement of offering of Class B shares was January 30, 1996. Beginning
net asset value for Class B shares was $12.51, there were no income or
capital gain distributions and the total return was 0.40% (see first
footnote).
(3) Prior to November 10, 1995, Class C shares were called 'Class B' shares.
The class designation was changed to conform to standardized mutual fund
industry nomenclature.
* Maximum sales charge for Class A shares is 4.50% 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 operations was November 4, 1993 for Class A and Class C
shares.
Note: The Fund offers Class Y (formerly Class C) shares to INSIGHT Program
participants. For the six months ended January 31, 1996, and since
inception, November 4, 1993 through January 31, 1996, Class Y shares had a
total return of (7.09)% and 7.00%, respectively. For the one year ended
December 31, 1995 and since inception, November 4, 1993 through December
31, 1995, Class Y shares have had average annual returns of 24.28% and
5.47%, 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 investment return and principal value of an investment in the Fund will
fluctuate, so that an investor's shares, when redeemed, may
be worth more or less than their original cost.
3
<PAGE>
PAINEWEBBER SMALL CAP GROWTH FUND
- --------------------------------------------------------------------------------
Portfolio of Investments
January 31, 1996 (unaudited)
- --------------------------------------------------------------------------------
COMMON STOCKS--98.39%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ---------- -----------
<S> <C> <C>
BUSINESS MACHINES--7.61%
20,000 Electronics For Imaging, Incorporated*............ $ 725,000
37,400 Network Equipment Technologies, Incorporated*..... 1,033,175
30,000 Optical Data Systems, Incorporated*............... 517,500
65,000 S3, Incorporated*................................. 788,125
-----------
3,063,800
-----------
CHEMICALS--3.73%
25,000 Airgas, Incorporated*............................. 871,875
40,000 Tetra Technologies, Incorporated*................. 630,000
-----------
1,501,875
-----------
CONSTRUCTION--0.97%
25,000 Ply-Gem Industries, Incorporated.................. 390,625
-----------
CONTAINERS--1.35%
35,000 ACX Technologies, Incorporated*................... 542,500
-----------
DOMESTIC PETROLEUM RESERVES--1.84%
60,000 Benton Oil & Gas Company*......................... 742,500
-----------
DRUGS, MEDICINE--4.28%
15,000 Dura Pharmaceuticals Incorporated*................ 577,500
25,000 Watson Pharmaceuticals, Incorporated*............. 1,143,750
-----------
1,721,250
-----------
ELECTRONICS--9.78%
20,000 Alliance Semiconductor Corporation*............... 215,000
20,000 C Cube Microsystems, Incorporated*................ 1,200,000
35,000 Credence Systems Corporation*..................... 861,875
10,000 KLA Instruments Corporation*...................... 295,000
20,000 Lo-Jack Corporation*.............................. 198,750
35,000 Tencor Instruments*............................... 807,188
26,000 Trident Microsystems Incorporated................. 357,500
-----------
3,935,313
-----------
HEALTH (NON-DRUG)-- 15.88%
45,000 Conmed Corporation*............................... 1,012,500
15,000 Health Management Associates, Incorporated, Class
A*.............................................. 451,875
60,000 Horizon Healthcare Corporation*................... 1,642,500
20,000 Lincare Holdings, Incorporated*................... 530,000
36,900 Maxicare Health Plans, Incorporated*.............. 1,019,362
20,000 Renal Treatment Centers, Incorporated*............ 915,000
15,000 Target Therapeutics, Incorporated*................ 821,250
-----------
6,392,487
-----------
</TABLE>
4
<PAGE>
PAINEWEBBER SMALL CAP GROWTH FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
COMMON STOCKS--(CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ---------- -----------
IRON & STEEL--0.88%
<S> <C> <C>
20,000 J & L Specialty Steel, Incorporated............... $ 355,000
-----------
LEISURE, LUXURY--1.86%
25,000 Grand Casinos, Incorporated*...................... 746,875
-----------
MINING & METALS--0.82%
7,500 Cable Design Technologies*........................ 330,000
-----------
MISCELLANEOUS FINANCE--3.49%
15,000 Aames Financial Corporation*...................... 551,250
60,000 Olympic Financial Limited*........................ 855,000
-----------
1,406,250
-----------
OIL SERVICES--3.83%
60,000 Pride Petroleum Services, Incorporated*........... 547,500
30,000 Tidewater, Incorporated........................... 993,750
-----------
1,541,250
-----------
PAPER--5.08%
30,000 Chesapeake Corporation............................ 851,250
62,300 Mercer International, Incorporated*............... 1,191,488
-----------
2,042,738
-----------
PHOTOGRAPHIC-OPTICAL--2.51%
25,000 Ultratech Stepper, Incorporated*.................. 734,375
10,000 Zygo Corporation*................................. 276,250
-----------
1,010,625
-----------
POLLUTION CONTROL--3.13%
63,000 New Park Resources, Incorporated*................. 1,260,000
-----------
PRODUCERS' GOODS--20.74%
20,000 Agco Corporation.................................. 975,000
6,500 DSP Communications, Incorporated*................. 279,500
40,000 EIS International, Incorporated*.................. 675,000
30,000 Electro Scientific Industries, Incorporated*...... 637,500
40,000 Electroglas, Incorporated*........................ 825,000
50,500 FSI International, Incorporated*.................. 782,750
20,000 JLG Industries, Incorporated...................... 532,500
25,000 Kulicke & Soffa Industries, Incorporated*......... 546,875
21,100 Lam Research Corporation*......................... 902,025
20,000 Measurex Corporation.............................. 592,500
</TABLE>
5
<PAGE>
PAINEWEBBER SMALL CAP GROWTH FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
COMMON STOCKS--(CONCLUDED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ---------- -----------
<S> <C> <C>
PRODUCERS' GOODS--(CONCLUDED)
15,000 Microcom, Incorporated*........................... $ 373,125
23,000 Novellus Systems, Incorporated*................... 1,224,750
-----------
8,346,525
-----------
RETAIL (ALL OTHER)--3.07%
25,000 Renters Choice, Incorporated*..................... 409,375
29,700 Sunglass Hut International, Incorporated*......... 826,031
-----------
1,235,406
-----------
SERVICES--4.05%
50,000 Computervision Corporation (New)*................. 618,750
9,000 Health Risk Management, Incorporated*............. 105,750
20,000 Macromedia, Incorporated*......................... 800,000
5,000 Mercury Interactive Corporation*.................. 103,750
-----------
1,628,250
-----------
THRIFT INSTITUTIONS--1.75%
25,000 Coast Savings Financial Incorporated*............. 706,250
-----------
TRUCKING, FREIGHT--1.74%
20,000 Fritz Companies, Incorporated*.................... 701,250
-----------
Total Common Stocks (cost - $36,157,098)...................... 39,600,769
-----------
</TABLE>
- --------------------------------------------------------------------------------
SHORT-TERM DEBT SECURITIES--2.23%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES
- ---------- -------- --------
<S> <C> <C> <C> <C>
$900 U.S. Treasury Bills (cost - $899,051)............. 02/08/96 5.420% 899,030
-----------
<CAPTION>
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT--1.37%
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
550 Repurchase Agreement dated 01/31/96 with State
Street Bank & Trust Company, collateralized by
$399,148 U.S. Treasury Bonds, 9.250%, due
02/15/16; proceeds: $550,076
(cost - $550,000)............................... 02/01/96 5.000 550,000
-----------
Total Investments (cost - $37,606,149) - 101.99%.............. 41,049,799
Liabilities in excess of other assets - (1.99)%............... (799,224)
-----------
Net Assets - 100.00%.......................................... $40,250,575
-----------
-----------
</TABLE>
- ------------
* Non-income producing security
See accompanying notes to financial statements
6
<PAGE>
PAINEWEBBER SMALL CAP GROWTH FUND
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
January 31, 1996 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost - $37,606,149)....................................................... $41,049,799
Cash............................................................................................. 4,900
Receivable for shares of beneficial interest sold................................................ 54,273
Dividends and interest receivable................................................................ 12,951
Deferred organizational expenses................................................................. 109,430
Other assets..................................................................................... 52,537
-----------
Total assets.................................................................................. 41,283,890
-----------
LIABILITIES
Payables for shares of beneficial interest repurchased........................................... 954,829
Payable to affiliates............................................................................ 49,226
Accrued expenses and other liabilities........................................................... 29,260
-----------
Total liabilities............................................................................. 1,033,315
-----------
NET ASSETS
Beneficial interest shares of $0.001 par value outstanding (unlimited amount authorized)......... 36,756,758
Accumulated net investment loss.................................................................. (352,510)
Accumulated net realized gains from investment transactions...................................... 402,677
Net unrealized appreciation of investments....................................................... 3,443,650
-----------
Net assets.................................................................................... $40,250,575
-----------
-----------
CLASS A:
Net assets.......................................................................................... $23,872,388
-----------
Shares outstanding.................................................................................. 1,869,078
-----------
Net asset value and redemption value per share...................................................... $12.77
-----------
-----------
Maximum offering price per share (net asset value plus sales charge of 4.50% of offering price)..... $13.37
-----------
-----------
CLASS B:
Net assets.......................................................................................... $ 26,478
-----------
Shares outstanding.................................................................................. 2,108
-----------
Net asset value and offering price per share........................................................ $12.56
-----------
-----------
CLASS C:
Net assets.......................................................................................... $11,783,151
-----------
Shares outstanding.................................................................................. 938,350
-----------
Net asset value and offering price per share........................................................ $12.56
-----------
-----------
CLASS Y:
Net assets.......................................................................................... $ 4,568,558
-----------
Shares outstanding.................................................................................. 355,798
-----------
Net asset value, offering price and redemption value per share...................................... $12.84
-----------
-----------
</TABLE>
See accompanying notes to financial statements
7
<PAGE>
PAINEWEBBER SMALL CAP GROWTH FUND
- --------------------------------------------------------------------------------
Statement of Operations
For the Six Months Ended January 31, 1996 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................. $ 84,990
Dividends................................................. 39,815
-----------
124,805
-----------
EXPENSES:
Investment advisory and administration fees............... 222,492
Service fees--Class A..................................... 35,576
Service and distribution fees--Class C.................... 70,014
Transfer agency........................................... 34,089
Federal and state registration fees....................... 23,774
Reports and notices to shareholders....................... 23,678
Custody and accounting.................................... 22,194
Amortization of organizational expenses................... 22,080
Legal and audit........................................... 15,251
Trustees' fees and expenses............................... 5,167
Other expenses............................................ 3,000
-----------
477,315
-----------
Net investment loss......................................... (352,510)
-----------
REALIZED AND UNREALIZED GAINS (LOSSES) FROM INVESTMENT
TRANSACTIONS:
Net realized gains from investment transactions........... 8,153,830
Net change in unrealized appreciation/depreciation of
investments............................................. (11,200,972)
-----------
Net realized and unrealized losses from investment
transactions............................................ (3,047,142)
-----------
Net decrease in net assets resulting from operations...... $(3,399,652)
-----------
-----------
</TABLE>
See accompanying notes to financial statements
8
<PAGE>
PAINEWEBBER SMALL CAP GROWTH FUND
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS
ENDED FOR THE
JANUARY 31, YEAR ENDED
1996 JULY 31,
(UNAUDITED) 1995
----------- -----------
<S> <C> <C>
FROM OPERATIONS:
Net investment loss............................ $ (352,510) $ (739,176)
Net realized gains from investment
transactions................................. 8,153,830 1,808,936
Net change in unrealized
appreciation/depreciation of investments..... (11,200,972) 16,130,447
----------- -----------
Net increase (decrease) in net assets resulting
from operations.............................. (3,399,652) 17,200,207
----------- -----------
FROM BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from the sale of shares........... 2,450,215 8,922,103
Cost of shares repurchased..................... (10,761,316) (24,675,338)
----------- -----------
Net decrease in net assets derived from
beneficial interest transactions............. (8,311,101) (15,753,235)
----------- -----------
Net increase (decrease) in net assets.......... (11,710,753) 1,446,972
NET ASSETS:
Beginning of period............................ 51,961,328 50,514,356
----------- -----------
End of period.................................. $40,250,575 $51,961,328
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to financial statements
9
<PAGE>
PAINEWEBBER SMALL CAP GROWTH FUND
- --------------------------------------------------------------------------------
Notes to Financial Statements (unaudited)
- --------------------------------------------------------------------------------
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
PaineWebber Small Cap Growth Fund (formerly Mitchell Hutchins/Kidder, Peabody
Small Cap Growth Fund) (the 'Fund') is registered with the Securities and
Exchange Commission under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company. The Fund incurred costs in
connection with the organization of the Fund and the registration of its shares.
Such costs have been deferred and are being amortized using the straight-line
method over a period of 60 months, beginning with the commencement of investment
operations of the Fund.
Currently, the Fund offers Class A, Class B, Class C (formerly Class B) and
Class Y (formerly Class D) shares. Effective November 10, 1995, the Fund began
using industry standardized nomenclatures and Class B and Class C shares were
renamed Class C and Class Y shares, respectively. In addition, a new Class B was
created. Each class represents interests in the same assets of the Fund and the
classes are identical except for differences in their sales charge structures,
ongoing distribution charges and certain transfer agency expenses. In addition,
Class B shares and all corresponding 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 each class has
exclusive voting rights with respect to its distribution plan.
The preparation of financial statements in accordance with generally accepted
accounting principles requires Fund management to make estimates and assumptions
that affect the reported amounts and disclosures in the financial statements.
Actual results could differ from those estimates.
Valuation of Investments--Securities which are listed on stock exchanges are
valued at the last sale price on the day the securities are being valued or,
lacking any sales on such day, at the last available bid price. In cases where
securities are traded on more than one exchange, the securities are generally
valued on the exchange designated by Mitchell Hutchins Asset Management, Inc.
('Mitchell Hutchins'), a wholly owned subsidiary of PaineWebber Incorporated
('PaineWebber') and investment adviser and administrator of the Fund, or by the
sub-adviser of the Fund, as the primary market. Securities traded in the
over-the-counter ('OTC') market and listed on Nasdaq are valued at the last
trade price on Nasdaq prior to the time of valuation; other OTC securities are
valued at the last bid price available in the OTC market prior to the time of
valuation. The amortized cost method of valuation generally is used to value
debt instruments with sixty days or less remaining to maturity unless the Fund's
board of trustees determines that this does not represent fair value. Securities
and assets for which market quotations are not readily available are valued at
fair value as determined in good faith by or under the direction of the Fund's
board of trustees.
10
<PAGE>
PAINEWEBBER SMALL CAP GROWTH FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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.
Income, expenses (excluding class-specific expenses) and realized and unrealized
gains and losses are allocated proportionately to each class of shares based
upon the relative net asset value of outstanding shares (or the value of
dividend-eligible shares, as appropriate) of each class at the beginning of the
day (after adjusting for current capital share activity of the respective
classes). Class-specific expenses are charged directly to the applicable class
of shares.
Dividends and Distributions--Dividends and distributions to shareholders are
recorded on the ex-dividend date. The amount of dividends and distributions are
determined in accordance with federal income tax regulations, which may differ
from generally accepted accounting principles. These 'book/tax' differences are
either considered temporary or permanent in nature. To the extent these
differences are permanent in nature, such amounts are reclassified within the
capital accounts based on their federal tax-basis treatment; temporary
differences do not require reclassification. Dividends and distributions which
exceed net investment income and net realized capital gains for financial
reporting purposes but not for tax purposes are reported as dividends in excess
of net investment income or distributions in excess of net realized capital
gains. To the extent they exceed net investment income and net realized capital
gains for tax purposes, they are reported as distributions of paid-in capital.
CONCENTRATION OF RISK
Small cap companies may be more vulnerable than larger companies to adverse
business or economic developments. Small cap companies may also have limited
product lines, markets or financial resources, and may be dependent on a
relatively small management group. Securities of such companies may be less
liquid and more volatile than securities of larger companies or the market
averages in general and therefore may involve greater risk than investing in
larger companies. In addition, small cap companies may not be well-known to the
investing public, may not have institutional ownership and may have only
cyclical, static or moderate growth prospects.
11
<PAGE>
PAINEWEBBER SMALL CAP GROWTH FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INVESTMENT ADVISER AND ADMINISTRATOR
The Fund has an Investment Advisory and Administration Contract ('Advisory
Contract') with Mitchell Hutchins. In accordance with the Advisory Contract, the
Fund pays Mitchell Hutchins an investment advisory and administration fee, which
is computed daily and payable monthly, at an annual rate of 1.00% of the Fund's
average daily net assets up to $25 million and 0.90% thereafter. At January 31,
1996, the Fund owed Mitchell Hutchins $33,748 in investment advisory and
administration fees.
Under a separate contract ('Sub-Advisory Contract'), Mitchell Hutchins (not the
Fund) pays George D. Bjurman & Associates (the 'Sub-Adviser') a monthly fee in
an amount equal to 0.50% of the Fund's average daily net assets up to but not
including $25 million and 0.40% thereafter. Effective April 1, 1996, the
Sub-Advisory Contract with the Sub-Adviser will terminate, and Mitchell Hutchins
will take over the responsibility for the day-to-day management of the Fund's
assets.
In compliance with applicable state securities laws, Mitchell Hutchins will
reimburse the Fund if and to the extent that the aggregate operating expenses in
any fiscal year, exclusive of taxes, distribution fees, interest, brokerage fees
and extraordinary expenses, exceed limitations imposed by various state
regulations. Currently, the most restrictive limitation applicable to the Fund
is 2.5% of the first $30 million of average daily net assets, 2.0% of the next
$70 million and 1.5% of any excess over $100 million. For the six months ended
January 31, 1996, no reimbursements were required pursuant to the above
limitation.
DISTRIBUTION PLANS
Mitchell Hutchins is the distributor of the Fund's shares and has appointed
PaineWebber as the exclusive dealer for the sale of those shares. Under separate
plans of distribution pertaining to Class A, Class B and Class C (formerly Class
B) shares, the Fund pays Mitchell Hutchins monthly service fees at an annual
rate of 0.25% of the average daily net assets of Class A, Class B and Class C
shares and monthly distribution fees at the annual rate of 0.75% of the average
daily net assets of Class B and Class C shares. At January 31, 1996, the Fund
owed Mitchell Hutchins $15,478 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 shareholders upon certain redemptions of Class B and Class
C shares. Mitchell Hutchins has informed the Fund that for the six months ended
January 31, 1996, it earned approximately $4,500 in initial sales charges and
approximately $2,000 in contingent deferred sales charges for the Fund.
During the six months ended January 31, 1996, the Fund paid $2,335 in brokerage
commissions to PaineWebber for transactions executed on behalf of the Fund.
12
<PAGE>
PAINEWEBBER SMALL CAP GROWTH FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INVESTMENTS IN SECURITIES
For federal income tax purposes, the cost of securities owned at January 31,
1996 was substantially the same as the cost of securities for financial
statement purposes.
At January 31, 1996, the components of the net unrealized appreciation of
investments were as follows:
<TABLE>
<S> <C>
Gross appreciation (investments having an excess of value over
cost).......................................................... $7,043,847
Gross depreciation (investments having an excess of cost over
value)......................................................... (3,600,197)
----------
Net unrealized appreciation of investments....................... $3,443,650
----------
----------
</TABLE>
For the six months ended January 31, 1996, aggregate purchases and sales of
portfolio securities, excluding short-term securities, were $24,974,852 and
$31,737,301, respectively.
FEDERAL TAX STATUS
The Fund intends to distribute substantially all of its taxable income and to
comply with the other requirements of the Internal Revenue Code applicable to
regulated investment companies. Accordingly, no provision for federal income
taxes is required. In addition, by distributing during each calendar year
substantially all of its net investment income, capital gains and certain other
amounts, if any, the Fund intends not to be subject to a federal excise tax.
At July 31, 1995, the Fund had a net capital loss carryforward of $7,751,153.
The loss carryforward is available as a reduction, to the extent provided in the
regulations, of future net realized capital gains, which will expire by July 31,
2003.
SHARES OF BENEFICIAL INTEREST
There is 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
------------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ --------- -----------
<S> <C> <C> <C> <C>
FOR THE SIX MONTHS ENDED
JANUARY 31, 1996:
Shares sold........... 102,656 $ 1,323,377 2,108 $ 26,421
Shares repurchased.... (481,926) (6,412,908) -- --
---------- ------------ --------- -----------
Net increase
(decrease)............ (379,270) $ (5,089,531) 2,108 $ 26,421
---------- ------------ --------- -----------
---------- ------------ --------- -----------
FOR THE YEAR ENDED
JULY 31, 1995:
Shares sold........... 451,278 $ 4,916,120
Shares repurchased.... (1,219,110) (13,681,733)
---------- ------------
Net decrease............ (767,832) $ (8,765,613)
---------- ------------
---------- ------------
<CAPTION>
CLASS C
----------------------
SHARES AMOUNT
-------- -----------
<S> <C> <C>
FOR THE SIX MONTHS ENDED
JANUARY 31, 1996:
Shares sold........... 54,630 $ 732,037
Shares repurchased.... (231,351) (3,049,967)
-------- -----------
Net increase
(decrease)............ (176,721) $(2,317,930)
-------- -----------
-------- -----------
FOR THE YEAR ENDED
JULY 31, 1995:
Shares sold........... 188,783 $ 2,035,542
Shares repurchased.... (630,850) (7,066,893)
-------- -----------
Net decrease............ (442,067) $(5,031,351)
-------- -----------
-------- -----------
<CAPTION>
CLASS Y
----------------------
SHARES AMOUNT
-------- -----------
FOR THE SIX MONTHS ENDED
JANUARY 31, 1996:
Shares sold........... 27,087 $ 368,380
Shares repurchased.... (97,977) (1,298,441)
-------- -----------
Net increase
(decrease)............ (70,890) $ (930,061)
-------- -----------
-------- -----------
FOR THE YEAR ENDED
JULY 31, 1995:
Shares sold........... 181,812 $ 1,970,441
Shares repurchased.... (349,337) (3,926,712)
-------- -----------
Net decrease............ (167,525) $(1,956,271)
-------- -----------
-------- -----------
</TABLE>
13
<PAGE>
PAINEWEBBER SMALL CAP GROWTH FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
Selected data for a share of beneficial interest outstanding throughout each
period is presented below:
<TABLE>
<CAPTION>
CLASS A
-----------------------------------------------
FOR THE
SIX MONTHS FOR THE FOR THE
ENDED YEAR PERIOD
JANUARY 31, ENDED ENDED
1996 JULY 31, JULY 31,
(UNAUDITED) 1995** 1994+
----------- -------- --------
<S> <C> <C> <C>
Net asset value, beginning of period................................ $ 13.76 $ 9.79 $12.00
----------- -------- --------
Net investment loss................................................. (0.15) (0.20) (0.10)
Net realized and unrealized gains (losses) from investment
transactions...................................................... (0.84) 4.17 (2.11)
----------- -------- --------
Total income (loss) from investment operations...................... (0.99) 3.97 (2.21)
----------- -------- --------
Net asset value, end of period...................................... $ 12.77 $13.76 $ 9.79
----------- -------- --------
----------- -------- --------
Total investment return (1)......................................... (7.19)% 40.55% (18.42)%
----------- -------- --------
----------- -------- --------
Ratios/Supplemental Data:
Net assets, end of period (000's)................................... $23,872 $30,927 $29,528
Expenses to average net assets...................................... 1.79%* 1.72% 1.68%*
Net investment loss to average net assets........................... (1.27)%* (1.24)% (1.06)%*
Portfolio turnover.................................................. 55% 101% 56%
</TABLE>
- ------------------
<TABLE>
<S> <C>
* Annualized
** On February 13, 1995, Mitchell Hutchins became the investment adviser to the Fund.
+ For the period November 4, 1993 (commencement of operations) to July 31, 1994.
++ For the period January 30, 1996 (commencement of offering of shares) to January 31, 1996.
(1) Total investment return is calculated assuming a $1,000 investment on the first day of each period reported,
reinvestment of all dividends and capital gain distributions, if any, at net asset value on the payable date
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 returns for periods of less
than one year have not been annualized.
(2) Formerly Class B shares
(3) Formerly Class C shares
</TABLE>
14
<PAGE>
PAINEWEBBER SMALL CAP GROWTH FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS B CLASS C(2) CLASS Y(3)
----------- ------------------------------------- -------------------------
FOR THE FOR THE FOR THE
PERIOD SIX MONTHS FOR THE FOR THE SIX MONTHS FOR THE
ENDED ENDED YEAR PERIOD ENDED YEAR
JANUARY 31, JANUARY 31, ENDED ENDED JANUARY 31, ENDED
1996++ 1996 JULY 31, JULY 31, 1996 JULY 31,
(UNAUDITED) (UNAUDITED) 1995** 1994+ (UNAUDITED) 1995**
----------- ----------- -------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period...................... $ 12.51 $ 13.58 $ 9.74 $12.00 $ 13.82 $ 9.81
----------- ----------- -------- -------- ----------- ---------
Net investment loss........... 0.00 (0.24) (0.32) (0.13) (0.13) (0.16)
Net realized and unrealized
gains (losses) from
investment transactions..... 0.05 (0.78) 4.16 (2.13) (0.85) 4.17
----------- ----------- -------- -------- ----------- ---------
Total income (loss) from
investment operations....... 0.05 (1.02) 3.84 (2.26) (0.98) 4.01
----------- ----------- -------- -------- ----------- ---------
Net asset value, end of
period...................... $ 12.56 $ 12.56 $13.58 $ 9.74 $ 12.84 $ 13.82
----------- ----------- -------- -------- ----------- ---------
----------- ----------- -------- -------- ----------- ---------
Total investment return (1)... 0.40% (7.51)% 39.43% (18.83)% (7.09)% 40.88%
----------- ----------- -------- -------- ----------- ---------
----------- ----------- -------- -------- ----------- ---------
Ratios/Supplemental Data:
Net assets, end of period
(000's)..................... $ 26 $11,783 $15,139 $15,159 $ 4,569 $ 5,895
Expenses to average net
assets...................... 2.21%* 2.56%* 2.48% 2.43%* 1.58%* 1.48%
Net investment loss to average
net assets.................. (0.56)%* (2.04)%* (2.00)% (1.80)%* (1.06)%* (0.99)%
Portfolio turnover............ 55% 55% 101% 56% 55% 101%
<CAPTION>
FOR THE
PERIOD
ENDED
JULY 31,
1994+
--------
<S> <C>
Net asset value, beginning of
period...................... $12.00
--------
Net investment loss........... (0.06)
Net realized and unrealized
gains (losses) from
investment transactions..... (2.13)
--------
Total income (loss) from
investment operations....... (2.19)
--------
Net asset value, end of
period...................... $ 9.81
--------
--------
Total investment return (1)... (18.25)%
--------
--------
Ratios/Supplemental Data:
Net assets, end of period
(000's)..................... $5,827
Expenses to average net
assets...................... 1.43%*
Net investment loss to average
net assets.................. (0.81)%*
Portfolio turnover............ 56%
15
<PAGE>
- --------------------------------------
TRUSTEES
Margo N. Alexander
David J. Beaubien
William W. Hewitt, Jr.
Carl W. Schafer
- --------------------------------------
OFFICERS
Margo N. Alexander
President
Victoria E. Schonfeld
Vice President
Dianne E. O'Donnell
Vice President and Secretary
Julian F. Sluyters
Vice President and Treasurer
- --------------------------------------
INVESTMENT ADVISER,
ADMINISTRATOR
AND DISTRIBUTOR
Mitchell Hutchins Asset Management
Inc.
1285 Avenue of the Americas
New York, New York 10019
- --------------------------------------
INVESTMENT SUB-ADVISER
George D. Bjurman & Associates
10100 Santa Monica Boulevard
Los Angeles, California 90067
- --------------------------------------
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.
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 investment
executive or correspondent firm. Read
the prospectus carefully before
investing.
</TABLE>
