<PAGE>
==========================================
MITCHELL HUTCHINS
PORTFOLIOS
o AGGRESSIVE PORTFOLIO
o MODERATE PORTFOLIO
o CONSERVATIVE PORTFOLIO
ANNUAL REPORT
MAY 31, 1999
<PAGE>
MITCHELL HUTCHINS PORTFOLIOS ANNUAL REPORT
MITCHELL HUTCHINS AGGRESSIVE PORTFOLIO
PERFORMANCE AT A GLANCE
================================================================================
Comparison of the change of a $10,000 investment in Mitchell Hutchins
Portfolios, the Lehman Brothers Government/Corporate Bond Index and the
S&P 500 Index, for the period beginning on February 28, 1998 and ending on
May 31, 1999.
[GRAPHIC OMITTED]
Past performance is no guarantee of future performance.
The performance of the classes vary based on the difference in sales charges and
fees paid by shareholders in different classes.
- ------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS,(1) PERIODS ENDED 5/31/99
- --------------------------------------------------------------------------------
Aggressive Portfolio
1 Year Life(o)
- --------------------------------------------------------------------------------
Class A* -1.57% 1.75%
Class B** -2.32% 1.01%
Before Deducting Class C+ -2.32% 1.01%
Maximum Sales Charge Class Y++ -1.33% 2.00%
- --------------------------------------------------------------------------------
Class A* -5.99% -1.91%
After Deducting Class B** -7.14% -2.97%
Maximum Sales Charge Class C+ -3.29% 1.01%
- --------------------------------------------------------------------------------
(o) Life: since commencement of issuance on February 24, 1998 for Class A,
Class B, Class C and Class Y shares.
* Maximum sales charge for Class A shares is 4.5% of the public offering
price. Class A shares bear ongoing 12b-1 service fees.
** Maximum contingent deferred sales charge for Class B shares is 5% 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
distribution and service fees.
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.
(1) Total return consists of the change in net asset value with dividends
reinvested. Total return may be lower for shareowners who purchased or
redeemed Fund shares during the period.
- --------------------------------------------------------------------------------
The graphs depict the performance of Mitchell Hutchins Aggressive, Moderate and
Conservative Portfolios versus the Lehman Brothers Government/Corporate Bond
Index and the S&P 500 Index. It is important to note that the Mitchell Hutchins
Portfolios are professionally managed, while the Indexes are not available for
investment and are unmanaged. The comparisons are shown for illustrative
purposes only.
1
<PAGE>
ANNUAL REPORT
MITCHELL HUTCHINS MODERATE PORTFOLIO
PERFORMANCE AT A GLANCE
================================================================================
Comparison of the change of a $10,000 investment in Mitchell Hutchins
Portfolios, the Lehman Brothers Government/Corporate Bond Index and the
S&P 500 Index, for the period beginning on February 28, 1998 and ending on
May 31, 1999.
[GRAPHIC OMITTED]
Past performance is no guarantee of future performance.
The performance of the classes vary based on the difference in sales charges and
fees paid by shareholders in different classes.
- ------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS,(1) PERIODS ENDED 5/31/99
- --------------------------------------------------------------------------------
Moderate Portfolio
1 Year Life(o)
- --------------------------------------------------------------------------------
Class A* 1.85% 4.21%
Class B** 1.14% 3.44%
Before Deducting Class C+ 1.11% 3.42%
Maximum Sales Charge Class Y++ 2.08% 4.46%
- --------------------------------------------------------------------------------
Class A* -2.74% 0.48%
After Deducting Class B** -3.81% -0.49%
Maximum Sales Charge Class C+ 0.12% 3.42%
- --------------------------------------------------------------------------------
(o) Life: since commencement of issuance on February 24, 1998 for Class A,
Class B, Class C and Class Y shares.
* Maximum sales charge for Class A shares is 4.5% of the public offering
price. Class A shares bear ongoing 12b-1 service fees.
** Maximum contingent deferred sales charge for Class B shares is 5% 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
distribution and service fees.
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.
(1) Total return consists of the change in net asset value with dividends
reinvested. Total return may be lower for shareowners who purchased or
redeemed Fund shares during the period.
- --------------------------------------------------------------------------------
The graphs depict the performance of Mitchell Hutchins Aggressive, Moderate and
Conservative Portfolios versus the Lehman Brothers Government/Corporate Bond
Index and the S&P 500 Index. It is important to note that the Mitchell Hutchins
Portfolios are professionally managed, while the Indexes are not available for
investment and are unmanaged. The comparisons are shown for illustrative
purposes only.
2
<PAGE>
MITCHELL HUTCHINS PORTFOLIOS ANNUAL REPORT
MITCHELL HUTCHINS CONSERVATIVE PORTFOLIO
PERFORMANCE AT A GLANCE
================================================================================
Comparison of the change of a $10,000 investment in Mitchell Hutchins
Portfolios, the Lehman Brothers Government/Corporate Bond Index and the
S&P 500 Index, for the period beginning on February 28, 1998 and ending on
May 31, 1999.
[GRAPHIC OMITTED]
Past performance is no guarantee of future performance.
The performance of the classes vary based on the difference in sales charges and
fees paid by shareholders in different classes.
- ------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS,(1) PERIODS ENDED 5/31/99
- --------------------------------------------------------------------------------
Conservative Portfolio
1 Year Life(o)
- --------------------------------------------------------------------------------
Class A* 5.38% 6.27%
Class B** 4.51% 5.44%
Before Deducting Class C+ 4.77% 5.71%
Maximum Sales Charge Class Y++ 5.61% 6.52%
- --------------------------------------------------------------------------------
Class A* 0.67% 2.46%
After Deducting Class B** -0.49% 1.52%
Maximum Sales Charge Class C+ 4.02% 5.71%
- --------------------------------------------------------------------------------
(o) Life: since commencement of issuance on February 24, 1998 for Class A,
Class B, Class C and Class Y shares.
* Maximum sales charge for Class A shares is 4.0% 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 0.75% 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
distribution and service fees.
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.
(1) Total return consists of the change in net asset value with dividends
reinvested. Total return may be lower for shareowners who purchased or
redeemed Fund shares during the period.
- --------------------------------------------------------------------------------
The graphs depict the performance of Mitchell Hutchins Aggressive, Moderate and
Conservative Portfolios versus the Lehman Brothers Government/Corporate Bond
Index and the S&P 500 Index. It is important to note that the Mitchell Hutchins
Portfolios are professionally managed, while the Indexes are not available for
investment and are unmanaged. The comparisons are shown for illustrative
purposes only.
3
<PAGE>
ANNUAL REPORT
- --------------------------------------------------------------------------------
MITCHELL HUTCHINS
PORTFOLIOS
PROFILES
> Goal:
Aggressive--long-term capital growth
Moderate--total return
Conservative-- income; secondarily, capital growth
> Portfolio Managers:
T. Kirkham Barneby,
Mark Tincher,
Dennis McCauley,
Mitchell Hutchins Asset Management Inc.
> Total Net Assets as of May 31, 1999:
Aggressive--$6.1 million
Moderate--$14.5 million
Conservative--$4.7 million
- --------------------------------------------------------------------------------
July 15, 1999
Dear Shareholder,
We are pleased to present you with the annual report for the Mitchell Hutchins
Portfolios, covering the Portfolios' fiscal year ended May 31, 1999.
MARKET OVERVIEW
================================================================================
[GRAPHIC OMITTED] Russia's currency crisis in August 1998 brought the stock
market down sharply as investors around the world fled stocks and sought the
safety of U.S. Treasury securities. Only a narrow slice of the stock market
retained favor with investors--the largest of the large-capitalization
companies, which were perceived as strong enough financially to weather the
crisis. Almost all other stocks suffered declines: mid caps, small caps and
value stocks all trailed the large-cap growth stocks. Prices began to recover in
the second half of the fiscal year, but endured considerable volatility along
the way. For the fiscal year ended May 31, 1999, the S&P 500 Index gained
21.03%.
The dominance of growth stocks that characterized 1998 reversed dramatically
beginning in April 1999. Value stock prices climbed steeply and growth stocks
fell sharply between mid-April and mid-May. Much of the resurgence in value
stocks, however, occurred among basic-industry, commodity-driven companies such
as aluminum, steel and copper producers. Earnings increases at such companies
depend on sustained inflation, which we do not foresee except for oil prices.
Nonetheless, investors seem interested in venturing beyond the "nifty 20" stocks
that have driven the market for the past 18 months. We look for the recovery of
value stocks to broaden into sectors with more sustainable earnings as the
second half of the year unfolds.
OUTLOOK
Our 1999 expectations call for economic growth (real gross domestic product) of
about 3.5%, inflation in the 2.0-2.5% range and corporate earnings growth of
7-9%. Our outlook is more cautious over the near term, however. We are concerned
that long bond yields above 6% may lead to a correction. We expect stocks to
remain in a "trading range"--a fairly narrow band of ups and downs--as market
growth adjusts to better corporate earnings.
* Weightings represent percentages of portfolio assets as of May 31, 1999.
The Portfolios and the underlying mutual funds are actively managed and
their composition will vary over time. For allocation purposes, the
PaineWebber Cashfund is included in the bond component.
4
<PAGE>
MITCHELL HUTCHINS PORTFOLIOS ANNUAL REPORT
PORTFOLIO HIGHLIGHTS
================================================================================
[GRAPHIC OMITTED] As the second half of the fiscal year got under way, all three
Portfolios were positioned with above-target exposures to stocks. The high stock
weightings were beneficial to the Portfolios during the year-end rally in the
stock market. We shifted all three Portfolios back on target in January 1999 and
kept them on target until the end of May. At the end of the fiscal year we
increased stock exposures slightly above target.
We also shifted fund sub-allocations within the stock and bond allocations
during the last six months. Among the most significant changes was an increased
exposure to global stock markets in the Moderate and Aggressive Portfolios as
those markets began to stabilize. As interest rates began to rise, we shortened
the average maturity of the bond allocations for all three Portfolios.
Additionally, we shifted the Portfolios' bond allocations toward global and U.S.
corporate bonds. At fiscal year-end we shifted the Portfolios' bond allocations
back toward Treasurys and slightly increased average maturity.
<TABLE>
<CAPTION>
- -----------------------------------------------
MITCHELL HUTCHINS PORTFOLIOS--FUND ALLOCATIONS*
- ---------------------------------------------------------------------------------------------
Aggressive Moderate Conservative
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Stock Funds PaineWebber Global Equity Fund 14.8% 9.9% 0.0%
PaineWebber Growth Fund 9.9 9.9 0.0
PaineWebber Growth and Income Fund 29.4 29.7 20.0
PaineWebber Small Cap Fund 25.9 10.5 0.0
- ---------------------------------------------------------------------------------------------
Bond Funds PaineWebber Global Income Fund 4.9 9.8 9.9
PaineWebber High Income Fund 5.2 5.2 0.0
PaineWebber Investment Grade
Income Fund 4.9 7.5 5.0
PaineWebber Low Duration
U.S. Gov't Income Fund 0.0 10.0 35.2
PaineWebber U.S. Government
Income Fund 0.0 2.5 20.0
- ---------------------------------------------------------------------------------------------
Money Market Fund PaineWebber Cashfund, Inc. 5.0 5.0 9.9
- ---------------------------------------------------------------------------------------------
Total 100.0 100.0 100.0
- ---------------------------------------------------------------------------------------------
</TABLE>
* Weightings represent percentages of portfolio assets as of May 31, 1999.
The Portfolios and the underlying mutual funds are actively managed and
their composition will vary over time.
5
<PAGE>
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 the Mitchell
Hutchins Portfolios or any of the funds in the PaineWebber Family of Funds,(2)
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
BRIAN M. STORMS
President and Chief Operating Officer
Mitchell Hutchins Asset Management Inc.
/s/ Dennis L. McCauley
DENNIS L. MCCAULEY
Managing Director and Chief Investment
Officer--Fixed Income
Mitchell Hutchins Asset Management Inc.
Manager of the Portfolios
/s/ T. Kirkham Barneby
T. KIRKHAM BARNEBY
Managing Director and Chief Investment
Officer--Quantitative Investments
Mitchell Hutchins Asset Management Inc.
Manager of the Portfolios
/s/ Mark A. Tincher
MARK A. TINCHER
Managing Director and Chief Investment
Officer--Equities
Mitchell Hutchins Asset Management Inc.
Manager of the Portfolios
This letter is intended to assist shareholders in understanding how the
Portfolios performed during the fiscal year ended May 31, 1999, 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.
(2) 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.
6
<PAGE>
MITCHELL HUTCHINS PORTFOLIOS
PERFORMANCE RESULTS (unaudited)
<TABLE>
<CAPTION>
Aggressive Portfolio
Net Asset Value Total Return(1)
----------------------------------------------- ------------------------------------
05/31/99 11/30/98 05/31/98 12 Months 6 Months
Ended 05/31/99 Ended 05/31/99
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A Shares $ 12.57 $ 12.35 $ 12.98 (1.57)% 3.45%
- ---------------------------------------------------------------------------------------------------------------------------
Class B Shares 12.50 12.28 12.96 (2.32) 3.09
- ---------------------------------------------------------------------------------------------------------------------------
Class C Shares 12.52 12.28 12.96 (2.32) 3.09
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Performance Summary Class A Shares
Net Asset Value
--------------------------- Capital Gains Dividends Total
Period Covered Beginning Ending Distributed Paid(2) Return(1)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
02/24/98+ - 12/31/98 $ 12.50 $ 12.78 -- $0.2097 2.24%
- ---------------------------------------------------------------------------------------------------------------------------
01/01/99 - 05/31/99 12.78 12.57 -- -- (1.64)
- ---------------------------------------------------------------------------------------------------------------------------
Total: -- $0.2097
- ---------------------------------------------------------------------------------------------------------------------------
Cumulative Total Return as of 05/31/99: 2.21%
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Performance Summary Class B Shares
Net Asset Value
--------------------------- Capital Gains Dividends Total
Period Covered Beginning Ending Distributed Paid(2) Return(1)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
02/24/98+ - 12/31/98 $ 12.50 $ 12.75 -- $0.1627 2.00%
- ---------------------------------------------------------------------------------------------------------------------------
01/01/99 - 05/31/99 12.75 12.50 -- -- (1.96)
- ---------------------------------------------------------------------------------------------------------------------------
Total: -- $0.1627
- ---------------------------------------------------------------------------------------------------------------------------
Cumulative Total Return as of 05/31/99: 1.28%
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Performance Summary Class C Shares
Net Asset Value
--------------------------- Capital Gains Dividends Total
Period Covered Beginning Ending Distributed Paid(2) Return(1)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
02/24/98+ - 12/31/98 $ 12.50 $ 12.77 -- $0.1420 2.16%
- ---------------------------------------------------------------------------------------------------------------------------
01/01/99 - 05/31/99 12.77 12.52 -- -- (1.96)
- ---------------------------------------------------------------------------------------------------------------------------
Total: -- $0.1420
- ---------------------------------------------------------------------------------------------------------------------------
Cumulative Total Return as of 05/31/99: 1.27%
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Moderate Portfolio
Net Asset Value Total Return(1)
----------------------------------------------- ------------------------------------
05/31/99 11/30/98 05/31/98 12 Months 6 Months
Ended 05/31/99 Ended 05/31/99
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A Shares $ 12.81 $ 12.54 $ 12.93 1.85% 3.94%
- ---------------------------------------------------------------------------------------------------------------------------
Class B Shares 12.77 12.51 12.90 1.14 3.50
- ---------------------------------------------------------------------------------------------------------------------------
Class C Shares 12.77 12.51 12.90 1.11 3.50
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Performance Summary Class A Shares
Net Asset Value
--------------------------- Capital Gains Dividends Total
Period Covered Beginning Ending Distributed Paid(2) Return(1)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
02/24/98+ - 12/31/98 $ 12.50 $ 12.99 -- $0.1804 5.00%
- ---------------------------------------------------------------------------------------------------------------------------
01/01/99 - 05/31/99 12.99 12.81 -- 0.2929 (0.94)
- ---------------------------------------------------------------------------------------------------------------------------
Total: -- $0.4733
- ---------------------------------------------------------------------------------------------------------------------------
Cumulative Total Return as of 05/31/99: 5.35%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
+ Commencement of Operations.
(1) Figures assume reinvestment of all dividends, capital gains and other
distributions at net asset value on the payable dates and do not include
sales charges; results for each class would be lower if sales charges were
included. Total return for periods of less than one year has not been
annualized.
(2) Certain distributions may contain short-term capital gains.
The data above represents past performance of the Mitchell Hutchins Portfolios
shares, which is no guarantee of future results. The principal value of an
investment in the Mitchell Hutchins Portfolios will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their original
cost.
See accompanying notes to financial statements
7
<PAGE>
MITCHELL HUTCHINS PORTFOLIOS
PERFORMANCE RESULTS (unaudited) (concluded)
<TABLE>
<CAPTION>
Moderate Portfolio (concluded)
Performance Summary Class B Shares
Net Asset Value
--------------------------- Capital Gains Dividends Total
Period Covered Beginning Ending Distributed Paid(2) Return(1)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
02/24/98+ - 12/31/98 $ 12.50 $ 12.97 -- $0.1476 4.55%
- ---------------------------------------------------------------------------------------------------------------------------
01/01/99 - 05/31/99 12.97 12.77 -- 0.2153 (1.27)
- ---------------------------------------------------------------------------------------------------------------------------
Total: -- $0.3629
- ---------------------------------------------------------------------------------------------------------------------------
Cumulative Total Return as of 05/31/99: 4.38%
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Performance Summary Class C Shares
Net Asset Value
--------------------------- Capital Gains Dividends Total
Period Covered Beginning Ending Distributed Paid(2) Return(1)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
02/24/98+ - 12/31/98 $ 12.50 $ 12.97 -- $0.1446 4.53%
- ---------------------------------------------------------------------------------------------------------------------------
01/01/99 - 05/31/99 12.97 12.77 -- 0.2118 (1.25)
- ---------------------------------------------------------------------------------------------------------------------------
Total: -- $0.3564
- ---------------------------------------------------------------------------------------------------------------------------
Cumulative Total Return as of 05/31/99: 4.35%
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Conservative Portfolio
Net Asset Value Total Return(1)
----------------------------------------------- ------------------------------------
05/31/99 11/30/98 05/31/98 12 Months 6 Months
Ended 05/31/99 Ended 05/31/99
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A Shares $ 12.97 $ 13.08 $ 12.81 5.38% 1.57%
- ---------------------------------------------------------------------------------------------------------------------------
Class B Shares 12.92 13.04 12.79 4.51 1.11
- ---------------------------------------------------------------------------------------------------------------------------
Class C Shares 12.94 13.05 12.80 4.77 1.30
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Performance Summary Class A Shares
Net Asset Value
--------------------------- Capital Gains Dividends Total
Period Covered Beginning Ending Distributed Paid(2) Return(1)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
02/24/98+ - 12/31/98 $ 12.50 $ 13.22 -- $0.4236 7.47%
- ---------------------------------------------------------------------------------------------------------------------------
01/01/99 - 05/31/99 13.22 12.97 -- 0.0984 (1.15)
- ---------------------------------------------------------------------------------------------------------------------------
Total: -- $0.5220
- ---------------------------------------------------------------------------------------------------------------------------
Cumulative Total Return as of 05/31/99: 8.00%
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Performance Summary Class B Shares
Net Asset Value
--------------------------- Capital Gains Dividends Total
Period Covered Beginning Ending Distributed Paid(2) Return(1)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
02/24/98+ - 12/31/98 $ 12.50 $ 13.18 -- $0.3642 6.89%
- ---------------------------------------------------------------------------------------------------------------------------
01/01/99 - 05/31/99 13.18 12.92 -- 0.0776 (1.39)
- ---------------------------------------------------------------------------------------------------------------------------
Total: -- $0.4418
- ---------------------------------------------------------------------------------------------------------------------------
Cumulative Total Return as of 05/31/99: 6.93%
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Performance Summary Class C Shares
Net Asset Value
--------------------------- Capital Gains Dividends Total
Period Covered Beginning Ending Distributed Paid(2) Return(1)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
02/24/98+ - 12/31/98 $ 12.50 $ 13.21 -- $0.3807 7.20%
- ---------------------------------------------------------------------------------------------------------------------------
01/01/99 - 05/31/99 13.21 12.94 -- 0.0845 (1.41)
- ---------------------------------------------------------------------------------------------------------------------------
Total: -- $0.4652
- ---------------------------------------------------------------------------------------------------------------------------
Cumulative Total Return as of 05/31/99: 7.28%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
+ Commencement of Operations.
(1) Figures assume reinvestment of all dividends, capital gains and other
distributions at net asset value on the payable dates and do not include
sales charges; results for each class would be lower if sales charges were
included. Total return for periods of less than one year has not been
annualized.
(2) Certain distributions may contain short-term capital gains.
Note: The Mitchell Hutchins Portfolios offers Class Y shares to a limited group
of eligible investors, including participants in certain investment
programs that are sponsored by PaineWebber and may invest in PaineWebber
mutual funds. For the year ended May 31, 1999, Aggressive Portfolio,
Moderate Portfolio and Conservative Portfolio Class Y shares had a total
return of (1.33)%, 2.08% and 5.61%, respectively. Also, since inception,
February 24, 1998 through May 31, 1999, Aggressive Portfolio, Moderate
Portfolio and Conservative Portfolio Class Y shares had a total return of
2.54%, 5.68% and 8.32%, 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 Mitchell Hutchins Portfolios
shares, which is no guarantee of future results. The principal value of an
investment in the Mitchell Hutchins Portfolios will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their original
cost.
See accompanying notes to financial statements
8
<PAGE>
MITCHELL HUTCHINS AGGRESSIVE PORTFOLIO
PORTFOLIO OF INVESTMENTS MAY 31, 1999
Number of
Shares Value
- --------- ----------
Stock Mutual Funds--78.48%
50,332 PaineWebber Global Equity Fund .......................... $ 886,842
55,026 PaineWebber Growth and Income Fund ...................... 1,761,373
21,280 PaineWebber Growth Fund ................................. 591,161
147,615 PaineWebber Small Cap Fund .............................. 1,547,008
----------
4,786,384
----------
Bond Mutual Funds--14.69%
29,207 PaineWebber Global Income Fund .......................... 291,483
47,128 PaineWebber High Income Fund ............................ 309,163
28,730 PaineWebber Investment Grade Income Fund ................ 295,633
----------
896,279
----------
Money Market Fund--4.88%
297,741 PaineWebber Cashfund, Inc. .............................. 297,741
----------
Total Investments (cost--$5,987,781)--98.05% ....................... 5,980,404
Other assets in excess of liabilities--1.95% ....................... 118,743
----------
Net Assets--100.00% ................................................ $6,099,147
==========
See accompanying notes to financial statements
9
<PAGE>
MITCHELL HUTCHINS MODERATE PORTFOLIO
PORTFOLIO OF INVESTMENTS MAY 31, 1999
Number of
Shares Value
- --------- -----------
Stock Mutual Funds--59.56%
81,043 PaineWebber Global Equity Fund .......................... $ 1,427,985
133,162 PaineWebber Growth and Income Fund ...................... 4,262,507
51,375 PaineWebber Growth Fund ................................. 1,427,210
143,213 PaineWebber Small Cap Fund .............................. 1,500,868
-----------
8,618,570
-----------
Bond Mutual Funds--34.65%
141,224 PaineWebber Global Income Fund .......................... 1,409,420
114,009 PaineWebber High Income Fund ............................ 747,898
104,114 PaineWebber Investment Grade Income Fund ................ 1,071,334
611,213 PaineWebber Low Duration U.S. Government Income Fund .... 1,430,237
40,562 PaineWebber U.S. Government Income Fund ................. 356,133
-----------
5,015,022
-----------
Money Market Fund--4.96%
718,317 PaineWebber Cashfund, Inc. .............................. 718,317
-----------
Total Investments (cost--$14,149,358)--99.17% ...................... 14,351,909
Other assets in excess of liabilities--0.83% ....................... 119,872
-----------
Net Assets--100.00% ................................................ $14,471,781
===========
See accompanying notes to financial statements
10
<PAGE>
MITCHELL HUTCHINS CONSERVATIVE PORTFOLIO
PORTFOLIO OF INVESTMENTS MAY 31, 1999
Number of
Shares Value
- --------- ----------
Stock Mutual Fund--19.13%
28,292 PaineWebber Growth and Income Fund ...................... $ 905,642
----------
Bond Mutual Funds--67.22%
45,026 PaineWebber Global Income Fund .......................... 449,363
22,132 PaineWebber Investment Grade Income Fund ................ 227,740
682,104 PaineWebber Low Duration U.S. Government Income Fund .... 1,596,122
103,463 PaineWebber U.S. Government Income Fund ................. 908,402
----------
3,181,627
----------
Money Market Fund--9.53%
451,321 PaineWebber Cashfund, Inc. .............................. 451,321
----------
Total Investments (cost--$4,570,452)--95.88% ....................... 4,538,590
Other assets in excess of liabilities--4.12% ....................... 194,844
----------
Net Assets--100.00% ................................................ $4,733,434
==========
See accompanying notes to financial statements
11
<PAGE>
MITCHELL HUTCHINS PORTFOLIOS
STATEMENT OF ASSETS AND LIABILITIES MAY 31, 1999
<TABLE>
<CAPTION>
Aggressive Moderate Conservative
Portfolio Portfolio Portfolio
----------- ------------ ------------
<S> <C> <C> <C>
Assets
Investments in Underlying Funds, at value (cost--$5,987,781,
$14,149,358 and $4,570,452, respectively) ......................... $ 5,980,404 $ 14,351,909 $ 4,538,590
Cash ................................................................... 24,524 7,139 34,066
Receivable for investments sold ........................................ 593 2,730 64,566
Receivable from affiliate .............................................. 19,670 23,210 15,042
Receivable for shares of beneficial interest sold ...................... 1,432 6,251 --
Dividends receivable ................................................... 1,098 4,940 3,089
Deferred organizational expenses ....................................... 67,313 67,313 67,313
Other assets ........................................................... 10,250 15,415 11,405
----------- ------------ -----------
Total assets ........................................................... 6,105,284 14,478,907 4,734,071
----------- ------------ -----------
Liabilities
Payable for investments purchased ...................................... 1,432 6,251 --
Accrued expenses and other liabilities ................................. 4,705 875 637
----------- ------------ -----------
Total liabilities ...................................................... 6,137 7,126 637
----------- ------------ -----------
Net Assets
Beneficial interest--$0.001 par value (unlimited number authorized) .... 6,362,543 14,342,820 4,672,676
Undistributed net investment income .................................... 1,315 49,818 33,605
Accumulated net realized gains (losses) from investment transactions ... (257,334) (123,408) 59,015
Net unrealized appreciation (depreciation) of investments .............. (7,377) 202,551 (31,862)
----------- ------------ -----------
Net assets ............................................................. $ 6,099,147 $ 14,471,781 $ 4,733,434
=========== ============ ===========
Class A:
Net assets ............................................................. $ 1,626,379 $ 2,168,938 $ 716,613
----------- ------------ -----------
Shares outstanding ..................................................... 129,378 169,252 55,271
----------- ------------ -----------
Net asset value and redemption price per share ......................... $ 12.57 $ 12.81 $ 12.97
=========== ============ ===========
Maximum offering price per share (net asset value plus sales charge
of 4.50%, 4.50% and 4.00% of offering price, respectively) ........ $ 13.16 $ 13.41 $ 13.51
=========== ============ ===========
Class B:
Net assets ............................................................. $ 2,056,661 $ 6,532,159 $ 3,188,782
----------- ------------ -----------
Shares outstanding ..................................................... 164,490 511,375 246,722
----------- ------------ -----------
Net asset value and offering price per share ........................... $ 12.50 $ 12.77 $ 12.92
=========== ============ ===========
Class C:
Net assets ............................................................. $ 2,405,853 $ 5,758,062 $ 822,624
Shares outstanding ..................................................... 192,087 450,742 63,552
Net asset value and offering price per share ........................... $ 12.52 $ 12.77 $ 12.94
Class Y:
Net assets ............................................................. $ 10,254 $ 12,622 $ 5,415
----------- ------------ -----------
Shares outstanding ..................................................... 814 984 417
----------- ------------ -----------
Net asset value, offering price and redemption value per share ......... $ 12.59 $ 12.82 $ 12.98
=========== ============ ===========
</TABLE>
See accompanying notes to financial statements
12
<PAGE>
MITCHELL HUTCHINS PORTFOLIOS
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Year Ended May 31, 1999
-----------------------------------------
Aggressive Moderate Conservative
Portfolio Portfolio Portfolio
---------- --------- ------------
<S> <C> <C> <C>
Investment income:
Dividends from Underlying Funds ............................................. $ 110,897 $ 323,181 $ 174,401
--------- --------- ---------
Expenses:
Federal and state registration .............................................. 123,655 118,009 105,258
Legal and audit ............................................................. 40,239 42,104 39,450
Investment advisory and administration ...................................... 20,903 39,597 13,968
Service fees--Class A ....................................................... 4,478 4,816 1,619
Service and distribution fees--Class B ...................................... 19,521 53,778 26,620
Service and distribution fees--Class C ...................................... 22,195 39,979 5,079
Amortization of organizational expenses ..................................... 18,002 18,002 18,002
Trustees' fees .............................................................. 10,500 10,500 10,500
Transfer agency and service fees ........................................... 9,000 10,149 9,000
Reports and notices to shareholders ......................................... 7,046 18,482 5,812
Custody and accounting ...................................................... 1,792 3,377 1,290
Other expenses .............................................................. 25,199 12,531 28,223
--------- --------- ---------
302,530 371,324 264,821
Less: Fee waivers and expense reimbursements from adviser/Underlying Funds .. (256,336) (272,751) (231,503)
--------- --------- ---------
Net expenses ................................................................ 46,194 98,573 33,318
--------- --------- ---------
Net investment income ....................................................... 64,703 224,608 141,083
--------- --------- ---------
Realized and unrealized gains (losses) from investment activities:
Net realized gains (losses) from:
Investment transactions ................................................... (614,712) (594,649) 3,647
Capital gains distributions from Underlying Funds ......................... 365,211 491,230 64,443
Net change in unrealized appreciation (depreciation) of investments ......... 70,480 245,743 (31,919)
--------- --------- ---------
Net realized and unrealized gains (losses) from investment activities ....... (179,021) 142,324 36,171
--------- --------- ---------
Net increase (decrease) in net assets resulting from operations ............. $(114,318) $ 366,932 $ 177,254
========= ========= =========
</TABLE>
See accompanying notes to financial statements
13
<PAGE>
MITCHELL HUTCHINS AGGRESSIVE PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Period
For the Year February 24,
Ended 1998+ through
May 31, 1999 May 31, 1998
------------ --------------
<S> <C> <C>
From operations:
Net investment income ............................................................................. $ 64,703 $ 6,928
Net realized gains (losses) from investment transactions and distributions from Underlying Funds .. (249,501) 10,060
Net change in unrealized appreciation (depreciation) of investments ............................... 70,480 (77,857)
----------- -----------
Net decrease in net assets resulting from operations .............................................. (114,318) (60,869)
----------- -----------
Dividends and distributions to shareholders from:
Net investment income--Class A .................................................................... (24,252) --
Net investment income--Class B .................................................................... (18,876) --
Net investment income--Class C .................................................................... (14,463) --
Net investment income--Class Y .................................................................... (137) --
Net realized gains from investment transactions--Class A .......................................... (9,472) --
Net realized gains from investment transactions--Class B .......................................... (10,711) --
Net realized gains from investment transactions--Class C .......................................... (10,251) --
Net realized gains from investment transactions--Class Y .......................................... (47) --
----------- -----------
Total dividends and distributions to shareholders ................................................. (88,209) --
----------- -----------
From beneficial interest transactions:
Net proceeds from the sale of shares .............................................................. 4,324,175 5,869,254
Cost of shares repurchased ........................................................................ (3,224,665) (728,121)
Proceeds from dividends reinvested ................................................................ 81,900 --
----------- -----------
Net increase in net assets from beneficial interest transactions .................................. 1,181,410 5,141,133
----------- -----------
Net increase in net assets ........................................................................ 978,883 5,080,264
Net assets:
Beginning of period ............................................................................... 5,120,264 40,000
----------- -----------
End of period (including undistributed net investment income of $1,315 and $6,928, respectively) .. $ 6,099,147 $ 5,120,264
=========== ===========
</TABLE>
- ----------
+ Commencement of operations.
See accompanying notes to financial statements
14
<PAGE>
MITCHELL HUTCHINS MODERATE PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Period
For the Year February 24,
Ended 1998+ through
May 31, 1999 May 31, 1998
------------ --------------
<S> <C> <C>
From operations:
Net investment income ............................................................................... $ 224,608 $ 26,759
Net realized gains (losses) from investment transactions and distributions from Underlying Funds .... (103,419) 32,878
Net change in unrealized appreciation (depreciation) of investments ................................. 245,743 (43,192)
------------ -----------
Net increase in net assets resulting from operations ................................................ 366,932 16,445
------------ -----------
Dividends and distributions to shareholders from:
Net investment income--Class A ...................................................................... (45,533) --
Net investment income--Class B ...................................................................... (91,733) --
Net investment income--Class C ...................................................................... (63,927) --
Net investment income--Class Y ...................................................................... (311) --
Net realized gains from investment transactions--Class A ............................................ (8,309) --
Net realized gains from investment transactions--Class B ............................................ (27,305) --
Net realized gains from investment transactions--Class C ............................................ (17,244) --
Net realized gains from investment transactions--Class Y ............................................ (54) --
------------ -----------
Total dividends and distributions to shareholders ................................................... (254,416) --
------------ -----------
From beneficial interest transactions:
Net proceeds from the sale of shares ................................................................ 11,354,186 8,439,503
Cost of shares repurchased .......................................................................... (4,683,813) (1,051,025)
Proceeds from dividends reinvested .................................................................. 243,969 --
------------ -----------
Net increase in net assets from beneficial interest transactions .................................... 6,914,342 7,388,478
------------ -----------
Net increase in net assets .......................................................................... 7,026,858 7,404,923
Net assets:
Beginning of period ................................................................................. 7,444,923 40,000
------------ -----------
End of period (including undistributed net investment income of $49,818 and $26,759, respectively) .. $ 14,471,781 $ 7,444,923
============ ===========
</TABLE>
- ----------
+ Commencement of operations.
See accompanying notes to financial statements
15
<PAGE>
MITCHELL HUTCHINS CONSERVATIVE PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Period
For the Year February 24,
Ended 1998+ through
May 31, 1999 May 31, 1998
------------ --------------
<S> <C> <C>
From operations:
Net investment income .............................................................................. $ 141,083 $ 16,651
Net realized gains from investment transactions and distributions from Underlying Funds ............ 68,090 6,323
Net change in unrealized appreciation (depreciation) of investments ................................ (31,919) 57
----------- -----------
Net increase in net assets resulting from operations ............................................... 177,254 23,031
----------- -----------
Dividends and distributions to shareholders from:
Net investment income--Class A ..................................................................... (22,766) --
Net investment income--Class B ..................................................................... (79,913) --
Net investment income--Class C ..................................................................... (21,245) --
Net investment income--Class Y ..................................................................... (205) --
Net realized gains from investment transactions--Class A ........................................... (2,184) --
Net realized gains from investment transactions--Class B ........................................... (10,673) --
Net realized gains from investment transactions--Class C ........................................... (2,522) --
Net realized gains from investment transactions--Class Y ........................................... (19) --
----------- -----------
Total dividends and distributions to shareholders .................................................. (139,527) --
----------- -----------
From beneficial interest transactions:
Net proceeds from the sale of shares ............................................................... 3,052,884 2,749,388
Cost of shares repurchased ......................................................................... (1,137,196) (117,062)
Proceeds from dividends reinvested ................................................................. 104,662 --
----------- -----------
Net increase in net assets from beneficial interest transactions ................................... 2,020,350 2,632,326
----------- -----------
Net increase in net assets ......................................................................... 2,058,077 2,655,357
Net assets:
Beginning of period ................................................................................ 2,675,357 20,000
----------- -----------
End of period (including undistributed net investment income of $33,605 and $16,651, respectively).. $ 4,733,434 $ 2,675,357
=========== ===========
</TABLE>
- ----------
+ Commencement of operations.
See accompanying notes to financial statements
16
<PAGE>
NOTES TO FINANCIAL STATEMENTS
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Mitchell Hutchins Aggressive Portfolio ("Aggressive Portfolio"), Mitchell
Hutchins Moderate Portfolio ("Moderate Portfolio") and Mitchell Hutchins
Conservative Portfolio ("Conservative Portfolio") (collectively the
"Portfolios") are each a diversified series of Mitchell Hutchins Portfolios (the
"Trust"), an open-end management investment company organized as a Delaware
business trust on August 20, 1997. Prior to commencement of operations on
February 24, 1998, the Portfolios had no activity other than the sale of shares
on December 29, 1997 to Mitchell Hutchins Asset Management Inc. ("Mitchell
Hutchins"), the investment adviser and a wholly owned asset management
subsidiary of PaineWebber Incorporated ("PaineWebber"), as follows:
<TABLE>
<CAPTION>
Aggressive Moderate Conservative
Portfolio Portfolio Portfolio
---------- --------- ------------
<S> <C> <C> <C>
Class A
Shares sold 800, 800 and 400, respectively .......... $10,000 $10,000 $5,000
Class B
Shares sold 800, 800 and 400, respectively .......... 10,000 10,000 5,000
Class C
Shares sold 800, 800 and 400, respectively .......... 10,000 10,000 5,000
Class Y
Shares sold 800, 800 and 400, respectively .......... 10,000 10,000 5,000
</TABLE>
The Portfolios invest solely in shares of other funds within the PaineWebber
Group of Funds (the "Underlying Funds").
Costs incurred by the Portfolios in connection with their organization
have been deferred and are being amortized using the straight-line method over a
period not to exceed sixty months from the commencement of operations. If any
initial shares are redeemed by Mitchell Hutchins during the amortization period,
the redemption proceeds shall be reduced by the pro rata portion of unamortized
organizational expenses which the number of shares redeemed bears to the number
of initial shares then outstanding.
Currently, each Portfolio offers Class A, Class B, Class C and Class Y
shares. Each class represents interests in the assets of the applicable
Portfolio. The classes are identical except for differences in the sales charge
structures, ongoing service and distribution charges and certain transfer agency
and related expenses. In addition, Class B shares and all corresponding dividend
reinvested shares automatically convert to Class A shares approximately six
years after 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. There is no distribution plan
with respect to the Portfolios' Class Y shares.
The preparation of financial statements in accordance with generally
accepted accounting principles requires the Portfolios' 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 net asset value of a Portfolio's shares
fluctuates and is determined separately for each class as of the close of
regular trading on the New York Stock Exchange (currently 4:00 p.m., Eastern
time) each business day. Each Portfolio's net asset value per share is
determined by dividing the value of the Underlying Funds held plus any cash or
other assets, minus all liabilities, by the total number of Portfolio shares
outstanding. The value of each Underlying Fund will be its net asset value at
the time of computation.
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. Dividend income
and long term capital gain distributions from Underlying Funds are recorded on
the ex-dividend date. Short-term capital gains distributions
17
<PAGE>
NOTES TO FINANCIAL STATEMENTS
from Underlying Funds are recorded as dividend income. Long term capital gains
distributions from Underlying Funds are recorded as realized gains.
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. Dividends from net investment income and
distributions from realized capital gains are determined in accordance with
federal income tax regulations which may differ from generally accepted
accounting principles. These "book/tax" differences are either considered
temporary or permanent in nature. To the extent these differences are permanent
in nature, such amounts are reclassified within the capital accounts based on
the tax-basis treatment; temporary differences do not require reclassification.
INVESTMENT RISK
All the Portfolios hold shares of Underlying Funds that invest in equity
securities, although the specific Underlying Funds and the percentage of a
Portfolio's assets invested in each Underlying Fund varies. Equity securities
historically have shown greater growth potential than other types of securities,
but they have also shown greater volatility.
All Portfolios hold shares of Underlying Funds that invest in bonds,
although the specific Underlying Funds and the percentage of a Portfolio's
assets invested in each Underlying Fund varies. Bonds are subject to interest
rate and credit risk. Interest rate risk is the risk that the interest rates
will rise and as a result bond prices will fall, lowering the value of the
Underlying Fund's investments. Credit risk is the risk that the issuer or
guarantor may be unable or unwilling to pay interest or repay principal on the
bond. Some Underlying Funds may invest in bonds rated below investment grade,
which are subject to greater risks of default or price fluctuation than
investment grade bonds and are considered predominantly speculative.
Some Underlying Funds are subject to the special risks of investing in
foreign equity securities or foreign bonds, which include possible adverse
political, social and economic developments abroad and differing characteristics
of foreign economics and markets. These risks are greater with respect to
securities of issuers located in emerging markets.
Each Underlying Fund (other than PaineWebber Cashfund, Inc.) may use
derivatives, such as options, futures contracts, foreign currency contracts,
swaps and similar instruments, in its investment activities. Each type of
derivative instrument presents its own special risks.
INVESTMENT ADVISER AND ADMINISTRATOR
The Trust's board of trustees has approved an Investment Advisory and
Administration Contract ("Advisory Contract") with Mitchell Hutchins, under
which Mitchell Hutchins serves as investment adviser and administrator of the
Portfolios. In accordance with the Advisory Contract, each Portfolio pays
Mitchell Hutchins an investment advisory and administration fee, which is
computed and accrued daily and paid monthly, at the annual rate of 0.35% of each
Portfolio's average daily net assets. For the year ended May 31, 1999, Mitchell
Hutchins waived their entire fee. In addition, Mitchell Hutchins reimbursed
other expenses of $223,181, $216,401 and $216,652, to the Aggressive Portfolio,
Moderate Portfolio and Conservative Portfolio, respectively, for the year ended
May 31, 1999. At May 31, 1999, Mitchell Hutchins owed $7,418, $6,457 and
$14,159, to the Aggressive Portfolio, Moderate Portfolio and Conservative
Portfolio, respectively, for the other expenses reimbursed.
18
<PAGE>
NOTES TO FINANCIAL STATEMENTS
SERVICING AGREEMENT
The Trust's board of trustees has approved a Servicing Agreement
("Servicing Agreement") with Mitchell Hutchins, under which the officers of the
Underlying Funds would determine monthly whether the expenses of a Portfolio
with respect to its investment in an Underlying Fund are greater than the
estimated savings to the Underlying Fund from the operation of the Portfolio. If
the aggregate financial benefits to the Underlying Fund equal or exceed the
administrative expenses of a Portfolio, there would be a reimbursement to the
Portfolio under the Servicing Agreement. The expenses of the Portfolios would be
passed through to the Underlying Funds in proportion to the average daily value
of each Underlying Fund's shares held by each Portfolio, provided further that
no Underlying Fund would bear such expenses in excess of the estimated savings
to it. For the year ended May 31, 1999, the Underlying Funds owed $12,252,
$16,753 and $883, to the Aggressive Portfolio, Moderate Portfolio and
Conservative Portfolio, respectively, for the reimbursement of other expenses.
DISTRIBUTION PLANS
Mitchell Hutchins is the distributor of each Portfolio's shares and has
appointed PaineWebber as the exclusive dealer for the sale of those shares.
Under separate plans of service and/or distribution pertaining to Class A, Class
B, and Class C shares, each Portfolio pays Mitchell Hutchins monthly service
fees at the annual rate of 0.25% of the average daily net assets of Class A,
Class B, and Class C shares. The Aggressive Portfolio and Moderate Portfolio
each pay Mitchell Hutchins monthly distribution fees at the annual rate of 0.75%
of the average daily net assets of Class B and Class C shares while the
Conservative Portfolio pays monthly distribution fees at the annual rate of
0.75% and 0.50% of the average daily net assets of Class B and Class C shares,
respectively. There is no distribution plan with respect to the Portfolios'
Class Y shares.
Mitchell Hutchins also receives the proceeds of the initial sales charges
paid by the 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 each
Portfolio that for the year ended May 31, 1999, it earned $52,015, $55,944 and
$19,995 in sales charges for the Aggressive Portfolio, Moderate Portfolio and
Conservative Portfolio, respectively.
TRANSFER AGENCY AND RELATED SERVICES FEES
PaineWebber provides transfer agency related services to each Portfolio
pursuant to a delegation of authority from PFPC, Inc., the Portfolios' transfer
agent, and is compensated for these services by PFPC, Inc. For the year ended
May 31, 1999, PaineWebber received from PFPC, Inc., approximately 39%, 32% and
14% of the total transfer agency and related services fees collected by PFPC,
Inc. from the Aggressive Portfolio, Moderate Portfolio and Conservative
Portfolio, respectively.
INVESTMENTS IN SECURITIES
At May 31, 1999, the cost of securities owned for federal income tax
purposes for the Aggressive Portfolio, Moderate Portfolio and Conservative
Portfolio was $6,377,417, $14,500,368 and $4,592,593, respectively.
At May 31, 1999, the components of net unrealized depreciation for federal
income tax purposes were as follows:
<TABLE>
<CAPTION>
Aggressive Moderate Conservative
Portfolio Portfolio Portfolio
---------- ---------- ------------
<S> <C> <C> <C>
Gross appreciation (investments having an excess of value over cost) ... $ 34,155 $ 202,507 $ 33,217
Gross depreciation (investments having an excess of cost over value) ... (431,168) (350,666) (87,220)
---------- ---------- ----------
Net depreciation of investments ........................................ $ (397,013) $ (148,159) $ (54,003)
========== ========== ==========
</TABLE>
19
<PAGE>
NOTES TO FINANCIAL STATEMENTS
For the year ended May 31, 1999, total aggregate purchases and sales of
portfolio securities (Underlying Funds), excluding short-term securities, were
as follows:
Aggressive Moderate Conservative
Portfolio Portfolio Portfolio
---------- ----------- ----------
Purchases .................. $7,197,744 $16,491,792 $4,588,376
Sales ...................... 5,847,113 9,578,724 3,012,765
FEDERAL INCOME TAX STATUS
Each Portfolio intends to distribute substantially all of its taxable
income and to comply with the other requirements of the Internal Revenue Code to
qualify for treatment as a regulated investment company. Accordingly, no
provision for federal income taxes is required. In addition, by distributing
during each calendar year, substantially all of its net investment income and
capital gains, if any, each Portfolio intends not to be subject to a federal
excise tax.
For the year ended May 31, 1999, the reclassifications arising from
permanent "book/tax" differences resulting in increases (decreases) to the
components of net assets were as follows:
Undistributed
Net Accumulated
Investment Net Realized
Income Losses
------------- ------------
Aggressive Portfolio .................... $ (12,588) $ 12,588
Moderate Portfolio ...................... (45) 45
20
<PAGE>
NOTES TO FINANCIAL STATEMENTS
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 Class C Class Y
---------------------- --------------------- --------------------- ---------------
Shares Amount Shares Amount Shares Amount Shares Amount
-------- ----------- ------- ----------- ------- ----------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Aggressive Portfolio
For the Year Ended
May 31, 1999
Shares sold ............................ 131,503 $ 1,648,007 112,207 $ 1,379,469 105,158 $ 1,296,688 1 $ 11
Shares repurchased ..................... (129,313) (1,602,269) (61,026) (743,530) (73,010) (878,855) (1) (11)
Dividends reinvested ................... 2,276 29,091 2,213 28,210 1,912 24,415 14 184
-------- ----------- ------- ----------- ------- ----------- ------ ------
Net increase ........................... 4,466 $ 74,829 53,394 $ 664,149 34,060 $ 442,248 14 $ 184
======== =========== ======= =========== ======= =========== ====== ======
<CAPTION>
Class A Class B Class C Class Y
---------------------- --------------------- --------------------- ---------------
Shares Amount Shares Amount Shares Amount Shares Amount
-------- ----------- ------- ----------- ------- ----------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Aggressive Portfolio
For the Period February 24, 1998+
through May 31, 1998
Shares sold ............................ 145,085 $ 1,900,691 120,084 $ 1,581,786 182,148 $ 2,386,777 -- --
Shares repurchased ..................... (20,973) (272,878) (9,788) (129,843) (24,921) (325,400) -- --
-------- ----------- ------- ----------- ------- ----------- ------ ------
Net increase ........................... 124,112 $ 1,627,813 110,296 $ 1,451,943 157,227 $ 2,061,377 -- --
======== =========== ======= =========== ======= =========== ====== ======
<CAPTION>
Class A Class B Class C Class Y
---------------------- --------------------- --------------------- ---------------
Shares Amount Shares Amount Shares Amount Shares Amount
-------- ----------- ------- ----------- ------- ----------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Moderate Portfolio
For the Year Ended
May 31, 1999
Shares sold ............................ 201,283 $ 2,542,864 417,744 $ 5,149,164 288,401 $ 3,662,096 5 $ 62
Shares repurchased ..................... (167,947) (2,126,200) (142,121) (1,794,226) (61,129) (763,387) -- --
Dividends reinvested ................... 3,981 49,989 8,999 113,772 6,338 79,905 24 303
Shares converted from Class B to
Class A .............................. 2,340 30,344 (2,345) (30,344) -- -- -- --
-------- ----------- ------- ----------- ------- ----------- ------ ------
Net increase ........................... 39,657 $ 496,997 282,277 $ 3,438,366 233,610 $ 2,978,614 29 $ 365
======== =========== ======= =========== ======= =========== ====== ======
<CAPTION>
Class A Class B Class C Class Y
---------------------- --------------------- --------------------- ---------------
Shares Amount Shares Amount Shares Amount Shares Amount
-------- ----------- ------- ----------- ------- ----------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Moderate Portfolio
For the Period February 24, 1998+
through May 31, 1998
Shares sold ............................ 158,341 $ 2,042,155 244,089 $ 3,131,455 251,127 $ 3,252,346 155 $1,969
Shares repurchased ..................... (30,428) (393,832) (14,909) (190,950) (34,795) (454,665) -- --
Shares converted from Class B to
Class A .............................. 882 11,578 (882) (11,578) -- -- -- --
-------- ----------- ------- ----------- ------- ----------- ------ ------
Net increase ........................... 128,795 $ 1,659,901 228,298 $ 2,928,927 216,332 $ 2,797,681 155 $1,969
======== =========== ======= =========== ======= =========== ====== ======
</TABLE>
- ----------
+ Commencement of operations.
21
<PAGE>
NOTES TO FINANCIAL STATEMENTS
SHARES OF BENEFICIAL INTEREST (concluded)
<TABLE>
<CAPTION>
Class A Class B Class C Class Y
---------------------- --------------------- --------------------- ---------------
Shares Amount Shares Amount Shares Amount Shares Amount
-------- ----------- ------- ----------- ------- ----------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Conservative Portfolio
For the Year Ended
May 31, 1999
Shares sold ............................ 50,680 $ 662,574 138,571 $ 1,778,732 47,290 $ 611,578 -- $ --
Shares repurchased ..................... (38,633) (504,880) (26,123) (336,062) (22,943) (296,254) -- --
Dividends reinvested ................... 1,096 14,233 5,627 72,903 1,332 17,302 17 224
Shares converted from Class B to
Class A .............................. 1,654 21,412 (1,660) (21,412) -- -- -- --
-------- ----------- ------- ----------- ------- ----------- ------ ------
Net increase ........................... 14,797 $ 193,339 116,415 $ 1,494,161 25,679 $ 332,626 17 $ 224
======== =========== ======= =========== ======= =========== ====== ======
<CAPTION>
Class A Class B Class C Class Y
---------------------- --------------------- --------------------- ---------------
Shares Amount Shares Amount Shares Amount Shares Amount
-------- ----------- ------- ----------- ------- ----------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Conservative Portfolio
For the Period February 24, 1998+
through May 31, 1998
Shares sold ............................ 40,074 $ 508,222 139,078 $ 1,765,172 37,473 $ 475,994 -- --
Shares repurchased ..................... -- -- (9,171) (117,062) -- -- -- --
-------- ----------- ------- ----------- ------- ----------- ------ ------
Net increase ........................... 40,074 $ 508,222 129,907 $ 1,648,110 37,473 $ 475,994 -- --
======== =========== ======= =========== ======= =========== ====== ======
</TABLE>
- ----------
+ Commencement of operations.
22
<PAGE>
MITCHELL HUTCHINS AGGRESSIVE PORTFOLIO
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout each
period is presented below:
<TABLE>
<CAPTION>
Class A Class B
--------------------------- ---------------------------
For the For the
Period Period
For the February 24, For the February 24,
Year 1998+ Year 1998+
Ended through Ended through
May 31, May 31, May 31, May 31,
1999 1998 1999 1998
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Net asset value, beginning of period .... $ 12.98 $ 12.50 $ 12.96 $ 12.50
---------- ---------- ---------- ----------
Net investment income ................... 0.19 0.03 0.09 0.01
Net realized and unrealized gains
(losses) from investments ............ (0.39) 0.45 (0.39) 0.45
---------- ---------- ---------- ----------
Net increase (decrease) from investment..
operations ........................... (0.20) 0.48 (0.30) 0.46
---------- ---------- ---------- ----------
Dividends from net investment income .... (0.15) -- (0.10) --
Distributions from net realized gains
from investment transactions ......... (0.06) -- (0.06) --
---------- ---------- ---------- ----------
Total dividends and distributions
to shareholders ...................... (0.21) -- (0.16) --
---------- ---------- ---------- ----------
Net asset value, end of period .......... $ 12.57 $ 12.98 $ 12.50 $ 12.96
========== ========== ========== ==========
Total investment return(1) .............. (1.57)% 3.84% (2.32)% 3.68%
========== ========== ========== ==========
Ratios/Supplemental data:
Net assets, end of period (000's) ....... $ 1,626 $ 1,622 $ 2,057 $ 1,440
Expenses to average net assets,
net of waivers and reimbursements
from adviser and Underlying Funds .... 0.25% 0.25%* 1.00% 1.00%*
Expenses to average net assets,
before waivers and reimbursements
from adviser and Underlying Funds .... 4.54% 3.98%* 5.29% 4.80%*
Net investment income to average
net assets, net of waivers and
reimbursements from adviser
and Underlying Funds ................. 1.65% 1.49%* 0.87% 0.70%*
Net investment loss to average
net assets, before waivers and
reimbursements from adviser
and Underlying Funds ................. (2.64)% (2.24)%* (3.42)% (3.10)%*
Portfolio turnover rate ................. 104% 6% 104% 6%
<CAPTION>
Class C Class Y
--------------------------- ---------------------------
For the For the
Period Period
For the February 24, For the February 24,
Year 1998+ Year 1998+
Ended through Ended through
May 31, May 31, May 31, May 31,
1999 1998 1999 1998
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Net asset value, beginning of period .... $ 12.96 $ 12.50 $ 12.99 $ 12.50
---------- ---------- ---------- ----------
Net investment income ................... 0.10 0.01 0.23 0.05
Net realized and unrealized gains
(losses) from investments ............ (0.40) 0.45 (0.40) 0.44
---------- ---------- ---------- ----------
Net increase (decrease) from investment..
operations ........................... (0.30) 0.46 (0.17) 0.49
---------- ---------- ---------- ----------
Dividends from net investment income .... (0.08) -- (0.17) --
Distributions from net realized gains
from investment transactions ......... (0.06) -- (0.06) --
---------- ---------- ---------- ----------
Total dividends and distributions
to shareholders ...................... (0.14) -- (0.23) --
---------- ---------- ---------- ----------
Net asset value, end of period .......... $ 12.52 $ 12.96 $ 12.59 $ 12.99
========== ========== ========== ==========
Total investment return(1) .............. (2.32)% 3.68% (1.33)% 3.92%
========== ========== ========== ==========
Ratios/Supplemental data:
Net assets, end of period (000's) ....... $ 2,406 $ 2,048 $ 10 $ 10
Expenses to average net assets,
net of waivers and reimbursements
from adviser and Underlying Funds .... 1.00% 1.00%* 0.00% 0.00%*
Expenses to average net assets,
before waivers and reimbursements
from adviser and Underlying Funds .... 5.29% 4.55%* 4.29% 3.76%*
Net investment income to average
net assets, net of waivers and
reimbursements from adviser
and Underlying Funds ................. 0.81% 0.69%* 1.86% 1.57%*
Net investment loss to average
net assets, before waivers and
reimbursements from adviser
and Underlying Funds ................. (3.48)% (2.86)%* (2.43)% (2.19)%*
Portfolio turnover rate ................. 104% 6% 104% 6%
</TABLE>
- ----------
+ Commencement of issuance of shares.
* Annualized.
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each period reported, reinvestment of all dividends and
distributions, if any, at net asset value on the payable dates and a sale
at net asset value on the last day of each period reported. The figures do
not include sales charges or program fees; results would be lower if sales
charges or program fees were included. Total investment return for periods
of less than one year have not been annualized.
23
<PAGE>
MITCHELL HUTCHINS MODERATE PORTFOLIO
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout each
period is presented below:
<TABLE>
<CAPTION>
Class A Class B
--------------------------- --------------------------
For the For the
Period Period
For the February 24, For the February 24,
Year 1998+ Year 1998+
Ended through Ended through
May 31, May 31, May 31, May 31,
1999 1998 1999 1998
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Net asset value, beginning of period ........ $ 12.93 $ 12.50 $ 12.90 $ 12.50
--------- --------- --------- ---------
Net investment income ....................... 0.31 0.06 0.21 0.04
Net realized and unrealized gains
(losses) from investments ................ (0.08) 0.37 (0.07) 0.36
--------- --------- --------- ---------
Total increase from investment
operations ............................... 0.23 0.43 0.14 0.40
--------- --------- --------- ---------
Dividends from net investment income ........ (0.29) -- (0.21) --
Distributions from net realized gains from
investment transactions .................. (0.06) -- (0.06) --
--------- --------- --------- ---------
Total dividends and distributions
to shareholders .......................... (0.35) -- (0.27) --
--------- --------- --------- ---------
Net asset value, end of period .............. $ 12.81 $ 12.93 $ 12.77 $ 12.90
========= ========= ========= =========
Total investment return(1) .................. 1.85% 3.44% 1.14% 3.20%
========= ========= ========= =========
Ratios/Supplemental data:
Net assets, end of period (000's) ........... $ 2,169 $ 1,676 $ 6,532 $ 2,956
Expenses to average net assets,
net of waivers and reimbursements
from adviser and Underlying Funds ........ 0.25% 0.25%* 1.00% 1.00%*
Expenses to average net assets,
before waivers and reimbursements
from adviser and Underlying Funds ........ 2.66% 2.78%* 3.41% 3.57%*
Net investment income to average
net assets, net of waivers and
reimbursements from adviser
and Underlying Funds ..................... 2.61% 2.63%* 1.86% 1.87%*
Net investment income (loss) to average
net assets, before waivers and
reimbursements from adviser
and Underlying Funds ..................... 0.20% 0.10%* (0.55)% (0.70)%*
Portfolio turnover rate ..................... 88% 13% 88% 13%
<CAPTION>
Class C Class Y
-------------------------- --------------------------
For the For the
Period Period
For the February 24, For the February 24,
Year 1998+ Year 1998+
Ended through Ended through
May 31, May 31, May 31, May 31,
1999 1998 1999 1998
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Net asset value, beginning of period ........ $ 12.90 $ 12.50 $ 12.94 $ 12.50
--------- --------- --------- ---------
Net investment income ....................... 0.21 0.04 0.36 0.09
Net realized and unrealized gains
(losses) from investments ................ (0.07) 0.36 (0.10) 0.35
--------- --------- --------- ---------
Total increase from investment
operations ............................... 0.14 0.40 0.26 0.44
--------- --------- --------- ---------
Dividends from net investment income ........ (0.21) -- (0.32) --
Distributions from net realized gains from
investment transactions .................. (0.06) -- (0.06) --
--------- --------- --------- ---------
Total dividends and distributions
to shareholders .......................... (0.27) -- (0.38) --
--------- --------- --------- ---------
Net asset value, end of period .............. $ 12.77 $ 12.90 $ 12.82 $ 12.94
========= ========= ========= =========
Total investment return(1) .................. 1.11% 3.20% 2.08% 3.52%
========= ========= ========= =========
Ratios/Supplemental data:
Net assets, end of period (000's) ........... $ 5,758 $ 2,801 $ 13 $ 12
Expenses to average net assets,
net of waivers and reimbursements
from adviser and Underlying Funds ........ 1.00% 1.00%* 0.00% 0.00%*
Expenses to average net assets,
before waivers and reimbursements
from adviser and Underlying Funds ........ 3.41% 3.29%* 2.41% 2.59%*
Net investment income to average
net assets, net of waivers and
reimbursements from adviser
and Underlying Funds ..................... 1.85% 1.92%* 2.88% 2.76%*
Net investment income (loss) to average
net assets, before waivers and
reimbursements from adviser
and Underlying Funds ..................... (0.56)% (0.37)%* 0.47% 0.17%*
Portfolio turnover rate ..................... 88% 13% 88% 13%
</TABLE>
- ----------
+ Commencement of issuance of shares.
* Annualized.
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each period reported, reinvestment of all dividends and
distributions, if any, at net asset value on the payable dates and a sale
at net asset value on the last day of each period reported. The figures do
not include sales charges or program fees; results would be lower if sales
charges or program fees were included. Total investment return for periods
of less than one year have not been annualized.
24
<PAGE>
MITCHELL HUTCHINS CONSERVATIVE PORTFOLIO
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout each
period is presented below:
<TABLE>
<CAPTION>
Class A Class B
-------------------------- --------------------------
For the For the
Period Period
For the February 24, For the February 24,
Year 1998+ Year 1998+
Ended through Ended through
May 31, May 31, May 31, May 31,
1999 1998 1999 1998
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Net asset value, beginning of period ... $ 12.81 $ 12.50 $ 12.79 $ 12.50
--------- --------- --------- ---------
Net investment income .................. 0.52 0.10 0.40 0.07
Net realized and unrealized gains
from investments .................... 0.16 0.21 0.17 0.22
--------- --------- --------- ---------
Net increase from investment
operations .......................... 0.68 0.31 0.57 0.29
--------- --------- --------- ---------
Dividends from net investment income ... (0.47) -- (0.39) --
Distributions from net realized gains
from investment transactions ........ (0.05) -- (0.05) --
--------- --------- --------- ---------
Total dividends and distributions
to shareholders ..................... (0.52) -- (0.44) --
--------- --------- --------- ---------
Net asset value, end of period ......... $ 12.97 $ 12.81 $ 12.92 $ 12.79
========= ========= ========= =========
Total investment return(1) ............. 5.38% 2.48% 4.51% 2.32%
========= ========= ========= =========
Ratios/Supplemental data:
Net assets, end of period (000's) ...... $ 717 $ 519 $ 3,189 $ 1,667
Expenses to average net assets,
net of waivers and reimbursements
from adviser and Underlying Funds ... 0.25% 0.25%* 1.00% 1.00%*
Expenses to average net assets,
before waivers and reimbursements
from adviser and Underlying Funds ... 6.05% 6.43%* 6.80% 7.13%*
Net investment income to average
net assets, net of waivers and
reimbursements from adviser
and Underlying Funds ................ 4.11% 4.66%* 3.37% 3.92%*
Net investment loss to average
net assets, before waivers and
reimbursements from adviser
and Underlying Funds ................ (1.69)% (1.52)%* (2.43)% (2.21)%*
Portfolio turnover rate ................ 83% 11% 83% 11%
<CAPTION>
Class C Class Y
--------------------------- --------------------------
For the For the
Period Period
For the February 24, For the February 24,
Year 1998+ Year 1998+
Ended through Ended through
May 31, May 31, May 31, May 31,
1999 1998 1999 1998
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Net asset value, beginning of period ... $ 12.80 $ 12.50 $ 12.82 $ 12.50
--------- --------- --------- ---------
Net investment income .................. 0.44 0.08 0.56 0.16
Net realized and unrealized gains
from investments .................... 0.17 0.22 0.15 0.16
--------- --------- --------- ---------
Net increase from investment
operations .......................... 0.61 0.30 0.71 0.32
--------- --------- --------- ---------
Dividends from net investment income ... (0.42) -- (0.50) --
Distributions from net realized gains
from investment transactions ........ (0.05) -- (0.05) --
--------- --------- --------- ---------
Total dividends and distributions
to shareholders ..................... (0.47) -- (0.55) --
--------- --------- --------- ---------
Net asset value, end of period ......... $ 12.94 $ 12.80 $ 12.98 $ 12.82
========= ========= ========= =========
Total investment return(1) ............. 4.77% 2.40% 5.61% 2.56%
========= ========= ========= =========
Ratios/Supplemental data:
Net assets, end of period (000's) ...... $ 823 $ 485 $ 5 $ 5
Expenses to average net assets,
net of waivers and reimbursements
from adviser and Underlying Funds ... 0.75% 0.75%* 0.00% 0.00%*
Expenses to average net assets,
before waivers and reimbursements
from adviser and Underlying Funds ... 6.55% 6.99%* 5.80% 6.19%*
Net investment income to average
net assets, net of waivers and
reimbursements from adviser
and Underlying Funds ................ 3.63% 4.23%* 4.40% 4.75%*
Net investment loss to average
net assets, before waivers and
reimbursements from adviser
and Underlying Funds ................ (2.17)% (2.00)%* (1.40)% (1.43)%*
Portfolio turnover rate ................ 83% 11% 83% 11%
</TABLE>
- ----------
+ Commencement of issuance of shares.
* Annualized.
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each period reported, reinvestment of all dividends and
distributions, if any, at net asset value on the payable dates and a sale
at net asset value on the last day of each period reported. The figures do
not include sales charges or program fees; results would be lower if sales
charges or program fees were included. Total investment return for periods
of less than one year have not been annualized.
25
<PAGE>
MITCHELL HUTCHINS PORTFOLIOS
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Trustees and Shareholders
Mitchell Hutchins Portfolios
We have audited the accompanying statement of assets and liabilities,
including the portfolios of investments, of the Mitchell Hutchins Portfolios
(comprising, respectively, the Mitchell Hutchins Aggressive Portfolio, Mitchell
Hutchins Moderate Portfolio and Mitchell Hutchins Conservative Portfolio)
(collectively the "Portfolios") as of May 31, 1999, and the related statement of
operations for the year then ended, and the statements of changes in net assets
and financial highlights for the year ended May 31, 1999 and the period from
February 24, 1998 to May 31, 1998. These financial statements and financial
highlights are the responsibility of the Portfolios' management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of May 31, 1999, by correspondence with the custodian and
others. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
each of the respective portfolios constituting the Mitchell Hutchins Portfolios
as of May 31, 1999, and the results of their operations for the year then ended,
and the changes in net assets and financial highlights for the year ended May
31, 1999 and the period from February 24, 1998 to May 31, 1998 in conformity
with generally accepted accounting principles.
/s/ Ernst & Young LLP
New York, New York
July 16, 1999
26
<PAGE>
TAX INFORMATION (UNAUDITED)
We are required by Subchapter M of the Internal Revenue Code of 1986, as
amended, to advise you within 60 days of each Portfolio's fiscal year end (May
31, 1999) as to federal tax status of distributions received by shareholders
during such fiscal year. Accordingly, we are advising you that the following
distributions paid during the fiscal year by the Portfolios were derived from
the following sources:
<TABLE>
<CAPTION>
Aggressive Moderate Conservative
Per Share Data: Portfolio Portfolio Portfolio
---------- --------- ------------
<S> <C> <C> <C>
Net investment income*
Class A ............................................................ $ 0.2097 $ 0.3489 $ 0.5220
Class B ............................................................ 0.1627 0.2713 0.4418
Class C ............................................................ 0.1420 0.2678 0.4652
Class Y ............................................................ 0.2305 0.3778 0.5519
Percentage of ordinary income dividends qualifying for the dividends
received deduction available to corporate shareholders ......... 81.67% 77.08% 84.48%
</TABLE>
- ----------
* Taxable as ordinary income.
Dividends received by tax-exempt recipients (e.g., IRAs and Keoghs) need
not be reported as taxable income. Some retirement trusts (e.g., corporate,
Keogh and 403(b)(7) plans) may need this information for their annual
information reporting.
Since each Portfolio's fiscal year is not the calendar year, another
notification will be sent with respect to calendar year 1999. Such
notifications, which will reflect the amount to be used by calendar year
taxpayers on their federal income tax returns, will be made in conjunction with
Form 1099 DIV and will be mailed in January 2000. Shareholders are advised to
consult their own tax advisers with respect to the tax consequences of their
investment in each of the Portfolios.
27
<PAGE>
[This Page Intentionally Left Blank]
<PAGE>
[This Page Intentionally Left Blank]
<PAGE>
[This Page Intentionally Left Blank]
<PAGE>
================================================================================
TRUSTEES
E. Garrett Bewkes, Jr. Mary C. Farrell
Chairman
Meyer Feldberg
Margo N. Alexander George W. Gowen
Richard Q. Armstrong Frederic V. Malek
Richard R. Burt Carl W. Schafer
Brian M. Storms
PRINCIPAL OFFICERS
Margo N. Alexander T. Kirkham Barneby
President Vice President
Victoria E. Schonfeld Dennis McCauley
Vice President Vice President
Dianne E. O'Donnell Mark A. Tincher
Vice President and Secretary Vice President
Paul H. Schubert
Vice President and Treasurer
INVESTMENT ADVISER,
ADMINISTRATOR AND DISTRIBUTOR
Mitchell Hutchins Asset Management Inc.
1285 Avenue of the Americas
New York, New York 10019
This report is not to be used in conjunction with the offering of shares of the
Portfolios 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.
<PAGE>
PaineWebber offers a family of 27 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 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 Tax-Managed Equity Fund
o Utility Income 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
MITCHELL HUTCHINS PORTFOLIOS
o Aggressive Portfolio
o Moderate Portfolio
o Conservative Portfolio
PAINEWEBBER MONEY MARKET FUND
PaineWebber
(c)1999 PaineWebber Incorporated
Member SIPC
