PAINEWEBBER OFFERS A FAMILY OF 29 MUTUAL
FUNDS WHICH ENCOMPASS A DIVERSIFIED
RANGE OF INVESTMENT GOALS. INVESTORS
MAY EXCHANGE THEIR FUND SHARES WITH
OTHER FUNDS WITHIN THE FAMILY.
PAINEWEBBER AND MITCHELL HUTCHINS/KIDDER, PEABODY MUTUAL FUNDS
INCOME FUNDS
. MH/KP ADJUSTABLE RATE GOVERNMENT FUND
. MH/KP GLOBAL FIXED INCOME FUND
. MH/KP GOVERNMENT INCOME FUND
. MH/KP INTERMEDIATE FIXED INCOME FUND
MITCHELL HUTCHINS/
. PW GLOBAL INCOME FUND KIDDER, PEABODY
EQUITY INCOME
. PW HIGH INCOME FUND FUND, INC.
. PW INVESTMENT GRADE INCOME FUND
. PW SHORT-TERM U.S. GOVERNMENT INCOME FUND
. PW STRATEGIC INCOME FUND
. PW U.S. GOVERNMENT INCOME FUND
TAX-FREE INCOME FUNDS
. MH/KP MUNICIPAL BOND FUND
. PW CALIFORNIA TAX-FREE INCOME FUND
. PW MUNICIPAL HIGH INCOME FUND
. PW NATIONAL TAX-FREE INCOME FUND
. PW NEW YORK TAX-FREE INCOME FUND
GROWTH FUNDS
. MH/KP EMERGING MARKETS EQUITY FUND
. MH/KP SMALL CAP GROWTH FUND
. PW CAPITAL APPRECIATION FUND
. PW GLOBAL EQUITY FUND
. PW GROWTH FUND
. PW REGIONAL FINANCIAL GROWTH FUND
. PW SMALL CAP VALUE FUND
GROWTH AND INCOME FUNDS
. MH/KP ASSET ALLOCATION FUND
. MH/KP EQUITY INCOME FUND
. PW BALANCED FUND
. PW GROWTH AND INCOME FUND
. PW GLOBAL ENERGY FUND
SEMI-ANNUAL REPORT
. PW UTILITY INCOME FUND
July 31, 1995
PAINEWEBBER MONEY MARKET FUND
(C)1995 PaineWebber Incorporated
[RECYCLED LOGO] Printed on
Recycled Paper
<PAGE>
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<PAGE>
- --------------------------------------------------------------------------------
September 15, 1995
Dear Shareholder,
During the six months ended July 31, 1995, the pace of U.S. economic growth
appeared to have slowed in response to the Federal Reserve Board's repeated
increases in the benchmark Federal Funds rate, the rate banks charge each other
for overnight borrowing. After seven short-term interest rate hikes between
February 1994 and February 1995, the Federal Reserve Board increased the Federal
Funds rate to 6.0%, and effectively doubled short-term interest rates in twelve
months. However, on July 6, 1995, the Federal Reserve cut the benchmark Federal
Funds rate by 0.25%. This decrease, the first in nearly three years, signals
that the Federal Reserve Board believes that inflationary pressures have eased
enough to accommodate an adjustment in monetary conditions from restrictive
toward neutral.
ECONOMIC OVERVIEW
News concerning the economy during the six months ended July 31, 1995 was
dominated by debate over whether inflation was still a threat, discussions about
the dismal performance of the dollar and details of efforts in Washington to
implement a plan to balance the budget. Interest rates trended downward, as the
perception that the Federal Reserve would win its battle with inflation and that
the next policy action would be to lower short-term interest rates became
widespread. Employment reports indicated a slowing economy, with consumer
spending declining significantly from 1994 and consumer credit reports showing
high ratios of installment debt to disposable income. Side effects of higher
interest rates lingered, however. Markets for new and existing homes were
sluggish until the close of the six-month period, despite historically
attractive mortgage rates. Although the U.S. economy appears to have been flat
in the second quarter, the second half of 1995 should show signs of some
economic recovery, albeit with anemic growth. Despite some slowing in the pace
of economic growth, corporate profits continued to exhibit strength.
PORTFOLIO REVIEW
During the six months ended July 31, 1995, both fixed income and equity
markets rallied strongly. The drop in the U.S. dollar and the submerging of many
"emerging" markets created a renewed interest in domestic, large-cap equities
during the first half of 1995, pushing the popular Dow Jones Industrial Average
and Standard & Poor's 500 indices to a long string of new highs. The Fund's
total return for the six months ended July 31, 1995, without deducting sales
charges, was 20.38% for Class A shares, 20.08% for Class B shares and 20.65% for
Class C shares. The Fund's total return for this period, after deducting the
maximum applicable sales charges, was 15.33% for Class A shares, 20.08% for
Class B shares and 20.65% for Class C shares. In comparison, the S&P 500 Index
returned 21.03% for the six months ended July 31, 1995. Please keep in mind that
the index is unmanaged and does not reflect the deduction of management fees and
fund costs.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Fund performance during the six months reflected the broadly diversified
nature of the Fund's portfolio, as well as its combination of growth and value
factors. Mitchell Hutchins' Yield Enhanced Investment Strategy (Y.E.S.) has been
utilized in the Fund's investment approach. The portfolio is designed so that
its orientation toward dividend yield, as an indicator of relative value, will
not hinder or limit its performance in an up equity market. Y.E.S. has the goal
of capturing the price appreciation of the market while simultaneously
generating above-market dividend income. The portfolio is constructed so that
dividend yield is significantly higher than the market, while other portfolio
characteristics and industry weightings are roughly in line with their market
exposures. This alignment attempts to control the risk that the portfolio will
deviate from the equity markets' performance, while enhanced dividend yield
produces both cash flow and is intended to generate higher performance over
time.
The board of directors of the Fund has approved a Plan of Reorganization and
Termination ("Reorganization") for submission to the Fund's shareholders, at a
special meeting scheduled to be held on October 6, 1995. If the proposed
Reorganization is approved and implemented, all of the Fund's assets will be
acquired and its liabilities assumed by Paine Webber Growth and Income Fund
("Growth and Income Fund") in a tax-free reorganization. As a result of the
Reorganization, the two funds' assets would be combined and each Fund
shareholder would, on the closing date of the transaction, receive a number of
full and fractional shares of the corresponding Class of shares of Growth and
Income Fund having an aggregate value equal to the value of the shareholder's
holdings in the Fund. Mark Tincher, Chief Investment Officer--Equity Investments
at Mitchell Hutchins Asset Management Inc., is responsible for the day-to-day
portfolio management of Growth and Income Fund.
We value you as a shareholder and as a client, and thank you for your
continued support. We welcome any comments or questions you may have.
Sincerely,
/s/ FRANK P.L. MINARD /s/ T. KIRKHAM BARNEBY
FRANK P.L. MINARD T. KIRKHAM BARNEBY
Chairman, Chief Investment Officer of
Mitchell Hutchins Asset Management Inc. Quantitative Services,
Mitchell Hutchins Asset
Management Inc.
- --------------------------------------------------------------------------------
2
<PAGE>
Mitchell Hutchins/Kidder, Peabody Equity Income Fund, Inc.
- --------------------------------------------------------------------------------
RECENT PERFORMANCE RESULTS (UNAUDITED)
<TABLE><CAPTION>
NET ASSET VALUE TOTAL RETURN(1)
-------------------------------- --------------------------------
12 MONTHS 6 MONTHS
07/31/95 01/31/95 07/31/94 ENDED 07/31/95 ENDED 07/31/95
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
Class A Shares $22.33 $18.72 $23.29 22.39% 20.38%
- -----------------------------------------------------------------------------------------------------------------
Class B Shares 22.19 18.61 23.17 21.85 20.08
- -----------------------------------------------------------------------------------------------------------------
Class C Shares 22.32 18.71 23.27 23.09 20.65
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
PERFORMANCE SUMMARY CLASS A SHARES
<TABLE><CAPTION>
NET ASSET VALUE
-------------------- CAPITAL GAINS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID(2) RETURN(1)
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
11/22/85-12/31/95 $ 15.00 $15.42 -- -- 2.80%
- ------------------------------------------------------------------------------------------------------------
1986 15.42 17.49 -- $ 0.450 16.40
- ------------------------------------------------------------------------------------------------------------
1987 17.49 16.79 $ 0.920 0.478 3.86
- ------------------------------------------------------------------------------------------------------------
1988 16.79 16.35 -- 0.617 1.11
- ------------------------------------------------------------------------------------------------------------
1989 16.35 20.49 -- 0.550 28.94
- ------------------------------------------------------------------------------------------------------------
1990 20.49 20.31 -- 0.570 1.96
- ------------------------------------------------------------------------------------------------------------
1991 20.31 29.24 -- 0.354 46.00
- ------------------------------------------------------------------------------------------------------------
1992 29.24 27.92 -- 0.477 -2.85
- ------------------------------------------------------------------------------------------------------------
1993 27.92 24.61 3.272 0.482 1.73
- ------------------------------------------------------------------------------------------------------------
1994 24.61 18.42 4.348 0.651 -4.75
- ------------------------------------------------------------------------------------------------------------
01/01/95-07/31/95 18.42 22.33 0.014 0.181 22.34
- ------------------------------------------------------------------------------------------------------------
Total: $ 8.554 $ 4.810
- ------------------------------------------------------------------------------------------------------------
Cumulative Total Return as of 07/31/95: 177.71%
- ------------------------------------------------------------------------------------------------------------
</TABLE>
PERFORMANCE SUMMARY CLASS B SHARES
<TABLE><CAPTION>
NET ASSET VALUE
-------------------- CAPITAL GAINS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID(2) RETURN(1)
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
06/14/93-12/31/93 $ 27.42 $24.53 $ 3.272 $ 0.243 2.39%
- ------------------------------------------------------------------------------------------------------------
1994 24.53 18.32 4.348 0.555 -5.24
- ------------------------------------------------------------------------------------------------------------
01/01/95-07/31/95 18.32 22.19 0.014 0.136 21.98
- ------------------------------------------------------------------------------------------------------------
Total: $ 7.634 $ 0.934
- ------------------------------------------------------------------------------------------------------------
Cumulative Total Return as of 07/31/95: 18.36%
- ------------------------------------------------------------------------------------------------------------
</TABLE>
PERFORMANCE SUMMARY CLASS C SHARES
<TABLE><CAPTION>
NET ASSET VALUE
-------------------- CAPITAL GAINS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID(2) RETURN(1)
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
06/14/93-12/31/93 $ 27.42 $24.58 $ 3.272 $ 0.337 2.92%
- ------------------------------------------------------------------------------------------------------------
1994 24.58 18.39 4.348 0.770 -4.27
- ------------------------------------------------------------------------------------------------------------
01/01/95-07/31/95 18.39 22.32 0.014 0.225 22.75
- ------------------------------------------------------------------------------------------------------------
Total: $ 7.634 $ 1.332
- ------------------------------------------------------------------------------------------------------------
Cumulative Total Return as of 07/31/95: 20.93%
- ------------------------------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL RETURN
<TABLE><CAPTION>
% RETURN WITHOUT DEDUCTING % RETURN AFTER DEDUCTING
MAXIMUM SALES CHARGES MAXIMUM SALES CHARGES
------------------------------ -------------------------------
CLASS CLASS
------------------------------ -------------------------------
A* B** C*** A* B** C***
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Twelve Months Ended 6/30/95 21.94% 21.39% 22.63% 16.46% 21.39% 22.63%
- ------------------------------------------------------------------------------------------------------------------
Five Years Ended 6/30/95 9.69% N/A N/A 8.68% N/A N/A
- ------------------------------------------------------------------------------------------------------------------
Commencement of Operations Through
6/30/95+ 10.91% 7.25% 8.32% 10.38% 7.25% 8.32%
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Figures assume reinvestment of all dividends and capital gains distributions
at net asset value on the payable date, and do not include sales charges;
results for Class A would be lower if sales charges were included.
(2) Certain distributions may contain short-term capital gains.
* Class A shares bear ongoing 12b-1 distribution and service fees. Effective
July 3, 1995, the Board of Directors voted to reduce the maximum sales charge
for Class A shares to 4.50% from 5.75% of the public offering price. This
reduction is reflected in the above returns.
** Class B shares are sold without initial or contingent deferred sales
charges, but bear ongoing 12b-1 distribution and service fees.
*** Class C shares are sold without initial or contingent deferred sales charges
and are available exclusively to certain eligible participants.
+ Commencement of operations was November 22, 1985, June 14, 1993 and June 14,
1993 for Class A, Class B and Class C shares, respectively.
- --------------------------------------------------------------------------------
3
<PAGE>
Mitchell Hutchins/Kidder, Peabody Equity Income Fund, Inc.
- --------------------------------------------------------------------------------
Portfolio of Investments
July 31, 1995 (unaudited)
- --------------------------------------------------------------------------------
COMMON STOCKS--99.02%
- --------------------------------------------------------------------------------
<TABLE><CAPTION>
NUMBER OF
SHARES VALUE
- ---------- -----------
<C> <S> <C>
AEROSPACE--0.93%
3,500 Boeing Co............................................................... $ 234,500
2,934 Lockheed Martin Corp.................................................... 184,475
2,700 Northrop Grumman........................................................ 153,900
-----------
572,875
-----------
AGRICULTURE/FOOD--3.31%
3,300 General Mills Inc. ..................................................... 172,425
5,900 Heinz (HJ) & Co. ....................................................... 255,912
18,800 Phillip Morris Companies Inc. .......................................... 1,346,550
2,700 Quaker Oats Co. ........................................................ 93,825
1,200 Unilever NV-N........................................................... 158,100
-----------
2,026,812
-----------
AIR TRANSPORT--0.11%
6,800 US Air Group, Inc.*..................................................... 64,600
-----------
ALUMINUM--0.25%
2,700 Aluminum Company of America............................................. 153,562
-----------
BANKS--6.14%
8,800 Banc One Corp. ......................................................... 279,400
4,400 Bank America Corp. ..................................................... 237,600
10,600 Bankers Trust NY Corp. ................................................. 683,700
3,100 Chase Manhattan Corp. .................................................. 166,238
4,100 Chemical Banking Corp. ................................................. 211,662
1,800 Citicorp................................................................ 112,275
4,500 Corestates Financial Corp. ............................................. 164,250
800 First Interstate Bancorp................................................ 68,900
3,200 First Union Corp. ...................................................... 156,400
3,500 Fleet Financial Group................................................... 124,688
6,600 Keycorp New............................................................. 211,200
8,800 Mellon Bank Corp. ...................................................... 353,100
4,600 J.P. Morgan & Co., Inc. ................................................ 336,375
4,000 National City Corp. .................................................... 122,500
2,500 Nationsbank Corp. ...................................................... 140,313
15,900 PNC Bank Corp. ......................................................... 391,538
-----------
3,760,139
-----------
BEVERAGES--2.87%
19,000 Coca-Cola Co. .......................................................... 1,251,625
10,800 Pepsico, Inc. .......................................................... 506,250
-----------
1,757,875
-----------
BUSINESS MACHINES--3.68%
1,900 Apple Computer ......................................................... 85,500
4,000 Cisco Systems, Inc.*.................................................... 222,500
</TABLE>
4
<PAGE>
Mitchell Hutchins/Kidder, Peabody Equity Income Fund, Inc.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
COMMON STOCKS--(continued)
- --------------------------------------------------------------------------------
<TABLE><CAPTION>
NUMBER OF
SHARES VALUE
- ---------- -----------
<C> <S> <C>
BUSINESS MACHINES--(concluded)
1,800 Digital Equipment Corp.*................................................ $ 69,075
8,000 Hewlett Packard Co. .................................................... 623,000
7,700 International Business Machines......................................... 838,338
2,400 Pitney Bowes, Inc. ..................................................... 96,300
2,700 Xerox Corp. ............................................................ 321,637
-----------
2,256,350
-----------
CHEMICALS--5.27%
10,900 Arco Chemical Corp. .................................................... 523,200
5,800 Crompton & Knowles Corp. ............................................... 87,725
9,850 Dow Chemical Co. ....................................................... 730,131
10,500 E.I. Du Pont de Nemours & Co. .......................................... 703,500
4,100 Englehard Corp. ........................................................ 124,538
22,500 Ethyl Corp. ............................................................ 244,688
2,900 B.F. Goodrich Co. ...................................................... 157,325
1,900 Monsanto Co. ........................................................... 176,938
5,100 Olin Corp. ............................................................. 295,163
4,100 PPG Industries, Inc. ................................................... 187,575
-----------
3,230,783
-----------
CONSUMER DURABLES--0.22%
2,200 Black & Decker Corp. ................................................... 69,575
2,500 Masco Corp. ............................................................ 65,000
-----------
134,575
-----------
COSMETICS--1.49%
3,200 Avon Products Inc. ..................................................... 217,600
10,100 Procter & Gamble Co. ................................................... 695,637
-----------
913,237
-----------
DOMESTIC PETROLEUM--1.25%
6,100 Atlantic Richfield Co. ................................................. 703,025
1,800 Philips Petroleum Co. .................................................. 63,675
-----------
766,700
-----------
DRUGS/MEDICINE--9.40%
11,900 Abbott Labs............................................................. 476,000
9,200 American Home Products.................................................. 726,800
16,200 Bristol Myer Squibb Co. ................................................ 1,121,850
10,600 Johnson & Johnson....................................................... 760,550
5,500 Lilly (Eli) & Co. ...................................................... 430,375
19,700 Merck & Co., Inc. ...................................................... 1,017,013
8,600 Pfizer Inc. ............................................................ 434,300
3,400 Schering Plough......................................................... 158,100
6,500 Upjohn Co. ............................................................. 250,250
4,600 Warner Lambert Co. ..................................................... 386,400
-----------
5,761,638
-----------
</TABLE>
5
<PAGE>
Mitchell Hutchins/Kidder, Peabody Equity Income Fund, Inc.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
COMMON STOCKS--(continued)
- --------------------------------------------------------------------------------
<TABLE><CAPTION>
NUMBER OF
SHARES VALUE
- ---------- -----------
<C> <S> <C>
ELECTRONICS--4.97%
1,400 Altera Corp.*........................................................... $ 78,312
5,200 AMP, Inc. .............................................................. 224,250
950 Andrew Corp.*........................................................... 56,406
13,300 Intel Corp. ............................................................ 864,500
2,100 LSI Logic Corp. ........................................................ 98,175
5,300 Micron Technology, Inc. ................................................ 331,250
8,900 Motorola, Inc. ......................................................... 681,963
3,300 Northern Telecom Ltd. .................................................. 124,163
3,600 Rockwell International Corp. ........................................... 164,250
1,400 Stratacom, Inc. ........................................................ 75,950
1,500 Tencor Instruments*..................................................... 66,000
1,850 Texas Instruments, Inc. ................................................ 289,062
-----------
3,054,281
-----------
HEALTH (NONDRUGS)/HEALTHCARE--1.21%
14,650 Baxter International Inc. .............................................. 545,712
6,200 U.S. Healthcare, Inc.................................................... 196,075
-----------
741,787
-----------
INTERNATIONAL OIL--4.77%
6,600 Chevron Corp. .......................................................... 325,875
22,500 Exxon Corp.............................................................. 1,631,250
5,700 Mobil Corp.............................................................. 557,175
6,100 Texaco, Inc............................................................. 405,650
-----------
2,919,950
-----------
IRON & STEEL--0.21%
900 Carpenter Technology Corp. ............................................. 66,375
1,800 USX US Steel Group, Inc................................................. 59,625
-----------
126,000
-----------
LIFE INSURANCE--0.41%
6,900 American General Corp. ................................................. 250,987
-----------
LIQUOR--0.11%
1,200 Anheuser Busch Companies, Inc........................................... 66,750
-----------
MEDIA--0.72%
6,900 Comsat Corp............................................................. 159,562
3,300 Walt Disney & Co........................................................ 193,462
1,700 Viacom, Inc.*........................................................... 86,275
-----------
439,299
-----------
MISCELLANEOUS FINANCE--2.12%
9,800 American Express Co..................................................... 377,300
5,000 Beneficial Corp. ....................................................... 236,875
1,400 Federal Home Loan Mortgage Corp......................................... 91,700
2,900 Household International, Inc............................................ 152,250
</TABLE>
6
<PAGE>
Mitchell Hutchins/Kidder, Peabody Equity Income Fund, Inc.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
COMMON STOCKS--(continued)
- --------------------------------------------------------------------------------
<TABLE><CAPTION>
NUMBER OF
SHARES VALUE
- ---------- -----------
<C> <S> <C>
MISCELLANEOUS FINANCE--(concluded)
3,800 MBNA Corp............................................................... $ 136,325
2,100 Merrill Lynch & Co., Inc................................................ 116,550
2,300 Student Loan Marketing Assoc. .......................................... 123,912
1,300 Travelers Group, Inc. .................................................. 61,587
-----------
1,296,499
-----------
MOTOR VEHICLE--2.83%
8,100 Chrysler Corp. ......................................................... 394,875
2,900 DANA Corp............................................................... 85,550
21,100 Ford Motors Co.......................................................... 609,262
8,700 General Motors Corp..................................................... 424,125
5,200 Honeywell, Inc. ........................................................ 222,950
-----------
1,736,762
-----------
MORTGAGE FINANCE--0.66%
4,300 Federal National Mortgage Assoc. ....................................... 402,587
-----------
OIL REFINERIES/DISTRIBUTORS--2.64%
6,700 Amoco Corp. ............................................................ 450,575
9,200 Royal Dutch Petroleum Co. .............................................. 1,168,400
-----------
1,618,975
-----------
OIL SERVICE--0.50%
2,000 Halliburton Co. ........................................................ 81,250
3,400 Schlumberger Ltd. ...................................................... 227,800
-----------
309,050
-----------
OTHER INSURANCE--1.46%
7,000 Aetna Life & Casualty Co. .............................................. 433,125
7,000 Hartford Steam Boiler Inspection........................................ 311,519
23,100 Reliance Group Holdings, Inc. .......................................... 150,150
-----------
894,794
-----------
PAPER--1.90%
8,900 Federal Paper Board..................................................... 332,638
1,800 Georgia Pacific Corp. .................................................. 155,250
3,300 Kimberly Clark Corp. ................................................... 209,137
2,300 Potlatch Corp. ......................................................... 97,175
7,900 Weyerhaeuser Co. ....................................................... 369,325
-----------
1,163,525
-----------
PHOTO--0.68%
7,200 Eastman Kodak Co. ...................................................... 414,900
-----------
POLLUTION CONTROL--0.87%
4,700 Browning Ferris Industries, Inc. ....................................... 181,538
11,200 WMX Technologies, Inc. ................................................. 350,000
-----------
531,538
-----------
</TABLE>
7
<PAGE>
Mitchell Hutchins/Kidder, Peabody Equity Income Fund, Inc.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
COMMON STOCKS--(continued)
- --------------------------------------------------------------------------------
<TABLE><CAPTION>
NUMBER OF
SHARES VALUE
- ---------- -----------
<C> <S> <C>
PRECIOUS METALS--0.11%
2,600 Placer Dome, Inc. ...................................................... $ 65,325
-----------
PRODUCERS' GOODS--7.78%
15,700 American Brands, Inc. .................................................. 626,037
1,500 Applied Materials, Inc.*................................................ 155,250
3,700 Catepillar, Inc. ....................................................... 260,387
6,400 Cooper Industries, Inc. ................................................ 239,200
2,750 Deere & Co. ............................................................ 247,156
8,600 Dresser Industries, Inc. ............................................... 197,800
2,000 DSC Communications Corp.*............................................... 107,500
1,700 Eaton Corp. ............................................................ 94,988
6,400 Emerson Electric Co. ................................................... 452,800
3,600 Genuine Parts & Co. .................................................... 135,900
2,600 Goulds Pumps, Inc. ..................................................... 57,200
5,600 Keystone International, Inc. ........................................... 117,600
14,900 Minnesota Mining & Manufacturing Co. ................................... 843,712
5,500 National Service Industries, Inc. ...................................... 162,250
3,700 Pall Corp. ............................................................. 84,638
3,900 Stanley Works........................................................... 154,538
2,700 Tellabs, Inc.*.......................................................... 120,150
2,700 Tenneco, Inc. .......................................................... 133,650
2,300 TRW, Inc. .............................................................. 171,637
3,800 United Technologies Corp. .............................................. 319,200
600 U.S. Robotics Corp.*.................................................... 87,300
-----------
4,768,893
-----------
PUBLISHING--1.98%
1,500 Gannett Co. ............................................................ 82,125
14,600 John H. Harland Co. .................................................... 323,025
3,000 McGraw Hill Companies, Inc. ............................................ 230,625
13,400 Moore Corp. Ltd. ....................................................... 294,800
6,000 Readers Digest Association, Inc. ....................................... 280,500
-----------
1,211,075
-----------
RAILROAD--1.02%
1,200 Conrail, Inc. .......................................................... 74,100
1,700 Illinois Central........................................................ 67,150
3,600 Norfolk Southern Corp................................................... 261,450
3,400 Union Pacific Corp. .................................................... 221,425
-----------
624,125
-----------
RETAIL--5.02%
1,500 Dayton Hudson Corp. .................................................... 113,438
5,200 Fleming Companies, Inc. ................................................ 137,150
4,100 Limited, Inc. .......................................................... 84,050
7,000 May Department Stores Co. .............................................. 303,625
13,300 Melville Corp. ......................................................... 478,800
</TABLE>
8
<PAGE>
Mitchell Hutchins/Kidder, Peabody Equity Income Fund, Inc.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
COMMON STOCKS--(continued)
- --------------------------------------------------------------------------------
<TABLE><CAPTION>
NUMBER OF
SHARES VALUE
- ---------- -----------
<C> <S> <C>
RETAIL--(concluded)
12,000 J.C. Penney, Inc. ...................................................... $ 580,500
11,600 Sears Roebuck & Co. .................................................... 378,450
13,900 TUX Companies, Inc. .................................................... 203,287
27,300 Wal Mart Stores, Inc. .................................................. 726,862
1,200 Winn Dixie Stores, Inc. ................................................ 68,550
-----------
3,074,712
-----------
SOAPS/HARDWARE--1.20%
1,600 Clorox Co. ............................................................. 105,000
2,900 Colgate Palmolive Co. .................................................. 203,000
2,800 Gillette Co. ........................................................... 122,500
6,500 Tambrands, Inc. ........................................................ 306,312
-----------
736,812
-----------
SERVICES (CONSUMER NON-CYCLICAL)--5.37%
3,500 H&R Block Inc. ......................................................... 131,250
1,700 Computer Association International, Inc. ............................... 124,738
16,800 De Luxe Corp. .......................................................... 539,700
13,700 Dun & Bradstreet Corp. ................................................. 770,625
1,900 Informix Corp.*......................................................... 56,288
2,400 Marsh & McLennan Companies.............................................. 189,600
7,200 Microsoft Corp.*........................................................ 651,600
27,500 Ogden Corp. ............................................................ 615,313
5,100 Oracle System Corp.*.................................................... 213,563
-----------
3,292,677
-----------
TOBACCO--0.41%
9,000 RJR Nabisco Holdings Corp............................................... 248,625
-----------
UTILITIES--ELECTRIC--5.63%
6,000 American Electric Power, Inc. .......................................... 207,000
10,500 Centenor Energy Corp. .................................................. 108,938
2,300 Central & South West Corp. ............................................. 58,650
10,500 Consolidated Edison Company of N.Y. .................................... 304,500
8,500 Entergy Corp. .......................................................... 201,875
3,600 IES Industries, Inc. ................................................... 78,750
13,377 Midamerican Energy Co. ................................................. 193,967
11,500 Minnesota Power & Lighting Co. ......................................... 316,250
6,100 Montana Power Co. ...................................................... 131,150
7,100 Northeast Utilities..................................................... 159,750
5,700 Oklahoma Gas & Electric Co. ............................................ 193,800
16,800 Pacific Gas & Electric Co. ............................................. 495,600
10,800 Potomac Electric Power Co. ............................................. 224,100
20,600 Public Service Enterprise Group......................................... 571,650
13,100 Washington Water Power Co. ............................................. 203,050
-----------
3,449,030
-----------
</TABLE>
9
<PAGE>
Mitchell Hutchins/Kidder, Peabody Equity Income Fund, Inc.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
COMMON STOCKS--(concluded)
- --------------------------------------------------------------------------------
<TABLE><CAPTION>
NUMBER OF
SHARES VALUE
- ---------- -----------
<C> <S> <C>
UTILITIES--GAS--1.23%
4,000 Brooklyn Union Gas Co. ................................................. $ 97,500
3,400 Consolidated Natural Gas Co. ........................................... 127,500
4,500 Eastern Enterprises..................................................... 136,125
9,500 Pacific Enterprises..................................................... 229,188
8,900 Washington Gas & Lighting Co. .......................................... 162,425
-----------
752,738
-----------
UTILITIES--TELEPHONE & TELEGRAPH--8.29%
3,600 Alltel Corp. ........................................................... 94,950
9,300 Ameritech Corp. ........................................................ 449,887
11,900 AT&T Corp. ............................................................. 627,725
12,900 Bell Atlantic Corp. .................................................... 738,525
7,500 Bellsouth Corp. ........................................................ 508,125
32,700 GTE Corp. .............................................................. 1,160,850
28,600 Pacific Telesis Group................................................... 807,950
1,500 SEC Communications, Inc. ............................................... 72,188
14,500 U.S. West, Inc. ........................................................ 621,687
-----------
5,081,887
-----------
Total Common Stocks (cost--$53,622,386)............................................. 60,672,729
-----------
</TABLE>
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT--1.27%
- --------------------------------------------------------------------------------
<TABLE><CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATE RATE VALUE
- ---------- -------- -------- -----------
<C> <S> <C> <C> <C>
$780 Repurchase Agreement dated 7/31/95; with State Street
Bank & Trust Co., collateralized by $837,173 U.S.
Treasury Bills, due 06/27/96 proceeds; $780,114
(cost--$780,000)....................................... 08/01/95 5.250% $ 780,000
-----------
Total Investments (cost--$54,402,386)--100.29%............................................ 61,452,729
Liabilities in excess of other assets--(0.29)%............................................ (179,788)
-----------
Net Assets--100.00%....................................................................... $61,272,941
-----------
-----------
</TABLE>
- ------------
* Non-income producing
See accompanying notes to financial statements
10
<PAGE>
Mitchell Hutchins/Kidder, Peabody Equity Income Fund, Inc.
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
July 31, 1995 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost--$54,402,386).................................... $61,452,729
Cash......................................................................... 4,660
Dividends and interest receivable............................................ 140,087
Receivable for fund shares sold.............................................. 92,735
Prepaid expenses............................................................. 67,361
-----------
Total assets.............................................................. 61,757,572
-----------
LIABILITIES
Payable for fund shares repurchased.......................................... 327,607
Payable to affiliate......................................................... 62,225
Accrued expenses............................................................. 94,799
-----------
Total liabilities......................................................... 484,631
-----------
NET ASSETS
Capital stock--$0.01 per value capital stock outstanding (500 million shares
authorized)................................................................ 49,341,010
Undistributed net investment income.......................................... 125,564
Accumulated net realized gain from investment transactions................... 4,756,024
Net unrealized appreciation of investments................................... 7,050,343
-----------
Net assets................................................................ $61,272,941
-----------
-----------
CLASS A:
Net assets................................................................... $56,598,391
-----------
Shares outstanding........................................................... 2,534,849
-----------
Net asset value and redemption value per share............................... $22.33
-----------
-----------
Maximum offering price per share (net asset value plus sales charge of 4.50%
of offering price)......................................................... $23.38
-----------
-----------
CLASS B:
Net assets................................................................... $ 1,634,020
-----------
Shares outstanding........................................................... 73,636
-----------
Net asset value, offering price and redemption value per share............... $22.19
-----------
-----------
CLASS C:
Net assets................................................................... $ 3,040,530
-----------
Shares outstanding........................................................... 136,234
-----------
Net asset value, offering price and redemption value per share............... $22.32
-----------
-----------
</TABLE>
See accompanying notes to financial statements.
11
<PAGE>
Mitchell Hutchins/Kidder, Peabody Equity Income Fund, Inc.
- --------------------------------------------------------------------------------
Statement of Operations
For the Six Months Ended July 31, 1995 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of foreign withholding taxes)................................. $ 985,629
Interest..................................................................... 78,510
-----------
1,064,139
-----------
EXPENSES:
Investment advisory and administration....................................... 215,467
Service and distribution fees-Class A........................................ 141,540
Service and distribution fees-Class B........................................ 7,836
Transfer agent............................................................... 39,310
Custody and accounting....................................................... 26,773
Legal and audit.............................................................. 18,643
Directors' fees and expenses................................................. 11,765
Shareholders reports and notices to shareholders............................. 11,041
Amortization of organization expenses........................................ 9,377
Federal and state registration fees.......................................... 9,305
Other........................................................................ 6,421
-----------
497,478
-----------
NET INVESTMENT INCOME........................................................... 566,661
-----------
REALIZED AND UNREALIZED GAINS FROM INVESTMENT TRANSACTIONS:
Net realized gains from investment transactions.............................. 5,435,752
Net change in unrealized appreciation/depreciation of investments............ 5,531,955
-----------
NET REALIZED AND UNREALIZED GAINS FROM INVESTMENT TRANSACTIONS.................. 10,967,707
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............................ $11,534,368
-----------
-----------
</TABLE>
See accompanying notes to financial statements.
12
<PAGE>
Mitchell Hutchins/Kidder, Peabody Equity Income Fund, Inc.
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE><CAPTION>
For the
Six Months Ended For the
July 31, 1995 Year Ended
(unaudited) January 31, 1995
---------------- ----------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income.................................... $ 566,661 $ 1,445,313
Net realized gains on investment transactions............ 5,435,752 6,493,995
Net change in unrealized appreciation/depreciation of
investments............................................ 5,531,955 (12,793,458)
---------------- ----------------
Net increase (decrease) in net assets resulting from
operations............................................. 11,534,368 (4,854,150)
---------------- ----------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income--Class A........................... (484,190) (1,273,666)
Net investment income--Class B........................... (9,943) (23,235)
Net investment income--Class C........................... (34,695) (96,548)
Net realized short-term gains from investment
transactions--Class A.................................. -- (752,109)
Net realized short-term gains from investment
transactions--Class B.................................. -- (21,139)
Net realized short-term gains from investment
transactions--Class C.................................. -- (44,998)
Net realized long-term gains from investment
transactions--Class A.................................. (36,910) (11,891,520)
Net realized long-term gains from investment
transactions--Class B.................................. (1,025) (334,223)
Net realized long-term gains from investment
transactions--Class C.................................. (2,002) (711,465)
---------------- ----------------
(568,765) (15,148,923)
---------------- ----------------
FROM CAPITAL STOCK TRANSACTIONS:
Net proceeds from the sale of shares..................... 957,677 3,018,313
Cost of shares repurchased............................... (14,232,319) (44,211,046)
Proceeds from dividends reinvested....................... 556,034 14,757,018
---------------- ----------------
Net decrease in net assets resulting from capital stock
transactions........................................... (12,718,608) (26,435,715)
---------------- ----------------
Net decrease in net assets............................... (1,753,005) (46,438,788)
---------------- ----------------
NET ASSETS:
Beginning of period...................................... 63,025,946 109,464,734
---------------- ----------------
End of period (including undistributed net investment
income of $125,564 and $87,731, respectively).......... $ 61,272,941 $ 63,025,946
---------------- ----------------
---------------- ----------------
</TABLE>
See accompanying notes to financial statement.
13
<PAGE>
Mitchell Hutchins/Kidder, Peabody Equity Income Fund, Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements (unaudited)
- --------------------------------------------------------------------------------
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Mitchell Hutchins/Kidder, Peabody Equity Income Fund, Inc. (formerly Kidder,
Peabody Equity Income Fund, Inc.) (the "Fund") was organized under the laws of
the state of Maryland on June 20, 1985 and is registered with the Securities and
Exchange Commission under the Investment Company Act of 1940, as amended, as an
open-end, diversified investment company.
Organizational Matters--On June 14, 1993 the Fund adopted the Choice Pricing
SystemSM. Prior to June 14, 1993, the Fund issued only Class A shares;
subsequent to that date the Fund issued Class A, Class B and Class C shares.
Each class represents interests in the same assets of the Fund and the classes
are identical except for differences in their sales charge structure and ongoing
service and distribution charges. All classes of shares have equal rights as to
voting privileges, except that each class has exclusive voting rights with
respect to its distribution plan.
Valuation of Investments--Securities listed on national securities exchanges
are valued at the last sale price as of the close of business on the day the
securities are being valued. Over-the-counter securities are valued on the basis
of the last sale, if available, or if not, on the basis of the bid price at the
close of business on each day, or, if market quotations for those securities are
not readily available, at fair value, as determined in good faith by the Fund's
Board of Directors. Short-term obligations with maturities of 60 days or less
are valued at amortized cost.
Investment Transactions and Investment Income--Investment transactions are
recorded on trade date. Realized gains and losses on sale of investments 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/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.
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.
Federal Tax Status--The Fund intends to distribute 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
14
<PAGE>
Mitchell Hutchins/Kidder, Peabody Equity Income Fund, Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements--(continued)
- --------------------------------------------------------------------------------
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.
Dividends and Distributions--Dividends and distributions to shareholders are
recorded on the ex-dividend date. The Fund declares dividends on quarterly basis
from net investment income. Net capital gains, if any, will be distributed at
least annually, but the Fund may make more frequent distribution of such gains,
if necessary, to avoid income or excise taxes. Dividends from net investment
income and distributions from realized gains from investment transactions have
been determined in accordance with 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.
INVESTMENT ADVISER AND ADMINISTRATOR
The Fund's investment adviser and administrator receives compensation from
the Fund accrued daily and paid monthly at an annual rate of 0.70% of the Fund's
average daily net assets.
At a special meeting of shareholders that took place on April 13, 1995,
shareholders approved the appointment of Mitchell Hutchins as investment adviser
and administrator of the Fund. The Fund pays the same fee for investment
advisory and administrations services to Mitchell Hutchins as previously paid to
Kidder Peabody Asset Management, Inc. ("KPAM"), as described in the Fund's
prospectus. Mitchell Hutchins continues to manage the Fund in accordance with
the Fund's investment objective, policies and restrictions as stated in the
Prospectus. At July 31, 1995, the Fund owed fees to Mitchell Hutchins in the
amount of $36,652 for investment advisory and administration fees.
Investment advisory functions for the Fund were previously transferred from
KPAM to Mitchell Hutchins on an interim basis as a result of an asset purchase
transaction by and among Kidder, Peabody Group Inc., its parent General Electric
and Paine Webber Group Inc. That period commenced February 13, 1995 and ended
April 13, 1995.
For the period ended July 31, 1995, the Fund did not pay brokerage
commissions to PaineWebber Incorporated.
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
15
<PAGE>
Mitchell Hutchins/Kidder, Peabody Equity Income Fund, Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements--(continued)
- --------------------------------------------------------------------------------
million. For the period ended July 31, 1995, no reimbursements were required
pursuant to the above limitation for the Fund.
DISTRIBUTION PLANS
Mitchell Hutchins is the exclusive distributor of the Fund's shares. Under
separate plans of distribution, Class A shares are sold subject to a front-end
sales load and bear a distribution fee of 0.25% per annum and a service fee of
0.25% per annum of the lesser of (i) aggregate gross sales of the Class A shares
since its inception (not including reinvestments of dividends or capital gains
distributions), less aggregate redemptions since inception on which a contingent
deferred sales charge has been paid or waived or (ii) the average daily net
assets attributable to Class A shares. Class B shares are sold at net asset
value without a sales load and bear a distribution fee of 0.75% per annum and a
service fee of 0.25% per annum of average class net assets. The Fund pays
Mitchell Hutchins monthly the service and distribution fees. At July 31, 1995,
the Fund owed Mitchell Hutchins $25,573 in service and distribution fees.
Mitchell Hutchins also receives the proceeds of any front-end sales loads with
respect to the purchase of Class A shares. Mitchell Hutchins has informed the
Fund that for the period ended July 31, 1995, it had received $25,106 in initial
sales charge for Class A.
INVESTMENTS IN SECURITIES
For federal income tax purposes, the cost of securities owned at July 31,
1995 was substantially the same as the cost of securities for financial
statement purposes.
At July 31, 1995, the components of the net unrealized appreciation of
investments were as follows:
Gross appreciation (investments having an excess of value over
cost).......................................................... $7,336,923
Gross depreciation (investments having an excess of cost over
value)......................................................... 286,580
----------
Net unrealized appreciation of investments..................... $7,050,343
----------
----------
For the period ended July 31, 1995, total aggregate purchases and sales of
portfolio securities, excluding short-term securities, were as follows:
Purchases..................................................... $61,835,870
Sales......................................................... 72,931,579
16
<PAGE>
Mitchell Hutchins/Kidder, Peabody Equity Income Fund, Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements--(concluded)
- --------------------------------------------------------------------------------
CAPITAL STOCK
As of July 31, 1995 there were 500,000,000 shares, consisting of several
classes, of $0.01 par value common stock authorized. Transactions in shares of
common stock were as follows:
<TABLE><CAPTION>
CLASS A CLASS B CLASS C
------------------------ ------------------ --------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ------------ ------- --------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
Six months ended July 31, 1995:
Shares sold................... 20,932 $ 436,627 12,361 $ 249,332 13,403 $ 271,718
Dividends reinvested in
additional Fund shares...... 23,975 509,380 508 10,767 1,695 35,887
Shares repurchased............ (605,571) (12,380,842) (26,368) (525,105) (63,521) (1,326,372)
---------- ------------ ------- --------- ------- -----------
Net decrease...................... (560,664) $(11,434,835) (13,499) $(265,006) (48,423) $(1,018,767)
---------- ------------ ------- --------- ------- -----------
---------- ------------ ------- --------- ------- -----------
Year ended January 31, 1995:
Shares sold................... 67,314 $ 1,573,740 39,094 $ 910,526 22,907 $ 534,047
Dividends reinvested in
additional Fund shares...... 724,803 13,551,484 20,501 378,609 44,122 826,925
Shares repurchased............ (1,820,254) (41,334,216) (33,430) (725,094) (96,272) (2,151,736)
---------- ------------ ------- --------- ------- -----------
Net increase (decrease)........... (1,028,137) $(26,208,992) 26,165 $ 564,041 (29,243) $ (790,764)
---------- ------------ ------- --------- ------- -----------
---------- ------------ ------- --------- ------- -----------
</TABLE>
PROPOSED REORGANIZATION
The Board of Directors of the Fund has approved a Plan of Reorganization and
Termination (the "Reorganization") for submission to its shareholders at a
special meeting to be held October 6, 1995. If the proposed Reorganization is
approved and implemented, all the Fund's assets will be acquired and its
liabilities assumed by PaineWebber Growth and Income Fund ("Growth and Income
Fund") in a tax-free reorganization. As a result of the Reorganization, the two
funds' assets would be combined and each Fund shareholder would, on the closing
date of the transaction, receive a number of full and fractional shares of the
corresponding Class of shares of Growth and Income Fund having an aggregate
value equal to the value of the shareholder's holdings in the Fund. There can be
no assurance that the Fund's shareholders will approve the Reorganization.
17
<PAGE>
Mitchell Hutchins/Kidder, Peabody Equity Income Fund, Inc.
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
Selected data for a share of common stock outstanding throughout each period
is presented below:
<TABLE><CAPTION>
CLASS A
---------------------------------------------------------------------------------------
SIX MONTH FIVE MONTH
PERIOD ENDED YEAR PERIOD
JULY 31, ENDED ENDED YEARS ENDED AUGUST 31,
1995 JANUARY 31, JANUARY 31, -------------------------------------------
(UNAUDITED) 1995 1994 1993 1992 1991 1990
------------- ----------- ----------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 18.72 $ 24.89 $ 28.23 $ 27.16 $ 25.71 $ 19.53 $ 20.10
------------- ----------- ----------- -------- -------- -------- --------
Increase (decrease) from
investment operations:
Net investment
income............... 0.20 0.40 0.13 0.55 0.40 0.41 0.64
Net realized and
unrealized gains
(losses) from
investment
transactions......... 3.60 (1.57) 0.03 1.15 1.32 6.33 (0.68)
------------- ----------- ----------- -------- -------- -------- --------
Net increase (decrease)
from investment
operations............. 3.80 (1.17) 0.16 1.70 1.72 6.74 (0.04)
------------- ----------- ----------- -------- -------- -------- --------
Dividends and
distributions from:
Net investment
income............... (0.18) (0.38) (0.23) (0.63) (0.27) (0.56) (0.53)
Net realized gains from
investments.......... (0.01) (4.62) (3.27) -- -- -- --
------------- ----------- ----------- -------- -------- -------- --------
Total dividends and
distributions......... (0.19) (5.00) (3.50) (0.63) (0.27) (0.56) (0.53)
------------- ----------- ----------- -------- -------- -------- --------
Net asset value, end of
period................ $ 22.33 $ 18.72 $ 24.89 $ 28.23 $ 27.16 $ 25.71 $ 19.53
------------- ----------- ----------- -------- -------- -------- --------
------------- ----------- ----------- -------- -------- -------- --------
Total investment
return (1)............. 20.38% (4.29)% 0.81% 6.35% 6.68% 35.22% (0.29)%
------------- ----------- ----------- -------- -------- -------- --------
------------- ----------- ----------- -------- -------- -------- --------
Ratios/Supplemental
Data:
Net assets, end of
period (000's)....... $56,598 $57,950 $ 102,634 $126,387 $147,842 $103,722 $ 63,571
Ratio of expenses to
average net assets... 1.65%* 1.63% 1.65%* 1.35% 1.27% 1.37% 1.60%
Ratio of net investment
income to average net
assets............... 1.83%* 1.72% 1.13%* 1.93% 1.58% 1.88% 3.19%
Portfolio turnover..... 101% 179% 28% 67% 60% 67% 178%
</TABLE>
- ------------
* Annualized.
+ Commencement of offering of shares.
(1) Total investment return is calculated assuming a $1,000 investment in Fund
shares on the first day of each period reported, reinvestment of all
dividends and capital gain distributions 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 of Class A would be lower
if sales charges were included. Total investment returns for periods of less
than one year have not annualized.
18
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights--(concluded)
- --------------------------------------------------------------------------------
<TABLE><CAPTION>
CLASS B CLASS C
- ----------------------------------------------------------------- --------------------------------------------------------------
SIX MONTH FIVE MONTH FOR THE SIX MONTH FIVE MONTH FOR THE
PERIOD ENDED PERIOD PERIOD JUNE 14, PERIOD ENDED PERIOD PERIOD JUNE 14,
JULY 31, YEAR ENDED ENDED 1993+ TO JULY 31, YEAR ENDED ENDED 1993+ TO
1995 JANUARY 31, JANUARY 31, AUGUST 31, 1995 JANUARY 31, JANUARY 31, AUGUST 31,
(UNAUDITED) 1995 1994 1993 (UNAUDITED) 1995 1994 1993
- ------------ ------------ ----------- --------------- ------------ ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
18.61
$ $ 24.79 $ 28.20 $ 27.42 $18.71 $ 24.87 $ 28.26 $ 27.42
- ------------ ------------ ----------- ------ ------ ----------- ----------- ------
0.13 0.29 0.11 0.07 0.25 0.49 0.19 0.13
3.60 (1.57) (0.01) 0.71 3.59 (1.53) 0.03 0.71
- ------------ ------------ ----------- ------ ------ ----------- ----------- ------
3.73 (1.28) 0.10 0.78 3.84 (1.04) 0.22 0.84
- ------------ ------------ ----------- ------ ------ ----------- ----------- ------
(0.14) (0.28) (0.24) -- (0.22) (0.50) (0.34) --
(0.01) (4.62) (3.27) -- (0.01) (4.62) (3.27) --
- ------------ ------------ ----------- ------ ------ ----------- ----------- ------
(0.15) (4.90) (3.51) -- (0.23) (5.12) (3.61) --
- ------------ ------------ ----------- ------ ------ ----------- ----------- ------
$ 22.19 $ 18.61 $ 24.79 $ 28.20 $22.32 $ 18.71 $ 24.87 $ 28.26
- ------------ ------------ ----------- ------ ------ ----------- ----------- ------
- ------------ ------------ ----------- ------ ------ ----------- ----------- ------
20.08% (4.75)% 0.62% 2.85% 20.65% (3.74)% 1.04% 3.06%
- ------------ ------------ ----------- ------ ------ ----------- ----------- ------
- ------------ ------------ ----------- ------ ------ ----------- ----------- ------
$ 1,634 $ 1,622 $ 1,511 $ 557 $3,041 $ 3,454 $ 5,319 $ 4,730
2.15%* 2.13% 2.14% 1.94% 1.15%* 1.13% 1.15% 0.97%
1.33%* 1.22% 0.64% 1.34% 2.35%* 2.22% 1.63% 2.31%
101% 179% 28% 67% 101% 179% 28% 67%
</TABLE>
19
<PAGE>
Mitchell Hutchins/Kidder, Peabody Equity Income Fund, Inc.
- --------------------------------------------------------------------------------
Shareholder Information
- --------------------------------------------------------------------------------
A special meeting of shareholders of Mitchell Hutchins/Kidder, Peabody Equity
Income Fund, Inc. ("Fund"), was held on April 13, 1995. At the meeting, David J.
Beaubien, William W. Hewitt, Jr., Thomas R. Jordan, Frank P.L. Minard and Carl
W. Schafer were elected as directors to serve without limit in time, subject to
resignation, retirement or removal. The selection of Deloitte & Touche LLP as
the Fund's independent accountants was ratified.
The votes were as follows:
<TABLE><CAPTION>
ALL SHARES VOTING AS A SINGLE
CLASS
--------------------------------
<S> <C> <C>
SHARES SHARES
VOTED FOR WITHHOLD AUTHORITY
--------- ------------------
David J. Beaubien.................................... 1,677,275 120,604
William W. Hewitt, Jr................................ 1,677,275 120,604
Thomas R. Jordan..................................... 1,677,275 120,604
Frank P.L. Minard.................................... 1,677,275 120,604
Carl W. Schafer...................................... 1,677,275 120,604
</TABLE>
<TABLE><CAPTION>
ALL SHARES VOTING AS A SINGLE CLASS
------------------------------------------------
SHARES SHARES SHARES
VOTED FOR VOTED AGAINST WITHHOLD AUTHORITY
--------- ------------- ------------------
<S> <C> <C> <C>
Ratification of the selection of
Deloitte & Touche LLP................. 1,660,186 23,358 114,336
</TABLE>
On July 20, 1995, the Board of Directors appointed Ernst & Young LLP as the
Fund's independent auditors.
20
<PAGE>
Mitchell Hutchins/Kidder, Peabody Equity Income Fund, Inc.
- --------------------------------------------------------------------------------
Shareholder Information (concluded)
- --------------------------------------------------------------------------------
In addition the following agreements were approved for the Fund:
(1) An interim investment advisory agreement between the Fund and
Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins") containing
substantially the same terms, conditions and fees as the previous investment
advisory agreement with Kidder Peabody Asset Management, Inc. ("KPAM").
The votes were as follows:
ALL SHARES VOTING AS A SINGLE CLASS
- ---------------------------------------------------
SHARES SHARES SHARES
VOTED FOR VOTED AGAINST WITHHOLD AUTHORITY
- ------------- ------------- -------------------
1,664,176 21,228 112,265
(2) A new investment advisory and administration agreement with Mitchell
Hutchins containing the same fees and substantially similar terms and
conditions as its previous investment advisory agreement with KPAM.
The votes were as follows:
ALL SHARES VOTING AS A SINGLE CLASS
- ---------------------------------------------------
SHARES SHARES SHARES
VOTED FOR VOTED AGAINST WITHHOLD AUTHORITY
- ------------- ------------- -------------------
1,652,299 22,085 123,284
Broker non-votes and abstentions are included within the "Shares Withhold
Authority" totals.
21
<PAGE>
---------------------------------------
DIRECTORS
David J. Beaubien
William W. Hewitt, Jr.
Thomas R. Jordan
Frank P.L. Minard
Carl W. Schafer
---------------------------------------
OFFICERS
Margo N. Alexander
President
T. Kirkham Barneby
Vice 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
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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.
The financial information included
herein is taken from the records of the
Fund without examination by independent
accountants who do not express an
opinion thereon.
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.
