PAINEWEBBER SERIES TRUST, 485BPOS, 1997-05-01

PAINEWEBBER SERIES TRUST
485BPOS, 1997-05-01

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<PAGE>

As filed with the Securities and Exchange Commission on May 1, 1997

1933 Act Registration No. 33-10438
1940 Act Registration No. 811-4919

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-lA

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ X ]

Pre-Effective Amendment No. ___ [___]

Post-Effective Amendment No. 24 [ X ]
--

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 [ X ]

Amendment No. 23
----
(Check appropriate box or boxes.)

PAINEWEBBER SERIES TRUST
(Exact name of registrant as specified in charter)

1285 Avenue of the Americas
New York, New York 10019
(Address of principal executive offices)
Registrant's telephone number, including area code: (212) 713-2000

DIANNE E. O'DONNELL, Esq.
Mitchell Hutchins Asset Management Inc.
1285 Avenue of the Americas
New York, New York 10019
(Name and address of agent for service)

Copies to:
ELINOR W. GAMMON, Esq.
Kirkpatrick & Lockhart LLP
Second Floor
1800 Massachusetts Avenue, N.W.
Washington, D.C. 20036-1800
Telephone: (202) 778-9000

It is proposed that this filing will become effective:

[___] Immediately upon filing pursuant to Rule 485(b)

[ X ] On May 1, 1997 pursuant to Rule 485(b)
-----------
[___] 60 days after filing pursuant to Rule 485(a)(i)
[___] On _________________ pursuant to Rule 485(a)(i)
[___] 75 days after filing pursuant to Rule 485(a)(ii)
[___] On _________________ pursuant to Rule 485(a)(ii)

If appropriate, check the following box:

[___] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment

Registrant has filed a declaration pursuant to Rule 24f-2 under the Investment
Company Act of 1940 and filed the notice required by such Rule for its most
recent fiscal year on February 24, 1997.
<PAGE>

PaineWebber Series Trust
Form N-1A Cross Reference Sheet
<TABLE>
<CAPTION>

Part A Item No. and Caption Prospectus Caption
--------------------------- ------------------

<S> <C>
1. Cover Page Cover Page

2. Synopsis Not Applicable

3. Condensed Financial Information Financial Highlights

4. General Description of Registrant Investment Objectives and
Policies; Description of
Securities and Investment
Techniques; General Information

5. Management of the Fund Management; General Information

5A. Management's Discussion of Fund Financial Highlights
Performance

6. Capital Stock and Other Securities Cover Page; Dividends, Other
Distributions and Federal Tax;
General Information

7. Purchase of Securities Purchases, Redemptions
Being Offered and Exchanges; Valuation of Shares

8. Redemption or Repurchase Purchases, Redemptions and
Exchanges

9. Pending Legal Proceeding Not Applicable

Part B - Item No. and Caption Statement of Additional
----------------------------- Information Caption

10. Cover Page Cover Page

11. Table of Contents Table of Contents

12. General Information and History Other Information

13. Investment Objective and Policies Investment Policies and
Restrictions; Hedging and Option
Income Strategies; Portfolio
Transactions

14. Management of the Fund Management of the Fund

15. Control Persons and Trustees and Officers
Principal Holders of
Securities

</TABLE>
<PAGE>

Part B - Item No. and Caption Statement of Additional
----------------------------- Information Caption
-----------------------

<S> <C> <C>
16. Investment Advisory and Investment Advisory Services; Other
Other Services Information

17. Brokerage Allocation Portfolio Transactions

18. Capital Stock and Other Dividends and Other Distributions;
Securities Other Information

19. Purchase, Redemption and Pricing Additional Purchase and Redemption
of Securities Being Offered Information; Valuation of Shares

20. Tax Status Taxes

21. Underwriters Not Applicable

22. Calculation of Performance Data Not Applicable

23. Financial Statements Financial Statements

</TABLE>

Part C
- ------

Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.
<PAGE>

PAINEWEBBER SERIES TRUST
1285 Avenue of the Americas
New York, New York 10019

PaineWebber Series Trust ("Fund") is a professionally managed, open-end
investment company that offers the nine series of shares ("Portfolios") listed
below. All the Portfolios except Global Income Portfolio are diversified, and
each has its own investment objective and policies. Shares of each Portfolio
are offered only to insurance company separate accounts that fund certain
variable contracts ("Contracts"). Advisory and administrative services are
provided to the Fund by Mitchell Hutchins Asset Management Inc. ("Mitchell
Hutchins"), a wholly owned subsidiary of PaineWebber Incorporated
("PaineWebber"), and certain Portfolios, as indicated below, have sub-advisers
("Sub-Advisers").

* MONEY MARKET PORTFOLIO seeks maximum current income consistent with
liquidity and conservation of capital. This Portfolio invests in high
grade money market instruments and repurchase agreements secured by such
instruments. An investment in the Portfolio is neither insured nor
guaranteed by the U.S. government. While the Portfolio seeks to maintain
a stable net asset value of $1.00 per share, there can be no assurance
that it will be able to do so.

* HIGH GRADE FIXED INCOME PORTFOLIO primarily seeks current income
consistent with the preservation of capital and secondarily seeks
capital appreciation. This Portfolio invests primarily in debt
securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities and high quality corporate debt securities and
mortgage-backed and asset-backed securities of private issuers.

* STRATEGIC FIXED INCOME PORTFOLIO seeks total return consisting of
capital appreciation and income. This Portfolio invests primarily in
fixed income securities of varying maturities with a dollar-weighted
average portfolio duration between three and eight years. Pacific
Investment Management Company serves as Sub-Adviser to this Portfolio.

* GLOBAL INCOME PORTFOLIO primarily seeks high current income and
secondarily seeks capital appreciation. This Portfolio invests
principally in high quality debt securities of foreign and U.S. issuers.

* BALANCED PORTFOLIO seeks a high total return with low volatility. This
Portfolio invests primarily in a combination of equity securities,
investment grade debt obligations and money market instruments, based on
Mitchell Hutchins' assessment of the optimal allocation of the
Portfolio's assets.

* GROWTH AND INCOME PORTFOLIO seeks current income and capital growth.
This Portfolio invests primarily in dividend-paying equity securities
believed by Mitchell Hutchins to have the potential for rapid earnings
growth.

* GROWTH PORTFOLIO seeks long-term capital appreciation. This Portfolio
invests primarily in equity securities of companies that, in the
judgment of Mitchell Hutchins, have substantial potential for capital
growth.

* AGGRESSIVE GROWTH PORTFOLIO seeks to maximize long-term capital
appreciation. This Portfolio invests primarily in the common stocks of
U.S. companies. Nicholas-Applegate Capital Management serves as Sub-
Adviser to this Portfolio.

* GLOBAL GROWTH PORTFOLIO seeks long-term capital appreciation. This
Portfolio invests primarily in common stocks of companies based in the
United States, Europe, Japan and the Pacific Basin. GE Investment
Management Incorporated serves as Sub-Adviser to this Portfolio.

This Prospectus concisely sets forth information about the Fund that a
prospective investor should know before investing. Investors are advised to
read this Prospectus and the applicable Contract prospectus and retain them for
future reference. A Statement of Additional Information dated May 1, 1997
(which is incorporated by reference herein) has been filed with the Securities
and Exchange Commission. The Statement of Additional Information can be
obtained without charge and further inquiries can be made by contacting the
Fund or your PaineWebber investment executive or by calling toll free 1-800-
986-0088.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

The date of this Prospectus is May 1, 1997.

PW 1
<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
<S> <C>
Financial Highlights...................................................... PW 3
Investment Objectives and Policies........................................ PW 11
Description of Securities, Investment Techniques and Related Risks........ PW 16
Purchases, Redemptions and Exchanges...................................... PW 27
Dividends, Other Distributions and Federal Income Tax..................... PW 27
Valuation of Shares....................................................... PW 28
Management................................................................ PW 29
General Information....................................................... PW 32
</TABLE>

PW 2
<PAGE>

FINANCIAL HIGHLIGHTS

The tables below provide data and ratios for one share of each Portfolio
during the periods shown. This information is supplemented by the financial
statements, accompanying notes and the report of Ernst & Young LLP,
independent auditors, which appear in the Fund's Annual Report to Shareholders
for the fiscal year ended December 31, 1996, and are incorporated by reference
into the Statement of Additional Information. The financial statements and
notes, as well as the information in the tables appearing below relating to
each of the five years in the period ended December 31, 1996, have been
audited by Ernst & Young LLP. Further information about the performance of
each Portfolio is also included in the Annual Report to Shareholders, which
may be obtained without charge by calling 1-800-986-0088. The information
appearing below for periods prior to the year ended December 31, 1992 also has
been audited by Ernst & Young LLP, whose reports thereon were unqualified.

The financial highlights information pertains to the Portfolios and does not
reflect charges related to the separate accounts that fund the Contracts. You
should refer to the appropriate separate account prospectus for additional
information regarding such charges.

<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO
------------------------------------------------------------------------------------------
FOR THE
PERIOD
MAY 4,
FOR THE YEARS ENDED DECEMBER 31, 1987+ TO
---------------------------------------------------------------------------- DECEMBER 31,
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
------- ------- ------- ------- ------- ------- ------ ------ ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning
of period.............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- ------- ------- ------ ------ ------ ------
Net investment income... 0.04 0.05 0.03 0.02 0.03 0.05 0.05 0.08 0.06 0.03
------- ------- ------- ------- ------- ------- ------ ------ ------ ------
Dividends from net
investment income...... (0.04) (0.05) (0.03) (0.02) (0.03) (0.05) (0.05) (0.08) (0.06) (0.03)
------- ------- ------- ------- ------- ------- ------ ------ ------ ------
Net asset value, end of
period................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= ======= ======= ====== ====== ====== ======
Total investment return
(1).................... 4.32% 5.22% 3.43% 2.45% 3.00% 5.00% 5.00% 8.00% 6.00% 3.40%
======= ======= ======= ======= ======= ======= ====== ====== ====== ======
Ratios/Supplemental
Data:
Net assets, end of
period (000's)......... $12,287 $21,974 $25,042 $15,468 $19,383 $20,249 $8,720 $4,367 $3,278 $2,974
Expenses to average net
assets**............... 1.17% 0.79% 0.88% 0.86% 0.81% 1.00% 2.02% 1.55% 1.56% 1.54%*
Net investment income to
average net assets**... 4.27% 5.23% 3.56% 2.43% 3.13% 4.92% 6.13% 7.62% 5.74% 5.40%*
</TABLE>
- -------

* Annualized

** During certain periods presented above, Mitchell Hutchins agreed to
reimburse the Portfolio for a portion of its operating expenses and waived
all or a portion of its advisory fee. If such reimbursements and waivers
had not been made, the annualized ratio of expenses to average net assets
and the annualized ratio of net investment income to average net assets
would have been 2.04% and 6.11%, 2.17% and 6.99%, 2.36% and 4.94%, and
4.60% and 2.34%, respectively, for the years ending December 31, 1990, 1989
and 1988 and for the period ended December 31, 1987.

+ Commencement of operations

(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each period reported, reinvestment of all dividends 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 additional
contract level charges; results would be lower if such charges were
included. Total investment returns for periods of less than one year have
not been annualized.

PW 3

<PAGE>

<TABLE>
<CAPTION>
HIGH GRADE FIXED INCOME
PORTFOLIO
---------------------------------------

FOR THE YEARS FOR THE PERIOD
ENDED NOVEMBER 8,
DECEMBER 31, 1993+ TO
---------------------- DECEMBER 31,
1996 1995 1994 1993
------ ------ ------ --------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period... $ 9.49 $ 8.71 $ 9.61 $10.00
------ ------ ------ ------
Net investment income (loss)........... 1.04 0.56 0.26 0.02
Net realized and unrealized gains
(losses) from investments............. (0.91) 0.79 (0.89) (0.39)
------ ------ ------ ------
Total income (loss) from investment
operations............................ 0.13 1.35 (0.63) (0.37)
------ ------ ------ ------
Dividends from net investment income... (0.52) (0.57) (0.27) (0.02)
Distributions from net realized gains
from investments...................... -- -- -- --
------ ------ ------ ------
Total dividends and distributions...... (0.52) (0.57) (0.27) (0.02)
------ ------ ------ ------
Net asset value, end of period......... $ 9.10 $ 9.49 $ 8.71 $ 9.61
====== ====== ====== ======
Total investment return (1)............ 1.41% 15.44% (6.56)% (3.73)%
====== ====== ====== ======
Ratios/Supplemental Data:
Net assets, end of period (000's)...... $7,902 $9,147 $7,638 $1,480
Expenses to average net assets**....... 1.62% 1.01% 1.56% 0.00%
Net investment income (loss) to average
net assets**.......................... 5.04% 5.56% 4.61% 3.90%*
Portfolio turnover..................... 282% 136% 36% 0%
Average commission rate paid (2)....... -- -- -- --
</TABLE>
- --------

* Annualized

** During the period ended December 31, 1993, Mitchell Hutchins agreed to
reimburse the Portfolio for all of its operating expenses and waived all of
its advisory fees. If such reimbursements and waivers had not been made,
the annualized ratio of expenses to average net assets and the annualized
ratio of net investment income (loss) to average net assets would have been
23.52% and (19.62)%, respectively.

+ Commencement of operations

(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 additional contract level charges; results would be lower if
such charges were included. Total investment return for periods of less
than one year have not been annualized.

(2) Effective for fiscal years beginning on or after September 1, 1995, the
Portfolio is required to disclose the average commission rate paid per
share of common stock investments purchased or sold.

PW 4
<PAGE>

<TABLE>
<CAPTION>
STRATEGIC FIXED INCOME PORTFOLIO
---------------------------------------------------------------------------
FOR THE
PERIOD
JULY 5,
FOR THE YEARS ENDED DECEMBER 31, 1989+ TO
------------------------------------------------------------- DECEMBER 31,
1996 1995 1994 1993 1992 1991 1990 1989
------- ------- ------- ------- ------- ------- ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 10.61 $ 10.34 $ 11.93 $ 11.58 $ 11.61 $ 10.49 $10.17 $10.00
------- ------- ------- ------- ------- ------- ------ ------
Net investment income... 1.40 0.88 0.85 0.87 0.74 0.47 0.45 0.10
Net realized and
unrealized gains
(losses) from
investments............ (1.01) 1.03 (1.49) 0.48 0.05 1.12 0.32 0.17
------- ------- ------- ------- ------- ------- ------ ------
Total income (loss) from
investment operations.. 0.39 1.91 (0.64) 1.35 0.79 1.59 0.77 0.27
------- ------- ------- ------- ------- ------- ------ ------
Dividends from net
investment income...... (0.70) (0.88) (0.85) (0.87) (0.74) (0.47) (0.45) (0.10)
Distributions from net
realized gains from
investments............ (0.09) (0.76) (0.10) (0.13) (0.08) -- -- --
------- ------- ------- ------- ------- ------- ------ ------
Total dividends and
distributions.......... (0.79) (1.64) (0.95) (1.00) (0.82) (0.47) (0.45) (0.10)
------- ------- ------- ------- ------- ------- ------ ------
Net asset value, end of
period................. $ 10.21 $ 10.61 $ 10.34 $ 11.93 $ 11.58 $ 11.61 $10.49 $10.17
======= ======= ======= ======= ======= ======= ====== ======
Total investment return
(1).................... 3.79% 18.51% (5.34)% 11.66% 6.76% 15.17% 7.58% 2.70%
======= ======= ======= ======= ======= ======= ====== ======
Ratios/Supplemental
Data:
Net assets, end of
period (000's)......... $10,689 $13,741 $17,020 $22,354 $24,103 $15,690 $5,192 $1,294
Expenses to average net
assets**............... 1.52% 0.99% 0.89% 0.79% 0.76% 1.25% 1.55% 1.55%*
Net investment income to
average
net assets**........... 5.88% 6.35% 6.64% 6.13% 6.59% 6.43% 6.80% 6.17%*
Portfolio turnover...... 317% 234% 54% 8% 23% 1% 66% 0%
</TABLE>
- --------

* Annualized

** During certain periods presented above, Mitchell Hutchins agreed to
reimburse the Portfolio for a portion of its operating expenses and waived
all or a portion of its advisory fee. If such reimbursements and waivers
had not been made, the annualized ratio of expenses to average net assets
and the annualized ratio of net investment income (loss) to average net
assets would have been 1.28% and 6.40%, 3.14% and 5.20% and 13.87% and
(6.15)%, respectively, for the years ending December 31, 1991 and 1990, and
for the period ended December 31, 1989.

+ Commencement of operations

(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 additional contract level charges; results would be lower if
such charges were included. Total investment returns for periods of less
than one year have not been annualized.

PW 5
<PAGE>

<TABLE>
<CAPTION>
GLOBAL INCOME PORTFOLIO
------------------------------------------------------------------------------------
FOR THE
PERIOD
MAY 1,
FOR THE YEARS ENDED DECEMBER 31, 1988+ TO
---------------------------------------------------------------------- DECEMBER 31,
1996 1995 1994 1993 1992 1991 1990 1989 1988
------- ------- ------- ------- ------- ------- ------- ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 11.20 $ 10.88 $ 11.72 $ 11.17 $ 11.65 $ 11.16 $ 10.19 $10.67 $10.00
------- ------- ------- ------- ------- ------- ------- ------ ------
Net investment income
(loss)................. 0.87 (0.05) 0.97 0.96 0.80 0.75 0.52 0.94 0.28
Net realized and
unrealized gains
(losses) from
investments............ (0.13) 1.52 (1.60) 0.90 (0.65) 0.40 1.00 (0.22) 0.39
------- ------- ------- ------- ------- ------- ------- ------ ------
Total income (loss) from
investment operations.. 0.74 1.47 (0.63) 1.86 0.15 1.15 1.52 0.72 0.67
------- ------- ------- ------- ------- ------- ------- ------ ------
Dividends from net
investment income...... (0.79) (1.15) (0.21) (0.94) (0.56) (0.65) (0.52) (1.06) --
Distributions in excess
of net investment
income................. -- -- -- (0.16) -- -- -- -- --
Distributions from net
realized gains on
investments............ (0.01) -- -- (0.21) (0.07) (0.01) (0.03) (0.14) --
------- ------- ------- ------- ------- ------- ------- ------ ------
Total dividends and
distributions.......... (0.80) (1.15) (0.21) (1.31) (0.63) (0.66) (0.55) (1.20) --
------- ------- ------- ------- ------- ------- ------- ------ ------
Net asset value, end of
period................. $ 11.14 $ 11.20 $ 10.88 $ 11.72 $ 11.17 $ 11.65 $ 11.16 $10.19 $10.67
======= ======= ======= ======= ======= ======= ======= ====== ======
Total investment return
(1).................... 6.62% 13.58% (5.56)% 16.65% 1.29% 10.30% 14.92% 6.80% 6.70%
======= ======= ======= ======= ======= ======= ======= ====== ======
Ratios/Supplemental
Data:
Net assets, end of
period (000's)......... $24,436 $35,700 $52,688 $64,610 $63,172 $51,988 $30,778 $7,425 $7,298
Expenses to average net
assets**............... 1.56% 1.19% 1.17% 0.98% 1.07% 1.20% 1.72% 1.86% 1.86%*
Net investment income to
average net assets**... 6.56% 7.21% 7.23% 7.47% 7.20% 7.59% 8.64% 9.00% 6.35%*
Portfolio turnover ..... 134% 160% 97% 69% 75% 14% 110% 32% 136%
</TABLE>
- --------

* Annualized

** During certain periods presented above, Mitchell Hutchins agreed to
reimburse the Portfolio for a portion of its operating expenses and waived
all or a portion of its advisory fee. If such reimbursements and waivers
had not been made, the annualized ratio of expenses to average net assets
and the annualized ratio of net investment income to average net assets
would have been 1.75% and 8.61%, 2.59% and 8.27% and 3.30% and 4.91%,
respectively, for the years ended December 31, 1990 and 1989, and for the
period ended December 31, 1988.

+ Commencement of operations

(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 additional contract level charges; results would be lower if
such charges were included. Total investment returns for periods of less
than one year have not been annualized.

PW 6
<PAGE>

<TABLE>
<CAPTION>
BALANCED PORTFOLIO*
-------------------------------------------------------------------------------------
FOR THE
PERIOD
JUNE 1,
FOR THE YEARS ENDED DECEMBER 31, 1988+ TO
----------------------------------------------------------------------- DECEMBER 31,
1996 1995 1994 1993 1992 1991 1990 1989 1988
------- ------- ------- ------- ------- ------- ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning
of period.............. $ 10.70 $ 9.54 $ 11.95 $ 11.63 $ 11.39 $ 9.99 $ 10.37 $ 10.54 $ 10.00
------- ------- ------- ------- ------- ------- ------- ------- -------
Net investment income... 0.57 0.35 0.30 0.33 0.35 0.47 0.65 0.66 0.28
Net realized and
unrealized gains
(losses) from
investments............ 1.21 1.88 (1.44) 1.48 0.24 1.40 (0.38) 0.52 0.26
------- ------- ------- ------- ------- ------- ------- ------- -------
Total income (loss) from
investment operations.. 1.78 2.23 (1.14) 1.81 0.59 1.87 0.27 1.18 0.54
------- ------- ------- ------- ------- ------- ------- ------- -------
Dividends from net
investment income...... (0.28) (0.35) (0.30) (0.33) (0.35) (0.47) (0.65) (0.94) --
Distributions from net
realized gains on
investments............ (1.25) (0.72) (0.97) (1.16) -- -- -- (0.41) --
------- ------- ------- ------- ------- ------- ------- ------- -------
Total dividends and
distributions.......... (1.53) (1.07) (1.27) (1.49) (0.35) (0.47) (0.65) (1.35) --
------- ------- ------- ------- ------- ------- ------- ------- -------
Net asset value, end of
period................. $ 10.95 $ 10.70 $ 9.54 $ 11.95 $ 11.63 $ 11.39 $ 9.99 $ 10.37 $ 10.54
======= ======= ======= ======= ======= ======= ======= ======= =======
Total investment return
(1).................... 16.82% 23.27% (9.59)% 15.76% 5.18% 18.73% 2.63% 11.10% 5.40%
======= ======= ======= ======= ======= ======= ======= ======= =======
Ratios/Supplemental
Data:
Net assets, end of
period (000's)......... $29,224 $23,413 $23,263 $33,367 $38,583 $33,327 $25,681 $26,851 $22,845
Expenses to average net
assets***.............. 1.24% 1.09% 1.03% 0.95% 0.93% 0.94% 1.48% 1.25% 1.24%**
Net investment income to
average net assets***.. 2.29% 2.88% 2.30% 2.27% 3.11% 4.64% 5.71% 6.54% 6.11%**
Portfolio turnover...... 235% 171% 112% 60% 31% 101% 169% 230% 70%
Average commission rate
paid (2)............... $0.0616 -- -- -- -- -- -- -- --
</TABLE>
- -------

* Prior to January 26, 1996, Balanced Portfolio was known as Asset Allocation
Portfolio.

** Annualized

*** During certain periods presented above, Mitchell Hutchins agreed to
reimburse the Balanced Portfolio for a portion of its operating expenses
and waived all or a portion of its advisory fee. If such reimbursements
and waivers had not been made, the annualized ratio of expenses to average
net assets and the annualized ratio of net investment income to average
net assets would have been 1.50% and 5.69%, 1.39% and 6.40% and 1.44% and
5.91%, respectively, for the years ending December 31, 1990 and 1989 and
for the period ended December 31, 1988.

+ Commencement of operations

(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each period reported, reinvestment of all dividends and
capital gain distributions 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 additional contract level charges; results would be
lower if such charges were included. Total investment return for periods
of less than one year have not been annualized.

(2) Effective for fiscal years beginning on or after September 1, 1995, the
Portfolio is required to disclose the average commission rate paid per
share of common stock investments purchased or sold.

PW 7
<PAGE>

<TABLE>
<CAPTION>
GROWTH AND INCOME PORTFOLIO
--------------------------------------------------------
FOR THE YEARS ENDED FOR THE PERIOD
DECEMBER 31, JANUARY 2, 1992+
------------------------------------- TO DECEMBER 31,
1996 1995 1994 1993 1992
------- ------- ------- ------- ----------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 11.83 $ 9.16 $ 9.87 $ 10.26 $ 10.00
------- ------- ------- ------- -------
Net investment income... 0.13 0.10 0.10 0.16 0.08
Net realized and
unrealized gains
(losses) from
investments............ 2.46 2.70 (0.71) (0.39) 0.26
------- ------- ------- ------- -------
Total income (loss) from
investment operations.. 2.59 2.80 (0.61) (0.23) 0.34
------- ------- ------- ------- -------
Dividends from net
investment income...... (0.06) (0.10) (0.10) (0.16) (0.08)
Distributions from net
realized gains from
investments............ (2.09) (0.03) -- -- --
------- ------- ------- ------- -------
Total dividends and
distributions.......... (2.15) (0.13) (0.10) (0.16) (0.08)
------- ------- ------- ------- -------
Net asset value, end of
period................. $ 12.27 $ 11.83 $ 9.16 $ 9.87 $ 10.26
======= ======= ======= ======= =======
Total investment return
(1).................... 22.12 % 30.52 % (6.18)% (2.26)% 3.40 %
======= ======= ======= ======= =======
Ratios/Supplemental
Data:
Net assets, end of
period (000's)......... $14,520 $14,797 $12,872 $16,281 $20,037
Expenses to average net
assets................. 1.58 % 1.37 % 1.35 % 1.12 % 1.29 %*
Net investment income to
average net assets..... 0.49 % 0.94 % 1.06 % 1.37 % 1.21 %*
Portfolio turnover...... 99 % 134 % 150 % 52 % 14 %
Average commission rate
paid (2)............... $0.0598 -- -- -- --
</TABLE>
- --------

* Annualized

+ Commencement of operations

(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 additional contract level charges; results would be lower if
such charges were included. Total investment return for periods of less
than one year have not been annualized.

(2) Effective for fiscal years beginning on or after September 1, 1995, the
Portfolio is required to disclose the average commission rate paid per
share of common stock investments purchased or sold.

PW 8
<PAGE>

<TABLE>
<CAPTION>
GROWTH PORTFOLIO
----------------------------------------------------------------------------------------------
FOR THE
PERIOD
MAY 4,
FOR THE YEARS ENDED DECEMBER 31, 1987+ TO
-------------------------------------------------------------------------------- DECEMBER 31,
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
------- ------- ------- ------- ------- ------- ------- ------ ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning
of period.............. $17.57 $ 14.56 $ 18.06 $ 15.68 $ 14.92 $ 10.57 $ 11.66 $10.38 $ 8.76 $10.00
------- ------- ------- ------- ------- ------- ------- ------ ------ ------
Net investment income
(loss)................. (0.06) 0.04 0.01 0.00 0.11 0.10 0.14 0.09 0.21 0.09
Net realized and
unrealized gains
(losses) from
investments............ 3.29 4.68 (2.13) 3.08 0.76 4.35 (1.09) 3.90 1.41 (1.24)
------- ------- ------- ------- ------- ------- ------- ------ ------ ------
Total income (loss) from
investment operations.. 3.23 4.72 (2.12) 3.08 0.87 4.45 (0.95) 3.99 1.62 (1.15)
------- ------- ------- ------- ------- ------- ------- ------ ------ ------
Dividends from net
investment income...... -- (0.08) (0.01) -- (0.11) (0.10) (0.14) (0.30) -- (0.09)
Distributions from net
realized gains from
investments............ (3.32) (1.63) (1.37) (0.70) -- -- -- (2.41) -- --
------- ------- ------- ------- ------- ------- ------- ------ ------ ------
Total dividends and
distributions.......... (3.32) (1.71) (1.38) (0.70) (0.11) (0.10) (0.14) (2.71) -- (0.09)
------- ------- ------- ------- ------- ------- ------- ------ ------ ------
Net asset value, end of
period................. $17.48 $ 17.57 $ 14.56 $ 18.06 $ 15.68 $ 14.92 $ 10.57 $11.66 $10.38 $ 8.76
======= ======= ======= ======= ======= ======= ======= ====== ====== ======
Total investment
return (1)............. 18.70% 32.50% (11.65)% 19.61% 5.83% 42.10% (8.15)% 38.44% 18.49% (11.52)%
======= ======= ======= ======= ======= ======= ======= ====== ====== ======
Ratios/Supplemental
Data:
Net assets, end of
period (000's)......... $36,357 $42,784 $39,135 $51,696 $46,479 $37,470 $12,283 $4,264 $ 802 $3,891
Expenses to average net
assets**............... 1.14% 1.02% 1.00% 0.92% 0.94% 1.13% 1.85% 1.76% 1.80% 1.79%*
Net investment income
(loss) to average net
assets**............... (0.29)% 0.23% 0.04% 0.00% 0.78% 1.07% 1.90% 1.53% 0.63% 3.00%*
Portfolio turnover...... 53% 41% 27% 35% 29% 28% 35% 68% 190% 2%
Average commission rate
paid (2)............... $0.0600 -- -- -- -- -- -- -- -- --
</TABLE>
- --------

* Annualized

** During certain periods presented above, Mitchell Hutchins agreed to
reimburse the Portfolio for a portion of its operating expenses and waived
all or a portion of its advisory fee. If such reimbursements and waivers had
not been made, the annualized ratio of expenses to average net assets and
the annualized ratio of net investment income (loss) to average net assets
would have been 1.91% and 1.84%, 3.61% and (0.31)%, 3.58% and (1.15)%, and
5.44% and (0.64)%, respectively, for the years ending December 31, 1990,
1989 and 1988 and for the period ended December 31, 1987.

+ Commencement of operations

(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 additional contract level charges; results would be lower if
such charges were included. Total investment returns for periods of less
than one year have not been annualized.

(2) Effective for fiscal years beginning on or after September 1, 1995, the
Portfolio is required to disclose the average commission rate paid per
share of common stock investments purchased or sold.

PW 9
<PAGE>

<TABLE>
<CAPTION>
GLOBAL GROWTH PORTFOLIO
----------------------------------------------------------------------------------------------
FOR THE
PERIOD
MAY 4,
FOR THE YEARS ENDED DECEMBER 31, 1987+ TO
-------------------------------------------------------------------------------- DECEMBER 31,
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
------- ------- ------- ------- ------- ------- ------- ------ ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning
of period.............. $ 12.00 $ 12.44 $ 14.97 $ 11.10 $ 12.06 $ 11.76 $ 11.43 $10.49 $ 8.35 $10.00
------- ------- ------- ------- ------- ------- ------- ------ ------ ------
Net investment income
(loss)................. 0.14 0.01 (0.03) 0.03 0.10 0.23 0.19 0.07 0.07 0.05
Net realized and
unrealized gains
(losses) from
investments............ 1.68 (0.45) (1.76) 4.42 (1.01) 0.35 0.67 1.94 2.07 (1.59)
------- ------- ------- ------- ------- ------- ------- ------ ------ ------
Total income (loss) from
investment operations.. 1.82 (0.44) (1.79) 4.45 (0.91) 0.58 0.86 2.01 2.14 (1.54)
------- ------- ------- ------- ------- ------- ------- ------ ------ ------
Dividends from net
investment income...... (0.08) -- (0.01) -- (0.05) (0.23) (0.19) (0.07) -- (0.05)
Excess of net investment
income................. -- -- -- -- -- -- -- (0.19) -- --
Distributions from net
realized gains from
investments............ -- -- (0.73) (0.58) -- (0.05) (0.34) (0.81) -- (0.06)
------- ------- ------- ------- ------- ------- ------- ------ ------ ------
Total dividends and
distributions.......... (0.08) 0.00 (0.74) (0.58) (0.05) (0.28) (0.53) (1.07) -- (0.11)
------- ------- ------- ------- ------- ------- ------- ------ ------ ------
Net asset value, end of
period................. $ 13.74 $ 12.00 $ 12.44 $ 14.97 $ 11.10 $ 12.06 $ 11.76 $11.43 $10.49 $ 8.35
======= ======= ======= ======= ======= ======= ======= ====== ====== ======
Total investment
return (1)............. 15.14% (3.54)% (11.94)% 40.02% (7.55)% 4.93% 7.53% 19.18% 25.63% (15.42)%
======= ======= ======= ======= ======= ======= ======= ====== ====== ======
Ratios/Supplemental
Data:
Net assets, end of
period (000's)......... $25,701 $28,507 $40,493 $38,035 $21,493 $24,308 $16,149 $3,806 $3,250 $3,135
Expenses to average net
assets**............... 1.10% 1.96% 1.48% 1.40% 1.46% 1.53% 2.07% 2.10% 2.08% 2.10%*
Net investment income
(loss) to average
net assets**........... 0.46% 0.10% (0.13)% 0.38% 0.82% 2.12% 3.29% 0.71% 0.68% 1.09%*
Portfolio turnover...... 44% 157% 175% 267% 127% 89% 120% 201% 33% 5%
Average commission rate
paid (2)............... $0.0110 -- -- -- -- -- -- -- -- --
</TABLE>
- --------

* Annualized

** During certain periods presented above, Mitchell Hutchins agreed to
reimburse the Portfolio for a portion of its operating expenses and waived
all or a portion of its advisory fee. If such reimbursements and waivers
had not been made, the annualized ratio of expenses to average net assets
and the annualized ratio of net investment income (loss) to average net
assets would have been 2.19% and 3.17%, 4.35% and (1.54)%, 4.55% and
(1.79)% and 4.87% and (1.68)%, respectively, for the years ended December
31, 1990, 1989, and 1988 and for the period ended December 31, 1987.

+ Commencement of operations

(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 additional contract level charges; results would be lower if
such charges were included. Total investment returns for periods of less
than one year have not been annualized.

(2) Effective for fiscal years beginning on or after September 1, 1995, the
Portfolio is required to disclose the average commission rate paid per
share of common stock investments purchased or sold.

PW 10
<PAGE>

<TABLE>
<CAPTION>
AGGRESSIVE GROWTH
PORTFOLIO
-------------------------------------------
FOR THE YEARS FOR THE PERIOD
ENDED NOVEMBER 2,
DECEMBER 31, 1993+ TO
-------------------------- DECEMBER 31,
1996 1995 1994 1993
------- ------- ------- --------------
<S> <C> <C> <C> <C>
Net asset value, beginning of
period............................ $ 11.34 $ 9.65 $ 9.95 $10.00
------- ------- ------- ------
Net investment income (loss)....... (0.10) 0.03 0.01 0.01
Net realized and unrealized gains
(losses) from investments......... 2.93 2.00 (0.30) (0.05)
------- ------- ------- ------
Total income (loss) from investment
operations........................ 2.83 2.03 (0.29) (0.04)
------- ------- ------- ------
Dividends from net investment
income............................ -- (0.02) (0.01) (0.01)
Distributions from net realized
gains from investments............ (1.08) (0.32) -- --
------- ------- ------- ------
Total dividends and distributions.. (1.08) (0.34) (0.01) (0.01)
------- ------- ------- ------
Net asset value, end of period..... $ 13.09 $ 11.34 $ 9.65 $ 9.95
======= ======= ======= ======
Total investment return (1)........ 25.23% 21.04% (2.90)% (0.36)%
======= ======= ======= ======
Ratios/Supplemental Data:
Net assets, end of period (000's).. $19,167 $17,660 $13,600 $2,814
Expenses to average net assets**... 1.52% 1.29% 1.59% 0.00%
Net investment income (loss) to
average net assets**.............. (0.74)% 0.23% 0.07% 3.31%*
Portfolio turnover................. 115% 119% 90% 0%
Average commission rate paid (2)... $0.0593 -- -- --
</TABLE>
- --------

* Annualized

** During the period ended December 31, 1993, Mitchell Hutchins agreed to
reimburse the Portfolio for all of its operating expenses and waived all of
their advisory fees. If such reimbursements and waivers had not been made,
the annualized ratio of expenses to average net assets and the annualized
ratio of net investment income (loss) to average net assets would have been
12.28% and (8.97)%, respectively.

+ Commencement of operations

(2) Effective for fiscal years beginning on or after September 1, 1995, the
Portfolio is required to disclose the average commission rate paid per
share of common stock investments purchased or sold.

PW 11
<PAGE>

INVESTMENT OBJECTIVES AND POLICIES

The Fund is a professionally managed mutual fund that offers nine Portfolios.
Each Portfolio represents a segregated, separately managed portfolio of
securities with its own investment objective, as set forth on page PW 1, and
its own investment policies, which are summarized on page PW 1 and set forth in
more detail below. There can be no assurance that any Portfolio's investment
objective will be met. Global Income Portfolio is managed as a non-diversified
investment company; the other Portfolios are all managed as diversified
investment companies.

Shares of each Portfolio are offered only to insurance company separate
accounts that fund the Contracts. An insurance company separate account's
interest is limited to the Portfolio(s) in which the separate account invests.
Separate accounts may purchase or redeem shares at net asset value without any
sales or redemption charge. Fees and charges imposed by the separate account,
however, will affect the actual return to the holder of a Contract. A separate
account may also impose certain restrictions or limitations on the allocation
of purchase payments or Contract value to one or more Portfolios, and not all
Portfolios may be available in connection with a particular Contract.
Prospective investors should consult the applicable Contract prospectus for
information regarding fees and expenses of the Contract and separate account
and any applicable restrictions or limitations.

Shares of all the Portfolios are offered to the separate account of PaineWebber
Life Insurance Company. Shares of the Portfolios other than High Grade Fixed
Income Portfolio and Aggressive Growth Portfolio also are offered to the
separate accounts of American Republic Insurance Company and American Benefit
Life Insurance Company, and shares of any or all of the Portfolios may be
offered to the separate accounts of other unaffiliated insurance companies
("shared funding"). Shares of the Portfolios may serve as the underlying
investments for both annuity and life insurance Contracts ("mixed funding").
Due to differences in tax treatment or other considerations, the interests of
various Contract owners might at some time be in conflict. The Fund currently
does not foresee any such conflict. However, the Fund's board of trustees
intends to monitor events to identify any material irreconcilable conflict that
may arise and to determine what action, if any, should be taken in response to
such conflict. If such a conflict were to occur, one or more insurance
companies' separate accounts might be required to withdraw its investments in
one or more Portfolios. This might force a Portfolio to sell securities at
disadvantageous prices.

MONEY MARKET PORTFOLIO invests in high grade money market instruments, with
remaining maturities of 13 months or less, and repurchase agreements secured by
such instruments and maintains a dollar-weighted average portfolio maturity of
90 days or less. These instruments include (1) U.S. government securities
(which may or may not be backed by the full faith and credit of the United
States), (2) obligations (including certificates of deposit, bankers'
acceptances, time deposits maturing in seven days or less and similar
obligations) of U.S. and foreign banks having total assets in excess of $1.5
billion at the time of purchase, (3) interest-bearing savings deposits in U.S.
commercial and savings banks having total assets of $1.5 billion or less,
provided that the principal amounts at each such bank are fully insured by the
Federal Deposit Insurance Corporation and the aggregate amount of such deposits
(plus interest earned) does not exceed 5% of the Portfolio's asset value and
(4) commercial paper and other short-term corporate obligations of U.S. and
foreign issuers, including variable and floating rate securities and
participation interests. Participation interests are pro rata interests in
securities held by others. The Portfolio may purchase only U.S. dollar-
denominated obligations of foreign issuers.

The commercial paper and other short-term corporate obligations purchased by
Money Market Portfolio consist only of obligations that Mitchell Hutchins
determines, pursuant to procedures adopted by the Fund's board of trustees,
present minimal credit risks and are either (1) rated in the highest short-term
rating category by at least two nationally recognized statistical rating
organizations ("NRSROs"), (2) rated in the highest short-term rating category
by a single NRSRO if

PW 12
<PAGE>

only that NRSRO has assigned the obligations a short-term rating or (3)
unrated, but determined by Mitchell Hutchins to be of comparable quality
("First Tier Securities"). Money Market Portfolio generally may invest no more
than 5% of its total assets in the securities of a single issuer (other than
securities issued by the U.S. government, its agencies or instrumentalities).

HIGH GRADE FIXED INCOME PORTFOLIO invests in U.S. government securities, which
include U.S. Treasury obligations and obligations issued or guaranteed by U.S.
government agencies or instrumentalities, including mortgage-backed securities.
The Portfolio may also invest in corporate debt securities, including corporate
bonds, debentures and non-convertible fixed income preferred stocks, and may
invest in mortgage- and asset-backed securities of private issuers. The
corporate debt securities in which the Portfolio may invest consist primarily
of debt securities that are, at the time of purchase, rated within one of the
two highest grades assigned by Standard & Poor's, a division of The McGraw-Hill
Companies, Inc. ("S&P"), or Moody's Investors Service Inc. ("Moody's"), except
that the Portfolio may invest up to 35% of its total assets in investment grade
debt securities that are rated at the time of purchase lower than the two
highest grades assigned by S&P or Moody's. The Portfolio may invest in debt
securities that are assigned comparable ratings by another NRSRO and may invest
in unrated debt securities that Mitchell Hutchins determines are of comparable
quality to rated securities in which the Portfolio may invest. The Portfolio
may invest up to 15% of its total assets in U.S. dollar-denominated bonds sold
in the United States by foreign issuers if the securities are traded on
recognized U.S. exchanges or in the U.S. over-the-counter ("OTC") market. The
Portfolio will not invest more than 25% of its total assets in mortgage- and
asset-backed securities of private issuers. No more than 55% of the total
assets of the Portfolio may be represented by U.S. Treasury obligations to
assure the Portfolio's compliance with the diversification requirements imposed
by the Internal Revenue Code on segregated asset accounts used to fund variable
annuity contracts. Mitchell Hutchins will seek to vary the average maturity of
the Portfolio's securities depending on its perception of future interest rate
movements, so that the average maturity will be shortened when Mitchell
Hutchins believes that interest rates may rise and will be lengthened when
Mitchell Hutchins anticipates a decline in interest rates.

STRATEGIC FIXED INCOME PORTFOLIO invests in a portfolio of fixed income
securities of varying maturities with a dollar-weighted average portfolio
duration between three and eight years. Portfolio holdings are invested in
areas of the bond market (based on quality, sector, coupon or maturity) that
its Sub-Adviser, Pacific Investment Management Company ("PIMCO"), believes to
be relatively undervalued. Under normal circumstances, the Portfolio invests at
least 65% of its total assets in fixed income securities, which include
obligations issued or guaranteed by the U.S. government, its agencies and
instrumentalities, corporate and other debt obligations, convertible
securities, mortgage- and asset-backed securities, obligations of foreign
governments or their subdivisions, agencies or instrumentalities, obligations
of supranational and quasi-governmental entities, commercial paper,
certificates of deposit, money market instruments, foreign currency exchange-
related securities and loan participations and assignments. The Portfolio may
invest up to 35% of its total assets in privately issued mortgage-related
securities. All of the securities purchased for the Portfolio are investment
grade, except that the Portfolio may invest up to 20% of its total assets in
securities rated below investment grade, but rated at least B by S&P or
Moody's, assigned a comparable rating by another NRSRO or, if unrated,
determined by the Sub-Adviser to be of comparable quality. Securities rated
below investment grade are commonly known as "junk bonds." The Portfolio may
invest up to 20% of its total assets in a combination of U.S. dollar-
denominated debt of any foreign issuer, Yankee bonds, Eurodollar bonds and debt
securities denominated in foreign currencies, except that not more than 10% of
the Portfolio's total assets shall be invested in debt securities denominated
in foreign currencies. Yankee bonds are U.S. dollar-denominated obligations of
foreign issuers and Eurodollar bonds are U.S. dollar-denominated obligations of
issuers that are held outside the United States, primarily in Europe.

PW 13
<PAGE>

GLOBAL INCOME PORTFOLIO invests principally in high quality debt securities of
foreign and U.S. issuers. Debt securities are considered high quality if they
are assigned one of S&P's or Moody's two highest ratings. The Portfolio may
invest in debt securities that are assigned comparable ratings by another NRSRO
and may invest in unrated debt securities that Mitchell Hutchins determines are
of comparable quality to rated securities in which the Portfolio may invest.
Normally, at least 65% of the Portfolio's total assets are invested in high
quality debt securities, denominated in foreign currencies or U.S. dollars,
that are issued or guaranteed by foreign and U.S. governments or their
agencies, instrumentalities or political subdivisions or by supranational
organizations such as the International Bank for Reconstruction and Development
("World Bank"), or that are issued by foreign and U.S. companies, banks and
bank holding companies. Such issuers will be located in at least five of the
following countries: Australia, Austria, Belgium, Canada, Denmark, Finland,
France, Germany, Hong Kong, Ireland, Italy, Japan, the Netherlands, New
Zealand, Norway, Portugal, Singapore, South Africa, Spain, Sweden, Switzerland,
Thailand, the United Kingdom and the United States. No more than 20% of the
Portfolio's total assets will be invested in securities of issuers located in
any one country, except that the Portfolio may invest up to 35% of its total
assets in securities of issuers located in any one of the following countries:
Australia, Canada, France, Germany, Japan and the United Kingdom. There is no
limit on the amount of assets that may be invested in securities of U.S.
issuers. Mitchell Hutchins expects that normally more than 50% of the
Portfolio's total assets will be invested in U.S. and foreign government
securities in order to minimize credit risk and to capitalize on opportunities
that historically have been presented by, and are perceived to exist today with
respect to, such instruments. Up to 35% of the Portfolio's total assets may be
invested in debt securities rated below the two highest grades assigned by a
NRSRO. Within this 35% limitation, the Portfolio must invest in debt securities
rated at least investment grade, except that the Portfolio may invest up to 20%
of its total assets in sovereign debt securities rated below investment grade
but no lower than BB by S&P or Ba by Moody's or, in the case of such securities
assigned a commercial paper rating, no lower than B by S&P. Mitchell Hutchins
will purchase securities rated below investment grade for the Portfolio only
when it concludes that the anticipated return to the Portfolio on such
investment warrants exposure to the additional level of risk. Securities rated
below investment grade are commonly known as "junk bonds." Fundamental economic
strength, credit quality and currency and interest rate trends are the
principal determinants of the various country, geographic and industry sector
weightings within the Portfolio. Up to 5% of the Portfolio's total assets may
be invested in debt securities convertible into equity, although the Portfolio
currently does not expect to convert such securities into equity or hold them
as equity upon conversion under normal circumstances.

Global Income Portfolio is "non-diversified," as that term is defined in the
Investment Company Act of 1940 ("1940 Act"), but intends to continue to qualify
as a "regulated investment company" for federal income tax purposes. This
means, in general, that more than 5% of the Portfolio's total assets may be
invested in the securities of one issuer (including a foreign government), but
only if, at the close of each quarter of the Portfolio's taxable year the
aggregate amount of such holdings does not exceed 50% of the value of its total
assets, and no more than 25% of the value of its total assets is invested in
the securities of a single issuer. To the extent that the Portfolio at times
may hold the securities of a smaller number of issuers than if it were
"diversified" (as defined in the 1940 Act), the Portfolio will at such times be
subject to greater risk with respect to its portfolio securities than a fund
that invests in a broader range of securities, because changes in the financial
condition or market assessments of a single issuer may cause greater
fluctuations in the Portfolio's total return and the net asset value of its
shares.

BALANCED PORTFOLIO invests primarily in a combination of equity securities,
investment grade debt obligations and money market instruments, based on
Mitchell Hutchins' assessment of the optimal allocation of the Portfolio's
assets. The Portfolio seeks to maintain a dollar-weighted average maturity for
its fixed income investments (comprised of debt securities and money market

PW 14
<PAGE>

instruments) of three to ten years. Under normal conditions, at least 25% of
the Portfolio's assets are invested in debt obligations, including money market
instruments. Mitchell Hutchins believes that capital market returns reflect the
consensus expectations for key economic variables, such as interest rates,
profit growth and inflation, and that superior performance can be obtained by
reallocating assets from time to time before changes in the consensus outlook
have been fully discounted by the market. To implement this strategy, Mitchell
Hutchins regularly surveys market participants and generates a consensus
forecast of economic variables affecting returns on equity, fixed income and
money market investments. Mitchell Hutchins then applies fundamental valuation
techniques to the consensus data to determine what it believes is the optimal
asset allocation for the Portfolio. Portfolio managers specializing in each
asset class then select specific securities for their allocated portions of the
portfolio. Mitchell Hutchins regularly monitors market outlooks and changes
asset allocations when there are significant changes in expected returns.

Equity Securities. In selecting equity securities for the Portfolio, Mitchell
Hutchins follows a disciplined methodology under which stocks from a universe
of small to large capitalization companies are ranked utilizing quantitative
measures of value, earnings and price momentum in the context of Mitchell
Hutchins' economic forecast. Stocks are selected for the Portfolio based on
fundamental analysis of the highest ranking stocks.

Debt Securities. The Portfolio's investments in debt securities are based on
analyses of maturity structure and risk structure (comparing yields on U.S.
Treasury securities to yields on riskier types of debt securities). The
Portfolio may invest in a broad range of investment grade bonds, securities
issued or guaranteed by the U.S. government, its agencies or instrumentalities,
including mortgage-backed securities, and other fixed income securities. The
maturity of a mortgage-backed security is deemed to be its effective life
(i.e., the average time in which it is expected that the principal amount of
the security will be repaid), as estimated by Mitchell Hutchins based upon
scheduled principal amortization and an anticipated rate of principal
prepayments, which, in turn, is based upon past prepayment patterns, prevailing
interest rates and other factors. The effective life of a mortgage-backed
security generally is substantially shorter than its stated maturity.

The Portfolio also may invest in convertible securities rated below investment
grade but rated at least B by S&P or Moody's, comparably rated by another NRSRO
or, if unrated, determined by Mitchell Hutchins to be of comparable quality,
provided that the Portfolio will not do so if, as a result, more than 10% of
its total assets will be invested in non-investment grade convertible
securities. Securities rated below investment grade are commonly known as "junk
bonds."

Money Market Instruments. The Portfolio may invest in high grade money market
instruments, which are debt securities with maturities of 13 months or less.
Such instruments will be chosen by Mitchell Hutchins based on its judgment of
their utility in furthering the Portfolio's investment objective. For a more
detailed description of the money market instruments in which the Portfolio
invests, see the Statement of Additional Information.

The Portfolio may invest in U.S. dollar-denominated securities of foreign
issuers that are traded on recognized U.S. exchanges or in the U.S. OTC market.

GROWTH AND INCOME PORTFOLIO, under normal circumstances, invests at least 65%
of its total assets in dividend-paying equity securities (common and preferred
stocks) believed by Mitchell Hutchins to have the potential for rapid earnings
growth. In managing the Portfolio, Mitchell Hutchins follows a disciplined
methodology under which stocks from a universe of small to large capitalization
companies are ranked utilizing quantitative measures of value, earnings and
price momentum in the context of Mitchell Hutchins' economic forecast. Stocks
are selected for the Portfolio based on fundamental analysis of the highest
ranking stocks. The Portfolio may invest up to 35% of its total assets in
equity securities not meeting the above criteria, as well as convertible
securities, U.S.

PW 15
<PAGE>

government securities, investment grade corporate debt securities and money
market securities. The Portfolio is permitted to invest up to 10% of its total
assets in convertible securities rated below investment grade but no lower than
B by S&P or Moody's, comparably rated by another NRSRO or, if unrated,
determined by Mitchell Hutchins to be of comparable quality. Securities rated
below investment grade are commonly known as "junk bonds." The Portfolio will
invest in instruments other than equity securities when, in the opinion of
Mitchell Hutchins, their projected total return is equal to or greater than
that of equity securities or when such holdings might reduce the volatility of
its portfolio. The Portfolio may invest up to 25% of its total assets in U.S.
dollar-denominated securities of foreign issuers that are traded on recognized
U.S. exchanges or in the U.S. OTC market.

Over the past 65 years, the total return of equity investments, as measured by
the Standard & Poor's 500 Composite Stock Price Index ("S&P 500"), has exceeded
the inflation rate, as measured by the Consumer Price Index, as well as total
return on long-term Treasury bonds, long-term corporate bonds and short-term
Treasury bills. However, year-to-year fluctuations in each of these indices and
instruments have been significant, and total return for the S&P 500 for some
periods has been negative. There can be no assurance that this trend will
continue, and the Portfolio's performance may be better or worse than that of
the S&P 500.

GROWTH PORTFOLIO invests primarily in equity securities (common and preferred
stocks and securities convertible into common or preferred stocks) issued by
companies that, in the judgment of Mitchell Hutchins, have substantial
potential for capital growth. In selecting equity securities for investment by
the Portfolio, Mitchell Hutchins considers all of those factors it believes
affect potential for capital appreciation, including an issuer's current and
projected revenues, earnings, cash flow and assets, as well as general market
conditions in relevant industries. Under normal circumstances, at least 65% of
the Portfolio's total assets is invested in equity securities. For potential
capital appreciation (when, for instance, Mitchell Hutchins anticipates that
market interest rates may decline or credit factors or ratings affecting
particular issues may improve), the Portfolio's investment policies also permit
investment of up to 35% of the Portfolio's total assets in investment grade
debt securities. The Portfolio's investments in equity securities may include
investments of up to 10% of its total assets in convertible debt securities
that are rated below investment grade but no lower than B by S&P or Moody's,
comparably rated by another NRSRO or, if unrated, determined by Mitchell
Hutchins to be of comparable quality. Securities rated below investment grade
are commonly known as "junk bonds." Consistent with its investment objective,
the Portfolio may also invest up to 25% of its total assets in U.S. dollar-
denominated securities of foreign issuers if the securities are traded on
recognized U.S. exchanges or in the U.S. OTC market.

AGGRESSIVE GROWTH PORTFOLIO invests primarily in common stocks of U.S.
companies the assets and stock prices of which are expected by the Portfolio's
Sub-Adviser, Nicholas-Applegate Capital Management ("Nicholas-Applegate"), to
grow faster than the average rate of companies in the S&P 500. Companies in
which the Portfolio invests are diversified over a cross-section of industries
and may be growth companies, cyclical companies or companies believed to be
undergoing a basic change in operations or markets that, in the opinion of
Nicholas-Applegate, would result in a significant improvement in earnings. The
securities of such companies may be subject to more volatile market movements
than securities of larger, more established companies. The Portfolio is not
restricted to investments in companies of any particular size.

Under normal market conditions, Aggressive Growth Portfolio invests at least
75% of its total assets in common stocks. The Portfolio may invest up to 25% of
its total assets in preferred and convertible securities issued by similar
growth companies, investment grade corporate debt securities, and securities
issued or guaranteed by the U.S. government, its agencies and
instrumentalities.

In making decisions with respect to common stocks for Aggressive Growth
Portfolio, Nicholas-Applegate uses a proprietary investment methodology that
consists of investment techniques and

PW 16
<PAGE>

processes designed to identify companies with attractive earnings growth
potential and to evaluate their investment prospects.

Aggressive Growth Portfolio may invest up to 25% of its total assets in U.S.
dollar-denominated securities of foreign issuers that are traded on recognized
U.S. exchanges or in the U.S. OTC market.

GLOBAL GROWTH PORTFOLIO invests primarily in the common stocks of companies
based in the United States, Europe, Japan and the Pacific Basin. Under normal
conditions, at least 65% of the Portfolio's total assets is invested in common
stocks and securities convertible into common stocks. The Portfolio will at all
times hold securities of issuers located in at least five countries and will
invest no more than 20% of its total assets in issuers located in any single
country outside the United States, except that the Portfolio may invest up to
35% of its total assets in issuers located in Japan. The Portfolio's Sub-
Adviser, GE Investment Management Incorporated ("GEIM"), seeks to identify
companies that have potential for growth and whose value has not been fully
recognized by the marketplace. GEIM concentrates primarily on medium to large-
size companies that it believes meet this undervalued growth criterion. The
Portfolio may also hold other types of securities, including non-convertible
investment grade corporate debt securities, government and money market
securities of U.S. and foreign issuers, and cash (foreign currencies or U.S.
dollars), in such proportions as, in the opinion of GEIM, prevailing market,
economic or political conditions warrant.

DESCRIPTION OF SECURITIES, INVESTMENT TECHNIQUES AND RELATED RISKS

U.S. GOVERNMENT SECURITIES. High Grade Fixed Income Portfolio, Strategic Fixed
Income Portfolio, Global Income Portfolio and Balanced Portfolio are authorized
to invest a substantial portion of their assets in U.S. government securities,
and the other Portfolios may invest in U.S. government securities consistent
with their investment objectives. The U.S. government securities in which the
Portfolios may invest include direct obligations of the U.S. government (such
as Treasury bills, notes and bonds) and obligations issued by U.S. government
agencies and instrumentalities, including securities that are backed by the
full faith and credit of the U.S. government (such as Government National
Mortgage Association ("Ginnie Mae") certificates) and securities that are
supported primarily or solely by the creditworthiness of the issuer (such as
securities of Fannie Mae (also known as the "Federal National Mortgage
Association"), the Federal Home Loan Mortgage Corporation ("Freddie Mac") and
the Tennessee Valley Authority). U.S. government securities are considered
among the most creditworthy of fixed income investments. Because of this, the
yields available from U.S. government securities are generally lower than the
yields available from corporate debt securities. Nevertheless, the values of
U.S. government securities (like those of fixed income securities generally)
will change as interest rates fluctuate.

MORTGAGE- AND ASSET-BACKED SECURITIES. Mortgage- and asset-backed securities
are bonds backed by specific types of assets. Mortgage-backed securities
represent direct or indirect interests in pools of underlying mortgage loans
that are secured by real property. U.S. government mortgage-backed securities
are issued or guaranteed as to principal and interest (but not as to market
value) by Ginnie Mae, Fannie Mae, Freddie Mac or other government-sponsored
entities. Other mortgage-backed securities are sponsored or issued by private
entities, including investment banking firms and mortgage originators. The
growth of mortgage-backed securities and the secondary mortgage market in which
they are traded has helped to keep mortgage money available for home financing.

Mortgage-backed securities may be composed of one or more classes and may be
structured either as pass-through securities or collateralized debt
obligations. Multiple-class mortgage-backed securities are referred to in this
Prospectus as "CMOs." Some CMOs are directly supported by other CMOs, which in
turn are supported by mortgage pools. Investors typically receive payments out
of the interest and principal on the underlying mortgages. The portions of
these payments that

PW 17
<PAGE>

investors receive, as well as the priority of their rights to receive payments,
are determined by the specific terms of the CMO class. CMOs involve special
risks and evaluating them requires special knowledge.

When interest rates go down and homeowners refinance their mortgages, mortgage-
backed bonds may be paid off more quickly than investors expect. When interest
rates rise, mortgage-backed bonds may be paid off more slowly than originally
expected. Changes in the rate or "speed" of these prepayments can cause the
value of mortgage-backed securities to fluctuate rapidly.

Other asset-backed securities are similar to mortgage-backed securities, except
that the underlying assets are different. These underlying assets may be nearly
any type of financial asset or receivable, such as motor vehicle installment
sales contracts, home equity loans, leases of various types of real and
personal property and receivables from credit cards.

The yield characteristics of mortgage- and asset-backed securities differ from
those of traditional bonds. Among the major differences are that interest and
principal payments are made more frequently (usually monthly) and that
principal may be prepaid at any time because the underlying mortgage loans or
other assets generally may be prepaid at any time. Generally, prepayments on
fixed rate mortgage loans will increase during a period of falling interest
rates and decrease during a period of rising interest rates. Mortgage- and
asset-backed securities may also decrease in value as a result of increases in
interest rates and, because of prepayments, may benefit less than other bonds
from declining interest rates. Reinvestments of prepayments may occur at lower
interest rates than the original investment, thus adversely affecting a
Portfolio's yield. Actual prepayment experience may cause the yield of a
mortgage-backed security to differ from what was assumed when the Portfolio
purchased the security.

The market for privately issued mortgage- and asset-backed securities is
smaller and less liquid than the market for U.S. government mortgage-backed
securities. CMO classes may be specially structured in a manner that provides
any of a wide variety of investment characteristics, such as yield, effective
maturity and interest rate sensitivity. As market conditions change, however,
and especially during periods of rapid or unanticipated changes in market
interest rates, the attractiveness of the CMO classes and the ability of the
structure to provide the anticipated investment characteristics may be
significantly reduced. These changes can result in volatility in the market
value, and in some instances reduced liquidity, of the CMO class.

Certain classes of CMOs are structured in a manner that makes them extremely
sensitive to changes in prepayment rates. Interest-only ("IO") and principal-
only ("PO") classes are examples of this. IOs are entitled to receive all or a
portion of the interest, but none (or only a nominal amount) of the principal
payments, from the underlying mortgage assets. If the mortgage assets
underlying an IO experience greater than anticipated principal prepayments,
then the total amount of interest payments allocable to the IO class, and
therefore the yield to investors, generally will be reduced. In some instances,
an investor in an IO may fail to recoup all of his or her initial investment,
even if the security is government-issued or guaranteed or considered to be of
the highest quality, or is rated AAA or the equivalent. Conversely, PO classes
are entitled to receive all or a portion of the principal payments, but none of
the interest, from the underlying mortgage assets. PO classes are purchased at
substantial discounts from par, and the yield to investors will be reduced if
principal payments are slower than expected. Some IOs and POs, as well as other
CMO classes, are structured to have special protections against the effects of
prepayments. These structural protections, however, normally are effective only
within certain ranges of prepayment rates and thus will not protect investors
in all circumstances.

Inverse floating rate CMO classes also may be extremely volatile. These classes
pay interest at a rate that decreases when a specified index of market rates
increases.

PW 18
<PAGE>

During 1994, the value and liquidity of many mortgage-backed securities
declined sharply due primarily to increases in interest rates. There can be no
assurance that such declines will not recur. The market value of certain
mortgage-backed securities, including IO and PO classes of mortgage-backed
securities and inverse floating rate securities, can be extremely volatile and
these securities may become illiquid. Mitchell Hutchins or the applicable Sub-
Adviser seeks to manage each Portfolio's investments in mortgage-backed
securities so that the volatility of its portfolio, taken as a whole, is
consistent with the Portfolio's investment objective. If market interest rates
or other factors that affect the volatility of securities held by a Portfolio
change in ways that Mithcell Hutchins or the applicable Sub-Adviser does not
anticipate, the Portfolio's ability to meet its investment objective may be
reduced.

FOREIGN SECURITIES. Global Growth and Global Income Portfolios invest a
substantial portion of their assets in foreign securities, and Strategic Fixed
Income Portfolio may invest up to 10% of its assets in securities denominated
in foreign currencies. In addition, all Portfolios may invest in U.S. dollar-
denominated securities of foreign issuers. Accordingly, an investment in any
Portfolio involves risks relating to political, social and economic
developments abroad, as well as risks resulting from the differences between
the regulations to which U.S. and foreign issuers and markets are subject.
These risks are greater with respect to Global Growth and Global Income
Portfolios because a substantially greater portion of their assets may be
invested in such securities and because these Portfolios may invest
substantially in foreign securities that are denominated in foreign currencies
and traded outside the U.S. securities markets. These risks may include
expropriation, confiscatory taxation, withholding taxes on dividends and
interest, limitations on the use or transfer of Portfolio assets and political
or social instability or diplomatic developments. Moreover, individual foreign
economies may differ favorably or unfavorably from the U.S. economy in such
respects as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position.
Securities of many foreign companies may be less liquid and their prices more
volatile than securities of comparable U.S. companies. While the Portfolios
generally invest only in securities that are traded on recognized exchanges or
in OTC markets, from time to time foreign securities may be difficult to
liquidate rapidly without significantly depressing the price of such
securities. There may be less publicly available information concerning foreign
issuers of securities held by these Portfolios than is available concerning
U.S. companies. Transactions in foreign securities may be subject to less
efficient settlement practices. Foreign securities trading practices, including
those involving securities settlement where Portfolio assets may be released
prior to receipt of payment, may expose a Portfolio to increased risk in the
event of a failed trade or the insolvency of a foreign broker-dealer. Legal
remedies for defaults and disputes may have to be pursued in foreign courts,
whose procedures differ substantially from those of U.S. courts.

Because foreign securities ordinarily are denominated in currencies other than
the U.S. dollar (as are some securities of U.S. issuers), changes in foreign
currency exchange rates will affect a Portfolio's net asset value, the value of
dividends and interest earned, gains and losses realized on the sale of
securities and net investment income and capital gain, if any, to be
distributed to shareholders by the Portfolio. If the value of a foreign
currency rises against the U.S. dollar, the value of a Portfolio's assets
denominated in that currency will increase; correspondingly, if the value of a
foreign currency declines against the U.S. dollar, the value of a Portfolio's
assets denominated in that currency will decrease. The exchange rates between
the U.S. dollar and other currencies are determined by supply and demand in the
currency exchange markets, international balances of payments, speculation and
other economic and political conditions. In addition, some foreign currency
values may be volatile and there is the possibility of governmental controls on
currency exchange or governmental intervention in currency markets. Any of
these factors could adversely affect these Portfolios.

The costs attributable to foreign investing that Global Growth, Global Income
and Strategic Fixed Income Portfolios must bear frequently are higher than
those attributable to domestic investing. For

PW 19
<PAGE>

example, the costs of maintaining custody of securities in foreign countries
exceed custodian costs for domestic securities.

Strategic Fixed Income, Global Income and Global Growth Portfolios may invest
in securities of issuers located in emerging market countries. The risks of
investing in foreign securities may be greater with respect to securities of
issuers in, or denominated in the currencies of, emerging market countries. The
economies of emerging market countries generally are heavily dependent upon
international trade and, accordingly, have been and may continue to be
adversely affected by trade barriers, exchange controls, managed adjustments in
relative currency values and other protectionist measures imposed or negotiated
by the countries with which they trade. These economies also have been and may
continue to be adversely affected by economic conditions in the countries with
which they trade. Many emerging market countries have experienced substantial,
and in some periods extremely high, rates of inflation for many years.
Inflation and rapid fluctuations in inflation rates have had and may continue
to have very negative effects on the economies and securities markets of
certain emerging market countries. The securities markets of emerging market
countries are substantially smaller, less developed, less liquid and more
volatile than the securities markets of the U.S. and other developed countries.
Disclosure and regulatory standards in many respects are less stringent in
emerging market countries than in the United States and other major markets.
There also may be a lower level of monitoring and regulation of emerging
markets and the activities of investors in such markets, and enforcement of
existing regulations may be extremely limited. Investing in local markets,
particularly in emerging market countries, may require these Portfolios to
adopt special procedures, seek local government approvals or take other
actions, each of which may involve additional costs to the Portfolios. Certain
emerging market countries may also restrict investment opportunities in issuers
in industries deemed important to national interests.

FOREIGN GOVERNMENT SECURITIES. Foreign government securities generally consist
of obligations supported by national, state or provincial governments or
similar political subdivisions. Foreign government securities also include debt
obligations of supranational entities, which include international
organizations designated or supported by governmental entities to promote
economic reconstruction or development, international banking institutions and
related government agencies. Examples include the World Bank, the European Coal
and Steel Community, the Asian Development Bank and the InterAmerican
Development Bank.

Foreign government securities also include debt securities of "quasi-
governmental agencies" and debt securities denominated in multinational
currency units of an issuer (including supranational issuers). An example of a
multinational currency unit is the European Currency Unit ("ECU"). An ECU
represents specified amounts of the currencies of certain member states of the
European Union. Debt securities of quasi-governmental agencies are issued by
entities owned by either a national, state or equivalent government or are
obligations of a political unit that are not backed by the national
government's full faith and credit and general taxing powers. Foreign
government securities also include mortgage-related securities issued or
guaranteed by national, state or provincial governmental instrumentalities,
including quasi-governmental agencies.

FOREIGN BANK AND FOREIGN BRANCH INSTRUMENTS. Money Market Portfolio may invest
in obligations of domestic and foreign banks. Global Income Portfolio may
invest in these instruments and also in obligations of bank holding companies
and foreign banks. The other Portfolios may invest in such securities
consistent with their investment objectives and policies. Such investments may
involve risks that are different from investments in obligations of U.S.
branches of domestic banks. These risks may include future unfavorable
political and economic developments, possible withholding taxes, seizure of
foreign deposits, currency controls, interest limitations or other governmental
restrictions that might affect the payment of principal or interest on the
securities held by a Portfolio. Additionally, there may be less publicly
available information about foreign banks and foreign

PW 20
<PAGE>

branches of U.S. banks, as these institutions may not be subject to the same
regulatory requirements as domestic banks.

DEBT SECURITIES. All the Portfolios except Money Market Portfolio may invest a
substantial portion of their assets in debt securities rated within any one of
the four highest grades assigned by S&P or Moody's or assigned a comparable
rating by another NRSRO (commonly referred to as "investment grade debt
securities"). Debt securities rated Baa by Moody's or BBB by S&P are investment
grade, although Moody's considers securities rated Baa to have speculative
characteristics. Changes in economic conditions or other circumstances are more
likely to lead to a weakened capacity for such securities to make principal and
interest payments than is the case for higher grade debt securities. Balanced,
Growth and Income and Growth Portfolios may invest in non-investment grade
convertible debt securities. Strategic Fixed Income Portfolio may invest in
non-investment grade convertible and non-convertible debt securities, and
Global Income Portfolio may invest in non-investment grade sovereign debt
securities. Debt securities rated below investment grade are deemed by these
NRSROs to be predominantly speculative with respect to the issuer's capacity to
pay interest and repay principal and may involve major risk exposures to
adverse conditions. Such securities are commonly referred to as "junk bonds."
In the event that, due to the downgrade of one or more debt securities, a
Portfolio holds securities rated below investment grade in an amount in excess
of the percentage permitted under these investment policies, the Portfolio will
engage in an orderly disposition of these securities to the extent necessary to
reduce the Portfolio's holdings to the specified percentage. All Portfolios are
permitted to purchase debt securities that are not rated by S&P, Moody's or
another NRSRO but that Mitchell Hutchins or the applicable Sub-Adviser
determines to be of comparable quality to that of rated securities in which
such Portfolio may invest. Such securities are included in the computation of
any percentage limitations applicable to the comparable rated securities.

The market value of debt securities generally varies inversely with interest
rate changes. Ratings of a debt security represent the rating agencies'
opinions regarding its quality, are not a guarantee of quality and may be
reduced after a Portfolio has acquired the security. Mitchell Hutchins or the
applicable Sub-Adviser will consider such an event in determining whether the
Portfolio should continue to hold the security but the Portfolio is not
required to dispose of it. Credit ratings attempt to evaluate the safety of
principal and interest payments and do not evaluate the risks of fluctuations
in market value. Also, rating agencies may fail to make timely changes in
response to subsequent events, so that an issuer's financial condition may be
better or worse than the rating indicates.

Lower rated debt securities generally offer a higher current yield than that
available from higher grade issues, but they involve higher risks, in that they
are especially subject to adverse changes in general economic conditions and in
the industries in which the issuers are engaged, to changes in the financial
condition of the issuers and to price fluctuation in response to changes in
interest rates. During periods of economic downturn or rising interest rates,
highly leveraged issuers may experience financial stress which could adversely
affect their ability to make payments of principal and interest and increase
the possibility of default. In addition, such issuers may not have more
traditional methods of financing available to them, and may be unable to repay
debt at maturity by refinancing. The risk of loss due to default by such
issuers is significantly greater because such securities frequently are
unsecured and subordinated to the prior payment of senior indebtedness.

The market for lower rated securities has expanded rapidly in recent years, and
its growth has paralleled a long economic expansion. In the past, the prices of
many lower rated debt securities declined substantially, reflecting an
expectation that many issuers of such securities might experience financial
difficulties. As a result, the yields on lower rated debt securities rose
dramatically, but such higher yields did not reflect the value of the income
stream that holders of such securities expected, but rather the risk that
holders of such securities could lose a substantial

PW 21
<PAGE>

portion of their value as a result of the issuers' financial restructuring or
default. There can be no assurance that such declines will not recur. The
market for lower rated debt securities generally is thinner and less active
than that for higher quality securities, which may limit a Portfolio's ability
to sell such securities at fair value in response to changes in the economy or
the financial markets. Adverse publicity and investor perceptions, whether or
not based on fundamental analysis, may also decrease the values and liquidity
of lower rated securities, especially in a thinly traded market.

During the fiscal year ended December 31, 1996, Strategic Fixed Income
Portfolio invested its average annual net assets as follows:

<TABLE>
<CAPTION>
% OF AVERAGE ANNUAL NET STRATEGIC FIXED
ASSETS INVESTED IN INCOME PORTFOLIO
----------------------- ----------------
<S> <C>
Debt Securities rated by S&P or Moody's................... 100%
Debt Securities not so rated.............................. 0%
Securities rated AAA/Aaa (including cash items)........... 63%
Securities rated AA/Aa.................................... 10%
Securities rated A/A...................................... 0%
Securities rated BBB/Baa.................................. 18%
Securities rated BB/Ba.................................... 9%
Securities rated B/B...................................... 0%
Securities rated CCC/Caa.................................. 0%
</TABLE>

It should be noted that this information reflects the average composition of
the assets of the Portfolio during the fiscal year ended December 31, 1996, and
is not necessarily representative of the Portfolio's assets as of the end of
the fiscal year, the current fiscal year or at any time in the future.

DURATION. Duration is a measure of the expected life of a fixed income security
that was developed as a more precise alternative to the concept of "term to
maturity." Duration incorporates a bond's yield, coupon interest payments,
final maturity and call features into one measure. Duration is one of the
fundamental tools used by Mitchell Hutchins or a Sub-Adviser in selection of
debt securities for a Portfolio.

Traditionally, a debt security's "term to maturity" has been used as a proxy
for the sensitivity of the security's price to changes in interest rates (which
is the "interest rate risk" or "volatility" of the security). However, "term to
maturity" measures only the time until a debt security provides its final
payments, taking no account of the pattern of the security's payments prior to
maturity. Duration is a measure of the expected life of a fixed income security
on a present value basis. Duration takes the length of the time intervals
between the present time and the time that the interest and principal payments
are scheduled or, in the case of a callable bond, expected to be received, and
weights them by the present values of the cash to be received at each future
point in time. For any fixed income security with interest payments occurring
prior to the payment of principal, duration is always less than maturity. In
general, all other things being equal, the lower the stated or coupon rate of
interest of a fixed income security, the longer the duration of the security;
conversely, the higher the stated or coupon rate of interest of a fixed income
security, the shorter the duration of the security.

Futures contracts (sometimes referred to as "futures"), options and options on
futures have durations which in general, are closely related to the durations
of the securities which underlie them. Holding long futures or call option
positions (backed by a segregated account of cash and cash equivalents) will
lengthen a Portfolio's duration by approximately the same amount that holding
an equivalent amount of the underlying securities would.

Short futures or put option positions have durations roughly equal to the
negative durations of the securities that underlie these positions, and have
the effect of reducing portfolio duration by

PW 22
<PAGE>

approximately the same amount that selling an equivalent amount of the
underlying securities would.

There are some situations where even the standard duration calculation does not
properly reflect the interest rate exposure of a security. For example,
floating and variable rate securities often have final maturities of ten or
more years; however, their interest rate exposure corresponds to the frequency
of the coupon reset. Another example where the interest rate exposure is not
properly captured by duration is the case of mortgage pass-through securities.
The stated final maturity of such securities is generally 30 years, but current
prepayment rates are more critical in determining the securities' interest rate
exposure. In these and other similar situations, Mitchell Hutchins or the
applicable Sub-Adviser will use more sophisticated analytical techniques that
incorporate the economic life of a security into the determination of its
interest rate exposure.

Duration allows Mitchell Hutchins or a Sub-Adviser to make certain predictions
as to the effect that changes in the level of interest rates will have on the
value of a Portfolio's investments. For example, when the level of interest
rates increases by 1%, a fixed income security having a positive duration of
three years generally will decrease in value by approximately 3%. Accordingly,
if Mitchell Hutchins or the Sub-Adviser calculates the duration of the
portfolio as being three years, it normally would expect the portfolio to
change in value by approximately 3% for every 1% change in the level of
interest rates. However, various factors, such as changes in anticipated
prepayment rates, qualitative considerations and market supply and demand, can
cause particular securities to respond somewhat differently to changes in
interest rates than indicated in the above example. Moreover, in the case of
mortgage-backed and other complex securities, duration calculations are
estimates and are not precise. This is particularly true during periods of
market volatility. Accordingly, the net asset value of a Portfolio's
investments may vary in relation to interest rates by a greater or lesser
percentage than indicated by the above example.

CONVERTIBLE SECURITIES. A convertible security is a bond, debenture, note,
preferred stock or other security that may be converted into or exchanged for a
prescribed amount of common or preferred stock of the same or a different
issuer within a particular period of time at a specified price or formula. A
convertible security entitles the holder to receive interest paid or accrued on
debt or dividends paid on preferred stock until the convertible security
matures or is redeemed, converted or exchanged. Convertible securities have
unique investment characteristics in that they generally (1) have higher yields
than common stocks, but lower yields than comparable non-convertible
securities, (2) are less subject to fluctuation in value than the underlying
stock because they have fixed income characteristics, and (3) provide the
potential for capital appreciation if the market price of the underlying common
or preferred stock increases. While no securities investment is without some
risk, investments in convertible securities generally entail less risk than the
issuer's common stock, although the extent to which such risk is reduced
depends in large measure upon the degree to which the convertible security
sells above its value as a fixed income security.

ZERO COUPON AND PAYMENT-IN KIND SECURITIES. High Grade Fixed Income, Strategic
Fixed Income, Global Income and Balanced Portfolios may invest in certain zero
coupon securities that are "stripped" U.S. Treasury notes and bonds. Strategic
Fixed Income Portfolio also may invest in zero coupon securities of corporate
issuers and other securities that are issued with original issue discount
("OID") and payment-in-kind ("PIK") securities. Federal tax law requires that a
holder of a security with OID accrue a portion of the OID on the security as
income each year, even though the holder may receive no interest payment on the
security during the year. Accordingly, although the investing Portfolio will
receive no payments on its zero coupon securities prior to their maturity or
disposition, it will have income each year attributable to such securities.
Similarly, while PIK securities may pay interest in the form of additional
securities rather than cash, that interest must be included in the annual
income of Strategic Fixed Income Portfolio.

PW 23
<PAGE>

Companies such as the Portfolios, which seek to qualify for pass-through
federal income tax treatment as regulated investment companies ("RICs"), must
distribute substantially all of their net investment income each year,
including non-cash income. Accordingly, each Portfolio will be required to
include in its dividends an amount equal to the income attributable to its zero
coupon, other OID and PIK securities. Those dividends will be paid from the
cash assets of a Portfolio or by liquidation of portfolio securities, if
necessary, at a time when the Portfolio otherwise might not have done so. Zero
coupon securities usually trade at a substantial discount from their face or
par value; PIK securities often trade at a discount from their face or par
value. Both zero coupon and PIK securities are subject to greater fluctuations
of market value in response to changing interest rates than debt obligations of
comparable maturities that make current distributions of interest in cash.

LENDING OF PORTFOLIO SECURITIES. Each Portfolio is authorized to lend up to 33
1/3% of its total assets to broker-dealers or institutional investors that
Mitchell Hutchins deems qualified. Lending securities enables a Portfolio to
earn additional income, but could result in a loss or delay in recovering the
Portfolio's securities.

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. Each Portfolio may purchase
securities on a "when-issued" basis or may purchase or sell securities for
delayed delivery. In when-issued or delayed delivery transactions, delivery of
the securities occurs beyond normal settlement periods, but a Portfolio would
not pay for such securities or start earning interest on them until they are
delivered. However, when a Portfolio purchases securities on a when-issued or
delayed delivery basis, it immediately assumes the risks of ownership,
including the risk of price fluctuation. Failure by a counterparty to deliver a
security purchased on a when-issued or delayed delivery basis may result in a
loss or missed opportunity to make an alternative investment. Depending on
market conditions, a Portfolio's when-issued and delayed-delivery purchase
commitments could cause its net asset value per share to be more volatile,
because such securities may increase the amount by which the Portfolio's total
assets, including the value of when-issued and delayed-delivery securities held
by the Portfolio, exceed its net assets.

REPURCHASE AGREEMENTS. Each Portfolio may enter into repurchase agreements.
Repurchase agreements are transactions in which a Portfolio purchases
securities from a bank or recognized securities dealer and simultaneously
commits to resell the securities to the bank or dealer at an agreed-upon date
and price reflecting a market rate of interest unrelated to the coupon rate or
maturity of the purchased securities. Repurchase agreements carry certain risks
not associated with direct investments in securities, including possible
decline in the market value of the underlying securities and delays and costs
to a Portfolio if the other party to the repurchase agreement becomes
insolvent. Each Portfolio intends to enter into repurchase agreements only with
banks and dealers in transactions believed by Mitchell Hutchins to present
minimal credit risks in accordance with guidelines established by the Fund's
board of trustees.

REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS. Strategic Fixed Income and
Global Income Portfolios may enter into reverse repurchase agreements with
banks and broker-dealers. Such agreements involve the sale of securities held
by a Portfolio subject to the Portfolio's agreement to repurchase the
securities at an agreed-upon date and price. Such agreements are considered to
be borrowings and, for Global Income Portfolio, may be entered into only for
temporary purposes. The market value of securities sold under reverse
repurchase agreements typically is greater than the proceeds of the sale, and,
accordingly, the market value of the securities sold is likely to be greater
than the value of the securities in which the Portfolio invests those proceeds.
Thus, reverse repurchase agreements involve the risk that the buyer of the
securities sold by the Portfolio might be unable to deliver them when the
Portfolio seeks to repurchase. In the event the buyer of securities under a
reverse repurchase agreement files for bankruptcy or becomes insolvent, such
buyer or its trustee or receiver may receive an extension of time to determine
whether to enforce the Portfolio's

PW 24
<PAGE>

obligation to repurchase the securities and the Portfolio's use of the proceeds
of the reverse repurchase agreement may effectively be restricted pending such
decision.

Strategic Fixed Income Portfolio may enter into dollar rolls, in which the
Portfolio sells mortgage-backed or other securities for delivery in the current
month and simultaneously contracts to repurchase substantially similar
securities on a specified future date. In the case of dollar rolls involving
mortgage-backed securities, the mortgage-backed securities that are repurchased
will be of the same type, and will have the same interest rate and maturity, as
those sold but generally will be supported by different pools of mortgages with
substantially similar prepayment characteristics. The Portfolio forgoes
principal and interest paid during the roll period on the securities sold in a
dollar roll, but the Portfolio is compensated by the difference between the
current sales price and the lower price for the future purchase as well as by
any interest earned on the proceeds of the securities sold. The Portfolio also
could be compensated through the receipt of fee income equivalent to a lower
forward price.

The dollar rolls and reverse repurchase agreements entered into by Strategic
Fixed Income Portfolio normally will be arbitrage transactions in which the
Portfolio will invest the proceeds of the dollar roll or reverse repurchase
agreement in high quality securities that mature on or before the settlement
date on the related dollar roll or reverse repurchase agreement or in
repurchase agreements that mature in no more than seven days. Because the
Portfolio will invest the proceeds of its borrowings and will earn interest on
those investments, these transactions involve leverage. However, because the
borrowing proceeds are invested in short-term, high quality debt securities or
repurchase agreements, as described above, PIMCO believes that such arbitrage
transactions do not present the risks to a Portfolio that are associated with
other types of leverage.

Dollar rolls and reverse repurchase agreements are considered to be borrowings
and, accordingly, are subject to the respective Portfolio's limitations on
borrowings, which restrict the aggregate of such transactions (plus any other
borrowings) to 10% of Global Income Portfolio's total assets and 33 1/3% for
Strategic Fixed Income Portfolio. A Portfolio will not enter into dollar rolls
or reverse repurchase agreements, other than in arbitrage transactions as
described above, in an aggregate amount in excess of 5% of the Portfolio's
total assets. Strategic Fixed Income Portfolio has no present intention to
enter into dollar rolls other than in such arbitrage transactions, and neither
Portfolio has any present intention to enter into reverse repurchase agreements
other than in such arbitrage transactions or for temporary or emergency
purposes.

HEDGING AND RELATED STRATEGIES USING DERIVATIVE CONTRACTS. Except for Money
Market Portfolio, each Portfolio may use derivative contracts such as options
(both exchange-traded and OTC) and futures contracts, in strategies intended to
enhance income and return and or reduce the overall risk of its investments
(hedge). [Aggressive Growth Portfolio generally will not use these]
instruments.] Strategic Fixed Income, Global Income and Global Growth
Portfolios may also use forward currency contracts. A Portfolio's ability to
use these strategies may be limited by market conditions, regulatory limits and
tax considerations. The Statement of Additional Information contains further
information on these strategies.

Each Portfolio eligible to use hedging and related income and return strategies
may write (sell) covered call and put options, buy call and put options on
securities in which it is authorized to invest and on stock indexes, sell stock
index or interest rate futures contracts and buy put and call options and write
covered call options on such futures contracts. Balanced Portfolio may use
index options, index futures contracts and options on index futures contracts
to increase or reduce its exposure to an asset class. Strategic Fixed Income,
Global Income and Global Growth Portfolios each may write covered call options
and buy put and call options on foreign currencies, buy or sell foreign
currency futures contracts, buy put and call options and write covered call
options on such contracts. These

PW 25
<PAGE>

Portfolios may enter into forward currency contracts for the purchase or sale
of a specified currency at a specified future date either with respect to
specific transactions or with respect to portfolio positions. For example, when
Mitchell Hutchins or the applicable Sub-Adviser anticipates making a currency
exchange transaction in connection with the purchase or sale of a security, a
Portfolio may enter into a forward currency contract in order to set the
exchange rate at which the transaction will be made. A Portfolio also may enter
into a forward contract to sell an amount of a foreign currency approximating
the value of some or all of the Portfolio's securities positions denominated in
such currency. A Portfolio may use forward contracts in one currency or a
basket of currencies to hedge against fluctuations in the value of another
currency when Mitchell Hutchins or the applicable Sub-Adviser anticipates that
there will be a correlation between the two and may use forward currency
contracts to shift a Portfolio's exposure to foreign currency fluctuations from
one country to another. The purpose of entering into these contracts is to
minimize the risk to a Portfolio from adverse changes in the relationship
between the U.S. dollar and foreign currencies.

High Grade Fixed Income, Strategic Fixed Income and Global Income Portfolios
may enter into interest rate protection transactions, including interest rate
swaps and interest rate caps, collars and floors, for hedging purposes. For
example, a Portfolio may enter into interest rate protection transactions to
preserve a return or spread on a particular investment or portion of its
portfolio or to protect against any increase in the price of securities the
Portfolio anticipates purchasing at a later date. The Portfolios will enter
into interest rate protection transactions only with banks and recognized
securities dealers believed by Mitchell Hutchins or the Sub-Adviser to present
minimal credit risks in accordance with guidelines established by the Fund's
board of trustees.

A Portfolio might not employ any of the strategies described above, and there
can be no assurance that any strategy used will succeed. If Mitchell Hutchins
or a Sub-Adviser incorrectly forecasts interest rates, market values or other
economic factors for a Portfolio, the Portfolio would be in a better position
had it not hedged at all. The use of these strategies involves certain special
risks, including (1) the fact that skills needed to use hedging instruments are
different from those needed to select the Portfolios' securities, (2) possible
imperfect correlation, or even no correlation, between price movements of
hedging instruments and price movements of the investments being hedged, (3)
the fact that, while hedging strategies can reduce the risk of loss, they can
also reduce the opportunity for gain, or even result in losses, by offsetting
favorable price movements in hedged investments and (4) the possible inability
of a Portfolio to purchase or sell a portfolio security at a time that
otherwise would be favorable for it to do so, or the possible need for a
Portfolio to sell a portfolio security at a disadvantageous time, due to the
need for the Portfolio to maintain "cover" or to segregate securities in
connection with hedging transactions and the possible inability of a Portfolio
to close out or to liquidate its hedged position.

DERIVATIVES. Some of the instruments described above may be referred to as
"derivatives," because their value depends on (or "derives" from) the value of
an underlying asset, reference rate or index. These instruments include
options, futures contracts, interest rate protection contracts and similar
instruments that may be used in hedging and related strategies. There is only
limited consensus as to what constitutes a "derivative" security. However, in
Mitchell Hutchins' and the Sub-Advisers' view, derivative securities include
"stripped" securities, such as CATS and TIGRs, and specially structured types
of mortgage- and asset-backed securities, such as IOs, POs and inverse
floaters, and U.S. dollar-denominated securities whose value is linked to
foreign currencies. The market value of derivative instruments and securities
sometimes is more volatile than that of other investments, and each type of
derivative instrument may pose its own special risks. Mitchell Hutchins and the
Sub-Advisers take these risks into account in their management of the
Portfolios.

ILLIQUID SECURITIES. Each Portfolio may invest up to 10% of its net assets (15%
for the Strategic Fixed Income and Aggressive Growth Portfolios) in illiquid
securities. The term "illiquid securities" for this

PW 26
<PAGE>

purpose means securities that cannot be disposed of within seven days in the
ordinary course of business at approximately the price at which the Portfolio
has valued the securities. Under current guidelines of the staff of the
Securities and Exchange Commission ("SEC"), IOs and POs are considered
illiquid. However, IO and PO classes of fixed-rate mortgage-backed securities
issued by the U.S. government or one of its agencies or instrumentalities will
not be considered illiquid if Mitchell Hutchins or the Sub-Adviser has
determined that they are liquid pursuant to guidelines established by the
Fund's board of trustees. Illiquid securities also are considered to include,
among other things, written OTC options, repurchase agreements with maturities
in excess of seven days and securities whose disposition is restricted under
the federal securities laws (other than "Rule 144A" securities that Mitchell
Hutchins or the Sub-Adviser has determined to be liquid under procedures
approved by the Fund's board of trustees).

Rule 144A establishes a "safe harbor" from the requirements of the Securities
Act of 1933 ("1933 Act"). Institutional markets for restricted securities have
developed as a result of Rule 144A, providing both readily ascertainable values
for restricted securities and the ability to liquidate an investment to satisfy
share redemption orders. An insufficient number of qualified institutional
buyers interested in purchasing Rule 144A-eligible restricted securities held
by a Portfolio, however, could affect adversely the marketability of such
portfolio securities and the Portfolio might be unable to dispose of such
securities promptly or at favorable prices.

A Portfolio may not be able to sell illiquid securities when Mitchell Hutchins
or a Sub-Adviser considers it desirable to do so or may have to sell such
securities at a price lower than could be obtained if they were more liquid.
Also, the sale of illiquid securities may require more time and may result in
higher dealer discounts and other selling expenses than does the sale of
securities that are liquid. Illiquid securities may be more difficult to value
due to the unavailability of reliable market quotations for such securities.

ASSIGNMENTS AND PARTICIPATIONS. Strategic Fixed Income Portfolio may invest up
to 5% of its net assets in participations in, or assignments of, all or a
portion of secured or unsecured fixed or floating rate loans arranged through
private negotiations between a borrowing corporation and one or more financial
institutions.

PORTFOLIO TURNOVER. Portfolio turnover rates may vary greatly from year to year
and will not be a limiting factor when Mitchell Hutchins or a Sub-Adviser deems
portfolio changes appropriate. A higher turnover rate may involve
correspondingly greater transaction costs, which will be borne directly by the
affected Portfolio and may increase the potential for short-term capital gains.

OTHER INFORMATION. When Mitchell Hutchins or the applicable Sub-Adviser
believes unusual circumstances warrant a defensive posture, a Portfolio
temporarily may commit all or any portion of its assets to cash, U.S.
government securities or money market instruments, including repurchase
agreements. Strategic Fixed Income, Global Income and Global Growth Portfolios
may hold cash in U.S. dollars or foreign currencies and money market
instruments of U.S. or foreign issuers, including instruments backed by the
U.S. or foreign governments, their agencies or instrumentalities and repurchase
agreements secured thereby. Each Portfolio may borrow money for temporary
purposes but not in excess of 10% of its total assets (33 1/3% for Strategic
Fixed Income and High Grade Fixed Income Portfolios and 20% for Aggressive
Growth Portfolio). Each Portfolio (other than Money Market Portfolio) may
engage in short sales of securities "against the box" to defer realization of
gains or losses for tax purposes.

Each Portfolio's investment objective and certain investment limitations, as
described in the Statement of Additional Information, are fundamental policies
that may not be changed without shareholder approval. All other investment
policies may be changed by the Fund's board of trustees without shareholder
approval.

PW 27
<PAGE>

New types of mortgage- and asset-backed securities, derivative securities,
hedging instruments and risk management techniques are developed and marketed
from time to time. Each Portfolio may invest in these securities and
instruments and use these techniques to the extent consistent with its
investment objective and limitations and with regulatory and tax
considerations.

PURCHASES, REDEMPTIONS AND EXCHANGES

Shares of the Portfolios are offered only to the insurance company separate
accounts that fund the Contracts. All such shares may be purchased or redeemed
by the separate accounts without any sales or redemption charge at net asset
value. Proceeds from redemptions of shares in any of the Portfolios will be
paid on or before the seventh day following the request for redemption by a
Contract holder.

A separate account may exchange shares of one Portfolio for shares of another
Portfolio at their relative net asset values per share.

DIVIDENDS, OTHER DISTRIBUTIONS AND FEDERAL INCOME TAX

DIVIDENDS AND OTHER DISTRIBUTIONS. With the exception of Money Market
Portfolio, each Portfolio distributes all of its net investment income as
dividends to its shareholders shortly after the close of the Fund's fiscal year
on December 31. At the same time, those Portfolios also distribute to their
shareholders all of their net short-term capital gain and their net capital
gain (the excess of net long-term capital gain over net short-term capital
loss) and any net gains from foreign currency transactions. Those Portfolios
may make a second distribution of net investment income, net short-term capital
gain, net capital gain and net gains from foreign currency transactions if
necessary to avoid income tax.

Money Market Portfolio declares as dividends on each Business Day all of its
net investment income, payable to shareholders of record as of the close of
regular trading on the New York Stock Exchange ("NYSE") (currently 4:00 p.m.,
Eastern time) on the preceding Business Day; those dividends are paid monthly.
A "Business Day" is any day, Monday through Friday, on which the NYSE is open
for business. Net investment income of the Portfolio consists of accrued
interest and earned discount (including both OID and market discount), less
amortization of market premium and applicable expenses. Net investment income
is calculated and dividends are declared immediately prior to the determination
of net asset value per share. The Portfolio generally distributes to its
shareholders any net short-term capital gain annually after the end of its
fiscal year on December 31 but may make more frequent distributions of that
gain if necessary to maintain its net asset value per share at $1.00 or to
avoid income tax. The Portfolio does not expect to realize long-term capital
gain and thus does not anticipate any distributions of net capital gain.

Dividends and capital gain distributions from a Portfolio are paid in
additional shares of that Portfolio at net asset value per share, unless the
Fund's transfer agent is instructed otherwise. See the applicable Contract
prospectus for information regarding the federal income tax treatment of
distributions to the separate accounts.

FEDERAL INCOME TAX. Each Portfolio intends to continue to qualify for treatment
as a RIC under Subchapter M of the Internal Revenue Code so that it will be
relieved of federal income tax on that part of its investment company taxable
income (consisting generally of net investment income, net gains from certain
foreign currency transactions and net short-term capital gain) and net capital
gain that is distributed to its shareholders.

Dividends and other distributions declared by a Portfolio in October, November
or December of any year and payable to shareholders of record on a date in any
of those months will be deemed to have

PW 28
<PAGE>

been paid by the Portfolio and received by the shareholders on December 31 of
that year if the distributions are paid by the Portfolio during the succeeding
January.

Portfolio shares are offered only to insurance company separate accounts that
fund the Contracts. Under the Internal Revenue Code, no tax is imposed on an
insurance company with respect to income of a qualifying separate account
properly allocable to the value of eligible variable annuity or variable life
insurance contracts. See the applicable Contract prospectus for a discussion of
the federal income tax status of (1) the separate accounts that purchase and
hold shares of the Portfolios and (2) the holders of Contracts funded through
those accounts.

Each Portfolio intends to continue to comply with the diversification
requirements imposed by section 817(h) of the Internal Revenue Code and the
regulations thereunder. These requirements, which are in addition to the
diversification requirements imposed on the Portfolios by the 1940 Act and
Subchapter M, place certain limitations on the assets of each separate
account--and, because section 817(h) and those regulations treat the assets of
each Portfolio as assets of the related separate account, of each Portfolio--
that may be invested in securities of a single issuer. Specifically, the
regulations provide that, except as permitted by the "safe harbor" described
below, as of the end of each calendar quarter or within 30 days thereafter no
more than 55% of the total assets of a Portfolio may be represented by any one
investment, no more than 70% by any two investments, no more than 80% by any
three investments and no more than 90% by any four investments. For this
purpose, all securities of the same issuer are considered a single investment,
and each U.S. government agency and instrumentality is considered a separate
issuer. Section 817(h) provides, as a safe harbor, that a separate account will
be treated as being adequately diversified if the diversification requirements
under Subchapter M are satisfied and no more than 55% of the value of the
account's total assets are cash and cash items, government securities and
securities of other RICs. Failure of a Portfolio to satisfy the section 817(h)
requirements would result in taxation of the insurance company issuing the
Contracts and treatment of the Contract holders other than as described in the
applicable Contract prospectus.

The foregoing is only a summary of some of the important federal income tax
considerations generally affecting the Portfolios and their shareholders; see
the Statement of Additional Information for a more detailed discussion.
Prospective shareholders are urged to consult their tax advisers.

VALUATION OF SHARES

The net asset value of each Portfolio's shares, other than Money Market
Portfolio, fluctuates and is determined for all Portfolios as of the close of
regular trading on the NYSE (currently 4:00 p.m., Eastern time) on each
Business Day. For each Portfolio other than Money Market Portfolio, net asset
value per share is computed by dividing the value of the securities held by the
Portfolio plus any cash or other assets minus all liabilities by the total
number of Portfolio shares outstanding. Except for Money Market Portfolio, each
Portfolio values its assets based on the current market value where market
quotations are readily available. If such value cannot be established, the
assets are valued at fair value as determined in good faith by or under the
direction of the Fund's board of trustees. The amortized cost method of
valuation generally is used to value debt obligations with 60 days or less
remaining to maturity, unless the board of trustees determines that this does
not represent fair value. All investments denominated in foreign currency are
valued daily in U.S. dollars on the basis of the then-prevailing exchange
rates. It should be recognized that judgment plays a greater role in valuing
lower rated debt securities because there is less reliable, objective data
available.

Money Market Portfolio intends to use its best efforts to maintain its net
asset value at $1.00 per share. The value of each share of this Portfolio is
computed by dividing its net assets by the number

PW 29
<PAGE>

of its outstanding shares. "Net assets" equals the value of the investments
and other assets minus its liabilities. Money Market Portfolio values its
portfolio securities using the amortized cost method of valuation, under which
market value is approximated by amortizing the difference between the
acquisition cost and value at maturity of the instrument on a straight-line
basis over its remaining life. All cash, receivables and current payables are
generally carried at their face value. Other assets are valued at fair value
as determined in good faith by or under the direction of the Fund's board of
trustees. All investments denominated in foreign currencies are valued daily
in U.S. dollars based on the then-prevailing exchange rate.

MANAGEMENT

The Fund's board of trustees, as part of its overall management
responsibility, oversees various organizations responsible for each
Portfolio's day-to-day management. Mitchell Hutchins, the investment adviser
and administrator for each Portfolio, makes and implements all investment
decisions and supervises all aspects of the operations of Money Market, High
Grade Fixed Income, Global Income, Balanced, Growth and Income and Growth
Portfolios. PIMCO, Nicholas-Applegate and GEIM, as Sub-Advisers for Strategic
Fixed Income, Aggressive Growth and Global Growth Portfolios, respectively,
make and implement all investment decisions for these Portfolios. Mitchell
Hutchins supervises the activities of the Sub-Advisers for these Portfolios
and supervises all other aspects of these Portfolios' operations. Brokerage
transactions for the Portfolios may be conducted through PaineWebber or its
affiliates in accordance with procedures adopted by the Fund's board of
trustees.

For advisory and administrative services, the Fund pays Mitchell Hutchins a
fee, computed daily and paid monthly, at the annual rates set forth below for
each Portfolio. The Portfolios also incur other expenses in their operations
and, for the fiscal year ended December 31, 1996, total expenses for each
Portfolio, stated as a percentage of average net assets, were as set forth
below.

<TABLE>
<CAPTION>
ANNUAL EXPENSES
ANNUAL RATE AS A PERCENTAGE
OF ADVISORY FEE OF EACH
AS A PERCENTAGE PORTFOLIO'S
OF EACH PORTFOLIO'S AVERAGE
PORTFOLIO AVERAGE NET ASSETS NET ASSETS
- --------- ------------------- ---------------
<S> <C> <C>
Money Market Portfolio 0.50% 1.17%
High Grade Fixed Income Portfolio 0.50 1.62
Strategic Fixed Income Portfolio 0.50 1.52
Global Income Portfolio 0.75 1.56
Balanced Portfolio 0.75 1.24
Growth and Income Portfolio 0.70 1.58
Growth Portfolio 0.75 1.14
Aggressive Growth Portfolio 0.80 1.52
Global Growth Portfolio 0.75 1.10
</TABLE>

THE FEE OF 0.75% OF AVERAGE NET ASSETS PAID BY BALANCED PORTFOLIO IS HIGHER
THAN THAT PAID BY FUNDS WITH SIMILAR INVESTMENT OBJECTIVES AND POLICIES TO
THEIR ADVISERS.

Mitchell Hutchins is located at 1285 Avenue of the Americas, New York, New
York 10019. It is a wholly owned subsidiary of PaineWebber, which is in turn
wholly owned by Paine Webber Group Inc., a publicly owned financial services
holding company. At March 31, 1997 Mitchell Hutchins was

PW 30
<PAGE>

adviser or sub-adviser to 30 investment companies with 65 separate portfolios
and aggregate assets of approximately $33 billion.

Mitchell Hutchins (not the Fund) pays PIMCO a fee for its services as sub-
adviser for Strategic Fixed Income Portfolio at the annual rate of 0.25% of the
portfolio's average daily net assets. PIMCO is located at 840 Newport Center
Drive, Suite 360, Newport Beach, California 92660. PIMCO is a subsidiary
partnership of PIMCO Advisers L.P. ("PIMCO Advisers"), a publicly held
investment advisory firm. A majority interest in PIMCO Advisers is held by
PIMCO Partners, G.P. ("PIMCO Partners"), a general partnership between Pacific
Financial Asset Management Corporation, an indirect wholly owned subsidiary of
Pacific Mutual Life Insurance Company, and PIMCO Partners, L.P., a limited
partnership controlled by the PIMCO Managing Directors. As of March 31, 1997,
PIMCO had approximately $91.6 billion in assets under management and was
adviser or sub-adviser of 44 pooled fund accounts with aggregate assets of
approximately $22.9 billion. PIMCO is one of the largest fixed income
management firms in the nation. Included among PIMCO's institutional clients
are many "Fortune 500" companies.

Mitchell Hutchins (not the Fund) pays GEIM a fee for its services as sub-
adviser for Global Growth Portfolio at an annual rate of 0.29% of the Fund's
average daily net assets. GEIM is located at 3003 Summer Street, P.O. Box 7900,
Stamford, Connecticut 06904-7900 and is a wholly owned subsidiary of General
Electric Company. GEIM is a registered investment adviser, and its principal
officers and directors serve in similar capacities with respect to General
Electric Investment Corporation ("GEIC"), also a registered investment adviser
and a wholly owned subsidiary of General Electric Company. GEIM and GEIC
provide investment management services to various institutional accounts with
total assets exceeding $58 billion as of March 31, 1997.

Mitchell Hutchins (not the Fund) pays Nicholas-Applegate a fee for its services
as sub-adviser for Aggressive Growth Portfolio in the amount of 0.50% of the
Portfolio's average daily net assets. Nicholas-Applegate is located at 600 West
Broadway, 29th Floor, San Diego, California 92101 and is a California limited
partnership. Nicholas-Applegate's general partner is Nicholas-Applegate Capital
Management Holdings, L.P., a California limited partnership controlled by
Arthur E. Nicholas. He and 15 other partners manage a staff of approximately
350 employees. As of March 31, 1997, Nicholas-Applegate managed a total of
approximately $28.7 billion in assets for its client accounts, which include
employee benefit plans of corporations, public retirement systems and unions,
university endowments and other institutional investors.

William C. Powers, a PIMCO Managing Director, has been primarily responsible
for the day-to-day management of Strategic Fixed Income Portfolio since
September 1996. Mr. Powers has been associated with PIMCO for more than five
years as a senior member of the fixed income portfolio management group.

Stuart Waugh is primarily responsible for the day-to-day management of Global
Income Portfolio. Mr. Waugh is a managing director and a portfolio manager of
Mitchell Hutchins responsible for global fixed income investments and currency
trading. He has held his Global Income Portfolio responsibilities since its
inception in May 1988 and has been employed by Mitchell Hutchins as a portfolio
manager for more than 5 years.

Mark A. Tincher is primarily responsible for the day-to-day management of the
Growth and Income Portfolio. Mr. Tincher is a managing director and chief
investment officer of equities of Mitchell Hutchins, responsible for overseeing
the management of equity investments. Prior to joining Mitchell Hutchins in
March 1995, Mr. Tincher worked for Chase Manhattan Private Bank, where he was
vice president and directed the U.S. funds management and equity research area.
At Chase since 1988, Mr. Tincher oversaw the management of all Chase equity
funds (the Vista Funds and Trust

PW 31
<PAGE>

Investment Funds). Mr. Tincher has held his Growth and Income Portfolio
responsibilities since April 1995.

Ellen R. Harris is primarily responsible for the day-to-day management of
Growth Portfolio. Ms. Harris is a managing director of Mitchell Hutchins. She
has held her Growth Portfolio responsibilities since its inception in May 1987
and has been employed by Mitchell Hutchins as a portfolio manager since 1983.

The Systems Driven Internal Research team at Nicholas-Applegate, which is
primarily responsible for the day-to-day management of Aggressive Growth
Portfolio, has been under the supervision of Arthur E. Nicholas since February
1994. Mr. Nicholas has been the chief investment officer and managing partner
of Nicholas-Applegate since its organization in 1984. The Research team at
Nicholas-Applegate has held its Aggressive Growth Portfolio responsibilities
since the Portfolio's inception in November 1993.

Ralph R. Layman is primarily responsible for the day-to-day management of
Global Growth Portfolio. Mr. Layman is a Chartered Financial Analyst and an
executive vice president and a senior investment manager of GEIM. From 1989 to
1991, Mr. Layman served as executive vice president, partner and portfolio
manager of Northern Capital Management Co., and prior thereto, served as vice
president and portfolio manager of Templeton Investment Counsel, Inc., and vice
president of the Templeton Emerging Markets Fund. Mr. Layman has held his
Global Growth Portfolio responsibilities since March 1995.

T. Kirkham Barneby is responsible for the asset allocation decisions for
Balanced Portfolio. Mr. Barneby is a managing director and chief investment
officer--quantitative investments of Mitchell Hutchins. Mr. Barneby rejoined
Mitchell Hutchins in 1994, after being with Vantage Global Management for one
year. During the eight years that Mr. Barneby was previously with Mitchell
Hutchins, he was senior vice president responsible for quantitative management
and asset allocation models. Before joining Mitchell Hutchins, Mr. Barneby
served as director of pension investment strategy at the Continental Group in
Stamford, Connecticut and held positions in the economics departments at both
Citibank, N.A. and Merrill Lynch. Mr. Barneby has held his Balanced Portfolio
responsibilities since August 1995.

Mark A. Tincher is responsible for the day-to-day management of the equity
portion of Balanced Portfolio. Please refer to Mr. Tincher's prior experience
provided under the "Growth and Income Portfolio" above. Mr. Tincher has held
his Balanced Portfolio responsibilities since August 1995.

Dennis L. McCauley is primarily responsible for the day-to-day management of
High Grade Fixed Income Portfolio and the fixed income portion of Balanced
Portfolio. Mr. McCauley is a managing director and chief investment officer--
fixed income of Mitchell Hutchins responsible for overseeing all active fixed
income investments, including domestic and global taxable and tax-exempt mutual
funds. Prior to joining Mitchell Hutchins in 1994, Mr. McCauley worked for IBM
Corporation, where he was director of fixed income investments responsible for
developing and managing investment strategy for all fixed income and cash
management investments of IBM's pension fund and self-insured medical funds.
Mr. McCauley has also served as vice president of IBM Credit Corporation's
mutual funds and as a member of the Retirement Fund Investment Committee. Mr.
McCauley has held his High Grade Fixed Income Portfolio responsibilities since
July 1995 and his Balanced Portfolio responsibilities since August 1995.

Nirmal Singh, Craig Varrelman and James F. Keegan assist Mr. McCauley in
managing High Grade Fixed Income Portfolio and Messrs. Singh and Varrelman and
Susan Ryan assist Mr. McCauley in managing Balanced Portfolio's fixed income
investments. Messrs. Singh and Varrelman are both first vice presidents of
Mitchell Hutchins. Prior to joining Mitchell Hutchins in 1993, Mr. Singh was
with Merrill Lynch Asset Management, Inc., where he was a member of the
portfolio management team.

PW 32
<PAGE>

From 1990 to 1993, Mr. Singh was a senior portfolio manager at Nomura Mortgage
Fund Management Corporation. Mr. Varrelman has been with Mitchell Hutchins as a
portfolio manager since 1988 and manages fixed income portfolios with an
emphasis on U.S. government securities. Mr. Keegan is a senior vice president
of Mitchell Hutchins and oversees all corporate bond investments. Prior to
joining Mitchell Hutchins in March 1996, Mr. Keegan was the director of fixed
income strategy and research at the Merrion Group, L.P. From 1987 to 1994, he
was vice president of global investment management of Bankers Trust Company.
Ms. Ryan is a senior vice president of Mitchell Hutchins and has been with
Mitchell Hutchins since 1982.

Messrs. Singh and Varrelman first assumed responsibility for High Grade Fixed
Income Portfolio in July 1995 and Mr. Keegan assumed his responsibility for
this Portfolio in April 1996. Messrs. Singh and Varrelman and Ms. Messina first
assumed their responsibilities for Balanced Portfolio in August 1995.

Ms. Ryan is responsible for the day-to-day management of Money Market Portfolio
and the cash portion of all the other Portfolios except Aggressive Growth,
Strategic Fixed Income and Global Growth Portfolios. She has held her Money
Market Portfolio responsibilities since its inception in May 1987.

Investment personnel of Mitchell Hutchins and the Sub-Advisers may engage in
securities transactions for their own accounts pursuant to each firm's code of
ethics, which establishes procedures for personal investing and restricts
certain transactions.

GENERAL INFORMATION

The Fund is registered with the SEC as an open-end management investment
company and was organized as a business trust under the laws of the
Commonwealth of Massachusetts by Declaration of Trust dated November 21, 1986.
The Fund commenced operations as an investment company on May 4, 1987. The
trustees have authority to issue an unlimited number of shares of beneficial
interest of separate series, par value $.001 per share. Shares of nine series
are authorized.

The Fund does not hold annual meetings of shareholders. There normally will be
no meetings of shareholders to elect trustees unless fewer than a majority of
the trustees holding office have been elected by shareholders. Shareholders of
record of no less than two-thirds of the outstanding shares of the Fund may
remove a trustee by votes cast in person or by proxy at a meeting called for
that purpose. The trustees are required to call a meeting of shareholders for
the purpose of voting upon the question of removal of any trustee when so
requested in writing by the shareholders of record of not less than 10% of the
Fund's outstanding shares. Each share of a Portfolio has equal voting, dividend
and liquidation rights. The shares of each Portfolio will be voted separately
except when an aggregate vote of all series is required by the 1940 Act.

CUSTODIAN AND TRANSFER AGENT. State Street Bank and Trust Company, One Heritage
Drive, North Quincy, Massachusetts 02171, is custodian of the assets of Money
Market, High Grade Fixed Income, Strategic Fixed Income, Balanced, Growth and
Income, Growth, Aggressive Growth and Global Growth Portfolios. Brown Brothers
Harriman & Co., 40 Water Street, Boston, Massachusetts 02109, is custodian of
the assets of Global Income Portfolio. Both custodians employ foreign sub-
custodians approved by the board of trustees to provide custody of the foreign
assets of Strategic Fixed Income, Global Income and Global Growth Portfolios.
PFPC Inc., a subsidiary of PNC Bank, N.A., whose principal business address is
400 Bellevue Parkway, Wilmington, Delaware 19809, is the Fund's transfer and
dividend disbursing agent.

CONFIRMATIONS AND STATEMENTS. Shareholders receive confirmations of purchases
and redemptions of Portfolio shares. Monthly statements sent to each separate
account report that account's Portfolio activity.

PW 33
<PAGE>

MAY 1, 1997

PAINEWEBBER SERIES TRUST

1285 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019

STATEMENT OF ADDITIONAL INFORMATION

PaineWebber Series Trust ("Fund") is a professionally managed mutual fund
that offers the nine series of shares ("Portfolios") listed below. All the
Portfolios except Global Income Portfolio are diversified, and each has its own
investment objective and policies. Shares of each Portfolio are offered only to
insurance company separate accounts that fund certain variable contracts
("Contracts"). Advisory and administrative services are provided to the Fund by
Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins"), a wholly owned
subsidiary of PaineWebber Incorporated ("PaineWebber"), and certain Portfolios,
as indicated below, have sub-advisers ("Sub-Advisers").

*HIGH GRADE FIXED INCOME PORTFOLIO primarily seeks current income
consistent with the preservation of capital and secondarily seeks capital
appreciation. This Portfolio invests primarily in debt securities issued or
guaranteed by the U.S. government, its agencies or instrumentalities and
high quality corporate debt securities and mortgage- and asset-backed
securities of private issuers.

*STRATEGIC FIXED INCOME PORTFOLIO seeks total return consisting of
capital appreciation and income. This Portfolio invests primarily in fixed
income securities of varying maturities with a dollar-weighted average
portfolio duration between three and eight years. Pacific Investment
Management Company serves as Sub-Adviser to this Portfolio.

*GLOBAL INCOME PORTFOLIO primarily seeks high current income and
secondarily seeks capital appreciation. This Portfolio invests principally
in high quality debt securities of foreign and U.S. issuers.

*BALANCED PORTFOLIO seeks a high total return with low volatility. This
Portfolio invests primarily in a combination of equity securities,
investment grade debt obligations and money market instruments, based on
Mitchell Hutchins' assessment of the optimal allocation of the Portfolio's
assets.

*GROWTH AND INCOME PORTFOLIO seeks current income and capital growth.
This Portfolio invests primarily in dividend-paying equity securities
believed by Mitchell Hutchins to have the potential for rapid earnings
growth.

*GROWTH PORTFOLIO seeks long-term capital appreciation. This Portfolio
invests primarily in equity securities of companies that, in the judgment
of Mitchell Hutchins, have substantial potential for capital growth.

*AGGRESSIVE GROWTH PORTFOLIO seeks to maximize long-term capital
appreciation. This Portfolio invests primarily in the common stocks of U.S.
companies. Nicholas-Applegate Capital Management serves as Sub-Adviser to
this Portfolio.

*GLOBAL GROWTH PORTFOLIO seeks long-term capital appreciation. This
Portfolio invests primarily in common stocks of companies based in the
United States, Europe, Japan and the Pacific Basin. GE Investment
Management Incorporated serves as Sub-Adviser to this Portfolio.

This Statement of Additional Information is not a prospectus and should be
read only in conjunction with the Fund's current Prospectus, dated May 1, 1997.
A copy of the Prospectus may be obtained by contacting the Fund or your
PaineWebber investment executive.
<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Policies and Limitations........................................ 3
Hedging and Related Strategies............................................. 14
Trustees and Officers...................................................... 23
Investment Advisory Services............................................... 31
Portfolio Transactions..................................................... 33
Additional Purchase and Redemption Information............................. 36
Valuation of Shares........................................................ 36
Taxes...................................................................... 37
Dividends.................................................................. 39
Other Information.......................................................... 39
Financial Statements....................................................... 40
Description of Commercial Paper and Bond Ratings........................... 40
</TABLE>

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<PAGE>

INVESTMENT POLICIES AND LIMITATIONS

The following supplements the information contained in the Fund's Prospectus
concerning the investment policies and limitations of its nine Portfolios.

SPECIAL CONSIDERATIONS RELATING TO FOREIGN SECURITIES. As noted in the
Prospectus, Global Income Portfolio, Global Growth Portfolio and Strategic
Fixed Income Portfolio each invests in securities of foreign issuers. In
addition, all Portfolios may invest in U.S. dollar-denominated securities of
foreign issuers. Many of these foreign securities are not registered with the
Securities and Exchange Commission ("SEC"), nor are the issuers thereof subject
to its reporting requirements. Accordingly, there may be less publicly
available information concerning foreign issuers of securities held by the
Portfolios than is available concerning U.S. companies. Foreign companies are
not generally subject to uniform accounting, auditing and financial reporting
standards or to other regulatory requirements comparable to those applicable to
U.S. companies.

In addition to purchasing securities of foreign issuers in foreign markets,
Global Income, Global Growth and Strategic Fixed Income Portfolios may invest
in American Depository Receipts ("ADRs"), European Depository Receipts ("EDRs")
or other securities convertible into securities of companies based in foreign
countries. These securities may not necessarily be denominated in the same
currency as the securities into which they may be converted. Generally, ADRs,
in registered form, are denominated in U.S. dollars and are designed for use in
the U.S. securities markets and EDRs, in bearer form, may be denominated in
other currencies and are designed for use in European securities markets. ADRs
are receipts typically issued by a U.S. bank or trust company evidencing
ownership of the underlying securities. EDRs are European receipts evidencing a
similar arrangement. The other Portfolios generally invest in securities of
foreign companies only if such securities are traded in the U.S. securities
markets directly or through ADRs. For purposes of the Fund's investment
policies, ADRs and EDRs are deemed to have the same classification as the
underlying securities they represent. Thus, an ADR or EDR evidencing ownership
of common stock will be treated as common stock.

Global Growth Portfolio anticipates that its brokerage transactions involving
securities of companies headquartered in countries other than the United States
will be conducted primarily on the principal exchanges of such countries.
Foreign security trading practices, including those involving securities
settlement where Portfolio assets may be released prior to receipt of payment,
may expose the Portfolio to increased risk in the event of a failed trade or
the insolvency of a foreign broker-dealer. Transactions on foreign exchanges
are usually subject to fixed commissions that are generally higher than
negotiated commissions on U.S. transactions, although the Portfolio will
endeavor to achieve the best net results in effecting portfolio transactions.
There is generally less government supervision and regulation of exchanges and
brokers in foreign countries than in the United States.

Investment income on certain foreign securities may be subject to foreign
withholding or other taxes that could reduce the return on these securities.
Tax treaties between the United States and foreign countries, however, may
reduce or eliminate the amount of foreign taxes to which a Portfolio would be
subject.

SOVEREIGN DEBT. Investment in debt securities issued by foreign governments
and their political subdivisions or agencies ("Sovereign Debt") involves
special risks. The issuer of the debt or the governmental authorities that
control the repayment of the debt may be unable or unwilling to repay principal
and/or interest when due in accordance with the terms of such debt, and a
Portfolio may have limited legal recourse in the event of a default.

Sovereign Debt differs from debt obligations issued by private entities in
that, generally, remedies for defaults must be pursued in the courts of the
defaulting party. Legal recourse is therefore somewhat diminished. Political
conditions, especially a sovereign entity's willingness to meet the terms of
its debt

3
<PAGE>

obligations, are of considerable significance. Also, there can be no assurance
that the holders of commercial bank debt issued by the same sovereign entity
may not contest payments to the holders of Sovereign Debt in the event of
default under commercial bank loan agreements.

A sovereign debtor's willingness or ability to repay principal and interest
due in a timely manner may be affected by, among other factors, its cash flow
situation, the extent of its foreign reserves, the availability of sufficient
foreign exchange on the date a payment is due, the relative size of the debt
service burden to the economy as a whole, the sovereign debtor's policy toward
principal international lenders and the political constraints to which a
sovereign debtor may be subject. Increased protectionism on the part of a
country's trading partners, or political changes in those countries, could also
adversely affect its exports. Such events could diminish a country's trade
account surplus, if any, or the credit standing of a particular local
government or agency.

The occurrence of political, social or diplomatic changes in one or more of
the countries issuing Sovereign Debt could adversely affect a Portfolio's
investments. Political changes or a deterioration of a country's domestic
economy or balance of trade may affect the willingness of countries to service
their Sovereign Debt. While Mitchell Hutchins or the applicable Sub-Adviser
manages the Portfolios' investments in a manner that is intended to minimize
the exposure to such risks, there can be no assurance that adverse political
changes will not cause a Portfolio to suffer a loss of interest or principal on
any of its holdings.

FOREIGN CURRENCY TRANSACTIONS. Although each of Strategic Fixed Income,
Global Income and Global Growth Portfolios values its assets daily in U.S.
dollars, none of these Portfolios intends to convert its holdings of foreign
currencies to U.S. dollars on a daily basis. The Portfolios' foreign currencies
may be held as "foreign currency call accounts" at foreign branches of foreign
or domestic banks. These accounts bear interest at negotiated rates and are
payable upon relatively short demand periods. If a bank became insolvent, a
Portfolio could suffer a loss of some or all of the amounts deposited. The
Portfolios may convert foreign currency to U.S. dollars from time to time.
Although foreign exchange dealers generally do not charge a stated commission
or fee for conversion, the prices posted generally include a "spread," which is
the difference between the prices at which the dealers are buying and selling
foreign currencies.

SELECTION OF INVESTMENTS BY BALANCED PORTFOLIO. The money market instruments
in which Balanced Portfolio may invest include U.S. Treasury bills and other
obligations issued or guaranteed as to interest and principal by the U.S.
government, its agencies and instrumentalities; obligations of U.S. banks
(including certificates of deposit and bankers' acceptances) having total
assets at the time of purchase in excess of $1.5 billion and interest-bearing
savings deposits in U.S. commercial and savings banks in principal amounts at
each such bank not greater than are fully insured by the Federal Deposit
Insurance Corporation, provided that the aggregate amount of such deposits does
not exceed 5% of the value of the Portfolio's assets; commercial paper and
other short-term corporate obligations; and variable and floating rate
securities and repurchase agreements. The Portfolio may also hold cash.

The commercial paper and other short-term corporate obligations purchased by
the Portfolio will consist only of obligations of U.S. corporations that are
(1) rated at least Prime-2 by Moody's Investors Service ("Moody's") or A-2 by
Standard & Poor's, a division of the McGraw-Hill Companies, Inc. ("S&P"), (2)
comparably rated by another nationally recognized statistical rating
organization ("NRSRO") or (3) unrated and determined by Mitchell Hutchins to be
of comparable quality. These obligations may include variable amount master
demand notes, which are unsecured obligations redeemable upon notice that
permit investment of fluctuating amounts at varying rates of interest pursuant
to direct arrangements with the issuer of the instrument. Such obligations are
usually unrated by a rating agency.

The Portfolio may purchase variable rate securities with remaining maturities
of one year or more issued by U.S. government agencies or instrumentalities or
guaranteed by the U.S. government. The Portfolio may also acquire certain
variable and floating rate instruments issued by U.S. companies. The yield of
these securities varies in relation to changes in specific money market rates
such as the prime rate. These changes

4
<PAGE>

are reflected in adjustments to the yields of the variable rate securities at
least semi-annually, and different securities may have different adjustment
rates.

MORTGAGE-BACKED SECURITIES. Mortgage-backed securities represent direct or
indirect participations in, or are secured by and payable from, mortgage loans
secured by real property and include single- and multi-class pass-through
securities and collateralized mortgage obligations. Multi-class pass-through
securities and collateralized mortgage obligations are collectively referred to
herein as CMOs. The U.S. government mortgage-backed securities in which the
Portfolios may invest include mortgage-backed securities issued or guaranteed
as to the payment of principal and interest (but not as to market value) by the
Government National Mortgage Association ("Ginnie Mae"), Fannie Mae (also known
as, the Federal National Mortgage Association), or the Federal Home Loan
Mortgage Corporation ("Freddie Mac"). Other mortgage-backed securities are
issued by private issuers, generally originators of and investors in mortgage
loans, including savings associations, mortgage bankers, commercial banks,
investment bankers and special purpose entities (collectively "Private Mortgage
Lenders"). Payments of principal and interest (but not the market value) of
such private mortgage-backed securities may be supported by pools of mortgage
loans or other mortgage-backed securities that are guaranteed, directly or
indirectly, by the U.S. government or one of its agencies or instrumentalities,
or they may be issued without any government guarantee of the underlying
mortgage assets but with some form of non-government credit enhancement. New
types of mortgage-backed securities are developed and marketed from time to
time and, consistent with its investment limitations, each Portfolio expects to
invest in those new types of mortgage-backed securities that Mitchell Hutchins
or a Sub-Adviser believes may assist a Portfolio in achieving its investment
objective. Similarly, a Portfolio may invest in mortgage-backed securities
issued by new or existing governmental or private issuers other than those
identified herein.

Ginnie Mae Certificates. Ginnie Mae guarantees certain mortgage pass-through
certificates ("Ginnie Mae certificates") that are issued by Private Mortgage
Lenders and that represent ownership interests in individual pools of
residential mortgage loans. These securities are designed to provide monthly
payments of interest and principal to the investor. Timely payment of interest
and principal is backed by the full faith and credit of the U.S. government.
Each mortgagor's monthly payments to his lending institution on his residential
mortgage are "passed through" to certificateholders such as a Portfolio.
Mortgage pools consist of whole mortgage loans or participations in loans. The
terms and characteristics of the mortgage instruments are generally uniform
within a pool but may vary among pools. Lending institutions that originate
mortgages for the pools are subject to certain standards, including credit and
other underwriting criteria for individual mortgages included in the pools.

Fannie Mae Certificates. Fannie Mae facilitates a national secondary market
in residential mortgage loans insured or guaranteed by U.S. government agencies
and in privately insured or uninsured residential mortgage loans (sometimes
referred to as "conventional mortgage loans" or "conventional loans") through
its mortgage purchase and mortgage-backed securities sales activities. Fannie
Mae issues guaranteed mortgage pass-through certificates ("Fannie Mae
certificates"), which represent pro rata shares of all interest and principal
payments made and owed on the underlying pools. Fannie Mae guarantees timely
payment of interest and principal on Fannie Mae certificates. The Fannie Mae
guarantee is not backed by the full faith and credit of the U.S. government.

Freddie Mac Certificates. Freddie Mac also facilitates a national secondary
market for conventional residential and U.S. government-issued mortgage loans
through its mortgage purchase and mortgage-backed securities sales activities.
Freddie Mac issues two types of mortgage pass-through securities: mortgage
participation certificates ("PCs") and guaranteed mortgage certificates
("GMCs"). Each PC represents a pro rata share of all interest and principal
payments made and owed on the underlying pool. Freddie Mac generally guarantees
timely monthly payment of interest on PCs and the ultimate payment of
principal, but it also has a PC program under which it guarantees timely
payment of both principal and interest. GMCs also represent a pro rata interest
in a pool of mortgages. These instruments, however, pay interest semi-annually
and return principal once a year in guaranteed minimum payments. Freddie Mac
does not guarantee

5
<PAGE>

the market value of the security itself. The Freddie Mac guarantee is not
backed by full faith and credit of the U.S. government.

Private, RTC and Similar Mortgage-Backed Securities. Mortgage-backed
securities issued by Private Mortgage Lenders are structured similarly to the
CMOs or single class mortgage-backed securities issued or guaranteed by Ginnie
Mae, Fannie Mae and Freddie Mac. Such mortgage-backed securities may be
supported by pools of U.S. government or agency insured or guaranteed mortgage
loans or by other mortgage-backed securities issued by a government agency or
instrumentality, but they generally are supported by pools of conventional
(i.e., non-government guaranteed or insured) mortgage loans. Since such
mortgage-backed securities normally are not guaranteed by an entity having the
credit standing of Ginnie Mae, Fannie Mae or Freddie Mac, they normally are
structured with one or more types of credit enhancement. See "--Types of Credit
Enhancement." Such credit enhancements do not protect investors from changes in
market value.

The Resolution Trust Corporation ("RTC"), which was organized by the U.S.
government in connection with the savings and loan crisis, held assets of
failed savings associations as either a conservator or receiver for such
associations, or it acquired such assets in its corporate capacity. These
assets include, among other things, single family and multi-family mortgage
loans, as well as commercial mortgage loans. In order to dispose of such assets
in an orderly manner, RTC established a vehicle registered with the SEC through
which it sold mortgage-backed securities. RTC mortgage-backed securities
represent pro rata interests in pools of mortgage loans that RTC held or had
acquired, as described above, and are supported by one or more of the types of
private credit enhancements used by Private Mortgage Lenders.

Collateralized Mortgage Obligations and Multi-Class Mortgage Pass-
Throughs. CMOs are debt obligations that are collateralized either by mortgage
loans, mortgage pass-through securities or other CMOs (such collateral
collectively being called "Mortgage Assets"). CMOs may be issued by Private
Mortgage Lenders or by government entities such as Fannie Mae or Freddie Mac.
Multi-class mortgage pass-through securities are interests in trusts that are
comprised of Mortgage Assets and that have multiple classes similar to those of
CMOs. Unless the context indicates otherwise, references herein to CMOs include
multi-class mortgage pass-through securities. Payments of principal of and
interest on the Mortgage Assets (and, in the case of CMOs, any reinvestment
income thereon) provide the funds to pay debt service on the CMOs or to make
scheduled distributions on the multi-class mortgage pass-through securities.

In a CMO, a series of bonds or certificates is issued in multiple classes.
Each class of a CMO, also referred to as a "tranche," is issued at a specific
fixed or floating coupon rate and has a stated maturity or final distribution
date. Principal prepayments on the Mortgage Assets may cause CMOs to be retired
substantially earlier than their stated maturities or final distribution dates.
Interest is paid or accrues on all classes of a CMO (other than any principal-
only or PO class) on a monthly, quarterly or semi-annual basis. The principal
and interest on the Mortgage Assets may be allocated among the several classes
of a CMO in many ways. In one structure, payments of principal, including any
principal prepayments, on the Mortgage Assets are applied to the classes of a
CMO in the order of their respective stated maturities or final distribution
dates so that no payment of principal will be made on any class of the CMO
until all other classes having an earlier stated maturity or final distribution
date have been paid in full. In some CMO structures, all or a portion of the
interest attributable to one or more of the CMO classes may be added to the
principal amounts attributable to such classes, rather than passed through to
certificateholders on a current basis, until other classes of the CMO are paid
in full.

Parallel pay CMOs are structured to provide payments of principal on each
payment date to more than one class. These simultaneous payments are taken into
account in calculating the stated maturity date or final distribution date of
each class, which, as with other CMO structures, must be retired by its stated
maturity date or final distribution date but may be retired earlier.

Some CMO classes are structured to pay interest at rates that are adjusted in
accordance with a formula, such as a multiple or fraction of the change in a
specified interest rate index, so as to pay at a rate that will be

6
<PAGE>

attractive in certain interest rate environments but not in others. For
example, an inverse floating rate CMO class pays interest at a rate that
increases as a specified interest rate index decreases but decreases as that
index increases. For other CMO classes, the yield may move in the same
direction as market interest rates--i.e. the yield may increase as rates
increase and decrease as rates decrease--but may do so more rapidly or to a
greater degree. The market value of such securities generally is more volatile
than that of a fixed rate obligation. Such interest rate formulas may be
combined with other CMO characteristics. For example, a CMO class may be an
"inverse IO," on which the holders are entitled to receive no payments of
principal and are entitled to receive interest at a rate that will vary
inversely with a specified index or a multiple thereof.

Types of Credit Enhancement. To lessen the effect of failures by obligors on
Mortgage Assets to make payments, mortgage-backed securities may contain
elements of credit enhancement. Such credit enhancement falls into two
categories: (1) liquidity protection and (2) protection against losses
resulting after default by an obligor on the underlying assets and collection
of all amounts recoverable directly from the obligor and through liquidation of
the collateral. Liquidity protection refers to the provision of advances,
generally by the entity administering the pool of assets (usually the bank,
savings association or mortgage banker that transferred the underlying loans to
the issuer of the security), to ensure that the receipt of payments on the
underlying pool occurs in a timely fashion. Protection against losses resulting
after default and liquidation ensures ultimate payment of the obligations on at
least a portion of the assets in the pool. Such protection may be provided
through guarantees, insurance policies or letters of credit obtained by the
issuer or sponsor from third parties, through various means of structuring the
transaction or through a combination of such approaches. The Portfolios will
not pay any additional fees for such credit enhancement, although the existence
of credit enhancement may increase the price of a security. Credit enhancements
do not provide protection against changes in the market value of a security.

Examples of credit enhancement arising out of the structure of the
transaction include "senior-subordinated securities" (multiple class securities
with one or more classes subordinate to other classes as to the payment of
principal thereof and interest thereon, with the result that defaults on the
underlying assets are borne first by the holders of the subordinated class),
creation of "spread accounts" or "reserve funds" (where cash or investments,
sometimes funded from a portion of the payments on the underlying assets, are
held in reserve against future losses) and "over-collateralization" (where the
scheduled payments on, or the principal amount of, the underlying assets exceed
that required to make payment of the securities and pay any servicing or other
fees). The degree of credit enhancement provided for each issue generally is
based on historical information regarding the level of credit risk associated
with the underlying assets. Delinquency or loss in excess of that anticipated
could adversely affect the return on an investment in such a security.

Specially Structured CMOs and New Types of Mortgage-Backed Securities

The Portfolios may invest in IOs, POs, inverse floating rate CMOs and other
specially structured CMO classes. See "Risk Factors and Other Investment
Policies--Risks of Mortgage- and Asset-Backed Securities."

New types of mortgage-backed securities are developed and marketed from time
to time and, consistent with their investment limitations, the Portfolios
expect to invest in those new types of mortgage-backed securities that Mitchell
Hutchins or a Sub-Adviser believes may assist a Portfolio in achieving its
investment objective. Similarly, the Portfolios may invest in mortgage-backed
securities issued by new or existing governmental or private issuers other than
those identified above. The Fund's prospectus or statement of additional
information will be supplemented to the extent that new types of mortgage-
backed securities or those issued by issuers other than those identified above
involve materially different risks than the securities or issuers described
herein.

SPECIAL CHARACTERISTICS OF MORTGAGE- AND ASSET-BACKED SECURITIES. Prepayments
on a pool of mortgage loans are influenced by a variety of economic,
geographic, social and other factors, including changes in

7
<PAGE>

mortgagors' housing needs, job transfers, unemployment, mortgagors' net equity
in the mortgaged properties and servicing decisions. Generally, however,
prepayments on fixed-rate mortgage loans will increase during a period of
falling interest rates and decrease during a period of rising interest rates.
Similar factors apply to prepayments on asset-backed securities, but the
receivables underlying asset-backed securities generally are of a shorter
maturity and thus are less likely to experience substantial prepayments. Such
securities, however, often provide that for a specified time period the issuers
will replace receivables in the pool that are repaid with comparable
obligations. If the issuer is unable to do so, repayment of principal on the
asset-backed securities may commence at an earlier date. Mortgage- and asset-
backed securities may decrease in value as a result of increases in interest
rates and may benefit less than other fixed-income securities from declining
interest rates because of the risk of prepayment.

The rate of interest on mortgage-backed securities is lower than the interest
rates paid on the mortgages included in the underlying pool due to the annual
fees paid to the servicer of the mortgage pool for passing through monthly
payments to certificateholders and to any guarantor, and due to any yield
retained by the issuer. Actual yield to the holder may vary from the coupon
rate, even if adjustable, if the mortgage-backed securities are purchased or
traded in the secondary market at a premium or discount. In addition, there is
normally some delay between the time the issuer receives mortgage payments from
the servicer and the time the issuer makes the payments on the mortgage-backed
securities, and this delay reduces the effective yield to the holder of such
securities.

Yields on pass-through securities are typically quoted by investment dealers
and vendors based on the maturity of the underlying instruments and the
associated average life assumption. The average life of pass-through pools
varies with the maturities of the underlying mortgage loans. A pool's term may
be shortened by unscheduled or early payments of principal on the underlying
mortgages. Because prepayment rates of individual pools vary widely, it is not
possible to predict accurately the average life of a particular pool. In the
past, a common industry practice has been to assume that prepayments on pools
of fixed rate 30-year mortgages would result in a 12-year average life for the
pool. At present, mortgage pools, particularly those with loans with other
maturities or different characteristics, are priced on an assumption of average
life determined for each pool. In periods of declining interest rates, the rate
prepayment tends to increase, thereby shortening the actual average life of a
pool of mortgage-related securities. Conversely, in periods of rising interest
rates, the rate of prepayment tends to decrease, thereby lengthening the actual
average life of the pool. However, these effects may not be present, or may
differ to degree, if the mortgage loans in the pools have adjustable interest
rates or other special payment terms, such as a prepayment charge. Actual
prepayment experience may cause the yield of mortgage-backed securities to
differ from the assumed average life yield. Reinvestment of prepayments may
occur at lower interest rates than the original investment, thus adversely
affecting the yield of a Portfolio.

Additional Information on ARM and Floating Rate Mortgage-Backed
Securities. Adjustable rate mortgage ("ARM") securities are mortgage-backed
securities that represent a right to receive interest payments at a rate that
is adjusted to reflect the interest earned on a pool of mortgage loans bearing
variable or adjustable rates of interest (such mortgage loans are referred to
as "ARMs"). Floating rate mortgage-backed securities are classes of mortgage-
backed securities that have been structured to represent the right to receive
interest payments at rates that fluctuate in accordance with an index but that
generally are supported by pools comprised of fixed-rate mortgage loans.

Because the interest rates on ARM and floating rate mortgage-backed
securities are reset in response to changes in a specified market index, the
values of such securities tend to be less sensitive to interest rate
fluctuations than the values of fixed-rate securities. As a result, during
periods of rising interest rates, ARMs generally do not decrease in value as
much as fixed rate securities. Conversely, during periods of declining rates,
ARMs generally do not increase in value as much as fixed rate securities. ARM
mortgage-backed securities represent a right to receive interest payments at a
rate that is adjusted to reflect the interest earned on a pool of ARMs. ARMs
generally specify that the borrower's mortgage interest rate may not be
adjusted above a specified lifetime maximum rate or, in some cases, below a
minimum lifetime rate. In addition, certain

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ARMs specify for limitations on the maximum amount by which the mortgage
interest rate may adjust for any single adjustment period. ARMs also may limit
changes in the maximum amount by which the borrower's monthly payment may
adjust for any single adjustment period. In the event that a monthly payment is
not sufficient to pay the interest accruing on the ARM, any such excess
interest is added to the mortgage loan ("negative amortization"), which is
repaid through future payments. If the monthly payment exceeds the sum of the
interest accrued at the applicable mortgage interest rate and the principal
payment that would have been necessary to amortize the outstanding principal
balance over the remaining term of the loan, the excess reduces the principal
balance of the ARM. Borrowers under ARMs experiencing negative amortization may
take longer to build up their equity in the underlying property and may be more
likely to default.

ARMs also may be subject to a greater rate of prepayments in a declining
interest rate environment. For example, during a period of declining interest
rates, prepayments on ARMs could increase because the availability of fixed
mortgage loans at competitive interest rates may encourage mortgagors to "lock-
in" at a lower interest rate. Conversely, during a period of rising interest
rates, prepayments on ARMs might decrease. The rate of prepayments with respect
to ARMs has fluctuated in recent years.

The rates of interest payable on certain ARMs, and therefore on certain ARM
mortgage-backed securities, are based on indices, such as the one-year constant
maturity Treasury rate, that reflect changes in market interest rates. Others
are based on indices, such as the 11th District Federal Home Loan Bank Cost of
Funds Index ("COFI"), that tend to lag behind changes in market interest rates.
The values of ARM mortgage-backed securities supported by ARMs that adjust
based on lagging indices tend to be somewhat more sensitive to interest rate
fluctuations than those reflecting current interest rate levels, although the
values of such ARM mortgage-backed securities still tend to be less sensitive
than fixed-rate securities.

Floating rate mortgage-backed securities are classes of mortgage-backed
securities that have been structured to represent the right to receive interest
payments at rates that fluctuate in accordance with an index but that generally
are supported by pools comprised of fixed-rate mortgage loans. As with ARM
mortgage-backed securities, interest rate adjustments on floating rate
mortgage-backed securities may be based on indices that lag behind market
interest rates. Interest rates on floating rate mortgage-backed securities
generally are adjusted monthly. Floating rate mortgage-backed securities are
subject to lifetime interest rate caps, but they generally are not subject to
limitations on monthly or other periodic changes in interest rates or monthly
payments.

ILLIQUID SECURITIES. Each Portfolio may invest up to 10% (15% for Strategic
Fixed Income and Aggressive Growth Portfolios) of its net assets in illiquid
securities. The term "illiquid securities" for this purpose means securities
that cannot be disposed of within seven days in the ordinary course of business
at approximately the amount at which a Portfolio has valued the securities and
includes, among other things, purchased over-the-counter ("OTC") options,
repurchase agreements maturing in more than seven days and restricted
securities other than those securities Mitchell Hutchins or the applicable Sub-
Adviser has determined are liquid pursuant to guidelines established by the
Fund's board of trustees. The assets used as cover for OTC options written by a
Portfolio will be considered illiquid unless the OTC options are sold to
qualified dealers who agree that the Portfolio may repurchase any OTC option it
writes at a maximum price to be calculated by a formula set forth in the option
agreement. The cover for an OTC option written subject to this procedure will
be considered illiquid only to the extent that the maximum repurchase price
under the option formula exceeds the intrinsic value of the option. Illiquid
restricted securities may be sold only in privately negotiated transactions or
in public offerings with respect to which a registration statement is in effect
under the Securities Act of 1933 ("1933 Act"). Restricted securities acquired
by Strategic Fixed Income, Global Income and Global Growth Portfolios include
those that are subject to restrictions contained in the securities laws of
other countries. For these Portfolios, securities that are freely marketable in
the country where they are principally traded, but would not be freely
marketable in the United States, will not be considered illiquid. Where
registration is required, a Portfolio may be obligated to pay all or part of
the registration expenses and a considerable period may elapse between the time
of the decision to sell and the

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<PAGE>

time it may be permitted to sell a security under an effective registration
statement. If, during such a period, adverse market conditions were to develop,
the Portfolio might obtain a less favorable price than prevailed when it
decided to sell.

Not all restricted securities are illiquid. In recent years a large
institutional market has developed for certain securities that are not
registered under the 1933 Act, including private placements, repurchase
agreements, commercial paper, foreign securities and corporate bonds and notes.
These instruments are often restricted securities because the securities are
sold in transactions not requiring registration. Institutional investors
generally will not seek to sell these instruments to the general public, but
instead will often depend either on an efficient institutional market in which
such unregistered securities can be readily resold or on an issuer's ability to
honor a demand for repayment. Therefore, the fact that there are contractual or
legal restrictions on resale to the general public or certain institutions is
not dispositive of the liquidity of such investments.

Rule 144A under the 1933 Act establishes a "safe harbor" from the
registration requirements of the 1933 Act for resales of certain securities to
qualified institutional buyers. Institutional markets for restricted securities
have developed as a result of Rule 144A, providing both readily ascertainable
values for restricted securities and the ability to liquidate an investment to
satisfy share redemption orders. Such markets might include automated systems
for the trading, clearance and settlement of unregistered securities of
domestic and foreign issuers, such as the PORTAL System sponsored by the
National Association of Securities Dealers, Inc. An insufficient number of
qualified buyers interested in purchasing Rule 144A-eligible restricted
securities held by a Portfolio, however, could affect adversely the
marketability of such portfolio securities and a Portfolio might be unable to
dispose of such securities promptly or at favorable prices.

The Fund's board of trustees (sometimes referred to as the "board") has
delegated the function of making day-to-day determinations of liquidity to
Mitchell Hutchins or the applicable Sub-Adviser, pursuant to guidelines
approved by the board. Mitchell Hutchins or the applicable Sub-Adviser takes
into account a number of factors in reaching liquidity decisions, including but
not limited to (1) the frequency of trades for the security, (2) the number of
dealers that make quotes for the security, (3) the number of dealers that have
undertaken to make a market in the security, (4) the number of other potential
purchasers and (5) the nature of the security and how trading is effected
(e.g., the time needed to sell the security, how bids are solicited and the
mechanics of transfer). Mitchell Hutchins or the applicable Sub-Adviser
monitors the liquidity of restricted securities in each Portfolio and reports
periodically on such decisions to the board of trustees.

SECTION 4(2) PAPER. Commercial paper issues in which the Portfolios may
invest include securities issued by major corporations without registration
under the 1933 Act in reliance on the exemption from such registration afforded
by Section 3(a)(3) thereof, and commercial paper issued in reliance on the so-
called "private placement" exemption from registration which is afforded by
Section 4(2) of the 1933 Act ("Section 4(2) paper"). Section 4(2) paper is
restricted as to disposition under the federal securities laws in that any
resale must similarly be made in an exempt transaction. Section 4(2) paper is
normally resold to other institutional investors through or with the assistance
of investment dealers who make a market in Section 4(2) paper, thus providing
liquidity. Section 4(2) paper that is issued by a company that files reports
under the Securities Exchange Act of 1934 is generally eligible to be sold in
reliance on the safe harbor of Rule 144A described under "Illiquid Securities"
above. The Portfolios' 10% (15% for Strategic Fixed Income and Aggressive
Growth Portfolios) limitation on investments in illiquid securities includes
Section 4(2) paper other than Section 4(2) paper that Mitchell Hutchins or the
applicable Sub-Adviser has determined to be liquid pursuant to guidelines
established by the Fund's board of trustees. The board has delegated to
Mitchell Hutchins or the applicable Sub-Adviser the function of making day-to-
day determinations of liquidity with respect to Section 4(2) paper, pursuant to
guidelines approved by the board that require Mitchell Hutchins or the
applicable Sub-Adviser to take into account the same factors described under
"Illiquid Securities" above for other restricted securities and require
Mitchell Hutchins or the applicable Sub-Adviser to perform the same monitoring
and reporting functions.

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<PAGE>

REPURCHASE AGREEMENTS. Repurchase agreements are transactions in which a
Portfolio purchases securities from a bank or recognized securities dealer and
simultaneously commits to resell the securities to the bank or dealer at an
agreed-upon date or upon demand and at a price reflecting a market rate of
interest unrelated to the coupon rate or maturity of the purchased securities.
The Portfolio maintains custody of the underlying securities prior to their
repurchase; thus, the obligation of the bank or dealer to pay the repurchase
price on the date agreed to is, in effect, secured by such securities. If the
value of these securities is less than the repurchase price, plus any agreed-
upon additional amount, the other party to the agreement must provide
additional collateral so that at all times the collateral is at least equal to
the repurchase price plus any agreed-upon additional amount. The difference
between the total amount to be received upon repurchase of the securities and
the price that was paid by the Portfolio upon their acquisition is accrued as
interest and included in the Portfolio's net investment income.

Repurchase agreements carry certain risks not associated with direct
investments in securities, including possible declines in the market value of
the underlying securities and delays and costs to a Portfolio if the other
party to a repurchase agreement becomes insolvent. Each Portfolio intends to
enter into repurchase agreements only with banks and dealers in transactions
believed by Mitchell Hutchins or the applicable Sub-Adviser to present minimum
credit risks in accordance with guidelines established by the Fund's board of
trustees. Mitchell Hutchins or the applicable Sub-Adviser will review and
monitor the creditworthiness of those institutions under the board's general
supervision.

REVERSE REPURCHASE AGREEMENTS. Each Portfolio may enter into reverse
repurchase agreements with banks and securities dealers up to an aggregate
value of not more than 5% (33 1/3% for Strategic Fixed Income Portfolio and 10%
for Global Income Portfolio) of its total assets. Such agreements involve the
sale of securities held by the Portfolio subject to the Portfolio's agreement
to repurchase the securities at an agreed-upon date or upon demand and at a
price reflecting a market rate of interest. Such agreements are considered to
be borrowings and may be entered into by Portfolios other than Strategic Fixed
Income Portfolio only for temporary purposes. While a reverse repurchase
agreement is outstanding, a Portfolio's custodian segregates assets to cover
the amount of the Portfolio's obligations under the reverse repurchase
agreement. See "Investment Policies and Limitations--Segregated Accounts." No
Portfolio other than Strategic Fixed Income Portfolio will purchase securities
while borrowings (including reverse repurchase agreements) in excess of 5% of
its total assets are outstanding. No Portfolio other than Strategic Fixed
Income and Global Income Portfolios currently expects to enter into reverse
repurchase agreements during the coming year.

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. A security purchased on a when-
issued or delayed delivery basis is recorded as an asset on the commitment date
and is subject to changes in market value, generally based upon changes in the
level of interest rates. Thus, fluctuation in the value of the security from
the time of the commitment date will affect a Portfolio's net asset value. When
a Portfolio commits to purchase securities on a when-issued or delayed delivery
basis, its custodian segregates assets to cover the amount of the commitment.
See "Investment Policies and Limitations--Segregated Accounts." The Portfolios
purchase when-issued securities only with the intention of taking delivery, but
may sell the right to acquire the security prior to delivery if Mitchell
Hutchins or the applicable Sub-Adviser deems it advantageous to do so, which
may result in a capital gain or loss to a Portfolio.

LENDING OF PORTFOLIO SECURITIES. As indicated in the Prospectus, each
Portfolio is authorized to lend up to 33 1/3% of its total assets. A Portfolio
may lend its portfolio securities to broker-dealers or institutional investors
that Mitchell Hutchins deems qualified, but only when the borrower maintains
acceptable collateral with the Portfolio's custodian, marked to market daily,
in an amount at least equal to the market value of the securities loaned, plus
accrued interest and dividends. Acceptable collateral is limited to cash, U.S.
government securities and irrevocable letters of credit that meet certain
guidelines established by Mitchell Hutchins. In determining whether to lend
securities to a particular broker-dealer or institutional investor, Mitchell
Hutchins will consider, and during the period of the loan will monitor, all
relevant facts and circumstances, including the creditworthiness of the
borrower. The Portfolios will retain authority to terminate any loans at any
time. A Portfolio may pay reasonable administrative and custodial fees in

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connection with a loan and may pay a negotiated portion of the interest earned
on the cash or money market instruments held as collateral to the borrower or
placing broker. A Portfolio will receive reasonable interest on the loan or a
flat fee from the borrower and amounts equivalent to any dividends, interest or
other distributions on the securities loaned. A Portfolio will regain record
ownership of loaned securities to exercise beneficial rights, such as voting
and subscription rights and rights to dividends, interest or other
distributions, when regaining such rights is considered to be in the
Portfolio's interest.

LOAN PARTICIPATIONS AND ASSIGNMENTS. Strategic Fixed Income Portfolio may
invest up to 5% of its net assets in secured or unsecured fixed or floating
rate loans ("Loans") arranged through private negotiations between a borrowing
corporation and one or more financial institutions ("Lenders"). The Portfolio's
investments in Loans are expected in most instances to be in the form of
participations ("Participations") in Loans and assignments ("Assignments") of
all or a portion of Loans from third parties. Participations typically result
in the Portfolio's having a contractual relationship only with the Lender, not
with the borrower. The Portfolio has the right to receive payments of
principal, interest and any fees to which it is entitled only from the Lender
selling the Participation and only upon receipt by the Lender of the payments
from the borrower. In connection with purchasing Participations, the Portfolio
generally has no direct right to enforce compliance by the borrower with the
terms of the loan agreement relating to the Loan, nor any rights of set-off
against the borrower, and the Portfolio may not directly benefit from any
collateral supporting the Loan in which it has purchased the Participation. As
a result, the Portfolio assumes the credit risk of both the borrower and the
Lender that is selling the Participation. In the event of the insolvency of the
Lender selling a Participation, the Portfolio may be treated as a general
creditor of the Lender and may not benefit from any set-off between the Lender
and the borrower. The Portfolio will acquire Participations only if the Lender
interpositioned between the Portfolio and the borrower is determined by
Mitchell Hutchins to be creditworthy.

When Strategic Fixed Income Portfolio purchases Assignments from Lenders, it
acquires direct rights against the borrower on the Loan. However, because
Assignments are arranged through private negotiations between potential
assignees and assignors, the rights and obligations acquired by the Portfolio
as the purchaser of an Assignment may differ from, and be more limited than,
those held by the assigning Lender.

Assignments and Participations are generally not registered under the 1933
Act and thus are subject to the Portfolio's limitation on investment in
illiquid securities. Because there is no liquid market for such securities, the
Portfolio anticipates that such securities could be sold only to a limited
number of institutional investors. The lack of a liquid secondary market will
have an adverse impact on the value of such securities and on the Portfolio's
ability to dispose of particular Assignments or Participations when necessary
to meet the Portfolio's liquidity needs or in response to a specific economic
event, such as a deterioration in the creditworthiness of the borrower.

SHORT SALES "AGAINST THE BOX". Each Portfolio (other than Money Market
Portfolio) may engage in short sales of securities it owns or has the right to
acquire at no added cost through conversion or exchange of other securities it
owns (short sales "against the box") to defer realization of gains or losses
for tax or other purposes. To make delivery to the purchaser in a short sale,
the executing broker borrows the securities being sold short on behalf of the
Portfolio, and the Portfolio is obligated to replace the securities borrowed at
a date in the future. When a Portfolio sells short, it will establish a margin
account with the broker effecting the short sale, and will deposit collateral
with the broker. In addition, the Portfolio will maintain with its custodian,
in a segregated account, the securities that could be used to cover the short
sale. A Portfolio will incur transaction costs, including interest expense, in
connection with opening, maintaining and closing short sales against the box.
None of the Portfolios currently intends to have obligations under short sales
that at any time during the coming year exceed 5% of the Portfolio's net
assets.

A Portfolio might make a short sale "against the box" in order to hedge
against market risks when Mitchell Hutchins or a Sub-Adviser believes that the
price of a security may decline, thereby causing a decline in the value of a
security owned by the Portfolio or a security convertible into or exchangeable
for a security

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<PAGE>

owned by the Portfolio, or when Mitchell Hutchins or a Sub-Adviser wants to
sell a security that the Portfolio owns at a current price, but also wishes to
defer recognition of gain or loss for federal income tax purposes. In such
case, any loss in the Portfolio's long position after the short sale should be
reduced by a gain in the short position. Conversely, any gain in the long
position should be reduced by a loss in the short position. The extent to which
gains or losses in the long position are reduced will depend upon the amount of
the securities sold short relative to the amount of the securities the
Portfolio owns, either directly or indirectly, and in the case where the
Portfolio owns convertible securities, changes in the investment values or
conversion premiums of such securities

SEGREGATED ACCOUNTS. When a Portfolio enters into certain transactions that
involve obligations to make future payments to third parties, including dollar
rolls, reverse repurchase agreements or the purchase of securities on a when-
issued or delayed delivery basis, the Portfolio will maintain with an approved
custodian in a segregated account cash or liquid securities, marked to market
daily, in an amount at least equal to the Portfolio's obligation or commitment
under such transactions. As described below under "Hedging and Related
Strategies," segregated accounts may also be required in connection with
certain transactions involving options or futures contracts, interest rate
protection transactions or forward currency contracts.

INVESTMENT LIMITATIONS. Each Portfolio will not:

(1) purchase any security if, as a result of that purchase, 25% or more
of the Portfolio's total assets would be invested in securities of issuers
having their principal business activities in the same industry, except
that this limitation does not apply to securities issued or guaranteed by
the U.S. government, its agencies or instrumentalities or to municipal
securities (or, in the case of Money Market Portfolio, to certificates of
deposit and bankers' acceptances of domestic branches of U.S. banks).

For Money Market Portfolio only--the following interpretation applies to,
but is not a part of, this fundamental restriction: With respect to this
limitation, domestic and foreign banking will be considered to be different
industries.

(2) issue senior securities or borrow money, except as permitted under
the Investment Company Act of 1940 ("1940 Act") and then not in excess of
33 1/3% of the Portfolio's total assets (including the amount of the senior
securities issued but reduced by any liabilities not constituting senior
securities) at the time of the issuance or borrowing, except that the
Portfolio may borrow up to an additional 5% of its total assets (not
including the amount borrowed) for temporary or emergency purposes.

(3) make loans, except through loans of portfolio securities or through
repurchase agreements, provided that for purposes of this restriction, the
acquisition of bonds, debentures, other debt securities or instruments, or
participations or other interests therein and investments in government
obligations, commercial paper, certificates of deposit, bankers'
acceptances or similar instruments will not be considered the making of a
loan.

(4) engage in the business of underwriting securities of other issuers,
except to the extent that the Portfolio might be considered an underwriter
under the federal securities laws in connection with its disposition of
portfolio securities.

(5) purchase or sell real estate, except that investments in securities
of issuers that invest in real estate and investments in mortgage-backed
securities, mortgage participations or other instruments supported by
interests in real estate are not subject to this limitation, and except
that the Portfolio may exercise rights under agreements relating to such
securities, including the right to enforce security interests and to hold
real estate acquired by reason of such enforcement until that real estate
can be liquidated in an orderly manner.

(6) purchase or sell physical commodities unless acquired as a result of
owning securities or other instruments, but the Portfolio may purchase,
sell or enter into financial options and futures, forward and spot currency
contracts, swap transactions and other financial contracts or derivative
instruments.

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<PAGE>

The following investment restriction applies to all Portfolios except Global
Income Portfolio:

(7) purchase securities of any one issuer if, as a result, more than 5%
of the Portfolio's total assets would be invested in securities of that
issuer or the Portfolio would own or hold more than 10% of the outstanding
voting securities of that issuer, except that up to 25% of the Portfolio's
total assets may be invested without regard to this limitation, and except
that this limitation does not apply to securities issued or guaranteed by
the U.S. government, its agencies and instrumentalities or to securities
issued by other investment companies.

The following interpretation applies to, but is not a part of, this
fundamental limitation: Mortgage- and asset-backed securities will not be
considered to have been issued by the same issuer by reason of the
securities having the same sponsor, and mortgage- and asset-backed
securities issued by a finance or other special purpose subsidiary that are
not guaranteed by the parent company will be considered to be issued by a
separate issuer from the parent company.

The foregoing fundamental investment limitations cannot be changed with
respect to a Portfolio without the affirmative vote of the lesser of (a) more
than 50% of the outstanding shares of the Portfolio or (b) 67% or more of the
Portfolio's shares present at a meeting of its shareholders if more than 50% of
the outstanding shares of the Portfolio are represented at the meeting in
person or by proxy. If a percentage restriction is adhered to at the time of an
investment or transaction, a later change in percentage resulting from a change
in values of portfolio securities or amount of total assets will not be
considered a violation of any of the foregoing limitations.

The following investment restrictions, which apply to each Portfolio, are not
fundamental and may be changed by the vote of the Fund's board of trustees
without shareholder approval. Each Portfolio will not:

(1) hold assets of any issuers, at the end of any calendar quarter (or
within 30 days thereafter), to the extent such holdings would cause the
Portfolio to fail to comply with the diversification requirements imposed
by section 817(h) of the Internal Revenue Code and the Treasury regulations
issued thereunder on segregated asset accounts used to fund variable
annuity contracts.

(2) purchase securities on margin, except for short-term credit necessary
for clearance of portfolio transactions and except that the Portfolio may
make margin deposits in connection with its use of financial options and
futures, forward and spot currency contracts, swap transactions and other
financial contracts or derivative instruments.

(3) engage in short sales of securities or maintain a short position,
except that the Portfolio may (a) sell short "against the box" and (b)
maintain short positions in connection with its use of financial options
and futures, forward and spot currency contracts, swap transactions and
other financial contracts or derivative instruments.

(4) purchase securities of other investment companies, except to the
extent permitted by the 1940 Act and except that this limitation does not
apply to securities received or acquired as dividends, through offers of
exchange, or as a result of reorganization, consolidation, or merger.

(5) purchase portfolio securities while borrowings in excess of 5% of its
total assets are outstanding.

HEDGING AND RELATED STRATEGIES USING DERIVATIVE CONTRACTS

As discussed in the Prospectus, Mitchell Hutchins or the applicable Sub-
Adviser may use a variety of financial instruments ("Strategic Instruments"),
including certain options, futures contracts (sometimes referred to as
"futures") and options on futures contracts, to attempt to hedge the
Portfolios' investments or attempt to enhance the Portfolios' income or return.
For Strategic Fixed Income, Global Income and Global Growth Portfolios,
Mitchell Hutchins or the applicable Sub-Adviser also may use forward currency
contracts, foreign currency options and futures and options thereon. High Grade
Fixed Income, Strategic Fixed Income and Global Income Portfolios also may
enter into interest rate protection transactions. A Portfolio may enter

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into transactions using one or more types of Strategic Instruments under which
the full value of its portfolio is at risk. Under normal circumstances,
however, a Portfolio's use of these instruments will place at risk a much
smaller portion of its assets. The particular Strategic Instruments used by the
Portfolios are described below. Money Market Portfolio is not authorized to
engage in hedging or related strategies.

OPTIONS ON EQUITY AND DEBT SECURITIES AND FOREIGN CURRENCIES--A call option
is a short-term contract pursuant to which the purchaser of the option, in
return for a premium, has the right to buy the security or currency underlying
the option at a specified price at any time during the term of the option. The
writer of the call option, who receives the premium, has the obligation, upon
exercise of the option during the option term, to deliver the underlying
security or currency against payment of the exercise price. A put option is a
similar contract that gives its purchaser, in return for a premium, the right
to sell the underlying security or currency at a specified price during the
option term. The writer of the put option, who receives the premium, has the
obligation, upon exercise of the option during the option term, to buy the
underlying security or currency at the exercise price.

OPTIONS ON STOCK INDEXES--A stock index assigns relative values to the stocks
included in the index and fluctuates with changes in the market values of those
stocks. A stock index option operates in the same way as a more traditional
stock option, except that exercise of a stock index option is effected with
cash payment and does not involve delivery of securities. Thus, upon exercise
of a stock index option, the purchaser will realize, and the writer will pay,
an amount based on the difference between the exercise price and the closing
price of the stock index.

STOCK INDEX FUTURES CONTRACTS--A stock index futures contract is a bilateral
agreement pursuant to which one party agrees to accept, and the other party
agrees to make, delivery of an amount of cash equal to a specified dollar
amount times the difference between the stock index value at the close of
trading of the contract and the price at which the futures contract is
originally struck. No physical delivery of the stocks comprising the index is
made. Generally, contracts are closed out prior to the expiration date of the
contract.

INTEREST RATE AND FOREIGN CURRENCY FUTURES CONTRACTS--Interest rate and
foreign currency futures contracts are bilateral agreements pursuant to which
one party agrees to make, and the other party agrees to accept, delivery of a
specified type of debt security or currency at a specified future time and at a
specified price. Although such futures contracts by their terms call for actual
delivery or acceptance of debt securities or currency, in most cases the
contracts are closed out before the settlement date without the making or
taking of delivery.

OPTIONS ON FUTURES CONTRACTS--Options on futures contracts are similar to
options on securities or currency, except that an option on a futures contract
gives the purchaser the right, in return for the premium, to assume a position
in a futures contract (a long position if the option is a call and a short
position if the option is a put), rather than to purchase or sell a security or
currency, at a specified price at any time during the option term. Upon
exercise of the option, the delivery of the futures position to the holder of
the option will be accompanied by delivery of the accumulated balance that
represents the amount by which the market price of the futures contract
exceeds, in the case of a call, or is less than, in the case of a put, the
exercise price of the option on the future. The writer of an option, upon
exercise, will assume a short position in the case of a call and a long
position in the case of a put.

FORWARD CURRENCY CONTRACTS--A forward currency contract involves an
obligation to purchase or sell a specific currency at a specified future date,
which may be any fixed number of days from the contract date agreed upon by the
parties, at a price set at the time the contract is entered into.

GENERAL DESCRIPTION OF HEDGING STRATEGIES. Hedging strategies can be broadly
categorized as "short hedges" and "long hedges." A short hedge is a purchase or
sale of a Strategic Instrument intended partially or fully to offset potential
declines in the value of one or more investments held by a Portfolio. Thus, in
a short hedge a Portfolio takes a position in a Strategic Instrument whose
price is expected to move in the

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<PAGE>

opposite direction of the price of the investment being hedged. For example, a
Portfolio might purchase a put option on a security to hedge against a
potential decline in the value of that security. If the price of the security
declined below the exercise price of the put, the Portfolio could exercise the
put and thus limit its loss below the exercise price to the premium paid plus
transaction costs. In the alternative, because the value of the put option can
be expected to increase as the value of the underlying security declines, the
Portfolio might be able to close out the put option and realize a gain to
offset the decline in the value of the security.

Conversely, a long hedge is a purchase or sale of a Strategic Instrument
intended partially or fully to offset potential increases in the acquisition
cost of one or more investments that a Portfolio intends to acquire. Thus, in a
long hedge a Portfolio takes a position in a Strategic Instrument whose price
is expected to move in the same direction as the price of the prospective
investment being hedged. For example, a Portfolio might purchase a call option
on a security it intends to purchase in order to hedge against an increase in
the cost of the security. If the price of the security increased above the
exercise price of the call, the Portfolio could exercise the call and thus
limit its acquisition cost to the exercise price plus the premium paid and
transaction costs. Alternatively, the Portfolio might be able to offset the
price increase by closing out an appreciated call option and realizing a gain.

A Portfolio may purchase and write (sell) covered straddles on securities and
stock indices. A long straddle is a combination of a call and a put option
purchased on the same security or on the same futures contract, where the
exercise price of the put is less than or equal to the exercise price of the
call. A Portfolio might enter into a long straddle when Mitchell Hutchins or
the applicable Sub-Adviser believes it likely that interest rates will be more
volatile during the term of the option than the option pricing implies. A short
straddle is a combination of a call and a put written on the same security
where the exercise price of the put is less than or equal to the exercise price
of the call. A Portfolio might enter into a short straddle when Mitchell
Hutchins or the applicable Sub-Adviser believes it unlikely that interest rates
will be as volatile during the term of the option as the option pricing
implies.

Strategic Instruments on securities generally are used to hedge against price
movements in one or more particular securities positions that a Portfolio owns
or intends to acquire. Strategic Instruments on stock indices, in contrast,
generally are used to hedge against price movements in broad equity market
sectors in which the Portfolio has invested or expects to invest. Strategic
Instruments on debt securities may be used to hedge either individual
securities or broad fixed income market sectors.

Income strategies include the writing of covered options to obtain the
related option premiums. Return strategies include the use of Strategic
Instruments to increase or reduce a Portfolio's exposure to an asset class
without buying or selling the underlying instruments.

The use of Strategic Instruments is subject to applicable regulations of the
SEC, the several options and futures exchanges upon which they are traded and
the Commodity Futures Trading Commission ("CFTC"). In addition, a Portfolio's
ability to use Strategic Instruments will be limited by tax considerations. See
"Taxes."

In addition to the products, strategies and risks described below and in the
Prospectus, Mitchell Hutchins or the applicable Sub-Adviser expects to discover
additional opportunities in connection with options, future contracts, forward
currency contracts and other hedging, income and return strategies. These new
opportunities may become available as Mitchell Hutchins or the applicable Sub-
Adviser develops new techniques, as regulatory authorities broaden the range of
permitted transactions and as new options, futures contracts, forward currency
contracts or other techniques are developed. Mitchell Hutchins or the
applicable Sub-Adviser may utilize these opportunities to the extent that they
are consistent with the Portfolios' investment objectives and permitted by the
Portfolios' investment limitations and applicable regulatory authorities. The
Fund's Prospectus or Statement of Additional Information will be supplemented
to the extent that new products or techniques involve materially different
risks than those described below or in the Prospectus.

16
<PAGE>

SPECIAL RISKS OF STRATEGIES USING DERIVATIVES CONTRACTS. The use of Strategic
Instruments involves special considerations and risks, as described below.
Risks pertaining to particular Strategic Instruments are described in the
sections that follow.

(1) Successful use of most Strategic Instruments depends upon Mitchell
Hutchins' or the applicable Sub-Adviser's ability to predict movements of
the overall securities, currency and interest rate markets, which requires
different skills than predicting changes in the prices of individual
securities. While Mitchell Hutchins or the applicable Sub-Adviser is
experienced in the use of Strategic Instruments, there can be no assurance
that any particular strategy adopted will succeed.

(2) There might be imperfect correlation, or even no correlation, between
price movements of a Strategic Instrument and price movements of the
investments being hedged. For example, if the value of a Strategic
Instrument used in a short hedge increased by less than the decline in
value of the hedged investment, the hedge would not be fully successful.
Such a lack of correlation might occur due to factors unrelated to the
value of the investments being hedged, such as speculative or other
pressures on the markets in which Strategic Instruments are traded. The
effectiveness of hedges using Strategic Instruments on indices will depend
on the degree of correlation between price movements in the index and price
movements in the securities being hedged.

(3) Hedging strategies, if successful, can reduce risk of loss by wholly
or partially offsetting the negative effect of unfavorable price movements
in the investments being hedged. However, hedging strategies can also
reduce opportunity for gain by offsetting the positive effect of favorable
price movements in the hedged investments. For example, if a Portfolio
entered into a short hedge because Mitchell Hutchins or the applicable Sub-
Adviser projected a decline in the price of a security held by a Portfolio,
and the price of that security increased instead, the gain from that
increase might be wholly or partially offset by a decline in the price of
the Strategic Instrument. Moreover, if the price of the Strategic
Instrument declined by more than the increase in the price of the security,
the Portfolio could suffer a loss. In either such case, the Portfolio would
have been in a better position had it not hedged at all.

(4) As described below, a Portfolio might be required to maintain assets
as "cover," maintain segregated accounts or make margin payments when it
takes positions in Strategic Instruments involving obligations to third
parties (i.e., Strategic Instruments other than purchased options). If a
Portfolio were unable to close out its positions in such Strategic
Instruments, it might be required to continue to maintain such assets or
accounts or make such payments until the position expired or matured. These
requirements might impair a Portfolio's ability to sell a portfolio
security or make an investment at a time when it would otherwise be
favorable to do so, or require that a Portfolio sell a portfolio security
at a disadvantageous time. A Portfolio's ability to close out a position in
a Strategic Instrument prior to expiration or maturity depends on the
existence of a liquid secondary market or, in the absence of such a market,
the ability and willingness of a contra party to enter into a transaction
closing out the position. Therefore, there is no assurance that any
position can be closed out at a time and price that is favorable to the
Portfolio.

COVER FOR STRATEGIES USING DERIVATIVES CONTRACTS. Transactions using
Strategic Instruments, other than purchased options, expose a Portfolio to an
obligation to another party. A Portfolio will not enter into any such
transactions unless it owns either (1) an offsetting ("covered") position in
securities, currencies or other options, futures contracts or forward currency
contracts or (2) cash and liquid, high-grade debt securities, with a value
sufficient at all times to cover its potential obligations to the extent not
covered as provided in (1) above. Each Portfolio will comply with SEC
guidelines regarding cover for such transactions and will, if the guidelines so
require, set aside cash, U.S. government securities or other liquid, high-grade
debt securities in a segregated account with its custodian in the prescribed
amount.

Assets used as cover or held in a segregated account cannot be sold while the
position in the corresponding Strategic Instrument is open, unless they are
replaced with similar assets. As a result, the

17
<PAGE>

commitment of a large portion of a Portfolio's assets to cover or segregated
accounts could impede portfolio management or the Portfolio's ability to meet
redemption requests or other current obligations.

OPTIONS. Each Portfolio that may use options may purchase put and call
options, and write (sell) covered put and call options, on equity and debt
securities and, in the case of Strategic Fixed Income, Global Income and Global
Growth Portfolios, on foreign currencies. Each Portfolio that may use options
may purchase put and call options and write (sell) covered call options on
stock indices. The purchase of call options may serve as a long hedge, and the
purchase of put options may serve as a short hedge. In addition, Balanced
Portfolio may purchase options to enhance return by increasing or reducing its
exposure to an asset class without purchasing or selling the underlying
securities. Writing covered put or call options can enable a Portfolio to
enhance income by reason of the premiums paid by the purchasers of such
options. Writing covered put options serves as a limited long hedge because
increases in the value of the hedged instrument would be offset to the extent
of the premium received for writing the option. However, if the market price of
the security underlying a covered put option declines to less than the exercise
price of the option, minus the premium received, the Portfolio would expect to
suffer a loss. Writing covered call options serves as a limited short hedge,
because declines in the value of the hedged investment would be offset to the
extent of the premium received for writing the option. However, if the security
appreciates to a price higher than the exercise price of the call option, it
can be expected that the option will be exercised and the Portfolio will be
obligated to sell the security at less than its market value. The securities or
other assets used as cover for OTC options written by a Portfolio would be
considered illiquid to the extent described under "Investment Policies and
Restrictions--Illiquid Securities."

The value of an option position will reflect, among other things, the current
market value of the underlying investment, the time remaining until expiration,
the relationship of the exercise price to the market price of the underlying
investment, the historical price volatility of the underlying investment and
general market conditions. Options normally have expiration dates of up to nine
months. Options that expire unexercised have no value.

A Portfolio may effectively terminate its right or obligation under an option
by entering into a closing transaction. For example, a Portfolio may terminate
its obligation under a call option that it had written by purchasing an
identical call option; this is known as a closing purchase transaction.
Conversely, a Portfolio may terminate a position in a put or call option it had
purchased by writing an identical put or call option; this is known as a
closing sale transaction.

The Portfolios may purchase or write both exchange-traded and OTC options.
Currently, many options on equity securities are exchange-traded. Exchange
markets for options on debt securities and foreign currencies exist but are
relatively new, and these instruments are primarily traded on the OTC market.
Exchange-traded options in the United States are issued by a clearing
organization affiliated with the exchange on which the option is listed which,
in effect, guarantees completion of every exchange-traded option transaction.
In contrast, OTC options are contracts between the Portfolio and its contra
party (usually a securities dealer or a bank) with no clearing organization
guarantee. Thus, when the Portfolio purchases or writes an OTC option, it
relies on the contra party to make or take delivery of the underlying
investment upon exercise of the option. Failure by the contra party to do so
would result in the loss of any premium paid by the Portfolio as well as the
loss of any expected benefits of the transaction. A Portfolio will enter into
OTC option transactions only with contra parties that have a net worth of at
least $20 million.

Generally, the OTC debt and foreign currency options used by the Portfolios
are European-style options. This means that the option is only exercisable
immediately prior to its expiration. This is in contrast to American-style
options, which are exercisable at any time prior to the expiration date of the
option.

A Portfolio's ability to establish and close out positions in exchange-listed
options depends on the existence of a liquid market. Each Portfolio intends to
purchase or write only those exchange-traded options for which there appears to
be a liquid secondary market. However, there can be no assurance that such a

18
<PAGE>

market will exist at any particular time. Closing transactions can be made for
OTC options only by negotiating directly with the contra party, or by a
transaction in the secondary market if any such market exists. Although a
Portfolio will enter into OTC options only with contra parties that are
expected to be capable of entering into closing transactions with the
Portfolio, there is no assurance that the Portfolio will in fact be able to
close out an OTC option position at a favorable price prior to expiration. In
the event of insolvency of the contra party, the Portfolio might be unable to
close out an OTC option position at any time prior to its expiration.

If a Portfolio were unable to effect a closing transaction for an option it
had purchased, it would have to exercise the option to realize any profit. The
inability to enter into a closing purchase transaction for a covered call
option written by a Portfolio could cause material losses because the Portfolio
would be unable to sell the investment used as cover for the written option
until the option expires or is exercised.

LIMITATIONS ON THE USE OF OPTIONS. The Portfolios' use of options is governed
by the following guidelines, which can be changed by the board without
shareholder vote:

(1) A Portfolio may purchase a put or call option, including any
straddles or spreads, only if the value of its premium, when aggregated
with the premiums on all other options held by the Portfolio, does not
exceed 5% of the Portfolio's total assets.

(2) The aggregate value of securities underlying put options written by a
Portfolio, determined as of the date the put options are written, will not
exceed 50% of the Portfolio's net assets.

(3) The aggregate premiums paid on all options (including options on
securities, foreign currencies and stock or bond indices and options on
futures contracts) purchased by a Portfolio that are held at any time will
not exceed 20% of the Portfolio's net assets.

FUTURES. The purchase of futures or call options thereon can serve as a long
hedge, and the sale of futures or the purchase of put options thereon can serve
as a short hedge. Writing covered call options on futures contracts can serve
as a limited short hedge, using a strategy similar to that used for writing
covered call options on securities and indices. In addition, Balanced Portfolio
may purchase or sell futures contracts or purchase options thereon to enhance
return by increasing or reducing its exposure to an asset class without
purchasing or selling the underlying securities.

Futures strategies also can be used to manage the average duration of a
Portfolio. If Mitchell Hutchins or the applicable Sub-Adviser wishes to shorten
the average duration of a Portfolio, the Portfolio may sell a futures contract
or a call option thereon, or purchase a put option on that futures contract. If
Mitchell Hutchins or the applicable Sub-Adviser wishes to lengthen the average
duration of a Portfolio, the Portfolio may buy a futures contract or a call
option thereon.

Strategic Fixed Income, Global Income and Global Growth Portfolios may also
write put options on foreign currency futures contracts while at the same time
purchasing call options on the same futures contracts in order synthetically to
create a long futures contract position. Such options would have the same
strike prices and expiration dates. Each Portfolio will engage in this strategy
only when it is more advantageous to the Portfolio than is purchasing the
futures contract.

No price is paid upon entering into a futures contract. Instead, at the
inception of a futures contract a Portfolio is required to deposit in a
segregated account with its custodian, in the name of the futures broker
through whom the transaction was effected, "initial margin" consisting of cash,
obligations of the United States or obligations fully guaranteed as to
principal and interest by the United States, in an amount generally equal to
10% or less of the contract value. Margin must also be deposited when writing
an option on a futures contract, in accordance with applicable exchange rules.
Unlike margin in securities transactions, initial margin on futures contracts
does not represent a borrowing, but rather is in the nature of a performance
bond or good-faith deposit that is returned to the Portfolio at the termination
of the transaction if all contractual obligations have been satisfied. Under
certain circumstances, such as periods of high volatility,

19
<PAGE>

the Portfolio may be required by an exchange to increase the level of its
initial margin payment, and initial margin requirements might be increased
generally in the future by regulatory action.

Subsequent "variation margin" payments are made to and from the futures
broker daily as the value of the futures position varies, a process known as
"marking to market." Variation margin does not involve borrowing, but rather
represents a daily settlement of the Portfolio's obligations to or from a
futures broker. When a Portfolio purchases an option on a future, the premium
paid plus transaction costs is all that is at risk. In contrast, when a
Portfolio purchases or sells a futures contract or writes a call option
thereon, it is subject to daily variation margin calls that could be
substantial in the event of adverse price movements. If the Portfolio has
insufficient cash to meet daily variation margin requirements, it might need to
sell securities at a time when such sales are disadvantageous.

Holders and writers of futures positions and options on futures can enter
into offsetting closing transactions, similar to closing transactions on
options, by selling or purchasing, respectively, an instrument identical to the
instrument held or written. Positions in futures and options on futures may be
closed only on an exchange or board of trade that provides a secondary market.
Each Portfolio intends to enter into futures transactions only on exchanges or
boards of trade where there appears to be a liquid secondary market. However,
there can be no assurance that such a market will exist for a particular
contract at a particular time.

Under certain circumstances, futures exchanges may establish daily limits on
the amount that the price of a future or related option can vary from the
previous day's settlement price; once that limit is reached, no trades may be
made that day at a price beyond the limit. Daily price limits do not limit
potential losses because prices could move to the daily limit for several
consecutive days with little or no trading, thereby preventing liquidation of
unfavorable positions.

If a Portfolio were unable to liquidate a futures or related options position
due to the absence of a liquid secondary market or the imposition of price
limits, it could incur substantial losses. The Portfolio would continue to be
subject to market risk with respect to the position. In addition, except in the
case of purchased options, the Portfolio would continue to be required to make
daily variation margin payments and might be required to maintain the position
being hedged by the future or option or to maintain cash or securities in a
segregated account.

Certain characteristics of the futures market might increase the risk that
movements in the prices of futures contracts or related options might not
correlate perfectly with movements in the prices of the investments being
hedged. For example, all participants in the futures and related options
markets are subject to daily variation margin calls and might be compelled to
liquidate futures or related options positions whose prices are moving
unfavorably to avoid being subject to further calls. These liquidations could
increase price volatility of the instruments and distort the normal price
relationship between the futures or options and the investments being hedged.
Also, because initial margin deposit requirements in the futures market are
less onerous than margin requirements in the securities markets, there might be
increased participation by speculators in the futures markets. This
participation also might cause temporary price distortions. In addition,
activities of large traders in both the futures and securities markets
involving arbitrage, "program trading" and other investment strategies might
result in temporary price distortions.

LIMITATIONS ON THE USE OF FUTURES AND RELATED OPTIONS. The Portfolios' use of
futures is governed by the following guidelines, which can be changed by the
board without shareholder vote.

(1) To the extent a Portfolio enters into futures contracts, options on
futures contracts or options on foreign currencies traded on a commodities
exchange that are not for bona fide hedging purposes (as defined by the
CFTC), the aggregate initial margin and premiums on those positions
(excluding the amount by which options are "in-the-money") may not exceed
5% of the Portfolio's net assets.

20
<PAGE>

(2) The aggregate premiums on all options (including options on
securities, foreign currencies and stock indices and options on futures
contracts) purchased by a Portfolio that are held at any time will not
exceed 20% of the Portfolio's net assets.

(3) The aggregate margin deposits on all futures contracts and options
thereon held at any time by a Portfolio will not exceed 5% of the
Portfolio's total assets.

FOREIGN CURRENCY HEDGING STRATEGIES--SPECIAL CONSIDERATIONS. Strategic Fixed
Income, Global Income and Global Growth Portfolios may use options and futures
on foreign currencies, as described above, and forward currency forward
contracts, as described below, to hedge against movements in the values of the
foreign currencies in which the Portfolios' securities are denominated. Such
currency hedges can protect against price movements in a security that a
Portfolio owns or intends to acquire that are attributable to changes in the
value of the currency in which it is denominated. Such hedges do not, however,
protect against price movements in the securities that are attributable to
other causes.

The Portfolios might seek to hedge against changes in the value of a
particular currency when no Strategic Instruments on that currency are
available or such Strategic Instruments are more expensive than certain other
Strategic Instruments. In such cases, a Portfolio may hedge against price
movements in that currency by entering into transactions using Strategic
Instruments on another foreign currency or a basket of currencies, the values
of which Mitchell Hutchins or the applicable Sub-Adviser believes will have a
high degree of positive correlation to the value of the currency being hedged.
The risk that movements in the price of the Strategic Instrument will not
correlate perfectly with movements in the price of the currency being hedged
is magnified when this strategy is used.

The value of Strategic Instruments on foreign currencies depends on the
value of the underlying currency relative to the U.S. dollar. Because foreign
currency transactions occurring in the interbank market might involve
substantially larger amounts than those involved in the use of such Strategic
Instruments, the Portfolios could be disadvantaged by having to deal in the
odd lot market (generally consisting of transactions of less than $1 million)
for the underlying foreign currencies at prices that are less favorable than
for round lots.

There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis.
Quotation information generally is representative of very large transactions
in the interbank market and thus might not reflect odd-lot transactions where
rates might be less favorable. The interbank market in foreign currencies is a
global, round-the-clock market. To the extent the U.S. options or futures
markets are closed while the markets for the underlying currencies remain
open, significant price and rate movements might take place in the underlying
markets that cannot be reflected in the markets for the Strategic Instruments
until they reopen.

Settlement of hedging transactions involving foreign currencies might be
required to take place within the country issuing the underlying currency.
Thus, a Portfolio might be required to accept or make delivery of the
underlying foreign currency in accordance with any U.S. or foreign regulations
regarding the maintenance of foreign banking arrangements by U.S. residents
and might be required to pay any fees, taxes and charges associated with such
delivery assessed in the issuing country.

FORWARD CURRENCY CONTRACTS. Strategic Fixed Income, Global Income and Global
Growth Portfolios may enter into forward currency contracts to purchase or
sell foreign currencies for a fixed amount of U.S. dollars or another foreign
currency. Such transactions may serve as long hedges--for example, a Portfolio
may purchase a forward currency contract to lock in the U.S. dollar price of a
security denominated in a foreign currency that the Portfolio intends to
acquire. Forward currency contract transactions may also serve as short
hedges--for example, a Portfolio may sell a forward currency contract to lock
in the U.S. dollar equivalent of the proceeds from the anticipated sale of a
security denominated in a foreign currency.

21
<PAGE>

As noted above, these Portfolios may seek to hedge against changes in the
value of a particular currency by using forward contracts on another foreign
currency or a basket of currencies, the value of which Mitchell Hutchins or the
applicable Sub-Adviser believes will have a positive correlation to the values
of the currency being hedged. In addition, the Portfolios may use forward
currency contracts to shift exposure to foreign currency fluctuations from one
country to another. For example, if a Portfolio owns securities denominated in
a foreign currency and Mitchell Hutchins or the applicable Sub-Adviser believes
that currency will decline relative to another currency, it might enter into a
forward contract to sell an appropriate amount of the first foreign currency,
with payment to be made in the second foreign currency. Transactions that use
two foreign currencies are sometimes referred to as "cross hedging." Use of a
different foreign currency magnifies the risk that movements in the price of
the Strategic Instrument will not correlate or will correlate unfavorably with
the foreign currency being hedged.

The cost to the Portfolios engaging in forward currency contracts varies with
factors such as the currency involved, the length of the contract period and
the market conditions then prevailing. Because forward currency contracts are
usually entered into on a principal basis, no fees or commissions are involved.
When a Portfolio enters into a forward currency contract, it relies on the
contra party to make or take delivery of the underlying currency at the
maturity of the contract. Failure by the contra party to do so would result in
the loss of any expected benefit of the transaction.

As is the case with future contracts, parties to forward currency contracts
can enter into offsetting closing transactions, similar to closing transactions
on futures, by entering into an instrument identical to the instrument held or
written, but in the opposite direction. Secondary markets generally do not
exist for forward currency contracts, with the result that closing transactions
generally can be made for forward currency contracts only by negotiating
directly with the contra party. Thus, there can be no assurance that a
Portfolio will in fact be able to close out a forward currency contract at a
favorable price prior to maturity. In addition, in the event of insolvency of
the contra party, the Portfolio might be unable to close out a forward currency
contract at any time prior to maturity. In either event, the Portfolio would
continue to be subject to market risk with respect to the position, and would
continue to be required to maintain a position in securities denominated in the
securities or currencies that are the subject of the hedge or to maintain cash
or securities in a segregated account.

The precise matching of forward currency contract amounts and the value of
the securities involved generally will not be possible because the value of
such securities, measured in the foreign currency, will change after the
foreign currency contract has been established. Thus, a Portfolio might need to
purchase or sell foreign currencies in the spot (cash) market to the extent
such foreign currencies are not covered by forward contracts. The projection of
short-term currency market movements is extremely difficult, and the successful
execution of a short-term hedging strategy is highly uncertain.

LIMITATIONS ON THE USE OF FORWARD CURRENCY CONTRACTS. Strategic Fixed Income,
Global Income and Global Growth Portfolios may enter into forward currency
contracts or maintain a net exposure to such contracts only if (1) the
consummation of the contracts would not obligate the Portfolio to deliver an
amount of foreign currency in excess of the value of the position being hedged
by such contracts or (2) the Portfolio maintains appropriate assets in a
segregated account in an amount not less than the value of its total assets
committed to the consummation of the contract and not covered as provided in
(1) above, as described above in "Investment Policies and Limitations--
Segregated Accounts."

INTEREST RATE PROTECTION TRANSACTIONS. High Grade Fixed Income, Strategic
Fixed Income and Global Income Portfolios may enter into interest rate
protection transactions, including interest rate swaps and interest rate caps,
collars and floors. Interest rate swap transactions involve an agreement
between two parties to exchange payments that are based, for example, on
variable and fixed rates of interest and that are calculated on the basis of a
specified amount of principal (the "notional principal amount") for a specified
period of time. Interest rate cap and floor transactions involve an agreement
between two parties in which the first party agrees to make payments to the
counterparty when a designated market interest rate goes above

22
<PAGE>

(in the case of a cap) or below (in the case of a floor) a designated level on
predetermined dates or during a specified time period. Interest rate collar
transactions involve an agreement between two parties in which payments are
made when a designated market interest rate either goes above a designated
ceiling level or goes below a designated floor level on predetermined dates or
during a specified time period.

Each Portfolio expects to enter into interest rate protection transactions to
preserve a return or spread on a particular investment or portion of its
portfolio or to protect against any increase in the price of securities it
anticipates purchasing at a later date. The Portfolios intend to use these
transactions as a hedge and not as a speculative investment. Interest rate
protection transactions are subject to risks comparable to those described
above with respect to other hedging strategies.

The Portfolios each may enter into interest rate swaps, caps, collars and
floors on either an asset-based or liability-based basis, depending on whether
it is hedging its assets or its liabilities, and will usually enter into
interest rate swaps on a net basis, i.e., the two payment streams are netted
out, with the Portfolio receiving or paying, as the case may be, only the net
amount of the two payments. Inasmuch as these interest rate protection
transactions are entered into for good faith hedging purposes, and inasmuch as
segregated accounts will be established with respect to such transactions,
Mitchell Hutchins and the Sub-Adviser believe such obligations do not
constitute senior securities and, accordingly, will not treat them as being
subject to any Portfolio's borrowing restrictions. The net amount of the
excess, if any, of a Portfolio's obligations over its entitlements with respect
to each interest rate swap will be accrued on a daily basis and appropriate
Portfolio assets having an aggregate net asset value at least equal to the
accrued excess will be maintained in a segregated account as described above in
"Investment Policies and Restrictions--Segregated Accounts." Each Portfolio
also will establish and maintain such segregated accounts with respect to its
total obligations under any interest rate swaps that are not entered into on a
net basis and with respect to any interest rate caps, collars and floors that
are entered into by the Portfolio.

Each Portfolio will enter into interest rate protection transactions only
with banks and recognized securities dealers believed by Mitchell Hutchins or
the Sub-Adviser to present minimal credit risks in accordance with guidelines
established by the Fund's board of trustees. If there is a default by the other
party to such a transaction, the Portfolio will have to rely on its contractual
remedies (which may be limited by bankruptcy, insolvency or similar laws)
pursuant to the agreements related to the transaction.

The swap market has grown substantially in recent years with a large number
of banks and investment banking firms acting both as principals and as agents
utilizing standardized swap documentation. Caps, collars and floors are more
recent innovations for which documentation is less standardized, and,
accordingly, they are less liquid than swaps.

TRUSTEES AND OFFICERS

The trustees and executive officers of the Fund, their ages, business
addresses and principal occupations during the past five years are:

<TABLE>
<CAPTION>
BUSINESS EXPERIENCE
NAME AND ADDRESS*; AGE POSITION WITH THE FUND AND OTHER DIRECTORSHIPS
---------------------- ---------------------- -----------------------
<C> <C> <S>
Margo N. Alexander**; 50 Trustee and President Mrs. Alexander is presi-
dent, chief executive of-
ficer and a director of
Mitchell Hutchins (since
January 1995) and an ex-
ecutive vice president
and director of
PaineWebber. Mrs. Alexan-
der is president and a
director or trustee of 29
investment companies for
which Mitchell Hutchins
or PaineWebber serves as
investment adviser.
</TABLE>

23
<PAGE>

<TABLE>
<CAPTION>
BUSINESS EXPERIENCE
NAME AND ADDRESS*; AGE POSITION WITH THE FUND AND OTHER DIRECTORSHIPS
---------------------- ---------------------- -----------------------
<C> <C> <S>
Richard Q. Armstrong; 61 Trustee Mr. Armstrong is chairman
78 West Brother Drive and principal of RQA En-
Greenwich, CT 06830 terprises (management
consulting firm) (since
April 1991 and principal
occupation since March
1995). Mr. Armstrong is
also a director of Hi Lo
Automotive, Inc. He was
chairman of the board,
chief executive officer
and co-owner of Adiron-
dack Beverages (producer
and distributor of soft
drinks
andsparkling/still wa-
ters) (October 1993-
March 1995). Mr. Arm-
strong was a partner of
The New England Consult-
ing Group (management
consulting firm) (Decem-
ber 1992-September
1993). He was managing
director of LVMH U.S.
Corporation (U.S. sub-
sidiary of the French
luxury goods conglomer-
ate, Luis Vuitton Moet
Hennessey Corporation)
(1987-1991) and chairman
of its wine and spirits
subsidiary, Schieffelin
& Somerset Company
(1987-1991). Mr. Arm-
strong is a director or
trustee of 28 investment
companies for which
Mitchell Hutchins or
PaineWebber serves as
investment adviser.
E. Garrett Bewkes, Jr.**; 70 Trustee and Chairman Mr. Bewkes is a director
of the Board of of Paine Webber Group
Trustees Inc. ("PW Group") (hold-
ing company of
PaineWebber and Mitchell
Hutchins). Prior to De-
cember 1995, he was a
consultant to PW Group.
Prior to 1988 he was
chairman of the board,
president and chief ex-
ecutive officer of Amer-
ican Bakeries Company.
Mr. Bewkes is also a di-
rector of Interstate
Bakeries Corporation and
NaPro BioTherapeutics,
Inc. Mr. Bewkes is a di-
rector or trustee of 29
investment companies for
which Mitchell Hutchins
or PaineWebber serves as
investment adviser.
Richard R. Burt; 50 Trustee Mr. Burt is chairman of
1101 Connecticut Avenue, International Equity
N.W. Partners (international
Washington, D.C. 20036 investments and consult-
ing firm) (since March
1994) and a partner of
McKinsey & Company (man-
agement consulting firm)
(since 1991). He is also
a director of American
Publishing Company and
Archer-Daniels-Midland
Co. (agricultural com-
modities). He was the
chief negotiator in the
Strategic Arms
ReductionTalks with the
former Soviet
</TABLE>

24
<PAGE>

<TABLE>
<CAPTION>
BUSINESS EXPERIENCE
NAME AND ADDRESS*; AGE POSITION WITH THE FUND AND OTHER DIRECTORSHIPS
---------------------- ---------------------- -----------------------
<C> <C> <S>
Union (1989-1991) and
the U.S. Ambassador to
the Federal Republic of
Germany (1985-1989).
Mr. Burt is a director
or trustee of 28 in-
vestment companies for
which Mitchell Hutchins
or PaineWebber serves
as investment adviser.
Mary C. Farrell**; 47 Trustee Ms. Farrell is a manag-
ing director, senior
investment strategist
and member of the In-
vestment Policy Commit-
tee of PaineWebber. Ms.
Farrell joined
PaineWebber in 1982.
She is a member of the
Financial Women's Asso-
ciation and Women's
Economic Roundtable and
is employed as a regu-
lar panelist on
Wall $treet Week with
Louis Rukeyser. She
also serves on the
Board of Overseers of
New York University's
Stern School of Busi-
ness. Ms. Farrell is a
director or trustee of
28 investment companies
for which Mitchell
Hutchins or PaineWebber
serves as investment
adviser.
Meyer Feldberg; 55 Trustee Mr. Feldberg is Dean and
Columbia University Professor of Management
101 Uris Hall of the Graduate School
New York, New York 10027 of Business, Columbia
University. Prior to
1989, he was president
of the Illinois Insti-
tute of Technology.
Dean Feldberg is also a
director of K-III Com-
munications Corpora-
tion, Federated Depart-
ment Stores, Inc., and
Revlon, Inc. Dean
Feldberg is a director
or trustee of 28 in-
vestment companies for
which Mitchell Hutchins
or PaineWebber serves
as investment adviser.
George W. Gowen; 67 Trustee Mr. Gowen is a partner
666 Third Avenue in the law firm of Dun-
New York, New York 10017 nington, Bartholow &
Miller. Prior to May
1994 he was a partner
in the law firm of Fry-
er, Ross & Gowen.
Mr. Gowen is also a di-
rector of Columbia Real
Estate Investments,
Inc. Mr. Gowen is a di-
rector or trustee of 28
investment companies
for which Mitchell
Hutchins or PaineWebber
serves as investment
adviser.
Frederic V. Malek; 60 Trustee Mr. Malek is Chairman of
1455 Pennsylvania Avenue, N.W. Thayer Capital Partners
Suite 350 (merchant bank). From
Washington, D.C. 20004 January 1992 to Novem-
ber 1992 he was cam-
paign manager of Bush-
Quayle '92. From 1990
to 1992, he was vice
chairman and, from 1989
to 1990, he was presi-
dent of North-
</TABLE>

25
<PAGE>

<TABLE>
<CAPTION>
BUSINESS EXPERIENCE
NAME AND ADDRESS*; AGE POSITION WITH THE FUND AND OTHER DIRECTORSHIPS
---------------------- ---------------------- -----------------------
<C> <C> <S>
west Airlines Inc., NWA
Inc. (holding company of
Northwest Airlines Inc.)
and Wings Holdings Inc.
(holding company of NWA
Inc.). Prior to 1989, he
was employed by the
Marriott Corporation
(hotels, restaurants,
airline catering and
contract feeding), where
he most recently was an
executive vice president
and president of
Marriott Hotels and Re-
sorts. Mr. Malek is also
a director of American
Management Systems, Inc.
(management consulting
and computer related
services), Automatic
Data Processing, Inc.,
CB Commercial Group,
Inc. (real estate serv-
ices), Choice Hotels In-
ternational (hotel and
hotel franchising), FPL
Group, Inc. (electric
services), Integra, Inc.
(bio-medical), Manor
Care, Inc. (health
care), National Educa-
tion Corporation and
Northwest Airlines Inc.
Mr. Malek is a director
or trustee of 28 invest-
ment companies for which
Mitchell Hutchins or
PaineWebber serves as
investment adviser.
Carl W. Schafer; 61 Trustee Mr. Schafer is president
P.O. Box 1164 of the Atlantic Founda-
Princeton, NJ 08542 tion (charitable founda-
tion supporting mainly
oceanographic explora-
tion and research). He
is a director of Roadway
Express, Inc. (truck-
ing), The Guardian Group
of Mutual Funds, Evans
Systems, Inc. (motor fu-
els, convenience store
and diversified compa-
ny), Electronic Clearing
House, Inc. (financial
transactions process-
ing), Wainoco Oil Corpo-
ration and Nutraceutix
Inc. (biotechnology com-
pany). Prior to January
1993, he was chairman of
the Investment Advisory
Committee of the Howard
Hughes Medical
Institute. Mr. Schafer
is a director or trustee
of 28 investment compa-
nies for which Mitchell
Hutchins or PaineWebber
serves as investment ad-
viser.
T. Kirkham Barneby; 50 Vice President Mr. Barneby is a managing
director and chief in-
vestment officer--quan-
titative investment of
Mitchell Hutchins. Prior
to September 1994, he
was a senior vice presi-
dent at Vantage Global
Management. Prior to
June 1993, he was a se-
nior vice president at
Mitchell Hutchins.
Mr. Barneby is a
</TABLE>

26
<PAGE>

<TABLE>
<CAPTION>
BUSINESS EXPERIENCE
NAME AND ADDRESS*; AGE POSITION WITH THE FUND AND OTHER DIRECTORSHIPS
---------------------- ---------------------- -----------------------
<C> <C> <S>
vice president of five
investment companies for
which Mitchell Hutchins
or PaineWebber serves as
investment adviser.
Ellen R. Harris; 50 Vice President Ms. Harris is a managing
director and a portfolio
manager of Mitchell
Hutchins. Ms. Harris is a
vice president of three
investment companies for
which Mitchell Hutchins
or PaineWebber serves as
investment adviser.
James F. Keegan; 36 Vice President Mr. Keegan is a senior
vice president and a
portfolio manager of
Mitchell Hutchins. Prior
to March 1996, he was di-
rector of fixed income
strategy and research of
Merrion Group, L.P. From
1987 to 1994, he was a
vice president of global
investment management of
Bankers Trust. Mr. Keegan
is a vice president of
three investment compa-
nies for which Mitchell
Hutchins or PaineWebber
serves as investment ad-
viser.
C. William Maher; 35 Vice President and Mr. Maher is a first vice
Assistant Treasurer president and a senior
manager of the mutual
fund finance division of
Mitchell Hutchins. Mr.
Maher is a vice president
and assistant treasurer
of 29 investment com-
panies for which Mitchell
Hutchins or PaineWebber
serves as investment
adviser.
Dennis McCauley; 50 Vice President Mr. McCauley is a managing
director and chief in-
vestment officer--fixed
income of Mitchell
Hutchins. Prior to Decem-
ber 1994, he was Director
of Fixed Income Invest-
ments of IBM Corporation.
Mr. McCauley is a vice
president of 19 invest-
ment companies for which
Mitchell Hutchins or
PaineWebber serves as in-
vestment adviser.
Ann E. Moran; 39 Vice President and Ms. Moran is a vice presi-
Assistant Treasurer dent of Mitchell
Hutchins. Ms. Moran is a
vice president and assis-
tant treasurer of 29 in-
vestment companies for
which Mitchell Hutchins
or PaineWebber serves as
investment adviser.
Dianne E. O'Donnell; 44 Vice President and Ms. O'Donnell is a senior
Secretary vice president and deputy
general counsel of Mitch-
ell Hutchins. Ms.
O'Donnell is a vice pres-
</TABLE>

27
<PAGE>

<TABLE>
<CAPTION>
BUSINESS EXPERIENCE
NAME AND ADDRESS*; AGE POSITION WITH THE FUND AND OTHER DIRECTORSHIPS
---------------------- ---------------------- -----------------------
<C> <C> <S>
ident of 29 investment com-
panies and secretary of 28
investment companies for
which Mitchell Hutchins or
PaineWebber serves as in-
vestment adviser.
Emil Polito; 36 Vice President Mr. Polito is a senior vice
president and director of
operations and control for
Mitchell Hutchins. From
March 1991 to September 1993
he was director of the Mu-
tual Funds Sales Support and
Service Center for Mitchell
Hutchins and PaineWebber.
Mr. Polito is also vice
president of 29 investment
companies for which Mitchell
Hutchins or PaineWebber
serves as investment
adviser.
Susan Ryan; 37 Vice President Ms. Ryan is a senior vice
president of Mitchell
Hutchins. Ms. Ryan has been
with Mitchell Hutchins since
1982. Ms. Ryan is a vice
president of five investment
companies for which Mitchell
Hutchins or PaineWebber
serves as investment advis-
er.
Victoria E. Schonfeld; 46 Vice President Ms. Schonfeld is a managing
director and general counsel
of Mitchell Hutchins. Prior
to May 1994, she was a part-
ner in the law firm of Ar-
nold & Porter. Ms. Schonfeld
is a vice president of 29
investment companies for
which Mitchell Hutchins or
PaineWebber serves as in-
vestment adviser.
Paul H. Schubert; 34 Vice President and Mr. Schubert is a first vice
Assistant Treasurer president and a senior man-
ager of the mutual fund fi-
nance division of Mitchell
Hutchins. From August 1992
to August 1994, he was a
vice president at BlackRock
Financial Management Inc.
Prior to August 1992, he was
an audit manager with Ernst
& Young LLP. Mr. Schubert is
a vice president and assis-
tant treasurer of 29 invest-
ment companies for which
Mitchell Hutchins or
PaineWebber serves as in-
vestment adviser.
Nirmal Singh; 41 Vice President Mr. Singh is a first vice
president and portfolio man-
ager of Mitchell Hutchins.
Prior to 1993, he was a mem-
ber of the portfolio manage-
ment team at Merrill Lynch
Asset Management, Inc. Mr.
Singh is vice president of
five investment companies
for which Mitchell Hutchins
or PaineWebber serves as in-
vestment adviser.
</TABLE>

28
<PAGE>

<TABLE>
<CAPTION>
BUSINESS EXPERIENCE
NAME AND ADDRESS*; AGE POSITION WITH THE FUND AND OTHER DIRECTORSHIPS
---------------------- ---------------------- -----------------------
<C> <C> <S>
Julian F. Sluyters; 36 Vice President and Mr. Sluyters is a senior vice
Treasurer president and the director of
the mutual fund finance divi-
sion of Mitchell Hutchins. Mr.
Sluyters is a vice president
and treasurer of 29 investment
companies for which Mitchell
Hutchins or PaineWebber serves
as investment adviser.
Mark A. Tincher; 41 Vice President Mr. Tincher is a managing direc-
tor and chief investment offi-
cer--equities of Mitchell
Hutchins. Prior to March 1995,
he was a vice president and di-
rected the U.S. funds manage-
ment and equity research areas
of Chase Manhattan Private
Bank. Mr. Tincher is a vice
president of 13 investment com-
panies for which Mitchell
Hutchins or PaineWebber serves
as investment adviser.
Craig M. Varrelman; 38 Vice President Mr. Varrelman is a first vice
president and a portfolio man-
ager of Mitchell Hutchins. Mr.
Varrelman is a vice president
of five investment companies
for which Mitchell Hutchins or
PaineWebber serves as invest-
ment adviser.
Stuart Waugh; 41 Vice President Mr. Waugh is a managing director
and a portfolio manager of
Mitchell Hutchins responsible
for global fixed income invest-
ments and currency trading.
Mr. Waugh is a vice president
of five investment companies
for which Mitchell Hutchins or
PaineWebber serves as invest-
ment adviser.
Keith A. Weller; 35 Vice President and Mr. Weller is a first vice pres-
Assistant Secretary ident and associate general
counsel of Mitchell Hutchins.
Prior to May 1995, he was an
attorney in private practice.
Mr. Weller is a vice president
and assistant secretary of 28
investment companies for which
Mitchell Hutchins or
PaineWebber serves as invest-
ment adviser.
Teresa M. West; 38 Vice President Ms. West is a first vice presi-
dent of Mitchell Hutchins.
Prior to November 1993, she was
compliance manager of Hyperion
Capital Management, Inc., an
investment advisory firm. Prior
to April 1993, Ms. West was a
vice president and man-
</TABLE>

29
<PAGE>

<TABLE>
<CAPTION>
BUSINESS EXPERIENCE
NAME AND ADDRESS*; AGE POSITION WITH THE FUND AND OTHER DIRECTORSHIPS
---------------------- ---------------------- -----------------------
<C> <C> <S>
ager--legal administration of
Mitchell Hutchins. Ms. West is
a vice president of 29 invest-
ment companies for which
Mitchell Hutchins or
PaineWebber serves as invest-
ment adviser.
</TABLE>
- --------
*Unless otherwise indicated, the business address of each listed person is
1285 Avenue of the Americas, New York, New York 10019.
**Mrs. Alexander, Mr. Bewkes and Ms. Farrell are "interested persons" of the
Fund as defined in the 1940 Act by virtue of their positions with Mitchell
Hutchins, PaineWebber and/or PW Group.

The Fund pays trustees who are not "interested persons" of the Fund $500
annually for each Portfolio and $150 for each board meeting and for each
separate meeting of a board committee. The Fund presently has nine Portfolios
and thus pays each such trustee $4,500 annually, plus any additional amounts
due for board or committee meetings. Each chairman of the audit and contract
review committees of individual funds within the PaineWebber fund complex
receives additional compensation aggregating $15,000 annually from the relevant
funds. All trustees are reimbursed for any expenses incurred in attending
meetings. Because Mitchell Hutchins performs substantially all of the services
necessary for the operation of the Fund, the Fund requires no employees. No
officer, director or employee of Mitchell Hutchins or PaineWebber receives any
compensation from the Fund for acting as a trustee or officer.

The table below includes certain information relating to the compensation of
the Fund's current trustees who held office with the Fund or other PaineWebber
funds during the fiscal year ended December 31, 1996.

COMPENSATION TABLE+
<TABLE>
<CAPTION>
AGGREGATE TOTAL COMPENSATION
COMPENSATION FROM THE TRUST AND
NAME OF PERSON, POSITION FROM THE TRUST* THE FUND COMPLEX**
------------------------ --------------- ------------------
<S> <C> <C>
Richard Q. Armstrong,
Trustee................................... $6,176 $59,873
Richard R. Burt,
Trustee................................... 4,826 51,173
Meyer Feldberg,
Trustee................................... 9,286 96,181
George W. Gowen,
Trustee................................... 9,286 92,431
Frederic V. Malek,
Trustee................................... 9,286 92,431
Carl W. Schafer,
Trustee................................... 6,176 62,307
</TABLE>
- --------

+ Only independent members of the board of trustees are compensated by the
Fund and identified above; trustees who are "interested persons," as defined
by the 1940 Act, do not receive compensation.

* Represents fees paid to each trustee during the fiscal year ended December
31, 1996.

** Represents total compensation paid to each trustee by the fund complex
during the twelve months ended December 31, 1996; no fund within the complex
has a bonus, pension, profit sharing or retirement plan.

30
<PAGE>

INVESTMENT ADVISORY SERVICES

Mitchell Hutchins acts as the investment adviser and administrator of each
Portfolio pursuant to a contract with the Fund dated April 21, 1988 as
supplemented by Fee Agreements dated May 1, 1989, December 30, 1991 and
September 1, 1993 ("Advisory Contract"). Under the Advisory Contract, the Fund
pays Mitchell Hutchins a fee for each Portfolio, computed daily and payable
monthly, according to the schedule set forth in the Prospectus.

During each of the three years in the period ended December 31, 1996,
Mitchell Hutchins earned (or accrued) advisory fees (net of any waivers) in the
amounts set forth below:

<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
--------------------------
PORTFOLIO 1996 1995 1994
- --------- -------- -------- --------
<S> <C> <C> <C>
Money Market Portfolio............................... $ 79,283 $128,777 $103,238
High Grade Fixed Income Portfolio.................... 44,461 48,852 23,797
Strategic Fixed Income Portfolio..................... 62,785 90,046 105,843
Global Income Portfolio.............................. 230,262 351,681 473,755
Balanced Portfolio................................... 249,995 110,377 236,113
Growth and Income Portfolio.......................... 111,599 94,315 93,915
Growth Portfolio..................................... 325,065 334,603 355,689
Aggressive Growth Portfolio.......................... 155,896 133,956 79,623
Global Growth Portfolio.............................. 198,128 257,692 332,624
</TABLE>

The Advisory Contract authorizes Mitchell Hutchins to retain one or more Sub-
Advisers but does not require Mitchell Hutchins to do so. Under a Sub-Advisory
Contract dated September 21, 1995, Pacific Investment Management Company
("PIMCO") serves as Sub-Adviser to Strategic Fixed Income Portfolio and was
paid (or accrued) by Mitchell Hutchins (not the Portfolio) sub-advisory fees of
$31,393 and $11,324 for the fiscal years ended December 31, 1996 and December
31, 1995, respectively. Under a Sub-Advisory Contract dated September 1, 1993,
Nicholas-Applegate Capital Management serves as Sub-Adviser to Aggressive
Growth Portfolio and was paid (or accrued) by Mitchell Hutchins (not the
Portfolio) sub-advisory fees of $97,434, $83,723 and $49,765 for the fiscal
years ended December 31, 1996, December 31, 1995 and December 31, 1994,
respectively. Under a Sub-Advisory Contract dated March 23, 1995, GE Investment
Management Incorporated serves as Sub-Adviser to Global Growth Portfolio and
was paid (or accrued) by Mitchell Hutchins (not the Portfolio) sub-advisory
fees of $76,609 and $74,893 for the fiscal years ended December 31, 1996 and
December 31, 1995, respectively.

Under a Sub-Advisory Contract dated September 1, 1993, Wolf, Webb, Burk &
Campbell served as Sub-Adviser to High Grade Fixed Income Portfolio until July
21, 1995 and was paid (or accrued) by Mitchell Hutchins (not the Portfolio)
sub-advisory fees of $15,832 and $14,277 for the fiscal years ended
December 31, 1995 and December 31, 1994, respectively. Under a Sub-Advisory
Contract dated May 26, 1994, Mitchell Hutchins Institutional Investors Inc.
served as Sub-Adviser to Growth and Income Portfolio until April 3, 1995 and
was paid (or accrued) by Mitchell Hutchins (not the Portfolio) sub-advisory
fees of $7,400 and $27,400 for the fiscal years ended December 31, 1995 and
December 31, 1994, respectively.

Under the terms of the Advisory Contract, each Portfolio bears all expenses
incurred in its operation that are not specifically assumed by Mitchell
Hutchins. General expenses of the Fund not readily identifiable as belonging to
one of the Portfolios are allocated among the Portfolios by or under the
direction of the Fund's board of trustees in such manner as the board
determines to be fair and equitable. Expenses borne by each Portfolio include,
but are not limited to, the following (or the Portfolio's allocated share of
the following): (1) the cost (including brokerage commissions, if any) of
securities purchased or sold by the Portfolio and any losses incurred in
connection therewith; (2) fees payable to and expenses incurred on behalf of
the Portfolio by Mitchell Hutchins; (3) organizational expenses; (4) filing
fees and expenses relating to the registration and qualification of the Fund or
the shares of a Portfolio under federal and state securities laws

31
<PAGE>

and maintenance of such registrations and qualifications; (5) fees and salaries
payable to the trustees who are not "interested persons" of the Fund or
Mitchell Hutchins; (6) all expenses incurred in connection with the trustees'
services, including travel expenses; (7) taxes (including any income or
franchise taxes) and governmental fees; (8) costs of any liability,
uncollectible items of deposit and other insurance and fidelity bonds; (9) any
costs, expenses or losses arising out of a liability of or claim for damages or
other relief asserted against the Fund or Portfolio for violation of any law;
(10) legal, accounting and auditing expenses, including legal fees of special
counsel for the trustees who are not interested persons of the Fund; (11)
charges of custodians, transfer agents and other agents; (12) costs of
preparing share certificates, if any; (13) expenses of setting in type and
printing prospectuses and supplements thereto, statements of additional
information and supplements thereto, reports and proxy materials for existing
shareholders and costs of mailing such materials to shareholders; (14) any
extraordinary expenses (including fees and disbursements of counsel) incurred
by the Fund or Portfolio; (15) fees, voluntary assessments and other expenses
incurred in connection with membership in investment company organizations;
(16) costs of mailing and tabulating proxies and costs of meetings of
shareholders, the board and any committees thereof; (17) the cost of investment
company literature and other publications provided to the trustees and
officers; and (18) costs of mailing, stationery and communications equipment.

Under the Advisory Contract, Mitchell Hutchins will not be liable for any
error of judgment or mistake of law or for any loss suffered by the Fund in
connection with the performance of the Advisory Contract, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part
of Mitchell Hutchins in the performance of its duties or from reckless
disregard of its duties and obligations thereunder. Under each Sub-Advisory
Contract, the Sub-Adviser will not be liable for any error of judgment or
mistake of law or for any loss suffered by the Fund, the Portfolio, its
shareholders or Mitchell Hutchins in connection with the Sub-Advisory Contract,
except any liability to the Fund, the Portfolio, its shareholders or Mitchell
Hutchins to which the Sub-Adviser would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence on its part in the performance
of its duties or from reckless disregard by it of its obligations and duties
under the Sub-Advisory Contract.

The Advisory Contract terminates automatically upon assignment and is
terminable at any time without penalty by the Fund's board of trustees or by
vote of the holders of a majority of the Portfolio's outstanding voting
securities on 60 days' written notice to Mitchell Hutchins or by Mitchell
Hutchins on 60 days' written notice to the Fund. Each Sub-Advisory Contract
terminates automatically upon its assignment or the termination of the Advisory
Contract and is terminable at any time without penalty by the board of trustees
or by vote of the holders of a majority of the Portfolio's outstanding voting
securities on 60 days' notice to the Sub-Adviser, or by the Sub-Adviser on 120
days' written notice to Mitchell Hutchins. The Sub-Advisory Contract may also
be terminated by Mitchell Hutchins (1) upon material breach by the Sub-Adviser
of its representations and warranties; (2) if the Sub-Adviser becomes unable to
discharge its duties and obligations under the Sub-Advisory Contract or (3) on
120 days' notice to the Sub-Adviser.

Mitchell Hutchins personnel may invest in securities for their own accounts
pursuant to a code of ethics that describes the fiduciary duty owed to
shareholders of the PaineWebber funds and other Mitchell Hutchins' advisory
accounts by all Mitchell Hutchins' directors, officers and employees,
establishes procedures for personal investing and restricts certain
transactions. For example, employee accounts generally must be maintained at
PaineWebber, personal trades in most securities require pre-clearance and
short-term trading and participation in initial public offerings generally are
prohibited. In addition, the code of ethics puts restrictions on the timing of
personal investing in relation to trades by PaineWebber funds and other
Mitchell Hutchins advisory clients.

Personnel of each Sub-Adviser also may invest in securities for their own
accounts pursuant to the applicable Sub-Adviser's code of ethics, which
establishes procedures for personal investing and restricts certain
transactions.

32
<PAGE>

PORTFOLIO TRANSACTIONS

Subject to policies established by the Fund's board of trustees, Mitchell
Hutchins or the applicable Sub-Adviser is responsible for the execution of
portfolio transactions and the allocation of brokerage transactions for each
Portfolio. In executing portfolio transactions, Mitchell Hutchins or the
applicable Sub-Adviser seeks to obtain the best net results for each Portfolio
taking into account such factors as the price (including the applicable
brokerage commission or dealer spread), size of the order, difficulty of
execution and operational facilities of the firm involved. Prices paid to
dealers in principal transactions through which most debt securities and some
equity securities are traded generally include a "spread," which is the
difference between the prices at which the dealer is willing to purchase and
sell a specific security at that time. Each Portfolio may invest in securities
traded in the OTC markets and will engage primarily in transactions with the
dealers who make markets in such securities, unless a better price or execution
could be obtained by using a broker. While Mitchell Hutchins or the applicable
Sub-Adviser generally seeks reasonably competitive commission rates, payment of
the lowest commission is not necessarily consistent with obtaining the best net
results.

During each of the three years in the period ended December 31, 1996, the
Portfolios paid the brokerage commissions set forth below:

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
PORTFOLIO 1996 1995 1994
- --------- ---------- ----------- -----------
<S> <C> <C> <C>
Money Market Portfolio...................... $ 0 $ 0 $ 0
High Grade Fixed Income Portfolio........... 0 0 0
Strategic Fixed Income Portfolio............ 2,729 0 0
Global Income Portfolio..................... 0 0 0
Balanced Portfolio.......................... 65,857 39,766 63,641
Growth and Income Portfolio................. 31,792 34,846 45,863
Growth Portfolio............................ 33,885 52,967 37,100
Aggressive Growth Portfolio................. 53,904 57,802 49,178
Global Growth Portfolio..................... 78,261 341,107 397,060
</TABLE>

The Fund has no obligation to deal with any broker or group of brokers in the
execution of portfolio transactions. The Fund contemplates that, consistent
with the policy of obtaining the best net results, a substantial amount of the
Portfolios' brokerage transactions may be conducted through Mitchell Hutchins
or its affiliates, including PaineWebber. The Fund's board of trustees has
adopted procedures in conformity with Rule 17e-1 under the 1940 Act to ensure
that all brokerage commissions paid to Mitchell Hutchins or its affiliates are
fair and reasonable. Specific provisions included in the Advisory Contract
authorize Mitchell Hutchins and any of its affiliates that is a member of a
national securities exchange to effect securities transactions for the
Portfolios on such exchange and to retain compensation in connection with such
transactions. Any such transactions will be effected and related compensation
paid in accordance with applicable SEC regulations. During each of the three
years in the period ended December 31, 1996, the Portfolios paid to PaineWebber
the brokerage commissions set forth below:

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
PORTFOLIO 1996 1995 1994
- --------- ---------- ---------- ----------
<S> <C> <C> <C>
Money Market Portfolio........................ $ 0 $ 0 $ 0
High Grade Fixed Income Portfolio............. 0 0 0
Strategic Fixed Income Portfolio.............. 0 0 0
Global Income Portfolio....................... 0 0 0
Balanced Portfolio............................ 1,320 504 720
Growth and Income Portfolio................... 852 1,400 1,817
Growth Portfolio.............................. 300 900 600
Aggressive Growth Portfolio................... 186 0 0
Global Growth Portfolio....................... 0 0 1,137
</TABLE>

33
<PAGE>

The $300 in brokerage commissions paid by Growth Portfolio to PaineWebber
during the fiscal year ended December 31, 1996 represented 0.89% of the
aggregate brokerage commissions paid by that Portfolio and 0.11% of the
aggregate dollar amount of transactions involving the payment of commissions.
The $1,320 in brokerage commissions paid by Balanced Portfolio to PaineWebber
during the fiscal year ended December 31, 1996 represented 2.01% of the
aggregate brokerage commissions paid by that Portfolio and 0.15% of the
aggregate dollar amount of transactions involving the payment of commissions.
The $852 in brokerage commissions paid by Growth and Income Portfolio to
PaineWebber during the fiscal year ended December 31, 1996 represented 2.68%
of the aggregate brokerage commissions paid by that Portfolio and 0.14% of the
aggregate dollar amount of transactions involving the payment of commissions.
The $186 in brokerage commissions paid by Aggressive Growth Portfolio to
PaineWebber during the fiscal year ended December 31, 1996 represented 0.35%
of the aggregate brokerage commissions paid by that Portfolio and 0.15% of the
aggregate dollar amount of transactions involving the payment of commissions.

Transactions in futures contracts are executed through futures commission
merchants ("FCMs") who receive brokerage commissions for their services. The
Fund's procedures in selecting FCMs to execute the Portfolios' transactions in
futures contracts, including procedures permitting the use of Mitchell
Hutchins and its affiliates, are similar to those in effect with respect to
brokerage transactions in securities.

Consistent with the interest of each Portfolio and subject to the review of
the Fund's board of trustees, Mitchell Hutchins or the applicable Sub-Adviser
may cause a Portfolio to purchase and sell portfolio securities from and to
brokers who provide the Portfolio with research, analysis, advice and similar
services. In return for such services, the Portfolio may pay to those brokers
a higher commission than may be charged by other brokers, provided that
Mitchell Hutchins or the applicable Sub-Adviser determines in good faith that
such commission is reasonable in terms either of that particular transaction
or of the overall responsibility of Mitchell Hutchins or the applicable Sub-
Adviser to the Portfolio and its other clients and that the total commissions
paid by the Portfolio will be reasonable in relation to the benefits to the
Portfolio over the long term. During the fiscal year ended December 31, 1996,
the Portfolios directed the portfolio transactions indicated below to brokers
chosen because they provide research and analysis, for which the Portfolios
paid the brokerage commissions indicated below:

<TABLE>
<CAPTION>
AMOUNT OF PORTFOLIO BROKERAGE
PORTFOLIO TRANSACTIONS COMMISSIONS PAID
- --------- ------------------- ----------------
<S> <C> <C>
Money Market Portfolio..................... $ 0 $ 0
High Grade Fixed Income Portfolio.......... $ 0 $ 0
Strategic Fixed Income Portfolio........... $ 0 $ 0
Global Income Portfolio.................... $ 0 $ 0
Balanced Portfolio......................... $18,272,505 $23,693
Growth and Income Portfolio................ $ 3,968,857 $ 5,400
Growth Portfolio........................... $ 3,617,056 $ 5,892
Aggressive Growth Portfolio................ $30,861,782 $50,022
Global Growth Portfolio.................... $ 2,192,000 $ 4,991
</TABLE>

For purchases or sales with broker-dealer firms that act as principal,
Mitchell Hutchins seeks best execution. Although Mitchell Hutchins may receive
certain research or execution services in connection with these transactions,
Mitchell Hutchins or the applicable Sub-Adviser will not purchase securities
at a higher price or sell securities at a lower price than would otherwise be
paid if no weight was attributed to the services provided by the executing
dealer. Moreover, Mitchell Hutchins or the applicable Sub-Adviser will not
enter into any explicit soft dollar arrangements relating to principal
transactions and will not receive in principal transactions the types of
services which could be purchased for hard dollars. Mitchell Hutchins or the
applicable Sub-Adviser may engage in agency transactions in OTC equity and
debt securities in return for research and execution services. These
transactions are entered into only in compliance with procedures ensuring that
the transaction (including commissions) is at least as favorable as it would
have been if effected directly with a market-maker that did not provide
research or execution services. These procedures include

34
<PAGE>

Mitchell Hutchins or the applicable Sub-Adviser receiving multiple quotes from
dealers before executing the transaction on an agency basis.

Information and research received from such brokers and dealers will be in
addition to, and not in lieu of, the services required to be performed by
Mitchell Hutchins or the applicable Sub-Adviser under the Advisory Contract or
Sub-Advisory Contract. Research services furnished by brokers or dealers
through which or with which the Portfolios effect securities transactions may
be used by Mitchell Hutchins or the applicable Sub-Adviser in advising other
funds or accounts and, conversely, research services furnished to Mitchell
Hutchins or the applicable Sub-Adviser in connection with these other funds or
accounts may be used in advising the Portfolios.

Investment decisions for each Portfolio and for other investment accounts
managed by Mitchell Hutchins or the applicable Sub-Adviser are made
independently of each other in light of differing considerations for the
various accounts. However, the same investment decision may occasionally be
made for a Portfolio and one or more of such accounts. In such cases,
simultaneous transactions are inevitable. Purchases or sales are then averaged
as to price and allocated between the Portfolio and such other account(s) as
to amount according to a formula deemed equitable to the Portfolio and such
account(s). While in some cases this practice could have a detrimental effect
upon the price or value of the security as far as a Portfolio is concerned, or
upon its ability to complete its entire order, in other cases it is believed
that coordination and the ability to participate in volume transactions will
be beneficial to the Portfolio.

The Portfolios will not purchase securities that are offered in
underwritings in which Mitchell Hutchins, the applicable Sub-Adviser or any of
their affiliates is a member of the underwriting or selling group, except
pursuant to procedures adopted by the Fund's board of trustees pursuant to
Rule 10f-3 under the 1940 Act. Among other things, these procedures require
that the commission or spread paid in connection with such a purchase be
reasonable and fair, that the purchase be at not more than the public offering
price prior to the end of the first business day after the date of the public
offering and that Mitchell Hutchins, the applicable Sub-Adviser or any
affiliate thereof not participate in or benefit from the sale to the Fund.

PORTFOLIO TURNOVER. The turnover rate may vary greatly from year to year for
any Portfolio and will not be a limiting factor when Mitchell Hutchins or the
applicable Sub-Adviser deems portfolio changes appropriate. The annual
portfolio turnover rate is calculated by dividing the lesser of a Portfolio's
annual sales or purchases of portfolio securities (exclusive of purchases or
sales of securities whose maturities at the time of acquisition were one year
or less) by the monthly average value of the securities except short-term
securities in the Portfolio during the year. For the fiscal years ended
December 31, 1996 and December 31, 1995, respectively, the portfolio turnover
rates were as set forth below:

<TABLE>
<CAPTION>
PORTFOLIO TURNOVER RATES
FOR THE YEARS ENDED
DECEMBER 31,
---------------------------
PORTFOLIO 1996 1995
- --------- ---- ----
<S> <C> <C>
Money Market Portfolio............................ n/a n/a
High Grade Fixed Income Portfolio................. 282% 136%
Strategic Fixed Income Portfolio.................. 317% 234%
Global Income Portfolio........................... 134% 160%
Balanced Portfolio................................ 235% 171%
Growth and Income Portfolio....................... 99% 134%
Growth Portfolio.................................. 53% 41%
Aggressive Growth Portfolio....................... 115% 119%
Global Growth Portfolio........................... 44% 157%
</TABLE>

The substantial increase in the portfolio turnover rate for Strategic Fixed
Income Portfolio in 1996, as compared to 1995, was primarily attributed to
rolling buy forwards of foreign securities, as well as pair-off transactions
of mortgage-backed securities, and turn-around transactions with respect to
U.S. government and agency securities.

35
<PAGE>

ADDITIONAL PURCHASE AND REDEMPTION INFORMATION

The insurance company separate accounts purchase and redeem shares of each
Portfolio on each day on which the New York Stock Exchange ("NYSE") is open
for trading ("Business Day") based on, among other things, the amount of
premium payments to be invested and surrendered and transfer requests to be
effected on that day pursuant to the variable contracts. Currently, the NYSE
is closed on the observance of New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Such purchases and redemptions of the shares of each Portfolio are effected at
their respective net asset values per share determined as of the close of
regular trading (currently 4:00 p.m., Eastern time) on the NYSE on that
Business Day. Payment for redemptions are made by the Fund within seven days
thereafter. No fee is charged the separate accounts when they purchase or
redeem Portfolio shares.

The Fund may suspend redemption privileges of shares of any Portfolio or
postpone the date of payment during any period (1) when the NYSE is closed or
trading on the NYSE is restricted as determined by the SEC, (2) when an
emergency exists, as defined by the SEC, that makes it not reasonably
practicable for the Fund to dispose of securities owned by it or fairly to
determine the value of its assets or (3) as the SEC may otherwise permit. The
redemption price may be more or less than the shareholder's cost, depending on
the market value of the Portfolio's securities at the time.

VALUATION OF SHARES

Each Portfolio determines its net asset value as of the close of regular
trading (currently 4:00 p.m., Eastern time) on the NYSE on each Monday through
Friday when the NYSE is open.

Securities that are listed on U.S. and foreign stock exchanges are valued at
the last sale price on the day the securities are being valued or, lacking any
sales on such day, at the last available bid price. In cases where securities
are traded on more than one exchange, the securities are generally valued on
the exchange considered by Mitchell Hutchins or the applicable Sub-Adviser as
the primary market. Securities traded in the OTC market and listed on the
Nasdaq Stock Market ("Nasdaq") are valued at the last available sale price
listed on Nasdaq at 4:00 p.m., Eastern time; other OTC securities are valued
at the last available bid price prior to the time of valuation.

When market quotations are readily available, the debt securities of the
Portfolios (with the exception of Money Market Portfolio) are valued based
upon market quotations, provided such quotations adequately reflect, in the
judgment of Mitchell Hutchins or the applicable Sub-Adviser, the fair value of
the securities. The amortized cost method of valuation generally is used with
respect to debt obligations with 60 days or less remaining to maturity unless
the Fund's board of trustees determines that this does not represent fair
value. When market quotations for options and futures positions held by the
Portfolios are readily available, those positions are valued based upon such
quotations. Market quotations are not generally available for options traded
in the OTC market. When market quotations for options and futures positions,
or any other securities or assets of the Portfolios, are not available, they
are valued at fair value as determined in good faith by or under the direction
of the Fund's board of trustees. When practicable, such determinations are
based upon appraisals received from a pricing service using a computerized
matrix system or appraisals derived from information concerning the security
or similar securities received from recognized dealers in those securities.

All securities quoted in foreign currencies are valued daily in U.S. dollars
on the basis of the foreign currency exchange rates prevailing at the time
such valuation is determined. Foreign currency exchange rates generally are
determined prior to the close of regular trading on the NYSE. Occasionally,
events affecting the value of foreign securities and such exchange rates occur
between the time at which they are determined and the close of the NYSE, which
events would not be reflected in the computation of a Portfolio's net asset
value. If events materially affecting the value of such securities or currency
exchange rates occurred during

36
<PAGE>

such time period, the securities will be valued at their fair value as
determined in good faith by or under the direction of the board of trustees.
The foreign currency exchange transactions of Strategic Fixed Income, Global
Income and Global Growth Portfolios conducted on a spot (that is, cash) basis
are valued at the spot rate for purchasing or selling currency prevailing on
the foreign exchange market. This rate under normal market conditions differs
from the prevailing exchange rate in an amount generally less than one-tenth
of one percent due to the costs of converting from one currency to another.

Money Market Portfolio values its portfolio securities in accordance with
the amortized cost method of valuation under Rule 2a-7 under the 1940 Act. To
use amortized cost to value its portfolio securities, the Portfolio must
adhere to certain conditions under that Rule relating to its investments, some
of which are discussed in the Prospectus. Amortized cost is an approximation
of market value, whereby the difference between acquisition cost and value at
maturity is amortized on a straight-line basis over the remaining life of the
instrument. The effect of changes in the market value of a security as a
result of fluctuating interest rates is not taken into account and thus the
amortized cost method of valuation may result in the value of a security being
higher or lower than its actual market value. In the event that a large number
of redemptions takes place at a time when interest rates have increased, the
Portfolio might have to sell portfolio securities prior to maturity and at a
price that might not be as desirable as the value at maturity.

The Fund's board of trustees has established procedures for the purpose of
maintaining a constant net asset value of $1.00 per share for Money Market
Portfolio, which include a review of the extent of any deviation of net asset
value per share, based on available market quotations, from the $1.00
amortized cost per share. Should that deviation exceed 1/2 of 1%, the trustees
will promptly consider whether any action should be initiated to eliminate or
reduce material dilution or other unfair results to shareholders. Such action
may include redeeming shares in kind, selling portfolio securities prior to
maturity, reducing or withholding dividends and utilizing a net asset value
per share as determined by using available market quotations. Money Market
Portfolio will maintain a dollar-weighted average portfolio maturity of 90
days or less and will not purchase any instrument with a remaining maturity
greater than 13 months (as calculated under Rule 2a-7) and except that
securities subject to repurchase agreements may have maturities in excess of
13 months, will limit portfolio investments, including repurchase agreements,
to those U.S. dollar-denominated instruments that are of high quality and that
the trustees determine present minimal credit risks as advised by Mitchell
Hutchins and will comply with certain reporting and recordkeeping procedures.
There is no assurance that constant net asset per share value will be
maintained. In the event amortized cost ceases to represent fair value, the
board will take appropriate action.

In determining the approximate market value of portfolio investments, the
Fund may employ outside organizations, which may use a matrix or formula
method that takes into consideration market indices, matrices, yield curves
and other specific adjustments. This may result in the securities being valued
at a price different from the price that would have been determined had the
matrix or formula method not been used. All cash, receivables and current
payables are carried at their face value. Other assets, if any, are valued at
fair value as determined in good faith by or under the direction of the board
of trustees.

TAXES

Shares of the Portfolios are offered only to insurance company separate
accounts that fund the Contracts. See the applicable Contract prospectus for a
discussion of the special taxation of insurance companies with respect to such
accounts and of the Contract holders.

Each Portfolio is treated as a separate corporation for federal income tax
purposes. In order to continue to qualify for treatment as a regulated
investment company ("RIC") under the Internal Revenue Code, each Portfolio
must distribute to its shareholders for each taxable year at least 90% of its
investment company taxable income (consisting generally of net investment
income, net short-term capital gain and, for certain Portfolios, net gains
from certain foreign currency transactions) ("Distribution Requirement") and
must meet

37
<PAGE>

several additional requirements. With respect to each Portfolio, these
requirements include the following: (1) the Portfolio must derive at least 90%
of its gross income each taxable year from dividends, interest, payments with
respect to securities loans and gains from the sale or other disposition of
securities or foreign currencies, or other income (including gains from
options, futures or forward currency contracts) derived with respect to its
business of investing in securities or those currencies ("Income Requirement");
(2) the Portfolio must derive less than 30% of its gross income each taxable
year from the sale or other disposition of securities, or any of the following,
that were held for less than three months--options or futures (other than those
on foreign currencies), or foreign currencies (or options, futures or forward
contracts thereon) that are not directly related to the Portfolio's principal
business of investing in securities (or options and futures with respect to
securities) ("Short-Short Limitation"); (3) at the close of each quarter of the
Portfolio's taxable year, at least 50% of the value of its total assets must be
represented by cash and cash items, U.S. government securities, securities of
other RICs and other securities, with these other securities limited, in
respect of any one issuer, to an amount that does not exceed 5% of the value of
the Portfolio's total assets and that does not represent more than 10% of the
issuer's outstanding voting securities; and (4) at the close of each quarter of
the Portfolio's taxable year, not more than 25% of the value of its total
assets may be invested in securities (other than U.S. government securities or
the securities of other RICs) of any one issuer.

As noted in the Prospectus, each Portfolio must, and intends to continue to,
comply with the diversification requirements imposed by section 817(h) of the
Internal Revenue Code and the regulations thereunder. These requirements, which
are in addition to the diversification requirements mentioned above, place
certain limitations on the proportion of each Portfolio's assets that may be
represented by any single investment (which includes all securities of the same
issuer). For these purposes, each U.S. government agency or instrumentality is
treated as a separate issuer.

The use of hedging and related strategies, such as selling (writing) and
purchasing options and futures contracts and entering into forward currency
contracts, involves complex rules that will determine for income tax purposes
the character and timing of recognition of the gains and losses a Portfolio
realizes in connection therewith. Gains from the disposition of foreign
currencies (except certain gains therefrom that may be excluded by future
regulations), and gains from options, futures and forward currency contracts
derived by a Portfolio with respect to its business of investing in securities
or foreign currencies, will qualify as permissible income under the Income
Requirement. However, income from the disposition of options and futures
contracts (other than those on foreign currencies) will be subject to the
Short-Short Limitation if they are held for less than three months. Income from
the disposition of foreign currencies, and options, futures and forward
contracts on foreign currencies, also will be subject to the Short-Short
Limitation if they are held for less than three months and are not directly
related to a Portfolio's principal business of investing in securities (or
options and futures with respect to securities).

If a Portfolio satisfies certain requirements, any increase in value of a
position that is part of a "designated hedge" will be offset by any decrease in
value (whether realized or not) of the offsetting hedging position during the
period of the hedge for purposes of determining whether the Portfolio satisfies
the Short-Short Limitation. Thus, only the net gain (if any) from the
designated hedge will be included in gross income for purposes of that
limitation. Each Portfolio will consider whether it should seek to qualify for
this treatment for its hedging transactions. To the extent a Portfolio does not
qualify for this treatment, it may be forced to defer the closing out of
certain options, futures, forward currency contracts and foreign currency
positions beyond the time when it otherwise would be advantageous to do so, in
order for the Portfolio to continue to qualify as a RIC.

Dividends and interest received by a Portfolio may be subject to income,
withholding or other taxes imposed by foreign countries and U.S. possessions
that would reduce the yield on its securities. Tax conventions between certain
countries and the United States may reduce or eliminate these foreign taxes,
however, and many foreign countries do not impose taxes on capital gains in
respect of investments by foreign investors.

38
<PAGE>

Any Portfolio that may purchase or hold equity securities may invest in the
stock of "passive foreign investment companies" ("PFICs"). A PFIC is a foreign
corporation that, in general, meets either of the following tests: (1) at least
75% of its gross income is passive or (2) an average of at least 50% of its
assets produce, or are held for the production of, passive income. Under
certain circumstances, a Portfolio that holds stock of a PFIC will be subject
to federal income tax on a portion of any "excess distribution" received on the
stock or of any gain on disposition of the stock (collectively "PFIC income"),
plus interest thereon, even if the Portfolio distributes the PFIC income as a
taxable dividend to its shareholders. The balance of the PFIC income will be
included in the Portfolio's investment company taxable income and, accordingly,
will not be taxable to it to the extent that income is distributed to its
shareholders.

If a Portfolio invests in a PFIC and elects to treat the PFIC as a "qualified
electing fund" ("QEF") then in lieu of the foregoing tax and interest
obligation, the Portfolio would be required to include in income each year its
pro rata share of the QEF's annual ordinary earnings and net capital gain (the
excess of net long-term capital gain over net short-term capital loss) which
most likely would have to be distributed to the Portfolio's shareholders to
satisfy the Distribution Requirement--even if those earnings and gains were not
distributed to the Portfolios by the QEF. In most instances it will be very
difficult, if not impossible, to make this election because of certain
requirements thereof.

Pursuant to proposed regulations, open-end RICs, such as the Portfolios,
would be entitled to elect to "mark-to-market" their stock in certain PFICs.
"Marking-to-market," in this context, means recognizing as gain for each
taxable year the excess, as of the end of that year, of the fair market value
of each such PFIC's stock over the adjusted basis in that stock (including
mark-to-market gain for each prior year for which an election was in effect).

The foregoing is only a general summary of some of the important federal
income tax considerations generally affecting the Portfolios and their
shareholders. No attempt is made to present a complete explanation of the
federal tax treatment of the Portfolios' activities, and this discussion is not
intended as a substitute for careful tax planning. Accordingly, potential
investors are urged to consult their own tax advisers for more detailed
information and for information regarding any state, local or foreign taxes
applicable to the Portfolios and to dividends and other distributions
therefrom.

DIVIDENDS

MONEY MARKET PORTFOLIO. Shares begin earning dividends on the day of
purchase; dividends are accrued to shareholder accounts daily and are
automatically reinvested in Portfolio shares monthly. The Portfolio does not
expect to realize net capital gain. In the event of a redemption of all of the
Portfolio's shares held by a shareholder, all accrued dividends declared on the
shares up to the date of redemption are credited to the shareholder's account.

The Fund's board of trustees may revise the above dividend policy, or
postpone the payment of dividends, if the Portfolio should have or anticipate
any large unexpected expense, loss or fluctuation in net assets that, in the
opinion of the board, might have a significant adverse effect on shareholders.
To date, no situation has arisen to cause the board of trustees to take any
such action.

OTHER INFORMATION

Prior to August 14, 1995, the name of Growth and Income Portfolio was
"Dividend Growth Portfolio." Prior to September 21, 1995, the name of Strategic
Fixed Income Portfolio was "Government Portfolio" and the name of High Grade
Fixed Income Portfolio was "Fixed Income Portfolio." Prior to January 26, 1996,
the name of Balanced Portfolio was "Asset Allocation Portfolio."

39
<PAGE>

The Fund is an entity of the type commonly known as a "Massachusetts business
trust." Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Fund or a
Portfolio. However, the Fund's Declaration of Trust disclaims shareholder
liability for acts or obligations of the Fund or any Portfolio and requires
that notice of such disclaimer be given in each note, bond, contract,
instrument, certificate or undertaking made or issued by the trustees or by any
officers or officer by or on behalf of the Fund, the trustees or any of them in
connection with the Fund. The Declaration of Trust provides for indemnification
from Fund or Portfolio property, as appropriate, for all losses and expenses of
any shareholder held personally liable for the obligations of the Fund or
Portfolio. Thus, the risk of a shareholder's incurring financial loss on
account of shareholder liability is limited to circumstances in which the Fund
or Portfolio itself would be unable to meet its obligations, a possibility that
Mitchell Hutchins believes is remote and not material. Upon payment of any
liability incurred by a shareholder of a Portfolio, the shareholder paying such
liability will be entitled to reimbursement from the general assets of the
Portfolio. The trustees intend to conduct the operations of the Fund so as to
avoid, as far as possible, ultimate liability of the shareholders for
liabilities of the Fund and the Portfolios.

More than 99% of the outstanding shares of Money Market, Strategic Fixed
Income, Global Income, Balanced, Growth and Income, Growth and Global Growth
Portfolios is, at the date of this Statement of Additional Information, owned
by American Republic Variable Annuity Account, a segregated investment account
of American Republic Insurance Company, American Benefit Variable Annuity
Account, a segregated investment account of American Benefit Life Insurance
Company, and PaineWebber Life Variable Annuity Account, a segregated investment
account of PaineWebber Life Insurance Company. More than 99% of the outstanding
shares of High Grade Fixed Income and Aggressive Growth Portfolios is, at the
date of this Statement of Additional Information, owned by PaineWebber Life
Variable Annuity Account. American Benefit Life Insurance Company is a wholly
owned subsidiary of American Republic Insurance Company.

COUNSEL. The law firm of Kirkpatrick & Lockhart LLP, 1800 Massachusetts
Avenue, N.W., Washington, D.C. 20036-1800, serves as counsel to the Fund.
Kirkpatrick & Lockhart LLP also acts as counsel to Mitchell Hutchins and
PaineWebber in connection with other matters.

AUDITORS. Ernst & Young LLP, 787 Seventh Avenue, New York, New York 10019,
serves as independent auditors for the Fund.

FINANCIAL STATEMENTS

The Fund's Annual Report to shareholders for the fiscal year ended December
31, 1996 is a separate document supplied with this Statement of Additional
Information, and the financial statements, accompanying notes and report of
independent auditors appearing therein are incorporated by reference in this
Statement of Additional Information.

DESCRIPTION OF COMMERCIAL PAPER AND BOND RATINGS

COMMERCIAL PAPER RATINGS. Moody's employs the designation "Prime-1," "Prime-
2" and "Prime-3" to indicate the repayment capacity of issuers of commercial
paper. Issuers rated Prime-1 have a superior capacity for repayment of short-
term promissory obligations. Prime-1 repayment capacity will normally be
evidenced by the following characteristics: leading market positions in well-
established industries; high rates of return on funds employed; conservative
capitalization structures with moderate reliance on debt and ample asset
protection; broad margins in earnings coverage of fixed financial charges and
high internal cash generation; well-established access to a range of financial
markets and assured sources of alternate liquidity. Issuers rated Prime-2 have
a strong capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above but to a
lesser degree. Earnings trends and

40
<PAGE>

coverage ratios, while sound, will be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by external
conditions. Ample alternate liquidity is maintained. Issuers rated Prime-3 have
an acceptable capacity for repayment of short-term promissory obligations. The
effect of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and the requirement for relatively
high financial leverage. Adequate alternate liquidity is maintained. Not Prime.
Issuers assigned this rating do not fall within any of the Prime rating
categories.

S&P's ratings of commercial paper are graded into four categories ranging
from "A" for the highest quality obligations to "D" for the lowest. A--Issues
assigned this highest rating are regarded as having the greatest capacity for
timely payment. Issues in this category are delineated with numbers 1, 2, and 3
to indicate the relative degree of safety. A-1--This designation indicates that
the degree of safety regarding timely payment is either overwhelming or very
strong. Those issues determined to possess overwhelming safety characteristics
are denoted with a plus (+) sign designation. A-2--Capacity for timely payments
on issues with this designation is strong. However, the relative degree of
safety is not as high as for issues designated "A-1." A-3--Issues carrying this
designation have a satisfactory capacity for timely payment. They are, however,
somewhat more vulnerable to the adverse effects of changes in circumstances
than obligations carrying the higher designations. B--Issues rated B are
regarded as having only an adequate capacity for timely payment. However, such
capacity may be damaged by changing conditions or short-term adversities. C--
This rating is assigned to short-term debt obligations with a doubtful capacity
for payment. D--This rating indicates that the issue is either in default or is
expected to be in default upon maturity.

CORPORATE DEBT SECURITIES. Moody's rates the long-term debt securities issued
by various entities from "Aaa" to "D". Aaa--Best quality. These securities
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues. Aa--High quality by
all standards. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities, fluctuation of protective
elements may be of greater amplitude, or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A-- Upper medium grade obligations. These bonds possess many favorable
investment attributes. Factors giving security to principal and interest are
considered adequate, but elements may be present which suggest a susceptibility
to impairment sometime in the future. Baa--Medium grade obligations. Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable over
any great length of time. Such bonds lack outstanding investment
characteristics and, in fact, have speculative characteristics as well. Ba--
Judged to have speculative elements; their future cannot be considered as well
assured. Often the protection of interest and principal payments may be very
moderate and thereby not well safeguarded during both good and bad times over
the future. Uncertainty of position characterizes bonds in this class. B--
Generally lack characteristics of the desirable investment. Assurance of
interest and principal payments or of maintenance of other terms of the
contract over any long period of time may be small. Caa--Poor standing. Such
issues may be in default or there may be present elements of danger with
respect to principal or interest. Ca--Obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings. C--Lowest rated class of bonds; issues so rated can be regarded
as having extremely poor prospects of ever attaining any real investment
standing.

Note: Moody's may apply numerical modifiers, 1, 2 and 3 in each generic
rating classification from Aa through B in its corporate bond rating system.
The modifier 1 indicates that the security ranks in the higher end of its
generic rating category; the modifier 2 indicates a mid-range ranking; and the
modifier 3 indicates that the issue ranks in the lower end of its generic
rating category.

S&P also rates the long-term debt securities of various entities in
categories ranging from "AAA" to "D" according to quality. AAA--Highest grade.
Capacity to pay interest and repay principal extremely

41
<PAGE>

strong. AA--High grade. Debt rated AA has a very strong capacity to pay
interest and repay principal and differs from AAA issues only in a small
degree. A--Have a strong capacity to pay interest and repay principal, although
they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions. BBB--Regarded as having adequate
capacity to pay interest and repay principal. Whereas these bonds normally
exhibit adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest
and repay principal than for debt in higher rated categories. BB, B, CCC, CC,
C--Regarded, on balance, as predominantly speculative with respect to capacity
to pay interest and repay principal in accordance with the terms of the
obligation. BB indicates the lowest degree of speculation and C the highest
degree of speculation. While such debt will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or
major risk exposures to adverse conditions. CI--Reserved for income bonds on
which no interest is being paid. D--In default, and payment of interest and/or
repayment of principal is in arrears.

Plus (+) or Minus (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.

42
<PAGE>

PART C. OTHER INFORMATION
--------------------------

Item 24. Financial Statements and Exhibits
---------------------------------

(a) Financial Statements:

Included in Part A of this Registration Statement:
- --------------------------------------------------

Financial Highlights for each of the Money Market, Growth and Global
Growth Portfolios for each of the nine years in the period ended December
31, 1996 and for the period May 4, 1987 (commencement of operations) to
December 31, 1987.

Financial Highlights for the Global Income Portfolio for each of the eight
years in the period ended December 31, 1996 and for the period May 1, 1988
(commencement of operations) to December 31, 1988.

Financial Highlights for the Balanced Portfolio for each of the eight
years in the period ended December 31, 1996 and for the period June 1,
1988 (commencement of operations) to December 31, 1988.

Financial Highlights for the Strategic Fixed Income Portfolio for each of
the seven years in the period ended December 31, 1996 and for the period
July 5, 1989 (commencement of operations) to December 31, 1989.

Financial Highlights for the Growth and Income Portfolio for each of the
four years in the period ended December 31, 1996 and for the period
January 2, 1992 (commencement of operations) to December 31, 1992.

Financial Highlights for the Aggressive Growth Portfolio for each of the
three years in the period ended December 31, 1996 and for the period
November 2, 1993 (commencement of operations) to December 31, 1993.

Financial Highlights for the High Grade Fixed Income Portfolio for each of
the three years in the period ended December 31, 1996 and for the period
November 8, 1993 (commencement of operations) to December 31, 1993.

Included in Part B of this Registration Statement through incorporation by
- --------------------------------------------------------------------------
reference from the Annual Report to Shareholders (previously filed with the
- ---------------------------------------------------------------------------
Securities and Exchange Commission through EDGAR on February 28, 1997,
- ----------------------------------------------------------------------
Accession No. 0000806591-97-000001:
- -----------------------------------

Portfolio of Investments at December 31, 1996

Statement of Assets and Liabilities at December 31, 1996

Statement of Operations for the year ended December 31, 1996

Statement of Changes in Net Assets for each of the two years in the period
ended December 31, 1996

Notes to Financial Statements

Financial Highlights for each of the five years in the period ended
December 31, 1996 for the Money Market, Growth, Global Growth, Global
Income, Strategic Fixed Income and Balanced Portfolios.

Financial Highlights for each of the four years in the period ended
December 31, 1996 and for the period January 2, 1992 (commencement of
operations) to December 31, 1992 for the Growth and Income Portfolio.

Financial Highlights for each of the three years in the period ended
December 31, 1996 and for the period November 2, 1993 (commencement of
operations) to December 31, 1993 for the Aggressive Growth Portfolio.

C-1
<PAGE>

Financial Highlights for each of the three years in the period ended
December 31, 1996 and for the period November 8, 1993 (commencement of
operations) to December 31, 1993 for the High Grade Fixed Income
Portfolio.

Report of Ernst & Young LLP, Independent Auditors, dated February 6, 1997.

(b) Exhibits:

(1) (a) Declaration of Trust 1/
-
(b) Amendment effective January 28, 1988 to Declaration of Trust 3/
-
(c) Amendment effective February 24, 1989 to Declaration of Trust 5/
-
(d) Amendment effective December 31, 1990 to Declaration of Trust 7/
-
(e) Amendment effective October 15, 1991 to Declaration of Trust 8/
-
(f) Amendment effective May 25, 1993 to Declaration of Trust 10/
--
(g) Amendment effective August 14, 1995 to Declaration of Trust 15/
--
(h) Amendment effective February 29, 1996 to Declaration of Trust 16/
--

(2) (a) By-laws, as amended 1/
-
(b) Amendments effective March 19, 1991 to By-Laws 7/
-
(c) Amendment dated September 28, 1994 to By-Laws 13/
--
(3) Voting trust agreement - none
(4) Instruments defining the rights of holders of the Registrant's shares
of beneficial interest 14/
--
(5) Investment Advisory and Administration Contract 4/
-
(a) Investment Advisory and Administration Fee Agreement with respect to
Strategic Fixed Income Portfolio 6/
-
(b) Investment Advisory and Administration Fee Agreement with respect to
Growth and Income Portfolio 9/
-
(c) Investment Advisory and Administration Fee Agreement with respect
to High Grade Fixed Income Portfolio 12/
--
(d) Investment Advisory and Administration Fee Agreement with respect to
Balanced Portfolio 12/
--
(e) Investment Advisory and Administration Fee Agreement with respect to
Aggressive Growth Portfolio 12/
--
(f) Sub-Investment Advisory Contract with respect to the Aggressive
Growth Portfolio 11/
--

(g) Sub-Advisory Agreement with respect to the Global Growth Portfolio
16/
--

(h) Sub-Advisory Agreement with respect to the Strategic Fixed Income
Portfolio 16/
--
(6) Underwriting Contract - none
(7) Bonus, profit sharing or pension plans - none
(8) Custodian Agreement
(a) Custodian Agreement with State Street Bank and Trust Company with
respect to the assets of Money Market and Growth Portfolios 2/
-
(b) Addendum to Custodian Agreement with State Street Bank and Trust
Company for addition of Balanced Portfolio 5/
-
(c) Amendment to Custodian Agreement with State Street Bank and Trust
Company for addition of Strategic Fixed Income Portfolio 6/
-
(d) Addendum to Custodian Agreement with State Street Bank and Trust
Company for addition of Growth and Income Portfolio 9/
-

(e) Addendum to Custodian Agreement with State Street Bank and Trust
Company with respect to the assets of Global Growth Portfolio 16/
--

(f) Custodian Agreement with Brown Brothers Harriman & Co. with respect
to the assets of Global Income Portfolio 5/
-
(9) Transfer Agency Services and Shareholder Services Agreement 9/
-
(10) (a) Opinion and consent of Kirkpatrick & Lockhart LLP, counsel to the
Registrant 1/
-
(b) Opinion and Consent of Kirkpatrick & Lockhart LLP with respect to
Growth and Income Portfolio 8/
-
(c) Opinion and Consent of Kirkpatrick & Lockhart LLP with respect to
High Grade Fixed Income Portfolio and Aggressive Growth Portfolio 10/
--

C-2
<PAGE>

(11) Other opinions, appraisals, rulings and consents:
(a) Independent Auditors' Consent (filed herewith)
(12) Financial statements omitted from prospectus-none
(13) Letter of investment intent 1/
-
(14) Prototype Retirement Plan - none
(15) Plan pursuant to Rule 12b-1 - none
(16) Schedule of Computation for Performance Quotations - not applicable
(17) and
27) Financial Data Schedule (filed herewith)
(18) Plan pursuant to Rule 18f-3 (not applicable)
______________________

1/ Incorporated by reference to Pre-Effective Amendment No. 1, SEC File
- - No. 33-10438, filed April 1, 1987.

2/ Incorporated by reference to Post-Effective Amendment No. 1, SEC File
- - No. 33-10438, filed September 30, 1987.

3/ Incorporated by reference to Post-Effective Amendment No. 3, SEC File
- - No. 33-10438, filed March 3, 1988.

4/ Incorporated by reference to Post-Effective Amendment No. 4, SEC File
- - No. 33-10438, filed April 29, 1988.

5/ Incorporated by reference to Post-Effective Amendment No. 6, SEC File
- - No. 33-10438, filed April 28, 1989.

6/ Incorporated by reference to Post-Effective Amendment No. 8, SEC File
- - No. 33-10438, filed March 2, 1990.

7/ Incorporated by reference to Post-Effective Amendment No. 10, SEC File
- - No. 33-10438, filed May 1, 1991.

8/ Incorporated by reference to Post-Effective Amendment No. 11, SEC File
- - No. 33-10438, filed November 1, 1991.

9/ Incorporated by reference to Post-Effective Amendment No. 14, SEC File
- - No. 33-10438, filed April 30, 1993.

10/ Incorporated by reference to Post-Effective Amendment No. 15, SEC File
- -- No. 33-10438, filed July 2, 1993.

11/ Incorporated by reference to Post-Effective Amendment No. 16, SEC File
- -- No. 33-10438, filed March 2, 1994.

12/ Incorporated by reference to Post-Effective Amendment No. 17, SEC File
- -- No. 33-10438, filed April 21, 1994.

13/ Incorporated by reference to Post-Effective Amendment No. 20, SEC File
- -- No. 33-10438, filed April 28, 1995.

14/ Incorporated by reference from Articles III, VIII, IX, X, and XI of
- -- Registrant's Declaration of Trust, as amended effective August 13, 1987,
February 26, 1988, February 24, 1989, December 31, 1990, October 15,1991,
May 25, 1993, August 14, 1995, and February 29, 1996, and from Articles
II, VII and X of Registrant's By-Laws, as amended March 19, 1993 and
September 28, 1994.

15/ Incorporated by reference to Post-Effective Amendment No. 21, SEC File
- -- No. 33-10438, filed September 1, 1995.

16/ Incorporated by reference to Post-Effective Amendment No. 23, SEC File
- -- No. 10438, filed May 1, 1996.

C-3
<PAGE>

Item 25. Persons Controlled by or under Common Control with Registrant
- -----------------------------------------------------------------------

As of April 15, 1997, more than 99% of the outstanding shares of beneficial
interest of each of the nine operating portfolios of the Registrant were owned
by American Republic Variable Annuity Account, a segregated investment account
of American Republic Insurance Company, American Benefit Variable Annuity
Account, a segregated investment account of American Benefit Life Insurance
Company and PaineWebber Life Variable Annuity Account, a segregated investment
account of PaineWebber Life Insurance Company. More than 99% of the outstanding
shares of beneficial interest of each of Fixed Income, Balanced and Aggressive
Growth Portfolios is, at the date of this Prospectus, owned by PaineWebber Life
Variable Annuity Account. Information about persons controlled by or under
common control of American Republic Insurance Company is set forth under Item 26
of the most recent Post-Effective Amendment to the Registration Statement of
American Republic Variable Annuity Account, File No. 33-10417, and is hereby
incorporated herein by reference. Information about persons controlled by or
under common control of American Benefit Life Insurance Company is set forth
under Item 26 of the most recent Post-Effective Amendment to the Registration
Statement of American Benefit Variable Annuity Account, File No. 33-19254, and
is hereby incorporated herein by reference. Information about persons
controlled by or under common control of PaineWebber Life Insurance Company is
set forth under Item 26 of the most recent Post-Effective Amendment to the
Registration Statements of the PaineWebber Life Separate Account, File No. 33-
58808 and File No. 33-61488, and is hereby incorporated by reference.

Item 26. Number of Holders of Securities
-------------------------------
<TABLE>
<CAPTION>

Title of Class of Shares Number of Record Holders
------------------------ ------------------------
of Beneficial Interest as of April 15, 1997
------------------------ --------------------

<S> <C>
Money Market Portfolio 4
Global Growth Portfolio 4
Growth Portfolio 4
Balanced Portfolio 4
Global Income Portfolio 4
Strategic Income Portfolio 4
Growth and Income Portfolio 4
High Grade Fixed Income Portfolio 2
Aggressive Growth Portfolio 2

</TABLE>
Item 27. Indemnification
---------------

Section 2 of "Indemnification" in Article X of the Declaration of Trust
provides that the appropriate series of the Registrant will indemnify its
trustees and officers to the fullest extent permitted by law against claims and
expenses asserted against or incurred by them by virtue of being or having been
a trustee or officer; provided that no such person shall be indemnified where
there has been an adjudication or other determination, as described in Article
X, that such person is liable to the Registrant or its shareholders by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his or her office or did not act in good faith
in the reasonable belief that his action was in the best interest of the
Registrant. Section 2 of "Indemnification" in Article X also provides that the
Registrant may maintain insurance policies covering such rights of
indemnification.

Additionally, "Limitation of Liability" in Article X of the Declaration of
Trust provides that the trustees or officers of the Registrant shall not be
personally liable to any person extending credit to, contracting with or having
a claim against the Trust or a particular series thereof; and that, provided
they have exercised reasonable care and have acted under the reasonable belief
that their actions are in the best interest of the Registrant, the trustees and
officers shall not be liable for neglect or wrongdoing by them or any officer,
agent, employee or investment adviser of the Registrant.

C-4
<PAGE>

Section 2 of Article XI of the Declaration of Trust additionally provides
that, subject to the provisions of Section 1 of Article XI and to Article X,
trustees shall not be liable for errors of judgment or mistakes of fact or law,
or for any act or omission in accordance with the advice of counsel or other
experts, or failing to follow such advice, with respect to the meaning and
operation of the Declaration of Trust.

Article XI of the By-Laws provides that the Registrant may purchase and
maintain insurance on behalf of any person who is or was a trustee, officer or
employee of the Trust, or is or was serving at the request of the Trust as a
trustee, officer or employee of a corporation, partnership, joint venture, trust
or other enterprise against any liability asserted against him or her and
incurred by him or her in any such capacity or arising out of his or her status
as such, whether or not the Registrant would have the power to indemnify him or
her against such liability, provided that the Registrant may not acquire
insurance protecting any trustee or officer against liability to the Registrant
or the Registrant or its shareholders to which he or she would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of his or her office.

Section 9 of the Investment Advisory and Administration Contract between
Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins") and the Registrant
provides that Mitchell Hutchins shall not be liable for any error of judgment or
mistake of law or for any loss suffered by Registrant in connection with the
matters to which the Contract relates, except for a loss resulting from the
willful misfeasance, bad faith, or gross negligence of Mitchell Hutchins in the
performance of its duties or from its reckless disregard of its obligations and
duties under the Contract. Section 10 of the Contract provides that the
trustees shall not be liable for any obligations of the Registrant or any series
under the Contract and that Mitchell Hutchins shall look only to the assets and
property of the Registrant in settlement of such right or claim and not to the
assets and property of the trustees.

Section 7 of each Sub-Advisory Agreement provides that the applicable sub-
adviser shall not be liable for any error of judgment or mistake of law or for
any loss suffered by the applicable Portfolio, the Registrant or its
shareholders or by Mitchell Hutchins in connection with the matters to which the
Sub-Advisory Agreement relates, except a loss resulting from willful
misfeasance, bad faith or gross negligence on the sub-adviser's part in the
performance of its duties or from reckless disregard by it of its obligations
and duties under the Sub-Advisory Agreement.

Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended, may be provided to trustees, officers and controlling
persons of the Registrant, pursuant to the foregoing provisions or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a trustee, officer or controlling
person of the Registrant in connection with the successful defense of any
action, suit or proceeding or payment pursuant to any insurance policy) is
asserted against the Registrant by such trustee, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.

Item 28. Business and Other Connections of Investment Adviser
----------------------------------------------------

Mitchell Hutchins, a Delaware corporation, is a registered investment
adviser and is wholly owned by PaineWebber Incorporated ("PaineWebber"), which
is, in turn, a wholly owned subsidiary of Paine Webber Group Inc. Mitchell
Hutchins is primarily engaged in the investment advisory business. Information
as to the officers and directors of Mitchell Hutchins is included in its Form
ADV filed on as filed with the Securities and Exchange Commission (registration
number 801-13219) and is incorporated herein by reference.

Nicholas-Applegate Capital Management ("Nicholas-Applegate"), a California
limited partnership, is a registered

C-5
<PAGE>

investment adviser. Nicholas-Applegate's general partner is Nicholas-Applegate
Capital Management Inc., a California corporation owned by Arthur E. Nicholas,
its director and sole shareholder. Nicholas-Applegate is primarily engaged in
the investment advisory business and provides investment advisory services to
corporate, institutional and individual clients as well as serving as adviser or
sub-adviser to a number of registered investment companies. Information as to
the officers and directors of Nicholas-Applegate is included in its Form ADV as
filed with the Securities and Exchange Commission (registration number 801-
21442) and is incorporated herein by reference.

GE Investment Management Incorporated ("GEIM"), a Delaware corporation,
is a registered investment adviser and is wholly owned by General Electric
Company. GEIM is primarily engaged in the investment advisory business.
Information as to the officers and directors of GEIM is included in its Form ADV
as filed with the Securities and Exchange Commission (registration number 801-
31947) and is incorporated herein by reference.

Pacific Investment Management Company ("PIMCO"), a Delaware partnership,
is a registered investment adviser and a subsidiary general partnership of PIMCO
Advisors L.P. ("PIMCO Advisors"). A majority interest in PIMCO Advisors is held
by PIMCO Partners, G.P., a general partnership between Pacific Financial Asset
Management Corporation, an indirect wholly owned subsidiary of Pacific Mutual
Life Insurance Company ("Pacific Mutual") and PIMCO Partners, L.L.C., a limited
liability company controlled by the PIMCO Managing Directors. PIMCO is primarily
engaged in the investment advisory business. Information as to the officers and
Managing Directors and partners of PIMCO is included in its Form ADV as filed
with the Securities and Exchange Commission (registration number 801-48187) and
is incorporated herein by reference.

Item 29. Principal Underwriters
----------------------

Not applicable

Item 30. Location of Accounts and Records
--------------------------------

The books and other documents required by paragraphs (b)(4), (c) and (d) of
Rule 31a-1 under the Investment Company Act of 1940 are maintained in the
physical possession of Registrant's investment adviser and administrator,
Mitchell Hutchins, 1285 Avenue of the Americas, New York, New York 10019. All
other accounts, books and documents required by Rule 31a-1 are maintained in the
physical possession of Registrant's transfer agent and custodians.

Item 31. Management Services
-------------------

Not applicable.

Item 32. Undertakings
------------

Registrant hereby undertakes to furnish each person to whom a prospectus is
delivered with a copy of the Registrant's latest annual report to shareholders
upon request and without charge.

C-6
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all the
requirements for effectiveness of this Post-Effective Amendment to its
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Post-Effective Amendment to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of New York and State of
New York, on the 25th day of April, 1997.

PAINEWEBBER SERIES TRUST

By: /s/ Dianne E. O'Donnell
---------------------------------
Dianne E. O'Donnell
Vice President and Secretary

Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment has been signed below by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>

Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Margo N. Alexander President and Trustee April 25, 1997
- --------------------------- (Chief Executive Officer)
Margo N. Alexander *

/s/ E. Garrett Bewkes, Jr. Trustee and Chairman April 25, 1997
- --------------------------- of the Board of Trustees
E. Garrett Bewkes, Jr. *

/s/ Richard Q. Armstrong Trustee April 25, 1997
- ---------------------------
Richard Q. Armstrong *

/s/ Richard R. Burt Trustee April 25, 1997
- ---------------------------
Richard R. Burt *

/s/ Mary C. Farrell Trustee April 25, 1997
- ---------------------------
Mary C. Farrell *

/s/ Meyer Feldberg Trustee April 25, 1997
- ---------------------------
Meyer Feldberg *

/s/ George W. Gowen Trustee April 25, 1997
- ---------------------------
George W. Gowen *

/s/ Frederic V. Malek Trustee April 25, 1997
- ---------------------------
Frederic V. Malek *

/s/ Carl W. Schafer Trustee April 25, 1997
- ---------------------------
Carl W. Schafer *

/s/ Julian F. Sluyters Vice President and Treasurer April 25, 1997
- --------------------------- (Chief Financial and Accounting
Julian F. Sluyters Officer)

</TABLE>
<PAGE>

SIGNATURES (Continued)

* Signature affixed by Elinor W. Gammon pursuant to power of attorney dated May
21, 1996 and incorporated by reference from Post-Effective Amendment No. 30
to the registration statement of PaineWebber Managed Municipal Trust, SEC
File No. 2-89016, filed June 27, 1996.
<PAGE>

Exhibit Index
-------------

Exhibits
- --------
(1) (a) Declaration of Trust 1/
-
(b) Amendment effective January 28, 1988 to Declaration of Trust 3/
-
(c) Amendment effective February 24, 1989 to Declaration of Trust 5/
-
(d) Amendment effective December 31, 1990 to Declaration of Trust 7/
-
(e) Amendment effective October 15, 1991 to Declaration of Trust 8/
-
(f) Amendment effective May 25, 1993 to Declaration of Trust 10/
--
(g) Amendment effective August 14, 1995 to Declaration of Trust 15/
--
(h) Amendment effective February 29, 1996 to Declaration of Trust 16/
--
(2) (a) By-laws, as amended 1/
-
(b) Amendments effective March 19, 1991 to By-Laws 7/
-
(c) Amendment dated September 28, 1994 to By-Laws 13/
--
(3) Voting trust agreement - none
(4) Instruments defining the rights of holders of the Registrant's shares of
beneficial interest 14/
--
(5) Investment Advisory and Administration Contract 4/
-
(a) Investment Advisory and Administration Fee Agreement with respect to
Strategic Fixed Income Portfolio 6/
-
(b) Investment Advisory and Administration Fee Agreement with respect to
Growth and Income Portfolio 9/
-
(c) Investment Advisory and Administration Fee Agreement with respect to
High Grade Fixed Income Portfolio 12/
--
(d) Investment Advisory and Administration Fee Agreement with respect to
Balanced Portfolio 12/
--
(e) Investment Advisory and Administration Fee Agreement with respect to
Aggressive Growth Portfolio 12/
--
(f) Sub-Investment Advisory Contract with respect to the Aggressive
Growth Portfolio 11/
--
(g) Sub-Advisory Agreement with respect to the Global Growth Portfolio
16/
--
(h) Sub-Advisory Agreement with respect to the Strategic Fixed Income
Portfolio 16/
--
(6) Underwriting Contract - none
(7) Bonus, profit sharing or pension plans - none
(8) Custodian Agreement
(a) Custodian Agreement with State Street Bank and Trust Company with
respect to the assets of Money Market and Growth Portfolios 2/
-
(b) Addendum to Custodian Agreement with State Street Bank and Trust
Company for addition of Balanced Portfolio 5/
-
(c) Amendment to Custodian Agreement with State Street Bank and Trust
Company for addition of Strategic Fixed Income Portfolio 6/
-
(d) Addendum to Custodian Agreement with State Street Bank and Trust
Company for addition of Growth and Income Portfolio 9/
-
(e) Addendum to Custodian Agreement with State Street Bank and Trust
Company with respect to the assets of Global Growth Portfolio 16/
--
(f) Custodian Agreement with Brown Brothers Harriman & Co. with respect
to the assets of Global Income Portfolio 5/
-
(9) Transfer Agency Services and Shareholder Services Agreement 9/
-
(10) (a) Opinion and consent of Kirkpatrick & Lockhart LLP, counsel to the
Registrant 1/
-
(b) Opinion and Consent of Kirkpatrick & Lockhart LLP with respect to
Growth and Income Portfolio 8/
-
(c) Opinion and Consent of Kirkpatrick & Lockhart LLP with respect to
High Grade Fixed Income Portfolio and Aggressive Growth Portfolio 10/
--
(11) Other opinions, appraisals, rulings and consents:
(a) Independent Auditors' Consent (filed herewith)
(12) Financial statements omitted from prospectus-none
(13) Letter of investment intent 1/
-
<PAGE>

(14) Prototype Retirement Plan - none
(15) Plan pursuant to Rule 12b-1 - none
(16) Schedule of Computation for Performance Quotations - not
applicable
(17) and
27) Financial Data Schedule (filed herewith)
(18) Plan pursuant to Rule 18f-3 (not applicable)
______________________

1/ Incorporated by reference to Pre-Effective Amendment No. 1, SEC File
- - No. 33-10438, filed April 1, 1987.

2/ Incorporated by reference to Post-Effective Amendment No. 1, SEC
- - File No. 33-10438, filed September 30, 1987.

3/ Incorporated by reference to Post-Effective Amendment No. 3, SEC
- - File No. 33-10438, filed March 3, 1988.

4/ Incorporated by reference to Post-Effective Amendment No. 4, SEC
- - File No. 33-10438, filed April 29, 1988.

5/ Incorporated by reference to Post-Effective Amendment No. 6, SEC
- - File No. 33-10438, filed April 28, 1989.

6/ Incorporated by reference to Post-Effective Amendment No. 8, SEC
- - File No. 33-10438, filed March 2, 1990.

7/ Incorporated by reference to Post-Effective Amendment No. 10, SEC
- - File No. 33-10438, filed May 1, 1991.

8/ Incorporated by reference to Post-Effective Amendment No. 11, SEC
- - File No. 33-10438, filed November 1, 1991.

9/ Incorporated by reference to Post-Effective Amendment No. 14, SEC
- - File No. 33-10438, filed April 30, 1993.

10/ Incorporated by reference to Post-Effective Amendment No. 15, SEC
- -- File No. 33-10438, filed July 2, 1993.

11/ Incorporated by reference to Post-Effective Amendment No. 16, SEC
- -- File No. 33-10438, filed March 2, 1994.

12/ Incorporated by reference to Post-Effective Amendment No. 17, SEC
- -- File No. 33-10438, filed April 21, 1994.

13/ Incorporated by reference to Post-Effective Amendment No. 20, SEC
- -- File No. 33-10438, filed April 28, 1995.

14/ Incorporated by reference from Articles III, VIII, IX, X, and XI of
- -- Registrant's Declaration of Trust, as amended effective August 13,
1987, February 26, 1988, February 24, 1989, December 31, 1990,
October 15, 1991, May 25, 1993, August 14, 1995, and February 29,
1996, and from Articles II, VII and X of Registrant's By-Laws, as
amended March 19, 1993 and September 28, 1994 .

15/ Incorporated by reference to Post-Effective Amendment No. 21, SEC
- -- File No. 33-10438, filed September 1, 1995.

16/ Incorporated by reference to Post-Effective Amendment No. 23, SEC
- -- File No. 10438, filed May 1, 1996.

<PAGE>

CONSENT OF INDEPENDENT AUDITORS

We consent to the reference to our firm under the captions "Financial
Highlights" in the Prospectus and "Auditors" in the Statement of
Additional Information and to the incorporation by reference therein
of our report dated February 6, 1997, in this Registration Statement
(Form N-1A No. 33-10438) of PaineWebber Series Trust.

/s/ Ernst & Young LLP

ERNST & YOUNG LLP

New York, New York
April 25, 1997

<PAGE>

<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> SERIES TRUST MONEY MARKET
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 12,240
<INVESTMENTS-AT-VALUE> 12,240
<RECEIVABLES> 108
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 699
<TOTAL-ASSETS> 13,047
<PAYABLE-FOR-SECURITIES> 695
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 65
<TOTAL-LIABILITIES> 760
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 12,298
<SHARES-COMMON-STOCK> 12,296
<SHARES-COMMON-PRIOR> 21,988
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (10)
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 12,287
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 862
<OTHER-INCOME> 0
<EXPENSES-NET> 185
<NET-INVESTMENT-INCOME> 677
<REALIZED-GAINS-CURRENT> 5
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 682
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 677
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 10,397
<NUMBER-OF-SHARES-REDEEMED> 20,822
<SHARES-REINVESTED> 733
<NET-CHANGE-IN-ASSETS> (9,687)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (16)
<GROSS-ADVISORY-FEES> 79
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 185
<AVERAGE-NET-ASSETS> 15,857
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.04
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0.04
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 1.17
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>

<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> SERIES TRUST GROWTH PORTFOLIO
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 30,359
<INVESTMENTS-AT-VALUE> 45,218
<RECEIVABLES> 63
<ASSETS-OTHER> 2
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 45,283
<PAYABLE-FOR-SECURITIES> 121
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 8,805
<TOTAL-LIABILITIES> 8,926
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 21,648
<SHARES-COMMON-STOCK> 2,080
<SHARES-COMMON-PRIOR> 2,435
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (150)
<ACCUM-APPREC-OR-DEPREC> 14,859
<NET-ASSETS> 36,357
<DIVIDEND-INCOME> 162
<INTEREST-INCOME> 205
<OTHER-INCOME> 0
<EXPENSES-NET> 493
<NET-INVESTMENT-INCOME> (126)
<REALIZED-GAINS-CURRENT> 6,920
<APPREC-INCREASE-CURRENT> 493
<NET-CHANGE-FROM-OPS> 7,287
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (6,899)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 297
<NUMBER-OF-SHARES-REDEEMED> (883)
<SHARES-REINVESTED> 231
<NET-CHANGE-IN-ASSETS> 6,427
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> (1)
<OVERDIST-NET-GAINS-PRIOR> (44)
<GROSS-ADVISORY-FEES> 325
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 493
<AVERAGE-NET-ASSETS> 43,342
<PER-SHARE-NAV-BEGIN> 17.57
<PER-SHARE-NII> 0.06
<PER-SHARE-GAIN-APPREC> 3.29
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 3.32
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 17.48
<EXPENSE-RATIO> 1.14
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>

<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> SERIES TRUST GLOBAL GROWTH
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 22,851
<INVESTMENTS-AT-VALUE> 26,257
<RECEIVABLES> 214
<ASSETS-OTHER> 2
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 26,473
<PAYABLE-FOR-SECURITIES> 122
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 650
<TOTAL-LIABILITIES> 772
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 25,210
<SHARES-COMMON-STOCK> 1,870
<SHARES-COMMON-PRIOR> 2,047
<ACCUMULATED-NII-CURRENT> (48)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2,867)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,406
<NET-ASSETS> 25,701
<DIVIDEND-INCOME> 390
<INTEREST-INCOME> 22
<OTHER-INCOME> 0
<EXPENSES-NET> (290)
<NET-INVESTMENT-INCOME> 122
<REALIZED-GAINS-CURRENT> 1,296
<APPREC-INCREASE-CURRENT> 2,290
<NET-CHANGE-FROM-OPS> 3,708
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (142)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,415
<NUMBER-OF-SHARES-REDEEMED> (8,787)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (6,372)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 198
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 290
<AVERAGE-NET-ASSETS> 25,864
<PER-SHARE-NAV-BEGIN> 12.00
<PER-SHARE-NII> 0.14
<PER-SHARE-GAIN-APPREC> 1.68
<PER-SHARE-DIVIDEND> (0.08)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.74
<EXPENSE-RATIO> 1.10
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>

<ARTICLE> 6
<SERIES>
<NUMBER> 4
<NAME> SERIES TRUST GLOBAL INCOME
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 25,439
<INVESTMENTS-AT-VALUE> 25,767
<RECEIVABLES> 536
<ASSETS-OTHER> 121
<OTHER-ITEMS-ASSETS> 4
<TOTAL-ASSETS> 26,428
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,992
<TOTAL-LIABILITIES> 1,992
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 24,321
<SHARES-COMMON-STOCK> 2,194
<SHARES-COMMON-PRIOR> 3,188
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (163)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 278
<NET-ASSETS> 24,436
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,493
<OTHER-INCOME> 0
<EXPENSES-NET> 480
<NET-INVESTMENT-INCOME> 2,013
<REALIZED-GAINS-CURRENT> 399
<APPREC-INCREASE-CURRENT> (580)
<NET-CHANGE-FROM-OPS> 1,832
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,741
<DISTRIBUTIONS-OF-GAINS> 19
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 97
<NUMBER-OF-SHARES-REDEEMED> 1,398
<SHARES-REINVESTED> 306
<NET-CHANGE-IN-ASSETS> (11,263)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> (282)
<OVERDIST-NET-GAINS-PRIOR> (534)
<GROSS-ADVISORY-FEES> 230
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 480
<AVERAGE-NET-ASSETS> 30,702
<PER-SHARE-NAV-BEGIN> 11.20
<PER-SHARE-NII> 0.87
<PER-SHARE-GAIN-APPREC> (0.13)
<PER-SHARE-DIVIDEND> (0.79)
<PER-SHARE-DISTRIBUTIONS> (0.01)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.14
<EXPENSE-RATIO> 1.56
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>

<ARTICLE> 6
<SERIES>
<NUMBER> 5
<NAME> SERIES TRUST STRATEGIC FIXED INCOME
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 11,367
<INVESTMENTS-AT-VALUE> 11,417
<RECEIVABLES> 93
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 11,510
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 821
<TOTAL-LIABILITIES> 821
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 10,934
<SHARES-COMMON-STOCK> 1,047
<SHARES-COMMON-PRIOR> 1,295
<ACCUMULATED-NII-CURRENT> (3)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (272)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 30
<NET-ASSETS> 10,689
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 929
<OTHER-INCOME> 0
<EXPENSES-NET> 191
<NET-INVESTMENT-INCOME> 738
<REALIZED-GAINS-CURRENT> (174)
<APPREC-INCREASE-CURRENT> (208)
<NET-CHANGE-FROM-OPS> (382)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (733)
<DISTRIBUTIONS-OF-GAINS> (100)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 175
<NUMBER-OF-SHARES-REDEEMED> 633
<SHARES-REINVESTED> 210
<NET-CHANGE-IN-ASSETS> (3,052)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> (5)
<OVERDIST-NET-GAINS-PRIOR> (2)
<GROSS-ADVISORY-FEES> 63
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 191
<AVERAGE-NET-ASSETS> 12,557
<PER-SHARE-NAV-BEGIN> 10.61
<PER-SHARE-NII> 1.40
<PER-SHARE-GAIN-APPREC> (1.01)
<PER-SHARE-DIVIDEND> (0.70)
<PER-SHARE-DISTRIBUTIONS> (0.09)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.21
<EXPENSE-RATIO> 1.52
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>

<ARTICLE> 6
<SERIES>
<NUMBER> 6
<NAME> SERIES TRUST BALANCED
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 30,326
<INVESTMENTS-AT-VALUE> 33,666
<RECEIVABLES> 280
<ASSETS-OTHER> 1
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 33,947
<PAYABLE-FOR-SECURITIES> 573
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4,151
<TOTAL-LIABILITIES> 4,724
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 25,893
<SHARES-COMMON-STOCK> 2,669
<SHARES-COMMON-PRIOR> 2,187
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (8)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,339
<NET-ASSETS> 29,224
<DIVIDEND-INCOME> 371
<INTEREST-INCOME> 805
<OTHER-INCOME> 0
<EXPENSES-NET> 413
<NET-INVESTMENT-INCOME> 763
<REALIZED-GAINS-CURRENT> 3,319
<APPREC-INCREASE-CURRENT> 971
<NET-CHANGE-FROM-OPS> 5,053
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (763)
<DISTRIBUTIONS-OF-GAINS> (3,328)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,266
<NUMBER-OF-SHARES-REDEEMED> (1,001)
<SHARES-REINVESTED> 217
<NET-CHANGE-IN-ASSETS> 5,810
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> (2)
<OVERDIST-NET-GAINS-PRIOR> (1)
<GROSS-ADVISORY-FEES> 250
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 413
<AVERAGE-NET-ASSETS> 33,333
<PER-SHARE-NAV-BEGIN> 10.70
<PER-SHARE-NII> 0.57
<PER-SHARE-GAIN-APPREC> 1.22
<PER-SHARE-DIVIDEND> (0.29)
<PER-SHARE-DISTRIBUTIONS> (1.25)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.95
<EXPENSE-RATIO> 1.24
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>

<ARTICLE> 6
<SERIES>
<NUMBER> 7
<NAME> SERIES TRUST GROWTH & INCOME
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 13,883
<INVESTMENTS-AT-VALUE> 17,070
<RECEIVABLES> 46
<ASSETS-OTHER> 4
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 17,120
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,600
<TOTAL-LIABILITIES> 2,600
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 11,339
<SHARES-COMMON-STOCK> 1,184
<SHARES-COMMON-PRIOR> 1,251
<ACCUMULATED-NII-CURRENT> 3
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (9)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,187
<NET-ASSETS> 14,520
<DIVIDEND-INCOME> 247
<INTEREST-INCOME> 82
<OTHER-INCOME> 0
<EXPENSES-NET> 251
<NET-INVESTMENT-INCOME> 78
<REALIZED-GAINS-CURRENT> 2,474
<APPREC-INCREASE-CURRENT> 573
<NET-CHANGE-FROM-OPS> 3,125
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (72)
<DISTRIBUTIONS-OF-GAINS> (2,474)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 273
<NUMBER-OF-SHARES-REDEEMED> 354
<SHARES-REINVESTED> 13
<NET-CHANGE-IN-ASSETS> (276)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (8)
<OVERDISTRIB-NII-PRIOR> (3)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 112
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 251
<AVERAGE-NET-ASSETS> 15,943
<PER-SHARE-NAV-BEGIN> 11.83
<PER-SHARE-NII> 0.13
<PER-SHARE-GAIN-APPREC> 2.46
<PER-SHARE-DIVIDEND> (0.06)
<PER-SHARE-DISTRIBUTIONS> (2.09)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.27
<EXPENSE-RATIO> 1.58
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>

<ARTICLE> 6
<SERIES>
<NUMBER> 8
<NAME> SERIES TRUST AGGRESSIVE GROWTH
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 16,156
<INVESTMENTS-AT-VALUE> 21,105
<RECEIVABLES> 24
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 21,129
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,962
<TOTAL-LIABILITIES> 1,962
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 14,216
<SHARES-COMMON-STOCK> 1,464
<SHARES-COMMON-PRIOR> 1,557
<ACCUMULATED-NII-CURRENT> (3)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 5
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4,949
<NET-ASSETS> 19,167
<DIVIDEND-INCOME> 133
<INTEREST-INCOME> 18
<OTHER-INCOME> 0
<EXPENSES-NET> 296
<NET-INVESTMENT-INCOME> (145)
<REALIZED-GAINS-CURRENT> 1,630
<APPREC-INCREASE-CURRENT> 2,835
<NET-CHANGE-FROM-OPS> 4,320
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 1,588
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 171
<NUMBER-OF-SHARES-REDEEMED> 311
<SHARES-REINVESTED> 47
<NET-CHANGE-IN-ASSETS> (93)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> (4)
<OVERDIST-NET-GAINS-PRIOR> (37)
<GROSS-ADVISORY-FEES> 156
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 296
<AVERAGE-NET-ASSETS> 19,487
<PER-SHARE-NAV-BEGIN> 11.34
<PER-SHARE-NII> (0.10)
<PER-SHARE-GAIN-APPREC> 2.93
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (1.08)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.09
<EXPENSE-RATIO> 1.52
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>

<ARTICLE> 6
<SERIES>
<NUMBER> 9
<NAME> SERIES TRUST HIGH GRADE INCOME
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 8,645
<INVESTMENTS-AT-VALUE> 8,728
<RECEIVABLES> 96
<ASSETS-OTHER> 2
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 8,826
<PAYABLE-FOR-SECURITIES> 457
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 467
<TOTAL-LIABILITIES> 924
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 7,873
<SHARES-COMMON-STOCK> 868
<SHARES-COMMON-PRIOR> 963
<ACCUMULATED-NII-CURRENT> (5)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (48)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 83
<NET-ASSETS> 7,902
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 593
<OTHER-INCOME> 0
<EXPENSES-NET> 144
<NET-INVESTMENT-INCOME> 449
<REALIZED-GAINS-CURRENT> 14
<APPREC-INCREASE-CURRENT> (369)
<NET-CHANGE-FROM-OPS> 94
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 452
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 170
<NUMBER-OF-SHARES-REDEEMED> (322)
<SHARES-REINVESTED> 57
<NET-CHANGE-IN-ASSETS> (1,245)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (59)
<OVERDISTRIB-NII-PRIOR> (5)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 44
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 144
<AVERAGE-NET-ASSETS> 8,892
<PER-SHARE-NAV-BEGIN> 9.49
<PER-SHARE-NII> 1.04
<PER-SHARE-GAIN-APPREC> (0.91)
<PER-SHARE-DIVIDEND> (0.52)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.10
<EXPENSE-RATIO> 1.62
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>