MITCHELL HUTCHINS/
KIDDER, PEABODY
ASSET ALLOCATION
FUND
SEMI-ANNUAL REPORT
February 28, 1995
<PAGE>
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April 15, 1995
Dear Shareholder,
During the six months ended February 28, 1995, the United States economy
exhibited steady growth. In a series of monetary tightenings that began early in
1994, the Federal Reserve Board raised the benchmark Federal Funds rate, the
rate banks charge each other for overnight borrowing, six times in 1994 for a
total increase of 2.5%. These increases were implemented to moderate economic
expansion and forestall inflation, and were followed by another 0.5% increase on
February 1, 1995, bringing the Federal Funds rate to 6.0%.
Productivity gains in the workplace and the increased competitiveness of United
States corporations in the global marketplace contributed to the low inflation
and steady growth which characterized the economy during the six months ended
February 28, 1995. Unemployment continued to decline, personal income exhibited
an upward trend and measures of consumer confidence continued to register
positive readings. However, side effects of higher interest rates, including a
decline in single family housing starts, crept into economic data during the
latter half of 1994. As we move into the second quarter of 1995, the economy
remains healthy--although it is not yet clear what the full impact of higher
interest rates will be on either economic or corporate profit growth.
PORTFOLIO REVIEW
The Standard & Poor's 500 Stock Index returned 3.96% for the six months ended
February 28, 1995. During this period, the stock market rallied despite a number
of seemingly negative macroeconomic factors, including the decline of the
dollar, year-end 1994 events in Latin America and the Barings PLC debacle. These
events seemed to cause a "flight to quality" which benefitted U.S. equity market
performance. Much of this return came in January and February, as the
possibility of a "soft landing"--a slowdown in economic growth without a decline
into recession--was deemed more likely by investors. The Fund's total return for
the six months ended February 28, 1995 without deducting sales charges was 2.09%
for Class A shares, 1.72% for Class B shares and 2.30% for Class C shares. The
Fund's total return for this period after deducting the maximum applicable sales
charges was (3.78)% for Class A shares, 1.72% for Class B shares and 2.30% for
Class C shares.
As you are aware, the Fund allocates its assets in accordance with a tactical
asset allocation model. The Fund compares the expected return of the broad U.S.
stock market with that of a risk-free asset (i.e., the one-year Treasury bill).
When the stock market's expected incremental return, the "equity risk premium"
is high, the Fund is fully invested in stocks. Conversely, when the expected
incremental return is low, the Fund's asset allocation model calls for reducing
the portfolio's exposure to stocks, and shifts the assets to bonds or Treasury
bills, depending upon the risk premium available for bonds. During the second
half of the fiscal period, 25% of the Fund's assets were allocated to 5-year
U.S. Treasury notes. Although this allocation caught the bond market rally, on
an absolute return basis bonds did not perform quite as well as stocks during
the period.
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2
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The charts below provide a history of the equity risk premium and the bond
risk premium going back to 1984.
[Numeric data presented graphically in the printed form of
this report is represented below by plot-points.]
History of the Equity Risk Premium
(Using 1-Year Treasury Bill Yield)
1984-1995
February 1995
Expected Return (1): 12.04%
Risk-Free Rate: 6.39%
Equity Risk Premium: 5.65%
5.3 5.91 5.53 5.56 5.77 3.41 4.63 5.97 7.966 8.61 7.91 5.4
1/84 1/85 1/86 1/87 1/88 1/89 1/90 1/91 1/92 1/93 1/94 1/95
Source: Mitchell Hutchins Asset Management Inc.
(1) Based on the expected return on stocks in the S&P 500 covered by Mitchell
Hutchins analysts.
History of the Bond Risk Premium
1984-1995
February 1995
5-Year Note Yield (2): 7.09%
Risk-Free Rate: 6.39%
Bond Risk Premium: 0.70%
1.57 1.72 1.13 0.91 1.19 -0.04 0.37 1.24 2.29 2.23 1.52 0.92
1/84 1/85 1/86 1/87 1/88 1/89 1/90 1/91 1/92 1/93 1/94 1/95
Source: Mitchell Hutchins Asset Management Inc.
(2) Intermediate-term (five-year) Treasury note.
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3
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NEW MANAGEMENT
Effective February 13, 1995, as a result of an asset purchase transaction by and
among Kidder, Peabody Group Inc., its parent, General Electric Company, and
Paine Webber Group Inc., the investment management for the Fund was transferred
to Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins"). Mitchell
Hutchins' appointment as the Fund's investment adviser and administrator was
approved at a special meeting of shareholders that took place on April 13, 1995.
Mitchell Hutchins, a wholly owned investment management subsidiary of
PaineWebber Incorporated, provides investment advisory and portfolio management
services to individuals, pension and endowment funds, trusts and institutions.
As of February 28, 1995, Mitchell Hutchins was adviser or sub-adviser to 42
investment companies with 77 separate portfolios and aggregate assets of
approximately $22 billion.
Although the Fund's name has been changed to Mitchell Hutchins/Kidder, Peabody
Asset Allocation Fund, the investment objective remains the same: to provide
total return, consisting of long-term capital appreciation and current income.
The Fund seeks to achieve its objective by following a systematic investment
strategy that actively allocates the Fund's assets among common stocks, U.S.
Treasury notes and U.S. Treasury bills. T. Kirkham Barneby is primarily
responsible for day-to-day portfolio management of the Fund. Mr. Barneby is a
Managing Director and Chief Investment Officer--Quantitative Investments of
Mitchell Hutchins.
MARKET OUTLOOK
Economic statistics for the first quarter of 1995 indicate that the economy has
slowed in comparison to the 4% growth rate achieved in 1994. A primary reason is
weaker consumer spending, although consumer confidence remains near peak levels
and employment growth continues to be positive. The asset allocation model
currently suggests that a focus on stocks is the best way to maximize the Fund's
total return. Going forward, we expect the Fund to be 100% invested in stocks
included in the S&P 500 Index. If the corporate earnings outlook undergoes a
material change, the process will shift Fund assets into a lesser exposure to
stocks and an allocation in 5-year U.S. Treasury notes or 30 day U.S. Treasury
bills.
Thank you for your participation in the Mitchell Hutchins/Kidder, Peabody Asset
Allocation Fund. We value you as a shareholder and as a client and welcome any
comments or questions you may have.
Sincerely,
FRANK P.L. MINARD T. KIRKHAM BARNEBY
Chairman, Managing Director and Chief
Mitchell Hutchins Investment Officer--Quantitative Investments,
Asset Management Inc. Mitchell Hutchins Asset Management Inc.
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4
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Mitchell Hutchins/Kidder, Peabody Asset Allocation Fund
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RECENT PERFORMANCE RESULTS (UNAUDITED)
<TABLE><CAPTION>
NET ASSET VALUE TOTAL RETURN1
----------------------------- ------------------------------
12 MONTHS 6 MONTHS
2/28/95 8/31/94 2/29/94 ENDED 2/28/95 ENDED 2/28/95
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<S> <C> <C> <C> <C> <C>
Class A Shares $12.90 $13.78 $13.54 4.73% 2.09%
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Class B Shares 12.92 13.78 13.55 3.94 1.72
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Class C Shares 12.92 13.79 13.57 4.96 2.30
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</TABLE>
PERFORMANCE SUMMARY CLASS A SHARES
<TABLE><CAPTION>
NET ASSET VALUE
-------------------- CAPITAL GAINS
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID % CHANGE1
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
05/10/93-12/31/93 $ 12.90 $13.49 $ 0.044 $0.198 6.48%
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1994 13.49 12.20 0.972 0.234 -0.59
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01/01/95-02/28/95 12.20 12.90 -- -- 5.74
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Total: $ 1.016 $0.432
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Cumulative Total Return as of 2/28/95: 8.29%
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</TABLE>
PERFORMANCE SUMMARY CLASS B SHARES
<TABLE><CAPTION>
NET ASSET VALUE
-------------------- CAPITAL GAINS
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID % CHANGE1
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
07/22/92-12/31/92 $ 12.00 $12.72 $ 0.002 $0.079 6.67%
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1993 12.72 13.51 0.044 0.134 7.64
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1994 13.51 12.23 0.972 0.130 -1.28
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01/01/95-02/28/95 12.23 12.92 -- -- 5.64
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Total: $ 1.018 $0.343
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Cumulative Total Return as of 2/28/95: 16.2%
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</TABLE>
PERFORMANCE SUMMARY CLASS C SHARES
<TABLE><CAPTION>
NET ASSET VALUE
-------------------- CAPITAL GAINS
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID % CHANGE1
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
05/10/93-12/31/93 $ 12.90 $13.50 $ 0.044 $0.210 6.65%
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1994 13.50 12.21 0.972 0.276 -0.28
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01/01/95-02/28/95 12.21 12.92 -- -- 5.81
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Total: $ 1.016 $0.486
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Cumulative Total Return as of 2/28/95: 9.57%
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</TABLE>
AVERAGE ANNUAL RETURN
<TABLE><CAPTION>
% RETURN WITHOUT SALES CHARGE % RETURN WITH SALES CHARGE
--------------------------------- ----------------------------------
CLASS CLASS
--------------------------------- ----------------------------------
A B C A* B** C
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Twelve Months Ended
<S> <C> <C> <C> <C> <C> <C>
3/31/95 9.61% 11.91% 13.06% 3.29% 11.91% 13.06%
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Five Years Ended 3/31/95 N/A N/A N/A N/A N/A N/A
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Commencement of
Operations+
Through 3/31/95 6.14 8.02 8.06 2.86 8.02 8.06
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</TABLE>
1 Figures assume reinvestment of all dividends and capital gains distributions
at net asset value on the payable date, and do not include sales charges;
results for Class A would be lower if sales charges were included. Results
for Class B would be lower if contingent deferred sales charges were
included.
* Maximum sales charge for Class A shares is 5.75% of the public offering
price. Class A shares bear ongoing 12b-1 service fees.
** Class B shares bear ongoing 12b-1 distribution and service fees.
+ Commencement of operations was November 14, 1991, May 10, 1993 and May 10,
1993 for Class A, Class B and Class C shares, respectively.
The data above represent past performance of the Fund's shares, which is no
guarantee of future results. The investment return and principal value of an
investment in the Fund will fluctuate, so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
5
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Mitchell Hutchins/Kidder, Peabody Asset Allocation Fund
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Portfolio of Investments
February 28, 1995 (unaudited)
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COMMON STOCKS--74.54%
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<TABLE><CAPTION>
NUMBER OF
SHARES VALUE
- ---------- -----------
<C> <S> <C>
AEROSPACE--1.64%
3,900 Boeing Co................................................................ $ 179,887
400 E-Systems Inc............................................................ 17,500
700 General Dynamics......................................................... 32,987
1,500 Honeywell, Inc........................................................... 54,562
700 Lockheed Corporation..................................................... 54,337
1,000 Loral Corporation........................................................ 40,875
1,100 Martin Marietta.......................................................... 52,525
1,400 McDonnell Douglas Corporation............................................ 78,400
600 Northrop-Grumman Corporation............................................. 26,625
1,500 Raytheon Company......................................................... 105,750
2,600 Rockwell International Corporation....................................... 100,100
1,000 Textron, Inc............................................................. 54,750
1,400 United Technologies Corporation.......................................... 92,925
-----------
891,223
-----------
AGRICULTURE--0.06%
1,000 Pioneer Hi Bred International Inc........................................ 33,750
-----------
AUTOS/CONSUMER DURABLES--2.55%
400 Armstrong World Industries............................................... 18,300
1,000 Black and Decker Corporation............................................. 26,750
4,100 Chrysler Corporation..................................................... 178,350
500 Cummins Engine Company, Inc.............................................. 22,750
1,100 Dana Corporation......................................................... 27,088
900 Eaton Corporation........................................................ 45,113
700 Echlin, Inc.............................................................. 24,237
11,900 Ford Motor Company....................................................... 310,887
8,800 General Motors Corporation............................................... 375,100
1,400 Genuine Parts and Company................................................ 54,425
1,200 Maytag Corporation....................................................... 19,800
1,170 Navistar International Corporation*...................................... 16,965
1,800 Newell Company........................................................... 42,975
465 Paccar, Inc.............................................................. 20,460
700 Pep Boys-MM&J............................................................ 22,925
700 Premark International Inc................................................ 30,275
1,900 Rubbermaid, Inc.......................................................... 60,088
500 Snap-on Tools, Inc....................................................... 17,000
500 Stanley Works............................................................ 20,187
900 Whirlpool Corporation.................................................... 48,938
-----------
1,382,613
-----------
BANKING--3.34%
4,727 Banc One Corporation..................................................... 138,856
1,200 Bank of Boston........................................................... 36,150
4,300 Bankamerica Corporation.................................................. 206,937
900 Bankers Trust NY......................................................... 56,812
1,100 Barnett Banks, Inc....................................................... 48,950
600 Beneficial Corporation................................................... 22,275
1,200 Boatman's Bancshares..................................................... 37,200
2,100 Chase Manhattan.......................................................... 75,337
2,800 Chemical Banking Corporation............................................. 112,350
</TABLE>
6
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Mitchell Hutchins/Kidder, Peabody Asset Allocation Fund
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COMMON STOCKS--(continued)
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<TABLE><CAPTION>
NUMBER OF
SHARES VALUE
- ---------- -----------
<C> <S> <C>
BANKING--(concluded)
4,600 Citicorp................................................................. $ 207,000
1,100 First Chicago Corporation................................................ 55,687
900 First Fidelity Bancorp................................................... 45,450
900 First Interstate Bancorporation.......................................... 73,237
2,840 KeyCorp.................................................................. 82,360
1,750 Mellon Bank Corporation.................................................. 66,719
3,200 Nationsbank Corporation.................................................. 159,600
1,800 NBD Bancorp.............................................................. 56,025
3,600 Norwest Corporation...................................................... 92,700
2,700 PNC Bank Corporation..................................................... 68,850
1,400 Suntrust Banks, Inc...................................................... 75,425
1,100 U.S. Bancorp............................................................. 27,638
2,000 Wachovia Corporation..................................................... 69,500
-----------
1,815,058
-----------
BEVERAGES & BOTTLING--2.68%
3,000 Anheuser-Busch Companies................................................. 169,125
14,400 Coca-Cola Company, The................................................... 792,000
9,200 Pepsico, Inc............................................................. 359,950
4,300 Seagram Co. Ltd.......................................................... 132,225
-----------
1,453,300
-----------
BROADCASTING/CABLE TV--0.08%
700 CBS, Inc. ............................................................... 45,150
-----------
BUILDING/FOREST PRODUCTS--1.27%
600 Bemis Company............................................................ 16,275
500 Boise Cascade Corporation................................................ 16,063
1,100 Champion International................................................... 45,238
1,000 Crown Cork and Seal, Inc................................................. 42,625
1,100 Georgia-Pacific Corporation.............................................. 82,362
900 James River Corporation.................................................. 22,162
1,900 Kimberly Clark Corporation............................................... 98,800
1,300 Louisiana Pacific Corporation............................................ 36,725
1,900 Masco Corporation........................................................ 47,737
700 Mead Corporation......................................................... 38,325
500 Owens-Corning Fiberglass................................................. 16,812
1,020 Stone Container Corporation.............................................. 23,842
600 Temple-Inland, Inc....................................................... 29,325
800 Union Camp Corporation................................................... 41,200
800 Westvaco Corporation..................................................... 31,600
2,400 Weyerhaeuser Company..................................................... 97,800
-----------
686,891
-----------
CHEMICALS--2.49%
1,300 Air Products and Chemicals, Inc.......................................... 64,025
600 Avery Dennison Corporation............................................... 22,500
300 B F Goodrich............................................................. 13,350
3,200 Dow Chemical Company..................................................... 214,400
7,900 DuPont E.I. De Nemours................................................... 443,387
1,100 Englehard Corporation.................................................... 29,013
400 FMC Corporation.......................................................... 23,400
</TABLE>
7
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Mitchell Hutchins/Kidder, Peabody Asset Allocation Fund
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COMMON STOCKS--(continued)
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<TABLE><CAPTION>
NUMBER OF
SHARES VALUE
- ---------- -----------
<C> <S> <C>
CHEMICALS--(concluded)
1,100 Grace W R & Company...................................................... $ 49,500
1,500 Hercules, Inc............................................................ 65,812
900 Mallinckrodt Group, Inc.................................................. 29,475
1,400 Monsanto Company......................................................... 110,950
1,700 Morton International..................................................... 49,725
800 Nalco Chemical........................................................... 27,500
2,500 PPG Industries, Inc...................................................... 91,875
800 Rohm & Haas.............................................................. 44,900
600 Sigma Aldrich............................................................ 21,900
1,700 Union Carbide Corporation................................................ 48,663
-----------
1,350,375
-----------
COMPUTER SOFTWARE--0.94%
600 Lotus Development Corporation*........................................... 25,050
1,100 Micron Tech.............................................................. 68,200
6,600 Microsoft Corporation*................................................... 415,800
-----------
509,050
-----------
CONGLOMERATES--2.19%
3,300 Allied-Signal Inc........................................................ 125,400
19,400 General Electric Company................................................. 1,064,575
-----------
1,189,975
-----------
DRUGS & MEDICAL PRODUCTS--6.03%
9,000 Abbott Laboratories...................................................... 319,500
700 Allergan, Inc............................................................ 20,213
1,000 ALZA Corporation, Class A................................................ 22,750
3,400 American Home Products................................................... 243,100
1,500 Amgen, Inc.*............................................................. 103,500
600 Bard C.R., Inc........................................................... 16,050
3,300 Baxter International, Inc................................................ 102,713
800 Becton, Dickinson & Company.............................................. 42,000
1,000 Beverly Enterprises...................................................... 13,000
1,300 Biomet, Inc.*............................................................ 21,044
5,700 Bristol-Meyers Squibb.................................................... 353,400
7,100 Johnson & Johnson Company................................................ 402,925
3,400 Lilly Eli & Company...................................................... 227,800
1,300 Medtronic, Inc........................................................... 78,000
14,100 Merck & Company.......................................................... 597,488
1,900 National Medical Enterprise.............................................. 29,450
3,500 Pfizer, Inc.............................................................. 289,625
2,100 Schering-Plough, Inc..................................................... 164,587
500 St. Jude Medical......................................................... 18,125
2,000 Upjohn, Company.......................................................... 70,500
700 U.S. Surgical............................................................ 14,700
1,600 Warner Lambert, Inc...................................................... 122,200
-----------
3,272,670
-----------
FINANCIAL SERVICES--4.77%
1,400 Ahmanson H F and Company................................................. 25,725
5,900 American Express Company................................................. 199,125
2,400 American General Corporation............................................. 75,900
</TABLE>
8
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Mitchell Hutchins/Kidder, Peabody Asset Allocation Fund
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COMMON STOCKS--(continued)
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<TABLE><CAPTION>
NUMBER OF
SHARES VALUE
- ---------- -----------
<C> <S> <C>
FINANCIAL SERVICES--(concluded)
3,400 American International Group, Inc........................................ $ 352,750
1,800 Capital Cities/ABC....................................................... 159,300
500 Ceridian Corporation*.................................................... 15,750
900 Continental Corporation.................................................. 17,437
1,600 Corestates Financial..................................................... 48,200
1,000 Deluxe Corporation....................................................... 28,000
2,100 Federal Home Loan Mortgage Corporation................................... 121,800
3,200 Federal National Mortgage Association.................................... 246,800
2,000 First Union Corporation.................................................. 89,250
1,600 Fleet Financial Group.................................................... 49,800
1,000 General Re Corporation................................................... 130,250
700 Golden West Financial.................................................... 26,775
1,600 Great Western Financial Corporation...................................... 30,000
1,100 Household International, Inc............................................. 48,125
600 Jefferson-Pilot Corporation.............................................. 34,200
2,200 JP Morgan & Co., Inc..................................................... 141,900
1,100 Lincoln National Corporation............................................. 44,413
1,700 MBNA Corporation......................................................... 44,838
2,200 Merrill Lynch & Company.................................................. 90,200
1,700 National City Corporation................................................ 47,175
1,100 Providian Corporation.................................................... 38,912
700 Safeco Corporation....................................................... 38,500
1,200 Salomon, Inc............................................................. 43,200
1,400 Shawmut National......................................................... 35,875
1,000 St. Paul Companies, Inc.................................................. 48,625
850 Torchmark Corporation.................................................... 35,594
800 Transamerica Corporation................................................. 43,700
3,706 Travelers, Inc........................................................... 144,071
600 Wells Fargo and Company.................................................. 96,375
-----------
2,592,565
-----------
FOOD--2.72%
2,300 American Brands.......................................................... 85,962
5,945 Archer-Daniels-Midland................................................... 112,955
800 Brown-Forman Cl.B........................................................ 25,900
2,900 Campbell Soup Company.................................................... 131,587
2,900 Conagra, Inc............................................................. 94,975
1,700 CPC International........................................................ 90,950
1,800 General Mills Company.................................................... 109,125
2,900 Heinz H.J................................................................ 114,188
1,000 Hershey Foods Corporation................................................ 49,000
2,600 Kellogg Company.......................................................... 140,725
1,200 Pet, Inc................................................................. 30,750
1,600 Quaker Oats.............................................................. 52,200
1,200 Ralston Purina........................................................... 57,300
5,600 Sara Lee Corporation..................................................... 147,000
2,100 Sysco Corporation........................................................ 59,588
2,300 UST, Inc................................................................. 68,425
1,200 Wendy's International Inc................................................ 18,600
1,200 Whitman Corporation...................................................... 22,650
</TABLE>
9
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Mitchell Hutchins/Kidder, Peabody Asset Allocation Fund
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COMMON STOCKS--(continued)
- --------------------------------------------------------------------------------
<TABLE><CAPTION>
NUMBER OF
SHARES VALUE
- ---------- -----------
<C> <S> <C>
FOOD--(concluded)
1,400 Wrigley (Wm) Jr. Company................................................. $ 63,175
-----------
1,475,055
-----------
HEALTHCARE--0.67%
4,185 Columbia/HCA Healthcare.................................................. 173,154
700 Manor Care, Inc.......................................................... 20,738
2,000 United Healthcare Corporation............................................ 86,000
1,900 US Healthcare, Inc....................................................... 81,700
-----------
361,592
-----------
HOUSEHOLD & CONSUMER PRODUCTS--2.24%
800 Avon Products............................................................ 45,000
700 Bausch & Lomb, Inc....................................................... 23,275
600 Clorox Company........................................................... 36,225
1,700 Colgate-Palmolive Company................................................ 109,650
2,500 Gillette Company......................................................... 197,813
1,200 International Flavors and Fragrances..................................... 57,750
500 Polaroid Corporation..................................................... 15,000
7,700 Procter & Gamble......................................................... 512,050
1,800 Unilever N.V............................................................. 218,700
-----------
1,215,463
-----------
INDUSTRIAL & ELECTRONIC PRODUCTS--1.90%
1,100 Advanced Micro Devices*.................................................. 33,413
4,700 Intel Corporation........................................................ 374,825
6,700 Motorola, Inc............................................................ 385,250
1,400 National Semiconductor*.................................................. 23,625
2,900 Northern Telecom Ltd..................................................... 98,963
500 Perkin Elmer Corporation................................................. 14,313
400 Tektronix, Inc........................................................... 13,700
1,100 Texas Instruments........................................................ 86,625
-----------
1,030,714
-----------
INFORMATION PROCESSING--3.93%
1,500 Amdahl Corporation....................................................... 16,687
1,400 Apple Computer........................................................... 55,300
500 Autodesk, Inc............................................................ 19,625
1,600 Automatic Data Processing................................................ 98,400
3,000 Cisco Systems............................................................ 101,250
3,000 Compaq Computer Corporation*............................................. 103,500
1,900 Computer Associates International........................................ 108,300
600 Computer Sciences........................................................ 29,475
1,700 Digital Equipment*....................................................... 56,950
1,300 First Data Corporation................................................... 69,875
3,000 Hewlett-Packard Company.................................................. 345,000
6,800 International Business Machines.......................................... 511,700
1,200 Moore Corp. Ltd.......................................................... 22,200
4,300 Novell, Inc.*............................................................ 90,031
4,950 Oracle Systems........................................................... 155,925
1,800 Pitney Bowes............................................................. 63,900
900 Scientific-Atlanta, Inc.................................................. 21,038
</TABLE>
10
<PAGE>
Mitchell Hutchins/Kidder, Peabody Asset Allocation Fund
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- --------------------------------------------------------------------------------
COMMON STOCKS--(continued)
- --------------------------------------------------------------------------------
<TABLE><CAPTION>
NUMBER OF
SHARES VALUE
- ---------- -----------
<C> <S> <C>
INFORMATION PROCESSING--(concluded)
1,600 Silicon Graphics*........................................................ $ 55,400
1,100 Sun Microsystems......................................................... 35,200
1,300 Tandem Computers*........................................................ 22,100
2,300 Unisys Corporation....................................................... 20,412
1,200 Xerox Corporation........................................................ 133,050
-----------
2,135,318
-----------
INSURANCE--0.72%
1,300 Aetna Life and Casualty.................................................. 69,875
1,500 Burlington Resources..................................................... 57,750
1,000 Chubb Corporation........................................................ 78,625
800 Cigna Corporation........................................................ 60,600
900 Marsh & McLennan Insurance Companies..................................... 73,800
800 UNUM Corp................................................................ 34,000
1,000 USF&G Corp............................................................... 14,250
-----------
388,900
-----------
LODGING/ENTERTAINMENT/MEDIA--3.08%
900 American Greetings Class A............................................... 26,437
1,100 Brunswick Corporation.................................................... 21,863
2,800 Comcast Class A.......................................................... 44,100
820 Cox Communications Inc--Class C.......................................... 14,051
2,000 Dun & Bradstreet Corporation............................................. 103,250
1,000 Eastman Chemical Company................................................. 54,750
3,900 Eastman Kodak............................................................ 198,900
1,600 Gannett Company.......................................................... 88,000
900 Harcourt General, Inc.................................................... 33,413
1,000 Hasbro, Inc.............................................................. 31,500
600 Hilton Hotels............................................................ 42,150
900 Interpublic Group........................................................ 30,712
400 King World Productions*.................................................. 14,250
1,400 Marriott International Inc............................................... 43,400
1,250 Promus Companies......................................................... 44,688
6,600 Telecommunications, Inc. Class A.*....................................... 150,150
4,400 Time Warner, Inc......................................................... 169,950
800 Tribune Company.......................................................... 44,700
4,149 Viacom Inc--Class B*..................................................... 185,668
6,200 Walt Disney Company...................................................... 330,925
-----------
1,672,857
-----------
MACHINERY ELECTRIC POLLUTION--2.12%
1,200 AMP, Inc................................................................. 90,000
250 Andrew Corporation....................................................... 14,500
2,300 Browning-Ferris Industries............................................... 71,587
2,400 Caterpillar, Inc......................................................... 123,900
1,300 Cooper Industries, Inc................................................... 51,025
1,000 Deere & Company.......................................................... 76,625
700 Dover Corporation........................................................ 41,650
1,300 DSC Communications....................................................... 46,800
2,600 Emerson Electric Company................................................. 171,925
600 Grainger W W, Inc........................................................ 36,675
</TABLE>
11
<PAGE>
Mitchell Hutchins/Kidder, Peabody Asset Allocation Fund
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
COMMON STOCKS--(continued)
- --------------------------------------------------------------------------------
<TABLE><CAPTION>
NUMBER OF
SHARES VALUE
- ---------- -----------
<C> <S> <C>
MACHINERY ELECTRIC POLLUTION--(concluded)
1,300 Illinois Tool Works...................................................... $ 58,338
1,200 Ingersoll-Rand........................................................... 38,250
500 Johnson Controls, Inc.................................................... 24,875
300 Millipore Corporation.................................................... 15,937
600 Parker-Hannifin Corporation.............................................. 28,050
500 Raychem Corporation...................................................... 20,188
200 Thomas & Betts Corporation............................................... 13,325
500 Varity Corporation....................................................... 18,250
4,100 Westinghouse Electric Company............................................ 63,550
5,600 WMX Technologies, Inc.................................................... 147,700
-----------
1,153,150
-----------
METALS--1.00%
2,600 Alcan Aluminum Ltd....................................................... 63,050
2,000 Aluminum Co. of America.................................................. 78,000
700 Asarco, Inc.............................................................. 19,075
1,300 Bethlehem Steel Corporation.............................................. 20,313
1,100 Cyprus Minerals.......................................................... 29,700
1,700 Homestake Mining Company................................................. 26,350
1,400 Inco Ltd................................................................. 37,625
700 Inland Steel Industries, Inc............................................. 20,125
1,021 Newmont Mining........................................................... 36,884
1,000 NUCOR Corporation........................................................ 56,125
800 Phelps Dodge Corporation................................................. 43,600
2,800 Placer Dome, Inc......................................................... 57,050
700 Reynolds Metals.......................................................... 35,000
1,050 Worthington Industries................................................... 21,131
-----------
544,028
-----------
MINING--0.16%
200 American Barrick Resources............................................... 4,350
3,900 Barrick Gold Corporation................................................. 84,825
-----------
89,175
-----------
MISCELLANEOUS--1.91%
600 Alco Standard Corporation................................................ 40,800
2,600 Corning Inc.............................................................. 83,525
1,100 Dial Corporation......................................................... 27,500
800 Ecolab, Inc.............................................................. 18,500
1,000 Fluor Corporation........................................................ 48,750
500 General Signal Corporation............................................... 17,938
1,200 H & R Block, Inc......................................................... 45,150
500 Harnischfeger Industries, Inc............................................ 13,937
40 Harris Computer Systems*................................................. 710
500 Harris Corporation....................................................... 22,500
1,200 ITT Corporation.......................................................... 117,000
1,400 JWP, Inc................................................................. 0
4,900 Minnesota Mining & Manufacturing......................................... 268,275
600 National Service Industries, Inc......................................... 16,125
1,366 Pall Corporation......................................................... 27,491
1,600 Praxair, Inc............................................................. 36,200
</TABLE>
12
<PAGE>
Mitchell Hutchins/Kidder, Peabody Asset Allocation Fund
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
COMMON STOCKS--(continued)
- --------------------------------------------------------------------------------
<TABLE><CAPTION>
NUMBER OF
SHARES VALUE
- ---------- -----------
<C> <S> <C>
MISCELLANEOUS--(concluded)
1,100 Service Corp. International.............................................. $ 30,937
1,000 Sherwin Williams......................................................... 33,625
700 Teledyne, Inc............................................................ 16,187
400 Timken Company........................................................... 14,350
800 TRW, Inc................................................................. 52,600
900 Tyco Laboratories........................................................ 46,912
600 Western Atlas, Inc....................................................... 24,750
1,100 Williams Companies....................................................... 31,625
-----------
1,035,387
-----------
OIL & GAS--6.86%
1,100 Amerada Hess Corporation................................................. 53,900
5,700 Amoco Corporation........................................................ 337,725
700 Ashland Oil.............................................................. 22,662
1,900 Atlantic Richfield Company............................................... 208,288
7,600 Chevron Corporation...................................................... 361,000
14,100 Exxon Corporation........................................................ 902,400
600 Kerr-McGee Corporation................................................... 30,225
400 Louisiana Land/Exploration............................................... 13,850
4,600 Mobil Corporation........................................................ 400,200
3,600 Occidental Petroleum..................................................... 71,550
1,800 Oryx Energy Company...................................................... 19,800
500 Pennzoil Company......................................................... 23,688
3,000 Phillips Petroleum....................................................... 100,125
500 Pittston Company......................................................... 12,500
6,100 Royal Dutch Petroleum Company............................................ 683,962
1,200 Sun Company, Inc......................................................... 34,950
2,100 Tenneco, Inc............................................................. 95,550
3,000 Texaco, Inc.............................................................. 191,250
2,800 Unocal Corporation....................................................... 79,450
3,300 USX-Marathon Electric Group.............................................. 53,625
900 USX-US Steel Group, Inc.................................................. 29,925
-----------
3,726,625
-----------
OIL SERVICES--0.55%
1,600 Baker Hughes, Inc........................................................ 30,800
2,100 Dresser Industries, Inc.................................................. 43,313
1,300 Haliburton Company....................................................... 48,425
600 McDermott International, Inc............................................. 16,800
2,800 Schlumberger Ltd......................................................... 159,250
-----------
298,588
-----------
PAPER & PAPER PRODUCTS--0.37%
500 Federal Paper Board...................................................... 14,875
1,500 International Paper...................................................... 114,563
900 Scott Paper Company...................................................... 71,325
-----------
200,763
-----------
PRINTING & PUBLISHING--0.42%
1,800 Donnelley RR & Sons Company.............................................. 61,650
1,100 Dow Jones and Company.................................................... 38,912
600 Knight Ridder, Inc....................................................... 32,925
</TABLE>
13
<PAGE>
Mitchell Hutchins/Kidder, Peabody Asset Allocation Fund
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
COMMON STOCKS--(continued)
- --------------------------------------------------------------------------------
<TABLE><CAPTION>
NUMBER OF
SHARES VALUE
- ---------- -----------
<C> <S> <C>
PRINTING & PUBLISHING--(concluded)
600 McGraw-Hill.............................................................. $ 42,300
1,200 New York Times Company Class A........................................... 25,800
1,500 Times Mirror Company Class A............................................. 27,750
-----------
229,337
-----------
RESTAURANTS--0.50%
8,100 McDonalds Corporation.................................................... 269,325
-----------
RETAIL--4.72%
2,900 Albertson's, Inc......................................................... 89,175
1,700 American Stores Company.................................................. 41,650
1,100 Circuit City Stores...................................................... 23,788
800 Dayton Hudson............................................................ 56,400
1,964 Dean Witter Discover & Company........................................... 79,296
1,300 Dillard Department Stores Class A........................................ 35,750
1,700 Gap, Inc................................................................. 55,250
700 Giant Food Inc., Class A................................................. 16,625
5,300 Home Depot, Inc.......................................................... 237,838
2,700 JC Penney & Company...................................................... 115,762
5,300 K Mart Corporation....................................................... 67,575
1,400 Kroger Company........................................................... 36,750
4,200 Limited, Inc............................................................. 73,500
1,000 Liz Claiborne............................................................ 16,125
1,800 Lowe's Cos., Inc......................................................... 60,525
2,900 May Department Stores.................................................... 105,850
1,200 Melville Corporation..................................................... 39,000
400 Mercantile Stores, Inc................................................... 16,650
900 Nike, Inc. Class B....................................................... 64,687
1,000 Nordstrom, Inc........................................................... 42,250
2,308 Price Costco Inc......................................................... 31,446
900 Reebok International Ltd................................................. 32,963
1,000 Rite Aid Corporation..................................................... 24,750
500 Russell Corporation...................................................... 15,125
4,100 Sears, Roebuck & Company................................................. 201,925
1,000 Super Value Stores, Inc.................................................. 25,750
700 Tandy Corporation........................................................ 31,325
1,100 TJX Companies............................................................ 14,850
3,300 Toys-R-Us, Inc. *........................................................ 91,988
800 V.F. Corporation......................................................... 41,200
1,400 Walgreen Company......................................................... 66,150
26,700 Wal-Mart Stores, Inc..................................................... 634,125
900 WINN-DIXIE Stores........................................................ 50,400
1,600 Woolworth, F.W. & Company................................................ 24,400
-----------
2,560,843
-----------
SPECIALTY CHEMICALS--0.09%
800 Great Lakes Chemical Corporation......................................... 48,100
-----------
TELECOMMUNICATIONS--SERVICES--2.72%
5,700 Airtouch Communications.................................................. 155,325
2,000 Alltel Corporation....................................................... 57,250
6,300 Ameritech Corporation.................................................... 270,113
</TABLE>
14
<PAGE>
Mitchell Hutchins/Kidder, Peabody Asset Allocation Fund
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
COMMON STOCKS--(continued)
- --------------------------------------------------------------------------------
<TABLE><CAPTION>
NUMBER OF
SHARES VALUE
- ---------- -----------
<C> <S> <C>
TELECOMMUNICATIONS--SERVICES--(concluded)
10,900 GTE Corporation.......................................................... $ 363,787
7,900 MCI Communications Corporation........................................... 158,987
4,900 Pacific Telesis Group.................................................... 147,000
4,000 Sprint Corporation....................................................... 117,000
5,300 U S West, Inc............................................................ 205,375
-----------
1,474,837
-----------
TELEPHONE COMPANIES--3.68%
17,600 A T & T Corporation...................................................... 910,800
5,100 Bell Atlantic Corporation................................................ 273,487
5,700 Bellsouth Corporation.................................................... 336,300
4,900 NYNEX Corporation........................................................ 192,325
6,800 Southwest Bell Corporation............................................... 283,050
-----------
1,995,962
-----------
TIRES & RUBBER--0.17%
1,000 Cooper Tire and Rubber Company........................................... 28,000
1,800 Goodyear Tire & Rubber................................................... 66,375
-----------
94,375
-----------
TOBACCO--1.09%
9,700 Phillip Morris Companies, Inc............................................ 589,275
-----------
TOYS & SPORTING GOODS--0.11%
2,587 Mattel, Inc.............................................................. 57,884
-----------
TRANSPORTATION--1.30%
900 AMR Inc.................................................................. 55,013
1,000 Burlington Northern Inc.................................................. 56,000
900 Conrail Inc.............................................................. 49,725
1,200 CSX Corporation.......................................................... 93,300
600 Delta Air Lines, Inc..................................................... 34,800
600 Federal Express Corporation*............................................. 39,075
1,600 Norfolk Southern Corporation............................................. 105,800
500 Roadway Services......................................................... 27,125
900 Ryder Systems, Inc....................................................... 20,925
2,200 Santa Fe Pacific Gold Company............................................ 23,925
2,200 Santa Fe Southern Pacific................................................ 46,750
1,700 Southwest Airlines....................................................... 29,962
2,400 Union Pacific Corporation................................................ 125,400
-----------
707,800
-----------
<CAPTION>
UTILITIES--ELECTRIC--2.94%
<C> <S> <C>
2,100 American Electric Power.................................................. 71,138
1,700 Baltimore Gas & Electric................................................. 41,863
1,800 Carolina Power and Light................................................. 49,500
2,200 Central and South West................................................... 54,175
1,725 Cinergy Corporation...................................................... 42,694
2,700 Consolidated Edison Company.............................................. 74,588
1,700 Detroit Edison........................................................... 48,663
2,000 Dominion Resources....................................................... 76,000
</TABLE>
15
<PAGE>
Mitchell Hutchins/Kidder, Peabody Asset Allocation Fund
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
COMMON STOCKS--(concluded)
- --------------------------------------------------------------------------------
<TABLE><CAPTION>
NUMBER OF
SHARES VALUE
- ---------- -----------
<C> <S> <C>
UTILITIES--(concluded)
2,300 Duke Power............................................................... $ 90,275
2,600 Entergy Corporation...................................................... 58,175
2,100 FPL Group................................................................ 75,337
1,500 Houston Industries, Inc.................................................. 57,375
1,700 Niagara Mohawk Power Corporation......................................... 25,287
800 Northern States Power Company............................................ 36,200
1,800 Ohio Edison.............................................................. 37,800
5,000 Pacific Gas & Electric Company........................................... 128,125
3,300 PacifiCorp............................................................... 63,113
2,600 Peco Energy Company...................................................... 69,550
2,800 Public Service Enterprise Group.......................................... 81,550
5,200 SCE Corporation.......................................................... 85,150
6,900 Southern Company......................................................... 142,313
2,600 Texas Utilities Company.................................................. 85,475
2,500 Unicom Corporation....................................................... 63,750
1,200 Union Electric Company................................................... 45,450
-----------
1,603,546
-----------
UTILITIES--NATURAL GAS--0.53%
1,200 Coastal Corporation...................................................... 34,350
600 Columbia Gas System...................................................... 15,600
1,100 Consolidated Natural Gas................................................. 40,700
2,900 Enron Corporation........................................................ 95,700
600 Nicor, Inc............................................................... 14,850
1,000 Pacific Enterprises...................................................... 24,500
1,600 Panhandle Eastern........................................................ 36,000
1,000 Sonat, Inc............................................................... 29,000
-----------
290,700
-----------
Total Common Stocks (cost--$37,002,875).............................................. 40,472,219
-----------
</TABLE>
- --------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS--25.05%
- --------------------------------------------------------------------------------
<TABLE><CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATE
- ---------- -------- --------
<C> <S> <C> <C> <C>
$13,240 U. S. Treasury Notes (cost--$13,214,670).................. 11/30/99 7.75% 13,599,955
</TABLE>
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT--0.91%
- --------------------------------------------------------------------------------
<TABLE>
<C> <S> <C> <C> <C>
494 Repurchase Agreement dated 02/28/95 with Yamaichai
International, collateralized by $490,000 U.S. Treasury
Notes, 7.875%, due 08/15/01, proceeds: $494,083
(cost-$494,000)........................................... 03/01/95 6.08% 494,000
-----------
</TABLE>
<TABLE>
<S> <C>
Total Investments (cost--$50,711,545)--100.50% 54,566,174
Liabilities in excess of other assets--0.50% (269,458)
-----------
Net Assets--100.00%............................................................... $54,296,716
-----------
-----------
</TABLE>
- ------------
* Non--income producing security
See accompanying notes to financial statements
16
<PAGE>
Mitchell Hutchins/Kidder, Peabody Asset Allocation Fund
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
February 28, 1995 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost-$50,711,545)..................................... $54,566,174
Dividends and interest receivable............................................ 374,094
Receivable for shares of beneficial interest sold............................ 5,397
Deferred organization expenses............................................... 127,495
Other assets................................................................. 8,595
-----------
Total assets.............................................................. 55,081,755
-----------
LIABILITIES
Payable for shares of beneficial interest repurchased........................ 619,535
Payable to affiliates........................................................ 62,538
Payable to custodian......................................................... 1,741
Accrued expenses and other liabilities....................................... 101,225
-----------
Total liabilities......................................................... 785,039
-----------
NET ASSETS
Beneficial interest shares of $0.001 par value outstanding (unlimited amount
authorized)..................................................................... $48,597,553
Accumulated undistributed net investment income.............................. 134,274
Accumulated net realized losses from investments............................. 1,710,260
Net unrealized appreciation/depreciation of investments...................... 3,854,629
-----------
Net assets................................................................... $54,296,716
-----------
-----------
CLASS A:
Net assets................................................................... $ 1,703,318
-----------
Shares outstanding........................................................... 131,999
-----------
Net asset value and redemption value per share............................... $12.90
Maximum offering price per share (net asset value plus sales charge of 5.75%
of offering price).............................................................. $13.69
CLASS B:
Net assets................................................................... $49,780,357
-----------
Shares outstanding........................................................... 3,852,737
-----------
Net asset value, offering price and redemption value per share............... $12.92
CLASS C:
Net assets................................................................... $ 2,813,041
-----------
Shares outstanding........................................................... 217,724
-----------
Net asset value, offering price and redemption value per share............... $12.92
</TABLE>
See accompanying notes to financial statements.
17
<PAGE>
Mitchell Hutchins/Kidder, Peabody Asset Allocation Fund
- --------------------------------------------------------------------------------
Statement of Operations
For the Six Months Ended February 28, 1995 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (less foreign taxes)................................................ $ 754,420
Interest...................................................................... 248,868
-----------
1,003,288
-----------
EXPENSES:
Investment advisory fees...................................................... 147,758
Distribution fees-Class B..................................................... 202,940
Service fees-Class A.......................................................... 2,082
Service fees-Class B.......................................................... 67,647
Custody and accounting fees................................................... 130,453
Transfer agency fees.......................................................... 24,515
Legal and audit fees.......................................................... 22,824
Reports and notices to shareholders........................................... 12,806
Federal and state registration fees........................................... 16,892
Amortization of organizational expenses....................................... 24,943
Trustees' fees and expenses................................................... 4,489
Other expenses................................................................ 6,967
-----------
664,316
-----------
NET INVESTMENT INCOME............................................................ 338,972
-----------
REALIZED AND UNREALIZED GAINS (LOSSES) FROM INVESTMENT ACTIVITIES:
Net realized gains from investment and futures transactions................... 2,410,443
Net change in unrealized appreciation/depreciation of investments............. (2,128,654)
-----------
NET REALIZED AND UNREALIZED GAINS FROM INVESTMENT ACTIVITIES..................... 281,789
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............................. $ 620,761
-----------
-----------
</TABLE>
See accompanying notes to financial statements.
18
<PAGE>
Mitchell Hutchins/Kidder, Peabody Asset Allocation Fund
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE><CAPTION>
For the
Six Months Ended
February 28, For the
1995 Year Ended
(unaudited) August 31, 1994
---------------- ---------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income..................................... $ 338,972 $ 933,357
Net realized gains from investment transactions........... 2,410,443 3,552,185
Net change in unrealized appreciation/depreciation of
investments.................................................. (2,128,654) (3,258,058)
---------------- ---------------
620,761 1,227,484
---------------- ---------------
Net investment income included in prices of shares sold
and redeemed................................................. -- (8,456)
---------------- ---------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income-Class A............................. (16,449) (54,405)
Net investment income-Class B............................. (285,556) (877,002)
Net investment income-Class C............................. (39,936) (80,425)
Net realized long-term gains from investment
transations-Class A.......................................... (119,229) (12,343)
Net realized long-term gains from investment
transations-Class B.......................................... (3,841,032) (340,008)
Net realized long-term gains from investment
transations-Class C.......................................... (244,263) (14,210)
---------------- ---------------
(4,546,465) (1,378,393)
---------------- ---------------
]FROM BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from the sale of shares...................... 1,512,148 33,604,534
Cost of shares repurchased................................ (16,444,280) (80,306,605)
Proceeds from dividends reinvested........................ 4,503,769 1,365,790
---------------- ---------------
Net decrease in net assets derived from beneficial
interest transactions........................................ (10,428,363) (45,336,281)
---------------- ---------------
Net decrease in net assets................................ (14,354,067) (45,495,646)
NET ASSETS:
Beginning of period.......................................... 68,650,783 114,146,429
---------------- ---------------
End of period (including undistributed net investment income
of $134,274 and $137,243, respectively)..................... $ 54,296,716 $68,650,783
---------------- ---------------
---------------- ---------------
</TABLE>
See accompanying notes to financial statement.
19
<PAGE>
Mitchell Hutchins/Kidder, Peabody Asset Allocation Fund
- --------------------------------------------------------------------------------
Notes to Financial Statements--(unaudited)
- --------------------------------------------------------------------------------
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Mitchell Hutchins/Kidder, Peabody Asset Allocation Fund (formerly Kidder,
Peabody Asset Allocation Fund) is a series of the Mitchell Hutchins/Kidder,
Peabody Investment Trust (formerly Kidder, Peabody Investment Trust) and is
registered with the Securities and Exchange Commission under the Investment
Company Act of 1940, as amended, as an open-end, diversified investment company.
Organizational Matters--On May 10, 1993 the Fund adopted the Choice Pricing
SystemSM. Prior to May 10, 1993, the Fund issued only Class B shares; subsequent
to that date the Fund issued Class A, Class B and Class C shares. Each class
represents interests in the same assets of the Fund and the classes are
identical except for differences in their sales charge structure and ongoing
service and distribution charges. All classes of shares have equal rights as to
voting privileges, except that each class has exclusive voting rights with
respect to its distribution plan.
Valuation of Investments--Securities listed on national securities exchanges
are valued at the last sale price as of the close of business on the day the
securities are being valued, or lacking any sales, at the mean between closing
bid and asked prices. Over-the-counter securities are valued on the basis of the
last sale, if available, or if not, on the basis of the bid price at the close
of business on each day, or, if market quotations for those securities are not
readily available, at fair value, as determined in good faith by the Fund's
Trustees. Short-term obligations with maturities of 60 days or less are valued
at amortized cost.
Investment Transactions and Investment Income--Investment transactions are
recorded on a trade date. Realized gains and losses from investments are
calculated using the identified cost method. Dividend income is recorded on the
ex-dividend date. Interest income is recorded on an accrual basis. Discounts are
accreted and premiums are amortized on straight line basis as adjustments to
interest income and the identified cost of investments.
Income, expenses (excluding class-specific expenses) and realized/unrealized
gains/losses are allocated proportionately to each class of shares based upon
the relative net asset value of outstanding shares (or the value of
dividend-eligible shares, as appropriate) of each class at the beginning of the
day (after adjusting for current capital share activity of the respective
classes). Class-specific expenses are charged directly to the applicable class
of shares.
Using financial futures contracts involves various market risks. The maximum
amount at risk from the purchase of a futures contract is the contract value.
The Fund is subject to a number of guidelines which reduce this risk by seeking
to ensure that financial futures contracts are used for hedging purposes and not
for leverage. However, imperfect correlations between futures and the portfolio
securities being hedged or market disruptions do not normally permit full
control of these risks at all times. Futures contracts in which the Fund invests
do not represent exposure to default or other credit risk.
20
<PAGE>
Mitchell Hutchins/Kidder, Peabody Asset Allocation Fund
- --------------------------------------------------------------------------------
Notes to Financial Statements--(continued)
- --------------------------------------------------------------------------------
Repurchase Agreements--The Fund's custodian takes possession of the
collateral pledged for investment repurchase agreements. The value of the
collateral must be a minimum of 102% of the market value of the securities being
loaned, allowing for minor variations arising from marking to market of such
collateral. If the issuer defaults or if bankruptcy or regulatory proceedings
are commenced with respect to the issuer, the realization of the proceeds may be
delayed or limited.
Federal Tax Status--The Fund intends to distribute all of its taxable income
and to comply with the other requirements of the Internal Revenue Code
applicable to regulated investment companies. Accordingly, no provision for
federal income taxes is required. In addition, by distributing during each
calendar year substantially all of its net investment income, capital gains and
certain other amounts, if any, each Fund intends not to be subject to a federal
excise tax.
Dividends and Distributions--Dividends and distributions to shareholders are
recorded on the ex-dividend date. The Fund declares dividends on quarterly basis
from net investment income. Net capital gains, if any, will be distributed at
least annually, but the Fund may make more frequent distributions of such gains,
if necessary, to avoid income or excise taxes.
INVESTMENT ADVISER AND ADMINISTRATOR
The Fund has entered into an investment advisory and administration contract
("Advisory Contract") with Mitchell Hutchins Asset Management Inc. ("Mitchell
Hutchins"), a wholly owned subsidiary of PaineWebber Incorporated, under which
Mitchell Hutchins serves as investment adviser and administrator of the Fund.
In accordance with the Advisory Contract, Mitchell Hutchins receives
compensation from the Fund, computed daily and paid monthly, at the annual rate
of 0.50% of the Fund's average daily net assets on assets up to but not
including $250 million and 0.45% thereafter. At February 28, 1995, the Fund owed
Kidder Peabody Asset Management, Inc. ("KPAM"), the Fund's predecessor
investment adviser and administrator, $8,993 in investment advisory and
administration fees.
At a special meeting of shareholders that took place on April 13, 1995,
Mitchell Hutchins was appointed as investment adviser and administrator of the
Fund. The Fund pays the same fee for investment advisory and administration
services to Mitchell Hutchins as previously paid to KPAM, as described in the
Fund's prospectus. Mitchell Hutchins continues to manage the Fund in accordance
with the Fund's investment objective, policies and restrictions as stated in the
prospectus.
Investment advisory functions for the Fund were previously transferred from
KPAM to Mitchell Hutchins on an interim basis as a result of an asset purchase
transaction by and among Kidder, Peabody Group Inc., its parent, General
Electric Company, and Paine Webber Group Inc. That period began on February 13,
1995 and ended on April 13, 1995. At February 28, 1995, the Fund owed Mitchell
Hutchins $11,976 in investment advisory and administration fees.
In compliance with applicable state securities laws, Mitchell Hutchins will
reimburse each Fund if and to the extent that the aggregate operating expenses
in any fiscal year, exclusive of taxes, interest,
21
<PAGE>
Mitchell Hutchins/Kidder, Peabody Asset Allocation Fund
- --------------------------------------------------------------------------------
Notes to Financial Statements--(continued)
- --------------------------------------------------------------------------------
brokerage fees, distribution fees and extraordinary expenses, exceed limitations
imposed by various state regulations. Currently, the most restrictive limitation
applicable to the Fund is 2.5% of the first $30 million of average daily net
assets, 2.0% of the next $70 million and 1.5% of any excess over $100 million.
No expense reimbursement was required for the six months ended February 28,
1995.
DISTRIBUTION PLANS
Effective February 13, 1995, Mitchell Hutchins serves as the exclusive
distributor of the Fund's shares. Under separate plans of distribution, Class A
shares are sold subject to a front-end sales load and bear a service fee of
0.25% per annum of average class net assets. Class B shares are sold at net
asset value without a sales load and bear a distribution fee of 0.75% per annum
and a service fee of 0.25% per annum of average class net assets. The Fund pays
Mitchell Hutchins the service and distribution fees monthly. For these services
for the period ended February 13, 1995, Kidder, Peabody & Co. Incorporated, the
Fund's predecessor distributor, earned $250,508 in fees. At February 28, 1995,
$22,161 was payable to Mitchell Hutchins for the period February 13 to February
28, 1995. Mitchell Hutchins also receives the proceeds of any front-end sales
loads with respect to the purchase of Class A shares.
INVESTMENT IN SECURITIES
For federal income tax purposes, the cost of securities owned at February
28, 1995 was substantially the same as the cost of securities for financial
statement purposes.
At February 28, 1995, the components of the net unrealized appreciation of
investments were as follows:
<TABLE>
<S> <C>
Gross appreciation (investments having an excess of value over
cost).......................................................... $5,727,495
Gross depreciation (investments having an excess of cost over
value)......................................................... 1,872,866
----------
Net unrealized appreciation of investments..................... $3,854,629
----------
----------
</TABLE>
For the year ended February 28, 1995, total aggregate purchases and sales of
portfolio securities, excluding short-term securities, were as follows:
<TABLE>
<S> <C>
Purchases..................................................... $15,763,450
Sales......................................................... $32,932,001
</TABLE>
22
<PAGE>
Mitchell Hutchins/Kidder, Peabody Asset Allocation Fund
- --------------------------------------------------------------------------------
Notes to Financial Statements--(concluded)
- --------------------------------------------------------------------------------
BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue and unlimited number
of shares of beneficial, par value $.001 per share. Transactions in shares of
beneficial interest were as follows:
<TABLE><CAPTION>
CLASS A CLASS B CLASS C
--------------------- ------------------------ ---------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
-------- ----------- ---------- ------------ -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Six months ended February 28, 1995:
Shares sold............... 8,711 $ 109,408 63,727 $ 837,303 42,498 $ 565,437
Shares repurchased........ (18,482) (239,396) (1,115,474) (14,547,343) (128,726) (1,657,541)
Dividends reinvested in
additional Fund shares........ 11,058 135,563 334,267 4,089,281 22,698 278,925
-------- ----------- ---------- ------------ -------- -----------
Net increase (decrease)....... 1,287 $ 5,575 (717,480) $ (9,620,759) (63,530) $ (813,179)
-------- ----------- ---------- ------------ -------- -----------
-------- ----------- ---------- ------------ -------- -----------
Year ended August 31, 1994:
Shares sold............... 114,149 $ 1,535,843 2,174,958 $ 29,437,554 195,175 $ 2,631,137
Shares repurchased........ (210,808) (2,777,286) (5,680,673) (75,250,702) (170,866) (2,278,617)
Dividends reinvested in
additional Fund shares........ 4,593 61,769 89,768 1,210,049 6,985 93,972
-------- ----------- ---------- ------------ -------- -----------
Net increase (decrease)....... (92,066) $(1,179,674) (3,415,947) $(44,603,099) 31,294 $ 446,492
-------- ----------- ---------- ------------ -------- -----------
-------- ----------- ---------- ------------ -------- -----------
</TABLE>
23
<PAGE>
Mitchell Hutchins/Kidder, Peabody Asset Allocation Fund
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
Selected data for a share of beneficial interest outstanding throughout the
periods presented below:
<TABLE><CAPTION>
CLASS A
----------------------------------------------
FOR THE SIX
MONTHS ENDED FOR THE YEAR FOR THE PERIOD
FEBRUARY 28, ENDED MAY 10, 1993+
1995 AUGUST 31, TO AUGUST 31,
(UNAUDITED) 1994 1993
------------ ------------ --------------
<S> <C> <C> <C>
Net asset value, beginning of period.................. $ 13.78 $13.50 $12.90
------ ------ ------
Income from investment operations:
Net investment income................................ 0.12 0.24 0.08
Net realized and unrealized gains from investment
transactions....................................... 0.10 0.32 0.59
------ ------ ------
Total from investment operations...................... 0.22 0.56 0.67
------ ------ ------
Dividends and distributions:
Dividends from net investment income................. (0.13) (0.24) (0.07)
Distributions from net realized gains on
investments........................................... (0.97) (0.04) --
------ ------ ------
Total distributions................................... (1.10) (0.28) (0.07)
------ ------ ------
Net asset value, end of period........................ $ 12.90 $13.78 $13.50
------ ------ ------
------ ------ ------
Total return (1)...................................... 2.09% 4.21% 5.17%
------ ------ ------
------ ------ ------
Ratios/Supplemental Data:
Net assets, end of period (000's).................... $ 1,703 $1,801 $3,007
Ratio of expenses to average net assets.............. 1.58%* 1.13% 1.06%*
Ratio of net investment income to average net
assets................................................ 1.82%* 1.64% 1.71%*
Portfolio turnover................................... 26.11% 4.17% 0.42%
</TABLE>
- ------------
+ Commencement of offering of shares.
* Annualized
(1) Total return is calculated assuming a $1,000 investment in Fund shares on
the first day of each period reported, reinvestment of all dividends and
capital gain distributions at net asset value on the payable date, and a
sale at net asset value on the last day of each period reported. The figures
do not include sales charges; results of Class A would be lower if sales
charges were included. Total returns for periods of less than one year have
not been annualized.
24
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights--(concluded)
- --------------------------------------------------------------------------------
<TABLE><CAPTION>
CLASS B CLASS C
- -------------------------------------------------------- ------------------------------------------------
FOR THE SIX FOR THE SIX
MONTHS ENDED FOR THE PERIOD MONTHS ENDED FOR THE YEAR FOR THE PERIOD
FEBRUARY 28, FOR THE YEARS ENDED JULY 22, 1992+ FEBRUARY 28, ENDED MAY 10, 1993+
1995 AUGUST 31, TO AUGUST 31, 1995 AUGUST 31, TO AUGUST 31,
--------------------
(UNAUDITED) 1994 1993 1992 (UNAUDITED) 1994 1993
- ------------ ------- -------- -------------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
$ 13.78 $ 13.49 $ 12.12 $ 12.00 $ 13.79 $13.52 $12.90
- ------------ ------- -------- ------- ------ ------ ------
0.07 0.13 0.18 0.03 0.13 0.25 0.09
0.11 0.33 1.34 0.09 0.12 0.33 0.60
- ------------ ------- -------- ------- ------ ------ ------
0.18 0.46 1.52 0.12 0.25 0.58 0.69
- ------------ ------- -------- ------- ------ ------ ------
(0.07) (0.13) (0.15) -- (0.15) (0.27) (0.07)
(0.97) (0.04) -- -- (0.97) (0.04) --
- ------------ ------- -------- ------- ------ ------ ------
(1.04) (0.17) (0.15) -- (1.12) (0.31) (0.07)
- ------------ ------- -------- ------- ------ ------ ------
$ 12.92 $ 13.78 $ 13.49 $ 12.12 $ 12.92 $13.79 $13.52
- ------------ ------- -------- ------- ------ ------ ------
- ------------ ------- -------- ------- ------ ------ ------
1.72% 3.46% 12.61% 0.98% 2.30% 4.41% 5.30%
- ------------ ------- -------- ------- ------ ------ ------
- ------------ ------- -------- ------- ------ ------ ------
$ 49,780 $62,970 $107,761 $ 50,222 $ 2,813 $3,880 $3,379
2.33%* 1.88% 1.73% 1.75%* 1.33%* 0.88% 0.81%*
1.07%* 0.89% 1.04% 2.42%* 2.07%* 1.90% 1.96%*
26.11% 4.17% 0.42% -- 26.11% 4.17% 0.42%
</TABLE>
25
<PAGE>
<TABLE>
<S> <C>
PAINEWEBBER OFFERS A FAMILY OF 35 ---------------------------------------
FUNDS WHICH ENCOMPASS A DIVERSIFIED TRUSTEES
RANGE OF INVESTMENT GOALS. INVESTORS David J. Beaubien
MAY EXCHANGE THEIR FUND SHARES WITH William W. Hewitt, Jr.
OTHER FUNDS WITHIN THE FAMILY. Thomas R. Jordan
Frank P.L. Minard
PAINEWEBBER AND MITCHELL Carl W. Schafer
HUTCHINS/KIDDER, PEABODY ---------------------------------------
MUTUAL FUNDS
INCOME FUNDS PRINCIPAL OFFICERS
Frank P.L. Minard
. MH/KP ADJUSTABLE RATE GOVERNMENT FUND President
. MH/KP GLOBAL INCOME FUND T. Kirkham Barnaby
. MH/KP GOVERNMENT INCOME FUND Vice President
. MH/KP INTERMEDIATE FIXED INCOME FUND Victoria E. Schonfeld
. PW GLOBAL INCOME FUND Vice President
. PW HIGH INCOME FUND Dianne E. O'Donnell
. PW INVESTMENT GRADE INCOME FUND Vice President and Secretary
. PW SHORT-TERM U.S. GOVERNMENT INCOME FUND Julian F. Sluyters
. PW SHORT-TERM U.S. GOVERNMENT INCOME FUND Vice President and Treasurer
FOR CREDIT UNIONS
. PW STRATEGIC INCOME FUND
. PW U.S. GOVERNMENT INCOME FUND
---------------------------------------
. TAX-FREE INCOME FUNDS INVESTMENT ADVISER,
. MH/KP MUNICIPAL BOND FUND ADMINISTRATOR AND DISTRIBUTOR
. PW CALIFORNIA TAX-FREE INCOME FUND Mitchell Hutchins Asset Management Inc.
. PW MUNICIPAL HIGH INCOME FUND 1285 Avenue of the Americas
. PW NATIONAL TAX-FREE INCOME FUND New York, New York 10019
. PW NEW YORK TAX-FREE INCOME FUND ---------------------------------------
A Prospectus containing more complete
GROWTH FUNDS information for any of the funds listed
on the back cover can be obtained from
. MH/KP EMERGING MARKETS EQUITY FUND a PaineWebber investment executive or
. MH/KP GLOBAL EQUITY FUND correspondent firm. Read the prospectus
. MH/KP SMALL CAP GROWTH FUND carefully before investing.
. PW ATLAS GLOBAL GROWTH FUND
. PW BLUE CHIP GROWTH FUND The financial information included
. PW CAPITAL APPRECIATION FUND herein is taken from the records of the
. PW COMMUNICATIONS & TECHNOLOGY Fund without examination by independent
GROWTH FUND accountants who do not express an
. PW EUROPE GROWTH FUND opinion thereon.
. PW GROWTH FUND
. PW REGIONAL FINANCIAL GROWTH FUND This report is not to be used in
. PW SMALL CAP VALUE FUND connection with the offering of shares
of the Fund unless accompanied or
GROWTH AND INCOME FUNDS preceded by an effective prospectus.
. MH/KP ASSET ALLOCATION FUND
. MH/KP EQUITY INCOME FUND
. PW ASSET ALLOCATION FUND
. PW GROWTH AND INCOME FUND
. PW GLOBAL ENERGY FUND
. PW GLOBAL GROWTH AND INCOME FUND
. PW UTILITY INCOME FUND
PAINEWEBBER MONEY MARKET FUND
-------------
(C)1995 PaineWebber Incorporated
[Recycled Paper Logo] Printed on
Recycled Paper
</TABLE>
