<PAGE>
PAINEWEBBER AND
MITCHELL HUTCHINS/KIDDER, PEABODY MUTUAL FUNDS
PAINEWEBBER OFFERS A FAMILY OF 35 MUTUAL FUNDS WHICH ENCOMPASS A DIVERSIFIED
RANGE OF INVESTMENT GOALS. INVESTORS MAY EXCHANGE THEIR FUND SHARES WITH OTHER
FUNDS WITHIN THE FAMILY.
INCOME FUNDS
MH/KP Adjustable Rate Government Fund
MH/KP Global Fixed Income Fund
MH/KP Government Income Fund
MH/KP Intermediate Fixed Income Fund
PW Global Income Fund
PW High Income Fund
PW Investment Grade Income Fund
PW Short-Term U.S. Government Income Fund
PW Short-Term U.S. Government Income Fund for
Credit Unions
PW Strategic Income Fund
PW U.S. Government Income Fund
TAX-FREE INCOME FUNDS
MH/KP Municipal Bond Fund
PW California Tax-Free Income Fund
PW Municipal High Income Fund
PW National Tax-Free Income Fund
PW New York Tax-Free Income Fund
GROWTH FUNDS
MH/KP Emerging Markets Equity Fund
MH/KP Global Equity Fund
MH/KP Small Cap Growth Fund
PW Atlas Global Growth Fund
PW Blue Chip Growth Fund
PW Capital Appreciation Fund
PW Communications & Technology Growth Fund
PW Europe Growth Fund
PW Growth Fund
PW Regional Financial Growth Fund
PW Small Cap Value Fund
GROWTH AND INCOME FUNDS
MH/KP Asset Allocation Fund
MH/KP Equity Income Fund
PW 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' Logo]
MITCHELL HUTCHINS/
KIDDER, PEABODY
INTERMEDIATE FIXED
INCOME FUND
SEMI-ANNUAL REPORT
February 28, 1995
<PAGE>
- --------------------------------------------------------------------------------
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, which were implemented to moderate
economic expansion and forestall inflation, triggered stock and bond market
volatility throughout most of 1994. The Federal Reserve tightened another 0.5%
on February 1, 1995, increasing 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, and retail sales remained
brisk, sparked by strengthened consumer confidence and an upward trend in
personal income. 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 impact higher interest
rates will have on growth.
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 by shareholders 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
Intermediate Fixed Income Fund, the investment objective remains the same: to
seek maximum total return consisting primarily of current income, and,
secondarily, capital appreciation. The Fund pursues its objective by investing
in intermediate-term U.S. debt securities rated in the three highest categories
by recognized ratings agencies. GE Investment Management Incorporated ('GEIM')
remains as the Fund's sub-adviser. Robert Aufiero of GEIM remains the Fund's
portfolio manager and is responsible for the day-to-day management of the Fund.
PORTFOLIO REVIEW
During the six months ended February 28, 1995, fixed-income markets were
characterized by two distinct phases. From September through mid-November, the
markets were bearish, as inflationary fears dominated the marketplace. Long- and
short-term yields continued to rise and the prices of
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
existing bonds declined. However, by mid-November 1994, the bond market
recovered after the 0.75% increases in both the Federal Funds and discount
rates. The long-bond rallied and short-term rates increased, causing a
flattening of the yield curve. The Fund's total return for the six months ended
February 28, 1995 without deducting sales charges was 2.20% for Class A shares,
1.97% for Class B shares and 2.24% for Class C shares. The Fund's total return
for this period after deducting the maximum applicable sales charges was (0.11)%
for Class A shares, 1.97% for Class B shares and 2.24% for Class C shares. In
comparison, the Lehman Brothers Aggregate Bond Index return was 3.26% for the
same time period. The Fund underperformed the index primarily because the Fund's
average duration was shorter than that of the index. In addition, the index is
unmanaged and does not reflect the deduction of management fees and fund costs.
There is no question that 1994 was one of the most tumultuous years in recent
history for all fixed-income markets. Early in 1994 the Fund assumed a defensive
position in response to the uncertain interest rate environment, and the Fund's
average duration was shortened. This conservative positioning benefitted the
Fund during the bear market in the first half of the six month period, but it
also prevented the Fund from fully participating in the market rally. During the
period, the Fund continued to be overweighted in spread products -- corporate
bonds (29.8% of net assets as of February 28, 1995) and mortgage-backed
securities (41.8%) -- which outperformed Treasuries and benefitted Fund
performance.
Going forward, the Fund will continue to overweight corporate bonds and
mortgage-backed securities. We believe these sectors offer high compensation for
the level of risk as well as the possibility of low new issue supply, which
should be favorable. In terms of portfolio duration, the Fund's average duration
will be increased slightly to what we believe is a more market-neutral stance.
Our near-term outlook for fixed-income markets remains cautiously neutral. While
some economic indicators suggest that United States economic growth has slowed,
further Federal Reserve tightening cannot be ruled out.
Thank you for your participation in the Mitchell Hutchins/Kidder, Peabody
Intermediate Fixed Income Fund. We value you as a shareholder and as a client
and welcome any comments or questions you may have.
Sincerely,
<TABLE>
<S> <C>
FRANK P.L. MINARD ROBERT AUFIERO
FRANK P.L. MINARD ROBERT AUFIERO
Chairman, Portfolio Manager,
Mitchell Hutchins Asset Management Inc. Mitchell Hutchins/Kidder, Peabody
Intermediate Fixed Income Fund
</TABLE>
- --------------------------------------------------------------------------------
2
<PAGE>
MITCHELL HUTCHINS/KIDDER, PEABODY INTERMEDIATE FIXED INCOME FUND
- --------------------------------------------------------------------------------
RECENT PERFORMANCE RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
NET ASSET VALUE TOTAL RETURN (1)
------------------------------------------ -------------------------------------
12 MONTHS 6 MONTHS
02/28/95 08/31/94 02/28/94 ENDED 02/28/95 ENDED 02/28/95
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A Shares $11.60 $11.66 $12.17 0.49% 2.20%
- -------------------------------------------------------------------------------------------------------------------------------
Class B Shares 11.60 11.66 12.17 0.00 1.97
- -------------------------------------------------------------------------------------------------------------------------------
Class C Shares 11.60 11.66 12.16 0.73 2.24
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
PERFORMANCE SUMMARY CLASS A SHARES
<TABLE>
<CAPTION>
NET ASSET VALUE
------------------------ CAPITAL GAINS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID (2) RETURN (1)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
03/12/92 - 12/31/92 $ 12.00 $12.27 $-- $ 0.7617 8.74%
- -----------------------------------------------------------------------------------------------------------------------------------
1993 12.27 12.35 0.009 0.8666 7.90
- -----------------------------------------------------------------------------------------------------------------------------------
1994 12.35 11.31 -- 0.6003 (3.59)
- -----------------------------------------------------------------------------------------------------------------------------------
01/01/95 - 02/28/95 11.31 11.60 -- 0.0827 3.40
- -----------------------------------------------------------------------------------------------------------------------------------
Totals: $ 0.009 $ 2.3113
- -----------------------------------------------------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 02/28/95: 16.96%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
PERFORMANCE SUMMARY CLASS B SHARES
<TABLE>
<CAPTION>
NET ASSET VALUE
------------------------ CAPITAL GAINS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID (2) RETURN (1)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
05/10/93 - 12/31/93 $ 12.63 $12.35 $ 0.009 $ 0.5602 2.30%
- -----------------------------------------------------------------------------------------------------------------------------------
1994 12.35 11.31 -- 0.5417 (4.07)
- -----------------------------------------------------------------------------------------------------------------------------------
01/01/95 - 02/28/95 11.31 11.60 -- 0.0755 3.33
- -----------------------------------------------------------------------------------------------------------------------------------
Totals: $ 0.009 $ 1.1774
- -----------------------------------------------------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 02/28/95: 1.41%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
PERFORMANCE SUMMARY CLASS C SHARES
<TABLE>
<CAPTION>
NET ASSET VALUE
------------------------ CAPITAL GAINS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID (2) RETURN (1)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
05/10/93 - 12/31/93 $ 12.63 $12.35 $ 0.009 $ 0.6226 2.81%
- -----------------------------------------------------------------------------------------------------------------------------------
1994 12.35 11.30 -- 0.6293 (3.43)
- -----------------------------------------------------------------------------------------------------------------------------------
01/01/95 - 02/28/95 11.30 11.60 -- 0.0862 3.43
- -----------------------------------------------------------------------------------------------------------------------------------
Totals: $ 0.009 $ 1.3381
- -----------------------------------------------------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 02/28/95: 2.68%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Figures assume reinvestment of all dividends and capital gains distributions
at net asset value on the payable dates, and do not include sales charges;
results for Class A would be lower if sales charges were included.
(2) Certain distributions may contain short-term capital gains.
AVERAGE ANNUAL RETURN
<TABLE>
<CAPTION>
% RETURN WITHOUT DEDUCTING % RETURN AFTER DEDUCTING
MAXIMUM SALES CHARGE MAXIMUM SALES CHARGE
-------------------------- --------------------------
CLASS CLASS
-------------------------- --------------------------
A* B** C*** A* B** C***
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Twelve Months Ended 3/31/95 3.09% 2.63% 3.43% 0.80% 2.63% 3.43%
- ------------------------------------------------------------------------------------------------------------------------
Five Years Ended 3/31/95 N/A N/A N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------
Commencement of Operations Through 3/31/95`D' 5.43 0.99 1.72 4.64 0.99 1.72
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Maximum sales charge for Class A shares is 2.25% of the public offering
price. Class A shares bear ongoing 12b-1 service fees.
** Class B shares are sold without initial or contingent deferred sales
charges, but bear ongoing 12b-1 distribution and service fees.
*** Class C shares are sold without initial or contingent deferred sales charges
and are available exclusively to PaineWebber employees.
`D' Commencement of operations was March 12, 1992, 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.
3
<PAGE>
MITCHELL HUTCHINS/KIDDER, PEABODY INTERMEDIATE FIXED INCOME FUND
- --------------------------------------------------------------------------------
Portfolio of Investments
February 28, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Maturity Interest
(000's) Dates Rates Value
- --------- --------------------- ---------------- -----------
<C> <S> <C> <C> <C>
ASSET-BACKED SECURITIES -- 13.86%
$ 368 Advanta Credit Card.......................... 09/01/00 6.285% $ 367,654
210 American Express Master Trust................ 09/15/99 7.150 208,818
138 Charming Shoppes Master Trust................ 04/15/99 7.000 135,758
146 First Chicago Master Trust................... 01/15/99 6.295 145,588
69 First Deposit Master Trust................... 08/15/01 6.900 68,698
200 First USA Credit Card........................ 06/17/02 6.305 199,812
152 GMAC 1992-D Grantor Trust.................... 05/15/97 5.550 151,928
1,205 ITT Floorplan Receivables.................... 02/15/01 6.325 1,205,352
500 MBNA Master Credit Card...................... 03/15/00 6.320 499,531
200 Premier Auto Trust........................... 10/02/97 6.200 198,320
150 Sears Credit Account......................... 06/15/04 8.100 151,195
350 Standard Credit Card Services................ 04/07/08 7.250 335,671
-----------
Total Asset-Backed Securities (Cost -- $3,651,613)...... 3,668,325
-----------
CORPORATE NOTES -- 29.77%
250 American Home Products....................... 02/15/00 7.700 251,888
125 BCH Cayman Islands........................... 06/15/04 8.250 123,374
250 Bell Telephone Co. of Pennsylvania .......... 12/15/97 8.350 272,638
200 Boeing Co. .................................. 08/15/24 7.950 198,562
100 Boise Cascade Corp. ......................... 08/01/97 7.375 99,000
100 Carter Holt Harvey Ltd. ..................... 12/01/04 8.875 105,091
600 Countrywide Funding Corp..................... 07/15/02 8.250 598,560
500 Ferrovie Dello Stato ........................ 07/06/09 9.125 538,750
750 Ford Motor Credit............................ 03/13/95 to 05/15/99 6.875 to 8.875 747,420
1,100 General Motors Acceptance Corp............... 11/15/96 to 09/11/97 6.100 to 6.390 1,077,706
100 Great Lakes Power Inc. ...................... 12/01/99 8.900 102,412
125 Grand Metropolitan........................... 06/15/99 7.000 122,832
375 Hydro Quebec................................. 07/07/24 to 04/15/26 8.050 to 8.250 362,775
250 ITT Financial Corp........................... 11/01/04 8.350 251,240
800 Lehman Brothers.............................. 01/15/19 8.050 792,000
235 Long Island Lighting Co. .................... 07/15/19 8.900 198,342
125 New England Telephone & Telegraph Co. ....... 11/15/96 7.875 130,194
550 News America Holdings Inc. .................. 12/15/01 to 10/15/12 10.125 to 12.000 601,144
100 Nippon Telegraph & Telephone Corp. .......... 07/27/98 9.500 106,149
550 Paine Webber Group Inc. ..................... 03/11/97 8.760 561,941
150 Petroleos Mexicanos.......................... 03/08/99 5.562* 127,500
200 Sears Roebuck & Co. ......................... 02/03/12 10.000 228,328
150 Taubman Realty Group Ltd..................... 11/03/97 8.000* 149,486
125 Time Warner Entertertainment Co. ............ 05/01/12 10.150 133,087
-----------
Total Corporate Notes (Cost -- $8,188,033).............. 7,880,419
-----------
</TABLE>
4
<PAGE>
MITCHELL HUTCHINS/KIDDER, PEABODY INTERMEDIATE FIXED INCOME FUND
- --------------------------------------------------------------------------------
Portfolio of Investments (continued)
February 28, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Maturity Interest
(000's) Dates Rates Value
- --------- --------------------- ---------------- -----------
<C> <S> <C> <C> <C>
MORTGAGE-BACKED SECURITIES -- 41.81%
FEDERAL HOME LOAN MORTGAGE CORPORATION CERTIFICATES -- 20.20%
$ 698 FHLMC........................................ 12/01/00 6.000% $ 663,535
1,218 FHLMC........................................ 04/01/09 6.500 1,157,576
2,074 FHLMC........................................ 04/01/22 to 3/25/24 7.000 2,071,585
408 FHLMC........................................ 11/01/99 7.500 408,652
165 FHLMC........................................ 01/15/20 7.950 165,627
326 FHLMC........................................ 02/15/20 8.000 324,277
247 FHLMC........................................ 04/01/01 8.750 248,354
300 FHLMC........................................ 06/01/02 9.250 308,418
-----------
Total Federal Home Loan Mortgage Corporation
Certificates (Cost -- $5,312,249)..................... 5,348,024
-----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION CERTIFICATES -- 6.84%
194 FNMA......................................... 04/17/10 6.250 168,198
396 FNMA......................................... 08/01/20 to 10/25/24 6.500 355,879
311 FNMA......................................... 07/01/17 to 03/25/23 7.000 288,609
763 FNMA......................................... 02/01/14 to 06/01/23 7.500 744,588
125 FNMA......................................... 01/01/25 8.000 124,500
128 FNMA......................................... 04/01/17 8.500 129,562
-----------
Total Federal National Mortgage Association Certificates
(Cost -- $1,826,180).................................. 1,811,336
-----------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION CERTIFICATES -- 10.58%
313 GNMA......................................... 07/15/08 6.500 297,041
509 GNMA......................................... 01/15/99 to 05/15/23 7.000 481,614
1,298 GNMA......................................... 01/15/99 to 02/20/25 7.500 1,322,826
297 GNMA......................................... 02/15/23 to 03/15/23 8.500 302,124
382 GNMA......................................... 10/15/16 to 05/15/18 9.000 397,188
-----------
Total Government National Mortgage Association
Certificates (Cost -- $2,771,998)..................... 2,800,793
-----------
COLLATERALIZED MORTGAGE OBLIGATIONS -- 4.19%
45 FNMA, Trust 1993, Class C.................... 02/25/23 0.000** 20,329
895 Collateralized Mortgage Obligation Trust..... 01/10/17 8.000 871,077
5,119 Prudential Home Mortgage Securities, Series
1994, Class A-9............................ 04/25/24 10.50*** 25,081
1,626 Prudential Home Mortgage Securities, Series
1994, Class A-11........................... 02/25/24 11.00*** 13,495
3,885 Prudential Home Mortgage Securities, Series
1993, Class A-38........................... 01/25/24 11.00*** 62,554
118 Salomon Brothers Mortgage Securities, Series
1984, Class Z.............................. 11/01/12 8.125 116,688
-----------
Total Collateralized Mortgage Obligations
(Cost -- $1,171,047).................................. 1,109,224
-----------
Total Mortgage-Backed Securities
(Cost -- $11,081,474)................................. 11,069,377
-----------
</TABLE>
5
<PAGE>
MITCHELL HUTCHINS/KIDDER, PEABODY INTERMEDIATE FIXED INCOME FUND
- --------------------------------------------------------------------------------
Portfolio of Investments (concluded)
February 28, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Maturity Interest
(000's) Dates Rates Value
- --------- --------------------- ---------------- -----------
<C> <S> <C> <C> <C>
U.S. GOVERNMENT OBLIGATIONS -- 16.34%
$ 3,740 U.S. Treasury Bonds (Cost -- $4,237,514)..... 02/15/03 to 02/15/25 6.250 to 12.500 $ 4,324,549
-----------
DISCOUNT NOTES -- 10.16%
1,100 Federal Home Loan Bank....................... 03/03/95 5.870 1,099,643
1,000 Federal Home Loan Bank....................... 03/02/95 5.840 999,837
590 Union Bank of Switzerland.................... 03/01/95 6.100 590,000
-----------
Total Discount Notes (Cost -- $2,689,480)............... 2,689,480
-----------
REPURCHASE AGREEMENT -- 3.51%
930 State Street Bank and Trust Company, dated
02/28/95, collateralized by $890,000 U.S.
Treasury Notes, 8.875%, due 2/15/99;
proceeds: $930,155 (Cost -- $930,000)...... 03/01/95 6.000 930,000
-----------
Total Investments (Cost -- $30,778,114) -- 115.45%...... 30,562,150
OUTSTANDING CALL OPTION WRITTEN
U.S. Treasury Notes, March '95 @ $98 (premium
received $1,203) -- (.01)%............................ (2,922)
-----------
Total investments net of outstanding call
option -- 115.44%....................................... 30,559,228
Liabilities in excess of other assets -- (15.44)%....... (4,087,318)
-----------
Net Assets -- 100%...................................... $26,471,910
-----------
-----------
</TABLE>
- ------------
* Adjustable rate security.
** Principal only security. This security entitles the holder to receive
principal payments from an underlying pool of mortgages. High prepayments
return principal faster than expected and cause the yield to increase. Low
prepayments return principal more slowly than expected and cause the yield
to decrease.
*** Interest only security. This security entitles the holder to receive
interest payments from an underlying pool of mortgages. The risk associated
with this security is related to the speed of principal paydowns. High
prepayments would result in a smaller amount of interest being received and
cause the yield to decrease. Low prepayments would result in a greater
amount of interest being received and cause the yield to increase.
See accompanying notes to financial statements
6
<PAGE>
MITCHELL HUTCHINS/KIDDER, PEABODY INTERMEDIATE FIXED INCOME FUND
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
February 28, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments in securities, at value (cost -- $30,778,114)....................................... $30,562,150
Cash............................................................................................ 18,635
Receivable for securities sold.................................................................. 2,230,497
Interest receivable............................................................................. 366,295
Receivable for beneficial interest sold......................................................... 2,678
Other........................................................................................... 91,352
-----------
Total assets................................................................................ 33,271,607
-----------
LIABILITIES
Cash deposits for securities loaned............................................................. 3,509,844
Payable for investments purchased............................................................... 3,106,571
Accrued expenses................................................................................ 70,479
Dividends payable............................................................................... 55,066
Payable for beneficial interest repurchased..................................................... 35,093
Payable to affiliates........................................................................... 19,722
Written call option outstanding, at value (premium received $1,203)............................. 2,922
-----------
Total liabilities........................................................................... 6,799,697
-----------
NET ASSETS
Beneficial interest shares of $0.001 par value outstanding...................................... 29,343,298
Accumulated net realized capital losses from investment activities.............................. (2,653,705)
Net unrealized depreciation on investments and options.......................................... (217,683)
-----------
Net assets applicable to shares outstanding..................................................... $26,471,910
-----------
-----------
CLASS A:
Net assets...................................................................................... $22,903,556
-----------
Shares outstanding.............................................................................. 1,973,759
-----------
Net asset value and redemption value per share.................................................. $11.60
------
------
Maximum offering price per share (net asset value plus sales charge
of 2.25% of offering price)................................................................... $11.87
------
------
CLASS B:
Net assets...................................................................................... $ 2,122,269
-----------
Shares outstanding.............................................................................. 182,891
-----------
Net asset value, offering price and redemption value per share.................................. $11.60
------
------
CLASS C:
Net assets...................................................................................... $ 1,446,085
-----------
Shares outstanding.............................................................................. 124,675
-----------
Net asset value, offering price and redemption value per share.................................. $11.60
------
------
</TABLE>
See accompanying notes to financial statements
7
<PAGE>
MITCHELL HUTCHINS/KIDDER, PEABODY INTERMEDIATE FIXED INCOME FUND
- --------------------------------------------------------------------------------
Statement of Operations
For the Six Months Ended February 28, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest......................................................................................... $1,161,017
----------
EXPENSES:
Investment advisory and administration........................................................... 110,465
Service fees -- Class A.......................................................................... 34,957
Service and distribution fees -- Class B......................................................... 8,949
Custody and accounting........................................................................... 28,099
Amortization of organization expenses............................................................ 17,764
Legal and audit.................................................................................. 17,210
Transfer agency and service fees................................................................. 15,548
Reports and notices to shareholders.............................................................. 15,276
Federal and state registration................................................................... 14,400
Trustees' fees and expenses...................................................................... 5,002
Other............................................................................................ 2,167
----------
Total expenses................................................................................... 269,837
----------
NET INVESTMENT INCOME................................................................................ 891,180
----------
REALIZED AND UNREALIZED GAINS (LOSSES) FROM INVESTMENT ACTIVITIES:
Net realized losses from investment transactions and options..................................... (1,407,398)
Net change in unrealized appreciation/depreciation of investments and options.................... 965,097
----------
NET REALIZED AND UNREALIZED GAINS (LOSSES) FROM INVESTMENT ACTIVITIES................................ (442,301)
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................................. $ 448,879
----------
----------
</TABLE>
See accompanying notes to financial statements
8
<PAGE>
MITCHELL HUTCHINS/KIDDER, PEABODY INTERMEDIATE FIXED INCOME FUND
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the For the
Six Months Ended Year Ended
February 28, 1995 August 31, 1994
----------------- ---------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income.................................................. $ 891,180 $ 2,358,587
Net realized losses from investment transactions and options........... (1,407,398) (1,080,046)
Net change in unrealized appreciation/depreciation of investments and
options.............................................................. 965,097 (2,781,878)
------------- --------------
Net increase (decrease) in net assets resulting from operations........ 448,879 (1,503,337)
------------- --------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income -- Class A....................................... (784,700) (2,152,026)
Net investment income -- Class B....................................... (61,085) (126,577)
Net investment income -- Class C....................................... (45,395) (79,984)
Net realized capital gains -- Class A.................................. -- (861,874)
Net realized capital gains -- Class B.................................. -- (49,787)
Net realized capital gains -- Class C.................................. -- (27,420)
------------- --------------
Total dividends and distributions to shareholders...................... (891,180) (3,297,668)
------------- --------------
FROM BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from the sale of beneficial interest...................... 674,760 9,963,505
Proceeds from dividends reinvested..................................... 582,245 2,498,504
Cost of beneficial interest repurchased................................ (13,040,745) (29,198,771)
------------- --------------
Net decrease in net assets from beneficial interest transactions....... (11,783,740) (16,736,762)
------------- --------------
Total decrease in net assets........................................... (12,226,041) (21,537,767)
NET ASSETS:
Beginning of period.................................................... 38,697,951 60,235,718
------------- --------------
End of period.......................................................... $ 26,471,910 $ 38,697,951
------------- --------------
------------- --------------
</TABLE>
See accompanying notes to financial statements
9
<PAGE>
MITCHELL HUTCHINS/KIDDER, PEABODY INTERMEDIATE FIXED INCOME FUND
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Mitchell Hutchins/Kidder, Peabody Intermediate Fixed Income Fund (formerly
Kidder, Peabody Intermediate Fixed Income Fund) (the 'Fund') is registered under
the Investment Company Act of 1940, as amended, as a diversified, open-end
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 A shares;
subsequent to that date the Fund issued Class A, Class B and Class C shares.
Each class represents interests in the same assets of the Fund and the classes
are identical except for differences in their sales charge structure and ongoing
service and distribution charges. All classes of shares have equal rights as to
voting privileges, except that each class has exclusive voting rights with
respect to its distribution plan.
Valuation of Investments -- The Fund's investments are valued at market
value or, in the absence of a market value, at fair value as determined by or
under the direction of the Trustees. The value of each U.S. Government security
for which quotations are available is based on the average of the quoted bid and
asked prices. An independent pricing service is used to determine valuations for
normal institutional-size trading units of securities. Options which are traded
on exchanges are valued at their last sales price as of the close of such
exchanges. Futures are valued daily using the last sales price as of the close
of trading on the Chicago Board of Trade. Short-term obligations with maturities
of 60 days or less are valued at amortized cost. The ability of the issuers of
the debt securities held by the Fund to meet their obligations may be affected
by economic developments, including those particular to a specific industry or
region.
Repurchase Agreements -- The Fund's custodian takes possession of the
collateral pledged for investments in repurchase agreements. The underlying
collateral is valued daily on a mark-to-market basis to ensure that the value,
including accrued interest, is at least equal to the repurchase price. In the
event of default of the obligation to repurchase, the Fund has the right to
liquidate the collateral and apply the proceeds in satisfaction of the
obligation. Under certain circumstances, in the event of default or bankruptcy
by the other party to the agreement, realization and/or retention of the
collateral may be subject to legal proceedings.
Investment Transactions and Investment Income -- Investment transactions
are recorded as of the trade date. Realized gains and losses are determined on
the identified cost basis. Interest income is earned from settlement date and is
recognized on an accrual basis. Income and Fund-level expenses are allocated to
each class on a pro-rata basis based upon each class' daily settled net assets.
Class-specific expenses are charged directly to each class.
Federal Tax Status -- It is the Fund's policy to continue to comply with
the requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute substantially all of its taxable income to its
shareholders. Accordingly, no Federal income tax provision is required. In
addition, by distributing during each calendar year substantially all of its net
10
<PAGE>
MITCHELL HUTCHINS/KIDDER, PEABODY INTERMEDIATE FIXED INCOME FUND
- --------------------------------------------------------------------------------
Notes to Financial Statements -- (continued)
- --------------------------------------------------------------------------------
investment income, capital gains and certain other amounts, if any, the Fund
intends not to be subject to a Federal excise tax.
Dividends and Distributions -- Dividends and distributions to shareholders
are recorded on the ex-dividend date. The Fund declares dividends on a daily
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. The amount of dividends
and distributions are determined in accordance with federal income tax
regulations, which may differ from generally accepted accounting principles.
These 'book/tax' differences are considered either temporary or permanent in
nature. To the extent these differences are permanent in nature, such amounts
are reclassified within the capital accounts based on their federal tax-basis
treatment; temporary differences do not require reclassification. Dividends and
distributions that exceed net investment income and net realized capital gains
for financial reporting purposes but not for tax purposes are reported as
dividends in excess of net investment income or distributions in excess of net
realized capital gains. To the extent they exceed net investment income and net
realized capital gains for tax purposes, they are reported as distributions of
paid-in-capital.
Option Writing/Purchasing -- The Fund may write options to increase its'
income or to hedge a portion of its' portfolio. When the Fund writes a call or
put option, an amount equal to the premium received is included in the Fund's
statement of assets and liabilities as an asset and an equivalent liability. The
amount of the liability is subsequently 'marked to market' to reflect the
current market value of the option written. If an option which the Fund has
written expires on its stipulated date, the Fund realizes a gain in the amount
of the premium originally received, and the liability related to such option is
extinguished. If the Fund enters into a closing purchase transaction, it
realizes a gain or loss determined by the difference between the premium
received and the cost of the closing transaction. If a call option which the
Fund has written is exercised, the Fund realizes a gain or loss from the sale of
the underlying security and the proceeds from such sale are increased by the
premium originally received. If a put option which the Fund has written is
exercised, the amount of the premium originally received reduces the cost of the
security that the Fund purchases upon exercise of the option. As the writer of
an option, the Fund may have no control over whether the underlying securities
are sold (called) or purchased (put) and as a result bears the market risk of an
unfavorable change in price of the security underlying the written option.
The Fund may purchase a call or put option to hedge against adverse market
shifts. The premium paid by the Fund for the purchase of a call or put option is
included in the Fund's statement of assets and liabilities as an investment and
subsequently 'marked to market' to reflect the current market value of the
option purchased. If a call or put option which the Fund has purchased expires
on the stipulated expiration date, the Fund realizes a loss in the amount of the
cost of the option. If the Fund enters into a closing sale transaction, it
realizes a gain or loss, depending on whether the proceeds from the sale are
greater or less than the cost of the option. If
11
<PAGE>
MITCHELL HUTCHINS/KIDDER, PEABODY INTERMEDIATE FIXED INCOME FUND
- --------------------------------------------------------------------------------
Notes to Financial Statements -- (continued)
- --------------------------------------------------------------------------------
the Fund exercises a put option, it realizes a gain or loss from the sale of the
underlying security and the proceeds from such sale are decreased by the premium
originally paid. If the Fund exercises a call option, the cost of the security
that the Fund purchases upon exercise is increased by the premium originally
paid. Certain risks may arise upon writing or purchasing options from the
potential inability of counterparties to meet the terms of the options.
Futures Contracts -- A futures contract is an agreement between two parties
to buy and sell a security for a set price on a future date. Initial margin
deposits are made upon entering into futures contracts and can be either cash or
securities. During the period the futures contract is open changes in the value
of the contract are recognized as unrealized gains or losses by 'marking to
market' on a daily basis to reflect the market value of the contract at the end
of each day's trading. Variation margin payments are made or received, depending
upon whether unrealized gains or losses are incurred. When the contract is
closed, the Fund records a realized gain or loss equal to the difference between
the proceeds from (or cost of) the closing transaction and the Fund's basis in
the contract.
The Fund invests in financial futures contracts solely for the purpose of
hedging its existing portfolio securities against fluctuations in value caused
by changes in prevailing market interest rates. Should interest rates move
unexpectedly, the Fund may not achieve the anticipated benefits of the financial
futures contracts and may realize a loss. The use of futures transactions
involves the risk of imperfect correlation in the movement of the futures
contracts and the underlying hedged asset.
Securities Lending -- The Fund may lend securities to well-known and
recognized U.S. and foreign brokers, dealers and banks. The Fund's loans of
securities will be collateralized by cash, letters of credit or government
securities. The cash or instruments collateralizing the Fund's loans of
securities will be maintained at all times in a segregated account with the
Fund's custodian, or with a designated sub-custodian, in an amount at least
equal to the current market value of the loaned securities.
INVESTMENT ADVISER AND ADMINISTRATOR
The Fund's investment adviser and administrator receives compensation from
the Fund. Fees paid by the Fund for investment advisory and administration
services are payable monthly, and calculated and accrued daily by applying an
annual rate of 0.70% to the net assets of the Fund, determined at the close of
business each day. At February 28, 1995, the Fund owed Kidder Peabody Asset
Management, Inc. ('KPAM'), the Fund's predecessor investment adviser and
administrator, $6,069 in investment advisory and administration fees.
At a special meeting of shareholders that took place on April 13, 1995,
Mitchell Hutchins Asset Management Inc. ('Mitchell Hutchins'), a wholly owned
subsidiary of PaineWebber Incorporated, was appointed as investment adviser and
administrator of the Fund and GE
12
<PAGE>
MITCHELL HUTCHINS/KIDDER, PEABODY INTERMEDIATE FIXED INCOME FUND
- --------------------------------------------------------------------------------
Notes to Financial Statements -- (continued)
- --------------------------------------------------------------------------------
Investment Management Incorporated ('GEIM') was appointed as the Fund's
sub-adviser. 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 (not the Fund) pays GEIM a
fee for sub-advisory services at the annual rate of 0.50% of the Fund's average
net assets. Mitchell Hutchins and GEIM continue 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 $8,048 in investment advisory and administration fees.
In compliance with applicable state securities laws, the Fund's investment
adviser will reimburse the Fund if and to the extent that the aggregate
operating expenses in any fiscal year, exclusive of taxes, interest, 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 year 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 0.50% per annum
and a service fee of 0.25% per annum of average class net assets. The Fund pays
the service and distribution fees monthly. For these services for the period
ended February 13, 1995, Kidder, Peabody & Co. Inc., the Fund's predecessor
distributor, earned $38,301 in fees. At February 28, 1995, $5,605 was payable to
Mitchell Hutchins for the period February 13 to February 28, 1995. The
distributor also receives the proceeds of any front-end sales loads with respect
to the purchase of Class A shares.
INVESTMENTS IN SECURITIES
At February 28, 1995, the value of securities loaned was $3,516,955 and was
collateralized by cash of $3,509,844.
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.
13
<PAGE>
MITCHELL HUTCHINS/KIDDER, PEABODY INTERMEDIATE FIXED INCOME FUND
- --------------------------------------------------------------------------------
Notes to Financial Statements -- (concluded)
- --------------------------------------------------------------------------------
At February 28, 1995, the components of the net unrealized depreciation of
investments were as follows:
<TABLE>
<S> <C>
Gross depreciation (investments having an excess of cost over value)............ $(507,661)
Gross appreciation (investments having an excess of value over cost)............ 289,978
---------
Net unrealized depreciation of investments...................................... $(217,683)
---------
---------
</TABLE>
For the period ended February 28, 1995, total aggregate purchases and sales
of portfolio securities, excluding short-term securities, were as follows:
<TABLE>
<S> <C>
Purchases.............................................................. $30,097,066
Sales.................................................................. $41,752,402
</TABLE>
SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest, consisting of several classes, 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>
For the six months ended February 28,
1995:
Shares sold............................ 12,225 $ 138,648 40,299 $ 463,135 6,396 $ 72,977
Dividends reinvested in additional Fund
shares............................... 43,441 494,323 4,209 47,888 3,521 40,034
Shares repurchased..................... (1,016,693) (11,550,241) (101,407) (1,156,104) (29,395) (334,400)
---------- ------------ -------- ----------- ------- ----------
Net decrease....................... (961,027) $(10,917,270) (56,899) $ (645,081) (19,478) $ (221,389)
---------- ------------ -------- ----------- ------- ----------
---------- ------------ -------- ----------- ------- ----------
For the year ended August 31, 1994:
Shares sold............................ 452,513 $ 5,600,161 233,486 $ 2,887,987 120,023 $1,475,357
Dividends reinvested in additional Fund
shares............................... 184,168 2,245,936 12,288 148,583 8,593 103,985
Shares repurchased..................... (2,197,635) (26,682,102) (138,949) (1,636,839) (73,435) (879,830)
---------- ------------ -------- ----------- ------- ----------
Net increase (decrease)............ (1,560,954) $(18,836,005) 106,825 $ 1,399,731 55,181 $ 699,512
---------- ------------ -------- ----------- ------- ----------
---------- ------------ -------- ----------- ------- ----------
</TABLE>
14
<PAGE>
MITCHELL HUTCHINS/KIDDER, PEABODY INTERMEDIATE FIXED INCOME FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
Selected data for a share of beneficial interest outstanding throughout
each period is presented below:
<TABLE>
<CAPTION>
CLASS A
------------------------------------------------------------
SIX MONTHS PERIOD
ENDED YEAR ENDED YEAR ENDED ENDED
FEBRUARY 28, AUGUST 31, AUGUST 31, AUGUST 31,
1995 1994 1993 1992`D'
------------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net asset value, beginning of period................ $11.66 $12.77 $12.56 $12.00
------------ ---------- ---------- ----------
Increase (decrease) from investment operations:
Net investment income............................... 0.32 0.57 0.74 0.39
Net realized and unrealized gains (losses) from
investment transactions........................... (0.06) (0.89) 0.30 0.56
------------ ---------- ---------- ----------
Net increase (decrease) from investment
operations........................................ 0.26 (0.32) 1.04 0.95
------------ ---------- ---------- ----------
Less dividends and distributions to shareholders
from:
Net investment income............................... (0.32) (0.57) (0.74) (0.39)
Net realized capital gains.......................... -- (0.22) (0.09) --
------------ ---------- ---------- ----------
Total dividends and distributions................... (0.32) (0.79) (0.83) (0.39)
------------ ---------- ---------- ----------
Net asset value, end of period...................... $11.60 $11.66 $12.77 $12.56
------------ ---------- ---------- ----------
------------ ---------- ---------- ----------
Total investment return#............................ 2.20% (2.62)% 8.80% 17.02%
------------ ---------- ---------- ----------
------------ ---------- ---------- ----------
Ratios/Supplemental Data:
Net assets, end of period (000's)................... $ 22,904 $ 34,222 $ 57,402 $ 48,632
Ratios of expenses, net of reimbursement, to average
net assets........................................ 2.06%* 1.46% 1.08% 0.40%*
Ratios of expenses, before reimbursement from
adviser, to average net assets.................... 2.06%* 1.46% 1.31% 1.63%*
Ratios of net investment income to average net
assets............................................ 5.72%* 4.69% 5.73% 6.76%*
Portfolio turnover rate............................. 109.31% 279.07% 148.92% 33.03%
</TABLE>
- ------------
`D' From March 12, 1992 (commencement of offering of shares) to August 31,
1992.
`D'`D' From May 10, 1993 (commencement of offering of shares) to August 31,
1993.
* Annualized
# Total investment return is calculated assuming a $1,000 investment on the
first day of each period reported, reinvestment of all dividends and
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 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.
15
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS B CLASS C
- -------------------------------------------- --------------------------------------------
SIX MONTHS YEAR PERIOD SIX MONTHS YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED
FEBRUARY 28, AUGUST 31, AUGUST 31, FEBRUARY 28, AUGUST 31, AUGUST 31,
1995 1994 1993`D'`D' 1995 1994 1993`D'`D'
- ------------ ---------- ---------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
$11.66 $12.77 $12.63 $11.66 $12.76 $12.63
- ------------ ---------- ---------- ------------ ---------- ----------
0.29 0.51 0.19 0.33 0.60 0.22
(0.06) (0.89) 0.14 (0.06) (0.88) 0.13
- ------------ ---------- ---------- ------------ ---------- ----------
0.23 (0.38) 0.33 0.27 (0.28) 0.35
- ------------ ---------- ---------- ------------ ---------- ----------
(0.29) (0.51) (0.19) (0.33) (0.60) (0.22)
-- (0.22) -- -- (0.22) --
- ------------ ---------- ---------- ------------ ---------- ----------
(0.29) (0.73) (0.19) (0.33) (0.82) (0.22)
- ------------ ---------- ---------- ------------ ---------- ----------
$11.60 $11.66 $12.77 $11.60 $11.66 $12.76
- ------------ ---------- ---------- ------------ ---------- ----------
- ------------ ---------- ---------- ------------ ---------- ----------
1.97% (3.11)% 8.53% 2.24% (2.30)% 9.04%
- ------------ ---------- ---------- ------------ ---------- ----------
- ------------ ---------- ---------- ------------ ---------- ----------
$ 2,122 $ 2,796 $ 1,698 $ 1,446 $ 1,680 $ 1,136
2.57%* 1.96% 1.53%* 1.81%* 1.21% 0.83%*
2.57%* 1.96% 1.76%* 1.81%* 1.21% 1.06%*
5.21%* 4.20% 5.28%* 5.97%* 4.94% 5.98%*
109.31% 279.07% 148.92% 109.31% 279.07% 148.92%
</TABLE>
16
<PAGE>
MITCHELL HUTCHINS/KIDDER, PEABODY INTERMEDIATE FIXED INCOME FUND
- --------------------------------------------------------------------------------
Report of Independent Auditors
- --------------------------------------------------------------------------------
The Board of Trustees and Shareholders,
Mitchell Hutchins/Kidder, Peabody Intermediate Fixed Income Fund
(One of the portfolios constituting Mitchell Hutchins/Kidder, Peabody Investment
Trust)
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Mitchell Hutchins/Kidder, Peabody Intermediate
Fixed Income Fund as of February 28, 1995, and the related statements of
operations and of changes in net assets and the financial highlights for each of
the periods presented. These financial statements and financial highlights are
the responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
February 28, 1995, by correspondence with the custodian and brokers; where
replies were not received from brokers, we performed other auditing procedures.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Mitchell
Hutchins/Kidder, Peabody Intermediate Fixed Income Fund as of February 28, 1995,
the results of its operations, the changes in its net assets and the financial
highlights for the periods presented in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
New York, New York
April 21, 1995
17
<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE>
- ------------------------------------------------------
TRUSTEES
David J. Beaubien
William W. Hewitt, Jr.
Thomas R. Jordan
Frank P.L. Minard
Carl W. Schafer
- ------------------------------------------------------
OFFICERS
Frank P.L. Minard
President
Dennis L. McCauley
Vice President
Victoria E. Schonfeld
Vice President
Dianne E. O'Donnell
Vice President and Secretary
Julian F. Sluyters
Vice President and Treasurer
- ------------------------------------------------------
INVESTMENT ADVISER,
ADMINISTRATOR AND
DISTRIBUTOR
Mitchell Hutchins Asset Management Inc.
1285 Avenue of the Americas
New York, New York 10019
- ------------------------------------------------------
INVESTMENT SUB-ADVISER
GE Investment Management Incorporated
3003 Summer Street
Stamford, Connecticut 06904
- ------------------------------------------------------
This report is not to be used in connection with the offering of shares of the
Fund unless accompanied or preceded by an effective prospectus.
A prospectus containing more complete information for any of the funds listed on
the back cover can be obtained from a PaineWebber investment executive or
correspondent firm. Read the prospectus carefully before investing.
<PAGE>
STATEMENT OF DIFFERENCES
------------------------
The copyright symbol shall be expressed as 'c'
The dagger symbol shall be expressed as 'D'
