PAINEWEBBER S&P 500 INDEX FUND ANNUAL REPORT ---------------------------- | | | PAINEWEBBER | | S&P 500 Index Fund | | FUND PROFILE | | | |o GOAL: | | Replicate the total | | return of the S$P 500 | | Index | | | |o PORTFOLIO MANAGERS: | | T.Kirkham Barneby | | Mitchell Hutchins Asset | | Management Inc. | | | |o TOTAL NET ASSETS: | | $13.7 millions as of | | May 31, 1998 | | | |o DIVIDENT PAYMENTS: | | Annually | ---------------------------- July 15, 1998 Dear Shareholder, We are pleased to present you with the first annual report for the PaineWebber S&P 500 Index Fund (the "Fund"), covering the period from commencement of issuance (December 31, 1997) to the end of the Fund's fiscal year (May 31, 1998). GENERAL MARKET OVERVIEW ------------------------------------------------------------------------------ [GRAPHIC] After getting off to a slow start in January, the S&P 500 Index advanced 13.1% by the end of May. Robust economic growth, which produced low unemployment and low inflation, contributed to the market's strength. Sectors that fared poorly at the end of 1997 turned in outstanding performances in early 1998. Technology stocks, department stores, auto supply companies and airlines all rebounded sharply from year-end slumps. Financial services companies did reasonably well. Energy stocks performed the worst as weakening economies in Asia drove down oil prices. Consumer nondurables, a traditionally defensive sector, continued to lag. PORTFOLIO REVIEW ------------------------------------------------------------------------------ [GRAPHIC] PERFORMANCE The commencement of issuance for Class A and Class Y shares was December 31, 1997. The Fund's total return (the net asset value change with dividends reinvested) for the five-month period ended May 31, 1998 was 12.88% for Class A shares and 12.96% for Class Y shares. PORTFOLIO HIGHLIGHTS The Fund's objective is to replicate the total return of the S&P 500 Index (the "Index") before fees and expenses. To achieve this objective the Fund invests substantially all of its assets in common stocks issued by companies in the Index and in related derivative instruments that simulate investment in the Index. Sector Weightings* PaineWebber S&P 500 Index Fund vs. S&P 500 Index Fund Index ------------------------------------------------------------------------------ Basic materials 5.96% 5.99% Capital goods 4.85 4.93 Consumer cyclical 13.73 13.71 Consumer noncyclical 11.02 10.96 Energy 7.36 7.24 Financial services 19.98 20.13 Healthcare 11.65 11.65 Technology 14.88 14.72 Transportation 0.99 1.14 Utilities 9.58 9.53 * Percent of portfolio assets as of May 31, 1998. Weightings subject to change. 1

ANNUAL REPORT Portfolio Characteristics* PaineWebber S&P 500 Index Fund vs. S&P 500 Index Fund Index ------------------------------------------------------------------------------ Weighted average market capitalization $64.524 billion $63.751 billion Price/earnings ratio 26.5x 26.9x Current dividend yield 1.66% 1.67% Price/book ratio 7.04x 7.19x * Based on holdings as of May 31, 1998. Characteristics subject to change. OUTLOOK ------------------------------------------------------------------------------ [GRAPHIC] The extent of the economic turmoil in Asia and its ultimate impact on corporate profits remain unclear. We are cautious in the near term and expect continued choppy markets ahead as the effect of negative earnings announcements takes its toll. Over the longer term, however, we see little cause for the market to lose strength. Our ultimate objective in managing your investments is to help you successfully meet your financial goals. We thank you for your continued support and welcome any comments or questions you may have. For a quarterly Fund Profile on PaineWebber S&P 500 Index Fund or another fund in the PaineWebber Family of Funds,1 please contact your investment executive. Sincerely, <TABLE> <S> <C> /s/ Margo Alexander /s/ T. Kirkham Barneby Margo Alexander T. Kirkham Barneby President Managing Director, Chief Investment Officer-- Mitchell Hutchins Asset Management Inc. Quantitative Investments Mitchell Hutchins Asset Management Inc. Portfolio Manager, PaineWebber S&P 500 Index Fund </TABLE> This letter is intended to assist shareholders in understanding how the Fund performed during the period ended May 31, 1998, and reflects our views at the time we are writing this report. Of course, these views may change in response to changing circumstances. We encourage you to consult your investment executive regarding your personal investment program. 1 Mutual funds are sold by prospectus only. The prospectuses for the funds contain more complete information regarding risks, charges and expenses, and should be read carefully before investing. 2

PAINEWEBBER S&P 500 INDEX FUND PORTFOLIO OF INVESTMENTS MAY 31, 1998 Number of Shares Value --------- ----------------- COMMON STOCKs--100.22% AGRICULTURE, FOOD & BEVERAGE--5.65% 900 Archer-Daniels-Midland Co. ..................... $ 16,988 500 Bestfoods Co. .................................. 28,219 700 Campbell Soup Co. .............................. 38,150 800 Conagra, Inc. .................................. 23,400 200 General Mills, Inc. ............................ 13,650 600 Heinz, H. J. and Co. ........................... 31,837 200 Hershey Foods Corp. ............................ 13,850 700 Kellogg Co. .................................... 28,919 2,500 PepsiCo, Inc. .................................. 102,031 400 Pioneer Hi-Bred International, Inc. ............ 15,225 200 Quaker Oats Co. ................................ 11,538 200 Ralston Purina Co. ............................. 22,262 100 Supervalue, Inc. ............................... 4,188 500 Sysco Corp. .................................... 11,656 4,000 The Coca-Cola Co. .............................. 313,500 1,000 Unilever N.V ................................... 78,937 200 Wrigley, Wm. Jr. Co. ........................... 19,250 ------------ 773,600 ------------ Airlines--0.33% 100 AMR Corporation* ............................... 15,394 100 Delta Air Lines, Inc. .......................... 11,500 400 Southwest Airlines Co. ......................... 10,675 100 USAir Group, Inc.* ............................. 7,000 ------------ 44,569 ------------ Alcohol--0.31% 800 Anheuser-Busch Companies, Inc. ................. 36,750 100 Brown Forman Corp. ............................. 5,763 ------------ 42,513 ------------ Apparel, Retail--0.56% 600 Gap, Inc. ...................................... 32,400 100 Harcourt General, Inc. ......................... 5,450 400 Limited, Inc. .................................. 13,300 100 Nordstrom, Inc. ................................ 7,206 300 TJX Companies, Inc. ............................ 14,025 200 Woolworth Corp.* ............................... 3,950 ------------ 76,331 ------------ Apparel, Textiles--0.67% 100 Fruit of the Loom, Inc.* ....................... 3,594 100 Liz Claiborne, Inc. ............................ 5,069 500 Nike Inc. ...................................... 23,000 100 Reebok International Ltd.* ..................... 2,875 800 Sara Lee Corp. ................................. 47,100 200 V. F. Corp. .................................... 10,637 ------------ 92,275 ------------ Banks--8.54% 1,000 Banc One Corp. ................................. 55,125 600 Bank of New York Co. Inc. ...................... 36,675 1,100 BankAmerica Corp. .............................. 90,956 200 BankBoston Corp. ............................... 21,075 200 Bankers Trust New York Corp. ................... 24,700 Banks (concluded) 200 BB & T Corp. ................................... $ 13,238 700 Citicorp ....................................... 104,387 200 Comerica Inc. .................................. 13,150 400 Fifth Third Bancorp ............................ 19,700 500 First Chicago Corp. ............................ 43,719 1,586 First Union Corp. .............................. 87,726 400 Fleet Financial Group, Inc. .................... 32,800 300 Huntington Bancshares, Inc. .................... 9,825 300 J.P. Morgan & Co., Inc. ........................ 37,256 700 KeyCorp ........................................ 26,556 400 Mellon Bank Corp. .............................. 26,975 200 Mercantile Bancorporation, Inc. ................ 10,225 500 National City Corp. ............................ 33,875 1,500 NationsBank Corp. .............................. 113,625 200 Northern Trust Corp. ........................... 14,106 1,200 Norwest Corp. .................................. 46,650 500 PNC Bank Corp. ................................. 28,875 100 Republic New York Corp. ........................ 12,844 200 State Street Corp. ............................. 13,788 300 Summit Bancorp, Inc. ........................... 15,037 300 Suntrust Banks, Inc. ........................... 23,700 450 Synovus Financial Corp. ........................ 10,097 700 The Chase Manhattan Corp. ...................... 95,156 1,200 US Bancorp, Inc. ............................... 46,950 300 Wachovia Corp. ................................. 24,019 100 Wells Fargo and Co. ............................ 36,150 ------------ 1,168,960 ------------ Chemicals--3.04% 200 Air Products & Chemicals, Inc. ................. 17,400 100 Ashland, Inc. .................................. 4,988 200 Avery Dennison Corp. ........................... 10,362 400 Dow Chemical Co. ............................... 38,750 1,800 DuPont (E.I.) de Nemours & Co. ................. 138,600 100 Eastman Chemical Co. ........................... 6,700 200 Engelhard Corp. ................................ 4,163 100 FMC Corp.* ..................................... 7,644 100 Goodrich, B.F. Co. ............................. 5,125 100 Grace W.R. & Co. ............................... 1,856 100 Great Lakes Chemical Corp. ..................... 4,000 100 Hercules, Inc. ................................. 4,406 200 International Flavors and Fragrances ........... 9,600 100 Kerr-McGee Corp. ............................... 6,325 1,000 Monsanto Co. ................................... 55,375 200 Morton International, Inc. ..................... 6,088 500 Occidental Petroleum Corp. ..................... 13,812 300 PPG Industries, Inc. ........................... 21,862 200 Praxair, Inc. .................................. 9,863 100 Rohm & Haas Co. ................................ 10,987 100 Sealed Air Corp.* .............................. 5,350 300 Sherwin Williams Co. ........................... 9,975 300 Tenneco, Inc. .................................. 12,487 200 Union Carbide Corp. ............................ 9,988 ------------ 415,706 ------------ 3

PAINEWEBBER S&P 500 INDEX FUND Number of Shares Value --------- ----------------- COMMON STOCKS-(CONTINUED) Computer Hardware--5.72% 600 3Com Corp.* .................................... $ 15,225 200 Apple Computer, Inc.* .......................... 5,325 400 Bay Networks, Inc.* ............................ 11,075 300 Cabletron Systems, Inc.* ....................... 3,863 1,600 Cisco Systems, Inc.* ........................... 121,000 2,400 Compaq Computer Corp. .......................... 65,550 100 Data General Corp.* ............................ 1,525 1,100 Dell Computer Corp.* ........................... 90,647 200 Digital Equipment Corp* ........................ 10,975 800 EMC Corp.* ..................................... 33,150 200 Gateway Inc.* .................................. 9,013 1,700 Hewlett-Packard Co. ............................ 105,612 1,600 International Business Machines ................ 187,800 500 Pitney Bowes, Inc. ............................. 23,500 400 Seagate Technology, Inc.* ...................... 9,250 300 Silicon Graphics, Inc.* ........................ 3,600 600 Sun Microsystems Inc.* ......................... 24,037 400 Unisys Corp.* .................................. 9,800 500 Xerox Corp. .................................... 51,375 ------------ 782,322 ------------ Computer Software--3.35% 100 Adobe Systems, Inc. ............................ 3,994 100 Autodesk, Inc. ................................. 4,250 900 Computer Associates International Inc. ......... 47,250 4,000 Microsoft Corp.* ............................... 339,250 600 Novell, Inc.* .................................. 6,300 1,600 Oracle Systems Corp.* .......................... 37,800 400 Parametric Technology Corp.* ................... 12,262 200 Thermo Electron Corp.* ......................... 7,025 ------------ 458,131 ------------ Construction, Real Property--0.25% 100 Armstrong World Industries, Inc. ............... 8,412 100 Centex Corp. ................................... 3,575 100 Fluor Corp. .................................... 4,769 300 Masco Corp. .................................... 16,875 ------------ 33,631 ------------ Consumer Durables--0.09% 100 Maytag Corp. ................................... 5,044 100 Whirlpool Corp. ................................ 6,831 ------------ 11,875 ------------ Defense/Aerospace--1.59% 900 Allied-Signal, Inc. ............................ 38,475 1,600 Boeing Company ................................. 76,200 200 General Dynamics Corp. ......................... 8,887 300 Lockheed Martin Corp. .......................... 33,675 100 Northrop Grumman Corp. ......................... 10,719 500 Raytheon Co. ................................... 27,344 300 Textron Inc. ................................... 22,256 ------------ 217,556 ------------ Diversified Retail--2.70% 700 Dayton Hudson Corp. ............................ $ 32,462 200 Dillard Department Stores, Inc. ................ 8,413 300 Federated Department Stores, Inc.* ............. 15,544 800 K Mart Corp.* .................................. 15,500 400 May Department Stores Co. ...................... 25,725 100 Mercantile Stores, Inc. ........................ 7,863 400 Penney, J.C., Inc. ............................. 28,725 600 Sears Roebuck & Co. ............................ 37,087 3,600 Wal Mart Stores, Inc. .......................... 198,675 ------------ 369,994 ------------ Drugs & Medicine--8.02% 100 Allergan, Inc. ................................. 4,200 100 Alza Corp.* .................................... 4,838 2,100 American Home Products Corp. ................... 101,456 400 Amgen, Inc.* ................................... 24,200 1,600 Bristol-Myers Squibb Co. ....................... 172,000 200 Cardinal Health Inc. ........................... 17,825 1,800 Lilly, Eli & Co. ............................... 110,587 1,900 Merck & Co., Inc. .............................. 222,419 2,100 Pfizer, Inc. ................................... 220,106 800 Pharmacia & Upjohn Inc. ........................ 35,350 1,200 Schering-Plough Corp. .......................... 100,425 200 Sigma-Aldrich Corp. ............................ 7,300 1,200 Warner Lambert Co. ............................. 76,575 ------------ 1,097,281 ------------ Electric Utilities--2.42% 200 Ameren Corp. ................................... 7,825 300 American Electric Power, Inc. .................. 13,612 200 Baltimore Gas & Electric Co. ................... 6,088 200 Carolina Power & Light Co. ..................... 8,200 300 Central & South West Corp. ..................... 7,931 300 Cinergy Corp. .................................. 9,694 400 Consolidated Edison of New York, Inc. .......... 17,125 300 Dominion Resources, Inc. ....................... 11,906 200 DTE Energy Co. ................................. 7,913 600 Duke Power Co. ................................. 34,575 600 Edison International, Inc. ..................... 17,700 400 Entergy Corp. .................................. 10,525 400 Firstenergy Corp. .............................. 11,875 300 FPL Group, Inc. ................................ 18,431 200 General Public Utilities Corp. ................. 7,700 500 Houston Industries, Inc. ....................... 14,312 100 Northern States Power Co. ...................... 5,688 500 PacifiCorp ..................................... 11,531 400 PECO Energy Co. ................................ 11,300 300 Pennsylvania Power & Light Co. ................. 6,638 700 PG&E Corp. ..................................... 22,050 400 Public Service Enterprise Group, Inc. .......... 13,225 1,100 Southern Co. ................................... 29,219 400 Texas Utilities Co. ............................ 15,800 300 Unicom Corp. ................................... 10,312 ------------ 331,175 ------------ 4

PAINEWEBBER S&P 500 INDEX FUND Number of Shares Value --------- ----------------- COMMON STOCKS-(CONTINUED) Electrical Equipment--2.42% 200 DSC Communications Corp.* ...................... $ 3,419 100 Eaton Corp. .................................... 8,981 100 Harris Corp. ................................... 4,819 200 Honeywell, Inc. ................................ 16,787 100 Johnson Controls, Inc. ......................... 5,950 100 KLA-Tencor Corp. * ............................. 3,387 2,100 Lucent Technologies Inc. ....................... 148,969 100 Millipore Corp. ................................ 3,338 1,000 Motorola Inc. .................................. 52,937 800 Northern Telecommunications Ltd. ............... 51,200 25 Octel Corp.* ................................... 545 100 Perkin Elmer Corp. ............................. 6,850 100 Tektronix, Inc. ................................ 3,825 300 Tellabs, Inc.* ................................. 20,616 ------------ 331,623 ------------ Electrical Power--0.80% 300 AMP, Inc. ...................................... 11,400 100 Andrew Corp.* .................................. 2,197 200 Cooper Industries, Inc. ........................ 12,875 700 Emerson Electric Co. ........................... 42,525 100 General Signal Corp. ........................... 4,112 100 Grainger,W.W., Inc. ............................ 10,556 100 Raychem Corp. .................................. 3,763 300 Rockwell International Corp. ................... 16,500 100 Thomas & Betts Corp. ........................... 5,344 ------------ 109,272 ------------ Energy Reserves & Production--6.65% 1,600 Amoco Corp. .................................... 66,900 100 Anadarko Petroleum Corp. ....................... 6,600 100 Apache Corp. ................................... 3,419 500 Atlantic Richfield Co. ......................... 39,437 300 Burlington Resources, Inc. ..................... 12,637 1,100 Chevron Corp. .................................. 87,862 100 Columbia Energy Corp. .......................... 8,438 4,000 Exxon Corp. .................................... 282,000 1,300 Mobil Corp. .................................... 101,400 200 Oryx Energy Co.* ............................... 4,663 100 Pennzoil Co. ................................... 5,781 400 Phillips Petroleum Co. ......................... 20,025 3,500 Royal Dutch Petroleum Co. ...................... 196,219 900 Texaco, Inc. ................................... 51,975 400 Union Pacific Resources Group Inc. ............. 8,100 400 Unocal Corp. ................................... 14,250 ------------ 909,706 ------------ Entertainment--2.13% 1,100 CBS Corp.* ..................................... 34,925 1,100 Disney, Walt Co. ............................... 124,437 100 King World Productions, Inc.* .................. 2,550 600 Seagram Co. Ltd. ............................... 26,363 900 Time Warner Inc. ............................... 70,031 600 Viacom, Inc., Class B* ......................... 33,000 ------------ 291,306 ------------ Environmental Services--0.29% 300 Browning Ferris Industries, Inc. ............... $ 10,669 500 Laidlaw Inc. ................................... 6,187 700 Waste Management Inc. .......................... 22,750 ------------ 39,606 ------------ Financial Services--6.10% 700 American Express Co. ........................... 71,837 300 AON Corp. ...................................... 19,219 545 Associates First Capital Corp. ................. 40,773 100 Beneficial Corp. ............................... 13,400 200 Countrywide Credit Industries, Inc. ............ 9,250 1,100 Federal Home Loan Mortgage Corp. ............... 50,050 1,700 Federal National Mortgage Association .......... 101,787 5,300 General Electric Co. ........................... 441,887 200 Green Tree Financial Corp. ..................... 8,038 200 Household International, Inc. .................. 27,063 300 Marsh & McLennan Companies, Inc. ............... 26,269 800 MBNA Corp. ..................................... 25,350 ------------ 834,923 ------------ Forest Products, Paper--1.19% 100 Bemis, Inc. .................................... 4,219 100 Boise Cascade Corp. ............................ 3,338 200 Champion International Corp. ................... 9,600 300 Fort James Corp. ............................... 14,344 100 Georgia-Pacific Corp. .......................... 6,419 200 Ikon Office Solutions Inc. ..................... 4,237 500 International Paper Co. ........................ 23,000 900 Kimberly Clark Corp. ........................... 44,606 200 Louisiana Pacific Corp. ........................ 3,987 200 Mead Corp. ..................................... 6,225 200 Stone Container Corp.* ......................... 3,550 100 Temple-Inland, Inc. ............................ 5,875 100 Union Camp Corp. ............................... 5,469 200 Westvaco Corp. ................................. 5,700 300 Weyerhaeuser Co. ............................... 15,244 200 Willamette Industries, Inc. .................... 6,862 ------------ 162,675 ------------ Food Retail--0.42% 400 Albertson's, Inc. .............................. 18,525 400 American Stores Co. ............................ 9,975 100 Giant Food, Inc., Class A ...................... 4,300 400 Kroger Co.* .................................... 17,175 200 Winn Dixie Stores, Inc. ........................ 8,138 ------------ 58,113 ------------ Freight, Air, Sea & Land--0.09% 200 FDX Corp.* ..................................... 12,825 ------------ Gas Utility--0.13% 100 Consolidated Natural Gas Co. ................... 5,656 100 Pacific Enterprises ............................ 3,806 200 Sonat, Inc. .................................... 7,838 ------------ 17,300 ------------ 5

PAINEWEBBER S&P 500 INDEX FUND Number of Shares Value --------- ----------------- COMMON STOCKS-(CONTINUED) Heavy Machinery--0.55% 200 Brunswick Corp. ................................ $ 6,287 100 Case Corp. ..................................... 5,788 600 Caterpillar, Inc. .............................. 32,962 100 Cummins Engine Co., Inc. ....................... 5,200 400 Deere & Co. .................................... 20,750 100 McDermott International, Inc. .................. 3,819 ------------ 74,806 ------------ Hotels--0.28% 200 Harrah's Entertainment Inc.* ................... 5,000 400 Hilton Hotels Corp. ............................ 12,575 400 Marriott International Inc. New ................ 13,900 300 Mirage Resorts, Inc.* .......................... 6,244 ------------ 37,719 ------------ Household Products--2.93% 200 Avon Products Inc. ............................. 16,363 200 Clorox Co. ..................................... 16,700 500 Colgate-Palmolive Co. .......................... 43,500 300 Fortune Brands Inc. ............................ 11,531 900 Gillette Co. ................................... 105,413 200 Newell Co. ..................................... 9,650 100 Owens-Corning Fiberglass ....................... 3,750 2,200 Procter & Gamble Co. ........................... 184,662 200 Rubbermaid, Inc. ............................... 6,525 100 Tupperware Corp. ............................... 2,700 ------------ 400,794 ------------ Industrial Parts--1.03% 200 Black & Decker Corp. ........................... 11,675 100 Crane Co. ...................................... 5,269 300 Dover Corp. .................................... 11,250 300 Genuine Parts Co. .............................. 10,181 400 Illinois Tool Works, Inc. ...................... 26,400 300 Ingersoll Rand Co. ............................. 13,519 200 Pall Corp. ..................................... 3,963 200 Parker-Hannifin Corp. .......................... 8,212 100 Snap-On, Inc. .................................. 4,387 100 Stanley Works .................................. 4,750 100 Timken Co. ..................................... 3,763 400 United Technologies Corp. ...................... 37,600 ------------ 140,969 ------------ Industrial Services/Supplies--0.28% 1,300 Cendant Corp.* ................................. 28,194 200 Ecolab, Inc. ................................... 6,175 100 Ryder Systems, Inc. ............................ 3,406 ------------ 37,775 ------------ Information & Computer Services--1.19% 500 Automatic Data Processing, Inc. ................ 31,812 200 Block, H&R, Inc. ............................... 8,800 100 Ceridian Corp.* ................................ 5,400 300 Cognizant Corp. ................................ 15,975 200 Computer Sciences Corp.* ....................... 10,388 Information & Computer Services (concluded) 200 Dow Jones & Co., Inc. .......................... $ 9,625 200 Dun & Bradstreet Corp. ......................... 6,750 200 Equifax Inc. ................................... 7,275 700 First Data Corp. ............................... 23,275 300 HBO & Co. ...................................... 17,316 200 Interpublic Group Companies, Inc. .............. 11,862 300 Omnicom Group .................................. 14,044 ------------ 162,522 ------------ Leisure--0.48% 500 Eastman Kodak Co. .............................. 35,687 200 Hasbro, Inc. ................................... 7,650 500 Mattel Inc. .................................... 18,938 100 Polaroid Corp. ................................. 4,056 ------------ 66,331 ------------ Life Insurance--0.99% 200 Aetna Life & Casualty Co. ...................... 15,637 400 American General Corp. ......................... 26,850 300 Conseco Inc. ................................... 13,987 150 Jefferson-Pilot Corp. .......................... 8,588 200 Lincoln National Corp. ......................... 17,975 100 Providian Corp. ................................ 6,363 300 SunAmerica Inc. ................................ 14,587 200 Torchmark, Inc. ................................ 8,575 100 Transamerica Corp. ............................. 11,500 200 UNUM Corp. ..................................... 11,113 ------------ 135,175 ------------ Long Distance & Phone Companies--6.61% 300 Alltel Corp. ................................... 11,831 1,800 Ameritech Corp. ................................ 76,388 2,600 AT&T Corp. ..................................... 158,275 1,300 Bell Atlantic Corp. ............................ 119,112 1,600 BellSouth Corp. ................................ 103,200 300 Frontier Corp. ................................. 9,131 1,500 GTE Corp. ...................................... 87,469 1,100 MCI Communications Corp. ....................... 58,816 3,000 SBC Communications, Inc. ....................... 116,625 700 Sprint Corp. ................................... 50,225 800 US West Communications Group ................... 40,600 1,600 WorldCom, Inc.* ................................ 72,800 ------------ 904,472 ------------ Media--0.61% 200 Clear Channel Communications* .................. 19,175 600 Comcast Corp., Class A ......................... 20,569 100 Scientific-Atlanta, Inc. ....................... 2,206 800 Tele-Communications, Inc. Class A* ............. 27,450 200 Tribune Co. .................................... 13,375 ------------ 82,775 ------------ Medical Products--3.61% 1,200 Abbott Laboratories ............................ 89,025 100 Bard, C.R. Inc. ................................ 3,469 100 Bausch & Lomb, Inc. ............................ 4,981 6

PAINEWEBBER S&P 500 INDEX FUND Number of Shares Value --------- ----------------- COMMON STOCKS-(CONTINUED) Medical Products (concluded) 400 Baxter International, Inc. ..................... $ 22,875 200 Becton, Dickinson & Co. ........................ 14,150 200 Biomet, Inc. ................................... 5,775 300 Boston Scientific Corp.* ....................... 19,125 200 Guidant Corp. .................................. 12,888 2,200 Johnson & Johnson .............................. 151,937 100 Mallinckrodt Group, Inc. ....................... 3,081 800 Medtronic, Inc. ................................ 44,500 700 Minnesota Mining & Manufacturing Co. ........... 64,837 100 St. Jude Medical, Inc. ......................... 3,575 900 Tyco International Ltd. ........................ 49,838 100 U.S. Surgical Corp. ............................ 3,975 ------------ 494,031 ------------ Medical Providers--0.96% 1,000 Columbia/HCA Healthcare Corp. .................. 32,688 400 Corning, Inc. .................................. 15,775 600 HEALTHSOUTH Corp.* ............................. 17,025 300 Humana Inc.* ................................... 9,319 100 Manor Care, Inc. ............................... 3,156 400 Service Corp. International .................... 16,350 500 Tenet Healthcare Corp.* ........................ 17,500 300 United Healthcare Corp. ........................ 19,200 ------------ 131,013 ------------ Mining & Metals--0.64% 400 Alcan Aluminum Ltd. ............................ 11,400 300 Aluminum Co. of America ........................ 20,812 200 Bethleham Steel Corp.* ......................... 2,450 200 Crown Cork & Seal, Inc. ........................ 10,375 300 Freeport-McMoran Copper & Gold, Inc. ........... 5,025 300 Inco Ltd. ...................................... 4,313 100 Nucor Corp. .................................... 5,150 200 Owens Illinois Inc.* ........................... 8,988 100 Phelps Dodge Corp. ............................. 6,100 100 Reynolds Metals Co. ............................ 5,800 200 USX-U.S. Steel Group, Inc. ..................... 7,175 ------------ 87,588 ------------ Motor Vehicles and Parts--2.21% 1,100 Chrysler Corp. ................................. 61,187 100 Cooper Tire & Rubber Co. ....................... 2,369 200 DANA Corp. ..................................... 10,425 100 Echlin, Inc. ................................... 4,750 2,000 Ford Motor Co. ................................. 103,750 1,100 General Motors Corp. ........................... 79,131 200 Goodyear Tire & Rubber Co. ..................... 14,375 200 ITT Industries Inc. ............................ 7,375 100 Navistar International Corp.* .................. 3,019 100 PACCAR, Inc. ................................... 5,522 200 TRW, Inc. ...................................... 10,713 ------------ 302,616 ------------ Oil Refining--0.71% 100 Amerada Hess Corp. ............................. $ 5,406 200 Coastal Corp. .................................. 14,100 500 Enron Corp. .................................... 25,063 100 Sun Co., Inc. .................................. 4,250 500 USX-Marathon Group ............................. 17,500 100 Western Atlas, Inc.* ........................... 8,656 700 Williams Companies, Inc. ....................... 22,706 ------------ 97,681 ------------ Oil Services--0.79% 300 Baker Hughes, Inc. ............................. 10,800 300 Dresser Industries, Inc. ....................... 13,969 400 Halliburton Co. ................................ 18,950 100 Rowan Companies, Inc.* ......................... 2,556 800 Schlumberger Ltd. .............................. 62,450 ------------ 108,725 ------------ Other Insurance--2.76% 700 Allstate Corp. ................................. 65,887 1,100 American International Group Inc. .............. 136,194 300 Chubb Corp. .................................... 23,869 300 CIGNA Corp. .................................... 20,550 300 Cincinnati Financial Corp. ..................... 12,600 100 General Re Corp. ............................... 21,987 200 Hartford Financial Services Group Inc. ......... 22,012 200 Loews Corp. .................................... 18,150 100 MBIA Inc. ...................................... 7,456 200 MGIC Investment Corp. .......................... 11,988 200 SAFECO Corp. ................................... 9,300 312 St. Paul Companies, Inc. ....................... 13,845 100 The Progressive Corp. .......................... 13,788 ------------ 377,626 ------------ Precious Metals--0.22% 600 Barrick Gold Corp. ............................. 11,550 400 Battle Mountain Gold Co.* ...................... 2,125 300 Homestake Mining Co. ........................... 3,263 300 Newmont Mining Corp. ........................... 7,481 400 Placer Dome, Inc. .............................. 4,975 ------------ 29,394 ------------ Publishing--0.70% 100 American Greetings Corp., Class A .............. 4,750 100 Deluxe Corp. ................................... 3,356 200 Donnelley, R.R. & Sons Co. ..................... 9,000 500 Gannett Inc. ................................... 32,969 100 Knight Ridder, Inc. ............................ 5,706 200 McGraw-Hill Companies, Inc. .................... 15,638 100 Meredith Corp. ................................. 3,975 200 New York Times Co., Class A .................... 14,100 100 Times Mirror Co. ............................... 6,400 ------------ 95,894 ------------ 7

PAINEWEBBER S&P 500 INDEX FUND Number of Shares Value --------- ----------------- COMMON STOCKS-(concluded) Railroads--0.53% 200 Burlington Northern Santa Fe, Inc. ............. $ 19,900 300 CSX Corp. ...................................... 14,288 600 Norfolk Southern Corp. ......................... 18,787 400 Union Pacific Corp. ............................ 19,350 ------------ 72,325 ------------ Restaurants--0.63% 200 Darden Restaurants, Inc. ....................... 3,088 1,100 McDonalds Corp. ................................ 72,187 200 Tricon Global Restaurants Inc.* ................ 6,212 200 Wendy's International, Inc. .................... 4,938 ------------ 86,425 ------------ Securities & Asset Management--2.09% 400 Charles Schwab Corp. ........................... 13,200 400 Franklin Resources Inc. ........................ 19,550 200 Lehman Brothers Holdings Inc. .................. 14,188 500 Merrill Lynch & Co., Inc. ...................... 44,750 1,000 Morgan Stanley, Dean Witter, Discover & Co. .... 78,062 1,900 Travelers Group Inc. ........................... 115,900 ------------ 285,650 ------------ Semiconductor--1.97% 200 Advanced Micro Devices, Inc.* .................. 3,900 300 Allegheny Teldyne, Inc. ........................ 6,975 600 Applied Materials Inc.* ........................ 19,200 2,700 Intel Corp. .................................... 192,881 200 LSI Logic Corp.* ............................... 4,262 300 Micron Technology, Inc. ........................ 7,069 300 National Semiconductor Corp.* .................. 4,875 600 Texas Instruments, Inc. ........................ 30,825 ------------ 269,987 ------------ Specialty Retail--1.78% 200 Autozone Inc.* ................................. 6,650 200 Circuit City Stores, Inc. ...................... 8,475 200 Consolidated Stores Corp.* ..................... 7,638 300 Costco, Companies Inc.* ........................ 17,362 300 CVS Corp. ...................................... 21,056 1,200 Home Depot, Inc. ............................... 94,275 300 Lowe's Companies Inc. .......................... 23,756 100 Pep Boys-Manny, Moe & Jack ..................... 2,225 400 Rite Aid Corp. ................................. 14,325 200 Tandy Corp. .................................... 8,850 400 Toys R Us, Inc.* ............................... 10,600 800 Walgreen Co. ................................... 28,150 ------------ 243,362 ------------ Thrift--0.40% 200 Ahmanson, H F & Co. ............................ $ 15,250 100 Golden West Financial Corp. .................... 10,800 400 Washington Mutual, Inc. ........................ 28,250 ------------ 54,300 ------------ Tobacco--1.12% 3,900 Phillip Morris Companies Inc. .................. 145,762 300 UST, Inc. ...................................... 7,988 ------------ 153,750 ------------ Wireless Telecommunications--0.69% 900 Airtouch Communications, Inc.* ................. 42,862 200 General Instrument Corp.* ...................... 4,763 400 Nextel Communications Inc.* .................... 9,425 1,000 US West Media Group* ........................... 37,063 ------------ 94,113 ------------ Total Common Stocks (cost--$12,505,170) ........ 13,711,086 ------------ PREFERRED STOCK--0.02% Chemicals--0.02% 47 Sealed Air Corporation (cost--$2,695) .......... 2,617 ------------ Total Investments (cost--$12,507,865)--100.24% .............. 13,713,703 Liabilities in excess of other assets--(0.24)% .............. (32,655) ------------ Net Assets--100.00% ......................................... $ 13,681,048 ============ -------------- * Non-Income producing security See accompanying notes to financial statements 8

PAINEWEBBER S&P 500 INDEX FUND STATEMENT OF ASSETS AND LIABILITIES MAY 31, 1998 <TABLE> <S> <C> Assets Investments in securities, at value (cost--$12,507,865) ............................. $13,713,703 Receivable for shares of beneficial interest sold ................................... 53,854 Dividends receivable ................................................................ 24,138 Deferred organizational expenses .................................................... 69,063 Other assets ........................................................................ 1,874 ----------- Total assets ........................................................................ 13,862,632 ----------- Liabilities Due to custodian .................................................................... 82,843 Payable to affiliate ................................................................ 31,130 Accrued expenses and other liabilities .............................................. 67,611 ----------- Total liabilities ................................................................... 181,584 ----------- Net Assets Beneficial interest--$0.001 par value (unlimited amount authorized) ................. 12,396,221 Undistributed net investment income ................................................. 59,019 Accumulated net realized gains from investment and futures transactions ............. 19,970 Net unrealized appreciation of investments .......................................... 1,205,838 ----------- Net assets .......................................................................... $13,681,048 =========== Class A: Net assets .......................................................................... $ 788,875 ----------- Shares outstanding .................................................................. 55,913 ----------- Net asset value, offering price and redemption value per share ...................... $ 14.11 =========== Class Y: Net assets .......................................................................... $12,892,173 ----------- Shares outstanding .................................................................. 913,325 ----------- Net asset value, offering price and redemption value per share ...................... $ 14.12 =========== </TABLE> See accompanying notes to financial statements 9

PAINEWEBBER S&P 500 INDEX FUND STATEMENT OF OPERATIONS <TABLE> <CAPTION> For the Period December 31, 1997+ through May 31, 1998 -------------- <S> <C> Investment income: Dividends ................................................................. $ 73,873 ----------- Expenses: Investment advisory and administration .................................... 8,340 Service fees--Class A ..................................................... 70 Legal and audit ........................................................... 48,087 Reports and notices to shareholders ....................................... 15,720 Amortization of organizational expense .................................... 6,227 Trustees' fees ............................................................ 4,344 Federal and state registration ............................................ 3,916 Custody and accounting .................................................... 2,532 Transfer agency ........................................................... 108 Other expenses ............................................................ 3,890 ----------- 93,234 Less: Fee waivers and expense reimbursements from adviser ................. (78,380) ----------- Net expenses .............................................................. 14,854 ----------- Net investment income ..................................................... 59,019 ----------- Realized and unrealized gains (losses) from investment activities: Net realized gains (losses) from: Investment transactions ................................................ 20,111 Futures contracts ...................................................... (141) Net change in unrealized appreciation/depreciation of investments ......... 1,205,838 ----------- Net realized and unrealized gains from investment activities .............. 1,225,808 ----------- Net increase in net assets resulting from operations ...................... $ 1,284,827 =========== </TABLE> ------------- + Commencement of operations See accompanying notes to financial statements 10

PAINEWEBBER S&P 500 INDEX FUND STATEMENT OF CHANGES IN NET ASSETS <TABLE> <CAPTION> For the Period December 31, 1997+ through May 31, 1998 ------------- <S> <C> From operations: Net investment income .............................................................. $ 59,019 Net realized gains from investment and futures transactions ........................ 19,970 Net change in unrealized appreciation/depreciation of investments .................. 1,205,838 ------------ Net increase in net assets resulting from operations ............................... 1,284,827 ------------ From beneficial interest transactions: Net proceeds from the sale of shares ............................................... 12,314,605 Cost of shares repurchased ......................................................... (18,384) ------------ Net increase in net assets from beneficial interest transactions ................... 12,296,221 ------------ Net increase in net assets ......................................................... 13,581,048 Net Assets: Beginning of period ................................................................ 100,000 ------------ End of period (including undistributed net investment income of $59,019)............ $ 13,681,048 ============ </TABLE> -------------- + Commencement of operations See accompanying notes to financial statements 11

NOTES TO FINANCIAL STATEMENTS ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES PaineWebber S&P 500 Index Fund (the "Fund") is a series of PaineWebber Index Trust (the "Trust") and is registered with the Securities and Exchange Commission under the Investment Company Act of 1940, as amended, as an open-end, diversified management investment company. Organizational costs have been deferred and have been amortized using the straight line method over a period not to exceed 60 months from the date the Fund commenced operations. Prior to the commencement of operations, December 31, 1997, the Fund had no activity other than the sale of 4,000 Class A shares and 4,000 Class Y shares for a total amount of $100,000, on October 6, 1997 to Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins"), the investment adviser, administrator and distributor, and an asset management subsidiary of PaineWebber Incorporated ("PaineWebber"). Currently, the Fund offers Class A and Class Y shares. Each class represents interests in the same assets of the Fund, and the classes are identical except for differences in ongoing service charges and certain transfer agency expenses. All classes of shares have equal voting privileges except that Class A shares have exclusive voting rights with respect to its service and/or distribution plan. Class Y shares have no service or distribution plan. The preparation of financial statements in accordance with generally accepted accounting principles requires Fund management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. The following is a summary of significant accounting policies: Valuation of Investments--Securities that are listed on stock exchanges are valued at the last sale price on the day the securities are being valued or, lacking any sales on such day, at the last available bid price. In cases where securities are traded on more than one exchange, the securities are valued on the exchange designated by Mitchell Hutchins. Securities traded in the over-the-counter ("OTC") market and listed on the Nasdaq Stock Market, Inc. ("Nasdaq") are valued at the last available sale price, or last bid price available if no sale occurs, on Nasdaq prior to the time of valuation. Where market quotations are readily available, debt securities are valued thereon, provided such quotations adequately reflect the fair value of the securities in the judgment of Mitchell Hutchins. When market quotations are not readily available, securities are valued based upon appraisals derived from information concerning those securities or similar securities received from recognized dealers in those securities. All other securities are valued at fair value as determined in good faith by, or under the direction of, the Trust's board of trustees. The amortized cost method of valuation is used to value short-term debt securities with sixty days or less remaining to maturity, unless the Trust's board of trustees determines that this does not represent fair value. Repurchase Agreements--The Fund's custodian takes possession of the collateral pledged for investments in repurchase agreements. The underlying collateral is valued daily on a mark-to-market basis to ensure that the value, including accrued interest, is at least equal to the repurchase price. In the event of default of the obligation to repurchase, the Fund has the right to liquidate the collateral and apply the proceeds in satisfaction of the obligation. Under certain circumstances, in the event of default or bankruptcy by the other party to the agreement, realization and/or retention of the collateral may be subject to legal proceedings. The Fund occasionally participates in joint repurchase agreement transactions with other funds managed by Mitchell Hutchins. Investment Transactions and Investment Income--Investment transactions are recorded on the trade date. Realized gains and losses from investment transactions are calculated using the identified cost method. Interest income is recorded on an accrual basis. Dividend income is recorded on the ex-dividend date. Discounts are accreted and premiums are amortized as adjustments to interest income and the identified cost of investments. 12

NOTES TO FINANCIAL STATEMENTS 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. Futures Contracts--Upon entering into a financial futures contract, the Fund is required to pledge to a broker an amount of cash and/or U.S. securities equal to a certain percentage of the contract amount. This amount is known as the "initial margin." Subsequently, payments, known as "variation margin," are made or received by the Funds each day, depending on the daily fluctuations in the value of the underlying financial futures contracts. Such variation margin is recorded for financial statement purposes on a daily basis as unrealized gain or loss until the financial futures contract is closed, at which time the net gain or loss is reclassified to realized. 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 uses financial futures contracts in strategies intended to enhance income or for hedging purposes. However, imperfect correlations between futures contracts and the portfolio securities being hedged or, market disruptions, do not normally permit full control of these risks at all times. There were no open futures contracts at the period ended May 31, 1998. Dividends and Distributions--Dividends and distributions to shareholders are recorded on the ex-dividend date. 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 either considered temporary or permanent in nature. To the extent these differences are permanent in nature, such amounts are reclassified within the capital accounts based on their federal tax-basis treatment; temporary differences do not require reclassification. INVESTMENT ADVISER AND ADMINISTRATOR The Trust's board of trustees has approved an Investment Advisory and Administration Contract ("Advisory Contract") with Mitchell Hutchins, under which Mitchell Hutchins serves as investment adviser and administrator of the Fund. In accordance with the Advisory Contract, the Fund pays Mitchell Hutchins an investment advisory and administration fee, which is accrued daily and paid monthly, at an annual rate of 0.20% of the Fund's average daily net assets. For the period ended May 31, 1998, Mitchell Hutchins has voluntarily undertaken to waive all advisory fees and reimburse a portion of expenses to maintain the Fund's total annual operating expenses at a level not exceeding 0.40% and 0.35% of the Fund's average daily net assets for Class A shares and Class Y shares, respectively. DISTRIBUTION PLANS Mitchell Hutchins is the distributor of the Fund's shares and has appointed PaineWebber as the exclusive dealer for the sale of those shares. There is no distribution plan with respect to the Fund's Y shares. Under the distribution plan for Class A shares ("Class A Plan"), the Fund pays Mitchell Hutchins monthly service fees at the annual rate of 0.05% of the average daily net assets of Class A shares. For the period ended May 31, 1998, PaineWebber has voluntarily undertaken to waive all service fees for Class A shares. TRANSFER AGENCY SERVICE FEES PaineWebber provides transfer agency related services to the Fund pursuant to a delegation of authority from PFPC, Inc., the Fund's transfer agent, and is compensated for the services by PFPC, Inc., not the Fund. 13

NOTES TO FINANCIAL STATEMENTS SECURITY LENDING The Fund may lend securities up to 33 1/3% of its total assets to qualified institutions. The loans are secured at all times by cash, U.S. government securities or irrevocable letters of credit that meet certain guidelines established by Mitchell Hutchins, in an amount at least equal to the market value of the securities loaned, plus accrued interest, determined on a daily basis and adjusted accordingly. The Fund will regain record ownership of loaned securities to exercise certain beneficial rights, however, the Fund may bear the risk of delay in recovery of, or even loss of rights in, the securities loaned should the borrower fail financially. The Fund receives compensation, which is included in interest income, for lending its securities from interest earned on the cash or U.S. government securities held as collateral, net of fee rebates paid to the borrower plus reasonable administrative and custody fees. During the period ended May 31, 1998, the Fund did not participate in the Securities Lending Program. INVESTMENTS IN SECURITIES For federal income tax purposes, the cost of securities owned at May 31, 1998 was substantially the same as the cost of securities for financial statement purposes. At May 31, 1998, the components of net unrealized appreciation of investments were as follows: <TABLE> <S> <C> Gross appreciation (investments having an excess of value over cost)........... $ 1,404,248 Gross depreciation (investments having an excess of cost over value)........... (198,410) ------------ Net unrealized appreciation of investments..................................... $ 1,205,838 ============ </TABLE> For the period ended May 31, 1998, total aggregate purchases and sales of portfolio securities, excluding short-term securities, were as follows: <TABLE> <S> <C> Purchases...................................................................... $ 12,637,132 Sales.......................................................................... $ 149,378 </TABLE> FEDERAL TAX STATUS The Fund intends to distribute substantially 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, the Fund intends not to be subject to a federal excise tax. BENEFICIAL INTEREST There is an unlimited number of $0.001 par value shares of beneficial interest authorized. Transactions in shares of beneficial interest were as follows: <TABLE> <CAPTION> Class A Class Y ---------------------------- ---------------------------- Shares Amount Shares Amount ------------- ------------ ------------ ------------ <S> <C> <C> <C> <C> For the period December 31, 1997+ through May 31, 1998: Shares sold ................................................ 51,913 $ 725,507 910,607 $ 11,589,098 Shares repurchased ......................................... -- -- (1,282) (18,384) ------------ --------- ------- ------------ Net increase ............................................... 51,913 $ 725,507 909,325 $ 11,570,714 ============ ========= ======= ============ </TABLE> -------------- + Commencement of operations 14

PAINEWEBBER S&P 500 INDEX FUND FINANCIAL HIGHLIGHTS Selected data for a share of beneficial interest outstanding throughout the period is presented below: <TABLE> <CAPTION> For the Period December 31, 1997+ through May 31, 1998 -------------------------- Class A Class Y --------- --------- <S> <C> <C> Net asset value, beginning of period ..................................................... $ 12.50 $ 12.50 --------- --------- Net investment income .................................................................... 0.03 0.06 Net realized and unrealized gains from investments and futures ........................... 1.58 1.56 --------- --------- Net increase from investment operations .................................................. 1.61 1.62 --------- --------- Net asset value, end of period ........................................................... $ 14.11 $ 14.12 ========= ========= Total investment return (1) .............................................................. 12.88% 12.96% ========= ========= Ratios/Supplemental Data: Net assets, end of period (000's) ........................................................ $ 789 $ 12,892 Expenses to average net assets net of waivers and reimbursements from adviser ............ 0.40%* 0.35%* Expenses to average net assets before waivers and reimbursements from adviser ............ 2.25%* 2.22%* Net investment income to average net assets net of waivers and reimbursements from adviser 1.26%* 1.41%* Net investment loss to average net assets before waivers and reimbursements from adviser. (0.60)%* (0.46)%* Portfolio turnover rate .................................................................. 1% 1% </TABLE> ----------- * Annualized + Commencement of issuance of shares (1) Total investment return is calculated assuming a $1,000 investment on the first day of the period reported, reinvestment of all dividends and distributions, if any, at net asset value on the payable dates and a sale at net asset value on the last day of the period reported. Total investment return for the period has not been annualized. 15

PAINEWEBBER S&P 500 INDEX FUND REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS The Board of Trustees and Shareholders of PaineWebber S&P 500 Index Fund We have audited the accompanying statement of assets and liabilities of the PaineWebber S&P 500 Index Fund (the "Fund"), including the portfolio of investments, as of May 31, 1998, and the related statements of operations, changes in net assets and the financial highlights for the period December 31, 1997 (commencement of operations) through May 31, 1998. 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 audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights. Our procedures included confirmation of investments owned at May 31, 1998 by correspondence with the custodian. 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 audit provides a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Fund at May 31, 1998, the results of its operations, the changes in its net assets, and the financial highlights for the period December 31, 1997 to May 31, 1998, in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP New York, New York July 24, 1998 16

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TRUSTEES E. Garrett Bewkes, Jr. Chairman Margo N. Alexander Richard Q. Armstrong Richard R. Burt Mary C. Farrell Meyer Feldberg George W. Gowen Frederic V. Malek Carl W. Schafer PRINCIPAL OFFICERS Margo N. Alexander President Victoria E. Schonfeld Vice President Dianne E. O'Donnell Vice President and Secretary Paul H. Schubert Vice President and Treasurer T. Kirkham Barneby Vice President INVESTMENT ADVISER, ADMINISTRATOR AND DISTRIBUTOR Mitchell Hutchins Asset Management Inc. 1285 Avenue of the Americas New York, New York 10019 This report is not to be used in conjunction with the offering of shares of the 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 corresponding firm. Read the prospectus carefully before investing.

PaineWebber offers a family of 26 funds which encompass a diversified range of investment goals. BOND FUNDS o High Income Fund o Investment Grade Income Fund o Low Duration U.S. Government Income Fund o Strategic Income Fund o U.S. Government Income Fund TAX-FREE BOND FUNDS o California Tax-Free Income Fund o Municipal High Income Fund o National Tax-Free Income Fund o New York Tax-Free Income Fund STOCK FUNDS o Financial Services Growth Fund o Growth Fund o Growth and Income Fund o Mid Cap Fund o Small Cap Fund o S&P 500 Index Fund o Utility Income Fund ASSET ALLOCATION FUNDS o Balanced Fund o Tactical Allocation Fund GLOBAL FUNDS o Asia Pacific Growth Fund o Emerging Markets Equity Fund o Global Equity Fund o Global Income Fund MITCHELL HUTCHINS PORTFOLIOS o Aggressive Portfolio o Moderate Portfolio o Conservative Portfolio PAINEWEBBER MONEY MARKET FUND PaineWebber (c)1998 PaineWebber Incorporated Member SIPC PaineWebber S&P 500 INDEX FUND May 31, 1998 ANNUAL REPORT