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PaineWebber Life
Milestones
[GRAPHIC]
For life's important
moments and the means
to afford them
Annual Report
December 31, 1997
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FEBRUARY 12, 1998
DEAR CONTRACT OWNER,
We are pleased to present the December 31, 1997 annual report for Milestones
Variable Annuity, offered exclusively through PaineWebber. This report contains
important information about the Mitchell Hutchins Series Trust, including
financial statements for the fiscal year ended December 31, 1997. As you know,
the PaineWebber Life Variable Annuity Account holds shares of the Mitchell
Hutchins Series Trust to fund the Milestones Variable Annuity.
INVESTMENT OVERVIEW--DOMESTIC
In 1997, the U.S. economy--now in its seventh year of expansion--demonstrated
renewed vigor with consecutive quarterly Gross Domestic Product (GDP) growth
reminiscent of 1994. Although the Federal Reserve Board increased the federal
funds rate only once during the year, to 5.5%, further preemptive tightening was
widely anticipated as domestic demand remained strong amidst a historically low,
and declining, unemployment rate. However, Asia's currency and financial crisis
sent a disinflationary impulse through the global economy late in the year,
resulting in a change in sentiment in the U.S. Treasury market and a flattened
yield curve with a yield spread of less than 30 basis points.
While the Asian crisis caused substantially increased volatility for stocks,
triggering in the fourth quarter one of the most dramatic declines since 1987,
the large-cap stock market, as measured by the S&P 500 Index, ultimately
continued its impressive track record, with a 33.4% advance for the full
year--its third consecutive year of 20%+ returns. Low inflation, low and
declining interest rates, industry consolidation, mutual fund inflows and high
consumer confidence all contributed to the market's advance. Small-cap stocks,
though experiencing significant turbulence throughout the year, gained 22.4% in
1997, as measured by the Russell 2000 Index.
The bond market, as measured by the Lehman Brothers Aggregate Index, posted a
healthy 9.7% return in 1997, fueled in part by foreign investment in U.S.
government debt. The 30-year U.S. Treasury bond closed the year with a yield of
5.92%. Mortgage-backed securities also posted strong performance for the year,
outperforming the major bond markets on a duration-adjusted basis by a fairly
wide margin. High-yield securities, while experiencing disappointing performance
late in the year, ended 1997 significantly outperforming high-grade securities.
INVESTMENT OVERVIEW--GLOBAL
Asian markets experienced the worst economic falls as currencies continued to
slide towards the end of 1997. With the exception of most Asian countries, the
world's stock markets closed 1997 on a positive note. However, Asia's economic
and currency problems ignited selling pressure in many key markets around the
world during the fourth quarter. As a result, the Morgan Stanley Capital
International (MSCI) Europe, Australia and Far East Index posted a 2.1% return
for the year. Fears regarding the Asian region largely stabilized at the end of
1997, based in large part on International Monetary Fund (IMF) and foreign bank
bailout lending. Though European stocks returned 23.8% for the year, Japanese
stocks declined 23.7%. Investors are skeptical that a proposed tax cut will
stimulate the Japanese economy enough to offset the decrease in exports to their
Asian neighbors.
Through its impact on Hong Kong and developed markets, the Asian crisis
affected most emerging markets, and lack of decisive political action has been
evident across Asia. Most Latin American markets also suffered as a result of
the Asian currency crisis with the exception of Mexico, which continued to
outperform as its economy remained strong and corporate earnings growth was
maintained.
Global bond market performance in local currency terms had benefited from the
rapidly deteriorating economic crisis in Asia by the end of 1997. The U.S. bond
market was one of the best performers, as a result of growing perceptions that
the Asian crisis could significantly restrain U.S. inflation in 1998. Although
they were strong, European bond markets on balance underperformed the U.S.
market in local currency and U.S. dollar terms, as European economies tend to
have lower exposure to Asian exports.
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MONEY MARKET PORTFOLIO
Despite raising the federal funds rate in March, the Federal Reserve
ultimately adopted a "wait and see" stance as a result of the Asian currency
crisis, dampening any potential rally in the short end of the market. As of
January 2, 1998, the federal funds rate was 5.5%, while commercial paper was at
approximately a 5.55% discount level for the one-month money market investment,
with a yield ranging from 5.70% to 5.75% for the one-year money market
investment. For the seven days ended December 31, 1997, the Portfolio's yield
was 4.9%, and its weighted average maturity was 34 days.
Going forward, we expect the economy to continue to grow at a satisfactory
pace with subdued inflation. Uncertainties related to the Asian economic
difficulties should cause the Fed to maintain unchanged monetary policy for the
forseeable future. Although we plan to maintain the Portfolio's current
positioning, we will continue to monitor the economic numbers as they are
released. Although we are interested in maintaining higher yields, we will not
do so by sacrificing our emphasis on security, quality and liquidity.
HIGH GRADE FIXED INCOME PORTFOLIO
The U.S. economy showed renewed vigor in 1997, marking the seventh year of
expansion. Although the Federal Reserve cut rates just once, in March,
anticipation of further preemptive tightening of monetary policy persisted as
domestic demand continued to grow at a strong pace amidst a historically low and
still declining unemployment rate. While puzzling to investors, demand for U.S.
Treasurys in this environment remained strong, given the unusual mildness of
inflation, a balanced budget/reduced Treasury supply, and a stable to firming
U.S. dollar. The Asian problems in the fourth quarter, and the attendant flight
to quality, resulted in Treasurys being the preferred asset, bringing bond
yields below 6%. Short-term interest rates finished the year at 5.5%.
During the year the Portfolio generally retained a defensive position,
anticipating Federal Reserve action, although we adjusted the Portfolio in the
aftermath of the Asian crisis and retained neutrality as we reassessed the
economic landscape. A second element of our 1997 strategy was an emphasis on
yield, which was achieved by emphasizing the corporate and mortgage sectors.
Despite a more flexible investment policy concerning investment-grade
corporates, which was established last year, we continued to maintain a
significant allocation in mortgage-backed securities, given their attractive
valuations. During the year we averaged an allocation of 52% in the corporate
sector and 39% in the mortgage sector. The Portfolio's modestly shorter duration
led to some underperformance; fluctuation of interest rates within a fairly
narrow band and less volatile options allowed us to make up some ground through
our allocation in those sectors.
Looking ahead, the economy retains a solid domestic footing; Asia's financial
crisis will likely result in an export drag on U.S. growth, but will aid
continuation of a benign inflation outlook. In this environment, we expect U.S.
Treasurys in 1998 will trade in a range of 5.5% to 6.5%.
STRATEGIC FIXED INCOME PORTFOLIO
The U.S. bond markets posted solid gains in 1997, as falling inflation and a
flight to safety by investors drove bond yields to new lows: the 30-year U.S.
Treasury bond finished the year at 5.92%. Investors worldwide preferred U.S.
Treasurys over foreign debt for their relative safety during the Asian crisis in
the fourth quarter of the year. The yield curve continued to flatten and, at
year-end, the spread between the short and long end of the yield curve narrowed;
typically, a flat yield curve means that investors expect a slowing economy.
Interest rate declines were beneficial to the Portfolio during the year due to
its longer-than-index duration (5.97 years for the Portfolio compared to 5.30
years for the Lehman Brothers Mortgage Bond Index). The Portfolio's positions in
mortgage-backed securities (58.4% of the portfolio) also aided performance,
particularly lower-coupon mortgages (51.6%), which faced less prepayment risk as
interest rates fell, and PAC and Z bonds (20.7%), which also performed well
because they were less prepayment-sensitive. The Portfolio was overweighted in
non-U.S. securities relative to the Index, which had a positive influence on
performance. Specifically, the Portfolio invested in Canadian real return bonds
for most of the year; Argentine Brady bonds were added to the Portfolio in
October, which performed well because
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Argentina is fairly isolated from the Asian crisis. On the negative side, an
underweighted position in corporate securities detracted from performance as
spreads tightened over the year. In addition, exposure across the yield curve
did not boost performance; the longer end of the spectrum outperformed.
Going forward, while events in Asia may dampen economic growth in the United
States, domestic consumer spending--comprising two-thirds of GDP--will continue
to be the engine of growth in the U.S. economy. Fortunately, inflation should
remain subdued as the Asian crisis reduces import prices, production costs of
U.S. firms manufacturing in Asia and the pricing power of U.S. manufacturers.
Given the global economic situation, we expect the Federal Reserve will maintain
unchanged monetary policy for the forseeable future.
GLOBAL INCOME PORTFOLIO
Foreign government bonds in developed markets (measured by the Salomon
Brothers World Government Bond Index) performed well (+10.6%) compared to U.S.
government bonds (measured by the U.S. component of the Salomon Brothers World
Government Bond Index) which declined 9.6% on a currency-hedged basis over the
last 12 months. However, the strong dollar generated currency losses for U.S.
investors holding foreign currency denominated government bonds, which
substantially offset returns on the bonds. The Salomon Brothers World Government
Bond Index on an unhedged basis was up only 0.2% for the year.
Currency fluctuations in the overseas markets hurt the Portfolio's
performance, causing the Portfolio to underperform the returns of most domestic
market indices. While the Portfolio maintained a conservative approach to
currency exposure relative to the unhedged index during the year, we generally
varied exposure to foreign currencies between 20% and 33% of net assets. As for
duration, we generally managed the Portfolio's overall duration slightly below
4.0 years, except during brief periods in the first quarter of 1997, when
duration was reduced to under 3.2 years. In hindsight, longer duration would
have benefited the Portfolio.
The Portfolio did benefit from its market allocation strategy. Throughout the
period, the Portfolio was heavily invested in U.S. Treasurys, UK Gilts, Canadian
and Australian dollar bonds, which, in general, outperformed Continental
European government bond markets. Due to their low yields, we did not invest in
Japanese government bonds, which outperformed most other markets on a
currency-hedged basis.
By region, approximately 34.5% of the Portfolio was invested in Europe, 59.4%
in North America, 1.1% in New Zealand, 1.0% in South America and 4.0% in the
Netherlands.
Pursuant to a decision by the Portfolio's board of trustees, the Portfolio can
now invest up to 20% of its assets in securities rated below investment grade;
this allows us to invest in emerging market debt. However, because of this
sector's substantial price appreciation last year, we felt most issues were
overvalued and limited the Portfolio's exposure. As a result, the sell-off in
emerging market debt late in October did not materially affect the Portfolio's
net asset value. Over the longer term, we feel confident this sector has the
potential to enhance shareholder value, and are looking for opportunities to add
more emerging market debt to the Portfolio. The Portfolio's flexibility to
invest a percentage of net assets below investment grade will also permit us to
capitalize on Europe's developing corporate bond market. While this market
currently comprises only a few issues, the introduction of the single European
currency should cause the developing corporate bond market to expand, in terms
of both number of securities and market capitalization.
The U.S. economic outlook for 1998 is for slower growth and continued low
inflation. However, with long-term interest rates only nominally higher than
short-term money market rates, we believe the Federal Reserve would have to cut
short-term rates in order for the bond market to perform well. In Europe, nearly
full convergence of interest rates has occurred among candidates for
participation in the first round of Economic Monetary Union (EMU) in January
1999. If all goes well, these markets will most likely perform in tandem in
1998. However, we favor Germany and Holland, which we believe have lower
downside risk in the event of negative EMU developments. Among countries
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opting out of the first round, the United Kingdom offers attractive yields, and
should benefit from a slowing economy in the coming months. We expect to
maintain at least one-third of the Portfolio's net assets in European bonds, and
do not anticipate investing in Japanese government bonds in the near future.
BALANCED PORTFOLIO
The S&P 500 Index ended 1997 up 33.4%, and the 30-year Treasury bond yield
closed the year at 5.92%. The uncertainty over Asian economies and currencies
during the fourth quarter contributed to the Federal Reserve's decision not to
raise short-term interest rates despite above-trend economic growth and a tight
labor market in the United States.
For most of the year, the Portfolio maintained allocations of approximately
65% stocks, 35% bonds and, at times, some cash. Towards the end of the year, we
increased the Portfolio's stock allocation to 70%, as our analysis indicated an
increase in the expected return of stocks relative to bonds and cash. Compared
to the S&P 500 Index, the Portfolio had overweightings in the energy (15.2% of
the Portfolio's equity holdings), financial (22.1%), and technology (9.3%)
sectors, all of which were top performers for most of the year. A positive
contributor to the performance of the Portfolio's stock portion was Cisco
Systems Inc. (1.0% of the Portfolio's assets at December 31, 1997). On the
negative side, towards year-end energy-related and technology holdings performed
poorly, detracting from performance. Additionally, we trimmed the Portfolio's
Compaq Computer Corp. (0.7%) position and eliminated Intel Corp. as both
companies historically have derived significant growth from Asia.
We have chosen to maintain the duration of the Portfolio's bond portion
neutral to the benchmark until the economic impact from Asia becomes more
evident. As of December 31, 1997, the bond allocation included a mixture of U.S.
Government and agency debentures (23.7%), mortgage-backed securities (30.9%) and
corporate bonds (45.4%), which tend to offer higher yields in the current bond
environment.
Going forward, we believe the market is fairly valued according to our
valuation models. The key to performance in 1998 will be stock selection. Our
1998 forecasts call for earnings growth of 6% (reduced from 10%); single to low
double-digit gains for the market; GDP growth in the 2-2 1/2% range; and
inflation of around 2%. If the impact of the Asian situation is greater than
expected, however, slackening demand and lower prices, combined with a strong
dollar, could hurt corporate profits and reduce earnings growth.
GROWTH AND INCOME PORTFOLIO
While the Portfolio benefited from the overall strong stock market returns of
1997, our investment process of emphasizing stocks trading at relatively low
price-to-earnings ratios with sales and earnings that are expected to grow
quickly provided a positive foundation for the Portfolio's performance. The top
sectors from which we chose many of these stocks during most of the year
included technology, financials, and energy. Along with the stock market,
however, the Portfolio was negatively impacted by the Asian currency and
economic crisis in the fourth quarter. On signs of deteriorating economies in
Asia, selected technology, energy and capital equipment stocks suffered--most of
these had outperformed earlier in the year. As stock prices began to retreat and
investors attempted to lock in gains, investors also began to reallocate assets
into more traditionally defensive sectors--utilities and consumer staples, which
rallied and turned in their strongest performance in recent quarters.
Based on our quantitative analysis and fundamental research, we will continue
to overweight financials, which should benefit from declining interest rates,
and domestic-oriented consumer cyclicals--auto and auto parts companies and
retailers--which we believe are reasonably priced. The Portfolio's exposures to
the technology and energy sectors were reduced to neutral weightings versus the
S&P 500 Index at the end of the year. Once earnings estimates for technology
stocks adequately reflect Asia's impact, we expect to find attractive values as
the fundamental momentum for the group remains positive.
As of December 31, 1997, the Portfolio's top five sectors were financials
(24.4%), consumer cyclicals (16.3%), capital goods (13.6%), technology (11.6%)
and energy (9.7%).
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Going forward, we believe the market is fairly valued according to our
valuation models. The key to performance in 1998 will be stock selection. If the
impact of the Asian situation is greater than expected, however, slackening
demand and lower prices, combined with a strong dollar, could hurt corporate
profits and cause earnings growth to drop.
GROWTH PORTFOLIO
The stellar performance of large-cap growth stocks throughout 1997, as well as
the Portfolio's significant underperformance in the beginning of the year due to
its emphasis on smaller- to mid-cap stocks, led to a reassessment of the
Portfolio's investment process. By moving toward larger capitalization companies
with consistent, dependable earnings growth at reasonable valuations, the
Portfolio's new emphasis as of April 1997 helped performance throughout the
year. The Portfolio is now more broadly diversified, and it currently has a
median market capitalization of approximately $6 billion.
Stock selection also played a very important role in the Portfolio's
performance. As of December 31, 1997, some of the top ten holdings contributing
to performance included Cendant Corp. (3.8% of the Portfolio), formerly HFS
Inc., which completed its merger with CUC International to become one of the
country's largest providers of consumer and business services; Watson
Pharmaceuticals Inc. (1.8%), once a small generic drug company, that has grown
to a full-range pharmaceutical development and sales company; and Time Warner
Inc. (1.5%), which finally rationalized operations to take advantage of its huge
potential in media and entertainment.
Going forward, we expect U.S. economic growth to continue at a relatively slow
pace, accompanied by low inflation and low interest rates. The consensus outlook
for corporate profit growth in 1998 is estimated near 6% down from more than 10%
in 1997. Within this context, there exists an opportunity for the market to
advance, although at a slower pace than in the past three years. We expect
growth companies will advance at a faster pace than the overall market. Over the
near term, though, the market is likely to continue to be volatile as investors
try to assess the disturbing issues in the Gulf, the economic situation in Asia
and their impact on currencies, world economies, and monetary health.
AGGRESSIVE GROWTH PORTFOLIO
From a macroeconomic standpoint, large-cap stocks were favored early in the
year as expectations increased for the Federal Reserve to tighten interest
rates. However, as it became clear that rates would not be raised, the market
broadened, with investors seeking smaller capitalization issues during the
second and third quarters. The strength of the small- and mid-cap markets
demonstrated during this period has not been seen since 1991. However, investors
again moved toward the relative safety of larger capitalization stocks during
the fourth quarter of 1997 following the stock market's largest single-day point
decline since 1987, precipitated by the Asian currency and economic crisis. This
reaction fueled gains for defensive stock issues--those with more moderate
growth rates, higher dividends and higher capitalization, all characteristics of
blue chip stocks. Consistent with our highly disciplined style and investment
strategy, the Portfolio remained fully invested in mid-sized, aggressive growth
stocks during this period.
We significantly reduced our exposure to technology stocks in the fourth
quarter as many of these companies have heavy exposure to Japan's market and
other countries that were negatively affected by the instability in the Asian
region. Many mid-sized technology companies that are suppliers to large
multinational companies recorded disappointing performance in light of the
crisis. Our relatively overweighted position in oil services stocks helped the
Portfolio early in the fourth quarter. As the market fell in October, the stocks
of these companies held strong while technology stocks experienced declines.
However, oil services stocks came under pressure later in the quarter. Holdings
in the transportation sector, specifically airlines and trucking, continued to
benefit the Portfolio. Many transportation companies are currently exceeding
their expectations, and we have been revising our expectations upward.
Although the market continues to focus mostly on blue-chip stocks, our outlook
for mid-cap growth stocks remains positive. Fundamentals in the Portfolio remain
strong, with valuations in line with the overall market, yet with growth rates
averaging 20% higher. We believe the market demonstrated pent-up demand for our
type of mid-cap stock during the second and third quarters, and in the face of a
slowing economy, these companies' attractive valuations should once again become
apparent to investors.
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As of December 31, 1997, the Portfolio's top five sector allocations were
29.1% in technology, 27.7% in consumer non-cyclicals, 12.4% in energy, 11.7% in
financial services and 5.5% in transportation.
GLOBAL GROWTH PORTFOLIO
During 1997, the Portfolio's underweighted position in the volatile yet
ultimately strong U.S. equity market detracted from its performance, as did poor
stock performance in Continental Europe during the latter part of the year. Over
all, however, the Portfolio's exposure to Europe was positive, with several
factors contributing to Europe's advance: the move toward a single currency; low
inflation; and strong corporate earnings. Falling interest rates and low
inflation bolstered U.S. equity prices. Sluggish economic conditions and a lack
of significant reform measures by the Japanese government caused Japanese stock
prices to fall, and Asia's economic and currency problems late in the year
jarred markets in the region and had a spillover effect in many key global
markets.
Many stocks in the Portfolio performed well over the year including: Telecom
Italia Mobile SPA (1.0% of the Portfolio), which recorded strong gains due to a
significant increase in the company's subscriber base; Novartis AG (1.9%), the
world's second largest pharmaceutical company, which benefited from a merger and
subsequent improved earnings; NTT Data Corp. (1.3%), a leading networking
integration systems and consulting company in Japan, which reported
better-than-expected earnings; Merita Ltd., (1.4%) a large Finnish bank, which
recorded solid investment results after merging with a large Swedish bank; and
Airtouch Communications Inc. (3.1%), a leading U.S. telecommunications company.
The crisis in Asia is likely to play a significant part in the direction of
stock prices on many global markets in the coming months, as slowing demand and
deflationary trends put pressure on companies' earnings. Given the uncertainty
of the global economy, stock selection is of critical importance to achieving
solid returns in 1998. In general, we are avoiding stocks with high exposure to
Asia, and intend to focus on high-quality, financially sound companies with good
earnings prospects and attractive valuations. Regionally, we continue to
overweight Europe, as we anticipate the stock markets there will benefit from
solid corporate earnings and low interest rates in 1998. Moreover, plans for
economic union by January 1, 1999 should remain a positive catalyst for
consolidation within the fragmented European bank and insurance industries.
Finally, we enter 1998 underweighted in the U.S., as stocks appear fully valued
while current earnings estimates may prove high.
By region, approximately 53.4% of the Portfolio was invested in Europe as of
December 31, 1997, 26.3% in the United States, 6.9% in Japan, 7.2% in Latin
America, 2.9% in the Pacific Rim and 3.3% in other areas.
CONCLUSION
1997 was marked by widely varied performances in the financial markets--some
very strong, others very weak. At times like these, remember the importance of
working with your Investment Executive to help you find investments that are
consistent with your risk tolerance and time horizon.
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.
Sincerely,
<TABLE>
<S> <C>
[SIGNATURE] [SIGNATURE]
DENNIS HESS MARGO N. ALEXANDER
Chairman and Chief Executive Officer, President,
PaineWebber Life Insurance Company Mitchell Hutchins Asset Management Inc.
</TABLE>
This letter is intended to assist shareholders in understanding how the Funds
performed during the year ended December 31, 1997, and reflects our views at the
time we are writing this letter. Of course, these views may change in response
to changing circumstances. We encourage you to consult your investment executive
regarding your personal investment program.
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High Grade Fixed Income Portfolio
Comparison of Change in Value of $10,000 Investment in the
Portfolio and the Lehman Brothers Government Bond Index
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
High Grade Fixed Income
Portfolio Lehman Government Bond Index
<S> <C> <C>
11/30/93 $10,000.00 $10,000.00
12/31/93 $10,059.18 $10,038.65
12/31/94 $9,399.70 $9,699.82
12/31/95 $10,851.21 $11,478.84
12/31/96 $11,003.80 $11,796.96
12/31/97 $11,898.90 $12,928.09
</TABLE>
The graph depicts the performance of the High Grade Fixed Income Portfolio
versus the Lehman Brothers Government Bond Index from November 30, 1993 through
December 31, 1997. It is important to note that the High Grade Fixed Income
Portfolio is a professionally managed mutual fund while the index is not
available for investment and is unmanaged. The comparison is shown for
illustrative purposes only.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL
RETURN
-------------------------
<S> <C>
Twelve Months Ended 12/31/97.................................................. 8.13%
Five Years Ended 12/31/97..................................................... N/A
Commencement of Operations (11/8/93) through
12/31/97.................................................................... 3.17%
</TABLE>
Past performance is not predictive of future performance.
Figures assume reinvestment of all dividends and capital gain distributions, if
any, at net asset value on the payable dates and do not include sales charges.
Performance relates to the Portfolio and does not reflect Separate Account
charges applicable to variable annuity contracts.
The investment return and principal value of an investment in the Portfolio will
fluctuate, so that an investor's shares, when redeemed, may be worth more or
less than their original cost.
Source: Lipper Analytical Services, Inc. and PaineWebber Inc.
7
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Strategic Fixed Income Portfolio
Comparison of Change in Value of $10,000 Investment in the
Portfolio and Lehman Brothers Mortgage Bond Index
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
Strategic Fixed Income
Portfolio Lehman Brothers Mortgage Bond Index
<S> <C> <C>
7/31/89 $10,000.00 $10,000.00
12/31/89 $10,289.70 $10,338.50
12/31/90 $11,042.66 $11,446.98
12/31/91 $12,713.48 $13,246.42
12/31/92 $13,574.92 $14,168.95
12/31/93 $15,161.88 $15,138.59
12/31/94 $14,351.99 $14,894.56
12/31/95 $17,008.03 $17,397.43
12/31/96 $17,652.91 $18,328.18
12/31/97 $19,594.20 $20,068.05
</TABLE>
The graph depicts the performance of the Strategic Fixed Income Portfolio versus
the Lehman Brothers Mortgage Bond Index from July 31, 1989 through December 31,
1997. It is important to note that the Strategic Fixed Income Portfolio is a
professionally managed mutual fund while the index is not available for
investment and is unmanaged. The comparison is shown for illustrative purposes
only.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL
RETURN
-------------------------
<S> <C>
Twelve Months Ended 12/31/97.................................................. 11.00%
Five Years Ended 12/31/97..................................................... 7.62%
Commencement of Operations (07/05/89) through
12/31/97.................................................................... 8.25%
</TABLE>
Past performance is not predictive of future performance.
Figures assume reinvestment of all dividends and capital gain distributions, if
any, at net asset value on the payable dates and do not include sales charges.
Performance relates to the Portfolio and does not reflect Separate Account
charges applicable to variable annuity contracts.
The investment return and principal value of an investment in the Portfolio will
fluctuate, so that an investor's shares, when redeemed, may be worth more or
less than their original cost.
Source: Standard & Poor's Micropal and PaineWebber Inc.
8
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Global Income Portfolio
Comparison of Change in Value of $10,000 Investment in the
Portfolio and the Salomon Brothers World Government Bond Index
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
Global Income
Portfolio Salomon Brothers World Government Bond Index
<S> <C> <C>
5/31/88 $10,000.00 $10,000.00
12/31/88 $11,034.71 $10,368.66
12/31/89 $11,388.77 $10,817.16
12/31/90 $13,078.74 $12,112.84
12/31/91 $14,419.10 $14,027.96
12/31/92 $14,613.65 $14,803.87
12/31/93 $17,043.76 $16,768.29
12/31/94 $16,121.55 $17,161.60
12/31/95 $18,310.30 $20,428.66
12/31/96 $19,521.75 $21,168.13
12/31/97 $20,204.35 $21,217.43
</TABLE>
The graph depicts the performance of the Global Income Portfolio versus the
Salomon Brothers World Government Bond Index from May 31, 1988 through December
31, 1997. It is important to note that the Global Income Portfolio is a
professionally managed mutual fund while the index is not available for
investment and is unmanaged. The comparison is shown for illustrative purposes
only.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL
RETURN
-------------------------
<S> <C>
Twelve Months Ended 12/31/97.................................................. 3.50%
Five Years Ended 12/31/97..................................................... 6.70%
Commencement of Operations (05/01/88) through
12/31/97.................................................................... 7.58%
</TABLE>
Past performance is not predictive of future performance.
Figures assume reinvestment of all dividends and capital gain distributions, if
any, at net asset value on the payable dates and do not include sales charges.
Performance relates to the Portfolio and does not reflect Separate Account
charges applicable to variable annuity contracts.
The investment return and principal value of an investment in the Portfolio will
fluctuate, so that an investor's shares, when redeemed, may be worth more or
less than their original cost.
Source: Lipper Analytical Services, Inc. and PaineWebber Inc.
9
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Balanced Portfolio
Comparison of Change in Value of $10,000 Investment in the
Portfolio and the S&P 500 Stock Index
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
Balanced Portfolio S&P 500 Stock Index
<S> <C> <C>
6/30/88 $10,000.00 $10,000.00
12/31/88 $10,676.04 $10,343.04
12/31/89 $11,484.00 $13,614.69
12/31/90 $11,783.00 $13,191.45
12/31/91 $13,993.00 $17,201.64
12/31/92 $14,713.00 $18,510.39
12/31/93 $17,025.00 $20,371.95
12/31/94 $15,393.00 $20,639.55
12/31/95 $18,976.00 $28,386.34
12/31/96 $22,167.00 $34,899.60
12/31/97 $27,678.00 $46,538.96
</TABLE>
The graph depicts the performance of the Balanced Portfolio versus the Standard
& Poor's 500 Stock Index from June 30, 1988 through December 31, 1997. It is
important to note that the Balanced Portfolio is a professionally managed mutual
fund while the index is not available for investment and is unmanaged. The
comparison is shown for illustrative purposes only.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL
RETURN
-------------------------
<S> <C>
Twelve Months Ended 12/31/97.................................................. 24.86%
Five Years Ended 12/31/97..................................................... 13.47%
Commencement of Operations (06/01/88) through
12/31/97.................................................................... 11.48%
</TABLE>
Past performance is not predictive of future performance.
Figures assume reinvestment of all dividends and capital gain distributions, if
any, at net asset value on the payable dates and do not include sales charges.
Performance relates to the Portfolio and does not reflect Separate Account
charges applicable to variable annuity contracts.
The investment return and principal value of an investment in the Portfolio will
fluctuate, so that an investor's shares, when redeemed, may be worth more or
less than their original cost.
Source: Lipper Analytical Services, Inc. and PaineWebber Inc.
10
<PAGE>
Growth and Income Portfolio
Comparison of Change in Value of $10,000 Investment in the
Portfolio and the S&P 500 Stock Index
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
Growth and Income Portfolio S&P 500 Stock Index
<S> <C> <C>
1/31/92 $10,000.00 $10,000.00
12/31/92 $10,619.84 $10,964.91
12/31/93 $10,381.95 $12,067.63
12/31/94 $9,740.58 $12,226.15
12/31/95 $12,713.46 $16,815.08
12/31/96 $15,526.24 $20,673.31
12/31/97 $20,565.04 $27,568.06
</TABLE>
The graph depicts the performance of the Growth and Income Portfolio versus the
Standard & Poor's 500 Stock Index for the period January 31, 1992 through
December 31, 1997. It is important to note that the Growth and Income Portfolio
is a professionally managed mutual fund while the index is not available for
investment and is unmanaged. The comparison is shown for illustrative purposes
only.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL
RETURN
-------------------------
<S> <C>
Twelve Months Ended 12/31/97.................................................. 32.45%
Five Years Ended 12/31/97..................................................... 14.14%
Commencement of Operations (1/2/92) through
12/31/97.................................................................... 12.28%
</TABLE>
Past performance is not predictive of future performance.
Figures assume reinvestment of all dividends and capital gain distributions, if
any, at net asset value on the payable dates and do not include sales charges.
Performance relates to the Portfolio and does not reflect Separate Account
charges applicable to variable annuity contracts.
The investment return and principal value of an investment in the Portfolio will
fluctuate, so that an investor's shares, when redeemed, may be worth more or
less than their original cost.
Source: Lipper Analytical Services, Inc. and PaineWebber Inc.
11
<PAGE>
Growth Portfolio
Comparison of Change in Value of $10,000 Investment
in the Portfolio and the S&P 500 Stock Index
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
Growth Portfolio S&P 500 Stock Index
<S> <C> <C>
5/31/87 $10,000.00 $10,000.00
12/31/87 $8,819.09 $8,675.71
12/31/88 $13,277.05 $10,112.62
12/31/89 $15,431.83 $13,311.39
12/31/90 $14,170.37 $12,897.58
12/31/91 $20,132.03 $16,818.43
12/31/92 $21,299.34 $18,098.03
12/31/93 $25,488.11 $19,918.12
12/31/94 $22,517.94 $20,179.76
12/31/95 $29,835.74 $27,753.97
12/31/96 $35,413.80 $34,122.13
12/31/97 $40,870.00 $45,502.19
</TABLE>
The graph depicts the performance of the Growth Portfolio versus the Standard &
Poor's 500 Stock Index from May 31, 1987 through December 31, 1997. It is
important to note that the Growth Portfolio is a professionally managed mutual
fund while the index is not available for investment and is unmanaged. The
comparison is shown for illustrative purposes only.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL
RETURN
-------------------------
<S> <C>
Twelve Months Ended 12/31/97.................................................. 15.41%
Five Years Ended 12/31/97..................................................... 13.92%
Ten Years Ended 12/31/97...................................................... 16.57%
Commencement of Operations (05/04/87) through
12/31/97.................................................................... 14.15%
</TABLE>
Past performance is not predictive of future performance.
Figures assume reinvestment of all dividends and capital gain distributions, if
any, at net asset value on the payable dates and do not include sales charges.
Performance relates to the Portfolio and does not reflect Separate Account
charges applicable to variable annuity contracts.
The investment return and principal value of an investment in the Portfolio will
fluctuate, so that an investor's shares, when redeemed, may be worth more or
less than their original cost.
Source: Lipper Analytical Services, Inc. and PaineWebber Inc.
12
<PAGE>
Aggressive Growth Portfolio
Comparison of Change in Value of $10,000 Investment in the
Portfolio and the S&P 500 Stock Index
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
Aggressive Growth
Portfolio S&P 500 Stock Index
<S> <C> <C>
11/30/93 $10,000.00 $10,000.00
12/31/93 $10,074.79 $10,120.90
12/31/94 $8,762.86 $10,253.84
12/31/95 $11,840.70 $14,102.49
12/31/96 $14,828.52 $17,338.31
12/31/97 $17,906.90 $23,120.81
</TABLE>
The graph depicts the performance of the Aggressive Growth Portfolio versus the
Standard & Poor's 500 Stock Index from November 30, 1993 through December 31,
1997. It is important to note that the Aggressive Growth Portfolio is a
professionally managed mutual fund while the index is not available for
investment and is unmanaged. The comparison is shown for illustrative purposes
only.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL
RETURN
-------------------------
<S> <C>
Twelve Months Ended 12/31/97.................................................. 20.76%
Five Years Ended 12/31/97..................................................... N/A
Commencement of Operations (11/05/93) through
12/31/97.................................................................... 14.72%
</TABLE>
Past performance is not predictive of future performance.
Figures assume reinvestment of all dividends and capital gain distributions, if
any, at net asset value on the payable dates and do not include sales charges.
Performance relates to the Portfolio and does not reflect Separate Account
charges applicable to variable annuity contracts.
The investment return and principal value of an investment in the Portfolio will
fluctuate, so that an investor's shares, when redeemed, may be worth more or
less than their original cost.
Source: Lipper Analytical Services, Inc. and PaineWebber Inc.
13
<PAGE>
Global Growth Portfolio
Comparison of Change in Value of $10,000 Investment in the
Portfolio and the Morgan Stanley Capital World International Index
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
Global Growth Morgan Stanley Capital World International
Portfolio Index
<S> <C> <C>
5/31/87 $10,000.00 $10,000.00
12/31/87 $8,442.78 $8,976.55
12/31/88 $10,977.95 $11,126.69
12/31/89 $12,710.40 $13,039.55
12/31/90 $13,671.03 $10,885.72
12/31/91 $14,352.03 $12,950.44
12/31/92 $13,273.36 $12,346.97
12/31/93 $18,586.66 $15,202.68
12/31/94 $16,374.68 $16,051.26
12/31/95 $15,795.51 $19,472.84
12/31/96 $18,188.77 $22,198.27
12/31/97 $19,488.96 $25,800.41
</TABLE>
The graph depicts the performance of the Global Growth Portfolio versus the
Morgan Stanley Capital World International Index for the period May 31, 1987
through December 31, 1997. It is important to note that the Global Growth
Portfolio is a professionally managed mutual fund while the index is not
available for investment and is unmanaged. The comparison is shown for
illustrative purposes only.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL
RETURN
-------------------------
<S> <C>
Twelve Months Ended 12/31/97.................................................. 7.16%
Five Years Ended 12/31/97..................................................... 7.98%
Ten Years Ended 12/31/97...................................................... 8.73%
Commencement of Operations (05/04/87) through
12/31/97.................................................................... 6.48%
</TABLE>
Past performance is not predictive of future performance.
Figures assume reinvestment of all dividends and capital gain distributions, if
any, at net asset value on the payable dates and do not include sales charges.
Performance relates to the Portfolio and does not reflect Separate Account
charges applicable to variable annuity contracts.
The investment return and principal value of an investment in the Portfolio will
fluctuate, so that an investor's shares, when redeemed, may be worth more or
less than their original cost.
Source: Lipper Analytical Services, Inc. and PaineWebber Inc.
14
<PAGE>
MITCHELL HUTCHINS SERIES TRUST--MONEY MARKET PORTFOLIO
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
- --------- -------------------------- ---------------------- ---------------
<C> <S> <C> <C> <C>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS--8.42%
$ 250 Federal Home Loan Bank....................... 07/08/98 5.760% $ 250,081
250 Federal National Mortgage Association........ 02/18/98 5.500 249,902
250 U.S. Treasury Notes.......................... 03/31/98 6.125 250,195
---------------
Total U.S. Government and Agency Obligations
(cost--$750,178)..................................... 750,178
---------------
BANK NOTES (DOMESTIC)--2.25%
200 LaSalle National Bank Chicago Illinois
(cost--$200,000)........................... 04/13/98 6.230 200,000
---------------
CERTIFICATES OF DEPOSIT--5.62%
DOMESTIC--2.81%
250 Morgan Guaranty Trust Co. ................... 03/19/98 5.910 249,980
---------------
YANKEE--2.81%
250 Societe Generale............................. 01/06/98 5.720 249,998
---------------
Total Certificates of Deposit (cost--$499,978)......... 499,978
---------------
COMMERCIAL PAPER--67.22%
ASSET-BACKED--7.26%
250 Atlantis One Funding Corp. .................. 01/29/98 6.100 248,814
400 Delaware Funding Corp. ...................... 02/02/98 5.800 397,938
---------------
646,752
---------------
BANKING--5.57%
500 Unifunding................................... 02/23/98 5.560 495,907
---------------
BROKER-DEALER--1.90%
170 Merrill Lynch & Co., Inc. ................... 02/02/98 5.780 169,127
---------------
BUILDING MATERIALS--5.04%
450 Sherwin Williams Co. ........................ 01/20/98 5.750 448,634
---------------
CHEMICALS--5.60%
250 Monsanto Co. ................................ 01/23/98 5.770 249,119
250 Dupont (E. I.) de Nemours & Co. ............. 01/08/98 5.900 249,713
---------------
498,832
---------------
DRUGS & HEALTHCARE--4.48%
400 Novartis Finance Corp. ...................... 01/12/98 5.820 399,289
---------------
ENERGY--4.49%
400 Koch Industries, Inc. ....................... 01/02/98 6.650 399,926
---------------
FINANCE-CONDUIT--6.60%
190 Metropolitan Life Funding Inc. .............. 01/28/98 5.730 189,183
400 Toronto-Dominion Holdings USA Inc. .......... 01/26/98 5.600 398,445
---------------
587,628
---------------
FINANCE-INDEPENDENT--3.57%
322 National Rural Utilities Cooperative Finance
Corp. ..................................... 03/26/98 5.700 317,717
---------------
FOOD, BEVERAGE & TOBACCO--7.85%
400 Grand Metropolitan Capital Corp. ............ 01/07/98 5.880 399,608
300 The Coca Cola Co. ........................... 01/08/98 to 01/20/98 5.700 to 5.800 299,474
---------------
699,082
---------------
</TABLE>
15
<PAGE>
MITCHELL HUTCHINS SERIES TRUST--MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
- --------- -------------------------- ---------------------- ---------------
<C> <S> <C> <C> <C>
</TABLE>
COMMERCIAL PAPER--(CONCLUDED)
<TABLE>
<C> <S> <C> <C> <C>
INSURANCE--10.41%
$ 400 Prudential Funding Corp. .................... 01/09/98 5.700% $ 399,493
179 Transamerica Corp. .......................... 01/22/98 5.810 178,393
350 USAA Capital Corp. .......................... 01/09/98 5.800 349,549
---------------
927,435
---------------
MACHINERY--4.45%
400 Caterpillar Financial Services N.V. ......... 02/23/98 5.720 396,631
---------------
Total Commercial Paper (cost--$5,986,960).............. 5,986,960
---------------
SHORT-TERM CORPORATE OBLIGATIONS--15.72%
AUTO & TRUCK--2.81%
250 Ford Motor Credit Co. MTN.................... 02/05/98 6.450 250,138
---------------
BANKING--2.81%
250 Bankers Trust New York Corp*................. 07/24/98 6.260 250,000
---------------
BROKER-DEALER--4.49%
400 Bear Stearns Companies Inc.*................. 02/06/98 to 07/08/98 5.760 to 5.850 400,000
---------------
COMPUTERS--2.81%
250 IBM Credit Corp. MTN*........................ 11/10/98 6.030 250,000
---------------
FINANCE--DIVERSIFIED--2.80%
250 Associates Corp. of North America............ 02/01/98 6.125 249,983
---------------
Total Short-Term Corporate Obligations
(cost--$1,400,121)................................... 1,400,121
---------------
REPURCHASE AGREEMENT--1.01%
90 Repurchase Agreement dated 12/31/97 with
State Street Bank & Trust Company,
collateralized by $74,118
U.S. Treasury Bonds, 10.750% due 05/15/03
(value--$91,818); proceeds: $90,025
(cost--$90,000)............................ 01/02/98 5.000 90,000
---------------
8,927,237
Total Investments (cost--$8,927,237)--100.24%..........
(21,345)
Liabilities in excess of other assets--(0.24)%.........
---------------
Net Assets--100.00%.................................... $ 8,905,892
---------------
---------------
</TABLE>
- -----------------
<TABLE>
<S> <C>
* Variable rate security--Maturity date reflects earlier of reset date or stated maturity. The interest rates shown are the
current rates at December 31, 1997.
@ Interest rates shown are discount rates at dates of purchase.
MTN Medium Term Note
</TABLE>
Weighted average maturity--34 days
See accompanying notes to financial statements
16
<PAGE>
MITCHELL HUTCHINS SERIES TRUST--HIGH GRADE FIXED INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
- --------- -------------------- ---------------------- -----------------
<C> <S> <C> <C> <C>
U.S. GOVERNMENT & AGENCY OBLIGATIONS--13.32%
$ 285 Federal Home Loan Mortgage Corp.*............ 01/23/98 5.630% $ 284,011
265 Federal National Mortgage Association
Notes...................................... 02/02/06 5.875 262,056
200 U.S. Treasury Lincs.......................... 08/15/09 6.000 198,500
225 U.S. Treasury Notes.......................... 12/31/99 7.750 233,789
-----------------
Total U.S. Government & Agency Obligations
(cost--$979,342)..................................... 978,356
-----------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION CERTIFICATES--9.11%
408 GNMA......................................... 01/15/24 7.000 410,667
241 GNMA......................................... 11/15/17 8.500 258,368
-----------------
Total Government National Mortgage Association
Certificates
(cost--$636,546).....................................
669,035
-----------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION CERTIFICATES--20.29%
65 FNMA......................................... 12/01/08 6.000 64,101
425 FNMA COFI ARM................................ TBA 6.199 424,734
120 FNMA......................................... 04/01/09 7.000 121,701
387 FNMA......................................... 10/01/23 7.000 390,054
352 FNMA......................................... 07/01/09 7.500 360,688
125 FNMA......................................... 09/01/11 8.000 129,021
-----------------
Total Federal National Mortgage Association
Certificates
(cost--$1,452,857)...................................
1,490,299
-----------------
COLLATERALIZED MORTGAGE OBLIGATIONS--10.42%
98 Amresco Commercial Mortgage Funding I Corp.,
Series 1997-C1, Class A1................... 06/17/29 6.730 99,087
84 CS First Boston Mortgage Securities Corp.,
Series 1995-WF1-A1......................... 12/21/27 6.452 83,891
79 DLJ Mortgage Acceptance Corp. Series
1994-MF11, Class A1 ....................... 06/18/04 8.100 83,675
83 FDIC REMIC Trust 1994-C1, Class 2A2.......... 09/25/25 7.850 83,186
63 FDIC REMIC Trust 1996-C1, Class 1A........... 05/25/26 6.750 63,527
187 Merrill Lynch Mortgage Investments Inc.,
Series 1996-C1, Class A1................... 04/25/28 7.150 192,297
157 Morgan Stanley Capital I, Series 1997-WF1,
Class A1+.................................. 10/15/06 6.830 159,868
-----------------
Total Collateralized Mortgage Obligations
(cost--$757,862)..................................... 765,531
-----------------
CORPORATE BONDS--54.26%
BANKS--9.46%
200 BankAmerica Corp. ........................... 06/15/04 7.625 212,215
225 JP Morgan & Company Inc. .................... 09/15/04 7.625 239,843
235 MBNA Capital I............................... 12/01/26 8.278 242,832
-----------------
694,890
-----------------
DIVERSIFIED RETAIL--3.35%
250 Wal Mart Stores Inc. ........................ 10/15/05 5.875 245,659
-----------------
FINANCIAL SERVICES--5.28%
300 Commercial Credit Group Inc. ................ 05/01/02 6.875 305,976
80 First Industrial LP.......................... 05/15/27 7.150 82,120
-----------------
388,096
-----------------
HOUSEHOLD PRODUCTS--3.00%
225 Procter & Gamble Corp. ...................... 01/15/26 6.450 219,958
-----------------
</TABLE>
17
<PAGE>
MITCHELL HUTCHINS SERIES TRUST--HIGH GRADE FIXED INCOME PORTFOLIO
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
- --------- -------------------- ---------------------- -----------------
<C> <S> <C> <C> <C>
</TABLE>
CORPORATE BONDS--(CONCLUDED)
<TABLE>
<C> <S> <C> <C> <C>
INSURANCE--13.70%
$ 250 American Re Corp. ........................... 12/15/26 7.450% $ 269,429
250 Equitable Life+.............................. 12/01/05 6.950 254,545
225 Loews Corp. ................................. 12/15/06 6.750 227,900
250 Travelers Property Casualty Corp. ........... 04/15/01 6.750 254,191
-----------------
1,006,065
-----------------
LEISURE--3.25%
225 Time Warner Inc. ............................ 06/15/05 7.750 238,764
-----------------
SECURITIES AND ASSET MANAGEMENT--3.14%
225 Lehman Brothers Holdings Inc. ............... 09/15/03 7.125 230,889
YANKEE BONDS--13.08%
225 ABN-AMRO Bank NV............................. 05/15/23 7.750 246,957
225 Dresdner Bank AG............................. 09/15/05 6.625 228,181
225 Societe Generale New York.................... 06/01/06 7.400 235,069
250 Toronto Dominion Bank of Ontario............. 08/15/08 6.500 250,622
-----------------
960,829
-----------------
Total Corporate Bonds (cost--$3,778,611)............... 3,985,150
-----------------
REPURCHASE AGREEMENT--3.88%
285 Repurchase Agreement dated 12/31/97 with
State Street Bank & Trust Company,
collateralized by $234,706 U.S. Treasury
Bonds, 10.750% due 05/15/03
(value--$290,757);
proceeds: $285,079 (cost--$285,000)........ 01/02/98 5.000 285,000
-----------------
8,173,371
Total Investments (cost--$7,890,218)--111.28%..........
(828,510)
Liabilities in excess of other assets--(11.28)%........
-----------------
Net Assets--100.00%.................................... $ 7,344,861
-----------------
-----------------
</TABLE>
- -----------------
<TABLE>
<S> <C>
* Discount Note--The interest rate shown is the discount rate at date of purchase.
+ Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in
transactions exempt from registration, normally to qualified institutional buyers.
ARM Adjustable Rate Mortgage. The interest rate shown is the current rate as of December 31, 1997.
COFI Cost of Funds Index
REMIC Real Estate Mortgage Investment Conduit
TBA To Be Assigned--Securities are purchased on a forward commitment with an approximate (generally +/-1.0%) principal amount
and no defined maturity date. The actual principal amount and maturity date will be determined upon settlement when the
specific mortgage pools are assigned.
</TABLE>
See accompanying notes to financial statements
18
<PAGE>
MITCHELL HUTCHINS SERIES TRUST--STRATEGIC FIXED INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
- ----------- -------------------- ----------------------------- -------------
<C> <S> <C> <C> <C>
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION CERTIFICATES--18.51%
$ 177 GNMA II ARM.................................. 07/20/27 6.000% $ 178,142
270 GNMA II ARM.................................. 09/20/25 7.000 276,706
278 GNMA II ARM.................................. 06/20/25 7.375 286,295
464 GNMA II ARM.................................. 02/20/25 7.000 475,219
89 GNMA II ARM.................................. 05/20/25 7.375 91,618
510 GNMA II ARM.................................. 11/20/21 6.875 522,849
-------------
Total Government National Mortgage Association
Certificates
(cost--$1,823,942).....................................
1,830,829
-------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION CERTIFICATES--7.58%
750 FNMA ARM TBA (cost--$747,656)................ TBA 6.170 749,531
-------------
COLLATERALIZED MORTGAGE OBLIGATIONS--43.06%
54 Chase Mortgage Finance Corp. REMIC Series
1993-N, Class A1........................... 11/25/24 6.750 53,330
48 Countrywide Mortgage Backed Securities Inc.
REMIC Series 1993-E, Class A1.............. 01/25/24 6.500 47,701
160 FHLMC REMIC Series 1614, Class QZ............ 11/15/23 6.500 149,533
185 FHLMC REMIC Series 1628, Class KZ............ 12/15/23 6.250 175,548
187 FNMA REMIC Series 1991-57, Class Z........... 05/25/21 6.500 184,251
258 FNMA REMIC Series 1991-59, Class K........... 05/25/16 8.000 259,192
297 FNMA REMIC Series 1993-112, Class ZB......... 07/25/23 7.000 298,009
93 FNMA REMIC Series 1993-163, Class ZA......... 09/25/23 7.000 92,998
137 FNMA REMIC Series 1993-96, Class PZ.......... 06/25/23 7.000 143,329
49 FNMA REMIC Series 1993-98, Class FC (1)...... 07/25/22 6.057 47,184
306 FNMA REMIC Series G92-40, Class ZC........... 07/25/22 7.000 306,005
235 FNMA REMIC Series G93-16, Class K............ 04/25/23 5.000 199,969
83 Greenwich Capital Acceptance Inc., REMIC
Series 1991-B, Class A1, ARM............... 01/25/22 7.620 84,842
254 Greenwich Capital Acceptance Inc., REMIC
Series 1992-LB6, Class A1, ARM............. 10/25/22 7.327 255,936
500 Merrill Lynch Mortgage Investors Inc., REMIC
Series 1993-I, Class A3 (1)................ 11/15/23 6.308 505,935
386 Prudential Home Mortgage Securities Corp.
REMIC Series 1993-38, Class A7............. 09/25/23 6.950 374,589
458 Residential Funding Mortgage Services, REMIC
Series 1997-S7, Class A5................... 05/25/27 7.500 456,179
674 Westam Mortgage Financial Corp., REMIC Series
14A, Class A............................... 06/26/20 5.350 624,080
-------------
Total Collateralized Mortgage Obligations
(cost--$4,003,690)..................................... 4,258,610
-------------
STRIPPED MORTGAGE-BACKED SECURITIES--0.22%
35 FNMA REMIC Series 1993-235, Class G*(2)
(cost--$18,671)............................ 09/25/23 5.940+ 21,615
-------------
CORPORATE BONDS--27.34%
500 Ford Motor Credit Co. (1).................... 11/09/98 5.650 499,343
200 Gulf Canada Resources Ltd. .................. 08/15/99 9.000 209,235
300 Lehman Brothers Holdings Inc. (1)............ 01/12/99 5.870 299,248
500 Noranda Inc. (1)............................. 08/18/00 6.625 505,250
500 RJR Nabisco Inc. ............................ 12/01/02 8.625 531,897
500 United Airlines Inc. ........................ 02/19/15 10.850 659,295
-------------
Total Corporate Bonds (cost--$2,649,716)................. 2,704,268
-------------
</TABLE>
19
<PAGE>
MITCHELL HUTCHINS SERIES TRUST--STRATEGIC FIXED INCOME PORTFOLIO
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
- ----------- -------------------- ----------------------------- -------------
<C> <S> <C> <C> <C>
FOREIGN GOVERNMENT OBLIGATIONS--1.77%
$ 96 Republic of Argentina FRN.................... 03/31/05 6.688% $ 85,800
100 Republic of Philippines...................... 10/07/16 8.750 89,250
-------------
Total Foreign Government Obligations (cost--$174,862).... 175,050
-------------
LONG-TERM U.S. GOVERNMENT OBLIGATIONS--12.83%
1,070 U.S. Treasury Bonds.......................... 02/15/26 6.000 1,068,663
202 U.S. Treasury Inflation Index Notes.......... 07/15/02 3.625 200,898
-------------
Total Long-Term U.S. Government Obligations
(cost--$1,260,302)..................................... 1,269,561
-------------
SHORT-TERM U.S. GOVERNMENT [email protected]%
30 U.S. Treasury Bills++ (cost--$29,608)........ 03/12/98 to 04/16/98 5.175 to 5.190 29,608
-------------
CERTIFICATE OF DEPOSIT--2.02%
200 Bank of Tokyo Mitsubishi Ltd.
(cost--$200,000)........................... 06/18/98 6.470 200,000
-------------
COMMERCIAL [email protected]%
200 Abbott Laboratories (cost--$199,600)......... 01/13/98 6.000 199,600
-------------
REPURCHASE AGREEMENT--3.03%
300 Repurchase Agreement dated 12/31/97 with
State Street
Bank & Trust Company, collateralized by
$250,000
U.S. Treasury Notes, 10.750% due 05/15/03
(value--$309,704); proceeds: $300,083
(cost--$300,000)........................... 01/02/98 5.000 300,000
-------------
Total Investments (cost--$11,408,047)--118.68%........... 11,738,672
(1,847,846)
Liabilities in excess of other assets--(18.68)%..........
-------------
Net Assets--100.00%...................................... $ 9,890,826
-------------
-------------
</TABLE>
- -----------------
<TABLE>
<S> <C>
* 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.
+ Estimated yield to maturity at December 31, 1997.
++ Entire or partial amount pledged as collateral for futures transactions.
@ Interest rates shown are discount rates at dates of purchase.
ARM Adjustable Rate Mortgage--The interest rates shown are the current rates as of December 31, 1997.
REMIC Real Estate Mortgage Investment Conduit
TBA To Be Assigned--Securities are purchased on a forward commitment with an approximate (generally +/- 1.0%) principal
amount and no defined maturity date. The actual principal amount and maturity date will be determined upon settlement
when the specific mortgage pools are assigned.
(1) Floating rate securities--The interest rates shown are the current rates as of December 31, 1997.
(2) Illiquid security represents 0.22% of net assets.
</TABLE>
FUTURES CONTRACTS
<TABLE>
<CAPTION>
NUMBER OF IN EXPIRATION UNREALIZED
CONTRACTS CONTRACTS TO RECEIVE EXCHANGE FOR DATE APPRECIATION
- ----------- ----------------------------------------------------------------- ---------- ------------
<C> <S> <C> <C> <C>
11 10 year U.S. Treasury Notes.................. $ 1,233,031 March 98 $ 688
12 5 year U.S. Treasury Notes................... 1,303,125 March 98 375
------
$ 1,063
------
------
</TABLE>
See accompanying notes to financial statements
20
<PAGE>
MITCHELL HUTCHINS SERIES TRUST--GLOBAL INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000)* DATES RATES VALUE
- ---------- ------------------- ------------------- -------------------
<C> <S> <C> <C> <C>
LONG-TERM DEBT SECURITIES--88.02%
CANADA--1.98%
375 Government of Canada................................. 06/01/08 10.000% $ 351,055
-------------------
CHILE--1.09%
US$ 190 Empresa Nacional de Electricidad, S.A. .............. 02/01/37 7.325 192,499
-------------------
GERMANY--11.79%
07/22/02 to
3,392 Federal Republic of Germany.......................... 07/04/07 6.000 to 8.000 2,090,122
-------------------
ITALY--3.50%
01/01/02 to
915,000 Republic of Italy.................................... 04/01/04 8.500 to 12.000 619,823
-------------------
NETHERLANDS--4.17%
09/15/01 to
1,360 Government of Netherlands............................ 01/15/06 6.000 to 8.750 738,693
-------------------
NEW ZEALAND--1.15%
320 Government of New Zealand............................ 03/15/02 10.000 203,584
-------------------
POLAND--1.93%
1,000 Republic of Poland (1)............................... 06/12/02 12.000 204,993
US$ 160 Republic of Poland, PDI.............................. 10/27/14 4.000# 138,200
-------------------
343,193
-------------------
SPAIN--1.78%
41,700 Government of Spain.................................. 03/25/00 12.250 316,448
-------------------
SWEDEN--2.94%
06/15/01 to
3,400 Kingdom of Sweden.................................... 05/05/03 10.250 to 13.000 522,031
-------------------
UNITED KINGDOM--11.46%
07/14/00 to
1,055 United Kingdom Gilt.................................. 12/07/15 8.000 to 13.000 2,032,824
-------------------
UNITED STATES--46.23%
308 Banc One Corp. ...................................... 09/01/00 6.250 309,914
800 Clorox Corp.......................................... 07/15/01 8.800 865,858
NZD 650 Federal National Mortgage Association................ 06/20/02 7.250 369,282
800 Ford Motor Credit Corp............................... 07/01/01 9.500 880,707
600 U.S. Treasury Inflation Index Notes.................. 01/15/07 3.375 596,097
08/15/99 to
4,961 U.S. Treasury Notes.................................. 05/15/07 6.250 to 8.000 5,174,533
-------------------
8,196,391
-------------------
Total Long-Term Debt Securities (cost--$15,966,260).............. 15,606,663
-------------------
SHORT-TERM DEBT SECURITIES--15.05%
DENMARK--2.68%
3,138 Government of Denmark................................ 11/15/98 9.000 475,788
-------------------
UNITED STATES--12.37%
2,200 U.S. Treasury Bills.................................. 01/22/98 5.350@ 2,193,356
-------------------
Total Short-Term Debt Securities (cost--$2,682,062).............. 2,669,144
-------------------
</TABLE>
21
<PAGE>
MITCHELL HUTCHINS SERIES TRUST--GLOBAL INCOME PORTFOLIO
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATE RATE VALUE
- ---------- ------------------- ------------------- -------------------
<C> <S> <C> <C> <C>
REPURCHASE AGREEMENT--1.50%
$265 Repurchase Agreement dated 12/31/97 with Brown
Brothers Harriman & Company, collateralized by
$270,000 U.S. Treasury Notes, 5.125% due
04/30/98; (value--$271,900); proceeds: $265,074
(cost--$265,000)................................... 01/02/98 5.000% $ 265,000
-------------------
Total Investments (cost--$18,913,322)--104.57%................... 18,540,807
(810,292)
Liabilities in excess of other assets--(4.57%)...................
-------------------
Net Assets--100.00%.............................................. $ 17,730,515
-------------------
-------------------
</TABLE>
- -----------------
<TABLE>
<S> <C>
* In local currency unless otherwise indicated
# Reflects rate at December 31, 1997 on step up coupon rate instrument
@ Yield to maturity
PDI Past Due Interest bond
(1) Illiquid security representing 1.16% of net assets
</TABLE>
FORWARD FOREIGN CURRENCY CONTRACTS
<TABLE>
<CAPTION>
UNREALIZED
CONTRACT TO APPRECIATION
DELIVER IN EXCHANGE FOR MATURITY DATES (DEPRECIATION)
----------- --------------- ------------------- -------------
<S> <C> <C> <C> <C>
01/27/98 to
Australian Dollars........................................... 955,000 U.S.$ 697,138 02/27/98 $ 74,717
Australian Dollars........................................... 110,000 U.S.$ 77,341 03/03/98 5,649
01/12/98 to
British Pounds............................................... 697,850 U.S.$ 1,164,107 01/20/98 18,742
British Pounds............................................... 125,000 U.S.$ 210,250 02/26/98 5,508
01/05/98 to
Canadian Dollars............................................. 945,000 U.S.$ 661,870 01/22/98 404
Czech Korunas................................................ 10,741,723 U.S.$ 307,789 04/29/98 (2,792)
01/09/98 to
German Deutschemarks......................................... 1,300,000 U.S.$ 733,999 06/22/98 8,701
German Deutschemarks......................................... 600,000 U.S.$ 382,190 01/21/98 48,671
Italian Lira................................................. 966,000,000 U.S.$ 545,544 02/27/98 (47)
Italian Lira................................................. 133,000,000 U.S.$ 77,174 02/27/98 2,042
Netherlands Guilders......................................... 550,000 U.S.$ 274,657 01/26/98 2,965
New Zealand Dollars.......................................... 623,000 U.S.$ 363,832 01/20/98 2,586
New Zealand Dollars.......................................... 400,000 U.S.$ 250,400 01/13/98 18,140
New Zealand Dollars.......................................... 150,000 U.S.$ 92,700 01/14/98 5,649
Polish Zloties............................................... 570,000 U.S.$ 149,402 03/02/98 (12,300)
Spanish Pesetas.............................................. 35,501,519 U.S.$ 254,601 2/10/98 21,668
Swedish Kronas............................................... 5,957,526 U.S.$ 785,349 01/14/98 34,113
01/27/98 to
U.S. Dollars................................................. 669,612 AUD 955,000 02/27/98 (47,190)
U.S. Dollars................................................. 72,707 AUD 110,000 03/03/98 (1,014)
U.S. Dollars................................................. 401,691 CAD 570,000 01/15/98 (2,825)
U.S. Dollars................................................. 311,499 CZK 10,741,723 04/29/98 (919)
U.S. Dollars................................................. 452,233 DEM 800,000 01/09/98 (7,541)
U.S. Dollars................................................. 366,674 DEM 600,000 01/21/98 (33,155)
U.S. Dollars................................................. 245,449 ESP 35,501,519 02/10/98 (12,517)
U.S. Dollars................................................. 286,546 ITL 496,000,000 02/27/98 (6,212)
U.S. Dollars................................................. 295,318 JPY 38,214,200 01/09/98 (2,370)
U.S. Dollars................................................. 232,000 NZD 400,000 01/13/98 260
U.S. Dollars................................................. 155,225 PLN 570,000 03/02/98 6,478
U.S. Dollars................................................. 270,508 SEK 2,127,526 01/14/98 (2,311)
-------------
$ 125,100
-------------
-------------
</TABLE>
CURRENCY TYPE ABBREVIATIONS:
AUD --Australian Dollars ITL --Italian Lira
CAD --Canadian Dollars JPY --Japanese Yen
CZK --Czech Korunas NZD --New Zealand Dollars
DEM--German Deutschemarks PLN --Polish Zloties
ESP --Spanish Pesetas SEK --Swedish Kronas
See accompanying notes to financial statements
22
<PAGE>
MITCHELL HUTCHINS SERIES TRUST--BALANCED PORTFOLIO
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1997
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- --------------- -------------
<C> <S> <C>
COMMON STOCKS--84.41%
AGRICULTURE, FOOD & BEVERAGE--0.35%
2,600 RJR Nabisco Holdings Corp. ..................... $ 97,500
-------------
AIRLINES--1.38%
2,000 AMR Corp.*...................................... 257,000
3,400 Alaska Air Group Inc. .......................... 131,750
-------------
388,750
-------------
APPAREL, TEXTILES--0.55%
3,300 Westpoint Stevens Inc.*......................... 155,925
-------------
BANKS--4.42%
2,700 BB & T Corp. ................................... 172,969
3,000 BankAmerica Corp. .............................. 219,000
4,725 Charter One Financial Inc. ..................... 298,266
2,500 Chase Manhattan Corp. .......................... 273,750
4,200 First Union Corp. .............................. 215,250
1,100 NationsBank Corp. .............................. 66,894
-------------
1,246,129
-------------
COMPUTER HARDWARE--3.42%
3,300 CHS Electronics Inc.*........................... 56,513
6,150 Cisco Systems Inc.*............................. 342,862
4,500 Compaq Computer Corp. .......................... 253,969
2,400 Dell Computer Corp.*............................ 201,600
3,800 Interface Inc. ................................. 110,200
-------------
965,144
-------------
COMPUTER SOFTWARE--2.20%
7,300 Cadence Design Systems Inc.*.................... 178,850
4,500 Computer Associates International Inc. ......... 237,937
5,000 Sterling Software Inc.*......................... 205,000
-------------
621,787
-------------
CONSUMER DURABLES--1.29%
6,300 Furniture Brands International Inc.*............ 129,150
4,000 HON Industries Inc. ............................ 236,000
-------------
365,150
-------------
DEFENSE/AEROSPACE--4.06%
5,100 AAR Corp. ...................................... 197,625
5,600 Allied-Signal Inc. ............................. 218,050
4,800 Boeing Co. ..................................... 234,900
1,800 Lockheed Martin Corp. .......................... 177,300
3,100 Lucasvarity PLC, ADR............................ 108,112
2,300 Precision Castparts Corp. ...................... 138,719
2,300 Tracor Inc.*.................................... 69,863
-------------
1,144,569
-------------
DIVERSIFIED RETAIL--2.31%
4,325 Dayton Hudson Corp. ............................ 291,937
6,500 Fred Meyer Inc.*................................ 236,438
4,300 Proffitts Inc.*................................. 122,281
-------------
650,656
-------------
DRUGS & MEDICINE--4.22%
3,500 American Home Products Corp. ................... 267,750
<CAPTION>
NUMBER OF
SHARES VALUE
- --------------- -------------
<C> <S> <C>
</TABLE>
DRUGS & MEDICINE--(CONCLUDED)
<TABLE>
<C> <S> <C>
1,700 Amerisource Health Corp.*....................... $ 99,025
4,000 Bergen Brunswig Corp. .......................... 168,500
4,750 ICN Pharmaceuticals Inc. ....................... 231,859
4,000 Schering-Plough Corp. .......................... 248,500
5,400 Watson Pharmaceuticals Inc.*.................... 175,163
-------------
1,190,797
-------------
ELECTRIC UTILITIES--1.11%
4,200 New York State Electric & Gas Corp. ............ 149,100
4,200 Utilicorp United Inc. .......................... 163,013
-------------
312,113
-------------
ELECTRICAL EQUIPMENT--2.95%
1,500 Honeywell Inc. ................................. 102,750
3,800 Johnson Controls Inc. .......................... 181,450
3,850 KLA Tencor Corp.*............................... 148,706
10,000 Mettler Toledo International Inc.*.............. 172,500
5,200 SCI Systems Inc.*............................... 226,525
-------------
831,931
-------------
ELECTRICAL POWER--1.52%
7,000 CBS Corp. ...................................... 206,063
3,700 Philips Electronics N.V. ....................... 223,850
-------------
429,913
-------------
ENERGY RESERVES & PRODUCTION--4.00%
4,500 Mobil Corp. .................................... 324,844
2,900 Royal Dutch Petroleum Co. ...................... 157,144
4,900 Texaco Inc. .................................... 266,437
4,300 Union Texas Petroleum Holdings Inc. ............ 89,494
7,500 Unocal Corp. ................................... 291,094
-------------
1,129,013
-------------
FINANCIAL SERVICES--1.76%
3,500 CIT Group Inc.*................................. 112,875
1,500 Countrywide Credit Industries Inc. ............. 64,313
2,300 SLM Holding Corp. .............................. 319,987
-------------
497,175
-------------
FOOD RETAIL--1.12%
5,000 Safeway Inc.*................................... 316,250
-------------
FOREST PRODUCTS & PAPER--0.81%
6,000 Fort James Corp. ............................... 229,500
-------------
FREIGHT, AIR, SEA & LAND--0.44%
2,000 Airborne Freight Corp. ......................... 124,250
-------------
GAS UTILITIES--0.89%
1,400 Columbia Gas System Inc. ....................... 109,988
3,500 MCN Energy Group Inc. .......................... 141,312
-------------
251,300
-------------
HEAVY MACHINERY--2.00%
5,000 Agco Corp. ..................................... 146,250
2,700 Caterpillar Inc. ............................... 131,119
</TABLE>
23
<PAGE>
MITCHELL HUTCHINS SERIES TRUST--BALANCED PORTFOLIO
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- --------------- -------------
<C> <S> <C>
</TABLE>
COMMON STOCKS--(CONTINUED)
HEAVY MACHINERY--(CONCLUDED)
<TABLE>
<C> <S> <C>
4,900 Deere & Co. .................................... $ 285,731
-------------
563,100
-------------
HOTELS--1.46%
5,000 Hilton Hotels Corp. ............................ 148,750
2,700 Marriott International Inc. .................... 186,975
3,700 Prime Hospitality Corp.*........................ 75,388
-------------
411,113
-------------
INDUSTRIAL PARTS--4.50%
3,400 ASM Lithography Holdings N.V.*.................. 229,500
2,800 Aeroquip Vickers Inc. .......................... 137,375
2,550 American Standard Companies Inc.*............... 97,697
4,000 Crane Co. ...................................... 173,500
5,000 Ingersoll Rand Co. ............................. 202,500
4,100 Parker-Hannifin Corp. .......................... 188,088
3,300 United Technologies Corp. ...................... 240,281
-------------
1,268,941
-------------
INDUSTRIAL SERVICES/SUPPLIES--1.36%
8,500 Tyco International Ltd. ........................ 383,031
-------------
INFORMATION & COMPUTER SERVICES--0.55%
4,200 Valassis Communications Inc.*................... 155,400
-------------
LIFE INSURANCE--2.81%
4,200 Conseco Inc. ................................... 190,838
2,800 Protective Life Corp. .......................... 167,300
5,400 Reliastar Financial Corp. ...................... 222,412
5,000 SunAmerica Inc. ................................ 213,750
-------------
794,300
-------------
LONG DISTANCE & PHONE COMPANIES--1.29%
4,000 Bell Atlantic Corp. ............................ 364,000
-------------
MEDICAL PRODUCTS--0.42%
1,800 Johnson & Johnson............................... 118,575
-------------
MEDICAL PROVIDERS--2.30%
4,000 Lincare Holdings Inc.*.......................... 228,000
8,000 Tenet Healthcare Corp.*......................... 265,000
3,700 Wellpoint Health Networks Inc.*................. 156,325
-------------
649,325
-------------
MINING & METALS--1.72%
4,800 Ispat International N.V.*....................... 103,800
4,500 Martin Marietta Inc.*........................... 164,531
11,000 Wyman Gordon Co.*............................... 215,875
-------------
484,206
-------------
MOTOR VEHICLES--3.09%
5,600 Borg Warner Automotive Inc. .................... 291,200
5,500 Chrysler Corp. ................................. 193,531
5,000 Ford Motor Co. ................................. 243,438
3,000 Lear Corp.*..................................... 142,500
-------------
870,669
-------------
<CAPTION>
NUMBER OF
SHARES VALUE
- --------------- -------------
<C> <S> <C>
</TABLE>
<TABLE>
<C> <S> <C>
OIL REFINING--2.15%
2,100 British Petroleum PLC, ADR...................... $ 167,344
3,700 Coastal Corp. .................................. 229,168
6,200 USX-Marathon Group.............................. 209,250
-------------
605,762
-------------
OIL SERVICES--1.97%
900 Camco International Inc. ....................... 57,319
2,700 Ensco International Inc. ....................... 90,450
4,500 Global Marine Inc.*............................. 110,250
1,400 Halliburton Co. ................................ 72,712
2,800 Schlumberger Ltd. .............................. 225,400
-------------
556,131
-------------
OTHER INSURANCE--4.03%
1,800 ACE Ltd. ....................................... 173,700
2,300 Allstate Corp. ................................. 209,012
2,200 American International Group Inc. .............. 239,250
1,000 CIGNA Corp. .................................... 173,063
1,800 Loews Corp. .................................... 191,025
3,450 Travelers Property Casualty Corp. .............. 151,800
-------------
1,137,850
-------------
PUBLISHING--1.35%
4,200 Meredith Corp. ................................. 149,888
3,500 New York Times Co., Class A..................... 231,437
-------------
381,325
-------------
RAILROADS--0.95%
6,000 Trinity Industries Inc. ........................ 267,750
-------------
REAL PROPERTY--3.31%
3,700 Chelsea GCA Realty Inc. ........................ 141,294
4,600 Crescent Real Estate Equities................... 181,125
4,000 Equity Residential Properties Trust............. 202,250
4,200 LaFarge Corp.*.................................. 124,162
3,050 Starwood Lodging Corp. (1)...................... 176,519
2,300 Vornado Realty Trust............................ 107,956
-------------
933,306
-------------
SECURITIES & ASSET MANAGEMENT--3.02%
3,000 Lehman Brothers Holdings Inc. .................. 153,000
2,100 Merrill Lynch & Co., Inc. ...................... 153,169
4,700 Morgan Stanley, Dean Witter, Discover & Co. .... 277,888
4,950 Travelers Group Inc. ........................... 266,681
-------------
850,738
-------------
SEMICONDUCTOR--2.05%
6,400 Applied Materials Inc.*......................... 192,800
6,900 Integrated Process Equipment Corp.*............. 108,675
3,700 National Semiconductor Corp.*................... 95,969
4,000 Texas Instruments Inc. ......................... 180,000
-------------
577,444
-------------
SPECIALTY RETAIL--1.89%
7,900 Claire's Stores Inc. ........................... 153,556
</TABLE>
24
<PAGE>
MITCHELL HUTCHINS SERIES TRUST--BALANCED PORTFOLIO
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- --------------- -------------
<C> <S> <C>
</TABLE>
COMMON STOCKS--(CONCLUDED)
SPECIALTY RETAIL--(CONCLUDED)
<TABLE>
<C> <S> <C>
7,187 Dollar General Corp. ........................... $ 260,529
5,200 Zale Corp.*..................................... 119,600
-------------
533,685
-------------
THRIFT--2.51%
4,900 Ahmanson, H F & Co. ............................ 327,994
7,900 Dime Bancorp Inc.*.............................. 238,975
1,950 Greenpoint Financial Corp. ..................... 141,497
-------------
708,466
-------------
TOBACCO--0.88%
5,500 Phillip Morris Co. Inc. ........................ 249,219
-------------
Total Common Stocks (cost--$19,181,566)......................... 23,812,186
-------------
<CAPTION>
NUMBER OF
SHARES VALUE
- --------------- -------------
<C> <S> <C>
PREFERRED STOCKS--3.87%
ENERGY RESERVES & PRODUCTION--1.28%
5,000 Devon Financing Trust+.......................... $ 361,562
-------------
LONG DISTANCE & PHONE COMPANIES--0.28%
1,250 ICG Communications Inc. ........................ 78,437
-------------
MOTOR VEHICLES--0.88%
5,000 Federal Mogul Financing Trust+.................. 250,625
-------------
OIL SERVICES--0.46%
2,800 EVI Inc. ....................................... 128,625
-------------
OTHER INSURANCE--0.31%
1,500 Frontier Financing Trust+....................... 86,813
-------------
THRIFT--0.66%
1,200 Lomak Financing Trust+.......................... 56,700
2,000 Tosco Financing Trust+.......................... 129,125
-------------
185,825
-------------
Total Preferred Stocks (cost--$937,500)......................... 1,091,887
-------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
- -------- ------------------ -------------------- ------------
<C> <S> <C> <C> <C>
U.S. GOVERNMENT & AGENCY OBLIGATIONS--7.12%
$ 620 Federal Home Loan Mortgage Corp......... 09/25/00 5.970% 621,666
300 Federal National Mortgage Association
Notes................................. 11/21/07 6.550 300,950
185 Federal National Mortgage Association
Notes................................. 07/26/04 6.750 187,938
17 U.S. Treasury Bonds..................... 11/15/12 10.375 22,599
91 U.S. Treasury Bonds..................... 02/15/21 7.875 111,731
515 U.S. Treasury Bonds..................... 11/15/27 6.125 529,163
175 U.S. Treasury Notes..................... 09/30/99 7.125 179,156
53 U.S. Treasury Notes..................... 04/30/02 6.625 54,772
------------
Total U.S. Government & Agency Obligations
(cost--$1,989,327)............................. 2,007,975
------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION CERTIFICATES--3.49%
255 GNMA ARM................................ 01/20/28 5.500 254,761
682 GNMA.................................... 11/15/17 8.500 731,035
------------
Total Government National Mortgage Association
Certificates
(cost--$974,059)...............................
985,796
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION CERTIFICATES--1.41%
187 FNMA.................................... 01/01/26 7.500 191,936
122 FNMA.................................... 02/01/25 9.000 131,528
67 FNMA.................................... 02/01/25 9.500 73,096
------------
Total Federal National Mortgage Association
Certificates
(cost--$393,020)...............................
396,560
------------
</TABLE>
25
<PAGE>
MITCHELL HUTCHINS SERIES TRUST--BALANCED PORTFOLIO
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
- -------- ------------------ -------------------- ------------
<C> <S> <C> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS--4.36%
$ 113 Amresco Commercial Mortgage Funding I
Corp. Series 1997-C1, Class A1........ 06/17/29 6.730% $ 113,951
84 CS First Boston Mortgage Securities
Corp., Series 1995-WF1, Class A1...... 12/21/27 6.452 83,891
107 CS First Boston Mortgage Securities
Corp., Series 1997-2, Class A+........ 06/25/20 7.500 110,141
72 DLJ Mortgage Acceptance Corp., Series
1997-CF1, Class A1A+.................. 05/15/06 7.400 75,900
94 DLJ Mortgage Acceptance Corp., Series
1994-MF11, Class A1................... 06/18/04 8.100 98,441
95 FDIC REMIC Series 1996-C1 Class 1A...... 05/25/26 6.750 95,291
99 FDIC REMIC Trust 1994-C1, Class 2A2..... 09/25/25 7.850 99,823
106 FNMA REMIC Series 1996-M4 Class A....... 03/17/17 7.750 108,426
115 FNMA REMIC Series 1996-M6 Class E....... 09/17/19 7.750 117,362
96 GMAC Commercial Mortgage Security,
Series 1996-C1, Class A2A............. 09/15/03 6.790 97,124
112 Merrill Lynch Mortgage Investments Inc.,
Series 1996-C1, Class A1.............. 04/25/28 7.150 115,378
113 Morgan Stanley Capital I Inc., Series
1997-WF1, Class A1+................... 10/15/06 6.830 115,139
------------
Total Collateralized Mortgage Obligations
(cost--$1,218,087)............................. 1,230,867
------------
CORPORATE BONDS--12.37%
250 ABN-AMRO Bank NV........................ 12/01/26 7.300 254,433
225 American Re Corp. ...................... 12/15/26 7.450 242,486
330 BT Institutional Capital Trust A+....... 12/01/26 8.090 346,376
150 W.R. Berkley Capital Trust.............. 12/15/45 8.197 156,260
250 Canadian Imperial Bank Commerce......... 08/01/00 6.200 250,572
125 Equitable Life+......................... 12/01/05 6.950 127,272
120 First Industrial LP..................... 05/15/27 7.150 123,180
250 Ford Motor Credit Corp. ................ 01/25/01 5.750 246,809
280 Lehman Brothers Holdings Inc. .......... 09/15/03 7.125 287,329
225 Loews Corp. ............................ 12/15/06 6.750 227,900
150 Lumbermans Mutual Casualty Co.+ ........ 07/01/26 9.150 174,765
225 Occidental Petroleum Corp. ............. 09/15/04 8.500 231,971
150 Phillip Morris Companies Inc. .......... 01/15/27 7.750 162,797
125 Royal Caribbean Cruises Ltd. ........... 10/15/27 7.500 128,617
290 Santander Finance Issuances............. 07/15/05 6.800 291,483
225 Time Warner Inc. ....................... 06/15/05 7.750 238,763
------------
Total Corporate Bonds (cost--$3,349,846)......... 3,491,013
------------
CONVERTIBLE BONDS--1.24%
200 Omnicare Inc.+ ......................... 12/01/07 5.000 200,250
75 Smarttalk Teleservices Inc. ............ 09/15/04 5.750 79,125
75 Telephone Save Holdings Inc. ........... 09/15/02 4.500 72,000
------------
Total Convertible Bonds (cost--$350,000)......... 351,375
------------
REPURCHASE AGREEMENT--2.94%
830 Repurchase Agreement dated 12/31/97,
with State Street
Bank & Trust Company, collateralized
by $633,529
U.S. Treasury Bonds, 10.750% due
05/15/03
(value--$846,767); proceeds: $830,231
(cost--$830,000)...................... 01/02/98 5.000 830,000
------------
</TABLE>
26
<PAGE>
MITCHELL HUTCHINS SERIES TRUST--BALANCED PORTFOLIO
<TABLE>
<CAPTION>
NUMBER
OF
SHARES VALUE
- -------- ------------
INVESTMENTS OF CASH COLLATERAL FOR SECURITIES LOANED--0.57%
<C> <S> <C> <C> <C> <C>
MONEY MARKET FUNDS--0.57%
158,674 Liquid Assets Portfolio................. $ 158,674
523 TempCash Portfolio...................... 523
103 TempFund Portfolio...................... 103
---------------
Total Investments of Cash Collateral for
Securities Loaned
(cost--$159,300)...............................
159,300
---------------
Total Investments (cost--$29,382,705)--121.78%... 34,356,959
(6,145,645)
Liabilities in excess of other
assets--(21.78)%.................................
---------------
Net Assets--100.00%.............................. $ 28,211,314
---------------
---------------
</TABLE>
- -----------------
<TABLE>
<S> <C>
* Non-income producing security
+ Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in
transactions exempt from registration, normally to qualified institutional buyers.
ADR American Depositary Receipt
ARM Adjustable Rate Mortgage--The interest rate shown is the current rate as of December 31, 1997.
REMIC Real Estate Mortgage Investment Conduit
(1) Security, or a portion thereof, was on loan at December 31, 1997.
</TABLE>
See accompanying notes to financial statements
27
<PAGE>
MITCHELL HUTCHINS SERIES TRUST--GROWTH AND INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1997
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- --------- -----------
<C> <S> <C>
COMMON STOCKS--111.51%
AGRICULTURE, FOOD & BEVERAGE--0.93%
4,600 RJR Nabisco Holdings Corp. ............................................................. $ 172,500
-----------
AIRLINES--2.12%
1,800 AMR Corp.*.............................................................................. 231,300
1,400 Alaska Air Group Inc. .................................................................. 54,250
2,200 Continental Airlines Inc.*.............................................................. 105,875
-----------
391,425
-----------
APPAREL, RETAIL--1.26%
6,800 TJX Companies, Inc. .................................................................... 233,750
-----------
APPAREL, TEXTILES--0.51%
2,000 Westpoint Stevens Inc.*................................................................. 94,500
-----------
BANKS--7.89%
1,700 BB & T Corporation...................................................................... 108,906
3,400 The Bank of New York Co. Inc. .......................................................... 196,562
4,600 BankAmerica Corp. ...................................................................... 335,800
3,255 Charter One Financial, Inc. ............................................................ 205,472
2,672 Chase Manhattan Corp. .................................................................. 292,584
3,500 First Union Corp. ...................................................................... 179,375
2,300 NationsBank Corp. ...................................................................... 139,869
-----------
1,458,568
-----------
CHEMICALS--2.11%
2,300 Dow Chemical Co. ....................................................................... 233,450
2,600 DuPont (E.I.) de Nemours & Co. ......................................................... 156,163
-----------
389,613
-----------
COMPUTER HARDWARE--5.24%
2,100 CHS Electronics Inc.*................................................................... 35,963
4,350 Cisco Systems, Inc.*.................................................................... 242,512
6,300 Compaq Computer Corp. .................................................................. 355,556
3,200 Dell Computer Corp.*.................................................................... 268,800
2,300 Interface Inc. ......................................................................... 66,700
-----------
969,531
-----------
COMPUTER SOFTWARE--2.36%
6,300 Cadence Design Systems Inc.*............................................................ 154,350
3,000 Computer Associates International Inc. ................................................. 158,625
3,000 Sterling Software Inc.*................................................................. 123,000
-----------
435,975
-----------
CONSUMER DURABLES--1.08%
4,000 Furniture Brands International Inc.*.................................................... 82,000
2,000 HON Industries Inc. .................................................................... 118,000
-----------
200,000
-----------
DEFENSE/AEROSPACE--5.93%
3,400 AAR Corp. .............................................................................. 131,750
6,600 Allied-Signal, Inc. .................................................................... 256,987
4,000 Boeing Co. ............................................................................. 195,750
2,500 Lockheed Martin Corp. .................................................................. 246,250
1,620 Lucasvarity PLC ADR..................................................................... 56,498
2,500 Precision Castparts Corp. .............................................................. 150,781
1,900 Tracor Inc.*............................................................................ 57,712
-----------
1,095,728
-----------
</TABLE>
<TABLE>
<C> <S> <C>
DIVERSIFIED RETAIL--2.72%
3,975 Dayton Hudson Corp. .................................................................... $ 268,312
4,400 Fred Meyer Inc.*........................................................................ 160,050
2,600 Proffitts Inc.*......................................................................... 73,938
-----------
502,300
-----------
DRUGS & MEDICINE--4.86%
2,100 American Home Products Corp. ........................................................... 160,650
1,000 Amerisource Health Corp.*............................................................... 58,250
2,600 Bergen Brunswig Corp. .................................................................. 109,525
2,900 ICN Pharmaceuticals Inc. ............................................................... 141,556
4,600 Schering-Plough Corp. .................................................................. 285,775
4,400 Watson Pharmaceuticals, Inc.*........................................................... 142,725
-----------
898,481
-----------
ELECTRIC UTILITIES--1.02%
2,600 New York State Electric & Gas Corp. .................................................... 92,300
2,500 Utilicorp United Inc. .................................................................. 97,031
-----------
189,331
-----------
ELECTRICAL EQUIPMENT--3.41%
800 Honeywell Inc. ......................................................................... 54,800
3,200 Johnson Controls Inc. .................................................................. 152,800
2,850 KLA-Tencor Corp.*....................................................................... 110,081
5,500 Mettler Toledo International Inc.*...................................................... 94,875
5,000 SCI Systems Inc.*....................................................................... 217,813
-----------
630,369
-----------
ELECTRICAL POWER--1.74%
3,000 CBS Corp. .............................................................................. 88,313
1,800 General Electric Co. ................................................................... 132,075
1,700 Philips Electronics N.V. ............................................................... 102,850
-----------
323,238
-----------
ENERGY RESERVES & PRODUCTION--5.08%
2,500 Burlington Resources Inc. .............................................................. 112,031
2,600 Mobil Corp. ............................................................................ 187,687
3,600 Royal Dutch Petroleum Co. .............................................................. 195,075
4,000 Texaco, Inc. ........................................................................... 217,500
2,700 Union Texas Petroleum Holdings Inc. .................................................... 56,194
4,400 Unocal Corp. ........................................................................... 170,775
-----------
939,262
-----------
FINANCIAL SERVICES--2.91%
1,000 American Express Co. ................................................................... 89,250
2,500 CIT Group Inc.*......................................................................... 80,625
1,000 Countrywide Credit Industries, Inc. .................................................... 42,875
6,100 Loral Space & Communications Corp.*..................................................... 130,769
1,400 SLM Holding Corp. ...................................................................... 194,775
-----------
538,294
-----------
FOOD RETAIL--1.09%
3,200 Safeway Inc.*........................................................................... 202,400
-----------
FOREST PRODUCTS & PAPER--1.03%
5,000 Fort James Corp. ....................................................................... 191,250
-----------
</TABLE>
28
<PAGE>
MITCHELL HUTCHINS SERIES TRUST--GROWTH AND INCOME PORTFOLIO
COMMON STOCKS--(CONTINUED)
FOREST PRODUCTS & PAPER--(CONCLUDED)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- --------- -----------
<C> <S> <C>
FREIGHT, AIR, SEA & LAND--0.57%
1,700 Airborne Freight Corp. ................................................................. $ 105,613
-----------
GAS UTILITY--1.80%
2,900 Columbia Gas System, Inc. .............................................................. 227,831
2,600 MCN Energy Group Inc. .................................................................. 104,975
-----------
332,806
-----------
HEAVY MACHINERY--3.35%
2,900 Agco Corp. ............................................................................. 84,825
3,300 Case Corp. ............................................................................. 199,444
3,300 Caterpillar Inc. ....................................................................... 160,256
3,000 Deere & Co. ............................................................................ 174,937
-----------
619,462
-----------
HOTELS--1.80%
2,300 Hilton Hotels Corp. .................................................................... 68,425
5,000 Host Marriott Corporation*.............................................................. 98,125
1,700 Marriott International Inc. ............................................................ 117,725
2,400 Prime Hospitality Corp.*................................................................ 48,900
-----------
333,175
-----------
INDUSTRIAL PARTS--5.27%
2,200 ASM Lithography Holdings N.V.*.......................................................... 148,500
1,700 Aeroquip Vickers Inc. .................................................................. 83,406
2,700 American Standard Cos Inc.*............................................................. 103,444
3,450 Crane Co. .............................................................................. 149,644
4,900 Ingersoll Rand Co. ..................................................................... 198,450
2,700 Parker-Hannifin Corp. .................................................................. 123,863
2,300 United Technologies Corp. .............................................................. 167,468
-----------
974,775
-----------
INDUSTRIAL SERVICES/SUPPLIES--1.46%
6,000 Tyco International Ltd. ................................................................ 270,375
-----------
INFORMATION & COMPUTER SERVICES--0.75%
2,500 Sunstone Hotel Investors Inc. .......................................................... 43,125
2,600 Valassis Communications Inc.*........................................................... 96,200
-----------
139,325
-----------
LIFE INSURANCE--3.40%
2,500 Conseco Inc. ........................................................................... 113,594
1,600 Protective Life Corp. .................................................................. 95,600
4,600 ReliaStar Financial Corp. .............................................................. 189,462
5,400 SunAmerica Inc. ........................................................................ 230,850
-----------
629,506
-----------
LONG DISTANCE & PHONE COMPANIES--1.31%
1,700 Bell Atlantic Corp. .................................................................... 154,700
1,200 SBC Communications, Inc. ............................................................... 87,900
-----------
242,600
-----------
MEDICAL PRODUCTS--0.61%
1,700 Johnson & Johnson....................................................................... 111,988
-----------
MEDICAL PROVIDERS--2.02%
2,300 Lincare Holdings Inc. *................................................................. 131,100
</TABLE>
MEDICAL PROVIDERS--(CONCLUDED)
<TABLE>
<C> <S> <C>
4,650 Tenet Healthcare Corp.*................................................................. 154,031
2,100 Wellpoint Health Networks Inc.*......................................................... $ 88,725
-----------
373,856
-----------
MINING & METALS--1.26%
3,100 Ispat International N V *............................................................... 67,037
2,700 Martin Marietta Inc.*................................................................... 98,719
3,400 Wyman Gordon Company *.................................................................. 66,725
-----------
232,481
-----------
MOTOR VEHICLES--3.36%
3,400 Borg Warner Automotive Inc. ............................................................ 176,800
3,000 Chrysler Corp. ......................................................................... 105,563
4,700 Ford Motor Co. ......................................................................... 228,831
2,300 Lear Corp.*............................................................................. 109,250
-----------
620,444
-----------
OIL REFINING--4.17%
2,000 British Petroleum PLC ADR............................................................... 159,375
2,300 Coastal Corp. .......................................................................... 142,456
3,100 Tejas Gas Corp.*........................................................................ 189,875
4,200 USX-Marathon Group...................................................................... 141,750
4,000 YPF Sociedad Anonima (Series D) ADR..................................................... 136,750
-----------
770,206
-----------
OIL SERVICES--2.33%
1,300 Camco International Inc. ............................................................... 82,794
2,200 Ensco International Inc. ............................................................... 73,700
1,700 Global Marine Inc.*..................................................................... 41,650
2,000 Halliburton Co. ........................................................................ 103,875
1,600 Schlumberger Ltd. ...................................................................... 128,800
-----------
430,819
-----------
OTHER INSURANCE--6.89%
2,900 ACE Ltd................................................................................. 279,850
3,000 Allstate Corp. ......................................................................... 272,625
2,925 American International Group Inc. ...................................................... 318,094
900 CIGNA Corp. ............................................................................ 155,756
1,200 Loews Corp. ............................................................................ 127,350
2,750 Travelers Property Casualty Corp. ...................................................... 121,000
-----------
1,274,675
-----------
PUBLISHING--1.33%
2,600 Meredith Corp. ......................................................................... 92,788
2,300 New York Times Co., Class A............................................................. 152,087
-----------
244,875
-----------
RAILROADS--0.60%
2,500 Trinity Industries Inc. ................................................................ 111,563
-----------
REAL PROPERTY--3.99%
1,500 Chelsea GCA Realty Inc. ................................................................ 57,281
3,500 Crescent Real Estate Equities........................................................... 137,813
2,937 Equity Residential Properties Trust..................................................... 148,502
2,000 Glimcher Realty Trust................................................................... 45,125
2,500 Lafarge Corp.*.......................................................................... 73,906
1,000 Spieker Properties Inc. ................................................................ 42,875
</TABLE>
29
<PAGE>
MITCHELL HUTCHINS SERIES TRUST--GROWTH AND INCOME PORTFOLIO
COMMON STOCKS--(CONCLUDED)
REAL PROPERTY--(CONCLUDED)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- --------- -----------
<C> <S> <C>
3,050 STARWOOD LODGING CORP.(1)............................................................... $ 176,519
1,200 VORNADO REALTY TRUST.................................................................... 56,325
-----------
738,346
-----------
SECURITIES & ASSET MANAGEMENT--3.48%
1,000 Lehman Brothers Holdings Inc. .......................................................... 51,000
1,300 Merrill Lynch & Co., Inc. .............................................................. 94,819
3,900 Morgan Stanley, Dean Witter, Discover & Co. ............................................ 230,587
4,950 Travelers Group Inc. ................................................................... 266,681
-----------
643,087
-----------
SEMICONDUCTOR--2.13%
6,300 Applied Materials Inc.*................................................................. 189,788
3,400 Integrated Process Equipment Corp.*..................................................... 53,550
3,000 National Semiconductor Corp.*........................................................... 77,813
1,600 Texas Instruments, Inc. ................................................................ 72,000
-----------
393,151
-----------
SPECIALTY RETAIL--1.98%
5,100 Claire's Stores Inc. ................................................................... 99,131
5,062 Dollar General Corp. ................................................................... 183,498
3,600 Zale Corp.*............................................................................. 82,800
-----------
365,429
-----------
THRIFT--2.64%
3,700 Ahmanson, H F & Co. .................................................................... 247,669
5,100 Dime Bancorp Inc.*...................................................................... 154,275
1,200 Greenpoint Financial Corp. ............................................................. 87,075
-----------
489,019
-----------
TOBACCO--1.72%
7,000 Phillip Morris Co. Inc. ................................................................ 317,188
-----------
Total Common Stocks (cost--$15,567,154)............................................................ 20,621,279
-----------
PREFERRED STOCKS--5.45%
AGRICULTURE, FOOD & BEVERAGE--0.38%
1,000 Ralston Purina Co. ..................................................................... $ 69,625
-----------
BANKS--0.99%
2,500 Banco Commercial Portugues International Ltd. .......................................... 183,281
-----------
ENERGY RESERVES & PRODUCTION--0.78%
2,000 Devon Financing Trust+.................................................................. 144,625
-----------
FOREST PRODUCTS, PAPER--0.78%
3,000 International Paper Capital Trust+...................................................... 144,000
-----------
LONG DISTANCE & PHONE COMPANIES--0.42%
1,250 ICG Communications Inc. ................................................................ 78,437
-----------
MOTOR VEHICLES--0.81%
3,000 Federal Mogul Financing Trust+.......................................................... 150,375
-----------
OIL SERVICES--0.30%
1,200 EVI Incorporated........................................................................ 55,125
-----------
OTHER INSURANCE--0.31%
1,000 Frontier Financing Trust+............................................................... 57,875
-----------
THRIFT--0.68%
600 Lomak Financing Trust+.................................................................. 28,350
1,500 Tosco Financing Trust+.................................................................. 96,844
-----------
125,194
-----------
Total Preferred Stocks (cost--$845,065)............................................................ 1,008,537
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES
- --------- -------------------- --------------
<C> <S> <C> <C> <C>
CONVERTIBLE BONDS--1.27%
$ 100 Omnicare Inc. .................................... 12/01/07 5.000% 100,125
50 Smarttalk Teleservices Inc.+ ..................... 09/15/04 5.750 52,750
25 Telephone Save Holdings Inc.+ .................... 09/15/02 4.500 24,000
60 World Color Press Inc.+ .......................... 10/01/07 6.000 57,750
-----------
Total Convertible Bonds (cost--$235,000)..................... 234,625
-----------
</TABLE>
30
<PAGE>
MITCHELL HUTCHINS SERIES TRUST--GROWTH AND INCOME PORTFOLIO
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATE RATE VALUE
- --------- -------------------- -------------- -----------
<C> <S> <C> <C> <C>
REPURCHASE AGREEMENT--0.35%
$ 65 Repurchase Agreement dated 12/31/97, with State
Street Bank & Trust Company, collateralized by
$53,529 U.S. Treasury Bonds, 10.750% due
05/15/03
(value--$66,313); proceeds: $65,018
(cost--$65,000)................................. 01/02/98 5.000% $ 65,000
-----------
<CAPTION>
NUMBER OF
SHARES
- ---------
<C> <S> <C> <C> <C>
INVESTMENTS OF CASH COLLATERAL FOR SECURITIES LOANED--0.86%
MONEY MARKET FUNDS--0.86%
157,423 Liquid Assets Portfolio........................... 157,423
1,877 TempCash Portfolio................................ 1,877
-----------
Total Investments of Cash Collateral for Securities Loaned
(cost--$159,300)........................................... 159,300
-----------
Total Investments (cost--$16,871,519)--119.44%............... 22,088,741
Liabilities in excess of other assets--(19.44)%.............. (3,595,552)
-----------
Net Assets--100.00%.......................................... $18,493,189
-----------
-----------
</TABLE>
- -----------------
<TABLE>
<S> <C>
* Non-Income producing security
+ Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in
transactions exempt from registration, normally to qualified institutional buyers.
ADR American Depositary Receipt
(1) Security, or a portion thereof, was on loan at December 31, 1997.
</TABLE>
See accompanying notes to financial statements
31
<PAGE>
MITCHELL HUTCHINS SERIES TRUST--GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1997
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------- -----------
<C> <S> <C>
COMMON STOCKS--116.86%
AGRICULTURE, FOOD & BEVERAGE--1.45%
12,500 Coca-Cola Enterprises Inc......... $ 444,531
-----------
AIRLINES--1.98%
1,800 AMR Corp.*........................ 231,525
9,700 Alaska Air Group Inc. (1)......... 375,269
-----------
606,794
-----------
BANKS--1.24%
2,000 BankAmerica Corp.................. 146,000
3,675 Charter One Financial Inc......... 231,984
-----------
377,984
-----------
CHEMICALS--3.93%
10,500 Cytec Industries Inc.*............ 492,844
11,500 Sealed Air Corp.* (1)............. 710,125
-----------
1,202,969
-----------
COMPUTER HARDWARE--5.69%
5,000 Box Hill Systems Corp.*........... 52,187
9,000 Cisco Systems Inc.*............... 501,750
5,750 Compaq Computer Corp.*............ 324,516
5,200 Dell Computer Corp.*.............. 437,450
10,000 EMC Corp.*........................ 274,375
3,800 Sun Microsystems Inc.*............ 151,525
-----------
1,741,803
-----------
COMPUTER SOFTWARE--6.50%
7,000 Baan Co. N.V.*.................... 231,000
10,000 Cadence Design Systems Inc.*...... 245,000
6,000 Computer Associates International
Inc............................. 317,250
1,500 Microsoft Corp.*.................. 193,875
6,000 Oracle Systems Corp.*............. 133,875
12,000 Peoplesoft Inc.*.................. 468,000
70,000 Playnet Technologies Inc.* (2).... 16,100
10,000 Sterling Commerce Inc.*........... 384,375
-----------
1,989,475
-----------
CONSUMER DURABLES--0.29%
1,500 HON Industries Inc................ 88,125
-----------
DEFENSE/AEROSPACE--0.99%
5,000 Precision Castparts Corp. ........ 301,563
-----------
DIVERSIFIED RETAIL--2.32%
7,000 Costco Co. Inc.*.................. 312,375
2,500 Dayton Hudson Corp. .............. 169,219
8,000 Proffitts Inc.*................... 227,500
-----------
709,094
-----------
DRUGS & MEDICINE--6.96%
14,000 Elan Corp. PLC, ADS* (1).......... 716,625
11,000 Teva Pharmaceutical Industries
Ltd., ADS....................... 520,438
10,000 Triangle Pharmaceuticals Inc.*.... 146,250
23,000 Watson Pharmaceuticals, Inc.*..... 746,062
-----------
2,129,375
-----------
</TABLE>
<TABLE>
<C> <S> <C>
ELECTRICAL EQUIPMENT--2.74%
6,000 KLA Tencor Corp.*................. $ 231,750
1,500 Lucent Technologies Inc........... 119,812
7,500 SCI Systems Inc.*................. 326,719
3,000 Tellabs, Inc.*.................... 158,625
-----------
836,906
-----------
ENTERTAINMENT--4.52%
12,500 Cinar Films Inc.*................. 485,937
16,000 Florida Panthers Holdings Inc.*... 276,000
10,000 Time Warner Inc. ................. 620,000
-----------
1,381,937
-----------
ENVIRONMENTAL SERVICES--1.72%
15,000 Republic Industries Inc.*......... 349,688
4,500 USA Waste Services Inc.*.......... 176,625
-----------
526,313
-----------
FINANCIAL SERVICES--7.75%
4,000 American Express Co. ............. 357,000
6,000 CIT Group, Inc.*.................. 193,500
4,000 Consolidation Capital Corp.*...... 81,250
8,000 Federal Home Loan Mortgage
Corp. .......................... 335,500
3,000 Federal National Mortgage
Association..................... 171,187
13,500 MBNA Corp......................... 368,719
3,500 SLM Holding Corp.................. 488,687
15,000 Transcrypt International Inc.*.... 375,000
-----------
2,370,843
-----------
FOOD RETAIL--1.65%
8,000 Safeway Inc.*..................... 505,000
-----------
FREIGHT, AIR, SEA, LAND--0.26%
3,500 C. H. Robinson Worldwide.......... 78,313
-----------
HOTELS--1.46%
20,000 Extended Stay America Inc.*....... 248,750
10,000 Host Marriott Corp.*.............. 196,250
-----------
445,000
-----------
INDUSTRIAL PARTS--3.43%
4,000 ASM Lithography Holdings N.V.*.... 271,000
6,000 Illinois Tool Works, Inc.......... 360,750
5,000 Ingersoll Rand Co................. 200,313
3,000 United Technologies Corp. ........ 218,437
-----------
1,050,500
-----------
INDUSTRIAL SERVICES/SUPPLIES--6.55%
45,659 Cendant Corp.*.................... 1,569,494
9,626 Tyco International Ltd. .......... 433,772
-----------
2,003,266
-----------
INFORMATION & COMPUTER SERVICES--6.08%
12,000 HBO & Co. ........................ 575,250
13,000 Keane Inc.*....................... 528,125
6,000 Paychex, Inc...................... 303,750
25,000 Princeton Video Image Inc.* (2)... 210,937
</TABLE>
32
<PAGE>
MITCHELL HUTCHINS SERIES TRUST--GROWTH PORTFOLIO
COMMON STOCKS--(CONCLUDED)
INFORMATION & COMPUTER SERVICES--(CONCLUDED)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------- -----------
<C> <S> <C>
6,500 VALASSIS COMMUNICATIONS INC.*..... $ 240,500
-----------
1,858,562
-----------
LEISURE--0.73%
15,000 American Skiing Co.*.............. 223,125
-----------
LIFE INSURANCE--2.19%
3,000 Conseco Inc. ..................... 136,125
12,500 SunAmerica Inc. .................. 534,375
-----------
670,500
-----------
LONG DISTANCE & PHONE COMPANIES--3.92%
13,000 Teleport Communications Group
Inc.*........................... 715,000
16,000 WorldCom Inc.*.................... 484,000
-----------
1,199,000
-----------
MANUFACTURING--GENERAL--0.45%
8,000 Mettler-Toledo International
Inc.*........................... 138,000
-----------
MEDIA--7.53%
8,000 Clear Channel Communications*..... 635,500
13,000 Comcast Corp., Class A............ 410,312
12,500 Liberty Media Group, Series A*.... 453,125
12,000 Outdoor Systems Inc.*............. 460,500
12,272 Tele-Communications, Inc. Class
A*(1)........................... 342,849
-----------
2,302,286
-----------
MEDICAL PROVIDERS--1.32%
15,000 Phycor Inc.*...................... 405,000
-----------
MINING & METALS--0.39%
5,500 Ispat International N.V.*......... 118,250
-----------
MOTOR VEHICLES--0.78%
5,000 Lear Corp.*....................... 237,500
-----------
OIL REFINING--2.17%
5,000 British Petroleum PLC, ADR........ 398,437
1,500 Coastal Corp. .................... 92,813
5,000 YPF Sociedad Anonima Series D
ADR............................. 170,938
-----------
662,188
-----------
OIL SERVICES--10.00%
10,000 Camco International Inc. ......... 638,125
3,400 Diamond Offshore Drilling Inc..... 163,625
7,000 Dresser Industries, Inc........... 293,562
8,000 EVI Inc.*......................... 414,000
5,000 Ensco International Inc........... 167,500
12,000 Global Industries Inc.*........... 204,000
9,500 Global Marine Inc.*............... 232,750
10,000 Halliburton Co. .................. 519,375
5,300 Schlumberger Ltd. ................ 426,650
-----------
3,059,587
-----------
</TABLE>
<TABLE>
<C> <S> <C>
OTHER INSURANCE--3.14%
3,000 Allstate Corp..................... $ 272,625
3,000 American International Group
Inc............................. 326,250
2,750 MGIC Investment Corp.............. 182,875
1,500 The Progressive Corp.............. 179,812
-----------
961,562
-----------
PUBLISHING--1.09%
3,000 Gannett Inc....................... 185,438
10,000 Getty Communications PLC, ADR*.... 148,750
-----------
334,188
-----------
RAILROADS--0.49%
5,500 Canadian Pacific Ltd.............. 149,875
-----------
REAL PROPERTY--1.62%
4,500 Starwood Lodging Trust (1)........ 260,437
5,000 Vornado Realty Trust.............. 234,688
-----------
495,125
-----------
SECURITIES & ASSET MANAGEMENT--2.71%
2,000 Franklin Resources Inc. .......... 174,125
1,500 Morgan Stanley, Dean Witter,
Discover & Co................... 88,688
10,500 Travelers Group Inc............... 565,687
-----------
828,500
-----------
SEMICONDUCTOR--3.29%
6,500 Altera Corp.*..................... 215,312
8,000 Applied Materials, Inc.*.......... 241,000
3,500 Intel Corp........................ 245,875
6,500 National Semiconductor Corp.*..... 168,188
3,000 Texas Instruments, Inc............ 135,000
-----------
1,005,375
-----------
SPECIALTY RETAIL--5.84%
1,500 CDW Computer Centers Inc.*........ 78,188
13,500 General Nutrition Companies,
Inc.*........................... 459,000
7,500 Home Depot Inc.................... 441,562
5,000 Home Shopping Network Inc.*....... 257,500
13,000 Staples, Inc.*.................... 362,375
6,000 Walgreen Co....................... 188,250
-----------
1,786,875
-----------
THRIFT--1.35%
2,800 Ahmanson H.F. & Co................ 187,425
7,500 Dime Bancorp Inc. New............. 226,875
-----------
414,300
-----------
WIRELESS TELECOMMUNICATIONS--0.34%
2,500 Airtouch Communications, Inc.*.... 103,906
-----------
Total Common Stocks (cost--$24,418,789)........ 35,743,495
-----------
</TABLE>
33
<PAGE>
MITCHELL HUTCHINS SERIES TRUST--GROWTH PORTFOLIO
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
- ---------- ------------------- ------------------- -------------------
<C> <S> <C> <C> <C>
U.S. GOVERNMENT OBLIGATIONS--10.76%
$3,300 U.S. Treasury Bills (cost--$3,290,142)............... 01/22/98 5.080 to 5.200% @ $ 3,290,142
-------------------
REPURCHASE AGREEMENT--0.92%
280 Repurchase Agreement dated 12/31/97 with State Street
Bank & Trust Company, collateralized by $230,588
U.S. Treasury Bonds, 10.750% due 05/15/03
(value--$285,656); proceeds: $280,078
(cost--$280,000)................................... 01/02/98 5.000 280,000
-------------------
<CAPTION>
NUMBER OF
SHARES
- ----------
<C> <S> <C> <C> <C>
INVESTMENTS OF CASH COLLATERAL FOR SECURITIES LOANED--6.78%
MONEY MARKET FUNDS--6.78%
1,527,058 Liquid Assets Portfolio.............................. 1,527,058
40,500 Prime Portfolio...................................... 40,500
237,014 TempCash Portfolio................................... 237,014
268,928 TempFund Portfolio................................... 268,928
-------------------
Total Investments of Cash Collateral for Securities Loaned
(cost--$2,073,500)............................................. 2,073,500
-------------------
Total Investments (cost--$30,062,431)--135.32%................... 41,387,137
(10,801,382)
Liabilities in excess of other assets--(35.32)%..................
-------------------
Net Assets--100.00%.............................................. $ 30,585,755
-------------------
-------------------
</TABLE>
- -----------------
<TABLE>
<S> <C>
* Non-Income producing security
@ Interest rates shown are discount rates at dates of purchase.
ADS American Depositary Shares
ADR American Depositary Receipt
(1) Security, or portion thereof, was on loan at December 31, 1997.
(2) Illiquid securities representing 1.47% of net assets.
</TABLE>
See accompanying notes to financial statements
34
<PAGE>
MITCHELL HUTCHINS SERIES TRUST--AGGRESSIVE GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1997
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------- -------------
<C> <S> <C>
COMMON STOCKS--113.46%
AGRICULTURE, FOOD & BEVERAGE--0.73%
4,200 Smithfield Foods Inc.* ....... $ 138,600
-------------
AIRLINES--1.38%
5,500 Northwest Airlines Corp.* .... 263,313
-------------
APPAREL, RETAIL--2.34%
13,000 TJX Companies, Inc. .......... 446,875
-------------
APPAREL, TEXTILES--3.04%
2,800 Liz Claiborne, Inc............ 117,075
8,500 Nautica Enterprises Inc.*..... 197,625
12,800 Stride Rite Corp. ............ 153,600
4,900 Wolverine World Wide Inc. .... 110,862
-------------
579,162
-------------
CHEMICALS--4.09%
4,500 Ashland, Inc.................. 241,594
8,900 Lyondell Petrochemical Co. ... 235,850
4,600 Tredegar Industries Inc....... 303,025
-------------
780,469
-------------
COMPUTER HARDWARE--2.76%
3,400 Adaptec Inc.*................. 126,225
5,400 Quantum Corp.*................ 108,337
7,900 SanDisk Corp.* ............... 160,469
3,300 Wind River Systems Inc.*...... 130,969
-------------
526,000
-------------
COMPUTER SOFTWARE--11.41%
7,200 BMC Software Inc.*............ 472,500
5,600 Cadence Design Systems,
Inc.*....................... 137,200
3,300 Citrix Systems Inc.*.......... 250,800
10,000 Compuware Corp.*.............. 320,000
8,800 Manugistics Group Inc.* ...... 392,700
3,300 Networks Associates, Inc.*.... 174,487
11,000 Peoplesoft Inc.*.............. 429,000
-------------
2,176,687
-------------
CONSUMER DURABLES--7.58%
11,200 Ethan Allen Interiors Inc..... 431,900
10,300 Furniture Brands International
Inc.*....................... 211,150
5,800 Miller Herman Inc. ........... 316,462
9,000 Mohawk Industries Inc.* ...... 197,438
12,750 Pier 1 Imports Inc............ 288,469
-------------
1,445,419
-------------
DRUGS & MEDICINE--1.61%
3,700 Immunex Corp.*................ 199,800
1,000 McKesson Corp................. 108,188
-------------
307,988
-------------
ELECTRICAL EQUIPMENT--10.12%
4,500 Amphenol Corp.*............... 250,594
8,300 Avid Technology Inc.* ........ 222,025
5,500 Comverse Technology Inc.*..... 214,500
13,200 Digital Microwave Corp.* ..... 191,400
</TABLE>
ELECTRICAL EQUIPMENT--(CONCLUDED)
<TABLE>
<C> <S> <C>
9,800 Jabil Circuit Inc.* .......... 389,550
6,600 SCI Systems Inc.*............. $ 287,512
2,700 Sanmina Corp.* ............... 182,925
6,300 Tekelec Inc.* ................ 192,150
-------------
1,930,656
-------------
FINANCIAL SERVICES--3.00%
10,700 Americredit Corp.* ........... 296,257
5,100 Capital One Financial
Corp. ...................... 276,356
-------------
572,613
-------------
FOOD RETAIL--1.26%
4,700 Whole Foods Market Inc.* ..... 240,288
-------------
FREIGHT, AIR, SEA, LAND--5.11%
4,400 Airborne Freight Corp. ....... 273,350
5,300 CNF Transportation Inc. ...... 203,388
7,000 Expeditores International
Washington Inc.............. 269,500
9,100 Yellow Corp.*................. 228,637
-------------
974,875
-------------
HEAVY MACHINERY--1.24%
2,200 NACCO Industries Inc.......... 235,813
-------------
HOTELS--0.82%
2,800 Anchor Gaming*................ 156,100
-------------
INDUSTRIAL PARTS--3.45%
3,300 Crane Co. .................... 143,137
4,000 Danaher Corp. ................ 252,500
3,800 SPX Corp.*.................... 262,200
-------------
657,837
-------------
INDUSTRIAL SERVICES/SUPPLIES--0.79%
3,750 Robert Half International
Inc.*....................... 150,000
-------------
INFORMATION & COMPUTER SERVICES--4.96%
9,200 HBO & Co. .................... 441,600
4,400 Keane Inc..................... 178,750
4,700 Yahoo Inc.*................... 325,475
-------------
945,825
-------------
LIFE INSURANCE--4.22%
7,000 Conseco Inc. ................. 318,062
11,400 SunAmerica Inc. .............. 487,350
-------------
805,412
-------------
MEDICAL PROVIDERS--1.46%
4,900 Lincare Holdings Inc.*........ 279,300
-------------
MINING & METALS--0.91%
20,200 Bethlehem Steel Corp.*........ 174,225
-------------
MOTOR VEHICLES--3.38%
4,800 Arvin Industries Inc.......... 159,900
6,700 Federal Mogul Corp. .......... 271,350
</TABLE>
35
<PAGE>
MITCHELL HUTCHINS SERIES TRUST--AGGRESSIVE GROWTH PORTFOLIO
COMMON STOCKS--(CONCLUDED)
MOTOR VEHICLES--(CONCLUDED)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------- -------------
<C> <S> <C>
8,600 NAVISTAR INTERNATIONAL
CORP.*...................... $ 213,387
-------------
644,637
-------------
OIL REFINING--1.14%
6,500 Ensco International Inc....... 217,750
-------------
OIL SERVICES--13.48%
5,330 Camco International, Inc...... 339,454
5,800 Cliffs Drilling Co.*.......... 289,275
3,400 Cooper Cameron Corp.*......... 207,400
5,600 EVI Inc.*..................... 289,800
15,800 Global Marine Inc.*........... 387,100
13,700 Marine Drilling Companies
Inc.*....................... 284,275
6,900 Nabors Industries Inc.*....... 216,919
4,200 Tidewater Inc................. 231,525
15,200 Varco International Inc.*..... 325,850
-------------
2,571,598
-------------
OTHER INSURANCE--0.46%
1,900 Orion Capital Corp............ 88,231
-------------
PUBLISHING--1.28%
3,300 Central Newspapers Inc........ 243,994
-------------
REAL PROPERTY--4.64%
5,400 Fairfield Communities
Inc.* ...................... 238,275
6,800 Southdown, Inc................ 401,200
5,000 USG Corp.*.................... 245,000
-------------
884,475
-------------
</TABLE>
<TABLE>
<C> <S> <C>
RESTAURANTS--2.15%
6,200 CKE Restaurants, Inc.......... $ 261,175
9,900 Foodmaker Inc.*............... 149,119
-------------
410,294
-------------
SECURITIES & ASSET MANAGEMENT--1.12%
4,520 Bear Stearns Co. Inc. ........ 214,700
-------------
SEMICONDUCTOR--4.92%
8,500 CellStar Corp.* .............. 168,937
5,900 Dallas Semiconductor Corp..... 240,425
6,600 VLSI Technology Inc.*......... 155,925
9,900 Vitesse Semiconductor
Corp.*...................... 373,725
-------------
939,012
-------------
SPECIALTY RETAIL--7.81%
9,700 Best Buy Co. Inc.* ........... 357,688
6,600 Dollar Tree Stores Inc.* ..... 273,075
7,600 General Nutrition Companies,
Inc.*....................... 258,400
8,700 MacFrugals Bargains Closeouts
Inc.*....................... 357,787
8,300 Michaels Stores Inc.* ........ 242,775
-------------
1,489,725
-------------
THRIFT--0.80%
2,100 Greenpoint Financial Corp..... 152,381
-------------
Total Common Stocks (cost--$16,134,896)........ 21,644,254
-------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATE RATE
- --------- -------- --------
<C> <S> <C> <C> <C>
COMMERCIAL [email protected]%
FINANCIAL SERVICES--4.08%
$779 American Express Credit Corp. (cost--$778,856).... 01/02/98 6.650% 778,856
-----------
Total Investments (cost--$16,913,752)--117.54%.............. 22,423,110
(3,346,675)
Liabilities in excess of other assets--(17.54)%.............
-----------
Net Assets--100.00%......................................... $19,076,435
-----------
-----------
</TABLE>
- ---------------
<TABLE>
<S> <C>
* Non-income producing security
@ Interest rate shown is discount rate at date of purchase
</TABLE>
See accompanying notes to financial statements
36
<PAGE>
MITCHELL HUTCHINS SERIES TRUST--GLOBAL GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1997
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- --------- -----------
<C> <S> <C>
COMMON STOCKS--96.27%
AUSTRALIA--0.88%
BEVERAGES--0.88%
24,883 Coca Cola Amatil Ltd. ................................. $ 185,950
-----------
AUSTRIA--0.86%
ENGINEERING & CONSTRUCTION--0.61%
853 VA Technologie AG...................................... 129,522
-----------
OIL & GAS--0.25%
382 OMV AG................................................. 52,923
-----------
Total Austria Common Stocks....................................... 182,445
-----------
BRAZIL--2.13%
BANKS--0.83%
5,446 Uniao de Banco Brasileiro S.A. GDR..................... 175,293
-----------
TELECOMMUNICATIONS--1.30%
2,368 Telecomunicacones Brasileiras S.A. (Telebras) ADR...... 275,724
-----------
Total Brazil Common Stocks........................................ 451,017
-----------
CROATIA--0.14%
PHARMACEUTICAL--0.14%
1,642 Pliva D.D. GDR......................................... 28,981
-----------
FINLAND--3.51%
FINANCIAL SERVICES--1.41%
54,595 Merita Ltd. ........................................... 298,467
-----------
MULTI-LINE INSURANCE--2.10%
13,731 Sampo Insurance Co. Ltd. .............................. 445,865
-----------
Total Finland Common Stocks....................................... 744,332
-----------
FRANCE--11.42%
AUTO PARTS--0.83%
3,497 Michelin (Class B)..................................... 176,056
-----------
AUTOMOBILES--0.71%
5,361 Renault S.A. .......................................... 150,805
-----------
COMPUTER SOFTWARE & SERVICES--1.18%
3,060 Cap Gemini S.A. ....................................... 250,911
-----------
ELECTRONICS--1.32%
5,152 Schneider S.A. ........................................ 279,750
-----------
ENGINEERING & CONSTRUCTION--0.59%
1,137 Suez Lyonnaise des Eaux S.A. .......................... 125,819
-----------
FOOD--0.96%
390 Carrefour S.A. ........................................ 203,473
-----------
MULTI-LINE INSURANCE--2.01%
5,520 AXA UAP................................................ 427,127
-----------
OIL--1.71%
3,338 Total S.A. (Class B)................................... 363,278
-----------
</TABLE>
FRANCE--(CONCLUDED)
<TABLE>
<C> <S> <C>
OIL WELL EQUIPMENT & SERVICES--1.62%
6,181 Coflexip S.A. ADR...................................... $ 343,045
-----------
STEEL--0.49%
7,153 Usinor Sacilor......................................... 103,281
-----------
Total France Common Stocks........................................ 2,423,545
-----------
GERMANY--6.02%
AUTOMOBILES--1.79%
5,424 Daimler--Benz AG....................................... 380,505
-----------
BANKS--0.99%
3,202 Bayerische Vereinsbank................................. 209,498
-----------
MACHINERY (DIVERSIFIED)--1.56%
655 Mannesmann AG.......................................... 330,968
-----------
MANUFACTURING--0.00%
1 Siemens AG............................................. 59
-----------
MEDICAL PRODUCTS & SUPPLIES--0.86%
2,729 Fresenius Medical Care AG*............................. 181,281
-----------
STEEL--0.82%
1,355 SGL Carbon AG.......................................... 174,746
-----------
Total Germany Common Stocks....................................... 1,277,057
-----------
GREECE--0.03%
BANKS--0.03%
127 Alpha Credit Bank...................................... 7,410
-----------
HONG KONG--1.33%
FINANCIAL SERVICES--0.76%
6,554 HSBC Holdings PLC...................................... 161,545
-----------
HARDWARE & TOOLS--0.33%
24,500 Johnson Electric Holdings.............................. 70,506
-----------
RETAIL--0.24%
148,000 Giordano International Ltd. ........................... 51,091
-----------
Total Hong Kong Common Stocks..................................... 283,142
-----------
INDONESIA--0.16%
AUTOMOBILES--0.12%
94,000 P.T. Astra International Inc. ......................... 24,354
-----------
TRANSPORTATION--0.04%
135,000 P.T. Steady Safe....................................... 9,205
-----------
Total Indonesia Common Stocks..................................... 33,559
-----------
ISRAEL--2.57%
COMPUTER SOFTWARE & SERVICES--0.99%
3,213 Comverse Technology Inc.*.............................. 125,307
2,517 Tecnomatix Technologies Ltd.*.......................... 84,949
-----------
210,256
-----------
</TABLE>
37
<PAGE>
MITCHELL HUTCHINS SERIES TRUST--GLOBAL GROWTH PORTFOLIO
COMMON STOCKS--(CONTINUED)
ISRAEL--(CONCLUDED)
COMPUTER SOFTWARE & SERVICES--(CONCLUDED)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- --------- -----------
<C> <S> <C>
PHARMACEUTICAL--0.76%
3,431 Teva Pharmaceutical Industries Ltd. ADS................ $ 162,329
TELECOMMUNICATIONS--0.82%
6,797 ECI Telecommunications Ltd. ........................... 173,323
-----------
Total Israel Common Stocks........................................ 545,908
-----------
ITALY--4.87%
BANKS--1.89%
79,603 Credito Italiano....................................... 245,469
16,186 Istituto Bancario San Paolo di Torino.................. 154,632
-----------
400,101
-----------
CONGLOMERATES--0.71%
167,155 Montedison SPA......................................... 150,146
-----------
HOUSEHOLD FURNITURE & APPLIANCES--1.24%
12,780 Industrie Natuzzi SPA ADR.............................. 263,587
-----------
TELECOMMUNICATIONS--1.03%
47,431 Telecom Italia Mobilare SPA............................ 218,923
-----------
Total Italy Common Stocks......................................... 1,032,757
-----------
JAPAN--7.00%
AUTOMOBILES--1.38%
8,000 Honda Motor Co. ....................................... 293,482
-----------
COMPUTER SOFTWARE & SERVICES--1.27%
5 NTT Data Corp. ........................................ 269,204
-----------
ELECTRONICS--2.80%
6,200 Sony Corp. ............................................ 550,816
4,000 Sumitomo Sitix......................................... 42,583
-----------
593,399
-----------
FINANCIAL SERVICES--0.34%
2,945 Credit Saison Co. Ltd. ................................ 72,627
-----------
PHOTOGRAPHY & IMAGING--1.21%
11,000 Canon Inc. ............................................ 256,108
-----------
Total Japan Common Stocks......................................... 1,484,820
-----------
MEXICO--1.11%
BANKS--0.49%
8,002 Grupo Financiero Bancomer S.A. ADR*+................... 103,026
-----------
FOOD--0.26%
14,095 Gruma S.A. de C.V. (Series B)*......................... 55,888
-----------
TELECOMMUNICATIONS--0.36%
11,573 Grupo Carso S.A. de C.V. (Series A).................... 77,435
-----------
Total Mexico Common Stocks........................................ 236,349
-----------
</TABLE>
<TABLE>
<C> <S> <C>
NETHERLANDS--3.42%
FINANCIAL SERVICES--1.91%
9,607 Internationale Nederlander Groep N.V. ................. $ 404,625
-----------
OIL WELL EQUIPMENT & SERVICES--0.66%
2,694 IHC Caland N.V. ....................................... 139,772
-----------
STEEL--0.85%
8,345 Ispat International N.V.* (Class A).................... 180,461
-----------
Total Netherlands Common Stocks................................... 724,858
-----------
NORWAY--0.44%
OIL WELL EQUIPMENT & SERVICES--0.44%
1,480 Petroleum Geo-Service*................................. 93,179
-----------
PANAMA--1.76%
BANKS--0.55%
2,798 Banco Latinoamericano de Exportaciones S.A. (Class
E)................................................... 115,767
-----------
BEVERAGES--1.21%
7,905 Panamerican Beverages Inc. (Class A)................... 257,901
-----------
Total Panama Common Stocks........................................ 373,668
-----------
PERU--1.21%
TELECOMMUNICATIONS--1.21%
11,035 Telefonica Del Peru S.A. ADR........................... 257,253
-----------
PHILIPPINES--0.60%
BANKS--0.30%
9,300 Metropolitan Bank & Trust Co. ......................... 62,574
-----------
BEVERAGES--0.24%
42,300 San Miguel Corp. (Class B) (1)......................... 51,700
-----------
TELECOMMUNICATIONS--0.06%
115,600 Pilipino Telephone*.................................... 12,844
-----------
Total Philippines Common Stocks................................... 127,118
-----------
PORTUGAL--0.86%
BANKS--0.56%
5,834 Banco Commercial Portugues S.A. ....................... 119,311
-----------
TELECOMMUNICATIONS--0.30%
587 Telecel--Comunicacaoes Pessoais S.A.*.................. 62,543
-----------
Total Portugal Common Stocks...................................... 181,854
-----------
SOUTH AFRICA--0.73%
COMPUTER SOFTWARE & SERVICES--0.73%
35,952 Dimension Data Holdings Ltd.*.......................... 155,141
-----------
SPAIN--2.53%
BANKS--0.85%
5,390 Banco Santander S.A. .................................. 180,079
-----------
</TABLE>
38
<PAGE>
MITCHELL HUTCHINS SERIES TRUST--GLOBAL GROWTH PORTFOLIO
COMMON STOCKS--(CONTINUED)
SPAIN--(CONCLUDED)
BANKS--(CONCLUDED)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- --------- -----------
<C> <S> <C>
OIL & GAS--1.68%
8,343 Repsol S.A. ........................................... $ 355,953
-----------
Total Spain Common Stocks......................................... 536,032
-----------
SWEDEN--1.40%
AUTO PARTS--1.40%
9,130 Autoliv Inc. SDR....................................... 297,246
-----------
SWITZERLAND--4.42%
ELECTRICAL EQUIPMENT--1.14%
192 ABB AG................................................. 241,117
-----------
MULTI-LINE INSURANCE--1.09%
487 Zurich Versicherungs................................... 231,968
-----------
PHARMACEUTICAL--1.88%
246 Novartis AG............................................ 399,001
-----------
RETAIL--0.31%
745 Tag Heuer International S.A.*.......................... 64,752
-----------
Total Switzerland Common Stocks................................... 936,838
-----------
UNITED KINGDOM--13.41%
ALUMINUM--0.44%
36,332 Billiton PLC........................................... 93,093
-----------
AUTO PARTS--1.27%
76,535 LucasVarity PLC........................................ 270,274
-----------
BANKS--0.30%
7,036 Bank Of Scotland....................................... 63,908
-----------
LEISURE--2.99%
14,468 Airtours PLC........................................... 294,670
22,202 Granada Group PLC...................................... 339,141
-----------
633,811
-----------
MACHINERY (DIVERSIFIED)--2.62%
28,372 Siebe PLC.............................................. 556,882
-----------
MANUFACTURING--0.39%
5,582 Bodycote International PLC............................. 82,837
-----------
METALS--1.21%
28,732 Johnson Matthey PLC.................................... 257,198
-----------
MULTI-LINE INSURANCE--1.66%
10,099 Commercial Union PLC................................... 140,829
20,886 Royal & Sun Alliance Insurance Group................... 210,291
-----------
351,120
-----------
PHARMACEUTICAL--0.04%
2,987 Medeva PLC............................................. 7,948
-----------
</TABLE>
UNITED KINGDOM--(CONCLUDED)
<TABLE>
<C> <S> <C>
PUBLISHING--0.52%
11,513 Reed International PLC................................. 109,679
-----------
RAILROADS--1.32%
17,645 Railtrack Group PLC.................................... $ 280,255
-----------
TRANSPORTATION--0.65%
10,119 Stagecoach Holdings PLC................................ 138,781
-----------
Total United Kingdom Common Stocks................................ 2,845,786
-----------
UNITED STATES--23.46%
BANKS--1.38%
2,310 Citicorp............................................... 292,071
-----------
CHEMICALS (DIVERSIFIED)--0.55%
2,636 Avery Dennison Corp. .................................. 117,961
-----------
COMPUTER SOFTWARE & SERVICES--1.35%
9,817 First Data Corp. ...................................... 287,147
-----------
CONGLOMERATES--2.66%
14,502 Allied-Signal Inc. .................................... 564,672
-----------
ELECTRICAL EQUIPMENT--1.37%
6,861 Harman International Industries Inc. .................. 291,164
-----------
ELECTRONICS--3.81%
2,349 Intel Corp. ........................................... 165,017
4,928 Motorola Inc. ......................................... 281,204
21,982 Sensormatic Electronics Corp. ......................... 361,329
-----------
807,550
-----------
ELECTRONICS COMPONENT & INSTRUMENTS--1.15%
5,477 Thermo Electron Corp.*................................. 243,726
-----------
FINANCIAL SERVICES--1.31%
5,165 Travelers Group Inc. .................................. 278,264
-----------
INDUSTRIAL SERVICES & SUPPLIES--1.04%
3,968 Ecolab Inc. ........................................... 219,976
-----------
OFFICE EQUIPMENT & SUPPLIES--0.52%
3,701 Zebra Technologies Corp. (Class A)*.................... 110,105
-----------
PHARMACEUTICAL--1.58%
5,486 R.P. Scherer Corp.*.................................... 334,646
-----------
RETAIL--2.35%
3,810 Home Depot Inc. ....................................... 224,314
6,043 Sears Roebuck & Co. ................................... 273,446
-----------
497,760
-----------
SECURITIES & ASSET MANAGEMENT--1.04%
3,722 Morgan Stanley, Dean Witter, Discover & Co. ........... 220,063
-----------
STEEL--0.22%
1,180 UCAR International Inc.*............................... 47,126
-----------
</TABLE>
39
<PAGE>
MITCHELL HUTCHINS SERIES TRUST--GLOBAL GROWTH PORTFOLIO
COMMON STOCKS--(CONCLUDED)
UNITED STATES--(CONCLUDED)
STEEL--(CONCLUDED)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- --------- -----------
<C> <S> <C>
TELECOMMUNICATIONS--3.13%
15,987 Airtouch Communications Inc.*.......................... $ 664,460
-----------
Total United States Common Stocks................................. 4,976,691
-----------
Total Common Stocks (cost--$18,149,351)........................... 20,422,936
-----------
PREFERRED STOCKS--1.33%
BRAZIL--0.96%
TELECOMMUNICATIONS--0.96%
769,339 Telecomunicacoes de Sao Paulo S.A. .................... 204,727
-----------
PREFERRED STOCKS--(CONCLUDED)
GERMANY--0.37%
MEDICAL PRODUCTS & SUPPLIES--0.37%
1,452 Fresenius Medical Care AG*............................. $ 78,292
-----------
Total Preferred Stocks (cost--$323,252)........................... 283,019
-----------
<CAPTION>
NUMBER OF
RIGHTS
- ---------
<C> <S> <C>
STOCK RIGHTS--0.05%
BRAZIL--0.05%
TELECOMMUNICATIONS--0.05%
34,806 Telecomunicacoes de Sao Paulo S.A. (cost--$8,624)...... 9,263
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATE RATE
- --------- -------------------- ----------------
<C> <S> <C> <C> <C>
REPURCHASE AGREEMENT--2.73%
$ 580 Repurchase Agreement dated 12/31/97 with State
Street Bank & Trust Company, collateralized by
$570,000 U.S. Treasury Notes, 6.375% due
01/15/00 (value--$593,634); proceeds: $580,193
(cost--$580,000)................................ 01/02/98 6.000% 580,000
-----------
<CAPTION>
NUMBER OF
SHARES
- ---------
<C> <S> <C> <C> <C>
INVESTMENTS OF CASH COLLATERAL FOR SECURITIES LOANED--0.27%
MONEY MARKET FUNDS--0.27%
47,490 Liquid Assets Portfolio........................... 47,490
9,552 TempCash Portfolio................................ 9,552
783 TempFund Portfolio................................ 783
-----------
Total Investments of Cash Collateral for Securities Loaned
(cost--$57,825)........................................... 57,825
-----------
Total Investments (cost--$19,119,052)--100.65%.............. 21,353,043
(138,272)
Liabilities in excess of other assets--(0.65)%..............
-----------
Net Assets--100.00%......................................... $21,214,771
-----------
-----------
</TABLE>
- -----------------
<TABLE>
<S> <C>
* Non-income producing security
+ Security exempt from registration under Rule 144A of the Securities Act of 1933. The security may be resold in
transactions exempt from registration, normally to qualified institutional buyers.
ADR American Depository Receipt
ADS American Depository Shares
GDR Global Depository Receipt
SDR Special Drawing Rights
(1) Security, or a portion thereof, was on loan at December 31, 1997.
</TABLE>
See accompanying notes to financial statements
40
<PAGE>
[This page intentionally left blank]
41
<PAGE>
MITCHELL HUTCHINS SERIES TRUST
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<CAPTION>
HIGH GRADE
MONEY MARKET FIXED INCOME
PORTFOLIO PORTFOLIO
------------ ------------
<S> <C> <C>
ASSETS
Investments, at value (cost--$8,927,237;
$7,890,218; $11,408,047; $18,913,322;
$29,382,705; $16,871,519; $30,062,431;
$16,913,752 and $19,119,052,
respectively)......................... $ 8,927,237 $ 8,173,371
Cash (including cash denominated in
foreign currencies)................... 1,889 2,830
Dividends and interest receivable....... 71,420 72,788
Receivable for investments sold......... -- --
Unrealized appreciation of forward
foreign currency contracts............ -- --
Other assets............................ -- --
------------ ------------
Total assets............................ 9,000,546 8,248,989
------------ ------------
LIABILITIES
Dividends payable....................... 40,360 437,176
Payable to affiliates................... 3,883 3,316
Payable for investments purchased....... -- 424,283
Collateral for securities loaned........ -- --
Payable for shares of beneficial
interest repurchased.................. -- --
Unrealized depreciation of forward
foreign currency contracts............ -- --
Accrued expenses and other
liabilities........................... 50,411 39,353
------------ ------------
Total liabilities....................... 94,654 904,128
------------ ------------
NET ASSETS
Beneficial interest shares of $0.001 par
value outstanding--8,914,692; 790,268;
929,851; 1,640,109; 2,490,890;
1,350,810; 1,956,767; 1,423,188; and
1,450,596, respectively (unlimited
amount authorized).................... 8,916,303 7,123,413
Accumulated net investment income
(loss)................................ -- 309
Accumulated net realized gains (losses)
from investment transactions.......... (10,411) (62,014)
Net unrealized appreciation/depreciation
of investments and other assets and
liabilities denominated in foreign
currencies............................ -- 283,153
------------ ------------
Net assets.............................. $ 8,905,892 $ 7,344,861
------------ ------------
------------ ------------
Net asset value, offering price and
redemption value per share............ $1.00 $9.29
------------ ------------
------------ ------------
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
STRATEGIC GLOBAL GROWTH AGGRESSIVE
FIXED INCOME INCOME BALANCED AND INCOME GROWTH GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investments, at value (cost--$8,927,237;
$7,890,218; $11,408,047; $18,913,322;
$29,382,705; $16,871,519; $30,062,431;
$16,913,752 and $19,119,052,
respectively)......................... $11,738,672 $ 18,540,807 $ 34,356,959 $ 22,088,741 $ 41,387,137 $ 22,423,110
Cash (including cash denominated in
foreign currencies)................... 53 6,971 4,032 167 4,887 290
Dividends and interest receivable....... 109,141 421,809 119,521 24,443 28,959 4,298
Receivable for investments sold......... -- 14,989 82,517 56,111 272,007 108,509
Unrealized appreciation of forward
foreign currency contracts............ -- 256,293 -- -- -- --
Other assets............................ 7,107 -- 771 366 -- --
------------ ------------ ------------ ------------ ------------ ------------
Total assets............................ 11,854,973 19,240,869 34,563,800 22,169,828 41,692,990 22,536,207
------------ ------------ ------------ ------------ ------------ ------------
LIABILITIES
Dividends payable....................... 647,827 1,175,424 5,829,680 3,457,938 8,934,991 3,389,606
Payable to affiliates................... 4,464 12,224 21,614 12,960 24,891 15,023
Payable for investments purchased....... 1,256,242 14,921 254,681 -- -- --
Collateral for securities loaned........ -- -- 159,300 159,300 2,073,500 --
Payable for shares of beneficial
interest repurchased.................. -- 91,573 -- -- -- --
Unrealized depreciation of forward
foreign currency contracts............ -- 131,193 -- -- -- --
Accrued expenses and other
liabilities........................... 55,614 85,019 87,211 46,441 73,853 55,143
------------ ------------ ------------ ------------ ------------ ------------
Total liabilities....................... 1,964,147 1,510,354 6,352,486 3,676,639 11,107,235 3,459,772
------------ ------------ ------------ ------------ ------------ ------------
NET ASSETS
Beneficial interest shares of $0.001 par
value outstanding--8,914,692; 790,268;
929,851; 1,640,109; 2,490,890;
1,350,810; 1,956,767; 1,423,188; and
1,450,596, respectively (unlimited
amount authorized).................... 9,684,830 18,111,730 23,257,145 13,289,903 19,065,024 13,568,700
Accumulated net investment income
(loss)................................ (8,014) (127,888) (7,361) (2,793) (1,217) (857)
Accumulated net realized gains (losses)
from investment transactions.......... (117,638) (27) (12,724) (11,143) 197,242 (766)
Net unrealized appreciation/depreciation
of investments and other assets and
liabilities denominated in foreign
currencies............................ 331,648 (253,300) 4,974,254 5,217,222 11,324,706 5,509,358
------------ ------------ ------------ ------------ ------------ ------------
Net assets.............................. $ 9,890,826 $ 17,730,515 $ 28,211,314 $ 18,493,189 $ 30,585,755 $ 19,076,435
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
Net asset value, offering price and
redemption value per share............ $10.64 $10.81 $11.33 $13.69 $15.63 $13.40
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
<CAPTION>
GLOBAL
GROWTH
PORTFOLIO
-----------
<S> <C>
ASSETS
Investments, at value (cost--$8,927,237;
$7,890,218; $11,408,047; $18,913,322;
$29,382,705; $16,871,519; $30,062,431;
$16,913,752 and $19,119,052,
respectively)......................... $21,353,043
Cash (including cash denominated in
foreign currencies)................... 167,469
Dividends and interest receivable....... 23,411
Receivable for investments sold......... 11,751
Unrealized appreciation of forward
foreign currency contracts............ --
Other assets............................ 2,857
-----------
Total assets............................ 21,558,531
-----------
LIABILITIES
Dividends payable....................... 151,800
Payable to affiliates................... 13,686
Payable for investments purchased....... --
Collateral for securities loaned........ 57,825
Payable for shares of beneficial
interest repurchased.................. 29,783
Unrealized depreciation of forward
foreign currency contracts............ --
Accrued expenses and other
liabilities........................... 90,666
-----------
Total liabilities....................... 343,760
-----------
NET ASSETS
Beneficial interest shares of $0.001 par
value outstanding--8,914,692; 790,268;
929,851; 1,640,109; 2,490,890;
1,350,810; 1,956,767; 1,423,188; and
1,450,596, respectively (unlimited
amount authorized).................... 19,106,658
Accumulated net investment income
(loss)................................ (16,967)
Accumulated net realized gains (losses)
from investment transactions.......... (106,787)
Net unrealized appreciation/depreciation
of investments and other assets and
liabilities denominated in foreign
currencies............................ 2,231,867
-----------
Net assets.............................. $21,214,771
-----------
-----------
Net asset value, offering price and
redemption value per share............ $14.62
-----------
-----------
</TABLE>
43
<PAGE>
MITCHELL HUTCHINS SERIES TRUST
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
HIGH GRADE
MONEY MARKET FIXED INCOME
PORTFOLIO PORTFOLIO
------------ ------------
<S> <C> <C>
INVESTMENT INCOME:
Interest (net of foreign withholding
taxes, if any)........................ $ 636,258 $ 554,238
Dividends (net of foreign withholding
taxes, if any)........................ -- --
------------ ------------
636,258 554,238
------------ ------------
EXPENSES:
Investment advisory and
administration........................ 56,346 39,763
Legal and audit......................... 34,544 34,613
Reports and notices to shareholders..... 21,757 19,251
Trustees' fees.......................... 7,500 7,500
Transfer agency fees and related service
expenses.............................. 1,500 1,500
Custody and accounting.................. 1,127 6,635
Interest expense........................ -- --
Other expenses.......................... 15,268 4,736
------------ ------------
138,042 113,998
------------ ------------
Net investment income (loss)............ 498,216 440,240
------------ ------------
REALIZED AND UNREALIZED GAINS (LOSSES)
FROM INVESTMENTS:
Net realized gains (losses) from:
Investments......................... -- (11,692)
Foreign currency transactions....... -- --
Futures and options contracts....... -- --
Net change in unrealized
appreciation/depreciation of:
Investments......................... -- 200,578
Other assets, liabilities and
forward contracts denominated in
foreign currencies.................... -- --
------------ ------------
Net realized and unrealized gains
(losses) from investment activities... -- 188,886
------------ ------------
Net increase in net assets resulting
from operations....................... $ 498,216 $ 629,126
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to financial statements
44
<PAGE>
<TABLE>
<CAPTION>
STRATEGIC GLOBAL GROWTH AND AGGRESSIVE
FIXED INCOME INCOME BALANCED INCOME GROWTH GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest (net of foreign withholding
taxes, if any)........................ $ 750,535 $ 1,737,383 $ 771,771 $ 72,046 $ 314,127 $ 37,205
Dividends (net of foreign withholding
taxes, if any)........................ -- -- 312,949 264,306 154,085 87,915
------------ ------------ ------------ ------------ ------------ ------------
750,535 1,737,383 1,084,720 336,352 468,212 125,120
------------ ------------ ------------ ------------ ------------ ------------
EXPENSES:
Investment advisory and
administration........................ 53,270 165,480 252,729 138,089 299,373 170,723
Legal and audit......................... 16,455 37,617 63,159 23,125 31,662 29,080
Reports and notices to shareholders..... 13,698 21,809 42,626 15,887 39,944 18,838
Trustees' fees.......................... 7,500 7,500 7,500 7,500 7,500 7,500
Transfer agency fees and related service
expenses.............................. 1,500 1,500 1,500 1,500 1,500 1,500
Custody and accounting.................. 8,513 95,679 22,080 13,909 26,170 14,936
Interest expense........................ 4,695 -- -- -- -- --
Other expenses.......................... 1,108 5,856 10,866 5,213 11,086 9,518
------------ ------------ ------------ ------------ ------------ ------------
106,739 335,441 400,460 205,223 417,235 252,095
------------ ------------ ------------ ------------ ------------ ------------
Net investment income (loss)............ 643,796 1,401,942 684,260 131,129 50,977 (126,975)
------------ ------------ ------------ ------------ ------------ ------------
REALIZED AND UNREALIZED GAINS (LOSSES)
FROM INVESTMENTS:
Net realized gains (losses) from:
Investments......................... 101,982 20,580 5,140,177 3,316,804 9,230,218 3,516,947
Foreign currency transactions....... 5,398 (198,473) -- -- -- --
Futures and options contracts....... 46,052 -- -- -- -- --
Net change in unrealized
appreciation/depreciation of:
Investments......................... 281,528 (700,944) 1,635,208 2,030,467 (3,534,653) 559,895
Other assets, liabilities and
forward contracts denominated in
foreign currencies.................... 20,451 168,816 -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------
Net realized and unrealized gains
(losses) from investment activities... 455,411 (710,021) 6,775,385 5,347,271 5,695,565 4,076,842
------------ ------------ ------------ ------------ ------------ ------------
Net increase in net assets resulting
from operations....................... $ 1,099,207 $ 691,921 $ 7,459,645 $ 5,478,400 $ 5,746,542 $ 3,949,867
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
<CAPTION>
GLOBAL
GROWTH
PORTFOLIO
-----------
<S> <C>
INVESTMENT INCOME:
Interest (net of foreign withholding
taxes, if any)........................ $ 12,554
Dividends (net of foreign withholding
taxes, if any)........................ 310,722
-----------
323,276
-----------
EXPENSES:
Investment advisory and
administration........................ 182,141
Legal and audit......................... 20,688
Reports and notices to shareholders..... 17,324
Trustees' fees.......................... 7,500
Transfer agency fees and related service
expenses.............................. 1,500
Custody and accounting.................. 29,946
Interest expense........................ --
Other expenses.......................... 1,845
-----------
260,944
-----------
Net investment income (loss)............ 62,332
-----------
REALIZED AND UNREALIZED GAINS (LOSSES)
FROM INVESTMENTS:
Net realized gains (losses) from:
Investments......................... 2,956,869
Foreign currency transactions....... (75,763)
Futures and options contracts....... --
Net change in unrealized
appreciation/depreciation of:
Investments......................... (1,172,619)
Other assets, liabilities and
forward contracts denominated in
foreign currencies.................... (1,827)
-----------
Net realized and unrealized gains
(losses) from investment activities... 1,706,660
-----------
Net increase in net assets resulting
from operations....................... $ 1,768,992
-----------
-----------
</TABLE>
45
<PAGE>
MITCHELL HUTCHINS SERIES TRUST
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO
----------------------------
FOR THE YEARS ENDED
DECEMBER 31,
----------------------------
1997 1996
------------- -------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income.............................................................................. $ 498,216 $ 676,800
Net realized gains from investments................................................................ -- 5,435
------------- -------------
Net increase in net assets resulting from operations............................................... 498,216 682,235
------------- -------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income.............................................................................. (498,216) (676,800)
------------- -------------
FROM BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from the sale of shares............................................................... 6,100,044 10,397,169
Cost of shares repurchased......................................................................... (9,982,269) (20,822,547)
Proceeds from dividends reinvested................................................................. 500,956 732,906
------------- -------------
Net decrease in net assets from beneficial interest transactions................................... (3,381,269) (9,692,472)
------------- -------------
Net decrease in net assets......................................................................... (3,381,269) (9,687,037)
NET ASSETS:
Beginning of period................................................................................ 12,287,161 21,974,198
------------- -------------
End of period...................................................................................... $ 8,905,892 $ 12,287,161
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to financial statements
46
<PAGE>
MITCHELL HUTCHINS SERIES TRUST
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
HIGH GRADE FIXED
INCOME PORTFOLIO
--------------------------
FOR THE YEARS ENDED
DECEMBER 31,
--------------------------
1997 1996
------------ ------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income................................................................................ $ 440,240 $ 448,587
Net realized gains (losses) from investments......................................................... (11,692) 13,605
Net change in unrealized appreciation/depreciation of investments.................................... 200,578 (368,487)
------------ ------------
Net increase in net assets resulting from operations................................................. 629,126 93,705
------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income................................................................................ (437,176) (451,613)
------------ ------------
FROM BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from the sale of shares................................................................. 1,050,596 1,586,211
Cost of shares repurchased........................................................................... (2,251,336) (3,017,538)
Proceeds from dividends reinvested................................................................... 451,613 544,295
------------ ------------
Net decrease in net assets from beneficial interest transactions..................................... (749,127) (887,032)
------------ ------------
Net decrease in net assets........................................................................... (557,177) (1,244,940)
NET ASSETS:
Beginning of period.................................................................................. 7,902,038 9,146,978
------------ ------------
End of period (including undistributed net investment income of $309 at December 31, 1997)........... $ 7,344,861 $ 7,902,038
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to financial statements
47
<PAGE>
MITCHELL HUTCHINS SERIES TRUST
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
STRATEGIC FIXED INCOME
PORTFOLIO
----------------------------
FOR THE YEARS ENDED
DECEMBER 31,
----------------------------
1997 1996
------------- -------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income............................................................................... $ 643,796 $ 737,966
Net realized gains (losses) from:
Investments....................................................................................... 101,982 (169,337)
Foreign currency transactions..................................................................... 5,398 (921)
Futures and options contracts..................................................................... 46,052 (3,469)
Net change in unrealized appreciation/depreciation of:
Investments and futures contracts................................................................. 281,528 (217,268)
Other assets and liabilities denominated in foreign currencies.................................... 20,451 9,255
------------- -------------
Net increase in net assets resulting from operations................................................ 1,099,207 356,226
------------- -------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income............................................................................... (647,827) (732,890)
Net realized gains from investments................................................................. -- (99,878)
------------- -------------
(647,827) (832,768)
------------- -------------
FROM BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from the sale of shares................................................................ 1,378,003 1,827,507
Cost of shares repurchased.......................................................................... (3,360,480) (6,631,576)
Proceeds from dividends reinvested.................................................................. 732,890 2,228,680
------------- -------------
Net decrease in net assets from beneficial interest transactions.................................... (1,249,587) (2,575,389)
------------- -------------
Net decrease in net assets.......................................................................... (798,207) (3,051,931)
NET ASSETS:
Beginning of period................................................................................. 10,689,033 13,740,964
------------- -------------
End of period....................................................................................... $ 9,890,826 $ 10,689,033
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to financial statements
48
<PAGE>
MITCHELL HUTCHINS SERIES TRUST
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
GLOBAL INCOME PORTFOLIO
----------------------------
FOR THE YEARS ENDED
DECEMBER 31,
----------------------------
1997 1996
------------- -------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income................... $ 1,401,942 $ 2,013,056
Net realized gains (losses) from:
Investments........................... 20,580 552,474
Foreign currency transactions......... (198,473) (153,052)
Net change in unrealized
appreciation/depreciation of:
Investments........................... (700,944) (601,324)
Other assets, liabilities and forward
contracts denominated in foreign
currencies........................... 168,816 21,138
------------- -------------
Net increase in net assets resulting
from operations....................... 691,921 1,832,292
------------- -------------
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income................... (1,167,799) (1,740,961)
Net realized gains from investments..... (20,607) (18,905)
------------- -------------
(1,188,406) (1,759,866)
------------- -------------
FROM BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from the sale of shares.... 542,568 1,111,951
Cost of shares repurchased.............. (8,439,544) (15,880,673)
Proceeds from dividends reinvested...... 1,687,811 3,432,887
------------- -------------
Net decrease in net assets from
beneficial interest transactions...... (6,209,165) (11,335,835)
------------- -------------
Net decrease in net assets.............. (6,705,650) (11,263,409)
NET ASSETS:
Beginning of period..................... 24,436,165 35,699,574
------------- -------------
End of period........................... $ 17,730,515 $ 24,436,165
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to financial statements
49
<PAGE>
MITCHELL HUTCHINS SERIES TRUST
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
BALANCED PORTFOLIO
----------------------------
FOR THE YEARS ENDED
DECEMBER 31,
----------------------------
1997 1996
------------- -------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income.............................................................................. $ 684,260 $ 763,303
Net realized gains from investments................................................................ 5,140,177 3,319,346
Net change in unrealized appreciation/depreciation of investments.................................. 1,635,208 970,372
------------- -------------
Net increase in net assets resulting from operations............................................... 7,459,645 5,053,021
------------- -------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income.............................................................................. (697,200) (762,589)
Net realized gains from investments................................................................ (5,137,670) (3,328,217)
------------- -------------
(5,834,870) (4,090,806)
------------- -------------
FROM BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from the sale of shares............................................................... 1,683,192 13,793,963
Cost of shares repurchased......................................................................... (8,416,342) (11,275,286)
Proceeds from dividends reinvested................................................................. 4,095,996 2,329,515
------------- -------------
Net increase (decrease) in net assets from beneficial interest transactions........................ (2,637,154) 4,848,192
------------- -------------
Net increase (decrease) in net assets.............................................................. (1,012,379) 5,810,407
NET ASSETS:
Beginning of period................................................................................ 29,223,693 23,413,286
------------- -------------
End of period...................................................................................... $ 28,211,314 $ 29,223,693
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to financial statements
50
<PAGE>
MITCHELL HUTCHINS SERIES TRUST
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
GROWTH AND INCOME PORTFOLIO
----------------------------
FOR THE YEARS ENDED
DECEMBER 31,
----------------------------
1997 1996
------------- -------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income............................................................................... $ 131,129 $ 77,619
Net realized gains from investments................................................................. 3,316,804 2,474,005
Net change in unrealized appreciation/depreciation of investments................................... 2,030,467 572,936
------------- -------------
Net increase in net assets resulting from operations................................................ 5,478,400 3,124,560
------------- -------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income............................................................................... (140,484) (71,861)
Net realized gains from investments................................................................. (3,320,316) (2,474,302)
------------- -------------
(3,460,800) (2,546,163)
------------- -------------
FROM BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from the sale of shares................................................................ 4,349,726 3,555,574
Cost of shares repurchased.......................................................................... (4,943,405) (4,567,939)
Proceeds from dividends reinvested.................................................................. 2,549,024 157,655
------------- -------------
Net increase (decrease) in net assets from beneficial interest transactions......................... 1,955,345 (854,710)
------------- -------------
Net increase (decrease) in net assets............................................................... 3,972,945 (276,313)
NET ASSETS:
Beginning of period................................................................................. 14,520,244 14,796,557
------------- -------------
End of period (including accumulated net investment income of $3,226 at December 31, 1996).......... $ 18,493,189 $ 14,520,244
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to financial statements
51
<PAGE>
MITCHELL HUTCHINS SERIES TRUST
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
GROWTH PORTFOLIO
------------------------------------
FOR THE YEARS ENDED
DECEMBER 31,
------------------------------------
1997 1996
----------------- -----------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income (loss).............................................................. $ 50,977 $ (126,059)
Net realized gains from investments....................................................... 9,230,218 6,920,115
Net change in unrealized appreciation/depreciation of investments......................... (3,534,653) 492,510
----------------- -----------------
Net increase in net assets resulting from operations...................................... 5,746,542 7,286,566
----------------- -----------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income..................................................................... (52,637) --
Net realized gains from investments....................................................... (8,882,354) (6,898,716)
----------------- -----------------
(8,934,991) (6,898,716)
----------------- -----------------
FROM BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from the sale of shares...................................................... 1,988,470 5,722,479
Cost of shares repurchased................................................................ (11,457,385) (16,565,313)
Proceeds from dividends reinvested........................................................ 6,886,405 4,027,837
----------------- -----------------
Net decrease in net assets from beneficial interest transactions.......................... (2,582,510) (6,814,997)
----------------- -----------------
Net decrease in net assets................................................................ (5,770,959) (6,427,147)
NET ASSETS:
Beginning of period....................................................................... 36,356,714 42,783,861
----------------- -----------------
End of period............................................................................. $ 30,585,755 $ 36,356,714
----------------- -----------------
----------------- -----------------
</TABLE>
See accompanying notes to financial statements
52
<PAGE>
MITCHELL HUTCHINS SERIES TRUST
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
AGGRESSIVE GROWTH PORTFOLIO
----------------------------
FOR THE YEARS ENDED
DECEMBER 31,
----------------------------
1997 1996
------------- -------------
<S> <C> <C>
FROM OPERATIONS:
Net investment loss................................................................................. $ (126,975) $ (144,571)
Net realized gains from investments................................................................. 3,516,947 1,629,658
Net change in unrealized appreciation/depreciation of investments................................... 559,895 2,835,132
------------- -------------
Net increase in net assets resulting from operations................................................ 3,949,867 4,320,219
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net realized gains from investments................................................................. (3,393,138) (1,587,776)
------------- -------------
FROM BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from the sale of shares................................................................ 2,796,889 2,195,993
Cost of shares repurchased.......................................................................... (5,035,609) (3,954,371)
Proceeds from dividends reinvested.................................................................. 1,591,309 532,573
------------- -------------
Net decrease in net assets from beneficial interest transactions.................................... (647,411) (1,225,805)
------------- -------------
Net increase (decrease) in net assets............................................................... (90,682) 1,506,638
NET ASSETS:
Beginning of period................................................................................. 19,167,117 17,660,479
------------- -------------
End of period....................................................................................... $ 19,076,435 $ 19,167,117
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to financial statements
53
<PAGE>
MITCHELL HUTCHINS SERIES TRUST
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
GLOBAL GROWTH PORTFOLIO
----------------------------
FOR THE YEARS ENDED
DECEMBER 31,
----------------------------
1997 1996
------------- -------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income............................................................................... $ 62,332 $ 122,459
Net realized gains (losses) from:
Investments....................................................................................... 2,956,869 1,324,543
Foreign currency transactions..................................................................... (75,763) (28,307)
Net change in unrealized appreciation/depreciation of:
Investments....................................................................................... (1,172,619) 2,292,264
Other assets and liabilities denominated in foreign currencies.................................... (1,827) (2,576)
------------- -------------
Net increase in net assets resulting from operations................................................ 1,768,992 3,708,383
------------- -------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income............................................................................... (61,882) (142,283)
Net realized gains from investments................................................................. (89,918) --
------------- -------------
(151,800) (142,283)
------------- -------------
FROM BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from the sale of shares................................................................ 1,143,962 2,414,636
Cost of shares repurchased.......................................................................... (7,389,928) (8,786,727)
Proceeds from dividends reinvested.................................................................. 142,283 --
------------- -------------
Net decrease in net assets from beneficial interest transactions.................................... (6,103,683) (6,372,091)
------------- -------------
Net decrease in net assets.......................................................................... (4,486,491) (2,805,991)
NET ASSETS:
Beginning of period................................................................................. 25,701,262 28,507,253
------------- -------------
End of period....................................................................................... $ 21,214,771 $ 25,701,262
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to financial statements
54
<PAGE>
NOTES TO FINANCIAL STATEMENTS
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Mitchell Hutchins Series Trust (the "Fund"), formerly PaineWebber Series Trust
(name change approved by Fund's board of trustees on November 19, 1997), is
organized under Massachusetts law by a Declaration of Trust dated November 21,
1986 and is registered with the Securities and Exchange Commission ("SEC") under
the Investment Company Act of 1940, as amended, as an open-end management
investment company.
As of December 31, 1997 the Fund has nine series of shares available for
investment, each having its own investment objectives and policies: the Money
Market Portfolio, the High Grade Fixed Income Portfolio, the Strategic Fixed
Income Portfolio, the Global Income Portfolio, the Balanced Portfolio, the
Growth and Income Portfolio, the Growth Portfolio, the Aggressive Growth
Portfolio and the Global Growth Portfolio, (collectively referred to as the
"Portfolios").
All series of shares are diversified except Global Income Portfolio. Shares of
each series of the Fund are offered only to insurance company separate accounts
which fund certain variable contracts. Shares of each series of the Fund are
offered to separate accounts of PaineWebber Life Insurance Company ("PaineWebber
Life"). PaineWebber Life is a wholly owned subsidiary of PaineWebber Life
Holdings Inc., which in turn is a wholly owned subsidiary of Paine Webber Group
Inc.
The preparation of financial statements in accordance with generally accepted
accounting principles requires the Fund's 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 U.S. and foreign stock
exchanges are valued at the last sale price on the day the securities are being
valued or, lacking any sales on such day, at the last available bid price. In
cases where securities are traded on more than one exchange, the securities are
generally valued on the exchange designated by Mitchell Hutchins Asset
Management Inc. ("Mitchell Hutchins"), the portfolios' adviser and a wholly
owned asset management subsidiary of PaineWebber Incorporated ("PaineWebber"),
or by the applicable sub-adviser, as the primary market for each Portfolio.
Securities traded in the over-the-counter ("OTC") market and listed on The
Nasdaq Stock Market, Inc. ("Nasdaq") are valued at the last trade price on
Nasdaq prior to the time of valuation; other OTC securities (other than
short-term debt securities described below) are valued at the last quoted bid
price available in the OTC market prior to the time of valuation. When market
quotations are unavailable, valuations are based upon appraisals received from a
pricing service using a computerized matrix system or appraisals derived from
information concerning the security or similar securities received from
recognized dealers in those securities. The amortized cost method of valuation,
which approximates market value, is used to value short-term debt obligations
with sixty days or less remaining to maturity, including all investments of the
Money Market Portfolio, unless the Fund's board of trustees determines that this
does not represent fair value. Securities and assets for which market quotations
are not readily available (including restricted securities subject to
limitations as to their sale) are valued at fair value as determined in good
faith by or under the direction of the Fund's board of trustees.
All investments quoted in foreign currencies are valued daily in U.S. dollars
on the basis of the foreign currency exchange rate prevailing at the time such
valuation is determined by the Fund's custodians, unless the board of trustees
determines that this does not represent fair value. Foreign currency exchange
rates are generally determined prior to the close of the New York Stock Exchange
("NYSE"). Occasionally, events affecting the value of foreign investments and
such exchange rates occur between the time at which they are determined and the
close of the NYSE, which will not be reflected in a computation of the
Portfolios' net asset values. If events materially affecting the value of such
investments or currency exchange rates occur during such time period, the
securities may be valued at their fair value as determined in good faith by or
under the direction of the Fund's board of trustees.
55
<PAGE>
NOTES TO FINANCIAL STATEMENTS
REPURCHASE AGREEMENTS--Each Portfolio'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. Each Portfolio 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 basis. Dividend income and
other distributions are recorded on the ex-dividend date ("ex-date") (except for
certain dividends from foreign securities that are recorded as soon after the
ex-date as the respective Portfolios, using reasonable diligence, become aware
of such dividends). Interest income is recorded on an accrual basis. Premiums
are amortized (with the exception of Global Income Portfolio) and discounts are
accreted as adjustments to interest income and the identified cost of
investments.
FOREIGN CURRENCY TRANSLATION--The books and records of the Portfolios are
maintained in U.S. dollars as follows: (1) the foreign currency market value of
investment securities and other assets and liabilities stated in foreign
currencies are translated at the exchange rates prevailing at the end of the
period; and (2) purchases, sales, income and expenses are translated at the rate
of exchange prevailing on the respective dates of such transactions. The
resulting exchange gains and losses are included in the Statement of Operations.
Although the net assets and the market values of the Portfolios' securities
are presented at the foreign exchange rates at the end of the period, the
Portfolios do not generally isolate the effect of fluctuations in foreign
exchange rates from the effects of fluctuations in the market price of
securities. However, the Portfolios do isolate the effect of fluctuations in
foreign exchange rates when determining the realized gain or loss upon the sale
or maturity of foreign currency-denominated debt obligations pursuant to federal
income tax regulations. Certain foreign exchange gains and losses included in
realized and unrealized gains and losses are included in or are a reduction of
ordinary income for income tax reporting purposes. Net realized foreign currency
gain (loss) is treated as ordinary income for income tax reporting purposes.
Gains/losses from translating foreign currency-denominated assets and
liabilities at the year-end exchange rates are included in change in unrealized
appreciation/depreciation of other assets and liabilities denominated in foreign
currencies.
FORWARD FOREIGN CURRENCY CONTRACTS--Certain Portfolios may enter into forward
foreign currency exchange contracts ("forward contracts") in connection with
planned purchases or sales of securities or to hedge the U.S. dollar value of
portfolio securities denominated in a particular currency. These Portfolios may
also engage in cross-hedging by using forward contracts in one currency to hedge
fluctuations in the value of securities denominated in a different currency if
Mitchell Hutchins, or the applicable sub-adviser, anticipates that there is a
correlation between the two currencies. Forward contracts may also be used to
shift a Portfolio's exposure to foreign currency fluctuations from one country
to another.
These Portfolios have no specific limitation on the percentage of assets which
may be committed to such contracts; however, the value of all forward contracts
will not exceed the total market value of a Portfolio's total assets. The
Portfolios may enter into forward contracts or maintain a net exposure to
forward contracts only if (1) the consummation of the contracts would not
obligate the Portfolio to deliver an amount of foreign currency in excess of the
value of the positions being hedged by such contracts or (2) the Portfolios
maintain cash or liquid securities in a segregated account in an amount not less
than the value of the Portfolio's total assets committed to the consummation of
the forward contracts and not covered as provided in (1) above, as
marked-to-market daily.
Risks may arise upon entering into forward contracts from the potential
inability of counterparties to meet the terms of their contracts and from
unanticipated movements in the value of foreign currencies relative to the U.S.
dollar.
56
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Fluctuations in the value of forward contracts are recorded for financial
reporting purposes as unrealized gains or losses by the Portfolios. Realized
gains and losses include net gains or losses recognized by the Portfolios on
contracts which have matured.
OPTION WRITING--Certain Portfolios may write (sell) put and call options in
order to gain exposure to or protect against changes in the markets. When a
Portfolio writes a call or a put option, an amount equal to the premium received
by the Portfolio is included in the Portfolio's Statement of Assets and
Liabilities as a 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 Portfolio has written either expires on its stipulated
expiration date or the Portfolio enters into a closing purchase transaction, the
Portfolio realizes a gain (or loss if the cost of a closing purchase transaction
exceeds the premium received when the option was written) without regard to any
unrealized gain or loss on the underlying security, and the liability related to
such option is extinguished. If a call option which the Portfolio has written is
exercised, the Portfolio realizes a capital gain or loss (long-term or
short-term, depending on the holding period of the underlying security) from the
sale of the underlying security and the proceeds from the sale are increased by
the premium originally received. If a put option which the Portfolio has written
is exercised, the amount of the premium originally received reduces the cost of
the security which the Portfolio purchases upon exercise of the option.
FUTURES CONTRACTS--Strategic Fixed Income Portfolio is the only Portfolio
currently engaged in futures contracts as an alternative investment for
traditional Treasury securities. Using financial futures contracts involves
various market risks. The maximum amount at risk from the purchase of a futures
contract is the contract value. Each of the portfolios are subject to a number
of guidelines which reduce the risk by seeking to ensure that financial futures
contracts are used for hedging purposes or to manage the average duration of a
portfolio and not for leverage. However, imperfect correlations between future
contracts and the portfolio securities being hedged, or market disruption, do
not normally permit full control of these risks at all times.
Upon entering into a financial futures contract, a Portfolio is required to
pledge to a broker an amount equal to a certain percentage of the contract
amount. This amount is known as the "initial margin." Subsequent payments known
as "variation margin," are made or received by the Portfolio 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 an unrealized gain or loss until the financial futures contract
is closed, at which time the net gain or loss is reclassified to realized.
REVERSE REPURCHASE AGREEMENTS--Each of the Portfolios may enter into reverse
repurchase agreements with qualified third party broker-dealers as determined
by, and under the direction of, the Portfolios' board of trustees. Interest on
the value of reverse repurchase agreements issued and outstanding is based upon
competitive market rates at the time of issuance. At the time the Portfolio
enters into a reverse repurchase agreement, it establishes and maintains a
segregated account with the Portfolio's custodian containing liquid securities
having a value not less than the repurchase price, including accrued interest,
of the reverse repurchase agreement.
For the year ended December 31, 1997, the Strategic Fixed Income Portfolio is
the only Portfolio which engaged in reverse repurchase agreements. The average
monthly balance of reverse repurchase agreements outstanding during the year
ended December 31, 1997 was $83,250 at a weighted average interest rate of
5.55%.
DIVIDENDS AND DISTRIBUTIONS--Dividends and distributions to shareholders are
recorded on the ex-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.
57
<PAGE>
NOTES TO FINANCIAL STATEMENTS
CONCENTRATION OF RISK
Investing in securities of foreign issuers and currency transactions may
involve certain considerations and risks not typically associated with
investments in the United States. These risks include revaluation of currencies,
adverse fluctuations in foreign currency values and possible adverse political,
social and economic developments, including those particular to a specific
industry, country or region, which could cause the securities and their markets
to be less liquid and prices more volatile than those of comparable U.S.
companies and U.S. government securities. These risks are greater with respect
to securities of issuers located in emerging market countries in which certain
portfolios are authorized to invest. The ability of the issuers of debt
securities held by the Fund to meet their obligations may be affected by
economic and political developments particular to a specific industry, country
or region.
Small cap companies may be more vulnerable than larger companies to adverse
business or economic developments. Small cap companies may also have limited
product lines, markets or financial resources, and may be dependent on a
relatively small management group. Securities of such companies may be less
liquid and more volatile than securities of larger companies or the market
averages in general and, therefore, may involve greater risk than investing in
larger companies. In addition, small cap companies may not be well-known to the
investing public, may not have institutional ownership and may have only
cyclical, static or moderate growth prospects.
The ability of the issuers of debt securities held by the Portfolios to meet
their obligations may be affected by economic and political developments
particular to a specific industry, country or region.
WRITTEN OPTION ACTIVITY
Written option activity for the year ended December 31, 1997 for the Strategic
Fixed Income Portfolio was as follows:
<TABLE>
<CAPTION>
NUMBER
OF AMOUNT OF
OPTIONS PREMIUMS
--- ---------
<S> <C> <C>
Options outstanding at
December 31, 1996........... 0 0
Options written during the
year ended December 31,
1997........................ 4 $ 8,129
Options terminated in closing
purchase transactions....... (4) (8,129)
--- ---------
Options outstanding at
December 31, 1997........... 0 $ 0
--- ---------
--- ---------
</TABLE>
INVESTMENT ADVISER AND ADMINISTRATOR
The Fund's board of trustees has approved an investment advisory and
administration contract with Mitchell Hutchins, under which Mitchell Hutchins
serves as investment adviser and administrator of the Fund and each Portfolio.
Mitchell Hutchins receives compensation from the Fund, computed daily and
payable monthly, as follows:
<TABLE>
<CAPTION>
ANNUAL RATE
AS A PERCENTAGE OF
EACH PORTFOLIO'S
AVERAGE DAILY NET ASSETS
---------------------------
<S> <C>
Money Market Portfolio.............................................................. 0.50%
High Grade Fixed Income Portfolio................................................... 0.50
Strategic Fixed Income Portfolio.................................................... 0.50
Global Income Portfolio............................................................. 0.75
Balanced Portfolio.................................................................. 0.75
Growth and Income Portfolio......................................................... 0.70
Growth Portfolio.................................................................... 0.75
Aggressive Growth Portfolio......................................................... 0.80
Global Growth Portfolio............................................................. 0.75
</TABLE>
Under separate contracts, Mitchell Hutchins pays GE Investment Management
Incorporated, Pacific Investment Management Company and Nicholas-Applegate
Capital Management to serve as the sub-advisers of the Global Growth
58
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Portfolio, the Strategic Fixed Income Portfolio and the Aggressive Growth
Portfolio, respectively. Mitchell Hutchins (not the Portfolios) pays the
sub-advisers a fee, computed daily and paid monthly, at an annual rate of 0.29%,
0.25% and 0.50%, respectively, of each Portfolio's average daily net assets.
During the year ended December 31, 1997, the Balanced Portfolio, the Growth
and Income Portfolio, the Growth Portfolio and the Aggressive Growth Portfolio
paid $1,992, $558, $4,020 and $1,621, respectively, in brokerage commissions to
PaineWebber for transactions executed on behalf of these Portfolios.
SECURITIES LENDING
Each Portfolio may lend securities up to 33 1/3% of its total assets to
qualified institutions. The loans are secured at all times by cash or U.S.
government securities in an amount at least equal to the market value of the
securities loaned, plus accrued interest and dividends, determined on a daily
basis and adjusted accordingly. The Portfolio's will regain record ownership of
loaned securities to exercise certain beneficial rights; however, the
Portfolio's may bear the risk of delay in recovery of, or even loss of rights
in, the securities loaned should the borrower fail financially. The Portfolio's
receive compensation, which is included in interest income, for lending their
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. PaineWebber, the Portfolios' lending agent,
received compensation from the Portfolios for the year ended December 31, 1997
as follows:
<TABLE>
<CAPTION>
COMPENSATION
-------------
<S> <C>
Global Income Portfolio...................................................................... $ 213
Balanced Portfolio........................................................................... $ 867
Growth and Income Portfolio.................................................................. $ 437
Growth Portfolio............................................................................. $ 9,945
Aggressive Growth Portfolio.................................................................. $ 2,060
Global Growth Portfolio...................................................................... $ 809
</TABLE>
As of December 31, 1997 the Portfolios held cash as collateral and market
values of securities loaned as follows:
<TABLE>
<CAPTION>
COLLATERAL MARKET VALUE
FOR OF
SECURITIES SECURITIES
LOANED LOANED
------------ ------------
<S> <C> <C>
Balanced Portfolio............................................................. $ 159,300 $ 156,263
Growth and Income Portfolio.................................................... $ 159,300 $ 156,263
Growth Portfolio............................................................... $2,073,500 $2,013,919
Global Growth Portfolio........................................................ $ 57,825 $ 47,117
</TABLE>
BANK LINE OF CREDIT
Each of the Portfolios may participate with other funds managed by Mitchell
Hutchins in a $200 million committed credit facility ("Facility") to be utilized
for temporary financing until the settlement of sales or purchases of portfolio
securities, the repurchase or redemption of shares of the Portfolios at the
request of the shareholders and other temporary or emergency purposes. In
connection therewith, the Portfolios have agreed to pay commitment fees, pro
rata, based on the relative asset size of the funds in the Facility. Interest is
charged to the Portfolios at rates based on prevailing market rates in effect at
the time of borrowings. For the period ended December 31, 1997, the Portfolios
did not borrow under the Facility.
59
<PAGE>
NOTES TO FINANCIAL STATEMENTS
INVESTMENTS IN SECURITIES
For the year ended December 31, 1997, aggregate purchases and sales of
portfolio securities, excluding short-term securities, were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
------------- -------------
<S> <C> <C>
High Grade Fixed Income Portfolio............................................. $ 7,394,205 $ 8,444,808
Strategic Fixed Income Portfolio.............................................. $ 18,652,239 $ 18,261,603
Global Income Portfolio....................................................... $ 26,391,886 $ 28,895,732
Balanced Portfolio............................................................ $ 54,762,437 $ 61,005,632
Growth and Income Portfolio................................................... $ 18,244,319 $ 16,970,204
Growth Portfolio.............................................................. $ 31,383,096 $ 41,858,603
Aggressive Growth Portfolio................................................... $ 18,478,302 $ 21,504,991
Global Growth Portfolio....................................................... $ 19,139,936 $ 25,289,416
</TABLE>
At December 31, 1997, the components of net unrealized appreciation
(depreciation) of investments were as follows:
<TABLE>
<CAPTION>
NET
UNREALIZED
GROSS GROSS APPRECIATION
APPRECIATION DEPRECIATION (DEPRECIATION)
------------- -------------- -------------
<S> <C> <C> <C>
High Grade Fixed Income Portfolio............................ $ 290,804 $ (7,651) $ 283,153
Strategic Fixed Income Portfolio............................. $ 353,051 $ (22,426) $ 330,625
Global Income Portfolio...................................... $ 186,358 $ (558,873) $ (372,515)
Balanced Portfolio........................................... $ 5,530,486 $ (556,232) $ 4,974,254
Growth and Income Portfolio.................................. $ 5,539,998 $ (322,776) $ 5,217,222
Growth Portfolio............................................. $ 12,715,643 $ (1,390,937) $ 11,324,706
Aggressive Growth Portfolio.................................. $ 6,123,710 $ (614,352) $ 5,509,358
Global Growth Portfolio...................................... $ 3,538,241 $ (1,304,250) $ 2,233,991
</TABLE>
For federal income tax purposes, the cost of securities owned at December 31,
1997 was substantially the same as the cost of securities for financial
statement purposes.
FEDERAL INCOME TAX STATUS
Each of the Portfolios intends to distribute all of its taxable income and to
comply with the other requirements of the Internal Revenue Code applicable to
regulated investment companies. Accordingly, no provision for federal income
taxes is required.
At December 31, 1997, the following Portfolios had capital loss carryforwards
available as reductions, to the extent provided in the regulations, of any
future net gains realized before the end of the fiscal years indicated below:
<TABLE>
<CAPTION>
HIGH GRADE STRATEGIC
MONEY FIXED FIXED
MARKET INCOME INCOME
PORTFOLIO PORTFOLIO PORTFOLIO
----------- ----------- ---------
<S> <C> <C> <C>
2002...................................................................... $ 10,411 $ 11,787 --
2003...................................................................... -- -- --
2004...................................................................... -- -- $ 116,575
2005...................................................................... -- 50,227 --
----------- ----------- ---------
$ 10,411 $ 62,014 $ 116,575
----------- ----------- ---------
----------- ----------- ---------
</TABLE>
To the extent that such losses are used to offset future capital gains, it is
probable that the gains so offset will not be distributed.
60
<PAGE>
NOTES TO FINANCIAL STATEMENTS
At December 31, 1997, the effect of permanent "book/tax" reclassifications
resulted in increases (decreases) to the components of net assets as follows:
<TABLE>
<CAPTION>
ACCUMULATED NET ACCUMULATED NET
INVESTMENT REALIZED BENEFICIAL
INCOME (LOSS) GAINS (LOSSES) INTEREST
--------------- --------------- ----------
<S> <C> <C> <C>
High Grade Fixed Income Portfolio.......................... $ 2,538 $ (2,538) --
Strategic Fixed Income Portfolio........................... $ (1,139) $ 1,139 --
Global Income Portfolio.................................... $ (198,571) $ 198,571 --
Balanced Portfolio......................................... $ 5,579 $ (6,603) $ 1,024
Growth & Income Portfolio.................................. $ 3,336 $ 1,098 $ (4,434)
Growth Portfolio........................................... $ 443 $ (205) $ (238)
Aggressive Growth Portfolio................................ $ 129,272 $ (129,272) --
Global Growth Portfolio.................................... $ 30,714 $ (30,714) --
</TABLE>
SHARES OF BENEFICIAL INTEREST
There was an unlimited amount of $0.001 par value shares of beneficial
interest authorized. Transactions in shares of beneficial interest for each of
the Portfolios were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
------------------------------------------------------------------------------------------------------------------
GROWTH
MONEY HIGH GRADE STRATEGIC GLOBAL AND AGGRESSIVE GLOBAL
MARKET FIXED INCOME FIXED INCOME INCOME BALANCED INCOME GROWTH GROWTH GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------- ------------ ------------ ---------- ---------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold.... 6,100,044 112,751 128,208 48,364 132,366 305,770 109,171 191,122 77,628
Shares
redeemed..... (9,982,269) (240,926) (317,619) (754,708) (688,789) (349,095) (633,224) (356,820) (507,945)
Reinvestment of
dividends.... 500,956 49,957 72,277 152,314 378,119 210,259 400,838 124,554 10,446
----------- ------------ ------------ ---------- ---------- --------- ---------- ---------- ---------
Net increase
(decrease) in
shares
outstanding... (3,381,269) (78,218) (117,134) (554,030) (178,304) 166,934 (123,215) (41,144) (419,871)
----------- ------------ ------------ ---------- ---------- --------- ---------- ---------- ---------
----------- ------------ ------------ ---------- ---------- --------- ---------- ---------- ---------
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
------------------------------------------------------------------------------------------------------------------
GROWTH
MONEY HIGH GRADE STRATEGIC GLOBAL AND AGGRESSIVE GLOBAL
MARKET FIXED INCOME FIXED INCOME INCOME BALANCED INCOME GROWTH GROWTH GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------- ------------ ------------ ---------- ---------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold
(1).......... 10,397,169 170,053 174,852 97,475 1,266,095 273,166 297,187 171,441 186,725
Shares
redeemed..... (20,822,547) (322,275) (633,097) (1,397,542) (1,000,938) (353,815) (883,234) (311,017) (692,316)
Reinvestment of
dividends.... 732,906 57,354 210,338 305,777 216,699 13,293 230,902 46,676 --
----------- ------------ ------------ ---------- ---------- --------- ---------- ---------- ---------
Net increase
(decrease) in
shares
outstanding... (9,692,472) (94,868) (247,907) (994,290) 481,856 (67,356) (355,145) (92,900) (505,591)
----------- ------------ ------------ ---------- ---------- --------- ---------- ---------- ---------
----------- ------------ ------------ ---------- ---------- --------- ---------- ---------- ---------
</TABLE>
- ---------------
<TABLE>
<S> <C>
(1) For the Balanced Portfolio, includes 1,198,513 shares issued in connection with the acquisition of the former Balanced
Portfolio.
</TABLE>
61
<PAGE>
MITCHELL HUTCHINS SERIES TRUST
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout each
period is presented below:
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO
-----------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period...................................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------- --------- --------- --------- ---------
Net investment income..................................................... 0.04 0.04 0.05 0.03 0.02
--------- --------- --------- --------- ---------
Dividends from net investment income...................................... (0.04) (0.04) (0.05) (0.03) (0.02)
--------- --------- --------- --------- ---------
Net asset value, end of period............................................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Total investment return (1)............................................... 4.53% 4.32% 5.22% 3.43% 2.45%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Ratios/Supplemental Data:
Net assets, end of period (000's)......................................... $ 8,906 $ 12,287 $ 21,974 $ 25,042 $ 15,468
Expenses to average net assets............................................ 1.22% 1.17% 0.79% 0.88% 0.86%
Net investment income to average net assets............................... 4.43% 4.27% 5.23% 3.56% 2.43%
</TABLE>
- -----------------
<TABLE>
<S> <C>
(1) Total investment return is calculated assuming a $1,000 investment on the first day of each period reported, reinvestment
of all dividends at net asset value on the payable dates and a sale at net asset value on the last day of each period
reported. The figures do not include additional contract level charges; results would be lower if such charges were
included.
</TABLE>
62
<PAGE>
MITCHELL HUTCHINS SERIES TRUST
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout each
period is presented below:
<TABLE>
<CAPTION>
HIGH GRADE FIXED INCOME PORTFOLIO
---------------------------------------------------
FOR THE PERIOD
NOVEMBER 8,
FOR THE YEARS ENDED DECEMBER 31, 1993+
---------------------------------- TO DECEMBER
1997 1996 1995 1994 31, 1993
------- ------- ------- ------- --------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period......... $ 9.10 $ 9.49 $ 8.71 $ 9.61 $10.00
------- ------- ------- ------- -------
Net investment income........................ 0.55 0.50 0.56 0.26 0.02
Net realized and unrealized gains (losses)
from investments............................ 0.19 (0.63) 0.79 (0.89) (0.39)
------- ------- ------- ------- -------
Net increase (decrease) from investment
operations.................................. 0.74 0.13 1.35 (0.63) (0.37)
------- ------- ------- ------- -------
Dividends from net investment income......... (0.55) (0.52) (0.57) (0.27) (0.02)
------- ------- ------- ------- -------
Net asset value, end of period............... $ 9.29 $ 9.10 $ 9.49 $ 8.71 $ 9.61
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Total investment return (1).................. 8.13% 1.41% 15.44% (6.56)% (3.73)%
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Ratios/Supplemental Data:
Net assets, end of period (000's)............ $ 7,345 $ 7,902 $ 9,147 $ 7,638 $1,480
Expenses to average net assets**............. 1.43% 1.62% 1.01% 1.56% 0.00%
Net investment income to average net
assets**.................................... 5.54% 5.04% 5.56% 4.61% 3.90%*
Portfolio turnover rate...................... 95% 282% 136% 36% 0%
</TABLE>
- -----------------
<TABLE>
<S> <C>
+ Commencement of operations
* Annualized
** During the period ended December 31, 1993, Mitchell Hutchins agreed to reimburse the Portfolio for all of its operating
expenses and waived all of its advisory fees. If such reimbursements and waivers had not been made, the annualized ratio
of expenses to average net assets and the annualized ratio of net investment loss to average net assets would have been
23.52% and (19.62)%, respectively.
(1) Total investment return is calculated assuming a $1,000 investment on the first day of each period reported, reinvestment
of all dividends and other distributions, if any, at net asset value on the payable dates and a sale at net asset value
on the last day of each period reported. The figures do not include additional Contract level charges; results would be
lower if such charges were included. Total investment return for periods of less than one year has not been annualized.
</TABLE>
63
<PAGE>
MITCHELL HUTCHINS SERIES TRUST
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout each
period is presented below:
<TABLE>
<CAPTION>
STRATEGIC FIXED INCOME PORTFOLIO
--------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------------------
1997 1996 1995 1994 1993
------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period......... $ 10.21 $ 10.61 $ 10.34 $ 11.93 $ 11.58
------- -------- -------- -------- ----------
Net investment income........................ 0.69 0.70 0.88 0.85 0.87
Net realized and unrealized gains (losses)
from investments, futures and options....... 0.44 (1.09) 1.03 (1.49) 0.48
------- -------- -------- -------- ----------
Net increase (decrease) from investment
operations.................................. 1.13 0.39 1.91 (0.64) 1.35
------- -------- -------- -------- ----------
Dividends from net investment income......... (0.70) (0.70) (0.88) (0.85) (0.87)
Distributions from net realized gains from
investments................................. -- (0.09) (0.76) (0.10) (0.13)
------- -------- -------- -------- ----------
Total dividends and other distributions...... (0.70) (0.79) (1.64) (0.95) (1.00)
------- -------- -------- -------- ----------
Net asset value, end of period............... $ 10.64 $ 10.21 $ 10.61 $ 10.34 $ 11.93
------- -------- -------- -------- ----------
------- -------- -------- -------- ----------
Total investment return (1).................. 11.00% 3.79% 18.51% (5.34)% 11.66%
------- -------- -------- -------- ----------
------- -------- -------- -------- ----------
Ratios/Supplemental Data:
Net assets, end of period (000's)............ $ 9,891 $ 10,689 $ 13,741 $ 17,020 $ 22,354
Expenses to average net assets............... 1.00% 1.52% 0.99% 0.89% 0.79%
Net investment income to average net
assets...................................... 6.04% 5.88% 6.35% 6.64% 6.13%
Portfolio turnover rate...................... 175% 317% 234% 54% %8
</TABLE>
- -----------------
<TABLE>
<S> <C>
(1) Total investment return is calculated assuming a $1,000 investment on the first day of each period reported, reinvestment
of all dividends and other distributions, if any, at net asset value on the payable dates and a sale at net asset value
on the last day of each period reported. The figures do not include additional Contract level charges; results would be
lower if such charges were included.
</TABLE>
64
<PAGE>
MITCHELL HUTCHINS SERIES TRUST
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout each
period is presented below:
<TABLE>
<CAPTION>
GLOBAL INCOME PORTFOLIO
--------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period.... $ 11.14 $ 11.20 $ 10.88 $ 11.72 $ 11.17
-------- -------- -------- -------- ---------
Net investment income (loss)............ 0.75 0.87 (0.05) 0.97 0.96
Net realized and unrealized gains
(losses) from investments and foreign
currency............................... (0.36) (0.13) 1.52 (1.60) 0.90
-------- -------- -------- -------- ---------
Net increase (decrease) from investment
operations............................. 0.39 0.74 1.47 (0.63) 1.86
-------- -------- -------- -------- ---------
Dividends from net investment income.... (0.71) (0.79) (1.15) (0.21) (0.94)
Distributions in excess of net
investment income...................... -- -- -- -- (0.16)
Distributions from net realized gains
from investments....................... (0.01) (0.01) -- -- (0.21)
-------- -------- -------- -------- ---------
Total dividends and other
distributions.......................... (0.72) (0.80) (1.15) (0.21) (1.31)
-------- -------- -------- -------- ---------
Net asset value, end of period.......... $ 10.81 $ 11.14 $ 11.20 $ 10.88 $ 11.72
-------- -------- -------- -------- ---------
-------- -------- -------- -------- ---------
Total investment return (1)............. 3.50% 6.62% 13.58% (5.56)% 16.65%
-------- -------- -------- -------- ---------
-------- -------- -------- -------- ---------
Ratios/Supplemental Data:
Net assets, end of period (000's)....... $ 17,730 $ 24,436 $ 35,700 $ 52,688 $ 64,610
Expenses to average net assets.......... 1.52% 1.56% 1.19% 1.17% 0.98%
Net investment income to average net
assets................................. 6.34% 6.56% 7.21% 7.23% 7.47%
Portfolio turnover rate................. 142% 134% 160% 97% 69%
</TABLE>
- -----------------
<TABLE>
<S> <C>
(1) Total investment return is calculated assuming a $1,000 investment on the first day of each period reported, reinvestment
of all dividends and other distributions, if any, at net asset value on the payable dates and a sale at net asset value
on the last day of each period reported. The figures do not include additional Contract level charges; results would be
lower if such charges were included.
</TABLE>
65
<PAGE>
MITCHELL HUTCHINS SERIES TRUST
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout each
period is presented below:
<TABLE>
<CAPTION>
BALANCED PORTFOLIO*
--------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period.... $ 10.95 $ 10.70 $ 9.54 $ 11.95 $ 11.63
-------- -------- -------- -------- ---------
Net investment income................... 0.28 0.29 0.35 0.30 0.33
Net realized and unrealized gains
(losses) from investments.............. 2.44 1.49 1.88 (1.44) 1.48
-------- -------- -------- -------- ---------
Net increase (decrease) from investment
operations............................. 2.72 1.78 2.23 (1.14) 1.81
-------- -------- -------- -------- ---------
Dividends from net investment income.... (0.28) (0.28) (0.35) (0.30) (0.33)
Distributions from net realized gains
from investments....................... (2.06) (1.25) (0.72) (0.97) (1.16)
-------- -------- -------- -------- ---------
Total dividends and other
distributions.......................... (2.34) (1.53) (1.07) (1.27) (1.49)
-------- -------- -------- -------- ---------
Net asset value, end of period.......... $ 11.33 $ 10.95 $ 10.70 $ 9.54 $ 11.95
-------- -------- -------- -------- ---------
-------- -------- -------- -------- ---------
Total investment return (1)............. 24.86% 16.82% 23.27% (9.59)% 15.76%
-------- -------- -------- -------- ---------
-------- -------- -------- -------- ---------
Ratios/Supplemental Data:
Net assets, end of period (000's)....... $ 28,211 $ 29,224 $ 23,413 $ 23,263 $ 33,367
Expenses to average net assets.......... 1.19% 1.24% 1.09% 1.03% 0.95%
Net investment income to average net
assets................................. 2.06% 2.29% 2.88% 2.30% 2.27%
Portfolio turnover rate................. 169% 235% 171% 112% 60%
Average commission rate paid (2)........ $ 0.0600 $ 0.0616 -- -- --
</TABLE>
- -----------------
<TABLE>
<S> <C>
* Prior to the close of business on January 26, 1996, the Balanced Portfolio was known as the Asset Allocation Portfolio.
(1) Total investment return is calculated assuming a $1,000 investment on the first day of each period reported, reinvestment
of all dividends and other distributions, if any, at net asset value on the payable dates and a sale at net asset value
on the last day of each period reported. The figures do not include additional Contract level charges; results would be
lower if such charges were included.
(2) Effective for fiscal years beginning on or after September 1, 1995, the Fund is required to disclose the average
commission rate paid per share of common stock investments purchased or sold.
</TABLE>
66
<PAGE>
MITCHELL HUTCHINS SERIES TRUST
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout each
period is presented below:
<TABLE>
<CAPTION>
GROWTH AND INCOME PORTFOLIO
------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period.... $ 12.27 $ 11.83 $ 9.16 $ 9.87 $ 10.26
-------- -------- -------- -------- --------
Net investment income................... 0.10 0.06 0.10 0.10 0.16
Net realized and unrealized gains
(losses) from investments.............. 3.88 2.53 2.70 (0.71) (0.39)
-------- -------- -------- -------- --------
Net increase (decrease) from investment
operations............................. 3.98 2.59 2.80 (0.61) (0.23)
-------- -------- -------- -------- --------
Dividends from net investment income.... (0.10) (0.06) (0.10) (0.10) (0.16)
Distributions from net realized gains
from investments....................... (2.46) (2.09) (0.03) -- --
-------- -------- -------- -------- --------
Total dividends and other
distributions.......................... (2.56) (2.15) (0.13) (0.10) (0.16)
-------- -------- -------- -------- --------
Net asset value, end of period.......... $ 13.69 $ 12.27 $ 11.83 $ 9.16 $ 9.87
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Total investment return (1)............. 32.45% 22.12% 30.52% (6.18)% (2.26)%
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Ratios/Supplemental Data:
Net assets, end of period (000's)....... $ 18,493 $ 14,520 $ 14,797 $ 12,872 $ 16,281
Expenses to average net assets.......... 1.04% 1.58% 1.37% 1.35% 1.12%
Net investment income to average net
assets................................. 0.71% 0.49% 0.94% 1.06% 1.37%
Portfolio turnover rate................. 92% 99% 134% 150% 52%
Average commission rate paid (2)........ $ 0.0599 $ 0.0598 -- -- --
</TABLE>
- -----------------
<TABLE>
<S> <C>
(1) Total investment return is calculated assuming a $1,000 investment on the first day of each period reported, reinvestment
of all dividends and other distributions, if any, at net asset value on the payable dates and a sale at net asset value
on the last day of each period reported. The figures do not include additional Contract level charges; results would be
lower if such charges were included.
(2) Effective for fiscal years beginning on or after September 1, 1995, the Fund is required to disclose the average
commission rate paid per share of common stock investments purchased or sold.
</TABLE>
67
<PAGE>
MITCHELL HUTCHINS SERIES TRUST
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout each
period is presented below:
<TABLE>
<CAPTION>
GROWTH PORTFOLIO
--------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period.... $ 17.48 $ 17.57 $ 14.56 $ 18.06 $ 15.68
-------- -------- -------- -------- ---------
Net investment income (loss)............ 0.03 (0.06) 0.04 0.01 0.00
Net realized and unrealized gains
(losses) from investments.............. 2.69 3.29 4.68 (2.13) 3.08
-------- -------- -------- -------- ---------
Net increase (decrease) from investment
operations............................. 2.72 3.23 4.72 (2.12) 3.08
-------- -------- -------- -------- ---------
Dividends from net investment income.... (0.03) -- (0.08) (0.01) --
Distributions from net realized gains
from investments....................... (4.54) (3.32) (1.63) (1.37) (0.70)
-------- -------- -------- -------- ---------
Total dividends and other
distributions.......................... (4.57) (3.32) (1.71) (1.38) (0.70)
-------- -------- -------- -------- ---------
Net asset value, end of period.......... $ 15.63 $ 17.48 $ 17.57 $ 14.56 $ 18.06
-------- -------- -------- -------- ---------
-------- -------- -------- -------- ---------
Total investment return (1)............. 15.41% 18.70% 32.50% (11.65)% 19.61%
-------- -------- -------- -------- ---------
-------- -------- -------- -------- ---------
Ratios/Supplemental Data:
Net assets, end of period (000's)....... $ 30,586 $ 36,357 $ 42,784 $ 39,135 $ 51,696
Expenses to average net assets.......... 1.05% 1.14% 1.02% 1.00% 0.92%
Net investment income (loss) to average
net assets............................. 0.12% (0.29)% 0.23% 0.04% 0.00%
Portfolio turnover rate................. 89% 53% 41% 27% 35%
Average commission rate paid (2)........ $ 0.0598 $ 0.0600 -- -- --
</TABLE>
- -----------------
<TABLE>
<S> <C>
(1) Total investment return is calculated assuming a $1,000 investment on the first day of each period reported, reinvestment
of all dividends and other distributions, if any, at net asset value on the payable dates and a sale at net asset value
on the last day of each period reported. The figures do not include additional Contract level charges; results would be
lower if such charges were included.
(2) Effective for fiscal years beginning on or after September 1, 1995, the Fund is required to disclose the average
commission rate paid per share of common stock investments purchased or sold.
</TABLE>
68
<PAGE>
MITCHELL HUTCHINS SERIES TRUST
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout each
period is presented below:
<TABLE>
<CAPTION>
AGGRESSIVE GROWTH PORTFOLIO
-------------------------------------------------------
FOR THE PERIOD
NOVEMBER 2,
FOR THE YEARS ENDED DECEMBER 31, 1993+
-------------------------------------- TO DECEMBER
1997 1996 1995 1994 31, 1993
-------- -------- -------- -------- --------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period........................... $ 13.09 $ 11.34 $ 9.65 $ 9.95 $ 10.00
-------- -------- -------- -------- -------
Net investment income (loss)...... (0.09) (0.10) 0.03 0.01 0.01
Net realized and unrealized gains
(losses) from investments........ 2.78 2.93 2.00 (0.30) (0.05)
-------- -------- -------- -------- -------
Net increase (decrease) from
investment operations............ 2.69 2.83 2.03 (0.29) (0.04)
-------- -------- -------- -------- -------
Dividends from net investment
income........................... -- -- (0.02) (0.01) (0.01)
Distributions from net realized
gains from investments........... (2.38) (1.08) (0.32) -- --
-------- -------- -------- -------- -------
Total dividends and other
distributions.................... (2.38) (1.08) (0.34) (0.01) (0.01)
-------- -------- -------- -------- -------
Net asset value, end of period.... $ 13.40 $ 13.09 $ 11.34 $ 9.65 $ 9.95
-------- -------- -------- -------- -------
-------- -------- -------- -------- -------
Total investment return (1)....... 20.76% 25.23% 21.04% (2.90)% (0.36)%
-------- -------- -------- -------- -------
-------- -------- -------- -------- -------
Ratios/Supplemental Data:
Net assets, end of period
(000's).......................... $ 19,076 $ 19,167 $ 17,660 $ 13,600 $ 2,814
Expenses to average net
assets**......................... 1.18% 1.52% 1.29% 1.59% 0.00%
Net investment income (loss) to
average net assets**............. (0.59)% (0.74)% 0.23% 0.07% 3.31%*
Portfolio turnover rate........... 89% 115% 119% 90% 0%
Average commission rate paid
(2).............................. $ 0.0552 $ 0.0593 -- -- --
</TABLE>
- -----------------
<TABLE>
<S> <C>
+ Commencement of operations
* Annualized
** During the period ended December 31, 1993, Mitchell Hutchins agreed to reimburse the Portfolio for all of its operating
expenses and waived all of its advisory fees. If such reimbursements and waivers had not been made, the annualized ratio
of expenses to average net assets and the annualized ratio of net investment loss to average net assets would have been
12.28% and (8.97)%, respectively.
(1) Total investment return is calculated assuming a $1,000 investment on the first day of each period reported, reinvestment
of all dividends and other distributions, if any, at net asset value on the payable dates and a sale at net asset value
on the last day of each period reported. The figures do not include additional Contract level charges; results would be
lower if such charges were included. Total investment return for period of less than one year has not been annualized.
(2) Effective for fiscal years beginning on or after September 1, 1995, the Fund is required to disclose the average
commission rate paid per share of common stock investments purchased or sold.
</TABLE>
69
<PAGE>
MITCHELL HUTCHINS SERIES TRUST
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout each
period is presented below:
<TABLE>
<CAPTION>
GLOBAL GROWTH PORTFOLIO
-------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- ------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period............................ $ 13.74 $ 12.00 $ 12.44 $ 14.97 $ 11.10
-------- -------- ------------- ------------- ---------------
Net investment income (loss)....... 0.04 0.07 0.01 (0.03) 0.03
Net realized and unrealized gains
(losses) from investments and
foreign currency.................. 0.94 1.75 (0.45) (1.76) 4.42
-------- -------- ------------- ------------- ---------------
Net increase (decrease) from
investment operations............. 0.98 1.82 (0.44) (1.79) 4.45
-------- -------- ------------- ------------- ---------------
Dividends from net investment
income............................ (0.04) (0.08) -- (0.01) --
Distributions from net realized
gains from investments............ (0.06) -- -- (0.73) (0.58)
-------- -------- ------------- ------------- ---------------
Total dividends and other
distributions..................... (0.10) (0.08) 0.00 (0.74) (0.58)
-------- -------- ------------- ------------- ---------------
Net asset value, end of period..... $ 14.62 $ 13.74 $ 12.00 $ 12.44 $ 14.97
-------- -------- ------------- ------------- ---------------
-------- -------- ------------- ------------- ---------------
Total investment return (1)........ 7.16% 15.14% (3.54)% (11.94)% 40.02%
-------- -------- ------------- ------------- ---------------
-------- -------- ------------- ------------- ---------------
Ratios/Supplemental Data:
Net assets, end of period
(000's)........................... $ 21,215 $ 25,701 $ 28,507 $ 40,493 $ 38,035
Expenses to average net assets..... 1.07% 1.10% 1.96% 1.48% 1.40%
Net investment income (loss) to
average net assets................ 0.26% 0.46% 0.10% (0.13)% 0.38%
Portfolio turnover rate............ 81% 44% 157% 175% 267%
Average commission rate paid (2)... $ 0.0062 $ 0.0110 -- -- --
</TABLE>
- -----------------
<TABLE>
<S> <C>
(1) Total investment return is calculated assuming a $1,000 investment on the first day of each period reported, reinvestment
of all dividends and other distributions, if any, at net asset value on the payable dates and a sale at net asset value
on the last day of each period reported. The figures do not include additional Contract level charges; results would be
lower if such charges were included.
(2) Effective for fiscal years beginning on or after September 1, 1995, the Fund is required to disclose the average
commission rate paid per share of common stock investments purchased or sold.
</TABLE>
70
<PAGE>
MITCHELL HUTCHINS SERIES TRUST
REPORT OF INDEPENDENT AUDITORS
The Board of Trustees and Shareholders
Mitchell Hutchins Series Trust
We have audited the accompanying statement of assets and liabilities,
including the portfolios of investments, of Mitchell Hutchins Series Trust
(comprising, respectively, the Money Market, High Grade Fixed Income, Strategic
Fixed Income, Global Income, Balanced, Growth and Income, Growth, Aggressive
Growth, and Global Growth Portfolios) (the "Fund") as of December 31, 1997 and
the related statement of operations for the year then ended, the statements of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the periods indicated therein. 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 and financial highlights. Our procedures included confirmation of
investments owned as of December 31, 1997 by correspondence with the custodians
and brokers. 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, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective portfolios constituting the Mitchell Hutchins Series Trust at
December 31, 1997, the results of their operations for the year then ended, the
changes in their net assets for each of the two years in the period then ended,
and the financial highlights for each of the indicated periods, in conformity
with generally accepted accounting principles.
[ERNST & YOUNG SIGNATURE]
New York, New York
February 13, 1998
71
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