MITCHELL HUTCHINS SERIES TRUST
SMALL CAP PORTFOLIO
The fund offers its Class H and Class I shares only to insurance company
separate accounts that fund certain variable annuity and variable life insurance
contracts. This prospectus should be read together with the prospectus for those
contracts.
PROSPECTUS
May 1, 1999
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AS WITH ALL MUTUAL FUNDS, THE SECURITIES AND EXCHANGE COMMISSION HAS NOT
APPROVED OR DISAPPROVED THE FUND'S SHARES OR DETERMINED WHETHER THIS PROSPECTUS
IS COMPLETE OR ACCURATE. TO STATE OTHERWISE IS A CRIME.
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Mitchell Hutchins Small Cap Portfolio
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CONTENTS
SMALL CAP PORTFOLIO
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What every investor 3 Small Cap Portfolio
should know about 4 More About Risks and Investment Strategies
the fund
INVESTING IN THE FUND
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Information for 5 Purchases, Redemptions and Exchanges
managing your fund 5 Pricing and Valuation
account
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ADDITIONAL INFORMATION
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Additional important 6 Management
information about 7 Dividends and Taxes
the fund 8 Financial Highlights
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Where to learn more Back Cover
about this fund
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The fund is not a complete or balanced
investment program.
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Mitchell Hutchins Small Cap Portfolio
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SMALL CAP PORTFOLIO
INVESTMENT OBJECTIVE, STRATEGIES AND RISKS
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FUND OBJECTIVE:
Long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES:
The fund invests primarily in stocks of small capitalization ("small cap")
companies, which are defined as companies that have market capitalizations of up
to $1 billion.
The fund may invest, to a lesser extent, in stocks of larger companies,
preferred stocks, and bonds, including convertible securities. The fund may
invest in bonds when its investment adviser, Mitchell Hutchins Asset Management
Inc., believes those investments offer opportunities for capital appreciation
because interest rates may fall or credit factors or ratings affecting
particular issuers may improve. The fund may invest in securities of foreign
issuers that are denominated in U.S. dollars and traded in U.S. markets.
In selecting stocks for the fund, Mitchell Hutchins uses its own Factor
Valuation Model to identify companies that appear undervalued. The model ranks
companies based on "value" factors such as dividends, cash flows, earnings and
book values, as well as on "growth" factors, such as earnings momentum and
industry performance forecasts. Mitchell Hutchins then applies fundamental
analysis to select specific stocks from among those small cap companies
identified by the model.
PRINCIPAL RISKS:
An investment in the fund is not guaranteed; investors may lose money by
investing in the fund.
Equities, such as common stocks, generally fluctuate in price more than other
investments. The fund could lose all of its investment in a company's stock.
This risk is greater for the common stocks of smaller companies because they are
more vulnerable to adverse business or economic developments and may have more
limited resources. The fund is subject, to a lesser extent, to interest rate
risk, which means that the value of the fund's bond investments generally will
fall when interest rates rise.
More information about these and other risks of an investment in the fund is
provided below in "More About Risks and Investment Strategies" under the
following headings:
o Small Cap Companies Risk
o Equity Risk
o Foreign Securities Risk
o Interest Rate Risk
o Credit Risk
INFORMATION ON THE FUND'S RECENT INVESTMENT STRATEGIES AND HOLDINGS CAN BE FOUND
IN ITS CURRENT ANNUAL/SEMI-ANNUAL REPORTS (SEE BACK COVER FOR INFORMATION ON
ORDERING THESE REPORTS).
Small Cap Portfolio commenced operations on September 28, 1998. As a result, the
fund does not have performance information of at least one calendar year to
include in a bar chart or table reflecting average annual returns.
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Mitchell Hutchins Small Cap Portfolio
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MORE ABOUT RISKS AND INVESTMENT STRATEGIES
PRINCIPAL RISKS
The main risks of investing in the fund are described below. Other risks of
investing in the fund, along with further details about some of the risks
described below, are discussed in the fund's Statement of Additional Information
("SAI"). Information on how you can obtain the SAI is on the back cover of this
prospectus.
CREDIT RISK. Credit risk is the risk that the issuer of a bond will not make
principal or interest payments when they are due. Even if an issuer does not
default on a payment, a bond's value may decline if the market believes that the
issuer has become less able, or less willing, to make payments on time. Even
high quality bonds are subject to some credit risk. However, credit risk is
greater for lower quality bonds. Bonds that are not investment grade involve
high credit risk and are considered speculative. Some of these low quality bonds
may be in default when purchased by the fund. Low quality bonds may fluctuate in
value more than higher quality bonds and may be more difficult to sell during
market downturns at the time and price the fund desires.
EQUITY RISK. The prices of common stocks and other equity securities generally
fluctuate more than those of other investments. They reflect changes in the
issuing company's financial condition and changes in the overall market. The
fund may lose a substantial part, or even all, of its investment in a company's
stock.
FOREIGN SECURITIES RISK. Foreign securities involve risks that normally are not
associated with securities of U.S. issuers. These include risks relating to
political, social and economic developments abroad and differences between U.S.
and foreign regulatory requirements and market practices. When securities are
denominated in foreign currencies, they also are subject to the risk that the
value of the foreign currency will fall in relation to the U.S. dollar. Currency
exchange rates can be volatile and can be affected by, among other factors, the
general economics of a country, the actions of the U.S. and foreign governments
or central banks, the imposition of currency controls, and speculation.
INTEREST RATE RISK. The value of bonds can be expected to fall when interest
rates rise and to rise when interest rates fall. Interest rate risk is the risk
that interest rates will rise, so that the value of the fund's investments in
bonds will fall. Because interest rate risk is the primary risk presented by
U.S. government and other very high quality bonds, changes in interest rates may
actually have a greater effect on the value of those bonds than on lower quality
bonds.
SMALL CAP COMPANIES RISK. Securities of small cap companies generally involve
greater risk than securities of larger companies because small cap companies may
be more vulnerable to adverse business or economic developments. Small cap
companies also may have limited product lines, markets or financial resources,
and may be dependent on a relatively small management group. Securities of small
cap companies may be less liquid and more volatile than securities of larger
companies or the market averages in general. 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.
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Mitchell Hutchins Small Cap Portfolio
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ADDITIONAL RISKS
YEAR 2000 RISK. The fund could be adversely affected by problems relating to the
inability of computer systems used by Mitchell Hutchins and the fund's other
service providers to recognize the year 2000. While year 2000-related computer
problems could have a negative effect on the fund, Mitchell Hutchins is working
to avoid these problems with respect to its own computer systems and to obtain
assurances from service providers that they are taking similar steps.
Similarly, the companies in which the fund invests and trading systems used by
the fund could be adversely affected by this issue. The ability of a company or
trading system to respond successfully to the issue requires both technological
sophistication and diligence, and there can be no assurance that any steps taken
will be sufficient to avoid an adverse impact on the fund.
ADDITIONAL INVESTMENT STRATEGIES
DEFENSIVE POSITIONS; CASH RESERVES. To protect itself from adverse market
conditions, the fund may take a defensive position that is different from its
normal investment strategy. This means that the fund temporarily can invest a
larger-than-normal part, or even all, of its assets in cash or money market
instruments. Since these investments provide relatively low income, this
defensive position may not be consistent with achieving the fund's investment
objective.
PORTFOLIO TURNOVER. The fund may engage in frequent trading (high portfolio
turnover) to achieve its investment objective. Frequent trading may result in a
high portfolio turnover rate and higher fund expenses due to transaction costs.
4A
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Mitchell Hutchins Small Cap Portfolio
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INVESTING IN THE FUND
PURCHASES, REDEMPTIONS AND EXCHANGES
Shares of the fund are sold only to insurance company separate accounts that
fund benefits under variable annuity or variable life insurance contracts. These
separate accounts are the shareholders of the fund - not the individual contract
owners. However, the separate accounts may pass through voting rights to the
contract owners.
The fund offers both Class H and Class I shares to insurance company separate
accounts:
o Class H shares are sold and redeemed at net asset value and do not pay any
12b-1 fees.
o Class I shares also are sold and redeemed at net asset value. However, under
a rule 12b-1 plan adopted by the fund, Class I shares pay an annual
distribution fee of 0.25% of average net assets. The fund pays this fee to
insurance companies for the sale of Class I shares and for services that the
insurance company provides to contract owners. Because these 12b-1 fees are
paid out of the fund's assets on an ongoing basis, over time they will
increase the cost of a contract owner's investment and may cost more than
paying other types of sales charges.
An insurance company separate account may exchange shares of the fund for shares
of the same class in another Mitchell Hutchins Series Trust fund at their
relative net asset values per share, provided that the separate account invests
in both funds. A particular insurance company separate account may not invest in
all Mitchell Hutchins Series Trust funds or classes of fund shares.
The fund and Mitchell Hutchins (for Class I shares) reserve the right to reject
any purchase order and to suspend the offering of a fund's shares for a period
of time.
PRICING AND VALUATION
Insurance company separate accounts buy, sell or exchange fund shares at their
net asset values. The fund calculates net asset value separately for each class
as of the close of trading on the New York Stock Exchange (generally, 4:00 p.m.,
Eastern time). The NYSE normally is not open, and the fund does not price its
shares, on national holidays and on Good Friday. If trading on the NYSE is
halted for the day before 4:00 p.m., Eastern time, the fund's net asset value
per share will be calculated as of the time trading was halted.
The fund calculates its net asset value based on the current market value for
its portfolio securities. The fund normally obtains market values for its
securities from independent pricing services that use reported last sales
prices, current market quotations or valuations from computerized "matrix"
systems that derive values based on comparable securities. If a market value is
not available from an independent pricing source for a particular security, that
security is valued at a fair value determined by or under the direction of the
fund's board of trustees. The fund normally uses the amortized cost method to
value bonds that will mature in 60 days or less.
Judgment plays a greater role in valuing thinly traded securities, including
many lower-rated bonds, because there is less reliable, objective data
available.
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Mitchell Hutchins Small Cap Portfolio
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MANAGEMENT
INVESTMENT ADVISER
Mitchell Hutchins Asset Management Inc. is the investment adviser and
administrator of the fund. Mitchell Hutchins is located at 1285 Avenue of the
Americas, New York, New York 10019, and is a wholly owned asset management
subsidiary of PaineWebber Incorporated, which is wholly owned by Paine Webber
Group Inc., a publicly owned financial services holding company. On March 31,
1999, Mitchell Hutchins was adviser or sub-adviser to 33 investment companies
with 75 separate funds and aggregate assets of approximately $48.3 billion.
The fund paid advisory fees to Mitchell Hutchins for the most recent fiscal year
at the annual contract rate of 1.00% based on average daily net assets.
The fund has received an exemptive order from the SEC to permit the board to
appoint and replace sub-advisers and to amend sub-advisory contracts without
obtaining shareholder approval. The fund's shareholders must approve this policy
before the board may implement it. As of the date of this Prospectus, the fund's
shareholders have not done so.
PORTFOLIO MANAGER
Donald R. Jones is primarily responsible for the day-to-day management of the
fund. He has held his management responsibilities for the fund since its
inception.
Mr. Jones has been a first vice president of Mitchell Hutchins since February
1996. Prior to joining Mitchell Hutchins, Mr. Jones was a vice president in the
Asset Management Group of First Fidelity Bancorporation, which he joined in
1983.
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Mitchell Hutchins Small Cap Portfolio
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DIVIDENDS AND TAXES
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DIVIDENDS
Dividends and distributions are paid in additional shares of the fund unless the
shareholder requests otherwise.
The fund normally declares and pays dividends and distributes any gains
annually.
Class I shares have higher expenses because of their distribution fees and thus
are expected to have lower dividends than Class H shares.
TAXES
Fund shares are offered only to insurance company separate accounts that fund
certain variable annuity or variable life contracts. These accounts generally
are not subject to tax on dividends from the fund or when fund shares are
exchanged or redeemed. See the applicable contract prospectus for a discussion
of the federal income tax status of
o the insurance company separate accounts that purchase and hold shares of
the fund and
o the holders of contracts funded through those separate accounts.
The fund must satisfy certain diversification requirements imposed by the
Internal Revenue Code on segregated assets accounts used to fund variable
annuity or variable life contracts. Failure of the fund to do so would result in
taxation of the insurance company issuing the variable annuity or variable life
contracts and treatment of the contract holders other than as described in the
contract prospectus.
See the SAI for information or for a more detailed discussion. Prospective
shareholders are urged to consult their tax advisers.
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Mitchell Hutchins Small Cap Portfolio
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FINANCIAL HIGHLIGHTS
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The following financial highlights table is intended to help you understand the
fund's financial performance for the fiscal period from September 28, 1998
(commencement of operations) through December 31, 1998. Certain information
reflects financial results for a single fund share. In the table, "total
investment return" represents the rate that an investor would have earned (or
lost) on an investment in the fund, assuming reinvestment of all dividends. This
information has been audited by Ernst & Young LLP, independent auditors, whose
report, along with the fund's financial statements, are included in the fund's
annual report to shareholders. The annual report may be obtained without charge
by calling 1-800-986-0088.
Please note that no Class I shares were outstanding during the period shown. The
information shown below for Class H shares should not be considered indicative
of the results the Class I shares would have achieved had they been outstanding
during these periods because Class I shares have higher expenses.
The information in this table pertains only to the fund and does not reflect
charges related to the insurance company separate accounts that fund variable
annuity or variable life contracts. See the appropriate contract prospectus for
information concerning these charges.
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Mitchell Hutchins Small Cap Portfolio
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SMALL CAP PORTFOLIO
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CLASS H
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FOR THE PERIOD
SEPTEMBER 28,
1998+ THROUGH
DECEMBER 31, 1998
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Net asset value, beginning of period........................... $ 12.00
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Net investment loss............................................ (0.04)
Net realized and unrealized gains from investments............. 3.67
----
Net increase from investment operations........................ 3.63
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Distributions from net realized gains from investments......... (0.73)
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Net asset value, end of period................................. $ 14.90
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Total investment return(1)..................................... 30.36%
======
Ratios/Supplemental data:
Net assets, end of period (000's).............................. $ 4,057
Expenses to average net assets................................. 1.94%*
Net investment loss to average net assets...................... (1.27)%*
Portfolio turnover rate........................................ 17%
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+ Commencement of operations
* Annualized
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of the period reported, reinvestment of all dividends and
distributions, if any, at net asset value on the payable dates and a sale
at net asset value on the last day of the period reported. The figures do
not include additional contract level charges; results would be lower if
such charges were included. Total investment return for the period has not
been annualized.
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If you want more information about the fund, the following documents are
available free upon request:
ANNUAL/SEMI-ANNUAL REPORTS:
Additional information about the fund's investments is available in the
fund's annual and semi-annual reports to shareholders. In the fund's
annual reports, you will find a discussion of the market conditions and
investment strategies that significantly affected the fund's performance
during the last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI) AND CONTRACT PROSPECTUS:
The SAI provides more detailed information about the fund and is
incorporated by reference into this prospectus. Investors are advised to
also read the applicable contract prospectus.
You may discuss your questions about the fund, obtain free copies of annual and
semi-annual reports and the SAI, or request other information, by contacting the
fund directly at 1-800-986-0088.
You may review and copy information about the fund, including annual and
semi-annual reports and the SAI, at the Public Reference Room of the Securities
and Exchange Commission. You can get text-only copies of reports and other
information about the fund:
o For a fee, by writing to or calling the SEC's Public Reference
Room,
Washington, D.C. 20549-6009
Telephone: 1-800-SEC-0330
o Free, from the SEC's Internet website at: http://www.sec.gov
Mitchell Hutchins Series Trust
Investment Company Act File No. - 811-4919
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