<PAGE>
MITCHELL HUTCHINS SERIES TRUST--HIGH GRADE FIXED INCOME PORTFOLIO ANNUAL REPORT
February 16, 1999
Dear Contract Owner,
We are pleased to present you with the annual report for the Mitchell Hutchins
Series Trust--High Grade Fixed Income Portfolio for the fiscal year ended
December 31, 1998.
MARKET REVIEW
- ----------------------------------------------------------------------------
[BARS ICON]
The "flight to quality" that had dominated the bond markets in 1998 partially
reversed itself toward year-end as the markets stabilized. The 30-year Treasury
bond closed the year with a yield of 5.10%, up from 4.95% at the end of the
third quarter, and a total return of 17.4% -- its best annual return since 1995.
Investors' aversion to risk was heightened by the mid-August crisis in Russia
and fears of it spreading to Latin America. Yield spreads -- the difference in
yield or income that securities must pay above Treasurys to compensate for the
additional risk -- widened across all fixed income sectors. The "flight to
quality" became a "flight to liquidity" as investors swarmed to shorter maturity
Treasurys. Some markets virtually closed as a result.
To head off the threatening global financial crisis, the Federal Reserve cut
the short-term interest rate in September, October and November, lowering it
from 5.50% to 4.75%. Cuts in short-term rates by several European central banks
in preparation for the January 1, 1999 debut of the euro currency reinforced the
Federal Reserve action.
After eight weeks of a nearly dead new-issue market (late August through
mid-October), signs of life began to appear in shorter-maturity debt and selling
longer maturities became possible in issues and sectors perceived to be less
risky. Investors returned to the capital markets in search of bargains, boosting
the corporate and mortgage-backed sectors. Corporate bonds produced their best
monthly return since the inception of the Lehman indices in 1973, only three
months after posting their worst monthly return.
OUTLOOK
[ARROW ICON]
Fixed income investors will most likely take their 1998 experience with risk to
heart and invest cautiously in 1999. Despite continued strong U.S. economic
growth and the stock market's record levels, spreads and liquidity premiums in
fixed income securities remain high. Yield spreads may tighten a bit in 1999,
which we believe will boost the performance of corporate bonds and mortgage
securities.
1
<PAGE>
ANNUAL REPORT
Bond market liquidity has improved but may worsen again if one or more
potential problems arise: Brazil's economic condition deteriorates further, the
U.S. stock market weakens or Asia's crisis spreads further. We expect the
economy to grow more slowly in 1999, with inflation remaining low. We do not
believe a recession is likely.
PORTFOLIO REVIEW
- ----------------------------------------------------------------------------
The Portfolio began the second half of its fiscal year with significant
allocations to corporate bonds and mortgage-backed securities, as we maintained
our focus on adding portfolio value by enhancing yield. At the same time, we
emphasized call protection in an environment of heightened prepayment risk. As
the period began we perceived the Federal Reserve to be on hold, and therefore
expected relatively low volatility in the bond market.
Instead, market volatility became extreme in August after Russia devalued the
ruble and hedge funds began unwinding their leveraged positions. The speed of
the financial de-leveraging propelled sector spreads beyond levels consistent
with credit fundamentals. We were still positive on corporate bonds but worried
about the impact of the sell-off -- particularly on the broker-dealer and
money-center-bank sectors, which had exposure to derivatives and international
markets. To help protect the Portfolio we reduced its exposure to corporate
bonds.
During November we increased the Portfolio's exposure to the mortgage sector
- -- we believe mortgage spreads to Treasurys are extremely attractive despite
high prepayment risks. We think investors have become more credit-risk averse in
reaction to events in the international markets, and we believe the high credit
quality of mortgage securities and their historically low prices will attract
investors to the sector.
ASSET ALLOCATION(1)
<TABLE>
<S> <C>
- -------------------------------
Treasurys 45.8%
Mortgages 33.1
Corporates 20.0
Cash/Cash
Equivalents 1.1
- -------------------------------
</TABLE>
(1) All weightings represent percentages of portfolio assets as of December 31,
1998. The Portfolio is actively managed and all weightings are subject to
change.
2
<PAGE>
MITCHELL HUTCHINS SERIES TRUST--HIGH GRADE FIXED INCOME PORTFOLIO ANNUAL REPORT
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,
/s/ Margo Alexander
MARGO ALEXANDER
President
Mitchell Hutchins Asset Management Inc.
3
<PAGE>
ANNUAL REPORT
PERFORMANCE AT A GLANCE
- ----------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE HIGH GRADE FIXED
INCOME PORTFOLIO AND THE LEHMAN BROTHERS GOVERNMENT BOND INDEX
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
HIGH GRADE FIXED INCOME PORTFOLIO LB GOVERNMENT BOND INDEX
<S> <C> <C>
11/30/93 $9,570 $10,000
12/31/93 $9,627 $10,039
03/31/94 $9,166 $9,737
06/30/94 $9,047 $9,625
09/30/94 $8,997 $9,666
12/31/94 $8,996 $9,700
03/31/95 $9,347 $10,156
06/30/95 $9,760 $10,786
09/30/95 $9,956 $10,977
12/31/95 $10,385 $11,479
03/31/96 $10,111 $11,218
06/30/96 $10,078 $11,271
09/30/96 $10,231 $11,461
12/31/96 $10,531 $11,796
03/31/97 $10,403 $11,700
06/30/97 $10,751 $12,105
09/30/97 $11,098 $12,510
12/31/97 $11,387 $12,926
03/31/98 $11,571 $13,121
06/30/98 $11,853 $13,467
09/30/98 $12,209 $14,212
12/31/98 $12,711 $14,199
</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, 1998. 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.
AVERAGE ANNUAL TOTAL RETURNS, PERIODS ENDED 12/31/98
<TABLE>
<S> <C>
- ----------------------
One Year 6.83%
Five Years 4.79
Life* 3.88
- ----------------------
</TABLE>
* Life = return since inception on 11/8/93.
Past performance does not guarantee 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 return and principal value of an investment will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their original
cost.
Sources: Lipper Inc. and PaineWebber Inc.
4
<PAGE>
MITCHELL HUTCHINS SERIES TRUST--HIGH GRADE FIXED INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) MATURITY DATES INTEREST RATES VALUE
- --------- -------------------------- -------------------------- ------------
<C> <S> <C> <C> <C>
U.S. GOVERNMENT OBLIGATIONS--46.55%
$ 425 U.S. Treasury Bonds.......................... 02/15/21 7.875% $ 560,071
200 U.S. Treasury LINCS.......................... 08/15/09 6.000 209,915
2,200 U.S. Treasury Notes.......................... 07/31/99 to 05/15/08 5.625 to 7.875 2,381,093
------------
Total U.S. Government Obligations (cost--$3,141,249)..... 3,151,079
------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION CERTIFICATES--7.67%
324 GNMA......................................... 01/15/24 7.000 331,232
176 GNMA......................................... 11/15/17 8.500 188,236
------------
Total Government National Mortgage Association
Certificates
(cost--$488,889).......................................
519,468
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION CERTIFICATES--19.32%
150 FNMA 30 Year TBA............................. TBA 6.000 148,063
265 FNMA......................................... 02/02/06 5.875 274,875
53 FNMA......................................... 12/01/08 6.000 53,297
342 FNMA......................................... 10/01/23 7.000 348,936
275 FNMA......................................... 07/01/09 7.500 282,805
88 FNMA......................................... 09/01/11 8.000 91,321
106 FNMA......................................... 04/01/09 7.000 108,705
------------
Total Federal National Mortgage Association Certificates
(cost--$1,259,605)..................................... 1,308,002
------------
COLLATERALIZED MORTGAGE OBLIGATIONS--9.28%
83 Amresco Commercial Mortgage Funding I Corp.,
Series 1997-C1, Class A1................... 06/17/29 6.730 86,358
39 FDIC REMIC Trust Series 1994-C1, Class 2A2... 09/25/25 7.850 39,131
40 FDIC REMIC Trust Series 1996-C1, Class 1A.... 05/25/26 6.750 40,226
149 LB Commercial Conduit Mortgage Trust Series
1998-C4, Class A1A......................... 10/15/35 5.870 150,134
168 Merrill Lynch Mortgage Investments Inc.,
Series 1996-C1, Class A1................... 04/25/28 7.150 172,386
136 Morgan Stanley Capital I, Series 1997-WF1,
Class A1 +................................. 10/15/06 6.830 140,102
------------
Total Collateralized Mortgage Obligations
(cost--$616,488)....................................... 628,337
------------
CORPORATE BONDS--21.97%
BANKS--3.47%
235 MBNA Capital 1............................... 12/01/26 8.278 234,918
------------
FINANCIAL SERVICES--2.48%
65 Associates Corporation North America......... 11/01/08 6.250 67,068
100 Household International Netherlands B V...... 12/01/03 6.200 100,621
------------
167,689
------------
</TABLE>
5
<PAGE>
MITCHELL HUTCHINS SERIES TRUST--HIGH GRADE FIXED INCOME PORTFOLIO
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) MATURITY DATES INTEREST RATES VALUE
- --------- -------------------------- -------------------------- ------------
<C> <S> <C> <C> <C>
CORPORATE BONDS--(CONCLUDED)
INSURANCE--11.25%
$ 250 American Re Corporation...................... 12/15/26 7.450% $ 286,465
235 Hartford Financial Services Group
Incorporated............................... 11/01/08 6.375 237,195
225 Loews Corporation............................ 12/15/06 6.750 237,696
------------
761,356
------------
MANUFACTURING-DIVERSIFIED--1.12%
75 Tyco International Group S A................. 06/15/01 6.125 75,748
------------
MEDIA--2.46%
150 News America Holdings Inc.................... 10/17/96 8.250 166,626
------------
REAL ESTATE INVESTMENT TRUST--1.19%
80 First Industrial LP.......................... 05/15/27 7.150 80,604
------------
Total Corporate Bonds (cost--$1,425,047)................. 1,486,941
------------
SHORT-TERM U.S. GOVERNMENT OBLIGATION--3.68%
250 U.S. Treasury Bills (cost--$249,386)......... 01/21/99 4.420@ 249,386
------------
REPURCHASE AGREEMENT--1.11%
75 Repurchase Agreement dated 12/31/98 with
State Street Bank & Trust Company,
collateralized by $74,155 U.S. Treasury
Notes, 6.00% due 08/15/99 (value--$76,565);
proceeds $75,033 (cost--$75,000)........... 01/04/99 4.000 75,000
------------
Total Investments (cost--$7,255,664)--109.58%............ 7,418,213
Liabilities in excess of other assets--(9.58)%........... (648,630)
------------
Net Assets--100.00%...................................... $ 6,769,583
------------
------------
</TABLE>
- -----------------
<TABLE>
<S> <C>
@ 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.
REMIC Real Estate Mortgage Investment Conduit
TBA To Be Assigned--Securities are purchased on a forward commitment with an approximate (quarterly +/-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
6
<PAGE>
MITCHELL HUTCHINS SERIES TRUST--HIGH GRADE FIXED INCOME PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost--$7,255,664)............................................................... $7,418,213
Cash................................................................................................... 4,778
Dividends and interest receivable...................................................................... 76,171
Other assets........................................................................................... 1,038
----------
Total assets........................................................................................... 7,500,200
----------
LIABILITIES
Dividends payable...................................................................................... 554,994
Payable to investment adviser and administrator........................................................ 3,127
Payable for investments purchased...................................................................... 147,844
Accrued expenses and other liabilities................................................................. 24,652
----------
Total liabilities...................................................................................... 730,617
----------
NET ASSETS
Beneficial interest shares of $0.001 par value outstanding--738,614 shares (unlimited amount
authorized).......................................................................................... 6,607,126
Accumulated net realized loss from investments......................................................... (92)
Net unrealized appreciation of investments............................................................. 162,549
----------
Net assets............................................................................................. $6,769,583
----------
----------
Net asset value, offering price and redemption value per share......................................... $ 9.17
----------
----------
</TABLE>
See accompanying notes to financial statements
7
<PAGE>
MITCHELL HUTCHINS SERIES TRUST--HIGH GRADE FIXED INCOME PORTFOLIO
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED
DECEMBER 31, 1998
-----------------
<S> <C>
INVESTMENT INCOME:
Interest....................................................................................................... $ 510,258
-----------------
EXPENSES:
Investment advisory and administration......................................................................... 38,332
Legal and audit................................................................................................ 31,878
Reports and notices to shareholders............................................................................ 9,651
Trustees' fees................................................................................................. 7,500
Custody and accounting......................................................................................... 6,605
Transfer agency fees and related service expenses.............................................................. 1,500
Other expenses................................................................................................. 1,696
-----------------
97,162
-----------------
Net investment income.......................................................................................... 413,096
-----------------
REALIZED AND UNREALIZED GAINS (LOSSES) FROM INVESTMENTS:
Net realized gains from investments............................................................................ 204,734
Net change in unrealized appreciation/depreciation of investments.............................................. (120,604)
-----------------
NET REALIZED AND UNREALIZED GAINS FROM INVESTMENTS............................................................. 84,130
-----------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........................................................... $ 497,226
-----------------
-----------------
</TABLE>
See accompanying notes to financial statements
8
<PAGE>
MITCHELL HUTCHINS SERIES TRUST--HIGH GRADE FIXED INCOME PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEARS
ENDED DECEMBER 31,
------------------------
1998 1997
----------- -----------
<S> <C> <C>
FROM OPERATIONS:
Net investment income................................................................................... $ 413,096 $ 440,240
Net realized gains (losses) from investments............................................................ 204,734 (11,692)
Net change in unrealized appreciation/depreciation of investments....................................... (120,604) 200,578
----------- -----------
Net increase in net assets resulting from operations.................................................... 497,226 629,126
----------- -----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income................................................................................... (416,693) (437,176)
Net realized gains from investment transactions......................................................... (139,524) --
----------- -----------
(556,217) (437,176)
----------- -----------
FROM BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from the sale of shares.................................................................... 999,990 1,050,596
Cost of shares repurchased.............................................................................. (1,953,577) (2,251,336)
Proceeds from dividends reinvested...................................................................... 437,300 451,613
----------- -----------
Net decrease in net assets from beneficial interest transactions........................................ (516,287) (749,127)
----------- -----------
Net decrease in net assets.............................................................................. (575,278) (557,177)
NET ASSETS:
Beginning of year....................................................................................... 7,344,861 7,902,038
----------- -----------
End of year (including undistributed net investment income of $309 at December 31, 1997)................ $ 6,769,583 $ 7,344,861
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to financial statements
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Mitchell Hutchins Series Trust--High Grade Fixed Income Portfolio (the
"Portfolio") is a diversified Portfolio of Mitchell Hutchins Series Trust (the
"Fund"), which is organized under Massachusetts law by a Declaration of Trust
dated November 21, 1986 and is registered with the Securities and Exchange
Commission under the Investment Company Act of 1940, as amended, as an open-end
management investment company. The Fund operates as a series company currently
offering thirteen portfolios. Shares of each Portfolio are offered only to
insurance company separate accounts that fund benefits under certain variable
annuity contracts.
The Fund accounts separately for the assets, liabilities and operations for
each Portfolio. Expenses directly attributable to each Portfolio are charged to
that Portfolio's operations; expenses which are applicable to all Portfolios are
allocated among them on a pro rata basis.
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"), a wholly owned asset management
subsidiary of PaineWebber Incorporated ("PaineWebber"), and investment advisor
and administrator of the Portfolio, as the primary market. 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,
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.
REPURCHASE AGREEMENTS--The 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 Portfolio has the right to
liquidate the collateral and apply the proceeds in satisfaction of the
obligation. Under certain circumstances, in the event of default or bankruptcy
by the other party to the agreement, realization and/ or retention of the
collateral may be subject to legal proceedings. The Portfolio may participate in
joint repurchase agreement transactions with other funds managed by Mitchell
Hutchins.
10
<PAGE>
NOTES TO FINANCIAL STATEMENTS
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. Interest income is
recorded on an accrual basis. Premiums are amortized and discounts are accreted
as adjustments to interest income and the identified cost of investments.
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.
CONCENTRATION OF RISK
The ability of the issuers of debt securities including mortgage and asset
backed securities held by the Portfolio to meet their obligations may be
affected by economic developments, including those particular to a specific
industry or region. Mortgage and asset-backed securities may decrease in value
as a result of increases in interest rates and may benefit less than other
fixed-income securities from declining interest rates because of the risk of
prepayments.
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 Portfolio. In accordance
with the Advisory Contract, the Portfolio pays Mitchell Hutchins an investment
advisory and administration fee, which is computed daily and paid monthly, at an
annual rate of 0.50% of the Portfolio average daily net assets.
SECURITIES LENDING
The 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 will regain record ownership of
loaned securities to exercise certain beneficial rights; however, the Portfolio
may bear the risk of delay in recovery of, or even loss of rights in, the
securities loaned should the borrower fail financially. For the year ended
December 31, 1998 there was no security lending activity by the Portfolio.
BANK LINE OF CREDIT
The Portfolio 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 or redemption of shares of the Portfolio at the request of the
shareholders and other temporary or emergency purposes. In connection therewith,
the Portfolio has agreed to pay a commitment fee, pro rata, based on the
relative asset size of the funds in the Facility. Interest is charged to the
Portfolio at rates based on prevailing market rates in effect at the time of
borrowings. For the year ended December 31, 1998, the Portfolio did not borrow
under the Facility.
INVESTMENTS IN SECURITIES
For federal income tax purposes, the cost of securities owned at December 31,
1998 was substantially the same as the cost of securities for financial
statement purposes.
11
<PAGE>
NOTES TO FINANCIAL STATEMENTS
At December 31, 1998, the components of net unrealized appreciation of
investments were as follows:
<TABLE>
<S> <C>
Gross appreciation (investment having an excess of value over cost).................................... $ 175,085
Gross depreciation (investment having an excess of cost over value).................................... (12,536)
-----------
Net unrealized appreciation of investments............................................................. $ 162,549
-----------
-----------
</TABLE>
For the year ended December 31, 1998, total aggregate purchases and sales of
portfolio securities, excluding short-term securities, were $7,443,130 and
$8,042,223, respectively.
FEDERAL TAX STATUS
The Portfolio 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.
To reflect reclassifications arising from permanent "book/tax" differences for
the year ended December 31, 1998, the Portfolio's undistributed net investment
income was increased by $3,288 and accumulated net realized gains/losses from
investments were decreased by $3,288.
SHARES OF BENEFICIAL INTEREST
There are an unlimited amount of $0.001 par value shares of beneficial
interest authorized. Transactions in shares of beneficial interest were as
follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
---------------------------
1998 1997
------------ ------------
<S> <C> <C>
Shares sold............................. 103,845 112,751
Shares redeemed......................... (202,430) (240,926)
Reinvestment of dividends............... 46,931 49,957
------------ ------------
Net decrease............................ (51,654) (78,218)
------------ ------------
------------ ------------
</TABLE>
12
<PAGE>
MITCHELL HUTCHINS SERIES TRUST--HIGH GRADE FIXED INCOME PORTFOLIO
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout each
year is presented below:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------
1998 1997 1996 1995 1994
--------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year........... $ 9.29 $ 9.10 $ 9.49 $ 8.71 $ 9.61
--------- ------- ------- ------- -------
Net investment income........................ 0.56 0.55 0.50 0.56 0.26
Net realized and unrealized gains (losses)
from investments............................ 0.07 0.19 (0.63) 0.79 (0.89)
--------- ------- ------- ------- -------
Net increase (decrease) from investment
operations.................................. 0.63 0.74 0.13 1.35 (0.63)
--------- ------- ------- ------- -------
Dividends from net investment income......... (0.56) (0.55) (0.52) (0.57) (0.27)
Distributions from net realized gains on
investments................................. (0.19) -- -- -- --
--------- ------- ------- ------- -------
Total dividends and distributions............ (0.75) -- -- -- --
--------- ------- ------- ------- -------
Net asset value, end of year................. $ 9.17 $ 9.29 $ 9.10 $ 9.49 $ 8.71
--------- ------- ------- ------- -------
--------- ------- ------- ------- -------
Total investment return (1).................. 6.83% 8.13% 1.41% 15.44% (6.56)%
--------- ------- ------- ------- -------
--------- ------- ------- ------- -------
Ratios/Supplemental Data:
Net assets, end of year (000's).............. $ 6,770 $ 7,345 $ 7,902 $ 9,147 $ 7,638
Expenses to average net assets............... 1.27% 1.43% 1.62% 1.01% 1.56%
Net investment income to average net
assets...................................... 5.39% 5.54% 5.04% 5.56% 4.61%
Portfolio turnover rate...................... 101% 95% 282% 136% 36%
</TABLE>
- -----------------
<TABLE>
<S> <C>
(1) Total investment return is calculated assuming a $1,000 investment on the first day of each year 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 year reported. The figures do not include additional contract level charges; results would be
lower if such charges were included.
</TABLE>
13
<PAGE>
MITCHELL HUTCHINS SERIES TRUST--HIGH GRADE FIXED INCOME PORTFOLIO
REPORT OF INDEPENDENT AUDITORS
The Board of Trustees and Shareholders
Mitchell Hutchins Series Trust--High Grade Fixed Income Portfolio
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Mitchell Hutchins Series Trust--High
Grade Fixed Income Portfolio (the "Portfolio") (one of the Portfolios
constituting Mitchell Hutchins Series Trust) (the "Fund") as of December 31,
1998 and the related statement of operations for the year then ended, the
statement of changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the five years in the period
then ended. 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, 1998 by correspondence with the custodian
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
Mitchell Hutchins Series Trust--High Grade Fixed Income Portfolio at December
31, 1998, the results of its operations for the year then ended, the changes in
its net assets for each of the two years in the period then ended, and the
financial highlights for each of the five years in the period then ended, in
conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
New York, New York
February 11, 1999
14
<PAGE>
ANNUAL REPORT
- ------------------------
MITCHELL
HUTCHINS SERIES
TRUST
HIGH GRADE
FIXED INCOME
PORTFOLIO
December 31, 1998
- -C- 1999 PaineWebber Incorporated
