MITCHELL HUTCHINS SERIES TRUST
HIGH INCOME 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, 2000
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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 High Income Portfolio
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Contents
HIGH INCOME PORTFOLIO
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What every investor 3 Investment Objective, Strategies and Risks
should know about
the fund 4 Performance
5 More About Risks and Investment Strategies
INVESTING IN THE FUND
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Information for managing 6 Purchases, Redemptions and Exchanges
your fund account
6 Pricing and Valuation
ADDITIONAL INFORMATION
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Additional important 7 Management
information about
the fund 8 Dividends and Taxes
9 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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2
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Mitchell Hutchins High Income Portfolio
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HIGH INCOME PORTFOLIO
INVESTMENT OBJECTIVE, STRATEGIES AND RISKS
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Fund Objective
High income.
Principal Investment Strategies
The fund invests primarily in a diversified range of high yield U.S. and foreign
corporate bonds (sometimes called "junk bonds"). The fund also invests, to a
lesser extent, in other types of bonds, preferred stocks and bonds that are
convertible into common stock. The fund may (but is not required to) use
derivatives as part of its investment strategy or to help manage portfolio
risks.
The fund's investment adviser, Mitchell Hutchins Asset Management Inc., uses a
three-step investment process to find the best relative values in the bond
markets in which the fund invests: industry selection, company selection and
security selection.
Mitchell Hutchins allocates the fund's assets among industry groups by analyzing
economic factors, industry dynamics and yield spreads to determine which
industries provide the most attractive investment opportunities. Mitchell
Hutchins selects companies within these industries by performing fundamental
credit analysis based on cash flow, leverage and other balance sheet and income
statement factors. In deciding which securities to buy or sell for the fund,
Mitchell Hutchins chooses from among the types of securities offered by these
companies to select those that appear to offer the best relative values. All
aspects of this process rely on Mitchell Hutchins' economic, credit,
quantitative and market research.
Principal Risks
An investment in the fund is not guaranteed; you may lose money by investing in
the fund. The principal risks presented by the fund are:
o Credit Risk - Bond issuers may fail to make payments when due, or they may
become less willing or less able to do so. This risk is greater for high
yield, lower quality bonds than for bonds that are investment grade.
o Interest Rate Risk - The value of the fund's investments generally will fall
when interest rates rise.
o Foreign Investing and Emerging Markets Risks - The value of the fund's
investments in foreign securities may fall due to adverse political, social
and economic developments abroad and due to decreases in foreign currency
values relative to the U.S. dollar. These risks are greater for investments
in emerging market issuers than for issuers in more developed countries.
o Equity Risk - Stocks and other equity securities generally fluctuate in value
more than bonds. The fund could lose all of its investment in a company's
stock.
o Derivatives Risk - The fund's investments in derivatives may rise or fall
more rapidly than other investments.
More information about these and other risks of an investment in the fund is
provided below in "More About Risks and Investment Strategies."
Information on the fund's investment strategies and recent holdings can be found
in its current annual/semi-annual reports (see back cover for information on
ordering these reports).
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Mitchell Hutchins High Income Portfolio
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PERFORMANCE
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Risk/Return Bar Chart and Table
The following bar chart and table provide information about the fund's
performance and thus give some indication of the risks of an investment in the
fund.
The fund's shares are sold only to insurance company separate accounts that fund
certain variable annuity and variable life contracts. The bar chart and table do
not reflect sales charges or other expenses of these contracts. If those sales
charges and expenses were included, the total returns shown would be lower.
The bar chart shows how the fund's performance for its initial calendar year.
The bar chart shows Class H shares, the only class outstanding during the
periods shown.
The table that follows the bar chart shows the average annual returns for Class
H shares for one year and the life of the class. The table compares fund returns
to returns on a broad-based market index that is unmanaged and, therefore, does
not include any sales charges or expenses.
The fund's past performance does not necessarily indicate how it will perform in
the future.
Total Return on Class H Shares (1999 is the fund's first full calendar
year of operations)
Calendar Year Percentage
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999 5.42%
Best quarter during year shown -- 4th quarter, 1999: 4.29%
Worst quarter during year shown -- 3rd quarter, 1999: (1.01)%
Average Annual Total Returns
as of December 31, 1999
Class Class H CS First Boston High
(Inception Date) (9/28/98) Yield Bond Index
---------------- --------- ---------------------
One Year............... 5.42% 3.28%
Life of Class.......... 8.54% 4.54%*
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* Return is for the period 9/30/98 to 12/31/99, annualized.
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Mitchell Hutchins High Income Portfolio
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MORE ABOUT RISKS AND INVESTMENT STRATEGIES
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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, during periods of market volatility,
may be more difficult to sell at the time and price the fund desires.
Interest Rate Risk. The value of bonds generally 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 larger effect on the value of those bonds
than on lower quality bonds.
Foreign Investing Risk. Foreign investing involve risks relating to political,
social and economic developments abroad to a greater extent than investing in
the securities of U.S. issuers. In addition, there are differences between U.S.
and foreign regulatory requirements and market practices. Foreign investments
denominated in foreign currencies are subject to the risk that the value of a
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 U.S. and foreign governments or central
banks, the imposition of currency controls and speculation.
Investments in foreign government bonds involve special risks because the
investors may have limited legal recourse in the event of default. Political
conditions, especially a country's willingness to meet the terms of its debt
obligations, can be of considerable significance.
Emerging Markets Risk. Securities of issuers located in emerging market
countries are subject to all of the risks of other foreign securities (see
above). However, the level of those risks often is higher due to the fact that
social, political, legal and economic systems in emerging market countries may
be less fully developed and less stable than those in developed countries.
Emerging market securities also may be subject to additional risks, such as
lower liquidity and larger or more rapid changes in value.
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.
Derivatives Risk. The value of "derivatives" - so-called because their value
"derives" from the value of an underlying asset, reference rate or index - may
rise or fall more rapidly than other investments. For some derivatives, it is
possible for the fund to lose more than the amount it invested in the
derivative. Options, futures contracts and forward currency contracts are
examples of derivatives. The fund's use of derivatives may not succeed for
various reasons, including unexpected changes in the values of the derivatives
or the assets underlying them. Also, if the fund uses derivatives to adjust or
"hedge" the overall risk of its portfolio, the hedge will not succeed if changes
in the values of the derivatives are not matched by opposite changes in the
values of the assets being hedged.
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 may temporarily 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, a defensive
position may not be consistent with achieving the fund's investment objective.
The fund may invest up to 35% of its total assets in cash or money market
instruments as a cash reserve for liquidity or other purposes.
Portfolio Turnover. The fund may engage in frequent trading to achieve its
investment objective. Frequent trading can result in portfolio turnover of 100%
or more (high portfolio turnover).
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Mitchell Hutchins High Income Portfolio
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INVESTING IN THE FUND
PURCHASES, REDEMPTIONS AND EXCHANGES
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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 the fund's shares for a period
of time.
PRICING AND VALUATION
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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 most 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.
The fund calculates the U.S. dollar value of investments that are denominated in
foreign currencies daily, based on current exchange rates. The fund may own
securities, including some securities that trade primarily in foreign markets,
that trade on weekends or other days on which the fund does not calculate net
asset value. As a result, the fund's net asset value may change on days when you
will not be able to buy and sell fund shares. If the fund concludes that a
material change in the value of a foreign security has occurred after the close
of trading in the principal foreign market but before the close of the NYSE, the
fund may use fair value methods to reflect those changes. This policy is
intended to assure that the fund's net asset value fairly reflects security
values as of the time of pricing.
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Mitchell Hutchins High Income Portfolio
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MANAGEMENT
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Investment Adviser
Mitchell Hutchins Asset Management Inc. is the investment adviser and
administrator of the fund. Mitchell Hutchins is located at 51 West 52nd Street,
New York, New York 10019-6114, 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 February 29, 2000,
Mitchell Hutchins was adviser or sub-adviser to 31 investment companies with 76
separate funds and aggregate assets of approximately $54.4 billion.
The fund paid advisory fees to Mitchell Hutchins for the most recent fiscal year
at the annual contract rate of 0.50% of its 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 been asked to do so.
Portfolio Manager
James F. Keegan is responsible for the day-to-day management of the fund's
portfolio. Mr. Keegan has held his management responsibilities for the fund
since February 2000.
Mr. Keegan is a senior vice president of Mitchell Hutchins. Prior to joining
Mitchell Hutchins in March 1996, Mr. Keegan was a director with Merrion Group,
L.P.
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Mitchell Hutchins High Income Portfolio
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DIVIDENDS AND TAXES
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Dividends
Dividends 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 and 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 asset 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 High Income 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 the periods shown. 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 periods shown.
The information in this table pertains only to the fund and does not reflect
charges related to the insurance company separate accounts that invest in the
fund. See the appropriate variable annuity or variable life contract prospectus
for information concerning these charges.
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Mitchell Hutchins High Income Portfolio
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High Income Portfolio
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<TABLE>
<CAPTION>
Class H
---------------------------------------------
For the Period
For the September 28,
Year Ended 1998+ through
December 31, 1999 December 31, 1998
----------------- -----------------
<S> <C> <C>
Net asset value, beginning of period.................................... $ 12.40 $ 12.00
------- -------
Net investment income................................................... 1.21 0.20
Net realized and unrealized gains (losses) from investments............. (0.54) 0.42
------- -------
Net increase from investment operations................................. 0.67 0.62
------- -------
Dividends from net investment income.................................... (1.21) (0.20)
Distributions from net realized gains from investments.................. (0.11) (0.02)
------- -------
Total dividends and distributions....................................... (1.32) (0.22)
------- -------
Net asset value, end of period.......................................... $ 11.75 $ 12.40
======= =======
Total investment return(1).............................................. 5.42% 5.16%
======= =======
Ratios/Supplemental data:
Net assets, end of period (000's)....................................... $12,561 $ 10,933
Expenses to average net assets.......................................... 1.35% 1.20%*
Net investment income to average net assets............................. 9.44% 7.04%*
Portfolio turnover rate................................................. 69% 21%
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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 other 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
periods of less than one year has not been annualized.
</TABLE>
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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 shareholder
reports and the SAI, at the Public Reference Room of the Securities and Exchange
Commission. You may obtain information about the operations of the SEC's Public
Reference Room by calling the SEC at 1-202-942-8090. You can get text-only
copies of reports and other information about the fund:
o For a fee, by electronic request at [email protected] or by writing the
SEC's Public Reference Room, Washington, D.C. 20549-0102; or
o Free, from the EDGAR Database on the SEC's Internet website at:
http://www.sec.gov
Mitchell Hutchins Series Trust
Investment Company Act File No. - 811-4919
