<PAGE>
MITCHELL HUTCHINS SERIES TRUST--GLOBAL INCOME PORTFOLIO SEMIANNUAL REPORT
August 15, 2000
Dear Contract Owner,
We are pleased to present you with the semiannual report for Mitchell
Hutchins Series Trust--Global Income Portfolio (the "Portfolio") for the
six-month period ended June 30, 2000.
MARKET REVIEW
-------------------------------------------------------------------------------
[GRAPHIC]
The developed bond markets, as measured by the Salomon Smith Barney
World Government Bond Index (WGBI) achieved a modest gain of 4.39% for the
six-month period on a U.S. dollar, currency-hedged basis. On an unhedged
basis, developed bond markets were flat, gaining only 0.03% in U.S. dollars.
Over the period, the world's developed economies continued to show positive
signs of growth. The Federal Reserve Board's (the "Fed") yearlong fight to
rein in the U.S. economy showed signs of working after a half-point increase
in May was followed by some indication of moderating growth. While the U.S.
bond market began to recover in June, foreign currencies fluctuated against
the dollar, corporate spreads narrowed and emerging market debt rallied.
Europe's economies have continued to accelerate, led by strong exports and
manufacturing; but Japan's economic future seems uncertain, as consumer
demand remains weak.
PORTFOLIO REVIEW
-------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS, PERIODS ENDED 6/30/00
<TABLE>
<CAPTION>
6 Months 1 Year 5 Years 10 Years Inception*
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Global Income Portfolio 0.27% -0.01% 4.21% 5.77% 6.38%
WGBI (unhedged) 0.03 3.16 3.16 7.94 3.54
---------------------------------------------------------------------------------------
</TABLE>
* Inception: since commencement of issuance on May 1, 1988.
The investment return and the 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. Returns for periods of one year or less are
cumulative. Past performance is no guarantee of future performance. Figures
assume reinvestment of all dividends and capital gains 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.
PORTFOLIO HIGHLIGHTS
For the six months ended June 30, 2000, the Portfolio gained 0.27%, comparing
favorably to its benchmark. Positioned for world recovery and tightening
monetary policies, we kept global duration to about four years while keeping
credit exposures low and reducing currency exposures. (Duration is a measure
of a bond portfolio's sensitivity to interest rate changes.)
1
<PAGE>
SEMIANNUAL REPORT
OUTLOOK
-------------------------------------------------------------------------------
Over the last reporting period we have anticipated moderation in the rate of
growth in demand in the United States and an acceleration of economic
activity outside the U.S. Along with this, we have expected inflation
pressures to rise gradually.
Recent macroeconomic reports generally substantiate our view. In Europe,
France showed further gains in employment and business confidence; German
manufacturing orders confirmed a recent strengthening trend. In the U.S.,
reports on purchasing, construction and new home sales showed the impact of
the Fed's rate hikes and higher energy costs. In Japan, household spending
was down for June while construction spending was up, very much in keeping
with the strong production and weak consumption picture we've seen all year.
Presently, the U.S. Fed seems to have engineered a moderation of domestic
growth. This should be good news for world markets so dependent on the U.S.
economy. The Portfolio continues to have greater than average exposure to
U.S. debt, especially to corporate bonds with historically attractive
spreads. (The spread is the extra yield or income over Treasurys that such
securities must offer to compensate for their greater risk.)
Against its benchmark the Portfolio currently is positioned: short global
duration; overweight duration in the United States, where real yields are
high and where economic moderation is feasible; long U.S. dollar spread
product (e.g., corporate and Yankee bonds, emerging market debt); underweight
Japan and European government bond markets.
PORTFOLIO STATISTICS
<TABLE>
<CAPTION>
CHARACTERISTICS* 6/30/00 12/31/99
------------------------------------------------------------------------------------
<S> <C> <C>
Weighted Average Duration 4.4 yrs 4.3 yrs
Weighted Average Maturity 9.1 yrs 8.6 yrs
Net Assets ($mm) $7.33 $8.83
------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CURRENCY EXPOSURE* 6/30/00 12/31/99
------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Denominated 59.6% 51.5%
Hedged to U.S. Dollar 0.5 0.0
Foreign Currency Unhedged 39.9 48.5
------------------------------------------------------------------------------------
Total 100.0 100.0
</TABLE>
* Weightings represent percentages of net assets as of the dates indicated. The
Portfolio is actively managed and its composition will vary over time.
2
<PAGE>
MITCHELL HUTCHINS SERIES TRUST--GLOBAL INCOME PORTFOLIO SEMIANNUAL REPORT
<TABLE>
<CAPTION>
ASSET ALLOCATION* 6/30/00 12/31/99
------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Treasurys/Corporates 39.6% 34.4%
Europe 37.0 41.4
Foreign Corporates/Sovereigns 15.8 14.6
Dollar Bloc: Australia, Canada, New Zealand 3.4 6.2
Cash and Equivalents 1.7 2.0
Net Interest Receivable 2.5 1.4
------------------------------------------------------------------------------------
Total 100.0 100.0
</TABLE>
<TABLE>
<CAPTION>
CREDIT QUALITY* 6/30/00 12/31/99
------------------------------------------------------------------------------------
<S> <C> <C>
A1/P1 4.2% 6.7%
AAA 57.5 57.7
AA 13.3 8.5
A 15.2 16.0
BBB 6.5 3.8
BB 1.0 5.5
B 2.3 1.8
------------------------------------------------------------------------------------
Total 100.0 100.0
</TABLE>
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 /s/ Brian M. Storms
MARGO ALEXANDER BRIAN M. STORMS
Chairman and President and
Chief Executive Officer Chief Operating Officer
Mitchell Hutchins Mitchell Hutchins
Asset Management Inc. Asset Management Inc.
This letter is intended to assist shareholders in understanding how the
Portfolio performed during the six-month period ended June 30, 2000, and
reflects our views at the time of its writing. Of course, these views may
change in response to changing circumstances.
* Weightings represent percentages of net assets as of the dates indicated.
The Portfolio is actively managed and its composition will vary over time.
3
<PAGE>
MITCHELL HUTCHINS SERIES TRUST--GLOBAL INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000)* DATES RATES VALUE
----------- --------------------- ----------------- --------
<S> <C> <C> <C>
LONG-TERM DEBT SECURITIES--82.38%
AUSTRALIA--1.54%
US$ 113 National Australia Bank .......................... 05/19/10 7.434%@ $112,583
--------
BRAZIL--1.69%
US$ 92 Federal Republic of Brazil ....................... 01/15/20 to 05/15/27 10.125 to 12.750 78,325
US$ 62 Federal Republic of Brazil, DCB .................. 04/15/12 7.438@ 45,570
--------
123,895
--------
CANADA--3.40%
365 Government of Canada ............................. 09/01/01 7.000 249,380
--------
FRANCE--1.71%
130 Government of France ............................. 10/25/07 5.500 125,237
--------
GERMANY--5.42%
US$ 150 Deutsche Ausgleichsbank .......................... 06/23/05 7.000 149,480
280 Federal Republic of Germany ...................... 02/17/04 to 07/04/09 3.250 to 4.000 247,650
--------
397,130
--------
ITALY--3.52%
245 Republic of Italy ............................... 04/01/04 8.500 258,343
--------
KOREA--0.92%
US$ 65 Republic of Korea ............................... 04/15/08 8.875 67,275
--------
MALAYSIA--2.09%
US$ 80 Government of Malaysia .......................... 06/01/09 8.750 82,680
US$ 82 Petroliam Nasional Berhad ....................... 10/15/26 7.625 70,463
--------
153,143
--------
MEXICO--2.26%
US$ 172 Pemex Finance Limited ........................... 11/15/03 6.125 166,013
--------
NETHERLANDS--8.11%
616 Government of Netherlands ....................... 09/15/01 to 01/15/28 5.500 to 8.750 594,288
--------
PANAMA--1.02%
US$ 78 Republic of Panama .............................. 04/01/29 9.375 74,880
--------
POLAND--2.30%
460 Republic of Poland .............................. 06/12/04 10.000 88,409
US$ 90 Republic of Poland, PDI ......................... 10/27/14 6.000# 80,100
--------
168,509
--------
QATAR--1.08%
US$ 80 State of Qatar .................................. 06/15/30 9.750 78,880
--------
TRINIDAD & TOBAGO--1.36%
US$ 50 Republic of Trinidad & Tobago ................... 10/01/09 9.875 51,250
US$ 50 Republic of Trinidad & Tobago (1) ............... 07/01/20 9.750 48,825
--------
100,075
--------
TURKEY--0.65%
US$ 46 Republic of Turkey .............................. 11/05/04 11.875 47,817
--------
4
<PAGE>
MITCHELL HUTCHINS SERIES TRUST--GLOBAL INCOME PORTFOLIO
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000)* DATES RATES VALUE
----------- --------------------- ----------------- ----------
<S> <C> <C> <C>
LONG-TERM DEBT SECURITIES--(CONCLUDED)
UNITED KINGDOM--11.03%
495 United Kingdom Gilt ............................. 08/27/02 to 12/07/03 6.500 to 10.000% $ 808,872
----------
UNITED STATES--34.28%
79 Abbey National Capital Trust .................... 06/30/30 + 8.963 78,453
200 Clorox Corporation .............................. 07/15/01 8.800 203,906
395 Federal National Mortgage Association ........... 01/15/02 to 09/15/09 6.625 387,076
120 FMR Corporation ................................. 06/15/29 7.570 113,732
200 Ford Motor Capital Corporation BV ............... 07/01/01 9.500 203,948
185 General Motors Acceptance Corporation ........... 11/10/03 5.750 175,468
73 HSBC Capital Funding LP ......................... 06/30/30 + 10.176 78,131
104 Morgan Stanley Dean Witter ...................... 06/15/05 7.750 104,542
756 U.S. Treasury Inflation Index Notes ............. 07/15/02 to 04/15/28 3.625 734,958
348 U.S. Treasury Bonds ............................. 11/15/27 to 02/15/29 5.250 to 6.125 335,396
99 Wells Fargo Company ............................. 09/03/02 6.500 97,583
----------
2,513,193
----------
Total Long-Term Debt Securities (cost--$6,461,849) ......... 6,039,513
----------
SHORT-TERM DEBT SECURITIES--13.50%
GERMANY--3.68%
284 Federal Republic of Germany ..................... 09/15/00 3.250 269,700
----------
HUNGARY--1.03%
20,000 Government of Hungary ........................... 06/12/01 13.500 75,231
----------
SPAIN--3.38%
260 Kingdom of Spain ................................ 01/31/01 5.000 247,849
----------
UNITED STATES--5.41%
400 U.S. Treasury Notes ............................. 11/30/00 4.625 397,125
----------
Total Short-Term Debt Securities (cost--$992,032) .......... 989,905
----------
REPURCHASE AGREEMENT--1.70%
125 Repurchase Agreement dated 06/30/00 with Brown
Brothers Harriman & Company, collateralized by
$140,931 U.S. Treasury Notes, 5.375%,
due 02/15/01 (value $141,504); proceeds:
$125,062 (cost $125,000) ........................ 07/03/00 6.000 125,000
----------
Total Investments (cost--$7,578,881)--97.58% ............... 7,154,418
Other assets in excess of liabilities--2.42% ............... 177,286
----------
Net Assets--100.00% ........................................ $7,331,704
==========
</TABLE>
---------------------------
Note: The Portfolio of Investments is listed by the issuer's country of origin.
* In local currency unless otherwise indicated.
# Reflects rate at June 30, 2000 on step coupon rate instrument.
@ Floating rate securities--the interest rates shown are the current rates as
of June 30, 2000.
+ Maturity date shown is the callable date for perpetual rewriting
securities.
(1) Illiquid security representing 0.67% of net assets.
DCB Debt Conversion Bond.
PDI Past Due Interest Bond.
5
<PAGE>
MITCHELL HUTCHINS SERIES TRUST--GLOBAL INCOME PORTFOLIO
FORWARD FOREIGN CURRENCY CONTRACTS
<TABLE>
<CAPTION>
UNREALIZED
CONTRACT TO APPRECIATION
DELIVER IN EXCHANGE FOR MATURITY DATES (DEPRECIATION)
----------- --------------- -------------------- --------------
<S> <C> <C> <C> <C>
Australian Dollars ............. 144,598 US$ 86,018 07/06/00 $ (344)
Australian Dollars ............. 142,558 US$ 84,893 07/06/00 (251)
British Pounds ................. 120,000 US$ 178,953 07/10/00 to 08/30/00 (2,703)
British Pounds ................. 125,000 US$ 188,250 07/26/00 (893)
British Pounds ................. 216,000 US$ 324,130 08/29/00 (2,912)
Euro ........................... 173,000 US$ 163,122 08/01/00 (1,981)
Polish Zloty ................... 350,000 US$ 79,473 07/10/00 (774)
U.S. Dollars ................... 166,062 AUD 287,156 07/06/00 5,444
U.S. Dollars ................... 187,200 EUR 200,000 08/01/00 3,670
U.S. Dollars ................... 57,480 EUR 60,000 08/08/00 (194)
U.S. Dollars ................... 172,404 EUR 180,000 08/21/00 (413)
U.S. Dollars ................... 142,766 GBP 95,000 08/30/00 1,074
U.S. Dollars ................... 242,248 JPY 25,614,371 07/10/00 to 07/19/00 (379)
U.S. Dollars ................... 105,084 JPY 11,286,000 07/24/00 1,635
------
$ 979
======
</TABLE>
---------------------
CURRENCY TYPE ABBREVIATIONS:
AUD -- Australian Dollars
EUR -- Euro
GBP -- British Pounds
JPY -- Japanese Yen
US$ -- United States Dollars
INVESTMENTS BY TYPE OF ISSUER
<TABLE>
<CAPTION>
PERCENT OF NET ASSETS
--------------------------
LONG-TERM SHORT-TERM
--------- ----------
<S> <C> <C>
Government and other public issuers ........................................ 61.18% 13.50%
Bank and other financial institutions ...................................... 15.19 --
Industrial ................................................................. 6.01 --
Repurchase agreement ....................................................... -- 1.70
----- -----
82.38% 15.20%
===== =====
</TABLE>
See accompanying notes to financial statements
6
<PAGE>
MITCHELL HUTCHINS SERIES TRUST--GLOBAL INCOME PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES JUNE 30, 2000 (UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Investments in securities, at value (cost--$7,578,881) ..................................... $7,154,418
Cash ....................................................................................... 109,308
Interest receivable ........................................................................ 143,625
Unrealized appreciation on forward foreign currency contracts .............................. 11,823
Receivable for shares of beneficial interest sold .......................................... 590
Other assets ............................................................................... 846
----------
Total assets ............................................................................... 7,420,610
----------
LIABILITIES
Unrealized depreciation on forward foreign currency contracts .............................. 10,844
Payable to investment adviser and administrator ............................................ 4,529
Payable for shares of beneficial interest repurchased ...................................... 2,404
Accrued expenses and other liabilities ..................................................... 71,129
----------
Total liabilities .......................................................................... 88,906
----------
NET ASSETS
Beneficial interest shares of $0.001 par value outstanding--715,606 (unlimited
amount authorized) ....................................................................... 8,086,709
Undistributed net investment income ........................................................ 75,934
Accumulated net realized losses from investment transactions ............................... (406,166)
Net unrealized depreciation of investments, other assets, liabilities and
forward contracts denominated in foreign currencies ...................................... (424,773)
----------
Net assets ................................................................................. $7,331,704
==========
Net asset value, offering price and redemption value per share ............................. $10.25
======
</TABLE>
See accompanying notes to financial statements
7
<PAGE>
MITCHELL HUTCHINS SERIES TRUST--GLOBAL INCOME PORTFOLIO
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS
ENDED
JUNE 30, 2000
(UNAUDITED)
-------------
<S> <C>
INVESTMENT INCOME:
Interest (net of foreign withholding taxes of $488) ................................ $ 291,297
---------
EXPENSES:
Investment advisory and administration ............................................. 30,193
Custody and accounting ............................................................. 35,111
Legal and audit .................................................................... 17,885
Reports and notices to shareholders ................................................ 11,370
Trustees' fees ..................................................................... 3,750
Transfer agency fees and related service expenses .................................. 750
Other expenses ..................................................................... 6,204
---------
105,263
---------
Net investment income .............................................................. 186,034
---------
REALIZED AND UNREALIZED GAINS (LOSSES) FROM INVESTMENT ACTIVITIES:
Net realized losses from:
Investments .................................................................... (88,375)
Foreign currency transactions .................................................. (156,804)
Net change in unrealized appreciation/depreciation of:
Investments .................................................................... 62,379
Other assets, liabilities and forward contracts denominated in foreign
currencies ................................................................... 4,881
---------
NET REALIZED AND UNREALIZED LOSSES FROM INVESTMENT ACTIVITIES ...................... (177,919)
---------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ............................... $ 8,115
=========
</TABLE>
See accompanying notes to financial statements
8
<PAGE>
MITCHELL HUTCHINS SERIES TRUST--GLOBAL INCOME PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS
ENDED FOR THE YEAR
JUNE 30, 2000 ENDED
(UNAUDITED) DECEMBER 31, 1999
------------- -----------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income ........................................................... $ 186,034 $ 545,706
Net realized losses from investments and foreign currency transactions .......... (245,179) (407,294)
Net change in unrealized appreciation/depreciation of investments, other
assets, liabilities and forward contracts denominated in foreign currencies ... 67,260 (779,120)
----------- -----------
Net increase (decrease) in net assets resulting from operations ................. 8,115 (640,708)
----------- -----------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income ........................................................... (255,314) --
----------- -----------
Total dividends to shareholders ................................................. (255,314) --
----------- -----------
FROM BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from the sale of shares ............................................ 94,385 685,975
Cost of shares repurchased ...................................................... (1,598,773) (6,951,626)
Proceeds from dividends reinvested .............................................. 255,314 1,032,547
----------- -----------
Net decrease in net assets from beneficial interest transactions................. (1,249,074) (5,233,104)
----------- -----------
Net decrease in net assets....................................................... (1,496,273) (5,873,812)
NET ASSETS:
Beginning of period.............................................................. 8,827,977 14,701,789
----------- -----------
End of period (including undistributed net investment income of $75,934
and $145,214, respectively) .................................................. $ 7,331,704 $ 8,827,977
=========== ===========
</TABLE>
See accompanying notes to financial statements
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Mitchell Hutchins Series Trust--Global Income Portfolio (the "Portfolio")
is a non-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 the Portfolio are offered
to insurance company separate accounts which fund certain variable 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 accounting
principles generally accepted in the United States 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--The Portfolio calculates its net asset value
based on the current market value for its portfolio securities. The Portfolio
normally obtains market values for its securities from independent pricing
sources. Independent pricing sources may use reported last sale prices,
current market quotations or valuations from computerized "matrix" systems
that derive values based on comparable securities. Securities traded in the
over-the-counter ("OTC") market and listed on The Nasdaq Stock Market, Inc.
("Nasdaq") normally are valued at the last sale price on Nasdaq prior to
valuation. Other OTC securities are valued at the last bid price available
prior to valuation. Securities which are listed on U.S. and foreign stock
exchanges normally are valued at the last sale price on the day the
securities are valued or, lacking any sales on such day, at the last
available bid price. In cases where securities are traded on more than one
exchange, the securities are valued on the exchange designated as the primary
market by Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins"), a
wholly owned asset management subsidiary of PaineWebber Incorporated
("PaineWebber"), a wholly owned subsidiary of Paine Webber Group Inc.
("PW Group") and investment adviser and administrator of the Portfolio. If a
market value is not available from an independent pricing source for a
particular security, that security is valued at fair value as determined in
good faith by or under the direction of the Fund's board of trustees (the
"board"). The amortized cost method of valuation, which approximates market
value, generally is used to value short-term debt instruments with sixty days
or less remaining to maturity, unless the board determines that this does not
represent fair value. All investments quoted in foreign currencies will be
valued daily in U.S. dollars on the basis of the foreign currency exchange
rates prevailing at the time such valuation is determined by the Portfolio's
custodian.
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 the computation of the Portfolio's net asset value. If events
materially affecting the value of such securities or currency exchange rates
occur during such time periods, the securities will be valued at their fair
value as determined in good faith by or under the direction of the board.
10
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
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.
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. Discounts are accreted as adjustments to
interest income and the identified cost of investments.
FOREIGN CURRENCY TRANSLATION--The books and records of the Portfolio 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 value of the Portfolio's
securities are presented at the foreign exchange rates at the end of the
period, the Portfolio does not generally isolate the effect of fluctuations
in foreign exchange rates from the effects of fluctuations in the market
price of securities. However, the Portfolio does 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-denominated assets and liabilities at the year-end
exchange rates are included in the change in unrealized
appreciation/depreciation of other assets and liabilities denominated in
foreign currencies.
FORWARD FOREIGN CURRENCY CONTRACTS--The Portfolio 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. The Portfolio 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 anticipates that there is a correlation between
the two currencies. Forward contracts may also be used to shift the
Portfolio's exposure to foreign currency fluctuations from one country to
another.
The Portfolio has 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 the Portfolio's total
assets. The Portfolio 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 Portfolio maintains cash or liquid securities in a
11
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
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.
Fluctuations in the value of forward contracts are recorded for financial
reporting purposes as unrealized gains or losses by the Portfolio. Realized
gains and losses include net gains or losses recognized by the Portfolio on
contracts which have matured.
DIVIDENDS AND DISTRIBUTIONS--Dividends and distributions to shareholders
are recorded on the ex-dividend date. The amount of dividends and
distributions are determined in accordance with federal income tax
regulations, which may differ from generally accepted accounting principles.
These "book/tax" differences are either considered temporary or permanent in
nature. To the extent these differences are permanent in nature, such amounts
are reclassified within the capital accounts based on their federal tax-basis
treatment; temporary differences do not require reclassification.
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 the Portfolio is authorized to invest. The ability
of the issuers of debt securities held by the Portfolio to meet its
obligations may be affected by economic and political developments particular
to a specific industry, country or region.
INVESTMENT ADVISER AND ADMINISTRATOR
The board 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 payable monthly at the annual
rate of 0.75% of the Portfolio's average daily net assets.
On July 12, 2000, PW Group and UBS AG ("UBS") announced that they had
entered into an agreement and plan of merger under which PW Group will merge
into a wholly owned subsidiary of UBS. If all required approvals are obtained
and the required conditions are satisfied, PW Group and UBS expect to
complete the transaction in the fourth quarter of 2000. UBS, with
headquarters in Zurich, Switzerland, is an internationally diversified
organization with operations in many areas of the financial services industry.
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. The Portfolio
12
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
receives compensation, which is included in interest income, for lending its
securities from interest earned on the cash or U.S. government securities
held as collateral, net of fee rebates paid to the borrower plus reasonable
administrative and custody fees. For the six months ended June 30, 2000, the
Portfolio had no security lending activity.
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, the repurchase 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 six
months ended June 30, 2000, the Portfolio did not borrow under the Facility.
INVESTMENTS IN SECURITIES
For federal income tax purposes, the cost of securities owned at June 30,
2000 was substantially the same as the cost of securities for financial
statement purposes.
At June 30, 2000, the components of net unrealized depreciation of
investments were as follows:
<TABLE>
<S> <C>
Gross appreciation (investments having an excess of value over cost) ..... $ 49,516
Gross depreciation (investments having an excess of cost over value) ..... (473,979)
---------
Net unrealized depreciation of investments ............................... $(424,463)
=========
</TABLE>
For the six months ended June 30, 2000, aggregate purchases and sales of
portfolio securities, excluding short-term securities, were $4,448,343 and
$5,636,333, respectively.
FEDERAL TAX STATUS
The Portfolio intends to distribute all of its taxable income and to
comply with the requirements of the Internal Revenue Code applicable to
regulated investment companies. Accordingly, no provision for federal income
taxes is required.
At December 31, 1999, the Portfolio had a net capital loss carryforward of
$76,040. The loss carryforward is available as a reduction, to the extent
provided in the regulations, of future net realized capital gains, and will
expire by December 31, 2007. To the extent that such losses are used to
offset future net realized capital gains as provided in the regulations, it
is probable that the gains will not be distributed.
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
SIX MONTHS FOR THE
ENDED YEAR ENDED
JUNE 30, 2000 DECEMBER 31, 1999
------------- -----------------
<S> <C> <C>
Shares sold ............................. 9,033 63,631
Shares redeemed ......................... (156,299) (646,155)
Reinvestment of dividends ............... 25,006 92,855
-------- --------
Net decrease ............................ (122,260) (489,669)
======== ========
</TABLE>
13
<PAGE>
MITCHELL HUTCHINS SERIES TRUST--GLOBAL INCOME PORTFOLIO
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout each
period is presented below:
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS
ENDED FOR THE YEARS ENDED DECEMBER 31,
JUNE 30, 2000 -------------------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995
------------- ------ ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period .................. $10.54 $11.07 $ 10.81 $ 11.14 $ 11.20 $ 10.88
------ ------ ------- ------- ------- -------
Net investment income (loss) .......................... 0.25 0.59 0.69 0.75 0.87 (0.05)
Net realized and unrealized gains (losses) from
investments and foreign currency .................... (0.22) (1.12) 0.36 (0.36) (0.13) 1.52
------ ------ ------- ------- ------- -------
Net increase (decrease) from investment operations .... 0.03 (0.53) 1.05 0.39 0.74 1.47
------ ------ ------- ------- ------- -------
Dividends from net investment income .................. (0.32) -- (0.61) (0.71) (0.79) (1.15)
Distributions from net realized gains from investments. -- -- (0.18) (0.01) (0.01) --
------ ------ ------- ------- ------- -------
Total dividends and distributions ..................... (0.32) -- (0.79) (0.72) (0.80) (1.15)
------ ------ ------- ------- ------- -------
Net asset value, end of period ........................ $10.25 $10.54 $ 11.07 $ 10.81 $ 11.14 $ 11.20
====== ====== ======= ======= ======= =======
Total investment return(1) ............................ 0.27% (4.79)% 9.69% 3.50% 6.62% 13.58%
====== ====== ======= ======= ======= =======
Ratios/Supplemental Data:
Net assets, end of period (000's) ..................... $7,332 $8,828 $14,702 $17,730 $24,436 $35,700
Expenses to average net assets ........................ 2.61%* 2.09% 1.68% 1.52% 1.56% 1.19%
Net investment income to average net assets ........... 4.62%* 4.62% 5.53% 6.34% 6.56% 7.21%
Portfolio turnover rate ............................... 68% 43% 104% 142% 134% 160%
</TABLE>
-----------------
* Annualized
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each period reported, reinvestment of all dividends and
distributions 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.
14
<PAGE>
SEMIANNUAL REPORT
MITCHELL
HUTCHINS SERIES
TRUST
GLOBAL INCOME
PORTFOLIO
-C-2000 PaineWebber Incorporated JUNE 30,2000
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