INSTITUTIONAL
ADJUSTABLE RATE
GOVERNMENT PORTFOLIO
SEMI-ANNUAL REPORT
MAY 31, 1995
<PAGE>
Institutional Adjustable Rate Government Portfolio
--------------------------------------------------------------------------------
Schedule of Investments
May 31, 1995 (unaudited)
--------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS--96.75%
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
--------- -------- -------- ----------
<C> <S> <C> <C> <C>
$3,710 U.S. Treasury Bills....................................... 06/01/95 5.450% $3,710,000
1,500 U.S. Treasury Notes....................................... 02/28/97 6.875 1,525,313
----------
Total Investments (cost--$5,210,837)--96.75%.......................... 5,235,313
Other assets in excess of liabilities--3.25%.......................... 175,601
----------
Net Assets--100%...................................................... $5,410,914
----------
----------
</TABLE>
See accompanying notes to financial statements
2
<PAGE>
Institutional Adjustable Rate Government Portfolio
--------------------------------------------------------------------------------
Statements of Assets and Liabilities
May 31, 1995
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value (Cost - $5,210,837)....................... $5,235,313
Cash.......................................................................... 7,036
Interest receivable........................................................... 26,717
Receivable to affiliates...................................................... 61,429
Deferred organization expenses................................................ 154,309
Other assets.................................................................. 15,712
----------
Total assets............................................................ 5,500,516
----------
LIABILITIES:
Dividend payable.............................................................. 10,413
Payable to affiliates......................................................... 1,080
Accrued expenses and other liabilities........................................ 78,109
----------
Total liabilities....................................................... 89,602
----------
NET ASSETS:
Beneficial interest shares of $0.001 par value outstanding (unlimited amount
authorized)................................................................. 7,390,607
Accumulated net realized losses from investments.............................. (2,004,169)
Net unrealized appreciation of investments.................................... 24,476
----------
Net assets.............................................................. $5,410,914
----------
INSTITUTIONAL SHARES:
Net assets.................................................................... $5,358,652
----------
Shares outstanding............................................................ 452,329
----------
Net asset value, offering price and redemption value per share................ $ 11.85
----------
----------
FINANCIAL INTERMEDIARY SHARES:
Net assets.................................................................... $ 52,262
----------
Shares outstanding............................................................ 4,411
----------
Net asset value, offering price and redemption value per share................ $ 11.85
----------
----------
</TABLE>
See notes to financial statements.
3
<PAGE>
Institutional Adjustable Rate Government Portfolio
--------------------------------------------------------------------------------
Statement of Operations
For the Six Months Ended May 31, 1995 (unaudited)
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest..................................................................... $ 702,288
-----------
EXPENSES:
Investment advisory and administration....................................... 51,122
Service fees--Financial Intermediary Shares.................................. 2,968
Federal and state registration fees.......................................... 32,910
Amortization of organization expenses........................................ 20,575
Reports and notices to shareholders.......................................... 20,350
Legal and audit.............................................................. 19,527
Custody and accounting....................................................... 14,690
Transfer agency and service fees............................................. 8,724
Trustees' fees............................................................... 4,821
Other expenses............................................................... 3,622
-----------
179,309
Less: Fee waivers and reimbursements from adviser............................... (104,434)
-----------
Net expenses.................................................................... 74,875
-----------
NET INVESTMENT INCOME........................................................... 627,413
-----------
REALIZED AND UNREALIZED GAINS (LOSSES) FROM INVESTMENT TRANSACTIONS:
Net realized losses from investment transactions............................. (1,172,977)
Net change in unrealized appreciation/depreciation of investments............ 932,132
-----------
NET REALIZED AND UNREALIZED LOSSES FROM INVESTMENT TRANSACTIONS................. (240,845)
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............................ $ 386,568
-----------
-----------
</TABLE>
See notes to financial statements.
4
<PAGE>
Institutional Adjustable Rate Government Portfolio
--------------------------------------------------------------------------------
Statement of Changes in Net Assets
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS ENDED MARCH 24, 1994*
MAY 31, 1995 TO
(UNAUDITED) NOVEMBER 30, 1994
---------------- -----------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income................................. $ 627,413 $ 4,130,601
Net realized losses from investment transactions...... (1,172,977) (831,192)
Net change in unrealized appreciation/depreciation of
investments......................................... 932,132 (907,656)
---------------- -----------------
Net increase in net assets resulting from
operations.......................................... 386,568 2,391,753
---------------- -----------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income-Institutional Shares............ (562,949) (3,641,953)
Net investment income-Financial Intermediary Shares... (64,464) (488,648)
---------------- -----------------
(627,413) (4,130,601)
---------------- -----------------
FROM BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from the sale of beneficial interest..... 1,443,651 224,767,944
Cost of beneficial interest repurchased............... (61,245,470) (160,171,260)
Proceeds from dividends reinvested.................... 304,774 2,190,960
---------------- -----------------
Net increase (decrease) in net assets derived from
beneficial interest transactions.................... (59,497,045) 66,787,644
---------------- -----------------
Net increase (decrease) in net assets................. (59,737,890) 65,048,796
---------------- -----------------
NET ASSETS:
Beginning of period...................................... 65,148,804 100,008
---------------- -----------------
End of period............................................ $ 5,410,914 $ 65,148,804
---------------- -----------------
---------------- -----------------
</TABLE>
* Commencement of operations.
See notes to financial statements.
5
<PAGE>
Institutional Adjustable Rate Government Portfolio
--------------------------------------------------------------------------------
Notes to Financial Statements--(unaudited)
--------------------------------------------------------------------------------
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The Fund is a series of Institutional Series Trust (the "Trust"), which is
registered under the Investment Company Act of 1940 as a diversified, open-end
management company. Currently the Fund is the only series offered by the Trust.
The Fund commenced operations on March 24, 1994. The Fund offers investors the
choice of investing in two separate classes of shares representing equal,
pro-rata interests in its investment portfolio--"Institutional" shares and
"Financial Intermediary" shares. Financial Intermediary shares are identical in
all respects to Institutional shares except that beneficial owners of Financial
Intermediary shares receive certain services directly from financial
intermediaries, bear certain service fees and enjoy certain exclusive voting
rights on matters relating to these services and fees.
Valuation of Investments--Where market quotations are readily available,
portfolio securities are valued thereon, provided such quotations adequately
reflect, in the judgment of Mitchell Hutchins Asset Management Inc. ("Mitchell
Hutchins"), a wholly owned subsidiary of PaineWebber Incorporated and investment
adviser and administrator of the Fund, the fair value of the securities. When
market quotations are not readily available, securities are valued based upon
appraisals derived from information concerning those securities or similar
securities received from recognized dealers in those securities. All other
securities are valued at fair value as determined in good faith by or under the
direction of the Trust's board of trustees. The amortized cost method of
valuation, which approximates market value, is used to value debt obligations
with 60 days or less remaining to maturity, unless the Trust's board of trustees
determines that this does not represent fair value.
The ability of the issuers of the debt securities held by the Fund to meet
their obligations may be affected by economic developments, including those
particular to a specific industry or region.
Federal Tax Status--The Fund 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. In addition, by distributing during each
calendar year substantially all of its net investment income, capital gains and
certain other amounts, if any, the Fund intends not to be subject to a federal
excise tax.
Investment Transactions and Investment Income-- Investment transactions are
recorded on the trade date. Interest income is earned from settlement date and
is recognized on an accrual basis. Realized gains and losses on investment
transactions are calculated using the identified cost method.
Dividends and distributions--Dividends and distributions to shareholders are
recorded on the ex-dividend date. The Fund declares dividends on a daily basis
from net investment income. Net capital gains, if any, will be distributed at
least annually, but the Fund may make more frequent distributions of such gains,
if necessary, to avoid income or excise taxes. Dividends from net investment
income and distributions from realized gains from investment transactions have
been determined in accordance with 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
6
<PAGE>
Institutional Adjustable Rate Government Portfolio
--------------------------------------------------------------------------------
Notes to Financial Statements--(continued)
--------------------------------------------------------------------------------
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.
Dividends and distributions which exceed net investment income and net
realized capital gains for financial reporting purposes but not for tax purposes
are reported as dividends in excess of net investment income or distributions in
excess of net realized capital gains. To the extent they exceed net investment
income and net realized capital gains for tax purposes, they are reported as
distributions of paid-in-capital.
Repurchase Agreements--The Fund's custodian takes possession of the
collateral pledged for investments in repurchase agreements. The underlying
collateral is valued daily on a mark-to-market basis to ensure that the value,
including accrued interest, is at least equal to the repurchase price. In the
event of default of the obligation to repurchase, the Fund has the right to
liquidate the collateral and apply the proceeds in satisfaction of the
obligation. Under certain circumstances, in the event of default or bankruptcy
by the other party to the agreement, realization and/or retention of the
collateral may be subject to legal proceedings.
INVESTMENT ADVISER AND ADMINISTRATOR
The Fund's investment adviser and administrator receives compensation from
the Fund accrued daily and paid monthly at an annual rate of 0.25% of the Fund's
average daily net assets.
At a special meeting of shareholders that took place on April 13, 1995,
shareholders approved the appointment of Mitchell Hutchins as investment adviser
and administrator of the Fund. The Fund pays the same fee for investment
advisory and administrations services to Mitchell Hutchins as previously paid to
Kidder Peabody Asset Management, Inc. ("KPAM"), as described in the Fund's
prospectus. Mitchell Hutchins continues to manage the Fund in accordance with
the Fund's investment objective, policies and restrictions as stated in the
Prospectus. At May 31, 1995, the Fund owed fees to Mitchell Hutchins in the
amount of $1,080 for investment advisory and administration fees.
Investment advisory functions for the Fund were previously transferred from
KPAM to Mitchell Hutchins on an interim basis as a result of an asset purchase
transaction by and among Kidder Peabody Group Inc., its parent General Electric
and Paine Webber Group Inc. That period commenced February 13, 1995 and ended
April 13, 1995.
In compliance with applicable state securities laws, Mitchell Hutchins will
reimburse the Fund if and to the extent that the aggregate operating expenses in
any fiscal year, exclusive of taxes, interest, brokerage fees, distribution fees
and extraordinary expenses, exceed limitations imposed by various state
regulations. Currently, the most restrictive limitation applicable to the Fund
is 2.5% of the first $30 million of average daily net assets, 2.0% of the next
$70 million and 1.5% of any excess over $100 million. For the period ended May
31, 1995, no reimbursements were required pursuant to the above limitation.
Mitchell Hutchins voluntarily reimbursed the Fund for a portion of the expenses
and waived a portion of its investment advisory fee.
7
<PAGE>
Institutional Adjustable Rate Government Portfolio
--------------------------------------------------------------------------------
Notes to Financial Statements--(concluded)
--------------------------------------------------------------------------------
INVESTMENTS IN SECURITIES
For federal income tax purposes, the cost of securities owned at May 31,
1995 was substantially the same as the cost of securities for financial
statement purposes.
For the period ended May 31, 1995, total aggregate purchases and sales of
portfolio securities, excluding short term securities were as follows:
Purchases..................................................... $5,289,860
Sales......................................................... $69,524,890
SHARES OF BENEFICIAL INTEREST
There is 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 FOR THE PERIOD
SIX MONTHS ENDED MARCH 24, 1994+ TO
MAY 31, 1995 NOVEMBER 30, 1994
-------------------------- ----------------------------
<S> <C> <C> <C> <C>
INSTITUTIONAL SHARES SHARES AMOUNT SHARES AMOUNT
------------------------------------- ---------- ------------ ----------- -------------
Shares sold.......................... 122,566 $ 1,441,626 16,853,030 $ 202,045,773
Shares repurchased................... (4,098,367) (48,204,617) (12,624,365) (150,714,269)
Dividends reinvested in additional
Fund shares........................ 24,406 287,255 175,059 2,094,308
---------- ------------ ----------- -------------
Net increase (decrease) in shares
outstanding........................ (3,951,395) $(46,475,736) 4,403,724 $ 53,425,812
---------- ------------ ----------- -------------
---------- ------------ ----------- -------------
<CAPTION>
FOR THE FOR THE PERIOD
SIX MONTHS ENDED MARCH 24, 1994+ TO
MAY 31, 1995 NOVEMBER 30, 1994
-------------------------- ----------------------------
FINANCIAL INTERMEDIARY SHARES SHARES AMOUNT SHARES AMOUNT
------------------------------------- ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
Shares sold.......................... 172 $ 2,025 1,895,496 $ 22,722,171
Shares repurchased................... (1,108,940) (13,040,853) (791,913) (9,456,991)
Dividends reinvested in additional
Fund shares........................ 1,491 17,519 8,105 96,652
---------- ------------ ----------- -------------
Net increase (decrease) in shares
outstanding........................ (1,107,277) $(13,021,309) 1,111,688 $ 13,361,832
---------- ------------ ----------- -------------
---------- ------------ ----------- -------------
</TABLE>
SUBSEQUENT EVENT
Due to redemptions subsequent to May 31, 1995, the net assets of the fund
have decreased to $2,522,618 at July 27, 1995.
------------
+ Commencement of operations.
8
<PAGE>
Institutional Adjustable Rate Government Portfolio
--------------------------------------------------------------------------------
Financial Highlights
--------------------------------------------------------------------------------
Selected data for a share of beneficial interest outstanding throughout each
period is presented below:
<TABLE>
<CAPTION>
INSTITUTIONAL SHARES FINANCIAL INTERMEDIARY SHARES
-------------------------------- --------------------------------
FOR THE SIX FOR THE PERIOD FOR THE SIX FOR THE PERIOD
MONTHS ENDED MARCH 24, 1994+ MONTHS ENDED MARCH 24, 1994+
MAY 31, 1995 TO MAY 31, 1995 TO
UNAUDITED NOVEMBER 30, 1994 UNAUDITED NOVEMBER 30, 1994
------------ ----------------- ------------ -----------------
<S> <C> <C> <C> <C>
Net asset value, beginning of
period.......................... $11.81 $ 12.00 $11.81 $ 12.00
------ ------- ------ -------
Net increase (decrease) from
investment operations:
Net investment income............ 0.34 0.39 0.32 0.37
Net realized and unrealized gains
(losses) from investment
transactions.................... 0.04 (0.19) 0.04 (0.19)
------ ------- ------ -------
Net increase in net assets value
from operations................. 0.38 0.20 0.36 0.18
Less Distributions:
Dividends from net investment
income.......................... (0.34) (0.39) (0.32) (0.37)
------ ------- ------ -------
Net asset value, end of period.... $11.85 $ 11.81 $11.85 $ 11.81
------ ------- ------ -------
------ ------- ------ -------
Total investment return(1)........ 3.07% 1.65% 2.96% 1.50%
------ ------- ------ -------
------ ------- ------ -------
Ratios/Supplemental Data:
Net assets, end of period (000's
omitted)....................... $5,359 $52,018 $ 52 $13,131
Ratio of expenses to average net
assets......................... 0.65%* 0.46%* 0.90%* 0.67%*
Expenses, before reimbursement
from manager................... 1.59%* 0.69%* 1.84%* 0.94%*
Ratio of net investment income to
average net assets............. 5.69% 4.75% 5.44% 4.54%
Portfolio turnover rate.......... 31% 170% 31% 170%
</TABLE>
------------
+ Commencement of operations.
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each period reported reinvestment of all dividends as net asset
value on the payable dates, and a sale at net asset value on the last day of
each period reported. Total investment returns have not been annualized for
periods of less than one year.
* Annualized.
See notes to financial statements.
9
<PAGE>
Institutional Adjustable Rate Government Portfolio
--------------------------------------------------------------------------------
Shareholder Information
--------------------------------------------------------------------------------
A special meeting of shareholders of Institutional Adjustable Rate
Government Portfolio ("Fund") was held on April 13, 1995. At the meeting David
J. Beaubien, William W. Hewitt, Jr., Thomas R. Jordan, Frank P.L. Minard and
Carl W. Schafer were elected as trustees to serve without limit in time, subject
to resignation, retirement or removal. The selection of Deloitte & Touche LLP as
the Fund's independent accountants was ratified.
The votes were as follows:
<TABLE>
<CAPTION>
SHARES VOTED FOR SHARES WITHHOLD AUTHORITY
---------------- -------------------------
<S> <C> <C>
David J. Beaubien.................................... 1,255,813 33,743
William W. Hewitt, Jr................................ 1,255,813 33,743
Thomas R. Jordan..................................... 1,255,813 33,743
Frank P.L. Minard.................................... 1,255,813 33,743
Carl W. Schafer...................................... 1,255,813 33,743
</TABLE>
<TABLE>
<CAPTION>
SHARES SHARES SHARES
VOTED FOR VOTED AGAINST WITHHOLD AUTHORITY
--------- ------------- ------------------
<S> <C> <C> <C>
Ratification of the selection of Deloitte & Touche
LLP.............................................. 1,248,250 2,717 40,589
</TABLE>
In addition the following agreements were approved for the Fund:
1) An interim investment advisory agreement between the Fund and Mitchell
Hutchins Asset Management Inc. ("Mitchell Hutchins") containing substantially
the same terms, conditions and fees as the previous investment advisory
agreement with Kidder Peabody Asset Management, Inc. ("KPAM").
The votes were as follows:
SHARES SHARES SHARES
VOTED FOR VOTED AGAINST WITHHOLD AUTHORITY
--------- ------------- ------------------
1,244,397 2,717 42,443
2) A new investment advisory and administration agreement between the Fund
and Mitchell Hutchins containing the same fees and substantively similar
material terms and conditions as the previous investment advisory agreement with
KPAM to commence on the termination of the interim agreement.
The votes were as follows:
SHARES SHARES SHARES
VOTED FOR VOTED AGAINST WITHHOLD AUTHORITY
--------- ------------- ------------------
1,244,397 2,717 42,443
Broker non-votes and abstentions are included within the "Shares Withhold
Authority" totals.
10
<PAGE>
-------------------------------------------
TRUSTEES
David J. Beaubien
William W. Hewitt, Jr.
Thomas R. Jordan
Frank P.L. Minard
Carl W. Schafer
-------------------------------------------
OFFICERS
Margo N. Alexander
President
Victoria E. Schonfeld
Vice President
Dianne E. O'Donnell
Vice President and Secretary
Julian F. Sluyters
Vice President and Treasurer
-------------------------------------------
INVESTMENT ADVISER,
ADMINISTRATOR AND DISTRIBUTOR
Mitchell Hutchins Asset Management Inc.
1285 Avenue of the Americas
New York, New York 10019
-------------------------------------------
This report is not to be used in connection
with the offering of shares of the Fund
unless accompanied or preceded by an
effective prospectus.
The financial information included herein
is taken from the records of the Fund
without examination by independent auditors
who do not express an opinion thereon.
(C)1995 PaineWebber Incorporated
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