-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TMTSfrcJ32uXll95riYwF/mxBDph8RQ3aCb1krng/LNSyKr6dJxtilIKUXKQjQOy sNch3CslInZpLuThnRi1qw== 0001047469-03-039674.txt : 20031208 0001047469-03-039674.hdr.sgml : 20031208 20031208134810 ACCESSION NUMBER: 0001047469-03-039674 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20030930 FILED AS OF DATE: 20031208 EFFECTIVENESS DATE: 20031208 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FRESCO INDEX SHARES FUNDS CENTRAL INDEX KEY: 0001168164 IRS NUMBER: 421537593 STATE OF INCORPORATION: MA FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: N-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-21145 FILM NUMBER: 031042160 BUSINESS ADDRESS: STREET 1: 51 WEST 52ND ST CITY: NEW YORK STATE: NY ZIP: 10019 MAIL ADDRESS: STREET 1: 51 WEST 52ND STREET CITY: NEW YORK STATE: NY ZIP: 100196114 N-CSR 1 a2123920zn-csr.txt N-CSR UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number: 811-21145 --------------------------------------------- FRESCO INDEX SHARES FUNDS ------------------------------------------------------------------------------ (Exact name of registrant as specified in charter) 51 West 52nd Street, New York, New York 10019-6114 ------------------------------------------------------------------------------ (Address of principal executive offices) (zip code) David M. Goldenberg, Esq. UBS Global Asset Management (US) Inc. 51 West 52nd Street New York, NY 10019-6114 (Name and address of agent for service) Copy to: Stuart Strauss, Esq. Mayer Brown Rowe & Maw 1675 Broadway New York, New York 10019-5820 Stephanie M. Nichols, Esq. State Street Bank and Trust Company One Federal Street, 9th Floor Boston, MA 02110 Registrant's telephone number, including area code: 212-882-5000 Date of fiscal year end: September 30, 2003 Date of reporting period: September 30, 2003 ITEM 1: REPORTS TO STOCKHOLDERS. [FRESCO INDEX SHARES LOGO] FRESCO DOW JONES STOXX 50 FUND FRESCO DOW JONES EURO STOXX 50 FUND ANNUAL REPORT, SEPTEMBER 30, 2003 FRESCO DOW JONES STOXX 50 FUND November 14, 2003 DEAR SHAREHOLDER, We present you with the annual report for Fresco Dow Jones STOXX 50 Fund. This report covers the period since the Fund's inception on October 15, 2002 through September 30, 2003. PERFORMANCE REVIEW Fresco Dow Jones STOXX 50 Fund uses a passive management strategy designed to track the performance (before expenses) of the Dow Jones STOXX 50 Index. Since its inception on October 15, 2002, through period end on September 30, 2003, the Fund's net asset value return was 12.79%, compared to a return of 12.87% for the Index denominated in US dollars, and a decline of 5.05% for the Index denominated in euros. (For more on the Fund's performance, refer to "Performance At A Glance" on page 5. Please note that the returns shown do not reflect your individual tax circumstances, broker's commission, or other transaction charges.) AN INTERVIEW WITH PORTFOLIO MANAGER DAVID HOBBS Q. HOW DID THE MARKETS PERFORM OVER THE PERIOD? A. Following a prolonged bear market, the European equity markets generated positive returns during the reporting period. However, there were periods of extreme volatility. Early in the review period, European stocks performed well amid positive economic news and investors' growing expectations for a sustained recovery in 2003. However, increasing geopolitical concerns, coupled with conflicting reports about the health of the economy, caused European equities to falter from December 2002 through mid-March 2003. The market shifted course following the rapid conclusion of major fighting in Iraq. Once this major uncertainty, which had been weighing down the markets, was eliminated, investors once again grew optimistic about the prospects for a sustainable economic recovery. This triggered an impressive rally that saw many investors shift out of the more defensive areas of the market, only to embrace some of the more risky stocks. FRESCO DOW JONES STOXX 50 FUND INVESTMENT GOAL: To replicate as closely as possible, before expenses, the price and yield of the Dow Jones STOXX 50 Index. PORTFOLIO MANAGER: David Hobbs SUBADVISOR: UBS Global Asset Management International Ltd. COMMENCEMENT: October 15, 2002 NYSE SYMBOL: FEU 1 Q. HOW DID THE SECTORS IN THE INDEX PERFORM OVER THE PERIOD? A. During the reporting period, stocks in the basic resources, technology, cyclical goods and services, and banking sectors generated the strongest results. Conversely, the financial services, utilities, and automobile sectors turned in the weakest performances. Q. CAN YOU TELL US ABOUT INDIVIDUAL STOCK PERFORMANCE? A. In terms of individual holdings, nearly half of the 50 stocks in the Index posted positive returns. A noteworthy example is Credit Suisse Group, which offers investment products and financial advisory services to private and corporate clients. The company saw its stock rise in response to strong earnings growth. Banco Santander Central Hispano SA, a large bank headquartered in Spain, also performed well due to an improving business environment and the rising equity markets. Finally, Siemens AG, Germany's largest engineering and electronics company and the world's fourth-biggest mobile phone maker, saw its stock perform well during the period, as its sales rose sharply. In August 2003, the firm announced that it expects to see handset sales increase by as much as 20% this fiscal year, once it introduces new models. This growth figure places it ahead of the market, which analysts expect will expand by about 10%. In addition, Siemens's shipments to the US and Canada quadrupled year-over-year in the second quarter of 2003, almost quadrupling its market share. Conversely, Lloyds TSB Group PLC, L'Oreal SA and Aegon NV were among the worst-performing stocks in the Index. Lloyds offers a comprehensive range of banking and financial services in the UK and overseas. Its stock price fell due to a number of company-specific issues, including scrutiny that drew attention to questionable sales practices. L'Oreal, a leading cosmetics firm headquartered in France, was hurt due to the generally weak global economy and increased market competition. Aegon, a Netherlands-based firm whose core business is life insurance, pension and related savings and investment products, continued to struggle with a weak balance sheet. 2 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. For additional information on Fresco Index Shares Funds,* please contact your financial advisor, or visit us at www.frescoshares.com. /s/ Joseph LaCorte JOSEPH LACORTE PRESIDENT Fresco Dow Jones STOXX 50 Fund MANAGING DIRECTOR UBS Global Asset Management (US) Inc. /s/ David Hobbs DAVID HOBBS PORTFOLIO MANAGER Fresco Dow Jones STOXX 50 Fund HEAD OF PASSIVE MANAGEMENT UBS Global Asset Management International Ltd. This letter is intended to assist shareholders in understanding how the Fund performed since its inception on October 15, 2002 through September 30, 2003, and reflects our views at the time of its writing. Of course, these views may change in response to changing circumstances, and they do not guarantee the future performance of the markets or the Fund. We encourage you to consult your financial advisor regarding your personal investment program. * Please see the prospectus for a more detailed discussion of the risks, charges and expenses and other matters of interest associated with Fresco Index Shares Funds. Please read it carefully before investing. 3 PERFORMANCE AT A GLANCE Comparison of the change of a $10,000 investment in Fresco Dow Jones STOXX 50 Fund and the Dow Jones STOXX 50 Index from October 15, 2002 through September 30, 2003. [CHART]
FRESCO DOW JONES STOXX 50 FUND DOW JONES STOXX 50 FUND DOW JONES STOXX 50 INDEX (DENOMINATED IN U.S. DOLLARS) (DENOMINATED IN EUROS) (DENOMINATED IN U.S. DOLLARS) Oct-02 $ 10,000 EURO 10,000 $ 10,000 Oct-02 $ 10,008 EURO 9,911 $ 10,014 Nov-02 $ 10,458 EURO 10,310 $ 10,465 Dec-02 $ 10,059 EURO 9,329 $ 9,978 Jan-03 $ 9,511 EURO 8,675 $ 9,518 Feb-03 $ 9,266 EURO 8,424 $ 9,282 Mar-03 $ 9,128 EURO 8,206 $ 9,132 Apr-03 $ 10,378 EURO 9,105 $ 10,384 May-03 $ 10,975 EURO 9,134 $ 10,977 Jun-03 $ 11,098 EURO 9,468 $ 11,096 Jul-03 $ 11,226 EURO 9,792 $ 11,226 Aug-03 $ 11,033 EURO 9,858 $ 11,043 Sep-03 $ 11,279 EURO 9,495 $ 11,287
Since inception returns are calculated as of commencement of issuance on October 15, 2002. For purposes of this comparison, the since inception return for the Index is shown as of October 15, 2002, which is the inception date of the Fund. Also, because the first trading day of the Fund followed its inception date, NAV is used to calculate market price returns prior to the start of trading. Performance results for the Fresco Dow Jones STOXX 50 Fund assume reinvestment of all dividends and capital gains and are shown net of fees and expenses. The investment return and principal value of an investment will fluctuate so that the Fund's shares, when redeemed or otherwise sold, may be worth more or less than their original cost. Broker commissions will reduce returns. Performance information for the Dow Jones STOXX 50 Index assumes reinvestment of all income and excludes management fees, expenses and transaction costs, including brokerage commissions. The Index is unmanaged and not available for direct investment. The Index value is determined both on the basis of Euros and US dollars while the Fund's net asset value is determined on the basis of US dollars. The US dollar Index value takes into account withholding taxes while the Euro Index value does not. Past performance does not guarantee future results. 4 TOTAL RETURNS AS OF 9/30/03
CUMULATIVE TOTAL RETURNS ---------------- NET ASSET VALUE RETURNS* SINCE INCEPTION^ - --------------------------------------------------------------------------------- Fresco Dow Jones STOXX 50 Fund 12.79% After Tax Held** 11.83% After Tax Post-Liquidation** 8.29% - --------------------------------------------------------------------------------- Dow Jones STOXX 50 Index (denominated in US Dollars) 12.87% Dow Jones STOXX 50 Index (denominated in Euros) (5.05)% MARKET PRICE RETURNS* SINCE INCEPTION^ - --------------------------------------------------------------------------------- Fresco Dow Jones STOXX 50 Fund 13.26% After Tax Held** N/A After Tax Post-Liquidation** N/A - --------------------------------------------------------------------------------- Dow Jones STOXX 50 Index (denominated in US Dollars) 12.87% Dow Jones STOXX 50 Index (denominated in Euros) (5.05)%
^ Since inception returns are calculated as of commencement of issuance on October 15, 2002. For purposes of this comparison, the since inception return for the Index is shown as of October 15, 2002, which is the inception date of the Fund. Also, because the first trading day of the Fund followed its inception date, NAV is used to calculate market price returns prior to the start of trading. * Net asset value is the value of one share of a fund as calculated in accordance with the standard formula for valuing mutual fund shares. The NAV return is based on the NAV per share of the Fund. Market returns are based upon the midpoint of the bid/ask spread at 4:00 PM Eastern time and do not represent the returns you would receive if you traded shares at other times. ** After tax held returns represent return after taxes on distributions and assumes that Fresco Index Shares have not been sold. After tax post-liquidation returns represent the return after taxes on distributions and the sale of Fresco Index Shares. After tax returns are calculated using the current highest individual federal marginal income tax rates and do not reflect the impact of the state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those shown. The after-tax returns shown are not relevant to investors who hold Fresco Index Shares through tax-deferred arrangements such as 401(k) plans or individual retirement accounts. Performance results for the Fresco Dow Jones STOXX 50 Fund assume reinvestment of all dividends and capital gains and are shown net of fees and expenses. The investment return and principal value of an investment will fluctuate so that the Fund's shares, when redeemed or otherwise sold, may be worth more or less than their original cost. Broker commissions will reduce returns. Performance information for the Dow Jones STOXX 50 Index assumes reinvestment of all income and excludes management fees, expenses and transaction costs, including brokerage commissions. The Index is unmanaged and not available for direct investment. The Index value is determined both on the basis of Euros and US dollars while the Fund's net asset value is determined on the basis of US dollars. The US dollar Index value takes into account withholding taxes while the Euro Index value does not. Past performance does not guarantee future results. 5 PORTFOLIO STATISTICS
CHARACTERISTICS* 9/30/03 3/31/03 - ----------------------------------------------------------------------------------------- Net Assets (mln) $ 8.4 $ 27.6 TOP FIVE SECTORS* 9/30/03 3/31/03 - ----------------------------------------------------------------------------------------- Banks 25.6% Banks 24.6% Energy 18.2 Energy 20.6 Healthcare 14.3 Healthcare 15.0 Telecommunications 11.3 Telecommunications 11.7 Insurance 6.8 Food & Beverages 7.4 - ----------------------------------------------------------------------------------------- TOTAL 76.2% 79.3% - ----------------------------------------------------------------------------------------- TOP 10 HOLDINGS* 9/30/03 3/31/03 - ----------------------------------------------------------------------------------------- BP PLC 6.2% BP PLC 7.2% HSBC Holdings PLC 5.9 Vodafone Group PLC 6.2 Vodafone Group PLC 5.6 HSBC Holdings PLC 5.6 GlaxoSmithKline PLC 5.1 GlaxoSmithKline PLC 5.4 Total Fina Elf SA 4.2 Novartis AG 4.6 Novartis AG 4.0 Total Fina Elf SA 4.4 Nestle SA 3.8 Royal Dutch Petroleum Co. 4.3 Royal Dutch Petroleum Co. 3.8 Nestle SA 4.0 Nokia Oyj 3.0 Nokia Oyj 3.4 Royal Bank of Scotland Group PLC 2.9 Royal Bank of Scotland Group PLS 3.1 - ----------------------------------------------------------------------------------------- TOTAL 44.5% 48.2% - -----------------------------------------------------------------------------------------
* Weightings represent percentages of net assets as of the dates indicated. 6 FRESCO DOW JONES EURO STOXX 50 FUND November 14, 2003 DEAR SHAREHOLDER, We present you with the annual report for Fresco Dow Jones EURO STOXX 50 Fund. This report covers the period since the Fund's inception on October 15, 2002 through September 30, 2003. PERFORMANCE REVIEW Fresco Dow Jones EURO STOXX 50 Fund uses a passive management strategy designed to track (before expenses) the performance of the Dow Jones EURO STOXX 50 Index (the "Index"). Since its inception on October 15, 2002, through period end on September 30, 2003, the Fund's net asset value return was 17.46%, compared to a return of 17.32% for the Index denominated in US Dollars, and a decline of 1.31% for the Index denominated in euros. (For more on the Fund's performance, refer to "Performance At A Glance" on page 11. Please note that the returns shown do not reflect your individual tax circumstances, broker's commission, or other transaction charges.) AN INTERVIEW WITH PORTFOLIO MANAGER DAVID HOBBS Q. HOW DID THE EUROPEAN MARKETS PERFORM OVER THE PERIOD? A. Following a prolonged bear market, the European equity markets generated positive returns during the reporting period. However, there were periods of extreme volatility. Early in the review period, European stocks performed well amid positive economic news and investors' growing expectations for a sustained recovery in 2003. However, increasing geopolitical concerns, coupled with conflicting reports about the health of the economy, caused European equities to falter from December 2002 through mid-March 2003. The market shifted course following the rapid conclusion of major fighting in Iraq. Once this major uncertainty, which had been weighing down the markets, was eliminated, investors once again grew optimistic about the prospects for a sustainable economic recovery. This triggered an impressive rally that saw many investors shift out of the more defensive areas of the market, only to embrace some of the more risky stocks. FRESCO DOW JONES EURO STOXX 50 FUND INVESTMENT GOAL: To replicate as closely as possible, before expenses, the price and yield of the Dow Jones EURO STOXX 50 Index. PORTFOLIO MANAGER: David Hobbs SUBADVISOR: UBS Global Asset Management International Ltd. COMMENCEMENT: October 15, 2002 NYSE SYMBOL: FEZ 7 Q. WHAT SECTORS DID WELL OVER THE PERIOD? A. During the reporting period, stocks in the technology, cyclical goods and services, banks, and media sectors produced the strongest results. Conversely, the weakest performances came from the noncyclical goods and services, healthcare, financial services, and automobile sectors. Q. WHAT CAN YOU TELL US ABOUT INDIVIDUAL STOCK PERFORMANCE? A. In terms of individual stocks, more than half of the stocks in the Index generated positive returns. Among the strongest performers were Alcatel, France Telecom SA and Sanpaolo IMI SpA. Alcatel headquartered in France, continues to be Europe's top telecom equipment vendor in terms of sales. Its stock rose sharply as it secured a number of high profile contacts, including a multi-million dollar radio satellite deal with US aerospace company Boeing Co. France Telecom provides telecommunications services in France and throughout the world; it is also France's largest mobile telecommunications service provider. The company's stock gained as it continued to successfully restructure its business and focus its operations on France and the UK. Sanpaolo IMI SpA is one of the largest banks in Italy, with more than 2,000 retail branches and 35,700 employees. It continues to build on its core banking services, and has expanded its asset management operations by taking advantage of new technologies. Ahold Muenchener Rueckversicherungs - Gesellschaft AG and Aventis SA were examples of stocks that detracted from results. Ahold is a Netherlands-based operator of supermarkets and other retail formats, with operations in the US, Europe, Latin America and Asia. Its stock price fell sharply due to accounting problems resulting from actions it took to artificially boost earnings. Muenchener Rueckversicherungs - Gesellschaft AG, a German-based insurance and financial firm, was hurt by a number of company-specific issues. Aventis, a France-based pharmaceuticals company, was hurt when, during the reporting period, sales of its allergy drug Allegra were diminished after a competing drug was approved for over-the-counter use in the US. The weakening of the US dollar versus the euro also had a negative impact on sales. 8 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. For additional information on Fresco Index Shares Funds,* please contact your financial advisor or visit us at www.frescoshares.com. /s/ Joseph LaCorte JOSEPH LACORTE PRESIDENT Fresco Dow Jones EURO STOXX 50 Fund MANAGING DIRECTOR UBS Global Asset Management (US) Inc. /s/ David Hobbs DAVID HOBBS PORTFOLIO MANAGER Fresco Dow Jones EURO STOXX 50 Fund HEAD OF PASSIVE MANAGEMENT UBS Global Asset Management International Ltd. This letter is intended to assist shareholders in understanding how the Fund performed since its inception on October 15, 2002 through September 30, 2003, and reflects our views at the time of its writing. Of course, these views may change in response to changing circumstances, and they do not guarantee the future performance of the markets or the Fund. We encourage you to consult your financial advisor regarding your personal investment program. * Please see the prospectus for a more detailed discussion of the risks, charges and expenses and other matters of interest associated with Fresco Index Shares Funds. Please read it carefully before investing. 9 PERFORMANCE AT A GLANCE Comparison of the change of a $10,000 investment in Fresco Dow Jones EURO STOXX 50 Fund and the Dow Jones EURO STOXX 50 Index from October 15, 2002 through September 30, 2003. [CHART]
FRESCO DOW JONES EURO STOXX 50 FUND DOW JONES EURO STOXX 50 FUND DOW JONES EURO STOXX 50 INDEX (DENOMINATED IN U.S. DOLLARS) (DENOMINATED IN EUROS) (DENOMINATED IN U.S. DOLLARS) Oct-02 $ 10,000 EURO 10,000 $ 10,000 Oct-02 $ 10,236 EURO 10,138 $ 10,244 Nov-02 $ 10,848 EURO 10,696 $ 10,856 Dec-02 $ 10,343 EURO 9,613 $ 10,283 Jan-03 $ 9,941 EURO 9,066 $ 9,947 Feb-03 $ 9,497 EURO 8,636 $ 9,515 Mar-03 $ 9,148 EURO 8,227 $ 9,156 Apr-03 $ 10,748 EURO 9,436 $ 10,761 May-03 $ 11,459 EURO 9,529 $ 11,452 Jun-03 $ 11,657 EURO 9,933 $ 11,641 Jul-03 $ 11,899 EURO 10,366 $ 11,884 Aug-03 $ 11,807 EURO 10,532 $ 11,797 Sep-03 $ 11,746 EURO 9,869 $ 11,732
Since inception returns are calculated as of commencement of issuance on October 15, 2002. For purposes of this comparison, the since inception return for the Index is shown as of October 15, 2002, which is the inception date of the Fund. Also, because the first trading day of the Fund followed its inception date, NAV is used to calculate market price returns prior to the start of trading. Performance results assume reinvestment of all dividends and capital gains and are shown net of fees and expenses. The investment return and principal value of an investment will fluctuate so that the Fund's shares, when redeemed or otherwise sold, may be worth more or less than their original cost. Broker commissions will reduce returns. Performance information for the Dow Jones EURO STOXX 50 Index assumes reinvestment of all income and excludes management fees, expenses and transaction costs, including brokerage commissions. The Index is unmanaged and not available for direct investment. The Index value is determined both on the basis of Euros and US dollars while the Fund's net asset value is determined on the basis of US dollars. The US dollar Index value takes into account withholding taxes while the Euro Index value does not. Past performance does not guarantee future results. 10 TOTAL RETURNS AS OF 9/30/03
CUMULATIVE TOTAL RETURNS ---------------- NET ASSET VALUE RETURNS* SINCE INCEPTION^ - --------------------------------------------------------------------------------- Fresco Dow Jones EURO STOXX 50 Fund 17.46% After Tax Held** 16.54% After Tax Post-Liquidation** 11.35% - --------------------------------------------------------------------------------- Dow Jones EURO STOXX 50 Index (denominated in US dollars) 17.32% Dow Jones EURO STOXX 50 Index (denominated in Euros) (1.31)% MARKET PRICE RETURNS* SINCE INCEPTION^ - --------------------------------------------------------------------------------- Fresco Dow Jones EURO STOXX 50 Fund 17.64% After Tax Held** N/A After Tax Post-Liquidation** N/A - --------------------------------------------------------------------------------- Dow Jones EURO STOXX 50 Index (denominated in US dollars) 17.32% Dow Jones EURO STOXX 50 Index (denominated in Euros) (1.31)%
^ Since inception returns are calculated as of commencement of issuance on October 15, 2002. For purposes of this comparison, the since inception return for the Index is shown as of October 15, 2002, which is the inception date of the Fund. Also, because the first trading day of the Fund followed its inception date, NAV is used to calculate market price returns prior to the start of trading. * Net asset value is the value of one share of a fund as calculated in accordance with the standard formula for valuing mutual fund shares. The NAV return is based on the NAV per share of the Fund. Market returns are based upon the midpoint of the bid/ask spread at 4:00 PM Eastern time and do not represent the returns you would receive if you traded shares at other times. ** After tax held returns represent return after taxes on distributions and assumes that Fresco Index Shares have not been sold. After tax post-liquidation returns represent the return after taxes on distributions and the sale of Fresco Index Shares. After tax returns are calculated using the current highest individual federal marginal income tax rates and do not reflect the impact of the state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those shown. The after-tax returns shown are not relevant to investors who hold Fresco Index Shares through tax-deferred arrangements such as 401(k) plans or individual retirement accounts. Performance results assume reinvestment of all dividends and capital gains and are shown net of fees and expenses. The investment return and principal value of an investment will fluctuate so that the Fund's shares, when redeemed or otherwise sold, may be worth more or less than their original cost. Broker commissions will reduce returns. Performance information for the Dow Jones EURO STOXX 50 Index assumes reinvestment of all income and excludes management fees, expenses and transaction costs, including brokerage commissions. The Index is unmanaged and not available for direct investment. The Index value is determined both on the basis of Euros and US dollars while the Fund's net asset value is determined on the basis of US dollars. The US dollar Index value takes into account withholding taxes while the Euro Index value does not. Past performance does not guarantee future results. 11 PORTFOLIO STATISTICS
CHARACTERISTICS* 9/30/03 3/31/03 - ----------------------------------------------------------------------------------------- Net Assets (mln) $ 85.3 $ 148.0 TOP FIVE SECTORS* 9/30/03 3/31/03 - ----------------------------------------------------------------------------------------- Energy 18.0% Energy 20.4% Banks 17.5 Banks 17.1 Telecommunications 10.9 Telecommunications 10.7 Insurance 10.0 Technology 10.0 Technology 9.8 Insurance 7.9 - ----------------------------------------------------------------------------------------- TOTAL 66.2% 66.1% - ----------------------------------------------------------------------------------------- TOP 10 HOLDINGS* 9/30/03 3/31/03 - ----------------------------------------------------------------------------------------- Total Fina Elf SA 7.4% Total Fina Elf SA 8.0% Royal Dutch Petroleum Co. 6.7 Royal Dutch Petroleum Co. 7.8 Nokia Oyj 5.3 Nokia Oyj 6.1 Telefonica SA 4.0 Telefonica SA 4.1 Siemens AG 3.6 Eni SpA 3.2 BNP Paribas SA 3.0 Siemens AG 3.1 Banco Santander Central Hispano SA 2.9 Unilever NV 3.1 Eni SpA 2.8 BNP Paribas SA 3.1 Aventis SA 2.6 Aventis SA 2.8 Deutsche Bank AG 2.6 Banco Santander Central Hispano SA 2.8 - ----------------------------------------------------------------------------------------- TOTAL 40.9% 44.1% - -----------------------------------------------------------------------------------------
* Weightings represent percentages of net assets as of the dates indicated. 12 Portfolio of Investments -- September 30, 2003 COMMON STOCKS--99.92%
SECURITY DESCRIPTION SHARES VALUE - -------------------------------------------------------------------------------- BELGIUM--0.83% FINANCIAL SERVICES--0.83% Fortis 4,094 $ 69,584 - -------------------------------------------------------------------------------- FINLAND--3.01% TECHNOLOGY--3.01% Nokia Oyj 16,440 253,186 - -------------------------------------------------------------------------------- FRANCE--9.56% BANKS--1.69% BNP Paribas SA 2,907 142,572 - -------------------------------------------------------------------------------- ENERGY--4.18% Total Fina Elf SA 2,332 352,080 - -------------------------------------------------------------------------------- INSURANCE--0.99% AXA 4,930 83,104 - -------------------------------------------------------------------------------- NON-CYCLICAL GOODS & SERVICES--0.89% L'Oreal SA 1,097 74,952 - -------------------------------------------------------------------------------- RETAIL--1.19% Carrefour SA 1,996 100,450 - -------------------------------------------------------------------------------- UTILITIES--0.62% Suez SA 3,262 51,795 - -------------------------------------------------------------------------------- 804,953 - -------------------------------------------------------------------------------- GERMANY--11.26% AUTOMOBILES--1.17% DaimlerChrysler AG 2,814 98,804 - -------------------------------------------------------------------------------- BANKS--1.46% Deutsche Bank AG 2,022 123,076 - -------------------------------------------------------------------------------- CHEMICALS--1.62% BASF AG 1,942 85,290 - -------------------------------------------------------------------------------- Bayer AG 2,370 51,215 - -------------------------------------------------------------------------------- 136,505 - -------------------------------------------------------------------------------- INSURANCE--1.20% Allianz AG 1,147 101,284 - -------------------------------------------------------------------------------- SOFTWARE--1.02% SAP AG 700 85,526 - -------------------------------------------------------------------------------- TECHNOLOGY--2.05% Siemens AG 2,894 172,412 - -------------------------------------------------------------------------------- TELECOMMUNICATIONS--1.45% Deutsche Telekom AG 8,454 122,515 - -------------------------------------------------------------------------------- UTILITIES--1.29% E.ON AG 2,222 $ 108,459 - -------------------------------------------------------------------------------- 948,581 - -------------------------------------------------------------------------------- ITALY--3.55% ENERGY--1.59% Eni SpA(1) 8,800 134,500 - -------------------------------------------------------------------------------- INSURANCE--1.04% Assicurazioni Generali SpA 3,878 87,553 - -------------------------------------------------------------------------------- TELECOMMUNICATIONS--0.92% Telecom Italia SpA 31,371 77,294 - -------------------------------------------------------------------------------- 299,347 - -------------------------------------------------------------------------------- NETHERLANDS--9.51% BANKS--1.16% ABN AMRO Holding NV 5,286 97,603 - -------------------------------------------------------------------------------- CYCLICAL GOODS & SERVICES--1.21% Philips Electronics NV 4,472 101,380 - -------------------------------------------------------------------------------- ENERGY--3.77% Royal Dutch Petroleum Co. 7,232 317,704 - -------------------------------------------------------------------------------- FOOD & BEVERAGES--1.40% Unilever NV 2,009 118,189 - -------------------------------------------------------------------------------- INSURANCE--1.97% Aegon NV 4,467 51,987 - -------------------------------------------------------------------------------- ING Groep NV 6,201 113,631 - -------------------------------------------------------------------------------- 165,618 - -------------------------------------------------------------------------------- 800,494 - -------------------------------------------------------------------------------- SPAIN--5.26% BANKS--3.01% Banco Bilbao Vizcaya Argentaria SA 10,915 112,659 - -------------------------------------------------------------------------------- Banco Santander Central Hispano SA 16,566 140,493 - -------------------------------------------------------------------------------- 253,152 - -------------------------------------------------------------------------------- TELECOMMUNICATIONS--2.25% Telefonica SA* 16,052 189,616 - -------------------------------------------------------------------------------- 442,768 - --------------------------------------------------------------------------------
13
SECURITY DESCRIPTION SHARES VALUE - -------------------------------------------------------------------------------- SWITZERLAND--15.11% BANKS--4.08% Credit Suisse Group 4,063 $ 129,919 - -------------------------------------------------------------------------------- UBS AG(2) 3,809 213,613 - -------------------------------------------------------------------------------- 343,532 - -------------------------------------------------------------------------------- FOOD & BEVERAGES--3.79% Nestle SA 1,386 319,410 - -------------------------------------------------------------------------------- HEALTHCARE--6.39% Novartis AG 8,730 337,625 - -------------------------------------------------------------------------------- Roche Holding AG 2,414 200,055 - -------------------------------------------------------------------------------- 537,680 - -------------------------------------------------------------------------------- INSURANCE--0.85% Swiss Reinsurance 1,130 71,753 - -------------------------------------------------------------------------------- 1,272,375 - -------------------------------------------------------------------------------- UNITED KINGDOM--41.83% BANKS--14.24% Barclays PLC 22,528 172,907 - -------------------------------------------------------------------------------- HBOS PLC 13,286 151,938 - -------------------------------------------------------------------------------- HSBC Holdings PLC 37,564 495,453 - -------------------------------------------------------------------------------- Lloyds TSB Group PLC 19,382 133,297 - -------------------------------------------------------------------------------- Royal Bank of Scotland Group PLC 9,666 245,822 - -------------------------------------------------------------------------------- 1,199,417 - -------------------------------------------------------------------------------- ENERGY--8.65% BP PLC 76,230 523,311 - -------------------------------------------------------------------------------- Shell Transport & Trading Co. PLC 33,220 205,136 - -------------------------------------------------------------------------------- 728,447 - -------------------------------------------------------------------------------- FOOD & BEVERAGES--1.36% Diageo PLC 10,602 114,459 - -------------------------------------------------------------------------------- HEALTHCARE--7.91% AstraZeneca PLC 5,600 236,618 - -------------------------------------------------------------------------------- GlaxoSmithKline PLC 20,698 429,709 - -------------------------------------------------------------------------------- 666,327 - -------------------------------------------------------------------------------- INSURANCE--0.72% Aviva PLC 7,772 60,330 - -------------------------------------------------------------------------------- MINING--1.09% Anglo American PLC 5,130 $ 92,178 - -------------------------------------------------------------------------------- NON-CYCLICAL GOODS & SERVICES--1.21% Tesco PLC 25,474 102,046 - -------------------------------------------------------------------------------- TELECOMMUNICATIONS--6.65% BT Group PLC 30,740 91,973 - -------------------------------------------------------------------------------- Vodafone Group PLC 234,548 467,839 - -------------------------------------------------------------------------------- 559,812 - -------------------------------------------------------------------------------- 3,523,016 - -------------------------------------------------------------------------------- Total Common Stocks (cost--$7,740,813) 8,414,304 - -------------------------------------------------------------------------------- INVESTMENTS OF CASH COLLATERAL FOR SECURITIES LOANED--0.93% UBS Private Money Market Fund, LLC(2) (cost--$78,645) 78,645 78,645 - -------------------------------------------------------------------------------- Total Investments (cost--$7,819,458)--100.85% 8,492,949 - -------------------------------------------------------------------------------- Liabilities in excess of other assets--(0.85)% (71,633) - -------------------------------------------------------------------------------- Net Assets--100.00% $ 8,421,316 - --------------------------------------------------------------------------------
* Non-income producing security. (1) Security, or portion thereof, was on loan at September 30, 2003. (2) Security is an affiliate of UBS Global Asset Management (US) Inc., the Fund's Advisor. See accompanying notes to financial statements 14 Schedule of Investments ANALYSIS OF INDUSTRY CLASSIFICATIONS SEPTEMBER 30, 2003
PERCENT OF INDUSTRY TOTAL INVESTMENTS VALUE - -------- ----------------- ----- Automobiles 1.2% $ 98,804 Banks 25.6 2,159,353 Chemicals 1.6 136,505 Cyclical Goods & Services 1.2 101,380 Energy 18.2 1,532,730 Food & Beverages 6.6 552,059 Financial Services 0.8 69,584 Healthcare 14.3 1,204,006 Insurance 6.8 569,641 Mining 1.1 92,178 Non-Cyclical Goods & Services 2.1 176,998 Retail 1.2 100,451 Software 1.0 85,526 Technology 5.1 425,598 Telecommunications 11.3 949,237 Utilities 1.9 160,254 ----- ------------ TOTAL 100.0% $ 8,414,304 ===== ============
See accompanying notes to financial statements 15 Portfolio of Investments -- September 30, 2003 COMMON STOCKS--99.93%
SECURITY DESCRIPTION SHARES VALUE - -------------------------------------------------------------------------------- BELGIUM--1.47% FINANCIAL SERVICES--1.47% Fortis(1) 73,896 $ 1,255,982 - -------------------------------------------------------------------------------- FINLAND--5.31% TECHNOLOGY--5.31% Nokia Oyj 294,591 4,536,889 - -------------------------------------------------------------------------------- FRANCE--32.16% BANKS--5.12% BNP Paribas SA 52,470 2,573,359 - -------------------------------------------------------------------------------- Societe Generale 27,006 1,799,549 - -------------------------------------------------------------------------------- 4,372,908 - -------------------------------------------------------------------------------- CHEMICALS--1.03% L'Air Liquide SA 6,238 881,482 - -------------------------------------------------------------------------------- CONSTRUCTION--1.68% Compagnie de Saint-Gobain 21,026 773,283 - -------------------------------------------------------------------------------- Lafarge SA 10,164 658,927 - -------------------------------------------------------------------------------- 1,432,210 - -------------------------------------------------------------------------------- CYCLICAL GOODS & SERVICES--1.05% LVMH Moet Hennessy Louis Vuitton SA 14,416 895,956 - -------------------------------------------------------------------------------- ENERGY--7.37% Total Fina Elf SA 41,691 6,294,403 - -------------------------------------------------------------------------------- FOOD & BEVERAGES--1.39% Groupe Danone 7,774 1,186,378 - -------------------------------------------------------------------------------- HEALTHCARE--4.21% Aventis SA 42,866 2,224,682 - -------------------------------------------------------------------------------- Sanofi-Synthelabo SA 22,478 1,366,896 - -------------------------------------------------------------------------------- 3,591,578 - -------------------------------------------------------------------------------- INSURANCE--1.71% AXA 86,374 1,455,991 - -------------------------------------------------------------------------------- MEDIA--1.39% Vivendi Universal SA(1) 66,825 1,183,286 - -------------------------------------------------------------------------------- NON-CYCLICAL GOODS & SERVICES--1.53% L'Oreal SA 19,148 1,308,274 - -------------------------------------------------------------------------------- RETAIL--2.09% Carrefour SA 35,522 $ 1,787,674 - -------------------------------------------------------------------------------- TECHNOLOGY--0.98% Alcatel SA 70,251 832,302 - -------------------------------------------------------------------------------- TELECOMMUNICATIONS--1.53% France Telecom SA 56,818 1,307,255 - -------------------------------------------------------------------------------- UTILITIES--1.08% Suez SA 58,069 922,035 - -------------------------------------------------------------------------------- 27,451,732 - -------------------------------------------------------------------------------- GERMANY--20.37% AUTOMOBILES--2.79% DaimlerChrysler AG 50,225 1,763,480 - -------------------------------------------------------------------------------- Volkswagen AG 13,830 621,733 - -------------------------------------------------------------------------------- 2,385,213 - -------------------------------------------------------------------------------- BANKS--2.57% Deutsche Bank AG 36,087 2,196,566 - -------------------------------------------------------------------------------- CHEMICALS--2.87% BASF AG 34,935 1,534,297 - -------------------------------------------------------------------------------- Bayer AG 42,228 912,539 - -------------------------------------------------------------------------------- 2,446,836 - -------------------------------------------------------------------------------- INSURANCE--2.99% Allianz AG 20,185 1,782,400 - -------------------------------------------------------------------------------- Muenchener Rueckversicherungs- Gesellschaft AG 7,739 769,117 - -------------------------------------------------------------------------------- 2,551,517 - -------------------------------------------------------------------------------- TECHNOLOGY--3.57% Siemens AG(1) 51,071 3,042,582 - -------------------------------------------------------------------------------- TELECOMMUNICATIONS--2.53% Deutsche Telekom AG(1) 149,183 2,161,957 - -------------------------------------------------------------------------------- UTILITIES--3.05% E.ON AG 39,922 1,948,649 - -------------------------------------------------------------------------------- RWE AG 24,704 657,310 - -------------------------------------------------------------------------------- 2,605,959 - -------------------------------------------------------------------------------- 17,390,630 - --------------------------------------------------------------------------------
16
SECURITY DESCRIPTION SHARES VALUE - -------------------------------------------------------------------------------- ITALY--10.87% BANKS--2.49% Sanpaolo IMI SpA 73,007 $ 728,024 - -------------------------------------------------------------------------------- UniCredito Italiano SpA 296,421 1,401,981 - -------------------------------------------------------------------------------- 2,130,005 - -------------------------------------------------------------------------------- ENERGY--2.82% Eni SpA(1) 157,604 2,408,842 - -------------------------------------------------------------------------------- INSURANCE--1.79% Assicurazioni Generali SpA 67,509 1,524,132 - -------------------------------------------------------------------------------- TELECOMMUNICATIONS--2.90% Telecom Italia Mobile SpA (TIM) 233,061 1,083,303 - -------------------------------------------------------------------------------- Telecom Italia SpA 563,767 1,389,048 - -------------------------------------------------------------------------------- 2,472,351 - -------------------------------------------------------------------------------- UTILITIES--0.87% Enel SpA 119,837 745,486 - -------------------------------------------------------------------------------- 9,280,816 - -------------------------------------------------------------------------------- NETHERLANDS--17.35% BANKS--2.01% ABN AMRO Holding NV 93,126 1,719,521 - -------------------------------------------------------------------------------- CYCLICAL GOODS & SERVICES--2.11% Philips Electronics NV 79,362 1,799,131 - -------------------------------------------------------------------------------- ENERGY--6.65% Royal Dutch Petroleum Co. 129,221 5,676,712 - -------------------------------------------------------------------------------- FOOD & BEVERAGES--2.41% Unilever NV 35,033 2,060,990 - -------------------------------------------------------------------------------- INSURANCE--3.51% Aegon NV 82,896 964,731 - -------------------------------------------------------------------------------- ING Groep NV(1) 110,609 2,026,873 - -------------------------------------------------------------------------------- 2,991,604 - -------------------------------------------------------------------------------- NON-CYCLICAL GOODS & SERVICES--0.66% Koninklijke Ahold NV(1) 58,614 559,233 - -------------------------------------------------------------------------------- 14,807,191 - -------------------------------------------------------------------------------- SPAIN--12.40% BANKS--5.31% Banco Bilbao Vizcaya Argentaria SA(1) 198,540 $ 2,049,222 - -------------------------------------------------------------------------------- Banco Santander Central Hispano SA 293,006 2,484,936 - -------------------------------------------------------------------------------- 4,534,158 - -------------------------------------------------------------------------------- ENERGY--1.11% Repsol YPF SA 57,713 948,654 - -------------------------------------------------------------------------------- TELECOMMUNICATIONS--3.98% Telefonica SA* 287,578 3,397,042 - -------------------------------------------------------------------------------- UTILITIES--2.00% Endesa SA 59,243 915,831 - -------------------------------------------------------------------------------- Iberdrola SA 47,056 792,118 - -------------------------------------------------------------------------------- 1,707,949 - -------------------------------------------------------------------------------- 10,587,803 - -------------------------------------------------------------------------------- Total Common Stocks (cost--$77,084,197) 85,311,043 - -------------------------------------------------------------------------------- INVESTMENTS OF CASH COLLATERAL FOR SECURITIES LOANED--12.05% UBS Private Money Market Fund, LLC(2) (cost--$10,285,592) 10,285,592 10,285,592 - -------------------------------------------------------------------------------- Total Investments (cost--$87,369,789)--111.98% 95,596,635 - -------------------------------------------------------------------------------- Liabilities in excess of other assets--(11.98)% (10,230,739) - -------------------------------------------------------------------------------- Net Assets--100.00% $ 85,365,896 - --------------------------------------------------------------------------------
* Non-income producing security. (1) Security, or portion thereof, was on loan at September 30, 2003 (2) Security is an affiliate of UBS Global Asset Management (US) Inc., the Fund's Advisor. See accompanying notes to financial statements 17 Schedule of Investments ANALYSIS OF INDUSTRY CLASSIFICATIONS SEPTEMBER 30, 2003
PERCENT OF INDUSTRY TOTAL INVESTMENTS VALUE - -------- ----------------- ----- Automobiles 2.8% $ 2,385,213 Banks 17.5 14,953,158 Chemicals 3.9 3,328,318 Construction 1.7 1,432,210 Cyclical Goods & Services 3.2 2,695,086 Energy 18.0 15,328,612 Food & Beverages 3.8 3,247,369 Financial Services 1.5 1,255,982 Healthcare 4.2 3,591,578 Insurance 10.0 8,523,244 Media 1.4 1,183,286 Non-Cyclical Goods & Services 2.2 1,867,507 Retail 2.1 1,787,674 Technology 9.8 8,411,773 Telecommunications 10.9 9,338,604 Utilities 7.0 5,981,429 ----- ------------ TOTAL 100.0% $ 85,311,043 ===== ============
See accompanying notes to financial statements 18 FRESCO INDEX SHARES FUNDS Statements of Assets and Liabilities -- September 30, 2003
FRESCO DOW JONES FRESCO DOW JONES STOXX 50 EURO STOXX 50 FUND FUND - --------------------------------------------------------------------------------------------------- ASSETS: Investments in securities at value (cost--$7,578,639 and $77,084,197, respectively)* $ 8,200,691 $ 85,311,043 Investments in affiliates at value (cost--$162,174 and $0, respectively) 213,613 -- Investments of cash collateral received for securities loaned, at value (cost--$78,645 and $10,285,592, respectively) 78,645 10,285,592 Cash -- 10,429 Foreign currency, at value (cost--$11,030 and $450,726, respectively) 11,178 456,972 Receivable for investments sold 228 3,419 Receivable for foreign currency contracts 47,733 390,282 Dividends receivable 52,642 53,107 - --------------------------------------------------------------------------------------------------- Total assets 8,604,730 96,510,844 - --------------------------------------------------------------------------------------------------- LIABILITIES: Payable for cash collateral for securities loaned 78,645 10,285,592 Distributions payable 47,733 390,281 Payable for foreign currency contracts 48,976 400,611 Accrued trustees fees 2,052 16,470 Accrued advisory fee 6,008 51,994 - --------------------------------------------------------------------------------------------------- Total liabilities 183,414 11,144,948 - --------------------------------------------------------------------------------------------------- Net assets $ 8,421,316 $ 85,365,896 - --------------------------------------------------------------------------------------------------- NET ASSETS REPRESENTED BY: Paid in capital $ 7,600,041 $ 76,184,176 Undistributed net investment income 147,780 971,451 Accumulated net realized loss on investments and foreign currency transactions (145) (13,561) Net unrealized appreciation on investments and foreign currency 673,640 8,223,830 - --------------------------------------------------------------------------------------------------- Net assets $ 8,421,316 $ 85,365,896 - --------------------------------------------------------------------------------------------------- NET ASSETS VALUE PER SHARE: Net asset value per share $ 27.89 $ 27.97 - --------------------------------------------------------------------------------------------------- Shares outstanding (unlimited amount authorized, $0.01 par value) 301,971 3,052,046 - ---------------------------------------------------------------------------------------------------
* Includes $74,730 and $9,782,296, respectively, of investments in securities on loan, at value. See accompanying notes to financial statements. 19 STATEMENTS OF OPERATIONS
FOR THE PERIOD ENDED SEPTEMBER 30, 2003 * ---------------------------------- FRESCO DOW JONES FRESCO DOW JONES STOXX 50 EURO STOXX 50 FUND FUND - --------------------------------------------------------------------------------------------------- INVESTMENT INCOME: Dividends (net of foreign withholding taxes, $87,910 and $541,208, respectively) $ 689,521 $ 4,200,223 Securities lending 5,518 132,454 - --------------------------------------------------------------------------------------------------- Total investment income 695,039 4,332,677 - --------------------------------------------------------------------------------------------------- EXPENSES: Advisory fee 60,901 401,958 Trustees fees and expenses 11,688 77,579 Other expenses 1,223 4,468 - --------------------------------------------------------------------------------------------------- Total expenses 73,812 484,005 - --------------------------------------------------------------------------------------------------- Net investment income 621,227 3,848,672 - --------------------------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN ON INVESTMENTS: Net realized gain on investments and foreign currency transactions 1,987,826 14,957,077 Net change in unrealized appreciation on investments and foreign currency 673,640 8,223,830 Net realized and unrealized gain on investments and foreign currency 2,661,466 23,180,907 - --------------------------------------------------------------------------------------------------- Net increase in net assets resulting from operations $ 3,282,693 $ 27,029,579 - ---------------------------------------------------------------------------------------------------
* For the period October 15, 2002 (commencement of operations) through September 30, 2003. See accompanying notes to financial statements. 20 STATEMENTS OF CHANGES IN NET ASSETS
FOR THE PERIOD ENDED SEPTEMBER 30, 2003 * ---------------------------------- FRESCO DOW JONES FRESCO DOW JONES STOXX 50 EURO STOXX 50 FUND FUND - --------------------------------------------------------------------------------------------------- FROM OPERATIONS: Net investment income $ 621,227 $ 3,848,672 Net realized gain on investments and foreign currency transactions 1,987,826 14,957,077 Net change in unrealized appreciation on investments and foreign currency 673,640 8,223,830 Net increase in net assets resulting from operations 3,282,693 27,029,579 Undistributed net investment income included in price of shares issued and redeemed, net (146,907) (905,561) DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income (473,377) (2,937,683) FROM BENEFICIAL INTEREST TRANSACTIONS: Net proceeds from the sale of shares 30,444,056 200,632,489 Cost of shares redeemed (24,735,149) (138,502,928) Net increase in net assets from beneficial interest transactions 5,708,907 62,129,561 - --------------------------------------------------------------------------------------------------- Net increase in net assets during period 8,371,316 85,315,896 Net assets at beginning of period 50,000 50,000 Net assets end of period (1) $ 8,421,316 $ 85,365,896 - --------------------------------------------------------------------------------------------------- SHARES OF BENEFICIAL INTEREST: Shares sold 1,200,000 8,150,000 Shares redeemed (900,000) (5,100,000) Net increase 300,000 3,050,000 - --------------------------------------------------------------------------------------------------- Including undistributed net investment income (1): $ 147,780 $ 971,451 - ---------------------------------------------------------------------------------------------------
* For the period October 15, 2002 (commencement of operations) through September 30, 2003. See accompanying notes to financial statements. 21 FINANCIAL HIGHLIGHTS Selected data for a share of beneficial interest outstanding throughout the period is presented below:
FOR THE PERIOD ENDED SEPTEMBER 30, 2003 * ----------------------------------------- FRESCO DOW JONES FRESCO DOW JONES STOXX 50 EURO STOXX 50 FUND FUND - ---------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD(4) $ 25.34 $ 24.35 INCOME FROM INVESTMENT OPERATIONS: Net investment income 1.20 0.97 Net realized and unrealized gain 2.50 3.59 TOTAL FROM INVESTMENT OPERATIONS 3.70 4.56 Undistributed net investment income included in price of units issued and redeemed, net (0.49) (0.30) DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income (0.66) (0.64) NET ASSET VALUE, END OF PERIOD $ 27.89 $ 27.97 - ---------------------------------------------------------------------------------------------------------- TOTAL RETURN(1) 12.79% 17.46% Net assets, end of period (in 000's) $ 8,421 $ 85,366 Ratio of expenses to average net assets 0.35%(2) 0.35%(2) Ratio of net investment income to average net assets 2.96%(2) 2.78%(2) Portfolio turnover rate(3) 6% 6% - ----------------------------------------------------------------------------------------------------------
* For the period October 15, 2002 (commencement of operations) through September 30, 2003. (1) Total return is calculated assuming a purchase of shares at net asset value on the first day and a sale at net asset value on the last day of each period reported. Distributions are assumed, for the purpose of this calculation, to be reinvested at net asset value per share on the respective payment dates of each Fund. Total return for periods of less than one year is not annualized. Broker commission charges are not included in this calculation. (2) Annualized (3) Portfolio Turnover rate excludes securities received or delivered from processing of creations or redemptions. (4) The beginning net asset values shown above have been adjusted to reflect reverse stock splits which were effective October 15, 2002, in order to adjust the net asset value per share of each Fund to be approximately 1/100th of the value of its respective Index. The ratio of the reverse stock split for the Fresco Dow Jones STOXX 50 Fund and the Fresco Dow Jones EURO STOXX 50 Fund was 1:2.536 and 1:2.444, respectively. 22 NOTES TO FINANCIAL STATEMENTS 1. ORGANIZATION Fresco Index Shares Funds (the "Trust") is registered under the Investment Company Act of 1940, as amended, and is an open-end investment management company that was organized as a Massachusetts business trust on February 14, 2002. The Trust currently consists of two separate exchange-traded "index funds" (each referred to as a "Fund" and, collectively, as the "Funds") Fresco Dow Jones STOXX 50 Fund and Fresco Dow Jones EURO STOXX 50, each of which represents a separate series of beneficial interest in the Trust. Each Fund operates as a non-diversified investment company. The investment objective of each Fund is to replicate as closely as possible, before expenses, the price and yield of a specified market index. 2. SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies followed by the Trust in the preparation of its financial statements: The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. a) SECURITY VALUATION--Portfolio securities are valued based on the last sale price on the exchange which is deemed to be the principal market for the security. Securities regularly traded in an over-the-counter market are valued at the latest quoted sale price in such market. Other portfolio securities and assets for which market quotations are not readily available are valued based on fair value as determined in good faith in accordance with procedures adopted by the Board of Trustees. b) INVESTMENT INCOME--Dividend income is recorded on the ex-dividend date. Interest income is recorded on the accrual basis. c) INVESTMENT TRANSACTIONS--Investment transactions are recorded on the trade date. Realized gains and losses from the sale or disposition of securities and foreign exchange transactions are recorded on the identified cost basis. Corporate actions (including cash dividends) are recorded net of non-reclaimable foreign tax withholdings. d) FOREIGN CURRENCY TRANSLATION AND FOREIGN INVESTMENTS--The accounting records of the Funds are maintained in U.S. dollars. Portfolio securities and other assets and liabilities denominated in a foreign currency are translated to U.S. dollars at the prevailing rates of exchange at period end. Purchases and sales of securities, income receipts and expense payments are translated into U.S. dollars at the prevailing exchange rate on the respective dates of transactions. The effects of changes in foreign currency exchange rates on portfolio investments are included in the net realized and unrealized gains and losses on investments. Net gains and losses on foreign currency transactions include disposition of foreign currencies, 23 and currency gains and losses between the accrual and receipt dates of portfolio investment income and between the trade and settlement dates of portfolio investment transactions. Investing in securities of foreign companies and foreign governments involves special risks and considerations not typically associated with investing in U.S. companies and securities of the U.S. government. These risks include revaluation of currencies and the risk of appropriation. Moreover, the markets for securities of many foreign companies and foreign governments may be less liquid and the prices of such securities may be more volatile than those of comparable U.S. companies and the U.S. government. e) EXPENSES--Advisory fees, which are directly identifiable to a specific Fund, are applied to that Fund. Certain fees are allocated in such a manner as deemed equitable, taking into consideration the relative net assets of the Funds. f) FEDERAL INCOME TAX--The Funds intend to qualify for and elect treatment as a "regulated investment company" under Subchapter M of the Internal Revenue Code of 1986, as amended. By so qualifying and electing, each Fund will not be subject to federal income taxes to the extent it distributes it's taxable income, including any net realized capital gains, for each fiscal year. In addition, by distributing during each calendar year substantially all their net investment income and capital gains, if any, the Funds will not be subject to federal excise tax. Income and capital gain distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. These book-tax differences are primarily due to differing treatments for income equalization, in-kind transactions and losses deferred due to wash sales. At September 30, 2003, the Funds had no capital loss carryforwards. For the period ended September 30, 2003, the Funds reclassified non-taxable security gains and losses realized on the in-kind redemption of Creation Units (Note 4) as an increase or decrease to paid in capital in the Statements of Assets and Liabilities as follows:
NET GAIN RECLASS AMOUNT - -------------------------------------------------------------------------------- Fresco Dow Jones STOXX 50 Fund $ 1,996,192 Fresco Dow Jones EURO STOXX 50 Fund 14,577,493
The Funds use the accounting practice of equalization. This accounting method was used to keep the continuing shareholders' per share equity in undistributed net investment income from being affected by the continuous sales and redemptions of capital stock. Equalization is calculated on a per share basis whereby a portion of the proceeds from sales and costs of repurchases of 24 capital stock is applied to undistributed net investment income. The amounts of equalization are disclosed in the Statements of Changes in Net Assets as undistributed net investment income included in the price of capital shares issued or redeemed. The tax character of distributions declared during the year ended September 30, 2003, was as follows:
ORDINARY FOREIGN TAX LONG-TERM INCOME CREDIT CAPITAL GAIN - -------------------------------------------------------------------------------- Fresco Dow Jones STOXX 50 Fund $ 473,377 $ 87,647 $ -- Fresco Dow Jones EURO STOXX 50 Fund 2,937,683 541,208 -- - --------------------------------------------------------------------------------
As of September 30, 2003 the components of distributable earnings (excluding unrealized appreciation (depreciation)) on a tax basis were as follows:
UNDISTRIBUTED UNDISTRIBUTED LONG-TERM ORDINARY INCOME CAPITAL GAIN - -------------------------------------------------------------------------------- Fresco Dow Jones STOXX 50 Fund $ 146,537 $ -- Fresco Dow Jones EURO STOXX 50 Fund 961,122 -- - --------------------------------------------------------------------------------
Due to the inherent differences in the recognition of income, expenses and realized gains/losses under accounting principles generally accepted in the United States of America and federal income tax purposes, permanent differences between book and tax basis reporting for the current fiscal year have been identified and appropriately reclassified. Reclassifications for the year ended September 30, 2003, were as follows:
ACCUMULATED UNDISTRIBUTED ACCUMULATED NET INVESTMENT NET REALIZED INCOME (LOSS) GAIN (LOSS) PAID IN CAPITAL - --------------------------------------------------------------------------------------- Fresco Dow Jones STOXX 50 Fund $ (70) $ (1,987,971) $ 1,988,041 Fresco Dow Jones EURO STOXX 50 Fund 60,462 (14,970,638) 14,910,176 - ---------------------------------------------------------------------------------------
g) DISTRIBUTIONS--The Trust declares and distributes dividends from net investment income, if any to its shareholders quarterly. The Trust will distribute net realized capital gains, if any, at least annually. Distributions are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from accounting principles generally accepted in the United States. h) PROXY VOTING POLICIES--You may obtain a description of the Funds' proxy voting policies and procedures, without charge, upon request by contacting the Funds directly at 1-866-4FRESCO (1-866 437-3726) or online on the Funds' Web site www.frescoshares.com. 25 3. FEES AND COMPENSATION PAID TO AFFILIATES AND OTHER RELATED PARTIES TRANSACTIONS a) ADVISORY FEE Each Fund has entered into an Investment Advisory Agreement with UBS Global Asset Management (US) Inc. ("UBS Global AM"). As compensation for the services rendered, facilities furnished, and expenses borne by UBS Global AM, each Fund pays the Advisor a fee accrued daily and paid monthly, based on a percentage of each Funds' average daily net assets as shown in the following table:
ANNUAL RATE - -------------------------------------------------------------------------------- Fresco Dow Jones STOXX 50 Index Fund 0.29% Fresco Dow Jones EURO STOXX 50 Fund 0.29%
The Advisor pays the operating expenses of each Fund other than the advisory fee, brokerage, taxes, interest, fees and expenses of the Independent Trustees (including any Trustee's counsel fees), litigation expenses and other extraordinary expenses. b) PRINCIPAL UNDERWRITER UBS Global AM acts as the principal underwriter of each Fund pursuant to a principal underwriting contract with the Trust (the "Principal Underwriting Agreement") which requires UBS Global AM to use its best efforts, consistent with its other businesses, to sell Fresco Index Shares of the Funds. Fresco Index Shares of the Fund are offered continuously. UBS Global AM may enter into dealer agreements with other broker-dealers (affiliated and non-affiliated) and with other financial institutions to authorize them to sell Fresco Index Shares. Management has not implemented a 12b-1 fee on any of the Funds. c) TRANSACTIONS WITH AFFILIATES The Fresco Dow Jones STOXX 50 Index Fund and the Fresco Dow Jones EURO STOXX 50 Index Fund have invested in affiliated companies. These investments represent 3.47% and 12.05%, respectively, of net assets at September 30, 2003. Amounts relating to these investments at September 30, 2003 and for the period ended are: FRESCO DOW JONES STOXX 50 INDEX FUND:
PURCHASES SALES REALIZED DIVIDEND MARKET VALUE SHARES COST SHARES PROCEEDS GAIN INCOME AT 9/30/03 - ------------------------------------------------------------------------------------------------------------------ UBS AG 17,521 $ 763,166 13,712 $ 733,457 $ 132,465 $ 15,846 $ 213,613 UBS Private Money Market Fund, LLC 8,076,253 $ 8,076,253 8,154,898 $ 8,154,898 $ 0 $ 10,259 $ 78,645
26 FRESCO DOW JONES EURO STOXX 50 FUND:
PURCHASES SALES REALIZED DIVIDEND MARKET VALUE SHARES COST SHARES PROCEEDS GAIN INCOME AT 9/30/03 - -------------------------------------------------------------------------------------------------------------------- UBS Private Money Market Fund, LLC 118,894,679 $ 118,894,679 108,609,087 $ 108,609,087 $ 0 $ 189,431 $ 10,285,592
4. SHAREHOLDER TRANSACTIONS Except for under the Trust's dividend reinvestment plan, Fresco Index Shares are issued and redeemed by a Fund only in Creation Unit size aggregations of 50,000 Fresco Index Shares. Such transactions are only permitted on an in-kind basis, with a separate cash payment, which is a balancing cash component to equate the transaction to the net asset value per unit of the Fund on the transaction date. Transaction fees at scheduled amounts ranging from $3,000 to $12,000 per Creation Unit are charged to those persons creating or redeeming Creation Units. Transaction fees are received by the custodian and used to offset the expense of processing orders. 5. AGGREGATE UNREALIZED APPRECIATION AND DEPRECIATION At September 30, 2003, the cost of investments for federal income tax purposes was substantially the same as the cost for financial reporting purposes.
GROSS GROSS NET UNREALIZED IDENTIFIED UNREALIZED UNREALIZED APPRECIATION COST APPRECIATION DEPRECIATION (DEPRECIATION) - ---------------------------------------------------------------------------------------------- Fresco Dow Jones STOXX 50 Index Fund $ 7,819,603 $ 841,319 $ 167,973 $ 673,346 Fresco Dow Jones EURO STOXX 50 Index Fund 87,383,350 9,812,265 1,598,980 8,213,285
6. INVESTMENT TRANSACTIONS For the period ended September 30, 2003, the Trust had in-kind contributions and in-kind redemptions as follows:
SUBSCRIPTIONS REDEMPTIONS - ---------------------------------------------------------------------------------------------- Fresco Dow Jones STOXX 50 Index Fund $ 30,435,195 $ 24,871,154 Fresco Dow Jones EURO STOXX 50 Fund 200,513,960 139,314,669 - ----------------------------------------------------------------------------------------------
For the period ended September 30, 2003, the Trust had purchases and sales of investment securities as follows:
PURCHASES SALES - ---------------------------------------------------------------------------------------------- Fresco Dow Jones STOXX 50 Index Fund $ 1,180,724 $ 1,147,601 Fresco Dow Jones EURO STOXX 50 Fund 7,603,696 8,494,255 - ----------------------------------------------------------------------------------------------
27 7. INITIAL CAPITALIZATION AND OFFERING OF SHARES On the commencement of operations for each Fund, October 15, 2002, the Board of Trustees declared reverse stock splits, which were effective on the date of commencement of operations for each Fund. The reverse stock splits were executed in order to align the net asset value per share of each Fund to an established proportion of its benchmark index. The ratio of the reverse stock splits were as follows:
RATIO - -------------------------------------------------------------------------------- Fresco Dow Jones STOXX 50 Index Fund 1: 2.536 Fresco Dow Jones EURO STOXX 50 Index Fund 1: 2.444 - --------------------------------------------------------------------------------
8. SECURITIES LENDING Each Fund may lend securities up to 33 1/3% of its total assets to qualified broker-dealers or institutional investors. The loans are secured at all times by cash, cash equivalents 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 Funds will regain record ownership of loaned securities to exercise certain beneficial rights; however, the Funds may bear the risk of delay in recovery of, or even loss of rights in, the securities loaned should the borrower fail financially. The Funds receive compensation, which is included in interest income, for lending its securities from interest or dividends earned on the cash, cash equivalents or U.S. government securities held as collateral, net of fee rebates paid to the borrower plus reasonable administrative and custody fees. UBS Financial Services Inc. or UBS Securities LLC, and other affiliated broker-dealers have been approved as borrowers under the Funds' securities lending program. UBS Financial Services Inc. or UBS Securities LLC, which is the Trust's lending agent, received compensation from the Funds for the period ended September 30, 2003 as follows:
COMPENSATION - -------------------------------------------------------------------------------- Fresco Dow Jones STOXX 50 Fund $ 1,854 Fresco Dow Jones EURO STOXX 50 Fund 44,693 - --------------------------------------------------------------------------------
For the period ended September 30, 2003, the Funds received compensation from securities lending transactions net of fees, rebates and expenses as follows:
COMPENSATION - -------------------------------------------------------------------------------- Fresco Dow Jones STOXX 50 Fund $ 5,518 Fresco Dow Jones EURO STOXX 50 Fund 132,454 - --------------------------------------------------------------------------------
28 At September 30, 2003, the Funds owed UBS Financial Services Inc. or UBS Securities LLC for security lending fees as follows:
AMOUNTS OWED - -------------------------------------------------------------------------------- Fresco Dow Jones STOXX 50 Fund $ 2 Fresco Dow Jones EURO STOXX 50 Fund 282 - --------------------------------------------------------------------------------
At September 30, 2003, the Funds held cash as collateral for market values of securities loaned as follows:
MARKET VALUE OF INVESTMENTS CASH RECEIVED MARKET VALUE ON CASH FOR SECURITIES OF SECURITIES COLLATERAL LOANED LOANED RECEIVED - -------------------------------------------------------------------------------- Fresco Dow Jones STOXX 50 Fund $ 78,645 $ 74,730 $ 78,645 Fresco Dow Jones EURO STOXX 50 Fund 10,285,592 9,782,296 10,285,592 - --------------------------------------------------------------------------------
29 Report of PricewaterhouseCoopers LLP, Independent Auditors To the Board of Trustees and Shareholders of the Fresco Index Shares Funds In our opinion, the accompanying statements of assets and liabilities, including the schedules of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of each of the portfolios comprising the Fresco Index Shares Funds (hereafter referred to as the "Funds") at September 30, 2003, and the results of each of their operations, the changes in each of their net assets and the financial highlights for the period October 15, 2002 (commencement of operations) through September 30, 2003, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Funds' management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these financial statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit, which included confirmation of securities at September 30, 2003 by correspondence with the custodian, provides a reasonable basis for our opinion. PricewaterhouseCoopers LLP New York, New York November 21, 2003 30 (This page intentionally left blank) 31 Supplemental Information (unaudited) The Trust is a Massachusetts business trust governed by a Board of Trustees. The Board has overall responsibility for managing the business and affairs of the Trust, including general supervision and review of its investment activities. The Trustees elect the Officers of the Trust who are responsible for administering the day-to-day operations of the Trust and the Funds. The table below shows, for each Trustee and Officer, his or her name, address and age, the position held with the Trust, the length of time served as a Trustee or Officer of the Trust, the Trustee's and Officer's principal occupations during the last five years, the number of funds in the UBS Family of Funds overseen by the Trustee and other directorships held by such Trustee. NON-INTERESTED TRUSTEES:
POSITION HELD/ NAME, ADDRESS, TERM/TIME PRINCIPAL OCCUPATION(S) AND AGE SERVED(1) DURING PAST 5 YEARS - -------------------------------------------------------------------------------------- Walter E. Auch Trustee Mr. Auch is retired (since 1986). 6001 N. 62nd Place since Paradise Valley, AZ 85253 2002 Age 82 Frank K. Reilly Chairman Mr. Reilly is a Professor at the College of Business and University of Notre Dame since 1982. Administration Trustee Mr. Reilly was a Director of Battery University of Notre Dame since Park Funds Inc. (1995-2001). Notre Dame, IN 46556-0399 2002 Age 67 Edward M. Roob Trustee Mr. Roob is retired (since 1993). 841 Woodbine Lane since Mr. Roob was a Committee Member Northbrook, IL 60002 2002 of the Chicago Stock Exchange from Age 68 1993-1999.
32 The Trust's Statement of Additional Information contains additional information about the Trustees and is available, without charge, upon request by calling 1-800-647-1568.
NUMBER OF PORTFOLIOS IN FUND COMPLEX OTHER DIRECTORSHIPS OVERSEEN BY TRUSTEE HELD BY TRUSTEE - -------------------------------------------------------------------------------- Mr. Auch is a trustee of four Mr. Auch is a Trustee of Advisors investment companies (consisting of 43 Series Trust (16 portfolios); Smith portfolios) for which UBS Global Asset Barney Fund Complex (27 portfolios); Management (US) Inc. ("UBS Global Nicholas Applegate Institutional Funds AM"), UBS Global Asset Management (19 portfolios) and Banyan Strategic (Americas) Inc. ("UBS Global AM Realty Trust. He is also a Director of (Americas)") or one of their Express America Holdings Corp. and affiliates serves as investment Semele Group Inc. advisor, sub-advisor or manager. Mr. Reilly is a director or trustee of Mr. Reilly is a Director of Discover five investment companies (consisting Bank; Morgan Stanley Trust, FSB; and of 44 portfolios for which UBS Global NIBCO, Inc. AM, UBS Global AM (Americas) or one of their affiliates serves as investment advisor, sub-advisor or manager. Mr. Roob is a director or trustee of Mr. Roob is a Trustee of the CCM Fund five investment companies (consisting Complex (9 portfolios). of 44 portfolios for which UBS Global AM, UBS Global AM (Americas) or one of their affiliates serves as investment advisor, sub-advisor or manager.
33 INTERESTED TRUSTEES:
POSITION HELD/ NAME, ADDRESS, TERM/TIME PRINCIPAL OCCUPATION(S) AND AGE SERVED(1) DURING PAST 5 YEARS - -------------------------------------------------------------------------------------- Brian M. Storms+* Trustee Mr. Storms is chief executive Age 49 since officer of UBS Global Asset 2002 Management -- Americas region (since July 2002). Mr. Storms was chief executive officer, president and/or chief operating officer of UBS Global AM and certain affiliated asset management companies from 1999 to July 2002. He was president of Prudential Investments (1996-1999). Joseph A. LaCorte+* Trustee Mr. LaCorte is a managing director Age 44 and and co-head of the Global Index President Market group of UBS Global AM. since (since 2000). From 1997 to 2000, he 2002 founded and served as a Managing Member of S-Network, LLC to provide consulting services specializing in the development, secondary market trading and distribution of Exchange Traded Funds.
34
NUMBER OF PORTFOLIOS IN FUND COMPLEX OTHER DIRECTORSHIPS OVERSEEN BY TRUSTEE HELD BY TRUSTEE - -------------------------------------------------------------------------------- Mr. Storms is a trustee of four None investment companies (consisting of 43 portfolios) for which UBS Global AM, UBS Global AM (Americas) or one of their affiliates serves as investment advisor, sub-advisor or manager. Mr. LaCorte is a trustee of one None investment company (consisting of two portfolios) for which UBS Global AM or one of its affiliates serves as investment advisor, sub-advisor or manager
35 OFFICERS
POSITION HELD/ NAME, ADDRESS, TERM/TIME PRINCIPAL OCCUPATION(S) AND AGE SERVED DURING PAST 5 YEARS - ---------------------------------------------------------------------------------------------------- Amy R. Doberman* Vice Ms. Doberman is a managing director Age 41 President and general counsel of UBS Global and AM (since 2000). From December 1997 Assistant through July 2000, she was general Secretary counsel of Aeltus Investment since Management, Inc. Ms. Doberman is 2002 vice president and assistant secretary of five investment companies (consisting of 44 portfolios) and vice president and secretary of 19 investment companies (consisting of 40 portfolios) for which UBS Global AM, UBS Global AM (Americas) or one of their affiliates serves as investment advisor, sub-advisor or manager. David M. Goldenberg* Vice Mr. Goldenberg is an executive Age 37 President director and deputy general counsel and of UBS Global AM. From 2000 to 2002 Secretary he was director, legal affairs at Since Lazard Asset Management. Mr. 2002 Goldenberg served in various capacities, including most recently as global director of Compliance at SSB Citi Asset Management Group from 1996 to 2000. Mr. Goldenberg is a vice president and secretary of five investment companies (consisting of 44 portfolios) and a vice president and assistant secretary of 19 investment companies (consisting of 40 portfolios) for which UBS Global AM, UBS Global AM (Americas) or one of their affiliates serves as investment advisor, sub-advisor or manager.
36
POSITION HELD/ NAME, ADDRESS, TERM/TIME PRINCIPAL OCCUPATION(S) AND AGE SERVED DURING PAST 5 YEARS - ---------------------------------------------------------------------------------------------------- Cynthia Lo Bessette* Vice Ms. Lo Bessette is a director and Age 34 President associate general counsel of UBS and Global AM. From August 1998 through Assistant October 2001, she was a vice Secretary president and business lawyer of since Zurich Scudder Investments, Inc. 2002 Ms. Lo Bessette is vice president and assistant secretary of one investment company (consisting of two portfolios) for which UBS Global AM or one of its affiliates serves as investment advisor, sub-advisor or manager. Joseph T. Malone* Assistant Mr. Malone is a director and a Age 36 Treasurer senior manager of the mutual fund since finance department of UBS Global 2002 AM. From August 2000 through June 2001, he was the controller at AEA Investors Inc. From March 1998 to August 2000, Mr. Malone was a manager within investment management services of PricewaterhouseCoopers LLC. Mr. Malone is an assistant treasurer of four investment companies (consisting of 43 portfolios) for which UBS Global AM, UBS Global AM (Americas) or one of their affiliates serves as investment advisor, sub-advisor or manager.
37
POSITION HELD/ NAME, ADDRESS, TERM/TIME PRINCIPAL OCCUPATION(S) AND AGE SERVED DURING PAST 5 YEARS - ---------------------------------------------------------------------------------------------------- Paul H. Schubert* Age 40 Vice Mr. Schubert is an executive President director and head of the mutual and fund finance department of UBS Treasurer Global AM. Mr. Schubert is since treasurer and principal accounting 2002 officer of three investment companies (consisting of 41 portfolios), a vice president and treasurer of 20 investment companies (consisting of 41 portfolios), and treasurer and chief financial officer of one investment company (consisting of two portfolios) for which UBS Global AM, UBS Global AM (Americas), or one of their affiliates serves as investment advisor, sub-advisor or manager.
(1) Each Trustee holds office for an indefinite term. * This person's business address is UBS Global Asset Management (US) Inc., 51 West 52nd Street, New York, NY 10019-6114. + Mr. Storms and Mr. LaCorte are "interested persons" of the Trust, as that term is defined in the Investment Company Act by virtue of their positions with UBS Global AM and/or any of its affiliates. 38 FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS CLOSING PRICE VS. NAV AS OF SEPTEMBER 30, 2003 The following Frequency Distribution of Discounts and Premiums charts are provided to show the frequency at which the closing bid/ask midpoint price for each of the Funds was at a discount or premium to the daily net asset value (NAV). The following charts are for comparative purposes only and represent the periods noted. FRESCO DOW JONES STOXX 50 FUND
BID/OFFER MIDPOINT PRICE BID/OFFER MIDPOINT PRICE ABOVE NAV BELOW NAV 50 - 99 100 - 199 GREATER THAN 200 50 - 99 100 - 199 GREATER THAN 200 BASIS BASIS BASIS BASIS BASIS BASIS POINTS POINTS POINTS POINTS POINTS POINTS - ----------------------------------------------------------------------------------------------- 2003 QUARTER ENDING: 9/30/03 8 2 0 6 0 0 6/30/03 13 2 0 8 3 0 3/31/03 10 10 1 6 2 0 2002 PERIOD ENDING: 12/31/02* 9 7 0 7 3 0 - -----------------------------------------------------------------------------------------------
* Commencement of trading October 21, 2002 FRESCO DOW JONES EURO STOXX 50 FUND
BID/OFFER MIDPOINT PRICE BID/OFFER MIDPOINT PRICE ABOVE NAV BELOW NAV 50 - 99 100 - 199 GREATER THAN 200 50 - 99 100 - 199 GREATER THAN 200 BASIS BASIS BASIS BASIS BASIS BASIS POINTS POINTS POINTS POINTS POINTS POINTS - ----------------------------------------------------------------------------------------------- 2003 QUARTER ENDING: 9/30/03 8 1 0 6 3 0 6/30/03 6 3 0 11 4 0 3/31/03 12 6 1 11 4 0 2002 PERIOD ENDING: 12/31/02* 5 7 1 9 5 0 - -----------------------------------------------------------------------------------------------
* Commencement of trading October 21, 2002 39 (This page intentionally left blank) 40 [FRESCO INDEX SHARES LOGO] Presorted Standard US Postage PAID Smithtown, NY Permit 700 Fresco Index Shares Funds 51 West 52nd Street, 21st Floor New York, New York 10019 - 6114 ITEM 2. CODE OF ETHICS. The registrant has adopted a code of ethics that applies to its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions pursuant to Section 406 of the Sarbanes-Oxley Act of 2002. (The registrant has designated the code of ethics adopted pursuant to Sarbanes-Oxley as a "Code of Conduct" to lessen the risk of confusion with its separate code of ethics adopted pursuant to Rule 17j-1 under the Investment Company Act of 1940, as amended.) ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. (a)(1) The Board of Trustees of the Trust has determined that the Trust has one Board member serving on the Trust's Audit Committee that possess the attributes identified in Instructions 2(b) of Item 3 to Form N-CSR to qualify as an "audit committee financial expert." (2) Frank Reilly is the Trust's audit committee financial expert. The Board also determined that Mr. Reilly was "independent" as that term is defined in the Sarbanes-Oxley Act of 2002. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. Form N-CSR disclosure requirement not yet effective with respect to the registrant. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS Form N-CSR disclosure requirement not yet effective with respect to the registrant. ITEM 6 [RESERVED BY SEC FOR FUTURE USE.] ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable to the registrant. ITEM 8 [RESERVED BY SEC FOR FUTURE USE.] ITEM 9. CONTROLS AND PROCEDURES. (a) The registrant's principal executive officer and principal financial officer have concluded that the registrant's disclosure controls and procedures (as defined in Rule 30a-2(c) under the Investment Company Act of 1940, as amended) are effective based on their evaluation of these controls and procedures as of a date within 90 days of the filing date of this document. (b) The registrant's principal executive officer and principal financial officer are aware of no changes in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. ITEM 10. EXHIBITS. (a) (1) Code of Ethics as required pursuant to Section 406 of the Sarbanes-Oxley Act of 2002 (and designated by registrant as a "Code of Conduct") is attached hereto as EX-99.CODE ETH. (a) (2) Certifications of principal executive officer and principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 is attached hereto as Exhibit EX-99.CERT. (b) Certifications of principal executive officer and principal financial officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 is attached hereto as Exhibit EX-99.906CERT. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. FRESCO INDEX SHARES FUNDS By: /s/ Joseph La Corte ----------------------------- Joseph La Corte President Date: December 8, 2003 ---------------------------------- Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /s/ Joseph La Corte ----------------------------- Joseph La Corte President Date: December 8, 2003 ---------------------------------- By: /s/ Paul H. Schubert ---------------------------------- Paul H. Schubert Chief Financial Officer Date: December 8, 2003 ---------------------------------- EX-99.CODE 3 a2123920zex-99_code.txt EXHIBIT 99.CODE ETHICS EX-99.CODE ETH UBS GLOBAL ASSET MANAGEMENT FUNDS CODE OF CONDUCT INTRODUCTION This Code of Conduct ("Code") applies to U.S. registered investment companies ("Funds") for which UBS Global Asset Management ("UBS Global AM") acts as advisor, sub-advisor and/or manager where UBS Global AM employees serve as officers of the Funds. This Code shall serve as the code of ethics required by Section 406 of the Sabanes-Oxley Act. This Code applies to a Fund's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party. COMPLIANCE WITH LAWS, RULES AND REGULATIONS Each person to whom this Code applies (a "Covered Person") must respect, and comply with, the laws, rules and regulations applicable to a Fund. It is the personal responsibility of each Covered Person to adhere to the standards and restrictions imposed by those laws, rules and regulations. INTEGRITY AND CONFLICTS OF INTEREST Each Covered Person must act ethically, with honesty and integrity, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships. A conflict of interest exists when a person's private interest interferes, or appears to interfere, in any way with the interests of a Fund. Any Covered Person who becomes aware of a conflict of interest or potential conflict of interest not addressed by existing policies or procedures (e.g., Rule 17e-1 Procedures) must promptly consult the Compliance Procedure described in this Code. FAIR DEALING A Covered Person must not take unfair advantage of a Fund through manipulation, concealment, abuse of privileged information, misrepresentation of material facts, or any other unfair practice. A Covered Person must respect and promote compliance with applicable insider trading laws, rules and regulations as well as with the internal directives and policies of UBS Global AM concerning illegal or unethical trading while in possession of material non-public information. FUND OPPORTUNITIES A Covered Person must abstain from taking for himself or herself personally, or directing to third parties, opportunities that are discovered through the use of Fund property, information or position, or otherwise competing with the interests of a Fund, unless a Fund has already been offered the opportunity and turned it down or such actions are otherwise consistent with the policies and practices disclosed in the Fund's disclosure documents or approved by the Fund's board or otherwise permissible under securities laws and regulations (e.g., soft dollars, trade allocation policies). PROTECTION AND PROPER USE OF FUND ASSETS A Covered Person must endeavor to protect a Fund's assets. Fund property should not be used for personal use. DISCLOSURE IN REPORTS AND DOCUMENTS A Covered Person must see that a Fund discloses information fully, fairly, accurately, timely and understandably in reports and documents that a Fund files with, or submits to, the SEC and in other public communications made by a Fund. REPORTING ANY VIOLATIONS OF THE CODE A Covered Person must promptly consult the Compliance Procedure described in this Code about any observed violations of this Code, including any violations of laws, rules, regulations or other legal requirements or when in doubt about the best course of action in a particular situation. It is the policy of UBS Global AM not to allow retaliation for reports of misconduct by others made in good faith. Reports may be made anonymously if the situation requires that identity be kept secret. UBS Global AM has established an ethics hotline that permits the anonymous reporting of ethical violations. WAIVERS OF THIS CODE Any waiver of this Code may be made only by the Board of the relevant Fund or the General Counsel or a Deputy General Counsel of UBS Global AM and will be disclosed as required by applicable law or regulations. Any waiver by the General Counsel or a Deputy General Counsel of UBS Global AM must be reported to the Board of the relevant Fund no later than their next regularly scheduled meeting. For purposes of this provision, the term "waiver" means the approval of a material departure from a provision in this Code. It also includes an "implicit waiver," which means the failure to take action within a reasonable period of time regarding a material departure from a provision of the Code that has been made known to an executive officer of a fund or the General Counsel or a Deputy General Counsel of UBS Global AM. Any person granting a waiver is responsible for promptly alerting the persons responsible for preparing SEC filings so that required disclosure regarding a waiver may be timely included in filings (e.g., Form N-CSR filings). COMPLIANCE PROCEDURE If you are unsure about how to handle a situation with regard to this Code or are aware of any violations or apparent violations of this Code promptly contact the General Counsel or a Deputy General Counsel of UBS Global AM. A Fund's Board, the General Counsel or a Deputy General Counsel of UBS Global AM has the authority to interpret this Code in any particular situation. ACCOUNTABILITY FOR ADHERENCE TO THIS CODE Those who violate the standards in this Code will be subject to disciplinary proceedings or dismissal by UBS Global AM. A copy of this Code shall be provided to each Covered Person. NOTE REGARDING INTERPLAY WITH OTHER REQUIREMENTS This Code deals with the required standards of fairness, honesty and integrity in a universal and general manner. UBS Global AM and its affiliates have issued, and will issue from time to time, more specific directives, policies, principals and procedures to implement such values while reflecting the specific requirements of a business group, business area or a particular jurisdiction. If there is any inconsistency between the requirements of this Code or any other applicable policy, the higher standard shall apply. This Code is supplemental to, and does not replace, any other code applicable to Covered Persons, such as a code of ethics regarding personal investing or restrictions on the receipt of gifts from third-party vendors or service contractors. [4/03 Version] EX-99.CERT302 4 a2123920zex-99_cert302.txt EXHIBIT 99.CERT EX-99.CERT CERTIFICATIONS I, Joseph La Corte, President of Fresco Index Shares Funds, certify that: 1. I have reviewed this report on Form N-CSR of Fresco Index Shares Funds; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-2(c) under the Investment Company Act of 1940) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this report (the "Evaluation Date"); and c) presented in this report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting. By: /s/ Joseph La Corte ----------------------------- Joseph La Corte President Date: December 8, 2003 ---------------------------------- EX-99.CERT906 5 a2123920zex-99_cert906.txt EXHIBIT 99.CERT906 CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 I, Joseph La Corte, President of Fresco Index Shares Funds (the "Trust"), certify that: 1. This Form N-CSR filing for the Trust (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Trust. By: /s/ Joseph La Corte ----------------------------- Joseph La Corte President Date: December 8, 2003 ---------------------------------- I, Paul H. Schubert, Chief Financial Officer of Fresco Index Shares Funds, certify that: 1. I have reviewed this report on Form N-CSR of Fresco Index Shares Funds; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-2(c) under the Investment Company Act of 1940) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this report (the "Evaluation Date"); and c) presented in this report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting. By: /s/ Paul H. Schubert ----------------------------- Paul H. Schubert Chief Financial Officer Date: December 8, 2003 ---------------------------------- Exhibit EX-99.906CERT Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) In connection with the attached report of Fresco Index Shares (the "Registrant") on Form N-CSR (the "Report"), each of the undersigned officers of the Registrant does hereby certify that, to the best of such officer's knowledge: 1) the Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; 2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant as of, and for, the periods presented in the Report. By: /s/ Joseph La Corte ------------------------------- Joseph La Corte President Date: December 8, 2003 ------------------------------- By: /s/ Paul H. Schubert ------------------------------- Paul H. Schubert Chief Financial Officer Date: December 8, 2003 ------------------------------- -----END PRIVACY-ENHANCED MESSAGE-----