-----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, U421CwUe7X8y1iLaU3w9pLFZHsvHqNbQ1mfz/LIyBHrU+sDhHpH9RTNVbtE90SDe Z4bMkdP8GNnKzDpDdQFgnA== 0001206774-03-000490.txt : 20030604 0001206774-03-000490.hdr.sgml : 20030604 20030604172957 ACCESSION NUMBER: 0001206774-03-000490 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20030331 FILED AS OF DATE: 20030604 EFFECTIVENESS DATE: 20030604 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FRESCO INDEX SHARES FUNDS CENTRAL INDEX KEY: 0001168164 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: 03733099 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 d12566.txt 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) Cynthia Lo Bessette, Esq. Associate General Counsel 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: March 31, 2003 Item 1. Reports to Stockholders. [LOGO] UBS Global Asset Management Fresco Dow Jones STOXX 50 Fund Fresco Dow Jones EURO STOXX 50 Fund Semiannual Report March 31, 2003 Fresco Dow Jones STOXX 50 Fund May 15, 2003 Dear Shareholder, We present you with the semiannual report for Fresco Dow Jones STOXX 50 Fund. This report covers the period since the Fund's inception on October 15, 2002 through March 31, 2003. Performance Review Fresco Dow Jones STOXX 50 Fund uses a passive management strategy designed to track (before expenses) the performance of the Dow Jones STOXX 50 Index. Since its inception on October 15, 2002 through March 31, 2003, the Fund's net asset value return--a decline of 8.72%--closely matched the 8.68% decline of the Index over the same time period. (For more on the Fund's performance, refer to "Performance At A Glance" on page 4. 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. The European equity markets were highly volatile during the reporting period. From the Fund's inception through the end of November 2002, European stock prices rallied, following generally poor performance during the first three quarters of 2002. The rally was largely due to encouraging economic data and revived hopes for an economic rebound in 2003. The best performing sectors were those closely tied to an economic recovery, in particular, information technology and financial stocks. Conversely, more defensive areas of the market, such as noncyclical consumer goods, lagged the overall market. The market's gains were short-lived, however, and they reverted to their downward trend from December 2002 through the end of March 2003. The anticipation and eventual war in Iraq, saber rattling in North Korea, fears of - -------------------------------------------------------------------------------- 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 Fresco Dow Jones STOXX 50 Fund terrorist attacks, rising unemployment, and weak consumer and corporate spending all served to drag the markets lower. Additionally, a strong euro hurt European exporters. With fears mounting that a double-dip recession was possible, the European Central Bank (ECB) cut interest rates by one-half of a percentage point in December 2002. The Bank of England's Monetary Policy Committee surprised the market by cutting rates to 3.75% in February 2003--a 48-year low. To further stimulate growth, the ECB instituted another one-quarter of a percentage point rate cut in March 2003. Q. How did the sectors in the Index perform over the period? A. During the reporting period, not one of the 15 sectors included in the Dow Jones STOXX 50 Index generated positive returns. The weakest performance came from the insurance, financial services, utilities and automobile sectors. Q. Can you tell us about individual stock performance? A. In terms of individual stocks, 46 out of 50 in the Index posted negative returns. Insurance and banking companies were among the worst performers, including Muenchener Rueckver (0.3%), Allianz (0.5%), Aegon (0.5%), Lloyds (1.4%) and ING Group (1.0%).* Suez (0.6%),* a Paris-based operator of electricity, natural gas, water and waste management, also generated weak results. Rumors of accounting problems and large write-offs on Suez's stock holdings and some emerging market businesses resulted in a substantial net loss during 2002. Vodafone Group (6.2%) and Assicurazioni Generali (1.2%) were among the small handful of companies in the Index posting positive returns during the period.* Vodafone provides mobile telecommunications services, including cellular, radio, paging, pocket radio and value-added network services. After a sharp and sustained decline, its share price rallied during the period as investors became more optimistic about its long-term prospects. Assicurazioni Generali is an insurance company based in Italy. Following a difficult year in 2002, the company's earnings rose early in 2003. * Weightings represent percentages of net assets as of March 31, 2003. The Fund's composition will differ over time. - -------------------------------------------------------------------------------- 2 Fresco Dow Jones STOXX 50 Fund 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. Sincerely, Joseph LaCorte President Fresco Dow Jones STOXX 50 Fund Managing Director UBS Global Asset Management (US) Inc. 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 March 31, 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 Fresco Dow Jones STOXX 50 Fund Performance At A Glance Total Returns as of 3/31/03 Net Asset Value Returns* Since Inception(o) ================================================================================ Fresco Dow Jones STOXX 50 Fund -8.72% - -------------------------------------------------------------------------------- After Tax Held** -9.01 - -------------------------------------------------------------------------------- After Tax Post-Liquidation** -5.34 - -------------------------------------------------------------------------------- Dow Jones STOXX 50 Index -8.68 - -------------------------------------------------------------------------------- Market Price Returns* Since Inception(o) ================================================================================ Fresco Dow Jones STOXX 50 Fund -9.03% - -------------------------------------------------------------------------------- After Tax Held** N/A - -------------------------------------------------------------------------------- After Tax Post-Liquidation** N/A - -------------------------------------------------------------------------------- Dow Jones STOXX 50 Index -8.68 - -------------------------------------------------------------------------------- (o) Inception: since commencement of issuance on October 15, 2002. For purposes of this illustration, since inception index performance is shown as of 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 change in the NAV per share, plus any dividends or distributions, of the Fund. Market price returns are based upon the market closing price at 4:00 PM Eastern time for purchases and sales of shares of the Fund, plus any dividends, or distributions, 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 historical highest individual federal marginal income tax rates and do not reflect the impact of 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 payable on secondary market transactions will reduce returns. Total returns for periods of one year or less have not been annualized. Performance information for the Dow Jones STOXX 50 Index assumes reinvestment of all income and excludes management fees, expenses and transactions costs, including brokerage commissions. The Index is unmanaged and not available for direct investment. The Index value is determined on the basis of Euros while the Fund's net asset value is determined on the basis of US dollars. Past performance does not guarantee future results. - -------------------------------------------------------------------------------- 4 Fresco Dow Jones STOXX 50 Fund Portfolio Statistics Characteristics* 3/31/03 ================================================================================ Net Assets (mln) $27.6 - -------------------------------------------------------------------------------- Top Five Sectors* 3/31/03 ================================================================================ Banks 24.6% - -------------------------------------------------------------------------------- Energy 20.6% - -------------------------------------------------------------------------------- Healthcare 15.0% - -------------------------------------------------------------------------------- Telecommunications 11.7% - -------------------------------------------------------------------------------- Food & Beverages 7.4% - -------------------------------------------------------------------------------- Total 79.3% ================================================================================ Top Ten Holdings* 3/31/03 ================================================================================ BP PLC 7.2% - -------------------------------------------------------------------------------- Vodafone Group PLC 6.2% - -------------------------------------------------------------------------------- HSBC Holdings PLC 5.6% - -------------------------------------------------------------------------------- GlaxoSmithKline PLC 5.4% - -------------------------------------------------------------------------------- Novartis AG 4.6% - -------------------------------------------------------------------------------- Total Fina Elf SA 4.4% - -------------------------------------------------------------------------------- Royal Dutch Petroleum Co. 4.3% - -------------------------------------------------------------------------------- Nestle SA 4.0% - -------------------------------------------------------------------------------- Nokia Oyj 3.4% - -------------------------------------------------------------------------------- Royal Bank of Scotland Group PLC 3.1% - -------------------------------------------------------------------------------- Total 48.2% ================================================================================ * Weightings represent percentages of net assets as of the dates indicated. The Fund's portfolio is passively managed and its composition will vary over time. - -------------------------------------------------------------------------------- 5 Fresco Dow Jones EURO STOXX 50 Fund Dear Shareholder, May 15, 2003 We present you with the semiannual report for Fresco Dow Jones EURO STOXX 50 Fund. This report covers the period since the Fund's inception on October 15, 2002 through March 31, 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. Since its inception on October 15, 2002 through March 31, 2003, the Fund's net asset value return--a decline of 8.52%--closely matched the 8.44% decline of the Index over the same time period. (For more on the Fund's performance, refer to "Performance At A Glance" on page 9. 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. The European equity markets were highly volatile during the reporting period. From the Fund's inception through the end of November 2002, European stock prices rallied, following generally poor performance during the first three quarters of 2002. The rally was largely due to encouraging economic data and revived hopes for an economic rebound in 2003. The best performing sectors were those closely tied to an economic recovery, in particular, information technology and financial stocks. Conversely, more defensive areas of the market, such as noncyclical consumer goods, lagged the overall market. - -------------------------------------------------------------------------------- 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: FEU - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 6 Fresco Dow Jones EURO STOXX 50 Fund The market's gains were short-lived, however, and they reverted to their downward trend from December 2002 through the end of March 2003. The anticipation and eventual war in Iraq, saber rattling in North Korea, fears of terrorist attacks, rising unemployment, and weak consumer and corporate spending all served to drag the markets lower. Additionally, a strong euro hurt European exporters. With fears mounting that a double-dip recession was possible, the European Central Bank (ECB) cut interest rates by one-half of a percentage point in December 2002. The Bank of England's Monetary Policy Committee surprised the market by cutting rates to 3.75% in February 2003--a 48-year low. To further stimulate growth, the ECB instituted another one-quarter of a percentage point rate cut in March 2003. Q. What sectors did well over the period? A. During the reporting period, only two of the 15 sectors included in the EURO STOXX 50 Index generated positive returns: technology and telecommunications, which rallied after a prolonged and severe downturn. (Nonetheless, both sectors remain well off the peaks they established several years ago.) A number of sectors generated very weak returns, including noncyclical goods services, insurance, financial services and healthcare. Q. What can you tell us about individual stock performance? A. In terms of individual stocks, 41 of the 50 in the Index generated negative returns. Among the weakest performers was Ahold (0.3%),* a Netherlands-based operator of supermarkets and other retail formats with operations in the US, Europe, Latin America and Asia. Its stock fell on news that the firm had artificially boosted earnings by inflating supplier rebates. Insurance and financial firms Muenchener Rueckver (0.6%), Allianz (0.9%), ING Group (1.9%) and Aegon (0.9%) also posted poor results during the period.* This was due, in part, to the weak investment environment and because of company-specific issues. Conversely, several stocks registered strong returns, including France Telecom (1.1%) and Alcatel (0.7%).* France Telecom provides telecommunications services in France and throughout the world. It is also France's largest mobile telecommunications service provider. Investors reacted positively to the company's turnaround efforts as its lower operating and capital expenditures helped it to generate an operating cash flow of 3.1 billion euros during the first * Weightings represent percentages of net assets as of March 31, 2003. The Fund's composition will differ over time. - -------------------------------------------------------------------------------- 7 Fresco Dow Jones EURO STOXX 50 Fund quarter of 2003, versus 1.9 billion euros a year earlier. Alcatel is Europe's top telecom equipment vendor in terms of sales, and is headquartered in France. Alcatel's stock rose sharply as the company narrowed its operating losses by improving operations at its fixed and mobile communications units. 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. Sincerely, Joseph LaCorte President Fresco Dow Jones EURO STOXX 50 Fund Managing Director UBS Global Asset Management (US) Inc. 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 March 31, 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. - -------------------------------------------------------------------------------- 8 Fresco Dow Jones EURO STOXX 50 Fund Performance At A Glance Total Returns as of 3/31/03 Net Asset Value Returns* Since Inception(o) ================================================================================ Fresco Dow Jones EURO STOXX 50 Fund -8.52% - -------------------------------------------------------------------------------- After Tax Held** -8.57 - -------------------------------------------------------------------------------- After Tax Post-Liquidation** -5.23 - -------------------------------------------------------------------------------- Dow Jones EURO STOXX 50 Index -8.44 - -------------------------------------------------------------------------------- Market Price Returns* Since Inception(o) ================================================================================ Fresco Dow Jones EURO STOXX 50 Fund -9.08 - -------------------------------------------------------------------------------- After Tax Held** N/A - -------------------------------------------------------------------------------- After Tax Post-Liquidation** N/A - -------------------------------------------------------------------------------- Dow Jones EURO STOXX 50 Index -8.44 - -------------------------------------------------------------------------------- (o) Inception: since commencement of issuance on October 15, 2002. For purposes of this illustration, since inception index performance is shown as of 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 change in the NAV per share, plus any dividends or distributions, of the Fund. Market price returns are based upon the market closing price at 4:00 PM Eastern time for purchases and sales of shares of the Fund, plus any dividends or distributions, 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 historical highest individual federal marginal income tax rates and do not reflect the impact of 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 payable on secondary market transactions will reduce returns. Total returns for periods of one year or less have not been annualized. Performance information for the Dow Jones EURO STOXX 50 Index assumes reinvestment of all income and excludes management fees, expenses and transactions costs, including brokerage commissions. The Index is unmanaged and not available for direct investment. The Index value is determined on the basis of Euros while the Fund's net asset value is determined on the basis of US dollars. Past performance does not guarantee future results. - -------------------------------------------------------------------------------- 9 Fresco Dow Jones EURO STOXX 50 Fund Portfolio Statistics Characteristics* 3/31/03 ================================================================================ Net Assets (mln) $148.0 - -------------------------------------------------------------------------------- Top Five Sectors* 3/31/03 ================================================================================ Energy 20.4% - -------------------------------------------------------------------------------- Banks 17.1% - -------------------------------------------------------------------------------- Telecommunications 10.7% - -------------------------------------------------------------------------------- Technology 10.0% - -------------------------------------------------------------------------------- Insurance 7.9% - -------------------------------------------------------------------------------- Total 66.1% ================================================================================ Top Ten Holdings* 3/31/03 ================================================================================ Total Fina Elf SA 8.0% - -------------------------------------------------------------------------------- Royal Dutch Petroleum Co. 7.8% - -------------------------------------------------------------------------------- Nokia Oyj 6.1% - -------------------------------------------------------------------------------- Telefonica SA 4.1% - -------------------------------------------------------------------------------- Eni SpA 3.2% - -------------------------------------------------------------------------------- Siemens AG 3.1% - -------------------------------------------------------------------------------- Unilever NV 3.1% - -------------------------------------------------------------------------------- BNP Paribas SA 3.1% - -------------------------------------------------------------------------------- Aventis SA 2.8% - -------------------------------------------------------------------------------- Banco Santander Central Hispano SA 2.8% - -------------------------------------------------------------------------------- Total 44.1% ================================================================================ * Weightings represent percentages of net assets as of the dates indicated. The Fund's portfolio is passively managed and its composition will vary over time. - -------------------------------------------------------------------------------- 10 Fresco Dow Jones STOXX 50 Fund Portfolio of Investments -- March 31, 2003 (unaudited) Shares Value ================================================================================ Common Stocks--99.96% Belgium--0.75% Financial Services--0.75% Fortis(1) 16,036 $ 206,979 - -------------------------------------------------------------------------------- Finland--3.36% Technology--3.36% Nokia Oyj(1) 67,176 927,882 - -------------------------------------------------------------------------------- France--9.63% Banks--1.72% BNP Paribas SA 11,846 474,332 - -------------------------------------------------------------------------------- Energy--4.41% Total Fina Elf SA 9,603 1,215,373 - -------------------------------------------------------------------------------- Insurance--0.86% AXA 20,204 238,512 - -------------------------------------------------------------------------------- Non-Cyclical Goods & Services--0.99% L'Oreal SA 4,516 273,459 - -------------------------------------------------------------------------------- Retail--1.09% Carrefour SA 7,918 299,857 - -------------------------------------------------------------------------------- Utilities--0.56% Suez SA 13,324 154,821 - -------------------------------------------------------------------------------- 2,656,354 - -------------------------------------------------------------------------------- Germany--9.06% Automobiles--1.21% DaimlerChrysler AG(1) 11,428 334,032 - -------------------------------------------------------------------------------- Banks--1.27% Deutsche Bank AG 8,364 351,333 - -------------------------------------------------------------------------------- Chemicals--1.47% BASF AG 7,368 274,206 - -------------------------------------------------------------------------------- Bayer AG(1) 9,576 130,494 - -------------------------------------------------------------------------------- 404,700 - -------------------------------------------------------------------------------- Insurance--0.81% Allianz AG(1) 2,720 134,732 - -------------------------------------------------------------------------------- Muenchener Reuckversicherungs- Gesellschaft AG 1,571 89,987 - -------------------------------------------------------------------------------- 224,719 - -------------------------------------------------------------------------------- Technology--1.72% Siemens AG(1) 11,506 474,527 - -------------------------------------------------------------------------------- Telecommunications--1.34% Deutsche Telekom AG 33,488 369,390 - -------------------------------------------------------------------------------- Utilities--1.24% E.ON AG(1) 8,274 341,053 - -------------------------------------------------------------------------------- 2,499,754 - -------------------------------------------------------------------------------- Italy--3.74% Energy--1.75% Eni SpA(1) 36,164 482,950 - -------------------------------------------------------------------------------- Insurance--1.16% Assicurazioni Generali SpA 15,540 320,109 - -------------------------------------------------------------------------------- Telecommunications--0.83% Telecom Italia SpA 33,032 227,770 - -------------------------------------------------------------------------------- 1,030,829 - -------------------------------------------------------------------------------- Netherlands--9.63% Banks--1.04% ABN AMRO Holding NV 19,676 287,665 - -------------------------------------------------------------------------------- Cyclical Goods & Services--1.03% Philips Electronics NV 18,014 282,824 - -------------------------------------------------------------------------------- Energy--4.32% Royal Dutch Petroleum Co. 29,238 1,190,194 - -------------------------------------------------------------------------------- Food & Beverages--1.74% Unilever NV 8,068 480,181 - -------------------------------------------------------------------------------- Insurance--1.50% Aegon NV 17,572 131,903 - -------------------------------------------------------------------------------- ING Groep NV 24,372 281,599 - -------------------------------------------------------------------------------- 413,502 - -------------------------------------------------------------------------------- 2,654,366 - -------------------------------------------------------------------------------- Spain--5.18% Banks--2.89% Banco Bilbao Vizcaya Argentaria SA 45,204 376,310 - -------------------------------------------------------------------------------- Banco Santander Central Hispano SA 65,992 421,204 - -------------------------------------------------------------------------------- 797,514 - -------------------------------------------------------------------------------- Telecommunications--2.29% Telefonica SA* 67,407 630,273 - -------------------------------------------------------------------------------- 1,427,787 - -------------------------------------------------------------------------------- Switzerland--15.21% Banks--3.61% Credit Suisse Group 16,394 285,018 - -------------------------------------------------------------------------------- UBS AG(2) 16,726 711,508 - -------------------------------------------------------------------------------- 996,526 - -------------------------------------------------------------------------------- Food & Beverages--3.99% Nestle SA 5,557 1,099,724 - -------------------------------------------------------------------------------- Healthcare--6.79% Novartis AG 34,518 1,278,113 - -------------------------------------------------------------------------------- Roche Holding AG 9,912 593,239 - -------------------------------------------------------------------------------- 1,871,352 - -------------------------------------------------------------------------------- Insurance--0.82% Swiss Reinsurance 4,638 227,491 - -------------------------------------------------------------------------------- 4,195,093 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 11 Fresco Dow Jones STOXX 50 Fund Portfolio of Investments -- March 31, 2003 (unaudited) Shares Value =============================================================================== United Kingdom--43.40% Banks--14.04% Barclays PLC 92,084 $ 531,418 - ------------------------------------------------------------------------------- HBOS PLC 52,340 537,492 - ------------------------------------------------------------------------------- HSBC Holdings PLC 149,960 1,538,791 - ------------------------------------------------------------------------------- Lloyds TSB Group PLC 77,844 396,315 - ------------------------------------------------------------------------------- Royal Bank of Scotland Group PLC 38,514 867,746 - ------------------------------------------------------------------------------- 3,871,762 - ------------------------------------------------------------------------------- Energy--10.16% BP PLC 312,856 1,984,810 - ------------------------------------------------------------------------------- Shell Transport & Trading Co. PLC 134,944 816,102 - ------------------------------------------------------------------------------- 2,800,912 - ------------------------------------------------------------------------------- Food & Beverages--1.62% Diageo PLC 43,582 447,210 - ------------------------------------------------------------------------------- Healthcare--8.20% AstraZeneca PLC 22,878 780,239 - ------------------------------------------------------------------------------- GlaxoSmithKline PLC 84,148 1,480,806 - ------------------------------------------------------------------------------- 2,261,045 - ------------------------------------------------------------------------------- Insurance--1.13% Aviva PLC 31,448 175,023 - ------------------------------------------------------------------------------- Prudential PLC 27,844 135,815 - ------------------------------------------------------------------------------- 310,838 - ------------------------------------------------------------------------------- Non-Cyclical Goods & Services--1.00% Tesco PLC 97,652 275,214 - ------------------------------------------------------------------------------- Telecommunications--7.25% BT Group PLC 120,908 300,133 - ------------------------------------------------------------------------------- Vodafone Group PLC 951,688 1,700,327 - ------------------------------------------------------------------------------- 2,000,460 - ------------------------------------------------------------------------------- 11,967,441 - ------------------------------------------------------------------------------- Total Common Stocks (cost--$30,482,331) 27,566,485 - ------------------------------------------------------------------------------- Investments of Cash Collateral for Securities Loaned--10.42% UBS Private Money Market Fund, LLC(2) (cost--$2,872,290) 2,872,290 $ 2,872,290 - ------------------------------------------------------------------------------- Total Investments (cost-- $33,354,621)--110.38% 30,438,775 - ------------------------------------------------------------------------------- Liabilities in excess of other assets--(10.38)% (2,862,361) - ------------------------------------------------------------------------------- Net Assets--100.00% $ 27,576,414 - ------------------------------------------------------------------------------- * Non-income producing security. (1) Security, or portion thereof, was on loan at March 31, 2003. (2) Security is an affiliate of UBS Global Asset Management (US) Inc., the Fund's Advisor. Analysis of Industry Classifications % of Industry Total Investments Value ================================================================================ Automobiles 1.10% $ 334,032 Banks 22.27 6,779,132 Chemicals 1.33 404,700 Cyclical Goods & Services 0.93 282,824 Energy 18.69 5,689,429 Financial Services 0.68 206,979 Food & Beverages 6.66 2,027,115 Healthcare 13.58 4,132,397 Insurance 5.70 1,735,171 Non-Cyclical Goods & Services 1.80 548,673 Retail 0.98 299,857 Technology 4.61 1,402,409 Telecommunications 10.60 3,227,893 Utilities 1.63 495,874 - -------------------------------------------------------------------------------- Total 90.56% $27,566,485 - -------------------------------------------------------------------------------- See accompanying notes to financial statements - -------------------------------------------------------------------------------- 12 Fresco Dow Jones EURO STOXX 50 Fund Portfolio of Investments -- March 31, 2003 (unaudited) Shares Value ================================================================================ Common Stocks--99.15% Belgium--1.38% Financial Services--1.38% Fortis(1) 158,129 $ 2,040,991 - -------------------------------------------------------------------------------- Finland--6.11% Technology--6.11% Nokia Oyj(1) 654,503 9,040,452 - -------------------------------------------------------------------------------- France--32.45% Banks--5.14% BNP Paribas SA 114,342 4,578,430 - -------------------------------------------------------------------------------- Societe Generale 58,754 3,033,381 - -------------------------------------------------------------------------------- 7,611,811 - -------------------------------------------------------------------------------- Chemicals--1.22% L'Air Liquide SA 13,632 1,807,093 - -------------------------------------------------------------------------------- Construction--1.58% Compagnie de Saint- Gobain 47,441 1,311,094 - -------------------------------------------------------------------------------- Lafarge SA 18,201 1,018,726 - -------------------------------------------------------------------------------- 2,329,820 - -------------------------------------------------------------------------------- Cyclical Goods & Services--0.82% LVMH Moet Hennessy Louis Vuitton SA 30,836 1,216,554 - -------------------------------------------------------------------------------- Energy--8.02% Total Fina Elf SA 93,788 11,869,982 - -------------------------------------------------------------------------------- Food & Beverages--1.53% Groupe Danone 17,877 2,256,695 - -------------------------------------------------------------------------------- Healthcare--4.71% Aventis SA 94,342 4,140,949 - -------------------------------------------------------------------------------- Sanofi-Synthelabo SA 56,173 2,825,970 - -------------------------------------------------------------------------------- 6,966,919 - -------------------------------------------------------------------------------- Insurance--1.58% AXA 198,497 2,343,290 - -------------------------------------------------------------------------------- Media--1.31% Vivendi Universal SA 146,209 1,942,970 - -------------------------------------------------------------------------------- Non-Cyclical Goods & Services--1.76% L'Oreal SA 43,084 2,608,878 - -------------------------------------------------------------------------------- Retail--2.00% Carrefour SA 78,190 2,961,083 - -------------------------------------------------------------------------------- Technology--0.73% Alcatel SA(1) 158,661 1,085,382 - -------------------------------------------------------------------------------- Telecommunications--1.06% France Telecom SA(1) 76,662 1,563,271 - -------------------------------------------------------------------------------- Utilities--0.99% Suez SA 126,449 1,469,298 - -------------------------------------------------------------------------------- 48,033,046 - -------------------------------------------------------------------------------- Germany--18.17% Automobiles--2.84% DaimlerChrysler AG(1) 111,176 3,249,590 - -------------------------------------------------------------------------------- Volkswagen AG(1) 30,150 960,539 - -------------------------------------------------------------------------------- 4,210,129 - -------------------------------------------------------------------------------- Banks--2.52% Bayerische Hypo-und Vereinsbank AG 46,444 348,629 - -------------------------------------------------------------------------------- Deutsche Bank AG(1) 80,398 3,377,153 - -------------------------------------------------------------------------------- 3,725,782 - -------------------------------------------------------------------------------- Chemicals--2.66% BASF AG 70,970 2,641,200 - -------------------------------------------------------------------------------- Bayer AG(1) 94,503 1,287,813 - -------------------------------------------------------------------------------- 3,929,013 - -------------------------------------------------------------------------------- Insurance--1.49% Allianz AG(1) 26,748 1,324,927 - -------------------------------------------------------------------------------- Muenchener Rueckversicherungs- Gesellschaft AG 15,342 878,792 - -------------------------------------------------------------------------------- 2,203,719 - -------------------------------------------------------------------------------- Technology--3.14% Siemens AG(1) 112,812 4,652,559 - -------------------------------------------------------------------------------- Telecommunications--2.44% Deutsche Telekom AG 327,376 3,611,127 - -------------------------------------------------------------------------------- Utilities--3.08% E.ON AG(1) 81,673 3,366,551 - -------------------------------------------------------------------------------- RWE AG(1) 53,332 1,192,852 - -------------------------------------------------------------------------------- 4,559,403 - -------------------------------------------------------------------------------- 26,891,732 - -------------------------------------------------------------------------------- Italy--11.50% Banks--2.29% Sanpaolo IMI SpA(1) 171,541 1,166,006 - -------------------------------------------------------------------------------- UniCredito Italiano SpA(1) 582,845 2,219,337 - -------------------------------------------------------------------------------- 3,385,343 - -------------------------------------------------------------------------------- Energy--3.20% Eni SpA(1) 354,382 4,732,579 - -------------------------------------------------------------------------------- Insurance--2.08% Assicurazioni Generali SpA(1) 149,406 3,077,619 - -------------------------------------------------------------------------------- Telecommunications--2.92% Telecom Italia Mobile SpA (TIM) 508,434 2,074,679 - -------------------------------------------------------------------------------- Telecom Italia SpA(1) 325,833 2,246,761 - -------------------------------------------------------------------------------- 4,321,440 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 13 Fresco Dow Jones EURO STOXX 50 Fund Portfolio of Investments -- March 31, 2003 (unaudited) Shares Value =============================================================================== Italy--(continued) Utilities--1.01% Enel SpA(1) 260,701 $ 1,487,610 - ------------------------------------------------------------------------------- 17,004,591 - ------------------------------------------------------------------------------- Netherlands--17.71% Banks--1.90% ABN AMRO Holding NV 192,735 2,817,800 - ------------------------------------------------------------------------------- Cyclical Goods & Services--1.85% Philips Electronics NV 174,386 2,737,898 - ------------------------------------------------------------------------------- Energy--7.80% Royal Dutch Petroleum Co. 283,816 11,553,323 - ------------------------------------------------------------------------------- Food & Beverages--3.12% Unilever NV 77,543 4,615,111 - ------------------------------------------------------------------------------- Insurance--2.75% Aegon NV 173,424 1,301,794 - ------------------------------------------------------------------------------- ING Groep NV 239,717 2,769,744 - ------------------------------------------------------------------------------- 4,071,538 - ------------------------------------------------------------------------------- Non-Cyclical Goods & Services--0.29% Koninklijke Ahold NV 127,672 424,854 - ------------------------------------------------------------------------------- 26,220,524 - ------------------------------------------------------------------------------- Spain--11.83% Banks--5.25% Banco Bilbao Vizcaya Argentaria SA 437,009 3,637,975 - ------------------------------------------------------------------------------- Banco Santander Central Hispano SA 647,678 4,133,898 - ------------------------------------------------------------------------------- 7,771,873 - ------------------------------------------------------------------------------- Energy--1.34% Repsol YPF SA 137,667 1,985,665 - ------------------------------------------------------------------------------- Telecommunications--4.10% Telefonica SA* 649,535 6,073,348 - ------------------------------------------------------------------------------- Utilities--1.14% Endesa SA 138,199 1,681,220 - ------------------------------------------------------------------------------- 17,512,106 - ------------------------------------------------------------------------------- Total Common Stocks (cost-- $162,130,754) 146,743,442 - ------------------------------------------------------------------------------- Warrants Value =============================================================================== Warrants--0.15% France--0.15% Telecommunications--0.15% France Telecom, expiring 04/04/03(1)* (cost--$0) 57,662 $ 226,484 - ------------------------------------------------------------------------------- Shares =============================================================================== Investments of Cash Collateral for Securities Loaned--26.47% UBS Private Money Market Fund, LLC(2) (cost--$39,182,450) 39,182,450 39,182,450 - ------------------------------------------------------------------------------- Total Investments (cost-- $201,313,204)--125.77% 186,152,376 - ------------------------------------------------------------------------------- Liabilities in excess of other assets--(25.77)% (38,137,456) - ------------------------------------------------------------------------------- Net Assets--100.00% $ 148,014,920 - ------------------------------------------------------------------------------- * Non-income producing security. (1) Security, or a portion thereof, was on loan at March 31, 2003. (2) Security is an affiliate of UBS Global Asset Management (US) Inc., the Fund's Advisor. Analysis of Industry Classifications % of Industry Total Investments Value ================================================================================ Automobiles 2.26% $ 4,210,129 Banks 13.60 25,312,609 Chemicals 3.08 5,736,106 Construction 1.25 2,329,820 Cyclical Goods & Services 2.13 3,954,452 Energy 16.19 30,141,549 Financial Services 1.10 2,040,991 Food & Beverages 3.69 6,871,806 Healthcare 3.74 6,966,919 Insurance 6.28 11,696,166 Media 1.04 1,942,970 Non-Cyclical Goods & Services 1.63 3,033,732 Retail 1.59 2,961,083 Technology 7.94 14,778,393 Telecommunications 8.49 15,795,670 Utilities 4.94 9,197,531 - -------------------------------------------------------------------------------- Total 78.95% $146,969,926 - -------------------------------------------------------------------------------- See accompanying notes to financial statements - -------------------------------------------------------------------------------- 14 Fresco Index Shares Funds Statements of Assets and Liabilities -- March 31, 2003 (unaudited)
Fresco Dow Jones Fresco Dow Jones STOXX 50 EURO STOXX 50 Fund Fund ===================================================================================================== Assets Investments in securities at value (cost--$29,757,874 and $162,130,754, respectively)* $ 26,854,977 $ 146,969,926 - ----------------------------------------------------------------------------------------------------- Investments in affiliates at value (cost--$724,457 and $0, respectively) 711,508 -- - ----------------------------------------------------------------------------------------------------- Investments of cash collateral received for securities loaned, at value (cost--$2,872,290 and $39,182,450, respectively) 2,872,290 39,182,450 - ----------------------------------------------------------------------------------------------------- Cash 226 4,107 - ----------------------------------------------------------------------------------------------------- Foreign currency, at value (cost--$98,306 and $1,473,384, respectively) 100,372 1,487,984 - ----------------------------------------------------------------------------------------------------- Receivable for investments sold 152,479 -- - ----------------------------------------------------------------------------------------------------- Dividends receivable 203,550 229,428 - ----------------------------------------------------------------------------------------------------- Total assets 30,895,402 187,873,895 - ----------------------------------------------------------------------------------------------------- Liabilities Payable for cash collateral for securities loaned 2,872,290 39,182,450 - ----------------------------------------------------------------------------------------------------- Distributions payable 244,289 212,400 - ----------------------------------------------------------------------------------------------------- Payable for investments purchased 195,564 431,541 - ----------------------------------------------------------------------------------------------------- Accrued advisory fee 6,845 32,584 - ----------------------------------------------------------------------------------------------------- Total liabilities 3,318,988 39,858,975 - ----------------------------------------------------------------------------------------------------- Net assets $ 27,576,414 $ 148,014,920 - ----------------------------------------------------------------------------------------------------- Net Assets Represented By: Paid in capital $ 30,500,000 $ 163,140,757 - ----------------------------------------------------------------------------------------------------- Undistributed net investment income 21,709 258,527 - ----------------------------------------------------------------------------------------------------- Accumulated net realized loss on investments and foreign currency transactions (30,784) (231,681) - ----------------------------------------------------------------------------------------------------- Net unrealized depreciation on investments and foreign currency (2,914,511) (15,152,683) - ----------------------------------------------------------------------------------------------------- Net assets $ 27,576,414 $ 148,014,920 - ----------------------------------------------------------------------------------------------------- Net Asset Value Per Share Net asset value per share $ 22.94 $ 22.25 - ----------------------------------------------------------------------------------------------------- Shares outstanding (unlimited amount authorized, $0.01 par value) 1,201,971 6,652,046 - -----------------------------------------------------------------------------------------------------
* Includes $2,732,420 and $37,267,388, respectively, of investments in securities on loan, at value. See accompanying notes to financial statements - -------------------------------------------------------------------------------- 15 Fresco Index Shares Funds Statements of Operations
For the Period Ended March 31, 2003 (unaudited)* ====================================== Fresco Dow Jones Fresco Dow Jones STOXX 50 EURO STOXX 50 Fund Fund =================================================================================================== Investment Income: Dividends (net of foreign withholding taxes, $39,392 and $125,244, respectively) $ 310,229 $ 734,742 - --------------------------------------------------------------------------------------------------- Securities lending--Net 274 5,496 - --------------------------------------------------------------------------------------------------- Total investment income 310,503 740,238 - --------------------------------------------------------------------------------------------------- Expenses: Advisory fee 37,238 230,678 - --------------------------------------------------------------------------------------------------- Trustees fees and expenses 6,055 34,230 - --------------------------------------------------------------------------------------------------- Other expenses 1,212 4,403 - --------------------------------------------------------------------------------------------------- Total expenses 44,505 269,311 - --------------------------------------------------------------------------------------------------- Net investment income 265,998 470,927 - --------------------------------------------------------------------------------------------------- Realized and Unrealized Loss on Investments: Net realized loss on investments and foreign currency transactions (30,784) (258,423) - --------------------------------------------------------------------------------------------------- Net change in unrealized depreciation on investments and foreign currency (2,914,511) (15,152,683) - --------------------------------------------------------------------------------------------------- Net realized and unrealized loss on investments and foreign currency (2,945,295) (15,411,106) - --------------------------------------------------------------------------------------------------- Net decrease in net assets resulting from operations $ (2,679,297) $ (14,940,179) - ---------------------------------------------------------------------------------------------------
* For the period October 15, 2002 (commencement of operations) through March 31, 2003. See accompanying notes to financial statements - -------------------------------------------------------------------------------- 16 Fresco Index Shares Funds Statements of Changes in Net Assets
For the Period Ended March 31, 2003 (unaudited)* ====================================== Fresco Dow Jones Fresco Dow Jones STOXX 50 EURO STOXX 50 Fund Fund ================================================================================================== From Operations: Net investment income $ 265,998 $ 470,927 - -------------------------------------------------------------------------------------------------- Net realized loss on investments and foreign currency transactions (30,784) (258,423) - -------------------------------------------------------------------------------------------------- Net change in unrealized depreciation on investments and foreign currency (2,914,511) (15,152,683) - -------------------------------------------------------------------------------------------------- Net decrease in net assets resulting from operations (2,679,297) (14,940,179) - -------------------------------------------------------------------------------------------------- Undistributed net investment income included in price of units issued and redeemed, net 5,945 (45,000) - -------------------------------------------------------------------------------------------------- Distributions to Shareholders From: Net investment income (244,289) (212,400) - -------------------------------------------------------------------------------------------------- From Beneficial Interest Transactions: Net proceeds from the sale of shares 30,444,055 187,867,470 - -------------------------------------------------------------------------------------------------- Cost of shares redeemed -- (24,704,971) - -------------------------------------------------------------------------------------------------- Net increase in net assets from beneficial interest transactions 30,444,055 163,162,499 - -------------------------------------------------------------------------------------------------- Net increase in net assets during period 27,526,414 147,964,920 - -------------------------------------------------------------------------------------------------- Net assets at beginning of period 50,000 50,000 - -------------------------------------------------------------------------------------------------- Net assets end of period (1) $ 27,576,414 $ 148,014,920 - -------------------------------------------------------------------------------------------------- Shares of Beneficial Interest: Shares sold 1,200,000 7,700,000 - -------------------------------------------------------------------------------------------------- Shares redeemed -- (1,050,000) - -------------------------------------------------------------------------------------------------- Net increase 1,200,000 6,650,000 - -------------------------------------------------------------------------------------------------- (1) Including undistributed net investment income of: $ 21,709 $ 258,527 - --------------------------------------------------------------------------------------------------
* For the period October 15, 2002 (commencement of operations) through March 31, 2003. See accompanying notes to financial statements - -------------------------------------------------------------------------------- 17 Fresco Index Shares Funds Financial Highlights Selected data for a share of beneficial interest outstanding throughout the period is presented below:
For the Period Ended March 31, 2003 (unaudited)* ====================================== Fresco Dow Jones Fresco Dow Jones STOXX 50 EURO STOXX 50 Fund Fund ====================================================================================================== Net Asset Value, Beginning of Period $ 25.34 $ 24.35 - ------------------------------------------------------------------------------------------------------ Income (loss) from Investment Operations: Net investment income 0.22 0.07 - ------------------------------------------------------------------------------------------------------ Net realized and unrealized loss (2.42) (2.13) - ------------------------------------------------------------------------------------------------------ Total from investment operations (2.20) (2.06) - ------------------------------------------------------------------------------------------------------ Undistributed net investment income included in price of units issued and redeemed, net 0.00** (0.01) - ------------------------------------------------------------------------------------------------------ Distributions to Shareholders From: Net investment income (0.20) (0.03) - ------------------------------------------------------------------------------------------------------ Net Asset Value, End of Period $ 22.94 $ 22.25 - ------------------------------------------------------------------------------------------------------ Total Return(1) (8.72)% (8.52)% - ------------------------------------------------------------------------------------------------------ Net assets, end of period (in 000's) $ 27,576 $148,015 - ------------------------------------------------------------------------------------------------------ Ratio of expenses to average net assets 0.35%(2) 0.34%(2) - ------------------------------------------------------------------------------------------------------ Ratio of net investment income (loss) to average net assets 2.07%(2) 0.59%(2) - ------------------------------------------------------------------------------------------------------ Portfolio turnover rate(3) 2% 2% - ------------------------------------------------------------------------------------------------------
* For the period October 15, 2002 (commencement of operations) through March 31, 2003. ** Amount shown represents less than $0.01 (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. - -------------------------------------------------------------------------------- 18 Fresco Index Shares Funds Notes to Financial Statements (unaudited) 1. Organization The Fresco Index Shares Funds (the "Trust"), which is registered under the Investment Company Act of 1940, as amended, 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", collectively as the "Funds") Fresco Dow Jones STOXX 50 Fund and Fresco Dow Jones EURO STOXX 50 Fund, each of which represents a separate series of beneficial interest in the Trust. Each Fund operates as a non-diversified investment company. 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 - -------------------------------------------------------------------------------- 19 Fresco Index Shares Funds Notes to Financial Statements (unaudited) 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, 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 of 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. For the period ended March 31, 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 Loss Reclass Amount ================================================================================ Fresco Dow Jones STOXX 50 Fund $ N/A - -------------------------------------------------------------------------------- Fresco Dow Jones EURO STOXX 50 Fund (26,742) - -------------------------------------------------------------------------------- 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 - -------------------------------------------------------------------------------- 20 Fresco Index Shares Funds Notes to Financial Statements (unaudited) portion of the proceeds from sales and costs of repurchases of 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. 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. 3. Fees, Compensation and Transactions with Affiliates and Other Parties 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 shares of the Fund. 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 either of the Funds. - -------------------------------------------------------------------------------- 21 Fresco Index Shares Funds Notes to Financial Statements (unaudited) 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 13% and 26.47%, respectively, of net assets at March 31, 2003. Amounts relating to these investments at March 31, 2003 and for the period then ended are: Fresco Dow Jones STOXX 50 Index Fund:
Purchases Sales Realized Dividend Market Value Shares Cost Shares Cost Gain Income at 3/31/03 ========================================================================================================= UBS AG 17,476 $ 760,655 750 $ 37,069 $870 $ 0 $ 711,508 - --------------------------------------------------------------------------------------------------------- UBS Private Money Market Fund 4,143,205 4,143,205 1,270,915 1,270,915 0 3,966 2,872,290 - ---------------------------------------------------------------------------------------------------------
Fresco Dow Jones EURO STOXX 50 Index Fund:
Purchases Sales Realized Dividend Market Value Shares Cost Shares Cost Gain Income at 3/31/03 ============================================================================================================== UBS Private Money Market Fund 56,092,319 $56,092,319 16,909,869 $16,909,869 $0 $54,176 $39,182,450 - --------------------------------------------------------------------------------------------------------------
4. Shareholder Transactions 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 March 31, 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 $ 30,482,331 $ 372,266 $ 3,288,112 $ (2,915,846) - ------------------------------------------------------------------------------------------ Fresco Dow Jones EURO STOXX 50 Fund 162,130,754 4,631,358 19,792,186 (15,160,828) - ------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- 22 Fresco Index Shares Funds Notes to Financial Statements (unaudited) 6. Investment Transactions For the period ended March 31, 2003, the Trust had in-kind contributions and in-kind redemptions as follows: Subscriptions Redemptions ================================================================================ Fresco Dow Jones STOXX 50 Index Fund $ 30,450,000 $ 0 - -------------------------------------------------------------------------------- Fresco Dow Jones EURO STOXX 50 Fund 187,865,999 24,748,500 - -------------------------------------------------------------------------------- For the period ended March 31, 2003, the Trust had purchases and sales of investment securities as follows: Purchases Sales ================================================================================ Fresco Dow Jones STOXX 50 Index Fund $ 610,069 $ 525,995 - -------------------------------------------------------------------------------- Fresco Dow Jones EURO STOXX 50 Fund 2,594,565 3,021,535 - -------------------------------------------------------------------------------- 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 1:2.53616 - -------------------------------------------------------------------------------- Fresco Dow Jones EURO STOXX 50 Index Fund 1:2.44362 - -------------------------------------------------------------------------------- 8. Securities Lending Each Portfolio may lend securities up to 331/3% 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 Portfolios will regain record ownership of loaned securities to exercise certain beneficial rights; however, the Portfolios may bear the risk of delay in recovery of, or even loss of rights in, the securities loaned should the borrower fail financially. The Portfolios 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 transaction fees. - -------------------------------------------------------------------------------- 23 Fresco Index Shares Funds Notes to Financial Statements (unaudited) UBS PaineWebber Inc. ("UBS PaineWebber"), which is the Trusts' lending agent, received compensation from the Funds for the period ended March 31, 2003 as follows: Compensation ================================================================================ Fresco Dow Jones STOXX 50 Fund $ 478 - -------------------------------------------------------------------------------- Fresco Dow Jones EURO STOXX 50 Fund 8,647 - -------------------------------------------------------------------------------- For the period ended March 31, 2003, the Funds earned compensation from securities lending transactions net of fees, rebates and expenses as follows: Compensation ================================================================================ Fresco Dow Jones STOXX 50 Fund $ 1,398 - -------------------------------------------------------------------------------- Fresco Dow Jones EURO STOXX 50 Fund 25,226 - -------------------------------------------------------------------------------- At March 31, 2003, the Funds owed UBS PaineWebber for security lending fees as follows: Amounts Owed ================================================================================ Fresco Dow Jones STOXX 50 Fund $ 386 - -------------------------------------------------------------------------------- Fresco Dow Jones EURO STOXX 50 Fund 6,790 - -------------------------------------------------------------------------------- At March 31, 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 $ 2,872,290 $ 2,732,420 $ 2,872,290 - -------------------------------------------------------------------------------- Fresco Dow Jones EURO STOXX 50 Fund 39,182,450 37,267,388 39,182,450 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 24 Fresco Index Shares Funds Other Information Frequency Distribution of Discounts and Premiums Closing Price vs. NAV as of March 31, 2002 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 >200 50 - 99 100 - 199 >200 Basis Basis Basis Basis Basis Basis Points Points Points Points Points Points =================================================================================================== 2003 Quarter Ending: 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 >200 50 - 99 100 - 199 >200 Basis Basis Basis Basis Basis Basis Points Points Points Points Points Points =================================================================================================== 2003 Quarter Ending: 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 - -------------------------------------------------------------------------------- 25 (This page has been left blank intentionally.) (This page has been left blank intentionally.) (This page has been left blank intentionally.) (This page has been left blank intentionally.) (This page has been left blank intentionally.) (This page has been left blank intentionally.) (This page has been left blank intentionally.) Trustees Walter E. Auch Joseph A. LaCorte Frank K. Reilly Brian M. Storms Edward M. Roob Principal Officers Joseph A. LaCorte David Goldenberg Trustee and President Vice President and Secretary Paul Schubert Treasurer and Chief Financial Officer Investment Advisor UBS Global Asset Management (US) Inc. 51 West 52nd Street New York, New York 10019-6114 Sub-Advisor UBS Global Asset Management International Ltd. 21 Lombard Street London, England EC3V 9AH Administrator, Custodian and Transfer Agent State Street Bank and Trust Company 225 Franklin Street Boston, MA 02110 The financial information included herein is taken from the records of the Fund without examination by independent auditors who do not express an opinion thereon. This report is not to be used in connection with the offering of shares of a Fund unless accompanied or preceded by an effective prospectus. (C) 2003 UBS Global Asset Management (US) Inc. All rights reserved. [LOGO] UBS ------------- UBS Global Asset Management (US) Inc. Presorted 51 West 52nd Street Standard New York, NY 10019-6114 U.S. Postage PAID Smithtown, NY Permit 700 ------------- Item 2. Code of Ethics. Form N-CSR disclosure requirement not yet effective with respect to the registrant. Item 3. Audit Committee Financial Expert. Form N-CSR disclosure requirement not yet effective with respect to the registrant. Item 4. Principal Accountant Fees and Services. Form N-CSR disclosure requirement not yet effective with respect to the registrant. Items 5 and 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) There were no significant changes in the registrant's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Item 10. Exhibits. (a) Form N-CSR disclosure requirement not yet effective with respect to the registrant. (b) The certifications required by Rule 30a-2 of the Investment Company Act of 1940, as amended, and Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 are attached hereto. 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: June 4, 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: June 4, 2003 -------------------------------- By: /s/ Paul H. Schubert -------------------------------- Paul H. Schubert Chief Financial Officer Date: June 4, 2003 -------------------------------- EX-99.CERT 3 ex99-cert.txt 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 officers and I have disclosed, based on our most recent evaluation, 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 in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize, and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; 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; and 6. The registrant's other certifying officers and I have indicated in this report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. By: /s/ Joseph La Corte ------------------------------------ Joseph La Corte President Date: June 4, 2003 ------------------------------------ Pursuant to 18 U.S.C. ss. 1350, the undersigned officer of the Fresco Index Shares Fund (the "Registrant"), hereby certifies, to the best of his knowledge, that the Registrant's report on Form N-CSR for the period ended March 31, 2003 (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, and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. By: /s/ Joseph La Corte ------------------------------------ Joseph La Corte President Date: June 4, 2003 ------------------------------------ This certification is being furnished solely pursuant to 18 U.S.C. ss. 1350 and is not being filed as part of the Report or as a separate disclosure document. 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 officers and I have disclosed, based on our most recent evaluation, 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 in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize, and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; 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; and 6. The registrant's other certifying officers and I have indicated in this report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. By: /s/ Paul H. Schubert ------------------------------------ Paul H. Schubert Chief Financial Officer Date: June 4, 2003 ------------------------------------ Pursuant to 18 U.S.C. ss. 1350, the undersigned officer of the Fresco Index Shares Fund (the "Registrant"), hereby certifies, to the best of his knowledge, that the Registrant's report on Form N-CSR for the period ended March 31, 2003 (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, and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. By: /s/ Paul H. Schubert ------------------------------------ Paul H. Schubert Chief Financial Officer Date: June 4, 2003 ------------------------------------ This certification is being furnished solely pursuant to 18 U.S.C. ss. 1350 and is not being filed as part of the Report or as a separate disclosure document. -----END PRIVACY-ENHANCED MESSAGE-----