N-CSR 1 a2116217zn-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: 811-6637 -------------------------------------------- THE UBS 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) Amy R. Doberman UBS Global Asset Management (US) Inc. 51 West 52nd Street New York, NY 10019-6114 (Name and address of agent for service) Copy to: Bruce Leto, Esq. Stradley Ronon Stevens & Young, LLP 2600 One Commerce Square Philadelphia, PA 215-564 Registrant's telephone number, including area code: 212-882 5000 Date of fiscal year end: June 30, 2003 Date of reporting period: June 30, 2003 ITEM 1. REPORTS TO STOCKHOLDERS. [UBS GLOBAL ASSET MANAGEMENT LOGO] UBS GLOBAL ALLOCATION FUND UBS GLOBAL EQUITY FUND UBS GLOBAL BOND FUND UBS U.S. BALANCED FUND UBS U.S. EQUITY FUND UBS U.S. LARGE CAP GROWTH FUND UBS U.S. SMALL CAP GROWTH FUND UBS U.S. BOND FUND UBS HIGH YIELD FUND UBS INTERNATIONAL EQUITY FUND UBS U.S. VALUE EQUITY FUND ANNUAL REPORT JUNE 30, 2003 TABLE OF CONTENTS Portfolio Managers' Commentary and Schedule of Investments UBS Global Allocation Fund 3 UBS Global Equity Fund 16 UBS Global Bond Fund 24 UBS U.S. Balanced Fund 35 UBS U.S. Equity Fund 46 UBS U.S. Large Cap Growth Fund 53 UBS U.S. Small Cap Growth Fund 59 UBS U.S. Bond Fund 65 UBS High Yield Fund 74 UBS International Equity Fund 82 UBS U.S. Value Equity Fund 89 Statements of Assets and Liabilities 96 Statements of Operations 100 Statements of Changes in Net Assets 102 Financial Highlights 106 Notes to Financial Statements 128 Report of Independent Auditors 139 Trustee Information 140 Federal Tax Information 144
1 THE FUNDS' ADVISOR -- UBS GLOBAL ASSET MANAGEMENT (AMERICAS) INC. Portfolio Managers' Commentary and Schedule of Investments 2 UBS GLOBAL ALLOCATION FUND For the fiscal year ended June 30, 2003, Class Y shares of UBS Global Allocation Fund returned 5.50%, versus 4.83% for the Fund's benchmark, the GSMI Mutual Fund Index.* For comparison purposes, the MSCI World Equity (Free) Index declined 2.05%, while the Citigroup (formerly Salomon Smith Barney) World Government Bond Index returned 16.51% over the same period. (Returns for all share classes over various time periods are shown on page 5. Please note that these returns do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.) 12-MONTH MARKET REVIEW The global economy was weak for much of the reporting period. During this time, the financial markets were often volatile, reflecting the many uncertainties facing investors both in the United States and abroad. As the period began, there were common issues troubling the global equity markets. Weak economies, corporate malfeasance, a lack of capital spending and geopolitical unrest caused investors to shun stocks in favor of the relative security offered by the fixed income market. As a result, stock prices fell, while bonds posted strong results for the third quarter of 2002. The markets reversed course in the fourth quarter, when signs of economic improvement, combined with better-than-expected earnings reports, led investors back to stocks. Over this time, the global equity markets gained roughly 8%, while the bond markets faltered. This type of volatility was also characteristic of the second half of the fiscal year. During the first quarter of 2003, most global equity markets fell as the imminence of a war with Iraq grew. Not surprisingly, the global bond markets generated strong results during this time, just as they had in the third quarter of 2002. However, the quick resolution of major conflict in Iraq fueled investor optimism in the second quarter of 2003. Investors grew increasingly positive about the potential for an economic revival and a subsequent upturn in corporate profits. At the same time, their appetite for risk increased as the yields available from many fixed income securities shrank, and stock prices surged. Nonetheless, global bond markets continued to perform well due to the uncertainty surrounding a global economic rebound and generalized concerns about the prospects for global deflation. STRATEGIC ALLOCATION DECISIONS PRODUCED POSITIVE RESULTS During the review period, we continued to adhere to our disciplined investment approach. Leveraging the expertise of an integrated global investment platform of investment specialists, our process entails identifying the under- or overvaluation of all liquid investable asset classes, and allocating assets based upon the best relative opportunities. To narrow the expansive universe of securities, we then carefully rank individual issues based on the difference between their prices and their intrinsic values--as determined by our security analysts--and maintain the flexibility to over- or underweight a particular security based on its evolving risk and reward characteristics. Our disciplined process led us to implement specific asset allocation decisions over the fiscal year. In particular, we adjusted the Fund's stock and bond allocation amid the extreme volatility that characterized the global financial markets. The Fund began the period neutral in US equities and overweight in international (non-US) equities. As the period progressed, our focus on intrinsic value led us to lower the Fund's overall bond allocation and increase our exposure to US stocks to maximize what we believed were attractive opportunities. This proved beneficial, as the Fund was able to avoid some of the equity market's weakness during the third quarter of 2002, and to capitalize on the subsequent equity market rally during October and November of 2002. We then moved back to a neutral US equity position at the end of November, as our research indicated that market had appreciated close to our estimate of intrinsic value. This again was helpful as the equity markets stumbled in December 2002 through the first quarter of 2003. 3 With equity prices falling, and given the fact that international equities hadn't appreciated to the same degree that US equities had during the fourth quarter of 2002, we extended our overweight to international equities near the end of the first quarter of 2003. We also felt that the long-term opportunities in global equities were significant when compared to global fixed income issues. Our analysis of market behavior indicated that investors were being drawn to the relative safety of fixed income securities, and were bidding up prices beyond what fundamentals were suggesting. A decrease in our weighting to developed-country fixed income securities, therefore, funded the increase in our overweight to global equities. This again proved beneficial, as stocks rallied sharply during the last three months of the fiscal year. Taking a closer look at the bond market, while we moved to underweight the asset class as a whole, we maintained the Fund's overweight in US high yield bonds during the first few months of 2003, since we believed they offered compelling opportunities relative to investment grade debt. This strategy enhanced results, as the prices of high yield bonds surged through April. Early in the second quarter of 2003, though, we reduced this overweight. Spreads to Treasurys had narrowed substantially, due in part to record inflows of money to high yield bond mutual funds. As market prices increased, we concluded that this asset class was less attractive, so we chose to capture profits. On a currency level, the Fund also benefited from our strategic allocations. In particular, our intrinsic value analysis led us to underweight the US dollar in favor of the euro, Australian dollar and Canadian dollar. These currency positions significantly enhanced results, as the US dollar weakened versus the currencies in which we had overweight positions. In response to this price appreciation, we subsequently reduced our Australian dollar and euro positions, and we eliminated the Canadian dollar overweight during the first quarter of 2003. At period end, most major currencies were within close proximity to their fair value. LOOKING AHEAD At the end of the period, the Fund was modestly overweight in equities and underweight in developed-country investment grade fixed income. With yield curves around the world at their lowest levels in decades, and yields likely to increase across maturities, we believe the risk/reward ratio strongly favors other asset classes. Within the equity markets, we have pared our exposure to non-UK European securities. Reduced earnings assumptions in these countries have lessened their attractiveness on an absolute basis and relative to other equity markets. We believe the Fund's portfolio is currently well positioned, and we intend to continue to utilize a disciplined approach that focuses on intrinsic value while seeking to outperform the benchmark on a risk-adjusted basis over the long-term. * THE GSMI MUTUAL FUND INDEX IS AN UNMANAGED, PROPRIETARY INDEX COMPILED BY THE ADVISOR THAT IS DESIGNED TO REPLICATE THE PERFORMANCE OF THE ASSET CLASSES IN WHICH THE FUND INVESTS. IT REPRESENTS 65% EQUITY AND 35% FIXED INCOME ACROSS SEVEN ASSET CLASSES. IT IS CURRENTLY CONSTRUCTED AS FOLLOWS: 40% WILSHIRE 5000 EQUITY INDEX, 22% MSCI WORLD EX USA (FREE) INDEX, 21% CITIGROUP BROAD INVESTMENT GRADE (BIG) BOND INDEX, 9% CITIGROUP WGBI NON-US INDEX, 3% MERRILL LYNCH CASH PAY INDEX, 3% MSCI EMERGING MARKETS FREE INDEX, AND 2% JP MORGAN EMBI GLOBAL. 4 TOTAL RETURN
6 MONTHS 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION* ENDED ENDED ENDED ENDED ENDED TO 6/30/03 6/30/03 6/30/03 6/30/03 6/30/03 6/30/03 ------------------------------------------------------------------------------------------------------------- UBS Global Allocation Fund Class A 11.01% 5.35% 5.05% 3.74% N/A 4.42% ------------------------------------------------------------------------------------------------------------- UBS Global Allocation Fund Class B 10.59 4.60 N/A N/A N/A 4.94 ------------------------------------------------------------------------------------------------------------- UBS Global Allocation Fund Class C 10.58 4.55 N/A N/A N/A 5.51 ------------------------------------------------------------------------------------------------------------- UBS Global Allocation Fund Class Y 11.12 5.50 5.21 3.95 7.50% 7.92 ------------------------------------------------------------------------------------------------------------- UBS Global Allocation Fund Class A** 4.91 -0.47 3.09 2.57 N/A 3.45 ------------------------------------------------------------------------------------------------------------- UBS Global Allocation Fund Class B** 5.59 -0.40 N/A N/A N/A 2.56 ------------------------------------------------------------------------------------------------------------- UBS Global Allocation Fund Class C** 8.44 2.48 N/A N/A N/A 4.86 ------------------------------------------------------------------------------------------------------------- GSMI Mutual Fund Index*** 10.42 4.83 -4.05 1.67 7.52 8.04 ------------------------------------------------------------------------------------------------------------- MSCI World Equity (Free) Index 11.33 -2.05 -12.73 -2.85 6.17 6.98 ------------------------------------------------------------------------------------------------------------- Citigroup World Government Bond Index 7.11 16.51 8.77 6.69 6.51 6.52 -------------------------------------------------------------------------------------------------------------
* INCEPTION DATE OF UBS GLOBAL ALLOCATION FUND CLASS A IS 6/30/97. INCEPTION DATES OF CLASS B AND CLASS C ARE 12/13/01 AND 11/22/01, RESPECTIVELY. INCEPTION DATE OF CLASS Y AND, FOR ILLUSTRATION PURPOSES, THE INDICES, IS 8/31/92. ** RETURNS INCLUDE SALES CHARGES. *** AN UNMANAGED INDEX COMPILED BY THE ADVISOR, CONSTRUCTED AS FOLLOWS: 40% WILSHIRE 5000 INDEX; 22% MSCI WORLD EX USA (FREE) INDEX; 21% CITIGROUP BIG INDEX; 9% CITIGROUP WGBI NON-US (IN USD); 2% J.P. MORGAN EMBI GLOBAL; 3% MSCI EMERGING MARKETS FREE INDEX; AND 3% MERRILL LYNCH CASH PAY INDEX. TOTAL RETURN INCLUDES REINVESTMENT OF ALL CAPITAL GAIN AND INCOME DISTRIBUTIONS. TOTAL RETURN DOES NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES. ALL TOTAL RETURNS IN EXCESS OF 1 YEAR ARE AVERAGE ANNUALIZED RETURNS. ALL TOTAL RETURNS LESS THAN 1 YEAR ARE CUMULATIVE RETURNS. ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000 This chart shows the growth in the value of an investment in UBS Global Allocation Fund Class Y shares, the GSMI Mutual Fund Index, the MSCI World Equity (Free) Index and the Citigroup World Government Bond Index if you had invested $10,000 on August 31, 1992, and had reinvested all your income dividends and capital gain distributions through June 30, 2003. The performance of Class A, Class B and Class C shares will vary based upon the different inception dates, class specific expenses and sales charges. No adjustment has been made for any income taxes payable by shareholders on income dividends and capital gain distributions. Past performance is no guarantee of future results. Share price and return will vary with market conditions; investors may realize a gain or loss upon redemption. [CHART] UBS GLOBAL ALLOCATION FUND CLASS Y VS. GSMI MUTUAL FUND INDEX, MSCI WORLD EQUITY (FREE) INDEX AND CITIGROUP WORLD GOVERNMENT BOND INDEX Wealth Value With Dividends
UBS GLOBAL ALLOCATION FUND MSCI WORLD GSMI CITIGROUP WORLD CLASS Y EQUITY (FREE) INDEX MUTUAL FUND INDEX GOV'T BOND INDEX $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,130 $ 9,914 $ 10,100 $ 10,053 $ 10,070 $ 9,647 $ 9,825 $ 9,975 $ 10,220 $ 9,819 $ 9,669 $ 10,174 $ 10,329 $ 9,902 $ 9,727 $ 10,308 $ 10,481 $ 9,936 $ 9,898 $ 10,424 $ 10,684 $ 10,171 $ 10,093 $ 10,555 $ 10,811 $ 10,760 $ 10,248 $ 10,873 $ 10,862 $ 11,258 $ 10,464 $ 10,939 $ 10,974 $ 11,516 $ 10,569 $ 11,169 6/30/1993 $ 11,076 $ 11,420 $ 10,546 $ 11,193 $ 11,106 $ 11,654 $ 10,576 $ 11,271 $ 11,341 $ 12,198 $ 10,894 $ 11,663 $ 11,341 $ 11,975 $ 11,024 $ 11,653 $ 11,433 $ 12,307 $ 11,005 $ 11,822 $ 11,310 $ 11,606 $ 10,927 $ 11,530 $ 11,481 $ 12,170 $ 11,019 $ 11,798 $ 11,736 $ 12,973 $ 11,107 $ 12,188 $ 11,523 $ 12,802 $ 11,035 $ 12,004 $ 11,183 $ 12,251 $ 11,020 $ 11,599 $ 11,225 $ 12,636 $ 11,032 $ 11,726 $ 11,246 $ 12,674 $ 10,935 $ 11,763 6/30/1994 $ 11,161 $ 12,637 $ 11,092 $ 11,648 $ 11,322 $ 12,878 $ 11,181 $ 11,890 $ 11,568 $ 13,268 $ 11,142 $ 12,204 $ 11,397 $ 12,917 $ 11,222 $ 12,012 $ 11,375 $ 13,289 $ 11,402 $ 12,199 $ 11,226 $ 12,716 $ 11,244 $ 11,852 $ 11,264 $ 12,837 $ 11,276 $ 11,966 $ 11,395 $ 12,649 $ 11,513 $ 12,087 $ 11,679 $ 12,836 $ 11,807 $ 12,413 $ 11,832 $ 13,456 $ 12,509 $ 12,812 $ 12,061 $ 13,926 $ 12,740 $ 13,112 $ 12,444 $ 14,052 $ 13,099 $ 13,440 6/30/1995 $ 12,564 $ 14,047 $ 13,177 $ 13,645 $ 12,841 $ 14,751 $ 13,208 $ 14,071 $ 13,007 $ 14,421 $ 12,754 $ 14,021 $ 13,228 $ 14,847 $ 13,038 $ 14,396 $ 13,328 $ 14,617 $ 13,135 $ 14,306 $ 13,715 $ 15,126 $ 13,283 $ 14,734 $ 13,982 $ 15,570 $ 13,423 $ 15,006 $ 14,243 $ 15,861 $ 13,258 $ 15,251 $ 14,183 $ 15,958 $ 13,190 $ 15,295 $ 14,290 $ 16,223 $ 13,172 $ 15,425 $ 14,479 $ 16,604 $ 13,119 $ 15,691 $ 14,527 $ 16,617 $ 13,122 $ 15,807 6/30/1996 $ 14,623 $ 16,706 $ 13,225 $ 15,840 $ 14,407 $ 16,115 $ 13,479 $ 15,423 $ 14,635 $ 16,306 $ 13,532 $ 15,672 $ 15,113 $ 16,945 $ 13,587 $ 16,188 $ 15,365 $ 17,062 $ 13,841 $ 16,350 $ 15,963 $ 18,024 $ 14,024 $ 17,038 $ 15,954 $ 17,737 $ 13,910 $ 16,886 $ 16,153 $ 17,955 $ 13,539 $ 17,133 $ 16,298 $ 18,159 $ 13,437 $ 17,214 $ 16,047 $ 17,796 $ 13,335 $ 16,835 $ 16,219 $ 18,380 $ 13,218 $ 17,176 $ 16,894 $ 19,517 $ 13,577 $ 18,044 6/30/1997 $ 17,370 $ 20,488 $ 13,739 $ 18,690 $ 17,925 $ 21,433 $ 13,632 $ 19,434 $ 17,462 $ 19,983 $ 13,624 $ 18,722 $ 18,005 $ 21,069 $ 13,914 $ 19,533 $ 17,476 $ 19,963 $ 14,203 $ 18,903 $ 17,515 $ 20,312 $ 13,986 $ 19,071 $ 17,709 $ 20,561 $ 13,944 $ 19,301 $ 17,913 $ 21,137 $ 14,079 $ 19,561 $ 18,570 $ 22,567 $ 14,193 $ 20,507 $ 18,993 $ 23,517 $ 14,053 $ 21,089 $ 19,023 $ 23,747 $ 14,278 $ 21,296 $ 18,920 $ 23,459 $ 14,310 $ 20,996 6/30/1998 $ 18,808 $ 24,007 $ 14,332 $ 21,262 $ 18,764 $ 23,971 $ 14,351 $ 21,151 $ 17,261 $ 20,776 $ 14,741 $ 19,011 $ 17,806 $ 21,146 $ 15,525 $ 19,668 $ 18,454 $ 23,060 $ 15,985 $ 20,842 $ 18,970 $ 24,434 $ 15,759 $ 21,694 $ 19,183 $ 25,622 $ 16,076 $ 22,476 $ 19,215 $ 26,185 $ 15,928 $ 22,788 $ 18,744 $ 25,489 $ 15,417 $ 22,184 $ 19,053 $ 26,546 $ 15,455 $ 22,885 $ 19,833 $ 27,597 $ 15,449 $ 23,681 $ 19,475 $ 26,580 $ 15,190 $ 23,082 6/30/1999 $ 19,703 $ 27,817 $ 14,924 $ 23,787 $ 19,654 $ 27,734 $ 15,289 $ 23,660 $ 19,343 $ 27,683 $ 15,360 $ 23,594 $ 19,064 $ 27,422 $ 15,599 $ 23,494 $ 19,031 $ 28,847 $ 15,592 $ 24,333 $ 19,113 $ 29,657 $ 15,428 $ 24,903 $ 19,469 $ 32,059 $ 15,391 $ 26,263 $ 18,894 $ 30,225 $ 15,063 $ 25,380 $ 18,615 $ 30,304 $ 14,955 $ 25,834 $ 19,260 $ 32,401 $ 15,418 $ 26,842 $ 19,260 $ 31,029 $ 14,914 $ 25,767 $ 19,312 $ 30,244 $ 15,030 $ 25,235 6/30/2000 $ 19,608 $ 31,262 $ 15,396 $ 26,156 $ 19,521 $ 30,381 $ 15,135 $ 25,689 $ 19,765 $ 31,370 $ 15,022 $ 26,579 $ 19,434 $ 29,704 $ 14,992 $ 25,731 $ 19,399 $ 29,207 $ 14,801 $ 25,255 $ 19,591 $ 27,431 $ 15,095 $ 24,064 $ 20,739 $ 27,866 $ 15,636 $ 24,659 $ 21,311 $ 28,406 $ 15,616 $ 25,292 $ 20,924 $ 26,009 $ 15,610 $ 23,874 $ 20,167 $ 24,299 $ 15,160 $ 22,729 $ 20,739 $ 26,097 $ 15,106 $ 23,827 $ 20,776 $ 25,767 $ 15,060 $ 23,806 6/30/2001 $ 20,628 $ 24,959 $ 14,922 $ 23,396 $ 20,684 $ 24,630 $ 15,299 $ 23,261 $ 20,721 $ 23,449 $ 15,874 $ 22,732 $ 19,521 $ 21,382 $ 15,990 $ 21,313 $ 20,019 $ 21,794 $ 16,117 $ 21,797 $ 20,924 $ 23,085 $ 15,890 $ 22,652 $ 21,196 $ 23,232 $ 15,481 $ 22,810 $ 21,075 $ 22,530 $ 15,195 $ 22,460 $ 21,237 $ 22,336 $ 15,273 $ 22,378 $ 21,844 $ 23,324 $ 15,231 $ 23,020 $ 22,026 $ 22,537 $ 15,777 $ 22,795 $ 22,229 $ 22,583 $ 16,223 $ 22,851 6/30/2002 $ 21,642 $ 21,215 $ 17,006 $ 22,037 $ 20,488 $ 19,429 $ 17,173 $ 20,813 $ 20,771 $ 19,466 $ 17,473 $ 21,017 $ 18,989 $ 17,326 $ 17,664 $ 19,675 $ 20,002 $ 18,607 $ 17,591 $ 20,540 $ 20,970 $ 19,613 $ 17,614 $ 21,342 $ 20,547 $ 18,666 $ 18,500 $ 20,923 $ 20,145 $ 18,102 $ 18,753 $ 20,597 $ 19,955 $ 17,791 $ 19,016 $ 20,458 $ 20,018 $ 17,738 $ 19,075 $ 20,474 $ 21,478 $ 19,316 $ 19,304 $ 21,756 $ 22,515 $ 20,425 $ 20,142 $ 22,834 6/30/2003 $ 22,833 $ 20,782 $ 23,102 $ 19,815
8/31/92 = $10,000 FUND RETURNS ARE NET OF ALL FEES AND COSTS, WHILE THE INDEX RETURNS ARE BASED SOLELY ON MARKET RETURNS WITHOUT DEDUCTION FOR FEES OR TRANSACTION COSTS FOR REBALANCING. 5 TOP TEN EQUITY HOLDINGS AS OF JUNE 30, 2003
PERCENTAGE OF NET ASSETS ------------------------------------------------------------------------ Nextel Communications, Inc., Class A 1.6% Citigroup, Inc. 1.4 Johnson & Johnson 1.2 Wells Fargo & Co. 1.2 UnitedHealth Group, Inc. 1.1 Microsoft Corp. 1.1 Burlington Northern Santa Fe Corp. 1.1 Allergan, Inc. 1.0 GreenPoint Financial Corp. 1.0 J.P. Morgan Chase & Co. 1.0 ------------------------------------------------------------------------ Total 11.7%
TOP TEN FIXED INCOME HOLDINGS AS OF JUNE 30, 2003
PERCENTAGE OF NET ASSETS ------------------------------------------------------------------------ U.S. Treasury Note 3.000%, due 02/15/08 2.6% U.S. Treasury Note 4.375%, due 08/15/12 1.8 U.S. Treasury Note 1.625%, due 04/30/05 1.0 U.S. Treasury Note 3.625%, due 08/31/03 0.7 Federal National Mortgage Association 5.500%, due 01/01/18 0.7 U.S. Treasury Bond 6.250%, due 05/15/30 0.6 U.S. Treasury Note 2.000%, due 11/30/04 0.5 Fannie Mae 7.000%, due 03/01/33 0.4 Federal National Mortgage Association 7.500%, due 02/01/33 0.3 U.S. Treasury Note 1.625%, due 03/31/05 0.3 ------------------------------------------------------------------------ Total 8.9%
6 INDUSTRY DIVERSIFICATION AS A PERCENT OF NET ASSETS AS OF JUNE 30, 2003 EQUITES U.S. EQUITES Aerospace & Military 0.71% Airlines 0.33 Autos/Durables 0.29 Banks 3.02 Biomedical 0.19 Broadcasting & Publishing 0.27 Business & Public Service 0.21 Capital Goods 1.20 Chemicals 0.70 Computer Software 1.09 Computer Systems 0.68 Construction 0.45 Consumer 0.54 Electric Components 0.58 Energy 3.29 Financial Services 5.73 Health: Drugs 3.35 Health: Non-Drugs 2.74 Housing/Paper 0.67 Industrial Components 0.61 Media and Entertainment 0.66 Metals Non-Ferrous 0.84 Recreation 0.45 Retail/Apparel 1.61 Services/Miscellaneous 1.87 Telecommunications-Services 2.32 Transportation 1.08 Utilities 1.17 ------- Total U.S. Equities 36.65 INTERNATIONAL EQUITIES Aerospace & Defense 0.15 Appliances & Household Durables 0.11 Autos/Durables 0.82 Banks 4.20 Beverages & Tobacco 0.85 Broadcasting & Publishing 1.42 Chemicals 1.24 Computer Software 0.18 Construction 0.33 Data Processing 0.19 Electric Components 1.07 Electronics 0.10 Energy 1.31 Financial Services 1.32 Food & House Products 1.38 Forest Products 0.27 Health: Drugs 2.77 Health: Non-Drugs 0.50 Housing/Paper 0.31 Insurance 0.73 Machinery & Engineering 0.30 Merchandising 0.41 Metals Non-Ferrous 0.32 Multi-Industry 0.28 Oil 0.65 Real Estate 0.32 Recreation 0.66 Retail/Apparel 0.50 Services/Miscellaneous 0.62 Telecommunications 2.69% Transportation 0.53 Utilities 0.79 Wholesale & International Trade 0.14 ------- Total International Equities 27.46 TOTAL EQUITIES 64.11 U.S. BONDS U.S. Corporate Bonds Aerospace & Military 0.02 Airlines 0.01 Autos/Durables 0.05 Banks 0.07 Beverages & Tobacco 0.05 Chemicals 0.01 Computer Systems 0.01 Construction 0.04 Consumer 0.02 Electric Components 0.02 Energy 0.08 Financial Services 0.42 Food & House Products 0.11 Health: Drugs 0.01 Household Durables 0.01 Housing/Paper 0.01 Insurance 0.01 Leisure & Tourism 0.02 Media and Entertainment 0.01 Metals Non-Ferrous 0.01 Multi-Industry 0.04 Real Estate 0.01 Retail/Apparel 0.01 Services/Miscellaneous 0.05 Telecommunications 0.05 Transportation 0.02 Utilities 0.03 ------- Total U.S. Corporate Bonds 1.20 Asset-Backed Corporates 0.34 International Dollar Bonds 0.16 Mortgage-Backed Securities 4.78 U.S. Government Obligations 7.54 ------- Total U.S. Bonds 14.02* International Bonds 2.50 INVESTMENT COMPANIES 13.54 INVESTMENT OF CASH COLLATERAL 5.93 SHORT-TERM INVESTMENTS 6.21* ------- TOTAL INVESTMENTS 106.31 LIABILITIES, LESS CASH AND OTHER ASSETS (6.31) ------- NET ASSETS 100.00% =======
---------- * THE FUND HELD A LONG POSITION IN U.S. TREASURY FUTURES, WHICH INCREASED THE U.S. BOND EXPOSURE FROM 14.16% TO 15.80%. THESE ADJUSTMENTS RESULTED IN A NET DECREASE TO THE FUND'S EXPOSURE TO SHORT-TERM INVESTMENTS FROM 6.21% TO 4.57%. 7 UBS GLOBAL ALLOCATION FUND -- SCHEDULE OF INVESTMENTS JUNE 30, 2003
SHARES VALUE ------------- ------------- EQUITIES -- 64.11% U.S. EQUITIES -- 36.65% Allergan, Inc. (c) 71,600 $ 5,520,360 American International Group, Inc. 55,821 3,080,203 American Standard Companies, Inc. (b) 50,300 3,718,679 Anthem, Inc.(b) 44,500 3,433,175 Baxter International, Inc. 52,205 1,357,330 Biomet, Inc. 31,800 911,388 Bristol-Myers Squibb Co. 138,100 3,749,415 Burlington Northern Santa Fe Corp. 211,200 6,006,528 Cephalon, Inc. (b) (c) 46,000 1,893,360 Citigroup, Inc. 185,907 7,956,820 CMS Energy Corp. (c) 93,800 759,780 Computer Sciences Corp. (b) 23,000 876,760 ConocoPhillips 55,134 3,021,343 Consolidated Edison, Inc. (c) 44,900 1,943,272 Continental Airlines, Inc., Class B (b) 39,000 583,830 Costco Wholesale Corp. (b) 79,900 2,924,340 Delta Air Lines, Inc. (c) 86,400 1,268,352 Dominion Resources, Inc. 24,300 1,561,761 Dow Chemical Co. (The) 66,300 2,052,648 Eastman Chemical Co. 34,700 1,098,949 Entergy Corp. 42,500 2,243,150 Exelon Corp. 70,600 4,222,586 ExxonMobil Corp. 71,300 2,560,383 First Data Corp. 63,260 2,621,495 FirstEnergy Corp. 98,463 3,785,902 FleetBoston Financial Corp. 83,115 2,469,347 Freddie Mac 82,900 4,208,833 Genzyme Corp. (b) 25,300 1,057,540 GreenPoint Financial Corp. 107,900 5,496,426 Hartford Financial Services Group, Inc. (The) 39,500 1,989,220 Hewlett-Packard Co. 136,509 2,907,642 Illinois Tool Works, Inc. 68,500 4,510,725 IMC Global, Inc. 111,400 747,494 Ingersoll-Rand Co., Class A 71,400 3,378,648 Interpublic Group of Cos., Inc. (c) 85,200 1,139,976 J.P. Morgan Chase & Co. 156,500 5,349,170 Johnson & Johnson 131,138 6,779,835 Johnson Controls, Inc. 19,000 1,626,400 Kerr-McGee Corp. 19,350 866,880 Kimberly-Clark Corp. 57,600 3,003,264 Linear Technology Corp. 61,300 1,974,473 Martin Marietta Materials, Inc. 74,484 2,503,407 Masco Corp. 196,400 4,684,140 McGraw-Hill Cos., Inc. (The) 24,400 1,512,800 MeadWestvaco Corp. 52,900 1,306,630 Mellon Financial Corp. 81,000 2,247,750 Microsoft Corp. 237,300 6,077,253 Morgan Stanley 84,350 3,605,962 Motorola, Inc. 201,730 1,902,314 Newell Rubbermaid, Inc. (c) 106,200 2,973,600 Nextel Communications, Inc., Class A (b) 486,000 8,786,880 Omnicom Group 72,900 5,226,930 Pentair, Inc. 55,496 2,167,674 PNC Financial Services Group 42,500 2,074,425 Progress Energy, Inc. 41,600 1,826,240 RadioShack Corp. 61,400 1,615,434 Royal Caribbean Cruises Ltd. (c) 108,700 $ 2,517,492 SBC Communications, Inc. 86,300 2,204,965 Sempra Energy 69,400 1,979,982 SICOR, Inc. (b) 168,200 3,421,188 Texas Instruments, Inc. 70,500 1,240,800 TJX Companies, Inc. 76,800 1,446,912 United Technologies Corp. (c) 55,500 3,931,065 UnitedHealth Group, Inc. 122,600 6,160,650 Viacom, Inc., Class B (b) 83,700 3,654,342 Viad Corp. 55,200 1,235,928 Wells Fargo & Co. 134,300 6,768,720 Wyeth 88,100 4,012,955 ------------- Total U.S. Equities 203,744,120 ------------- INTERNATIONAL EQUITIES -- 27.46% AUSTRALIA -- 0.81% Lion Nathan Ltd. 107,110 385,027 Mayne Group Ltd. 194,742 357,854 News Corp., Ltd., Preferred 93,765 577,900 QBE Insurance Group Ltd. 165,313 1,033,283 Rio Tinto Ltd. 23,755 465,353 Westpac Banking Corp. 153,216 1,669,758 ------------- 4,489,175 ------------- BELGIUM -- 0.23% Fortis 72,840 1,264,732 ------------- CANADA -- 0.97% Alcan, Inc. 21,120 652,991 Bank of Nova Scotia (c) 27,800 1,229,645 BCE, Inc. 49,500 1,131,532 Canadian National Railway Co. 18,800 900,463 Toronto Dominion Bank 53,700 1,476,528 ------------- 5,391,159 ------------- FINLAND -- 0.89% Nokia Oyj 181,340 2,986,203 Sampo Oyj, Class A (c) 60,300 442,481 UPM-Kymmene Oyj (c) 103,040 1,503,932 ------------- 4,932,616 ------------- FRANCE -- 3.20% Aventis S.A. 61,948 3,408,239 AXA 29,036 450,473 BNP Paribas (c) 46,094 2,342,256 Cap Gemini S.A. (b) 28,632 1,016,641 Compagnie de Saint-Gobain 17,258 679,174 France Telecom S.A. (b) 42,385 1,039,657 Sanofi-Synthelabo S.A. 36,199 2,120,037 Suez S.A. 57,379 913,257 Total S.A. 32,679 4,938,570 Unibail (c) 11,652 863,052 ------------- 17,771,356 ------------- GERMANY -- 0.34% Allianz AG 5,137 426,977 E.on AG (c) 8,572 440,703 Linde AG 27,538 1,019,540 ------------- 1,887,220 -------------
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SHARES VALUE ------------- ------------- HONG KONG -- 0.24% Cheung Kong Holdings Ltd. 118,000 $ 709,681 Sun Hung Kai Properties Ltd. 125,000 631,560 ------------- 1,341,241 ------------- IRELAND -- 0.58% Bank of Ireland 147,472 1,783,926 CRH PLC 93,758 1,469,662 ------------- 3,253,588 ------------- ITALY -- 0.59% Assicurazioni Generali Spa (c) 38,759 898,194 ENI Spa (c) 156,291 2,363,722 ------------- 3,261,916 ------------- JAPAN -- 4.37% AIFUL Corp. 23,800 1,014,832 Canon, Inc. 23,000 1,055,424 Daikin Industries Ltd. 20,000 367,271 Fuji Photo Film Co., Ltd. 62,000 1,791,713 Honda Motor Co., Ltd. 44,200 1,674,870 Kao Corp. 48,000 893,442 Keyence Corp. 1,600 293,150 Mitsubishi Corp. 114,000 790,856 Mitsubishi Tokyo Financial Group, Inc. 103 465,784 Mitsui Fudosan Co., Ltd. 32,000 204,406 Murata Manufacturing Co., Ltd. 27,700 1,088,853 Nintendo Co., Ltd. 25,600 1,861,237 Nippon Telegraph & Telephone Corp. 411 1,612,160 NTT DoCoMo, Inc. 440 952,738 Rohm Co., Ltd. 11,400 1,242,773 Sekisui House Ltd. 43,000 325,880 Sompo Japan Insurance, Inc. 221,000 1,205,538 Sony Corp. 21,300 599,575 Sumitomo Chemical Co., Ltd. (c) 229,000 718,992 Takeda Chemical Industries Ltd. 61,800 2,280,025 Takefuji Corp. 7,760 402,622 Toyota Motor Corp. 109,300 2,830,922 West Japan Railway Co. 161 610,077 ------------- 24,283,140 ------------- NETHERLANDS -- 1.96% ABN AMRO Holding NV 37,389 714,883 Akzo Nobel NV 27,216 721,335 Koninklijke Philips Electronics NV 66,872 1,271,690 Reed Elsevier NV 230,953 2,723,771 TPG NV 83,189 1,444,423 VNU NV 88,334 2,721,605 Wolters Kluwer NV 110,340 1,330,451 ------------- 10,928,158 ------------- NORWAY -- 0.11% Telenor ASA (c) 146,700 609,692 ------------- PORTUGAL -- 0.22% Electricidade de Portugal S.A. 314,842 672,484 Portugal Telecom, SGPS, S.A. 79,603 570,415 ------------- 1,242,899 ------------- SINGAPORE -- 0.23% DBS Group Holdings Ltd. 218,000 1,275,071 ------------- SPAIN -- 0.73% Banco Bilbao Vizcaya Argentaria S.A. 182,029 $ 1,912,662 Banco Santander Central Hispano S.A. 109,275 957,463 Telefonica S.A. 100,463 1,166,363 ------------- 4,036,488 ------------- SWEDEN -- 0.90% Nordea AB (c) 259,000 1,248,902 Svenska Cellulosa AB 50,800 1,735,651 Svenska Handelsbanken AB 54,320 888,940 Swedish Match AB 147,120 1,111,907 ------------- 4,985,400 ------------- SWITZERLAND -- 2.18% Adecco S.A. 35,122 1,446,833 Compagnie Financiere Richemont AG 60,906 984,712 Givaudan S.A. 1,841 774,700 Nestle S.A. (c) 22,299 4,601,211 Novartis AG 49,482 1,958,020 Roche Holding AG 22,454 1,761,277 Swiss Reinsurance Co. 10,628 588,854 ------------- 12,115,607 ------------- UNITED KINGDOM -- 8.91% Abbey National PLC 95,648 742,602 Allied Domecq PLC 95,739 527,662 Amersham PLC 82,451 618,713 ARM Holdings PLC (b) 344,631 381,021 AstraZeneca PLC 44,270 1,775,154 Barclays PLC 443,953 3,296,626 BOC Group PLC 50,998 654,295 BP PLC 687,186 4,765,432 BT Group PLC 404,172 1,358,889 Carlton Communications PLC 213,336 533,331 Centrica PLC 290,589 842,742 Compass Group PLC 161,596 871,297 Diageo PLC 123,279 1,316,175 Dixons Group PLC 242,963 529,218 Electrocomponents PLC 151,071 808,940 Gallaher Group PLC 277,794 2,727,470 GlaxoSmithKline PLC 156,306 3,154,440 HSBC Holdings PLC 104,120 1,230,176 Invensys PLC 805,004 272,315 Kingfisher PLC (b) 389,440 1,781,691 Lloyds TSB Group PLC 131,023 930,226 National Grid Transco PLC 230,722 1,564,772 Prudential PLC 114,479 693,286 Rentokil Initial PLC 642,840 2,007,516 Rio Tinto PLC 36,389 684,534 Rolls-Royce Group PLC 400,989 848,614 Royal Bank of Scotland Group PLC 124,180 3,483,540 Scottish & Southern Energy PLC 163,727 1,685,874 Shell Transport & Trading Co. PLC 546,133 3,604,779 Tesco PLC 636,814 2,303,947 Vodafone Group PLC 1,814,608 3,548,309 ------------- 49,543,586 ------------- Total International Equities 152,613,044 ------------- Total Equities (Cost $336,152,772) 356,357,164 -------------
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FACE AMOUNT VALUE --------------- --------------- BONDS -- 16.52% U.S. BONDS -- 14.02% U.S. CORPORATE BONDS -- 1.20% Abbott Laboratories, Inc. (c) 5.625%, due 07/01/06 $ 20,000 $ 22,145 Alcoa, Inc. (c) 6.000%, due 01/15/12 25,000 28,161 Altria Group, Inc. (c) 7.750%, due 01/15/27 50,000 53,591 American Express Co. 3.750%, due 11/20/07 35,000 36,472 Anadarko Finance Co., Series B 7.500%, due 05/01/31 10,000 12,562 Anheuser Busch Cos., Inc. 9.000%, due 12/01/09 70,000 93,381 AOL Time Warner, Inc. 7.625%, due 04/15/31 175,000 201,968 Apache Corp. (c) 6.250%, due 04/15/12 30,000 34,932 AT&T Corp. 8.500%, due 11/15/31 20,000 22,678 AT&T Wireless Services, Inc. (c) 7.875%, due 03/01/11 40,000 47,241 Avalonbay Communities, Inc. 7.500%, due 08/01/09 30,000 35,577 Avon Products, Inc. 7.150%, due 11/15/09 40,000 48,431 Bank of America Corp. 7.400%, due 01/15/11 105,000 129,004 Bank One Corp. 7.875%, due 08/01/10 85,000 105,986 Bear Stearns Co., Inc. 4.000%, due 01/31/08 45,000 47,072 Boeing Capital Corp. 7.375%, due 09/27/10 25,000 29,624 Bombardier Capital, Inc., 144A (c) 6.125%, due 06/29/06 35,000 35,788 Bristol-Myers Squibb Co. 5.750%, due 10/01/11 35,000 38,951 Burlington Northern Santa Fe Corp. 6.875%, due 12/01/27 5,000 5,733 7.082%, due 05/13/29 45,000 52,878 Caterpillar, Inc. 6.550%, due 05/01/11 20,000 23,643 Cendant Corp. (c) 6.250%, due 01/15/08 105,000 116,194 Centex Corp. 9.750%, due 06/15/05 155,000 176,973 Cingular Wireless LLC 6.500%, due 12/15/11 15,000 17,283 Citigroup, Inc. 7.250%, due 10/01/10 140,000 169,626 Citizens Communications Co. (c) 9.250%, due 05/15/11 45,000 58,228 Coca-Cola Co. (The) 4.000%, due 06/01/05 35,000 36,628 Comcast Cable Communications, Inc. 6.750%, due 01/30/11 130,000 149,223 Commonwealth Edison Co., (c) 6.150%, due 03/15/12 $ 15,000 $ 17,198 Computer Sciences Corp. (c) 3.500%, due 04/15/08 50,000 51,059 Conagra Foods, Inc. (c) 6.750%, due 09/15/11 25,000 29,268 ConocoPhillips 8.500%, due 05/25/05 (c) 15,000 16,897 8.750%, due 05/25/10 25,000 32,539 Consolidated Edison, Inc., Series B 7.500%, due 09/01/10 65,000 79,727 Coors Brewing Co., 6.375%, due 05/15/12 35,000 40,166 Countrywide Home Loans, Inc. 3.250%, due 05/21/08 100,000 100,483 Credit Suisse First Boston USA, Inc. 5.750%, due 04/15/07 25,000 27,774 6.500%, due 01/15/12 50,000 57,378 DaimlerChrysler N.A Holding Corp. 8.500%, due 01/18/31 25,000 29,447 Devon Financing Corp., ULC 6.875%, due 09/30/11 20,000 23,461 Dominion Resources, Inc., Class B 7.625%, due 07/15/05 55,000 61,174 DTE Energy Co. 7.050%, due 06/01/11 10,000 11,696 Duke Energy Field Services, LLC 7.875%, due 08/16/10 55,000 66,197 EOP Operating LP 7.000%, due 07/15/11 (c) 5,000 5,803 7.875%, due 07/15/31 20,000 24,182 Erac U.S.A. Finance Co., 144A 8.000%, due 01/15/11 50,000 59,570 First Data Corp. 5.625%, due 11/01/11 30,000 33,197 First Union National Bank (c) 7.800%, due 08/18/10 85,000 105,465 FirstEnergy Corp., Series B 6.450%, due 11/15/11 40,000 43,894 FleetBoston Financial Corp. (c) 7.375%, due 12/01/09 20,000 23,999 Ford Motor Co. (c) 7.450%, due 07/16/31 110,000 100,767 Ford Motor Credit Co. 5.800%, due 01/12/09 55,000 54,662 7.375%, due 02/01/11 (c) 30,000 31,016 General Dynamics Corp. 4.250%, due 05/15/13 70,000 70,334 General Electric Capital Corp. (c) 6.000%, due 06/15/12 320,000 361,206 6.750%, due 03/15/32 55,000 64,326 General Motors Acceptance Corp. (c) 6.875%, due 09/15/11 175,000 175,584 8.000%, due 11/01/31 185,000 181,516 General Motors Corp. 8.375%, due 07/15/33 100,000 98,219 Goldman Sachs Group, Inc. (c) 6.875%, due 01/15/11 85,000 100,296
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FACE AMOUNT VALUE --------------- --------------- Harrah's Operating Co., Inc. 7.500%, due 01/15/09 $ 40,000 $ 47,393 Household Finance Corp. 6.750%, due 05/15/11 75,000 87,103 International Business Machines Corp. (c) 5.875%, due 11/29/32 15,000 16,090 International Paper Co. (c) 6.750%, due 09/01/11 35,000 40,482 John Deere Capital Corp. (c) 7.000%, due 03/15/12 85,000 100,912 Kerr-McGee Corp. 7.875%, due 09/15/31 10,000 12,233 Kimberly-Clark Corp., 144A 4.500%, due 07/30/05 45,000 47,562 Kohl's Corp. 7.250%, due 06/01/29 5,000 6,249 Kraft Foods, Inc. (c) 5.625%, due 11/01/11 185,000 201,589 Kroger Co. (c) 7.500%, due 04/01/31 155,000 183,836 Lehman Brothers Holdings, Inc. 6.625%, due 01/18/12 35,000 41,033 Lincoln National Corp. 6.200%, due 12/15/11 25,000 28,064 Marsh & McClennan Cos., Inc. 6.250%, due 03/15/12 25,000 28,497 MidAmerican Energy Co. 5.125%, due 01/15/13 10,000 10,615 Mirant Americas Generation, Inc. (c) 7.625%, due 05/01/06 75,000 57,750 Morgan Stanley 6.750%, due 04/15/11 150,000 175,452 Newell Rubbermaid, Inc. 4.000%, due 05/01/10 45,000 45,853 News America Holdings, Inc. 7.125%, due 04/08/28 15,000 16,702 Occidental Petroleum Corp. 8.450%, due 02/15/29 20,000 27,983 Pemex Project Funding Master Trust (c) 8.000%, due 11/15/11 125,000 143,125 Pepsi Bottling Group, Inc., 144A 5.625%, due 02/17/09 35,000 39,254 Praxair, Inc. 6.375%, due 04/01/12 30,000 34,940 Progress Energy, Inc. (c) 7.000%, due 10/30/31 35,000 38,626 Qwest Capital Funding, Inc. 7.900%, due 08/15/10 95,000 79,325 Rohm & Haas Co. 7.850%, due 07/15/29 10,000 12,948 Safeway, Inc. 6.500%, due 03/01/11 100,000 111,625 SBC Communications, Inc. (c) 5.875%, due 02/01/12 35,000 39,292 Sempra Energy (c) 7.950%, due 03/01/10 35,000 42,199 SLM Corp. 5.625%, due 04/10/07 60,000 66,592 Southern Power Co., Series B 6.250%, due 07/15/12 $ 15,000 $ 16,978 Southwestern Electric Power, Series B 4.500%, due 07/01/05 10,000 10,384 Sprint Capital Corp. 8.375%, due 03/15/12 55,000 65,852 Target Corp. (c) 7.000%, due 07/15/31 25,000 29,920 Transocean Sedco Forex, Inc. (c) 6.625%, due 04/15/11 45,000 52,130 U.S. Bank N.A., Minnesota 6.375%, due 08/01/11 60,000 70,042 Unilever Capital Corp. (c) 7.125%, due 11/01/10 50,000 60,579 Union Pacific Corp. 6.700%, due 12/01/06 60,000 67,479 United Technologies Corp. 6.100%, due 05/15/12 45,000 51,880 UST, Inc. 6.625%, due 07/15/12 35,000 40,526 Valero Energy Corp. (c) 7.500%, due 04/15/32 35,000 39,675 Verizon New England, Inc. (c) 6.500%, due 09/15/11 15,000 17,405 Verizon New York, Inc., Series B 7.380%, due 04/01/32 5,000 6,204 Viacom, Inc. (c) 6.625%, due 05/15/11 30,000 35,389 Walt Disney Co. (The) (c) 6.375%, due 03/01/12 35,000 39,895 Washington Mutual, Inc. (c) 5.625%, due 01/15/07 100,000 110,219 Wells Fargo Bank, N.A. (c) 6.450%, due 02/01/11 115,000 135,588 Weyerhaeuser Co. (c) 7.375%, due 03/15/32 20,000 22,990 --------------- 6,664,932 --------------- ASSET-BACKED CORPORATES -- 0.34% Americredit Automobile Receivables Trust, 03-AM, Class A2B FRN 1.584%, due 10/06/06 110,000 109,995 Capital One Multi-Asset Execution Trust, 03-A1, Class A1 FRN 1.570%, due 01/15/09 280,000 280,007 Comed Transitional Funding Trust, 98-1, Class A7 5.740%, due 12/25/10 500,000 566,625 Conseco Finance, 00-B, Class AF4 7.870%, due 02/15/31 85,000 88,448 Conseco Finance, 02-B, Class A2 5.590%, due 05/15/33 75,000 75,948 Peco Energy Transition Trust, 99-A, Class A7 6.130%, due 03/01/09 230,000 263,839 Sears Credit Account Master Trust, 01-1, Class A FRN 1.360%, due 02/15/10 280,000 278,835
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FACE AMOUNT VALUE --------------- --------------- Structured Asset Securities Corp., 03-AL2, Class A, 144A 3.356%, due 01/25/31 $ 196,873 $ 195,014 United Airlines, Inc. E.E.T.C. (d)(e) 7.811%, due 10/01/09 68,731 17,769 --------------- 1,876,480 --------------- INTERNATIONAL DOLLAR BONDS -- 0.16% Burlington Resources Finance Co. 6.680%, due 02/15/11 15,000 17,603 Canadian National Railway Co. 6.900%, due 07/15/28 15,000 17,797 Deutsche Telekom International Finance BV 8.250%, due 06/15/30 15,000 19,111 European Investment Bank (c) 4.875%, due 09/06/06 165,000 178,787 France Telecom S.A. 8.500%, due 03/01/31 15,000 20,756 HSBC Holdings PLC 5.250%, due 12/12/12 15,000 15,998 Inter-American Development Bank 5.750%, due 02/26/08 175,000 200,096 International Bank for Reconstruction & Development 4.375%, due 09/28/06 225,000 243,207 Rio Tinto Finance USA Ltd. 2.625%, due 09/30/08 140,000 137,434 Telus Corp. 8.000%, due 06/01/11 20,000 23,100 --------------- 873,889 --------------- MORTGAGE-BACKED SECURITIES -- 4.78% Bear Stearns Commercial Mortgage Securities, 00-WF1, Class A2 7.780%, due 02/15/32 210,000 257,866 CS First Boston Mortgage Securities Corp., 01-26 5A1 (f) 7.390%, due 11/25/31 412,462 434,388 CS First Boston Mortgage Securities Corp., 02-10, Class 2A1 7.500%, due 05/25/32 150,183 157,754 DLJ Commercial Mortgage Corp., 00-CKP1, Class A1B 7.180%, due 08/10/10 275,000 324,709 DLJ Commercial Mortgage Corp., 99-CG2, Class A1B 7.300%, due 06/10/32 275,000 330,232 DLJ Commercial Mortgage Corp., 99-CG3, Class A1B 7.340%, due 10/10/32 200,000 241,076 Fannie Mae 4.625%, due 05/01/13 145,000 149,121 5.500%, due 03/15/11 670,000 760,138 7.000%, due 03/01/33 2,339,051 2,463,247 Federal Home Loan Mortgage Corp., Gold 5.500%, due 09/01/17 120,790 125,282 5.500%, due 01/01/18 238,658 247,533 5.500%, due 04/01/18 855,030 886,862 6.000%, due 10/01/29 72,568 75,343 6.000%, due 12/01/30 $ 1,176,661 $ 1,220,256 6.500%, due 02/01/17 403,030 423,307 6.500%, due 04/01/29 278,915 290,246 Federal National Mortgage Association 3.967%, due 05/01/33 FRN 989,235 1,021,385 4.503%, due 06/01/33 FRN 999,082 1,021,428 5.500%, due 12/01/17 135,309 140,558 5.500%, due 01/01/18 3,631,055 3,771,911 5.500%, due 11/01/23 319,791 331,096 6.000%, due 11/01/28 453,712 471,683 6.000%, due 06/01/31 46,916 48,774 6.000%, due 11/01/32 1,338,179 1,391,183 6.500%, due 12/01/28 634,302 661,458 6.500%, due 11/01/31 27,529 28,708 6.500%, due 08/01/32 504,372 525,966 6.500%, due 09/01/32 164,895 171,954 6.500%, due 06/01/33 630,000 656,972 7.000%, due 05/01/33 699,432 736,589 7.500%, due 05/01/31 71,709 76,191 7.500%, due 02/01/33 1,735,465 1,844,694 Federal National Mortgage Association Grantor Trust, 00-T6, Class A1 7.500%, due 06/25/30 155,441 173,462 Federal National Mortgage Association Grantor Trust, 01-T5, Class A3 7.500%, due 06/19/30 259,155 289,201 Federal National Mortgage Association Whole Loan, 01-W3, Class A 7.000%, due 09/25/41 198,600 216,536 Federal National Mortgage Association Whole Loan, 03-W6, Class 6A FRN 5.210%, due 08/25/42 163,585 172,429 Federal National Mortgage Association Whole Loan, 95-W3, Class A 9.000%, due 04/25/25 4,956 5,451 Freddie Mac 5.875%, due 03/21/11 165,000 185,603 6.000%, due 01/01/33 301,931 313,054 7.000%, due 06/01/28 932,658 977,834 GMAC Commercial Mortgage Securities, Inc., 97-C2, Class A2 6.550%, due 04/16/29 125,000 135,084 Government National Mortgage Association 6.000%, due 11/20/28 151,359 157,792 6.000%, due 01/15/29 124,216 130,271 6.000%, due 02/20/29 133,084 138,740 6.000%, due 05/20/29 339,167 353,582 8.000%, due 12/15/22 44,456 48,480 9.000%, due 11/15/04 2,293 2,593 Greenwich Capital Commercial Funding Corp., 03-FL1 A FRN 1.639%, due 07/05/18 239,951 239,951 GS Mortgage Securities Corp. II, 96-PL, Class A2 7.410%, due 02/15/27 58,741 61,206 LB Commercial Conduit Mortgage Trust, 99-C1, Class A1 6.410%, due 06/15/31 203,276 220,109
12
FACE AMOUNT VALUE --------------- --------------- LB Commercial Conduit Mortgage Trust, 99-C2, Class A2 7.325%, due 10/15/32 $ 70,000 $ 84,285 Merrill Lynch Mortgage Investors, Inc., 97-C1, Class A3 7.120%, due 06/18/29 500,000 562,071 Morgan Stanley Dean Witter Capital I, 00-LIFE, Class A2 7.570%, due 12/15/09 150,000 183,069 Nomura Asset Securities Corp., 95-MD3, Class A1B 8.150%, due 04/04/27 90,418 98,588 Norwest Asset Securities Corp., 96-2, Class A9 7.000%, due 09/25/11 71,261 71,155 Norwest Asset Securities Corp., 99-14, Class A5 6.500%, due 06/25/29 160,000 162,446 Salomon Brothers Mortgage Securities VII, 00-C3, Class A2 6.592%, due 12/18/33 80,000 93,370 Vanderbilt Mortgage Finance, 00-B, Class 1A3 8.255%, due 05/07/17 215,000 232,479 --------------- 26,596,751 --------------- U.S. GOVERNMENT OBLIGATIONS -- 7.54% U.S. Treasury Bond 6.250%, due 05/15/30 2,665,000 3,317,717 8.000%, due 11/15/21 5,000 7,243 U.S. Treasury Notes 1.625%, due 03/31/05 1,655,000 1,666,378 1.625%, due 04/30/05 5,345,000 5,380,074 2.000%, due 11/30/04 2,530,000 2,560,044 2.750%, due 09/30/03 620,000 622,907 3.000%, due 02/15/08 (c) 14,155,000 14,565,821 3.625%, due 08/31/03 (c) 3,820,000 3,836,861 4.375%, due 08/15/12 (c) 9,225,000 9,891,294 5.750%, due 08/15/10 25,000 29,263 --------------- 41,877,602 --------------- Total U.S. Bonds 77,889,654 --------------- INTERNATIONAL BONDS -- 2.50% AUSTRALIA -- 0.15% Government of Australia 6.500%, due 05/15/13 AUD 318,000 237,291 9.000%, due 09/15/04 850,000 600,175 --------------- 837,466 --------------- CANADA -- 0.21% Government of Canada 5.000%, due 12/01/03 CAD 350,000 259,591 5.750%, due 06/01/29 165,000 132,850 6.000%, due 09/01/05 460,000 358,981 6.000%, due 06/01/08 100,000 80,824 6.000%, due 06/01/11 150,000 122,521 8.000%, due 06/01/23 195,000 196,161 --------------- 1,150,928 --------------- CAYMAN ISLANDS -- 0.08% SMFG Finance Ltd., 144A 2.250%, due 07/11/05 JPY 57,000,000 $ 441,987 --------------- DENMARK -- 0.08% Kingdom of Denmark 5.000%, due 11/15/13 DKK 985,000 164,935 6.000%, due 11/15/09 460,000 81,385 7.000%, due 12/15/04 1,245,000 205,453 --------------- 451,773 --------------- FINLAND -- 0.05% Government of Finland 5.750%, due 02/23/11 EUR 225,000 296,089 --------------- FRANCE -- 0.38% Government of France 3.500%, due 07/12/04 EUR 395,000 460,734 5.000%, due 10/25/16 70,000 86,915 5.500%, due 04/25/07 445,000 560,537 5.500%, due 04/25/10 436,000 565,677 5.500%, due 04/25/29 180,000 230,943 8.500%, due 10/25/19 120,000 204,843 --------------- 2,109,649 --------------- GERMANY -- 0.48% Bundesschatzanweisungen 2.500%, due 03/18/05 EUR 300,000 346,683 Deutsche Bundesrepublik 5.000%, due 07/04/12 385,000 483,987 6.000%, due 01/05/06 525,000 655,033 6.000%, due 01/04/07 260,000 331,123 6.500%, due 07/04/27 255,000 370,189 Treuhandanstalt 6.750%, due 05/13/04 380,000 454,017 --------------- 2,641,032 --------------- ITALY -- 0.54% Buoni Poliennali Del Tesoro 3.250%, due 04/15/04 EUR 590,000 684,101 5.000%, due 05/01/08 235,000 294,102 5.250%, due 11/01/29 410,000 502,989 5.500%, due 11/01/10 408,000 528,366 8.750%, due 07/01/06 710,000 960,938 --------------- 2,970,496 --------------- MEXICO -- 0.02% Mexico Government International Bond 8.125%, due 12/30/19 USD 105,000 119,700 --------------- NETHERLANDS -- 0.08% Government of Netherlands 5.000%, due 07/15/11 EUR 370,000 465,850 --------------- QATAR -- 0.01% State of Qatar, 144A 9.750%, due 06/15/30 USD 55,000 76,450 --------------- SPAIN -- 0.26% Government of Spain 3.250%, due 01/31/05 EUR 400,000 467,824 4.250%, due 10/31/07 330,000 400,719 4.750%, due 07/30/14 245,000 300,561
13
FACE AMOUNT VALUE --------------- --------------- 5.150%, due 07/30/09 EUR 115,000 $ 145,475 6.000%, due 01/31/29 95,000 129,954 --------------- 1,444,533 --------------- SWEDEN -- 0.10% Government of Sweden 5.000%, due 01/15/04 SEK 1,100,000 138,949 6.750%, due 05/05/14 900,000 134,647 8.000%, due 08/15/07 1,850,000 270,834 --------------- 544,430 --------------- UNITED KINGDOM -- 0.06% Royal Bank of Scotland 9.118%, due 03/31/10 GBP 15,000 19,342 U.K. Gilt 8.000%, due 12/07/15 35,000 78,112 U.K. Treasury 8.000%, due 09/27/13 120,000 260,392 --------------- 357,846 --------------- Total International Bonds 13,908,229 --------------- Total Bonds (Cost $90,524,067) 91,797,883 --------------- SHARES --------------- INVESTMENT COMPANIES -- 13.54% UBS High Yield Relationship Fund 1,174,148 17,910,108 UBS Emerging Markets Debt Relationship Fund 203,662 8,279,844 UBS Emerging Markets Equity Relationship Fund 3,601,616 33,640,895 UBS U.S. Small Cap Equity Relationship Fund 563,062 15,398,165 --------------- Total Investment Companies (Cost $65,815,001) 75,229,012 --------------- SHORT-TERM INVESTMENTS -- 6.21% OTHER -- 6.03% UBS Supplementary Trust U.S. Cash Management Prime Fund 33,536,135 33,536,135 --------------- FACE AMOUNT --------------- U.S. GOVERNMENT OBLIGATIONS -- 0.18% U.S. Treasury Bill, due 08/07/03 (g) $ 1,000,000 998,939 --------------- Total Short-Term Investments (Cost $34,535,074) 34,535,074 --------------- SHARES --------------- INVESTMENTS OF CASH COLLATERAL FOR SECURITIES LOANED -- 5.93% UBS Supplementary Trust U.S. Cash Management Prime Fund (Cost $32,953,029) 32,953,029 32,953,029 --------------- Total Investments (Cost $559,979,943) -- 106.31% (a) 590,872,162 Liabilities, less cash and other assets -- (6.31)% (35,047,742) --------------- Net Assets -- 100% $ 555,824,420 ===============
14 NOTES TO SCHEDULE OF INVESTMENTS (a) Aggregate cost for federal income tax purposes was $565,922,814; and net unrealized appreciation consisted of: Gross unrealized appreciation $ 32,013,036 Gross unrealized depreciation (7,063,688) ------------ Net unrealized appreciation $ 24,949,348 ============
(b) Non-income producing security. (c) Security, or portion thereof, was on loan at June 30, 2003. (d) Security is in default. (e) Security is illiquid. These securities amounted to $17,769 or 0.00% of net assets. (f) Variable rate note - The rate discolsed is that in effect at June 30, 2003. (g) All or portion of these securities was pledged to cover margin requirements for futures contracts. % Represents a percentage of net assets. E.E.T.C.: Enhanced Equipment Trust Certificate. FRN: Floating rate note - The rate disclosed is that in effect at June 30, 2003. 144A: Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified buyers. At June 30, 2003, the value of these securities amounted to $895,625 or 0.16% of net assets. FORWARD FOREIGN CURRENCY CONTRACTS UBS Global Allocation Fund had the following open forward foreign currency contracts as of June 30, 2003:
SETTLEMENT LOCAL CURRENT UNREALIZED DATE CURRENCY VALUE GAIN/(LOSS) ------------ ------------- ------------- ------------- FORWARD FOREIGN CURRENCY BUY CONTRACTS: Australian Dollar (AUD) 12/03/03 13,500,000 $ 8,919,760 $ 362,245 Euro (EUR) 12/03/03 19,220,000 21,977,309 (493,191) Japanese Yen (JPY) 12/03/03 1,310,000,000 10,964,687 (131,366) FORWARD FOREIGN CURRENCY SALE CONTRACTS: British Pound (GBP) 12/03/03 18,300,000 29,888,338 (113,917) Swedish Krone (SEK) 12/03/03 18,900,000 2,343,445 57,439 Swiss Franc (CHF) 12/03/03 3,700,000 2,741,117 53,191 ------------- Total net unrealized loss on Forward Foreign Currency Contracts $ (265,599) =============
FUTURES CONTRACTS UBS Global Allocation Fund had the following open futures contracts as of June 30, 2003:
EXPIRATION CURRENT UNREALIZED DATE COST VALUE GAIN ------------ ------------- ------------- ------------- U.S. INTEREST RATE FUTURES BUY CONTRACTS: 5 Year U.S. Treasury Notes, 79 contracts September 2003 $ 9,086,170 $ 9,094,875 $ 8,705 =============
The aggregate market value of investments pledged to cover margin requirements for the open futures positions at June 30, 2003 was $998,939. See accompanying notes to financial statements 15 UBS GLOBAL EQUITY FUND For the fiscal year ended June 30, 2003, Class Y shares of UBS Global Equity Fund declined 1.93%, outperforming, on a relative basis, the 2.05% decline generated by its benchmark, the MSCI World Equity (Free) Index. (Returns for all share classes over various time periods are shown on page 18. Please note that these returns do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.) Currency allocation contributed significantly to the Fund's overall performance during the period, as the euro moved to historic highs versus the US dollar. 12-MONTH MARKET REVIEW The global economy was weak for much of the reporting period. The financial markets were often volatile, reflecting the many uncertainties facing investors both in the US and abroad. As the period began, many of the issues troubling US investors were also adversely affecting the international markets. The sputtering economy, weak capital spending, geopolitical unrest and heightened concerns over additional terrorist attacks caused investors to shun equities in favor of the relative security offered by the bond market. As a result, stock prices fell, while the fixed income markets posted strong results in the third quarter of 2002. Stocks experienced a reversal of fortune in the fourth quarter, when some signs of economic improvement and better-than-expected earnings reports led investors back to stocks. This type of volatility further characterized the remainder of the fiscal year. Following the rally in the fourth quarter, most global equity markets fell over the first three months of 2003. Investors flocking to the safe havens offered by the global bond markets, at a time when the potential for a war in Iraq and weak economic data helped renew investor risk aversion, spurred the decline. It was short-lived, however, and stocks rallied in a reversal that was attributed in large part to investors' sense of relief following the rapid resolution of major conflict in Iraq. Investor appetite for risk increased, and the demand for equities rose. CURRENCY AND SECTOR ALLOCATION CONTRIBUTED TO RELATIVE PERFORMANCE The fiscal year started off on a poor note as the equity markets both in the US and abroad declined in value. However, using our vast global network of analysts and investment specialists, we sought to construct a portfolio that was balanced between sectors sensitive to an economic recovery and those less tied to further economic weakness. In particular, the Fund benefited from its underweights in consumer staples. Another positive theme throughout the fiscal year was the Fund's holdings in the pharmaceuticals area. Several well-publicized drug failures caused the sector as a whole to decline in value early in the reporting period. Nevertheless, our extensive research helped us uncover several companies that we believed possessed strong long-term fundamentals, and these stocks enhanced results when investors realized their true value and their prices rose substantially. As the fiscal year progressed, we increased exposure to this area when the opportunity arose. Our move to pare the Fund's technology exposure late in the fiscal year was also a key sector decision. Technology stocks rose sharply during the second quarter of 2003, as the market anticipated a potential significant rebound in earnings. However, we do not believe the rebound will ultimately reach the hoped-for levels. Therefore, we cut back our holdings, especially in the most volatile sub-sectors (such as semiconductors). Geographically, we held an underweight position to the US, since our global research network concluded that valuations outside of the US were more attractive. We also maintained a modest underweight to Japan. The economic prospects for Japan are poor, but this is counterbalanced by very low expectations and depressed valuations. By and large, the Japan underweight proved beneficial to performance during the second half of the review period. 16 On a currency level, we leveraged the expertise of the team of currency analysts at UBS Global Asset Management to implement allocation decisions for the Fund. Ultimately, these decisions made a significant contribution to the Fund's overall performance during the period. Specifically, against a backdrop whereby the euro moved to historic highs versus the US dollar, an overweight to the euro and an underweight to the US dollar provided positive results. An overweight to the undervalued Australian dollar contributed positively to performance as well. As the currency moved toward our fair value estimate over the year, we pared back this overweight in stages. An underweight to the Japanese yen, at a time when it appears that little effort at economic reform is being made in that country, also had a positive impact on performance. Conversely, an underweight to the UK pound sterling had a slightly negative impact on performance. LOOKING AHEAD At present, our top-down analysis of the global environment implies that the UK and continental European markets are modestly more attractive than the US equity market, although the valuation gap between these regions is relatively narrow. The Japanese market has bounced off its bottom, but we still see no evidence of economic or corporate reform. Reinforcing the speculative nature of the recent rise in Japanese equities, the lowest-quality, financially distressed companies have been the best performers. From an industry and stock standpoint, our analysis has led us to hold a portfolio with a beta that is similar to that of the overall market (beta is a measure of a portfolio's sensitivity to changes in the market), and that is currently investment style neutral. We have moved the Fund away from a defensive position over the past year, as the valuation of defensive sectors has lessened. We expect this move away from defensive sectors to continue as the prospective valuations of more pro-cyclical sectors improve. For example, healthcare is now one of our largest sector overweights. This sector has been battered by investor nervousness over regulatory issues, company-specific problems, and some scandals that have resulted in significant fines and penalties. Ultimately, however, we believe that the demographics are positive and that companies with proprietary products and healthy research and development will continue to enjoy high returns of capital that are not currently appreciated by the markets. 17 TOTAL RETURN
6 MONTHS 1 YEAR 3 YEARS 5 YEARS INCEPTION* ENDED ENDED ENDED ENDED TO 6/30/03 6/30/03 6/30/03 6/30/03 6/30/03 -------------------------------------------------------------------------------------------------------- UBS Global Equity Fund Class A 10.02% -2.23% -4.94% -0.68% 0.81% -------------------------------------------------------------------------------------------------------- UBS Global Equity Fund Class B 9.70 -2.91 N/A N/A -4.68 -------------------------------------------------------------------------------------------------------- UBS Global Equity Fund Class C 9.60 -2.93 N/A N/A -4.70 -------------------------------------------------------------------------------------------------------- UBS Global Equity Fund Class Y 10.17 -1.93 -4.60 -0.36 5.45 -------------------------------------------------------------------------------------------------------- UBS Global Equity Fund Class A** 3.98 -7.66 -6.71 -1.80 -0.13 -------------------------------------------------------------------------------------------------------- UBS Global Equity Fund Class B** 4.70 -7.64 N/A N/A -7.00 -------------------------------------------------------------------------------------------------------- UBS Global Equity Fund Class C** 7.53 -4.79 N/A N/A -5.28 -------------------------------------------------------------------------------------------------------- MSCI World Equity (Free) Index 11.33 -2.05 -12.73 -2.85 5.13 --------------------------------------------------------------------------------------------------------
* INCEPTION DATE OF UBS GLOBAL EQUITY FUND CLASS A IS 6/30/97. INCEPTION DATES OF CLASS B AND CLASS C ARE 12/11/01 AND 11/27/01, RESPECTIVELY. INCEPTION DATE OF CLASS Y IS 1/23/94. FOR ILLUSTRATION PURPOSES, THE INCEPTION RETURN OF THE INDEX IS CALCULATED AS OF 1/31/94, WHICH IS THE CLOSEST MONTH-END TO THE INCEPTION DATE OF THE OLDEST SHARE CLASS (CLASS Y). ** RETURNS INCLUDE SALES CHARGES. TOTAL RETURN INCLUDES REINVESTMENT OF ALL CAPITAL GAIN AND INCOME DISTRIBUTIONS. TOTAL RETURN DOES NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES. ALL TOTAL RETURNS IN EXCESS OF 1 YEAR ARE AVERAGE ANNUALIZED RETURNS. ALL TOTAL RETURNS LESS THAN 1 YEAR ARE CUMULATIVE RETURNS. ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000 This chart shows the growth in the value of an investment in UBS Global Equity Fund Class Y shares and the MSCI World Equity (Free) Index if you had invested $10,000 on January 31, 1994, and had reinvested all your income dividends and capital gain distributions through June 30, 2003. The performance of Class A, Class B and Class C shares will vary based upon the different inception dates, class specific expenses and sales charges. No adjustment has been made for any income taxes payable by shareholders on income dividends and capital gain distributions. Past performance is no guarantee of future results. Share price and return will vary with market conditions; investors may realize a gain or loss upon redemption. [CHART] UBS GLOBAL EQUITY FUND CLASS Y VS. MSCI WORLD EQUITY (FREE) INDEX Wealth Value With Dividends
UBS GLOBAL EQUITY FUND CLASS Y MSCI WORLD EQUITY (FREE) INDEX $ 10,000 $ 10,000 $ 9,780 $ 9,869 $ 9,350 $ 9,443 $ 9,570 $ 9,741 $ 9,640 $ 9,770 6/30/1994 $ 9,530 $ 9,741 $ 9,671 $ 9,927 $ 10,083 $ 10,228 $ 9,811 $ 9,957 $ 9,832 $ 10,244 $ 9,570 $ 9,802 $ 9,565 $ 9,896 $ 9,423 $ 9,750 $ 9,575 $ 9,895 $ 9,656 $ 10,372 $ 9,910 $ 10,735 $ 10,042 $ 10,832 6/30/95 $ 10,108 $ 10,829 $ 10,576 $ 11,371 $ 10,750 $ 11,117 $ 10,944 $ 11,445 $ 10,924 $ 11,267 $ 11,312 $ 11,660 $ 11,663 $ 12,002 $ 12,013 $ 12,227 $ 12,067 $ 12,301 $ 12,275 $ 12,505 $ 12,613 $ 12,799 $ 12,646 $ 12,809 6/30/96 $ 12,702 $ 12,878 $ 12,296 $ 12,423 $ 12,515 $ 12,569 $ 12,933 $ 13,062 $ 12,976 $ 13,152 $ 13,635 $ 13,894 $ 13,677 $ 13,673 $ 13,797 $ 13,840 $ 13,989 $ 13,998 $ 13,929 $ 13,718 $ 14,013 $ 14,168 $ 14,842 $ 15,045 6/30/1997 $ 15,403 $ 15,793 $ 15,910 $ 16,522 $ 15,173 $ 15,404 $ 15,825 $ 16,241 $ 14,968 $ 15,389 $ 14,956 $ 15,658 $ 15,143 $ 15,849 $ 15,396 $ 16,294 $ 16,343 $ 17,396 $ 17,009 $ 18,128 $ 16,983 $ 18,305 $ 16,929 $ 18,083 6/30/1998 $ 16,788 $ 18,506 $ 16,707 $ 18,478 $ 14,873 $ 16,015 $ 15,114 $ 16,300 $ 16,118 $ 17,776 $ 16,734 $ 18,835 $ 17,268 $ 19,751 $ 17,268 $ 20,185 $ 16,760 $ 19,648 $ 17,282 $ 20,463 $ 18,476 $ 21,273 $ 17,804 $ 20,490 6/30/1999 $ 18,490 $ 21,443 $ 18,421 $ 21,379 $ 18,132 $ 21,340 $ 17,622 $ 21,139 $ 17,870 $ 22,237 $ 18,311 $ 22,861 $ 19,491 $ 24,713 $ 18,166 $ 23,299 $ 17,800 $ 23,360 $ 18,425 $ 24,977 $ 18,227 $ 23,919 $ 18,379 $ 23,314 6/30/2000 $ 18,988 $ 24,099 $ 18,562 $ 23,419 $ 18,897 $ 24,182 $ 18,333 $ 22,897 $ 18,546 $ 22,514 $ 18,394 $ 21,146 $ 19,475 $ 21,480 $ 19,900 $ 21,897 $ 18,743 $ 20,049 $ 17,653 $ 18,731 $ 18,709 $ 20,117 $ 18,556 $ 19,863 6/30/2001 $ 18,215 $ 19,240 $ 17,994 $ 18,986 $ 17,550 $ 18,076 $ 16,186 $ 16,483 $ 16,459 $ 16,800 $ 17,482 $ 17,796 $ 17,716 $ 17,909 $ 17,326 $ 17,368 $ 17,308 $ 17,218 $ 18,000 $ 17,980 $ 17,681 $ 17,373 $ 17,823 $ 17,409 6/30/2002 $ 16,811 $ 16,354 $ 15,320 $ 14,976 $ 15,480 $ 15,005 $ 13,527 $ 13,357 $ 14,699 $ 14,344 $ 15,622 $ 15,120 $ 14,964 $ 14,389 $ 14,414 $ 13,954 $ 14,102 $ 13,713 $ 13,919 $ 13,672 $ 15,313 $ 14,889 $ 16,174 $ 15,743 6/30/2003 $ 16,486 $ 16,019
1/31/94 = $10,000 FUND RETURNS ARE NET OF ALL FEES AND COSTS, WHILE THE INDEX RETURNS ARE BASED SOLELY ON MARKET RETURNS WITHOUT DEDUCTION FOR FEES OR TRANSACTION COSTS FOR REBALANCING. 18 TOP TEN INTERNATIONAL EQUITY HOLDINGS AS OF JUNE 30, 2003
PERCENTAGE OF NET ASSETS ------------------------------------------------------------------------ BP PLC 2.2% Nestle S.A. 2.1 Total S.A., Class B 1.9 Aventis S.A. 1.8 Shell Transport & Trading Co. PLC 1.2 Gallaher Group PLC 1.2 Reed Elsevier NV 1.2 ENI Spa 1.1 Rentokil Initial PLC 1.1 Barclays PLC 1.1 ------------------------------------------------------------------------ Total 14.9%
TOP TEN U.S. EQUITY HOLDINGS AS OF JUNE 30, 2003
PERCENTAGE OF NET ASSETS ------------------------------------------------------------------------ Citigroup, Inc. 3.0% Johnson & Johnson 2.5 Microsoft Corp. 2.2 Nextel Communications, Inc., Class A 2.0 Wyeth 2.0 Wells Fargo & Co. 1.7 Freddie Mac 1.6 SBC Communications, Inc. 1.6 Altria Group, Inc. 1.6 Bristol-Myers Squibb Co. 1.5 ------------------------------------------------------------------------ Total 19.7%
GEOGRAPHIC ALLOCATION AS OF JUNE 30, 2003
PERCENTAGE OF NET ASSETS ------------------------------------------------------------------------ United States 51.3% United Kingdom 15.9 Japan 7.5 France 6.7 Switzerland 4.5 Netherlands 3.8 Finland 1.7 Australia 1.7 Ireland 1.6 Italy 1.1 Sweden 1.1 Spain 0.7 Belgium 0.5 Bermuda 0.4 Germany 0.4 Portugal 0.4 Singapore 0.3 Hong Kong 0.2 Norway 0.2 ------------------------------------------------------------------------ 100.0%
19 INDUSTRY DIVERSIFICATION AS A PERCENT OF NET ASSETS AS OF JUNE 30, 2003 U.S. EQUITIES Aerospace & Military 0.65% Banks 4.04 Beverages & Tobacco 1.56 Broadcasting & Publishing 0.02 Business & Public Service 0.50 Capital Goods 1.13 Computer Software 2.93 Computer Systems 1.82 Consumer 0.39 Electric Components 0.30 Energy 2.63 Financial Services 9.34 Health: Drugs 5.86 Health: Non-Drugs 3.91 Industrial Components 0.78 Insurance 0.27 Media and Entertainment 0.90 Metals Non-Ferrous 1.15 Multi-Industry 1.10 Retail/Apparel 2.16 Services/Miscellaneous 1.70 Telecommunications- Services 4.76 Transportation 0.79 Utilities 0.65 ------- Total U.S. Equities 49.34 INTERNATIONAL EQUITIES Aerospace & Defense 0.57 Autos/Durables 1.28 Banks 5.96 Beverages & Tobacco 1.90 Broadcasting & Publishing 2.69 Chemicals 2.72 Commercial Services 0.45% Computer Software 0.27 Construction 1.12 Electric Components 2.89 Electronics 0.33 Energy 3.00 Financial Services 2.05 Food & House Products 2.66 Forest Products 0.76 Health: Drugs 4.24 Health: Non-Drugs 0.91 Housing/Paper 0.70 Insurance 1.17 Machinery & Engineering 0.55 Merchandising 0.86 Metals-Non-Ferrous 0.28 Multi-Industry 0.64 Oil 1.23 Real Estate 0.40 Recreation 1.63 Retail/Apparel 0.87 Services/Miscellaneous 1.83 Telecommunications 2.66 Transportation 0.58 Utilities 1.45 ------- Total International Equities 48.65 International Bonds 0.04 SHORT-TERM INVESTMENTS 0.75 ------- TOTAL INVESTMENTS 98.78 CASH AND OTHER ASSETS, LESS LIABILITIES 1.22 ------- NET ASSETS 100.00% =======
20 UBS GLOBAL EQUITY FUND -- SCHEDULE OF INVESTMENTS JUNE 30, 2003
SHARES VALUE --------------- --------------- EQUITIES -- 97.99% U.S. EQUITIES -- 49.34% Allergan, Inc. 42,500 $ 3,276,750 Altria Group, Inc. 146,100 6,638,784 American International Group, Inc. 58,447 3,225,106 Anthem, Inc.(b) 32,900 2,538,235 AOL Time Warner, Inc. (b) 134,300 2,160,887 Bank of New York Co., Inc. (The) 78,600 2,259,750 Baxter International, Inc. 68,300 1,775,800 BEA Systems, Inc. (b) 268,500 2,915,910 BellSouth Corp. 63,900 1,701,657 Bristol-Myers Squibb Co. 227,200 6,168,480 Burlington Northern Santa Fe Corp. 118,000 3,355,920 Cephalon, Inc. (b) 54,200 2,230,872 Citigroup, Inc. 296,700 12,698,760 Computer Sciences Corp. (b) 1,700 64,804 ConocoPhillips 53,318 2,921,826 Constellation Energy Group, Inc. 39,600 1,358,280 Costco Wholesale Corp. (b) 143,400 5,248,440 FirstEnergy Corp. 75,107 2,887,864 FleetBoston Financial Corp. 92,600 2,751,146 FPL Group, Inc. 21,000 1,403,850 Freddie Mac 135,900 6,899,643 General Electric Co. 162,500 4,660,500 GreenPoint Financial Corp. 31,700 1,614,798 Hewlett-Packard Co. 220,491 4,696,458 Illinois Tool Works, Inc. 73,000 4,807,050 Ingersoll-Rand Co., Class A 69,300 3,279,276 International Business Machines Corp. 35,300 2,912,250 Interpublic Group of Cos., Inc. 159,000 2,127,420 J.P. Morgan Chase & Co. 169,300 5,786,674 Johnson & Johnson 202,102 10,448,674 Kimberly-Clark Corp. 31,900 1,663,266 Masco Corp. 204,800 4,884,480 MeadWestvaco Corp. 103,700 2,561,390 Mellon Financial Corp. 134,400 3,729,600 Microsoft Corp. 371,900 9,524,359 Morgan Stanley 85,400 3,650,850 Motorola, Inc. 158,200 1,491,826 Newell Rubbermaid, Inc. 44,600 1,248,800 Nextel Communications, Inc., Class A (b) 475,200 8,591,616 Omnicom Group 34,800 2,495,160 Pfizer, Inc. 75,301 2,571,529 Principal Financial Group, Inc. (b) 33,700 1,086,825 RadioShack Corp. 102,100 2,686,251 SBC Communications, Inc. 266,600 6,811,630 Schlumberger Ltd. 37,400 1,779,118 Sempra Energy 125,900 3,591,927 SICOR, Inc. (b) 114,100 2,320,794 Texas Instruments, Inc. 72,900 1,283,040 Travelers Property Casualty Corp., Class B (b) 73,200 1,154,364 U.S. Bancorp 138,900 $ 3,403,050 United Technologies Corp. 39,100 2,769,453 UnitedHealth Group, Inc. 87,000 4,371,750 Verizon Communications, Inc. 41,000 1,617,450 Viacom, Inc., Class A (b) 2,060 90,022 Viacom, Inc., Class B (b) 87,100 3,802,786 Wells Fargo & Co. 141,100 7,111,440 Wyeth 182,500 8,312,875 --------------- Total U.S. Equities 209,421,515 --------------- INTERNATIONAL EQUITIES -- 48.65% AUSTRALIA -- 1.66% Mayne Group Ltd. 444,641 817,064 QBE Insurance Group Ltd. 377,354 2,358,636 Westpac Banking Corp. 355,091 3,869,806 --------------- 7,045,506 --------------- BELGIUM -- 0.46% Fortis 112,336 1,950,506 --------------- BERMUDA -- 0.45% Accenture Ltd., Class A (b) 105,100 1,901,259 --------------- FINLAND -- 1.69% Nokia Oyj 239,400 3,942,302 UPM-Kymmene Oyj 222,000 3,240,225 --------------- 7,182,527 --------------- FRANCE -- 6.67% Aventis S.A. 138,200 7,603,452 BNP Paribas 73,201 3,719,691 Cap Gemini S.A. (b) 33,236 1,180,116 Compagnie de Saint-Gobain 35,589 1,400,575 Sanofi-Synthelabo S.A. 48,026 2,812,699 Suez S.A. 117,379 1,868,229 Total S.A. 53,301 8,055,043 Unibail 22,873 1,694,180 --------------- 28,333,985 --------------- GERMANY -- 0.42% Linde AG 48,532 1,796,800 --------------- HONG KONG -- 0.20% Sun Hung Kai Properties Ltd. 168,000 848,817 --------------- IRELAND -- 1.56% Bank of Ireland 230,869 2,797,014 CRH PLC 245,253 3,844,356 --------------- 6,641,370 --------------- ITALY -- 1.14% Assicurazioni Generali SpA 4,954 114,803 ENI SpA 311,839 4,716,206 --------------- 4,831,009 ---------------
21
SHARES VALUE --------------- --------------- JAPAN -- 7.46% AIFUL Corp. 48,300 $ 2,059,513 Fuji Photo Film Co., Ltd. 126,000 3,641,224 Honda Motor Co., Ltd. 57,400 2,175,057 Kao Corp. 82,000 1,526,296 Mitsubishi Tokyo Financial Group, Inc. 174 786,858 Murata Manufacturing Co., Ltd. 68,100 2,676,927 Nintendo Co., Ltd. 44,900 3,264,435 Nippon Telegraph & Telephone Corp. 670 2,628,108 Rohm Co., Ltd. 30,400 3,314,062 Sekisui House Ltd. 120,000 909,432 Sompo Japan Insurance, Inc. 381,000 2,078,326 Takeda Chemical Industries Ltd. 77,100 2,844,497 Tokyo Electron Ltd. 11,100 525,996 Toyota Motor Corp. 125,000 3,237,560 --------------- 31,668,291 --------------- NETHERLANDS -- 3.80% Koninklijke Philips Electronics NV 119,373 2,270,090 Reed Elsevier NV 431,927 5,093,982 TPG NV 141,002 2,448,238 VNU NV 143,679 4,426,807 Wolters Kluwer NV 156,244 1,883,949 --------------- 16,123,066 --------------- NORWAY -- 0.16% Telenor ASA 164,800 684,916 --------------- PORTUGAL -- 0.38% Electricidade de Portugal S.A. 750,426 1,602,867 --------------- SINGAPORE -- 0.34% DBS Group Holdings Ltd. 246,000 1,438,842 --------------- SPAIN -- 0.69% Banco Bilbao Vizcaya Argentaria S.A. 277,169 2,912,342 --------------- SWEDEN -- 1.10% Svenska Cellulosa AB 86,450 2,953,682 Swedish Match AB 228,200 1,724,695 --------------- 4,678,377 --------------- SWITZERLAND -- 4.53% Adecco S.A. 77,499 3,192,532 Compagnie Financiere Richemont AG 102,197 1,652,294 Givaudan S.A. 5,040 2,120,852 Nestle S.A. 42,403 8,749,502 Roche Holding AG 24,826 1,947,335 Swiss Reinsurance Co. 28,646 1,587,156 --------------- 19,249,671 --------------- UNITED KINGDOM -- 15.94% Abbey National PLC 233,527 $ 1,813,080 Allied Domecq PLC 203,609 1,122,183 Amersham PLC 227,870 1,709,937 ARM Holdings PLC (b) 828,618 916,114 AstraZeneca PLC 32,807 1,315,507 Barclays PLC 604,123 4,485,988 BP PLC 1,359,193 9,425,601 Centrica PLC 417,043 1,209,474 Diageo PLC 100,129 1,069,016 Dixons Group PLC 646,060 1,407,236 Electrocomponents PLC 255,072 1,365,833 Gallaher Group PLC 529,926 5,202,983 GlaxoSmithKline PLC 138,891 2,802,985 HSBC Holdings PLC 32,100 379,261 Invensys PLC 1,569,633 530,973 Kingfisher PLC (b) 449,704 2,057,399 National Grid Transco PLC 102,224 693,290 Prudential PLC 150,470 911,247 Rentokil Initial PLC 1,462,237 4,566,399 Rio Tinto PLC 63,484 1,194,234 Rolls-Royce Group PLC 1,139,322 2,411,149 Royal Bank of Scotland Group PLC 152,818 4,286,903 Scottish & Southern Energy PLC 373,235 3,843,148 Shell Transport & Trading Co. PLC 790,070 5,214,897 Tesco PLC 1,011,400 3,659,171 Vodafone Group PLC 2,070,487 4,048,658 --------------- 67,642,666 --------------- Total International Equities 206,532,817 --------------- Total Equities (Cost $370,174,405) 415,954,332 --------------- FACE AMOUNT --------------- INTERNATIONAL BONDS -- 0.04% CAYMAN ISLANDS -- 0.04% SMFG Finance Ltd. 144A 2.250%, due 07/11/05 (Cost $177,320) JPY 21,000,000 162,837 --------------- SHARES --------------- SHORT-TERM INVESTMENTS -- 0.75% OTHER -- 0.75% UBS Supplementary Trust U.S. Cash Management Prime Fund (Cost $3,192,158) 3,192,158 3,192,158 --------------- Total Investments (Cost $373,543,883) -- 98.78% (a) 419,309,327 Cash and other assets, less liabilities -- 1.22% 5,156,432 --------------- Net Assets -- 100% $ 424,465,759 ===============
22 NOTES TO SCHEDULE OF INVESTMENTS (a) Aggregate cost for federal income tax purposes was $379,764,300; and net unrealized appreciation consisted of: Gross unrealized appreciation $ 43,351,812 Gross unrealized depreciation (3,806,785) ------------ Net unrealized appreciation $ 39,545,027 ============
(b) Non-income producing security. % Represents a percentage of net assets. 144A: Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified buyers. At June 30, 2003, the value of these securities amounted to $162,837 or 0.04% of net assets. FORWARD FOREIGN CURRENCY CONTRACTS UBS Global Equity Fund had the following open forward foreign currency contracts as of June 30, 2003:
SETTLEMENT LOCAL CURRENT UNREALIZED DATE CURRENCY VALUE GAIN/(LOSS) ------------ ------------- ------------- ------------- FORWARD FOREIGN CURRENCY BUY CONTRACTS: Australian Dollar (AUD) 12/03/03 15,500,000 $ 10,241,206 $ 415,911 Canadian Dollar (CAD) 12/03/03 14,500,000 10,577,818 249,042 Euro (EUR) 12/03/03 3,550,000 4,059,284 (91,376) FORWARD FOREIGN CURRENCY SALE CONTRACTS: British Pound (GBP) 12/03/03 24,300,000 39,687,793 (229,696) Swiss Franc (CHF) 12/03/03 9,200,000 6,815,751 202,072 ------------- Total net unrealized gain on Forward Foreign Currency Contracts $ 545,953 =============
See accompanying notes to financial statements 23 UBS GLOBAL BOND FUND Over the fiscal year ended June 30, 2003, Class Y shares of UBS Global Bond Fund returned 16.72%, outperforming by a small margin the 16.51% return of the Citigroup World Government Bond Index (or WGBI, formerly known as the Salomon Smith Barney World Government Bond Index). (Returns for all share classes over various time periods are shown on page 26. Please note that these returns do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.) The strongest driver of the Fund's relative performance came from our active currency strategy, but this was partly offset by the impact of duration management. There was little impact from security selection as exposure to non-government sectors had little effect overall, with spreads widening in the second half of 2002, before tightening rapidly in 2003. 12-MONTH MARKET REVIEW Overall, the global bond markets performed well during the period, propelled by investors who were drawn to the relative security offered by bonds. At the start of the period, weak global growth and mounting concerns over the geopolitical situation caused investors to favor bonds over their riskier stock counterparts. Most major economies experienced a weakening during this time, and bond markets in the United States, Japan and Europe all rallied in this environment. The economic news was slightly better as the year 2002 drew to a close, leading to a rebound in the global equity markets. However, signs of growth were not strong enough to satisfy central bankers, so both the Federal Reserve Board (the "Fed") and the European Central Bank (the "ECB") cut interest rates in an effort to stimulate their economies. In the opening months of 2003, the global bond markets continued to generate strong results. Risk-averse investors, cautious in the face of a probable war with Iraq, drove the global bond markets to strong performance. Around this time, both the ECB and Bank of England lowered their respective interest rates. The Fed, on the other hand, chose to hold rates steady, though it made it clear that further rate cuts were a distinct possibility. (In fact, a rate cut eventually was implemented at its June 25, 2003 meeting.) The 12-month period ended on a positive note for both stocks and bonds. Despite the strong rally in the equity markets following the quick resolution of major conflict in Iraq, bonds continued to perform well due to the uncertainty surrounding a global economic rebound, unresolved geopolitical issues and stubbornly high unemployment. CURRENCY MANAGEMENT AND COUNTRY ALLOCATIONS CONTRIBUTED TO PERFORMANCE Country allocations yielded positive results for the Fund over the period. In the first half of the period, we maintained an overweight exposure to European Monetary Union (EMU) bonds. As the period progressed, however, we shifted a portion of this overweight back into the United States, due to the European markets' outperformance of the dollar bloc. A cautious view also led us to favor higher yielding global bond markets--in particular, Canada, which we believed offered better value than other dollar bloc markets. The Fund was rewarded for its position in Canada, in part because it was ultimately the best performing major bond market over the first quarter of 2003. Our cautious approach also led us to limit our exposure to Japan. There were few signs of any new initiatives by Japan's government or the Bank of Japan to halt the persistent decline in nominal GDP. Against this backdrop, we maintained an underweight in Japanese securities throughout the period, which helped Fund performance. In particular, this underweight positioned the Fund well when, at period end, an unexpected sharp rise in Japanese government bond yields resulted in Japanese bonds lagging other markets. In terms of our currency strategy, the in-depth research conducted by our team of currency analysts led us to overweight the euro and Australian dollar, and underweight the US dollar, the UK pound and the Japanese yen in the first half of the period. These active currency positions all provided positive relative returns for the portfolio as the US dollar 24 plummeted against other major currencies and the UK pound underperformed other European currencies. Results from duration management were mixed. The Fund's shorter duration than the benchmark in the first half of the reporting period, at a time when the bond markets performed well, hurt relative results. As we entered 2003, the market's continued strength drove yields substantially below our estimates of long-term fair value. Therefore, we maintained the Fund's duration below benchmark levels. LOOKING AHEAD The yields on all major developed bonds have fallen sharply in recent months, reaching unprecedented levels across the global markets. By mid-June, US bond yields had reached the lowest levels yet recorded in a bull market that has now lasted over twenty years. Ten-year Japanese government bonds traded as low as 0.45%, with the whole yield curve briefly dipping below 1%. Meanwhile, European bond yields fell below the lows that had coincided with the start of the European Monetary Union in January 1999. We believe the current low yields will be hard to sustain, and, consequently, we are maintaining a short duration stance. Going forward, our country and currency weightings will continue to be driven by our assessments of the global macroeconomic and political landscapes, maturity decisions will be implemented with an eye on risk management, and we will continue to select securities based on our determination of the intrinsic value we believe they offer investors over the long term. 25 TOTAL RETURN
6 MONTHS 1 YEAR 3 YEARS 5 YEARS INCEPTION* ENDED ENDED ENDED ENDED TO 6/30/03 6/30/03 6/30/03 6/30/03 6/30/03 --------------------------------------------------------------------------------------------------------- UBS Global Bond Fund Class A 7.69% 16.34% N/A N/A 14.31% --------------------------------------------------------------------------------------------------------- UBS Global Bond Fund Class B 7.40 15.61 N/A N/A 16.08 --------------------------------------------------------------------------------------------------------- UBS Global Bond Fund Class C 7.47 N/A N/A N/A 15.84 --------------------------------------------------------------------------------------------------------- UBS Global Bond Fund Class Y 7.85 16.72 9.31% 6.06% 6.28 --------------------------------------------------------------------------------------------------------- UBS Global Bond Fund Class A** 2.87 11.16 N/A N/A 11.20 --------------------------------------------------------------------------------------------------------- UBS Global Bond Fund Class B** 2.40 10.61 N/A N/A 13.77 --------------------------------------------------------------------------------------------------------- UBS Global Bond Fund Class C** 5.62 N/A N/A N/A 13.95 --------------------------------------------------------------------------------------------------------- Citigroup World Government Bond Index 7.11 16.51 8.77 6.69 6.54 ---------------------------------------------------------------------------------------------------------
* INCEPTION DATE OF UBS GLOBAL BOND FUND CLASS A IS 11/05/01. INCEPTION DATES OF CLASS B AND CLASS C ARE 11/26/01 AND 7/02/02, RESPECTIVELY. INCEPTION DATE OF CLASS Y AND, FOR ILLUSTRATION PURPOSES, THE INDEX, IS 7/31/93. ** RETURNS INCLUDE SALES CHARGES. TOTAL RETURN INCLUDES REINVESTMENT OF ALL CAPITAL GAIN AND INCOME DISTRIBUTIONS. TOTAL RETURN DOES NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES. ALL TOTAL RETURNS IN EXCESS OF 1 YEAR ARE AVERAGE ANNUALIZED RETURNS. ALL TOTAL RETURNS LESS THAN 1 YEAR ARE CUMULATIVE RETURNS. ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000 This chart shows the growth in the value of an investment in UBS Global Bond Fund Class Y shares and the Citigroup World Government Bond Index if you had invested $10,000 on July 31, 1993, and had reinvested all your income dividends and capital gain distributions through June 30, 2003. The performance of Class A, Class B and Class C shares will vary based upon the different inception dates, class specific expenses and sales charges. No adjustment has been made for any income taxes payable by shareholders on income dividends and capital gain distributions. Past performance is no guarantee of future results. Share price and return will vary with market conditions; investors may realize a gain or loss upon redemption. [CHART] UBS GLOBAL BOND FUND CLASS Y VS. CITIGROUP WORLD GOVERNMENT BOND INDEX Wealth Value With Dividends
UBS GLOBAL BOND FUND CLASS Y CITIGROUP WORLD GOV'T BOND INDEX $ 10,000 $ 10,000 $ 10,190 $ 10,000 $ 10,220 $ 10,119 $ 10,321 $ 10,102 $ 10,230 $ 10,030 $ 10,386 $ 10,115 $ 10,458 $ 10,196 $ 10,210 $ 10,129 $ 10,076 $ 10,115 $ 10,025 $ 10,126 $ 9,942 $ 10,037 6/30/1994 $ 9,921 $ 10,182 $ 9,994 $ 10,263 $ 10,005 $ 10,227 $ 10,015 $ 10,301 $ 10,057 $ 10,466 $ 10,036 $ 10,321 $ 10,024 $ 10,350 $ 10,128 $ 10,568 $ 10,306 $ 10,838 $ 10,441 $ 11,482 $ 10,692 $ 11,694 $ 11,067 $ 12,024 6/30/1995 $ 11,046 $ 12,095 $ 11,227 $ 12,124 $ 11,344 $ 11,707 $ 11,482 $ 11,968 $ 11,674 $ 12,057 $ 11,908 $ 12,193 $ 12,061 $ 12,321 $ 12,121 $ 12,169 $ 12,001 $ 12,107 $ 12,049 $ 12,090 $ 12,170 $ 12,042 $ 12,206 $ 12,044 6/30/1996 $ 12,317 $ 12,140 $ 12,439 $ 12,373 $ 12,537 $ 12,421 $ 12,746 $ 12,472 $ 13,016 $ 12,705 $ 13,261 $ 12,873 $ 13,183 $ 12,769 $ 12,977 $ 12,428 $ 12,990 $ 12,334 $ 12,798 $ 12,241 $ 12,729 $ 12,133 $ 13,100 $ 12,463 6/30/1997 $ 13,266 $ 12,611 $ 13,211 $ 12,513 $ 13,169 $ 12,505 $ 13,431 $ 12,772 $ 13,610 $ 13,037 $ 13,431 $ 12,838 $ 13,398 $ 12,799 $ 13,513 $ 12,924 $ 13,599 $ 13,028 $ 13,456 $ 12,899 $ 13,628 $ 13,106 $ 13,628 $ 13,136 6/30/1998 $ 13,623 $ 13,156 $ 13,623 $ 13,173 $ 13,782 $ 13,531 $ 14,448 $ 14,251 $ 14,767 $ 14,673 $ 14,665 $ 14,466 $ 15,004 $ 14,756 $ 15,004 $ 14,621 $ 14,519 $ 14,151 $ 14,504 $ 14,187 $ 14,534 $ 14,181 $ 14,277 $ 13,943 6/30/1999 $ 14,049 $ 13,699 $ 14,309 $ 14,034 $ 14,248 $ 14,099 $ 14,386 $ 14,319 $ 14,309 $ 14,312 $ 14,095 $ 14,162 $ 14,063 $ 14,128 $ 13,705 $ 13,827 $ 13,628 $ 13,727 $ 13,923 $ 14,153 $ 13,426 $ 13,690 $ 13,503 $ 13,797 6/30/2000 $ 14,001 $ 14,132 $ 13,705 $ 13,893 $ 13,550 $ 13,789 $ 13,472 $ 13,761 $ 13,177 $ 13,586 $ 13,534 $ 13,856 $ 14,254 $ 14,353 $ 14,254 $ 14,335 $ 14,191 $ 14,329 $ 13,720 $ 13,915 $ 13,705 $ 13,866 $ 13,532 $ 13,824 6/30/2001 $ 13,438 $ 13,698 $ 13,846 $ 14,043 $ 14,410 $ 14,571 $ 14,410 $ 14,678 $ 14,567 $ 14,794 $ 14,452 $ 14,586 $ 14,064 $ 14,210 $ 13,833 $ 13,948 $ 13,926 $ 14,020 $ 13,899 $ 13,981 $ 14,446 $ 14,482 $ 14,944 $ 14,891 6/30/2002 $ 15,665 $ 15,610 $ 15,683 $ 15,763 $ 15,941 $ 16,039 $ 16,073 $ 16,214 $ 16,045 $ 16,147 $ 16,127 $ 16,168 $ 16,953 $ 16,981 $ 17,212 $ 17,214 $ 17,513 $ 17,455 $ 17,549 $ 17,509 $ 17,782 $ 17,719 $ 18,516 $ 18,488 6/30/2003 $ 18,284 $ 18,189
7/31/93 = $10,000 FUND RETURNS ARE NET OF ALL FEES AND COSTS, WHILE THE INDEX RETURNS ARE BASED SOLELY ON MARKET RETURNS WITHOUT DEDUCTION FOR FEES OR TRANSACTION COSTS FOR REBALANCING. 26 COUNTRY EXPOSURE, TOP FIVE AS OF JUNE 30, 2003
PERCENTAGE OF NET ASSETS ----------------------------------------------------------------------- European Union 49.6% U.S. 19.1 Japan 17.9 Canada 6.3 Australia 5.0 ----------------------------------------------------------------------- Total 97.9%
CURRENCY EXPOSURE, TOP FIVE AS OF JUNE 30, 2003
PERCENTAGE OF NET ASSETS ----------------------------------------------------------------------- Euro 50.8% U.S. Dollar 19.1 Japanese Yen 17.9 Canadian Dollar 6.3 British Pound 4.8 ----------------------------------------------------------------------- Total 98.9%
INDUSTRY DIVERSIFICATION AS A PERCENT OF NET ASSETS AS OF JUNE 30, 2003 U.S. CORPORATE BONDS Aerospace & Military 0.02% Airlines 0.06 Autos/Durables 0.18 Banks 0.24 Beverages & Tobacco 0.10 Chemicals 0.02 Computer Systems 0.06 Construction 0.07 Consumer 0.05 Electric Components 0.08 Energy 0.17 Financial Services 1.64 Food & House Products 0.27 Forest Products 0.01 Health: Drugs 0.26 Hotel & Lodging 0.02 Housing/Paper 0.02 Insurance 0.01 Leisure & Tourism 0.04 Metals Non-Ferrous 0.02 Multi-Industry 0.10 Publishing 0.01 Real Estate 0.02% Retail/Apparel 0.04 Services/Miscellaneous 0.08 Telecommunications 0.17 Telecommunications - Wireless 0.01 Transportation 0.29 Utilities 0.10 ------- Total U.S. Corporate Bonds 4.16 Asset-Backed Securities 0.67 International Dollar Bonds 0.34 Mortgage-Backed Securities 7.89 U.S. Government Obligations 4.74 ------- Total U.S. Bonds 17.80 International Bonds 89.28 ------- Total Bonds 107.08 SHORT-TERM INVESTMENTS 1.26 ------- TOTAL INVESTMENTS 108.34 LIABILITIES, LESS CASH AND OTHER ASSETS (8.34) ------- NET ASSETS 100.00% =======
TOP TEN FIXED INCOME HOLDINGS AS OF JUNE 30, 2003
PERCENTAGE OF NET ASSETS ----------------------------------------------------------------------- International Bank for Reconstruction & Development 4.750%, due 12/20/04 5.0% Government of Spain 3.100%, due 09/20/06 4.7 Government of Japan 0.100%, due 03/22/04 4.2 European Investment Bank 2.125%, due 09/20/07 3.6 Government of Netherlands 5.000%, due 07/15/11 3.6 Queensland Treasury Corp. 6.500%, due 06/14/05 3.5 Government of Japan 1.750%, due 06/21/10 3.2 Deutsche Bundesrepublik 6.000%, due 01/05/06 3.1 Deutsche Bundesrepublik 5.000%, due 07/04/12 2.8 Bundesrepublik Deutschland 6.000%, due 01/04/07 2.4 ----------------------------------------------------------------------- Total 36.1%
27 UBS GLOBAL BOND FUND -- SCHEDULE OF INVESTMENTS JUNE 30, 2003
FACE AMOUNT VALUE --------------- --------------- BONDS -- 107.08% U.S. BONDS -- 17.80% U.S. CORPORATE BONDS -- 4.16% Abbott Laboratories, Inc. 5.625%, due 07/01/06 $ 5,000 $ 5,536 Alcoa, Inc. 6.000%, due 01/15/12 10,000 11,264 Anadarko Finance Co., Series B 7.500%, due 05/01/31 5,000 6,281 Anheuser Busch Cos., Inc. 9.000%, due 12/01/09 20,000 26,680 AOL Time Warner, Inc. 7.625%, due 04/15/31 25,000 28,853 Apache Corp. 6.250%, due 04/15/12 25,000 29,110 AT&T Corp. 8.500%, due 11/15/31 5,000 5,669 AT&T Wireless Services, Inc. 7.875%, due 03/01/11 10,000 11,810 Avalonbay Communities, Inc. 7.500%, due 08/01/09 5,000 5,929 Avon Products, Inc. 7.150%, due 11/15/09 20,000 24,216 Bank of America Corp. 7.400%, due 01/15/11 30,000 36,858 Bank One Corp. 7.875%, due 08/01/10 25,000 31,172 Baxter International, Inc. 5.750%, due 03/06/06 100,000 122,561 Boeing Capital Corp. 7.375%, due 09/27/10 25,000 29,624 Bristol-Myers Squibb Co. 5.750%, due 10/01/11 5,000 5,564 Burlington Northern Santa Fe Corp. 6.875%, due 12/01/27 5,000 5,733 7.082%, due 05/13/29 10,000 11,751 Cendant Corp. 6.875%, due 08/15/06 20,000 22,371 Centex Corp. 9.750%, due 06/15/05 25,000 28,544 Cingular Wireless LLC 6.500%, due 12/15/11 5,000 5,761 Citigroup, Inc. 7.250%, due 10/01/10 35,000 42,407 Citizens Communications Co. 9.250%, due 05/15/11 10,000 12,939 Comcast Cable Communications, Inc. 6.750%, due 01/30/11 20,000 22,957 Commonwealth Edison Co., 6.150%, due 03/15/12 5,000 5,733 Computer Sciences Corp. 3.500%, due 04/15/08 25,000 25,530 Conagra Foods, Inc. 6.750%, due 09/15/11 10,000 11,707 ConocoPhillips 8.750%, due 05/25/10 5,000 6,508 Consolidated Edison, Inc., Series B 7.500%, due 09/01/10 $ 30,000 $ 36,797 Coors Brewing Co., 6.375%, due 05/15/12 10,000 11,476 Credit Suisse First Boston USA, Inc. 5.750%, due 04/15/07 15,000 16,665 6.500%, due 01/15/12 10,000 11,476 DaimlerChrysler N.A Holding Corp. 8.500%, due 01/18/31 5,000 5,889 DaimlerChrysler NA Holding Corp. 5.625%, due 01/16/07 50,000 60,831 Devon Financing Corp., ULC 6.875%, due 09/30/11 10,000 11,730 Dominion Resources, Inc., Class B 7.625%, due 07/15/05 15,000 16,684 Duke Energy Field Services, LLC 6.875%, due 02/01/11 10,000 11,421 EOP Operating LP 7.000%, due 07/15/11 5,000 5,803 7.875%, due 07/15/31 5,000 6,045 Erac U.S.A. Finance Co., 144A 8.000%, due 01/15/11 15,000 17,871 First Data Corp. 5.625%, due 11/01/11 10,000 11,066 First Union National Bank 7.800%, due 08/18/10 25,000 31,019 FleetBoston Financial Corp. 7.375%, due 12/01/09 10,000 12,000 Ford Motor Co. 7.450%, due 07/16/31 15,000 13,741 Ford Motor Credit Co. 5.800%, due 01/12/09 15,000 14,908 6.250%, due 06/18/07 50,000 59,131 6.875%, due 02/01/06 5,000 5,303 7.375%, due 02/01/11 10,000 10,339 General Electric Capital Corp. 4.375%, due 01/20/10 300,000 356,525 6.000%, due 06/15/12 70,000 79,014 General Motors Acceptance Corp. 6.125%, due 03/15/07 50,000 58,729 6.875%, due 09/15/11 30,000 30,100 8.000%, due 11/01/31 30,000 29,435 Goldman Sachs Group, Inc. 6.875%, due 01/15/11 15,000 17,699 Harrah's Operating Co., Inc. 7.500%, due 01/15/09 10,000 11,848 Household Finance Corp. 6.750%, due 05/15/11 25,000 29,034 International Business Machines Corp. 5.875%, due 11/29/32 5,000 5,363 International Paper Co. 6.750%, due 09/01/11 10,000 11,566 John Deere Capital Corp. 7.000%, due 03/15/12 10,000 11,872 Kohl's Corp. 7.250%, due 06/01/29 5,000 6,249
28
FACE AMOUNT VALUE --------------- --------------- Kraft Foods, Inc. 5.625%, due 11/01/11 $ 25,000 $ 27,242 Kroger Co. 7.500%, due 04/01/31 5,000 5,930 8.050%, due 02/01/10 35,000 42,186 Lehman Brothers Holdings, Inc. 6.625%, due 01/18/12 10,000 11,724 Lincoln National Corp. 6.200%, due 12/15/11 10,000 11,226 Marsh & McClennan Cos., Inc. 6.250%, due 03/15/12 5,000 5,699 Mirant Americas Generation, Inc. 7.625%, due 05/01/06 15,000 11,550 Morgan Stanley 6.750%, due 04/15/11 30,000 35,090 News America Holdings, Inc. 7.125%, due 04/08/28 5,000 5,567 Occidental Petroleum Corp. 8.450%, due 02/15/29 10,000 13,991 Pemex Project Funding Master Trust 8.000%, due 11/15/11 25,000 28,625 Pepsi Bottling Group, Inc., 144A 5.625%, due 02/17/09 10,000 11,215 Praxair, Inc. 6.375%, due 04/01/12 5,000 5,823 Progress Energy, Inc. 7.000%, due 10/30/31 10,000 11,036 Qwest Capital Funding, Inc. 7.900%, due 08/15/10 30,000 25,050 Rohm & Haas Co. 7.850%, due 07/15/29 5,000 6,474 Safeway, Inc. 3.800%, due 08/15/05 25,000 25,665 SBC Communications, Inc. 5.875%, due 02/01/12 10,000 11,226 SLM Corp. 5.625%, due 04/10/07 20,000 22,197 Southern Power Co., Series B, 6.250%, due 07/15/12 5,000 5,659 Southwestern Electric Power, Series B 4.500%, due 07/01/05 5,000 5,192 Sprint Capital Corp. 8.375%, due 03/15/12 25,000 29,933 Target Corp. 7.000%, due 07/15/31 10,000 11,968 U.S. Bank N.A., Minnesota 6.375%, due 08/01/11 15,000 17,510 Unilever Capital Corp. 7.125%, due 11/01/10 15,000 18,174 Union Pacific Corp. 6.700%, due 12/01/06 15,000 16,870 United Technologies Corp. 6.100%, due 05/15/12 10,000 11,529 UST, Inc. 6.625%, due 07/15/12 10,000 11,579 Valero Energy Corp. 7.500%, due 04/15/32 10,000 11,336 Verizon New England, Inc. 6.500%, due 09/15/11 $ 5,000 $ 5,802 Verizon New York, Inc., Series B 7.380%, due 04/01/32 10,000 12,408 Viacom, Inc. 6.625%, due 05/15/11 10,000 11,796 Walt Disney Co. (The) 6.375%, due 03/01/12 10,000 11,399 Washington Mutual, Inc. 5.625%, due 01/15/07 25,000 27,555 Wells Fargo Bank, N.A 6.450%, due 02/01/11 30,000 35,371 Weyerhaeuser Co. 7.375%, due 03/15/32 5,000 5,748 --------------- 2,168,042 --------------- ASSET-BACKED SECURITIES -- 0.67% Americredit Automobile Receivables Trust, 03-AM, Class A2B FRN 1.584%, due 10/06/06 30,000 29,999 Capital One Multi-Asset Execution Trust, 03-A1, Class A1 FRN 1.570%, due 01/15/09 75,000 75,002 Comed Transitional Funding Trust, 98-1, Class A7 5.740%, due 12/25/10 45,000 50,997 Conseco Finance, 00-B, Class AF4 7.870%, due 02/15/31 20,000 20,811 Peco Energy Transition Trust, 99-A, Class A7 6.130%, due 03/01/09 55,000 63,092 Sears Credit Account Master Trust, 01-1, Class A FRN 1.360%, due 02/15/10 75,000 74,688 Structured Asset Securities Corp., 03-AL2, Class A, 144A 3.356%, due 01/25/31 29,531 29,252 United Airlines, Inc. E.E.T.C. (c)(d) 7.811%, due 10/01/09 29,456 7,615 --------------- 351,456 --------------- INTERNATIONAL DOLLAR BONDS -- 0.34% Burlington Resources Finance Co. 6.680%, due 02/15/11 5,000 5,868 Canadian National Railway Co. 6.900%, due 07/15/28 5,000 5,932 Deutsche Telekom International Finance BV 8.250%, due 06/15/30 5,000 6,370 European Investment Bank 4.875%, due 09/06/06 25,000 27,089 France Telecom S.A. 8.500%, due 03/01/31 5,000 6,919 HSBC Holdings PLC 5.250%, due 12/12/12 5,000 5,333 Inter-American Development Bank 5.750%, due 02/26/08 25,000 28,585
29
FACE AMOUNT VALUE --------------- --------------- International Bank for Reconstruction & Development 4.375%, due 09/28/06 $ 35,000 $ 37,832 Mexico Government International Bond 8.125%, due 12/30/19 15,000 17,100 Rio Tinto Finance USA Ltd. 2.625%, due 09/30/08 25,000 24,542 Telus Corp. 8.000%, due 06/01/11 10,000 11,550 --------------- 177,120 --------------- MORTGAGE-BACKED SECURITIES -- 7.89% CS First Boston Mortgage Securities Corp., 02-10, Class 2A1 7.500%, due 05/25/32 42,051 44,171 CS First Boston Mortgage Securities Corp., 03-8, Class 5A1 6.500%, due 04/25/33 37,854 38,967 DLJ Commercial Mortgage Corp., 00-CKP1, Class A1B 7.180%, due 08/10/10 140,000 165,306 DLJ Commercial Mortgage Corp., 99-CG1, Class A1B 6.460%, due 03/10/32 20,000 23,196 DLJ Commercial Mortgage Corp., 99-CG3, Class A1B 7.340%, due 10/10/32 165,000 198,888 Fannie Mae 4.625%, due 05/01/13 25,000 25,710 7.125%, due 01/15/30 135,000 175,225 Federal Home Loan Mortgage Corp., Gold 5.500%, due 01/01/18 57,278 59,408 7.000%, due 10/15/13 55,686 60,039 8.000%, due 01/01/30 193,010 206,636 Federal National Mortgage Association 5.500%, due 01/01/18 1,165,189 1,210,389 5.500%, due 11/01/23 85,914 88,951 6.000%, due 03/01/29 55,772 57,981 6.000%, due 11/01/32 223,030 231,864 6.500%, due 08/01/32 90,039 93,894 7.000%, due 11/01/32 46,035 48,481 7.000%, due 05/01/33 99,919 105,227 Federal National Mortgage Association Grantor Trust, 00-T6, Class A1 7.500%, due 06/25/30 65,449 73,037 Federal National Mortgage Association Grantor Trust, 01-T10, Class A2 7.500%, due 12/25/41 110,247 123,029 Federal National Mortgage Association Whole Loan, 03-W6, Class 6A FRN 5.210%, due 08/25/42 43,302 45,643 Federal National Mortgage Association Whole Loan, 95-W3, Class A 9.000%, due 04/25/25 2,347 2,581 Freddie Mac 5.875%, due 03/21/11 35,000 39,370 GMAC Commercial Mortgage Securities, Inc., 97-C2, Class A2 6.550%, due 04/15/29 $ 25,000 $ 27,017 Government National Mortgage Association 6.000%, due 11/20/28 42,636 44,448 6.000%, due 12/20/28 67,060 69,996 6.000%, due 05/20/29 83,598 87,151 6.500%, due 08/15/27 2,874 3,018 6.500%, due 12/15/29 74,246 78,077 7.000%, due 07/15/25 16,274 17,306 7.000%, due 07/15/31 199,533 210,757 Greenwich Capital Commercial Funding Corp., 03-FL1 A FRN 1.639%, due 07/05/18 34,993 34,993 Impac Secured Assets Common Owner, 01-3, Class A2 (b) 6.703%, due 04/25/31 46,878 48,428 LB Commercial Conduit Mortgage Trust, 99-C2, Class A2 7.325%, due 10/15/32 50,000 60,204 Merrill Lynch Mortgage Investors, Inc., 96-C2, Class A3 6.960%, due 11/21/28 50,000 55,181 Merrill Lynch Mortgage Investors, Inc., 97-C2, Class A2 6.540%, due 12/10/29 20,000 22,763 Morgan Stanley Dean Witter Capital I, 00-LIF2, Class A1 6.960%, due 10/15/33 33,966 38,333 Nomura Asset Securities Corp., 95-MD3, Class A1B 8.150%, due 04/04/27 19,035 20,755 PNC Mortgage Securities Corp., 94-3, Class A8 7.500%, due 07/25/24 121,567 122,692 Prudential Home Mortgage Securities, 96-7, Class A4 6.750%, due 06/25/11 28,510 28,562 Residential Funding Mortgage Securitization I, 98-56, Class A6 6.750%, due 03/25/28 21,620 21,598 --------------- 4,109,272 --------------- U.S. GOVERNMENT OBLIGATIONS -- 4.74% U.S. Treasury Bonds 6.250%, due 05/15/30 320,000 398,375 8.000%, due 11/15/21 5,000 7,244 U.S. Treasury Notes 1.625%, due 03/31/05 315,000 317,166 1.625%, due 04/30/05 165,000 166,083 2.000%, due 11/30/04 220,000 222,612 3.000%, due 02/15/08 675,000 694,590 3.625%, due 08/31/03 110,000 110,486 4.375%, due 08/15/12 60,000 64,334 5.750%, due 08/15/10 235,000 275,069 6.375%, due 08/01/11 210,000 210,984 --------------- 2,466,943 --------------- Total U.S. Bonds 9,272,833 ---------------
30
FACE AMOUNT VALUE --------------- --------------- INTERNATIONAL BONDS -- 89.28% AUSTRALIA -- 5.02% Australia & New Zealand Banking Group Ltd. 5.500%, due 02/23/05 EUR 100,000 $ 120,701 Government of Australia 6.500%, due 05/15/13 AUD 660,000 492,491 Queensland Treasury Corp. 6.500%, due 06/14/05 AUD 2,600,000 1,805,710 Telstra Corp., Ltd. 6.375%, due 06/29/11 EUR 150,000 197,622 --------------- 2,616,524 --------------- AUSTRIA -- 0.23% Bank Austria Creditanstalt AG 5.375%, due 01/26/05 EUR 100,000 120,326 --------------- CANADA -- 6.26% Government of Canada 5.000%, due 12/01/03 CAD 770,000 571,101 5.750%, due 06/01/29 346,000 278,582 6.000%, due 09/01/05 460,000 358,981 6.000%, due 06/01/11 570,000 465,577 8.000%, due 06/01/23 510,000 513,037 Province of Ontario 5.200%, due 03/08/07 390,000 302,683 7.500%, due 01/19/06 950,000 770,908 --------------- 3,260,869 --------------- CAYMAN ISLANDS -- 0.25% Santander Central Hispano Issuances Ltd. 6.375%, due 07/05/10 EUR 100,000 130,668 --------------- DENMARK -- 2.30% Kingdom of Denmark 5.000%, due 11/15/13 DKK 1,400,000 234,426 6.000%, due 11/15/09 2,650,000 468,849 7.000%, due 12/15/04 2,260,000 372,950 TDC A/S 5.875%, due 04/24/06 EUR 100,000 122,656 --------------- 1,198,881 --------------- FINLAND -- 3.00% Government of Finland 5.000%, due 04/25/09 EUR 925,000 1,163,994 5.375%, due 07/04/13 260,000 335,625 UPM-Kymmene Oyj 6.125%, due 01/23/12 50,000 63,006 --------------- 1,562,625 --------------- FRANCE -- 6.65% Aventis S.A. 5.000%, due 04/18/06 EUR 100,000 121,893 Carrefour S.A. 4.500%, due 03/18/09 100,000 120,568 Casino Guichard Perrachon S.A. 5.875%, due 11/23/07 50,000 61,954 France Telecom S.A 7.000%, due 12/23/09 50,000 66,059 GIE PSA Tresorerie 5.875%, due 09/27/11 100,000 127,018 GIE Suez Alliance 5.500%, due 02/20/09 EUR 100,000 $ 122,119 Government of France 3.500%, due 07/12/04 590,000 688,186 5.000%, due 10/25/16 140,000 173,829 5.500%, due 10/25/07 420,000 532,981 5.500%, due 04/25/10 405,000 525,456 5.500%, due 04/25/29 340,000 436,226 8.500%, due 10/25/19 140,000 238,984 LVMH Moet Hennessy Louis Vuitton S.A. 5.750%, due 02/28/05 50,000 60,074 Renault S.A. 6.125%, due 06/26/09 50,000 63,105 Veolia Environnement 5.875%, due 06/27/08 100,000 125,589 --------------- 3,464,041 --------------- GERMANY -- 15.81% Bundesschatzanweisungen 2.500%, due 03/18/05 EUR 990,000 1,144,055 Commerzbank AG 4.250%, due 10/25/09 100,000 116,958 Deutsche Bank AG 5.000%, due 05/19/05 200,000 240,075 Deutsche Bundesrepublik 5.000%, due 07/04/12 1,140,000 1,433,104 6.000%, due 01/05/06 1,290,000 1,609,508 6.000%, due 01/04/07 980,000 1,248,080 6.500%, due 07/04/27 740,000 1,074,274 Kredit Fuer Wiederaufbau 5.000%, due 01/04/09 300,000 376,245 Landwirt Rentenbk 1.375%, due 04/25/13 JPY 45,000,000 393,909 Treuhandanstalt 6.750%, due 05/13/04 EUR 400,000 477,913 VW Financial Services AG 5.375%, due 01/25/12 100,000 120,644 --------------- 8,234,765 --------------- GREECE -- 0.11% Public Power Corp. 4.500%, due 03/12/09 EUR 50,000 59,048 --------------- IRELAND -- 0.25% Bank of Ireland 6.450%, due 02/10/10 EUR 100,000 132,337 --------------- ITALY -- 5.32% Buoni Poliennali Del Tesoro 3.250%, due 04/15/04 EUR 610,000 707,291 5.000%, due 05/01/08 240,000 300,359 5.250%, due 11/01/29 360,000 441,649 5.500%, due 11/01/10 300,000 388,504 8.750%, due 07/01/06 500,000 676,716 Unicredito Italiano SpA 6.000%, due 03/16/11 200,000 259,409 --------------- 2,773,928 --------------- JAPAN -- 17.90% Development Bank of Japan 1.750%, due 06/21/10 JPY 185,000,000 1,660,806
31
FACE AMOUNT VALUE --------------- --------------- European Investment Bank 2.125%, due 09/20/07 JPY 210,000,000 $ 1,882,564 Government of Japan 0.100%, due 03/22/04 260,000,000 2,167,024 International Bank for Reconstruction & Development 2.000%, due 02/18/08 115,000,000 1,030,963 4.750%, due 12/20/04 290,000,000 2,581,037 --------------- 9,322,394 --------------- LUXEMBOURG -- 0.37% Michelin Finance Luxembourg S.A. 6.125%, due 04/16/09 EUR 50,000 63,511 Sogerim S.A. 7.000%, due 04/20/11 50,000 65,944 Syngenta Luxembourg Finance S.A. 5.500%, due 07/10/06 50,000 61,587 --------------- 191,042 --------------- NETHERLANDS -- 8.03% ABN Amro Bank NV 6.250%, due 06/28/10 EUR 100,000 130,100 Akzo Nobel NV 5.625%, due 05/07/09 100,000 123,931 Bank Nederlandse Gemeenten 5.250%, due 07/04/11 200,000 253,751 BMW Finance NV 5.250%, due 09/01/06 100,000 123,109 Deutsche Telekom International Finance BV 8.125%, due 05/29/12 50,000 70,653 E.ON International Finance BV 5.750%, due 05/29/09 100,000 127,562 Enbw International Finance BV 5.125%, due 02/28/07 100,000 122,839 Fortis Finance NV 4.625%, due 04/07/09 100,000 120,876 Generali Finance BV 4.750%, due 05/12/14 100,000 118,586 Government of Netherlands 5.000%, due 07/15/11 1,490,000 1,875,991 ING Bank NV 5.500%, due 01/04/12 200,000 250,198 Koninklijke Philips Electronics NV 5.750%, due 05/16/08 150,000 186,550 Linde Finance BV 6.375%, due 06/14/07 50,000 63,440 Olivetti Finance NV 6.125%, due 07/30/09 50,000 63,504 Portugal Telecom International Finance BV 5.750%, due 02/21/06 100,000 122,655 Royal KPN NV 8.000%, due 04/12/06 50,000 63,705 RWE Finance BV 5.500%, due 10/26/07 100,000 124,804 Telefonica Europe BV 5.125%, due 10/30/06 100,000 122,219 Unilever NV 4.250%, due 09/26/07 100,000 119,941 --------------- 4,184,414 --------------- SINGAPORE -- 0.24% Singapore Telecommunications Ltd. 6.000%, due 11/21/11 EUR 100,000 $ 126,673 --------------- SPAIN -- 9.81% Government of Spain 3.250%, due 01/31/05 EUR 700,000 818,692 4.250%, due 10/31/07 425,000 516,078 4.750%, due 07/30/14 350,000 429,372 5.150%, due 07/30/09 545,000 689,424 6.000%, due 01/31/29 145,000 198,351 Government of Spain International Bond 3.100%, due 09/20/06 JPY 270,000,000 2,456,653 --------------- 5,108,570 --------------- SWEDEN -- 2.95% Fortum Power & Heat AB 6.375%, due 11/03/06 SEK 50,000 63,169 Government of Sweden 5.000%, due 01/15/04 2,250,000 284,214 6.750%, due 05/05/14 2,000,000 299,215 8.000%, due 08/15/07 5,200,000 761,264 Scania CV AB 6.000%, due 12/17/08 100,000 126,659 --------------- 1,534,521 --------------- UNITED KINGDOM -- 4.78% Abbey National PLC 4.625%, due 02/11/11 GBP 100,000 118,853 Allied Domecq Financial Services PLC 5.875%, due 06/12/09 50,000 62,332 Barclays Bank, PLC 4.875%, due 06/26/06 100,000 122,145 British Telecommunications PLC 6.125%, due 02/15/06 50,000 62,097 Gallaher Group PLC 5.875%, due 08/06/08 50,000 62,236 HBOS Treasury Services PLC 4.750%, due 02/06/07 100,000 122,324 HSBC Holdings PLC 5.375%, due 12/20/12 100,000 123,487 Imperial Tobacco Finance PLC 6.250%, due 06/06/07 50,000 62,772 Kelda Group PLC 5.250%, due 07/26/06 100,000 122,164 Lloyds TSB Bank PLC 4.750%, due 03/18/11 100,000 120,750 National Westminster Bank PLC 6.000%, due 01/21/10 200,000 258,953 OTE PLC 6.125%, due 02/07/07 100,000 123,980 Rio Tinto Finance PLC 5.125%, due 05/10/07 100,000 123,125 Tesco PLC 5.250%, due 05/07/08 50,000 62,169 U.K. Treasury 5.000%, due 03/07/12 160,000 280,127 5.750%, due 12/07/09 70,000 127,084 6.000%, due 12/07/28 112,000 225,908 8.500%, due 12/07/05 100,000 184,223
32
FACE AMOUNT VALUE --------------- --------------- Vodafone Group PLC 5.750%, due 10/27/06 GBP 100,000 $ 124,711 --------------- 2,489,440 --------------- Total International Bonds 46,511,066 --------------- Total Bonds (Cost $52,833,873) 55,783,899 --------------- SHARES --------------- SHORT-TERM INVESTMENTS -- 1.26% OTHER -- 1.26% UBS Supplementary Trust, U.S. Cash Management Prime Fund (Cost $655,174) 655,174 655,174 --------------- Total Investments (Cost $53,489,047) -- 108.34% (a) 56,439,073 Liabilities, less cash and other assets -- (8.34)% (4,342,697) --------------- Net Assets -- 100% $ 52,096,376 ===============
33 NOTES TO SCHEDULE OF INVESTMENTS (a) Aggregate cost for federal income tax purposes was $53,497,377; and net unrealized appreciation consisted of: Gross unrealized appreciation $ 3,178,010 Gross unrealized depreciation (236,314) --------------- Net unrealized appreciation $ 2,941,696 ===============
(b) Variable rate note - The rate disclosed is that in effect at June 30, 2003. (c) Security is in default. (d) Security is illiquid. These securities amounted to $7,615 or 0.01% of net assets. % Represents a percentage of net assets. E.E.T.C.: Enhanced equipment trust certificate FRN: Floating Rate Note - The rate disclosed is that in effect at June 30, 2003. 144A: Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At June 30, 2003, the value of these securities amounted to $58,338 or 0.11% of net assets. FORWARD FOREIGN CURRENCY CONTRACTS UBS Global Bond Fund had the following open forward foreign currency contracts as of June 30, 2003:
SETTLEMENT LOCAL CURRENT UNREALIZED DATE CURRENCY VALUE GAIN/(LOSS) ------------- ------------- ------------- ------------- FORWARD FOREIGN CURRENCY BUY CONTRACTS: Japanese Yen (JPY) 12/03/03 445,000,000 $ 3,724,646 $ (44,725) Swiss Franc (CHF) 12/03/03 500,000 370,421 (15,357) FORWARD FOREIGN CURRENCY SALE CONTRACTS: Australian Dollar (AUD) 12/03/03 1,290,000 852,333 (34,614) Canadian Dollar (CAD) 12/03/03 2,670,000 1,947,777 (39,395) British Pounds (GBP) 12/03/03 260,000 424,643 (2,458) Danish Krone (DKK) 12/03/03 3,000,000 461,650 10,553 Euro (EUR) 12/03/03 410,000 468,819 10,553 Swedish Krona (SEK) 12/03/03 6,350,000 787,348 19,298 ------------- Total net unrealized loss on Forward Foreign Currency Contracts $ (96,145) =============
See accompanying notes to financial statements 34 UBS U.S. BALANCED FUND Over the fiscal year ended June 30, 2003, Class Y shares of UBS U.S. Balanced Fund returned 5.70%, outperforming the 4.96% return for the Fund's benchmark, the U.S. Balanced Mutual Fund Index.* (Returns for all share classes over various time periods are shown on page 37. Please note that these returns do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.) 12-MONTH MARKET REVIEW The US equity markets were extremely volatile during the 12-month period, alternately falling and rising over the four quarters that made up the Fund's reporting period. Early in the period, a weak economy, anemic corporate profits, accounting issues and unrest in the Middle East led investors to shun stocks in favor of the perceived security of the bond market. However, after falling to a five-year low in early October 2002, stocks staged a surprising rally when, in the aftermath of the market's sharp decline, investors found themselves drawn to certain downtrodden sectors that were viewed as having compelling valuations. Geopolitical issues came to the fore as the year 2003 began, as anticipation of the war in Iraq, saber rattling in North Korea and renewed concerns about terrorism preoccupied the country. Investor aversion to risk resurfaced, and the majority of the sectors covered in the Index fell during the first quarter. Nonetheless, the 12-month period ended on a positive note, as the end to major fighting in Iraq eliminated one of the issues weighing most heavily on the market. Investors grew increasingly optimistic about the potential for an economic revival and subsequent upturn in corporate profits. At the same time, their appetite for risk increased as the yields available from many fixed income securities shrank. As a result, equity investors drove stocks to steep gains over the final quarter of the period. The gains were broad-based, and many of the best-performing sectors were the prior years' weakest-performing areas: the utility, information technology, telecommunication services and industrial sectors. EQUITIES: CAREFUL ASSET ALLOCATION AND SECTOR STRATEGIES BOOSTED PERFORMANCE Through the periods of extreme volatility in the financial markets during the fiscal year, we employed our disciplined investment approach. Our focus remained on intrinsic value, whereby we carefully analyze the expected cash flows that we believe an investment will provide to determine whether its market price reflects its intrinsic value. On an asset allocation level, our analysis prompted us to decrease the Fund's overall bond allocation, and overweight US stocks in order to take advantage of attractive valuations. This position, though not beneficial during the first quarter of the period, served to enhance results as the equity markets rallied in October and November of 2002. In the months that followed, our overall asset allocation strategy remained fairly constant. On a sector level, our focus on intrinsic value within equities led to overweight positions in utilities, health care and pharmaceuticals, banks and transportation. In the banking sector, extensive research helped us to identify several banks that were providing respectable growth, very attractive returns on equity and compelling valuations. In health care and pharmaceuticals, our positioning emphasized companies with strong, established drug pipelines. The Fund's utility overweight was primarily in electric utilities that had little or no exposure to trading operations (an area that suffered extensively in the wake of Enron and the California electricity crisis). Consistent with our philosophy, if we determine that the risk of holding specific securities outweighs the potential rewards, we will minimize our exposure. Such was the case with retailing and computer hardware stocks during the period. Furthermore, as the period came to an end, we felt the price of many technology and higher-beta stocks had moved too far, too fast, and were not supported by appropriate fundamentals. As such, we chose to move to underweight these areas as well. * AN UNMANAGED INDEX COMPILED BY THE ADVISOR, CONSTRUCTED AS FOLLOWS: 65% WILSHIRE 5000 EQUITY INDEX AND 35% LEHMAN US AGGREGATE BOND INDEX. 35 FIXED INCOME: OUR ANALYSIS IDENTIFIED OPPORTUNITY IN TIPS Performance in fixed income investments benefited from the Fund's exposure to Treasury inflation-protected securities (TIPS). In the latter part of 2002, our analysis indicated that there was significant value in the TIPS sector, which led us to build an overweight in the portfolio versus the benchmark. Early in 2003, concerns about inflation arose on the back of higher oil prices as war with Iraq loomed. As a result, TIPS performed well compared to nominal Treasurys, so we proactively reduced our exposure to lock in gains. We sold out of this position in February 2003, and have no allocation to TIPS as of period end. While the threat of deflation needs to be taken seriously, a general and persistent fall in prices carries a low probability. The current economic environment does make a strong case for short rates remaining accommodative. However, these low interest rates, combined with stimulative fiscal policies, rising budget deficits, geopolitical resolution and strengthening equity and credit pricing reinforce our view that we will see a concurrent pickup in economic activity and long-term interest rates from current levels. In response to this view, we reduced our duration strategy at period end. To do so, we increased our underweight to credits, and decreased our overweight to commercial mortgage-backed securities (CMBS) and mortgage-backed securities (MBS). We made a modest reduction to our agency overweight, and slightly increased the Fund's exposure to asset-backed securities (ABS). At period end, CMBS was our largest sector overweight, although the sector is less attractive as spreads have moved tighter. We also had an overweight to MBS, a neutral weighting to ABS, and an underweight to Treasuries, agencies and credit. LOOKING AHEAD Many of the concerns weighing down the market early in 2003 were not, in fact, tied to fundamentals. During periods of extreme optimism or pessimism, many investors have difficulty adhering to a disciplined valuation process, which can result in an improperly positioned portfolio. Through the application of high-quality research that follows a disciplined and consistent valuation process, we endeavor to avoid such missteps. We expect to continue to manage the portfolio using our proven process, in an attempt to generate superior risk-adjusted returns over the long-term versus the benchmark. 36 TOTAL RETURN
6 MONTHS 1 YEAR 3 YEARS 5 YEARS INCEPTION* ENDED ENDED ENDED ENDED TO 6/30/03 6/30/03 6/30/03 6/30/03 6/30/03 ---------------------------------------------------------------------------------------------------------------------------- UBS U.S. Balanced Fund Class A 9.65% 5.43% 6.08% 3.30% 4.73% ---------------------------------------------------------------------------------------------------------------------------- UBS U.S. Balanced Fund Class B 9.22 4.67 N/A N/A 2.07 ---------------------------------------------------------------------------------------------------------------------------- UBS U.S. Balanced Fund Class C 9.34 4.70 N/A N/A 2.35 ---------------------------------------------------------------------------------------------------------------------------- UBS U.S. Balanced Fund Class Y 9.71 5.70 6.34 3.64 8.52 ---------------------------------------------------------------------------------------------------------------------------- UBS U.S. Balanced Fund Class A** 3.67 -0.41 4.09 2.15 3.74 ---------------------------------------------------------------------------------------------------------------------------- UBS U.S. Balanced Fund Class B** 4.22 -0.33 N/A N/A -0.31 ---------------------------------------------------------------------------------------------------------------------------- UBS U.S. Balanced Fund Class C** 7.20 2.67 N/A N/A 1.76 ---------------------------------------------------------------------------------------------------------------------------- U.S. Balanced Mutual Fund Index*** 9.79 4.96 -3.32 2.21 10.20 ---------------------------------------------------------------------------------------------------------------------------- Lehman Brothers U.S. Aggregate Bond Index 3.93 10.40 10.08 7.54 8.58 ---------------------------------------------------------------------------------------------------------------------------- Wilshire 5000 Equity Index 12.91 1.27 -10.59 -1.31 10.56 ----------------------------------------------------------------------------------------------------------------------------
* INCEPTION DATE OF UBS U.S. BALANCED FUND CLASS A IS 6/30/97. INCEPTION DATES OF CLASS B AND CLASS C ARE 11/07/01 AND 11/06/01, RESPECTIVELY. INCEPTION DATE OF CLASS Y AND, FOR ILLUSTRATION PURPOSES, THE INDICES, IS 12/30/94. ** RETURNS INCLUDE SALES CHARGES. *** AN UNMANAGED INDEX COMPILED BY THE ADVISOR, CONSTRUCTED AS FOLLOWS: 65% WILSHIRE 5000 EQUITY INDEX AND 35% LEHMAN U.S. AGGREGATE BOND INDEX. TOTAL RETURN INCLUDES REINVESTMENT OF ALL CAPITAL GAIN AND INCOME DISTRIBUTIONS. TOTAL RETURN DOES NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES. ALL TOTAL RETURNS IN EXCESS OF 1 YEAR ARE AVERAGE ANNUALIZED RETURNS. ALL TOTAL RETURNS LESS THAN 1 YEAR ARE CUMULATIVE RETURNS. ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000 This chart shows the growth in the value of an investment in UBS U.S. Balanced Fund Class Y shares, the U.S. Balanced Mutual Fund Index, the Lehman Brothers U.S. Aggregate Bond Index and the Wilshire 5000 Equity Index if you had invested $10,000 on December 30, 1994, and had reinvested all your income dividends and capital gain distributions through June 30, 2003. The performance of Class A, Class B and Class C shares will vary based upon the different inception dates, class specific expenses and sales charges. No adjustment has been made for any income taxes payable by shareholders on income dividends and capital gain distributions. Past performance is no guarantee of future results. Share price and return will vary with market conditions; investors may realize a gain or loss upon redemption. [CHART] UBS U.S. BALANCED FUND CLASS Y VS. U.S. BALANCED MUTUAL FUND INDEX, LEHMAN BROTHERS U.S. AGGREGRATE BOND INDEX AND WILSHIRE 5000 EQUITY INDEX Wealth Value With Dividends
LEHMAN BROTHERS UBS U.S. BALANCED FUND U.S. BALANCED MUTUAL FUND U.S. AGGREGATE BOND CLASS Y INDEX WILSHIRE 5000 EQUITY INDEX INDEX $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,190 $ 10,204 $ 10,216 $ 10,198 $ 10,500 $ 10,542 $ 10,623 $ 10,441 $ 10,640 $ 10,743 $ 10,903 $ 10,504 $ 10,800 $ 10,964 $ 11,174 $ 10,651 $ 11,200 $ 11,338 $ 11,552 $ 11,064 6/30/1995 $ 11,391 $ 11,600 $ 11,921 $ 11,144 $ 11,543 $ 11,902 $ 12,412 $ 11,120 $ 11,705 $ 12,025 $ 12,533 $ 11,254 $ 11,928 $ 12,363 $ 13,011 $ 11,364 $ 11,999 $ 12,340 $ 12,880 $ 11,511 $ 12,365 $ 12,747 $ 13,426 $ 11,684 $ 12,548 $ 12,944 $ 13,645 $ 11,848 $ 12,788 $ 13,201 $ 14,011 $ 11,926 $ 12,733 $ 13,273 $ 14,256 $ 11,718 $ 12,766 $ 13,334 $ 14,412 $ 11,636 $ 12,799 $ 13,513 $ 14,768 $ 11,571 $ 12,842 $ 13,751 $ 15,172 $ 11,548 6/30/1996 $ 12,931 $ 13,740 $ 15,047 $ 11,703 $ 12,732 $ 13,271 $ 14,235 $ 11,734 $ 12,876 $ 13,540 $ 14,690 $ 11,714 $ 13,240 $ 14,091 $ 15,472 $ 11,918 $ 13,550 $ 14,330 $ 15,689 $ 12,183 $ 14,058 $ 15,030 $ 16,728 $ 12,391 $ 13,969 $ 14,873 $ 16,540 $ 12,276 $ 14,146 $ 15,410 $ 17,425 $ 12,314 $ 14,194 $ 15,412 $ 17,417 $ 12,345 $ 13,945 $ 14,914 $ 16,647 $ 12,208 $ 14,182 $ 15,412 $ 17,372 $ 12,391 $ 14,596 $ 16,172 $ 18,603 $ 12,509 6/30/1997 $ 14,935 $ 16,722 $ 19,458 $ 12,657 $ 15,555 $ 17,717 $ 20,954 $ 12,999 $ 15,305 $ 17,230 $ 20,166 $ 12,889 $ 15,639 $ 17,980 $ 21,356 $ 13,079 $ 15,484 $ 17,681 $ 20,645 $ 13,269 $ 15,591 $ 18,086 $ 21,321 $ 13,330 $ 15,815 $ 18,368 $ 21,715 $ 13,465 $ 15,974 $ 18,516 $ 21,833 $ 13,637 $ 16,386 $ 19,387 $ 23,422 $ 13,626 $ 16,705 $ 20,044 $ 24,594 $ 13,672 $ 16,665 $ 20,236 $ 24,886 $ 13,744 $ 16,705 $ 19,953 $ 24,224 $ 13,874 6/30/1998 $ 16,756 $ 20,465 $ 25,073 $ 13,992 $ 16,619 $ 20,189 $ 24,524 $ 14,021 $ 16,140 $ 18,254 $ 20,705 $ 14,250 $ 16,729 $ 19,179 $ 22,057 $ 14,583 $ 17,057 $ 20,077 $ 23,698 $ 14,506 $ 17,263 $ 20,937 $ 25,191 $ 14,589 $ 17,383 $ 21,831 $ 26,803 $ 14,633 $ 17,346 $ 22,409 $ 27,788 $ 14,736 $ 16,939 $ 21,743 $ 26,781 $ 14,479 $ 17,124 $ 22,332 $ 27,814 $ 14,558 $ 17,624 $ 23,054 $ 29,147 $ 14,605 $ 17,531 $ 22,652 $ 28,509 $ 14,476 6/30/1999 $ 17,550 $ 23,387 $ 29,985 $ 14,430 $ 17,288 $ 22,867 $ 29,024 $ 14,369 $ 17,026 $ 22,723 $ 28,753 $ 14,362 $ 16,652 $ 22,432 $ 28,002 $ 14,529 $ 16,465 $ 23,383 $ 29,783 $ 14,583 $ 16,465 $ 23,891 $ 30,780 $ 14,581 $ 16,175 $ 25,032 $ 33,117 $ 14,511 $ 15,829 $ 24,332 $ 31,743 $ 14,463 $ 15,328 $ 24,785 $ 32,454 $ 14,638 $ 16,021 $ 25,855 $ 34,381 $ 14,831 $ 16,561 $ 24,952 $ 32,590 $ 14,788 $ 16,753 $ 24,378 $ 31,452 $ 14,781 6/30/2000 $ 16,660 $ 25,255 $ 32,839 $ 15,088 $ 16,854 $ 25,001 $ 32,169 $ 15,226 $ 17,242 $ 26,306 $ 34,504 $ 15,447 $ 17,203 $ 25,571 $ 32,894 $ 15,544 $ 17,611 $ 25,274 $ 32,195 $ 15,646 $ 17,727 $ 23,783 $ 28,993 $ 15,903 $ 18,196 $ 24,216 $ 29,510 $ 16,199 $ 18,720 $ 24,959 $ 30,640 $ 16,463 $ 18,639 $ 23,498 $ 27,734 $ 16,606 $ 18,377 $ 22,513 $ 25,867 $ 16,689 $ 18,820 $ 23,680 $ 27,995 $ 16,619 $ 19,163 $ 23,887 $ 28,274 $ 16,719 6/30/2001 $ 19,024 $ 23,655 $ 27,800 $ 16,782 $ 19,206 $ 23,592 $ 27,341 $ 17,158 $ 18,943 $ 22,755 $ 25,687 $ 17,356 $ 18,073 $ 21,525 $ 23,379 $ 17,557 $ 18,458 $ 22,033 $ 23,974 $ 17,924 $ 19,347 $ 23,022 $ 25,807 $ 17,676 $ 19,601 $ 23,243 $ 26,271 $ 17,563 $ 19,642 $ 23,120 $ 25,945 $ 17,706 $ 19,622 $ 22,888 $ 25,412 $ 17,877 $ 19,997 $ 23,407 $ 26,524 $ 17,581 $ 19,830 $ 22,823 $ 25,229 $ 17,922 $ 19,747 $ 22,716 $ 24,932 $ 18,074 6/30/2002 $ 18,954 $ 21,747 $ 23,180 $ 18,231 $ 18,266 $ 20,697 $ 21,309 $ 18,452 $ 18,496 $ 20,897 $ 21,435 $ 18,764 $ 17,098 $ 19,652 $ 19,285 $ 19,068 $ 17,912 $ 20,599 $ 20,760 $ 18,980 $ 18,725 $ 21,405 $ 22,012 $ 18,974 $ 18,262 $ 20,788 $ 20,792 $ 19,367 $ 17,920 $ 20,453 $ 20,268 $ 19,384 $ 17,771 $ 20,327 $ 19,926 $ 19,652 $ 17,963 $ 20,471 $ 20,151 $ 19,636 $ 19,052 $ 21,621 $ 21,803 $ 19,799 $ 19,843 $ 22,620 $ 23,136 $ 20,167 6/30/2003 $ 20,035 $ 22,822 $ 23,478 $ 20,127
12/30/94 = $10,000 FUND RETURNS ARE NET OF ALL FEES AND COSTS, WHILE THE INDEX RETURNS ARE BASED SOLELY ON MARKET RETURNS WITHOUT DEDUCTION FOR FEES OR TRANSACTION COSTS FOR REBALANCING. 37 TOP TEN EQUITY HOLDINGS AS OF JUNE 30, 2003
PERCENTAGE OF NET ASSETS ---------------------------------------------------- Nextel Communications, Inc., Class A 2.8% Citigroup, Inc. 2.5 Wells Fargo & Co. 2.1 Johnson & Johnson 2.1 UnitedHealth Group, Inc. 1.9 Microsoft Corp. 1.9 Burlington Northern Santa Fe Corp. 1.9 Allergan, Inc. 1.7 GreenPoint Financial Corp. 1.7 J.P. Morgan Chase & Co. 1.7 ---------------------------------------------------- Total 20.3%
TOP TEN FIXED INCOME HOLDINGS AS OF JUNE 30, 2003
PERCENTAGE OF NET ASSETS ------------------------------------------------------------------------ U.S. Treasury Note 3.000%, due 02/15/08 4.0% Federal National Mortgage Association 6.000%, due 11/01/32 1.5 U.S. Treasury Note 3.625%, due 08/31/03 1.3 U.S. Treasury Bond 6.250%, due 05/15/30 1.2 U.S. Treasury Note 5.750%, due 08/15/10 1.1 U.S. Treasury Note 2.750%, due 09/30/03 1.1 Federal National Mortgage Association 5.500%, due 01/01/18 1.0 Morgan Stanley Dean Witter Capital I 6.660%, due 02/15/33 0.9 U.S. Treasury Note 1.625%, due 03/31/05 0.7 U.S. Treasury Note 4.375%, due 08/15/12 0.6 ------------------------------------------------------------------------ Total 13.4%
38 UBS U.S. BALANCED FUND INDUSTRY DIVERSIFICATION AS A PERCENT OF NET ASSETS AS OF JUNE 30, 2003 U.S. EQUITIES Aerospace & Military 1.23% Airlines 0.62 Autos/Durables 0.50 Banks 5.26 Biomedical 0.34 Broadcasting & Publishing 0.48 Business & Public Service 0.36 Capital Goods 2.10 Chemicals 1.23 Computer Software 1.92 Computer Systems 1.18 Construction 0.78 Consumer 0.94 Electric Components 1.01 Energy 5.72 Financial Services 9.96 Health: Drugs 5.83 Health: Non-Drugs 4.78 Housing/Paper 1.17 Industrial Components 1.07 Media and Entertainment 1.15 Metals Non-Ferrous 1.47 Recreation 0.79 Retail/Apparel 2.81 Services/Miscellaneous 3.27 Telecommunications- Services 4.06 Transportation 1.84 Utilities 2.04 ------- Total Equities 63.91 U.S. CORPORATE BONDS Aerospace & Military 0.14 Airlines 0.10 Autos/Durables 0.13 Banks 0.48 Beverages & Tobacco 0.22 Chemicals 0.04% Computer Systems 0.10 Construction 0.13 Consumer 0.11 Electric Components 0.12 Energy 0.44 Financial Services 2.05 Food & House Products 0.51 Forest Products 0.04 Health: Drugs 0.04 Housing/Paper 0.04 Insurance 0.02 Leisure & Tourism 0.11 Media and Entertainment 0.04 Metals Non-Ferrous 0.04 Multi-Industry 0.17 Publishing 0.02 Real Estate 0.10 Retail/Apparel 0.06 Services/Miscellaneous 0.17 Telecommunications 0.31 Telecommunications - Wireless 0.02 Transportation 0.13 Utilities 0.11 ------- Total U.S. Corporate Bonds 5.99 Asset-Backed Securities 1.26 International Dollar Bonds 0.63 Mortgage-Backed Securities 15.98 U.S. Government Obligations 10.25 ------- Total Bonds 34.11 SHORT-TERM INVESTMENTS 2.41 ------- TOTAL INVESTMENTS 100.43 LIABILITIES, LESS CASH AND OTHER ASSETS (0.43) ------- NET ASSETS 100.00% =======
39 UBS U.S. BALANCED FUND -- SCHEDULE OF INVESTMENTS JUNE 30, 2003
SHARES VALUE ------------- ------------- U.S. EQUITIES -- 63.91% AEROSPACE & MILITARY -- 1.23% United Technologies Corp. 5,400 $ 382,482 ------------- AIRLINES -- 0.62% Continental Airlines, Inc., Class B (b) 4,600 68,862 Delta Air Lines, Inc. 8,400 123,312 ------------- 192,174 ------------- AUTOS/DURABLES -- 0.49% Johnson Controls, Inc. 1,800 154,080 ------------- BANKS -- 5.26% FleetBoston Financial Corp. 8,105 240,800 GreenPoint Financial Corp. 10,500 534,870 PNC Financial Services Group 4,100 200,121 Wells Fargo & Co. 13,100 660,240 ------------- 1,636,031 ------------- BIOMEDICAL -- 0.34% Genzyme Corp. (b) 2,500 104,500 ------------- BROADCASTING & PUBLISHING -- 0.48% McGraw-Hill Cos., Inc. (The) 2,400 148,800 ------------- BUSINESS & PUBLIC SERVICE -- 0.36% Interpublic Group of Cos., Inc. 8,300 111,054 ------------- CAPITAL GOODS -- 2.10% Illinois Tool Works, Inc. 6,700 441,195 Pentair, Inc. 5,400 210,924 ------------- 652,119 ------------- CHEMICALS -- 1.23% Dow Chemical Co. (The) 6,500 201,240 Eastman Chemical Co. 3,400 107,678 IMC Global, Inc. 10,800 72,468 ------------- 381,386 ------------- COMPUTER SOFTWARE -- 1.92% Microsoft Corp. 23,300 596,713 ------------- COMPUTER SYSTEMS -- 1.18% Computer Sciences Corp. (b) 2,200 83,864 Hewlett-Packard Co. 13,285 282,971 ------------- 366,835 ------------- CONSTRUCTION -- 0.78% Martin Marietta Materials, Inc. 7,236 243,202 ------------- CONSUMER -- 0.94% Kimberly-Clark Corp. 5,600 291,984 ------------- ELECTRIC COMPONENTS -- 1.01% Linear Technology Corp. 6,000 193,260 Texas Instruments, Inc. 6,900 121,440 ------------- 314,700 ------------- ENERGY -- 5.72% ConocoPhillips 5,360 293,728 Exelon Corp. 6,900 412,689 ExxonMobil Corp. 6,900 247,779 FirstEnergy Corp. 9,591 368,774 Kerr-McGee Corp. 1,850 $ 82,880 Progress Energy, Inc. 4,100 179,990 Sempra Energy 6,800 194,004 ------------- 1,779,844 ------------- FINANCIAL SERVICES -- 9.96% American International Group, Inc. 5,400 297,972 Anthem, Inc. (b) 4,300 331,745 Citigroup, Inc. 18,086 774,081 Freddie Mac 8,100 411,237 Hartford Financial Services Group, Inc. (The) 3,800 191,368 J.P. Morgan Chase & Co. 15,200 519,536 Mellon Financial Corp. 7,900 219,225 Morgan Stanley 8,250 352,687 ------------- 3,097,851 ------------- HEALTH: DRUGS -- 5.83% Allergan, Inc. 7,000 539,700 Bristol-Myers Squibb Co. 13,400 363,810 Cephalon, Inc. (b) 4,500 185,220 SICOR, Inc. (b) 16,400 333,576 Wyeth 8,600 391,730 ------------- 1,814,036 ------------- HEALTH: NON-DRUGS -- 4.78% Baxter International, Inc. 5,200 135,200 Biomet, Inc. 3,100 88,846 Johnson & Johnson 12,764 659,899 UnitedHealth Group, Inc. 12,000 603,000 ------------- 1,486,945 ------------- HOUSING/PAPER -- 1.16% American Standard Companies, Inc. (b) 4,900 362,257 ------------- INDUSTRIAL COMPONENTS -- 1.06% Ingersoll-Rand Co., Class A 7,000 331,240 ------------- MEDIA AND ENTERTAINMENT -- 1.15% Viacom, Inc., Class B (b) 8,200 358,012 ------------- METALS NON-FERROUS -- 1.46% Masco Corp. 19,100 455,535 ------------- RECREATION -- 0.79% Royal Caribbean Cruises Ltd. 10,600 245,496 ------------- RETAIL/APPAREL -- 2.81% Costco Wholesale Corp. (b) 7,800 285,480 Newell Rubbermaid, Inc. 10,300 288,400 RadioShack Corp. 6,000 157,860 TJX Companies, Inc. 7,500 141,300 ------------- 873,040 ------------- SERVICES/MISCELLANEOUS -- 3.27% First Data Corp. 6,116 253,447 MeadWestvaco Corp. 5,150 127,205 Omnicom Group 7,200 516,240 Viad Corp. 5,400 120,906 ------------- 1,017,798 -------------
40
SHARES VALUE ------------- ------------- TELECOMMUNICATIONS- SERVICES -- 4.06% Motorola, Inc. 19,615 $ 184,969 Nextel Communications, Inc., Class A (b) 47,700 862,416 SBC Communications, Inc. 8,400 214,620 ------------- 1,262,005 ------------- TRANSPORTATION -- 1.88% Burlington Northern Santa Fe Corp. 20,600 585,864 ------------- UTILITIES -- 2.04% CMS Energy Corp. 9,100 73,710 Consolidated Edison, Inc. 4,400 190,432 Dominion Resources, Inc. 2,400 154,248 Entergy Corp. 4,100 216,398 ------------- 634,788 ------------- Total U.S. Equities (Cost $18,392,735) 19,880,771 ------------- FACE AMOUNT ------------- BONDS -- 34.11% U.S. CORPORATE BONDS -- 5.99% Abbott Laboratories, Inc. 5.625%, due 07/01/06 $ 5,000 5,536 Alcoa, Inc. 6.000%, due 01/15/12 10,000 11,264 American Express Co. 3.750%, due 11/20/07 25,000 26,051 Anadarko Finance Co., Series B 7.500%, due 05/01/31 5,000 6,281 Anheuser Busch Cos., Inc. 9.000%, due 12/01/09 25,000 33,351 AOL Time Warner, Inc. 7.625%, due 04/15/31 30,000 34,623 Apache Corp. 6.250%, due 04/15/12 25,000 29,110 AT&T Corp. 8.500%, due 11/15/31 5,000 5,669 AT&T Wireless Services, Inc. 7.875%, due 03/01/11 15,000 17,715 Avalonbay Communities, Inc. 7.500%, due 08/01/09 10,000 11,859 Avon Products, Inc. 7.150%, due 11/15/09 15,000 18,162 Bank of America Corp. 7.400%, due 01/15/11 35,000 43,001 Bank One Corp. 7.875%, due 08/01/10 30,000 37,407 Boeing Capital Corp. 7.375%, due 09/27/10 25,000 29,624 Bombardier Capital, Inc., 144A 6.125%, due 06/29/06 15,000 15,338 Bristol-Myers Squibb Co. 5.750%, due 10/01/11 5,000 5,564 Burlington Northern Santa Fe Corp. 7.082%, due 05/13/29 15,000 17,626 Caterpillar, Inc. 6.550%, due 05/01/11 10,000 11,822 Cendant Corp. 6.875%, due 08/15/06 15,000 16,778 FACE AMOUNT VALUE ------------- ------------- Centex Corp. 9.750%, due 06/15/05 $ 25,000 $ 28,544 Cingular Wireless LLC 6.500%, due 12/15/11 5,000 5,761 Citigroup, Inc. 7.250%, due 10/01/10 50,000 60,581 Citizens Communications Co. 9.250%, due 05/15/11 15,000 19,409 Coca-Cola Co. (The) 4.000%, due 06/01/05 10,000 10,465 Comcast Cable Communications, Inc. 6.750%, due 01/30/11 25,000 28,697 Commonwealth Edison Co., 6.150%, due 03/15/12 5,000 5,733 Computer Sciences Corp. 3.500%, due 04/15/08 25,000 25,530 Conagra Foods, Inc. 6.750%, due 09/15/11 10,000 11,707 ConocoPhillips 8.500%, due 05/25/05 20,000 22,529 8.750%, due 05/25/10 10,000 13,015 Consolidated Edison, Inc., Series B 7.500%, due 09/01/10 25,000 30,664 Coors Brewing Co., 6.375%, due 05/15/12 10,000 11,476 Countrywide Home Loans, Inc. 3.250%, due 05/21/08 25,000 25,121 Credit Suisse First Boston USA, Inc. 5.750%, due 04/15/07 10,000 11,110 6.500%, due 01/15/12 15,000 17,213 DaimlerChrysler N.A Holding Corp. 8.500%, due 01/18/31 10,000 11,779 Devon Financing Corp., ULC 6.875%, due 09/30/11 10,000 11,730 Dominion Resources, Inc., Class B 7.625%, due 07/15/05 20,000 22,245 DTE Energy Co. 7.050%, due 06/01/11 5,000 5,848 Duke Energy Field Services, LLC 6.875%, due 02/01/11 5,000 5,710 7.875%, due 08/16/10 5,000 6,018 EOP Operating LP 7.000%, due 07/15/11 15,000 17,409 Erac U.S.A. Finance Co., 144A 8.000%, due 01/15/11 20,000 23,828 First Data Corp. 5.625%, due 11/01/11 10,000 11,066 First Union National Bank 7.800%, due 08/18/10 30,000 37,223 FleetBoston Financial Corp. 7.375%, due 12/01/09 5,000 6,000 Ford Motor Co. 7.450%, due 07/16/31 20,000 18,321 Ford Motor Credit Co. 5.800%, due 01/12/09 10,000 9,939 7.375%, due 02/01/11 15,000 15,508 General Dynamics Corp. 3.000%, due 05/15/08 25,000 25,157
41
FACE AMOUNT VALUE ------------- ------------- General Electric Capital Corp. 6.000%, due 06/15/12 $ 90,000 $ 101,589 General Motors Acceptance Corp. 6.875%, due 09/15/11 40,000 40,134 8.000%, due 11/01/31 25,000 24,529 Goldman Sachs Group, Inc. 6.875%, due 01/15/11 20,000 23,599 Harrah's Operating Co., Inc. 7.500%, due 01/15/09 15,000 17,773 Household Finance Corp. 6.750%, due 05/15/11 25,000 29,034 International Business Machines Corp. 5.875%, due 11/29/32 5,000 5,363 International Paper Co. 6.750%, due 09/01/11 10,000 11,566 John Deere Capital Corp. 7.000%, due 03/15/12 10,000 11,872 Kerr-McGee Corp. 7.875%, due 09/15/31 5,000 6,116 Kimberly-Clark Corp., 144A 4.500%, due 07/30/05 15,000 15,854 Kohl's Corp. 6.300%, due 03/01/11 5,000 5,793 Kraft Foods, Inc. 5.625%, due 11/01/11 25,000 27,242 Kroger Co. 7.500%, due 04/01/31 5,000 5,930 8.050%, due 02/01/10 40,000 48,212 Lehman Brothers Holdings, Inc. 6.625%, due 01/18/12 10,000 11,724 Lincoln National Corp. 6.200%, due 12/15/11 5,000 5,613 Marsh & McClennan Cos., Inc. 6.250%, due 03/15/12 5,000 5,699 MidAmerican Energy Co. 5.125%, due 01/15/13 10,000 10,615 Mirant Americas Generation, Inc. 7.625%, due 05/01/06 15,000 11,550 Morgan Stanley 6.750%, due 04/15/11 35,000 40,939 News America Holdings, Inc. 7.125%, due 04/08/28 5,000 5,567 Occidental Petroleum Corp. 8.450%, due 02/15/29 5,000 6,996 Pemex Project Funding Master Trust 8.000%, due 11/15/11 25,000 28,625 Pepsi Bottling Group, Inc., 144A 5.625%, due 02/17/09 15,000 16,823 Praxair, Inc. 6.375%, due 04/01/12 5,000 5,823 Progress Energy, Inc. 7.000%, due 10/30/31 10,000 11,036 Qwest Capital Funding, Inc. 7.900%, due 08/15/10 30,000 25,050 Rohm & Haas Co. 7.850%, due 07/15/29 5,000 6,474 Safeway, Inc. 3.800%, due 08/15/05 30,000 30,798 SBC Communications, Inc. 5.875%, due 02/01/12 $ 10,000 $ 11,226 SLM Corp. 5.625%, due 04/10/07 20,000 22,198 Southern Power Co., Series B 6.250%, due 07/15/12 5,000 5,659 Southwestern Electric Power, Series B 4.500%, due 07/01/05 5,000 5,192 Sprint Capital Corp. 8.375%, due 03/15/12 25,000 29,933 Suntrust Banks, Inc. 5.050%, due 07/01/07 5,000 5,460 Target Corp. 7.000%, due 07/15/31 10,000 11,968 U.S. Bank N.A., Minnesota 6.375%, due 08/01/11 20,000 23,347 Unilever Capital Corp. 7.125%, due 11/01/10 15,000 18,174 Union Pacific Corp. 6.700%, due 12/01/06 20,000 22,493 United Technologies Corp. 6.100%, due 05/15/12 15,000 17,293 UST, Inc. 6.625%, due 07/15/12 10,000 11,579 Valero Energy Corp. 7.500%, due 04/15/32 10,000 11,336 Verizon New England, Inc. 6.500%, due 09/15/11 5,000 5,802 Verizon New York, Inc., Series B 7.380%, due 04/01/32 5,000 6,204 Viacom, Inc. 6.625%, due 05/15/11 10,000 11,796 Walt Disney Co. (The) 6.375%, due 03/01/12 15,000 17,098 Washington Mutual, Inc. 5.625%, due 01/15/07 35,000 38,577 Wells Fargo Bank, N.A 6.450%, due 02/01/11 40,000 47,161 Weyerhaeuser Co. 7.375%, due 03/15/32 10,000 11,495 ------------- 1,864,046 ------------- ASSET-BACKED SECURITIES -- 1.26% Americredit Automobile Receivables Trust, 03-AM, Class A2B FRN 1.584%, due 10/06/06 30,000 29,999 Capital One Multi-Asset Execution Trust, 03-A1, Class A1 FRN 1.570%, due 01/15/09 80,000 80,002 Conseco Finance, 00-B, Class AF4 7.870%, due 02/15/31 25,000 26,014 Peco Energy Transition Trust, 99-A, Class A7 6.130%, due 03/01/09 55,000 63,092 Sears Credit Account Master Trust, 01-1, Class A FRN 1.360%, due 02/15/10 80,000 79,667 Structured Asset Securities Corp., 03-AL2, Class A, 144A 3.356%, due 01/25/31 29,531 29,252
42
FACE AMOUNT VALUE ------------- ------------- United Airlines, Inc. E.E.T.C. (d)(e) 7.811%, due 10/01/09 $ 29,456 $ 7,615 Vanderbilt Mortgage Finance, 00-B, Class 1A3 8.255%, due 05/07/17 70,000 75,691 ------------- 391,332 ------------- INTERNATIONAL DOLLAR BONDS -- 0.63% Burlington Resources Finance Co. 6.680%, due 02/15/11 5,000 5,868 Canadian National Railway Co. 6.900%, due 07/15/28 5,000 5,932 Deutsche Telekom International Finance BV 8.250%, due 06/15/30 5,000 6,370 European Investment Bank 4.875%, due 09/06/06 25,000 27,089 France Telecom S.A. 8.500%, due 03/01/31 5,000 6,919 HSBC Holdings PLC 5.250%, due 12/12/12 5,000 5,333 Inter-American Development Bank 5.750%, due 02/26/08 30,000 34,302 International Bank for Reconstruction & Development 4.375%, due 09/28/06 35,000 37,832 Mexico Government International Bond 8.125%, due 12/30/19 20,000 22,800 Rio Tinto Finance USA Ltd. 2.625%, due 09/30/08 25,000 24,542 Royal Bank of Scotland 9.118%, due 03/31/10 5,000 6,447 Telus Corp. 8.000%, due 06/01/11 10,000 11,550 ------------- 194,984 ------------- MORTGAGE-BACKED SECURITIES -- 15.98% Bear Stearns Commercial Mortgage Securities, 00-WF1, Class A2 7.780%, due 02/15/32 140,000 171,911 CS First Boston Mortgage Securities Corp., 03-8, Class 5A1 6.500%, due 04/25/33 104,098 107,158 DLJ Commercial Mortgage Corp., 99-CG2, Class A1B 7.300%, due 06/10/32 25,000 30,021 Fannie Mae 4.625%, due 05/01/13 35,000 35,995 5.500%, due 03/15/11 140,000 158,835 7.125%, due 01/15/30 135,000 175,225 Federal Home Loan Mortgage Corp., 1595 D 6.500%, due 11/01/32 149,802 155,888 Federal Home Loan Mortgage Corp., 2532 PD 5.5000%, due 06/15/26 90,000 93,277 Federal Home Loan Mortgage Corp., Gold 5.500%, due 09/01/17 46,590 48,322 5.500%, due 01/01/18 81,144 84,161 5.500%, due 04/01/18 76,857 79,718 6.000%, due 10/01/29 25,241 26,206 6.000%, due 03/01/32 18,340 19,016 6.500%, due 02/01/29 102,084 106,231 6.500%, due 04/01/29 99,068 103,093 Federal National Mortgage Association 4.500%, due 05/01/33 FRN $ 148,385 $ 153,207 4.503%, due 06/01/33 FRN 149,862 153,214 5.500%, due 12/01/17 51,546 53,546 5.500%, due 01/01/18 311,052 323,118 5.500%, due 02/01/18 117,959 122,535 6.000%, due 06/01/23 9,837 10,257 6.000%, due 03/01/29 55,772 57,981 6.000%, due 11/01/32 450,520 468,365 6.000%, due 06/01/33 34,960 36,345 6.500%, due 11/01/31 55,783 58,171 6.500%, due 08/01/32 110,817 115,561 7.000%, due 11/01/32 115,089 121,203 7.000%, due 05/01/33 160,000 168,500 7.500%, due 05/01/31 40,110 42,617 7.500%, due 02/01/33 140,713 149,569 Federal National Mortgage Association Grantor Trust, 00-T6, Class A1 7.500%, due 06/25/30 87,265 97,382 Federal National Mortgage Association Grantor Trust, 01-T10, Class A2 7.500%, due 12/25/41 6,176 6,892 Federal National Mortgage Association Grantor Trust, 01-T5, Class A3 7.500%, due 06/19/30 106,711 119,083 Federal National Mortgage Association Whole Loan, 01-W3, Class A 7.000%, due 09/25/41 68,607 74,803 Federal National Mortgage Association Whole Loan, 03-W6, Class 6A FRN 5.210%, due 08/25/42 48,113 50,714 Federal National Mortgage Association, 93-73, Class ZA 7.500%, due 10/25/22 18,687 18,887 Freddie Mac 5.875%, due 03/21/11 45,000 50,619 GMAC Commercial Mortgage Securities, Inc., 97-C2, Class A2 6.550%, due 04/16/29 35,000 37,824 Government National Mortgage Association 6.000%, due 11/20/28 27,714 28,892 6.000%, due 02/20/29 59,888 62,433 6.500%, due 10/15/28 69,857 73,350 7.000%, due 04/15/26 45,920 48,503 Greenwich Capital Commercial Funding Corp., 03-FL1 A FRN 1.639%, due 07/05/18 34,993 34,993 GS Mortgage Securities Corp. II, 96-PL, Class A2 7.410%, due 02/15/27 18,074 18,832 GS Mortgage Securities Corp., 01-2, Class A, 144A 7.500%, due 06/19/32 92,090 98,719 Impac Secured Assets Common Owner, 01-3, Class A2 (c) 6.703%, due 04/25/31 13,890 14,349 LB Commercial Conduit Mortgage Trust, 99-C1, Class A1 6.410%, due 06/15/31 84,169 91,139
43
FACE AMOUNT VALUE ------------- ------------- LB Commercial Conduit Mortgage Trust, 99-C2, Class A2 7.325%, due 10/15/32 $ 40,000 $ 48,163 Morgan Stanley Dean Witter Capital I, 00-LIF2, Class A1 6.960%, due 10/15/33 25,474 28,749 Morgan Stanley Dean Witter Capital I, 00-LIFE, Class A2 7.570%, due 12/15/09 135,000 164,762 Morgan Stanley Dean Witter Capital I, 01-TOP1, Class A4 6.660%, due 02/15/33 235,000 276,499 Nomura Asset Securities Corp., 95-MD3, Class A1B 8.150%, due 04/04/27 66,624 72,644 Structured Asset Securities Corp., 98-ALS1, Class 1A 6.900%, due 01/25/29 23,610 23,877 ------------- 4,971,354 ------------- U.S. GOVERNMENT OBLIGATIONS -- 10.25% U.S. Treasury Bonds 6.250%, due 05/15/30 310,000 385,926 8.000%, due 11/15/21 40,000 57,948 U.S. Treasury Notes 1.625%, due 03/31/05 225,000 226,547 3.000%, due 02/15/08 1,200,000 1,234,828 3.625%, due 08/31/03 405,000 406,788 4.375%, due 08/15/12 175,000 187,640 5.750%, due 08/15/10 300,000 351,152 2.750%, due 09/30/03 335,000 336,570 ------------- 3,187,399 ------------- Total U.S. Bonds (Cost $10,312,818) 10,609,115 ------------- SHARES ------------- SHORT-TERM INVESTMENTS -- 2.41% OTHER -- 2.41% UBS Supplementary Trust U.S. Cash Management Prime Fund (Cost $749,445) 749,445 749,445 ------------- Total Investments (Cost $29,454,998) -- 100.43% (a) 31,239,331 Liabilities, less cash and other assets -- (0.43)% (134,147) ------------- Net Assets -- 100% $ 31,105,184 =============
44 NOTES TO SCHEDULE OF INVESTMENTS (a) Aggregate cost for federal income tax purposes was $29,956,159; and net unrealized appreciation consisted of: Gross unrealized appreciation $ 2,280,678 Gross unrealized depreciation (997,506) ------------ Net unrealized appreciation $ 1,283,172 ============
(b) Non-income producing security. (c) Variable rate note - The rate disclosed is that in effect at June 30, 2003. (d) Security is in default. (e) Security is illiquid. These securities amounted to $7,615 or 0.02% of net assets. % Represents a percentage of net assets. E.E.T.C.: Enhanced Equipment Trust Certificate. FRN: Floating rate note - The rate disclosed is that in effect at June 30, 2003. 144A: Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified buyers. At June 30, 2003, the value of these securities amounted to $199,814 or 0.64% of net assets. See accompanying notes to financial statements 45 UBS U.S. EQUITY FUND Over the fiscal year ended June 30, 2003, Class Y shares of UBS U.S. Equity Fund returned 1.69%, slightly outperforming the 1.27% return of the Fund's benchmark, the Wilshire 5000 Equity Index. Since the Fund's inception on February 22, 1994, through June 30, 2003, its Class Y shares provided an average annual return of 10.00%. This compares to the 9.92% return of the Fund's benchmark. (Returns for all share classes over various time periods are shown on page 48. Please note that these returns do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.) The Fund's slight outperformance of the Index over the period is attributable to sector selection. In particular, a large underweight to the consumer sector was a primary contributor to performance. 12-MONTH MARKET REVIEW The US equity markets were extremely volatile during the 12-month period, alternately falling and rising over the four quarters that made up the Fund's reporting period. Early in the period, a weak economy, anemic corporate profits, accounting issues and unrest in the Middle East led investors to shun stocks in favor of the perceived security of the bond market. However, after falling to a five-year low in early October 2002, stocks staged a surprising rally when, in the aftermath of the market's sharp decline, investors found themselves drawn to certain downtrodden sectors that were viewed as having compelling valuations. Geopolitical issues came to the fore as the year 2003 began, as anticipation of the war in Iraq, saber rattling in North Korea and renewed concerns about terrorism preoccupied the country. Investor aversion to risk resurfaced, and the majority of the sectors covered in the Index fell during the first quarter. Nonetheless, the 12-month period ended on a positive note, as the end to major fighting in Iraq eliminated one of the issues weighing most heavily on the market. Investors grew increasingly optimistic about the potential for an economic revival and subsequent upturn in corporate profits. At the same time, their appetite for risk increased as the yields available from many fixed income securities shrank. As a result, equity investors drove stocks to steep gains over the final quarter of the period. The gains were broad-based, and many of the best-performing sectors were the prior years' weakest-performing areas: the utility, information technology, telecommunication services and industrial sectors. OUR IN-DEPTH RESEARCH IDENTIFIED COMPANIES WITH COMPELLING INTRINSIC VALUES Our disciplined investment approach focuses on intrinsic value, which is determined by the fundamentals that drive a security's future cash flow. Discrepancies between market price and intrinsic value arise from market behavior and provide us with opportunities to outperform the Fund's benchmark. Throughout the period, our intrinsic value investment discipline led us to make a number of sector decisions that helped drive the Fund's performance to surpass that of its benchmark. In particular, a large underweight to the consumer sector, specifically in specialty retail and department stores, helped performance. Also, although our semiconductor exposure was small, it made a significant positive contribution to return due to the strong performance of these stocks through the last nine months of the review period. In the pharmaceuticals area, a number of drug failures from a small handful of producers were dragging down the entire sector. However, the in-depth analysis conducted by our analysts uncovered a number of solid companies selling at very attractive valuations. In particular, we focused on firms with compelling and established drug pipelines. These holdings subsequently rose in value when investors realized their true value. The Fund's selective holdings in the bank sector also aided returns. In this area, our research directed us to companies that were enjoying the benefits of earlier consolidations, and that were introducing superior new products. On the other end of the spectrum, we were penalized for holding an underweight to media throughout the period (although the names that we did hold in this space did very well for 46 us over the period). An underweight to computer hardware, which was consistent with our belief that the space is overvalued, also created a drag on performance, as did an overweight in railroads, which detracted at the sector level, while the names we held added to performance. The Fund's overweight position in utilities also hurt relative performance. While our overweight in this sector was primarily in electric utilities with little or no exposure to trading operations (which suffered extensively in the wake of Enron and the California electricity crisis), these holdings did not meet our expectations. As the period drew to a close, the large difference between growth and value stocks became less pronounced, as did the divergence in performance between the very largest stocks in the Index and the rest of the market. As a result, the importance of our extensive "bottom-up" determination of cash flows and intrinsic value became increasingly important. In this environment, we continued to find a number of compelling opportunities in banks, pharmaceutical companies and utilities. Conversely, we felt the prices of many higher beta stocks--such as the majority of those in the technology and telecommunications space--had moved too far, too fast, and were not supported by appropriate fundamentals. As a result, we maintained an underweight position in these sectors. LOOKING AHEAD Many of the concerns weighing down the market early in 2003 were not, in fact, tied to fundamentals. During periods of extreme optimism or pessimism, many investors have difficulty adhering to a disciplined valuation process, which can result in an improperly positioned portfolio. Through the application of high quality research that follows a disciplined and consistent valuation process, we endeavor to avoid such missteps. We intend to continue managing the portfolio using our proven process, whereby we employ a fundamental, disciplined investment approach in an attempt to generate superior risk-adjusted returns versus the benchmark over the long-term. 47 UBS U.S. EQUITY FUND TOTAL RETURN
6 MONTHS 1 YEAR 3 YEARS 5 YEARS INCEPTION* ENDED ENDED ENDED ENDED TO 6/30/03 6/30/03 6/30/03 6/30/03 6/30/03 --------------------------------------------------------------------------------------------------- UBS U.S. Equity Fund Class A 12.65% 1.37% 0.89% -0.50% 2.81% --------------------------------------------------------------------------------------------------- UBS U.S. Equity Fund Class B 12.18 0.63 N/A N/A -0.47 --------------------------------------------------------------------------------------------------- UBS U.S. Equity Fund Class C 12.19 0.68 N/A N/A -2.19 --------------------------------------------------------------------------------------------------- UBS U.S. Equity Fund Class Y 12.73 1.69 1.17 -0.20 10.00 --------------------------------------------------------------------------------------------------- UBS U.S. Equity Fund Class A** 6.48 -4.20 -0.99 -1.62 1.85 --------------------------------------------------------------------------------------------------- UBS U.S. Equity Fund Class B** 7.18 -4.22 N/A N/A -2.70 --------------------------------------------------------------------------------------------------- UBS U.S. Equity Fund Class C** 10.08 -1.29 N/A N/A -2.77 --------------------------------------------------------------------------------------------------- Wilshire 5000 Equity Index 12.91 1.27 -10.59 -1.31 9.92 ---------------------------------------------------------------------------------------------------
* INCEPTION DATE OF UBS U.S. EQUITY FUND CLASS A IS 6/30/97. INCEPTION DATES OF CLASS B AND CLASS C ARE 11/05/01 AND 11/13/01, RESPECTIVELY. INCEPTION DATE OF CLASS Y AND, FOR ILLUSTRATION PURPOSES, THE INDEX, IS 2/22/94. ** RETURNS INCLUDE SALES CHARGES. TOTAL RETURN INCLUDES REINVESTMENT OF ALL CAPITAL GAIN AND INCOME DISTRIBUTIONS. TOTAL RETURN DOES NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES. ALL TOTAL RETURNS IN EXCESS OF 1 YEAR ARE AVERAGE ANNUALIZED RETURNS. ALL TOTAL RETURNS LESS THAN 1 YEAR ARE CUMULATIVE RETURNS. ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000 This chart shows the growth in the value of an investment in UBS U.S. Equity Fund Class Y shares and the Wilshire 5000 Equity Index if you had invested $10,000 on February 22, 1994, and had reinvested all your income dividends and capital gain distributions through June 30, 2003. The performance of Class A, Class B and Class C shares will vary based upon the different inception dates, class specific expenses and sales charges. No adjustment has been made for any income taxes payable by shareholders on income dividends and capital gain distributions. Past performance is no guarantee of future results. Share price and return will vary with market conditions; investors may realize a gain or loss upon redemption. [CHART] UBS U.S. EQUITY FUND CLASS Y VS. WILSHIRE 5000 EQUITY INDEX Wealth Value With Dividends
UBS U.S. EQUITY FUND CLASS Y WILSHIRE 5000 EQUITY INDEX $ 10,000 $ 10,000 $ 9,420 $ 9,547 $ 9,640 $ 9,639 $ 9,840 $ 9,733 6/30/1994 $ 9,690 $ 9,473 $ 9,911 $ 9,754 $ 10,544 $ 10,185 $ 10,182 $ 9,988 $ 10,132 $ 10,151 $ 9,781 $ 9,779 $ 9,827 $ 9,911 $ 10,030 $ 10,125 $ 10,487 $ 10,528 $ 10,752 $ 10,806 $ 10,985 $ 11,074 $ 11,392 $ 11,449 6/30/1995 $ 11,768 $ 11,815 $ 12,187 $ 12,301 $ 12,411 $ 12,421 $ 12,881 $ 12,895 $ 12,840 $ 12,765 $ 13,575 $ 13,306 $ 13,815 $ 13,523 $ 14,381 $ 13,886 $ 14,612 $ 14,129 $ 14,885 $ 14,283 $ 15,168 $ 14,636 $ 15,409 $ 15,036 6/30/1996 $ 15,367 $ 14,913 $ 14,629 $ 14,108 $ 15,188 $ 14,559 $ 15,872 $ 15,334 $ 16,209 $ 15,549 $ 17,336 $ 16,579 $ 17,359 $ 16,392 $ 17,989 $ 17,270 $ 18,092 $ 17,262 $ 17,496 $ 16,498 $ 18,035 $ 17,218 $ 19,354 $ 18,438 6/30/1997 $ 20,265 $ 19,285 $ 21,815 $ 20,767 $ 20,965 $ 19,986 $ 21,907 $ 21,166 $ 20,747 $ 20,461 $ 21,161 $ 21,131 $ 21,657 $ 21,521 $ 21,805 $ 21,638 $ 23,702 $ 23,213 $ 25,070 $ 24,375 $ 24,823 $ 24,665 $ 24,466 $ 24,008 6/30/1998 $ 24,617 $ 24,850 $ 23,999 $ 24,305 $ 20,574 $ 20,520 $ 22,070 $ 21,861 $ 23,752 $ 23,487 $ 24,741 $ 24,966 $ 25,680 $ 26,564 $ 25,509 $ 27,540 $ 24,575 $ 26,542 $ 25,377 $ 27,566 $ 27,665 $ 28,887 $ 27,323 $ 28,255 6/30/1999 $ 28,363 $ 29,718 $ 27,175 $ 28,765 $ 26,224 $ 28,497 $ 24,323 $ 27,752 $ 24,336 $ 29,517 $ 24,481 $ 30,506 $ 24,640 $ 32,822 $ 22,985 $ 31,460 $ 21,109 $ 32,164 $ 23,204 $ 34,075 $ 24,127 $ 32,300 $ 24,332 $ 31,171 6/30/2000 $ 23,541 $ 32,546 $ 23,629 $ 31,882 $ 25,138 $ 34,197 $ 24,274 $ 32,601 $ 25,094 $ 31,908 $ 24,464 $ 28,734 $ 25,437 $ 29,246 $ 26,621 $ 30,367 $ 25,615 $ 27,487 $ 24,464 $ 25,636 $ 25,810 $ 27,746 $ 26,524 $ 28,022 6/30/2001 $ 26,103 $ 27,553 $ 25,924 $ 27,098 $ 24,966 $ 25,458 $ 22,773 $ 23,171 $ 23,244 $ 23,760 $ 25,290 $ 25,577 $ 25,913 $ 26,037 $ 25,896 $ 25,714 $ 25,709 $ 25,185 $ 26,799 $ 26,287 $ 26,050 $ 25,004 $ 25,743 $ 24,710 6/30/2002 $ 23,971 $ 22,973 $ 22,284 $ 21,119 $ 22,557 $ 21,244 $ 19,848 $ 19,113 $ 21,313 $ 20,575 $ 22,744 $ 21,816 $ 21,624 $ 20,607 $ 21,020 $ 20,088 $ 20,576 $ 19,748 $ 20,789 $ 19,971 $ 22,725 $ 21,609 $ 23,950 $ 22,929 6/30/2003 $ 24,376 $ 23,269
2/22/94 = $10,000 FUND RETURNS ARE NET OF ALL FEES AND COSTS, WHILE THE INDEX RETURNS ARE BASED SOLELY ON MARKET RETURNS WITHOUT DEDUCTION FOR FEES OR TRANSACTION COSTS FOR REBALANCING. 48 UBS U.S. EQUITY FUND TOP TEN EQUITY HOLDINGS AS OF JUNE 30, 2003
PERCENTAGE OF NET ASSETS -------------------------------------------------- Nextel Communications, Inc., Class A 4.0% Citigroup, Inc. 3.6 Johnson & Johnson 3.1 Wells Fargo & Co. 3.1 UnitedHealth Group, Inc. 2.8 Microsoft Corp. 2.8 Burlington Northern Santa Fe Corp. 2.7 Allergan, Inc. 2.5 GreenPoint Financial Corp. 2.5 J.P. Morgan Chase & Co. 2.4 -------------------------------------------------- Total 29.5%
49 UBS U.S. EQUITY FUND -- SCHEDULE OF INVESTMENTS JUNE 30, 2003
SHARES VALUE ------------- ------------- U.S. EQUITIES -- 93.37% AEROSPACE & MILITARY -- 1.80% United Technologies Corp. 26,800 $ 1,898,244 ------------- AIRLINES -- 0.90% Continental Airlines, Inc., Class B (b) 22,800 341,316 Delta Air Lines, Inc. 41,800 613,624 ------------- 954,940 ------------- AUTOS/DURABLES -- 0.75% Johnson Controls, Inc. 9,200 787,520 ------------- BANKS -- 7.69% FleetBoston Financial Corp. 40,155 1,193,005 GreenPoint Financial Corp. 52,200 2,659,068 PNC Financial Services Group 20,600 1,005,486 Wells Fargo & Co. 64,900 3,270,960 ------------- 8,128,519 ------------- BIOMEDICAL -- 0.48% Genzyme Corp. (b) 12,200 509,960 ------------- BROADCASTING & PUBLISHING -- 0.69% McGraw-Hill Cos., Inc. (The) 11,800 731,600 ------------- BUSINESS & PUBLIC SERVICE -- 0.52% Interpublic Group of Cos., Inc. 41,200 551,256 ------------- CAPITAL GOODS -- 3.05% Illinois Tool Works, Inc. 33,100 2,179,635 Pentair, Inc. 26,800 1,046,808 ------------- 3,226,443 ------------- CHEMICALS -- 1.78% Dow Chemical Co. (The) 32,100 993,816 Eastman Chemical Co. 16,750 530,473 IMC Global, Inc. 53,900 361,669 ------------- 1,885,958 ------------- COMPUTER SOFTWARE -- 2.80% Microsoft Corp. 115,700 2,963,077 ------------- COMPUTER SYSTEMS -- 1.73% Computer Sciences Corp. (b) 11,100 423,132 Hewlett-Packard Co. 66,088 1,407,674 ------------- 1,830,806 ------------- CONSTRUCTION -- 1.15% Martin Marietta Materials, Inc. 36,007 1,210,195 ------------- CONSUMER -- 1.38% Kimberly-Clark Corp. 28,050 1,462,527 ------------- ELECTRIC COMPONENTS -- 1.48% Linear Technology Corp. 30,000 966,300 Texas Instruments, Inc. 34,100 600,160 ------------- 1,566,460 ------------- ENERGY -- 8.36% ConocoPhillips 26,782 1,467,654 Exelon Corp. 34,100 2,039,521 Exxon Mobil Corp. 34,500 1,238,895 FirstEnergy Corp. 47,645 $ 1,831,950 Kerr-McGee Corp. 9,400 421,120 Progress Energy, Inc. 20,100 882,390 Sempra Energy 33,600 958,608 ------------- 8,840,138 ------------- FINANCIAL SERVICES -- 14.59% American International Group, Inc. 26,959 1,487,597 Anthem, Inc.(b) 21,600 1,666,440 Citigroup, Inc. 89,861 3,846,051 Freddie Mac 40,300 2,046,031 Hartford Financial Services Group, Inc. (The) 19,100 961,876 J.P. Morgan Chase & Co. 75,800 2,590,844 Mellon Financial Corp. 39,200 1,087,800 Morgan Stanley 40,800 1,744,200 ------------- 15,430,839 ------------- HEALTH: DRUGS -- 8.50% Allergan, Inc. 34,600 2,667,660 Bristol-Myers Squibb Co. 66,800 1,813,620 Cephalon, Inc. (b) 22,200 913,752 SICOR, Inc. (b) 81,300 1,653,642 Wyeth 42,600 1,940,430 ------------- 8,989,104 ------------- HEALTH: NON-DRUGS -- 6.98% Baxter International, Inc. 25,600 665,600 Biomet, Inc. 15,400 441,364 Johnson & Johnson 63,644 3,290,395 UnitedHealth Group, Inc. 59,400 2,984,850 ------------- 7,382,209 ------------- HOUSING/PAPER -- 1.70% American Standard Companies, Inc. (b) 24,300 1,796,499 ------------- INDUSTRIAL COMPONENTS -- 1.54% Ingersoll-Rand Co., Class A 34,500 1,632,540 ------------- MEDIA AND ENTERTAINMENT -- 1.68% Viacom, Inc., Class B (b) 40,600 1,772,596 ------------- METALS NON-FERROUS -- 2.14% Masco Corp. 95,000 2,265,750 ------------- RECREATION -- 1.15% Royal Caribbean Cruises Ltd. 52,600 1,218,216 ------------- RETAIL/APPAREL -- 4.10% Costco Wholesale Corp. (b) 38,700 1,416,420 Newell Rubbermaid, Inc. 51,400 1,439,200 RadioShack Corp. 29,700 781,407 TJX Companies, Inc. 37,200 700,848 ------------- 4,337,875 ------------- SERVICES/MISCELLANEOUS -- 4.77% First Data Corp. 30,560 1,266,406 MeadWestvaco Corp. 25,600 632,320 Omnicom Group 35,500 2,545,350 Viad Corp. 26,650 596,694 ------------- 5,040,770 -------------
50
SHARES VALUE ------------- ------------- TELECOMMUNICATIONS- SERVICES -- 5.93% Motorola, Inc. 97,623 $ 920,585 Nextel Communications, Inc., Class A (b) 236,700 4,279,536 SBC Communications, Inc. 41,700 1,065,435 ------------- 6,265,556 ------------- TRANSPORTATION -- 2.75% Burlington Northern Santa Fe Corp. 102,200 2,906,568 ------------- UTILITIES -- 2.98% CMS Energy Corp. 45,350 367,335 Consolidated Edison, Inc. 21,700 939,176 Dominion Resources, Inc. 11,800 758,386 Entergy Corp. 20,600 1,087,268 ------------- 3,152,165 ------------- Total U.S. Equities (Cost $80,907,898) 98,738,330 ------------- SHORT-TERM INVESTMENTS -- 6.53% OTHER -- 6.20% UBS Supplementary Trust U.S. Cash Management Prime Fund 6,558,296 6,558,296 ------------- FACE AMOUNT ------------- U.S. GOVERNMENT OBLIGATIONS -- 0.33% U.S. Treasury Bill, due 08/07/03 (c) $ 350,000 349,629 ------------- Total Short-Term Investments (Cost $6,907,925) 6,907,925 ------------- Total Investments (Cost $87,815,823) -- 99.90% (a) 105,646,255 Cash and other assets, less liabilities -- 0.10% 109,784 ------------- Net Assets -- 100% $ 105,756,039 =============
51 NOTES TO SCHEDULE OF INVESTMENTS (a) Aggregate cost for federal income tax purposes was $90,953,604; and net unrealized appreciation consisted of: Gross unrealized appreciation $ 19,488,882 Gross unrealized depreciation (4,796,231) ------------ Net unrealized appreciation $ 14,692,651 ============
(b) Non-income producing security. (c) All or portion of these securities was pledged to cover margin requirements for futures contracts. % Represents a percentage of net assets. FUTURES CONTRACTS UBS U.S. Equity Fund had the following open futures contracts as of June 30, 2003:
EXPIRATION CURRENT UNREALIZED DATE COST VALUE LOSS -------------- ----------- ----------- ----------- INDEX FUTURES BUY CONTRACTS: Standard & Poor's 500, 24 contracts September 2003 $ 5,992,968 $ 5,839,800 $ (153,168) ===========
The aggregate market value of investments pledged to cover margin requirements for the open futures positions at June 30, 2003 was $349,629. See accompanying notes to financial statements 52 UBS U.S. LARGE CAP GROWTH FUND Over the fiscal year ended June 30, 2003, Class Y shares of UBS U.S. Large Cap Growth Fund returned 0.31%, compared to the 2.94% return of the Russell 1000 Growth Index. (Returns for all share classes over various time periods are shown on page 55. Please note that these returns do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.) Over the review period, the Fund's performance was strong enough to place it within the top half of other large cap growth funds within its peer group. Nonetheless, performance did lag the benchmark. The primary reason behind this relates to the strong performance over the period of the stocks that we would classify as being relatively lower quality. These are depressed companies that, among other things, may have at one time teetered on the edge of financial disruption, and include many technology companies. Our stock selection process focuses on stocks that we believe have strong, long-term investment potential over time. As a result, we did not hold many of the stocks that performed best over this recovery period. 12-MONTH MARKET REVIEW Over the 12-month period, growth and value stocks alternated between over- and underperformance on a quarterly basis. Investors switched between favoring one asset class over the other, based on their perception of the economy. When investors were optimistic about economic recovery, and favored cyclical stocks, value did well; when uncertainty about the economy prevailed, investors favored growth. Ultimately, when the period was over, growth stocks held a slight lead, returning 13.09% compared to the 11.57% return of value stocks, as measured by the Russell 1000 Growth and Russell 1000 Value Indexes, respectively. Large-cap growth stocks took their lead from the overall US equity market during the fiscal year. Over the third quarter of 2002, large-cap growth stocks, as measured by the Russell 1000 Growth Index, declined 15.05% as the weak economy, anemic corporate profits, accounting irregularities and conflict in the Middle East caused investors to flee stocks in favor of the security offered by bonds. However, after falling to a five-year low in early October 2002, stocks staged a surprising rally. In the aftermath of the market's sharp decline, investors found themselves drawn to certain downtrodden sectors that were viewed as having compelling valuations. As a result, large-cap growth stocks rose 7.15% during the fourth quarter, as measured by the Index. The year 2003 began on a weak note, as geopolitical issues came to the fore at the start of the year. Anticipation of the war in Iraq, saber rattling in North Korea and renewed concerns about terrorism preoccupied the country. Investor aversion to risk resurfaced, and large cap stocks fell 1.07% over the first quarter. However, the majority of sectors covered in the Index rebounded sharply during the second quarter of 2003, in a reversal that was attributed primarily to investor relief following the short duration of major conflict in Iraq. With this uncertainty lifted, investors grew increasingly optimistic about the potential for an economic revival and subsequent upturn in corporate profits. At the same time, their appetite for risk increased as the yields available from many fixed income securities shrank. Some of the poorest performing sectors during the lengthy bear market did well during the second half of the reporting period, including stocks in the information technology, telecommunication services, utility and industrial areas. OUR RIGOROUS INVESTMENT PROCESS IDENTIFIED OPPORTUNITIES Throughout the reporting period, our rigorous fundamental analysis and disciplined screening process played important roles in the structure and performance of the Fund's portfolio. In the first half of the period, our focus on risk management research led us to reduce our weightings in technology. We also moved to lower our exposure to pharmaceuticals, since increasing pricing pressure from the government was adversely affecting the sector. Conversely, we saw valuable opportunities in the financial and consumer sectors and the rest of health care (that is, outside of pharmaceuticals), particularly biotechnology. 53 These decisions were ultimately positive contributors to overall portfolio performance. As we moved into 2003, it became evident to us that companies that offered quality growth prospects were a commodity that was in very short supply. Even those companies whose earnings normally would be fairly assured were facing difficult pricing and distribution issues that could make their earnings trends less attractive or, worse, suspect. Therefore, our analysis began to focus on identifying individual companies that appeared to have the potential to escape the overall economic and psychological pressures of their environment, and still perform well. To this end, we found several Internet service providers that met our criteria. Fundamentals within this sector are developing even more rapidly than we would have predicted a year ago. This is particularly true with regard to the growth in broadband PC connections, which is stimulating more Internet usage and making the Web a much better advertising medium. We also identified select holdings in smaller pharmaceutical and biotechnology companies, from which we expect to see superior growth for some time to come. In fact, this focus benefited during the market's strong rally in the second quarter of 2003. LOOKING AHEAD Given the lack of rebound in the economy, companies that possess consistent, above-average earnings prospects are still in very short supply. However, we believe that many of these firms are now priced more favorably, on a relative basis, than they were at the end of the first quarter of 2003. With the nature and magnitude of an economic turn still in question, we will seek to position our portfolio in companies that have the potential to grow at above-average rates in almost any economic environment. As always, we will seek to invest in companies that we believe possess a dominant market position and franchise, a major technical edge, or a unique competitive advantage that will enable them to generate above average sales and profit growth. To identify these opportunities, we will conduct rigorous research and adhere to our risk management processes. 54 TOTAL RETURN
6 MONTHS 1 YEAR 3 YEARS 5 YEARS INCEPTION* ENDED ENDED ENDED ENDED TO 6/30/03 6/30/03 6/30/03 6/30/03 6/30/03 -------------------------------------------------------------------------------------------------------- UBS U.S. Large Cap Growth Class A 12.11% 0.16% -20.94% N/A -8.26% -------------------------------------------------------------------------------------------------------- UBS U.S. Large Cap Growth Class B 11.66 -0.63 N/A N/A -12.11 -------------------------------------------------------------------------------------------------------- UBS U.S. Large Cap Growth Class C 11.66 -0.47 N/A N/A -14.48 -------------------------------------------------------------------------------------------------------- UBS U.S. Large Cap Growth Class Y 12.09 0.31 -20.70 -5.35% -2.70 -------------------------------------------------------------------------------------------------------- UBS U.S. Large Cap Growth Class A** 5.97 -5.33 -22.41 N/A -9.41 -------------------------------------------------------------------------------------------------------- UBS U.S. Large Cap Growth Class B** 6.66 -5.60 N/A N/A -14.25 -------------------------------------------------------------------------------------------------------- UBS U.S. Large Cap Growth Class C** 9.50 -2.39 N/A N/A -15.00 -------------------------------------------------------------------------------------------------------- Russell 1000 Growth Index 13.09 2.94 -21.54 -5.03 -1.44 --------------------------------------------------------------------------------------------------------
* INCEPTION DATE OF UBS U.S. LARGE CAP GROWTH FUND CLASS A IS 12/31/98. INCEPTION DATES OF CLASS B AND CLASS C ARE 11/07/01 AND 11/19/01, RESPECTIVELY. INCEPTION DATE OF CLASS Y AND, FOR ILLUSTRATION PURPOSES, THE INDEX, IS 10/14/97. ** RETURNS INCLUDE SALES CHARGES. TOTAL RETURN INCLUDES REINVESTMENT OF ALL CAPITAL GAIN AND INCOME DISTRIBUTIONS. TOTAL RETURN DOES NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES. ALL TOTAL RETURNS IN EXCESS OF 1 YEAR ARE AVERAGE ANNUALIZED RETURNS. ALL TOTAL RETURNS LESS THAN 1 YEAR ARE CUMULATIVE RETURNS. ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000 This chart shows the growth in the value of an investment in UBS U.S. Large Cap Growth Fund Class Y shares and the Russell 1000 Growth Index if you had invested $10,000 on October 14, 1997, and had reinvested all your income dividends and capital gain distributions through June 30, 2003. The performance of Class A, Class B and Class C shares will vary based upon the different inception dates, class specific expenses and sales charges. No adjustment has been made for any income taxes payable by shareholders on income dividends and capital gain distributions. Past performance is no guarantee of future results. Share price and return will vary with market conditions; investors may realize a gain or loss upon redemption. [CHART] UBS U.S. LARGE CAP GROWTH FUND CLASS Y VS. RUSSELL 1000 GROWTH INDEX Wealth Value With Dividends
UBS U.S. LARGE CAP GROWTH FUND CLASS Y RUSSELL 1000 GROWTH INDEX $ 10,000 $ 10,000 $ 9,750 $ 9,787 $ 9,943 $ 9,897 $ 9,872 $ 10,193 $ 10,444 $ 10,959 $ 10,855 $ 11,396 $ 11,075 $ 11,554 $ 10,825 $ 11,226 6/30/1998 $ 11,256 $ 11,914 $ 11,205 $ 11,835 $ 9,321 $ 10,059 $ 9,822 $ 10,831 $ 10,805 $ 11,702 $ 11,587 $ 12,592 $ 12,421 $ 13,727 $ 13,208 $ 14,533 $ 12,631 $ 13,869 $ 13,250 $ 14,600 $ 13,743 $ 14,619 $ 13,575 $ 14,169 6/30/1999 $ 14,592 $ 15,162 $ 13,994 $ 14,680 $ 13,984 $ 14,920 $ 13,512 $ 14,606 $ 14,257 $ 15,709 $ 14,980 $ 16,557 $ 16,486 $ 18,279 $ 15,847 $ 17,422 $ 16,576 $ 18,274 $ 17,665 $ 19,582 $ 17,182 $ 18,650 $ 16,509 $ 17,711 6/30/2000 $ 17,148 $ 19,053 $ 16,733 $ 18,259 $ 17,698 $ 19,912 $ 16,105 $ 18,028 $ 15,790 $ 17,175 $ 14,062 $ 14,644 $ 13,833 $ 14,180 $ 14,592 $ 15,160 $ 12,457 $ 12,586 $ 11,147 $ 11,216 $ 12,339 $ 12,635 $ 12,195 $ 12,449 6/30/2001 $ 11,776 $ 12,161 $ 11,449 $ 11,857 $ 10,479 $ 10,888 $ 9,418 $ 9,800 $ 9,877 $ 10,314 $ 10,807 $ 11,305 $ 10,685 $ 11,284 $ 10,461 $ 11,085 $ 9,987 $ 10,625 $ 10,330 $ 10,992 $ 9,526 $ 10,095 $ 9,328 $ 9,851 6/30/2002 $ 8,525 $ 8,940 $ 7,945 $ 8,448 $ 7,998 $ 8,473 $ 7,141 $ 7,595 $ 7,800 $ 8,291 $ 8,156 $ 8,741 $ 7,629 $ 8,137 $ 7,497 $ 7,939 $ 7,471 $ 7,903 $ 7,589 $ 8,050 $ 8,064 $ 8,646 $ 8,459 $ 9,077 6/30/2003 $ 8,551 $ 9,202
10/14/97 = $10,000 FUND RETURNS ARE NET OF ALL FEES AND COSTS, WHILE THE INDEX RETURNS ARE BASED SOLELY ON MARKET RETURNS WITHOUT DEDUCTION FOR FEES OR TRANSACTION COSTS FOR REBALANCING. 55 TOP TEN EQUITY HOLDINGS AS OF JUNE 30, 2003
PERCENTAGE OF NET ASSETS ------------------------------------------------------ Pfizer, Inc. 4.9% iShares Russell 1000 Growth Index Fund 4.8 Microsoft Corp. 3.8 General Electric Co. 3.6 Johnson & Johnson 3.5 Citigroup, Inc. 2.8 Intel Corp. 2.7 Amgen, Inc. 2.7 Cisco Systems, Inc. 2.3 Amazon.Com, Inc. 2.2 ------------------------------------------------------ Total 33.3%
56 UBS U.S. LARGE CAP GROWTH FUND -- SCHEDULE OF INVESTMENTS JUNE 30, 2003
SHARES VALUE ------------- ------------- U.S. EQUITIES -- 97.99% AEROSPACE & MILITARY -- 1.53% United Technologies Corp. 800 $ 56,664 ------------- AUTOS/DURABLES -- 1.85% Autozone, Inc. (b) 900 68,373 ------------- BANKS -- 1.50% Wells Fargo & Co. 1,100 55,440 ------------- BIOMEDICAL -- 3.08% Amgen, Inc. (b) 1,516 100,723 Chiron Corp. (b) 300 13,116 ------------- 113,839 ------------- COMPUTER SOFTWARE -- 5.03% Microsoft Corp. 5,500 140,855 Oracle Corp. (b) 3,750 45,075 ------------- 185,930 ------------- COMPUTER SYSTEMS -- 8.62% Cisco Systems, Inc. (b) 5,200 86,788 Dell Computer Corp. (b) 2,500 79,900 EMC Corp. (b) 4,300 45,021 Hewlett-Packard Co. 1,908 40,640 International Business Machines Corp. 800 66,000 ------------- 318,349 ------------- CONSUMER -- 1.52% H & R Block, Inc. 1,300 56,225 ------------- ELECTRIC COMPONENTS -- 3.89% Intel Corp. 4,850 100,802 Novellus Systems, Inc. (b) 550 20,142 Texas Instruments, Inc. 1,300 22,880 ------------- 143,824 ------------- ELECTRONICS -- 0.96% Lexmark International, Inc. (b) 500 35,385 ------------- ENERGY -- 2.35% Anadarko Petroleum Corp. 700 31,129 Devon Energy Corp. 600 32,040 Schlumberger Ltd. 500 23,785 ------------- 86,954 ------------- FINANCIAL SERVICES -- 7.17% Citigroup, Inc. 2,383 101,992 Freddie Mac 950 48,232 Moody's Corp. 1,000 52,710 Morgan Stanley 1,450 61,987 ------------- 264,921 ------------- HEALTH: DRUGS -- 9.55% Allergan, Inc. 950 73,245 Barr Laboratories, Inc. (b) 600 39,300 Cephalon, Inc. (b) 600 24,696 Forest Laboratories, Inc. (b) 600 32,850 Pfizer, Inc. 5,350 182,703 ------------- 352,794 ------------- HEALTH: NON-DRUGS -- 11.70% Guidant Corp. 1,200 53,268 Johnson & Johnson 2,522 $ 130,387 Laboratory Corp. of America Holdings (b) 1,900 57,285 Medtronic, Inc. 1,300 62,361 UnitedHealth Group, Inc. 1,000 50,250 WellPoint Health Networks (b) 400 33,720 Zimmer Holdings, Inc. (b) 1,000 45,050 ------------- 432,321 ------------- INSURANCE -- 0.97% Allstate Corp. (The) 1,000 35,650 ------------- INTERNET SERVICES -- 3.18% InterActiveCorp (b) 1,000 39,570 Symantec Corp. (b) 800 35,088 Yahoo!, Inc. (b) 1,300 42,588 ------------- 117,246 ------------- INVESTMENT COMPANIES -- 4.78% iShares Russell 1000 Growth Index Fund 4,300 176,515 ------------- MEDIA AND ENTERTAINMENT -- 1.24% Viacom, Inc., Class B (b) 1,046 45,668 ------------- MEDICAL PRODUCTS -- 1.32% AmerisourceBergen Corp. 700 48,545 ------------- MULTI-INDUSTRY -- 6.56% Black & Decker Corp. 1,100 47,795 General Electric Co. 4,600 131,928 Proctor & Gamble Co. 700 62,426 ------------- 242,149 ------------- NON-DURABLES -- 1.45% PepsiCo, Inc. 1,200 53,400 ------------- RESEARCH & DEVELOPMENT -- 0.78% Genentech, Inc. (b) 400 28,848 ------------- RETAIL/APPAREL -- 4.00% Gap, Inc. (The) 1,800 33,768 Ross Stores, Inc. 1,100 47,014 Wal-Mart Stores, Inc. 1,250 67,088 ------------- 147,870 ------------- SERVICES/MISCELLANEOUS -- 7.76% Amazon.com, Inc. (b) 2,200 80,278 AOL Time Warner, Inc. (b) 3,650 58,729 eBay, Inc. (b) 700 72,926 First Data Corp. 1,800 74,592 ------------- 286,525 ------------- TECHNOLOGY -- 1.41% Analog Devices, Inc. (b) 1,500 52,230 ------------- TELECOMMUNICATIONS EQUIPMENT -- 1.84% QUALCOMM, Inc. 1,900 67,925 ------------- TELECOMMUNICATIONS- SERVICES -- 3.05% Echostar Communications Corp., Class A (b) 1,950 67,509 Nextel Communications, Inc., Class A (b) 2,500 45,200 ------------- 112,709 ------------- THERAPEUTICS -- 0.90% Gilead Sciences, Inc. (b) 600 33,348 ------------- Total U.S. Equities (Cost $3,640,220) 3,619,647 -------------
57
SHARES VALUE ------------- ------------- SHORT-TERM INVESTMENTS -- 3.93% OTHER -- 3.93% UBS Supplementary Trust U.S. Cash Management Prime Fund (Cost $145,024) 145,024 $ 145,024 ------------- Total Investments (Cost $3,785,244)-- 101.92% (a) 3,764,671 Liabilities, less cash and other assets -- (1.92)% (70,825) ------------- Net Assets -- 100% $ 3,693,846 =============
NOTES TO SCHEDULE OF INVESTMENTS (a) Aggregate cost for federal income tax purposes was $4,165,598; and net unrealized depreciation consisted of: Gross unrealized appreciation $ 143,398 Gross unrealized depreciation (544,325) ---------- Net unrealized depreciation $ (400,927) ==========
(b) Non-income producing security. % Represents a percentage of net assets. See accompanying notes to financial statements 58 UBS U.S. SMALL CAP GROWTH FUND For the fiscal year ended June 30, 2003, Class Y shares of UBS U.S. Small Cap Growth Fund returned 2.32%, outperforming the 0.69% return of the Russell 2000 Growth Index. Since the Fund's inception on September 30, 1997, through June 30, 2003, its Class Y shares provided an average annual return of 4.60%--a far better performance than the decline of 4.25% generated by the Index. (Returns for all share classes over various time periods are shown on page 61. Please note that these returns do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.) Fiscal year results were primarily helped by good stock selection, especially in the consumer and healthcare sectors. Sector selection had a slightly negative impact on return over the fiscal year, due to an overweight in the poorly performing consumer staples sector. However, an overweight in the strongly performing financial sector helped returns. 12-MONTH MARKET REVIEW The U.S equity markets were extremely volatile during the 12-month period, alternately falling and rising over the four quarters that made up the Fund's reporting period. Early in the period, a weak economy, anemic corporate profits, accounting issues and unrest in the Middle East led investors to shun stocks in favor of the perceived security of the bond market. However, after falling to a five-year low in early October 2002, stocks staged a surprising rally. In the aftermath of the market's sharp decline, investors found themselves drawn to certain downtrodden sectors that were viewed as having compelling valuations. Small-cap stocks performed in line with the broader equity market, posting a return of 7.5% (as measured by the Index) over the last three months of 2002. Geopolitical issues came to the fore as the year 2003 began, as anticipation of the war in Iraq, saber rattling in North Korea and renewed concerns about terrorism preoccupied the country. Investor aversion to risk resurfaced, and the majority of the sectors covered in the Index fell during the first quarter. Nonetheless, the 12-month period ended on a positive note, as the end to major fighting in Iraq eliminated one of the issues weighing most heavily on the market. Investors grew increasingly optimistic about the potential for an economic revival and subsequent upturn in corporate profits. At the same time, their appetite for risk increased as the yields available from many fixed income securities shrank. As a result, equity investors drove stocks to steep gains over the final quarter of the period. The gains were broad-based, and many of the best-performing sectors were the prior years' weakest-performing areas: the utility, information technology, telecommunication services and industrial sectors. A PRUDENT STRATEGY LIMITED LOSSES AND ENABLED PARTICIPATION IN MARKET RALLIES Similar to the market's performance, the Fund's performance fluctuated widely during the fiscal year. However, our disciplined investment strategy, through which we focus on relatively higher quality stocks with strong business franchises and attractive competitive positions that are generating strong gains in both the top and bottom lines, helped us to outperform the Index on a relative basis. Furthermore, our diversified approach to investing at the sector level helped to reduce the Fund's relative risk profile. Our investment approach tends to favor larger, more liquid stocks with stable income streams and strong balance sheets. Typically, the Fund is underweight high volatility stocks, especially those with substantial earnings variability. For example, early in the fiscal year, the Fund benefited from an underweight position in the information technology sector. However, by leveraging the fundamental research conducted by our analysts through our integrated global investment research platform, we were able to identify increasing signs of stability in this sector. As a result, we increased our exposure to the sector, and benefited when the sector rallied late in 2002. In the latter portion of the period, the Fund generated very strong absolute results, but underperformed the Index on a relative basis. Although our investment approach seeks to fare well over the course of a market cycle, it tends to lag somewhat during short upward spurts that favor more speculative stocks, 59 especially low-priced equities that are losing money. This was exactly the market environment that existed during the second quarter of 2003. LOOKING AHEAD Over the course of a market cycle, stock price movements tend to be governed by earnings growth and relative valuations. On both of these measures, small-cap stocks continue to stack up well relative to their larger counterparts. In terms of earnings, small caps have been growing earnings faster than large caps for most of the last three years. While small-cap relative valuations are no longer at their record lows of the late 1990s, they are still below their long-term historical averages. Assuming the economy gradually picks up steam, we believe that small-cap stocks will continue to have a favorable environment in which to potentially maintain an outperformance cycle that dates back to the spring of 1999. We intend to continue to remain focused on identifying high-quality small-cap growth companies that have strong competitive positions and a demonstrated ability to generate above-average earnings growth over time. Over a full market cycle, this strategy is designed to provide patient investors with the opportunity for attractive, risk-adjusted long-term results. 60 TOTAL RETURN
6 MONTHS 1 YEAR 3 YEARS 5 YEARS INCEPTION* ENDED ENDED ENDED ENDED TO 6/30/03 6/30/03 6/30/03 6/30/03 6/30/03 ------------------------------------------------------------------------------------------------------- UBS U.S. Small Cap Growth Class A 15.61% 2.14% -7.61% N/A 8.64% ------------------------------------------------------------------------------------------------------- UBS U.S. Small Cap Growth Class B 15.27 1.44 N/A N/A 0.74 ------------------------------------------------------------------------------------------------------- UBS U.S. Small Cap Growth Class C 15.29 1.44 N/A N/A -0.46 ------------------------------------------------------------------------------------------------------- UBS U.S. Small Cap Growth Class Y 15.74 2.32 -7.34 5.93% 4.60 ------------------------------------------------------------------------------------------------------- UBS U.S. Small Cap Growth Class A** 9.29 -3.48 -9.33 N/A 7.29 ------------------------------------------------------------------------------------------------------- UBS U.S. Small Cap Growth Class B** 10.27 -3.56 N/A N/A -1.63 ------------------------------------------------------------------------------------------------------- UBS U.S. Small Cap Growth Class C** 13.10 -0.58 N/A N/A -1.05 ------------------------------------------------------------------------------------------------------- Russell 2000 Growth Index 19.33 0.69 -16.66 -4.25 -4.25 -------------------------------------------------------------------------------------------------------
* INCEPTION DATE OF UBS U.S. SMALL CAP GROWTH FUND CLASS A IS 12/31/98. INCEPTION DATES OF CLASS B AND CLASS C ARE 11/07/01 AND 11/19/01, RESPECTIVELY. INCEPTION DATE OF CLASS Y AND, FOR ILLUSTRATION PURPOSES, THE INDEX, IS 9/30/97. ** RETURNS INCLUDE SALES CHARGES. TOTAL RETURN INCLUDES REINVESTMENT OF ALL CAPITAL GAIN AND INCOME DISTRIBUTIONS. TOTAL RETURN DOES NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES. ALL TOTAL RETURNS IN EXCESS OF 1 YEAR ARE AVERAGE ANNUALIZED RETURNS. ALL TOTAL RETURNS LESS THAN 1 YEAR ARE CUMULATIVE RETURNS. THE FUND MAY INVEST IN IPOs, WHICH MAY HAVE A MAGNIFIED IMPACT ON PERFORMANCE. ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000 This chart shows the growth in the value of an investment in UBS U.S. Small Cap Growth Fund Class Y shares and the Russell 2000 Growth Index if you had invested $10,000 on September 30, 1997, and had reinvested all your income dividends and capital gain distributions through June 30, 2003. The performance of Class A, Class B and Class C shares will vary based upon the different inception dates, class specific expenses and sales charges. No adjustment has been made for any income taxes payable by shareholders on income dividends and capital gain distributions. Past performance is no guarantee of future results. Share price and return will vary with market conditions; investors may realize a gain or loss upon redemption. [CHART] UBS U.S. SMALL CAP GROWTH FUND CLASS Y VS. RUSSELL 2000 GROWTH INDEX Wealth Value With Dividends
UBS U.S. SMALL CAP GROWTH FUND CLASS Y RUSSELL 2000 GROWTH INDEX $ 10,000 $ 10,000 $ 9,540 $ 9,399 $ 9,370 $ 9,175 $ 9,440 $ 9,180 $ 9,330 $ 9,058 $ 10,080 $ 9,858 $ 10,500 $ 10,271 $ 10,470 $ 10,334 $ 9,910 $ 9,583 6/30/1998 $ 9,710 $ 9,681 $ 8,880 $ 8,873 $ 7,000 $ 6,825 $ 7,395 $ 7,517 $ 7,885 $ 7,909 $ 8,075 $ 8,522 $ 8,806 $ 9,293 $ 8,816 $ 9,711 $ 8,075 $ 8,823 $ 8,255 $ 9,137 $ 8,235 $ 9,944 $ 8,595 $ 9,960 6/30/1999 $ 9,186 $ 10,484 $ 9,266 $ 10,160 $ 9,066 $ 9,780 $ 9,386 $ 9,969 $ 9,746 $ 10,224 $ 11,277 $ 11,305 $ 12,478 $ 13,298 $ 12,128 $ 13,174 $ 14,059 $ 16,239 $ 15,270 $ 14,532 $ 14,729 $ 13,065 $ 13,779 $ 11,921 6/30/2000 $ 16,280 $ 13,461 $ 15,440 $ 12,307 $ 17,571 $ 13,602 $ 17,251 $ 12,926 $ 16,711 $ 11,877 $ 13,799 $ 9,721 $ 15,279 $ 10,315 $ 15,634 $ 11,150 $ 13,784 $ 9,622 $ 12,497 $ 8,747 $ 14,164 $ 9,818 $ 14,213 $ 10,045 6/30/2001 $ 14,531 $ 10,319 $ 13,784 $ 9,439 $ 13,110 $ 8,849 $ 11,517 $ 7,422 $ 12,191 $ 8,136 $ 13,036 $ 8,815 $ 13,716 $ 9,363 $ 13,461 $ 9,030 $ 13,078 $ 8,446 $ 14,125 $ 9,180 $ 13,933 $ 8,981 $ 13,334 $ 8,456 6/30/2002 $ 12,657 $ 7,739 $ 11,496 $ 6,550 $ 11,496 $ 6,546 $ 10,807 $ 6,074 $ 11,509 $ 6,381 $ 11,968 $ 7,013 $ 11,190 $ 6,529 $ 10,858 $ 6,352 $ 10,680 $ 6,182 $ 10,718 $ 6,276 $ 11,598 $ 6,869 $ 12,542 $ 7,643 6/30/2003 $ 12,951 $ 7,791
9/30/97 = $10,000 FUND RETURNS ARE NET OF ALL FEES AND COSTS, WHILE THE INDEX RETURNS ARE BASED SOLELY ON MARKET RETURNS WITHOUT DEDUCTION FOR FEES OR TRANSACTION COSTS FOR REBALANCING. 61 TOP TEN EQUITY HOLDINGS AS OF JUNE 30, 2003
PERCENTAGE OF NET ASSETS ----------------------------------------------------- Career Education Corp. 3.0% UCBH Holdings, Inc. 2.9 New York Community Bancorp, Inc. 2.6 Patterson Dental Co. 2.3 Cognizant Technology Solutions Corp. 2.2 Fair Isaac Corp. 2.2 Chico's FAS, Inc. 2.1 Odyssey HealthCare, Inc. 1.9 CACI International, Inc. 1.9 Pediatrix Medical Group, Inc. 1.9 ----------------------------------------------------- Total 23.0%
62 UBS U.S. SMALL CAP GROWTH FUND -- SCHEDULE OF INVESTMENTS JUNE 30, 2003
SHARES VALUE ------------- ------------- U.S. EQUITIES -- 98.20% AEROSPACE & DEFENSE -- 0.77% Engineered Support Systems, Inc. 9,450 $ 395,482 ------------- AUTO PARTS & EQUIPMENT -- 1.12% American Axle & Manufacturing Holdings, Inc. (b) 24,100 575,990 ------------- BANKS -- 8.02% BankUnited Financial Corp., Class A (b) 36,400 733,460 New York Community Bancorp, Inc. 46,595 1,355,448 Sterling Bancshares, Inc. 40,400 528,432 UCBH Holdings, Inc. 52,800 1,514,304 ------------- 4,131,644 ------------- BEVERAGES -- 1.12% Cott Corp. (b) 28,000 579,320 ------------- BROADCASTING & CABLE TV -- 1.83% Cumulus Media, Inc., Class A (b) 38,700 732,591 Salem Communications Corp., Class A (b) 10,600 212,117 ------------- 944,708 ------------- CAPITAL GOODS -- 1.39% Cognex Corp. (b) 32,100 717,435 ------------- CHEMICALS -- 1.08% Albemarle Corp. 19,800 553,806 ------------- COMPUTER SOFTWARE -- 6.66% Borland Software Corp. (b) 43,600 425,972 Fair, Isaac Corp. 22,200 1,142,190 Magma Design Automation, Inc. (b) 37,500 643,125 Mercury Interactive Corp. (b) 9,200 355,212 THQ, Inc. (b) 22,550 405,900 Verisity Ltd. (b) 38,600 460,884 ------------- 3,433,283 ------------- CONSTRUCTION -- 1.94% Hovnanian Enterprises, Inc. (b) 8,600 506,970 NVR, Inc. (b) 1,200 493,200 ------------- 1,000,170 ------------- CONSTRUCTION & ENGINEERING -- 1.27% EMCOR Group, Inc. (b) 13,300 656,488 ------------- CONSUMER -- 1.03% Leapfrog Enterprises, Inc. (b) 16,600 528,046 ------------- DISTILLER & VINTNERS -- 1.77% Constellation Brands, Inc., Class A (b) 29,100 913,740 ------------- ELECTRIC COMPONENTS -- 3.64% Artisan Components, Inc. (b) 19,900 449,939 Cree, Inc. (b) 14,900 242,572 Foundry Networks, Inc. (b) 37,900 545,760 Smith, A.O., Corp. 22,700 639,005 ------------- 1,877,276 ------------- ELECTRONICS -- 1.49% Benchmark Electronics, Inc. (b) 25,000 769,000 ------------- ENERGY -- 5.06% Patina Oil & Gas Corp. 20,700 665,505 Patterson-UTI Energy, Inc. (b) 16,800 544,320 Quicksilver Resources, Inc. (b) 23,500 562,825 Tetra Technologies, Inc. (b) 28,100 $ 833,165 ------------- 2,605,815 ------------- FINANCIAL SERVICES -- 2.81% First Niagara Financial Group, Inc. 14,500 202,420 Harbor Florida Bancshares, Inc. 14,400 345,024 Investors Financial Services Corp. 31,100 902,211 ------------- 1,449,655 ------------- FOOD DISTRIBUTORS -- 1.30% Performance Food Group Co. (b) 18,100 669,700 ------------- GENE -- 1.07% Affymetrix, Inc. (b) 9,900 195,129 InterMune, Inc. (b) 6,400 103,104 Telik, Inc. (b) 15,800 253,906 ------------- 552,139 ------------- HEALTH: DRUGS -- 1.95% Amylin Pharmaceuticals, Inc. (b) 13,200 288,948 Taro Pharmaceutical Industries (b) 13,000 713,440 ------------- 1,002,388 ------------- HEALTH: NON-DRUGS -- 11.71% Advanced Neuromdulation Systems, Inc. (b) 17,200 890,444 Fisher Scientific International, Inc. (b) 13,000 453,700 Inamed Corp. (b) 14,700 789,243 Patterson Dental Co. (b) 26,000 1,179,880 Pediatrix Medical Group, Inc. (b) 27,200 969,680 ResMed, Inc. (b) 6,400 250,880 Select Medical Corp. (b) 32,000 794,560 VCA Antech, Inc. (b) 36,100 706,477 ------------- 6,034,864 ------------- HEALTHCARE FACILITY -- 1.93% Odyssey HealthCare, Inc. (b) 26,850 993,450 ------------- INSURANCE -- 2.06% Hilb, Rogal & Hamilton Co. 9,400 319,976 Hub International Ltd. 21,900 374,490 RLI Corp. 11,100 365,190 ------------- 1,059,656 ------------- INTERNET SERVICES -- 0.82% Avocent Corp. (b) 14,100 422,013 ------------- INTERNET SOFTWARE & SERVICES -- 0.75% Overture Services, Inc. (b) 21,200 384,356 ------------- IT CONSULTING & SERVICES -- 4.17% CACI International, Inc., Class A (b) 28,900 991,270 Cognizant Technology Solutions Corp. (b) 47,400 1,154,664 ------------- 2,145,934 ------------- LEISURE PRODUCTS -- 0.60% Action Performance Companies, Inc. 16,200 307,800 ------------- MACHINERY INDUSTRIAL -- 2.24% ESCO Technologies, Inc. (b) 15,800 695,200 Flowserve Corp. (b) 23,200 456,344 ------------- 1,151,544 ------------- NON-DURABLES -- 1.57% Moore Wallace, Inc. (b) 55,000 807,400 -------------
63
SHARES VALUE ------------- ------------- PHARMACEUTICALS -- 4.28% Isis Pharmaceuticals, Inc. (b) 36,500 $ 193,450 Neurocrine Biosciences, Inc. (b) 13,400 669,196 NPS Pharmaceuticals, Inc. (b) 18,000 438,120 Penwest Pharmaceuticals Co. (b) 27,000 657,990 Sangstat Medical Corp. (b) 18,900 247,401 ------------- 2,206,157 ------------- REAL ESTATE -- 3.81% American Financial Realty TR (REIT) 29,300 436,863 Jones Lang LaSalle, Inc. (b) 24,500 387,100 Mills Corp. (The) (REIT) 16,800 563,640 Ventas, Inc. (REIT) 38,100 577,215 ------------- 1,964,818 ------------- RESEARCH & DEVELOPMENT -- 1.29% Pharmaceutical Product Development, Inc. (b) 23,200 666,536 ------------- RESTAURANTS -- 2.95% Panera Bread Co., Class A (b) 17,100 684,000 Ruby Tuesday, Inc. 33,700 833,401 ------------- 1,517,401 ------------- RETAIL-COMPUTERS/ELECTRONICS -- 1.00% Electronics Boutique Holdings Corp. (b) 22,400 517,664 ------------- RETAIL/APPAREL -- 4.23% Chico's FAS, Inc. (b) 50,700 1,067,235 Gart Sports Co. (b) 15,700 445,252 Petco Animal Supplies, Inc. (b) 30,600 665,244 ------------- 2,177,731 ------------- SEMICONDUCTOR EQUIPMENT & PRODUCTS -- 0.64% Rudolph Technologies, Inc. (b) 20,500 $ 327,180 ------------- SEMICONDUCTORS -- 3.92% Exar Corp. (b) 32,700 517,641 Formfactor, Inc. (b) 1,500 26,550 Intersil Corp. (b) 23,852 634,702 Pericom Semiconductor Corp. (b) 23,900 222,270 Power Integrations, Inc. (b) 25,500 620,160 ------------- 2,021,323 ------------- SERVICES-DATA PROCESSING -- 1.01% Factset Research Systems, Inc. 11,800 519,790 ------------- SERVICES-DIVERSIFIED COMMERCIAL -- 3.03% Career Education Corp. (b) 22,800 1,559,976 ------------- TRANSPORTATION -- 0.87% UTI Worldwide, Inc. 14,300 446,017 ------------- Total U.S. Equities (Cost $45,168,201) 50,587,695 ------------- SHORT-TERM INVESTMENTS -- 13.66% OTHER -- 13.66% UBS Supplementary Trust U.S. Cash Management Prime Fund (Cost $7,037,939) 7,037,939 7,037,939 ------------- Total Investments (Cost $52,206,140) -- 111.86% (a) 57,625,634 Liabilities, less cash and other assets -- (11.86)% (6,110,156) ------------- Net Assets -- 100% $ 51,515,478 =============
NOTES TO SCHEDULE OF INVESTMENTS (a) Aggregate cost for federal income tax purposes was $53,095,316; and net unrealized appreciation consisted of: Gross unrealized appreciation $ 7,459,427 Gross unrealized depreciation (2,929,109) ------------ Net unrealized appreciation $ 4,530,318 ============
(b) Non-income producing. % Represents a percentage of net assets. See accompanying notes to financial statements 64 UBS U.S. BOND FUND For the fiscal year ended June 30, 2003, Class Y shares of UBS U.S. Bond Fund returned 9.42%, underperforming the Fund's benchmark index, the Lehman Brothers U.S. Aggregate Bond Index, which returned 10.40%. Since the Fund's inception on August 31, 1995, through June 30, 2003, its Class Y shares produced an average annual return of 7.40%, compared to 7.70% for the Index. (Returns for all share classes over various time periods are shown on page 67. Please note that these returns do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.) The Fund's underperformance versus the Index over the reporting period was primarily due to an overweight to Treasurys. In addition, an underweight to the credit sector detracted from performance, as the sector performed well when spreads tightened considerably. 12-MONTH MARKET REVIEW Despite periods of volatility, the US bond market performed well during the Fund's fiscal year. The first half of the period was characterized by tepid economic growth, lackluster stock returns and geopolitical unrest that caused investors to flock to the relative safety offered by fixed income securities. A number of sectors excelled in this environment, including home mortgage and commercial mortgage securities, as well as US government bonds. In contrast, lower quality corporate bonds underperformed early in the period, as accounting scandals, higher default rates and investors' general aversion to risk took their toll. By mid-period, however, better-than-expected third quarter earnings reports and a stronger stock market helped drive a rally in higher yielding bonds. Economic growth remained weak as the year progressed. Anticipation of a war with Iraq, saber rattling in North Korea and heightened concerns about terrorism preoccupied the country and helped to undermine the economy. This was good news for the bond market, as investors shunned stocks in favor of the relative safety offered by fixed income securities. With the end to major fighting in Iraq, one of the larger geopolitical issues affecting the stock market was eliminated. Investors became increasingly optimistic about the potential for an economic revival and subsequent upturn in corporate profits. At the same time, their appetite for risk increased as the yields available from many fixed income securities shrank. However, ahead of the release of second quarter 2003 gross domestic product figures, it was widely believed that an expected up-tick in economic growth was not going to materialize. In addition, in an endnote to the period, the Federal Reserve Board (the "Fed"), at its June 25, 2003 Federal Open Market Committee meeting, moved to lower the federal funds rate by a quarter of a percentage point, to 1.0%. The move--the first since November 2002--brought the rate to its lowest level since 1958. In explaining the move, the Fed cited the fact that the economy had yet to exhibit sustainable growth, and that "a slightly more expansive monetary policy would add further support for an economy which it expects to improve over time." Thus, while investor appetite for risk increased during the last three months of the period and the stock market rallied sharply, the bond market in general continued to perform well given the uncertainty surrounding the economy. WE ADJUSTED THE PORTFOLIO TO CAPTURE OPPORTUNITIES Throughout the reporting period, we proactively adjusted the Fund's portfolio to maximize the opportunities we identified in the marketplace. For example, in the first half of the fiscal year, the Fund's overweight in mortgage-backed and commercial mortgage-backed securities (MBS and CMBS, respectively) performed well. Not only did our sector weightings boost returns, but our security selection within these areas also enhanced results. As the reporting period wound down to a close, we lowered our overweights to these sectors. Although CMBS continues to be our largest sector overweight, we believe it has become somewhat less attractive as yield spreads over Treasurys have moved tighter. We identified another opportunity in Treasury inflation-protected securities (TIPS). In the latter 65 part of 2002, our analysis indicated that there was significant value in the TIPS sector, which led us to build an overweight in the portfolio versus the benchmark. Early in 2003, concerns about inflation arose on the back of higher oil prices as war with Iraq loomed. As a result, TIPS performed well compared to nominal Treasurys, so we proactively reduced our exposure to lock in gains. We sold out of this position in February 2003, and have no allocation to TIPS as of period end. Over the period, duration management made a slightly negative contribution to performance. In the first half of the period, duration strategy hurt performance slightly due to the Fund's shorter-than-benchmark duration for part of the period and the fact that, during this time, the bond market rallied. As the period progressed, our analysis led us to further shorten the Fund's duration versus its benchmark. Low interest rates combined with accommodative fiscal policies, rising budget deficits, geopolitical resolution (the war in Iraq) and strengthening equity and credit pricing reinforced our belief that there will be a concurrent pickup in economic activity and long-term interest rates. As a result, early in the second quarter of 2003, our duration strategy was reduced from 90% to 85% of the benchmark. We also felt this move was prudent because market movements--particularly in the long-end of the curve--had driven yields below our fair value estimates. Toward the end of the quarter, we reversed our duration shortening strategy, bringing the portfolio back to 90% of the benchmark. Yields on 30-year Treasurys rose approximately 30 basis points in the period after we shortened duration, while shorter-term rates remained unchanged. LOOKING AHEAD There is a consistent theme throughout the fixed income markets. Investors have been rewarded recently for taking on risk in the form of either longer duration or lower quality. The Fed indicates that it will keep short-term rates low for "a considerable amount of time," and investors have used the Fed's mention of a remote deflation risk as an excuse to drive long-term interest rates to near-record lows as of the end of June. So, the market has reinforcement, self-fulfillment and promise for the foreseeable future. The extent to which fixed income market participants are taking on inappropriate risk and becoming complacent will really only be apparent when the tide turns. However, the current pricing indicates that the scales are tipped too heavily toward risk tolerance. We view current yields and credit spreads as being too low. Therefore, we anticipate maintaining a more defensive approach with regard to the management of the Fund's portfolio. 66 TOTAL RETURN
6 MONTHS 1 YEAR 3 YEARS 5 YEARS INCEPTION* ENDED ENDED ENDED ENDED TO 6/30/03 6/30/03 6/30/03 6/30/03 6/30/03 -------------------------------------------------------------------------------------------------------- UBS U.S. Bond Class A 3.56% 9.17% 9.38% 6.82% 7.39% -------------------------------------------------------------------------------------------------------- UBS U.S. Bond Class B 3.18 8.30 N/A N/A 5.41 -------------------------------------------------------------------------------------------------------- UBS U.S. Bond Class C 3.32 8.65 N/A N/A 5.64 -------------------------------------------------------------------------------------------------------- UBS U.S. Bond Class Y 3.68 9.42 9.63 7.07 7.40 -------------------------------------------------------------------------------------------------------- UBS U.S. Bond Class A** -1.10 4.21 7.71 5.83 6.57 -------------------------------------------------------------------------------------------------------- UBS U.S. Bond Class B** -1.82 3.30 N/A N/A 3.05 -------------------------------------------------------------------------------------------------------- UBS U.S. Bond Class C** 1.54 6.78 N/A N/A 4.99 -------------------------------------------------------------------------------------------------------- Lehman Brothers U.S. Aggregate Bond Index 3.93 10.40 10.08 7.54 7.70 --------------------------------------------------------------------------------------------------------
* INCEPTION DATE OF UBS U.S. BOND FUND CLASS A IS 6/30/97. INCEPTION DATES OF CLASS B AND CLASS C ARE 11/06/01 AND 11/08/01, RESPECTIVELY. INCEPTION DATE OF CLASS Y AND, FOR ILLUSTRATION PURPOSES, THE INDEX, IS 8/31/95. ** RETURNS INCLUDE SALES CHARGES. TOTAL RETURN INCLUDES REINVESTMENT OF ALL CAPITAL GAIN AND INCOME DISTRIBUTIONS. TOTAL RETURN DOES NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES. ALL TOTAL RETURNS IN EXCESS OF 1 YEAR ARE AVERAGE ANNUALIZED RETURNS. ALL TOTAL RETURNS LESS THAN 1 YEAR ARE CUMULATIVE RETURNS. ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000 This chart shows the growth in the value of an investment in UBS U.S. Bond Fund Class Y shares and the Lehman Brothers U.S. Aggregate Bond Index if you had invested $10,000 on August 31, 1995, and had reinvested all your income dividends and capital gain distributions through June 30, 2003. The performance of Class A, Class B and Class C shares will vary based upon the different inception dates, class specific expenses and sales charges. No adjustment has been made for any income taxes payable by shareholders on income dividends and capital gain distributions. Past performance is no guarantee of future results. Share price and return will vary with market conditions; investors may realize a gain or loss upon redemption. [CHART] UBS U.S. BOND FUND CLASS Y VS. LEHMAN BROTHERS U.S. AGGREGATE BOND INDEX Wealth Value With Dividends
UBS U.S. BOND FUND CLASS Y LEHMAN BROTHERS U.S. AGGREGATE BOND INDEX $ 10,000 $ 10,000 $ 10,090 $ 10,097 $ 10,240 $ 10,228 $ 10,400 $ 10,382 $ 10,549 $ 10,527 $ 10,611 $ 10,597 $ 10,386 $ 10,412 $ 10,314 $ 10,339 $ 10,232 $ 10,281 $ 10,201 $ 10,261 6/30/1996 $ 10,360 $ 10,398 $ 10,391 $ 10,426 $ 10,329 $ 10,409 $ 10,548 $ 10,590 $ 10,819 $ 10,825 $ 11,090 $ 11,010 $ 10,922 $ 10,908 $ 10,943 $ 10,941 $ 10,965 $ 10,969 $ 10,813 $ 10,847 $ 10,987 $ 11,010 $ 11,095 $ 11,114 6/30/1997 $ 11,236 $ 11,247 $ 11,587 $ 11,550 $ 11,488 $ 11,452 $ 11,642 $ 11,621 $ 11,806 $ 11,790 $ 11,839 $ 11,844 $ 11,975 $ 11,964 $ 12,113 $ 12,117 $ 12,113 $ 12,107 $ 12,148 $ 12,148 $ 12,206 $ 12,212 $ 12,322 $ 12,328 6/30/1998 $ 12,426 $ 12,432 $ 12,438 $ 12,459 $ 12,649 $ 12,662 $ 12,872 $ 12,958 $ 12,825 $ 12,889 $ 12,919 $ 12,963 $ 12,977 $ 13,002 $ 13,087 $ 13,094 $ 12,867 $ 12,865 $ 12,952 $ 12,935 $ 12,989 $ 12,977 $ 12,855 $ 12,863 6/30/1999 $ 12,795 $ 12,822 $ 12,733 $ 12,768 $ 12,696 $ 12,761 $ 12,858 $ 12,909 $ 12,870 $ 12,957 $ 12,895 $ 12,956 $ 12,842 $ 12,894 $ 12,789 $ 12,851 $ 12,934 $ 13,007 $ 13,092 $ 13,178 $ 13,013 $ 13,140 $ 12,960 $ 13,133 6/30/2000 $ 13,273 $ 13,407 $ 13,380 $ 13,529 $ 13,565 $ 13,725 $ 13,658 $ 13,811 $ 13,711 $ 13,902 $ 13,977 $ 14,130 $ 14,231 $ 14,393 $ 14,456 $ 14,628 $ 14,597 $ 14,755 $ 14,682 $ 14,829 $ 14,569 $ 14,767 $ 14,654 $ 14,855 6/30/2001 $ 14,715 $ 14,912 $ 15,099 $ 15,246 $ 15,256 $ 15,421 $ 15,455 $ 15,600 $ 15,765 $ 15,926 $ 15,524 $ 15,706 $ 15,429 $ 15,606 $ 15,558 $ 15,732 $ 15,711 $ 15,885 $ 15,420 $ 15,621 $ 15,750 $ 15,924 $ 15,882 $ 16,059 6/30/2002 $ 15,981 $ 16,199 $ 16,111 $ 16,395 $ 16,391 $ 16,672 $ 16,601 $ 16,942 $ 16,531 $ 16,864 $ 16,547 $ 16,859 $ 16,866 $ 17,208 $ 16,880 $ 17,224 $ 17,084 $ 17,461 $ 17,081 $ 17,447 $ 17,237 $ 17,592 $ 17,521 $ 17,919 6/30/2003 $ 17,487 $ 17,884
8/31/95 = $10,000 FUND RETURNS ARE NET OF ALL FEES AND COSTS, WHILE THE INDEX RETURNS ARE BASED SOLELY ON MARKET RETURNS WITHOUT DEDUCTION FOR FEES OR TRANSACTION COSTS FOR REBALANCING. 67 TOP TEN US BOND HOLDINGS AS OF JUNE 30, 2003
PERCENTAGE OF NET ASSETS ------------------------------------------------------------------------ U.S. Treasury Bond 6.250%, due 05/15/30 6.1% U.S. Treasury Note 2.75%, due 09/30/03 5.5 U.S. Treasury Note 3.000%, due 02/15/08 4.6 U.S. Treasury Note 3.625%, due 08/31/03 4.2 Federal National Mortgage Association 5.500%, due 01/01/18 3.9 U.S. Treasury Note 1.625%, due 03/31/05 3.3 Federal National Mortgage Association 6.000%, due 11/01/32 2.9 Pool# 681599 Federal National Mortgage Association 5.500%, due 03/15/11 2.7 Benchmark Note CS First Boston Mortgage Securities Corp., 03-8, Class 5A1 6.500%, due 04/25/33 1.5 Government National Mortgage Association 6.000%, due 05/20/29 1.4 ------------------------------------------------------------------------ Total 36.1%
INDUSTRY DIVERSIFICATION AS A PERCENT OF NET ASSETS AS OF JUNE 30, 2003 U.S. CORPORATE BONDS Aerospace & Military 0.32% Airlines 0.13 Autos/Durables 0.60 Banks 1.50 Beverages & Tobacco 0.78 Chemicals 0.11 Computer Systems 0.21 Construction 0.42 Consumer 0.16 Electric Components 0.38 Energy 1.83 Financial Services 6.48 Food & House Products 1.14 Forest Products 0.09 Health: Drugs 0.19 Household Durables 0.10 Housing/Paper 0.13 Insurance 0.09 Leisure & Tourism 0.30 Media and Entertainment 0.12 Metals Non-Ferrous 0.10 Multi-Industry 0.33% Publishing 0.06 Real Estate 0.08 Retail/Apparel 0.14 Services/Miscellaneous 0.67 Telecommunications 0.82 Telecommunications - Wireless 0.07 Transportation 0.43 Utilities 0.59 ------- Total U.S. Corporate Bonds 18.37 Asset-Backed Securities 4.59 International Corporate Bonds 0.76 Sovereign\Supranational Bonds 1.56 Commercial Mortgage-Backed Securities 9.55 Mortgage-Backed Securities 34.86 U.S. Government Agency 4.16 U.S. Government Obligations 26.35 SHORT-TERM INVESTMENTS 1.95 ------- TOTAL INVESTMENTS 102.15 LIABILITIES, LESS CASH AND OTHER ASSETS (2.15) ------- NET ASSETS 100.00% =======
68 UBS U.S. BOND FUND -- SCHEDULE OF INVESTMENTS JUNE 30, 2003
FACE AMOUNT VALUE ------------- ------------- BONDS -- 100.20% U.S. CORPORATE BONDS -- 18.37% Abbott Laboratories, Inc. 5.625%, due 07/01/06 $ 85,000 $ 94,115 Alcoa, Inc. 6.000%, due 01/15/12 105,000 118,275 Altria Group, Inc. 7.750%, due 01/15/27 110,000 117,900 American Express Co. 3.750%, due 11/20/07 110,000 114,626 Anadarko Finance Co., Series B 7.500%, due 05/01/31 55,000 69,090 Anheuser Busch Cos., Inc. 9.000%, due 12/01/09 280,000 373,526 AOL Time Warner, Inc. 7.625%, due 04/15/31 335,000 386,625 Apache Corp. 6.250%, due 04/15/12 100,000 116,439 AT&T Corp. 8.500%, due 11/15/31 85,000 96,381 AT&T Wireless Services, Inc. 7.875%, due 03/01/11 160,000 188,964 Avon Products, Inc. 7.150%, due 11/15/09 150,000 181,617 Bank of America Corp. 7.400%, due 01/15/11 440,000 540,589 Bank One Corp. 7.875%, due 08/01/10 345,000 430,180 Bear Stearns Co., Inc. 4.000%, due 01/31/08 140,000 146,445 Boeing Capital Corp. 7.375%, due 09/27/10 80,000 94,796 Bombardier Capital, Inc., 144A 6.125%, due 06/29/06 175,000 178,938 Bristol-Myers Squibb Co. 5.750%, due 10/01/11 110,000 122,418 Burlington Northern Santa Fe Corp. 7.082%, due 05/13/29 200,000 235,011 Caterpillar, Inc. 6.550%, due 05/01/11 55,000 65,019 Cendant Corp. 6.250%, due 01/15/08 180,000 199,190 Centex Corp. 9.750%, due 06/15/05 320,000 365,363 Cingular Wireless LLC 6.500%, due 12/15/11 70,000 80,652 Citigroup, Inc. 7.250%, due 10/01/10 570,000 690,621 Citizens Communications Co. 9.250%, due 05/15/11 180,000 232,911 Coca-Cola Co. (The) 4.000%, due 06/01/05 105,000 109,884 Comcast Cable Communications, Inc. 6.750%, due 01/30/11 300,000 344,361 Commonwealth Edison Co., 6.150%, due 03/15/12 65,000 74,525 Computer Sciences Corp. 3.500%, due 04/15/08 165,000 168,496 Conagra Foods, Inc. 6.750%, due 09/15/11 $ 100,000 $ 117,073 Conoco, Inc. 5.900%, due 04/15/04 320,000 331,004 ConocoPhillips 8.500%, due 05/25/05 190,000 214,025 8.750%, due 05/25/10 75,000 97,616 Consolidated Edison, Inc., Series B 7.500%, due 09/01/10 300,000 367,971 Coors Brewing Co., 6.375%, due 05/15/12 135,000 154,926 Countrywide Home Loans, Inc. 3.250%, due 05/21/08 205,000 205,990 Credit Suisse First Boston USA, Inc. 5.750%, due 04/15/07 130,000 144,427 6.500%, due 01/15/12 180,000 206,560 DaimlerChrysler N.A Holding Corp. 8.500%, due 01/18/31 105,000 123,676 Devon Financing Corp., ULC 6.875%, due 09/30/11 105,000 123,169 Dominion Resources, Inc., Class B 7.625%, due 07/15/05 235,000 261,378 DTE Energy Co. 7.050%, due 06/01/11 45,000 52,630 Duke Energy Field Services, LLC 6.875%, due 02/01/11 85,000 97,075 7.875%, due 08/16/10 65,000 78,232 EOP Operating LP 7.000%, due 07/15/11 85,000 98,648 7.875%, due 07/15/31 55,000 66,499 Erac U.S.A. Finance Co., 144A 8.000%, due 01/15/11 200,000 238,280 First Data Corp. 5.625%, due 11/01/11 85,000 94,056 First Union National Bank 7.800%, due 08/18/10 345,000 428,063 FirstEnergy Corp., Series B 6.450%, due 11/15/11 105,000 115,223 FleetBoston Financial Corp. 7.375%, due 12/01/09 110,000 131,996 Ford Motor Co. 7.450%, due 07/16/31 220,000 201,534 Ford Motor Credit Co. 5.800%, due 01/12/09 225,000 223,618 7.375%, due 02/01/11 170,000 175,758 General Dynamics Corp. 4.250%, due 05/15/13 160,000 160,762 General Electric Capital Corp. 6.000%, due 06/15/12 835,000 942,521 6.750%, due 03/15/32 140,000 163,739 General Motors Acceptance Corp. 6.875%, due 09/15/11 275,000 275,918 8.000%, due 11/01/31 290,000 284,538 General Motors Corp. 8.375%, due 07/15/33 155,000 152,239 Goldman Sachs Group, Inc. 6.875%, due 01/15/11 250,000 294,987 Harrah's Operating Co., Inc. 7.500%, due 01/15/09 155,000 183,649
69
FACE AMOUNT VALUE ------------- ------------- Household Finance Corp. 6.750%, due 05/15/11 $ 295,000 $ 342,604 International Business Machines Corp. 5.875%, due 11/29/32 70,000 75,084 International Lease Finance Corp. 6.375%, due 03/15/09 180,000 201,592 International Paper Co. 6.750%, due 09/01/11 130,000 150,361 John Deere Capital Corp. 7.000%, due 03/15/12 145,000 172,144 Kerr-McGee Corp. 5.375%, due 04/15/05 250,000 263,010 Kraft Foods, Inc. 5.625%, due 11/01/11 320,000 348,694 Kroger Co. 7.500%, due 04/01/31 245,000 290,579 Lehman Brothers Holdings, Inc. 6.625%, due 01/18/12 145,000 169,995 Lincoln National Corp. 6.200%, due 12/15/11 80,000 89,806 Marsh & McClennan Cos., Inc. 6.250%, due 03/15/12 90,000 102,590 MBNA Capital, Series B FRN 2.713%, due 02/01/27 205,000 150,689 MidAmerican Energy Co. 5.125%, due 01/15/13 45,000 47,769 Mirant Americas Generation, Inc. 7.625%, due 05/01/06 210,000 161,700 Morgan Stanley 6.750%, due 04/15/11 450,000 526,356 Newell Rubbermaid, Inc. 4.000%, due 05/01/10 120,000 122,276 News America Holdings, Inc. 7.125%, due 04/08/28 65,000 72,374 Occidental Petroleum Corp. 8.450%, due 02/15/29 95,000 132,917 Pemex Project Funding Master Trust 8.000%, due 11/15/11 310,000 354,950 Pepsi Bottling Group, Inc., 144A 5.625%, due 02/17/09 145,000 162,623 Praxair, Inc. 6.375%, due 04/01/12 55,000 64,057 Progress Energy, Inc. 7.000%, due 10/30/31 145,000 160,020 Qwest Capital Funding, Inc. 7.900%, due 08/15/10 360,000 300,600 Rohm & Haas Co. 7.850%, due 07/15/29 50,000 64,738 Safeway, Inc. 6.500%, due 03/01/11 155,000 173,019 SBC Communications, Inc. 5.875%, due 02/01/12 145,000 162,781 Sempra Energy 7.950%, due 03/01/10 100,000 120,569 U.S.A. Education Corp. 5.625%, due 04/10/07 250,000 277,469 Southern Power Co., Series B, 6.250%, due 07/15/12 55,000 62,253 Southwestern Electric Power, Series B 4.500%, due 07/01/05 $ 45,000 $ 46,730 Sprint Capital Corp. 8.375%, due 03/15/12 95,000 113,745 Target Corp. 7.000%, due 07/15/31 135,000 161,570 Transocean Sedco Forex, Inc. 6.625%, due 04/15/11 100,000 115,844 U.S. Bank N.A., Minnesota 6.375%, due 08/01/11 240,000 280,167 Unilever Capital Corp. 7.125%, due 11/01/10 200,000 242,314 Union Pacific Corp. 6.700%, due 12/01/06 235,000 264,292 United Airlines, Inc. E.E.T.C. (c) (d) 7.811%, due 10/01/09 220,922 57,115 United Technologies Corp. 6.100%, due 05/15/12 185,000 213,285 UST, Inc. 6.625%, due 07/15/12 135,000 156,316 Valero Energy Corp. 7.500%, due 04/15/32 150,000 170,038 Verizon New England, Inc. 6.500%, due 09/15/11 65,000 75,422 Verizon New York, Inc., Series B 7.375%, due 04/01/32 70,000 86,856 Viacom, Inc. 6.625%, due 05/15/11 120,000 141,555 Walt Disney Co. (The) 6.375%, due 03/01/12 150,000 170,980 Washington Mutual, Inc. 5.625%, due 01/15/07 410,000 451,898 Wells Fargo Bank, N.A 6.450%, due 02/01/11 480,000 565,933 Weyerhaeuser Co. 7.375%, due 03/15/32 90,000 103,457 ------------- 21,485,873 ------------- ASSET-BACKED SECURITIES -- 4.59% Americredit Automobile Receivables Trust, 03-AM, Class A2B FRN 1.584%, due 10/06/06 390,000 389,981 Capital One Multi-Asset Execution Trust, 03-A1, Class A1 FRN 1.570%, due 01/15/09 970,000 970,024 Comed Transitional Funding Trust, 98-1, Class A7 5.740%, due 12/25/10 500,000 566,625 Conseco Finance, 00-B, Class AF4 7.870%, due 02/15/31 230,000 239,330 Greentree Financial Corp., 94-5, Class A5 8.300%, due 11/15/19 289,938 311,617 Greentree Financial Corp., 99-3, Class A5 6.160%, due 02/01/31 1,000,000 990,275 Norwest Asset Securities Corp., 99-14, Class A5 6.500%, due 06/25/29 570,000 578,715
70
FACE AMOUNT VALUE ------------- ------------- Sears Credit Account Master Trust, 01-1, Class A FRN 1.360%, due 02/15/10 $ 970,000 $ 965,963 Structured Asset Securities Corp., 03-AL2, Class A, 144A 3.357%, due 01/25/31 364,215 360,776 ------------- 5,373,306 ------------- INTERNATIONAL CORPORATE BONDS -- 0.76% Burlington Resources Finance Co. 6.680%, due 02/15/11 65,000 76,281 Canadian National Railway Co. 6.900%, due 07/15/28 65,000 77,120 Deutsche Telekom International Finance BV 8.250%, due 06/15/30 75,000 95,557 France Telecom S.A. 8.500%, due 03/01/31 70,000 96,861 HSBC Holdings PLC 5.250%, due 12/12/12 65,000 69,324 Rio Tinto Finance USA Ltd. 2.625%, due 09/30/08 240,000 235,602 Royal Bank of Scotland 9.118%, due 12/31/10 70,000 90,261 Telus Corp. 8.000%, due 06/01/11 125,000 144,375 ------------- 885,381 ------------- SOVEREIGN\SUPRANATIONAL BONDS -- 1.56% European Investment Bank 4.875%, due 09/06/06 315,000 341,320 Inter-American Development Bank 5.750%, due 02/26/08 325,000 371,606 International Bank for Reconstruction & Development 4.375%, due 09/28/06 425,000 459,391 Mexico Government International Bond 8.125%, due 12/30/19 260,000 296,400 State of Qatar, 144A 9.750%, due 06/15/30 155,000 215,450 Westdeutsche Landesbank 6.750%, due 06/15/05 130,000 141,577 ------------- 1,825,744 ------------- COMMERCIAL MORTGAGE-BACKED SECURITIES -- 9.55% Bear Stearns Commercial Mortgage Securities, 00-WF1, Class A2 7.780%, due 02/15/32 1,215,000 1,491,940 DLJ Commercial Mortgage Corp., 00-CKP1, Class A1B 7.180%, due 08/10/10 850,000 1,003,646 DLJ Commercial Mortgage Corp., 99-CG1, Class A1B 6.460%, due 03/10/32 220,000 255,152 DLJ Commercial Mortgage Corp., 99-CG2, Class A1B 7.300%, due 06/10/32 1,012,000 1,215,252 DLJ Commercial Mortgage Corp., 99-CG3, Class A1B 7.340%, due 10/10/32 400,000 482,152 GMAC Commercial Mortgage Securities, Inc., 97-C2, Class A2 6.550%, due 04/16/29 $ 330,000 $ 356,622 Greenwich Capital Commercial Funding Corp., 03-FL1 A FRN 1.639%, due 07/05/18 444,910 444,910 Heller Financial Commercial Mortgage Assets, 99-PH1, Class A1 6.500%, due 05/15/31 860,701 947,709 JP Morgan Commercial Mortgage Finance Corp., 99-C8, Class A1 7.325%, due 07/15/31 365,942 404,686 LB Commercial Conduit Mortgage Trust, 99-C1, Class A1 6.410%, due 06/15/31 561,998 608,537 LB Commercial Conduit Mortgage Trust, 99-C2, Class A2 7.325%, due 10/15/32 325,000 391,325 Merrill Lynch Mortgage Investors, Inc., 96-C2, Class A3 6.960%, due 11/21/28 535,000 590,436 Merrill Lynch Mortgage Investors, Inc., 97-C2, Class A2 6.540%, due 12/10/29 265,000 301,611 Morgan Stanley Dean Witter Capital I, 00-LIF2, Class A1 6.960%, due 10/15/33 318,427 359,362 Nomura Asset Securities Corp., 95-MD3, Class A1B 8.150%, due 04/04/27 328,360 358,029 Prudential Mortgage Capital Funding, LLC, 00-ROCK, Class A2 6.605%, due 05/10/34 115,000 134,836 Salomon Brothers Mortgage Securities VII, 00-C1, Class A2 7.520%, due 12/18/09 1,250,000 1,516,800 Strategic Hotel Capital, Inc., 03-1, Class D, 144A FRN 2.330%, due 02/15/13 310,000 310,000 ------------- 11,173,005 ------------- MORTGAGE-BACKED SECURITIES -- 34.86% Bank One Mortgage-Backed Pass-Through, 2000-2, Class 8A (b) 6.780%, due 03/15/30 237,928 240,908 Bank One Mortgage-Backed Pass-Through, 2000-2, Class A6 (b) 6.580%, due 03/15/30 16,844 17,035 Citicorp Mortgage Securities, Inc., 94-9, Class A8 5.750%, due 06/25/09 250,530 253,759 CS First Boston Mortgage Securities Corp., 02-10, Class 2A1 7.500%, due 05/25/32 1,201,464 1,262,033 CS First Boston Mortgage Securities Corp., 03-8, Class 5A1 6.500%, due 04/25/33 1,750,739 1,802,199 Federal Home Loan Mortgage Corp., 1595 D 6.500%, due 11/01/32 166,446 173,208
71
FACE AMOUNT VALUE ------------- ------------- Federal Home Loan Mortgage Corp., 2532 PD 5.500%, due 06/15/26 $ 700,000 $ 725,486 Federal Home Loan Mortgage Corp., Gold 5.500%, due 09/01/17 526,298 545,869 5.500%, due 01/01/18 954,632 990,131 5.500%, due 04/01/18 912,673 946,651 6.000%, due 10/01/29 766,695 796,010 6.500%, due 09/01/29 549,647 571,976 6.500%, due 03/01/32 135,874 141,394 7.000%, due 10/15/13 401,737 433,144 Federal National Mortgage Association 4.503%, due 06/01/33 FRN 384,647 393,250 5.500%, due 09/01/24 1,136,791 1,176,979 5.500%, due 03/01/33 1,091,679 1,130,272 5.500%, due 12/01/17 591,173 614,106 5.500%, due 01/01/18 5,767,810 5,991,574 5.500%, due 03/01/33 985,768 1,020,617 6.000%, due 06/01/23 521,350 543,601 6.000%, due 03/01/28 229,629 239,064 6.000%, due 03/01/29 272,167 282,947 6.000%, due 05/01/29 278,114 289,130 6.000%, due 06/01/31 206,362 214,536 6.000%, due 11/01/32 3,305,302 3,436,222 6.000%, due 06/01/33 194,776 202,491 6.500%, due 08/01/32 1,128,945 1,177,277 6.500%, due 09/01/32 725,293 756,344 7.000%, due 03/01/31 99,281 104,891 7.000%, due 11/01/31 592,257 623,721 7.000%, due 04/01/32 763,649 804,218 7.000%, due 08/01/32 859,482 905,142 7.000%, due 11/01/32 1,587,175 1,671,494 Federal National Mortgage Association Grantor Trust, 00-T6, Class A1 7.500%, due 06/25/30 1,497,145 1,670,721 Federal National Mortgage Association Grantor Trust, 01-T10, Class A2 7.500%, due 12/25/41 163,672 182,648 Federal National Mortgage Association Grantor Trust, 01-T5, Class A3 7.500%, due 06/19/30 213,422 238,166 Federal National Mortgage Association Whole Loan, 03-W6, Class 6A FRN 5.210%, due 08/25/42 562,924 593,357 Federal National Mortgage Association Whole Loan, 95-W3, Class A 9.000%, due 04/25/25 30,515 33,562 Government National Mortgage Association 6.000%, due 12/20/28 335,302 349,982 6.000%, due 05/20/29 1,621,796 1,690,722 6.000%, due 08/20/29 1,183,992 1,234,312 6.500%, due 10/15/24 1,078,846 1,139,879 6.500%, due 08/15/27 5,748 6,035 7.000%, due 07/15/25 27,762 29,523 7.000%, due 07/15/31 329,532 348,068 8.500%, due 12/15/17 501,328 551,445 9.000%, due 11/15/04 2,021 2,286 GS Mortgage Securities Corp. II, 96-PL, Class A2 7.410%, due 02/15/27 171,706 178,911 GS Mortgage Securities Corp., 01-2, Class A, 144A 7.500%, due 06/19/32 $ 429,752 $ 460,685 Impac Secured Assets Common Owner, 01-3, Class A2 (b) 6.703%, due 04/25/31 326,406 337,199 PNC Mortgage Securities Corp., 94-3, Class A8 7.500%, due 07/25/24 239,934 242,153 Residential Funding Mortgage Securitization I, 95-S16, Class A7 7.500%, due 11/25/25 264,350 264,088 Structured Asset Securities Corp., 98-ALS1, Class 1A 6.900%, due 01/25/29 472,208 477,557 Washington Mutual, 99-WM2, Class 2A 7.000%, due 11/19/14 244,720 250,308 ------------- 40,759,286 ------------- U.S. GOVERNMENT AGENCY -- 4.16% Fannie Mae 4.625%, due 05/01/13 455,000 467,931 5.500%, due 03/15/11 2,770,000 3,142,662 7.125%, due 01/15/30 510,000 661,960 Freddie Mac 5.875%, due 03/21/11 525,000 590,556 ------------- 4,863,109 ------------- U.S. GOVERNMENT OBLIGATIONS -- 26.35% U.S. Treasury Bonds 6.250%, due 05/15/30 5,740,000 7,145,852 6.625%, due 02/15/27 1,105,000 1,422,126 8.000%, due 11/15/21 260,000 376,665 U.S. Treasury Notes 1.625%, due 03/31/05 3,880,000 3,906,675 1.625%, due 04/30/05 70,000 70,459 2.000%, due 11/30/04 65,000 65,772 2.750%, due 09/30/03 6,425,000 6,455,120 3.000%, due 02/15/08 5,240,000 5,392,081 3.625%, due 08/31/03 4,905,000 4,926,651 4.375%, due 08/15/12 405,000 434,252 5.750%, due 08/15/10 535,000 626,222 ------------- 30,821,875 ------------- Total Bonds (Cost $113,622,871) 117,187,579 ------------- SHARES ------------- SHORT-TERM INVESTMENTS -- 1.95% OTHER -- 1.95% UBS Supplementary Trust U.S. Cash Management Prime Fund (Cost $2,285,654) 2,285,654 2,285,654 ------------- Total Investments (Cost $115,908,525) -- 102.15% (a) 119,473,233 Liabilities, less cash and other assets -- (2.15)% (2,519,566) ------------- Net Assets -- 100% $ 116,953,667 =============
72 NOTES TO SCHEDULE OF INVESTMENTS (a) Aggregate cost for federal income tax purposes was $115,908,676; and net unrealized appreciation consisted of: Gross unrealized appreciation $ 4,076,978 Gross unrealized depreciation (512,421) ------------- Net unrealized appreciation $ 3,564,557 =============
(b) Variable rate note -- The rate disclosed is that in effect at June 30, 2003. (c) Security is in default. (d) Security is illiquid. These securities amounted to $57,115 or 0.05% of net assets. % Represents a percentage of net assets. E.E.T.C.: Enhanced Equipment Trust Certificate. FRN: Floating rate note -- The rate disclosed is that in effect at June 30, 2003. 144A: Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified buyers. At June 30, 2003, the value of these securities amounted to $1,926,752 or 1.65% of net assets. See accompanying notes to financial statements 73 UBS HIGH YIELD FUND For the fiscal year ended June 30, 2003, Class Y shares of UBS High Yield Fund returned 18.08%, underperforming the Fund's benchmark, the Merrill Lynch High Yield Cash Pay Index, which returned 21.11%. Since its inception on September 30, 1997, the Fund's Class Y shares have returned an average of 4.34% per year, in line with the 4.37% return of the Index. (Returns for all share classes over various time periods are shown on page 75. Please note that these returns do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.) 12-MONTH MARKET REVIEW As the review period began, the high yield market was one of the few sectors of the fixed income market that was generating disappointing results. Despite low interest rates and mounting hopes for an economic recovery, investors shunned high yield bonds during the first three months of the reporting period. Continued accounting scandals, a weak stock market, poor corporate profits, disappointing second-quarter economic results and the growing threat of a war with Iraq all took their toll on the market. In this environment, while all securities declined in value, those with relatively higher credit ratings outperformed their lower-rated counterparts. High yield market performance then changed course and generated strong returns during the remaining nine months of the period. The mitigating factors behind this reversal were better-than-expected third-quarter 2002 earnings reports, gains in the stock market and a large inflow of cash to high yield mutual funds. During the fourth quarter of 2002 and over the first six months of 2003, the riskiest segment of the high yield market posted the best returns, as the CCC-rated sector outpaced both the B-rated and the BB-rated sectors. Even in the wake of mixed economic news, high yield bonds continued to rise, buoyed by fundamental and technical improvements. On a fundamental level, a declining default rate, a falling distress ratio, improvement in the ratio of downgrades to upgrades, and companies reporting operating results in line with or better than expectations positively influenced the market. In fact, the number of downgrades to every upgrade fell to a level not seen in several years. From a technical perspective, cash flows into the sector were unusually large. New issuance was met with very strong customer demand, which boded well for high yield issuers who may have needed to refinance debt. WE ADJUSTED SECTOR WEIGHTS TO MAXIMIZE OPPORTUNITIES Throughout the reporting period, our globally integrated investment platform--which allows our investment specialists from around the world to share ideas and information--helped us to avoid the fallout from certain high profile bankruptcies that occurred in the high yield market. For example, our telecom analyst in the equity group provided useful insight in determining our investment thesis regarding WorldCom. Ultimately, the collective effort of several analysts within the firm led us to completely avoid the company. During the fiscal year, we also utilized the expertise of our analysts to proactively adjust the Fund's portfolio in order to take advantage of areas that we believed held the most promise for the Fund. As a result, during the first half of the reporting period, our overweights to the broadcasting, gaming, and printing and publishing sectors added to the Fund's performance. In the first quarter of 2003, however, many securities in the Fund were called or tendered. Given that a number of these holdings were in broadcasting, we took the opportunity to reduce our overweight to this area. At the same time, our analysis led us to add to the Fund's position in printing and publishing and chemicals. As the period drew to a close, we reduced our overweight to gaming as a result of analysis that pointed to less attractive valuations and increased competitive activity within the industry. We further increased our holdings in printing, and reduced our weighting to yellow page publishers at this time. LOOKING AHEAD At current levels, we believe the US high yield market holds value for long-term investors. This view is based on our outlook for moderate economic improvement and expected lower default rates, coupled with generally improving credit fundamentals. 74 TOTAL RETURN
6 MONTHS 1 YEAR 3 YEARS 5 YEARS INCEPTION* ENDED ENDED ENDED ENDED TO 6/30/03 6/30/03 6/30/03 6/30/03 6/30/03 -------------------------------------------------------------------------------------------------------- UBS High Yield Fund Class A 12.78% 17.70% 3.71% N/A 3.04% -------------------------------------------------------------------------------------------------------- UBS High Yield Fund Class B 12.19 16.83 N/A N/A 8.10 -------------------------------------------------------------------------------------------------------- UBS High Yield Fund Class C 12.50 17.29 N/A N/A 8.47 -------------------------------------------------------------------------------------------------------- UBS High Yield Fund Class Y 12.67 18.08 3.99 3.36% 4.34 -------------------------------------------------------------------------------------------------------- UBS High Yield Fund Class A** 7.67 12.40 2.14 N/A 1.99 -------------------------------------------------------------------------------------------------------- UBS High Yield Fund Class B** 7.19 11.83 N/A N/A 5.84 -------------------------------------------------------------------------------------------------------- UBS High Yield Fund Class C** 10.69 15.45 N/A N/A 7.82 -------------------------------------------------------------------------------------------------------- Merrill Lynch High Yield Cash Pay Index 17.24 21.11 6.22 3.59 4.37 --------------------------------------------------------------------------------------------------------
* INCEPTION DATE OF UBS HIGH YIELD FUND CLASS A IS 12/31/98. INCEPTION DATE OF CLASS B AND CLASS C IS 11/07/01. INCEPTION DATE OF CLASS Y AND, FOR ILLUSTRATION PURPOSES, THE INDEX, IS 9/30/97. ** RETURNS INCLUDE SALES CHARGES. TOTAL RETURN INCLUDES REINVESTMENT OF ALL CAPITAL GAIN AND INCOME DISTRIBUTIONS. TOTAL RETURN DOES NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES. ALL TOTAL RETURNS IN EXCESS OF 1 YEAR ARE AVERAGE ANNUALIZED RETURNS. ALL TOTAL RETURNS LESS THAN 1 YEAR ARE CUMULATIVE RETURNS. ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000 This chart shows the growth in the value of an investment in UBS High Yield Fund Class Y shares and the Merrill Lynch High Yield Cash Pay Index if you had invested $10,000 on September 30, 1997, and had reinvested all your income dividends and capital gain distributions through June 30, 2003. The performance of Class A, Class B and Class C shares will vary based upon the different inception dates, class specific expenses and sales charges. No adjustment has been made for any income taxes payable by shareholders on income dividends and capital gain distributions. Past performance is no guarantee of future results. Share price and return will vary with market conditions; investors may realize a gain or loss upon redemption. [CHART] UBS HIGH YIELD FUND CLASS Y VS. MERRILL LYNCH HIGH YIELD CASH PAY INDEX Wealth Value With Dividends
UBS HIGH YIELD FUND CLASS Y MERRILL LYNCH HIGH YIELD CASH PAY INDEX $ 10,000 $ 10,000 $ 9,952 $ 10,066 $ 10,052 $ 10,162 $ 10,239 $ 10,258 $ 10,470 $ 10,411 $ 10,542 $ 10,454 $ 10,673 $ 10,544 $ 10,680 $ 10,594 $ 10,710 $ 10,668 6/30/1998 $ 10,822 $ 10,721 $ 10,979 $ 10,782 $ 10,424 $ 10,317 $ 10,571 $ 10,337 $ 10,504 $ 10,167 $ 11,101 $ 10,630 $ 11,028 $ 10,634 $ 11,293 $ 10,739 $ 11,349 $ 10,657 $ 11,470 $ 10,749 $ 11,636 $ 10,917 $ 11,404 $ 10,841 6/30/1999 $ 11,349 $ 10,821 $ 11,337 $ 10,837 $ 11,280 $ 10,727 $ 11,246 $ 10,686 $ 11,246 $ 10,623 $ 11,474 $ 10,745 $ 11,564 $ 10,801 $ 11,419 $ 10,748 $ 11,383 $ 10,757 $ 11,118 $ 10,606 $ 11,191 $ 10,610 $ 11,154 $ 10,493 6/30/2000 $ 11,351 $ 10,673 $ 11,474 $ 10,750 $ 11,610 $ 10,881 $ 11,462 $ 10,818 $ 11,104 $ 10,500 $ 10,597 $ 10,171 $ 10,965 $ 10,392 $ 11,535 $ 11,011 $ 11,657 $ 11,185 $ 11,454 $ 11,037 $ 11,440 $ 10,917 $ 11,535 $ 11,127 6/30/2001 $ 11,144 $ 10,897 $ 11,270 $ 11,067 $ 11,369 $ 11,174 $ 10,636 $ 10,457 $ 10,976 $ 10,765 $ 11,471 $ 11,115 $ 11,419 $ 11,036 $ 11,414 $ 11,098 $ 11,161 $ 10,991 $ 11,389 $ 11,253 $ 11,503 $ 11,431 $ 11,371 $ 11,370 6/30/2002 $ 10,811 $ 10,561 $ 10,625 $ 10,141 $ 10,889 $ 10,395 $ 10,731 $ 10,228 $ 10,745 $ 10,142 $ 11,250 $ 10,750 $ 11,331 $ 10,911 $ 11,502 $ 11,225 $ 11,612 $ 11,370 $ 11,969 $ 11,665 $ 12,479 $ 12,320 $ 12,497 $ 12,453 6/30/2003 $ 12,766 $ 12,793
9/30/97 = $10,000 FUND RETURNS ARE NET OF ALL FEES AND COSTS, WHILE THE INDEX RETURNS ARE BASED SOLELY ON MARKET RETURNS WITHOUT DEDUCTION FOR FEES OR TRANSACTION COSTS FOR REBALANCING. 75 TOP TEN FIXED INCOME HOLDINGS AS OF JUNE 30, 2003
PERCENTAGE OF NET ASSETS ------------------------------------------------------------------------ NUCO, Inc. 12.000%, due 10/31/04 2.5% Mediacom LLC 9.500%, due 01/15/13 1.4 AES Corp. 9.375%, due 09/15/10 1.4 Tommy Hilfiger USA, Inc. 6.850%, due 06/01/08 1.1 Sequa Corp. 9.000%, due 08/01/09 0.9 Insight Communications Co., Inc. 0.000%, due 02/15/11 0.9 Luigino's, Inc. 10.000%, due 02/01/06 0.9 HMH Properties, Inc. 8.450%, due 12/01/08 0.9 Grey Wolf, Inc. 8.875%, due 07/01/07 0.9 Levi Strauss & Co. 12.250%, due 12/15/12 0.9 ----------------------------------------------------------------------- Total 11.8%
INDUSTRY DIVERSIFICATION AS A PERCENT OF NET ASSETS AS OF JUNE 30, 2003 U.S. CORPORATE BONDS Aerospace & Defense 0.31% Aerospace & Military 2.15 Appliances & Household Durables 0.70 Autos/Durables 1.71 Building Materials 2.92 CableTV/Pay Services 4.06 Chemicals 4.71 Computer Systems 1.22 Construction 0.78 Consumer 0.51 Consumer Durables 0.76 Electric Components 2.02 Energy 6.96 Environmental 0.59 Financial Services 2.77 Food & Household Products 5.00 Food and Beverage 0.51 Gaming 3.64 Health: Drugs 0.89 Health: Non-Drugs 3.11 Healthcare 0.62 Housing/Paper 1.92 Industrial Components 1.55 Leisure & Tourism 4.64 Machinery & Engineering 0.88 Metals Steel 0.60 Multi-Industry 0.42 Non-Durables 1.97 Packaging & Containers 0.45% Publishing 5.56 Radio Broadcasting 1.17 Real Estate 0.71 Recreation 0.64 Restaurants 0.24 Retail/Apparel 4.65 Services/Miscellaneous 8.32 Technology 0.12 Telecommunications 5.56 Telecommunications - Wireless 3.49 Telecommunications - Services 0.51 Television Broadcasting 4.36 Transportation 0.89 Utilities 2.95 ------- Total U.S. Corporate Bonds 97.54 U.S. EQUITIES Retail/Apparel 0.01 Services/Miscellaneous 0.31 ------- Total U.S. Equities 0.32 Convertible Preferred 0.17 International Dollar Bonds 0.29 Warrants 0.17 ------- TOTAL INVESTMENTS 98.49 CASH AND OTHER ASSETS, LESS LIABILITIES 1.51 ------- NET ASSETS 100.00% =======
76 UBS HIGH YIELD FUND -- SCHEDULE OF INVESTMENTS JUNE 30, 2003
FACE AMOUNT VALUE ------------- ------------- U.S. BONDS -- 97.83% U.S. CORPORATE BONDS -- 97.54% Acetex Corp. 10.875%, due 08/01/09 $ 300,000 $ 333,375 Adelphia Communications Corp., Series B (e) 8.375%, due 02/01/08 1,650,000 1,023,000 Advanced Medical Optics, Inc. 9.250%, due 07/15/10 325,000 352,625 AES Corp. 9.375%, due 09/15/10 2,521,000 2,533,605 Ainsworth Lumber Co., Ltd. 12.500%, due 07/15/07 1,250,000 1,412,500 AK Steel Corp. 7.750%, due 06/15/12 1,300,000 1,079,000 Alamosa Delaware, Inc. 12.500%, due 02/01/11 1,750,000 1,435,000 Alamosa Holdings, Inc. (c) 12.875%, due 02/15/10 350,000 203,000 Alderwoods Group, Inc. 12.250%, due 01/02/09 1,000,000 1,045,000 Allbritton Communications Co., 144A 7.750%, due 12/15/12 550,000 567,875 Alliance Gaming Corp., Series B 10.000%, due 08/01/07 250,000 259,375 Allied Waste North America 7.875%, due 04/15/13 325,000 340,031 8.500%, due 12/01/08 Series B 250,000 268,750 10.000%, due 08/01/09 Series B 1,000,000 1,062,500 American Color Graphics, Inc., 144A 10.000%, due 06/15/10 850,000 845,750 American Eco Corp., Series B (e) (f) 9.625%, due 05/15/08 5,500,000 550 American Restaurant Group, Inc., Series D 11.500%, due 11/01/06 523,000 360,870 Ameristar Casino, Inc. 10.750%, due 02/15/09 1,000,000 1,133,750 AMI Semiconductor, Inc., 144A 10.750%, due 02/01/13 825,000 932,250 Amkor Technology, Inc. 7.750%, due 05/15/13 144A 750,000 712,500 9.250%, due 02/15/08 500,000 520,000 Anchor Glass Container Corp., 144A 11.000%, due 02/15/13 700,000 764,750 Argo-Tech Corp. 8.625%, due 10/01/07 600,000 558,000 Atrium Cos., Inc., Series B 10.500%, due 05/01/09 1,175,000 1,257,250 B&G Foods, Inc., Series D 9.625%, due 08/01/07 975,000 1,004,250 Bally Total Fitness Holding Corp., 9.875%, due 10/15/07 Series D 450,000 410,625 10.500%, due 07/15/11 144A 600,000 600,000 BE Aerospace, Inc., Series B 8.875%, due 05/01/11 1,500,000 1,177,500 Bear Island Paper Co., LLC, Series B 10.000%, due 12/01/07 525,000 435,750 Belden & Blake Corp., Series B 9.875%, due 06/15/07 1,250,000 1,181,250 Berry Plastics Corp. 10.750%, due 07/15/12 $ 1,050,000 $ 1,155,000 Better Minerals & Aggreg 13.000%, due 09/15/09 825,000 548,625 Block Communications, Inc. 9.250%, due 04/15/09 500,000 545,000 Brickman Group Ltd., (The) 144A 11.750%, due 12/15/09 750,000 838,125 Buckeye Technologies, Inc. 8.500%, due 12/15/05 1,475,000 1,467,625 Buffets, Inc. 11.250%, due 07/15/10 1,250,000 1,237,500 Building Materials Corp. of America, Series B 7.750%, due 07/15/05 750,000 735,000 Cadmus Communications Corp. 9.750%, due 06/01/09 995,000 1,060,919 Calpine Corp. 8.500%, due 02/15/11 1,050,000 787,500 Centennial Cellular Corp. 10.750%, due 12/15/08 850,000 782,000 Centennial Cellular Operating Co., 144A 10.125%, due 06/15/13 500,000 495,000 Charter Communications Holdings 8.250%, due 04/01/07 1,500,000 1,155,000 10.000%, due 04/01/09 2,000,000 1,530,000 Chesapeake Energy Corp. 8.125%, due 04/01/11 875,000 942,812 Chippac International Co., Ltd., Series B 12.750%, due 08/01/09 575,000 646,875 Coaxial Communications of Central Ohio, Inc. 10.000%, due 08/15/06 825,000 850,781 Collins & Aikman Products 10.750%, due 12/31/11 1,575,000 1,386,000 Cooperative Computing, Inc., 144A 10.500%, due 06/15/11 600,000 615,000 Crown Castle International Corp. 9.375%, due 08/01/11 1,000,000 1,040,000 10.750%, due 08/01/11 850,000 926,500 Crown Cork & Seal Co., Inc. 8.000%, due 04/15/23 500,000 402,500 Crown European Holdings S.A., 144A 9.500%, due 03/01/11 875,000 945,000 10.875%, due 03/01/13 1,000,000 1,090,000 CSC Holdings, Inc. 7.625%, due 04/01/11 135,000 136,350 7.875%, due 12/15/07 750,000 766,875 8.125%, due 08/15/09 Series B 1,050,000 1,086,750 Dayton Superior Corp., 10.750%, due 09/15/08 144A 1,000,000 990,000 13.000%, due 06/15/09 (f) 675,000 573,750 Delhaize America, Inc. 8.125%, due 04/15/11 1,275,000 1,396,125 Desa International, Inc. 9.875%, due 12/15/07 (e) 3,000,000 30,000 Dex Media East LLC 12.125%, due 11/15/12 425,000 502,563 DirecTV Holdings LLC, 144A 8.375%, due 03/15/13 500,000 557,500
77
FACE AMOUNT VALUE ------------- ------------- Doane Pet Care Co. 10.750%, due 03/01/10 $ 700,000 $ 763,000 Doane Products 9.750%, due 05/15/07 300,000 283,500 Dobson Communications Corp. 10.875%, due 07/01/10 1,150,000 1,242,000 Dobson Sygnet Communications Co. 12.250%, due 12/15/08 250,000 267,500 Dura Operating Corp., Series D 9.000%, due 05/01/09 1,000,000 920,000 Dynegy Holdings, Inc. 6.875%, due 04/01/11 1,750,000 1,470,000 8.125%, due 03/15/05 450,000 437,625 Equistar Chemicals LP 6.500%, due 02/15/06 1,300,000 1,241,500 Esterline Technologies Corp., 144A 7.750%, due 06/15/13 1,000,000 1,025,000 Extendicare Health Services, Inc. 9.350%, due 12/15/07 1,250,000 1,190,625 9.500%, due 07/01/10 365,000 383,250 Fedders North America 9.375%, due 08/15/07 120,000 99,600 Felcor Lodging LP 8.500%, due 06/01/11 175,000 176,313 9.500%, due 09/15/08 450,000 464,625 Fisher Scientific International, Inc. 8.125%, due 05/01/12 300,000 321,000 8.125%, due 05/01/12 144A 200,000 214,000 Fort James Corp. 6.875%, due 09/15/07 350,000 356,125 Four M Corp., Series B 12.000%, due 06/01/06 850,000 854,250 Frontier Corp., 144A 8.000%, due 04/15/13 400,000 418,000 Frontier Oil Corp. 11.750%, due 11/15/09 400,000 440,000 FrontierVision Holdings L.P., Series B (e) 11.875%, due 09/15/07 275,000 220,000 GEO Specialty Chemicals 10.125%, due 08/01/08 800,000 480,000 Georgia-Pacific Corp., 9.375%, due 02/01/13 144A 750,000 826,875 9.500%, due 12/01/11 500,000 550,625 Giant Industries 9.000%, due 09/01/07 1,225,000 1,157,625 Granite Broadcasting Corp. 8.875%, due 05/15/08 500,000 488,750 10.375%, due 05/15/05 300,000 299,250 Gray Television, Inc. 9.250%, due 12/15/11 680,000 751,400 Grey Wolf, Inc., Series C 8.875%, due 07/01/07 1,500,000 1,541,250 Hanger Orthopedic Group, Inc. 11.250%, due 06/15/09 775,000 837,000 HMH Properties, Inc., Series C 8.450%, due 12/01/08 1,495,000 1,543,587 Hollinger International Publishing Corp. 9.000%, due 12/15/10 750,000 802,500 Hollinger, Inc., 144A 11.875%, due 03/01/11 $ 425,000 $ 471,750 Hornbeck-Leevac Marine Services 10.625%, due 08/01/08 750,000 826,875 Host Marriott LP, Series E 8.375%, due 02/15/06 900,000 931,500 Houghton Mifflin Co., 144A 9.875%, due 02/01/13 775,000 840,875 Huntsman ICI Chemicals, LLC 10.125%, due 07/01/09 700,000 672,000 Hyperion Telecommunications (e) 12.000%, due 11/01/07 2,000,000 20,000 IASIS Healthcare Corp., 144A 8.500%, due 10/15/09 500,000 505,000 IMC Global, Inc., 144A 11.250%, due 06/01/11 1,000,000 1,040,000 Ingles Markets, Inc. 8.875%, due 12/01/11 1,000,000 1,006,250 Insight Communications Co., Inc. (c) 0.000%, due 02/15/11 2,000,000 1,660,000 Insight Midwest, LP 10.500%, due 11/01/10 695,000 762,762 InterAct Operating Co., Inc. (e) (f) (g) 14.000%, due 08/01/03 13,545,110 0 Interface, Inc. 10.375%, due 02/01/10 1,000,000 960,000 IPC Acquisition Corp., 11.500%, due 12/15/09 825,000 874,500 Iron Mountain, Inc. 7.750%, due 01/15/15 475,000 502,313 Jafra Cosmetics International, Inc., 144A 10.750%, due 05/15/11 500,000 522,500 John Q. Hammons Hotels, Inc., Series B 8.875%, due 05/15/12 1,400,000 1,470,000 Kansas City Southern 7.500%, due 06/15/09 750,000 777,187 Le-Natures, Inc., 144A 9.000%, due 06/15/13 900,000 927,000 Levi Strauss & Co 12.250%, due 12/15/12 1,850,000 1,540,125 Lodgenet Entertaiment Corp. 9.500%, due 06/15/13 700,000 717,500 Luigino's, Inc. 10.000%, due 02/01/06 1,550,000 1,612,000 Lyondell Chemical Co., Series A 9.625%, due 05/01/07 500,000 490,000 Mail-Well Corp., 8.750%, due 12/15/08 Series B 250,000 236,250 9.625%, due 03/15/12 1,000,000 1,052,500 Majestic Investment Holdings LLC, 11.653%, due 11/30/07 1,000,000 1,003,750 Majestic Star Casino LLC, Series B 10.875%, due 07/01/06 1,000,000 1,046,250 Massey Energy Co. 6.950%, due 03/01/07 1,075,000 1,032,000 Mediacom LLC 9.500%, due 01/15/13 2,440,000 2,580,300 Merisant Co., 144A 9.500%, due 07/15/13 600,000 621,000
78
FACE AMOUNT VALUE ------------- ------------- Meristar Hospitality Corp. 9.000%, due 01/15/08 $ 625,000 $ 617,188 9.125%, due 01/15/11 200,000 196,000 Millennium America, Inc. 7.000%, due 11/15/06 500,000 505,000 9.250%, due 06/15/08 900,000 967,500 Mirant Americas Generation, Inc. 7.625%, due 05/01/06 1,450,000 1,116,500 Mortons Restaurant Group, Inc., 144A 7.500%, due 07/01/10 500,000 427,500 Mothers Work, Inc. 11.250%, due 08/01/10 700,000 756,000 MTR Gaming Group, Inc., 144A 9.750%, due 04/01/10 1,350,000 1,390,500 Nexstar Finance Holdings, Inc., LLC, 144A (c) 0.000%, due 04/01/13 975,000 649,594 Nexstar Finance, Inc., LLC 12.000%, due 04/01/08 760,000 847,400 Nextel Partners, Inc., 8.125%, due 07/01/11 144A 675,000 673,313 12.500%, due 11/15/09 525,000 590,625 Nextmedia Operating, Inc. 10.750%, due 07/01/11 250,000 280,000 Nortek Holdings, Inc., Series B 9.125%, due 09/01/07 600,000 627,000 9.250%, due 03/15/07 625,000 643,750 9.875%, due 06/15/11 200,000 210,500 NUCO, Inc. (g) (f) 12.000%, due 10/31/04 5,000,000 4,500,000 Orion Refining Corp. (e) (f) (g) 10.000%, due 11/15/04 3,829,177 38 Owens-Brockway Glass Corp. 8.875%, due 02/15/09 850,000 922,250 Owens-Illinois, Inc. 7.350%, due 05/15/08 400,000 400,000 Pacifica Papers, Inc. 10.000%, due 03/15/09 595,000 633,675 Parker Drilling Corp. 5.500%, due 08/01/04 450,000 449,438 10.125%, due 11/15/09 Series B 1,000,000 1,080,000 Pathmark Stores, Inc. 8.750%, due 02/01/12 1,000,000 1,035,000 Paxson Communications Corp. (c) 0.000%, due 01/15/09 1,100,000 918,500 Penn National Gaming, Inc. 8.875%, due 03/15/10 975,000 1,033,500 11.125%, due 03/01/08 Series B 220,000 243,650 Per-Se Technologies, Inc., Series B 9.500%, due 02/15/05 1,000,000 1,020,000 Perry Ellis International, Inc., Series B 9.500%, due 03/15/09 1,000,000 1,037,500 Petco Animal Supplies, Inc., 10.750%, due 11/01/11 1,190,000 1,356,600 Phillips-Van Heusen Corp. 9.500%, due 05/01/08 500,000 517,500 Plains Exploration & Production Co., Series B 8.750%, due 07/01/12 950,000 1,016,500 Pliant Corp., 144A 11.125%, due 09/01/09 700,000 743,750 PolyOne Corp., 144A 10.625%, due 05/15/10 $ 750,000 $ 731,250 Premier Graphics, Inc. (e) (f) 11.500%, due 12/01/05 4,250,000 0 Premier Parks, Inc. 9.750%, due 06/15/07 325,000 321,750 Prime Hospitality Corp., Series B 8.375%, due 05/01/12 575,000 552,000 Prime Medical Services, Inc. 8.750%, due 04/01/08 1,400,000 1,316,000 PRIMEDIA, Inc. 8.875%, due 05/15/11 1,000,000 1,052,500 Qwest Capital Funding, Inc. 5.875%, due 08/03/04 750,000 718,125 7.000%, due 08/03/09 1,250,000 1,028,125 Qwest Corp., 144A 8.875%, due 03/15/12 550,000 614,625 Qwest Services Corp., 144A 13.500%, due 12/15/10 1,143,000 1,291,590 R.H. Donnelly, Inc. 9.125%, due 06/01/08 1,100,000 1,122,000 Reliant Resources, Inc., 144A 9.250%, due 07/15/10 350,000 351,750 9.500%, due 07/15/13 500,000 503,750 Rhodia S.A., 144A 8.875%, due 06/01/11 750,000 776,250 Rite Aid Corp., 144A 8.125%, due 05/01/10 550,000 569,250 Riverwood International Corp. 10.875%, due 04/01/08 525,000 538,125 Roundy's, Inc., Series B 8.875%, due 06/15/12 600,000 627,000 Samina Corp., 144A 10.375%, due 01/15/10 750,000 836,250 Samsonite Corp. 10.750%, due 06/15/08 1,200,000 1,227,000 SBA Communications Corp. 10.250%, due 02/01/09 575,000 529,000 Sbarro, Inc. 11.000%, due 09/15/09 930,000 795,150 Seagate Technology Hdd Holdings 8.000%, due 05/15/09 750,000 811,875 Semco Energy, Inc., 144A 7.125%, due 05/15/08 450,000 470,250 Sequa Corp. 9.000%, due 08/01/09 1,575,000 1,669,500 Silgan Corp. 9.000%, due 06/01/09 550,000 569,250 Sinclair Broadcast Group, Inc. 8.000%, due 03/15/12 725,000 773,937 8.750%, due 12/15/11 750,000 823,125 Six Flags, Inc. 8.875%, due 02/01/10 1,000,000 960,000 9.500%, due 02/01/09 100,000 98,500 9.750%, due 04/15/13 144A 250,000 247,500 Southern Energy, 144A 7.400%, due 07/15/04 525,000 391,125 Spanish Broadcasting System 9.625%, due 11/01/09 1,250,000 1,328,125
79
FACE AMOUNT VALUE ------------- ------------- SPX Corp. 7.500%, due 01/01/13 $ 500,000 $ 541,250 Starwood Hotels & Resorts Worldwide, Inc. 7.190%, due 05/01/12 1,000,000 1,095,000 Stone Container Corp. 8.375%, due 07/01/12 500,000 536,250 Superior National Capital Trust I (c) (e) (f) 10.750%, due 12/01/17 900,000 0 Sybron Dental Specialties, Inc. 8.125%, due 06/15/12 750,000 791,250 Team Health, Inc., Series B 12.000%, due 03/15/09 1,100,000 1,127,500 Tembec Industries, Inc. 7.750%, due 03/15/12 1,000,000 970,000 8.500%, due 02/01/11 250,000 247,500 Tenneco Automotive, Inc., 144A 10.250%, due 07/15/13 750,000 759,375 Terra Capital, Inc. 12.875%, due 10/15/08 750,000 798,750 Terra Capital, Inc., 144A 11.500%, due 06/01/10 500,000 460,000 Tesoro Petroleum Corp., Series B 9.000%, due 07/01/08 1,250,000 1,131,250 Tommy Hilfiger USA, Inc. 6.850%, due 06/01/08 2,050,000 2,039,750 Town Sports Int'l, Inc., 144A 9.625%, due 04/15/11 300,000 313,500 Triad Hospitals, Inc., Series B 8.750%, due 05/01/09 450,000 478,688 Trico Marine Services, Inc. 8.875%, due 05/15/12 1,000,000 860,000 Triton PCS, Inc., 8.500%, due 06/01/13 144A 500,000 537,500 9.375%, due 02/01/11 1,425,000 1,457,062 Tropical Sportswear Int'l Corp., Series A 11.000%, due 06/15/08 275,000 283,250 United Components, Inc., 144A 9.374%, due 06/15/13 750,000 778,125 Unisys Corp. 6.875%, due 03/15/10 750,000 780,000 Vertis, Inc., 9.750%, due 04/01/09 144A 450,000 468,000 10.875%, due 06/15/09 Series B 650,000 650,000 Von Hoffmann Press, Inc. 10.250%, due 03/15/09 725,000 775,750 10.375%, due 05/15/07 (d) 750,000 752,812 Wheeling Island Gaming, Inc. 10.125%, due 12/15/09 1,275,000 1,282,969 William Carter Co., Series B 10.875%, due 08/15/11 775,000 875,750 Winsloew Furniture, Inc., Series B 12.750%, due 08/15/07 250,000 148,125 WRC Media, Inc. 12.750%, due 11/15/09 1,000,000 1,041,250 Wynn Las Vegas LLC 12.000%, due 11/01/10 500,000 552,500 XM Satellite Radio, Inc., 144A 12.000%, due 06/15/10 800,000 784,000 Young Broadcasting, Inc. 8.500%, due 12/15/08 $ 1,375,000 $ 1,471,250 10.000%, due 03/01/11 136,000 147,220 ------------- 175,788,892 ------------- INTERNATIONAL DOLLAR BONDS -- 0.29% Methanex Corp. 7.750%, due 08/15/05 500,000 525,000 ------------- Total U.S. Bonds (Cost $208,474,164) 176,313,892 ------------- SHARES ------------- EQUITIES -- 0.66% COMMON STOCKS -- 0.32% AIRLINES -- 0.00% Sabreliner Corp. (f) (g) 8,400 0 ------------- ELECTRONICS -- 0.00% Communications & Power Industries Holding Corp. (b) 1,400 14 ------------- FOOD & HOUSEHOLD PRODUCTS -- 0.00% Aurora Foods, Inc. (b) 174 61 ------------- RETAIL/APPAREL -- 0.01% Samuels Jewelers, Inc.(b) (f) (g) 605,400 27,243 ------------- SERVICES/MISCELLANEOUS -- 0.31% Metal Management, Inc. (b) (f) 16,785 298,270 Packaged Ice, Inc. (b) 74,223 253,100 Song Networks Holding AB, ADR (f) (g) 61,644 0 Waste Systems International, Inc. (f) (g) 664,249 0 ------------- 551,370 ------------- TELECOMMUNICATIONS- SERVICES -- 0.00% PNV, Inc.(b) 79,417 24 RCN Corp. (b) 466 922 ------------- 946 ------------- 579,634 ------------- CONVERTIBLE PREFERRED -- 0.17% METALS - STEEL -- 0.00% Weirton Steel Corp., Series C Convertible (Zero Coupon) 1,800 18 ------------- PUBLISHING -- 0.17% CSC Holdings, Inc. (b) Series M, 11.125% 3,000 307,500 ------------- SERVICES/MISCELLANEOUS -- 0.00% American Restaurant Group, Inc., (f) (g) Series B, PIK 12.000% 78 0 DigitalGlobe, Inc., Series C PIK 8.500% 401,431 4,014 ICG Holdings, Inc., (e) (f) (g) PIK 14.000% Preferred 2,218 0 Waste Systems International, Inc., (e) (f) (g) Series E, PIK 8.000% 5,428 0 ------------- 4,014 ------------- TELECOMMUNICATION SERVICES -- 0.00% InterAct Electronic Marketing, Inc. (f) (g) 14.000% 19,500 0 ------------- 311,532 -------------
80
NUMBER OF WARRANTS VALUE ------------- ------------- WARRANTS (b) -- 0.17% Arcadia Financial Ltd., expires 04/15/08 (f) (g) 6,000 $ 0 Dayton Superior Corp., 144A, expires 06/15/09 (f) (g) 225 2 Electronic Retailing Systems International, Inc., 144A expires 02/01/04 (f) (g) 13,700 0 InterAct Electronic Marketing, Inc., 144A expires 08/01/03 (f) (g) 19,500 0 InterAct Electronic Marketing, Inc., expires 12/31/09 (f) (g) 19,500 0 Knology, Inc., expires 10/15/07 (b) (f) (g), 144A 16,995 0 Leap Wireless International, Inc., 144A, expires 04/15/10 (f) (g) 200 0 Nuco2 Inc (f) (g) 109,290 301,641 Pathnet, Inc., expires 03/15/07 (f) (g) 6,275 0 Pliant Corp., 144A, expires 06/01/10 (f) 160 160 Samuels Jewelers, Inc., expires 09/29/03 (f) (g) 13,146 $ 13 UIH Australia Pacific, Inc., 144A expires 05/15/06 (b) (f) (g) 10,000 0 Wam!Net, Inc., expires 03/01/05 (f) (g) 26,250 0 Winsloew Furniture, Inc., 144A, expires 08/15/07 (f) 250 3 ------------- 301,819 ------------- Total Equities (Cost $25,022,256) 1,192,985 ------------- Total Investments (Cost $233,496,420) -- 98.49% (a) 177,506,877 Cash and other assets, less liabilities -- 1.51% 2,719,768 ------------- Net Assets -- 100% $ 180,226,645 =============
NOTES TO SCHEDULE OF INVESTMENTS (a) Aggregate cost for federal income tax purposes was $233,789,078; and net unrealized depreciation consisted of: Gross unrealized appreciation $ 8,915,369 Gross unrealized depreciation (65,197,570) ------------- Net unrealized depreciation $ (56,282,201) =============
(b) Non-income producing security. (c) Step bonds -- coupon rate increases in increments to maturity. Rate disclosed is as of June 30, 2003. Maturity date disclosed is the ultimate maturity date. (d) Variable rate note -- The rate disclosed is that in effect at June 30, 2003. (e) Security is in default. (f) Security is illiquid. These securities amounted to $5,701,512 or 3.16% of net assets. (g) Security is being fair valued by a management committee under the direction of the Board of Trustees. At June 30, 2003, the value of these securities amounted to $4,828,937 or 2.68% of net assets. % Represents a percentage of net assets. 144A: Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified buyers. At June 30, 2003, the value of these securities amounted to $32,134,662 or 17.83% of net assets. ADR: America Depositary Receipt. PIK: Payment In Kind. See accompanying notes to financial statements 81 UBS INTERNATIONAL EQUITY FUND For the fiscal year ended June 30, 2003, Class Y shares of UBS International Equity Fund declined 9.21%, underperforming the 5.53% decline of the MSCI World Ex USA (Free) Index. However, since its inception on August 31, 1993 through June 30, 2003, the Fund has slightly outperformed the Index, generating an annual return of 2.39%, compared to a 2.25% return for the Index. (Returns for all share classes over various time periods are shown on page 84. Please note that these returns do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.) Recent underperformance has been driven primarily by stock selection within industries. Positive contributions from holdings within banks, insurance and retailing have been overshadowed by negative impacts from selection within consumer durables, tech hardware and utilities. Our currency strategy proved to be a positive contributor to the Fund's performance over the period, as the euro moved to historic highs. 12-MONTH MARKET REVIEW The international equity markets took their lead from the US markets over the period, alternating between rising and falling over the four quarters that comprised the fiscal year. As the period began, many of the issues troubling US investors were also adversely affecting the international markets. The sputtering economy, weak capital spending, geopolitical unrest and heightened concerns over additional terrorist attacks caused investors to shun equities in favor of the relative security offered by the bond market. As a result, stock prices fell, while the fixed income markets posted strong results. There was a reversal of fortune in the fourth quarter of 2002, as equities outperformed their bond counterparts. Some signs of economic improvement and better-than-expected earnings reports supported global stocks. This type of volatility continued into the second half of the period. During the first quarter of 2003, most global equity markets fell over concerns relating to the impending war in Iraq. However, positive investor reaction to the short duration of major conflict in Iraq fueled an equity rally. Many of the sectors that performed the poorest during the lengthy bear market did well during this time, including the information technology, telecommunication services, utility and industrial sectors. SECTOR SELECTION AND RISK MANAGEMENT PLAYED A CRITICAL ROLE We used the insight provided by our team of analysts via our integrated global investment platform and our proprietary risk management system to strike a prudent balance between sectors sensitive to an economic recovery and those that were relatively immune to economic weakness. Based on this strategy, the Fund held an overweight position to healthcare. Within the sector, we focused on pharmaceutical companies that offered attractive valuations and the potential to deliver long-term sustainable growth. As the period continued, we added to our overweight in pharmaceuticals, and healthcare stocks became the largest overweight position in the Fund by period end. Notable holdings included Aventis (2.1%), Sanofi (1.31%) and Takeda (1.5%).* The Fund also held an overweight to the consumer discretionary sector, with a meaningful overweight to media, throughout the period. However, this position detracted from overall Fund performance. Underweighted sectors during the period included financials, and at period end it was our largest underweighted position. Within the sector, we underweighted insurance and diversified financial stocks, and alternated between underweighting and overweighting banks, ending the period with an overweight. Holdings at period end included Royal Bank of ---------- * WEIGHTINGS REPRESENT A PERCENTAGE OF NET ASSETS AS OF 6/30/03. THE FUND'S COMPOSITION WILL DIFFER OVER TIME. 82 Scotland (2.1%), Barclays (2.0%) and Toronto Dominion (0.89%).* On a stock level, as we've already mentioned, more recent stock selection decisions within industries led to the Fund's relative underperformance during the period. Positive contributions from holdings within banks, insurance and retailing were overshadowed by the negative impact of stock selection within consumer durables, tech hardware and utilities. On a currency management level, we leveraged the expertise of the team of currency analysts to implement currency allocation decisions for the Fund. Ultimately, these decisions made a significant contribution to the Fund's overall performance during the period. Specifically, against a backdrop whereby the euro moved to historic highs, we overweighted the euro. An overweight to the undervalued Australian dollar contributed positively to performance, as well. As the currency moved to our fair value estimate over the year, we pared back this overweight in stages. An underweight to the Japanese yen, at a time when it appears that little effort at economic reform is being made in that country, also had a positive impact on performance. LOOKING AHEAD Economic data continues to show that the UK is on a moderately improving path. The consumer picture has been very solid, with mortgage refinancing helping the trend continue. In continental Europe, the picture is different. The strengthening of the euro versus the US dollar has bolstered equity returns, but is hurting the competitive position of the European export sector. While companies in Europe have diversified their manufacturing base over the past decade and can shift production to help offset the unfavorable currency position, they cannot completely insulate themselves from the effect of a stronger euro. The Japanese market has bounced off its bottom, but we still see no evidence of economic or corporate reform. Reinforcing the speculative nature of its recent market rise, the lowest-quality, financially distressed companies have been the best performers. On an industry level, we continue to find attractive valuations in the pharmaceutical sector. This sector has been battered by investor nervousness over regulatory issues, company-specific problems, and some scandals that have resulted in significant fines and penalties. Ultimately, however, we believe that the demographics are positive and that companies with proprietary products and healthy research and development will continue to enjoy high returns of capital that are not currently appreciated by the markets. ---------- * WEIGHTINGS REPRESENT A PERCENTAGE OF NET ASSETS AS OF 6/30/03. THE FUND'S COMPOSITION WILL DIFFER OVER TIME. 83 TOTAL RETURN
6 MONTHS 1 YEAR 3 YEARS 5 YEARS INCEPTION* ENDED ENDED ENDED ENDED TO 6/30/03 6/30/03 6/30/03 6/30/03 6/30/03 --------------------------------------------------------------------------------------------------------- UBS International Equity Class A 6.39% -9.24% -10.61% -3.83% -2.49% --------------------------------------------------------------------------------------------------------- UBS International Equity Class B 5.97 -9.94 N/A N/A -4.73 --------------------------------------------------------------------------------------------------------- UBS International Equity Class C 5.83 -10.29 N/A N/A -4.82 --------------------------------------------------------------------------------------------------------- UBS International Equity Class Y 6.37 -9.21 -10.48 -3.64 2.39 --------------------------------------------------------------------------------------------------------- UBS International Equity Class A** 0.58 -14.23 -12.29 -4.92 -3.40 --------------------------------------------------------------------------------------------------------- UBS International Equity Class B** 0.97 -14.24 N/A N/A -7.38 --------------------------------------------------------------------------------------------------------- UBS International Equity Class C** 3.71 -12.02 N/A N/A -5.51 --------------------------------------------------------------------------------------------------------- MSCI World Ex USA (Free) Index 10.34 -5.53 -13.29 -3.66 2.25 ---------------------------------------------------------------------------------------------------------
* INCEPTION DATE OF UBS INTERNATIONAL EQUITY FUND CLASS A IS 6/30/97. INCEPTION DATES OF CLASS B AND CLASS C ARE 2/12/02 AND 1/25/02, RESPECTIVELY. INCEPTION DATE OF CLASS Y AND, FOR ILLUSTRATION PURPOSES, THE INDEX, IS 8/31/93. ** RETURNS INCLUDE SALES CHARGES. PERFORMANCE IS NET OF WITHHOLDING TAXES ON DIVIDENDS PAID ON INVESTMENTS. TOTAL RETURN INCLUDES REINVESTMENT OF ALL CAPITAL GAIN AND INCOME DISTRIBUTIONS. TOTAL RETURN DOES NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES. ALL TOTAL RETURNS IN EXCESS OF 1 YEAR ARE AVERAGE ANNUALIZED RETURNS. ALL TOTAL RETURNS LESS THAN 1 YEAR ARE CUMULATIVE RETURNS. ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000 This chart shows the growth in the value of an investment in UBS International Equity Fund Class Y shares and the MSCI World Ex USA (Free) Index if you had invested $10,000 on August 31, 1993, and had reinvested all your income dividends and capital gain distributions through June 30, 2003. The performance of Class A, Class B and Class C shares will vary based upon the different inception dates, class specific expenses and sales charges. No adjustment has been made for any income taxes payable by shareholders on income dividends and capital gain distributions. Past performance is no guarantee of future results. Share price and return will vary with market conditions; investors may realize a gain or loss upon redemption. [CHART] UBS INTERNATIONAL EQUITY FUND CLASS Y VS. MSCI WORLD EX USA (FREE) INDEX Wealth Value With Dividends
UBS INTERNATIONAL EQUITY FUND CLASS Y MSCI WORLD EX USA (FREE) INDEX $ 10,000 $ 10,000 $ 9,720 $ 9,768 $ 9,970 $ 10,096 $ 9,290 $ 9,232 $ 9,655 $ 9,888 $ 10,336 $ 10,709 $ 10,026 $ 10,657 $ 9,575 $ 10,198 $ 9,845 $ 10,619 $ 9,855 $ 10,569 6/30/1994 $ 9,755 $ 10,688 $ 9,906 $ 10,807 $ 10,198 $ 11,078 $ 9,906 $ 10,752 $ 10,078 $ 11,095 $ 9,745 $ 10,560 $ 9,745 $ 10,628 $ 9,403 $ 10,213 $ 9,363 $ 10,210 $ 9,524 $ 10,840 $ 9,836 $ 11,241 $ 9,846 $ 11,136 6/30/1995 $ 9,745 $ 10,955 $ 10,329 $ 11,618 $ 10,490 $ 11,191 $ 10,662 $ 11,406 $ 10,561 $ 11,111 $ 10,823 $ 11,427 $ 11,261 $ 11,875 $ 11,486 $ 11,956 $ 11,443 $ 11,991 $ 11,593 $ 12,243 $ 12,022 $ 12,604 $ 11,968 $ 12,388 6/30/1996 $ 12,049 $ 12,447 $ 11,715 $ 12,081 $ 11,768 $ 12,133 $ 12,124 $ 12,463 $ 12,092 $ 12,378 $ 12,707 $ 12,895 $ 12,696 $ 12,719 $ 12,628 $ 12,330 $ 12,834 $ 12,513 $ 12,914 $ 12,519 $ 13,005 $ 12,599 $ 13,853 $ 13,432 6/30/1997 $ 14,491 $ 14,144 $ 14,756 $ 14,407 $ 13,720 $ 13,324 $ 14,491 $ 14,072 $ 13,582 $ 13,013 $ 13,352 $ 12,860 $ 13,425 $ 12,982 $ 13,873 $ 13,539 $ 14,606 $ 14,420 $ 15,165 $ 14,887 $ 15,290 $ 15,002 $ 15,290 $ 14,935 6/30/1998 $ 15,184 $ 14,998 $ 15,333 $ 15,097 $ 13,434 $ 13,169 $ 13,109 $ 12,793 $ 14,121 $ 14,128 $ 14,846 $ 14,846 $ 15,357 $ 15,405 $ 15,319 $ 15,403 $ 14,825 $ 15,016 $ 15,256 $ 15,636 $ 15,965 $ 16,312 $ 15,129 $ 15,477 6/30/1999 $ 15,737 $ 16,074 $ 16,196 $ 16,539 $ 16,107 $ 16,584 $ 16,031 $ 16,769 $ 16,413 $ 17,417 $ 16,809 $ 18,024 $ 18,300 $ 19,683 $ 16,914 $ 18,488 $ 16,965 $ 19,006 $ 17,523 $ 19,787 $ 16,836 $ 18,758 $ 16,667 $ 18,304 6/30/2000 $ 17,588 $ 19,094 $ 16,914 $ 18,364 $ 16,978 $ 18,603 $ 16,253 $ 17,639 $ 15,825 $ 17,159 $ 15,747 $ 16,466 $ 16,636 $ 17,032 $ 16,471 $ 17,064 $ 15,518 $ 15,713 $ 14,593 $ 14,647 $ 15,463 $ 15,671 $ 15,035 $ 15,160 6/30/2001 $ 14,748 $ 14,541 $ 14,526 $ 14,286 $ 14,401 $ 13,905 $ 13,195 $ 12,500 $ 13,361 $ 12,806 $ 13,639 $ 13,309 $ 13,810 $ 13,393 $ 13,211 $ 12,712 $ 13,314 $ 12,788 $ 13,913 $ 13,468 $ 14,084 $ 13,551 $ 14,375 $ 13,732 6/30/2002 $ 13,895 $ 13,175 $ 12,458 $ 11,864 $ 12,407 $ 11,844 $ 10,935 $ 10,588 $ 11,671 $ 11,144 $ 12,236 $ 11,657 $ 11,860 $ 11,280 $ 11,230 $ 10,850 $ 10,942 $ 10,636 $ 10,762 $ 10,431 $ 11,770 $ 11,437 $ 12,436 $ 12,149 6/30/2003 $ 12,616 $ 12,447
8/31/93 = $10,000 FUND RETURNS ARE NET OF ALL FEES AND COSTS, WHILE THE INDEX RETURNS ARE BASED SOLELY ON MARKET RETURNS WITHOUT DEDUCTION FOR FEES OR TRANSACTION COSTS FOR REBALANCING. 84 TOP TEN INTERNATIONAL EQUITY HOLDINGS AS OF JUNE 30, 2003
PERCENTAGE OF NET ASSETS ----------------------------------------------------- Total S.A., Class B 3.0% BP PLC 2.9 Nestle S.A. 2.9 Shell Transport & Trading Co. PLC 2.2 Vodafone Group PLC 2.2 Royal Bank of Scotland Group PLC 2.1 Aventis S.A. 2.1 Barclays PLC 2.0 GlaxoSmithKline PLC 1.9 Nokia Oyj 1.8 ----------------------------------------------------- Total 23.1%
INDUSTRY DIVERSIFICATION AS A PERCENT OF NET ASSETS AS OF JUNE 30, 2003 INTERNATIONAL EQUITIES Aerospace & Defense 0.52% Appliances & Household Durables 0.38 Autos/Durables 2.91 Banks 14.48 Beverages & Tobacco 2.91 Broadcasting & Publishing 5.04 Chemicals 4.28 Computer Software 0.63 Construction 1.16 Data Processing 0.68 Electric Components 3.75 Electronics 0.33 Energy 4.56 Financial Services 4.64 Food & House Products 4.77 Forest Products 0.93 Health: Drugs 9.57 Health: Non-Drugs 1.70 Housing/Paper 1.07 Insurance 2.55 Machinery & Engineering 1.02 Merchandising 1.42% Metals Non-Ferrous 1.12 Multi-Industry 0.97 Oil 2.22 Real Estate 1.13 Recreation 2.37 Retail/Apparel 1.70 Services/Miscellaneous 2.08 Telecommunications 9.39 Transportation 1.83 Utilities 2.69 Wholesale & International Trade 0.50 ------ Total International Equities 95.30 International Dollar Bonds 0.37 INVESTMENTS COMPANIES 3.76 SHORT-TERM INVESTMENTS 2.71 INVESTMENTS OF CASH COLLATERAL 10.16 ------ TOTAL INVESTMENTS 112.30 LIABILITIES, LESS CASH AND OTHER ASSETS (12.30) ------ NET ASSETS 100.00% ======
85 UBS INTERNATIONAL EQUITY FUND -- SCHEDULE OF INVESTMENTS JUNE 30, 2003
SHARES VALUE ------------- ------------- EQUITIES -- 99.06% INTERNATIONAL EQUITIES -- 95.30% AUSTRALIA -- 2.91% Lion Nathan Ltd. 68,493 $ 246,211 Mayne Group Ltd. 115,596 212,417 News Corp., Ltd., Preferred 57,155 352,262 QBE Insurance Group Ltd. (c) 100,592 628,746 Rio Tinto Ltd. 14,477 283,600 Westpac Banking Corp. 93,485 1,018,806 ------------- 2,742,042 ------------- BELGIUM -- 0.77% Fortis 42,019 729,582 ------------- CANADA -- 3.30% Alcan, Inc. 12,240 378,438 Bank of Nova Scotia (c) 16,200 716,556 BCE, Inc. 28,800 658,346 Canadian National Railway Co. 10,900 522,077 Toronto Dominion Bank 30,700 844,123 ------------- 3,119,540 ------------- FINLAND -- 3.04% Nokia Oyj 105,442 1,736,358 Sampo Oyj, Class A 34,960 256,536 UPM-Kymmene Oyj (c) 59,878 873,956 ------------- 2,866,850 ------------- FRANCE -- 10.94% Aventis S.A. (c) 36,018 1,981,629 AXA (c) 16,855 261,493 BNP Paribas (b) (c) 26,797 1,361,683 Cap Gemini S.A. (b) (c) 16,636 590,697 Compagnie de Saint-Gobain 10,063 396,021 France Telecom S.A. (b) 24,523 601,522 Sanofi-Synthelabo S.A. 21,045 1,232,525 Suez S.A. 33,341 530,663 Total S.A. 19,002 2,871,652 Unibail (c) 6,769 501,373 ------------- 10,329,258 ------------- GERMANY -- 1.16% Allianz AG (c) 2,981 247,775 E.on AG (c) 4,976 255,826 Linde AG (c) 16,003 592,479 ------------- 1,096,080 ------------- HONG KONG -- 0.87% Cheung Kong Holdings Ltd. 72,000 433,026 Sun Hung Kai Properties Ltd. 76,000 383,988 ------------- 817,014 ------------- IRELAND -- 2.06% Bank of Ireland 86,435 1,043,203 CRH PLC 57,204 896,676 ------------- 1,939,879 ------------- ITALY -- 2.08% Assicurazioni Generali Spa (c) 22,521 521,898 ENI Spa (c) 95,000 1,436,766 ------------- 1,958,664 ------------- JAPAN -- 15.81% AIFUL Corp. 14,500 $ 618,280 Canon, Inc. 14,000 642,432 Daikin Industries Ltd. 12,000 220,362 Fuji Photo Film Co., Ltd. 38,000 1,098,147 Honda Motor Co., Ltd. 26,900 1,019,321 Kao Corp. 30,000 558,401 Keyence Corp. 1,000 183,219 Mitsubishi Corp. 70,000 485,613 Mitsubishi Tokyo Financial Group, Inc. 62 280,375 Mitsui Fudosan Co., Ltd. 21,000 134,141 Murata Manufacturing Co., Ltd. 17,000 668,249 Nintendo Co., Ltd. 15,700 1,141,462 Nippon Telegraph & Telephone Corp. 262 1,027,708 NTT DoCoMo, Inc. 274 593,296 Rohm Co., Ltd. 7,000 763,106 Sekisui House Ltd. 26,000 197,044 Sompo Japan Insurance, Inc. (c) 135,000 736,415 Sony Corp. (c) 12,800 360,308 Sumitomo Chemical Co., Ltd. 141,000 442,698 Taiheiyo Cement Corp. 600 1,029 Takeda Chemical Industries Ltd. 37,900 1,398,268 Takefuji Corp. 4,980 258,383 Toyota Motor Corp. 66,800 1,730,152 West Japan Railway Co. 97 367,562 ------------- 14,925,971 ------------- NETHERLANDS -- 6.84% ABN AMRO Holding NV 21,721 415,308 Akzo Nobel NV 15,809 419,003 Koninklijke Philips Electronics NV 38,867 739,125 Reed Elsevier NV 134,277 1,583,612 TPG NV 48,352 839,543 VNU NV 51,886 1,598,628 Wolters Kluwer NV 71,760 865,263 ------------- 6,460,482 ------------- NORWAY -- 0.41% Telenor ASA 94,100 391,084 ------------- PORTUGAL -- 0.76% Electricidade de Portugal S.A. 182,625 390,076 Portugal Telecom, SGPS, S.A. 46,234 331,301 ------------- 721,377 ------------- SINGAPORE -- 0.82% DBS Group Holdings Ltd. 133,000 777,910 ------------- SPAIN -- 2.48% Banco Bilbao Vizcaya Argentaria S.A. 105,819 1,111,889 Banco Santander Central Hispano S.A. 63,494 556,332 Telefonica S.A. 58,323 677,123 ------------- 2,345,344 ------------- SWEDEN -- 3.09% Nordea AB (c) 150,500 725,713 Svenska Cellulosa AB 29,590 1,010,983 Svenska Handelsbanken AB 34,850 570,316 Swedish Match AB 80,640 609,463 ------------- 2,916,475 -------------
86
SHARES VALUE ------------- ------------- SWITZERLAND -- 7.45% Adecco S.A. 19,647 $ 809,348 Compagnie Financiere Richemont AG 35,392 572,208 Givaudan S.A. 1,070 450,260 Nestle S.A. (c) 13,059 2,694,615 Novartis AG 28,935 1,144,968 Roche Holding AG 13,052 1,023,790 Swiss Reinsurance Co. 6,174 342,076 ------------- 7,037,265 ------------- UNITED KINGDOM -- 30.51% Abbey National PLC 55,147 428,156 Allied Domecq PLC 55,761 307,324 Amersham PLC 47,887 359,344 ARM Holdings PLC (b) 204,180 225,740 AstraZeneca PLC 25,734 1,031,891 Barclays PLC 260,572 1,934,909 BOC Group PLC 29,665 380,597 BP PLC 399,583 2,770,990 BT Group PLC 234,907 789,794 Carlton Communications PLC 141,967 354,912 Centrica PLC 169,383 491,230 Compass Group PLC 90,380 487,313 Diageo PLC 71,127 759,380 Dixons Group PLC 141,410 308,017 Electrocomponents PLC 87,764 469,950 Gallaher Group PLC 161,512 1,585,776 GlaxoSmithKline PLC 90,881 1,834,086 HSBC Holdings PLC 60,513 714,960 Invensys PLC 440,363 148,965 Kingfisher PLC (b) 226,046 1,034,162 Lloyds TSB Group PLC 75,847 538,492 National Grid Transco PLC 134,115 909,577 Prudential PLC 68,061 412,178 Rentokil Initial PLC 368,577 1,151,024 Rio Tinto PLC 21,001 395,062 Rolls-Royce Group PLC 232,788 492,650 Royal Bank of Scotland Group PLC 71,461 2,004,648 Scottish & Southern Energy PLC 95,177 980,024 Shell Transport & Trading Co. PLC 317,546 2,095,979 Tesco PLC 370,779 1,341,451 Vodafone Group PLC 1,055,103 2,063,162 ------------- 28,801,743 ------------- Total International Equities (Cost $76,740,399) 89,976,560 ------------- INVESTMENT COMPANIES -- 3.76% JAPAN -- 0.80% iShares MSCI Japan Index Fund 104,000 756,080 ------------- UNITED KINGDOM -- 1.45% iShares MSCI United Kingdom Index Fund 104,500 1,372,085 ------------- OTHER -- 1.51% iShares MSCI EMU Index Fund 29,000 1,421,000 ------------- Total Investment Companies (Cost $3,569,425) 3,549,165 ------------- FACE AMOUNT VALUE -------------- ------------- INTERNATIONAL BONDS -- 0.37% CAYMAN ISLANDS -- 0.37% SMFG Finance Ltd., 144A, 2.25%, due 07/11/05 (Cost $379,971) JPY 45,000,000 $ 348,938 ------------- SHARES -------------- SHORT-TERM INVESTMENT -- 2.71% OTHER -- 2.71% UBS Supplementary Trust U.S. Cash Management Prime Fund (Cost $2,559,264) 2,559,264 2,559,264 ------------- INVESTMENTS OF CASH COLLATERAL FOR SECURITIES LOANED -- 10.16% UBS Supplementary Trust U.S. Cash Management Prime Fund (Cost $9,586,388) 9,586,388 9,586,388 ------------- Total Investments (Cost $92,835,447) -- 112.30% (a) 106,020,315 Liabilities, less cash and other assets -- (12.30)% (11,608,839) ------------- Net Assets -- 100% $ 94,411,476 =============
87 NOTES TO SCHEDULE OF INVESTMENTS (a) Aggregate cost for federal income tax purposes was $94,944,380; and net unrealized appreciation consisted of: Gross unrealized appreciation $ 15,267,829 Gross unrealized depreciation (4,191,894) ------------- Net unrealized appreciation $ 11,075,935 =============
(b) Non-income producing security. (c) Security, or portion thereof, was on loan at June 30, 2003. % Represents a percentage of net assets. FORWARD FOREIGN CURRENCY CONTRACTS UBS International Equity Fund had the following open forward foreign currency contracts as of June 30, 2003:
SETTLEMENT LOCAL CURRENT UNREALIZED DATE CURRENCY VALUE GAIN/(LOSS) ------------ ------------ ------------ ------------- FORWARD FOREIGN CURRENCY BUY CONTRACTS: Australian Dollar (AUD) 12/03/03 5,400,000 $ 3,567,904 $ 144,898 Canadian Dollar (CAD) 12/03/03 3,250,000 2,370,890 37,441 Danish Krone (DKK) 12/03/03 4,500,000 692,475 (15,830) Euro (EUR) 12/03/03 1,270,000 1,452,195 (30,609) Hong Kong Dollar (HKD) 12/03/03 3,600,000 461,536 178 Japanese Yen (JPY) 12/03/03 252,800,000 2,115,933 (25,351) Swiss Franc (CHF) 12/03/03 1,150,000 851,969 (35,322) FORWARD FOREIGN CURRENCY SALE CONTRACTS: British Pound (GBP) 12/03/03 5,750,000 9,391,144 (47,193) Swedish Krona (SEK) 12/03/03 9,200,000 1,140,725 27,960 Swiss Franc (CHF) 12/03/03 1,800,000 1,333,517 40,758 ----------- Total net unrealized gain on Forward Foreign Currency Contracts $ 96,930 ===========
See accompanying notes to financial statements. 88 UBS U.S. VALUE EQUITY FUND Over the 12 months ended June 30, 2003, Class Y shares of UBS U.S. Value Equity Fund returned 0.89%, outperforming the 1.02% decline of the Russell 1000 Value Index over the same period. Since the Fund's inception on June 29, 2001 through June 30, 2003, its Class Y shares produced a decline of 2.72% on an annualized basis. This compares to the 5.07% decline in the Fund's benchmark. (Returns for all share classes over various time periods are shown on page 91. Please note that these returns do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.) During the review period, an overweight to healthcare--specifically to drugs and medical products--and an underweight to defense and aerospace, helped drive the Fund's relative outperformance over the Index. 12-MONTH MARKET REVIEW Value stocks took their lead from the overall US equity market during the fiscal year, alternately rising and falling over the four quarters that comprised the 12-month period. The period began on a negative note for value stocks (and the broader equity market as a whole) as the weak economy, anemic corporate profits, accounting irregularities and conflict in the Middle East caused investors to flee stocks in favor of the relative security offered by bonds. However, after falling to a five-year low in early October 2002, stocks staged a rally as compelling valuations in certain downtrodden sectors attracted investors. When all was said and done, investors drove value stocks to a 9.22% gain over the fourth quarter. The tide turned again in the first quarter of 2003, when geopolitical issues came to the fore at the start of the year. Anticipation of the war in Iraq, saber rattling in North Korea and renewed concerns about terrorism preoccupied the country. Investor aversion to risk resurfaced, and value stocks fell 4.86%. However, the majority of sectors covered in the Index rebounded sharply during the second quarter of 2003, in a reversal that was attributed in large part to investor relief following the short duration of major conflict in Iraq. With this uncertainty lifted, investors grew increasingly optimistic about the potential for an economic revival and subsequent upturn in corporate profits. At the same time, their appetite for risk increased as the yields available from many fixed income securities shrank. The breadth of the market's rebound in the second quarter of 2003 took many by surprise. Some of the poorest performing sectors during the lengthy bear market were the ones that performed strongly during the second half of the reporting period, including stocks in the information technology, telecommunication services, utility and industrial areas. SEARCH FOR INTRINSIC VALUE HELPED RELATIVE PERFORMANCE Our focus on finding stocks with compelling intrinsic values served the Fund well amid the volatility that characterized the reporting period. Using our extensive network of analysts and investment specialists, we thoroughly review a company's underlying fundamentals and employ forward-looking projections to determine what we believe is the true value of a company's underlying stock. During the reporting period, our valuation analysis directed us to attractive opportunities in banks, pharmaceuticals and utilities, which resulted in overweights to these sectors. In pharmaceuticals, a number of drug failures from a small handful of producers were dragging down the entire sector. However, the in-depth analysis conducted by our global equity analysts uncovered a number of solid companies selling at very attractive valuations. In particular, we focused on firms with compelling and established drug pipelines. These holdings subsequently rose in value when investors realized their true value. The Fund's selective holdings in the bank sector also aided returns. In this area, our research directed us to companies that were enjoying the benefits of earlier consolidations, and that were introducing superior new products. While we enjoyed strong performance from our positions in the two aforementioned sectors, our strategy to overweight utilities detracted from performance. 89 Despite the fact that utilities are most often among the strongest relative performers during periods of economic weakness, companies in the utility industry did not perform well over the period. However, we maintained our exposure to this sector, since our research team determined that the fundamentals in this industry were appealing, especially in light of the proposal to lower the tax rates on corporate dividend payments. The exception was those companies that had exposure to trading operations, which suffered extensively in the wake of Enron and the California electricity crisis. Sectors that for the most part did not meet our intrinsic value criteria over the period included retailing, food and beverage, and computer hardware, so we reduced our positions in those areas. In general, we were also cautious about the technology sector, as the sharp gains it posted during the period did not seem warranted from a market fundamental perspective. These positions all ultimately benefited performance on a relative basis. LOOKING AHEAD During the reporting period, it was clear that market fundamentals were often not the driving forces behind stock prices. We have found that during periods of extreme optimism or pessimism, many investors lose sight of the critical factors that should dictate the fair value of a stock's price. It is during those times that our disciplined investment process and globally integrated investment platform can be especially valuable in helping us to identify compelling intrinsic values in the marketplace. As we move into the second half of 2003, we expect to continue emphasizing our "bottom-up" investment process, which focuses on a company's cash flow to identify intrinsic value that aims to lead to superior risk-adjusted returns over an entire market cycle. 90 TOTAL RETURN
6 MONTHS 1 YEAR INCEPTION* ENDED ENDED TO 6/30/03 6/30/03 6/30/03 -------------------------------------------------------------------------------------- UBS U.S. Value Equity Fund Class A 12.17% 0.61% -3.46% -------------------------------------------------------------------------------------- UBS U.S. Value Equity Fund Class B 11.77 -0.17 -2.02 -------------------------------------------------------------------------------------- UBS U.S. Value Equity Fund Class C 11.76 -0.13 -2.76 -------------------------------------------------------------------------------------- UBS U.S. Value Equity Fund Class Y 12.41 0.89 -2.72 -------------------------------------------------------------------------------------- UBS U.S. Value Equity Fund Class A** 6.04 -4.97 -6.90 -------------------------------------------------------------------------------------- UBS U.S. Value Equity Fund Class B** 6.77 -5.11 -4.40 -------------------------------------------------------------------------------------- UBS U.S. Value Equity Fund Class C** 9.69 -2.07 -3.40 -------------------------------------------------------------------------------------- Russell 1000 Value Index 11.57 -1.02 -5.07 --------------------------------------------------------------------------------------
* INCEPTION DATES OF UBS U.S. VALUE EQUITY FUND CLASS A IS 12/07/01. INCEPTION DATES OF CLASS B AND CLASS C ARE 11/08/01 AND 12/12/01, RESPECTIVELY. INCEPTION DATE OF CLASS Y AND, FOR ILLUSTRATION PURPOSES, THE INDEX, IS 6/29/01. ** RETURNS INCLUDE SALES CHARGES. TOTAL RETURN INCLUDES REINVESTMENT OF ALL CAPITAL GAIN AND INCOME DISTRIBUTIONS. TOTAL RETURN DOES NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES. ALL TOTAL RETURNS IN EXCESS OF 1 YEAR ARE AVERAGE ANNUALIZED RETURNS. ALL TOTAL RETURNS LESS THAN 1 YEAR ARE CUMULATIVE RETURNS. ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000 This chart shows the growth in the value of an investment in UBS U.S. Value Equity Fund Class Y shares and the Russell 1000 Value Index if you had invested $10,000 on June 29, 2001, and had reinvested all your income dividends and capital gain distributions through June 30, 2003. The performance of Class A, Class B and Class C shares will vary based upon the different inception dates, class specific expenses and sales charges. No adjustment has been made for any income taxes payable by shareholders on income dividends and capital gain distributions. Past performance is no guarantee of future results. Share price and return will vary with market conditions; investors may realize a gain or loss upon redemption. [CHART] UBS U.S. VALUE EQUITY FUND CLASS Y VS. RUSSELL 1000 VALUE INDEX Wealth Value With Dividends
UBS U.S. VALUE EQUITY FUND CLASS Y RUSSELL 1000 VALUE INDEX $ 10,000 $ 10,000 $ 10,110 $ 9,979 $ 9,730 $ 9,579 $ 9,180 $ 8,905 $ 9,170 $ 8,828 $ 9,800 $ 9,341 12/31/2001 $ 9,970 $ 9,561 $ 9,870 $ 9,488 $ 9,900 $ 9,503 $ 10,330 $ 9,953 $ 10,020 $ 9,611 $ 9,990 $ 9,659 6/30/2002 $ 9,380 $ 9,105 $ 8,640 $ 8,258 $ 8,810 $ 8,321 $ 7,670 $ 7,396 $ 8,260 $ 7,944 $ 8,750 $ 8,444 12/31/2002 $ 8,419 $ 8,077 $ 8,246 $ 7,882 $ 8,043 $ 7,672 $ 8,084 $ 7,685 $ 8,865 $ 8,361 $ 9,352 $ 8,901 6/30/2003 $ 9,463 $ 9,033
6/29/01 = $10,000 FUND RETURNS ARE NET OF ALL FEES AND COSTS, WHILE THE INDEX RETURNS ARE BASED SOLELY ON MARKET RETURNS WITHOUT DEDUCTION FOR FEES OR TRANSACTION COSTS FOR REBALANCING. 91 TOP TEN EQUITY HOLDINGS AS OF JUNE 30, 2003
PERCENTAGE OF NET ASSETS ---------------------------------------------------- Citigroup, Inc. 5.8% Nextel Communications, Inc., Class A 4.9 J.P. Morgan Chase & Co. 4.4 Wells Fargo & Co. 4.1 GreenPoint Financial Corp. 3.4 UnitedHealth Group, Inc. 3.1 ExxonMobil Corp. 2.9 ConocoPhillips 2.8 Morgan Stanley 2.8 SPDR Trust, Series 1 2.6 ---------------------------------------------------- Total 36.8%
92 UBS U.S. VALUE EQUITY FUND -- SCHEDULE OF INVESTMENTS JUNE 30, 2003
SHARES VALUE ------------ ------------- U.S. EQUITIES -- 98.47% AEROSPACE & MILITARY -- 2.33% United Technologies Corp. 2,500 $ 177,075 ------------- AUTOS/DURABLES -- 1.01% Johnson Controls, Inc. 900 77,040 ------------- BANKS -- 12.18% Bank of America Corp. 900 71,127 FleetBoston Financial Corp. 4,485 133,249 GreenPoint Financial Corp. 5,100 259,794 PNC Financial Services Group 3,000 146,430 Wells Fargo & Co. 6,250 315,000 ------------- 925,600 ------------- CAPITAL GOODS -- 3.76% Illinois Tool Works, Inc. 2,850 187,673 Pentair, Inc. 2,500 97,650 ------------- 285,323 ------------- CHEMICALS -- 2.24% Dow Chemical Co. (The) 5,500 170,280 ------------- COMPUTER SYSTEMS -- 1.99% Hewlett-Packard Co. 7,100 151,230 ------------- CONSTRUCTION -- 1.68% Martin Marietta Materials, Inc. 3,800 127,718 ------------- CONSUMER -- 1.17% Kimberly-Clark Corp. 1,700 88,638 ------------- ENERGY -- 15.38% ConocoPhillips 3,949 216,405 DTE Energy Co. 2,550 98,532 Exelon Corp. 3,150 188,402 ExxonMobil Corp. 6,150 220,846 FirstEnergy Corp. 4,700 180,715 Progress Energy, Inc. 3,400 149,260 Sempra Energy 4,000 114,120 ------------- 1,168,280 ------------- FINANCIAL SERVICES -- 20.84% American International Group, Inc. 2,476 136,626 Anthem, Inc.(b) 1,000 77,150 Citigroup, Inc. 10,296 440,669 Freddie Mac 3,350 170,079 Hartford Financial Services Group, Inc. (The) 2,250 113,310 J.P. Morgan Chase & Co. 9,700 331,546 Mellon Financial Corp. 3,600 99,900 Morgan Stanley 5,000 213,750 ------------- 1,583,030 ------------- HEALTH: DRUGS -- 6.15% Bristol-Myers Squibb Co. 5,600 152,040 Cephalon, Inc. (b) 2,000 82,320 SICOR, Inc. (b) 3,400 69,156 Wyeth 3,600 163,980 ------------- 467,496 ------------- HEALTH: NON-DRUGS -- 5.61% Baxter International, Inc. 1,750 $ 45,500 Johnson & Johnson 2,800 144,760 UnitedHealth Group, Inc. 4,700 236,175 ------------- 426,435 ------------- LEISURE & TOURISM -- 0.94% Walt Disney Co. (The) 3,600 71,100 ------------- MEDIA AND ENTERTAINMENT -- 1.49% Viacom, Inc., Class B (b) 2,600 113,516 ------------- METALS NON-FERROUS -- 2.03% Masco Corp. 6,450 153,833 ------------- RETAIL/APPAREL -- 1.36% Newell Rubbermaid, Inc. 3,700 103,600 ------------- SERVICES/MISCELLANEOUS -- 4.21% First Data Corp. 3,000 124,320 SPDR Trust, Series 1 2,000 195,260 ------------- 319,580 ------------- TELECOMMUNICATIONS- SERVICES -- 9.88% BellSouth Corp. 4,400 117,172 Motorola, Inc. 7,800 73,554 Nextel Communications, Inc., Class A (b) 20,600 372,448 SBC Communications, Inc. 7,350 187,792 ------------- 750,966 ------------- TRANSPORTATION -- 3.68% Burlington Northern Santa Fe Corp. 4,700 133,668 Norfolk Southern Corp. 7,600 145,920 ------------- 279,588 ------------- UTILITIES -- 0.54% CMS Energy Corp. 5,050 40,905 ------------- Total U.S. Equities (Cost $7,034,620) 7,481,233 ------------- SHORT-TERM INVESTMENTS -- 2.57% OTHER -- 2.57% UBS Supplementary Trust U.S. Cash Management Prime Fund (Cost $195,394) 195,394 195,394 ------------- Total Investments (Cost $7,230,014) -- 101.04% (a) 7,676,627 Liabilities, less cash and other assets -- (1.04)% (79,283) ------------- Net Assets -- 100% $ 7,597,344 =============
93 NOTES TO SCHEDULE OF INVESTMENTS (a) Aggregate cost for federal income tax purposes was $7,413,018; and net unrealized appreciation consisted of: Gross unrealized appreciation $ 693,541 Gross unrealized depreciation (429,932) ------------- Net unrealized appreciation $ 263,609 =============
(b) Non-income producing. % Represents a percentage of net assets. See accompanying notes to financial statements 94 This page intentionally left blank. THE UBS FUNDS -- FINANCIAL STATEMENTS STATEMENTS OF ASSETS AND LIABILITIES JUNE 30, 2003
UBS GLOBAL UBS UBS ALLOCATION GLOBAL EQUITY GLOBAL BOND FUND FUND FUND ------------------------------------------------------------------------------------------------------------------------------ ASSETS: Investments, at cost: Unaffiliated issuers $ 427,675,778 $ 370,351,725 $ 52,833,873 Affiliated issuers 99,351,136 3,192,158 655,174 Investments of cash collateral received for securities loaned, at cost 32,953,029 -- -- Foreign currency, at cost 1,199,706 5,646,946 317,259 --------------- --------------- --------------- $ 561,179,649 $ 379,190,829 $ 53,806,306 =============== =============== =============== Investments, at value: Unaffiliated issuers $ 449,153,986 $ 416,117,169 $ 55,783,899 Affiliated issuers 108,765,147 3,192,158 655,174 Investments of cash collateral received for securities loaned, at value 32,953,029 -- -- Foreign currency, at value 1,196,049 5,620,882 317,048 Cash 183,189 27,112 -- Receivables: Investment securities sold 3,081,376 2,271,154 794,630 Due from Advisor -- -- -- Dividends 489,854 1,024,362 499 Interest 1,005,776 6,102 977,868 Fund shares sold 30,555,485 424,053 868,438 Variation margin 20,984 -- -- Other assets 2,201 688 430 Net unrealized appreciation on forward foreign currency contracts 472,875 867,025 40,404 --------------- --------------- --------------- TOTAL ASSETS 627,879,951 429,550,705 59,438,390 --------------- --------------- --------------- LIABILITIES: Payables: Cash collateral from securities loaned 32,953,029 -- -- Investment securities purchased 31,616,579 2,197,571 338,990 Investment advisory fees 386,126 229,944 15,472 Fund shares redeemed 5,651,207 1,627,796 1,472,494 Distribution and service fee 172,796 229,107 5,452 Trustees' fees 625 1,985 1,215 Due to custodian bank -- -- -- Loan payable -- -- 5,259,310 Accrued expenses 536,695 477,471 112,532 Net unrealized depreciation on forward foreign currency contracts 738,474 321,072 136,549 --------------- --------------- --------------- TOTAL LIABILITIES 72,055,531 5,084,946 7,342,014 --------------- --------------- --------------- NET ASSETS $ 555,824,420 $ 424,465,759 $ 52,096,376 =============== =============== =============== NET ASSETS CONSIST OF: Paid in Capital $ 533,753,109 $ 1,293,729,530 $ 48,201,581 Accumulated/undistributed net investment income (loss) 7,743,158 4,343,999 2,541,437 Accumulated/undistributed net realized gain (loss) (16,310,483) (919,917,665) (1,520,660) Net unrealized appreciation (depreciation) 30,638,636 46,309,895 2,874,018 --------------- --------------- --------------- NET ASSETS $ 555,824,420 $ 424,465,759 $ 52,096,376 =============== =============== ===============
See accompanying notes to financial statements 96
UBS UBS UBS U.S. BALANCED U.S. EQUITY U.S LARGE CAP FUND FUND GROWTH FUND ------------------------------------------------------------------------------------------------------------------------------ ASSETS: Investments, at cost: Unaffiliated issuers $ 28,705,553 $ 81,257,527 $ 3,640,220 Affiliated issuers 749,445 6,558,296 145,024 Investments of cash collateral received for securities loaned, at cost -- -- -- Foreign currency, at cost -- -- -- --------------- --------------- --------------- $ 29,454,998 $ 87,815,823 $ 3,785,244 =============== =============== =============== Investments, at value: Unaffiliated issuers $ 30,489,886 $ 99,087,959 $ 3,619,647 Affiliated issuers 749,445 6,558,296 145,024 Investments of cash collateral received for securities loaned, at value -- -- -- Foreign currency, at value -- -- -- Cash 52,821 -- -- Receivables: Investment securities sold 405,028 364,403 28,124 Due from Advisor -- -- 7,652 Dividends 20,480 98,680 1,796 Interest 97,750 6,306 144 Fund shares sold 99,199 420,262 2,759 Variation margin -- 10,135 -- Other assets 285 1,149 48 Net unrealized appreciation on forward foreign currency contracts -- -- -- --------------- --------------- --------------- TOTAL ASSETS 31,914,894 106,547,190 3,805,194 --------------- --------------- --------------- LIABILITIES: Payables: Cash collateral from securities loaned -- -- -- Investment securities purchased 602,380 -- 41,445 Investment advisory fees 7,506 54,455 -- Fund shares redeemed 116,892 539,604 25,795 Distribution and service fee 5,766 2,253 1,979 Trustees' fees 2,971 2,844 496 Due to custodian bank -- -- -- Loan payable -- -- -- Accrued expenses 74,195 191,995 41,633 Net unrealized depreciation on forward foreign currency contracts -- -- -- --------------- --------------- --------------- TOTAL LIABILITIES 809,710 791,151 111,348 --------------- --------------- --------------- NET ASSETS $ 31,105,184 $ 105,756,039 $ 3,693,846 =============== =============== =============== NET ASSETS CONSIST OF: Paid in Capital $ 31,718,277 $ 97,315,051 $ 7,765,338 Accumulated/undistributed net investment income (loss) 251,753 1,010,080 1,979 Accumulated/undistributed net realized gain (loss) (2,649,179) (10,246,356) (4,052,898) Net unrealized appreciation (depreciation) 1,784,333 17,677,264 (20,573) --------------- --------------- --------------- NET ASSETS $ 31,105,184 $ 105,756,039 $ 3,693,846 =============== =============== =============== UBS UBS UBS U.S. SMALL CAP U.S. BOND HIGH YIELD GROWTH FUND FUND FUND ------------------------------------------------------------------------------------------------------------------------------ ASSETS: Investments, at cost: Unaffiliated issuers $ 45,168,201 $ 113,622,871 $ 233,496,420 Affiliated issuers 7,037,939 2,285,654 -- Investments of cash collateral received for securities loaned, at cost -- -- -- Foreign currency, at cost -- -- -- --------------- --------------- --------------- $ 52,206,140 $ 115,908,525 $ 233,496,420 =============== =============== =============== Investments, at value: Unaffiliated issuers $ 50,587,695 $ 117,187,579 $ 177,506,877 Affiliated issuers 7,037,939 2,285,654 -- Investments of cash collateral received for securities loaned, at value -- -- -- Foreign currency, at value -- -- -- Cash 3,837 922,352 -- Receivables: Investment securities sold 1,067,536 1,144,745 7,023,272 Due from Advisor -- -- -- Dividends 5,734 -- 60,755 Interest 2,292 996,179 3,758,246 Fund shares sold 200,614 532,979 784,699 Variation margin -- -- -- Other assets 471 1,027 1,998 Net unrealized appreciation on forward foreign currency contracts -- -- -- --------------- --------------- --------------- TOTAL ASSETS 58,906,118 123,070,515 189,135,847 --------------- --------------- --------------- LIABILITIES: Payables: Cash collateral from securities loaned -- -- -- Investment securities purchased 6,264,380 4,124,337 4,949,328 Investment advisory fees 40,968 34,284 31,489 Fund shares redeemed 1,001,317 1,822,821 3,019,175 Distribution and service fee 4,232 11,503 83,721 Trustees' fees 1,285 1,266 1,299 Due to custodian bank -- -- 563,057 Loan payable -- -- -- Accrued expenses 78,458 122,637 261,133 Net unrealized depreciation on forward foreign currency contracts -- -- -- --------------- --------------- --------------- TOTAL LIABILITIES 7,390,640 6,116,848 8,909,202 --------------- --------------- --------------- NET ASSETS $ 51,515,478 $ 116,953,667 $ 180,226,645 =============== =============== =============== NET ASSETS CONSIST OF: Paid in Capital $ 49,050,132 $ 113,702,481 $ 463,506,138 Accumulated/undistributed net investment income (loss) -- 90,878 29,500 Accumulated/undistributed net realized gain (loss) (2,954,148) (404,400) (227,319,450) Net unrealized appreciation (depreciation) 5,419,494 3,564,708 (55,989,543) --------------- --------------- --------------- NET ASSETS $ 51,515,478 $ 116,953,667 $ 180,226,645 =============== =============== =============== UBS UBS INTERNATIONAL U.S. VALUE EQUITY FUND EQUITY FUND ----------------------------------------------------------------------------------------------------------- ASSETS: Investments, at cost: Unaffiliated issuers $ 80,689,795 $ 7,034,620 Affiliated issuers 2,559,264 195,394 Investments of cash collateral received for securities loaned, at cost 9,586,388 -- Foreign currency, at cost 675,799 -- --------------- --------------- $ 93,511,246 $ 7,230,014 =============== =============== Investments, at value: Unaffiliated issuers $ 93,874,663 $ 7,481,233 Affiliated issuers 2,559,264 195,394 Investments of cash collateral received for securities loaned, at value 9,586,388 -- Foreign currency, at value 678,307 -- Cash -- -- Receivables: Investment securities sold 765,691 -- Due from Advisor -- 24,083 Dividends 369,274 9,791 Interest 11,581 170 Fund shares sold 1,555,842 33,685 Variation margin -- -- Other assets 1,078 89 Net unrealized appreciation on forward foreign currency contracts 251,235 -- --------------- --------------- TOTAL ASSETS 109,653,323 7,744,445 --------------- --------------- LIABILITIES: Payables: Cash collateral from securities loaned 9,586,388 -- Investment securities purchased 4,071,328 -- Investment advisory fees 154,693 1,642 Fund shares redeemed 1,049,140 78,894 Distribution and service fee 1,533 2,772 Trustees' fees 4,815 -- Due to custodian bank 21 525 Loan payable -- -- Accrued expenses 219,624 63,268 Net unrealized depreciation on forward foreign currency contracts 154,305 -- --------------- --------------- TOTAL LIABILITIES 15,241,847 147,101 --------------- --------------- NET ASSETS $ 94,411,476 $ 7,597,344 =============== =============== NET ASSETS CONSIST OF: Paid in Capital $ 98,171,359 $ 9,061,485 Accumulated/undistributed net investment income (loss) 2,126,527 83,688 Accumulated/undistributed net realized gain (loss) (19,198,697) (1,994,442) Net unrealized appreciation (depreciation) 13,312,287 446,613 --------------- --------------- NET ASSETS $ 94,411,476 $ 7,597,344 =============== ===============
97 THE UBS FUNDS -- FINANCIAL STATEMENTS STATEMENTS OF ASSETS AND LIABILITIES NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE: JUNE 30, 2003
UBS GLOBAL UBS UBS ALLOCATION GLOBAL EQUITY GLOBAL BOND FUND FUND FUND ------------------------------------------------------------------------------------------------------------------------------ CLASS A: Net assets $ 175,415,453 $ 123,755,651 $ 11,659,483 Shares outstanding 16,415,820 13,916,183 1,138,243 Net asset value per share (NAV per share / shares outstanding) $ 10.69 $ 8.89 $ 10.24 Offering price per share (NAV per share / maximum sales charge)(a) $ 11.31 $ 9.41 $ 10.72 Redemption proceeds per share $ 10.69 $ 8.89 $ 10.24 ------------------------------------------------------------------------------------------------------------------------------ CLASS B: Net assets $ 49,573,308 $ 144,231,911 $ 1,755,009 Shares outstanding 4,699,644 16,352,726 171,211 Net asset value per share (NAV per share / shares outstanding) $ 10.55 $ 8.82 $ 10.25 Offering price per share $ 10.55 $ 8.82 $ 10.25 Redemption proceeds per share (after maximum redemption charge)(a) $ 10.02 $ 8.38 $ 9.74 ------------------------------------------------------------------------------------------------------------------------------ CLASS C: Net assets $ 137,077,671 $ 93,604,705 $ 3,197,982 Shares outstanding 12,980,335 10,646,430 312,551 Net asset value per share (NAV per share / shares outstanding) $ 10.56 $ 8.79 $ 10.23 Offering price per share (NAV per share / maximum sales charge)(a) $ 10.67 $ 8.88 $ 10.33 Redemption proceeds per share (after maximum redemption charge)(a) $ 10.45 $ 8.70 $ 10.13 ------------------------------------------------------------------------------------------------------------------------------ CLASS Y: Net assets $ 193,757,988 $ 62,873,492 $ 35,483,902 Shares outstanding 17,952,632 6,992,842 3,179,678 Net asset value per share (NAV per share / shares outstanding) $ 10.79 $ 8.99 $ 11.16 Offering price per share $ 10.79 $ 8.99 $ 11.16 Redemption proceeds per share $ 10.79 $ 8.99 $ 11.16 ------------------------------------------------------------------------------------------------------------------------------
(a) For Class A, the maximum sales charge is 5.50% of offering price, except for the UBS Global Bond Fund, UBS U.S. Bond Fund, and the UBS High Yield Fund which is 4.50% of offering price, Class C maximum sales charge is 1.00%. Classes B and Y have no sales charges. For Class B, the maximum redemption charge is 5.00%, Class C maximum redemption charge is 1.00%, except for UBS Global Bond Fund, UBS U.S. Bond and UBS High Yield Fund which is 0.75%. Classes A and Y have no redemption charges. See accompanying notes to financial statements 98
UBS UBS UBS U.S. BALANCED U.S. EQUITY U.S LARGE CAP FUND FUND GROWTH FUND ------------------------------------------------------------------------------------------------------------------------------ CLASS A: Net assets $ 4,163,671 $ 4,702,494 $ 1,163,221 Shares outstanding 446,629 345,087 181,982 Net asset value per share (NAV per share / shares outstanding) $ 9.32 $ 13.63 $ 6.39 Offering price per share (NAV per share / maximum sales charge)(a) $ 9.86 $ 14.42 $ 6.76 Redemption proceeds per share $ 9.32 $ 13.63 $ 6.39 ------------------------------------------------------------------------------------------------------------------------------ CLASS B: Net assets $ 2,732,975 $ 634,883 $ 320,656 Shares outstanding 295,839 47,197 50,714 Net asset value per share (NAV per share / shares outstanding) $ 9.24 $ 13.45 $ 6.32 Offering price per share $ 9.24 $ 13.45 $ 6.32 Redemption proceeds per share (after maximum redemption charge)(a) $ 8.78 $ 12.78 $ 6.00 ------------------------------------------------------------------------------------------------------------------------------ CLASS C: Net assets $ 1,880,955 $ 1,020,380 $ 266,717 Shares outstanding 203,421 75,945 42,208 Net asset value per share (NAV per share / shares outstanding) $ 9.25 $ 13.44 $ 6.32 Offering price per share (NAV per share / maximum sales charge)(a) $ 9.34 $ 13.58 $ 6.38 Redemption proceeds per share (after maximum redemption charge)(a) $ 9.16 $ 13.31 $ 6.26 ------------------------------------------------------------------------------------------------------------------------------ CLASS Y: Net assets $ 22,327,583 $ 99,398,282 $ 1,943,252 Shares outstanding 2,379,105 7,240,655 299,194 Net asset value per share (NAV per share / shares outstanding) $ 9.38 $ 13.73 $ 6.49 Offering price per share $ 9.38 $ 13.73 $ 6.49 Redemption proceeds per share $ 9.38 $ 13.73 $ 6.49 ------------------------------------------------------------------------------------------------------------------------------ UBS UBS UBS U.S. SMALL CAP U.S. BOND HIGH YIELD GROWTH FUND FUND FUND ------------------------------------------------------------------------------------------------------------------------------ CLASS A: Net assets $ 9,841,092 $ 31,336,691 $ 76,308,943 Shares outstanding 983,944 2,851,296 11,163,330 Net asset value per share (NAV per share / shares outstanding) $ 10.00 $ 10.99 $ 6.84 Offering price per share (NAV per share / maximum sales charge)(a) $ 10.58 $ 11.51 $ 7.16 Redemption proceeds per share $ 10.00 $ 10.99 $ 6.84 ------------------------------------------------------------------------------------------------------------------------------ CLASS B: Net assets $ 1,131,982 $ 3,646,308 $ 13,130,371 Shares outstanding 114,500 332,374 1,921,266 Net asset value per share (NAV per share / shares outstanding) $ 9.89 $ 10.97 $ 6.83 Offering price per share $ 9.89 $ 10.97 $ 6.83 Redemption proceeds per share (after maximum redemption charge)(a) $ 9.40 $ 10.42 $ 6.49 ------------------------------------------------------------------------------------------------------------------------------ CLASS C: Net assets $ 757,125 $ 3,163,865 $ 18,968,737 Shares outstanding 76,668 288,252 2,775,183 Net asset value per share (NAV per share / shares outstanding) $ 9.88 $ 10.98 $ 6.84 Offering price per share (NAV per share / maximum sales charge)(a) $ 9.98 $ 11.09 $ 6.89 Redemption proceeds per share (after maximum redemption charge)(a) $ 9.78 $ 10.90 $ 6.79 ------------------------------------------------------------------------------------------------------------------------------ CLASS Y: Net assets $ 39,785,279 $ 78,806,803 $ 71,818,594 Shares outstanding 3,918,764 7,159,580 10,447,692 Net asset value per share (NAV per share / shares outstanding) $ 10.15 $ 11.01 $ 6.87 Offering price per share $ 10.15 $ 11.01 $ 6.87 Redemption proceeds per share $ 10.15 $ 11.01 $ 6.87 ------------------------------------------------------------------------------------------------------------------------------ UBS UBS INTERNATIONAL U.S. VALUE EQUITY FUND EQUITY FUND ----------------------------------------------------------------------------------------------------------- CLASS A: Net assets $ 3,146,452 $ 1,072,523 Shares outstanding 450,167 115,199 Net asset value per share (NAV per share / shares outstanding) $ 6.99 $ 9.31 Offering price per share (NAV per share / maximum sales charge)(a) $ 7.40 $ 9.85 Redemption proceeds per share $ 6.99 $ 9.31 ----------------------------------------------------------------------------------------------------------- CLASS B: Net assets $ 352,033 $ 709,121 Shares outstanding 50,897 76,980 Net asset value per share (NAV per share / shares outstanding) $ 6.92 $ 9.21 Offering price per share $ 6.92 $ 9.21 Redemption proceeds per share (after maximum redemption charge)(a) $ 6.57 $ 8.75 ----------------------------------------------------------------------------------------------------------- CLASS C: Net assets $ 399,110 $ 1,025,446 Shares outstanding 57,819 111,184 Net asset value per share (NAV per share / shares outstanding) $ 6.90 $ 9.22 Offering price per share (NAV per share / maximum sales charge)(a) $ 6.97 $ 9.31 Redemption proceeds per share (after maximum redemption charge)(a) $ 6.83 $ 9.13 ----------------------------------------------------------------------------------------------------------- CLASS Y: Net assets $ 90,513,881 $ 4,790,254 Shares outstanding 12,904,913 513,457 Net asset value per share (NAV per share / shares outstanding) $ 7.01 $ 9.33 Offering price per share $ 7.01 $ 9.33 Redemption proceeds per share $ 7.01 $ 9.33 -----------------------------------------------------------------------------------------------------------
99 THE UBS FUNDS -- FINANCIAL STATEMENTS STATEMENTS OF OPERATIONS JUNE 30, 2003
UBS GLOBAL UBS UBS ALLOCATION GLOBAL EQUITY GLOBAL BOND FUND FUND FUND ------------------------------------------------------------------------------------------------------------------------------ INVESTMENT INCOME: Dividends $ 4,047,357 $ 5,194,552 $ -- Interest 1,641,435 255 1,535,338 Securities lending-net 42,830 -- -- Foreign tax withheld (180,560) (370,723) -- --------------- --------------- --------------- TOTAL INCOME 5,551,062 4,824,084 1,535,338 --------------- --------------- --------------- EXPENSES: Advisory and administration 2,049,875 1,311,700 345,469 Professional services 61,382 50,031 63,813 Shareholder reports 143,022 31,855 30,989 Distribution and service fees: Class A 115,575 106,214 11,430 Class B 120,405 384,267 11,178 Class C 282,199 254,957 5,578 Custodian 193,099 122,722 34,710 Federal and state registration 66,956 57,484 59,992 Transfer agent 92,287 238,582 17,551 Trustees 7,665 5,110 4,745 Other 9,169 4,245 2,406 --------------- --------------- --------------- TOTAL OPERATING EXPENSES 3,141,634 2,567,167 587,861 --------------- --------------- --------------- Expenses waived by Advisor (10,303) (292,512) (174,472) --------------- --------------- --------------- NET OPERATING EXPENSES 3,131,331 2,274,655 413,389 Interest Expense 403 -- 1,902 --------------- --------------- --------------- NET INVESTMENT INCOME (LOSS) 2,419,328 2,549,429 1,120,047 --------------- --------------- --------------- Net realized gain (loss) on: Investments (8,037,560) (21,133,330) 1,164,046 Futures contracts 3,173,845 -- -- Foreign currency transactions 8,743,259 2,695,345 3,853,253 --------------- --------------- --------------- Net realized gain (loss) 3,879,544 (18,437,985) 5,017,299 --------------- --------------- --------------- Change in net unrealized appreciation (depreciation) on: Investments and foreign currency 29,437,108 45,251,240 550,783 Futures contracts (637,031) -- -- Forward contracts (3,793,240) (354,640) (525,459) Translation of other assets and liabilities denominated in foreign currency (23,883) (7,142) (20,829) --------------- --------------- --------------- Change in net unrealized appreciation (depreciation) 24,982,954 44,889,458 4,495 --------------- --------------- --------------- Net realized and unrealized gain (loss) 28,862,498 26,451,473 5,021,794 --------------- --------------- --------------- Net increase (decrease) in net assets resulting from operations $ 31,281,826 $ 29,000,902 $ 6,141,841 =============== =============== ===============
See accompanying notes to financial statements 100
UBS UBS UBS U.S. BALANCED U.S. EQUITY U.S LARGE CAP FUND FUND GROWTH FUND ------------------------------------------------------------------------------------------------------------------------------ INVESTMENT INCOME: Dividends $ 320,048 $ 1,716,953 $ 37,101 Interest 423,463 53,518 1,183 Securities lending-net -- -- -- Foreign tax withheld -- -- -- --------------- --------------- --------------- TOTAL INCOME 743,511 1,770,471 38,284 --------------- --------------- --------------- EXPENSES: Advisory and administration 193,080 688,970 26,425 Professional services 43,385 39,643 28,899 Shareholder reports 13,418 55,080 2,263 Distribution and service fees: Class A 7,547 20,611 2,588 Class B 18,866 3,609 1,725 Class C 11,165 3,656 3,933 Custodian 13,383 47,808 1,836 Federal and state registration 59,347 60,517 58,198 Transfer agent 9,821 47,631 7,418 Trustees 4,380 7,300 3,650 Other 2,141 6,259 677 --------------- --------------- --------------- TOTAL OPERATING EXPENSES 376,533 981,084 137,612 --------------- --------------- --------------- Expenses waived by Advisor (134,454) (222,632) (101,307) --------------- --------------- --------------- NET OPERATING EXPENSES 242,079 758,452 36,305 Interest Expense -- 995 -- --------------- --------------- --------------- NET INVESTMENT INCOME (LOSS) 501,432 1,011,024 1,979 --------------- --------------- --------------- Net realized gain (loss) on: Investments (1,175,751) (6,823,240) (1,284,113) Futures contracts (68,295) 76,396 -- Foreign currency transactions -- -- -- --------------- --------------- --------------- Net realized gain (loss) (1,244,046) (6,746,844) (1,284,113) --------------- --------------- --------------- Change in net unrealized appreciation (depreciation) on: Investments and foreign currency 2,363,714 7,887,299 1,210,064 Futures contracts 2,799 (81,631) -- Forward contracts -- -- -- Translation of other assets and liabilities denominated in foreign currency -- -- -- --------------- --------------- --------------- Change in net unrealized appreciation (depreciation) 2,366,513 7,805,668 1,210,064 --------------- --------------- --------------- Net realized and unrealized gain (loss) 1,122,467 1,058,824 (74,049) --------------- --------------- --------------- Net increase (decrease) in net assets resulting from operations $ 1,623,899 $ 2,069,848 $ (72,070) =============== =============== =============== UBS UBS UBS U.S. SMALL CAP U.S. BOND HIGH YIELD GROWTH FUND FUND FUND ------------------------------------------------------------------------------------------------------------------------------ INVESTMENT INCOME: Dividends $ 159,019 $ -- $ 33,655 Interest 25,273 4,687,702 15,541,851 Securities lending-net -- -- -- Foreign tax withheld -- -- -- --------------- --------------- --------------- TOTAL INCOME 184,292 4,687,702 15,575,506 --------------- --------------- --------------- EXPENSES: Advisory and administration 392,582 551,552 1,061,286 Professional services 24,657 25,354 67,478 Shareholder reports 24,634 57,234 160,639 Distribution and service fees: Class A 10,054 61,615 172,899 Class B 7,239 33,420 139,896 Class C 5,403 14,270 134,876 Custodian 19,480 51,807 84,611 Federal and state registration 64,168 48,336 61,388 Transfer agent 21,907 28,311 230,204 Trustees 4,745 5,475 5,110 Other 1,593 10,791 9,288 --------------- --------------- --------------- TOTAL OPERATING EXPENSES 576,462 888,165 2,127,675 --------------- --------------- --------------- Expenses waived by Advisor (125,873) (185,453) (554,866) --------------- --------------- --------------- NET OPERATING EXPENSES 450,589 702,712 1,572,809 Interest Expense -- -- -- --------------- --------------- --------------- NET INVESTMENT INCOME (LOSS) (266,297) 3,984,990 14,002,697 --------------- --------------- --------------- Net realized gain (loss) on: Investments (1,381,955) 1,963,615 (17,579,211) Futures contracts -- -- -- Foreign currency transactions -- -- -- --------------- --------------- --------------- Net realized gain (loss) (1,381,955) 1,963,615 (17,579,211) --------------- --------------- --------------- Change in net unrealized appreciation (depreciation) on: Investments and foreign currency 3,331,910 2,696,545 31,593,930 Futures contracts -- -- -- Forward contracts -- -- -- Translation of other assets and liabilities denominated in foreign currency -- -- -- --------------- --------------- --------------- Change in net unrealized appreciation (depreciation) 3,331,910 2,696,545 31,593,930 --------------- --------------- --------------- Net realized and unrealized gain (loss) 1,949,955 4,660,160 14,014,719 --------------- --------------- --------------- Net increase (decrease) in net assets resulting from operations $ 1,683,658 $ 8,645,150 $ 28,017,416 =============== =============== =============== UBS UBS INTERNATIONAL U.S. VALUE EQUITY FUND EQUITY FUND ----------------------------------------------------------------------------------------------------------- INVESTMENT INCOME: Dividends $ 2,485,046 $ 149,796 Interest 24,191 1,790 Securities lending-net 60,942 -- Foreign tax withheld (237,313) -- --------------- --------------- TOTAL INCOME 2,332,866 151,586 --------------- --------------- EXPENSES: Advisory and administration 744,060 47,527 Professional services 46,246 28,371 Shareholder reports 52,082 936 Distribution and service fees: Class A 6,476 2,736 Class B 2,594 5,356 Class C 3,003 6,728 Custodian 95,708 3,267 Federal and state registration 79,800 56,848 Transfer agent 24,893 10,204 Trustees 8,030 3,650 Other 5,328 7,332 --------------- --------------- TOTAL OPERATING EXPENSES 1,068,220 172,955 --------------- --------------- Expenses waived by Advisor (183,386) (105,155) --------------- --------------- NET OPERATING EXPENSES 884,834 67,800 Interest Expense -- -- --------------- --------------- NET INVESTMENT INCOME (LOSS) 1,448,032 83,786 --------------- --------------- Net realized gain (loss) on: Investments (7,081,574) (837,648) Futures contracts -- -- Foreign currency transactions 1,436,849 -- --------------- --------------- Net realized gain (loss) (5,644,725) (837,648) --------------- --------------- Change in net unrealized appreciation (depreciation) on: Investments and foreign currency (3,223,188) 795,473 Futures contracts -- -- Forward contracts (634,274) -- Translation of other assets and liabilities denominated in foreign currency 2,526 -- --------------- --------------- Change in net unrealized appreciation (depreciation) (3,854,936) 795,473 --------------- --------------- Net realized and unrealized gain (loss) (9,499,661) (42,175) --------------- --------------- Net increase (decrease) in net assets resulting from operations $ (8,051,629) $ 41,611 =============== ===============
101 THE UBS FUNDS -- FINANCIAL STATEMENTS STATEMENTS OF CHANGES IN NET ASSETS
UBS UBS GLOBAL ALLOCATION FUND GLOBAL EQUITY FUND -------------------------------- --------------------------------- YEAR ENDED JUNE 30, YEAR ENDED JUNE 30, 2003 2002 2003 2002 --------------------------------------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income (loss) $ 2,419,328 $ 2,109,235 $ 2,549,429 $ 486,984 Net realized gain (loss) 3,879,544 (1,202,175) (18,437,985) (4,019,795) Change in net unrealized appreciation (depreciation) 24,982,954 6,940,305 44,889,458 (760,540) -------------- -------------- -------------- -------------- Net increase (decrease) in net assets from operations 31,281,826 7,847,365 29,000,902 (4,293,351) -------------- -------------- -------------- -------------- DISTRIBUTIONS TO SHAREHOLDERS BY CLASS: Class A: Distributions from net investment income and net foreign currency gains (816,676) (92,144) (391,438) (77,577) Distributions from net realized gain -- (388,420) -- (419,643) -------------- -------------- -------------- -------------- Total Class A distributions (816,676) (480,564) (391,438) (497,220) -------------- -------------- -------------- -------------- Class B: Distributions from net investment income and net foreign currency gains (159,173) (2,885) (18,143) (123) Distributions from net realized gain -- (6,162) -- (668) -------------- -------------- -------------- -------------- Total Class B distributions (159,173) (9,047) (18,143) (791) -------------- -------------- -------------- -------------- Class C: Distributions from net investment income and net foreign currency gains (255,507) (438) (28,866) (1,134) Distributions from net realized gain -- (1,867) -- (6,132) -------------- -------------- -------------- -------------- Total Class C distributions (255,507) (2,305) (28,866) (7,266) -------------- -------------- -------------- -------------- Class Y: Distributions from net investment income and net foreign currency gains (6,269,057) (2,763,739) (1,343,765) (244,638) Distributions from net realized gain -- (11,553,728) -- (1,324,139) -------------- -------------- -------------- -------------- Total Class Y distributions (6,269,057) (14,317,467) (1,343,765) (1,568,777) -------------- -------------- -------------- -------------- Decrease in net assets from distributions (7,500,413) (14,809,383) (1,782,212) (2,074,054) -------------- -------------- -------------- -------------- CAPITAL SHARE TRANSACTIONS BY CLASS: Class A: Shares sold 169,870,324 7,853,473 118,638,055** 30,870,623 Shares issued on reinvestment of distributions 694,883 442,708 329,028 396,391 Shares redeemed (13,014,963) (1,383,496) (18,681,217) (15,694,357) -------------- -------------- -------------- -------------- Total Class A transactions 157,550,244 6,912,685 100,285,866 15,572,657 -------------- -------------- -------------- -------------- Class B: Shares sold 51,012,178 1,761,729 141,490,442** 432,203 Shares issued on reinvestment of distributions 153,482 9,047 17,409 792 Shares redeemed (5,976,414) (181,252) (9,779,696) (99) -------------- -------------- -------------- -------------- Total Class B transactions 45,189,246 1,589,524 131,728,155 432,896 -------------- -------------- -------------- -------------- Class C: Shares sold 136,999,043 1,562,320 93,437,144** 428,669 Shares issued on reinvestment of distributions 238,616 2,241 21,402 7,265 Shares redeemed (9,106,623) (23,300) (8,141,946) (62,915) -------------- -------------- -------------- -------------- Total Class C transactions 128,131,036 1,541,261 85,316,600 373,019 -------------- -------------- -------------- -------------- Class Y: Shares sold 74,326,144 87,020,622 58,747,356** 126,818,221 Shares issued on reinvestment of distributions 4,205,702 9,091,252 972,071 1,024,427 Shares redeemed (52,998,670) (79,981,613) (36,459,204) (132,070,159) -------------- -------------- -------------- -------------- Total Class Y transactions 25,533,176 16,130,261 23,260,223 (4,227,511) -------------- -------------- -------------- -------------- UBS Investment Funds Class+: Shares sold -- 143,261 -- 142,132 Shares issued on reinvestment of distributions -- -- -- -- Shares redeemed -- (7,052,896) -- (18,825,671) -------------- -------------- -------------- -------------- Total UBS Investment Funds Class transactions -- (6,909,635) -- (18,683,539) -------------- -------------- -------------- -------------- Net increase (decrease) in net assets resulting from capital share transactions 356,403,702 19,264,096 340,590,844 (6,532,478) -------------- -------------- -------------- -------------- INCREASE (DECREASE) IN NET ASSETS 380,185,115 12,302,078 367,809,534 (12,899,883) NET ASSETS, BEGINNING OF PERIOD 175,639,305 163,337,227 56,656,225 69,556,108 -------------- -------------- -------------- -------------- NET ASSETS, END OF PERIOD $ 555,824,420 $ 175,639,305 $ 424,465,759 $ 56,656,225 ============== ============== ============== ============== Net assets include accumulated undistributed net investment income (loss) $ 7,743,158 $ 2,392,980 $ 4,343,999 $ 881,437 ============== ============== ============== ==============
* The amount represents a distribution from return of capital for the UBS Global Bond Fund. ** The following capital share transactions include amounts from a tax-free reorganization in which the UBS Global Equity Fund acquired the assets and liabilities of the UBS Strategy Fund on March 21, 2003. The amounts were $102,576,449 for Class A, $135,637,778 for Class B, $88,842,381 for Class C, and $2,358,930 for Class Y. + UBS Investment Funds Class was liquidated effective November 9, 2001. See accompanying notes to financial statements 102
UBS UBS GLOBAL BOND FUND U.S. BALANCED FUND -------------------------------- --------------------------------- YEAR ENDED JUNE 30, YEAR ENDED JUNE 30, 2003 2002 2003 2002 --------------------------------------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income (loss) $ 1,120,047 $ 1,273,573 $ 501,432 $ 612,007 Net realized gain (loss) 5,017,299 (1,972,049) (1,244,046) (12,971) Change in net unrealized appreciation (depreciation) 4,495 5,897,508 2,366,513 (1,272,222) -------------- -------------- -------------- -------------- Net increase (decrease) in net assets from operations 6,141,841 5,199,032 1,623,899 (673,186) -------------- -------------- -------------- -------------- DISTRIBUTIONS TO SHAREHOLDERS BY CLASS: Class A: Distributions from net investment income and net foreign currency gains (105,953) (23,082)* (64,035) (35,339) Distributions from net realized gain -- -- -- -- -------------- -------------- -------------- -------------- Total Class A distributions (105,953) (23,082) (64,035) (35,339) -------------- -------------- -------------- -------------- Class B: Distributions from net investment income and net foreign currency gains (17,619) (1,816)* (35,979) (3,889) Distributions from net realized gain -- -- -- -- -------------- -------------- -------------- -------------- Total Class B distributions (17,619) (1,816) (35,979) (3,889) -------------- -------------- -------------- -------------- Class C: Distributions from net investment income and net foreign currency gains (13,518) -- (21,002) (781) Distributions from net realized gain -- -- -- -- -------------- -------------- -------------- -------------- Total Class C distributions (13,518) -- (21,002) (781) -------------- -------------- -------------- -------------- Class Y: Distributions from net investment income and net foreign currency gains (853,243) (700,361)* (431,180) (520,386) Distributions from net realized gain -- -- -- -- -------------- -------------- -------------- -------------- Total Class Y distributions (853,243) (700,361) (431,180) (520,386) -------------- -------------- -------------- -------------- Decrease in net assets from distributions (990,333) (725,259)* (552,196) (560,395) -------------- -------------- -------------- -------------- CAPITAL SHARE TRANSACTIONS BY CLASS: Class A: Shares sold 12,487,314 8,168,545 2,034,371 2,792,372 Shares issued on reinvestment of distributions 89,825 16,968 60,100 34,527 Shares redeemed (3,273,617) (6,346,130) (694,275) (175,467) -------------- -------------- -------------- -------------- Total Class A transactions 9,303,522 1,839,383 1,400,196 2,651,432 -------------- -------------- -------------- -------------- Class B: Shares sold 1,854,490 378,073 2,317,056 1,128,265 Shares issued on reinvestment of distributions 15,420 1,722 29,916 3,643 Shares redeemed (639,402) -- (703,282) (178,788) -------------- -------------- -------------- -------------- Total Class B transactions 1,230,508 379,795 1,643,690 953,120 -------------- -------------- -------------- -------------- Class C: Shares sold 3,390,992 -- 1,512,637 436,391 Shares issued on reinvestment of distributions 10,557 -- 18,542 781 Shares redeemed (267,872) -- (173,434) (20,000) -------------- -------------- -------------- -------------- Total Class C transactions 3,133,677 -- 1,357,745 417,172 -------------- -------------- -------------- -------------- Class Y: Shares sold 48,090,421 15,342,104 6,497,803 11,358,860 Shares issued on reinvestment of distributions 662,981 450,050 418,301 493,900 Shares redeemed (52,213,738) (23,493,711) (6,953,197) (14,710,999) -------------- -------------- -------------- -------------- Total Class Y transactions (3,460,336) (7,701,557) (37,093) (2,858,239) -------------- -------------- -------------- -------------- UBS Investment Funds Class+: Shares sold -- 2,139 -- 5,273 Shares issued on reinvestment of distributions -- -- -- -- Shares redeemed -- (1,125,010) -- (1,291,178) -------------- -------------- -------------- -------------- Total UBS Investment Funds Class transactions -- (1,122,871) -- (1,285,905) -------------- -------------- -------------- -------------- Net increase (decrease) in net assets resulting from capital share transactions 10,207,371 (6,605,250) 4,364,538 (122,420) -------------- -------------- -------------- -------------- INCREASE (DECREASE) IN NET ASSETS 15,358,879 (2,131,477) 5,436,241 (1,356,001) NET ASSETS, BEGINNING OF PERIOD 36,737,497 38,868,974 25,668,943 27,024,944 -------------- -------------- -------------- -------------- NET ASSETS, END OF PERIOD $ 52,096,376 $ 36,737,497 $ 31,105,184 $ 25,668,943 ============== ============== ============== ============== Net assets include accumulated undistributed net investment income (loss) $ 2,541,437 $ (1,457,616) $ 251,753 $ 277,550 ============== ============== ============== ============== UBS UBS U.S. EQUITY FUND U.S. LARGE CAP GROWTH FUND -------------------------------- --------------------------------- YEAR ENDED JUNE 30, YEAR ENDED JUNE 30, 2003 2002 2003 2002 --------------------------------------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income (loss) $ 1,011,024 $ 993,283 $ 1,979 $ (17,572) Net realized gain (loss) (6,746,844) 6,100,564 (1,284,113) (2,195,537) Change in net unrealized appreciation (depreciation) 7,805,668 (16,018,358) 1,210,064 475,180 -------------- -------------- -------------- -------------- Net increase (decrease) in net assets from operations 2,069,848 (8,924,511) (72,070) (1,737,929) -------------- -------------- -------------- -------------- DISTRIBUTIONS TO SHAREHOLDERS BY CLASS: Class A: Distributions from net investment income and net foreign currency gains (35,257) (33,362) -- -- Distributions from net realized gain (174,016) (531,722) -- (13,807) -------------- -------------- -------------- -------------- Total Class A distributions (209,273) (565,084) -- (13,807) -------------- -------------- -------------- -------------- Class B: Distributions from net investment income and net foreign currency gains (3,439) (206) -- -- Distributions from net realized gain (15,413) (3,285) -- (244) -------------- -------------- -------------- -------------- Total Class B distributions (18,852) (3,491) -- (244) -------------- -------------- -------------- -------------- Class C: Distributions from net investment income and net foreign currency gains (2,486) (60) -- -- Distributions from net realized gain (8,679) (955) -- (3,707) -------------- -------------- -------------- -------------- Total Class C distributions (11,165) (1,015) -- (3,707) -------------- -------------- -------------- -------------- Class Y: Distributions from net investment income and net foreign currency gains (897,680) (314,778) -- -- Distributions from net realized gain (2,331,732) (5,018,843) -- (15,304) -------------- -------------- -------------- -------------- Total Class Y distributions (3,229,412) (5,333,621) -- (15,304) -------------- -------------- -------------- -------------- Decrease in net assets from distributions (3,468,702) (5,903,211) -- (33,062) -------------- -------------- -------------- -------------- CAPITAL SHARE TRANSACTIONS BY CLASS: Class A: Shares sold 4,229,809 10,524,445 775,010 2,494,053 Shares issued on reinvestment of distributions 135,067 163,489 -- 13,610 Shares redeemed (12,394,051) (2,721,652) (756,172) (1,041,589) -------------- -------------- -------------- -------------- Total Class A transactions (8,029,175) 7,966,282 18,838 1,466,074 -------------- -------------- -------------- -------------- Class B: Shares sold 593,667 349,959 440,475 210,860 Shares issued on reinvestment of distributions 18,852 3,491 -- 244 Shares redeemed (205,380) (103,306) (239,759) (67,097) -------------- -------------- -------------- -------------- Total Class B transactions 407,139 250,144 200,716 144,007 -------------- -------------- -------------- -------------- Class C: Shares sold 903,316 79,070 257,136 794,762 Shares issued on reinvestment of distributions 10,921 1,015 -- 3,708 Shares redeemed (31,363) (3,915) (529,714) (68,579) -------------- -------------- -------------- -------------- Total Class C transactions 882,874 76,170 (272,578) 729,891 -------------- -------------- -------------- -------------- Class Y: Shares sold 28,395,966 36,606,235 435,368 674,289 Shares issued on reinvestment of distributions 2,905,921 4,877,452 -- 13,460 Shares redeemed (19,108,822) (66,693,377) (749,106) (814,297) -------------- -------------- -------------- -------------- Total Class Y transactions 12,193,065 (25,209,690) (313,738) (126,548) -------------- -------------- -------------- -------------- UBS Investment Funds Class+: Shares sold -- 235,795 -- 203,529 Shares issued on reinvestment of distributions -- -- -- -- Shares redeemed -- (5,719,369) -- (3,266,791) -------------- -------------- -------------- -------------- Total UBS Investment Funds Class transactions -- (5,483,574) -- (3,063,262) -------------- -------------- -------------- -------------- Net increase (decrease) in net assets resulting from capital share transactions 5,453,903 (22,400,668) (366,762) (849,838) -------------- -------------- -------------- -------------- INCREASE (DECREASE) IN NET ASSETS 4,055,049 (37,228,390) (438,832) (2,620,829) NET ASSETS, BEGINNING OF PERIOD 101,700,990 138,929,380 4,132,678 6,753,507 -------------- -------------- -------------- -------------- NET ASSETS, END OF PERIOD $ 105,756,039 $ 101,700,990 $ 3,693,846 $ 4,132,678 ============== ============== ============== ============== Net assets include accumulated undistributed net investment income (loss) $ 1,010,080 $ 938,569 $ 1,979 $ -- ============== ============== ============== ==============
103 THE UBS FUNDS -- FINANCIAL STATEMENTS STATEMENTS OF CHANGES IN NET ASSETS
UBS UBS U.S. SMALL CAP GROWTH FUND U.S. BOND FUND -------------------------------- ------------------------------- YEAR ENDED JUNE 30, YEAR ENDED JUNE 30, 2003 2002 2003 2002 ----------------------------------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income (loss) $ (266,297) $ (324,060) $ 3,984,990 $ 4,478,203 Net realized gain (loss) (1,381,955) (431,999) 1,963,615 1,921,383 Change in net unrealized appreciation (depreciation) 3,331,910 (4,904,899) 2,696,545 925,071 -------------- -------------- -------------- -------------- Net increase (decrease) in net assets from operations 1,683,658 (5,660,958) 8,645,150 7,324,657 -------------- -------------- -------------- -------------- DISTRIBUTIONS TO SHAREHOLDERS BY CLASS: Class A: Distributions from net investment income and net foreign currency gains -- -- (1,055,349) (308,304) Distributions from net realized gain -- (61,112) -- -- -------------- -------------- -------------- -------------- Total Class A distributions -- (61,112) (1,055,349) (308,304) -------------- -------------- -------------- -------------- Class B: Distributions from net investment income and net foreign currency gains -- -- (120,485) (15,882) Distributions from net realized gain -- (3,713) -- -- -------------- -------------- -------------- -------------- Total Class B distributions -- (3,713) (120,485) (15,882) -------------- -------------- -------------- -------------- Class C: Distributions from net investment income and net foreign currency gains -- -- (71,609) (27,034) Distributions from net realized gain -- (767) -- -- -------------- -------------- -------------- -------------- Total Class C distributions -- (767) (71,609) (27,034) -------------- -------------- -------------- -------------- Class Y: Distributions from net investment income and net foreign currency gains -- -- (3,120,824) (5,307,109) Distributions from net realized gain -- (1,477,411) -- -- -------------- -------------- -------------- -------------- Total Class Y distributions -- (1,477,411) (3,120,824) (5,307,109) -------------- -------------- -------------- -------------- UBS Investment Funds Class+: Distributions from net investment income and net foreign currency gains -- -- -- (38,696) -------------- -------------- -------------- -------------- Decrease in net assets from distributions -- (1,543,003) (4,368,267) (5,697,025) -------------- -------------- -------------- -------------- CAPITAL SHARE TRANSACTIONS BY CLASS: Class A: Shares sold 10,938,839 2,179,415 30,904,206 20,944,347 Shares issued on reinvestment of distributions -- 60,938 774,239 243,825 Shares redeemed (3,805,325) (366,992) (19,984,705) (2,899,216) -------------- -------------- -------------- -------------- Total Class A transactions 7,133,514 1,873,361 11,693,740 18,288,956 -------------- -------------- -------------- -------------- Class B: Shares sold 851,729 859,490 4,225,401 1,536,154 Shares issued on reinvestment of distributions -- 3,713 77,727 9,884 Shares redeemed (421,955) (153,113) (2,182,579) (143,152) -------------- -------------- -------------- -------------- Total Class B transactions 429,774 710,090 2,120,549 1,402,886 -------------- -------------- -------------- -------------- Class C: Shares sold 475,355 580,457 3,233,996 1,767,103 Shares issued on reinvestment of distributions -- 768 50,843 11,416 Shares redeemed (151,517) (133,522) (1,334,026) (634,562) -------------- -------------- -------------- -------------- Total Class C transactions 323,838 447,703 1,950,813 1,143,957 -------------- -------------- -------------- -------------- Class Y: Shares sold 22,370,201 24,755,474 40,216,437 273,440,239 Shares issued on reinvestment of distributions -- 1,389,547 3,009,977 4,731,214 Shares redeemed (19,597,886) (27,169,494) (27,160,470) (282,313,285) -------------- -------------- -------------- -------------- Total Class Y transactions 2,772,315 (1,024,473) 16,065,944 (4,141,832) -------------- -------------- -------------- -------------- UBS Investment Funds Class+ Shares sold -- 268,873 -- 207,611 Shares issued on reinvestment of distributions -- -- -- 29,558 Shares redeemed -- (2,293,974) -- (3,107,604) -------------- -------------- -------------- -------------- Total UBS Investment Funds Class transactions -- (2,025,101) -- (2,870,435) -------------- -------------- -------------- -------------- Net increase (decrease) in net assets resulting from capital share transactions 10,659,441 (18,420) 31,831,046 13,823,532 -------------- -------------- -------------- -------------- INCREASE (DECREASE) IN NET ASSETS 12,343,099 (7,222,381) 36,107,929 15,451,164 NET ASSETS, BEGINNING OF PERIOD 39,172,379 46,394,760 80,845,738 65,394,574 -------------- -------------- -------------- -------------- NET ASSETS, END OF PERIOD $ 51,515,478 $ 39,172,379 $ 116,953,667 $ 80,845,738 ============== ============== ============== ============== Net assets include accumulated undistributed net investment income (loss) $ -- $ -- $ 90,878 $ 105,723 ============== ============== ============== ==============
* For the period June 29, 2001, commencement of investment operations, to June 30, 2002. ** The following capital share transactions include amounts from a tax-free reorganization in which the UBS U.S. Value Equity Fund acquired the assets and liabilities of the UBS U.S. Large Cap Equity Fund on October 4, 2002. The amounts were $524,863 for Class A, $149,087 for Class B, $549,128 for Class C, and $1,680,096 for Class Y. + UBS Investment Funds Class was liquidated effective November 9, 2001. See accompanying notes to financial statements 104
UBS UBS HIGH YIELD FUND INTERNATIONAL EQUITY FUND -------------------------------- ------------------------------- YEAR ENDED JUNE 30, YEAR ENDED JUNE 30, 2003 2002 2003 2002 ----------------------------------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income (loss) $ 14,002,697 $ 11,343,538 $ 1,448,032 $ 1,457,063 Net realized gain (loss) (17,579,211) (27,901,284) (5,644,725) (7,755,636) Change in net unrealized appreciation (depreciation) 31,593,930 7,837,661 (3,854,936) 1,110,495 -------------- -------------- -------------- -------------- Net increase (decrease) in net assets from operations 28,017,416 (8,720,085) (8,051,629) (5,188,078) -------------- -------------- -------------- -------------- DISTRIBUTIONS TO SHAREHOLDERS BY CLASS: Class A: Distributions from net investment income and net foreign currency gains (6,210,427) (4,859,620) (102,615) (36,545) Distributions from net realized gain -- -- (3,166) (218,141) -------------- -------------- -------------- -------------- Total Class A distributions (6,210,427) (4,859,620) (105,781) (254,686) -------------- -------------- -------------- -------------- Class B: Distributions from net investment income and net foreign currency gains (1,155,342) (1,062,540) (12,207) -- Distributions from net realized gain -- -- (392) -- -------------- -------------- -------------- -------------- Total Class B distributions (1,155,342) (1,062,540) (12,599) -- -------------- -------------- -------------- -------------- Class C: Distributions from net investment income and net foreign currency gains (1,524,490) (1,219,662) (10,789) (28) Distributions from net realized gain -- -- (354) (166) -------------- -------------- -------------- -------------- Total Class C distributions (1,524,490) (1,219,662) (11,143) (194) -------------- -------------- -------------- -------------- Class Y: Distributions from net investment income and net foreign currency gains (5,513,259) (5,509,093) (4,107,868) (2,957,696) Distributions from net realized gain -- -- (119,936) (17,649,540) -------------- -------------- -------------- -------------- Total Class Y distributions (5,513,259) (5,509,093) (4,227,804) (20,607,236) -------------- -------------- -------------- -------------- UBS Investment Funds Class+: Distributions from net investment income and net foreign currency gains -- (153,732) -- -- -------------- -------------- -------------- -------------- Decrease in net assets from distributions (14,403,518) (12,804,647) (4,357,327) (20,862,116) -------------- -------------- -------------- -------------- CAPITAL SHARE TRANSACTIONS BY CLASS: Class A: Shares sold 34,591,438 85,975,437 12,910,694 10,837,418 Shares issued on reinvestment of distributions 2,814,936 2,162,926 100,144 241,742 Shares redeemed (32,540,087) (13,264,252) (12,304,565) (8,692,780) -------------- -------------- -------------- -------------- Total Class A transactions 4,866,287 74,874,111 706,273 2,386,380 -------------- -------------- -------------- -------------- Class B: Shares sold 2,018,183 23,835,512 273,328 137,033 Shares issued on reinvestment of distributions 471,694 410,680 12,357 -- Shares redeemed (5,977,148) (6,409,813) (40,559) (15,060) -------------- -------------- -------------- -------------- Total Class B transactions (3,487,271) 17,836,379 245,126 121,973 -------------- -------------- -------------- -------------- Class C: Shares sold 2,115,099 23,894,164 775,367 708,527 Shares issued on reinvestment of distributions 710,226 565,332 10,420 1 Shares redeemed (3,147,724) (4,088,587) (542,989) (531,255) -------------- -------------- -------------- -------------- Total Class C transactions (322,399) 20,370,909 242,798 177,273 -------------- -------------- -------------- -------------- Class Y: Shares sold 82,297,200 93,174,128 139,188,726 776,370,655 Shares issued on reinvestment of distributions 4,987,025 4,929,419 3,923,965 18,542,125 Shares redeemed (61,319,664) (104,801,747) (138,240,572) (863,839,409) -------------- -------------- -------------- -------------- Total Class Y transactions 25,964,561 (6,698,200) 4,872,119 (68,926,629) -------------- -------------- -------------- -------------- UBS Investment Funds Class+ Shares sold -- 83,673 -- 231,701 Shares issued on reinvestment of distributions -- 119,090 -- -- Shares redeemed -- (1,958,227) -- (4,025,287) -------------- -------------- -------------- -------------- Total UBS Investment Funds Class transactions -- (1,755,464) -- (3,793,586) -------------- -------------- -------------- -------------- Net increase (decrease) in net assets resulting from capital share transactions 27,021,178 104,627,735 6,066,316 (70,034,589) -------------- -------------- -------------- -------------- INCREASE (DECREASE) IN NET ASSETS 40,635,076 83,103,003 (6,342,640) (96,084,783) NET ASSETS, BEGINNING OF PERIOD 139,591,569 56,488,566 100,754,116 196,838,899 -------------- -------------- -------------- -------------- NET ASSETS, END OF PERIOD $ 180,226,645 $ 139,591,569 $ 94,411,476 $ 100,754,116 ============== ============== ============== ============== Net assets include accumulated undistributed net investment income (loss) $ 29,500 $ 430,319 $ 2,126,527 $ 3,475,868 ============== ============== ============== ============== UBS U.S. VALUE EQUITY FUND -------------------------------- YEAR ENDED JUNE 30, 2003 2002* ------------------------------------------------------------------------------------------ OPERATIONS: Net investment income (loss) $ 83,786 $ 36,677 Net realized gain (loss) (837,648) 41,135 Change in net unrealized appreciation (depreciation) 795,473 (348,860) -------------- -------------- Net increase (decrease) in net assets from operations 41,611 (271,048) -------------- -------------- DISTRIBUTIONS TO SHAREHOLDERS BY CLASS: Class A: Distributions from net investment income and net foreign currency gains (6,980) -- Distributions from net realized gain (8,594) -- -------------- -------------- Total Class A distributions (15,574) -- -------------- -------------- Class B: Distributions from net investment income and net foreign currency gains (2,449) -- Distributions from net realized gain (5,316) -- -------------- -------------- Total Class B distributions (7,765) -- -------------- -------------- Class C: Distributions from net investment income and net foreign currency gains (2,890) -- Distributions from net realized gain (5,570) -- -------------- -------------- Total Class C distributions (8,460) -- -------------- -------------- Class Y: Distributions from net investment income and net foreign currency gains (32,891) -- Distributions from net realized gain (30,988) -- -------------- -------------- Total Class Y distributions (63,879) -- -------------- -------------- UBS Investment Funds Class+: Distributions from net investment income and net foreign currency gains -- -- -------------- -------------- Decrease in net assets from distributions (95,678) -- -------------- -------------- CAPITAL SHARE TRANSACTIONS BY CLASS: Class A: Shares sold 1,313,870** 944,284 Shares issued on reinvestment of distributions 14,112 -- Shares redeemed (983,232) (144,738) -------------- -------------- Total Class A transactions 344,750 799,546 -------------- -------------- Class B: Shares sold 834,994** 353,289 Shares issued on reinvestment of distributions 7,755 -- Shares redeemed (423,048) (33,608) -------------- -------------- Total Class B transactions 419,701 319,681 -------------- -------------- Class C: Shares sold 831,028** 256,183 Shares issued on reinvestment of distributions 2,916 -- Shares redeemed (109,240) (3,131) -------------- -------------- Total Class C transactions 724,704 253,052 -------------- -------------- Class Y: Shares sold 2,862,951** 4,355 Shares issued on reinvestment of distributions 48,665 -- Shares redeemed (854,907) (49) -------------- -------------- Total Class Y transactions 2,056,709 4,306 -------------- -------------- UBS Investment Funds Class+ Shares sold -- -- Shares issued on reinvestment of distributions -- -- Shares redeemed -- -- -------------- -------------- Total UBS Investment Funds Class transactions -- -- -------------- -------------- Net increase (decrease) in net assets resulting from capital share transactions 3,545,864 1,376,585 -------------- -------------- INCREASE (DECREASE) IN NET ASSETS 3,491,797 1,105,537 NET ASSETS, BEGINNING OF PERIOD 4,105,547 3,000,010 -------------- -------------- NET ASSETS, END OF PERIOD $ 7,597,344 $ 4,105,547 ============== ============== Net assets include accumulated undistributed net investment income (loss) $ 83,688 $ 37,360 ============== ==============
105 UBS GLOBAL ALLOCATION FUND -- FINANCIAL HIGHLIGHTS THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD PRESENTED.
YEAR ENDED JUNE 30, ----------------------------------------------------------------- CLASS A 2003 2002 2001 2000 1999 ---------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 10.60 $ 11.10 $ 11.20 $ 11.99 $ 12.75 --------- --------- --------- --------- --------- Income (loss) from investment operations: Net investment income 0.10** 0.10** 0.22 0.19** 0.27 Net realized and unrealized gain (loss) 0.41 0.40 0.31 (0.30) 0.25 --------- --------- --------- --------- --------- Total income (loss) from investment operations 0.51 0.50 0.53 (0.11) 0.52 --------- --------- --------- --------- --------- Less distributions: Distributions from net investment income and net foreign currency gains (0.42) (0.19) -- (0.16) (0.44) Distributions from net realized gains -- (0.81) (0.63) (0.52) (0.84) --------- --------- --------- --------- --------- Total distributions (0.42) (1.00) (0.63) (0.68) (1.28) --------- --------- --------- --------- --------- Net asset value, end of period $ 10.69 $ 10.60 $ 11.10 $ 11.20 $ 11.99 ========= ========= ========= ========= ========= Total return+ 5.35% 4.84% 4.95% (0.80)% 4.47% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 175,415 $ 6,914 $ 237 $ 202 $ 1,576 Ratio of expenses to average net assets: Before expense reimbursement 1.35% 1.35% 1.30% 1.24% 1.21% After expense reimbursement 1.35% 1.35% 1.30% 1.24% 1.21% Ratio of net investment income to average net assets: Before expense reimbursement 0.98% 0.98% 1.52% 1.74% 1.98% After expense reimbursement 0.98% 0.98% 1.52% 1.74% 1.98% Portfolio turnover rate 66% 116% 115% 98% 105% YEAR FOR THE ENDED PERIOD ENDED CLASS B JUNE 30, 2003 JUNE 30, 2002* ----------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 10.52 $ 11.21 -------------- -------------- Income from investment operations: Net investment income 0.02** 0.12** Net realized and unrealized gain 0.41 0.19 -------------- -------------- Total income from investment operations 0.43 0.31 -------------- -------------- Less distributions: Distributions from net investment income and net foreign currency gains (0.40) (0.19) Distributions from net realized gains -- (0.81) -------------- -------------- Total distributions (0.40) (1.00) -------------- -------------- Net asset value, end of period $ 10.55 $ 10.52 ============== ============== Total return+ 4.60% 3.00%^ Ratios/Supplemental data: Net assets, end of period (in 000s) $ 49,573 $ 1,570 Ratio of expenses to average net assets: Before expense reimbursement 2.10% 2.10%*** After expense reimbursement 2.10% 2.10%*** Ratio of net investment income to average net assets: Before expense reimbursement 0.23% 2.17%*** After expense reimbursement 0.23% 2.17%*** Portfolio turnover rate 66% 116%
* For the period December 13, 2001 (commencement of issuance) through June 30, 2002. ** The net investment income per share data was determined by using average shares outstanding throughout the period. *** Annualized. ^ The return is non-annualized. + The returns do not include sales charges. See accompanying notes to financial statements 106 THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD PRESENTED.
YEAR FOR THE ENDED PERIOD ENDED CLASS C JUNE 30, 2003 JUNE 30, 2002* ----------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 10.54 $ 11.10 -------------- -------------- Income from investment operations: Net investment income 0.02** 0.11** Net realized and unrealized gain 0.41 0.33 -------------- -------------- Total income from investment operations 0.43 0.44 -------------- -------------- Less distributions: Distributions from net investment income and net foreign currency gains (0.41) (0.19) Distributions from net realized gains -- (0.81) -------------- -------------- Total distributions (0.41) (1.00) -------------- -------------- Net asset value, end of period $ 10.56 $ 10.54 ============== ============== Total return+ 4.55% 4.23%^ Ratios/Supplemental data: Net assets, end of period (in 000s) $ 137,078 $ 1,525 Ratio of expenses to average net assets: Before expense reimbursement 2.10% 2.10%*** After expense reimbursement 2.10% 2.10%*** Ratio of net investment income to average net assets: Before expense reimbursement 0.23% 1.77%*** After expense reimbursement 0.23% 1.77%*** Portfolio turnover rate 66% 116% YEAR ENDED JUNE 30, ----------------------------------------------------------------- CLASS Y 2003 2002 2001 2000 1999 ---------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 10.69 $ 11.18 $ 11.25 $ 12.02 $ 12.77 --------- --------- --------- --------- --------- Income (loss) from investment operations: Net investment income 0.12** 0.13** 0.25 0.23** 0.30 Net realized and unrealized gain (loss) 0.41 0.38 0.31 (0.30) 0.25 --------- --------- --------- --------- --------- Total income (loss) from investment operations 0.53 0.51 0.56 (0.07) 0.55 --------- --------- --------- --------- --------- Less distributions: Distributions from net investment income and net foreign currency gains (0.43) (0.19) -- (0.18) (0.46) Distributions from net realized gains -- (0.81) (0.63) (0.52) (0.84) --------- --------- --------- --------- --------- Total distributions (0.43) (1.00) (0.63) (0.70) (1.30) --------- --------- --------- --------- --------- Net asset value, end of period $ 10.79 $ 10.69 $ 11.18 $ 11.25 $ 12.02 ========= ========= ========= ========= ========= Total return++ 5.50% 4.91% 5.20% (0.48)% 4.76% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 193,758 $ 165,630 $ 156,130 $ 284,229 $ 469,080 Ratio of expenses to average net assets: Before expense reimbursement 1.10% 1.10% 1.05% 0.99% 0.96% After expense reimbursement 1.10% 1.10% 1.05% 0.99% 0.96% Ratio of net investment income to average net assets: Before expense reimbursement 1.23% 1.24% 1.77% 1.99% 2.23% After expense reimbursement 1.23% 1.24% 1.77% 1.99% 2.23% Portfolio turnover rate 66% 116% 115% 98% 105%
* For the period November 22, 2001 (commencement of issuance) through June 30, 2002. ** The net investment income per share data was determined by using average shares outstanding throughout the period. *** Annualized. ^ The return is non-annualized. + The returns do not include sales charges. ++ Class Y does not have sales charges. See accompanying notes to financial statements 107 UBS GLOBAL EQUITY FUND -- FINANCIAL HIGHLIGHTS THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD PRESENTED.
YEAR ENDED JUNE 30, ----------------------------------------------------------------- CLASS A 2003 2002 2001 2000 1999 ---------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 9.37 $ 10.61 $ 12.44 $ 13.40 $ 12.53 --------- --------- --------- --------- --------- Income (loss) from investment operations: Net investment income 0.16** 0.04** 0.07 0.04** 0.10** Net realized and unrealized gain (loss) (0.39) (0.88) (0.56) 0.27 1.09 --------- --------- --------- --------- --------- Total income (loss) from investment operations (0.23) (0.84) (0.49) 0.31 1.19 --------- --------- --------- --------- --------- Less distributions: Distributions from net investment income and net foreign currency gains (0.25) (0.06) (0.02) (0.06) (0.14) Distributions from net realized gains -- (0.34) (1.32) (1.21) (0.18) --------- --------- --------- --------- --------- Total distributions (0.25) (0.40) (1.34) (1.27) (0.32) --------- --------- --------- --------- --------- Net asset value, end of period $ 8.89 $ 9.37 $ 10.61 $ 12.44 $ 13.40 ========= ========= ========= ========= ========= Total return+ (2.23)% (8.05)% (4.45)% 2.49% 9.80% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 123,756 $ 15,173 $ 302 $ 224 $ 220 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.44% 1.47% 1.37% 1.33% 1.30% After expense reimbursement and earnings credits 1.25% 1.25% 1.25% 1.25% 1.25% Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 1.73% 0.17% 0.65% 0.23% 0.80% After expense reimbursement and earnings credits 1.92% 0.39% 0.77% 0.31% 0.85% Portfolio turnover rate 206% 117% 81% 111% 86% YEAR FOR THE ENDED PERIOD ENDED CLASS B JUNE 30, 2003 JUNE 30, 2002* ----------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 9.34 $ 10.17 -------------- -------------- Income (loss) from investment operations: Net investment income 0.10** 0.05** Net realized and unrealized loss (0.39) (0.48) -------------- -------------- Total loss from investment operations (0.29) (0.43) -------------- -------------- Less distributions: Distributions from net investment income and net foreign currency gains (0.23) (0.06) Distributions from net realized gains -- (0.34) -------------- -------------- Total distributions (0.23) (0.40) -------------- -------------- Net asset value, end of period $ 8.82 $ 9.34 ============== ============== Total return+ (2.91)% (4.38)%^ Ratios/Supplemental data: Net assets, end of period (in 000s) $ 144,232 $ 418 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 2.20% 2.25%*** After expense reimbursement and earnings credits 2.00% 2.00%*** Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 0.97% 0.72%*** After expense reimbursement and earnings credits 1.17% 0.97%*** Portfolio turnover rate 206% 117%
* For the period December 11, 2001 (commencement of issuance) through June 30, 2002. ** The net investment income per share data was determined by using average shares outstanding throughout the period. *** Annualized. ^ The return is non-annualized. + The returns do not include sales charges. See accompanying notes to financial statements 108 THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD PRESENTED.
YEAR FOR THE ENDED PERIOD ENDED CLASS C JUNE 30, 2003 JUNE 30, 2002* ----------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 9.33 $ 10.18 -------------- -------------- Income (loss) from investment operations: Net investment income 0.10** 0.04** Net realized and unrealized loss (0.40) (0.49) -------------- -------------- Total loss from investment operations (0.30) (0.45) -------------- -------------- Less distributions: Distributions from net investment income and net foreign currency gains (0.24) (0.06) Distributions from net realized gains -- (0.34) -------------- -------------- Total distributions (0.24) (0.40) -------------- -------------- Net asset value, end of period $ 8.79 $ 9.33 ============== ============== Total return+ (2.93)% (4.57)%^ Ratios/Supplemental data: Net assets, end of period (in 000s) $ 93,605 $ 351 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 2.24% 2.23%*** After expense reimbursement and earnings credits 2.00% 2.00%*** Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 0.93% 0.55%*** After expense reimbursement and earnings credits 1.17% 0.78%*** Portfolio turnover rate 206% 117% YEAR ENDED JUNE 30, ----------------------------------------------------------------- CLASS Y 2003 2002 2001 2000 1999 ---------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 9.47 $ 10.68 $ 12.47 $ 13.42 $ 12.54 --------- --------- --------- --------- --------- Income (loss) from investment operations: Net investment income 0.18** 0.06** 0.09 0.07** 0.14** Net realized and unrealized gain (loss) (0.39) (0.87) (0.54) 0.27 1.09 --------- --------- --------- --------- --------- Total income (loss) from investment operations (0.21) (0.81) (0.45) 0.34 1.23 --------- --------- --------- --------- --------- Less distributions: Distributions from net investment income and net foreign currency gains (0.27) (0.06) (0.02) (0.08) (0.17) Distributions from net realized gains -- (0.34) (1.32) (1.21) (0.18) --------- --------- --------- --------- --------- Total distributions (0.27) (0.40) (1.34) (1.29) (0.35) --------- --------- --------- --------- --------- Net asset value, end of period $ 8.99 $ 9.47 $ 10.68 $ 12.47 $ 13.42 ========= ========= ========= ========= ========= Total return++ (1.93)% (7.71)% (4.07)% 2.69% 10.14% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 62,873 $ 40,714 $ 49,306 $ 40,538 $ 42,106 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.16% 1.19% 1.12% 1.08% 1.05% After expense reimbursement and earnings credits 1.00% 1.00% 1.00% 1.00% 1.00% Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 2.01% 0.45% 0.90% 0.48% 1.05% After expense reimbursement and earnings credits 2.17% 0.64% 1.02% 0.56% 1.10% Portfolio turnover rate 206% 117% 81% 111% 86%
* For the period November 27, 2001 (commencement of issuance) through June 30, 2002. ** The net investment income per share data was determined by using average shares outstanding throughout the period. *** Annualized. ^ The return is non-annualized. + The returns do not include sales charges. ++ Class Y does not have sales charges. See accompanying notes to financial statements 109 UBS GLOBAL BOND FUND -- FINANCIAL HIGHLIGHTS THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD PRESENTED.
YEAR ENDED JUNE 30, ----------------------------------------------------------------- CLASS A 2003 2002* 2001 2000 1999 ---------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 9.01 $ 8.58 $ 9.09 $ 9.16 $ 9.40 --------- --------- --------- --------- --------- Income (loss) from investment operations: Net investment income 0.24** 0.17** 0.33** 0.37** 0.37** Net realized and unrealized gain (loss) 1.21 0.43 (0.72) (0.43) (0.07) --------- --------- --------- --------- --------- Total income (loss) from investment operations 1.45 0.60 (0.39) (0.06) 0.30 --------- --------- --------- --------- --------- Less distributions: Distributions from net investment income and net foreign currency gains (0.22) -- (0.06) -- (0.46) Distributions from net realized gains -- -- -- (0.01) (0.08) Distributions from return of capital -- (0.17) -- -- -- --------- --------- --------- --------- --------- Total distributions (0.22) (0.17) (0.06) (0.01) (0.54) --------- --------- --------- --------- --------- Net asset value, end of period $ 10.24 $ 9.01 $ 8.64 $ 9.09 $ 9.16 ========= ========= ========= ========= ========= Total return+ 16.34% 7.18%++ (4.27)% (0.66)% 2.89% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 11,659 $ 1,925 $ 3 $ 1 $ 1,085 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.53% 1.49%*** 1.37% 1.30% 1.15% After expense reimbursement and earnings credits 1.15% 1.15%*** 1.15% 1.19%++ 1.15% Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 2.06% 2.72%*** 3.60% 4.09% 3.80% After expense reimbursement and earnings credits 2.44% 3.06%*** 3.82% 4.20% 3.80% Portfolio turnover rate 145% 157% 165% 87% 138% YEAR FOR THE ENDED PERIOD ENDED CLASS B JUNE 30, 2003 JUNE 30, 2002* ----------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 9.01 $ 8.35 -------------- -------------- Income from investment operations: Net investment income 0.16** 0.11** Net realized and unrealized gain 1.23 0.69 -------------- -------------- Total income from investment operations 1.39 0.80 -------------- -------------- Less distributions: Distributions from net investment income and net foreign currency gains (0.15) -- Distributions from return of capital -- (0.14) -------------- -------------- Total distributions (0.15) (0.14) -------------- -------------- Net asset value, end of period $ 10.25 $ 9.01 ============== ============== Total return+ 15.61% 9.67%^ Ratios/Supplemental data: Net assets, end of period (in 000s) $ 1,755 $ 392 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 2.30% 2.25%*** After expense reimbursement and earnings credits 1.90% 1.90%*** Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 1.29% 1.94%*** After expense reimbursement and earnings credits 1.69% 2.29%*** Portfolio turnover rate 145% 157%
* On July 2, 2001 Class A was fully liquidated. For the period November 5, 2001 and November 26, 2001 (commencement of reissuance and issuance) for Class A and Class B, respectively, through June 30, 2002. ** The net investment income per share data was determined by using average shares outstanding throughout the period. *** Annualized. ++ The return is non-annualized. + The returns do not include sales charges. ^ The ratio of net operating expenses to average net assets for Class A was 1.15%, interest expense was 0.04% of net assets. See accompanying notes to financial statements 110 THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD PRESENTED.
FOR THE PERIOD ENDED CLASS C JUNE 30, 2003* ----------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 9.00 -------- Income from investment operations: Net investment income 0.19** Net realized and unrealized gain 1.22 -------- Total income from investment operations 1.41 -------- Less distributions: Distributions from net investment income and net foreign currency gains (0.18) -------- Net asset value, end of period $ 10.23 ======== Total return+ 15.84%^ Ratios/Supplemental data: Net assets, end of period (in 000s) $ 3,198 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 2.01%*** After expense reimbursement and earnings credits 1.65%*** Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 1.58%*** After expense reimbursement and earnings credits 1.94%*** Portfolio turnover rate 145% YEAR ENDED JUNE 30, ----------------------------------------------------------------- CLASS Y 2003 2002 2001 2000 1999 -------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 9.79 $ 8.57 $ 9.01 $ 9.18 $ 9.41 --------- --------- --------- --------- --------- Income (loss) from investment operations: Net investment income 0.28** 0.31** 0.36** 0.40** 0.39** Net realized and unrealized gain (loss) 1.33 1.09 (0.72) (0.43) (0.07) --------- --------- --------- --------- --------- Total income (loss) from investment operations 1.61 1.40 (0.36) (0.03) 0.32 --------- --------- --------- --------- --------- Less distributions: Distributions from net investment income and net foreign currency gains (0.24) -- (0.08) (0.13) (0.47) Distributions from net realized gains -- -- -- (0.01) (0.08) Distributions from return of capital -- (0.18) -- -- -- --------- --------- --------- --------- --------- Total distributions (0.24) (0.18) (0.08) (0.14) (0.55) --------- --------- --------- --------- --------- Net asset value, end of period $ 11.16 $ 9.79 $ 8.57 $ 9.01 $ 9.18 ========= ========= ========= ========= ========= Total return++ 16.72% 16.57% (4.02)% (0.34)% 3.13% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 35,484 $ 34,421 $ 37,822 $ 43,467 $ 92,832 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.32% 1.17% 1.12% 1.05% 0.90% After expense reimbursement and earnings credits 0.90% 0.90% 0.90% 0.94%# 0.90% Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 2.27% 3.14% 3.85% 4.34% 4.05% After expense reimbursement and earnings credits 2.69% 3.41% 4.07% 4.45% 4.05% Portfolio turnover rate 145% 157% 165% 87% 138%
* For period July 2, 2002 (commencement of issuance) through June 30, 2003. ** The net investment income per share data was determined by using average shares outstanding throughout the period. *** Annualized. ^ The return is non-annualized. + The returns do not include sales charges. ++ Class Y does not have sales charges. # The ratio of net operating expenses to average net assets for Class Y was 0.90%, interest expense was 0.04% of net assets. See accompanying notes to financial statements 111 UBS U.S. BALANCED FUND -- FINANCIAL HIGHLIGHTS THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD PRESENTED.
YEAR ENDED JUNE 30, ----------------------------------------------------------------- CLASS A 2003 2002 2001 2000 1999 -------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 9.04 $ 9.38 $ 8.57 $ 9.38 $ 12.27 --------- --------- --------- --------- --------- Income (loss) from investment operations: Net investment income 0.16** 0.20** 0.28 0.23** 0.29** Net realized and unrealized gain (loss) 0.31 (0.25) 0.89 (0.74) 0.18 --------- --------- --------- --------- --------- Total income (loss) from investment operations 0.47 (0.05) 1.17 (0.51) 0.47 --------- --------- --------- --------- --------- Less distributions: Distributions from net investment income and net foreign currency gains (0.19) (0.29) (0.36) (0.24) (0.71) Distributions from net realized gains -- -- -- (0.06) (2.65) --------- --------- --------- --------- --------- Total distributions (0.19) (0.29) (0.36) (0.30) (3.36) --------- --------- --------- --------- --------- Net asset value, end of period $ 9.32 $ 9.04 $ 9.38 $ 8.57 $ 9.38 ========= ========= ========= ========= ========= Total return+ 5.43% (0.60)% 13.89% (5.39)% 4.17% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 4,164 $ 2,583 $ 1 $ 1 $ 1 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.56% 1.57% 1.39% 1.26% 1.21% After expense reimbursement and earnings credits 1.05% 1.05% 1.05% 1.06%++ 1.05% Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 1.35% 1.63% 2.81% 2.55% 2.75% After expense reimbursement and earnings credits 1.86% 2.15% 3.15% 2.75% 2.91% Portfolio turnover rate 96% 147% 159% 96% 113% YEAR FOR THE ENDED PERIOD ENDED CLASS B JUNE 30, 2003 JUNE 30,2002* --------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 9.00 $ 9.39 -------------- -------------- Income (loss) from investment operations: Net investment income 0.10** 0.08** Net realized and unrealized gain (loss) 0.31 (0.19) -------------- -------------- Total income (loss) from investment operations 0.41 (0.11) -------------- -------------- Less distributions: Distributions from net investment income and net foreign currency gains (0.17) (0.28) -------------- -------------- Net asset value, end of period $ 9.24 $ 9.00 ============== ============== Total return+ 4.67% (1.18)%^ Ratios/Supplemental data: Net assets, end of period (in 000s) $ 2,733 $ 913 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 2.27% 2.41%*** After expense reimbursement and earnings credits 1.80% 1.80%*** Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 0.64% 0.69%*** After expense reimbursement and earnings credits 1.11% 1.30%*** Portfolio turnover rate 96% 147%
* For the period November 7, 2001 (commencement of issuance) through June 30, 2002. ** The net investment income per share data was determined by using average shares outstanding throughout the period. *** Annualized. ^ The return is non-annualized. + The returns do not include sales charges. ++ The ratio of net operating expenses to average net assets for Class A was 1.05%, interest expense was 0.01% of net assets. See accompanying notes to financial statements 112 THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD PRESENTED.
YEAR FOR THE ENDED PERIOD ENDED CLASS C JUNE 30, 2003 JUNE 30,2002* ----------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 9.01 $ 9.36 -------------- -------------- Income (loss) from investment operations: Net investment income 0.10** 0.08** Net realized and unrealized gain (loss) 0.31 (0.15) -------------- -------------- Total income (loss) from investment operations 0.41 (0.07) -------------- -------------- Less distributions: Distributions from net investment income and net foreign currency gains (0.17) (0.28) -------------- -------------- Net asset value, end of period $ 9.25 $ 9.01 ============== ============== Total return+ 4.70% (0.76)%^ Ratios/Supplemental data: Net assets, end of period (in 000s) $ 1,881 $ 402 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 2.30% 2.37%*** After expense reimbursement and earnings credits 1.80% 1.80%*** Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 0.61% 0.75%*** After expense reimbursement and earnings credits 1.11% 1.32%*** Portfolio turnover rate 96% 147% YEAR ENDED JUNE 30, ----------------------------------------------------------------- CLASS Y 2003 2002 2001 2000 1999 -------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 9.09 $ 9.41 $ 8.59 $ 9.38 $ 12.24 --------- --------- --------- --------- --------- Income (loss) from investment operations: Net investment income 0.18** 0.24** 0.31 0.26** 0.34** Net realized and unrealized gain (loss) 0.32 (0.27) 0.89 (0.74) 0.18 --------- --------- --------- --------- --------- Total income (loss) from investment operations 0.50 (0.03) 1.20 (0.48) 0.52 --------- --------- --------- --------- --------- Less distributions: Distributions from net investment income and net foreign currency gains (0.21) (0.29) (0.38) (0.25) (0.73) Distributions from net realized gains -- -- -- (0.06) (2.65) --------- --------- --------- --------- --------- Total distributions (0.21) (0.29) (0.38) (0.31) (3.38) --------- --------- --------- --------- --------- Net asset value, end of period $ 9.38 $ 9.09 $ 9.41 $ 8.59 $ 9.38 ========= ========= ========= ========= ========= Total return++ 5.70% (0.36)% 14.18% (5.07)% 4.74% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 22,328 $ 21,771 $ 25,719 $ 11,136 $ 37,603 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.34% 1.24% 1.14% 1.01% 0.96% After expense reimbursement and earnings credits 0.80% 0.80% 0.80% 0.81%# 0.80% Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 1.57% 2.17% 3.06% 2.80% 3.00% After expense reimbursement and earnings credits 2.11% 2.61% 3.40% 3.00% 3.16% Portfolio turnover rate 96% 147% 159% 96% 113%
* For the period November 6, 2001 (commencement of issuance) through June 30, 2002. ** The net investment income per share data was determined by using average shares outstanding throughout the period. *** Annualized. ^ The return is non-annualized. + The returns do not include sales charges. ++ Class Y does not have sales charges. # The ratio of net operating expenses to average net assets for Class Y was 0.80%, interest expense was 0.01% of net assets. See accompanying notes to financial statements 113 UBS U.S. EQUITY FUND -- FINANCIAL HIGHLIGHTS THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD PRESENTED.
YEAR ENDED JUNE 30, ----------------------------------------------------------------- CLASS A 2003 2002 2001 2000 1999 -------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 13.94 $ 15.97 $ 15.97 $ 21.39 $ 19.88 --------- --------- --------- --------- --------- Income (loss) from investment operations: Net investment income 0.11** 0.08** 0.08** 0.13** 0.08** Net realized and unrealized gain (loss) 0.04 (1.38) 1.56 (3.75) 2.67 --------- --------- --------- --------- --------- Total income (loss) from investment operations 0.15 (1.30) 1.64 (3.62) 2.75 --------- --------- --------- --------- --------- Less distributions: Distributions from net investment income and net foreign currency gains (0.08) (0.04) (0.29) (0.03) (0.12) Distributions from net realized gains (0.38) (0.69) (1.35) (1.77) (1.12) --------- --------- --------- --------- --------- Total distributions (0.46) (0.73) (1.64) (1.80) (1.24) --------- --------- --------- --------- --------- Net asset value, end of period $ 13.63 $ 13.94 $ 15.97 $ 15.97 $ 21.39 ========= ========= ========= ========= ========= Total return+ 1.37% (8.41)% 10.63% (17.24)% 14.75% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 4,702 $ 13,698 $ 7,067 $ 7,191 $ 7,563 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.30% 1.19% 1.17% 1.09% 1.05% After expense reimbursement and earnings credits 1.05% 1.05% 1.05% 1.05% 1.05% Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 0.64% 0.40% 0.37% 0.64% 0.57% After expense reimbursement and earnings credits 0.89% 0.54% 0.49% 0.68% 0.57% Portfolio turnover rate 33% 60% 54% 55% 48% YEAR FOR THE ENDED PERIOD ENDED CLASS B JUNE 30, 2003 JUNE 30,2002* --------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 13.87 $ 14.76 -------------- -------------- Income (loss) from investment operations: Net investment income 0.02** 0.06** Net realized and unrealized gain (loss) 0.02 (0.22) -------------- -------------- Total income (loss) from investment operations 0.04 (0.16) -------------- -------------- Less distributions: Distributions from net investment income and net foreign currency gains (0.08) (0.04) Distributions from net realized gains (0.38) (0.69) -------------- -------------- Total distributions (0.46) (0.73) -------------- -------------- Net asset value, end of period $ 13.45 $ 13.87 ============== ============== Total return+ 0.63% (1.39)%^ Ratios/Supplemental data: Net assets, end of period (in 000s) $ 635 $ 223 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 2.04% 1.99%*** After expense reimbursement and earnings credits 1.80% 1.80%*** Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits (0.10)% 0.46%*** After expense reimbursement and earnings credits 0.14% 0.65%*** Portfolio turnover rate 33% 60%
* For the period November 5, 2001 (commencement of issuance) through June 30, 2002. ** The net investment income per share data was determined by using average shares outstanding throughout the period. *** Annualized. ^ The return is non-annualized. + The returns do not include sales charges. See accompanying notes to financial statements 114 THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD PRESENTED.
YEAR FOR THE ENDED PERIOD ENDED CLASS C JUNE 30, 2003 JUNE 30,2002* --------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 13.88 $ 15.20 -------------- -------------- Income (loss) from investment operations: Net investment income 0.02** 0.07** Net realized and unrealized gain (loss) 0.03 (0.66) -------------- -------------- Total income (loss) from investment operations 0.05 (0.59) -------------- -------------- Less distributions: Distributions from net investment income and net foreign currency gains (0.11) (0.04) Distributions from net realized gains (0.38) (0.69) -------------- -------------- Total distributions (0.49) (0.73) -------------- -------------- Net asset value, end of period $ 13.44 $ 13.88 ============== ============== Total return+ 0.68% (4.18)%^ Ratios/Supplemental data: Net assets, end of period (in 000s) $ 1,020 $ 70 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 2.04% 1.97%*** After expense reimbursement and earnings credits 1.80% 1.80%*** Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits (0.10)% 0.56%*** After expense reimbursement and earnings credits 0.14% 0.73%*** Portfolio turnover rate 33% 60% YEAR ENDED JUNE 30, ----------------------------------------------------------------- CLASS Y 2003 2002 2001 2000 1999 -------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 14.07 $ 16.07 $ 16.07 $ 21.48 $ 19.91 --------- --------- --------- --------- --------- Income (loss) from investment operations: Net investment income 0.14** 0.12** 0.12** 0.16** 0.17** Net realized and unrealized gain (loss) 0.04 (1.39) 1.57 (3.75) 2.67 --------- --------- --------- -------- --------- Total income (loss) from investment operations 0.18 (1.27) 1.69 (3.59) 2.84 --------- --------- --------- --------- --------- Less distributions: Distributions from net investment income and net foreign currency gains (0.14) (0.04) (0.34) (0.05) (0.15) Distributions from net realized gains (0.38) (0.69) (1.35) (1.77) (1.12) --------- --------- --------- --------- --------- Total distributions (0.52) (0.73) (1.69) (1.82) (1.27) --------- --------- --------- --------- --------- Net asset value, end of period $ 13.73 $ 14.07 $ 16.07 $ 16.07 $ 21.48 ========= ========= ========= ========= ========= Total return++ 1.69% (8.17)% 10.88% (17.00)% 15.22% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 99,398 $ 87,710 $ 125,997 $ 167,870 $ 713,321 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.04% 0.93% 0.92% 0.84% 0.80% After expense reimbursement and earnings credits 0.80% 0.80% 0.80% 0.80% 0.80% Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 0.90% 0.66% 0.62% 0.89% 0.82% After expense reimbursement and earnings credits 1.14% 0.79% 0.74% 0.93% 0.82% Portfolio turnover rate 33% 60% 54% 55% 48%
* For the period November 13, 2001 (commencement of issuance) through June 30, 2002. ** The net investment income per share data was determined by using average shares outstanding throughout the period. *** Annualized. ^ The return is non-annualized. + The returns do not include sales charges. ++ Class Y does not have sales charges. See accompanying notes to financial statements 115 UBS U.S. LARGE CAP GROWTH FUND -- FINANCIAL HIGHLIGHTS THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD PRESENTED.
YEAR ENDED JUNE 30, FOR THE ----------------------------------------------- PERIOD ENDED CLASS A 2003 2002 2001 2000 JUNE 30, 1999(a) ----------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 6.38 $ 8.90 $ 15.20 $ 13.88 $ 11.84 -------- -------- -------- -------- -------- Income (loss) from investment operations: Net investment income (loss) 0.00#** (0.02)** (0.07) (0.02)** (0.01) Net realized and unrealized gain (loss) 0.01 (2.45) (4.32) 2.29 2.05 -------- -------- -------- -------- -------- Total income (loss) from investment operations 0.01 (2.47) (4.39) 2.27 2.04 -------- -------- -------- -------- -------- Less distributions: Distributions from net realized gains -- (0.05) (1.91) (0.95) -- -------- -------- -------- -------- -------- Net asset value, end of period $ 6.39 $ 6.38 $ 8.90 $ 15.20 $ 13.88 ======== ======== ======== ======== ======== Total return+ 0.16% (27.89)% (31.59)% 17.18% 17.23%^ Ratios/Supplemental data: Net assets, end of period (in 000s) $ 1,163 $ 1,155 $ 1 $ 1 $ 1 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 3.91% 2.51% 1.59% 2.11% 2.63%*** After expense reimbursement and earnings credits 1.05% 1.05% 1.05% 1.05% 1.05%*** Ratio of net investment income (loss) to average net assets: Before expense reimbursement and earnings credits (2.82)% (1.71)% (0.91)% (1.22)% (1.51)%*** After expense reimbursement and earnings credits 0.04% (0.25)% (0.37)% (0.16)% 0.07%*** Portfolio turnover rate 86% 93% 56% 86% 51% YEAR FOR THE ENDED PERIOD ENDED CLASS B JUNE 30, 2003 JUNE 30, 2002* ----------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 6.36 $ 7.86 -------------- -------------- Income (loss) from investment operations: Net investment loss (0.04)** (0.05)** Net realized and unrealized loss 0.00# (1.40) -------------- -------------- Total loss from investment operations (0.04) (1.45) -------------- -------------- Less distributions: Distributions from net realized gains -- (0.05) -------------- -------------- Net asset value, end of period $ 6.32 $ 6.36 ============== ============== Total return+ (0.63)% (18.61)%^ Ratios/Supplemental data: Net assets, end of period (in 000s) $ 321 $ 115 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 4.54% 3.06%*** After expense reimbursement and earnings credits 1.80% 1.80%*** Ratio of net investment income (loss) to average net assets: Before expense reimbursement and earnings credits (3.45)% (2.28)%*** After expense reimbursement and earnings credits (0.71)% (1.02)%*** Portfolio turnover rate 86% 93%
(a) For the period December 31, 1998 (commencement of operations) through June 30, 1999. * For the period November 7, 2001 (commencement of issuance) through June 30, 2002. ** The net investment income per share data was determined by using average shares outstanding throughout the period. *** Annualized. ^ The return is non-annualized. + The returns do not include sales charges. # Amount is less than $0.01 per share. See accompanying notes to financial statements 116 THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD PRESENTED.
YEAR FOR THE ENDED PERIOD ENDED CLASS C JUNE 30, 2003 JUNE 30, 2002* ----------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 6.35 $ 8.18 -------------- -------------- Income (loss) from investment operations: Net investment loss (0.04)** (0.05)** Net realized and unrealized gain (loss) 0.01 (1.73) -------------- -------------- Total loss from investment operations (0.03) (1.78) -------------- -------------- Less distributions: Distributions from net realized gains -- (0.05) -------------- -------------- Net asset value, end of period $ 6.32 $ 6.35 ============== ============== Total return+ (0.47)% (21.91)%^ Ratios/Supplemental data: Net assets, end of period (in 000s) $ 267 $ 572 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 4.71% 3.22%*** After expense reimbursement and earnings credits 1.80% 1.80%*** Ratio of net investment income (loss) to average net assets: Before expense reimbursement and earnings credits (3.62)% (2.44)%*** After expense reimbursement and earnings credits (0.71)% (1.02)%*** Portfolio turnover rate 86% 93% YEAR ENDED JUNE 30, SIX MONTHS ----------------------------------------------- ENDED CLASS Y 2003 2002 2001 2000 JUNE 30, 1999(a) ----------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 6.47 $ 8.99 $ 15.28 $ 13.91 $ 11.84 -------- -------- -------- -------- -------- Income (loss) from investment operations: Net investment income (loss) 0.02** 0.00# (0.01) 0.03** 0.02 Net realized and unrealized gain (loss) 0.00 (2.47) (4.37) 2.29 2.05 -------- -------- -------- -------- -------- Total income (loss) from investment operations 0.02 (2.47) (4.38) 2.32 2.07 -------- -------- -------- -------- -------- Less distributions: Distributions from net investment income and net foreign currency gains -- (0.05) -- -- -- Distributions from net realized gains -- -- (1.91) (0.95) -- -------- -------- -------- -------- -------- Total distributions -- (0.05) (1.91) (0.95) -- -------- -------- -------- -------- -------- Net asset value, end of period $ 6.49 $ 6.47 $ 8.99 $ 15.28 $ 13.91 ======== ======== ======== ======== ======== Total return++ 0.31% (27.61)% (31.33)% 17.52% 17.48%^ Ratios/Supplemental data: Net assets, end of period (in 000s) $ 1,943 $ 2,291 $ 3,299 $ 5,885 $ 2,947 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 3.72% 2.14% 1.34% 1.86% 2.38%*** After expense reimbursement and earnings credits 0.80% 0.80% 0.80% 0.80% 0.80%*** Ratio of net investment income (loss) to average net assets: Before expense reimbursement and earnings credits (2.62)% (1.39)% (0.66)% (0.97)% (1.26)%*** After expense reimbursement and earnings credits 0.29% (0.05)% (0.12)% 0.09% 0.32%*** Portfolio turnover rate 86% 93% 56% 86% 51%
* For the period November 19, 2001 (commencement of issuance) through June 30, 2002. ** The net investment income per share data was determined by using average shares outstanding throughout the period. *** Annualized. ^ The return is non-annualized. + The returns do not include sales charges. ++ Class Y does not have sales charges. (a) Reflects the Fund's change in fiscal year end from December 31 to June 30. # Amount is less than $0.01 per share. See accompanying notes to financial statements 117 UBS U.S. SMALL CAP GROWTH FUND -- FINANCIAL HIGHLIGHTS THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD PRESENTED.
YEAR ENDED JUNE 30, FOR THE ----------------------------------------------- PERIOD ENDED CLASS A 2003 2002 2001 2000 JUNE 30, 1999* --------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 9.79 $ 11.76 $ 16.20 $ 9.16 $ 8.80 -------- -------- -------- -------- -------- Income (loss) from investment operations: Net investment loss (0.08)** (0.11)** (0.09) (0.08)** (0.04) Net realized and unrealized gain (loss) 0.29 (1.42) (1.52) 7.12 0.40 -------- -------- -------- -------- -------- Total income (loss) from investment operations 0.21 (1.53) (1.61) 7.04 0.36 -------- -------- -------- -------- -------- Less distributions: Distributions from net realized gains -- (0.44) (2.83) -- -- -------- -------- -------- -------- -------- Net asset value, end of period $ 10.00 $ 9.79 $ 11.76 $ 16.20 $ 9.16 ======== ======== ======== ======== ======== Total return+ 2.14% (13.18)% (11.00)% 76.86% 4.09%^ Ratios/Supplemental data: Net assets, end of period (in 000s) $ 9,841 $ 1,789 $ 2 $ 2 $ 1 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.71% 1.69% 1.48% 1.56% 1.57%*** After expense reimbursement and earnings credits 1.40% 1.40% 1.40% 1.40% 1.40%*** Ratio of net investment loss to average net assets: Before expense reimbursement and earnings credits (1.21)% (1.35)% (0.87)% (1.01)% (0.87)%*** After expense reimbursement and earnings credits (0.90)% (1.06)% (0.79)% (0.85)% (0.70)%*** Portfolio turnover rate 69% 71% 93% 104% 71% YEAR FOR THE ENDED PERIOD ENDED CLASS B JUNE 30, 2003 JUNE 30, 2002++ ----------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 9.75 $ 10.18 -------------- -------------- Income from investment operations: Net investment loss (0.14)** (0.11)** Net realized and unrealized gain 0.28 0.12 -------------- -------------- Total income from investment operations 0.14 0.01 -------------- -------------- Less distributions: Distributions from net realized gains -- (0.44) -------------- -------------- Net asset value, end of period $ 9.89 $ 9.75 ============== ============== Total return+ 1.44% (0.11)%^ Ratios/Supplemental data: Net assets, end of period (in 000s) $ 1,132 $ 656 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 2.47% 2.46%*** After expense reimbursement and earnings credits 2.15% 2.15%*** Ratio of net investment loss to average net assets: Before expense reimbursement and earnings credits (1.97)% (1.93)%*** After expense reimbursement and earnings credits (1.65)% (1.62)%*** Portfolio turnover rate 69% 71%
* For the period December 31, 1998 (commencement of investment operations) through June 30, 1999. ++ For the period November 7, 2001 (commencement of issuance) through June 30, 2002. ** The net investment income per share data was determined by using average shares outstanding throughout the period. *** Annualized. ^ The return is non-annualized. + The returns do not include sales charges. See accompanying notes to financial statements 118 THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD PRESENTED.
YEAR FOR THE ENDED PERIOD ENDED CLASS C JUNE 30, 2003 JUNE 30, 2002* ----------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 9.74 $ 10.37 -------------- -------------- Income (loss) from investment operations: Net investment loss (0.14)** (0.10)** Net realized and unrealized gain (loss) 0.28 (0.09) -------------- -------------- Total loss from investment operations 0.14 (0.19) -------------- -------------- Less distributions: Distributions from net realized gains -- (0.44) -------------- -------------- Net asset value, end of period $ 9.88 $ 9.74 ============== ============== Total return+ 1.44% (2.04)%^ Ratios/Supplemental data: Net assets, end of period (in 000s) $ 757 $ 410 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 2.47% 2.46%*** After expense reimbursement and earnings credits 2.15% 2.15%*** Ratio of net investment loss to average net assets: Before expense reimbursement and earnings credits (1.97)% (1.90)%*** After expense reimbursement and earnings credits (1.65)% (1.59)%*** Portfolio turnover rate 69% 71% YEAR ENDED JUNE 30, SIX MONTHS ----------------------------------------------- ENDED CLASS Y 2003 2002 2001 2000 JUNE 30, 1999(a) ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $ 9.92 $ 11.86 $ 16.27 $ 9.18 $ 8.80 -------- -------- -------- -------- -------- Income (loss) from investment operations: Net investment loss (0.06)** (0.09)** (0.07) (0.03)** (0.02) Net realized and unrealized gain (loss) 0.29 (1.41) (1.51) 7.12 0.40 -------- -------- -------- -------- -------- Total income (loss) from investment operations 0.23 (1.50) (1.58) 7.09 0.38 -------- -------- -------- -------- -------- Less distributions: Distributions from net realized gains -- (0.44) (2.83) -- -- -------- -------- -------- -------- -------- Net asset value, end of period $ 10.15 $ 9.92 $ 11.86 $ 16.27 $ 9.18 ======== ======== ======== ======== ======== Total return++ 2.32% (12.90)% (10.74)% 77.23% 4.32%^ Ratios/Supplemental data: Net assets, end of period (in 000s) $ 39,785 $ 36,318 $ 44,057 $ 50,975 $ 35,211 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.49% 1.41% 1.23% 1.31% 1.32%*** After expense reimbursement and earnings credits 1.15% 1.15% 1.15% 1.15% 1.15%*** Ratio of net investment loss to average net assets: Before expense reimbursement and earnings credits (1.00)% (1.07)% (0.62)% (0.76)% (0.62)%*** After expense reimbursement and earnings credits (0.66)% (0.81)% (0.54)% (0.60)% (0.45)%*** Portfolio turnover rate 69% 71% 93% 104% 71%
* For the period November 19, 2001 (commencement of issuance) through June 30, 2002. ** The net investment income per share data was determined by using average shares outstanding throughout the period. *** Annualized. ^ The return is non-annualized. + The returns do not include sales charges. ++ Class Y does not have sales charges. (a) Reflects the Fund's change in fiscal year end from December 31 to June 30. See accompanying notes to financial statements 119 UBS U.S. BOND FUND -- FINANCIAL HIGHLIGHTS THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD PRESENTED.
YEAR ENDED JUNE 30, ----------------------------------------------------------------- CLASS A 2003 2002 2001 2000 1999 -------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 10.51 $ 10.33 $ 9.99 $ 10.30 $ 10.58 --------- --------- --------- ------- --------- Income from investment operations: Net investment income 0.42** 0.53** 0.62** 0.58** 0.57** Net realized and unrealized gain (loss) 0.52 0.32 0.41 (0.25) (0.26) --------- --------- --------- ------- --------- Total income from investment operations 0.94 0.85 1.03 0.33 0.31 --------- --------- --------- ------- --------- Less distributions: Distributions from net investment income and net foreign currency gains (0.46) (0.67) (0.69) (0.64) (0.44) Distributions from net realized gains -- -- -- -- (0.15) --------- --------- --------- ------- --------- Total distributions (0.46) (0.67) (0.69) (0.64) (0.59) --------- --------- --------- ------- --------- Net asset value, end of period $ 10.99 $ 10.51 $ 10.33 $ 9.99 $ 10.30 ========= ========= ========= ======= ========= Total return+ 9.17% 8.41% 10.56% 3.29% 2.88% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 31,337 $ 18,558 $ 123 $ 1 $ 1 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.04% 1.21% 0.98% 0.92% 0.86% After expense reimbursement and earnings credits 0.85% 0.86%++ 0.85% 0.85% 0.85% Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 3.70% 4.68% 5.86% 5.87% 5.17% After expense reimbursement and earnings credits 3.89% 5.03% 5.99% 5.94% 5.18% Portfolio turnover rate 180% 452% 314% 170% 260% YEAR FOR THE ENDED PERIOD ENDED CLASS B JUNE 30, 2003 JUNE 30, 2002* ----------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 10.50 $ 10.76 ------------- -------------- Income from investment operations: Net investment income 0.34** 0.29** Net realized and unrealized gain (loss) 0.52 (0.22) ------------- -------------- Total income from investment operations 0.86 0.07 ------------- -------------- Less distributions: Distributions from net investment income and net foreign currency gains (0.39) (0.33) ------------- -------------- Net asset value, end of period $ 10.97 $ 10.50 ============= ============== Total return+ 8.30% 0.70%^ Ratios/Supplemental data: Net assets, end of period (in 000s) $ 3,646 $ 1,405 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.79% 1.96%*** After expense reimbursement and earnings credits 1.60% 1.60%*** Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 2.95% 3.93%*** After expense reimbursement and earnings credits 3.14% 4.29%*** Portfolio turnover rate 180% 452%
* For the period November 6, 2001 (commencement of issuance) through June 30, 2002. ** The net investment income per share data was determined by using average shares outstanding throughout the period. *** Annualized. ^ The return is non-annualized. + The returns do not include sales charges. ++ The ratio of net operating expenses to average net assets for Class A was 0.85%, interest expense was 0.01% of net assets. See accompanying notes to financial statements 120 THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD PRESENTED.
YEAR FOR THE ENDED PERIOD ENDED CLASS C JUNE 30, 2003 JUNE 30, 2002* ----------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 10.50 $ 10.77 -------------- -------------- Income from investment operations: Net investment income 0.37** 0.31** Net realized and unrealized gain (loss) 0.52 (0.24) -------------- -------------- Total income from investment operations 0.89 0.07 -------------- -------------- Less distributions: Distributions from net investment income and net foreign currency gains (0.41) (0.34) -------------- -------------- Net asset value, end of period $ 10.98 $ 10.50 ============== ============== Total return+ 8.65% 0.72%^ Ratios/Supplemental data: Net assets, end of period (in 000s) $ 3,164 $ 1,143 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.54% 1.61%*** After expense reimbursement and earnings credits 1.35% 1.35%*** Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 3.20% 4.32%*** After expense reimbursement and earnings credits 3.39% 4.58%*** Portfolio turnover rate 180% 452%
YEAR ENDED JUNE 30, ------------------------------------------------------------- CLASS Y 2003 2002 2001 2000 1999 ---------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 10.53 $ 10.35 $ 10.00 $ 10.28 $ 10.58 -------- -------- -------- -------- -------- Income from investment operations: Net investment income 0.45** 0.56** 0.64** 0.62** 0.58** Net realized and unrealized gain (loss) 0.52 0.31 0.42 (0.25) (0.26) -------- -------- -------- -------- -------- Total income from investment operations 0.97 0.87 1.06 0.37 0.32 -------- -------- -------- -------- -------- Less distributions: Distributions from net investment income and net foreign currency gains (0.49) (0.69) (0.71) (0.65) (0.47) Distributions from net realized gains -- -- -- -- (0.15) -------- -------- -------- -------- -------- Total distributions (0.49) (0.69) (0.71) (0.65) (0.62) -------- -------- -------- -------- -------- Net asset value, end of period $ 11.01 $ 10.53 $ 10.35 $ 10.00 $ 10.28 ======== ======== ======== ======== ======== Total return++ 9.42% 8.59% 10.86% 3.74% 2.97% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 78,807 $ 59,740 $ 62,514 $ 58,121 $ 92,030 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 0.79% 0.80% 0.73% 0.67% 0.61% After expense reimbursement and earnings credits 0.60% 0.64%# 0.60% 0.60% 0.60% Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 3.95% 5.10% 6.11% 6.12% 5.42% After expense reimbursement and earnings credits 4.14% 5.26% 6.24% 6.19% 5.43% Portfolio turnover rate 180% 452% 314% 170% 260%
* For the period November 8, 2001 (commencement of issuance) through June 30, 2002. ** The net investment income per share data was determined by using average shares outstanding throughout the period. *** Annualized. ^ The return is non-annualized. + The returns do not include sales charges. ++ Class Y does not have sales charges. # The ratio of net operating expenses to average net assets for Class Y was 0.60%, interest expense was 0.04%of net assets. See accompanying notes to financial statements 121 UBS HIGH YIELD FUND -- FINANCIAL HIGHLIGHTS THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD PRESENTED.
YEAR ENDED JUNE 30, FOR THE ----------------------------------------------- PERIOD ENDED CLASS A 2003 2002 2001 2000 JUNE 30, 1999(a) --------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 6.36 $ 7.87 $ 9.18 $ 9.95 $ 9.98 -------- -------- -------- -------- -------- Income (loss) from investment operations: Net investment income 0.56** 0.76** 0.85** 0.90** 0.42** Net realized and unrealized gain (loss) 0.50 (0.96) (1.08) (0.90) (0.15) -------- -------- -------- -------- -------- Total income (loss) from investment operations 1.06 (0.20) (0.23) - 0.27 -------- -------- -------- -------- -------- Less distributions: Distributions from net investment income and net foreign currency gains (0.58) (1.31) (1.08) (0.70) (0.30) Distributions from net realized gains -- -- -- (0.07) -- -------- -------- -------- -------- -------- Total distributions (0.58) (1.31) (1.08) (0.77) (0.30) -------- -------- -------- -------- -------- Net asset value, end of period $ 6.84 $ 6.36 $ 7.87 $ 9.18 $ 9.95 ======== ======== ======== ======== ======== Total return+ 17.70% (3.01)% (2.28)% (0.13)% 2.71%^ Ratios/Supplemental data: Net assets, end of period (in 000s) $ 76,309 $ 65,832 $ 1 $ 1 $ 1 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.29% 1.26% 1.14% 1.11% 1.08%*** After expense reimbursement and earnings credits 0.95% 0.95% 0.97%++ 0.95% 0.95%*** Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 8.38% 10.71% 9.65% 9.06% 8.29%*** After expense reimbursement and earnings credits 8.72% 11.02% 9.82% 9.22% 8.42%*** Portfolio turnover rate 71% 120% 87% 73% 77%
YEAR FOR THE ENDED PERIOD ENDED CLASS B JUNE 30, 2003 JUNE 30, 2002* ----------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 6.35 $ 7.02 -------------- -------------- Income (loss) from investment operations: Net investment income 0.51** 0.45** Net realized and unrealized gain (loss) 0.50 (0.61) -------------- -------------- Total income (loss) from investment operations 1.01 (0.16) -------------- -------------- Less distributions: Distributions from net investment income and net foreign currency gains (0.53) (0.51) -------------- -------------- Net asset value, end of period $ 6.83 $ 6.35 ============== ============== Total return+ 16.83% (2.70)%^ Ratios/Supplemental data: Net assets, end of period (in 000s) $ 13,130 $ 15,692 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 2.05% 2.05%*** After expense reimbursement and earnings credits 1.70% 1.70%*** Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 7.62% 9.88%*** After expense reimbursement and earnings credits 7.97% 10.23%*** Portfolio turnover rate 71% 120%
(a) For the period December 31, 1998 (commencement of investment operations) through June 30, 1999. * For the period November 7, 2001 (commencement of issuance) through June 30, 2002. ** The net investment income per share data was determined by using average shares outstanding throughout the period. *** Annualized. ^ The return is non-annualized. + The returns do not include sales charges. ++ The ratio of net operating expenses to average net assets for Class A was 0.95%. See accompanying notes to financial statements 122 THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD PRESENTED.
YEAR FOR THE ENDED PERIOD ENDED CLASS C JUNE 30, 2003 JUNE 30, 2002* ----------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 6.35 $ 7.02 -------------- -------------- Income (loss) from investment operations: Net investment income 0.53** 0.46** Net realized and unrealized gain (loss) 0.51 (0.61) -------------- -------------- Total income (loss) from investment operations 1.04 (0.15) -------------- -------------- Less distributions: Distributions from net investment income and net foreign currency gains (0.55) (0.52) -------------- -------------- Net asset value, end of period $ 6.84 $ 6.35 ============== ============== Total return+ 17.29% (2.54)%^ Ratios/Supplemental data: Net assets, end of period (in 000s) $ 18,969 $ 17,947 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.79% 1.79%*** After expense reimbursement and earnings credits 1.45% 1.45%*** Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 7.88% 10.15%*** After expense reimbursement and earnings credits 8.22% 10.49%*** Portfolio turnover rate 71% 120%
YEAR ENDED JUNE 30, SIX MONTHS ----------------------------------------------- ENDED CLASS Y 2003 2002 2001 2000 JUNE 30, 1999(a) ----------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 6.38 $ 7.90 $ 9.19 $ 9.96 $ 9.98 -------- -------- -------- -------- -------- Income (loss) from investment operations: Net investment income 0.58** 0.81** 0.88** 0.91** 0.44** Net realized and unrealized gain (loss) 0.50 (1.01) (1.08) (0.90) (0.15) -------- -------- -------- -------- -------- Total income (loss) from investment operations 1.08 (0.20) (0.20) 0.01 0.29 -------- -------- -------- -------- -------- Less distributions: Distributions from net investment income and net foreign currency gains (0.59) (1.32) (1.09) (0.71) (0.31) Distributions from net realized gains -- -- -- (0.07) -- -------- -------- -------- -------- -------- Total distributions (0.59) (1.32) (1.09) (0.78) (0.31) -------- -------- -------- -------- -------- Net asset value, end of period $ 6.87 $ 6.38 $ 7.90 $ 9.19 $ 9.96 ======== ======== ======== ======== ======== Total return++ 18.08% (2.98)% (1.83)% 0.02% 2.91%^ Ratios/Supplemental data: Net assets, end of period (in 000s) $ 71,819 $ 40,120 $ 54,560 $ 50,845 $ 60,044 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.05% 1.02% 0.89% 0.86% 0.83%*** After expense reimbursement and earnings credits 0.70% 0.70%# 0.72%# 0.70% 0.70%*** Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 8.62% 10.77% 9.90% 9.31% 8.54%*** After expense reimbursement and earnings credits 8.97% 11.09% 10.07% 9.47% 8.67%*** Portfolio turnover rate 71% 120% 87% 73% 77%
* For the period November 7, 2001 (commencement of issuance) through June 30, 2002. ** The net investment income per share data was determined by using average shares outstanding throughout the period. *** Annualized. ^ The return is non-annualized. + The returns do not include sales charges (a) Reflects the Fund's change in fiscal year end from December 31 to June 30. ++ Class Y does not have sales charges. # The ratio of net operating expenses to average net assets for Class Y was 0. 70%. See accompanying notes to financial statements 123 UBS INTERNATIONAL EQUITY FUND -- FINANCIAL HIGHLIGHTS THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD PRESENTED.
YEAR ENDED JUNE 30, ------------------------------------------------------------- CLASS A 2003 2002 2001 2000 1999 ---------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 8.08 $ 10.61 $ 13.57 $ 12.30 $ 12.14 -------- -------- -------- -------- -------- Income (loss) from investment operations: Net investment income 0.10** 0.13** --** 0.08** 0.12 Net realized and unrealized gain (loss) (0.87) (0.79) (2.15) 1.33 0.27 -------- -------- -------- -------- -------- Total income (loss) from investment operations (0.77) (0.66) (2.15) 1.41 0.39 -------- -------- -------- -------- -------- Less distributions: Distributions from net investment income and net foreign currency gains (0.31) (0.27) (0.04) -- (0.11) Distributions from net realized gains (0.01) (1.60) (0.77) (0.14) (0.12) -------- -------- -------- -------- -------- Total distributions (0.32) (1.87) (0.81) (0.14) (0.23) -------- -------- -------- -------- -------- Net asset value, end of period $ 6.99 $ 8.08 $ 10.61 $ 13.57 $ 12.30 ======== ======== ======== ======== ======== Total return+ (9.24)% (5.91)% (16.37)% 11.51% 3.30% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 3,146 $ 2,599 $ 301 $ 1 $ 15 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.47% 1.41% 1.31% 1.25% 1.24% After expense reimbursement and earnings credits 1.25% 1.25% 1.28%# 1.25%++ 1.24% Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 1.21% 1.38% 0.77% 0.64% 1.10% After expense reimbursement and earnings credits 1.43% 1.54% 0.80% 0.64% 1.10% Portfolio turnover rate 120% 82% 62% 59% 74%
YEAR FOR THE ENDED PERIOD ENDED CLASS B JUNE 30, 2003 JUNE 30, 2002* ----------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 8.05 $ 7.75 -------------- -------------- Income (loss) from investment operations: Net investment income 0.04** 0.05** Net realized and unrealized gain (loss) (0.86) 0.25 -------------- -------------- Total income (loss) from investment operations (0.82) 0.30 -------------- -------------- Less distributions: Distributions from net investment income and net foreign currency gains (0.30) -- Distributions from net realized gains (0.01) -- -------------- -------------- (0.31) -- -------------- -------------- Net asset value, end of period $ 6.92 $ 8.05 ============== ============== Total return+ (9.94)% 3.87%^ Ratios/Supplemental data: Net assets, end of period (in 000s) $ 352 $ 120 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 2.18% 2.05%*** After expense reimbursement and earnings credits 2.00% 2.00%*** Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 0.50% 1.45%*** After expense reimbursement and earnings credits 0.68% 1.50%*** Portfolio turnover rate 120% 82%
* For the period February 12, 2002 (commencement of issuance) through June 30, 2002. ** The net investment income per share data was determined by using average shares outstanding throughout the period. *** Annualized. ^ The return is non-annualized. + The returns do not include sales charges. ++ The ratio of net operating expenses to average net assets for Class A was 1.24%. # The ratio of net operating expenses to average net assets for Class A was 1.25%. See accompanying notes to financial statements 124 THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD PRESENTED.
YEAR FOR THE ENDED PERIOD ENDED CLASS C JUNE 30, 2003 JUNE 30, 2002* ----------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 8.05 $ 7.75 -------------- -------------- Income (loss) from investment operations: Net investment income 0.04** 0.04** Net realized and unrealized gain (loss) (0.89) 0.26 -------------- -------------- Total income (loss) from investment operations (0.85) 0.30 -------------- -------------- Less distributions: Distributions from net investment income and net foreign currency gains (0.29) -- Distributions from net realized gains (0.01) -- -------------- -------------- Total distributions (0.30) -- -------------- -------------- Net asset value, end of period $ 6.90 $ 8.05 ============== ============== Total return+ (10.29)% 3.87%^ Ratios/Supplemental data: Net assets, end of period (in 000s) $ 399 $ 183 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 2.21% 2.19%*** After expense reimbursement and earnings credits 2.00% 2.00%*** Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 0.47% 0.91%*** After expense reimbursement and earnings credits 0.68% 1.10%*** Portfolio turnover rate 120% 82%
YEAR ENDED JUNE 30, -------------------------------------------------------------- CLASS Y 2003 2002 2001 2000 1999 ----------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 8.12 $ 10.64 $ 13.57 $ 12.34 $ 12.15 -------- -------- --------- --------- --------- Income (loss) from investment operations: Net investment income 0.11** 0.09** 0.13** 0.11** 0.16 Net realized and unrealized gain (loss) (0.88) (0.74) (2.25) 1.33 0.27 -------- -------- --------- --------- --------- Total income (loss) from investment operations (0.77) (0.65) (2.12) 1.44 0.43 -------- -------- --------- --------- --------- Less distributions: Distributions from net investment income and net foreign currency gains (0.33) (0.27) (0.04) (0.07) (0.12) Distributions from net realized gains (0.01) (1.60) (0.77) (0.14) (0.12) -------- -------- --------- --------- --------- Total distributions (0.34) (1.87) (0.81) (0.21) (0.24) -------- -------- --------- --------- --------- Net asset value, end of period $ 7.01 $ 8.12 $ 10.64 $ 13.57 $ 12.34 ======== ======== ========= ========= ========= Total return++ (9.21)% (5.78)% (16.15)% 11.76% 3.65% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 90,514 $ 97,851 $ 192,408 $ 411,985 $ 490,322 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.21% 1.13% 1.06% 1.00% 0.99% After expense reimbursement and earnings credits 1.00% 1.00% 1.03%## 1.00%# 0.99% Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 1.47% 0.92% 1.02% 0.89% 1.35% After expense reimbursement and earnings credits 1.68% 1.05% 1.05% 0.89% 1.35% Portfolio turnover rate 120% 82% 62% 59% 74%
* For the period December 26, 2001 (commencement of issuance) through June 30, 2002. ** The net investment income per share data was determined by using average shares outstanding throughout the period. *** Annualized. ^ The return is non-annualized. + The returns do not include sales charges. ++ Class Y does not have sales charges. # The ratio of net operating expenses to average net assets for Class Y was 0.99%. ## The ratio of net operating expenses to average net assets for Class Y was 1.00%. See accompanying notes to financial statements 125 UBS U.S. VALUE EQUITY FUND -- FINANCIAL HIGHLIGHTS THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT THE PERIOD PRESENTED.
YEAR FOR THE ENDED PERIOD ENDED CLASS A JUNE 30, 2003 JUNE 30, 2002* ----------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 9.37 $ 9.96 -------------- -------------- Income (loss) from investment operations: Net investment income 0.11** 0.05** Net realized and unrealized loss (0.06) (0.64) -------------- -------------- Total income (loss) from investment operations 0.05 (0.59) -------------- -------------- Less distributions: Distributions from net investment income and net foreign currency gains (0.05) -- Distributions from net realized gains (0.06) -- -------------- -------------- Total distributions (0.11) -- -------------- -------------- Net asset value, end of period $ 9.31 $ 9.37 ============== ============== Total return+ 0.61% (5.92)%++ Ratios/Supplemental data: Net assets, end of period (in 000s) $ 1,073 $ 751 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 2.85% 3.82%*** After expense reimbursement and earnings credits 1.10% 1.10%*** Ratio of net investment income (loss) to average net assets: Before expense reimbursement and earnings credits (0.42)% (1.85)%*** After expense reimbursement and earnings credits 1.33% 0.87%*** Portfolio turnover rate 59% 39%
YEAR FOR THE ENDED PERIOD ENDED CLASS B JUNE 30, 2003 JUNE 30, 2002* ----------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 9.32 $ 9.62 -------------- -------------- Income (loss) from investment operations: Net investment income 0.05** 0.01** Net realized and unrealized loss (0.07) (0.31) -------------- -------------- Total loss from investment operations (0.02) (0.30) -------------- -------------- Less distributions: Distributions from net investment income and net foreign currency gains (0.03) -- Distributions from net realized gains (0.06) -- -------------- -------------- Total distributions (0.09) -- -------------- -------------- Net asset value, end of period $ 9.21 $ 9.32 ============== ============== Total return+ (0.17)% (3.12)%++ Ratios/Supplemental data: Net assets, end of period (in 000s) $ 709 $ 301 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 3.42% 4.66%*** After expense reimbursement and earnings credits 1.85% 1.85%*** Ratio of net investment income (loss) to average net assets: Before expense reimbursement and earnings credits (0.99)% (2.72)%*** After expense reimbursement and earnings credits 0.58% 0.09%*** Portfolio turnover rate 59% 39%
* For the periods December 7, 2001 and November 8, 2001 (commencement of issuance) for Class A and Class B, respectively, through June 30, 2002. ** The net investment income per share data was determined by using average shares outstanding throughout the period. *** Annualized. ++ The return is non-annualized. + The returns do not include sales charges. See accompanying notes to financial statements 126 THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT THE PERIOD PRESENTED.
YEAR FOR THE ENDED PERIOD ENDED CLASS C JUNE 30, 2003 JUNE 30, 2002* ----------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 9.33 $ 9.73 -------------- -------------- Income (loss) from investment operations: Net investment income 0.05** 0.00#** Net realized and unrealized loss (0.07) (0.40) -------------- -------------- Total loss from investment operations (0.02) (0.40) -------------- -------------- Less distributions: Distributions from net investment income and net foreign currency gains (0.03) -- Distributions from net realized gains (0.06) -- -------------- -------------- Total distributions (0.09) -- -------------- -------------- Net asset value, end of period $ 9.22 $ 9.33 ============== ============== Total return+ (0.13)% (4.11)%^ Ratios/Supplemental data: Net assets, end of period (in 000s) $ 1,025 $ 234 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 3.04% 4.58%*** After expense reimbursement and earnings credits 1.85% 1.85%*** Ratio of net investment income (loss) to average net assets: Before expense reimbursement and earnings credits (0.61)% (2.68)%*** After expense reimbursement and earnings credits 0.58% 0.05%*** Portfolio turnover rate 59% 39%
YEAR FOR THE ENDED PERIOD ENDED CLASS Y JUNE 30, 2003 JUNE 30, 2002* ----------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 9.38 $ 10.00 -------------- -------------- Income (loss) from investment operations: Net investment income 0.13** 0.11** Net realized and unrealized loss (0.06) (0.73) -------------- -------------- Total income (loss) from investment operations 0.07 (0.62) -------------- -------------- Less distributions: Distributions from net investment income and net foreign currency gains (0.06) -- Distributions from net realized gains (0.06) -- -------------- -------------- Total distributions (0.12) -- -------------- -------------- Net asset value, end of period $ 9.33 $ 9.38 ============== ============== Total return++ 0.89% (6.20)%^ Ratios/Supplemental data: Net assets, end of period (in 000s) $ 4,790 $ 2,819 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 2.62% 3.15%*** After expense reimbursement and earnings credits 0.85% 0.85%*** Ratio of net investment income (loss) to average net assets: Before expense reimbursement and earnings credits (0.19)% (1.17)%*** After expense reimbursement and earnings credits 1.58% 1.13%*** Portfolio turnover rate 59% 39%
* For the periods December 12, 2001 and June 29, 2001 (commencement of issuance) for Class C and Class Y, respectively, through June 30, 2002. ** The net investment income per share data was determined by using average shares outstanding throughout the period. *** Annualized. ^ The return is non-annualized. + The returns do not include sales charges. ++ Class Y does not have sales charges. # Amount was less than $0.01 per share See accompanying notes to financial statements 127 THE UBS FUNDS -- NOTES TO FINANCIAL STATEMENTS 1. SIGNIFICANT ACCOUNTING POLICIES The UBS Funds (the "Trust") is an open-end, management investment company registered under the Investment Company Act of 1940, as amended, as a series company. The Trust currently offers shares of eleven series: UBS Global Allocation Fund, UBS Global Equity Fund, UBS Global Bond Fund, UBS U.S. Balanced Fund, UBS U.S. Equity Fund, UBS U.S. Large Cap Growth Fund, UBS U.S. Small Cap Growth Fund, UBS U.S. Bond Fund, UBS High Yield Fund, UBS International Equity Fund, and UBS U.S. Value Equity Fund (each a "Fund" and collectively, the "Funds"). Each Fund has four classes of shares outstanding, Class A, Class B, Class C and Class Y. There are an unlimited number of shares of each class with par value of $0.001 authorized. Each class represents interests in the same assets of the applicable Portfolio and the classes are identical except for differences in their sales charge structure, ongoing service and distribution charges and certain transfer agency and related services expenses. The following is a summary of significant accounting policies followed by the Funds in the preparation of their financial statements. A. INVESTMENT VALUATION: Each Fund calculates its net asset value based on the current market value for its portfolio securities. The Funds normally obtain market values for their securities from independent pricing sources. Independent pricing sources may use last reported sale prices, current market quotations or valuations from computerized "matrix" systems that derive values based on comparable securities. Securities traded in the over-the-counter ("OTC") market and listed on The Nasdaq Stock Market, Inc. ("Nasdaq") normally are valued at the Nasdaq official closing price. Other OTC securities are valued at the last bid price available prior to valuation. Securities which are listed on U.S. and foreign stock exchanges normally are valued at the last sale price on the day the securities are valued or, lacking any sales on such day, at the last available bid price. In cases where securities are traded on more than one exchange, the securities are valued on the exchange designated as the primary market by UBS Global Asset Management (US) Inc. ("UBS Global AM"), the investment manager and administrator of the Portfolios, or by the relevant Portfolio investment advisor, where applicable. UBS Global AM is an indirect wholly owned asset management subsidiary of UBS AG, an internationally diversified organization with headquarters in Zurich, Switzerland and operations in many areas of the financial services industry. If a market value is not available from an independent pricing source for a particular security, that security is valued at fair value as determined in good faith by or under the direction of the Trust's Board of Trustees (the "Board"). Futures contracts are valued at the settlement price established each day on the exchange on which they are traded. Forward foreign currency contracts are valued daily using quoted forward exchange rates. Short-term obligations with a maturity of 60 days or less are valued at amortized cost, which approximates market value. B. FOREIGN CURRENCY TRANSLATION: Investment securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars using the WM/Reuters closing spot rates as of 4:00 p.m. London time. Purchases and sales of portfolio securities, commitments under forward foreign currency contracts and income receipts are translated at the prevailing exchange rate as of the date of each transaction. Realized and unrealized foreign exchange gains or losses on investments are included as a component of net realized and unrealized gain or loss on investments in the statements of operations. C. INVESTMENT TRANSACTIONS: Investment transactions are accounted for on a trade date basis. Gains and losses on securities sold are determined on an identified cost basis. D. INVESTMENT INCOME: Interest income, which includes the amortization of premiums and accretion of discounts, is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date, except that occassionally certain dividends from foreign securities are recorded as the information becomes available. E. FEDERAL INCOME TAXES: It is the Funds' policy to comply with all requirements of the Internal Revenue Code (the "Code") applicable to regulated investment companies and to distribute substantially all of their taxable income to their shareholders. The Funds met the requirements of the Code applicable to regulated investment companies for the year ended June 30, 2003, therefore, no federal income tax provision was required. 128 At June 30, 2003, the following Funds had capital loss carryforwards for federal income tax purposes available to offset future net capital gains through the indicated expiration dates:
EXPIRATION DATE EXPIRATION DATE EXPIRATION DATE EXPIRATION DATE JUNE 30, 2008 JUNE 30, 2009 JUNE 30, 2010 JUNE 30, 2011 --------------- --------------- --------------- --------------- UBS Global Allocation Fund -- -- -- $ 6,898,051 UBS Global Bond Fund -- $ 1,512,330 -- -- UBS U.S. Balanced Fund -- 751,452 -- 795,405 UBS U.S. Equity Fund -- -- -- 3,307,470 UBS U.S. Large Cap Growth Fund -- -- $ 1,265,393 1,745,070 UBS U.S. Small Cap Growth Fund -- -- -- 2,064,972 UBS U.S. Bond Fund -- 404,247 -- -- UBS International Equity Fund -- -- -- 11,448,738 UBS U.S. Value Equity Fund $ 746,499+ 83,503+ 273,335+ 333,903
+ Due to merger with the UBS U.S. Large Cap Equity Fund, utilization of capital loss carryforwards in subsequent years may be limited. Capital loss carryforwards in the amount of $5,196,199 expired as of June 30, 2003. At June 30, 2003 the UBS High Yield Fund had the following capital loss carryforwards for federal income tax purposes available to offset future capital gains through the indicated expiration dates:
EXPIRATION DATE EXPIRATION DATE EXPIRATION DATE EXPIRATION DATE JUNE 30, 2004 JUNE 30, 2005 JUNE 30, 2006 JUNE 30, 2007 --------------- --------------- --------------- --------------- $ 16,663,383 $ 10,089,023 $ 11,387,957 $ 18,661,457 EXPIRATION DATE EXPIRATION DATE EXPIRATION DATE EXPIRATION DATE JUNE 30, 2008 JUNE 30, 2009 JUNE 30, 2010 JUNE 30, 2011 --------------- --------------- --------------- --------------- $ 98,009,332+ $ 23,205,714+ $ 6,612,767+ $ 37,425,637+
+ Due to merger with Paine Webber High Income Fund, utilization of capital loss carryforwards in subsequent years may be limited. Capital loss carryforwards in the amount of $36,527,101 expired as of June 30, 2003. At June 30, 2003, the UBS Global Equity Fund had the following capital loss carryforwards for federal income tax purposes available to offset future capital gains through the indicated expiration dates:
EXPIRATION DATE EXPIRATION DATE EXPIRATION DATE EXPIRATION DATE EXPIRATION DATE JUNE 30, 2007 JUNE 30, 2008 JUNE 30, 2009 JUNE 30, 2010 JUNE 30, 2011 --------------- --------------- --------------- --------------- --------------- $ 104,630,955 $ 143,090,067 $ 389,124,210 $ 253,636,661+ $ 4,283,846+
+ Due to merger with the UBS Strategy Fund, utilization of capital loss carryforwards in subsequent years may be limited. For the fiscal year end June 30, 2003, the UBS Global Bond Fund and the UBS U.S. Bond Fund utilized capital loss carryforwards of $1,150,166 and $1,575,782, respectively. Post-October losses are deemed to arise on the first business day of a Fund's next taxable year. For the year ended June 30, 2003, the following Funds incurred, and elected to defer, losses of the following:
NET NET CAPITAL CURRENCY LOSSES LOSSES ------------ -------- UBS Global Allocation Fund $ 3,460,854 -- UBS Global Equity Fund 22,673,561 -- UBS U.S. Balanced Fund 601,166 -- UBS U.S. Equity Fund 3,954,271 -- UBS U.S. Large Cap Growth Fund 662,081 -- UBS High Yield Fund 5,190,877 -- UBS International Equity Fund 5,641,025 -- UBS U.S. Value Equity Fund 400,193 --
129 The tax character of distributions paid during the fiscal years ended June 30, 2003 and 2002, were as follows:
2003 ----------------------------------------------- DISTRIBUTIONS DISTRIBUTIONS PAID FROM PAID FROM NET TOTAL ORDINARY LONG-TERM DISTRIBUTIONS FUND INCOME CAPITAL GAINS PAID ---- ------------- ------------- ------------- UBS Global Allocation Fund $ 7,500,413 -- $ 7,500,413 UBS Global Equity Fund 1,782,212 -- 1,782,212 UBS Global Bond Fund 990,333 -- 990,333 UBS U.S. Balanced Fund 552,196 -- 552,196 UBS U.S. Equity Fund 938,862 $ 2,529,840 3,468,702 UBS U.S. Large Cap Growth Fund -- -- -- UBS U.S. Small Cap Growth Fund -- -- -- UBS U.S. Bond Fund 4,368,267 -- 4,368,267 UBS High Yield Fund 14,403,518 -- 14,403,518 UBS International Equity Fund 4,357,327 -- 4,357,327 UBS U.S. Value Equity Fund 95,678 -- 95,678 2002 ---------------------------------------------------------------- DISTRIBUTIONS DISTRIBUTIONS DISTRIBUTIONS PAID FROM PAID FROM NET FROM TOTAL ORDINARY LONG-TERM RETURN OF DISTRIBUTIONS FUND INCOME CAPITAL GAINS CAPITAL PAID ---- ------------- ------------- ------------- ------------- UBS Global Allocation Fund $ 5,031,352 $ 9,778,031 -- $ 14,809,383 UBS Global Equity Fund 689,423 1,384,778 -- 2,074,201 UBS Global Bond Fund -- -- $ 725,259 725,259 UBS U.S. Balanced Fund 560,395 -- -- 560,395 UBS U.S. Equity Fund 675,823 5,227,388 -- 5,903,211 UBS U.S. Large Cap Growth Fund -- 33,062 -- 33,062 UBS U.S. Small Cap Growth Fund 401,689 1,141,314 -- 1,543,003 UBS U.S. Bond Fund 5,697,025 -- -- 5,697,025 UBS High Yield Fund 12,804,647 -- -- 12,804,647 UBS International Equity Fund 4,444,207 16,417,909 -- 20,862,116 UBS U.S. Value Equity Fund -- -- -- --
At June 30, 2003, the components of accumulated earnings (deficit) on a tax basis were as follows:
UNDISTRIBUTED ACCUMULATED ORDINARY CAPITAL AND FUND INCOME OTHER LOSSES ---- -------------- -------------- UBS Global Allocation Fund $ 7,900,532 $ (10,358,905) UBS Global Equity Fund 4,889,951 (917,439,300) UBS Global Bond Fund 4,133,362 (1,512,330) UBS U.S. Balanced Fund 251,753 (2,148,023) UBS U.S. Equity Fund 1,010,084 (7,261,741) UBS U.S. Large Cap Growth Fund 1,980 (3,672,544) UBS U.S. Small Cap Growth Fund -- (2,064,972) UBS U.S. Bond Fund 90,877 (404,247) UBS High Yield Fund 843,307 (227,246,147) UBS International Equity Fund 2,239,108 (17,089,763) UBS U.S. Value Equity Fund 83,686 (1,837,433)
130 Due to inherent differences in the recognition of income, expenses and realized gains/losses under accounting principles generally accepted in the United States 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 June 30, 2003, were as follows:
ACCUMULATED UNDISTRIBUTED ACCUMULATED NET INVESTMENT NET REALIZED FUND INCOME (LOSS) GAIN (LOSS) PAID IN CAPITAL ---- -------------- --------------- --------------- UBS Global Allocation Fund $ 10,431,263 $ (9,682,557) $ (748,706) UBS Global Equity Fund 2,695,345 (896,087,156) 893,391,811 UBS Global Bond Fund 3,869,339 (3,869,339) -- UBS U.S. Balanced Fund 24,967 (24,967) -- UBS U.S. Equity Fund (651) 651 -- UBS U.S. Small Cap Growth Fund 266,297 -- (266,297) UBS U.S. Bond Fund 368,432 (368,432) -- UBS High Yield Fund 2 36,487,101 (36,487,103) UBS International Equity Fund 1,436,106 (1,436,106) -- UBS U.S. Value Equity Fund 7,752 (1,147,461) 1,139,709
F. DISTRIBUTIONS TO SHAREHOLDERS: It is the Funds' policy to distribute their respective net investment income and net capital gains, if any, annually except for UBS U.S. Bond Fund, UBS High Yield Fund and UBS Global Bond Fund. These Funds will distribute their respective net income, if any, monthly. Distributions to shareholders 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. Differences in dividends from net investment income per share between the classes are due to service and distribution related expenses. G. INCOME AND EXPENSE ALLOCATION: All income earned and expenses incurred by each Fund will be borne on a pro rata basis by each of the classes. Class-specific expenses are charged directly to the applicable class of shares. H. EARNINGS CREDITS: The Funds have entered into an arrangement with their custodian whereby interest earned on uninvested cash balances is used to offset a portion of the Fund's expenses. These amounts, if any, are reflected in the statements of operations. I. USE OF ESTIMATES: The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ from those estimates. 2. INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES UBS Global Asset Management (Americas) Inc. ("UBS Global AM (Americas)" or the "Advisor"), a registered investment advisor, provides the Funds with investment management services. As compensation for these services, each Fund pays the Advisor a monthly fee based on each Fund's respective average daily net assets. With respect to UBS U.S. Large Cap Growth Fund, UBS U.S. Small Cap Growth Fund and UBS High Yield Fund, UBS Global Asset Management (New York) Inc. (the "Sub-Advisor"), an affiliate of the Advisor, serves as Sub-Advisor for these Funds pursuant to a Sub-Advisory Agreement (the "Sub-Advisory Agreement") with the Advisor. The Sub-Advisor receives 0.10% from the Advisor, not the Fund, for services it provides under the Sub-Advisory Agreement. 131 The advisory fees as of June 30, 2003 are as follows:
FUND ADVISORY FEE ---- ------------ UBS Global Allocation Fund 0.80% UBS Global Equity Fund 0.75 UBS Global Bond Fund 0.75 UBS U.S. Balanced Fund 0.70 UBS U.S. Equity Fund 0.70 UBS U.S. Large Cap Growth Fund 0.70 UBS U.S. Small Cap Growth Fund 1.00 UBS U.S. Bond Fund 0.50 UBS High Yield Fund 0.60 UBS International Equity Fund 0.80 UBS U.S. Value Equity Fund 0.70
The Advisor has agreed to waive its fees and reimburse each Fund to the extent that total annualized operating expenses exceed a specified percentage of each Fund's respective average daily net assets. Investment advisory fees and other transactions for the year ended June 30, 2003, were as follows:
UBS CLASS A UBS CLASS B UBS CLASS C UBS CLASS Y ADVISORY FEES FUND EXPENSE CAP EXPENSE CAP EXPENSE CAP EXPENSE CAP FEES WAIVED ---- ----------- ----------- ----------- ----------- ----------- --------- UBS Global Allocation Fund 1.35% 2.10% 2.10% 1.10% $ 1,904,093 $ 10,303 UBS Global Equity Fund 1.25 2.00 2.00 1.00 1,209,097 292,512 UBS Global Bond Fund 1.15 1.90 1.65 0.90 320,858 174,472 UBS U.S. Balanced Fund 1.05 1.80 1.80 0.80 178,909 134,454 UBS U.S. Equity Fund 1.05 1.80 1.80 0.80 639,283 222,632 UBS U.S. Large Cap Growth Fund 1.05 1.80 1.80 0.80 24,553 101,307 UBS U.S. Small Cap Growth Fund 1.40 2.15 2.15 1.15 372,057 125,873 UBS U.S. Bond Fund 0.85 1.60 1.35 0.60 494,439 185,453 UBS High Yield Fund 0.95 1.70 1.45 0.70 969,141 554,866 UBS International Equity Fund 1.25 2.00 2.00 1.00 697,060 183,386 UBS U.S. Value Equity Fund 1.10 1.85 1.85 0.85 43,630 105,155
Each Fund pays an administrative fee that is computed daily and paid monthly at an annual rate of 0.075% of average daily net assets of such Fund. The Funds may invest in shares of certain affiliated investment companies also sponsored by the Advisor. These investments represented approximately 20% of UBS Global Allocation Fund's net assets at June 30, 2003. Amounts relating to those investments at June 30, 2003 and for the year then ended, were as follows:
NET CHANGE IN SALES REALIZED NET UNREALIZED AFFILIATES PURCHASES PROCEEDS GAIN/(LOSS) GAIN/(LOSS) VALUE ---------- ------------- ------------- ----------- -------------- ------------- UBS U.S. Small Cap Equity Relationship Fund $ 10,300,000 -- -- $ 397,232 $ 15,398,165 UBS High Yield Relationship Fund 16,500,000 $ 6,000,000 $ 438,895 1,911,482 17,910,108 UBS Emerging Markets Equity Relationship Fund 21,200,000 -- -- 2,940,491 33,640,895 UBS Emerging Markets Debt Relationship Fund 3,800,000 -- -- 1,260,339 8,279,844 UBS Supplementary Trust U.S. Cash Management Prime Fund 218,906,142 193,997,042 -- -- 33,536,135
132 The Funds may invest in shares of the UBS Supplementary Trust U.S. Cash Management Prime Fund ("Supplementary Trust"). Supplementary Trust is managed by the Advisor and is offered as a cash management option only to mutual funds and certain other accounts managed by the Advisor. The Supplementary Trust pays no management fees. Distributions received from the Supplementary Trust are reflected as interest income in the statements of operations. Amounts relating to those investments for the year ended June 30, 2003, were as follows:
% OF SALES INTEREST NET FUND PURCHASES PROCEEDS INCOME VALUE ASSETS ---- ------------- ------------- ------------- ------------- ---------- UBS Global Allocation Fund $ 218,906,142 $ 193,997,042 $ 202,707 $ 33,536,135 6.03% UBS Global Equity Fund 113,093,032 110,816,175 40,330 3,192,158 0.75 UBS Global Bond Fund 54,716,243 55,379,632 22,251 655,174 1.26 UBS U.S. Balanced Fund 13,739,997 15,871,651 18,188 749,445 2.41 UBS U.S. Equity Fund 33,813,954 29,031,197 49,540 6,558,296 6.20 UBS U.S. Large Cap Growth Fund 1,759,102 1,614,078 848 145,024 3.93 UBS U.S. Small Cap Growth Fund 32,462,127 28,527,331 25,273 7,037,939 13.66 UBS U.S. Bond Fund 90,495,104 91,045,817 67,587 2,285,654 1.95 UBS High Yield Fund 111,917,520 112,881,411 104,743 -- 0.00 UBS International Equity Fund 110,109,583 108,804,244 23,987 2,559,264 2.71 UBS U.S. Value Equity Fund 1,551,203 1,355,809 1,033 195,394 2.57
The following Funds have incurred brokerage commissions with affiliated broker dealers as listed below. Amounts relating to those transactions at June 30, 2003, were as follows:
FUND UBS SECURITIES, LLC ---- ------------------- UBS Global Allocation Fund $ 37,064 UBS Global Equity Fund 187,694 UBS U.S. Balanced Fund 5,541 UBS U.S. Equity Fund 27,230 UBS U.S. Large Cap Growth Fund 684 UBS U.S. Small Cap Growth Fund 6,631 UBS U.S. Value Equity Fund 920
3. INVESTMENT TRANSACTIONS Investment transactions for the year ended June 30, 2003, excluding long-term U.S. government securities and short-term investments, were as follows:
SALES FUND PURCHASES PROCEEDS ---- ------------- -------------- UBS Global Allocation Fund $ 403,795,731 $ 96,912,038 UBS Global Equity Fund 666,079,200 329,061,918 UBS Global Bond Fund 63,911,790 46,182,242 UBS U.S. Balanced Fund 16,474,538 10,600,514 UBS U.S. Equity Fund 29,001,954 31,002,893 UBS U.S. Large Cap Growth Fund 2,978,185 3,308,168 UBS U.S. Small Cap Growth Fund 37,746,716 25,247,486 UBS U.S. Bond Fund 95,310,469 62,162,252 UBS High Yield Fund 137,413,817 107,521,165 UBS International Equity Fund 109,944,475 103,294,869 UBS U.S. Value Equity Fund 7,064,787 3,574,921
133 For the year ended June 30, 2003, purchases and sales of long-term U.S. government securities were:
SALES FUND PURCHASES PROCEEDS ---- -------------- -------------- UBS Global Allocation Fund $ 88,842,506 $ 55,588,684 UBS Global Bond Fund 13,343,456 13,800,635 UBS U.S. Balanced Fund 14,101,640 13,258,853 UBS U.S. Bond Fund 116,274,332 110,540,681
4. FORWARD FOREIGN CURRENCY CONTRACTS The Funds may engage in portfolio hedging with respect to changes in currency exchange rates by entering into forward foreign currency contracts to purchase or sell currencies. Forward foreign currency contracts are also used to achieve currency allocation strategies. A forward foreign currency contract is a commitment to purchase or sell a foreign currency at a future date at a negotiated forward rate. Risks associated with such contracts include movement in the value of the foreign currency relative to the U.S. dollar and the ability of the counterparty to perform. The unrealized gain, if any, represents the credit risk to each Fund on a forward foreign currency contract. Fluctuations in the value of forward foreign currency contracts are recorded daily as net unrealized gains or losses. The Funds realize a gain or loss upon settlement of the contracts. The statements of operations reflect net realized and net unrealized gains and losses on these contracts. The counterparty to all forward foreign currency contracts during the year ended June 30, 2003, was the Funds' custodian. 5. FUTURES CONTRACTS The Funds may purchase or sell exchange-traded futures contracts, which are contracts that obligate the Funds to make or take delivery of a financial instrument or the cash value of a securities index at a specified future date at a specified price. The Funds enter into such contracts to hedge a portion of their portfolio or equitize cash. Risks of entering into futures contracts include the possibility that there may be an illiquid market or that a change in the value of the contract may not correlate with changes in the value of the underlying securities. Upon entering into a futures contract, the Funds are required to deposit either cash or securities (initial margin). Subsequent payments (variation margin) are made or received by the Funds, generally on a daily basis. The variation margin payments are equal to the daily changes in the contract value and are recorded as unrealized gains or losses. The Funds recognize a realized gain or loss when the contract is closed or expires. The statements of operations reflect net realized and net unrealized gains and losses on these contracts. 6. SECURITY LENDING UBS Global Allocation Fund and UBS International Equity Fund loaned securities to certain brokers, with the Funds' custodian acting as the Funds' lending agent. The Funds earned negotiated lender fees, which are included in securities lending-net in the statements of operations. The Funds receive cash and/or securities as collateral against the loaned securities. Cash collateral received is invested in interest bearing securities which are included in the schedule of investments. In addition, the Funds received securities as collateral amounting to $154,640 which under certain circumstances can be resold. The Funds monitor the market value of securities loaned on a daily basis and initially require collateral against the loaned securities in an amount at least equal to 102% of the value of domestic securities loaned and 105% of the value of foreign securities loaned. The value of loaned securities and related collateral outstanding at June 30, 2003, were as follows:
MARKET COLLATERAL MARKET VALUE OF VALUE OF RECEIVED FOR INVESTMENTS SECURITIES SECURITIES OF CASH COLLATERAL FUND LOANED LOANED RECEIVED ---- ------------ ------------ ------------------ UBS Global Allocation Fund $ 31,915,796 $ 32,953,029 $ 32,953,029 UBS International Equity Fund 9,219,376 9,741,028 9,586,388
134 7. DISTRIBUTION PLANS The Trust has adopted distribution and/or service plans (the "Plans") pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended, for Class A, Class B and Class C. Each Plan governs payments made for the expenses incurred in the service and/or distribution of Class A, Class B and Class C. Annual fees under the Plan as a percentage of the average daily net assets of the Class of each of the Funds are as follows:
FUND UBS CLASS A UBS CLASS B UBS CLASS C ---- ----------- ----------- ----------- UBS Global Allocation Fund 0.25% 1.00% 1.00% UBS Global Equity Fund 0.25 1.00 1.00 UBS Global Bond Fund 0.25 1.00 0.75 UBS U.S. Balanced Fund 0.25 1.00 1.00 UBS U.S. Equity Fund 0.25 1.00 1.00 UBS U.S. Large Cap Growth Fund 0.25 1.00 1.00 UBS U.S. Small Cap Growth Fund 0.25 1.00 1.00 UBS U.S. Bond Fund 0.25 1.00 0.75 UBS High Yield Fund 0.25 1.00 0.75 UBS International Equity Fund 0.25 1.00 1.00 UBS U.S. Value Equity Fund 0.25 1.00 1.00
8. TRANSFER AGENCY SERVICES FEES PFPC, Inc. ("PFPC") serves as the Funds' transfer agent. Pursuant to the Transfer Agency and Related Services Agreement between PFPC and the Trust, PFPC may delegate to an affiliated or unaffiliated entity, its obligation to perform certain transfer agency related services. PFPC has delegated certain services to be provided by the Advisor, PFPC, not the Funds, compensates the Advisor for delegated services. For the year ended June 30, 2003, UBS Global AM, received from PFPC, not the Funds, an approximate percentage of the total transfer agency and related services fees paid by a Fund to PFPC as follows:
FUNDS ----- UBS Global Allocation Fund 42% UBS Global Bond Fund 28 UBS Global Equity Fund 51 UBS High Yield Fund 37 UBS International Equity Fund 5 UBS U.S. Balanced Fund 21 UBS U.S. Bond Fund 14 UBS U.S. Equity Fund 6 UBS U.S. Large Cap Growth Fund 4 UBS U.S. Small Cap Growth Fund 9 UBS U.S. Value Equity Fund 3
9. LINE OF CREDIT The Trust has entered into an agreement with UBS AG, Stamford Branch, to provide a 364-day $300 million committed line of credit to a group of funds which includes the Funds. Borrowings will be made for temporary purposes to fund redemptions. Interest on amounts borrowed is calculated based on the Federal Funds Rate plus 0.40%. The Funds pay an annual commitment fee of 0.09% of the average daily balance of the line of credit not utilized. The commitment fee is allocated across Funds covered based on the ratio of net assets to total Fund net assets. The average borrowings under the agreement for the year ended June 30, 2003, were as follows:
AVERAGE NUMBER OF DAYS INTEREST FUND BORROWINGS OUTSTANDING PAID ---- ------------ -------------- -------- UBS Global Allocation Fund $ 3,400,000 2 $ 403 UBS U.S. Equity Fund 4,300,000 5 995 UBS Global Bond Fund 7,000,000 6 1,902
135 10. SHARES OF BENEFICIAL INTEREST For the year ended June 30, 2003, transactions in shares of beneficial interest for each of the Funds were as follows:
SHARE NET INCREASE ISSUED FOR (DECREASE) SHARES DIVIDENDS IN SHARES CLASS A SHARES SOLD REPURCHASED REINVESTED OUTSTANDING ------- ----------- ----------- ---------- ------------ UBS Global Allocation Fund 16,991,102 (1,301,511) 73,689 15,763,280 UBS Global Equity Fund 14,517,105 (2,261,219) 40,521 12,296,407 UBS Global Bond Fund 1,256,762 (341,473) 9,261 924,550 UBS U.S. Balanced Fund 235,570 (81,666) 7,013 160,917 UBS U.S. Equity Fund 331,451 (980,185) 10,981 (637,753) UBS U.S. Large Cap Growth Fund 129,700 (128,657) -- 1,043 UBS U.S. Small Cap Growth Fund 1,219,298 (418,061) -- 801,237 UBS U.S. Bond Fund 2,866,955 (1,851,490) 70,756 1,086,221 UBS High Yield Fund 5,332,355 (4,968,656) 440,850 804,549 UBS International Equity Fund 2,013,819 (1,900,579) 15,407 128,647 UBS U.S. Value Equity Fund 149,657 (116,271) 1,670 35,056 SHARE NET INCREASE ISSUED FOR (DECREASE) SHARES DIVIDENDS IN SHARES CLASS B SHARES SOLD REPURCHASED REINVESTED OUTSTANDING ------- ----------- ----------- ---------- ------------ UBS Global Allocation Fund 5,126,860 (592,823) 16,398 4,550,435 UBS Global Equity Fund 17,479,415 (1,173,562) 2,152 16,308,005 UBS Global Bond Fund 192,173 (66,084) 1,612 127,701 UBS U.S. Balanced Fund 273,604 (82,694) 3,507 194,417 UBS U.S. Equity Fund 46,863 (17,289) 1,546 31,120 UBS U.S. Large Cap Growth Fund 72,983 (40,434) -- 32,549 UBS U.S. Small Cap Growth Fund 96,447 (49,239) -- 47,208 UBS U.S. Bond Fund 393,451 (202,109) 7,237 198,579 UBS High Yield Fund 310,072 (932,620) 74,208 (548,340) UBS International Equity Fund 40,115 (6,080) 1,913 35,948 UBS U.S. Value Equity Fund 95,615 (51,874) 923 44,664 SHARE NET INCREASE ISSUED FOR (DECREASE) SHARES DIVIDENDS IN SHARES CLASS C SHARES SOLD REPURCHASED REINVESTED OUTSTANDING ------- ----------- ----------- ---------- ------------ UBS Global Allocation Fund 13,726,993 (916,887) 25,466 12,835,572 UBS Global Equity Fund 11,577,407 (971,292) 2,655 10,608,770 UBS Global Bond Fund 338,536 (27,055) 1,070 312,551 UBS U.S. Balanced Fund 176,742 (20,124) 2,174 158,792 UBS U.S. Equity Fund 72,445 (2,457) 897 70,885 UBS U.S. Large Cap Growth Fund 43,721 (91,568) -- (47,847) UBS U.S. Small Cap Growth Fund 52,671 (18,072) -- 34,599 UBS U.S. Bond Fund 299,008 (124,298) 4,717 179,427 UBS High Yield Fund 324,891 (485,387) 111,303 (49,193) UBS International Equity Fund 123,008 (89,576) 1,615 35,047 UBS U.S. Value Equity Fund 98,897 (13,115) 347 86,129
136
SHARE NET INCREASE ISSUED FOR (DECREASE) SHARES DIVIDENDS IN SHARES CLASS Y SHARES SOLD REPURCHASED REINVESTED OUTSTANDING ------- ----------- ----------- ---------- ------------ UBS Global Allocation Fund 7,296,906 (5,285,277) 441,775 2,453,404 UBS Global Equity Fund 6,974,293 (4,398,666) 118,545 2,694,172 UBS Global Bond Fund 4,534,872 (4,934,863) 63,735 (336,256) UBS U.S. Balanced Fund 751,068 (814,679) 48,527 (15,084) UBS U.S. Equity Fund 2,291,693 (1,521,384) 234,917 1,005,226 UBS U.S. Large Cap Growth Fund 69,600 (124,614) -- (55,014) UBS U.S. Small Cap Growth Fund 2,476,254 (2,220,091) -- 256,163 UBS U.S. Bond Fund 3,717,186 (2,510,367) 279,068 1,485,887 UBS High Yield Fund 12,788,709 (9,404,453) 777,061 4,161,317 UBS International Equity Fund 21,088,509 (20,833,828) 601,835 856,516 UBS U.S. Value Equity Fund 309,081 (101,808) 5,752 213,025
For the year ended June 30, 2002, transactions in shares of beneficial interest for each of the Funds were as follows:
SHARE NET INCREASE ISSUED FOR (DECREASE) SHARES DIVIDENDS IN SHARES CLASS A SHARES SOLD REPURCHASED REINVESTED OUTSTANDING ------- ----------- ----------- ---------- ------------ UBS Global Allocation Fund 715,521 (127,567) 43,233 631,187 UBS Global Equity Fund 3,128,725 (1,578,288) 40,866 1,591,303 UBS Global Bond Fund 984,747 (773,376) 2,030 213,401 UBS U.S. Balanced Fund 300,457 (18,636) 3,757 285,578 UBS U.S. Equity Fund 708,862 (179,477) 11,062 540,447 UBS U.S. Large Cap Growth Fund 319,480 (140,346) 1,699 180,833 UBS U.S. Small Cap Growth Fund 213,258 (36,510) 5,820 182,568 UBS U.S. Bond Fund 2,004,680 (274,863) 23,321 1,753,138 UBS High Yield Fund 1,406,628 (1,889,150) 314,424 (168,098) UBS International Equity Fund 1,278,780 (1,016,129) 30,484 293,135 UBS U.S. Value Equity Fund 94,668 (14,525) -- 80,143 SHARE NET INCREASE ISSUED FOR (DECREASE) SHARES DIVIDENDS IN SHARES CLASS B SHARES SOLD REPURCHASED REINVESTED OUTSTANDING ------- ----------- ----------- ---------- ------------ UBS Global Allocation Fund 164,512 (16,187) 884 149,209 UBS Global Equity Fund 44,650 (10) 81 44,721 UBS Global Bond Fund 43,303 -- 207 43,510 UBS U.S. Balanced Fund 120,172 (19,146) 396 101,422 UBS U.S. Equity Fund 23,188 (7,347) 237 16,078 UBS U.S. Large Cap Growth Fund 27,444 (9,309) 30 18,165 UBS U.S. Small Cap Growth Fund 81,729 (14,792) 355 67,292 UBS U.S. Bond Fund 146,602 (13,754) 947 133,795 UBS High Yield Fund 408,633 (910,331) 59,686 (442,012) UBS International Equity Fund 16,034 (1,872) 787 14,949 UBS U.S. Value Equity Fund 35,795 (3,479) -- 32,316
137
SHARE NET INCREASE ISSUED FOR (DECREASE) SHARES DIVIDENDS IN SHARES CLASS C SHARES SOLD REPURCHASED REINVESTED OUTSTANDING ------- ----------- ----------- ---------- ------------ UBS Global Allocation Fund 146,726 (2,182) 219 144,763 UBS Global Equity Fund 43,240 (6,324) 744 37,660 UBS Global Bond Fund -- -- -- -- UBS U.S. Balanced Fund 46,781 (2,237) 85 44,629 UBS U.S. Equity Fund 5,264 (272) 68 5,060 UBS U.S. Large Cap Growth Fund 99,366 (9,774) 463 90,055 UBS U.S. Small Cap Growth Fund 54,771 (12,775) 73 42,069 UBS U.S. Bond Fund 169,007 (61,276) 1,094 108,825 UBS High Yield Fund 441,548 (585,864) 82,124 (62,192) UBS International Equity Fund 85,602 (62,830) -- 22,772 UBS U.S. Value Equity Fund 25,369 (314) -- 25,055 SHARE NET INCREASE ISSUED FOR (DECREASE) SHARES DIVIDENDS IN SHARES CLASS Y SHARES SOLD REPURCHASED REINVESTED OUTSTANDING ------- ----------- ----------- ---------- ------------ UBS Global Allocation Fund 6,074,539 (5,947,592) 880,082 1,007,029 UBS Global Equity Fund 12,705,436 (13,129,371) 103,897 (320,038) UBS Global Bond Fund 1,682,126 (2,629,806) 49,855 (897,825) UBS U.S. Balanced Fund 1,214,669 (1,606,011) 53,510 (337,832) UBS U.S. Equity Fund 2,474,912 (4,407,500) 327,346 (1,605,242) UBS U.S. Large Cap Growth Fund 118,647 (133,138) 1,660 (12,831) UBS U.S. Small Cap Growth Fund 2,812,018 (2,993,966) 131,213 (50,735) UBS U.S. Bond Fund 25,786,380 (26,600,460) 448,819 (365,261) UBS High Yield Fund 12,655,217 (14,030,481) 707,677 (667,587) UBS International Equity Fund 84,473,748 (92,835,346) 2,329,414 (6,032,184) UBS U.S. Value Equity Fund 431 -- -- 431 SHARE NET INCREASE ISSUED FOR (DECREASE) SHARES DIVIDENDS IN SHARES UBS INVESTMENT FUNDS CLASS* SHARES SOLD REPURCHASED REINVESTED OUTSTANDING --------------------------- ----------- ----------- ---------- ------------ UBS Global Allocation Fund 29,669 (662,034) -- (632,365) UBS Global Equity Fund 121,155 (2,013,474) -- (1,892,319) UBS Global Bond Fund 34 (122,117) -- (122,083) UBS U.S. Balanced Fund 535 (140,307) -- (139,772) UBS U.S. Equity Fund 35,944 (400,785) -- (364,841) UBS U.S. Large Cap Growth Fund 24,524 (418,933) -- (394,409) UBS U.S. Small Cap Growth Fund 39,760 (241,359) -- (201,599) UBS U.S. Bond Fund 38,862 (309,461) 2,786 (267,813) UBS High Yield Fund 10,605 (272,296) 17,013 (244,678) UBS International Equity Fund 39,536 (436,791) -- (397,255) UBS U.S. Value Equity Fund -- -- -- --
* Liquidated effective 11/9/2001 11. SUBSEQUENT EVENT Effective July 1, 2003 the following Funds' expense caps were changed as follows:
CLASS A CLASS B CLASS C CLASS Y FUND EXPENSE CAP EXPENSE CAP EXPENSE CAP EXPENSE CAP ---- ----------- ----------- ----------- ----------- UBS U.S. Equity Fund 1.30% 2.05% 2.05% 1.05% UBS High Yield Fund 1.20 1.95 1.70 0.95
138 THE UBS FUNDS -- REPORT OF INDEPENDENT AUDITORS The Board of Trustees and Shareholders The UBS Funds We have audited the accompanying statements of assets and liabilities, including the schedules of investments, of The UBS Funds -- UBS Global Allocation Fund, UBS Global Equity Fund, UBS Global Bond Fund, UBS U.S. Balanced Fund, UBS U.S. Equity Fund, UBS U.S. Large Cap Growth Fund, UBS U.S. Small Cap Growth Fund, UBS U.S. Bond Fund, UBS High Yield Fund, UBS International Equity Fund and UBS U.S. Value Equity Fund (collectively the "Funds") as of June 30, 2003, and the related statements of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Funds' management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights. Our procedures included confirmation of securities owned as of June 30, 2003, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of The UBS Funds at June 30, 2003, and the results of their operations for the year then ended, the statements of changes in their net assets for each of the two years in the period then ended and the financial highlights for each of the indicated periods, in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young LLP New York, New York August 13, 2003 139 GENERAL INFORMATION (UNAUDITED) Proxy Voting Policies and Procedures You may obtain a description of the Funds' proxy voting policies and procedures, without charge, upon request by contacting the Funds directly at 1-800-647-1568 or online on the Funds' Web site www.ubs.com/ubsglobalam-proxy. TRUSTEE INFORMATION (UNAUDITED) The Trust is a Delaware business trust. Under Delaware law, 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, his or her name, address and age, the position held with the Trust, the length of time served as a Trustee of the Trust, the Trustee'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. The Funds' Statement of Additional Information contains additional information about the Trustees and is available, without charge, upon request, by calling 1-800-647-1568. NON-INTERESTED TRUSTEES:
NUMBER OF PORTFOLIOS IN POSITION HELD/ FUND COMPLEX TERM/TIME PRINCIPAL OCCUPATION(S) DURING OVERSEEN BY OTHER DIRECTORSHIPS NAME, ADDRESS, AND AGE SERVED (1) PAST 5 YEARS TRUSTEE HELD BY TRUSTEE ---------------------- -------------- --------------------------------- ---------------------- ---------------------------- Walter E. Auch Trustee Mr. Auch is retired (since 1986). Mr. Auch is a Trustee Mr. Auch is a Trustee of 6001 N. 62nd Place since 1994 of four investment Advisors Series Trust (16 Paradise Valley, companies (consisting portfolios); Smith Barney AZ 85253 of 43 portfolios)for Fund Complex(27 portfolios); Age: 82 which UBS Global AM Nicholas Applegate (Americas) or one of Institutional Funds (19 its affiliates serves portfolios) and Banyan as investment Strategic Realty Trust. He advisor, sub-advisor is also a Director of or manager. Express America Holdings Corp. and Semele Group Inc. Frank K. Reilly Chairman Mr. Reilly is a Professor at the Mr. Reilly is a Mr. Reilly is a Director of College of Business and Trustee University of Notre Dame since Director or Trustee Discover Bank; Morgan Administration since 1993 1982. Mr. Reilly was a Director of five investment Stanley Trust, FSB; and University of of Battery Park Funds Inc. companies (consisting NIBCO, Inc. Notre Dame (1995-2001). of 44 portfolios for Notre Dame, which UBS Global AM IN 46556-0399 (Americas) or one of Age: 67 its affiliates serves as investment advisor, sub-advisor or manager.
140
NUMBER OF PORTFOLIOS IN POSITION HELD/ FUND COMPLEX TERM/TIME PRINCIPAL OCCUPATION(S) DURING OVERSEEN BY OTHER DIRECTORSHIPS NAME, ADDRESS, AND AGE SERVED (1) PAST 5 YEARS TRUSTEE HELD BY TRUSTEE ---------------------- -------------- --------------------------------- ---------------------- ---------------------------- Edward M. Roob Trustee since Mr. Roob is retired (since 1993). Mr. Roob is a Mr. Roob is a Trustee of the 841 Woodbine Lane 1995 He was a Committee Member of the Director or Trustee CCM Fund Complex (9 Northbrook, IL 60002 Chicago Stock Exchange from 1993- of five investment portfolios). Age: 68 1999. companies (consisting of 44 portfolios for which UBS Global AM (Americas) or one of its affiliates serves as investment advisor, sub-advisor or manager.
INTERESTED TRUSTEE:
NUMBER OF PORTFOLIOS IN POSITION HELD/ FUND COMPLEX TERM/TIME PRINCIPAL OCCUPATION(S) DURING OVERSEEN BY OTHER DIRECTORSHIPS NAME, ADDRESS, AND AGE SERVED (1) PAST 5 YEARS TRUSTEE (2) HELD BY TRUSTEE ---------------------- -------------- --------------------------------- ---------------------- ---------------------------- Brian M. Storms+** Trustee Mr. Storms is chief executive Mr. Storms is a None Age: 48 since 2001 officer of UBS Global Asset Trustee of four Management.. America's region investment companies (since July 2002). Mr. Storm's (consisting of 43 was chief operating officer of portfolios for which UBS Global Asset Management (US) UBS Global AM Inc. ("UBS Global AM") and (Americas) or one of certain affiliated asset its affiliates serves management companies from 1999 as investment to July 2002. He was president advisor, sub-advisor of Prudential Investments (1996- or manager. 1999).
141 OFFICERS:
POSITION HELD/ TERM/TIME NAME, ADDRESS AND AGE SERVED (1) PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS --------------------- ------------------------- ---------------------------------------------------------------------- W. Douglas Beck*; 36 Vice President Mr. Beck is an executive director and head of mutual fund product since 2003 management of UBS Global AM (since 2002). From March 1998 to November 2002, he held various positions at Merrill Lynch, the most recent being first vice president and co-manager of the managed solutions group. Mr. Beck is vice president of 22 investment companies (consisting of 81 portfolios) for which UBS Global AM or one of its affiliates serves as investment advisor, sub-advisor or manager. Amy R. Doberman**; 41 Vice President and Ms. Doberman is a managing director and general counsel of UBS Global Assistant Secretary AM. From December 1997 through July 2000, she was general counsel of since 2002 Aeltus Investment Management, Inc. Ms. Doberman is 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 (Americas) or one of its affiliates serves as investment advisor, sub-advisor or manager. David M. Goldenberg**; 36 Vice President and Mr. Goldenberg is an executive director and deputy general counsel of Secretary since UBS Global AM. From 2000-2002, he was director, legal affairs at 2002 Lazard Asset Management. Mr. Goldenberg served in various capacities including most recently as global director of compliance for SSB Citi Asset Management Group from 1998-2000. Mr. Goldenberg is a vice president and secretary of five investment companies (consisting of 44 portfolios); and a vice president and assistant secretary of 19investment companies (consisting of 40 portfolios) for which UBS Global AM (Americas) or one of its affiliates serves as investment advisor, sub-advisor or manager. Mark F. Kemper*; 45 Assistant Secretary Mr. Kemper is an executive director and deputy general counsel of UBS since 1999 Global AM (Americas) since 2001. He was director of UBS Global AM (Americas) 1997-2000; Secretary of UBS Global AM (Americas) since 1999; Assistant Secretary of UBS Global AM (Americas) 1993-1999; Assistant Secretary of UBS Global Asset Management Trust Company since 1993. Mr. Kemper is secretary of UBS Global Asset Management (New York) since 1998 and Assistant Secretary, Brinson Holdings, Inc. 1993-1998. Mr. Kemper is Assistant Secretary of four investment companies (consisting of 43 portfolios) for which UBS Global AM (Americas) or one of its affiliates serves as investment advisor, sub-advisor or manager.
142
POSITION HELD/ TERM/TIME NAME, ADDRESS AND AGE SERVED (1) PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS --------------------- ------------------------- ---------------------------------------------------------------------- Joseph T. Malone**; 35 Assistant Treasurer Mr. Malone is a director and a senior manager of the mutual fund since 2001 finance department of UBS Global 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 (Americas) or one of its affiliates serves as investment advisor, sub-advisor or manager. Rita Rubin**; 33 Assistant Secretary Ms. Rubin is a director and associate general counsel of UBS Global since 2002 AM. Prior to 2001, she was an attorney with the law firm of Kirk patrick & Lockhart LLP. Ms. Rubin is an assistant secretary of four investment companies (consisting of 43 portfolios) for which UBS Global AM (Americas) or one of its affiliates serves as investment advisor, sub-advisor or manager. Paul H. Schubert**; 40 Treasurer and Mr. Schubert is an executive director and head of the mutual fund Principal finance department of UBS Global AM. Mr. Schubert is treasurer and Accounting Officer principal accounting officer of three investment companies (consisting since 2001 of 41 portfolios), a vice president and treasurer of 20 investment companies (consisting of 41 portfolios), treasurer and chief financial officer of one investment company (consisting of two portfolios) and treasurer of one investment company (consisting of two portfolios) for which UBS Global AM (Americas) or one of its affiliates serves as investment advisor, sub-advisor or manager. Joseph A. Varnas**; 35 President Mr. Varnas is a managing director (since March 2003), chief since 2003 technology officer (since March 2001) and head of product, technology and operations of UBS Global AM (since November 2002). From 2000 to 2001, he was manager of product development in Investment Consulting Services at UBS Financial Services. Prior to 2000, Mr. Varnas was a senior analyst in the Global Securities Research and Economics Group at Merrill Lynch.
(1) Each Trustee holds office for an indefinite term. * This person's business address is UBS Global Asset Management (Americas) Inc., One North Wacker Drive, Chicago, IL 60606. ** This person's business address is UBS Global Asset Management (US) Inc., 51 West 52nd Street, New York, NY 10019-6114. + Mr. Storms is an "interested person" of the Trust, as that term is defined in the Investment Company Act of 1940 (as amended), by virtue of his positions with the advisor, UBS Global AM and/or UBF Financial Services Inc. 143 UBS FUNDS -- FEDERAL TAX INFORMATION (UNAUDITED) For the year ended June 30, 2003, the percentage of dividends paid that qualify for the 70% dividends received deduction for corporate shareholders, the designation of long-term capital gain and the amounts expected to be passed through to the shareholders as foreign tax credits are approximated as follows:
DIVIDENDS 20% RECEIVED LONG-TERM FOREIGN TAX FUND DEDUCTION CAPITAL GAIN CREDIT ---- ------------- ------------- ------------ UBS Global Allocation Fund 20.0% $ -- $ -- UBS Global Equity Fund 25.1 -- -- UBS U.S. Balanced Fund 47.3 -- -- UBS U.S. Equity Fund 100.0 2,529,840 -- UBS International Equity Fund -- -- 237,312 UBS U.S. Value Equity 78.2 -- --
In addition, for the year ended June 30, 2003, gross income derived from sources within foreign countries amounted to $2,471,682 for UBS International Equity Fund. For the year ended June 30, 2003, the percentage of income earned from direct treasury obligations approximately amounted to the following:
DIRECT TREASURY FUND OBLIGATIONS ---- ----------- UBS Global Allocation Fund 15.2% UBS Global Bond Fund 12.8 UBS U.S. Balanced Fund 17.6 UBS U.S. Bond Fund 23.2 UBS International Equity Fund 28.0
144 [UBS LOGO] Presorted Standard UBS GLOBAL ASSET MANAGEMENT U.S. Postage One North Wacker Drive PAID Chicago, Illinois 60606 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. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. Not applicable 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-3(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 - Form N-CSR requirement not yet effective with respect to the registrant. (a)(2) Certification of principal executive officer and principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 is attached hereto as Exhibit 99.CERT. (b) Certification of principal executive officer and principal financial officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 is attached hereto as Exhibit 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. THE UBS FUNDS By: /s/ Joseph A. Varnas --------------------- Joseph A. Varnas President Date: September 5, 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 A. Varnas --------------------- Joseph A. Varnas President Date: September 5, 2003 ----------------- By: /s/ Paul H. Schubert -------------------- Paul H. Schubert Treasurer Date: September 5, 2003 -----------------