-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KZlLwzRZCWGh/WDkHg0cc+1BzEGw0C24FXXW/ilPC8tvHs8rwIxCA3dZ3ozx850Q 5p2+TMra6CouRMH5Zo6IEw== 0001047469-04-007269.txt : 20040310 0001047469-04-007269.hdr.sgml : 20040310 20040310120814 ACCESSION NUMBER: 0001047469-04-007269 CONFORMED SUBMISSION TYPE: N-CSRS PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20031231 FILED AS OF DATE: 20040310 EFFECTIVENESS DATE: 20040310 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UBS FUNDS CENTRAL INDEX KEY: 0000886244 IRS NUMBER: 367056204 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: N-CSRS SEC ACT: 1940 Act SEC FILE NUMBER: 811-06637 FILM NUMBER: 04659402 BUSINESS ADDRESS: STREET 1: 209 S LASALLE ST CITY: CHICAGO STATE: IL ZIP: 60604-1795 BUSINESS PHONE: 8001482430 MAIL ADDRESS: STREET 1: 209 S LASALLE ST CITY: CHICAGO STATE: IL ZIP: 60604-1795 FORMER COMPANY: FORMER CONFORMED NAME: BRINSON FUNDS INC DATE OF NAME CHANGE: 19920929 N-CSRS 1 a2129925zn-csrs.txt N-CSRS 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 Date of reporting period: December 31, 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. ALLOCATION 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 SEMI-ANNUAL REPORT DECEMBER 31, 2003 TABLE OF CONTENTS Portfolio Managers' Commentary and Schedule of Investments UBS Global Allocation Fund 3 UBS Global Equity Fund 18 UBS Global Bond Fund 26 UBS U.S. Allocation Fund 36 UBS U.S. Equity Fund 48 UBS U.S. Large Cap Growth Fund 55 UBS U.S. Small Cap Growth Fund 61 UBS U.S. Bond Fund 67 UBS High Yield Fund 76 UBS International Equity Fund 85 UBS U.S. Value Equity Fund 92 Statements of Assets and Liabilities 98 Statements of Operations 102 Statements of Changes in Net Assets 104 Financial Highlights 108 Notes to Financial Statements 130
1 PORTFOLIO MANAGERS' COMMENTARY AND SCHEDULE OF INVESTMENTS 2 UBS GLOBAL ALLOCATION FUND Over the six months ended December 31, 2003, Class Y shares of UBS Global Allocation Fund returned 15.00%, compared to the 14.59% return for the Fund's benchmark, the GSMI Mutual Fund Index (the "Index").* Since inception on August 31, 1992, the Fund's Class Y shares returned 8.89% on an annualized basis, compared to the 8.97% annualized return of the Index. (Returns for all share classes over various time periods are shown on page 6. 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 period, market and currency allocation decisions were the primary contributors to the Fund's performance. In particular, our decision to overweight equities, more specifically emerging markets equities, at the expense of developed market bonds, added to relative performance. SIX-MONTH MARKET REVIEW Over the six months, the global equity markets turned in a performance that exceeded most investors' expectations, spurred on by world economies that were showing clear signs of recovery. The US economic recovery led the way, driven by the introduction of aggressive fiscal stimulus (including increased government spending and tax cuts) and the lowest short-term interest rates in 45 years. Economic statistics consistently appeared to confirm that the growth was sustainable, and investors were lured back to stocks. As a result, the US stock market posted a gain of 15.15% (as measured by the S&P 500 Index) over the six-month review period. The economic picture also improved in continental Europe, partly because of government stimulus that came at the expense of the new economic agreements; both France and Germany broke their budgetary deficit limits. During this time, the European stock market, as measured by the MSCI Europe Index, rose 25.13%. In Japan, a decade-long decline was reversed when the Japanese stock market, as measured by the Japanese TOPIX Index, posted a gain of 29.98% over the period. While it is still too early to tell if this is a cyclical improvement or a long-term trend, there appear to be signs of economic advances, and Prime Minister Koizumi has a stronger mandate for government reform. Across all of these markets, we noted a preference for lower-quality, speculative stocks. In fact, stocks whose prices fell dramatically in recent years were the top performers over the review period. The global bond markets over the period could be best described as volatile. In the US market, the yield on the 10-year Treasury note, which had fallen to a 45-year low of 3.11% in mid-June, was, by the beginning of September, back to 4.60%. Yields finally settled down as the period drew to a close, trading in the 4.0% to 4.5% range before ending the year at 4.25%. The yield on 10-year European bonds also rose, as did the yield on Japanese bonds. The resumption of relative stability can be attributed to the lessening of fears regarding near-term inflation, as well as clear signs from central banks that they intended to maintain their accommodative monetary policies. With this support, bonds were able to tread water in the face of the global economic rebound, and the JP Morgan Global Government Bond Index declined 0.06% in the fourth quarter. EQUITIES: FAIRLY VALUED MARKETS PRESENTED A CHALLENGE The Fund benefits from the input provided by UBS Global Asset Management's global network of investment specialists. These on-site experts offer valuable insight into local economies, industry trends and specific companies. Leveraging their input, we seek to construct a portfolio that offers attractive growth potential while managing risk. At the asset allocation level, our process starts with an analysis of the relative opportunities available across and within asset classes. Entering the review period, our valuation * AN UNMANAGED INDEX COMPILED BY THE ADVISOR, CURRENTLY CONSTRUCTED AS FOLLOWS: 40% RUSSELL 3000 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 HIGH YIELD CASH PAY INDEX. 3 analysis concluded that the global equity markets were still generally undervalued, despite the recovery that was underway. Global bond markets, in contrast, appeared to us to be significantly overvalued. However, the dramatic swings that occurred in these markets during the reporting period removed many of the value discrepancies we had noted. In this environment, market allocation decisions were the greatest contributor to performance versus the benchmark. In particular, our overweights to both non-US and emerging markets equities produced positive results. Non-US equities posted very strong returns, but were nonetheless surpassed by emerging markets equities. Almost every emerging equity market appreciated during the last six months, so our positions in these markets helped relative performance. In non-US equities, a country underweight to Germany was the largest detractor from performance, but a modest underweight to Japan helped mitigate its impact somewhat. Industry weights--especially those in financials and telecommunications--added to performance over the period. In developed markets, we identified attractive opportunities in the pharmaceuticals industry, particularly in the United States. US pharmaceutical stock prices had fallen due to investor concerns over regulatory issues, Medicare reform and company-specific scandals. Our analysis concluded, however, that proposed health care reforms would not significantly alter pharmaceutical company economics, and that many of these companies offered sound fundamentals and solid growth potential. Over the course of the review period, we also increased our exposure to financials, and it became our largest overweight at period end. Based on research findings, we opted to underweight insurance, and concentrate our financial holdings instead on more promising areas, including selected banks and US diversified financial services companies. Some specific examples of holdings in this sector were Royal Bank of Scotland, Wells Fargo, and Citigroup. Other positive themes during the six-month period were our overweights to utilities, energy and telecommunications. Within telecommunications, we benefited from our focus on companies with strong market positions and acceptable debt loads, including Vodafone, SBC and Nextel. FIXED INCOME: STRATEGIC MOVES ADDED INCREMENTAL VALUE Within fixed income, we continually monitored the rapidly changing landscape, adjusting the portfolio to add incremental value when opportunities presented themselves. For example, on a sector level, dramatic moves in yields early in the period allowed us to profitably reduce our positions in the credit markets of the US and Europe. In our opinion, these markets were trading at close to fair valuation, offering little growth potential. We locked in our gains from this sector and redeployed the assets to areas that we believed held more potential. Our market-level moves generated the greatest results over the period. In particular, in November 2003, the European Monetary Union's (EMU) Stability and Growth Pact on fiscal policy faltered. We believed this well-publicized event held negative implications for European-denominated bonds as, in our opinion, investors will expect greater premiums to hold issues from the EMU. In yet another strategic move, we quickly responded when select central banks tightened monetary policy. The UK raised its benchmark interest rate by 0.25% in November 2003, bringing the prevailing short-term interest rate up to 3.75%. The UK market fell on this news, giving us the opportunity to buy in at attractive valuations relative to other markets. This generated strong results for the Fund when the UK bond market then quickly recovered, gaining strength when lower inflation data forestalled further hikes. On a final note, currency allocation was a positive contributor to performance over the period. In particular, the Fund's overweight to the euro--at the expense of the US dollar and 4 British pound--helped performance as the euro strengthened, in dollar terms, to levels not seen since its creation. The Fund's position in the Australian dollar and the Canadian dollar also generated positive results. LOOKING AHEAD We believe investors will be on the lookout for any number of factors that could put the global economic recovery at risk, including signs of inflation, rising interest rates, and geopolitical unrest. However, absent any type of trigger, we believe the global economy will settle into a pattern of steady growth in 2004. With respect to global equities, we expect to see investors turn their attention back to fundamentals, rewarding companies with proven management, sound balance sheets and real earnings growth. We believe our portfolio is well-positioned for such an environment. With respect to global bonds, we expect to see the markets continue to struggle as the world's economies expand. In the meantime, central banks have voiced their commitment to maintaining low short-term interest rates, which could offer a degree of stability. Although the opportunities to add value in active asset allocation are more modest than in the recent past, there are still over- and undervalued asset classes and country markets. We believe equities outside the United States remain attractively valued on a relative basis, led by issues listed in the United Kingdom and selected markets in Europe. The broad Japanese equity market appears significantly overvalued, but there remain attractive individual companies. Emerging equities markets also offer reasonable opportunity, but are closer to intrinsic value than at any point in the past two years. We believe fixed income overvaluations are most significant in emerging markets, whose additional yield to US Treasuries--4.50% at year-end--has declined from levels three times that size just over a year ago. Diminished opportunity also exists in global (ex-US) bonds, particularly those in Japan. We believe US bonds are fairly valued at the aggregate level, but we anticipate yield increases, especially in short- and intermediate-term instruments. As always, through our disciplined allocation and investment process we will seek to identify compelling opportunities across asset classes, countries, currencies and individual securities, in an effort to provide our shareholders with the potential for superior risk-adjusted returns relative to the Index over the long term. 5 UBS GLOBAL ALLOCATION FUND TOTAL RETURN
6 MONTHS 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION* ENDED ENDED ENDED ENDED ENDED TO 12/31/03 12/31/03 12/31/03 12/31/03 12/31/03 12/31/03 - ------------------------------------------------------------------------------------------------------------- UBS Global Allocation Fund Class A 14.84% 27.48% 8.02% 6.25% N/A 6.31% UBS Global Allocation Fund Class B 14.42 26.53 N/A N/A N/A 10.75 UBS Global Allocation Fund Class C 14.47 26.57 N/A N/A N/A 11.06 UBS Global Allocation Fund Class Y 15.00 27.79 8.18 6.48 8.62% 8.89 UBS Global Allocation Fund Class A** 8.54 20.47 6.01 5.05 N/A 5.39 UBS Global Allocation Fund Class B** 9.42 21.53 N/A N/A N/A 9.43 UBS Global Allocation Fund Class C** 13.47 25.57 N/A N/A N/A 11.06 GSMI Mutual Fund Index*** 14.59 26.53 2.39 3.33 8.42 8.97 MSCI World Equity (Free) Index 19.95 33.54 -3.65 -0.55 7.43 8.39 Citigroup World Government Bond Index 7.29 14.91 10.78 5.75 6.79 6.88
* INCEPTION DATE OF UBS GLOBAL ALLOCATION FUND CLASS A SHARES IS 6/30/97. INCEPTION DATES OF CLASS B AND CLASS C SHARES ARE 12/13/01 AND 11/22/01, RESPECTIVELY. INCEPTION DATE OF CLASS Y AND THE INDICES, IS 8/31/92. ** RETURNS INCLUDE SALES CHARGES. *** AN UNMANAGED INDEX COMPILED BY THE ADVISOR, CONSTRUCTED AS FOLLOWS: 40% RUSSELL 3000 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 HIGH YIELD 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. PAST PERFORMANCE IS NOT AN INDICATION OF FUTURE RESULTS. 6 TOP TEN EQUITY HOLDINGS AS OF DECEMBER 31, 2003 (UNAUDITED)
PERCENTAGE OF NET ASSETS - ------------------------------------------------------------------------ Nextel Communications, Inc., Class A 1.7% Citigroup, Inc. 1.5 Wells Fargo & Co. 1.2 Microsoft Corp. 1.1 Burlington Northern Santa Fe Corp. 1.1 Wyeth 1.1 UnitedHealth Group, Inc. 1.0 Morgan Stanley 0.9 ExxonMobil Corp. 0.9 Freddie Mac 0.9 - ------------------------------------------------------------------------ Total 11.4%
TOP TEN FIXED INCOME HOLDINGS AS OF DECEMBER 31, 2003 (UNAUDITED)
PERCENTAGE OF NET ASSETS - ------------------------------------------------------------------------ U.S. Treasury Note 3.250%, due 08/15/08 2.0% U.S. Treasury Note 4.250%, due 08/15/13 1.3 U.S. Treasury Bond 6.250%, due 05/15/30 0.8 U.S. Treasury Note 1.875%, due 11/30/05 0.5 U.S. Treasury Note 2.000%, due 08/31/05 0.5 Fannie Mae 3.841%, due 08/01/33 0.5 Deutche Bundesrepublik 6.500%, due 07/04/27 0.4 Deutche Bundesrepublik 5.000%, due 07/04/12 0.4 Fannie Mae 4.600%, due 11/01/33 0.4 CS First Boston Mortgage Securities Corp., 03-8, Class 5A1 6.500%, due 04/25/33 0.3 - ------------------------------------------------------------------------ Total 7.1%
7 INDUSTRY DIVERSIFICATION AS A PERCENT OF NET ASSETS AS OF DECEMBER 31, 2003 (UNAUDITED) EQUITIES U.S. EQUITIES Aerospace & Military 0.25% Airlines 0.16 Autos/Durables 0.34 Banks 2.40 Biomedical 0.47 Broadcasting & Publishing 0.68 Business & Public Service 0.13 Capital Goods 1.28 Chemicals 0.21 Computer Software 1.14 Computer Systems 0.44 Construction 0.54 Consumer 0.53 Electric Components 0.51 Electronics 0.17 Energy 3.60 Financial Services 6.00 Health: Drugs 4.15 Health: Non-Drugs 2.75 Healthcare 0.32 Housing/Paper 0.38 Industrial Components 0.75 Media and Entertainment 0.51 Metals Non-Ferrous 0.83 Multi-Industry 0.75 Retail/Apparel 1.31 Services/Miscellaneous 1.69 Technology 0.01 Telecommunications- Services 2.02 Transportation 1.50 Utilities 0.36 ------- Total U.S. Equities 36.18 INTERNATIONAL EQUITIES Aerospace & Defense 0.17 Appliances & Household Durables 0.13 Autos/Durables 0.92 Banks 4.77 Beverages & Tobacco 0.61 Broadcasting & Publishing 1.17 Building Materials 0.37 Chemicals 1.12 Computer Software 0.17 Construction 0.47 Data Processing 0.15 Electric Components 0.78 Electronics 0.10 Energy 1.44 Financial Services 1.08 Food & House Products 1.64 Forest Products 0.20 Health: Drugs 2.19 Health: Non-Drugs 0.40 Housing/Paper 0.28 Industrial Components 0.08 Insurance 0.52 Machinery & Engineering 0.16 Merchandising 0.40 Metals Non-Ferrous 0.56 Multi-Industry 0.16 Oil 0.55 Paper & Forest Products 0.04 Publishing & Printing 0.08 Real Estate 0.33 Recreation 0.54 Retail/Apparel 0.23 Services/Miscellaneous 0.43 Telecommunications 2.52 Transportation 0.61 Utilities 0.60 Wholesale & International Trade 0.17 ------- Total International Equities 26.14 TOTAL EQUITIES 62.32 U.S. BONDS U.S. Corporate Bonds Aerospace & Military 0.02 Airlines 0.03 Autos/Durables 0.20 Banks 0.18 Beverages & Tobacco 0.13 Chemicals 0.11 Computer Systems 0.06 Construction 0.03 Consumer 0.02 Electric Components 0.04 Energy 0.27 Financial Services 1.01 Food & House Products 0.11 Forest Products 0.01 Health: Drugs 0.04 Health: Non-Drugs 0.01 Household Durables 0.01 Housing/Paper 0.01 Industrial 0.01 Insurance 0.04 Leisure & Tourism 0.06 Media and Entertainment 0.01 Metals Non-Ferrous 0.01 Multi-Industry 0.05 Publishing 0.01 Real Estate 0.05 Retail/Apparel 0.08 Services/Miscellaneous 0.12 Telecommunications 0.19 Telecommunications-Wireless 0.04 Telephones 0.01 Transportation 0.05 Utilities 0.14 ------- Total U.S. Corporate Bonds 3.16 Asset-Backed Securities 0.32 Commercial Mortgage-Backed Securities 1.12 Mortgage-Backed Securities 6.04 U.S. Government Obligations 5.56 ------- Total U.S. Bonds 16.20 International Corporate Bonds 0.15 International Bonds 5.41 Sovereign/Supranational Bonds 0.05 ------- Total International Bonds 5.61 INVESTMENT COMPANIES 12.82 Investments of Cash Collateral for Securities Loaned 6.54 SHORT-TERM INVESTMENTS 4.31 ------- TOTAL INVESTMENTS 107.80 LIABILITIES, IN EXCESS OF CASH AND OTHER ASSETS (7.80) ------- NET ASSETS 100.00% =======
8 UBS GLOBAL ALLOCATION FUND-- SCHEDULE OF INVESTMENTS DECEMBER 31, 2003 (UNAUDITED)
SHARES VALUE --------------- ---------------- EQUITIES -- 62.32% U.S. EQUITIES -- 36.18% Aflac, Inc. 62,300 $ 2,254,014 Allergan, Inc. 129,100 9,916,171 American Electric Power Co., Inc. 31,500 961,065 American International Group, Inc. 100,621 6,669,160 American Standard Companies, Inc. (b) 43,900 4,420,730 Anadarko Petroleum Corp. 34,100 1,739,441 Anthem, Inc. (b) 80,200 6,015,000 Baxter International, Inc. 94,205 2,875,137 Biomet, Inc. 57,400 2,089,934 Boeing Co. (The) 125,600 5,292,784 Bristol-Myers Squibb Co. 313,200 8,957,520 Burlington Northern Santa Fe Corp. 381,000 12,325,350 Cardinal Health, Inc. 62,000 3,791,920 Cephalon, Inc. (b) (c) 83,000 4,018,030 Citigroup, Inc. 359,207 17,435,908 CMS Energy Corp. (b) (c) 169,100 1,440,732 ConocoPhillips 99,434 6,519,887 Costco Wholesale Corp. (b) 192,300 7,149,714 Dell, Inc. (b) 77,800 2,642,088 Delta Air Lines, Inc. (c) 155,900 1,841,179 Dominion Resources, Inc. 43,900 2,802,137 Eastman Chemical Co. (c) 62,600 2,474,578 Exelon Corp. 127,400 8,454,264 ExxonMobil Corp. 261,100 10,705,100 First Data Corp. 114,160 4,690,834 FirstEnergy Corp. 177,563 6,250,218 FleetBoston Financial Corp. 49,415 2,156,965 Freddie Mac 178,000 10,380,960 Gannett Co., Inc. 38,400 3,423,744 Genzyme Corp. (b) 110,400 5,447,136 GreenPoint Financial Corp. 210,650 7,440,158 Hartford Financial Services Group, Inc. (The) 71,300 4,208,839 Hewlett-Packard Co. 107,509 2,469,482 Illinois Tool Works, Inc. 123,500 10,362,885 Ingersoll-Rand Co., Class A 128,800 8,742,944 Interpublic Group of Cos., Inc. (b) (c) 101,100 1,577,160 J.P. Morgan Chase & Co. 282,300 10,368,879 Johnson & Johnson 102,538 5,297,113 Johnson Controls, Inc. 34,300 3,982,916 Kerr-McGee Corp. 34,950 1,624,826 Kimberly-Clark Corp. 104,000 6,145,360 Kohl's Corp. (b) 83,400 3,747,996 Linear Technology Corp. 142,800 6,007,596 Martin Marietta Materials, Inc. 134,284 6,307,319 Masco Corp. 354,300 9,711,363 McGraw-Hill Cos., Inc. (The) 65,000 4,544,800 MeadWestvaco Corp. 95,400 2,838,150 Mellon Financial Corp. 240,500 7,722,455 Mettler Toledo, Inc. (b) 2,200 92,862 Microsoft Corp. 484,900 13,354,146 Morgan Stanley 186,350 10,784,074 Mylan Labs, Inc. 353,750 8,935,725 Newell Rubbermaid, Inc. 59,400 1,352,538 Nextel Communications, Inc., Class A (b) 698,000 19,585,880 Omnicom Group 111,500 9,737,295 Pentair, Inc. 100,096 4,574,387 PNC Financial Services Group 76,700 4,197,791 Progress Energy, Inc. 47,100 $ 2,131,746 Quest Diagnostics, Inc. (b) 32,800 2,398,008 SBC Communications, Inc. 155,700 4,059,099 Sempra Energy 125,200 3,763,512 SICOR, Inc. (b) 165,000 4,488,000 Time Warner, Inc. (b) 329,000 5,918,710 TJX Companies, Inc. 138,600 3,056,130 TXU Corp. 82,400 1,954,528 United Technologies Corp. 30,600 2,899,962 UnitedHealth Group, Inc. 192,700 11,211,286 Viacom, Inc., Class B 74,800 3,319,624 Viad Corp. 99,500 2,487,500 Wells Fargo & Co. 242,200 14,263,158 Westwood One, Inc. (b) 77,600 2,654,696 Willis Group Holdings, Ltd. 84,800 2,889,136 Wyeth 289,600 12,293,520 XL Capital Ltd. 34,600 2,683,230 ---------------- Total U.S. Equities 423,328,484 ---------------- INTERNATIONAL EQUITIES -- 26.14% AUSTRALIA -- 1.06% Australia & New Zealand Banking Group Ltd. 153,149 2,040,094 Australian Gas Light Co., Ltd. 115,476 977,069 News Corp., Ltd., Preferred 156,542 1,179,464 QBE Insurance Group Ltd. (c) 281,784 2,250,484 Rio Tinto Ltd. 15,755 441,586 Westpac Banking Corp. 379,437 4,571,324 Woolworths Ltd. 103,581 920,907 ---------------- 12,380,928 ---------------- BELGIUM -- 0.30% Fortis 174,674 3,511,987 ---------------- CANADA -- 1.10% Alcan, Inc. 67,320 3,155,406 Bank of Nova Scotia (c) 44,300 2,255,709 BCE, Inc. (c) 78,700 1,760,054 Canadian National Railway Co. (c) 29,900 1,897,311 Magna International, Inc., Class A 12,300 990,282 Toronto Dominion Bank (c) 85,500 2,864,225 ---------------- 12,922,987 ---------------- FINLAND -- 0.62% Nokia Oyj 288,490 4,988,898 UPM-Kymmene Oyj (c) 121,240 2,312,246 ---------------- 7,301,144 ---------------- FRANCE -- 2.56% Aventis S.A. 82,719 5,467,300 BNP Paribas 73,334 4,617,600 Cap Gemini S.A. (c) 45,549 2,022,932 Compagnie de Saint-Gobain 27,454 1,343,958 France Telecom S.A. 104,856 2,997,019 Sanofi-Synthelabo S.A. 13,266 998,966 Suez S.A. 91,282 1,834,160 Total S.A. 47,718 8,871,888 Unibail 18,536 1,738,335 ---------------- 29,892,158 ----------------
9
SHARES VALUE --------------- ---------------- GERMANY -- 0.17% Allianz AG 8,171 $ 1,031,475 Bayer AG 31,056 909,587 ---------------- 1,941,062 ---------------- HONG KONG -- 0.13% Cheung Kong Holdings Ltd. 197,000 1,566,896 ---------------- IRELAND -- 0.76% Bank of Ireland 416,181 5,679,174 CRH PLC 156,567 3,215,074 ---------------- 8,894,248 ---------------- ITALY -- 0.93% Assicurazioni Generali Spa 61,659 1,633,248 ENI Spa 261,007 4,925,157 UniCredito Italiano Spa 804,424 4,342,753 ---------------- 10,901,158 ---------------- JAPAN -- 4.50% AIFUL Corp. (c) 22,800 1,667,929 Canon, Inc. 38,000 1,769,338 Fuji Photo Film Co., Ltd. 73,000 2,356,816 Funai Electric Co. Ltd 6,200 851,003 Honda Motor Co., Ltd. (c) 144,700 6,426,911 Hoya Corp. 14,000 1,285,434 Kao Corp. 129,000 2,624,055 Keyence Corp. 2,700 569,124 Mitsubishi Corp. 191,000 2,024,596 Mitsubishi Tokyo Financial Group, Inc. 172 1,341,719 Mitsui Fudosan Co., Ltd. 57,000 514,846 Murata Manufacturing Co., Ltd. 17,200 929,253 Nintendo Co., Ltd. 42,800 3,993,655 Nippon Telegraph & Telephone Corp. 380 1,833,162 Nippon Unipac Holding 90 464,402 NTT DoCoMo, Inc. 931 2,110,973 Rohm Co., Ltd. 19,000 2,226,743 Sekisui House Ltd. 165,000 1,704,348 Sompo Japan Insurance, Inc. 369,000 3,033,396 Sumitomo Chemical Co., Ltd. 181,000 746,496 Sumitomo Mitsui Financial Group, Inc. (c) 319 1,699,627 Takeda Chemical Industries Ltd. (c) 103,100 4,088,598 Takefuji Corp. (c) 11,440 534,799 Toppan Printing Co., Ltd. 93,000 967,575 Toyota Industries Corp. 72,000 1,528,413 Toyota Motor Corp. 128,200 4,330,354 West Japan Railway Co. 270 1,060,651 ---------------- 52,684,216 ---------------- NETHERLANDS -- 1.91% ABN AMRO Holding NV 150,969 3,532,385 Koninklijke Philips Electronics NV 106,387 3,106,533 Reed Elsevier NV 367,444 4,565,241 TPG NV 177,345 4,154,007 VNU NV 142,601 4,505,745 Wolters Kluwer NV 158,307 2,476,043 ---------------- 22,339,954 ---------------- PORTUGAL -- 0.21% Electricidade de Portugal S.A 218,442 575,862 Portugal Telecom, SGPS, S.A 187,415 1,886,443 ---------------- 2,462,305 ---------------- SPAIN -- 0.72% Banco Bilbao Vizcaya Argentaria S.A. (c) 289,601 $ 3,999,913 Banco Santander Central Hispano S.A 173,841 2,058,990 Telefonica S.A 159,826 2,346,587 ---------------- 8,405,490 ---------------- SWEDEN -- 1.17% Electrolux AB, B Shares 68,600 1,506,372 Hennes & Mauritz AB, B Shares 74,650 1,774,096 Nordea AB 412,000 3,092,018 Svenska Cellulosa AB 80,900 3,305,575 Svenska Handelsbanken AB 80,220 1,638,895 Swedish Match AB (c) 234,120 2,391,536 ---------------- 13,708,492 ---------------- SWITZERLAND -- 1.94% Adecco S.A 37,194 2,390,882 Givaudan S.A 2,658 1,379,774 Holcim Ltd. 35,381 1,647,823 Nestle S.A 35,479 8,864,371 Novartis AG 44,422 2,016,815 Roche Holding AG 52,557 5,301,383 Swiss Reinsurance Co. 16,906 1,141,420 ---------------- 22,742,468 ---------------- UNITED KINGDOM -- 8.06% AstraZeneca PLC 70,431 3,379,014 Balfour Beatty PLC 155,192 607,033 Barclays PLC 616,947 5,502,835 BOC Group PLC 81,125 1,239,508 BP PLC 1,093,328 8,866,250 BT Group PLC 643,003 2,166,902 Carlton Communications PLC 239,511 986,154 Centrica PLC 550,630 2,079,858 Compass Group PLC 257,073 1,748,765 Diageo PLC 456,717 6,009,327 Electrocomponents PLC 240,326 1,398,220 Gallaher Group PLC 441,966 4,747,133 GlaxoSmithKline PLC 336,829 7,718,106 HSBC Holdings PLC 165,645 2,603,539 Invensys PLC 1,146,392 374,531 Kesa Electricals PLC 264,570 1,218,393 Kingfisher PLC 542,129 2,702,832 National Grid Transco PLC 464,275 3,326,580 Rentokil Initial PLC 702,800 2,390,433 Rio Tinto PLC 107,024 2,956,231 Rolls-Royce Group PLC 637,906 2,024,110 Royal Bank of Scotland Group PLC 223,936 6,598,497 Scottish & Southern Energy PLC 260,480 3,138,201 Shell Transport & Trading Co. PLC 868,902 6,462,984 Tesco PLC 1,013,156 4,674,835 Vodafone Group PLC 3,772,279 9,352,869 ---------------- 94,273,140 ---------------- Total International Equities 305,928,633 ---------------- Total Equities (Cost $628,170,366) 729,257,117 ----------------
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FACE AMOUNT VALUE --------------- ---------------- BONDS -- 21.81% U.S. BONDS -- 16.20% U.S. CORPORATE BONDS -- 3.16% Abbott Laboratories, Inc. 5.625%, due 07/01/06 $ 110,000 $ 118,650 Alcoa, Inc. (c) 6.000%, due 01/15/12 145,000 157,580 Allstate Corp. (The) 7.200%, due 12/01/09 125,000 145,800 Altria Group, Inc. (c) 7.750%, due 01/15/27 420,000 453,167 Amerada Hess Corp. 7.875%, due 10/01/29 350,000 384,013 American Electric Power Co., Inc. 6.125%, due 05/15/06 470,000 506,466 American Express Co. (c) 3.750%, due 11/20/07 85,000 86,585 Anadarko Finance Co., Series B 7.500%, due 05/01/31 70,000 82,004 Anheuser-Busch Cos., Inc. 9.000%, due 12/01/09 220,000 278,952 AOL Time Warner, Inc. 7.625%, due 04/15/31 485,000 559,577 Apache Corp. (c) 6.250%, due 04/15/12 120,000 133,402 AT&T Corp. 8.500%, due 11/15/31 115,000 134,385 AT&T Wireless Services, Inc. (c) 7.875%, due 03/01/11 190,000 219,858 Avalonbay Communities, Inc. 7.500%, due 08/01/09 130,000 150,033 Avon Products, Inc. 7.150%, due 11/15/09 195,000 227,351 Bank of America Corp. 7.400%, due 01/15/11 505,000 592,279 Bank One Corp. 7.875%, due 08/01/10 250,000 300,303 Bear Stearns Co., Inc. (c) 4.000%, due 01/31/08 375,000 381,950 Boeing Capital Corp. 7.375%, due 09/27/10 310,000 356,332 Bombardier Capital, Inc., 144A (c) 6.125%, due 06/29/06 455,000 484,006 Bristol-Myers Squibb Co. 5.750%, due 10/01/11 125,000 135,078 Burlington Northern Santa Fe Corp. 6.875%, due 12/01/27 5,000 5,464 7.082%, due 05/13/29 150,000 168,238 Caterpillar, Inc. (c) 6.550%, due 05/01/11 125,000 141,938 Cendant Corp. (c) 6.250%, due 01/15/08 130,000 141,808 Centex Corp. 7.875%, due 02/01/11 90,000 105,819 9.750%, due 06/15/05 155,000 171,761 Cingular Wireless LLC 6.500%, due 12/15/11 75,000 82,018 Citigroup, Inc. 7.250%, due 10/01/10 1,010,000 1,177,214 Citizens Communications Co. (c) 9.250%, due 05/15/11 $ 495,000 $ 585,210 Coca-Cola Co. (The) 4.000%, due 06/01/05 35,000 36,146 Comcast Cable Communications, Inc. (c) 6.750%, due 01/30/11 775,000 862,522 Commonwealth Edison Co. 6.150%, due 03/15/12 165,000 180,020 Computer Sciences Corp. (c) 3.500%, due 04/15/08 125,000 124,406 Conagra Foods, Inc. 6.750%, due 09/15/11 125,000 140,109 ConocoPhillips 8.500%, due 05/25/05 (c) 175,000 190,771 8.750%, due 05/25/10 400,000 499,680 Consolidated Edison, Inc., Series B 7.500%, due 09/01/10 250,000 295,615 Coors Brewing Co. 6.375%, due 05/15/12 125,000 136,170 Countrywide Home Loans, Inc. (c) 3.250%, due 05/21/08 160,000 157,366 4.750%, due 07/25/18 1,008,979 1,030,965 Credit Suisse First Boston USA, Inc. (c) 3.875%, due 01/15/09 400,000 399,523 6.500%, due 01/15/12 475,000 528,685 DaimlerChrysler NA Holding Corp. (c) 4.050%, due 06/04/08 350,000 347,617 Devon Financing Corp., ULC (c) 6.875%, due 09/30/11 180,000 204,106 Dominion Resources, Inc. 8.125%, due 06/15/10 225,000 269,899 Dominion Resources, Inc., Class B 7.625%, due 07/15/05 190,000 205,251 Dow Chemical Co. (The) (c) 6.125%, due 02/01/11 490,000 527,234 Duke Energy Field Services, LLC 7.875%, due 08/16/10 305,000 357,325 EOP Operating LP 7.250%, due 06/15/28 265,000 288,128 Erac U.S.A. Finance Co., 144A 8.000%, due 01/15/11 50,000 59,468 Federated Department Stores, Inc. (c) 6.625%, due 04/01/11 125,000 140,359 First Data Corp. (c) 5.625%, due 11/01/11 135,000 143,620 First Union National Bank (c) 6.280%, due 11/18/35 591,345 620,651 FirstEnergy Corp., Series B (c) 6.450%, due 11/15/11 125,000 129,556 FleetBoston Financial Corp. 7.375%, due 12/01/09 145,000 170,243 Ford Motor Co. 7.450%, due 07/16/31 760,000 767,996 Ford Motor Credit Co. (c) 5.800%, due 01/12/09 720,000 741,494 7.375%, due 02/01/11 215,000 234,337 FPL Group Capital, Inc. 7.625%, due 09/15/06 120,000 134,721
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FACE AMOUNT VALUE --------------- ---------------- General Electric Capital Corp. (c) 6.000%, due 06/15/12 $ 1,700,000 $ 1,843,570 6.750%, due 03/15/32 260,000 287,851 General Motors Acceptance Corp. (c) 6.875%, due 09/15/11 565,000 608,577 8.000%, due 11/01/31 330,000 370,579 General Motors Corp. 8.375%, due 07/15/33 255,000 296,007 Goldman Sachs Group, Inc. 6.875%, due 01/15/11 455,000 516,702 Harley-Davidson, Inc. 144A 3.625%, due 12/15/08 225,000 224,433 Harrah's Operating Co., Inc. 7.500%, due 01/15/09 170,000 193,629 Hertz Corp. 7.625%, due 08/15/07 215,000 236,186 Household Finance Corp. 144A 6.750%, due 05/15/11 530,000 596,644 ICI Wilmington, Inc. 4.375%, due 12/01/08 475,000 473,214 International Business Machines Corp. 5.875%, due 11/29/32 130,000 130,804 International Lease Finance Corp. (c) 6.375%, due 03/15/09 125,000 137,703 International Paper Co. (c) 6.750%, due 09/01/11 125,000 138,972 John Deere Capital Corp. 7.000%, due 03/15/12 185,000 213,118 Kerr-McGee Corp. 7.875%, due 09/15/31 70,000 79,510 Key Bank NA 7.000%, due 02/01/11 120,000 136,998 Kimberly-Clark Corp., 144A 4.500%, due 07/30/05 45,000 46,841 Kohl's Corp. 7.250%, due 06/01/29 120,000 140,120 Kraft Foods, Inc. 5.625%, due 11/01/11 340,000 358,240 Kroger Co. (c) 7.500%, due 04/01/31 200,000 230,455 Lehman Brothers Holdings, Inc. (c) 6.625%, due 01/18/12 180,000 203,133 Lincoln National Corp. (c) 6.200%, due 12/15/11 135,000 147,287 Lockheed Martin Corp. 8.500%, due 12/01/29 100,000 131,037 Marsh & McClennan Cos., Inc. 6.250%, due 03/15/12 250,000 271,575 McKesson HBOC, Inc. 7.750%, due 02/01/12 115,000 135,281 MidAmerican Energy Co. 5.125%, due 01/15/13 10,000 10,192 Midamerican Energy Holding Co. 5.875%, due 10/01/12 120,000 125,824 Miller Brewing Co. 144A 5.500%, due 08/15/13 385,000 393,333 Morgan Stanley (c) 6.750%, due 04/15/11 775,000 876,850 Morgan Stanley Capital I 7.420%, due 11/15/36 $ 433,919 $ 481,883 Newell Rubbermaid, Inc. 4.000%, due 05/01/10 140,000 135,458 News America Holdings, Inc. 7.125%, due 04/08/28 125,000 136,889 Occidental Petroleum Corp. (c) 8.450%, due 02/15/29 165,000 216,302 Pepsi Bottling Group, Inc., 144A (c) 5.625%, due 02/17/09 150,000 162,879 PP&L Capital Funding 7.750%, due 04/15/05 155,000 166,010 Praxair, Inc. 6.375%, due 04/01/12 180,000 200,280 Progress Energy, Inc. (c) 7.000%, due 10/30/31 135,000 144,489 PSEG Power LLC 7.750%, due 04/15/11 230,000 270,716 Qwest Capital Funding, Inc. 7.900%, due 08/15/10 95,000 96,425 Rohm & Haas Co. 7.850%, due 07/15/29 110,000 135,243 Safeway, Inc. (c) 6.500%, due 03/01/11 185,000 201,951 SBC Communications, Inc. (c) 5.875%, due 02/01/12 35,000 37,172 Sempra Energy 7.950%, due 03/01/10 115,000 135,253 SLM Corp. 5.625%, due 04/10/07 410,000 444,301 Southern Power Co., Series B 6.250%, due 07/15/12 325,000 351,166 Southwestern Electric Power, Series B 4.500%, due 07/01/05 10,000 10,367 Sprint Capital Corp. (c) 8.375%, due 03/15/12 155,000 181,009 Target Corp. 7.000%, due 07/15/31 145,000 164,399 Transocean Sedco Forex, Inc. (c) 6.625%, due 04/15/11 400,000 446,494 U.S. Bank N.A., Minnesota 6.375%, due 08/01/11 125,000 139,371 Unilever Capital Corp. (c) 7.125%, due 11/01/10 180,000 209,268 Union Pacific Corp. 6.700%, due 12/01/06 190,000 210,572 United Technologies Corp. 6.100%, due 05/15/12 120,000 131,787 UST, Inc. 6.625%, due 07/15/12 250,000 278,097 Valero Energy Corp. (c) 7.500%, due 04/15/32 190,000 211,749 Verizon New England, Inc. 6.500%, due 09/15/11 115,000 126,718 Verizon New York, Inc. (c) 6.875%, due 04/01/12 400,000 442,603 Verizon New York, Inc., Series B (c) 7.380%, due 04/01/32 130,000 143,127
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FACE AMOUNT VALUE --------------- ---------------- Viacom, Inc. (c) 6.625%, due 05/15/11 $ 125,000 $ 141,905 Wachovia Bank N.A 7.800%, due 08/18/10 255,000 307,650 Wal-Mart Stores, Inc. 6.875%, due 08/10/09 385,000 443,539 Walt Disney Co. (The) (c) 6.375%, due 03/01/12 130,000 142,949 Washington Mutual, Inc. 5.625%, due 01/15/07 935,000 1,007,709 Waste Management, Inc. 7.375%, due 08/01/10 120,000 138,664 Wells Fargo Bank, N.A 6.450%, due 02/01/11 425,000 477,207 Weyerhaeuser Co. 7.375%, due 03/15/32 130,000 141,349 Wyeth (c) 5.250%, due 03/15/13 260,000 264,670 ---------------- 37,023,509 ---------------- ASSET-BACKED SECURITIES-- 0.32% Americredit Automobile Receivables Trust, 03-AM, Class A2B (f) 1.390%, due 10/06/06 86,944 86,936 Associates Manufactured Housing Pass Thru CTFS 99-2, Class A5 6.900%, due 06/15/27 447,833 465,270 Capital One Multi-Asset Execution Trust, 03-A1, Class A1 (f) 1.553%, due 01/15/09 280,000 281,238 Citibank Omni-S Master Trust, 01-1, Class A (f) 1.274%, due 02/15/10 280,000 279,707 Conseco Finance, 00-B, Class AF4 7.870%, due 02/15/31 28,110 28,251 Conseco Finance, 02-B, Class A2 5.590%, due 05/15/33 42,567 42,896 Countrywide Asset-Backed Certificates, 03-SD3, Class A1, 144A (f) 1.561%, due 12/25/32 332,230 332,709 Greentree Financial Corp., 96-4, Class A6 7.400%, due 06/15/27 473,890 504,850 Peco Energy Transition Trust, 99-A, Class A7 6.130%, due 03/01/09 230,000 254,008 RAFC Asset-Backed Trust 5.115%, due 01/25/15 774,585 795,606 Reliant Energy Transition 01-1 Class A4 5.630%, due 09/15/15 310,000 329,989 Structured Asset Securities Corp., 03-AL2, Class A, 144A 3.357%, due 01/25/31 176,856 169,727 United Airlines, Inc., E.E.T.C. (d)(e) 7.811%, due 10/01/09 $ 49,094 $ 18,696 Vanderbilt Mortgage Finance, 00-B, Class 1A3 8.255%, due 05/07/17 189,320 195,746 ---------------- 3,785,629 ---------------- COMMERCIAL MORTGAGE-BACKED SECURITIES -- 1.12% Bear Stearns Commercial Mortgage Securities, 00-WF1, Class A2 7.780%, due 02/15/32 210,000 247,088 Bear Stearns Commercial Mortgage Securities, 00-WF2, Class A2 7.320%, due 10/15/32 1,500,000 1,746,911 CS First Boston Mortgage Securities Corp., 01-CF2, Class A1 5.257%, due 02/15/34 (f) 487,258 498,723 DLJ Commercial Mortgage Corp., 00-CKP1, Class A1B 7.180%, due 08/10/10 1,275,000 1,444,006 DLJ Commercial Mortgage Corp., 99-CG2, Class A1B 7.300%, due 06/10/32 275,000 318,270 DLJ Commercial Mortgage Corp., 99-CG3, Class A1B 7.340%, due 10/10/32 200,000 232,293 GMAC Commercial Mortgage Securities, Inc., 97-C2, Class A2 6.550%, due 04/16/29 125,000 130,495 Greenwich Capital Commercial Funding Corp., 03-FL1 A, 144A (f) 1.490%, due 07/05/18 223,984 223,932 GS Mortgage Securities Corp., II, 96-PL, Class A2 7.410%, due 02/15/27 22,628 23,040 Heller Financial Commercial Mortgage Assets, 99-PH1, Class A1 6.500%, due 05/15/31 921,064 995,531 Host Marriott Pool Trust 99-HMPT Class A 6.980%, due 08/03/15 344,182 372,752 JP Morgan Commercial Mortgage Finance Corp., 99-C8, Class A1 7.325%, due 07/15/31 812,778 865,928 JP Morgan Commercial Mortgage Finance Corp., 99-C8, Class A2 7.400%, due 07/15/31 1,000,000 1,144,508 LB Commercial Conduit Mortgage Trust, 99-C1, Class A1 6.410%, due 06/15/31 563,367 598,247 LB Commercial Conduit Mortgage Trust, 99-C2, Class A2 7.325%, due 10/15/32 70,000 80,889 Merrill Lynch Mortgage Investors, Inc., 97-C1, Class A3 7.120%, due 06/18/29 416,335 453,155 Morgan Stanley Capital I, 96-WF1, Class A3, 144A 7.623%, due 11/15/28 760,851 810,427
13
FACE AMOUNT VALUE --------------- ---------------- Morgan Stanley Capital I, 00-LIFE, Class A2 7.570%, due 12/15/09 150,000 175,471 Nomura Asset Securities Corp., 95-MD3, Class A1B 8.150%, due 04/04/27 $ 961,943 $ 1,013,639 Nomura Asset Securities Corp., 98-D6, Class A1A 6.280%, due 03/15/30 1,697,871 1,810,271 Salomon Brothers Mortgage Securities VII, 00-C3, Class A2 6.592%, due 12/18/33 80,000 89,730 ---------------- 13,275,306 ---------------- MORTGAGE-BACKED SECURITIES -- 6.04% Credit Suisse First Boston Mortgage Securities Corp 7.000%, due 11/25/33 1,475,985 1,558,549 CS First Boston Mortgage Securities Corp., 01-26, Class 5A1 7.402%, due 11/25/31 (f) 315,642 324,957 CS First Boston Mortgage Securities Corp., 02-10, Class 2A1 7.500%, due 05/25/32 100,380 107,650 CS First Boston Mortgage Securities Corp., 03-8, Class 5A1 6.500%, due 04/25/33 3,723,058 3,859,415 Federal Home Loan Mortgage Corp., Gold 5.000%, due 11/01/07 203,167 209,538 5.500%, due 09/01/17 101,416 105,191 5.500%, due 01/01/18 202,921 210,474 5.500%, due 04/01/18 694,212 720,220 6.000%, due 12/01/17 707,980 742,570 6.000%, due 10/01/29 54,943 56,905 6.000%, due 12/01/30 805,819 833,557 6.500%, due 02/01/17 267,297 283,015 6.500%, due 04/01/29 165,355 173,221 Federal National Mortgage Association 3.396%, due 09/01/33 (f) 318,181 319,393 3.841%, due 08/01/33 (f) 5,506,738 5,586,681 3.962%, due 05/01/33 (f) 879,399 902,112 4.474%, due 06/01/33 (f) 879,214 893,328 4.600%, due 11/01/33 3,981,102 4,050,958 5.027%, due 02/01/33 703,372 748,025 5.125%, due 01/02/14 135,000 135,469 5.500%, due 03/15/11 670,000 722,534 5.500%, due 12/01/17 89,281 92,623 5.500%, due 01/01/18 3,073,973 3,189,044 5.500%, due 11/01/23 263,090 266,619 6.000%, due 06/01/14 2,575,296 2,703,095 6.000%, due 07/01/17 1,245,974 1,307,805 6.000%, due 08/01/17 1,733,091 1,819,096 6.000%, due 04/01/18 719,063 754,746 6.000%, due 11/01/28 302,607 312,944 6.000%, due 03/01/29 1,808,897 1,870,687 6.000%, due 07/01/29 1,795,391 1,856,720 6.000%, due 06/01/31 31,675 32,757 6.000%, due 11/01/32 956,736 989,417 6.000%, due 07/01/33 825,762 853,969 6.250%, due 02/01/11 625,000 690,909 6.500%, due 03/01/17 1,192,416 1,264,600 6.500%, due 04/01/17 $ 1,148,830 $ 1,218,376 6.500%, due 03/01/28 357,438 373,874 6.500%, due 12/01/28 378,545 395,952 6.500%, due 10/01/28 1,826,089 1,910,058 6.500%, due 04/01/29 1,441,646 1,507,937 6.500%, due 06/01/29 1,682,885 1,760,269 6.500%, due 08/01/29 519,443 543,586 6.500%, due 05/01/30 367,217 384,103 6.500%, due 11/01/31 20,070 20,993 6.500%, due 08/01/32 229,681 313,462 6.500%, due 09/01/32 612,889 641,071 6.500%, due 06/01/33 576,073 602,563 7.000%, due 03/01/33 1,673,037 1,771,527 7.000%, due 05/01/33 570,153 603,717 7.125%, due 01/15/30 1,125,000 1,355,069 7.500%, due 05/01/31 54,741 58,494 7.500%, due 02/01/33 1,232,604 1,317,594 Federal National Mortgage Association Grantor Trust, 00-T6, Class A1 7.500%, due 06/25/30 125,903 137,470 Federal National Mortgage Association Grantor Trust, 01-T5, Class A3 7.500%, due 06/19/30 211,250 230,659 Federal National Mortgage Association Whole Loan, 01-W3, Class A 7.000%, due 09/25/41 163,932 176,893 Federal National Mortgage Association Whole Loan, 95-W3, Class A 9.000%, due 04/25/25 3,653 4,086 Federal National Mortgage Association Whole Loan, 03-W11, Class A1 5.337%, due 06/25/33 528,855 544,282 Federal National Mortgage Association Whole Loan, 03-W6, Class 6A (f) 4.972%, due 08/25/42 142,107 148,635 Freddie Mac 5.125%, due 07/15/12 3,145,000 3,285,053 5.875%, due 03/21/11 165,000 178,847 6.000%, due 03/01/31 1,159,235 1,198,470 6.000%, due 01/01/33 213,588 220,810 6.500%, due 10/01/17 1,405,368 1,488,009 7.000%, due 06/01/28 572,536 605,772 Government National Mortgage Association 4.000%, due 10/20/29 489,578 500,229 6.000%, due 11/20/28 102,790 106,375 6.000%, due 01/15/29 92,274 95,982 6.000%, due 02/20/29 89,733 92,863 6.000%, due 05/20/29 227,615 235,553 6.000%, due 07/15/29 1,919,318 1,996,450 6.500%, due 03/15/26 1,123,912 1,184,955 6.500%, due 04/15/31 1,215,216 1,281,218 8.000%, due 12/15/22 29,123 31,971 9.000%, due 11/15/04 1,243 1,393 MLCC Mortgage Investors, Inc., 03-D, Class XA1++ 1.000%, due 08/25/28 18,099,382 303,309 Prudential Mortgage Capital Funding, LLC, 00-ROCK, Class A2 6.605%, due 05/10/34 1,055,000 1,184,173 ---------------- 70,560,895 ----------------
14
FACE AMOUNT VALUE --------------- ---------------- U.S. GOVERNMENT OBLIGATIONS -- 5.56% U.S. Treasury Bonds 6.250%, due 05/15/30 $ 8,500,000 $ 9,808,864 6.875%, due 08/15/25 (c) 1,990,000 2,434,407 8.000%, due 11/15/21 855,000 1,154,718 U.S. Treasury Notes 1.500%, due 07/31/05 (c) 1,375,000 1,373,926 1.875%, due 11/30/05 5,975,000 5,986,203 2.000%, due 08/31/05 5,695,000 5,731,704 3.250%, due 08/15/08 (c) 23,150,000 23,291,076 4.250%, due 08/15/13 (c) 15,220,000 15,239,025 ---------------- 65,019,923 ---------------- Total U.S. Bonds 189,665,262 ---------------- INTERNATIONAL BONDS -- 5.61% INTERNATIONAL CORPORATE BONDS -- 0.15% Burlington Resources Finance Co. 6.680%, due 02/15/11 250,000 280,973 Canadian National Railway Co. 6.900%, due 07/15/28 15,000 16,759 Deutsche Telekom International Finance BV 8.250%, due 06/15/30 295,000 376,841 France Telecom S.A 8.500%, due 03/01/31 205,000 272,379 International Bank for Reconstruction & Development 4.375%, due 09/28/06 225,000 237,315 Telecom Italia Capital, 144A 5.250%, due 11/15/13 150,000 150,299 Telus Corp. (c) 8.000%, due 06/01/11 325,000 380,018 ---------------- 1,714,584 ---------------- AUSTRALIA -- 0.34% Government of Australia 6.250%, due 04/15/15 AUD 810,000 641,750 6.500%, due 05/15/13 980,000 785,087 9.000%, due 09/15/04 3,270,000 2,524,052 ---------------- 3,950,889 ---------------- AUSTRIA -- 0.37% Republic of Austria 3.800%, due 10/20/13 EUR 1,520,000 1,833,699 5.875%, due 07/15/06 1,850,000 2,501,432 ---------------- 4,335,131 ---------------- BELGIUM -- 0.13% Government of Belgium 5.750%, due 03/28/08 EUR 1,130,000 1,553,455 ---------------- CANADA -- 0.27% Government of Canada 5.000%, due 09/01/04 CAD 106,000 83,311 5.750%, due 06/01/29 450,000 374,939 6.000%, due 09/01/05 1,790,000 1,454,495 6.000%, due 06/01/08 510,000 428,538 6.000%, due 06/01/11 500,000 423,885 8.000%, due 06/01/23 325,000 338,913 ---------------- 3,104,081 ---------------- CAYMAN ISLANDS -- 0.09% BSCH Issuances Ltd (c) 7.625%, due 09/14/10 USD 115,000 $ 136,324 SMFG Finance Ltd. 2.250%, due 07/11/05 JPY 18,000,000 306,196 SMFG Finance Ltd., 144A 2.250%, due 07/11/05 36,000,000 612,391 ---------------- 1,054,911 ---------------- DENMARK -- 0.17% Kingdom of Denmark 5.000%, due 08/15/05 DKK 4,570,000 801,849 5.000%, due 11/15/13 3,500,000 617,508 6.000%, due 11/15/09 3,310,000 620,859 ---------------- 2,040,216 ---------------- FINLAND -- 0.25% Government of Finland 5.000%, due 07/04/07 EUR 670,000 894,132 5.750%, due 02/23/11 1,490,000 2,080,800 ---------------- 2,974,932 ---------------- FRANCE -- 0.80% Government of France 5.500%, due 04/25/07 EUR 2,760,000 3,739,152 5.500%, due 04/25/10 2,520,000 3,469,568 5.500%, due 04/25/29 820,000 1,119,781 8.500%, due 10/25/19 560,000 1,007,722 ---------------- 9,336,223 ---------------- GERMANY -- 1.22% Bundesschatzanweisungen 2.500%, due 03/18/05 EUR 900,000 1,138,004 Deutsche Bundesrepublik 4.500%, due 07/04/09 720,000 943,913 5.000%, due 07/04/12 3,060,000 4,082,421 6.000%, due 01/05/06 1,480,000 1,986,924 6.000%, due 01/04/07 1,100,000 1,505,645 6.500%, due 07/04/27 2,990,000 4,598,328 ---------------- 14,255,235 ---------------- ITALY -- 0.41% Buoni Poliennali Del Tesoro 5.250%, due 11/01/29 EUR 580,000 749,654 5.500%, due 11/01/10 900,000 1,236,598 8.750%, due 07/01/06 1,950,000 2,802,757 ---------------- 4,789,009 ---------------- MEXICO -- 0.07% United Mexican States 8.125%, due 12/30/19 MXN 775,000 866,062 ---------------- NETHERLANDS -- 0.28% Government of Netherlands 3.000%, due 07/15/06 EUR 730,000 923,537 5.000%, due 07/15/11 1,750,000 2,341,908 ---------------- 3,265,445 ---------------- QATAR -- 0.03% State of Qatar, 144A 9.750%, due 06/15/30 USD 220,000 308,000 ----------------
15
FACE AMOUNT VALUE --------------- ---------------- SWEDEN -- 0.48% Government of Sweden 6.000%, due 02/09/05 SEK 15,780,000 $ 2,264,593 6.750%, due 05/05/14 830,000 133,602 8.000%, due 08/15/07 20,320,000 3,217,741 ---------------- 5,615,936 ---------------- UNITED KINGDOM -- 0.50% Abbey National PLC 6.690%, due 10/17/05 GBP 260,000 281,192 7.950%, due 10/26/29 150,000 186,233 Diageo PLC 3.500%, due 11/19/07 USD 135,000 136,164 Government of United Kingdom 8.000%, due 06/07/21 GBP 355,000 875,169 HSBC Holdings PLC (c) 5.250%, due 12/12/12 USD 130,000 133,128 Royal Bank of Scotland 9.118%, due 03/31/10 GBP 225,000 281,016 U.K. Gilt 4.250%, due 06/07/32 75,000 125,051 8.000%, due 12/07/15 195,000 450,236 U.K. Treasury 5.750%, due 12/07/09 620,000 1,171,608 6.000%, due 12/07/28 150,000 319,432 8.000%, due 09/27/13 575,000 1,287,833 8.500%, due 12/07/05 130,000 250,789 Vodafone Group PLC (c) 7.875%, due 02/15/30 250,000 307,112 ---------------- 5,804,963 ---------------- SOVEREIGN/SUPRANATIONAL BONDS -- 0.06% Pemex Project Funding Master Trust (c) 8.000%, due 11/15/11 485,000 541,987 ---------------- Total International Bonds 65,511,059 ---------------- Total Bonds (Cost $249,768,329) 255,176,321 ---------------- SHARES VALUE --------------- ---------------- INVESTMENT COMPANIES -- 12.82% UBS Emerging Markets Debt Relationship Fund 228,535 $ 9,916,294 UBS Emerging Markets Equity Relationship Fund 5,424,102 67,022,329 UBS High Yield Relationship Fund 1,980,909 32,895,767 UBS U.S. Small Cap Equity Relationship Fund 1,218,624 40,206,186 ---------------- Total Investment Companies (Cost $123,089,728) 150,040,576 ---------------- SHORT-TERM INVESTMENTS -- 4.31% OTHER -- 4.22% UBS Supplementary Trust U.S. Cash Management Prime Fund, yield of 1.23% (Cost $49,396,098) 49,396,098 49,396,098 ---------------- FACE AMOUNT --------------- U.S. GOVERNMENT OBLIGATIONS -- 0.09% U.S. Treasury Bill, yield of 0.82%, due 02/05/04 (Cost $999,056) (g) $ 1,000,000 999,167 ---------------- Total Short Term Investments (Cost $50,395,154) 50,395,265 ---------------- SHARES --------------- INVESTMENTS OF CASH COLLATERAL FOR SECURITIES LOANED -- 6.54% UBS Supplementary Trust U.S. Cash Management Prime Fund, yield of 1.23% (Cost $76,573,284) 76,573,284 76,573,284 ---------------- Total Investments (Cost $1,127,996,861) -- 107.80% (a) 1,261,442,563 Liabilities, in excess of cash and other assets -- (7.80)% (91,322,482) ---------------- Total Net Assets -- 100% $ 1,170,120,081 ================
16 NOTES TO SCHEDULE OF INVESTMENTS (a) Aggregate cost for federal income tax purposes was $1,127,996,861; and net unrealized appreciation consisted of:
Gross unrealized appreciation $ 135,045,042 Gross unrealized depreciation (1,599,340) ---------------- Net unrealized appreciation $ 133,445,702 ================
(b) Non-income producing security. (c) Security, or portion thereof, was on loan at December 31, 2003. (d) Security is in default. (e) Security is illiquid. These securities amounted to $18,696 or 0.00% of net assets. (f) Variable rate security -- The rate disclosed is that in effect at December 31, 2003. (g) All or portion of these securities was pledged to cover margin requirements for futures contracts. ++ Interest Only Security. This security entitles the holder to receive interest payments from an underlying pool of mortgages. The risk associated with this security is related to the speed of the principal paydowns. High prepayments would result in a smaller amount of interest being received and cause the yield to decrease. Low prepayments would result in a greater amount of interest being received and cause the yield to increase. % Represents a percentage of net assets E.E.T.C.: Enhanced Equipment Trust Certificate. 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 December 31, 2003 the value of these securities amounted to $4,575,089 or 0.39% of net assets. FORWARD FOREIGN CURRENCY CONTRACTS UBS Global Allocation Fund had the following open forward foreign currency contracts as of December 31, 2003:
SETTLEMENT LOCAL CURRENT UNREALIZED DATE CURRENCY VALUE GAIN/(LOSS) ---------- ------------- ------------ ------------ FORWARD FOREIGN CURRENCY BUY CONTRACTS: Euro (EUR) 06/03/04 21,340,000 $ 26,809,750 $ 1,426,001 Hong Kong (HKD) 01/05/04 305,000 39,286 (4) Japanese Yen (JPY) 06/03/04 3,720,000,000 34,880,521 745,817 Japanese Yen (JPY) 01/06/04 275,600,000 2,571,697 (5,931) Singapore Dollar (SGD) 06/03/04 17,400,000 10,261,452 119,819 Swedish Krone (SEK) 01/05/04 710,000 98,676 819 Swiss Franc (CHF) 01/05/04 870,000 703,457 5,558 FORWARD FOREIGN CURRENCY SALE CONTRACTS: British Pound (GBP) 06/03/04 36,300,000 64,206,520 (3,219,979) Swedish Krone (SEK) 06/03/04 61,400,000 8,476,142 (483,120) ------------ Total net unrealized loss on Forward Foreign Currency Contracts $ (1,411,020) ============
FUTURES CONTRACTS UBS Global Allocation Fund had the following open futures contracts as of December 31, 2003:
EXPIRATION CURRENT UNREALIZED DATE COST VALUE GAIN ---------- ------------- ------------ ------------ U.S. INTEREST RATE FUTURES BUY CONTRACTS: 5 Year U.S. Treasury Notes, 86 contracts March 2004 $ 9,553,321 $ 9,599,750 $ 46,429 10 Year U.S. Long Bond (Chicago Board of Trade), 8 contracts March 2004 872,806 874,500 1,694 ------------ Total net unrealized gain on Futures Contracts $ 48,123 ============
The aggregate market value of investments pledged to cover margin requirements for the open futures contracts at December 31, 2003 was $999,167. See accompanying notes to financial statements 17 UBS GLOBAL EQUITY FUND Over the six months ended December 31, 2003, Class Y shares of UBS Global Equity Fund returned 17.61%, underperforming the 19.95% return of its benchmark, the MSCI World Equity (Free) Index (the "Index"). Since inception on January 28, 1994, the Fund's Class Y shares have returned 6.90%, in line with the 6.81% return of the Index.* (Returns for all share classes over various time periods are shown on page 20. 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.) While the Fund did well on an absolute basis, it underperformed the Index because of underweights to technology hardware, Japanese bank stocks, and some areas of the market that were driven primarily by a speculative wave. SIX-MONTH MARKET REVIEW Over the six months, the global equity markets turned in performance that exceeded most investors' expectations. Building on the momentum that began mid-year 2003, the world economies continued to show clear signs of recovery during the second half of 2003. The US economic recovery led the way, spurred by the introduction of aggressive fiscal stimulus (including increased government spending and tax cuts) and the lowest short-term interest rates in 45 years. Economic statistics appeared to confirm that the economy had entered a period of growth that was sustainable. This positive news lured investors back to stocks, who drove the US stock market to a gain of 15.15% (as measured by the S&P 500 Index) over the six-month period. The economic picture also improved in continental Europe, but to an extent, at the expense of the new economic agreements: Both France and Germany broke their budgetary deficit limits. During this time, the European stock market, as measured by the MSCI Europe Index, rose 25.13%. In Japan, a decade-long decline was reversed when the Japanese stock market, as measured by the Japanese TOPIX Index, posted a gain of 29.98% over the period. While it is still too early to tell if this is a cyclical improvement or a long-term trend, signs of economic advances are emerging, and it appears that Prime Minister Koizumi has a stronger mandate for government reform. Across all of these markets, there was a preference for lower quality, speculative stocks. In fact, stocks whose prices fell so conspicuously in recent years, including those in the Internet services, semiconductor and telecom equipment sectors, were the top performers over the review period. Many of these stocks were selling at extremely low prices, which appealed to newly risk-tolerant investors. GLOBAL NETWORK OF ANALYSTS GUIDED SECTOR STRATEGY The Fund enjoys access to a vast global network of analysts and investment specialists. Together these on-site experts offer valuable insight into local economies, politics, industry trends and specific companies. With their input, we seek to construct a portfolio that offers attractive growth potential while managing risk. This research process proved effective during the six months covered by this report, helping to drive the Fund to good absolute performance. Historically, low-cost, low-quality stocks tend to outperform during the early stages of an economic recovery. Investors are drawn to their depressed prices and their potential to produce immediate profits in a recovery period. Our analysis determined, however, that many of these higher-risk securities, such as those found in the technology hardware and semiconductors areas, did not have long-term investment merit and were not appropriate for our portfolio. Instead, our investment process guided us toward what we believed were fundamentally sound companies in areas such as healthcare, financial services, and utilities. Within healthcare--which was one of the Fund's largest overweights relative to the Index during the period--we saw particularly good performance from our holdings in US * PLEASE NOTE THAT THE SINCE INCEPTION RETURN FOR THE INDEX IS CALCULATED AS OF JANUARY 31, 1994, WHICH IS THE CLOSEST MONTH-END TO THE INCEPTION DATE OF THE FUND'S CLASS Y SHARES. 18 pharmaceuticals. US pharmaceutical stock prices had fallen due to investor concerns over regulatory issues, Medicare reform and company-specific patent issues. Our in-depth research and analysis revealed, however, that the industry is solid, supported by an aging--population, strong research and development and proprietary products. Our position in the financial services sector increased over the six months, and it ultimately became our largest overweight at period end. Based on research findings, we opted to underweight insurance companies in this sector, concentrating our financial services holdings on more promising areas, including banks and US diversified financial services companies. Some specific examples of holdings in this sector were Royal Bank of Scotland, Wells Fargo and Citigroup. The exception was Japanese banks, where an underweight to lower-quality names, which did well, hurt performance. Within telecommunications, we benefited from our focus on companies with strong market positions and acceptable debt loads, including Vodafone, SBC, and Nextel. Alternately, we underweighted some sectors whose valuations reflected the fact that they had a run of strong performance. This included industrial cyclicals and technology hardware. As noted, technology hardware was a beneficiary of the speculative trend that was dominating the market. As a result, our underweight to the sector ultimately proved to be a primary factor behind the Fund's relative underperformance over the period. On a geographic level, the Fund's weighting reflected our sector and regional views. The US was underweighted because we believed it was overvalued relative to other global equity markets. Overweights to continental Europe and the UK were a result of both stock-specific views and the attractive valuations of those markets. We underweighted Germany, because many of the companies in this space were significantly leveraged (both financially and economically), and because we felt its deep cyclical structure was not attractively valued. The outperformance of this market detracted from Fund performance. Finally, we reduced our underweight to Japan modestly when we found some buying opportunity in the export sector. While we cited currency allocation as a major factor behind performance when we last reported to you, it provided little contribution over the last six months. Currency positions were scaled back during the year as the euro outperformed versus the pound sterling, and the Australian dollar appreciated versus the yen. By year-end, our currency position was near neutral. LOOKING AHEAD We are optimistic about the opportunities in the international stock markets in 2004, although we are not expecting gains in line with what we saw in 2003. In our opinion, the technology sectors are fully valued, even on optimistic assumptions. 19 TOTAL RETURN
6 MONTHS 1 YEAR 3 YEARS 5 YEARS INCEPTION* ENDED ENDED ENDED ENDED TO 12/31/03 12/31/03 12/31/03 12/31/03 12/31/03 - ------------------------------------------------------------------------------------------------------ UBS Global Equity Fund Class A 17.21% 28.96% -0.57% 1.99% 3.24% UBS Global Equity Fund Class B 16.78 28.11 N/A N/A 4.01 UBS Global Equity Fund Class C 16.82 28.03 N/A N/A 3.84 UBS Global Equity Fund Class Y 17.61 29.57 -0.15 2.34 6.90 UBS Global Equity Fund Class A** 10.74 21.88 -2.42 0.84 2.35 UBS Global Equity Fund Class B** 11.78 23.11 N/A N/A 2.60 UBS Global Equity Fund Class C** 15.82 27.03 N/A N/A 3.84 MSCI World Equity (Free) Index 19.95 33.54 -3.65 -0.55 6.81
* INCEPTION DATE OF UBS GLOBAL EQUITY FUND CLASS A SHARES IS 6/30/97. INCEPTION DATES OF CLASS B AND CLASS C SHARES ARE 12/11/01 AND 11/27/01, RESPECTIVELY. INCEPTION DATE OF CLASS Y SHARES IS 1/28/94. 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. PAST PERFORMANCE IS NOT AN INDICATION OF FUTURE RESULTS. 20 TOP TEN INTERNATIONAL EQUITY HOLDINGS AS OF DECEMBER 31, 2003 (UNAUDITED)
PERCENTAGE OF NET ASSETS - ---------------------------------------------------- BP PLC 2.2% Nestle S.A. 2.1 Vodafone Group PLC 2.0 Shell Transport & Trading Co. PLC 1.9 Honda Motor Co., Ltd. 1.8 Bank of Ireland 1.7 Total S.A., Class B 1.5 Aventis S.A. 1.3 Reed Elsevier NV 1.3 Westpac Banking Corp. 1.3 - ---------------------------------------------------- Total 17.1%
TOP TEN U.S. EQUITY HOLDINGS AS OF DECEMBER 31, 2003 (UNAUDITED)
PERCENTAGE OF NET ASSETS - --------------------------------------------------- Citigroup, Inc. 3.1% Nextel Communications, Inc., Class A 2.3 Microsoft Corp. 2.3 Wyeth 1.9 Freddie Mac 1.8 Wells Fargo & Co. 1.7 General Electric Co. 1.6 SBC Communications, Inc. 1.4 Costco Wholesale Corp. 1.3 Altria Group, Inc. 1.3 - --------------------------------------------------- Total 18.7%
GEOGRAPHIC ALLOCATION AS OF DECEMBER 31, 2003 (UNAUDITED)
PERCENTAGE OF NET ASSETS - --------------------------------------------------- United States 45.8% United Kingdom 17.9 Japan 9.0 France 5.8 Switzerland 4.5 Netherlands 4.5 Ireland 2.7 Italy 2.3 Australia 2.1 Sweden 1.7 Finland 1.6 Belgium 0.7 Spain 0.7 Canada 0.5 Portugal 0.2 - -------------------------------------------------- 100.0%
21 INDUSTRY DIVERSIFICATION AS A PERCENT OF NET ASSETS AS OF DECEMBER 31, 2003 (UNAUDITED) EQUITIES U.S. EQUITIES Banks 2.01% Beverages & Tobacco 1.26 Biomedical 0.19 Broadcasting & Publishing 0.26 Business & Public Service 0.47 Capital Goods 1.23 Commercial Services 0.58 Computer Software 2.51 Computer Systems 1.42 Consumer 0.38 Electronics 0.38 Energy 1.31 Financial Services 9.60 Health: Drugs 5.28 Health: Non-Drugs 3.82 Healthcare 0.36 Industrial Components 0.37 Insurance 0.53 Media and Entertainment 0.63 Metals Non-Ferrous 1.13 Multi-Industry 2.46 Retail/Apparel 1.41 Services/Miscellaneous 1.26 Telecommunications- Services 3.72 Transportation 1.68 Utilities 0.52 ------ Total U.S. Equities 44.77 INTERNATIONAL EQUITIES Aerospace & Defense 0.67 Appliances & Household Durables 0.29 Autos/Durables 2.40 Banks 8.60 Beverages & Tobacco 1.61 Broadcasting & Publishing 2.59% Building Materials 0.81 Chemicals 2.63 Computer Software 0.30 Construction 1.48 Electric Components 1.60 Energy 3.09 Financial Services 2.88 Food & House Products 3.64 Forest Products 0.59 Health: Drugs 3.44 Health: Non-Drugs 0.86 Housing/Paper 0.65 Insurance 1.01 Machinery & Engineering 0.33 Merchandising 0.94 Metals Non-Ferrous 0.49 Metals-Non-Ferrous 0.61 Multi-Industry 0.47 Oil 1.85 Paper & Forest Products 0.42 Real Estate 0.43 Recreation 1.16 Retail/Apparel 0.23 Services/Miscellaneous 1.42 Telecommunications 4.44 Transportation 1.00 Utilities 1.29 ------ Total International Equities 54.22 TOTAL EQUITIES 98.99 SHORT-TERM INVESTMENTS 0.07 ------ TOTAL INVESTMENTS 99.06 CASH AND OTHER ASSETS, LESS LIABILITIES 0.94 ------ NET ASSETS 100.00% ======
22 UBS GLOBAL EQUITY FUND -- SCHEDULE OF INVESTMENTS DECEMBER 31, 2003 (UNAUDITED)
SHARES VALUE --------- ---------------- EQUITIES -- 98.99% U.S. EQUITIES -- 44.77% Accenture Ltd., Class A (b) 109,700 $ 2,887,304 Aflac, Inc. 41,600 1,505,088 Allergan, Inc. 38,900 2,987,909 Altria Group, Inc. 115,400 6,280,068 American Electric Power Co., Inc. 8,400 256,284 American International Group, Inc. 54,447 3,608,747 Anthem, Inc. (b) 43,800 3,285,000 Baxter International, Inc. 68,300 2,084,516 Boeing Co. (The) 86,200 3,632,468 Bristol-Myers Squibb Co. 142,700 4,081,220 Burlington Northern Santa Fe Corp. 146,200 4,729,570 Cardinal Health, Inc. 29,600 1,810,336 Cephalon, Inc. (b) 72,700 3,519,407 Citigroup, Inc. 322,300 15,644,442 Constellation Energy Group, Inc. 39,600 1,550,736 Costco Wholesale Corp. (b) 173,900 6,465,602 First Data Corp. 33,900 1,392,951 FirstEnergy Corp. 75,107 2,643,767 FPL Group, Inc. 15,600 1,020,552 Freddie Mac 156,100 9,103,752 General Electric Co. 252,100 7,810,058 Genzyme Corp. (b) 19,400 957,196 GreenPoint Financial Corp. 47,550 1,679,466 HCA, Inc. 50,700 2,178,072 Hewlett-Packard Co. 220,491 5,064,678 Illinois Tool Works, Inc. 73,000 6,125,430 Ingersoll-Rand Co., Class A 27,100 1,839,548 International Business Machines Corp. 21,800 2,020,424 Interpublic Group of Cos., Inc. (b) 150,600 2,349,360 J.P. Morgan Chase & Co. 169,300 6,218,389 Johnson & Johnson 72,402 3,740,287 Kimberly-Clark Corp. 31,900 1,884,971 Masco Corp. 204,800 5,613,568 McGraw-Hill Cos., Inc. (The) 18,800 1,314,496 MeadWestvaco Corp. 94,700 2,817,325 Mellon Financial Corp. 170,900 5,487,599 Microsoft Corp. 407,900 11,233,566 Morgan Stanley 85,400 4,942,098 Mylan Labs, Inc. 139,600 3,526,296 Newell Rubbermaid, Inc. 24,200 551,034 Nextel Communications, Inc., Class A (b) 411,800 11,555,108 Omnicom Group 23,600 2,060,988 Oracle Corp. (b) 94,700 1,250,040 Pfizer, Inc. 75,301 2,660,385 SBC Communications, Inc. 266,600 6,950,262 Sempra Energy 48,300 1,451,898 Time Warner, Inc. (b) 245,100 4,409,349 Transocean Sedco Forex, Inc. (b) 90,500 2,172,905 Travelers Property Casualty Corp., Class B (b) 156,200 2,650,714 TXU Corp. 80,600 1,911,832 UnitedHealth Group, Inc. 106,900 6,219,442 Viacom, Inc., Class B (b) 71,200 3,159,856 Wells Fargo & Co. 141,100 8,309,379 Wyeth 223,300 9,479,085 XL Capital Ltd. 35,500 2,753,025 ---------------- Total U.S. Equities 222,837,848 ---------------- INTERNATIONAL EQUITIES -- 54.22% AUSTRALIA -- 2.12% Australia & New Zealand Banking Group Ltd. 84,977 $ 1,131,977 QBE Insurance Group Ltd. 385,215 3,076,542 Westpac Banking Corp. 527,470 6,354,773 ---------------- 10,563,292 ---------------- BELGIUM -- 0.74% Fortis 183,859 3,696,660 ---------------- CANADA -- 0.49% Alcan, Inc. 52,200 2,446,705 ---------------- FINLAND -- 1.58% Nokia Oyj 283,850 4,908,658 UPM-Kymmene Oyj 154,000 2,937,033 ---------------- 7,845,691 ---------------- FRANCE -- 5.82% Aventis S.A 97,509 6,444,843 BNP Paribas 73,201 4,609,226 Cap Gemini S.A. (b) 33,236 1,476,084 France Telecom S.A. (b) 149,712 4,279,104 Suez S.A. 117,379 2,358,536 Total S.A. 41,179 7,656,136 Unibail 22,873 2,145,065 ---------------- 28,968,994 ---------------- IRELAND -- 2.68% Bank of Ireland 607,207 8,287,058 CRH PLC 245,253 5,036,225 ---------------- 13,323,283 ---------------- ITALY -- 2.29% ENI Spa 311,839 5,884,348 UniCredito Italiano Spa 1,021,379 5,514,004 ---------------- 11,398,352 ---------------- JAPAN -- 9.00% AIFUL Corp. 41,450 3,032,266 Fuji Photo Film Co., Ltd. 49,000 1,581,973 Honda Motor Co., Ltd. 199,000 8,838,667 Hoya Corp. 17,800 1,634,338 Kao Corp. 161,000 3,274,984 Mitsubishi Tokyo Financial Group, Inc. 174 1,357,320 Nintendo Co., Ltd. 44,900 4,189,605 Nippon Telegraph & Telephone Corp. 439 2,117,785 Nippon Unipac Holding 404 2,084,651 Rohm Co., Ltd. 28,100 3,293,235 Sekisui House Ltd. 226,000 2,334,441 Sompo Japan Insurance, Inc. 345,000 2,836,101 Sumitomo Mitsui Financial Group, Inc. 173 921,741 Takeda Chemical Industries Ltd. 77,100 3,057,525 Toyota Industries Corp. 54,200 1,150,555 Toyota Motor Corp. 91,700 3,097,453 ---------------- 44,802,640 ---------------- NETHERLANDS -- 4.46% ABN AMRO Holding NV 48,244 1,128,817 Koninklijke Philips Electronics NV 109,566 3,199,360 Reed Elsevier NV 513,970 6,385,727 TPG NV 212,406 4,975,252
23
SHARES VALUE --------- ---------------- VNU NV 144,309 $ 4,559,713 Wolters Kluwer NV 125,681 1,965,747 ---------------- 22,214,616 ---------------- PORTUGAL -- 0.19% Portugal Telecom, SGPS, S.A. 93,289 939,009 ---------------- SPAIN -- 0.71% Banco Bilbao Vizcaya Argentaria S.A. 255,322 3,526,458 ---------------- SWEDEN -- 1.65% Electrolux AB, B Shares 66,500 1,460,259 Hennes & Mauritz AB, B Shares 49,000 1,164,510 Svenska Cellulosa AB 79,450 3,246,328 Swedish Match AB 228,200 2,331,063 ---------------- 8,202,160 ---------------- SWITZERLAND -- 4.54% Adecco S.A. 58,188 3,740,405 Givaudan S.A. 3,971 2,061,356 Holcim Ltd. 44,098 2,053,806 Nestle S.A. 41,192 10,291,755 Roche Holding AG 24,826 2,504,179 Swiss Reinsurance Co. 28,646 1,934,054 ---------------- 22,585,555 ---------------- UNITED KINGDOM -- 17.95% AstraZeneca PLC 54,641 2,621,469 Barclays PLC 603,182 5,380,058 BP PLC 1,359,193 11,022,259 Centrica PLC 486,772 1,838,651 Diageo PLC 345,422 4,544,945 Electrocomponents PLC 255,072 1,484,012 Gallaher Group PLC 529,926 5,691,907 GlaxoSmithKline PLC 222,915 5,107,878 HSBC Holdings PLC 217,100 3,412,288 Invensys PLC 1,569,633 512,805 Kingfisher PLC 393,491 1,961,785 National Grid Transco PLC 267,417 1,916,071 Rentokil Initial PLC 965,391 3,283,584 Rio Tinto PLC 109,597 3,027,303 Rolls-Royce Group PLC 1,054,804 3,346,951 Royal Bank of Scotland Group PLC 202,423 5,964,595 Scottish & Southern Energy PLC 373,235 4,496,646 Shell Transport & Trading Co. PLC 1,237,673 9,205,942 Tesco PLC 1,011,400 4,666,733 Vodafone Group PLC 3,967,991 9,838,112 ---------------- 89,323,994 ---------------- Total International Equities 269,837,409 ---------------- Total Equities (Cost $387,042,180) 492,675,257 ---------------- SHORT-TERM INVESTMENTS -- 0.07% UBS Supplementary Trust U.S. Cash Management Prime Fund, yield of 1.23% (Cost $367,171) 367,171 367,171 ---------------- Total Investments (Cost $387,409,351) -- 99.06% (a) 493,042,428 Cash and other assets, less liabilities -- 0.94% 4,660,713 ---------------- Total Net Assets -- 100% $ 497,703,141 ================
24 NOTES TO SCHEDULE OF INVESTMENTS (a) Aggregate cost for federal income tax purposes was $387,409,351; and net unrealized appreciation consisted of:
Gross unrealized appreciation $ 105,688,098 Gross unrealized depreciation (55,021) -------------- Net unrealized appreciation $ 105,633,077 ==============
(b) Non-income producing security % Represents a percentage of net assets FORWARD FOREIGN CURRENCY CONTRACTS UBS Global Equity Fund had the following open forward foreign currency contracts as of December 31, 2003:
SETTLEMENT LOCAL CURRENT UNREALIZED DATE CURRENCY VALUE GAIN/(LOSS) ---------- ----------- ------------- ------------ FORWARD FOREIGN CURRENCY BUY CONTRACTS Canadian Dollar (CAD) 06/03/04 13,500,000 $ 10,382,884 $ 171,470 Euro (EUR) 06/03/04 2,400,000 3,015,155 23,915 Hong Kong Dollar (HKD) 06/03/04 25,000,000 3,233,160 3,269 Japanese Yen (JPY) 06/03/04 445,000,000 4,172,535 89,217 Singapore Dollar (SGD) 06/03/04 11,200,000 6,605,073 77,125 FORWARD FOREIGN CURRENCY SALE CONTRACTS British Pound (GBP) 06/03/04 31,350,000 55,451,085 (2,869,885) Euro (EUR) 06/03/04 4,900,000 6,155,941 (399,911) Japanese Yen (JPY) 01/07/04 68,200,000 636,412 1,465 Japanese Yen (JPY) 06/03/04 445,000,000 4,172,535 (34,425) Swedish Krona(SEK) 01/05/04 2,070,000 287,688 (2,387) Swedish Krona(SEK) 06/03/04 25,500,000 3,520,222 (200,644) Swiss Franc (CHF) 01/05/04 1,040,000 840,914 (6,644) Swiss Franc (CHF) 06/03/04 9,200,000 7,465,762 (437,603) ------------ Total net unrealized loss on Forward Foreign Currency Contracts $ (3,585,038) ============
See accompanying notes to financial statements 25 UBS GLOBAL BOND FUND Over the six months ended December 31, 2003, Class Y shares of UBS Global Bond Fund returned 7.65%. Over the same six-month period, the Citigroup World Government Bond Index (the "Index") returned 7.29%. Since inception on July 31, 1993 through December 31, 2003, the Fund's Class Y shares have returned 6.72% on an annualized basis, compared to 6.93% for the Index. (Returns for all share classes over various time periods are shown on page 28. 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.) A significant driver behind the Fund's relative outperformance over the six-month period was interest rate management. There was a particularly strong positive contribution early in the review period from duration positions in the US and Japan. SIX-MONTH MARKET REVIEW The bond market showed great resilience in the face of a global stock market recovery. Prior to the start of the review period, geopolitical unrest--particularly the war in Iraq--led investors to favor the relative safety of fixed income investments. However, spurred on by the global economic recovery, increasingly risk-tolerant investors returned to stocks. Surprisingly, the negative impact of this flight was not immediate. Bonds held on for a while, with most long-term government bond yields falling into June. At that time, though, the markets turned volatile. In the US market, the yield on the 10-year Treasury note, which had fallen to a 45-year low of 3.11% in June, was, by the beginning of September, back up to 4.60%. Yields finally settled down as the period drew to a close, trading in the 4.0% to 4.5% range before ending the year at 4.25%. The yield on 10-year European bonds also rose, as did the yield on Japanese bonds. The resumption of relative stability in the bond markets can be attributed to the easing of fears regarding near-term inflation, as well as clear signs from central banks that they intended to maintain their accommodative monetary policies. With this support, bonds were able to tread water in the face of the global economic rebound. In terms of sectors, the improving economic outlook strongly benefited the credit markets, with spreads (yield differential) narrowing relative to government-issued bonds. The more speculative sectors, such as high yield and emerging markets, performed extremely well. From a country standpoint, Japan performed well, due to a number of factors, including decreasing confidence over optimistic growth forecasts for 2004, as well as clear statements from the Bank of Japan that it would stand behind its zero interest rate policy for the foreseeable future. ACTIVE MANAGEMENT MAXIMIZED OPPORTUNITIES IN A CHANGING ENVIRONMENT After several years of steadily improving bond markets, investors and asset managers faced a much more challenging environment over the last six months. With input from our global network of researchers and analysts, we initiated a series of strategic moves aimed at maximizing opportunities presented by the changing market conditions. For example, duration management generated strong returns over the period. Prior to the start of the reporting period, as yields in all major bond markets fell steadily, we reduced the duration of the portfolio significantly below that of the benchmark index. This strategy move generated strong results early in the review period when markets rebounded sharply. Notably, the 100-basis point yield rise in the US and Japan resulted in a major contribution to relative performance. On a credit market level, the dramatic moves in both yields and spreads between markets during the period provided us with the opportunity to reduce our positions in the credit markets of the US and Europe. In our opinion, these markets were trading at close to fair valuation, offering little incremental growth potential. We locked in our gains and redeployed the assets to areas that we believed held more opportunities for growth. On a country allocation level, we saw good results. Specifically, we took note of the spread 26 compression between sovereign borrowers within the European Monetary Union, despite the growing political tension surrounding the Stability and Growth Pact. As a result, we restructured the European component of the portfolio by shifting assets from the sovereign issues of Italy and Spain, toward Germany and Austria. We also increased our exposure to short and intermediate maturity Japanese government bonds, by purchasing securities when the market took a sharp drop. Our research encouraged us to believe that these securities can prosper with the support of the country's zero interest rate policy. We chose to avoid the longer end of the market, though, since we felt the higher yields on these securities were not sufficient enough to compensate clients for the greater risks. In yet another strategic move, we quickly responded when select central banks tightened monetary policy. The UK raised its official rates by 0.25% in November, bringing the benchmark short-term interest rate up to 3.75%. The UK market fell on this news, giving us the opportunity to identify securities with attractive valuations relative to other markets. The UK bond market quickly recovered its footing, gaining strength when lower inflation data prevented further hikes, and the Fund benefited as a result. LOOKING AHEAD We believe investors are currently entranced with the stock market and the potential for greater returns. As this situation subsides, we feel investors will refocus on some of the factors that still threaten a robust global economic recovery. In the meantime, central banks have voiced their commitment to maintaining low short-term interest rates, providing considerable support to the global bond market. In this environment, we will continue to employ our network of experienced researchers and analysts to uncover opportunities to add value for our shareholders. 27 TOTAL RETURN
6 MONTHS 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION* ENDED ENDED ENDED ENDED ENDED TO 12/31/03 12/31/03 12/31/03 12/31/03 12/31/03 12/31/03 - ---------------------------------------------------------------------------------------------------------- UBS Global Bond Fund Class A 7.49% 15.75% N/A N/A N/A 14.57% UBS Global Bond Fund Class B 7.05 14.98 N/A N/A N/A 15.69 UBS Global Bond Fund Class C 7.26 15.27 N/A N/A N/A 15.59 UBS Global Bond Fund Class Y 7.65 16.10 11.36% 5.58% 6.60% 6.72 UBS Global Bond Fund Class A** 2.68 10.58 N/A N/A N/A 12.17 UBS Global Bond Fund Class B** 2.08 9.98 N/A N/A N/A 14.47 UBS Global Bond Fund Class C** 6.51 14.52 N/A N/A N/A 15.59 Citigroup World Government Bond Index 7.29 14.91 10.78 5.75 6.79 6.93
* INCEPTION DATE OF UBS GLOBAL BOND FUND CLASS A SHARES IS 11/05/01. INCEPTION DATES OF CLASS B AND CLASS C SHARES ARE 11/26/01 AND 7/02/02, RESPECTIVELY. INCEPTION DATE OF CLASS Y SHARES AND 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. PAST PERFORMANCE IS NOT AN INDICATION OF FUTURE RESULTS. 28 COUNTRY EXPOSURE, TOP FIVE AS OF DECEMBER 31, 2003 (UNAUDITED)
PERCENTAGE OF NET ASSETS - --------------------------------------------------- Japan 19.2% United States 17.3 Germany 13.8 France 8.0 Spain 6.8 - --------------------------------------------------- Total 65.1%
CURRENCY EXPOSURE, TOP FIVE AS OF DECEMBER 31, 2003 (UNAUDITED)
PERCENTAGE OF MARKET VALUE - --------------------------------------------------- Euro 44.5% Japanese Yen 30.0 United States Dollar 19.6 Canadian Dollar 2.1 Danish Krone 1.2 - --------------------------------------------------- Total 97.4%
INDUSTRY DIVERSIFICATION AS A PERCENT OF NET ASSETS AS OF DECEMBER 31, 2003 (UNAUDITED) U.S. BONDS U.S. CORPORATE BONDS Airlines 0.05% Autos/Durables 0.49 Banks 0.13 Beverages & Tobacco 0.08 Chemicals 0.06 Computer Systems 0.05 Construction 0.05 Consumer 0.04 Electric Components 0.07 Energy 0.10 Financial Services 1.44 Food & House Products 0.14 Forest Products 0.01 Health: Drugs 0.04 Insurance 0.01 Leisure & Tourism 0.02 Multi-Industry 0.09 Publishing 0.12 Real Estate 0.05 Retail/Apparel 0.03 Services/Miscellaneous 0.02 Telecommunications 0.15 Telephones 0.02% Transportation 0.48 Utilities 0.03 ------ Total U.S. Corporate Bonds 3.77 Asset-Backed Securities 0.60 Commercial Mortgage-Backed Obligations 1.45 Mortgage-Backed Securities 6.02 U.S. Government Obligations 3.25 ------ Total U.S. Bonds 15.09 INTERNATIONAL BONDS International Corporate Bonds 0.57 International Bonds 81.38 Sovereign/Supranational Bonds 0.05 ------ Total International Bonds 82.00 SHORT-TERM INVESTMENTS 2.18 ------ TOTAL INVESTMENTS 99.27 CASH AND OTHER ASSETS, LESS LIABILITIES 0.73 ------ NET ASSETS 100.00% ======
TOP TEN FIXED INCOME HOLDINGS AS OF DECEMBER 31, 2003 (UNAUDITED)
PERCENTAGE OF NET ASSETS - --------------------------------------------------- International Bank for Reconstruction & Development 2.000%, due 02/18/08 4.8% Government of Japan 0.900%, due 12/22/08 4.1 Government of Spain 3.100%, due 09/20/06 3.9 Development Bank of Japan 1.750%, due 06/21/10 3.8 European Investment Bank 2.125%, due 09/20/07 3.7 Deutsche Bundesrepublik 5.000%, due 07/04/12 3.0 Government of Sweden 8.000%, due 08/15/07 2.8 International Bank for Reconstruction & Development 4.750%, due 12/20/04 2.8 Landwirt Rentenbk 1.375%, due 04/25/13 2.7 Government of France 5.500%, due 10/25/07 2.5 - --------------------------------------------------- Total 34.1%
29 UBS GLOBAL BOND FUND -- SCHEDULE OF INVESTMENTS DECEMBER 31, 2003 (UNAUDITED)
FACE AMOUNT VALUE --------------- ---------------- BONDS -- 97.09% U.S. BONDS -- 15.09% U.S. CORPORATE BONDS -- 3.77% Anadarko Finance Co., Series B 7.500%, due 05/01/31 $ 5,000 $ 5,857 Anheuser-Busch Cos., Inc. 9.000%, due 12/01/09 20,000 25,359 AOL Time Warner, Inc. 7.625%, due 04/15/31 25,000 28,844 Apache Corp. 6.250%, due 04/15/12 25,000 27,792 AT&T Corp. 8.500%, due 11/15/31 5,000 5,843 Avon Products, Inc. 7.150%, due 11/15/09 20,000 23,318 Bank of America Corp. 7.400%, due 01/15/11 30,000 35,185 Bank One Corp. 7.875%, due 08/01/10 25,000 30,030 Boeing Capital Corp. 7.375%, due 09/27/10 25,000 28,736 Burlington Northern Santa Fe Corp. 6.875%, due 12/01/27 5,000 5,464 7.082%, due 05/13/29 10,000 11,216 Cendant Corp. 6.875%, due 08/15/06 20,000 21,943 Centex Corp. 9.750%, due 06/15/05 25,000 27,703 Citigroup, Inc. 7.250%, due 10/01/10 35,000 40,795 Citizens Communications Co. 9.250%, due 05/15/11 25,000 29,556 Comcast Cable Communications, Inc. 6.750%, due 01/30/11 20,000 22,259 Commonwealth Edison Co. 6.150%, due 03/15/12 5,000 5,455 Computer Sciences Corp. 3.500%, due 04/15/08 25,000 24,881 Consolidated Edison, Inc., Series B 7.500%, due 09/01/10 30,000 35,474 Coors Brewing Co. 6.375%, due 05/15/12 10,000 10,894 Credit Suisse First Boston USA, Inc. 6.500%, due 01/15/12 10,000 11,130 DaimlerChrysler NA Holding Corp. 5.625%, due 01/16/07 50,000 66,267 EOP Operating LP 7.250%, due 06/15/28 25,000 27,182 Erac U.S.A. Finance Co., 144A 8.000%, due 01/15/11 15,000 17,840 Ford Motor Co. 7.450%, due 07/16/31 25,000 25,263 Ford Motor Credit Co. 5.800%, due 01/12/09 45,000 46,343 6.250%, due 06/18/07 200,000 264,266 7.375%, due 02/01/11 25,000 27,248 General Electric Capital Corp. 4.375%, due 01/20/10 300,000 384,699 6.000%, due 06/15/12 70,000 75,912 General Motors Acceptance Corp. 6.000%, due 07/03/08 $ 100,000 $ 132,430 6.875%, due 09/15/11 25,000 26,928 8.000%, due 11/01/31 30,000 33,689 Harley-Davidson, Inc. 144A 3.625%, due 12/15/08 25,000 24,937 Household Finance Corp. 6.750%, due 05/15/11 25,000 28,144 ICI Wilmington, Inc. 4.375%, due 12/01/08 25,000 24,906 International Business Machines Corp. 5.875%, due 11/29/32 5,000 5,031 John Deere Capital Corp. 7.000%, due 03/15/12 10,000 11,520 Kohl's Corp. 7.250%, due 06/01/29 5,000 5,838 Kraft Foods, Inc. 5.625%, due 11/01/11 25,000 26,341 Kroger Co. 8.050%, due 02/01/10 25,000 29,733 Lehman Brothers Holdings, Inc. 6.625%, due 01/18/12 10,000 11,285 Lincoln National Corp. 6.200%, due 12/15/11 10,000 10,910 Marsh & McClennan Cos., Inc. 6.250%, due 03/15/12 5,000 5,432 Morgan Stanley 6.750%, due 04/15/11 30,000 33,943 News America Holdings, Inc. 7.125%, due 04/08/28 5,000 5,476 Occidental Petroleum Corp. 8.450%, due 02/15/29 10,000 13,109 Praxair, Inc. 6.375%, due 04/01/12 5,000 5,563 Progress Energy, Inc. 7.000%, due 10/30/31 10,000 10,703 Qwest Capital Funding, Inc. 7.900%, due 08/15/10 30,000 30,450 Reed Elsevier Capital, Inc. 5.750%, due 07/31/08 50,000 67,649 Rohm & Haas Co. 7.850%, due 07/15/29 5,000 6,147 Safeway, Inc. 3.800%, due 08/15/05 25,000 25,526 SBC Communications, Inc. 5.875%, due 02/01/12 10,000 10,620 SLM Corp. 5.625%, due 04/10/07 20,000 21,673 Southern Power Co., Series B 6.250%, due 07/15/12 5,000 5,403 Sprint Capital Corp. 8.375%, due 03/15/12 25,000 29,195 Target Corp. 7.000%, due 07/15/31 10,000 11,338 United Technologies Corp. 6.100%, due 05/15/12 10,000 10,982 UST, Inc. 6.625%, due 07/15/12 10,000 11,124 Valero Energy Corp. 7.500%, due 04/15/32 10,000 11,145
30
FACE AMOUNT VALUE --------------- ---------------- Verizon New York, Inc., Series B 7.380%, due 04/01/32 $ 10,000 $ 11,010 Wachovia Bank N.A. 7.800%, due 08/18/10 25,000 30,162 Walt Disney Co. (The) 6.375%, due 03/01/12 10,000 10,996 Washington Mutual, Inc. 5.625%, due 01/15/07 25,000 26,944 Wells Fargo Bank, N.A. 6.450%, due 02/01/11 30,000 33,685 Weyerhaeuser Co. 7.375%, due 03/15/32 5,000 5,437 Wyeth 5.250%, due 03/15/13 25,000 25,449 ---------------- 2,223,607 ---------------- ASSET-BACKED SECURITIES -- 0.60% Americredit Automobile Receivables Trust, 03-AM, Class A2B+ 1.390%, due 10/06/06 23,712 23,710 Capital One Multi-Asset Execution Trust, 03-A1, Class A1+ 1.553%, due 01/15/09 75,000 75,332 Citibank Omni-S Master Trust, 01-1, Class A+ 1.274%, due 02/15/10 75,000 74,921 Conseco Finance, 00-B, Class AF4 7.870%, due 02/15/31 6,614 6,647 Peco Energy Transition Trust, 99-A, Class A7 6.130%, due 03/01/09 55,000 60,741 RAFC Asset-Backed Trust 01-1 Class A3 5.115%, due 01/25/15 47,667 48,961 Reliant Energy Transition 01-1 Class A4 5.630%, due 09/15/15 30,000 31,934 Structured Asset Securities Corp., 03-AL2, Class A, 144A 3.357%, due 01/25/31+ 26,528 25,459 United Airlines, Inc., E.E.T.C.(b)(c) 7.811%, due 10/01/09 14,728 5,609 ---------------- 353,314 ---------------- COMMERCIAL MORTGAGE-BACKED OBLIGATIONS -- 1.45% Bear Stearns Commercial Mortgage Securities, 00-WF2, Class A2 7.320%, due 10/15/32 80,000 93,169 DLJ Commercial Mortgage Corp., 00-CKP1, Class A1B 7.180%, due 08/10/10 140,000 158,557 DLJ Commercial Mortgage Corp., 99-CG1, Class A1B 6.460%, due 03/10/32 20,000 22,232 DLJ Commercial Mortgage Corp., 99-CG3, Class A1B 7.340%, due 10/10/32 85,000 98,725 GMAC Commercial Mortgage Securities, Inc., 97-C2, Class A2 6.550%, due 04/16/29 25,000 26,099 Greenwich Capital Commercial Funding Corp., 03-FL1 A, 144A+ 1.490%, due 07/05/18 $ 32,664 $ 32,656 JP Morgan Commercial Mortgage Finance Corp., 99-C8, Class A1 7.325%, due 07/15/31 67,730 72,159 JP Morgan Commercial Mortgage Finance Corp., 99-C8, Class A2 7.400%, due 07/15/31 85,000 97,283 LB Commercial Conduit Mortgage Trust, 99-C1, Class A1 6.410%, due 06/15/31 74,618 79,238 LB Commercial Conduit Mortgage Trust, 99-C2, Class A2 7.325%, due 10/15/32 50,000 57,778 Merrill Lynch Mortgage Investors, Inc., 96-C2, Class A3 6.960%, due 11/21/28 38,822 42,209 Merrill Lynch Mortgage Investors, Inc., 97-C2, Class A2 6.540%, due 12/10/29 20,000 22,094 Morgan Stanley Dean Witter Capital I, 00-LIF2, Class A1 6.960%, due 10/15/33 31,826 35,156 Nomura Asset Securities Corp., 95-MD3, Class A1B 8.150%, due 04/04/27 18,588 19,587 ---------------- 856,942 ---------------- MORTGAGE-BACKED SECURITIES -- 6.02% CS First Boston Mortgage Securities Corp., 02-10, Class 2A1 7.500%, due 05/25/32 28,106 30,142 CS First Boston Mortgage Securities Corp., 03-8, Class 5A1 6.500%, due 04/25/33 29,784 30,875 Federal Home Loan Mortgage Corp., 1595, Class D 7.000%, due 10/15/13 37,374 39,338 Federal Home Loan Mortgage Corp., Gold 5.000%, due 11/01/07 17,926 18,488 5.500%, due 01/01/18 48,701 50,514 6.000%, due 12/01/17 74,883 78,542 8.000%, due 01/01/30 143,267 154,387 Federal National Mortgage Association 3.396%, due 09/01/33+ 37,992 38,137 4.621%, due 04/01/33+ 46,188 47,175 5.027%, due 02/01/33+ 46,123 49,051 5.125%, due 01/02/14 25,000 25,087 5.500%, due 01/01/18 604,089 626,702 5.500%, due 11/01/23 70,681 71,629 6.000%, due 07/01/17 82,808 86,917 6.000%, due 03/01/29 34,786 35,974 6.000%, due 11/01/32 73,349 75,855 6.000%, due 07/01/33 165,152 170,793 6.000%, due 10/01/33 89,819 92,887 6.250%, due 02/01/11 55,000 60,800 6.500%, due 08/01/29 41,985 43,936 6.500%, due 05/01/30 37,211 38,922 6.500%, due 08/01/32 54,608 57,119 6.500%, due 09/01/32 39,963 41,801
31
FACE AMOUNT VALUE --------------- ---------------- 7.000%, due 11/01/32 $ 29,126 $ 30,841 7.000%, due 05/01/33 81,450 86,245 7.125%, due 01/15/30 135,000 162,608 Federal National Mortgage Association Grantor Trust, 00-T6, Class A1 7.500%, due 06/25/30 53,012 57,882 Federal National Mortgage Association Grantor Trust, 01-T10, Class A2 7.500%, due 12/25/41 89,501 98,013 Federal National Mortgage Association Whole Loan, 03-W6, Class 6A+ 4.972%, due 08/25/42 37,617 39,345 Federal National Mortgage Association Whole Loan, 95-W3, Class A 9.000%, due 04/25/25 1,731 1,936 Freddie Mac 5.125%, due 07/15/12 360,000 376,032 5.875%, due 03/21/11 35,000 37,937 6.000%, due 03/01/29 91,388 94,481 6.000%, due 03/01/31 76,610 79,203 6.500%, due 06/01/29 35,789 37,491 Government National Mortgage Association 6.000%, due 11/20/28 28,955 29,965 6.000%, due 12/20/28 45,325 46,937 6.000%, due 05/20/29 56,102 58,059 6.000%, due 07/15/29 30,894 32,136 6.500%, due 08/15/27 1,870 1,972 6.500%, due 12/15/29 44,567 47,056 6.500%, due 04/15/31 77,916 82,148 7.000%, due 07/15/25 11,115 11,924 7.000%, due 07/15/31 141,591 150,892 Impac Secured Assets Common Owner Trust, 01-3, Class A2+ 7.250%, due 04/25/31 25,296 26,590 ---------------- 3,554,764 ---------------- U.S. GOVERNMENT OBLIGATIONS -- 3.25% U.S. Treasury Bond 6.250%, due 05/15/30 505,000 582,762 6.875%, due 08/15/25 135,000 165,148 8.000%, due 11/15/21 85,000 114,796 U.S. Treasury Note 1.500%, due 07/31/05 115,000 114,910 1.875%, due 11/30/05 515,000 515,966 2.000%, due 08/31/05 280,000 281,805 3.250%, due 08/15/08 35,000 35,213 4.750%, due 11/15/08 95,000 101,702 ---------------- 1,912,302 ---------------- Total U.S. Bonds 8,900,929 ---------------- INTERNATIONAL BONDS -- 82.00% AUSTRALIA -- 4.29% Australia & New Zealand Banking Group Ltd. 5.500%, due 02/23/05 EUR 100,000 $ 130,410 Government of Australia 6.500%, due 05/15/13 AUD 1,000,000 801,109 9.000%, due 09/15/04 1,800,000 1,389,386 Telstra Corp., Ltd. 6.375%, due 06/29/11 EUR 150,000 211,585 ---------------- 2,532,490 ---------------- AUSTRIA -- 0.22% Bank Austria Creditanstalt AG 5.375%, due 01/26/05 EUR 100,000 129,979 ---------------- CANADA -- 2.86% Government of Canada 5.750%, due 06/01/29 CAD 240,000 199,967 6.000%, due 09/01/05 960,000 780,065 6.000%, due 06/01/08 280,000 235,276 6.000%, due 06/01/11 300,000 254,331 8.000%, due 06/01/23 210,000 218,990 ---------------- 1,688,629 ---------------- CAYMAN ISLANDS-- 0.24% Santander Central Hispano Issuances Ltd. 6.375%, due 07/05/10 EUR 100,000 139,779 ---------------- DENMARK -- 2.22% Kingdom of Denmark 5.000%, due 08/15/05 DKK 2,270,000 398,292 5.000%, due 11/15/13 1,600,000 282,290 6.000%, due 11/15/09 2,650,000 497,062 TDC A/S 5.875%, due 04/24/06 EUR 100,000 133,436 ---------------- 1,311,080 ---------------- FINLAND -- 2.33% Fortum Oyj 6.475%, due 11/03/06 EUR 50,000 68,245 Government of Finland 5.000%, due 04/25/09 420,000 563,587 5.375%, due 07/04/13 115,000 157,128 5.750%, due 02/23/11 370,000 516,709 UPM-Kymmene Oyj 6.125%, due 01/23/12 50,000 68,277 ---------------- 1,373,946 ---------------- FRANCE -- 7.98% Aventis S.A. 5.000%, due 04/18/06 EUR 100,000 131,537 Casino Guichard Perrachon S.A. 5.875%, due 11/23/07 50,000 67,215 France Telecom S.A 7.000%, due 12/23/09 150,000 214,234 GIE PSA Tresorerie 5.875%, due 09/27/11 100,000 135,854 GIE Suez Alliance 4.250%, due 06/24/10 100,000 124,297
32
FACE AMOUNT VALUE --------------- ---------------- Government of France 5.000%, due 10/25/16 EUR 535,000 $ 706,948 5.500%, due 10/25/07 1,090,000 1,483,124 5.500%, due 04/25/10 600,000 826,087 5.500%, due 04/25/29 340,000 464,299 8.500%, due 10/25/19 140,000 251,931 LVMH Moet Hennessy Louis Vuitton S.A. 5.750%, due 02/28/05 50,000 65,285 Renault S.A. 6.125%, due 06/26/09 50,000 68,555 Veolia Environnement 5.875%, due 06/27/08 125,000 168,777 ---------------- 4,708,143 ---------------- GERMANY -- 13.79% Deutsche Bank AG 5.000%, due 05/19/05 EUR 200,000 259,998 Deutsche Bundesrepublik 4.500%, due 07/04/09 750,000 983,243 5.000%, due 07/04/12 1,335,000 1,781,056 6.000%, due 01/05/06 500,000 671,258 6.000%, due 01/04/07 540,000 739,134 6.250%, due 01/04/24 290,000 431,987 6.500%, due 07/04/27 740,000 1,138,048 Kredit Fuer Wiederaufbau 5.000%, due 01/04/09 300,000 400,991 Landwirt Rentenbk 1.375%, due 04/25/13 JPY 170,000,000 1,603,300 VW Financial Services AG 5.375%, due 01/25/12 EUR 100,000 131,653 ---------------- 8,140,668 ---------------- GREECE -- 0.11% Public Power Corp. 4.500%, due 03/12/09 EUR 50,000 63,735 ---------------- IRELAND -- 0.24% Bank of Ireland 6.450%, due 02/10/10 EUR 100,000 140,793 ---------------- ITALY -- 4.43% Buoni Poliennali Del Tesoro 5.000%, due 05/01/08 EUR 240,000 321,605 5.250%, due 11/01/29 360,000 465,303 5.500%, due 11/01/10 300,000 412,199 8.750%, due 07/01/06 500,000 718,655 Government of Italy 4.250%, due 08/01/13 550,000 687,256 Telecom Italia Capital, 144A 5.250%, due 11/15/13 10,000 10,020 ---------------- 2,615,038 ---------------- JAPAN -- 19.24% Development Bank of Japan 1.750%, due 06/21/10 JPY 230,000,000 2,261,825 European Investment Bank 2.125%, due 09/20/07 220,000,000 2,186,948 Government of Japan 0.900%, due 12/22/08 255,000,000 2,417,610 International Bank for Reconstruction & Development 2.000%, due 02/18/08 JPY 285,000,000 $ 2,830,274 4.750%, due 12/20/04 170,000,000 1,658,099 ---------------- 11,354,756 ---------------- LUXEMBURG -- 0.12% Sogerim S.A. 7.000%, due 04/20/11 EUR 50,000 71,500 ---------------- NETHERLANDS -- 5.50% ABN Amro Bank NV 6.250%, due 06/28/10 EUR 100,000 139,427 Bank Nederlandse Gemeenten NV 5.250%, due 07/04/11 200,000 269,667 BMW Finance NV 5.250%, due 09/01/06 100,000 132,624 Deutsche Telekom International Finance BV 8.125%, due 05/29/12 100,000 154,781 E.ON International Finance BV 5.750%, due 05/29/09 100,000 136,689 Enbw International Finance BV 5.125%, due 02/28/07 100,000 131,804 Generali Finance BV 4.750%, due 05/12/14 100,000 127,089 Government of Netherlands 5.000%, due 07/15/11 810,000 1,083,969 ING Bank NV 5.500%, due 01/04/12 200,000 268,010 Koninklijke Philips Electronics NV 5.750%, due 05/16/08 100,000 134,876 Linde Finance BV 6.375%, due 06/14/07 50,000 68,377 Olivetti Finance NV 6.125%, due 07/30/09 50,000 68,668 Portugal Telecom International Finance BV 5.750%, due 02/21/06 100,000 132,933 RWE Finance BV 5.500%, due 10/26/07 100,000 134,331 Telefonica Europe BV 5.125%, due 10/30/06 100,000 132,348 Unilever NV 4.250%, due 09/26/07 100,000 129,376 ---------------- 3,244,969 ---------------- SINGAPORE-- 0.23% Singapore Telecommunications Ltd. 6.000%, due 11/21/11 EUR 100,000 136,953 ---------------- SPAIN -- 6.83% Government of Spain 4.250%, due 10/31/07 EUR 240,000 312,786 4.750%, due 07/30/14 350,000 456,111 5.150%, due 07/30/09 545,000 737,662 6.000%, due 01/31/29 145,000 211,247 Government of Spain International Bond 3.100%, due 09/20/06 JPY 230,000,000 2,315,768 ---------------- 4,033,574 ----------------
33
FACE AMOUNT VALUE --------------- ---------------- SWEDEN -- 5.22% Government of Sweden 6.000%, due 02/09/05 SEK 9,170,000 $ 1,315,990 6.750%, due 05/05/14 560,000 90,141 8.000%, due 08/15/07 10,580,000 1,675,379 ---------------- 3,081,510 ---------------- UNITED KINGDOM -- 5.53% Abbey National PLC 4.625%, due 02/11/11 EUR 100,000 128,063 Allied Domecq Financial Services PLC 5.875%, due 06/12/09 50,000 67,944 Barclays Bank, PLC 4.875%, due 06/26/06 100,000 131,627 British Telecommunications PLC 6.125%, due 02/15/06 50,000 67,022 Gallaher Group PLC 5.875%, due 08/06/08 50,000 67,254 Government of United Kingdom 8.000%, due 06/07/21 GBP 220,000 542,358 HBOS Treasury Services PLC 4.750%, due 02/06/07 EUR 100,000 131,550 HSBC Holdings PLC 5.375%, due 12/20/12 100,000 132,181 Imperial Tobacco Finance PLC 6.250%, due 06/06/07 50,000 67,712 Lloyds TSB Bank PLC 4.750%, due 03/18/11 100,000 129,241 National Westminster Bank PLC 6.000%, due 01/21/10 200,000 275,623 Rio Tinto Finance PLC 5.125%, due 05/10/07 100,000 132,728 Tesco PLC 5.250%, due 05/07/08 50,000 66,661 United Kingdom Gilt 4.250%, due 06/07/32 GBP 105,000 175,072 5.000%, due 03/07/12 160,000 290,951 5.750%, due 12/07/09 280,000 529,113 8.500%, due 12/07/05 100,000 192,915 Vodafone Group PLC 5.750%, due 10/27/06 EUR 100,000 134,271 ---------------- 3,262,286 ---------------- INTERNATIONAL CORPORATE BONDS -- 0.57% Anglian Water Service Financial 4.625%, due 10/07/13 $ 25,000 30,820 Canadian National Railway Co. 6.900%, due 07/15/28 5,000 5,586 Credit Suisse Group 6.375%, due 06/07/13 100,000 141,597 Deutsche Telekom International Finance BV 8.250%, due 06/15/30 5,000 6,387 European Investment Bank 4.875%, due 09/06/06 25,000 26,547 France Telecom S.A. 8.500%, due 03/01/31 5,000 6,643 HSBC Holdings PLC 5.250%, due 12/12/12 5,000 5,120 Inter-American Development Bank 5.750%, due 02/26/08 25,000 27,452 International Bank for Reconstruction & Development 4.375%, due 09/28/06 $ 35,000 $ 36,916 Rio Tinto Finance USA Ltd. 2.625%, due 09/30/08 25,000 23,847 United Mexican States 8.125%, due 12/30/19 25,000 27,938 ---------------- 338,853 ---------------- SOVEREIGN/SUPRANATIONAL BONDS -- 0.05% Pemex Project Funding Master Trust 8.000%, due 11/15/11 25,000 27,937 ---------------- Total International Bonds 48,396,618 ---------------- Total Bonds (Cost $52,014,851) 57,297,547 ---------------- SHARES --------------- SHORT-TERM INVESTMENTS -- 2.18% UBS Supplementary Trust U.S. Cash Management Prime Fund, yield of 1.23% (Cost $1,286,072) 1,286,072 1,286,072 ---------------- Total Investments (Cost $53,300,923) -- 99.27% (a) 58,583,619 Cash and other assets, less liabilities -- 0.73% 433,019 ---------------- Total Net Assets -- 100% $ 59,016,638 ================
34 NOTES TO SCHEDULE OF INVESTMENTS (a) Aggregate cost for federal income tax purposes was $53,300,923; and net unrealized appreciation consisted of: Gross unrealized appreciation $ 5,312,449 Gross unrealized depreciation (29,753) ------------ Net unrealized appreciation $ 5,282,696 ============
(b) Security is in default. (c) Security is illiquid. These securities amounted to $5,609 or 0.01% of net assets. + Variable rate security -- The rate disclosed is that in effect at December 31, 2003. % Represents a percentage of net assets E.E.T.C.: Enhanced Equipment Trust Certificate. 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 December 31, 2003 the value of these securities amounted to $110,912 or 0.18% of net assets. FORWARD FOREIGN CURRENCY CONTRACTS UBS Global Bond Fund had the following open forward foreign currency contracts as of December 31, 2003:
SETTLEMENT LOCAL CURRENT UNREALIZED DATE CURRENCY VALUE GAIN/(LOSS) ---------- ----------- ------------ ----------- FORWARD FOREIGN CURRENCY BUY CONTRACTS: British Pounds (GBP) 06/03/04 300,000 $ 530,632 $ 6,952 Euro (EUR) 06/03/04 2,540,000 3,191,039 188,195 Japanese Yen (JPY) 06/03/04 307,000,000 2,878,581 61,550 Swiss Franc (CHF) 06/03/04 500,000 405,748 23,783 FORWARD FOREIGN CURRENCY SALE CONTRACTS: Australian Dollar (AUD) 06/03/04 2,650,000 1,960,966 (98,016) British Pounds (GBP) 06/03/04 1,100,000 1,945,652 (106,155) Canadian Dollar (CAD) 06/03/04 600,000 461,462 (7,621) Danish Krone (DKK) 06/03/04 3,000,000 506,037 (32,028) Euro (EUR) 06/03/04 1,220,000 1,532,704 (30,729) Japanese Yen (JPY) 06/03/04 55,000,000 515,707 (1,448) Swedish Krona (SEK) 06/03/04 19,300,000 2,664,325 (151,860) ---------- Total net unrealized loss on Forward Foreign Currency Contracts $ (147,377) ==========
See accompanying notes to financial statements 35 UBS U.S. ALLOCATION FUND Over the six months ended December 31, 2003, Class Y shares of UBS U.S. Allocation Fund (formerly UBS U.S. Balanced Fund) returned 9.75%, underperforming the 10.83% return of the U.S. Allocation Fund Index* (the "Index"). Since inception on December 30, 1994, the Fund's Class Y shares have returned 9.15% on an annualized basis, compared to the 10.86% annualized return of the Index. (Returns for all share classes over various time periods are shown on page 39. 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 underperformed the Index as a result of an underweight to computer hardware, and specifically to semiconductor stocks. While these stocks ultimately produced some of the strongest returns over the period, we avoided them, as our analysis led us to determine that their price appreciation was not supported by the underlying fundamentals. SIX-MONTH MARKET REVIEW The US equity market posted strong returns for the six months ended December 31, 2003. Despite some concerns regarding the weakening US dollar and stubbornly high energy prices, the Russell 3000 Index (a general measure of equity market performance) rose 16.28% during the reporting period. Virtually every sector of the equity market rallied, but the more speculative areas of the market led the way. Stocks whose prices had fallen so conspicuously in recent years, including those in the Internet services, semiconductor and communications technology sectors, were the top performers during the review period. Many of these stocks, in our view, did not offer sufficient future cash flow to justify significant investment. Nonetheless, they were selling at extremely low prices, which appealed to newly risk-tolerant investors interested in making quick profits in a rapidly recovering market. During the six months as a whole, small-cap stocks were the best-performing segment of the market, outpacing both mid- and large-cap stocks. From July 1, 2003 through December 31, 2003, the Russell 2000 Index (a general measure of small-cap stock performance) increased 24.92%. Over the same timeframe, the Russell Midcap Index (mid-cap stocks) returned 15.47%, while the Russell 1000 Index (large-cap stocks) gained 12.34%. The technology-laden Nasdaq Composite Index climbed 23.45%, a return that is indicative of the strong performance more speculative stocks generated over the six-month period. In terms of style, value and growth stocks generated similar results, posting returns of 16.55% and 14.73%, respectively, as measured by the Russell 1000 Value and Russell 1000 Growth indexes. The US bond market showed great resiliency in the face of the stock market rally, but it was subjected to significant volatility during the summer of 2003. The yield on the 10-year Treasury note, which had fallen to a 45-year low of 3.11% in mid-June, was, by the beginning of September, back up to 4.60%. Yields finally settled down as the period drew to a close, trading in the 4.0% to 4.5% range before ending the year at 4.25%. Some of this stability can be attributed to statements made by the Federal Reserve Board, which reassured investors about inflation and reaffirmed its commitment to remaining accommodative. This support helped the bond market stay afloat despite the surging economy; the Lehman Brothers Aggregate Bond Index returned 0.17% for the six months ended December 31, 2003. ASSET ALLOCATION OPPORTUNITIES WERE FEW On an asset level, we began the period with an overweight to stocks relative to bonds, based on our conclusion that bonds were significantly overvalued. However, as the reporting period unfolded, bond yields went up, driving bond prices down. This afforded us the opportunity to increase the Fund's bond market exposure at more desirable valuations. As the period progressed, our analysis concluded that most of the major asset classes were trading at what we considered to be fair value ranges. - ---------- * AN UNMANAGED INDEX COMPILED BY THE ADVISOR, CONSTRUCTED AS FOLLOWS: 65% RUSSELL 3000 EQUITY INDEX, 30% LEHMAN BROTHERS US AGGREGATE BOND INDEX, AND 5% MERRILL LYNCH HIGH YIELD CASH PAY INDEX. 36 As a result, we found fewer opportunities to add value through asset allocation. EQUITIES: SECURITY SELECTION PLAYED A KEY ROLE IN FAIRLY VALUED MARKETS A critical part of our investment process is risk management. We believe the risks we take must be consistent with the opportunities we have identified. On a sector level, adhering to this guiding principle prevented the Fund from benefiting from some of the strong gains that the speculative stock rally generated over the period. Most notably, performance was hindered during the reporting period by our underweighting of technology hardware, specifically the semiconductor market. Our intrinsic value analysis, whereby we seek to identify companies that are selling for less than their true, or intrinsic value (derived from their potential to generate future cash flow), indicated that many of these higher-risk securities did not have long-term investment merit and were not appropriate for the Fund. We feel that share prices must eventually be supported by positive earnings and cash flow--something we believe many of these speculative companies will not be able to produce. Alternately, we saw positive results from our overweights to healthcare and financials. Within healthcare, the portfolio saw particular strength from its holdings in pharmaceuticals, including generic drugs and branded drugs. Pharmaceutical stock prices had fallen due to investor concerns over regulatory issues, Medicare reform and company-specific scandals. Our analysis revealed, however, that the industry remains well-positioned, supported by an aging population, ongoing research and development, and proprietary products. We also initiated a position in the clinical laboratory services market, a sector that we believe offers attractive fundamentals, including relatively stable market growth. Financial services also generated strong performance, especially select bank holdings such as Citigroup and Freddie Mac. Our research determined that while Freddie Mac's stock had suffered after high-level resignations, earnings restatements and the threat of increased regulatory oversight, the core earnings and profitability characteristics of the company were sound, and the stock was selling for less than its intrinsic value. The Fund benefited when Freddie Mac's stock price rose sharply at the end of the period. FIXED INCOME: ACTIVE MANAGEMENT SUPPORTED PERFORMANCE Within the fixed income portion of the Fund, duration management and sector strategy added value during the period. Entering the reporting period, the Fund's duration was 90% of the Index. We increased duration to equal that of the Index, by taking advantage of the falling prices of longer-term issues as investors pulled out of the bond market. Within the fixed income portion of the Portfolio, we reduced the Portfolio's duration, as low rates, combined with stimulative fiscal policies, rising budget deficits, geopolitical resolution, and strengthening equity and credit pricing reinforced our view that we would see a concurrent pickup in economic activity and long-term interest rates. To lower duration, we increased our underweight to credit, albeit modestly; specifically, we overweighted Baa-rated paper versus A-rated and higher. Several small sector changes boosted Fund performance. For example, we increased our position in mortgage-backed securities from neutral to modestly overweight, with an emphasis on higher coupon mortgage-backed securities. Mortgage-backed securities had suffered approximately mid-period, when low interest rates and record refinancings caused the sector to underperform. Our overweight, combined with the emphasis on higher-coupon mortgage-backed securities--which performed well in the lower prepayment environment that characterized the final months of the period--generated positive results for the Fund. LOOKING AHEAD The watchword for the stock market in 2004 is sustainability. As the economic recovery enters its second year, we believe investors will turn their attention back to fundamentals, rewarding companies with proven 37 management, sound balance sheets, and real earnings growth. We feel our portfolio is well-positioned for such an environment. We anticipate that the combination of strong growth and reduced risks of deflation will prompt the Federal Reserve Board (the "Fed") to raise the federal funds rate in the third quarter of 2004 or possibly later, and interest rates should also rise across all maturities, although less so for maturities greater than ten years. The Fed has modified its position, changing its tone regarding the state of the economy in relation to expected inflation, in preparation for the tightening. Through our disciplined investment approach, we will seek to identify compelling opportunities that have the potential to generate superior risk-adjusted returns relative to the benchmark over the long term. 38 TOTAL RETURN
6 MONTHS 1 YEAR 3 YEARS 5 YEARS INCEPTION* ENDED ENDED ENDED ENDED TO 12/31/03 12/31/03 12/31/03 12/31/03 12/31/03 - ------------------------------------------------------------------------------------------------------ UBS U.S. Allocation Fund Class A 9.63% 20.21% 6.23% 4.47% 5.84% UBS U.S. Allocation Fund Class B 9.16 19.22 N/A N/A 5.81 UBS U.S. Allocation Fund Class C 9.14 19.34 N/A N/A 6.02 UBS U.S. Allocation Fund Class Y 9.75 20.40 6.51 4.81 9.15 UBS U.S. Allocation Fund Class A** 3.63 13.66 4.26 3.30 4.92 UBS U.S. Allocation Fund Class B** 4.16 14.22 N/A N/A 4.49 UBS U.S. Allocation Fund Class C** 8.14 18.34 N/A N/A 6.02 U.S. Allocation Fund Index *** 10.83 21.67 1.46 2.99 10.86 Russell 3000 Index 16.28 31.06 -3.08 0.37 12.02 Lehman Brothers U.S. Aggregate Bond Index 0.17 4.10 7.57 6.62 8.10 Merrill Lynch High Yield Cash Pay Index 8.52 27.23 10.13 5.47 8.20
* INCEPTION DATE OF UBS U.S. ALLOCATION FUND CLASS A SHARES IS 6/30/97. INCEPTION DATES OF CLASS B AND CLASS C SHARES ARE 11/07/01 AND 11/06/01, RESPECTIVELY. INCEPTION DATE OF CLASS Y SHARES AND THE INDICES, IS 12/30/94. ** RETURNS INCLUDE SALES CHARGES. *** AN UNMANAGED INDEX COMPILED BY THE ADVISOR (FORMERLY KNOWN AS THE UBS U.S. BALANCED MUTUAL FUND INDEX), THE COMPOSITION OF THE INDEX CHANGED EFFECTIVE 10/31/2003 AND IS CONSTRUCTED AS FOLLOWS: 65% RUSSELL 3000 EQUITY INDEX, 30% LEHMAN BROTHERS U.S. AGGREGATE BOND INDEX AND 5% MERRILL LYNCH HIGH YIELD CASH PAY INDEX. PRIOR TO OCTOBER 31, 2003, THE INDEX CONSISTED OF 65% WILSHIRE 5000 INDEX AND 35% LEHMAN U.S. AGGREGATE BOND INDEX. THE COMPOSITION OF THE INDEX WAS CHANGED TO REFLECT THE FUND'S EXPOSURE TO HIGH YIELD BONDS. 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. PAST PERFORMANCE IS NOT AN INDICATION OF FUTURE RESULTS. 39 TOP TEN EQUITY HOLDINGS AS OF DECEMBER 31, 2003 (UNAUDITED)
PERCENTAGE OF NET ASSETS - --------------------------------------------------- Nextel Communications, Inc., Class A 2.6% Citigroup, Inc. 2.2 Wells Fargo & Co. 1.8 Microsoft Corp. 1.7 Burlington Northern Santa Fe Corp. 1.6 Wyeth 1.6 UnitedHealth Group, Inc. 1.4 ExxonMobil Corp. 1.4 Morgan Stanley 1.4 Illinois Tool Works, Inc. 1.3 - --------------------------------------------------- Total 17.0%
TOP TEN FIXED INCOME HOLDINGS AS OF DECEMBER 31, 2003 (UNAUDITED)
PERCENTAGE OF NET ASSETS - --------------------------------------------------- U.S. Treasury Bond 6.250%, due 05/15/30 1.2% Fannie Mae 7.125%, due 01/15/30 0.9 U.S. Treasury Note 2.000%, due 08/31/05 0.9 U.S. Treasury Note 4.250%, due 08/15/13 0.8 U.S. Treasury Bond 6.875%, due 08/15/25 0.7 Morgan Stanley Dean Witter Capital I, 01-TOP1, Class A4 6.660%, due 02/15/33 0.7 Federal National Mortgage Association 5.500%, due 01/01/18 0.6 U.S. Treasury Bond 8.000%, due 11/15/21 0.5 U.S. Treasury Note 4.750%, due 11/15/08 0.5 Federal National Mortgage Association 6.500%, due 03/01/17 0.4 - --------------------------------------------------- Total 7.2%
40 INDUSTRY DIVERSIFICATION AS A PERCENT OF NET ASSETS AS OF DECEMBER 31, 2003 (UNAUDITED) U.S. EQUITIES Aerospace & Military 0.36% Airlines 0.24 Autos/Durables 0.50 Banks 3.61 Biomedical 0.70 Broadcasting & Publishing 1.02 Business & Public Service 0.23 Capital Goods 1.93 Chemicals 0.32 Computer Software 1.72 Computer Systems 0.67 Construction 0.82 Consumer 0.80 Electric Components 0.77 Electronics 0.25 Energy 5.44 Financial Services 9.05 Health: Drugs 6.25 Health: Non-Drugs 4.17 Healthcare 0.48 Housing/Paper 0.56 Industrial Components 1.12 Media and Entertainment 0.77 Metals Non-Ferrous 1.25 Multi-Industry 1.14 Retail/Apparel 1.98 Services/Miscellaneous 2.55 Technology 0.02 Telecommunications- Services 3.07 Transportation 2.27 Utilities 0.54 ------ Total Equities 54.60 U.S. BONDS U.S. Corporate Bonds Aerospace & Military 0.10 Airlines 0.07 Autos/Durables 0.39 Banks 0.33 Beverages & Tobacco 0.22 Chemicals 0.09 Computer Systems 0.08 Construction 0.10 Consumer 0.09 Electric Components 0.09 Energy 0.38 Financial Services 1.54 Food & House Products 0.38 Forest Products 0.03 Health: Drugs 0.09 Housing/Paper 0.03 Insurance 0.01 Leisure & Tourism 0.09 Media and Entertainment 0.03 Metals Non-Ferrous 0.03 Multi-Industry 0.13 Publishing 0.02 Real Estate 0.07 Retail/Apparel 0.04 Services/Miscellaneous 0.06 Telecommunications 0.21 Telecommunications - Wireless 0.04 Telephones 0.03 Transportation 0.10 Utilities 0.11 ------ Total U.S. Corporate Bonds 4.98 Asset-Backed Corporates 1.08 Commercial Mortgaged-Backed Obligations 2.94 Mortgage-Backed Securities 12.55 U.S. Government Obligations 5.19 ------ Total U.S. Bonds 26.74 International Corporate Bonds 0.56 Sovereign/Supranational Bonds 0.07 ------ Total International Bonds 0.63 ------ Total Bonds 27.37 INVESTMENT COMPANIES 10.65 SHORT-TERM INVESTMENTS 7.70 ------ TOTAL INVESTMENTS 100.32 LIABILITIES, IN EXCESS OF CASH AND OTHER ASSETS (0.32) ------ NET ASSETS 100.00% ======
41 UBS U.S. ALLOCATION FUND -- SCHEDULE OF INVESTMENTS DECEMBER 31, 2003 (UNAUDITED)
SHARES VALUE --------------- ---------------- U.S. EQUITIES -- 54.60% AEROSPACE & MILITARY -- 0.36% United Technologies Corp. 1,500 $ 142,155 ---------------- AIRLINES -- 0.24% Delta Air Lines, Inc. (b) 7,900 93,299 ---------------- AUTOS/DURABLES -- 0.50% Johnson Controls, Inc. 1,700 197,404 ---------------- BANKS -- 3.61% FleetBoston Financial Corp. 2,505 109,343 GreenPoint Financial Corp. 10,650 376,158 PNC Financial Services Group 3,900 213,447 Wells Fargo & Co. 12,300 724,347 ---------------- 1,423,295 ---------------- BIOMEDICAL -- 0.70% Genzyme Corp. (b) 5,600 276,304 ---------------- BROADCASTING & PUBLISHING -- 1.02% Gannett Co., Inc. 1,900 169,404 McGraw-Hill Cos., Inc. (The) 3,300 230,736 ---------------- 400,140 ---------------- BUSINESS & PUBLIC SERVICE -- 0.23% Interpublic Group of Cos., Inc. (b) 5,800 90,480 ---------------- CAPITAL GOODS -- 1.93% Illinois Tool Works, Inc. 6,300 528,633 Pentair, Inc. 5,100 233,070 ---------------- 761,703 ---------------- CHEMICALS -- 0.32% Eastman Chemical Co. 3,200 126,496 ---------------- COMPUTER SOFTWARE -- 1.72% Microsoft Corp. 24,600 677,484 ---------------- COMPUTER SYSTEMS -- 0.67% Dell, Inc. 4,000 135,840 Hewlett-Packard Co. 5,485 125,991 ---------------- 261,831 ---------------- CONSTRUCTION -- 0.82% Martin Marietta Materials, Inc. 6,836 321,087 ---------------- CONSUMER -- 0.80% Kimberly-Clark Corp. 5,300 313,177 ---------------- ELECTRIC COMPONENTS -- 0.77% Linear Technology Corp. 7,200 302,904 ---------------- ELECTRONICS -- 0.25% TXU Corp. 4,200 99,624 ---------------- ENERGY -- 5.44% American Electric Power Co., Inc. 1,500 45,765 Anadarko Petroleum Corp. 1,700 86,717 ConocoPhillips 5,060 331,784 Exelon Corp. 6,500 431,340 ExxonMobil Corp. 13,400 549,400 FirstEnergy Corp. 8,991 316,483 Kerr-McGee Corp. 1,750 81,358 Progress Energy, Inc. 2,400 108,624 Sempra Energy 6,300 $ 189,378 ---------------- 2,140,849 ---------------- FINANCIAL SERVICES -- 9.05% American International Group, Inc. 5,100 338,028 Citigroup, Inc. 18,186 882,748 Freddie Mac 9,000 524,880 Hartford Financial Services Group, Inc. (The) 3,600 212,508 J.P. Morgan Chase & Co. 14,300 525,239 Mellon Financial Corp. 12,300 394,953 Morgan Stanley 9,450 546,872 XL Capital Ltd. 1,800 139,590 ---------------- 3,564,818 ---------------- HEALTH: DRUGS -- 6.25% Allergan, Inc. 6,500 499,265 Bristol-Myers Squibb Co. 15,900 454,740 Cephalon, Inc. (b) 4,200 203,322 Mylan Labs, Inc. 17,950 453,417 SICOR, Inc. (b) 8,400 228,480 Wyeth 14,700 624,015 ---------------- 2,463,239 ---------------- HEALTH: NON-DRUGS -- 4.17% Aflac, Inc. 3,200 115,776 Anthem, Inc. (b) 4,100 307,500 Baxter International, Inc. 4,800 146,496 Biomet, Inc. 2,900 105,589 Johnson & Johnson 5,164 266,772 Quest Diagnostics, Inc. 1,800 131,598 UnitedHealth Group, Inc. 9,800 570,164 ---------------- 1,643,895 ---------------- HEALTHCARE -- 0.48% Cardinal Health, Inc. 3,100 189,596 ---------------- HOUSING/PAPER -- 0.56% American Standard Companies, Inc. (b) 2,200 221,540 ---------------- INDUSTRIAL COMPONENTS -- 1.12% Ingersoll-Rand Co., Class A 6,500 441,220 ---------------- MEDIA AND ENTERTAINMENT -- 0.77% Viacom, Inc., Class B 3,800 168,644 Westwood One, Inc. (b) 3,900 133,419 ---------------- 302,063 ---------------- METALS NON-FERROUS -- 1.25% Masco Corp. 18,000 493,380 ---------------- MULTI-INDUSTRY -- 1.14% Time Warner, Inc. (b) 16,700 300,433 Willis Group Holdings, Ltd. 4,300 146,501 ---------------- 446,934 ---------------- RETAIL/APPAREL -- 1.98% Costco Wholesale Corp. (b) 9,700 360,646 Kohl's Corp. (b) 4,300 193,242 Newell Rubbermaid, Inc. 3,200 72,864 TJX Companies, Inc. 7,000 154,350 ---------------- 781,102 ----------------
42
SHARES VALUE --------------- ---------------- SERVICES/MISCELLANEOUS -- 2.55% First Data Corp. 5,816 $ 238,979 MeadWestvaco Corp. 4,850 144,288 Omnicom Group 5,700 497,781 Viad Corp. 5,000 125,000 ---------------- 1,006,048 ---------------- TECHNOLOGY -- 0.02% Mettler Toledo, Inc. (b) 200 8,442 ---------------- TELECOMMUNICATIONS-SERVICES -- 3.07% Nextel Communications, Inc., Class A (b) 35,800 1,004,542 SBC Communications, Inc. 7,900 205,953 ---------------- 1,210,495 ---------------- TRANSPORTATION -- 2.27% Boeing Co. (The) 6,400 269,696 Burlington Northern Santa Fe Corp. 19,300 624,355 ---------------- 894,051 ---------------- UTILITIES -- 0.54% CMS Energy Corp. (b) 8,600 73,272 Dominion Resources, Inc. 2,200 140,426 ---------------- 213,698 ---------------- Total U.S. Equities (Cost $17,802,974) 21,508,753 ---------------- FACE AMOUNT --------------- BONDS -- 27.37% U.S. CORPORATE BONDS -- 4.98% Abbott Laboratories, Inc. 5.625%, due 07/01/06 $ 5,000 5,393 Alcoa, Inc. 6.000%, due 01/15/12 10,000 10,868 Altria Group, Inc. 7.750%, due 01/15/27 20,000 21,579 American Express Co. 3.750%, due 11/20/07 25,000 25,466 Anadarko Finance Co., Series B 7.500%, due 05/01/31 5,000 5,857 Anheuser-Busch Cos., Inc. 9.000%, due 12/01/09 25,000 31,699 AOL Time Warner, Inc. 7.625%, due 04/15/31 30,000 34,613 Apache Corp. 6.250%, due 04/15/12 25,000 27,792 AT&T Corp. 8.500%, due 11/15/31 5,000 5,843 AT&T Wireless Services, Inc. 7.875%, due 03/01/11 15,000 17,357 Avalonbay Communities, Inc. 7.500%, due 08/01/09 10,000 11,541 Avon Products, Inc. 7.150%, due 11/15/09 15,000 17,489 Bank of America Corp. 7.400%, due 01/15/11 35,000 41,049 Bank One Corp. 7.875%, due 08/01/10 30,000 36,036 Boeing Capital Corp. 7.375%, due 09/27/10 25,000 28,737 FACE AMOUNT VALUE --------------- ---------------- Bombardier Capital, Inc., 144A 6.125%, due 06/29/06 $ 15,000 $ 15,956 Bristol-Myers Squibb Co. 5.750%, due 10/01/11 5,000 5,403 Burlington Northern Santa Fe Corp. 7.082%, due 05/13/29 15,000 16,824 Caterpillar, Inc. 6.550%, due 05/01/11 10,000 11,355 Cendant Corp. 6.875%, due 08/15/06 15,000 16,457 Centex Corp. 9.750%, due 06/15/05 25,000 27,703 Cingular Wireless 6.500%, due 12/15/11 5,000 5,468 Citigroup, Inc. 7.250%, due 10/01/10 50,000 58,278 Citizens Communications Co. 9.250%, due 05/15/11 30,000 35,467 Coca-Cola Co. (The) 4.000%, due 06/01/05 10,000 10,328 Comcast Cable Communications, Inc. 6.750%, due 01/30/11 25,000 27,823 Commonwealth Edison Co. 6.150%, due 03/15/12 5,000 5,455 Computer Sciences Corp. 3.500%, due 04/15/08 25,000 24,881 Conagra Foods, Inc. 6.750%, due 09/15/11 10,000 11,209 ConocoPhillips 8.500%, due 05/25/05 20,000 21,802 8.750%, due 05/25/10 10,000 12,492 Consolidated Edison, Inc., Series B 7.500%, due 09/01/10 25,000 29,562 Coors Brewing Co. 6.375%, due 05/15/12 10,000 10,894 Countrywide Home Loans, Inc. 3.250%, due 05/21/08 25,000 24,588 Credit Suisse First Boston USA, Inc. 6.500%, due 01/15/12 15,000 16,695 Devon Financing Corp., ULC 6.875%, due 09/30/11 10,000 11,339 Dominion Resources, Inc., Class B 7.625%, due 07/15/05 20,000 21,605 DTE Energy Co. 7.050%, due 06/01/11 5,000 5,607 Duke Energy Field Services, LLC 7.875%, due 08/16/10 25,000 29,289 EOP Operating LP 7.000%, due 07/15/11 15,000 16,926 Erac U.S.A. Finance Co., 144A 8.000%, due 01/15/11 20,000 23,787 First Data Corp. 5.625%, due 11/01/11 10,000 10,639 FleetBoston Financial Corp. 7.375%, due 12/01/09 5,000 5,870 Ford Motor Co. 7.450%, due 07/16/31 60,000 60,631 Ford Motor Credit Co. 5.800%, due 01/12/09 65,000 66,940
43
FACE AMOUNT VALUE --------------- ---------------- General Dynamics Corp. 3.000%, due 05/15/08 $ 25,000 $ 24,409 General Electric Capital Corp. 6.000%, due 06/15/12 90,000 97,601 General Motors Acceptance Corp. 6.875%, due 09/15/11 30,000 32,314 8.000%, due 11/01/31 25,000 28,074 Goldman Sachs Group, Inc. 6.875%, due 01/15/11 20,000 22,712 Harley-Davidson, Inc. 144A 3.625%, due 12/15/08 25,000 24,937 Harrah's Operating Co., Inc. 7.500%, due 01/15/09 15,000 17,085 Household Finance Corp. 6.750%, due 05/15/11 25,000 28,144 ICI Wilmington, Inc. 4.375%, due 12/01/08 25,000 24,906 International Business Machines Corp. 5.875%, due 11/29/32 5,000 5,031 International Paper Co. 6.750%, due 09/01/11 10,000 11,118 John Deere Capital Corp. 7.000%, due 03/15/12 10,000 11,520 Kerr-McGee Corp. 7.875%, due 09/15/31 5,000 5,679 Kimberly-Clark Corp., 144A 4.500%, due 07/30/05 15,000 15,614 Kohl's Corp. 6.300%, due 03/01/11 5,000 5,611 Kraft Foods, Inc. 5.625%, due 11/01/11 25,000 26,341 Kroger Co. 8.050%, due 02/01/10 40,000 47,572 Lehman Brothers Holdings, Inc. 6.625%, due 01/18/12 10,000 11,285 Lincoln National Corp. 6.200%, due 12/15/11 5,000 5,455 Marsh & McClennan Cos., Inc. 6.250%, due 03/15/12 5,000 5,432 MidAmerican Energy Co. 5.125%, due 01/15/13 10,000 10,192 Morgan Stanley 6.750%, due 04/15/11 35,000 39,600 News America Holdings, Inc. 7.125%, due 04/08/28 5,000 5,476 Occidental Petroleum Corp. 8.450%, due 02/15/29 5,000 6,555 Pepsi Bottling Group, Inc., 144A 5.625%, due 02/17/09 15,000 16,288 Praxair, Inc. 6.375%, due 04/01/12 5,000 5,563 Progress Energy, Inc. 7.000%, due 10/30/31 10,000 10,703 Qwest Capital Funding, Inc. 7.900%, due 08/15/10 30,000 30,450 Rohm & Haas Co. 7.850%, due 07/15/29 5,000 6,147 Safeway, Inc. 3.800%, due 08/15/05 30,000 30,631 SBC Communications, Inc. 5.875%, due 02/01/12 $ 10,000 $ 10,620 SLM Corp. 5.625%, due 04/10/07 20,000 21,673 Southern Power Co., Series B 6.250%, due 07/15/12 5,000 5,403 Southwestern Electric Power, Series B 4.500%, due 07/01/05 5,000 5,184 Sprint Capital Corp. 8.375%, due 03/15/12 25,000 29,195 Suntrust Banks, Inc. 5.050%, due 07/01/07 5,000 5,390 Target Corp. 7.000%, due 07/15/31 10,000 11,338 U.S. Bank N.A., Minnesota 6.375%, due 08/01/11 20,000 22,299 Unilever Capital Corp. 7.125%, due 11/01/10 15,000 17,439 Union Pacific Corp. 6.700%, due 12/01/06 20,000 22,166 United Technologies Corp. 6.100%, due 05/15/12 15,000 16,473 UST, Inc. 6.625%, due 07/15/12 10,000 11,124 Valero Energy Corp. 7.500%, due 04/15/32 10,000 11,145 Verizon New England, Inc. 6.500%, due 09/15/11 5,000 5,509 Verizon New York, Inc., Series B 7.380%, due 04/01/32 5,000 5,505 Viacom, Inc. 6.625%, due 05/15/11 10,000 11,352 Wachovia Bank N.A 7.800%, due 08/18/10 30,000 36,194 Walt Disney Co. (The) 6.375%, due 03/01/12 15,000 16,494 Washington Mutual, Inc. 5.625%, due 01/15/07 35,000 37,722 Wells Fargo Bank, N.A 6.450%, due 02/01/11 40,000 44,914 Weyerhaeuser Co. 7.375%, due 03/15/32 10,000 10,873 Wyeth 5.250%, due 03/15/13 25,000 25,449 ---------------- 1,958,498 ---------------- ASSET-BACKED SECURITIES -- 1.08% Americredit Automobile Receivables Trust, 03-AM, Class A2B (c) 1.390%, due 10/06/06 23,712 23,710 Capital One Multi-Asset Execution Trust, 03-A1, Class A1 (c) 1.553%, due 01/15/09 80,000 80,354 Citibank Omni-S Master Trust, 01-1, Class A (c) 1.274%, due 02/15/10 80,000 79,916 Conseco Finance, 00-B, Class AF4 7.870%, due 02/15/31 8,268 8,309 Peco Energy Transition Trust, 99-A, Class A7 6.130%, due 03/01/09 55,000 60,741
44
FACE AMOUNT VALUE --------------- ---------------- RAFC Asset-Backed Trust 01-1 Class A3 5.115%, due 01/25/15 $ 73,202 $ 75,189 Structured Asset Securities Corp., 03-AL2, Class A, 144A 3.356%, due 01/25/31 26,528 25,459 United Airlines, Inc., E.E.T.C. (d)(e) 7.811%, due 10/01/09 19,638 7,478 Vanderbilt Mortgage Finance, 00-B, Class 1A3 8.255%, due 05/07/17 61,639 63,731 ---------------- 424,887 ---------------- COMMERCIAL MORTGAGE-BACKED OBLIGATIONS -- 2.94% Bear Stearns Commercial Mortgage Securities, 00-WF1, Class A2 7.780%, due 02/15/32 140,000 164,725 DLJ Commercial Mortgage Corp., 99-CG2, Class A1B 7.300%, due 06/10/32 25,000 28,934 GMAC Commercial Mortgage Securities, Inc., 97-C2, Class A2 6.550%, due 04/16/29 35,000 36,539 Greenwich Capital Commercial Funding Corp., 03-FL1 A, 144A (c) 1.490%, due 07/05/18 32,664 32,656 GS Mortgage Securities Corp., II, 96-PL, Class A2 7.410%, due 02/15/27 6,962 7,089 JP Morgan Commercial Mortgage Finance Corp., 99-C8, Class A1 7.325%, due 07/15/31 67,732 72,161 JP Morgan Commercial Mortgage Finance Corp., 99-C8, Class A2 7.400%, due 07/15/31 150,000 171,676 LB Commercial Conduit Mortgage Trust, 99-C1, Class A1 6.410%, due 06/15/31 78,786 83,664 LB Commercial Conduit Mortgage Trust, 99-C2, Class A2 7.325%, due 10/15/32 40,000 46,222 Morgan Stanley Dean Witter Capital I, 00-LIF2, Class A1 6.960%, due 10/15/33 23,869 26,367 Morgan Stanley Dean Witter Capital I, 00-LIFE, Class A2 7.570%, due 12/15/09 135,000 157,924 Morgan Stanley Dean Witter Capital I, 01-TOP1, Class A4 6.660%, due 02/15/33 235,000 265,370 Nomura Asset Securities Corp., 95-MD3, Class A1B 8.150%, due 04/04/27 65,059 68,555 ---------------- 1,161,882 ---------------- MORTGAGE-BACKED SECURITIES -- 12.55% Credit Suisse First Boston Mortgage Securities Corp 7.000%, due 11/25/33 $ 122,999 $ 129,879 CS First Boston Mortgage Securities Corp., 03-8, Class 5A1 6.500%, due 04/25/33 81,907 84,907 Fannie Mae 5.125%, due 01/02/14 35,000 35,122 5.500%, due 03/15/11 140,000 150,977 6.000%, due 10/01/33 249,485 258,007 6.000%, due 08/01/17 113,989 119,646 6.250%, due 02/01/11 70,000 77,382 7.125%, due 01/15/30 295,000 355,329 Freddie Mac, 2532 PD 5.500%, due 06/15/26 90,000 93,137 Federal Home Loan Mortgage Corp., Gold 5.000%, due 11/01/07 17,926 18,488 5.500%, due 09/01/17 39,118 40,574 5.500%, due 01/01/18 68,993 71,561 5.500%, due 04/01/18 62,401 64,739 6.000%, due 12/01/17 81,690 85,681 6.000%, due 10/01/29 19,111 19,793 6.000%, due 03/01/32 14,714 15,212 6.500%, due 02/01/29 60,217 63,082 6.500%, due 04/01/29 58,733 61,527 6.500%, due 11/01/32 121,234 127,001 Federal National Mortgage Association 3.962%, due 05/01/33 (c) 131,910 135,317 4.474%, due 06/01/33 (c) 131,882 133,999 5.027%, due 02/01/33 (c) 69,184 73,576 5.500%, due 01/01/18 261,400 271,184 5.500%, due 02/01/18 114,513 118,800 5.500%, due 12/01/17 34,012 35,285 6.000%, due 03/01/29 34,786 35,974 6.000%, due 06/01/23 8,573 8,909 6.000%, due 06/01/33 32,414 33,521 6.000%, due 07/01/17 111,695 117,238 6.000%, due 07/01/33 82,576 85,397 6.000%, due 11/01/32 95,674 98,942 6.500%, due 03/01/17 166,938 177,044 6.500%, due 04/01/17 142,965 151,620 6.500%, due 04/01/29 100,002 104,600 6.500%, due 05/01/30 43,087 45,068 6.500%, due 08/01/29 49,796 52,110 6.500%, due 08/01/32 67,209 70,299 6.500%, due 09/01/32 49,954 52,251 6.500%, due 11/01/31 40,669 42,539 7.000%, due 05/01/33 114,576 121,321 7.000%, due 11/01/32 72,814 77,101 7.500%, due 02/01/33 99,941 106,832 7.500%, due 05/01/31 30,619 32,718 Federal National Mortgage Association Whole Loan, 03-W6, Class 6A (c) 4.972%, due 08/25/42 41,796 43,716 Federal National Mortgage Association Grantor Trust, 00-T6, Class A1 7.500%, due 06/25/30 70,683 77,177
45
FACE AMOUNT VALUE --------------- ---------------- Federal National Mortgage Association Grantor Trust, 01-T10, Class A2 7.500%, due 12/25/41 $ 5,014 $ 5,491 Federal National Mortgage Association Grantor Trust, 01-T5, Class A3 7.500%, due 06/19/30 84,415 92,171 Federal National Mortgage Association Whole Loan, 01-W3, Class A 7.000%, due 09/25/41 56,631 61,108 Federal National Mortgage Association, 93-73, Class ZA 7.500%, due 10/25/22 1,066 1,064 Freddie Mac 5.125%, due 07/15/12 105,000 109,676 5.875%, due 03/21/11 45,000 48,777 Government National Mortgage Association 4.000%, due 10/20/29 43,978 44,935 6.000%, due 11/20/28 18,821 19,477 6.000%, due 02/20/29 40,380 41,788 6.000%, due 07/15/29 34,756 36,153 6.500%, due 10/15/28 39,027 41,147 6.500%, due 04/15/31 105,255 110,972 7.000%, due 04/15/26 28,290 30,148 GS Mortgage Securities Corp., 01-2, Class A, 144A 7.500%, due 06/19/32 74,540 81,071 Impac Secured Assets Common Owner Trust, 01-3, Class A2 (c) 7.250%, due 04/25/31 7,495 7,878 MLCC Mortgage Investors, Inc., 03-D, Class XA1++ 1.000%, due 08/25/28 1,710,701 28,668 Structured Asset Securities Corp., 98-ALS1, Class 1A 6.900%, due 01/25/29 7,621 7,703 ---------------- 4,942,809 ---------------- U.S. GOVERNMENT OBLIGATIONS -- 5.19% U.S. Treasury Bonds 6.250%, due 05/15/30 395,000 455,824 6.875%, due 08/15/25 240,000 293,597 8.000%, due 11/15/21 155,000 209,335 U.S. Treasury Notes 1.500%, due 07/31/05 35,000 34,972 1.875%, due 11/30/05 150,000 150,281 2.000%, due 08/31/05 340,000 342,191 3.250%, due 08/15/08 75,000 75,457 4.250%, due 08/15/13 295,000 295,369 4.750%, due 11/15/08 175,000 187,346 ---------------- 2,044,372 ---------------- Total U.S. Bonds 10,532,448 ---------------- INTERNATIONAL BONDS -- 0.63% SOVEREIGN/SUPRANATIONAL BONDS -- 0.07% Pemex Project Funding Master Trust 8.000%, due 11/15/11 25,000 27,938 ---------------- INTERNATIONAL CORPORATE BONDS -- 0.56% Burlington Resources Finance Co. 6.680%, due 02/15/11 5,000 5,620 Canadian National Railway Co. 6.900%, due 07/15/28 $ 5,000 $ 5,587 Deutsche Telekom International Finance BV 8.250%, due 06/15/30 5,000 6,387 European Investment Bank 4.875%, due 09/06/06 25,000 26,547 France Telecom S.A 8.500%, due 03/01/31 5,000 6,643 HSBC Holdings PLC 5.250%, due 12/12/12 5,000 5,120 Inter-American Development Bank 5.750%, due 02/26/08 30,000 32,942 International Bank for Reconstruction & Development 4.375%, due 09/28/06 35,000 36,916 Rio Tinto Finance USA Ltd. 2.625%, due 09/30/08 25,000 23,847 Royal Bank of Scotland 9.118%, due 03/31/10 5,000 6,245 Telecom Italia Capital, 144A 5.250%, due 11/15/13 10,000 10,020 Telus Corp. 8.000%, due 06/01/11 10,000 11,693 United Mexican States 8.125%, due 12/30/19 40,000 44,700 ---------------- 222,267 ---------------- Total International Bonds 250,205 ---------------- Total Bonds (Cost $10,589,467) 10,782,653 ---------------- SHARES --------------- INVESTMENT COMPANIES -- 10.65% UBS High Yield Relationship Fund 111,680 1,854,603 UBS U.S. Small Cap Equity Relationship Fund 70,894 2,339,013 ---------------- Total Investment Companies (Cost $4,000,000) 4,193,616 ---------------- SHORT-TERM INVESTMENTS -- 7.70% UBS Supplementary Trust U.S. Cash Management Prime Fund, yield of 1.23% (Cost $3,031,135) 3,031,135 3,031,135 ---------------- Total Investments (Cost $35,423,576) -- 100.32% (a) 39,516,157 Liabilities, in excess of cash and other assets -- (0.32)% (125,767) ---------------- Total Net Assets -- 100% $ 39,390,390 ================
46 NOTES TO SCHEDULE OF INVESTMENTS (a) Aggregate cost for federal income tax purposes was $35,423,576; and net unrealized appreciation consisted of: Gross unrealized appreciation $ 4,300,048 Gross unrealized depreciation (207,467) ------------ Net unrealized appreciation $ 4,092,581 ============
(b) Non-income producing security (c) Variable rate security -- The rate disclosed is that in effect at December 31, 2003. (d) Security is in default. (e) Security is illiquid. These securities amounted to $7,478 or 0.02% of net assets. ++ Interest Only Security. This security entitles the holder to receive interest payments from an underlying pool of mortgages. The risk associated with this security is related to the speed of the principal paydowns. High prepayments would result in a smaller amount of interest being received and cause the yield to decrease. Low prepayments would result in a greater amount of interest being received and cause the yield to increase. % Represents a percentage of net assets E.E.T.C.: Enhanced Equipment Trust Certificate. 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 December 31, 2003 the value of these securities amounted to $245,788 or 0.62% of net assets. FUTURES CONTRACTS UBS U.S. Allocation Fund had the following open futures contracts as of December 31, 2003:
EXPIRATION CURRENT UNREALIZED DATE COST VALUE GAIN ---------- ------------ ------------ ---------- INDEX FUTURES BUY CONTRACTS: Standard & Poor's 500, 5 contracts March-04 $ 1,335,848 $ 1,388,250 $ 52,402 ==========
The aggregate cash collateral pledged to cover margin requirements for the open futures contracts at December 31, 2003 was $125,000. See accompanying notes to financial statements 47 UBS U.S. EQUITY FUND Over the six months ended December 31, 2003, Class Y shares of UBS U.S. Equity Fund returned 15.47%, trailing the 15.63% return of the Fund's benchmark, the Russell 1000 Index (the "Index"). Over the longer term, the Fund's Class Y shares have provided an annualized return of 11.10% since inception on February 22, 1994. This compares to the 11.04% return of the Index over the same period. (Returns for all share classes over various time periods are shown on page 50. 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.) In general, Fund performance benefited from industry- and stock-specific positions. However, the Fund's modest underperformance relative to the Index is largely the result of an underweight to technology hardware, and, specifically, to semiconductor stocks. In a market environment where more speculative stocks were the performance leaders, semiconductor stocks ultimately produced some of the strongest returns over the period. Our careful analysis led us to determine that the level at which these stocks were trading was not supported by the underlying fundamentals, so we avoided them. Nonetheless, we believe that the effectiveness of our price to intrinsic value approach is underscored by the fact that in this type of environment, the Fund was able to perform so closely in line with the benchmark. SIX-MONTH MARKET REVIEW The US equity market posted strong returns for the six months ended December 31, 2003. Despite some concerns in the third quarter of the year regarding the weakening US dollar and stubbornly high energy prices, the Russell 1000 Index finished the reporting period up 15.63%. Buoyed by the combination of a quick resolution to major combat in Iraq, historically low interest rates, significant federal tax cuts and improving corporate profits, investors became more willing to assume risk in 2003. Virtually every sector of the equity market benefited, but the more speculative issues--that is, low-cost, low-quality stocks--led the rally. In fact, stocks whose prices fell so conspicuously in recent years, including those in the Internet services, semiconductor and communications technology sectors, were the top performers during the review period. Many of these stocks were selling at extremely low prices, which appealed to newly risk-tolerant investors interested in making quick profits in a rapidly recovering market. Looking at the six-month period as a whole, small-cap stocks were the best performing segment of the market, outpacing both mid- and large-cap stocks. From June 30, 2003 through December 31, 2003, the Russell 2000 Index (a general measure of small-cap stock performance) increased 24.92%. Over the same timeframe, the Russell Midcap Index (mid-cap stocks) returned 15.47%, while the Russell 1000 Index (large-cap stocks) gained 12.34%. The technology-laden Nasdaq Composite Index climbed 23.45%, a return that is indicative of the strong performance more speculative stocks generated over the six-month period. In terms of style, value and growth stocks generated similar results, posting returns of 16.55% and 14.73%, respectively, as measured by the Russell 1000 Value and Russell 1000 Growth Indexes. FOCUS ON INTRINSIC VALUE MAINTAINED PORTFOLIO INTEGRITY Our disciplined investment approach focuses on price to intrinsic value. Through fundamental research, we seek to identify companies that are selling for less than their true, or intrinsic, value. As a whole, we believe the US equity market was within fair valuation range for much of the reporting period. Our in-depth research did, however, identify opportunities on both an industry and a stock-specific level. In particular, the Fund's performance was supported over the last six months by overweightings to healthcare and financials relative to the Index. Within healthcare, the portfolio saw particular strength from its holdings in pharmaceuticals, including generic and branded drug companies. Regulatory issues, Medicare reform and company-specific scandals had led to a precipitous decline in the prices of healthcare stocks. Our in-depth research and analysis 48 revealed, however, that the industry is solid, supported by an aging population, ongoing research and development, and proprietary products. Using our disciplined selection criteria, we identified attractive companies that were selling at less than their intrinsic value, including portfolio holdings Wyeth and United Health Group. We also initiated a position in Quest Diagnostics at the end of the period, to gain exposure to the clinical laboratory services market. We believe this market has attractive fundamentals, given the improving pricing trends of the last five years, relatively stable market growth and room for further margin expansion. In financial services, select bank holdings--notably Citigroup and Freddie Mac--benefited Fund performance. Research revealed that, although Freddie Mac stock suffered after high-level resignations, earnings restatements and the threat of increased regulatory oversight, the core earnings/profitability characteristics of the company were sound, and the stock was selling for less than its intrinsic value. This proved to be the case, as evidenced by the sharp rise of Freddie Mac's stock price during the reporting period. Conversely, Fund performance was hindered during the reporting period by underweights to some of the industries that eventually were the market leaders over the period--specifically, technology services and technology hardware. Our analysis determined that the underlying fundamentals of many of these stocks did not support the price run-ups we were seeing; we believe positive earnings and cash flow must eventually support share prices, something many of these companies will not, in our opinion, be able to sustain. For example, we avoided stocks in technology hardware--more specifically, the semiconductor market. While the underlying fundamentals have improved, we believe that investor enthusiasm has driven these stock prices up too far, too fast. The market seems to be factoring in expected growth rates well above what these companies have historically been able to achieve, and we are doubtful that these expectations will be met. Although the positions we had in technology hardware contributed to performance on an absolute basis, our underweight hurt performance on a relative basis. Likewise, our research revealed less long-term potential than that perceived by the market in many of the new biotechnology firms and commodity geriatric drug producers. Companies in these industries made some well-publicized gains, but their stock prices far exceeded levels supported by our valuation analysis. On a stock level, names such as Nextel and Sicor were significant positive contributors. Alternately, there are, over any calendar year, names that hurt performance. Among the underperformers during the period were names like Newell Rubbermaid, which we no longer own. LOOKING AHEAD We will continue to employ our disciplined investment strategy that centers on price to intrinsic value. Given the market's very strong advance during the fiscal year, we believe 2004 may offer fewer valuation opportunities. We continue to see opportunities in the financials sector--and particularly in banking--as well as in the healthcare space. We believe technology, on the other hand, continues to look expensive, with price appreciation during the past year preceding a recovery in profits that is currently underway. We remain committed to our investment process in this environment, seeking companies that we believe can consistently outpace the Index while seeking to minimize portfolio risk. 49 TOTAL RETURN
6 MONTHS 1 YEAR 3 YEARS 5 YEARS INCEPTION* ENDED ENDED ENDED ENDED TO 12/31/03 12/31/03 12/31/03 12/31/03 12/31/03 - --------------------------------------------------------------------------------------------------------- UBS U.S. Equity Fund Class A 15.47% 30.07% 3.18% 1.61% 4.89% UBS U.S. Equity Fund Class B 15.11 29.13 N/A N/A 6.37 UBS U.S. Equity Fund Class C 15.12 29.14 N/A N/A 5.04 UBS U.S. Equity Fund Class Y 15.74 30.47 3.51 1.90 11.10 UBS U.S. Equity Fund Class A** 9.14 22.96 1.25 0.47 3.98 UBS U.S. Equity Fund Class B** 10.11 24.13 N/A N/A 5.06 UBS U.S. Equity Fund Class C** 14.12 28.14 N/A N/A 5.04 Wilshire 5000 Equity Index 16.59 31.64 -2.48 0.42 10.58 Russell 1000 Index*** 15.63 29.89 -3.78 -0.13 11.04
* INCEPTION DATE OF UBS U.S. EQUITY FUND CLASS A SHARES IS 6/30/97. INCEPTION DATES OF CLASS B AND CLASS C SHARES ARE 11/05/01 AND 11/13/01, RESPECTIVELY. INCEPTION DATE OF CLASS Y SHARES AND THE INDEX, IS 2/22/94. ** RETURNS INCLUDE SALES CHARGES. *** AS OF OCTOBER 31, 2003, THE FUND'S BENCHMARK INDEX CHANGED FROM THE WILSHIRE 5000 EQUITY INDEX TO THE RUSSELL 1000 INDEX IN ORDER TO ALIGN THE FUND WITH AN INDEX MORE REFLECTIVE OF ITS INVESTMENT PRACTICES. THE RUSSELL 1000 INDEX MEASURES THE PERFORMANCE OF THE 1,000 LARGEST COMPANIES IN THE RUSSELL 3000 INDEX, AND REPRESENTS APPROXIMATELY 92% OF THE TOTAL MARKET CAPITALIZATION OF THE RUSSELL 3000 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. PAST PERFORMANCE IS NOT AN INDICATION OF FUTURE RESULTS. 50 TOP TEN EQUITY HOLDINGS AS OF DECEMBER 31, 2003 (UNAUDITED)
PERCENTAGE OF NET ASSETS - -------------------------------------------------------- Nextel Communications, Inc., Class A 4.5% Citigroup, Inc. 4.0 Wells Fargo & Co. 3.3 Microsoft Corp. 3.0 Burlington Northern Santa Fe Corp. 2.8 Wyeth 2.8 UnitedHealth Group, Inc. 2.6 Morgan Stanley 2.5 ExxonMobil Corp. 2.4 Freddie Mac 2.4 - -------------------------------------------------------- Total 30.3%
51 UBS U.S. EQUITY FUND -- SCHEDULE OF INVESTMENTS DECEMBER 31, 2003 (UNAUDITED)
SHARES VALUE --------------- ---------------- U.S. EQUITIES -- 96.69% AEROSPACE & DEFENSE -- 0.66% United Technologies Corp. 9,300 $ 881,361 ---------------- AIRLINES -- 0.42% Delta Air Lines, Inc. 47,300 558,613 ---------------- AUTOS/DURABLES -- 0.91% Johnson Controls, Inc. 10,400 1,207,648 ---------------- BANKS -- 6.40% FleetBoston Financial Corp. 14,955 652,786 GreenPoint Financial Corp. 64,000 2,260,480 PNC Financial Services Group 23,300 1,275,209 Wells Fargo & Co. 73,500 4,328,415 ---------------- 8,516,890 ---------------- BIOMEDICAL -- 1.24% Genzyme Corp. (b) 33,500 1,652,890 ---------------- BROADCASTING & PUBLISHING -- 1.82% Gannett Co., Inc. 11,700 1,043,172 McGraw-Hill Cos., Inc. (The) 19,700 1,377,424 ---------------- 2,420,596 ---------------- BUSINESS & PUBLIC SERVICE -- 0.40% Interpublic Group of Cos., Inc. (b) 34,300 535,080 ---------------- CAPITAL GOODS -- 3.41% Illinois Tool Works, Inc. 37,500 3,146,625 Pentair, Inc. 30,400 1,389,280 ---------------- 4,535,905 ---------------- CHEMICALS -- 0.57% Eastman Chemical Co. 19,050 753,047 ---------------- COMPUTER SOFTWARE -- 3.05% Microsoft Corp. 147,200 4,053,888 ---------------- COMPUTER SYSTEMS -- 1.17% Dell, Inc. (b) 23,600 801,456 Hewlett-Packard Co. 32,588 748,546 ---------------- 1,550,002 ---------------- CONSTRUCTION -- 1.44% Martin Marietta Materials, Inc. 40,807 1,916,705 ---------------- CONSUMER -- 1.40% Kimberly-Clark Corp. 31,550 1,864,289 ---------------- ELECTRIC COMPONENTS -- 1.37% Linear Technology Corp. 43,300 1,821,631 ---------------- ELECTRONICS -- 0.45% TXU Corp. 25,000 593,000 ---------------- ENERGY -- 9.63% American Electric Power Co., Inc. 9,300 283,743 Anadarko Petroleum Corp. 10,300 525,403 ConocoPhillips 30,182 1,979,034 Exelon Corp. 38,700 2,568,132 ExxonMobil Corp. 79,300 3,251,300 FirstEnergy Corp. 53,945 1,898,864 Kerr-McGee Corp. 10,600 492,794 Progress Energy, Inc. 14,600 660,796 Sempra Energy 38,000 $ 1,142,280 ---------------- 12,802,346 ---------------- FINANCIAL SERVICES -- 16.04% American International Group, Inc. 30,559 2,025,450 Citigroup, Inc. 109,061 5,293,804 Freddie Mac 54,000 3,149,280 Hartford Financial Services Group, Inc. (The) 21,700 1,280,951 J.P. Morgan Chase & Co. 85,700 3,147,761 Mellon Financial Corp. 73,000 2,344,030 Morgan Stanley 56,600 3,275,442 XL Capital Ltd. 10,500 814,275 ---------------- 21,330,993 ---------------- HEALTH: DRUGS -- 11.09% Allergan, Inc. 39,200 3,010,952 Bristol-Myers Squibb Co. 95,100 2,719,860 Cephalon, Inc. (b) 25,200 1,219,932 Mylan Labs, Inc. 107,350 2,711,661 SICOR, Inc. (b) 50,000 1,360,000 Wyeth 87,900 3,731,355 ---------------- 14,753,760 ---------------- HEALTH: NON-DRUGS -- 7.32% Aflac, Inc. 18,900 683,802 Anthem, Inc. (b) 24,400 1,830,000 Baxter International, Inc. 28,600 872,872 Biomet, Inc. 17,400 633,534 Johnson & Johnson 31,144 1,608,899 Quest Diagnostics, Inc. (b) 9,500 694,545 UnitedHealth Group, Inc. 58,500 3,403,530 ---------------- 9,727,182 ---------------- HEALTHCARE -- 0.86% Cardinal Health, Inc. 18,800 1,149,808 ---------------- HOUSING/PAPER -- 1.01% American Standard Companies, Inc. (b) 13,300 1,339,310 ---------------- INDUSTRIAL COMPONENTS -- 2.00% Ingersoll-Rand Co., Class A 39,100 2,654,108 ---------------- MEDIA AND ENTERTAINMENT -- 1.36% Viacom, Inc., Class B (b) 22,700 1,007,426 Westwood One, Inc. (b) 23,600 807,356 ---------------- 1,814,782 ---------------- METALS NON-FERROUS -- 2.22% Masco Corp. 107,600 2,949,316 ---------------- MULTI-INDUSTRY -- 2.01% Time Warner, Inc. (b) 99,900 1,797,201 Willis Group Holdings, Ltd. 25,700 875,599 ---------------- 2,672,800 ---------------- RETAIL/APPAREL -- 3.51% Costco Wholesale Corp. (b) 58,500 2,175,030 Kohl's Corp. (b) 25,600 1,150,464 Newell Rubbermaid, Inc. 18,300 416,691 TJX Companies, Inc. 42,100 928,305 ---------------- 4,670,490 ----------------
52
SHARES VALUE --------------- ---------------- SERVICES/MISCELLANEOUS -- 4.51% First Data Corp. 34,660 $ 1,424,179 MeadWestvaco Corp. 29,000 862,750 Omnicom Group 33,800 2,951,754 Viad Corp. 30,250 756,250 ---------------- 5,994,933 ---------------- TECHNOLOGY -- 0.02% Mettler Toledo, Inc. (b) 700 29,547 ---------------- TELECOMMUNICATIONS-SERVICES -- 5.41% Nextel Communications, Inc., Class A (b) 212,300 5,957,138 SBC Communications, Inc. 47,300 1,233,111 ---------------- 7,190,249 ---------------- TRANSPORTATION -- 4.02% Boeing Co. (The) 38,100 1,605,534 Burlington Northern Santa Fe Corp. 115,700 3,742,895 ---------------- 5,348,429 ---------------- UTILITIES -- 0.97% CMS Energy Corp. (b) 51,350 437,502 Dominion Resources, Inc. 13,300 848,939 ---------------- 1,286,441 ---------------- Total U.S. Equities (Cost $97,756,941) 128,576,039 ---------------- SHORT-TERM INVESTMENTS -- 3.20% OTHER -- 2.67% UBS Supplementary Trust U.S. Cash Management Prime Fund, yield of 1.23% (Cost $3,553,964) 3,553,964 3,553,964 ---------------- FACE AMOUNT --------------- U.S. GOVERNMENT OBLIGATIONS -- 0.53% U.S. Treasury Bill, yield of 0.82%, due 02/05/04 (c) (Cost $699,338) $ 700,000 699,417 ---------------- Total Short-Term Investments (Cost $4,253,302) 4,253,381 ---------------- Total Investments (Cost $102,010,243) -- 99.89% (a) 132,829,420 Cash and other assets, less liabilities -- 0.11% 146,250 ---------------- Total Net Assets -- 100% $ 132,975,670 ================
53 NOTES TO SCHEDULE OF INVESTMENTS (a) Aggregate cost for federal income tax purposes was $102,010,243; and net unrealized appreciation consisted of: Gross unrealized appreciation $ 32,629,418 Gross unrealized depreciation (1,810,241) --------------- Net unrealized appreciation $ 30,819,177 ===============
(b) Non-income producing (c) This security 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 December 31, 2003:
EXPIRATION CURRENT UNREALIZED DATE COST VALUE GAIN ---------- ------------ ------------ ---------- INDEX FUTURES BUY CONTRACTS Standard & Poor's 500, 13 contracts March-04 $ 3,485,554 $ 3,609,450 $ 123,896 ==========
The aggregate market value of investments pledged to cover margin requirements for the open futures contracts at December 31, 2003 was $699,417. See accompanying notes to financial statements 54 UBS U.S. LARGE CAP GROWTH FUND Over the six months ended December 31, 2003, Class Y shares of UBS U.S. Large Cap Growth Fund returned 15.72%, outperforming the 14.73% return of its benchmark, the Russell 1000 Growth Index (the "Index"). Since the Fund's inception on October 14, 1997 to December 31, 2003, its Class Y shares have declined 0.17% on an annualized basis, compared to the Index's annualized return of 0.88%. (Returns for all share classes over various time periods are shown on page 57. 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 outperformance of the Index over the reporting period is primarily due to security selection, and particularly the strong performance of specific holdings that possessed above-average volatility. Positive results also came from some key sector positions. SIX-MONTH MARKET REVIEW The US equity market posted strong returns for the six months ended December 31, 2003. Despite some concerns in the third quarter of the year regarding the weakening US dollar and stubbornly high energy prices, the Russell 3000 Index (a general measure of equity market performance) finished the reporting period up 16.28%. Buoyed by the combination of a quick resolution to the war in Iraq, historically low interest rates, significant federal tax cuts and improving corporate profits, investors became more willing to assume risk in 2003. Virtually every sector of the equity market benefited, but the more speculative issues--that is, low-price, low-quality stocks--led the rally. In fact, stocks whose prices fell so conspicuously in recent years, including those in the internet services, semiconductor and communications technology sectors, were the top performers during the period. Many of these stocks were selling at extremely low prices, which appealed to newly risk-tolerant investors interested in making quick profits in a rapidly recovering market. Looking at the six months as a whole, small-cap stocks were the best-performing segment of the market, outpacing both mid- and large-cap stocks, as evidenced by the 24.92% return of the Russell 2000 Index (a general measure of small-cap stock performance). Over the same timeframe, the Russell Midcap Index (mid-cap stocks) returned 15.47%, while the Russell 1000 Index (large-cap stocks) gained 12.34%. The technology-laden Nasdaq Composite Index climbed 23.45%, a return that is indicative of the strong performance more speculative stocks generated over the six-month period. In terms of style, value and growth stocks generated similar results, posting returns of 16.55% and 14.73%, respectively, as measured by the Russell 1000 Value and Russell 1000 Growth Indexes. SECURITY SELECTION ADDED VALUE DURING THE PERIOD Over the six-month period, our investment strategy--whereby we rely on rigorous analysis and a disciplined screening process to identify high-quality growth companies that offer the potential for superior results over the long term--helped us to uncover a number of compelling investment opportunities that positioned the Fund to participate in the economic recovery. This research resulted in overweights in brokerage stocks, consumer discretionary, energy companies and biotech. In addition, the Fund aggressively invested in Internet companies, such as Ebay and Amazon. We originally purchased these shares in mid-2002. We felt the market underappreciated the unique franchises and the strength of these companies' business models. These positions generated strong performance as the companies sharply beat consensus forecasts throughout 2003. In technology, we held positions in several depressed companies, including Qualcomm and Analog Devices, which benefited from the worldwide economic rebound and the secular adoption of mobile electronics. Also within technology, our position in Symantec benefited from the increased demand for computer security products that resulted from major global virus attacks. However, we note that the magnitude of last year's technology sector rebound was surprising, and rewarded 55 companies of lesser quality more generously than the high-quality, larger companies typically held by the Fund. Within the healthcare sector, an emphasis on mid-capitalization companies over larger pharmaceutical companies generated strong results. For example, we invested in Forest Labs because we expected its revenues to be aided by an aging population, regulatory reform and our nonconsensus view that the potential impact of its new Alzheimer's drug was underestimated. Other key positive results were generated by positions in wireless telecommunications (Nextel Communications), Internet advertising (Yahoo) and medical technology (Zimmer, Guidant and Varian Medical). Overall, our security selection was quite strong during the period. On the negative side, our results were penalized by our risk factor mix, as well as by industry factors. We had a risk profile that was slightly higher than the market, which modestlyhurt performance. On a stock-specific level, two individual names that detracted from performance were Autozone and Interactive, both consumer discretionary companies. LOOKING AHEAD Throughout the last eighteen months, every other quarter has been a positive one for growth stocks, and slightly positive overall. As the economy begins to lose some of its dramatic thrust, we believe it is likely that sustainable growth will become a more desirable investment characteristic from both a fundamental and relative valuation point of view. We expect that we will need to place more emphasis on visibility and sustainability, and less on magnitude of earnings change. As always, we remain committed to our investment process, seeking companies that we believe have the potential to consistently generate strong returns through a variety of cycles, while minimizing portfolio risk. 56 TOTAL RETURN
6 MONTHS 1 YEAR 3 YEARS 5 YEARS INCEPTION* ENDED ENDED ENDED ENDED TO 12/31/03 12/31/03 12/31/03 12/31/03 12/31/03 - -------------------------------------------------------------------------------------------- ---------- UBS U.S. Large Cap Growth Fund Class A 15.49% 29.47% -10.86% -4.75% -4.75% UBS U.S. Large Cap Growth Fund Class B 15.19 28.62 N/A N/A -3.24 UBS U.S. Large Cap Growth Fund Class C 15.03 28.44 N/A N/A -5.16 UBS U.S. Large Cap Growth Fund Class Y 15.72 29.71 -10.57 -4.45 -0.17 UBS U.S. Large Cap Growth Fund Class A** 9.17 22.39 -12.52 -5.83 -5.83 UBS U.S. Large Cap Growth Fund Class B** 10.19 23.62 N/A N/A -4.59 UBS U.S. Large Cap Growth Fund Class C** 14.03 27.44 N/A N/A -5.16 Russell 1000 Growth Index 14.73 29.75 -9.36 -5.11 0.88
* INCEPTION DATE OF UBS U.S. LARGE CAP GROWTH FUND CLASS A SHARES IS 12/31/98. INCEPTION DATES OF CLASS B AND CLASS C SHARES ARE 11/07/01 AND 11/19/01, RESPECTIVELY. INCEPTION DATE OF CLASS Y SHARES AND 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. PAST PERFORMANCE IS NOT AN INDICATION OF FUTURE RESULTS. 57 TOP TEN EQUITY HOLDINGS AS OF DECEMBER 31, 2003 (UNAUDITED)
PERCENTAGE OF NET ASSETS - ------------------------------------------------------- Microsoft Corp. 3.5% General Electric Co. 3.4 Cisco Systems, Inc. 2.9 Forest Laboratories, Inc. 2.8 Pfizer, Inc. 2.8 Intel Corp. 2.7 Amgen, Inc. 2.6 Guidant Corp. 2.5 Citigroup, Inc. 2.4 Nextel Communications, Inc., Class A 2.2 - ------------------------------------------------------- Total 27.8%
58 UBS U.S. LARGE CAP GROWTH FUND -- SCHEDULE OF INVESTMENTS DECEMBER 31, 2003 (UNAUDITED)
SHARES VALUE --------------- ---------------- U.S. EQUITIES -- 96.87% AEROSPACE & DEFENSE -- 1.03% United Technologies Corp. 600 $ 56,862 ---------------- AUTOS/DURABLES -- 2.28% Autozone, Inc. (b) 1,200 102,252 Johnson Controls, Inc. 200 23,224 ---------------- 125,476 ---------------- BIOMEDICAL -- 2.60% Amgen, Inc. (b) 2,316 143,129 ---------------- COMMERCIAL SERVICES -- 1.29% Accenture Ltd., Class A (b) 2,700 71,064 ---------------- COMPUTER SOFTWARE -- 5.31% Adobe Systems, Inc. 1,300 51,090 Microsoft Corp. 7,000 192,780 Oracle Corp. (b) 3,650 48,180 ---------------- 292,050 ---------------- COMPUTER SYSTEMS -- 8.50% Cisco Systems, Inc. (b) 6,600 160,314 Dell, Inc. (b) 3,600 122,256 EMC Corp. (b) 8,600 111,112 International Business Machines Corp. 800 74,144 ---------------- 467,826 ---------------- CONSUMER -- 1.71% H & R Block, Inc. 1,700 94,129 ---------------- ELECTRIC COMPONENTS -- 6.15% Intel Corp. 4,650 149,730 Linear Technology Corp. 1,400 58,898 Novellus Systems, Inc. (b) 1,150 48,357 Xilinx, Inc. (b) 2,100 81,354 ---------------- 338,339 ---------------- ENERGY -- 4.03% Anadarko Petroleum Corp. 800 40,808 XTO Energy 2,500 70,750 Devon Energy Corp. 700 40,082 GlobalSantaFe Corp. 1,500 37,245 Schlumberger Ltd. 600 32,832 ---------------- 221,717 ---------------- FINANCIAL SERVICES -- 9.69% Citigroup, Inc. 2,683 130,233 Fannie Mae 900 67,554 Goldman Sachs Group 1,100 108,603 Moody's Corp. 1,400 84,770 Morgan Stanley 1,350 78,124 SLM Corp. 1,700 64,056 ---------------- 533,340 ---------------- GOLD MINING -- 0.97% Newmont Mining Corp. 1,100 53,471 ---------------- HEALTH: DRUGS -- 8.74% Allergan, Inc. 650 49,927 Forest Laboratories, Inc. (b) 2,500 154,500 Mylan Labs, Inc. 2,000 50,520 Pfizer, Inc. 4,350 153,685 Wyeth 1,700 $ 72,165 ---------------- 480,797 ---------------- HEALTH: NON-DRUGS -- 9.62% Anthem, Inc. (b) 300 22,500 Guidant Corp. 2,300 138,460 UnitedHealth Group, Inc. 2,100 122,178 Varian Medical Systems, Inc. (b) 1,400 96,740 WellPoint Health Networks (b) 600 58,194 Zimmer Holdings, Inc. (b) 1,300 91,520 ---------------- 529,592 ---------------- INTERNET SERVICES -- 3.70% Symantec Corp. (b) 3,000 103,950 Yahoo!, Inc. (b) 2,200 99,374 ---------------- 203,324 ---------------- INVESTMENT COMPANIES -- 3.74% iShares Russell 1000 Growth Index Fund 4,400 205,920 ---------------- METALS-NON-FERROUS -- 0.61% Freeport-McMoran Copper & Gold, Inc. 800 33,704 ---------------- MULTI-INDUSTRY -- 7.21% General Electric Co. 6,000 185,880 Proctor & Gamble Co. 500 49,940 Time Warner, Inc. (b) 5,550 99,844 Willis Group Holdings, Ltd. 1,800 61,326 ---------------- 396,990 ---------------- RESEARCH & DEVELOPMENT -- 1.36% Genentech, Inc. (b) 800 74,856 ---------------- RETAIL/APPAREL -- 4.07% Abercrombie & Fitch Co. (b) 1,700 42,007 Coach, Inc. (b) 1,800 67,950 Ross Stores, Inc. 3,400 89,862 Wal-Mart Stores, Inc. 450 23,873 ---------------- 223,692 ---------------- SERVICES/MISCELLANEOUS -- 4.85% Amazon.com, Inc. (b) 1,700 89,488 eBay, Inc. (b) 1,800 116,262 Manpower, Inc. 1,300 61,204 ---------------- 266,954 ---------------- TECHNOLOGY -- 1.41% Analog Devices, Inc. (b) 1,700 77,605 ---------------- TELECOMMUNICATIONS EQUIPMENT -- 0.98% QUALCOMM, Inc. 1,000 53,930 ---------------- TELECOMMUNICATIONS- SERVICES -- 5.43% AT&T Wireless Services, Inc. (b) 9,800 78,302 Echostar Communications Corp., Class A (b) 2,850 96,900 Nextel Communications, Inc., Class A (b) 4,400 123,464 ---------------- 298,666 ---------------- THERAPEUTICS -- 1.59% Gilead Sciences, Inc. (b) 1,500 87,210 ---------------- Total U.S. Equities (Cost $4,621,632) 5,330,643 ----------------
59
SHARES VALUE --------------- ---------------- SHORT-TERM INVESTMENTS -- 3.37% UBS Supplementary Trust U.S. Cash Management Prime Fund, yield of 1.23% (Cost $185,577) 185,577 $ 185,577 ---------------- Total Investments (Cost $4,807,209) -- 100.24% (a) 5,516,220 Liabilities, in excess of cash and other assets -- (0.24)% (13,045) ---------------- Total Net Assets -- 100% $ 5,503,175 ================
NOTES TO SCHEDULE OF INVESTMENTS (a) Aggregate cost for federal income tax purposes was $4,807,209; and net unrealized appreciation consisted of: Gross unrealized appreciation $ 814,271 Gross unrealized depreciation (105,260) ---------------- Net unrealized appreciation $ 709,011 ================
(b) Non-income producing security % Represents a percentage of net assets See accompanying notes to financial statements 60 UBS U.S. SMALL CAP GROWTH FUND Over the six months ended December 31, 2003, Class Y shares of UBS U.S. Small Cap Growth Fund returned 25.07%, outperforming the 24.48% return of the Russell 2000 Growth Index (the "Index"). Since the Fund's inception on September 30, 1997 through December 31, 2003, the Fund's Class Y shares generated an average annual return of 8.02%--far exceeding the 0.49% decline posted by the Index on an annualized basis over the same timeframe. (Returns for all share classes over various time periods are shown on page 63. 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 outperformance of the Index during the review period is attributable to strong stock selection, particularly in the consumer discretionary, financials and industrials sectors. SIX-MONTH MARKET REVIEW When the reporting period began, it was apparent that the long-awaited economic recovery had arrived. Spurred by fiscal stimulus measures (including increased government spending and tax cuts) and the lowest short-term interest rates in 45 years, economic growth spiked sharply. The market was deluged with improving economic statistics, and investors, buoyed by this tangible proof, enthusiastically returned to the stock market. Virtually every corner of the equity market saw price improvements during the period. Not surprisingly, however, the past year witnessed a sharp recovery in the market segments that had been hit hardest in the prior three years. Of these segments, small caps were the performance leaders. Within the small cap universe, investors gravitated to the most speculative stocks, including those in the information technology and telecommunications sectors. More conservative sectors, such as consumer staples and financials, reported comparatively modest gains. Nonetheless, despite investors' clear preference for more aggressive stocks, there was no strong style bias over the period: small cap value stocks slightly outperformed small cap growth stocks, returning 25.36% and 24.48%, as measured by the Russell 2000 Value and Growth Indexes respectively, over the period. HIGHER-QUALITY ORIENTATION KEPT FOCUS ON LONG-TERM PERFORMANCE UBS U.S. Small Cap Growth Fund is committed to a research-based investment process that seeks to identify small cap companies with excellent management, strong balance sheets, and above-average sales and earnings growth prospects. We believe our process helps us to maintain a long-term perspective and to minimize the risks inherent in small-cap investing. For most of the period, this high-quality orientation was contrary to the market trend. As we have already noted, investors favored more speculative small cap stocks, paying little attention to underlying business fundamentals. Nonetheless, our research process helped us to identify attractive stock opportunities across sectors, which ultimately led to the Fund's outperformance of the Index. Notably, we achieved strong results from stock selection in consumer discretionary--positions included Chico's FAS and American Axle--and financials, which included UCBH Holdings and Ventas. Stock selection in industrials also generated strong results, with noteworthy examples being Career Education and Engineered Support Systems. On a sector level, the Fund's weightings were largely in line with the Index, with no sector over- or underweighted over the period by more than 3.0%. The Fund's underweight in consumer discretionary was a mild positive over the six months, while a modest underweight in the strong performing information technology sector hurt returns relative to the Index. Although technology stock selection was a neutral for the Fund in the last six months, our highest quality names in this area underperformed sharply, particularly Fair Isaac and Factset Research Systems. LOOKING AHEAD While the pace of the economic recovery may abate somewhat going forward, we believe small cap stocks still have the potential to deliver strong profit growth. Having said that, 61 we think there could be considerable volatility in the months ahead, as investors reassess near-term expectations. When the dust settles, we are confident the low-quality leadership we saw over the last six months will have run its course. We believe that, over the long term, investors tend to focus on a company's underlying fundamentals, rewarding firms with superior earnings growth prospects. We will continue to adhere to our disciplined investment process, targeting higher-quality small-cap growth companies with a demonstrated ability to generate above-average earnings growth over time. At period end, the portfolio was essentially sector neutral. Small overweights in energy, consumer staples and financials were offset by modest underweights in telecommunications, consumer discretionary, and materials. All sectors, however, were within two percentage points of the Index, so stock selection should continue to be the primary source of any excess returns for the foreseeable future. Many have questioned whether the current small cap rally has gotten ahead of underlying fundamentals. Although a note of caution is in order, it is important to point out that past small cap run-ups have lasted longer than expected. Since the late 1970s, small cap stocks have, on two other occasions besides 2003, appreciated more than 40% in a calendar year. In 1979, small caps generated a 43.1% return. In 1991, a small cap bull market produced a gain of 46.1%. Small cap performance in the 12-month period that immediately followed both of these years was similarly strong: In 1980, small caps surged upwards to post a 38.6% gain, while 1992 saw small caps generate a return of 18.4%.* Although past history cannot predict future performance, and while we expect to see a cooling off in the markets in the months ahead, we would not be surprised to see another solid year of gains as the economy continues to strengthen. Moreover, we expect the small cap recovery to broaden in 2004, and favor the types of higher-quality companies in which the Fund invests. Although these companies may not outperform in every period, the results we achieve by adhering to our disciplined investment process have, we believe, a demonstrated ability to generate above-average capital gains over time. * SOURCE: FRANK RUSSELL. 62 TOTAL RETURN
6 MONTHS 1 YEAR 3 YEARS 5 YEARS INCEPTION* ENDED ENDED ENDED ENDED TO 12/31/03 12/31/03 12/31/03 12/31/03 12/31/03 - -------------------------------------------------------------------------------------------------------- UBS U.S. Small Cap Growth Fund Class A 24.85% 44.33% 1.66% 12.63% 12.63% UBS U.S. Small Cap Growth Fund Class B 24.32 43.30 N/A N/A 11.29 UBS U.S. Small Cap Growth Fund Class C 24.34 43.35 N/A N/A 10.46 UBS U.S. Small Cap Growth Fund Class Y 25.07 44.75 1.97 12.96 8.02 UBS U.S. Small Cap Growth Fund Class A** 18.00 36.45 -0.24 11.37 11.37 UBS U.S. Small Cap Growth Fund Class B** 19.32 38.30 N/A N/A 10.05 UBS U.S. Small Cap Growth Fund Class C** 23.34 42.35 N/A N/A 10.46 Russell 2000 Growth Index 24.48 48.54 -2.03 0.86 -0.49
* INCEPTION DATE OF UBS U.S. SMALL CAP GROWTH FUND CLASS A SHARES IS 12/31/98. INCEPTION DATES OF CLASS B AND CLASS C SHARES ARE 11/07/01 AND 11/19/01, RESPECTIVELY. INCEPTION DATE OF CLASS Y SHARES AND 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. PAST PERFORMANCE IS NOT AN INDICATION OF FUTURE RESULTS. 63 TOP TEN EQUITY HOLDINGS AS OF DECEMBER 31, 2003 (UNAUDITED)
PERCENTAGE OF NET ASSETS - --------------------------------------------------------- Cognizant Technology Solutions Corp. 2.5% UCBH Holdings, Inc. 2.4 Pediatrix Medical Group, Inc. 2.3 CACI International, Inc. 2.1 Benchmark Electronic, Inc. 2.0 Chico's FAS, Inc. 1.9 Investors Financial Services Corp. 1.8 Advanced Neuromodulation Systems, Inc. 1.8 Odyssey HealthCare, Inc. 1.8 VCA Antech, Inc. 1.7 - --------------------------------------------------------- Total 20.3%
64 UBS U.S. SMALL CAP GROWTH FUND -- SCHEDULE OF INVESTMENTS DECEMBER 31, 2003 (UNAUDITED)
SHARES VALUE --------------- ---------------- EQUITIES -- 97.12% AEROSPACE & DEFENSE -- 1.62% Engineered Support Systems, Inc. 45,275 $ 2,492,842 ---------------- AIRLINES -- 0.66% Pinnacle Airlines Corp. (b) 72,800 1,011,192 ---------------- AUTO PARTS & EQUIPMENT -- 1.47% American Axle & Manufacturing Holdings, Inc. (b) 55,900 2,259,478 ---------------- BANKS -- 3.43% BankUnited Financial Corp., Class A (b) 57,500 1,482,925 Franklin Bank Corp. (b) 5,200 98,800 UCBH Holdings, Inc. 94,800 3,694,356 ---------------- 5,276,081 ---------------- BEVERAGES -- 1.18% Cott Corp. (b) 64,900 1,817,849 ---------------- BROADCASTING & CABLE TV -- 1.66% Cumulus Media, Inc., Class A (b) 89,400 1,966,800 Salem Communications Corp., Class A (b) 21,700 588,504 ---------------- 2,555,304 ---------------- CAPITAL GOODS -- 1.37% Cognex Corp. (b) 74,700 2,109,528 ---------------- CHEMICALS -- 0.90% Albemarle Corp. 46,000 1,378,620 ---------------- COMPUTER SERVICES -- 0.71% Radisys Corp. (b) 64,600 1,089,156 ---------------- COMPUTER SOFTWARE -- 4.90% Borland Software Corp. (b) 101,400 986,622 Fair, Isaac Corp. 51,500 2,531,740 Magma Design Automation, Inc. (b) 87,100 2,032,914 Open Solutions, Inc. (b) 2,700 47,439 THQ, Inc. (b) 52,250 883,547 Verisity Ltd. (b) 83,500 1,064,625 ---------------- 7,546,887 ---------------- COMPUTER SYSTEMS -- 0.65% Ixia (b) 85,100 995,670 ---------------- CONSTRUCTION -- 4.14% Dycom Industries, Inc. (b) 84,300 2,260,926 Hovnanian Enterprises, Inc. (b) 19,900 1,732,494 JLG Industries, Inc. 73,100 1,113,313 NVR, Inc. (b) 2,700 1,258,200 ---------------- 6,364,933 ---------------- CONSTRUCTION & ENGINEERING -- 0.88% EMCOR Group, Inc. (b) 30,800 1,352,120 ---------------- CONSUMER -- 0.66% Leapfrog Enterprises, Inc. (b) 38,500 1,021,405 ---------------- DISTILLER & VINTNERS -- 1.03% Constellation Brands, Inc., Class A (b) 47,900 1,577,347 ---------------- ELECTRIC COMPONENTS -- 5.00% Artisan Components, Inc. (b) 46,200 947,100 August Technology Corp. (b) 56,200 1,042,510 Callidus Software, Inc. (b) 3,200 56,608 Cree, Inc. (b) 34,600 $ 612,074 Foundry Networks, Inc. (b) 87,800 2,402,208 Smith, A.O., Corp. 52,700 1,847,135 Standard Micosystems Corp. (b) 30,800 779,240 ---------------- 7,686,875 ---------------- ELECTRONICS -- 4.23% Benchmark Electronics, Inc. (b) 87,000 3,028,470 TTM Technologies, Inc. (b) 122,500 2,067,800 Ultratech Stepper, Inc. (b) 48,200 1,415,634 ---------------- 6,511,904 ---------------- ENERGY -- 4.94% Patina Oil & Gas Corp. 48,000 2,351,520 Patterson-UTI Energy, Inc. (b) 39,000 1,283,880 Quicksilver Resources, Inc. (b) 54,500 1,760,350 Tetra Technologies, Inc. (b) 91,150 2,209,476 ---------------- 7,605,226 ---------------- FINANCIAL SERVICES -- 2.73% First Niagara Financial Group, Inc. 34,000 506,940 Harbor Florida Bancshares, Inc. 31,100 923,981 Investors Financial Services Corp. 72,100 2,769,361 ---------------- 4,200,282 ---------------- FOOD DISTRIBUTORS -- 0.98% Performance Food Group Co. (b) 41,900 1,515,523 ---------------- GENE -- 1.14% Affymetrix, Inc. (b) 22,900 563,569 Telik, Inc. (b) 51,800 1,191,918 ---------------- 1,755,487 ---------------- HEALTH: DRUGS -- 2.52% Amylin Pharmaceuticals, Inc. (b) 30,700 682,154 Pozen, Inc. (b) 30,600 312,120 Taro Pharmaceutical Industries (b) 30,300 1,954,350 Vicuron Pharmaceuticals, Inc. (b) 49,700 926,905 ---------------- 3,875,529 ---------------- HEALTH: NON-DRUGS -- 12.59% Advanced Neuromodulation Systems, Inc. (b) 59,900 2,754,202 Fisher Scientific International, Inc. (b) 30,200 1,249,374 Inamed Corp. (b) 51,000 2,451,060 Merit Medical Systems, Inc. (b) 66,467 1,479,555 Patterson Dental Co. (b) 36,400 2,335,424 Pediatrix Medical Group, Inc. (b) 63,100 3,476,179 ResMed, Inc. (b) 14,800 614,792 Select Medical Corp. (b) 148,300 2,414,324 VCA Antech, Inc. (b) 83,800 2,596,124 ---------------- 19,371,034 ---------------- HEALTHCARE FACILITY -- 1.77% Odyssey HealthCare, Inc. (b) 93,275 2,729,227 ---------------- INSURANCE -- 1.29% Hilb, Rogal & Hamilton Co. 21,900 702,333 Hub International Ltd. 18,700 313,412 RLI Corp. 25,800 966,468 ---------------- 1,982,213 ----------------
65
SHARES VALUE --------------- ---------------- INTERNET SERVICES -- 6.29% Advanced Digital Info Corp. (b) 157,900 $ 2,210,600 Avocent Corp. (b) 32,700 1,194,204 Digital River, Inc. (b) 79,000 1,745,900 Dot Hill Systems Corp. (b) 110,500 1,674,075 RSA Security, Inc. (b) 90,000 1,278,000 Secure Computing Corp. (b) 88,100 1,577,871 ---------------- 9,680,650 ---------------- IT CONSULTING & SERVICES -- 4.60% CACI International, Inc., Class A (b) 67,100 3,262,402 Cognizant Technology Solutions Corp. (b) 83,500 3,810,940 ---------------- 7,073,342 ---------------- MACHINERY INDUSTRIAL -- 1.04% ESCO Technologies, Inc. (b) 36,600 1,597,590 ---------------- NON-DURABLES -- 1.55% Moore Wallace, Inc. (b) 127,700 2,391,821 ---------------- PHARMACEUTICALS -- 3.03% Isis Pharmaceuticals, Inc. (b) 84,800 551,200 Neurocrine Biosciences, Inc. (b) 31,000 1,690,740 NPS Pharmaceuticals, Inc. (b) 41,700 1,281,858 Penwest Pharmaceuticals Co. (b) 66,100 1,142,208 ---------------- 4,666,006 ---------------- REAL ESTATE -- 3.89% American Financial Realty (REIT) 67,900 1,157,695 Highland Hospitality Corp. (b) 64,700 705,230 Jones Lang LaSalle, Inc. (b) 22,400 464,352 Mills Corp. (The) (REIT) 39,100 1,720,400 Ventas, Inc. (REIT) 88,300 1,942,600 ---------------- 5,990,277 ---------------- RESTAURANTS -- 2.46% Panera Bread Co., Class A (b) 39,600 1,565,388 Ruby Tuesday, Inc. 78,100 2,225,069 ---------------- 3,790,457 ---------------- RETAIL-COMPUTERS/ELECTRONICS -- 0.77% Electronics Boutique Holdings Corp. (b) 51,900 1,187,991 ---------------- RETAIL/APPAREL -- 3.34% Chico's FAS, Inc. (b) 80,700 2,981,865 Petco Animal Supplies, Inc. (b) 70,600 $ 2,149,770 ---------------- 5,131,635 ---------------- SEMICONDUCTOR EQUIPMENT & PRODUCTS -- 0.76% Rudolph Technologies, Inc. (b) 47,600 1,168,104 ---------------- SEMICONDUCTORS -- 2.49% Exar Corp. (b) 75,900 1,296,372 Pericom Semiconductor Corp. (b) 51,700 551,122 Power Integrations, Inc. (b) 59,300 1,984,178 ---------------- 3,831,672 ---------------- SERVICES-DATA PROCESSING -- 0.68% Factset Research Systems, Inc. 27,400 1,046,954 ---------------- SERVICES/MISCELLANEOUS -- 0.21% Universal Technical Institute, Inc. (b) 11,000 330,000 ---------------- TECHNOLOGY -- 1.10% Tetra Tech, Inc. (b) 68,000 1,690,480 ---------------- TELECOMMUNICATIONS EQUIPMENT -- 0.38% Western Wireless Corp. (b) 31,800 583,848 ---------------- THERAPEUTICS -- 1.06% CV Therapeutics, Inc. (b) 27,600 404,616 Medicines Co. (b) 41,500 1,222,590 ---------------- 1,627,206 ---------------- TRANSPORTATION -- 1.02% Overnite Corp. (b) 18,300 416,325 UTI Worldwide, Inc. 30,600 1,160,651 ---------------- 1,576,976 ---------------- Total U.S. Equities (Cost $132,372,117) 149,446,721 ---------------- SHORT-TERM INVESTMENTS -- 8.81% UBS Supplementary Trust U.S. Cash Management Prime Fund, yield of 1.23% (Cost $13,553,400) 13,553,400 13,553,400 ---------------- Total Investments (Cost $145,825,517) -- 105.93% (a) 163,000,121 Liabilities, in excess of cash and other assets -- (5.93)% (9,131,750) ---------------- Total Net Assets -- 100% $ 153,868,371 ================
NOTES TO SCHEDULE OF INVESTMENTS (a) Aggregate cost for federal income tax purposes was $145,825,517; and net unrealized appreciation consisted of: Gross unrealized appreciation $ 19,541,908 Gross unrealized depreciation (2,367,304) ---------------- Net unrealized appreciation $ 17,174,604 ================
(b) Non-income producing security % Represents a percentage of net assets See accompanying notes to financial statements 66 UBS U.S. BOND FUND Over the six months ended December 31, 2003, Class Y shares of UBS U.S. Bond Fund returned 0.24%, surpassing the 0.17% return of its benchmark, the Lehman Brothers US Aggregate Bond Index (the "Index"). Since inception on August 31, 1995, the Fund's Class Y shares returned 6.97% on an annualized basis, compared to 7.24% for the Index. (Returns for all share classes over various time periods are shown on page 69. 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 period, the Fund's performance was primarily driven by our duration, sector and credit strategies. SIX-MONTH MARKET REVIEW While the US bond market showed great resilience in the face of the US economic and stock market recovery, it was no easy ride over the six-month reporting period. As the period began, economic growth spurred on by fiscal stimulus (including increased government spending and tax cuts) and the lowest short-term interest rates in 45 years--appeared to have reached a point of sustainability. Investors were deluged with improving economic statistics--including those pointing to a strong housing market and improving corporate profits. Buoyed by this tangible evidence, investors began to believe that a sustainable economic recovery was in place, and turned their attention once more to stocks. Still, questions remained as to whether the economy would keep advancing, or if inflation, the weak dollar, or the massive federal deficit had the potential to derail the recovery. Contrasting views led to extreme volatility in the bond market. The 10-year Treasury note took investors on a roller coaster ride, as yields dropped to a 45-year low of 3.11% in mid-June, and then climbed back up to a 14-month high of 4.60% at the beginning of September. The year concluded with a sense of normalcy and a relatively tight trading range for Treasury securities, with the yield on the 10-year Treasury note settling in at 4.25% at period end. It's likely that some of the late-period stability can be attributed to the Federal Reserve Board (the "Fed), which released a statement reassuring investors about inflation, indicating there were no immediate plans to increase short-term interest rates. With this support, bonds were able to tread in positive territory. ACTIVE MANAGEMENT KEPT PACE WITH CHANGING ENVIRONMENT After several years of a steadily improving bond market, investors and asset managers were faced with a much more challenging environment over the period. We supported the Fund's absolute and relative performance during this changing time by actively managing our duration, risk, sector and security selection. Leveraging the insight of our experienced research analysts, we sought out opportunities to add risk-adjusted value to the Fund. The bond market's extreme volatility during the period provided us with some solid opportunities, in terms of active duration strategies. Entering the period, the Fund's duration was 90% of the Index. As investors pulled out of the bond market, we took advantage of falling prices on longer-term issues to increase duration, raising the Fund's duration to equal that of the Index. We also moved toward a "barbell" structure, whereby we overweighted securities at both ends of the maturity spectrum. Our longer-term securities were used to lock in higher yields as interest rates fell, while our shorter-term securities provided liquidity. We believe this strategy will allow us to benefit if the steep yield curve returns to a more normal shape, as is our expectation. Within credit, we maintained a modest underweight, most notably represented by an underweight to higher-quality issuers. Despite increased investor interest in corporate bonds, our analysis determined that the sector was trading at what we considered to be close to fair value. Our holdings in this area were clustered more in Baa-rated securities, rather than higher quality A-rated securities and above. Baas delivered excellent performance at period end, which helped to boost the Fund's return. 67 Although we underweighted the higher-quality issuers within the credit sector over the period, our sector strategy led us to hold overweights to the high-quality commercial mortgage-backed securities (CMBS) and asset-backed securities sectors, due to the attractiveness of their spreads, relative fundamentals and expectations that they will remain less volatile than many high-quality corporate bonds. The CMBS issues that we purchased were highly diversified by property type, geographic location and loan size. In our opinion, there are less concentrated risks in these types of deals compared to high-quality credit. In addition, as the market began to stabilize over the period, we increased our position in mortgage-backed securities from neutral to modestly overweight. In our opinion, the low interest rate environment, combined with record refinancings, drove the price of mortgage-backed securities down below their intrinsic value. After the Fed reassured the market that it had no immediate plans to raise short-term rates, the mortgage-backed securities market improved, generating positive results for performance. On an industry level, one noteworthy story revolved around industrials. We increased our allocation to automotives, where valuations appeared attractive, during the reporting period. Specifically, we moved to an overweight in Ford Motor Co. bonds. Our research indicated to us that the auto industry's fundamentals were improving and that the sector represented an area of opportunity for the Fund. LOOKING AHEAD We anticipate that the combination of strong growth and a reduced risk of deflation will prompt the Fed to raise the federal funds rate this summer. The Fed has modified its verbiage in preparation for the tightening by changing its tone regarding the state of the economy in relation to expected inflation. However, we believe investor uncertainty over the appropriate "considerable period" during which rates can be kept low before concerns about inflation predominate is significant and unresolved. 68 TOTAL RETURN
6 MONTHS 1 YEAR 3 YEARS 5 YEARS INCEPTION* ENDED ENDED ENDED ENDED TO 12/31/03 12/31/03 12/31/03 12/31/03 12/31/03 - ------------------------------------------------------------------------------------------------------- UBS U.S. Bond Fund Class A 0.19% 3.76% 6.96% 5.91% 6.83% UBS U.S. Bond Fund Class B -0.16 3.01 N/A N/A 4.04 UBS U.S. Bond Fund Class C -0.09 3.23 N/A N/A 4.25 UBS U.S. Bond Fund Class Y 0.24 3.92 7.19 6.20 6.97 UBS U.S. Bond Fund Class A** -4.33 -0.91 5.32 4.95 6.08 UBS U.S. Bond Fund Class B** -5.07 -1.97 N/A N/A 2.70 UBS U.S. Bond Fund Class C** -0.82 2.49 N/A N/A 4.25 Lehman Brothers U.S. Aggregate Bond Index 0.17 4.10 7.57 6.62 7.24
* INCEPTION DATE OF UBS U.S. BOND FUND CLASS A SHARES IS 6/30/97. INCEPTION DATES OF CLASS B AND CLASS C SHARES ARE 11/06/01 AND 11/08/01, RESPECTIVELY. INCEPTION DATE OF CLASS Y SHARES AND 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. PAST PERFORMANCE IS NOT AN INDICATION OF FUTURE RESULTS. 69 TOP TEN U.S. BOND HOLDINGS AS OF DECEMBER 31, 2003 (UNAUDITED)
PERCENTAGE OF NET ASSETS - --------------------------------------------------------- U.S. Treasury Bond 6.250%, due 05/15/30 6.0% U.S. Treasury Note 4.250%, due 08/15/13 5.9 Federal National Mortgage Association 5.500%, due 01/01/18 4.2 U.S. Treasury Note 2.000%, due 08/31/05 3.5 Federal National Mortgage Association 5.500%, due 03/15/11 2.6 U.S. Treasury Bond 6.875%, due 08/15/25 2.2 U.S. Treasury Note 1.875%, due 11/30/05 2.0 Federal National Mortgage Association 6.500%, due 08/01/32 1.8 U.S. Treasury Bond 8.000%, due 11/15/21 1.3 Salomon Brothers Mortgage Securities VII, 00-C1, Class A2 7.520%, due 12/18/09 1.3 - --------------------------------------------------------- Total 30.8%
INDUSTRY DIVERSIFICATION AS A PERCENT OF NET ASSETS AS OF DECEMBER 31, 2003 (UNAUDITED) U.S. CORPORATE BONDS Aerospace & Military 0.18% Airlines 0.08 Autos/Durables 1.17 Banks 1.45 Beverages & Tobacco 0.97 Chemicals 0.30 Computer Systems 0.21 Construction 0.36 Consumer 0.15 Electric Components 0.37 Energy 1.21 Financial Services 6.55 Food & House Products 0.99 Forest Products 0.09 Health: Drugs 0.34 Household Durables 0.10 Housing/Paper 0.13 Insurance 0.09 Leisure & Tourism 0.58 Media and Entertainment 0.12 Metals Non-Ferrous 0.10 Multi-Industry 0.34 Publishing 0.06 Real Estate 0.25 Retail/Apparel 0.13 Services/Miscellaneous 0.18 Telecommunications 0.95 Telecommunications - Wireless 0.07 Telephones 0.11 Transportation 0.58 Utilities 0.60 ------ Total U.S. Corporate Bonds 18.81 Asset-Backed Securities 4.88 Commercial Mortgage-Backed Securities 9.75 Mortgage-Backed Securities 39.39 U.S. Government Obligations 21.74 ------ Total U.S. Bonds 94.57 International Corporate Bonds 0.96 Sovereign\Supranational Bonds 1.97 Total International Bonds 2.93 Total Bonds 97.50 SHORT-TERM INVESTMENTS 3.62 TOTAL INVESTMENTS 101.12 LIABILITIES, IN EXCESS OF CASH AND OTHER ASSETS (1.12) ------ NET ASSETS 100.00% ======
70 UBS U.S. BOND FUND -- SCHEDULE OF INVESTMENTS DECEMBER 31, 2003 (UNAUDITED)
FACE AMOUNT VALUE --------------- ---------------- BONDS -- 97.50% U.S. BONDS-- 94.57% U.S. CORPORATE BONDS -- 18.81% Abbott Laboratories, Inc. 5.625%, due 07/01/06 $ 85,000 $ 91,684 Alcoa, Inc. 6.000%, due 01/15/12 105,000 114,110 Altria Group, Inc. 7.750%, due 01/15/27 215,000 231,978 American Express Co. 3.750%, due 11/20/07 110,000 112,051 Anadarko Finance Co., Series B 7.500%, due 05/01/31 55,000 64,431 Anheuser-Busch Cos., Inc. 9.000%, due 12/01/09 280,000 355,030 AOL Time Warner, Inc. 7.625%, due 04/15/31 335,000 386,512 Apache Corp. 6.250%, due 04/15/12 100,000 111,168 AT&T Corp. 8.500%, due 11/15/31 85,000 99,328 AT&T Wireless Services, Inc. 7.875%, due 03/01/11 160,000 185,143 Avalonbay Communities, Inc. 7.500%, due 08/01/09 95,000 109,639 Avon Products, Inc. 7.150%, due 11/15/09 150,000 174,885 Bank of America Corp. 7.400%, due 01/15/11 440,000 516,045 Bank One Corp. 7.875%, due 08/01/10 345,000 414,418 Bear Stearns Co., Inc. 4.000%, due 01/31/08 140,000 142,595 Boeing Capital Corp. 7.375%, due 09/27/10 80,000 91,957 Bombardier Capital, Inc., 144A 6.125%, due 06/29/06 175,000 186,156 Bristol-Myers Squibb Co. 5.750%, due 10/01/11 110,000 118,868 Burlington Northern Santa Fe Corp. 7.082%, due 05/13/29+ 200,000 224,318 Caterpillar, Inc. 6.550%, due 05/01/11 55,000 62,453 Cendant Corp. 6.250%, due 01/15/08 180,000 196,349 Centex Corp. 9.750%, due 06/15/05 320,000 354,604 Cingular Wireless LLC 6.500%, due 12/15/11 70,000 76,550 Citigroup, Inc. 7.250%, due 10/01/10 570,000 664,368 Citizens Communications Co. 9.250%, due 05/15/11 325,000 384,229 Coca-Cola Co. (The) 4.000%, due 06/01/05 105,000 108,439 Comcast Cable Communications, Inc. 6.750%, due 01/30/11 300,000 333,880 Commonwealth Edison Co. 6.150%, due 03/15/12 65,000 70,917 Computer Sciences Corp. 3.500%, due 04/15/08 $ 165,000 $ 164,216 Conagra Foods, Inc. 6.750%, due 09/15/11 100,000 112,087 Conoco, Inc. 5.900%, due 04/15/04 320,000 324,091 ConocoPhillips 8.500%, due 05/25/05 190,000 207,123 8.750%, due 05/25/10 75,000 93,690 Consolidated Edison, Inc., Series B 7.500%, due 09/01/10 300,000 354,739 Coors Brewing Co. 6.375%, due 05/15/12 135,000 147,063 Countrywide Home Loans, Inc. 3.250%, due 05/21/08 205,000 201,625 Credit Suisse First Boston USA, Inc. 3.875%, due 01/15/09 105,000 104,875 6.500%, due 01/15/12 180,000 200,344 Devon Financing Corp., ULC 6.875%, due 09/30/11 105,000 119,062 Dominion Resources, Inc., Class B 7.625%, due 07/15/05 235,000 253,863 Duke Energy Field Services, LLC 7.875%, due 08/16/10 155,000 181,591 EOP Operating LP 7.250%, due 06/15/28 165,000 179,400 Erac U.S.A. Finance Co., 144A 8.000%, due 01/15/11 200,000 237,873 First Data Corp. 5.625%, due 11/01/11 85,000 90,427 FirstEnergy Corp., Series B 6.450%, due 11/15/11 105,000 108,827 FleetBoston Financial Corp. 7.375%, due 12/01/09 110,000 129,150 Ford Motor Co. 7.450%, due 07/16/31 530,000 535,576 Ford Motor Credit Co. 5.800%, due 01/12/09 410,000 422,240 7.375%, due 02/01/11 145,000 158,041 General Electric Capital Corp. 6.000%, due 06/15/12 835,000 905,518 6.750%, due 03/15/32 140,000 154,997 General Motors Acceptance Corp. 6.875%, due 09/15/11 285,000 306,981 8.000%, due 11/01/31 260,000 291,971 General Motors Corp. 8.375%, due 07/15/33 195,000 226,359 Goldman Sachs Group, Inc. 6.875%, due 01/15/11 250,000 283,902 Harley-Davidson, Inc. 144A 3.625%, due 12/15/08 160,000 159,597 Harrah's Operating Co., Inc. 7.500%, due 01/15/09 155,000 176,544 Hertz Corp. 7.625%, due 08/15/07 165,000 181,259 Household Finance Corp. 6.750%, due 05/15/11 295,000 332,094 ICI Wilmington, Inc. 4.375%, due 12/01/08 220,000 219,173
71
FACE AMOUNT VALUE --------------- ---------------- International Business Machines Corp. 5.875%, due 11/29/32 $ 70,000 $ 70,433 International Lease Finance Corp. 6.375%, due 03/15/09 180,000 198,293 International Paper Co. 6.750%, due 09/01/11 130,000 144,531 John Deere Capital Corp. 7.000%, due 03/15/12 145,000 167,038 Kerr-McGee Corp. 5.375%, due 04/15/05 250,000 260,365 Kraft Foods, Inc. 5.625%, due 11/01/11 320,000 337,167 Kroger Co. 7.500%, due 04/01/31 105,000 120,989 Lehman Brothers Holdings, Inc. 6.625%, due 01/18/12 145,000 163,635 Lincoln National Corp. 6.200%, due 12/15/11 80,000 87,281 Marsh & McClennan Cos., Inc. 6.250%, due 03/15/12 90,000 97,767 MBNA Capital, Series B 1.963%, due 02/01/27 205,000 177,388 MidAmerican Energy Co. 5.125%, due 01/15/13 45,000 45,862 Miller Brewing Co 5.500%, due 08/15/13 115,000 117,489 Morgan Stanley 6.750%, due 04/15/11 450,000 509,139 Newell Rubbermaid, Inc. 4.000%, due 05/01/10 120,000 116,107 News America Holdings, Inc. 7.125%, due 04/08/28 65,000 71,183 Occidental Petroleum Corp. 8.450%, due 02/15/29 95,000 124,538 Pepsi Bottling Group, Inc., 144A 5.625%, due 02/17/09 145,000 157,449 PP&L Capital Funding 7.750%, due 04/15/05 105,000 112,458 Praxair, Inc. 6.375%, due 04/01/12 55,000 61,197 Progress Energy, Inc. 7.000%, due 10/30/31 145,000 155,192 Qwest Capital Funding, Inc. 7.900%, due 08/15/10 360,000 365,400 Rohm & Haas Co. 7.850%, due 07/15/29 50,000 61,474 Safeway, Inc. 6.500%, due 03/01/11 155,000 169,202 SBC Communications, Inc. 5.875%, due 02/01/12 145,000 153,996 Sempra Energy 7.950%, due 03/01/10 100,000 117,611 SLM Corp. 5.625%, due 04/10/07 250,000 270,915 Southern Power Co., Series B 6.250%, due 07/15/12 105,000 113,454 Southwestern Electric Power, Series B 4.500%, due 07/01/05 45,000 46,652 Sprint Capital Corp. 8.375%, due 03/15/12 $ 95,000 $ 110,941 Target Corp. 7.000%, due 07/15/31 135,000 153,061 Transocean Sedco Forex, Inc. 6.625%, due 04/15/11 100,000 111,624 U.S. Bank N.A., Minnesota 6.375%, due 08/01/11 240,000 267,592 Unilever Capital Corp. 7.125%, due 11/01/10 200,000 232,520 Union Pacific Corp. 6.700%, due 12/01/06 235,000 260,444 United Airlines, Inc., E.E.T.C. (b) (c) 7.811%, due 10/01/09 152,191 57,957 United Technologies Corp. 6.100%, due 05/15/12 185,000 203,171 UST, Inc. 6.625%, due 07/15/12 135,000 150,173 Valero Energy Corp. 7.500%, due 04/15/32 150,000 167,171 Verizon New England, Inc. 6.500%, due 09/15/11 65,000 71,623 Verizon New York, Inc., Series B 7.380%, due 04/01/32 70,000 77,068 Viacom, Inc. 6.625%, due 05/15/11 120,000 136,229 Wachovia Bank N.A 7.800%, due 08/18/10 345,000 416,233 Walt Disney Co. (The) 6.375%, due 03/01/12 150,000 164,941 Washington Mutual, Inc. 5.625%, due 01/15/07 410,000 441,883 Wells Fargo Bank, N.A 6.450%, due 02/01/11 480,000 538,964 Weyerhaeuser Co. 7.375%, due 03/15/32 90,000 97,857 Wyeth 5.250%, due 03/15/13 170,000 173,053 ---------------- 21,973,113 ---------------- ASSET-BACKED SECURITIES -- 4.88% Americredit Automobile Receivables Trust, 03-AM, Class A2B+ 1.390%, due 10/06/06 308,255 308,227 Capital One Multi-Asset Execution Trust, 03-A1, Class A1+ 1.553%, due 01/15/09 970,000 974,290 Citibank Omni-S Master Trust, 01-1, Class A+ 1.274%, due 02/15/10 970,000 968,986 Conseco Finance Securitizations Corp., 00-1, Class A4 7.620%, due 05/01/31 500,000 513,403 Conseco Finance Securitizations Corp., 00-B, Class AF4 7.870%, due 02/15/31 76,062 76,443 Countrywide Asset-Backed Certificates, 03-SD3, Class A1+ 1.561%, due 12/25/32 323,925 324,391
72
FACE AMOUNT VALUE --------------- ---------------- Greentree Financial Corp., 94-5, Class A5 8.300%, due 11/15/19 $ 250,656 $ 269,990 Greentree Financial Corp., 99-3, Class A5 6.160%, due 02/01/31 885,597 909,332 RAFC Asset-Backed Trust 01-1 Class A3 5.115%, due 01/25/15 696,275 715,171 Reliant Energy Transition 01-1 Class A4 5.630%, due 09/15/15 310,000 329,989 Structured Asset Securities Corp., 03-AL2, Class A, 144A+ 3.356%, due 01/25/31 327,184 313,995 ---------------- 5,704,217 ---------------- COMMERCIAL MORTGAGE-BACKED OBLIGATIONS -- 9.75% Bear Stearns Commercial Mortgage Securities, 00-WF1, Class A2 7.780%, due 02/15/32 1,215,000 1,429,581 Bear Stearns Commercial Mortgage Securities, 00-WF2, Class A2 7.320%, due 10/15/32 200,000 232,921 DLJ Commercial Mortgage Corp., 00-CKP1, Class A1B 7.180%, due 08/10/10 850,000 962,671 DLJ Commercial Mortgage Corp., 99-CG1, Class A1B 6.460%, due 03/10/32 220,000 244,549 DLJ Commercial Mortgage Corp., 99-CG2, Class A1B 7.300%, due 06/10/32 1,012,000 1,171,233 DLJ Commercial Mortgage Corp., 99-CG3, Class A1B 7.340%, due 10/10/32 200,000 232,293 GMAC Commercial Mortgage Securities, Inc., 97-C2, Class A2 6.550%, due 04/16/29 330,000 344,506 Greenwich Capital Commercial Funding Corp., 03-FL1 A, 144A+ 1.440%, due 07/05/18 415,302 415,205 GS Mortgage Securities Corp., II, 96-PL, Class A2 7.410%, due 02/15/27 66,142 67,346 Heller Financial Commercial Mortgage Assets, 99-PH1, Class A1 6.500%, due 05/15/31 767,554 829,610 Host Marriott Pool Trust 99-HMPT Class A 6.980%, due 08/03/15 295,013 319,502 JP Morgan Commercial Mortgage Finance Corp., 99-C8, Class A1 7.325%, due 07/15/31 345,422 368,010 LB Commercial Conduit Mortgage Trust, 99-C1, Class A1 6.410%, due 06/15/31 526,058 558,629 LB Commercial Conduit Mortgage Trust, 99-C2, Class A2 7.325%, due 10/15/32 325,000 375,555 Merrill Lynch Mortgage Investors, Inc., 96-C2, Class A3 6.960%, due 11/21/28 415,393 451,634 Merrill Lynch Mortgage Investors, Inc., 97-C2, Class A2 6.540%, due 12/10/29 $ 265,000 $ 292,752 Morgan Stanley Capital I, 96-WF1, Class A3 7.623%, due 11/15/28+ 495,836 528,144 Morgan Stanley Dean Witter Capital I, 00-LIF2, Class A1 6.960%, due 10/15/33 298,366 329,589 Nomura Asset Securities Corp., 95-MD3, Class A1B 8.150%, due 04/04/27 320,648 337,880 Prudential Mortgage Capital Funding, LLC, 00-ROCK, Class A2 6.605%, due 05/10/34 115,000 129,080 Salomon Brothers Mortgage Securities VII, 00-C1, Class A2 7.520%, due 12/18/09 1,250,000 1,454,472 Strategic Hotel Capital, Inc., 03-1, Class D 2.313%, due 02/15/13+ 310,000 308,155 ---------------- 11,383,317 ---------------- MORTGAGE-BACKED SECURITIES -- 39.39% Citicorp Mortgage Securities, Inc., 94-9, Class A8 5.750%, due 06/25/09 96,458 97,912 CS First Boston Mortgage Securities Corp., 02-10, Class 2A1 7.500%, due 05/25/32 803,038 861,199 CS First Boston Mortgage Securities Corp., 03-8, Class 5A1 6.500%, due 04/25/33 1,377,531 1,427,983 Fannie Mae 4.600%, due 11/01/33 1,244,094 1,265,924 6.000%, due 10/01/33 1,397,187 1,444,913 Freddie Mac, 1595, Class D 7.000%, due 10/15/13 269,626 283,792 Freddie Mac, 2532 PD 5.500%, due 06/15/26 700,000 724,402 Federal Home Loan Mortgage Corp., Gold 5.500%, due 09/01/17 441,885 458,334 5.500%, due 01/01/18 811,684 841,898 5.500%, due 04/01/18 741,013 768,774 6.000%, due 12/01/17 857,745 899,652 6.000%, due 10/01/29 580,490 601,218 6.500%, due 09/01/29 349,786 366,425 6.500%, due 03/01/32 107,876 113,008 6.500%, due 11/01/32 134,704 141,112 Federal National Mortgage Association 3.396%, due 09/01/33+ 128,222 128,710 Federal National Mortgage Association 4.474%, due 06/01/33+ 338,497 343,931 5.027%, due 02/01/33+ 634,187 674,448 5.125%, due 01/02/14 430,000 431,496 5.500%, due 03/15/11 2,770,000 2,987,193 5.500%, due 12/01/17 390,075 404,677 5.500%, due 01/01/18 4,762,061 4,940,259 5.500%, due 09/01/24 732,508 742,335
73
FACE AMOUNT VALUE --------------- ---------------- 5.500%, due 03/01/33 $ 1,947,360 $ 1,973,483 6.000%, due 07/01/17 1,076,506 1,129,928 6.000%, due 08/01/17 1,025,897 1,076,807 6.000%, due 06/01/23 454,353 472,143 6.000%, due 03/01/28 153,693 159,225 6.000%, due 03/01/29 169,758 175,557 6.000%, due 05/01/29 163,576 169,164 6.000%, due 07/01/29 704,212 728,267 6.000%, due 06/01/31 139,322 144,081 6.000%, due 11/01/32 1,036,464 1,071,869 6.000%, due 06/01/33 180,592 186,761 6.000%, due 07/01/33 825,762 853,969 6.250%, due 02/01/11 665,000 735,127 6.500%, due 08/01/29 1,254,055 1,311,720 6.500%, due 08/01/32 1,951,588 2,041,328 6.500%, due 09/01/32 432,666 452,561 7.000%, due 03/01/31 73,986 78,564 7.000%, due 11/01/31 377,871 400,116 7.000%, due 04/01/32 600,192 635,525 7.000%, due 08/01/32 494,432 523,539 7.000%, due 11/01/32 1,004,174 1,063,289 7.125%, due 01/15/30 510,000 614,298 Federal National Mortgage Association Whole Loan, 03-W11, Class A1 5.337%, due 06/25/33 772,221 794,747 Federal National Mortgage Association Whole Loan, 03-W6, Class 6A+ 4.968%, due 08/25/42 489,016 511,480 Federal National Mortgage Association Grantor Trust, 00-T6, Class A1 7.500%, due 06/25/30 1,212,647 1,324,059 Federal National Mortgage Association Grantor Trust, 01-T10, Class A2 7.500%, due 12/25/41 132,872 145,508 Federal National Mortgage Association Grantor Trust, 01-T5, Class A3 7.500%, due 06/19/30 173,971 189,955 Federal National Mortgage Association Whole Loan, 95-W3, Class A 9.000%, due 04/25/25 22,496 25,162 Freddie Mac 5.875%, due 03/21/11 525,000 569,059 6.500%, due 06/01/29 170,425 178,532 Government National Mortgage Association 4.000%, due 10/20/29 437,193 446,704 6.000%, due 12/20/28 226,625 234,688 6.000%, due 05/20/29 1,088,386 1,126,346 6.000%, due 08/20/29 788,072 815,558 6.500%, due 10/15/24 753,092 798,933 6.500%, due 08/15/27 3,739 3,942 7.000%, due 07/15/25 18,961 20,341 7.000%, due 07/15/31 233,840 249,200 8.500%, due 12/15/17 388,863 431,102 9.000%, due 11/15/04 1,095 1,227 GS Mortgage Securities Corp., 01-2, Class A, 144A 7.500%, due 06/19/32 347,853 378,331 Impac Secured Assets Common Owner Trust, 01-3, Class A2+ 7.250%, due 04/25/31 $ 176,133 $ 185,142 MLCC Mortgage Investors, Inc., 03-D, Class XA1++ 1.000%, due 08/25/28 16,330,551 273,667 Residential Funding Mortgage Securitization I, 95-S16, Class A7 7.500%, due 11/25/25 189,831 189,618 Structured Asset Securities Corp., 98-ALS1, Class 1A 6.900%, due 01/25/29 152,419 154,066 ---------------- 45,994,283 ---------------- U.S. GOVERNMENT OBLIGATIONS -- 21.74% U.S. Treasury Bond 6.250%, due 05/15/30 6,020,000 6,946,984 6.875%, due 08/15/25 2,050,000 2,507,806 8.000%, due 11/15/21 1,130,000 1,526,118 U.S. Treasury Note 1.500%, due 07/31/05 545,000 544,574 1.875%, due 11/30/05 2,370,000 2,374,444 2.000%, due 08/31/05 4,015,000 4,040,877 3.250%, due 08/15/08 530,000 533,230 4.250%, due 08/15/13 6,890,000 6,898,612 4.750%, due 11/15/08 20,000 21,411 ---------------- 25,394,056 ---------------- Total U.S. Bonds 110,448,986 ---------------- INTERNATIONAL BONDS -- 2.93% INTERNATIONAL CORPORATE BONDS -- 0.96% Burlington Resources Finance Co. 6.680%, due 02/15/11 65,000 73,053 Canadian National Railway Co. 6.900%, due 07/15/28 65,000 72,623 Deutsche Telekom International Finance BV 8.250%, due 06/15/30 185,000 236,324 France Telecom S.A 8.500%, due 03/01/31 70,000 93,007 HSBC Holdings PLC 5.250%, due 12/12/12 65,000 66,564 Rio Tinto Finance USA Ltd. 2.625%, due 09/30/08 240,000 228,935 Royal Bank of Scotland 9.118%, due 03/31/10 70,000 87,427 Telecom Italia Capital, 144A 5.250%, due 11/15/13 120,000 120,239 Telus Corp. 8.000%, due 06/01/11 125,000 146,161 ---------------- 1,124,333 ---------------- SOVEREIGN\ SUPRANATIONAL BONDS -- 1.97% European Investment Bank 4.875%, due 09/06/06 315,000 334,492 Inter-American Development Bank 5.750%, due 02/26/08 325,000 356,871 International Bank for Reconstruction & Development 4.375%, due 09/28/06 425,000 448,262
74
FACE AMOUNT VALUE --------------- ---------------- Pemex Project Funding Master Trust 8.000%, due 11/15/11 $ 310,000 $ 346,425 State of Qatar, 144A 9.750%, due 06/15/30 155,000 217,000 Westdeutsche Landesbank 6.750%, due 06/15/05 130,000 138,920 United Mexican States 8.125%, due 12/30/19 410,000 458,175 ---------------- 2,300,145 ---------------- Total International Bonds 3,424,478 ---------------- Total Bonds (Cost $111,340,819) 113,873,464 ---------------- SHARES VALUE --------------- ---------------- SHORT-TERM INVESTMENTS -- 3.62% UBS Supplementary Trust U.S. Cash Management Prime Fund, yield of 1.23% (Cost $4,228,728) 4,228,728 $ 4,228,728 ---------------- Total Investments (Cost $115,569,547) -- 101.12% (a) 118,102,192 Liabilities, in excess of cash and other assets -- (1.12)% (1,313,705) ---------------- Total Net Assets -- 100% $ 116,788,487 ================
NOTES TO SCHEDULE OF INVESTMENTS (a) Aggregate cost for federal income tax purposes was $115,569,547; and net unrealized appreciation consisted of: Gross unrealized appreciation $ 2,931,235 Gross unrealized depreciation (398,590) ---------------- Net unrealized appreciation $ 2,532,645 ================
(b) Security is in default (c) Security is illiquid. These securities amounted to $57,957 or 0.05% of net assets + Variable rate security -- The rate disclosed is that in effect at December 31, 2003. ++ Interest Only Security. This security entitles the holder to receive interest from an underlying pool of mortgages. The risk associated with this security is related to the speed of the principal paydowns. High prepayments would result in a smaller amount of interest being received and cause the yield to decrease. Low prepayments would result in a greater amount of interest being received and cause the yield to increase. % Represents a percentage of net assets E.E.T.C.: Enhanced equipment trust certificate. 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 December 31, 2003 the value of these securities amounted to $2,185,845 or 1.87% of net assets. See accompanying notes to financial statements 75 UBS HIGH YIELD FUND Over the six months ended December 31, 2003, Class Y shares of UBS High Yield Fund returned 9.31%, outperforming the 8.52% return of its benchmark, the Merrill Lynch High Yield Cash Pay Index (the "Index"). Since inception on September 30, 1997 through period end, the Fund's Class Y shares have returned 5.47% on an annualized basis, compared to the 5.39% annualized return of the Index. (Returns for all share classes over various time periods are shown on page 78. 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 strong performance over the review period is attributable primarily to security selection, particularly its positions in cable, telecommunications and chemicals. SIX-MONTH MARKET REVIEW High yield was one of the strongest performing sectors over the period, supported by the improving economy and positive fundamentals. These included a declining default rate, a falling distress ratio, a reduction in the number of downgrades to upgrades, operating improvement for high yield issuers and greater access to capital markets. Apart from a temporary decline early in the review period, net inflows into high yield mutual funds were generally strong, as the low interest rate environment caused investors to become less risk averse in their search for higher yields. Virtually every corner of the market saw improving prices during the review period. Some of the best performances, however, were in the most distressed industries, including telecommunications and utilities. In terms of credit ratings, the riskiest segment of the market posted the best returns, with CCC-rated bonds outpacing both B-rated and BB-rated bonds. WE PROACTIVELY ADJUSTED THE PORTFOLIO TO PURSUE OPPORTUNITIES While the high yield market did well overall, there were periods of volatility. As we navigated through the ups and downs that characterized the six-month period, we relied heavily on our global network of analysts. Their expertise guided us to sectors and securities that we believed held the most potential for the Fund. Throughout the period, we proactively adjusted the portfolio, locking in gains in order to buy into what we considered more attractive opportunities. For example, we increased our exposure to the telecommunications/wireless sector. Our research indicated that this sector, already generating solid performance, would continue to do well because of its positive operating environment, its ability to access capital markets, and its undervalued bond prices. Likewise, we increased our position in the chemicals industry--making it one of our largest overweights--and placed special emphasis on specialty chemicals. This move benefited the Fund's absolute and relative performance, as chemicals was one of the best performing sectors over the final months of the period. Our research also led us to increase our exposure to airline secured bonds, which produced solid results as the air transportation industry generated strong performance. Furthermore, despite this strong performance, we continue to see undervaluation in this area. We also increased our exposure to the printing/publishing sector on expectations that the sector will outperform as the economy improves. The largest sector underweights were the Fund's positions in electric-integrated and gas distribution. Many of the companies represented in these sectors were in a severely distressed state, and in need of capital in order to turn themselves around. We did not believe that this could be easily achieved. However, contrary to what we thought, these distressed companies were able to access the capital markets and, in turn, refinance their short-term debt, thus avoiding bankruptcy. As a result, these sectors generated strong performance, and had the greatest negative impact on the Fund's relative performance over the period. LOOKING AHEAD We believe that at current levels, high yield market participants have priced in a lot of the positive economic news. However, we anticipate that companies will access the equity markets to deleverage their balance sheets, or to pay for 76 capital expenditures. Also, we expect the improved economic situation to enhance operating results, which should lead to credit upgrades and significantly lower default rates. We believe these positive fundamentals could support the market over the intermediate term. 77 TOTAL RETURN
6 MONTHS 1 YEAR 3 YEARS 5 YEARS INCEPTION* ENDED ENDED ENDED ENDED TO 12/31/03 12/31/03 12/31/03 12/31/03 12/31/03 - ------------------------------------------------------------------------------------------------------- UBS High Yield Fund Class A 9.01% 22.94% 8.05% 4.52% 4.52% UBS High Yield Fund Class B 8.77 22.03 N/A N/A 10.38 UBS High Yield Fund Class C 8.73 22.32 N/A N/A 10.65 UBS High Yield Fund Class Y 9.31 23.16 8.37 4.82 5.47 UBS High Yield Fund Class A** 4.14 17.37 6.41 3.56 3.56 UBS High Yield Fund Class B** 3.77 17.03 N/A N/A 9.12 UBS High Yield Fund Class C** 7.98 21.57 N/A N/A 10.65 Merrill Lynch High Yield Cash Pay Index 8.52 27.23 10.13 5.47 5.39
* INCEPTION DATE OF UBS HIGH YIELD FUND CLASS A SHARES IS 12/31/98. INCEPTION DATE OF CLASS B AND CLASS C SHARES IS 11/07/01. INCEPTION DATE OF CLASS Y SHARES AND 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. PAST PERFORMANCE IS NOT AN INDICATION OF FUTURE RESULTS. 78 TOP TEN FIXED INCOME HOLDINGS AS OF DECEMBER 31, 2003 (UNAUDITED)
PERCENTAGE OF NET ASSETS - --------------------------------------------------------- AES Corp. 9.375%, due 09/15/10 2.1% Mediacom LLC 9.500%, due 01/15/13 1.7 Tesoro Petroleum Corp. 9.000%, due 07/01/08 1.2 American Airlines, Inc. 6.977%, due 05/23/21 1.0 Dynegy Holdings, Inc. 6.875%, due 04/01/11 0.9 Charter Communications Holdings 10.000%, due 04/01/09 0.9 Crown Cork & Seal Co., Inc. 8.000%, due 04/15/23 0.9 Team Health, Inc., Series B 12.000%, due 03/15/09 0.9 MCI Communications Corp. 6.500%, due 04/15/10 0.9 Sheridan Acquisition Corp. 10.250%, due 08/15/11 0.9 - --------------------------------------------------------- Total 11.4%
INDUSTRY DIVERSIFICATION AS A PERCENT OF NET ASSETS AS OF DECEMBER 31, 2003 (UNAUDITED) U.S. CORPORATE BONDS Aerospace & Military 2.30% Airlines 1.98 Appliances & Household Durables 1.14 Autos/Durables 1.81 Building Materials 2.02 CableTV/Pay Services 3.50 Chemicals 6.73 Computer Systems 0.60 Construction 1.45 Consumer 0.43 Electric Components 1.54 Energy 6.57 Financial Services 2.51 Food & House Products 4.83 Food and Beverage 0.59 Gaming 1.73 Health: Drugs 0.90 Health: Non-Drugs 3.00 Healthcare 0.26 Hotel & Lodging 1.31 Housing/Paper 3.05 Industrial Components 0.84 Leisure & Tourism 1.90 Machinery & Engineering 0.62 Metals Steel 1.43 Miscellaneous Materials 1.86 Non-Durables 0.90 Packaging & Containers 1.68 Publishing 3.19 Radio Broadcasting 1.34 Real Estate 1.07 Recreation 2.96 Retail/Apparel 3.63 Services/Miscellaneous 6.10 Telecommunications 6.12 Telecommunications - Wireless 3.67 Television Broadcasting 3.86 Transportation 0.95 Utilities 4.68 ------ Total U.S. Corporate Bonds 95.05 U.S. Equities Services/Miscellaneous 0.35 Convertible Preferred 0.23 Warrants 0.36 SHORT-TERM INVESTMENTS 1.22 ------ TOTAL INVESTMENTS 97.21 CASH AND OTHER ASSETS, LESS LIABILITIES 2.79 ------ NET ASSETS 100.00% ======
79 UBS HIGH YIELD FUND -- SCHEDULE OF INVESTMENTS DECEMBER 31, 2003 (UNAUDITED)
FACE AMOUNT VALUE --------------- ---------------- U.S. BONDS -- 95.05% U.S. CORPORATE BONDS -- 95.05% ACC Escrow Corp. 144A 10.000%, due 08/01/11 $ 1,000,000 $ 1,115,000 Accuride Corp. 9.250%, due 02/01/08 625,000 642,188 Activant Solutions, Inc. 10.500%, due 06/15/11 750,000 807,187 Adelphia Communications Corp., Series B (e) 8.375%, due 02/01/08 1,650,000 1,538,625 Advanced Accessory Systems LLC 10.750%, due 06/15/11 1,075,000 1,183,844 Advanstar Communications, Inc. 144A 10.750%, due 08/15/10 1,000,000 1,082,500 AES Corp. 9.375%, due 09/15/10 3,396,000 3,765,315 Ainsworth Lumber Co., Ltd. 12.500%, due 07/15/07 1,250,000 1,468,750 AK Steel Corp. 7.750%, due 06/15/12 1,750,000 1,496,250 Alamosa Delaware, Inc. 11.000%, due 07/31/10 893,000 968,905 Alamosa Holdings, Inc. 7.500%, due 07/31/13 1,375 474,375 Alderwoods Group, Inc. 12.250%, due 01/02/09 750,000 843,750 Alliance Imaging 10.375%, due 04/15/11 1,160,000 1,229,600 Allied Waste North America 7.875%, due 04/15/13 100,000 108,250 American Airlines, Inc. 6.977%, due 05/23/21 1,998,933 1,791,216 7.155%, due 04/15/06 1,000,000 975,892 8.608%, due 10/01/12 875,000 796,818 American Color Graphics, Inc., 144A 10.000%, due 06/15/10 900,000 922,500 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 11/01/06 300,000 150,000 American Towers, Inc. 144A 7.250%, due 12/01/11 1,000,000 1,017,500 Ameristar Casino, Inc. 10.750%, due 02/15/09 225,000 258,750 AMI Semiconductor, Inc. 10.750%, due 02/01/13 487,000 580,748 Amkor Technologies, Inc. 9.250%, due 02/15/08 100,000 113,500 Amkor Technologies, Inc. 7.750%, due 05/15/13 1,100,000 1,179,750 Anchor Glass Container Corp. 11.000%, due 02/15/13 700,000 812,000 Armor Holdings, Inc. 144A 8.250%, due 08/15/13 600,000 642,000 Atrium Cos., Inc., Series B 10.500%, due 05/01/09 1,025,000 1,096,750 B&G Foods, Inc., Series D 9.625%, due 08/01/07 975,000 1,005,469 Bally Total Fitness Holding Corp., 144A 10.500%, due 07/15/11 $ 650,000 $ 653,250 BE Aerospace, Inc., Series B 8.875%, due 05/01/11 1,250,000 1,171,875 Bear Island Paper Co., LLC, Series B 10.000%, due 12/01/07 625,000 534,375 Berry Plastics Corp. 10.750%, due 07/15/12 1,050,000 1,208,812 Better Minerals & Aggregates 13.000%, due 09/15/09 950,000 522,500 Block Communications, Inc. 9.250%, due 04/15/09 500,000 537,500 Blue Ridge Paper Products, Inc. 144A 9.500%, due 12/15/08 650,000 650,000 Brickman Group Ltd., (The) 11.750%, due 12/15/09 750,000 873,750 Buckeye Technologies, Inc. 8.000%, due 10/15/10 1,250,000 1,225,000 Buffets, Inc. 11.250%, due 07/15/10 1,250,000 1,340,625 Building Materials Corp. of America, Series B 7.750%, due 07/15/05 500,000 511,250 Cadmus Communications Corp. 9.750%, due 06/01/09 995,000 1,062,162 Calpine Canada Energy Finance Corp. 144A 8.500%, due 05/01/08 1,500,000 1,196,250 Calpine Corp. 8.500%, due 02/15/11 1,300,000 1,028,625 8.750%, due 07/15/13 1,250,000 1,218,750 Centennial Cellular Corp. 10.750%, due 12/15/08 850,000 896,750 Centennial Cellular Operating Co. 10.125%, due 06/15/13 750,000 823,125 Charter Communications Holdings 10.000%, due 04/01/09 1,850,000 1,646,500 10.000%, due 05/15/11 1,000,000 870,000 Chippac International Co., Ltd., Series B 12.750%, due 08/01/09 325,000 359,125 Cincinnati Bell, Inc. 144A 8.375%, due 01/15/14 1,000,000 1,075,000 Collins & Aikman Products 10.750%, due 12/31/11 1,000,000 982,500 Couche-Tard Finance Corp. 144A 7.500%, due 12/15/13 500,000 523,750 Crown Castle International Corp. 9.375%, due 08/01/11 1,000,000 1,110,000 Crown Cork & Seal Co., Inc. 8.000%, due 04/15/23 1,750,000 1,636,250 Crown Euro Holdings S.A. 10.875%, due 03/01/13 1,000,000 1,176,250 Crown European Holdings S.A. 9.500%, due 03/01/11 875,000 990,937 CSC Holdings, Inc. 7.875%, due 12/15/07 125,000 131,875 CSC Holdings, Inc., Series B 7.625%, due 04/01/11 1,050,000 1,105,125 8.125%, due 08/15/09 1,050,000 1,128,750 Desa International, Inc. 9.875%, due 12/15/07 (e) 3,000,000 30,000
80
FACE AMOUNT VALUE --------------- ---------------- Dobson Communications Corp. 144A 8.875%, due 10/01/13 $ 500,000 $ 506,250 10.875%, due 07/01/10 1,150,000 1,253,500 DRS Technologies, Inc. 144A 6.875%, due 11/01/13 650,000 667,875 Dura Operating Corp., Series D 9.000%, due 05/01/09 500,000 500,000 Dynegy Holdings, Inc. 6.875%, due 04/01/11 1,800,000 1,658,250 El Pollo Loco, Inc. 144A 9.250%, due 12/15/09 750,000 759,375 Energy Partners Ltd 8.750%, due 08/01/10 1,000,000 1,040,000 Equinox Holdings, Inc. 144A 9.000%, due 12/15/09 900,000 929,250 Equistar Chemicals LP 6.500%, due 02/15/06 1,300,000 1,313,000 8.750%, due 02/15/09 500,000 522,500 Extendicare Health Services, Inc. 9.350%, due 12/15/07 1,075,000 1,107,250 9.500%, due 07/01/10 365,000 405,150 FastenTech, Inc. 144A 11.500%, due 05/01/11 1,000,000 1,081,250 Fedders North America 9.375%, due 08/15/07 845,000 849,225 Felcor Lodging LP 8.500%, due 06/01/11 175,000 189,875 9.500%, due 09/15/08 450,000 486,000 Fisher Scientific International, Inc. 8.125%, due 05/01/12 434,000 465,465 Fort James Corp. 6.875%, due 09/15/07 350,000 369,250 Four M Corp., Series B 12.000%, due 06/01/06 850,000 845,750 Frontier Oil Corp. 11.750%, due 11/15/09 400,000 452,000 FrontierVision Holdings L.P., Series B (e) 11.875%, due 09/15/07 275,000 291,500 Gaylord Entertainment 144A 8.000%, due 11/15/13 400,000 422,000 Gencorp, Inc. 144A 9.500%, due 08/15/13 825,000 855,937 GEO Specialty Chemicals 10.125%, due 08/01/08 475,000 149,625 Georgia -Pacific Corp. 8.875%, due 05/15/31 1,175,000 1,292,500 9.375%, due 02/01/13 750,000 862,500 9.500%, due 12/01/11 500,000 580,000 Giant Industries 9.000%, due 09/01/07 1,100,000 1,122,000 11.000%, due 05/15/12 1,300,000 1,404,000 Granite Broadcasting Corp. 9.750%, due 12/01/10, 144A 1,250,000 1,246,875 10.375%, due 05/15/05 300,000 300,375 Gray Television, Inc. 9.250%, due 12/15/11 680,000 758,200 Grey Wolf, Inc., Series C 8.875%, due 07/01/07 507,000 522,210 Hollinger International Publishing Corp. 9.000%, due 12/15/10 750,000 796,875 Hornbeck-Leevac Marine Services 10.625%, due 08/01/08 $ 750,000 $ 828,750 Host Marriott LP 144A 7.125%, due 11/01/13 1,250,000 1,275,000 Hyperion Telecommunications (e) 12.000%, due 11/01/07 2,000,000 5,000 IASIS Healthcare Corp. 8.500%, due 10/15/09 1,250,000 1,303,125 IMC Global, Inc. 11.250%, due 06/01/11 1,500,000 1,650,000 10.875%, due 08/01/13, 144A 500,000 547,500 Ingles Markets, Inc. 8.875%, due 12/01/11 1,000,000 1,005,000 Insight Communications Co., Inc. (c) 12.250%, due 02/15/11 1,425,000 1,218,375 Interface, Inc. 10.375%, due 02/01/10 1,000,000 1,057,500 Intrawest Corp. 144A 7.500%, due 10/15/13 400,000 416,000 IPC Acquisition Corp. 11.500%, due 12/15/09 825,000 899,250 Jacobs Entertainment Co. 11.875%, due 02/01/09 750,000 840,000 Jafra Cosmetics International, Inc. 10.750%, due 05/15/11 750,000 823,125 John Q. Hammons Hotels, Inc., Series B 8.875%, due 05/15/12 900,000 992,250 Kansas City Southern 7.500%, due 06/15/09 850,000 871,250 Land O Lakes, Inc. 8.750%, due 11/15/11 1,500,000 1,312,500 Le-Natures, Inc., 144A 9.000%, due 06/15/13 1,000,000 1,055,000 Levi Strauss & Co 12.250%, due 12/15/12 650,000 422,500 Luigino's, Inc. 10.000%, due 02/01/06 1,450,000 1,486,250 MTR Gaming Group, Inc. 9.750%, due 04/01/10 1,350,000 1,444,500 Mail-Well Corp., Series B 8.750%, due 12/15/08 570,000 568,575 Majestic Star LLC Capital 144A 9.500%, due 10/15/10 1,200,000 1,230,000 Massey Energy Co. 6.950%, due 03/01/07 575,000 589,375 MCI Communications Corp. (e) 6.500%, due 04/15/10 2,000,000 1,610,000 Mediacom LLC 9.500%, due 01/15/13 2,890,000 3,063,400 Merisant Co., 144A 9.500%, due 07/15/13 850,000 905,250 Meristar Hospitality Corp. 9.000%, due 01/15/08 1,025,000 1,071,125 9.125%, due 01/15/11 350,000 371,000 Millar Western Forest 144A 7.750%, due 11/15/13 1,000,000 1,037,500 Millennium America, Inc. 7.000%, due 11/15/06 500,000 512,500 9.250%, due 06/15/08 1,000,000 1,090,000
81
FACE AMOUNT VALUE --------------- ---------------- Mirant Americas Generation, Inc. (e) 7.625%, due 05/01/06 $ 1,450,000 $ 1,225,250 Mothers Work, Inc. 11.250%, due 08/01/10 700,000 777,875 Nexstar Finance Holdings, Inc., LLC, 144A 11.375%, due 04/01/13 1,325,000 968,906 Nortek Holdings, Inc., Series B 9.125%, due 09/01/07 600,000 620,250 9.250%, due 03/15/07 625,000 642,188 9.875%, due 06/15/11 200,000 220,500 Omnova Solutions, Inc. 11.250%, due 06/01/10 1,250,000 1,387,500 Orion Refining Corp. (e) (f) (g) 10.000%, due 11/15/04 3,829,177 383 Owens-Brockway Glass Corp. 8.875%, due 02/15/09 700,000 767,375 Owens-Illinois, Inc. 7.350%, due 05/15/08 400,000 410,500 Pacifica Papers, Inc. 10.000%, due 03/15/09 595,000 630,700 Parker Drilling Corp., Series B 10.125%, due 11/15/09 1,000,000 1,060,000 Pathmark Stores, Inc. 8.750%, due 02/01/12 1,000,000 1,045,000 Penn National Gaming, Inc. 8.875%, due 03/15/10 975,000 1,057,875 Perry Ellis International, Inc. 144A 8.875%, due 09/15/13 525,000 552,563 Perry Ellis International, Inc., Series B 9.500%, due 03/15/09 1,000,000 1,082,500 Petco Animal Supplies, Inc. 10.750%, due 11/01/11 1,190,000 1,392,300 Plains Exploration & Production Co., Series B 8.750%, due 07/01/12 825,000 906,469 Pliant Corp., 144A 11.125%, due 09/01/09 750,000 810,000 Premier Graphics, Inc. (e) (f) (g) 11.500%, due 12/01/05 4,250,000 0 Prime Hospitality Corp., Series B 8.375%, due 05/01/12 575,000 593,688 Prime Medical Services, Inc. 8.750%, due 04/01/08 1,400,000 1,351,000 Qwest Capital Funding, Inc. 7.000%, due 08/03/09 950,000 942,875 Qwest Corp., 144A 8.875%, due 03/15/12 550,000 631,125 Qwest Services Corp., 144A 13.500%, due 12/15/10 785,000 953,775 R.H. Donnelly, Inc. 9.125%, due 06/01/08 1,100,000 1,146,750 Reliant Resources, Inc., 144A 9.250%, due 07/15/10 600,000 636,000 9.500%, due 07/15/13 500,000 535,000 Rhodia S.A., 144A 8.875%, due 06/01/11 1,545,000 1,421,400 River Rock Entertainment Authority 144A 9.750%, due 11/01/11 1,000,000 1,075,000 Rockwood Specialties Group, Inc. 144A 10.625%, due 05/15/11 1,150,000 1,282,250 Roundy's, Inc., Series B 8.875%, due 06/15/12 $ 600,000 $ 640,500 Samina Corp. 10.375%, due 01/15/10 450,000 526,500 SBA Communications Corp. 10.250%, due 02/01/09 750,000 736,875 Sbarro, Inc. 11.000%, due 09/15/09 930,000 734,700 Sequa Corp. 9.000%, due 08/01/09 725,000 799,312 Sheridan Acquisition Corp. 144A 10.250%, due 08/15/11 1,500,000 1,591,875 Sinclair Broadcast Group, Inc. 8.000%, due 03/15/12 725,000 783,000 8.750%, due 12/15/11 500,000 555,000 Stone Container Corp. 8.375%, due 07/01/12 500,000 542,500 Team Health, Inc., Series B 12.000%, due 03/15/09 1,500,000 1,620,000 Tekni-plex, Inc. 12.750%, due 06/15/10 900,000 981,000 Tembec Industries, Inc. 7.750%, due 03/15/12 1,000,000 995,000 8.500%, due 02/01/11 250,000 258,750 8.625%, due 06/30/09 250,000 257,500 Tenneco Automotive, Inc. 11.625%, due 10/15/09 250,000 270,000 10.250%, due 07/15/13 750,000 853,125 Terra Capital, Inc. 11.500%, due 06/01/10 500,000 522,500 12.875%, due 10/15/08 750,000 885,000 Tesoro Petroleum Corp. 9.000%, due 07/01/08 2,000,000 2,075,000 Tommy Hilfiger USA, Inc. 6.850%, due 06/01/08 1,300,000 1,303,250 Town Sports International, Inc. 9.625%, due 04/15/11 1,000,000 1,070,000 Trico Marine Services, Inc. 8.875%, due 05/15/12 500,000 365,000 Triton PCS, Inc. 9.375%, due 02/01/11 1,000,000 1,020,000 Tropical Sportswear Int'l Corp., Series A 11.000%, due 06/15/08 525,000 425,250 U.S. Unwired, Inc. 13.375%, due 11/01/09 1,250,000 906,250 Unisys Corp. 6.875%, due 03/15/10 250,000 270,625 Universal Hospital Services, Inc. 144A 10.125%, due 11/01/11 1,100,000 1,155,000 Vertis, Inc., Series B 10.875%, due 06/15/09 1,000,000 1,062,500 Von Hoffmann Press, Inc. 10.250%, due 03/15/09 725,000 772,125 10.375%, due 05/15/07 750,000 756,562 Westlake Chemical Corp. 144A 8.750%, due 07/15/11 750,000 821,250 Wheeling Island Gaming, Inc. 10.125%, due 12/15/09 1,275,000 1,351,500
82
FACE AMOUNT VALUE --------------- ---------------- William Carter Co., Series B 10.875%, due 08/15/11 $ 503,000 $ 580,965 WRC Media, Inc. 12.750%, due 11/15/09 1,500,000 1,432,500 Wynn Las Vegas LLC 12.000%, due 11/01/10 375,000 441,563 XM Satellite Radio, Inc. 12.000%, due 06/15/10 800,000 904,000 Young Broadcasting, Inc. 8.500%, due 12/15/08 625,000 671,875 ---------------- Total U.S. Bonds (Cost $187,674,914) 170,861,404 ---------------- SHARES --------------- EQUITIES -- 0.35% COMMON STOCKS -- 0.35% AIRLINES -- 0.00% Sabreliner Corp. (f) (g) 8,400 0 ---------------- ELECTRONICS -- 0.00% Communications & Power Industries Holding Corp. (b) (f) (g) 1,400 0 ---------------- FOOD & HOUSEHOLD PRODUCTS -- 0.00% Aurora Foods, Inc. (b) (f) (g) 174 1 ---------------- RETAIL/APPAREL -- 0.00% Samuels Jewelers, Inc. (b) (f) (g) 605,400 5,448 ---------------- SERVICES/MISCELLANEOUS -- 0.35% Metal Management, Inc. (b) (f) 16,785 619,870 Waste Systems International, Inc. (f) (g) 664,249 0 ---------------- 619,870 ---------------- TELECOMMUNICATIONS- SERVICES -- 0.00% PNV, Inc. (b) (f) 79,417 24 RCN Corp. (b) 466 373 ---------------- 397 ---------------- 625,716 ---------------- CONVERTIBLE PREFERRED -- 0.23% METALS - STEEL -- 0.00% Weirton Steel Corp., Series C Convertible (Zero Coupon) 1,800 666 ---------------- PUBLISHING -- 0.23% CSC Holdings, Inc. Series M, PIK, 11.125% 4,000 420,000 ---------------- WARRANTS (b) -- 0.36% Arcadia Financial Ltd., expires 03/15/07 (f) (g) 6,000 0 Pathnet, Inc. expires 04/15/08 (f) (g) 6,275 0 Dayton Superior Corp., 144A, expires 06/15/09 (f) 225 2 Electronic Retailing Systems International, Inc., 144A expires 02/01/04 (f) 13,700 0 InterAct Electronic Marketing, Inc., 144A expires 12/31/09 (f) (g) 19,500 0 Knology, Inc., 144A, expires 10/15/07 (f) (g) 16,995 0 Nuco2, Inc. (f) (g) 109,290 640,439 Pliant Corp., expires 06/01/10 (f) 160 $ 5 UIH Australia Pacific, Inc., expires 05/15/06 (f) (g) 10,000 0 Wam!Net, Inc., expires 03/01/05 (f) (g) 26,250 0 ---------------- 640,446 ---------------- Total Equities (Cost $23,184,127) 1,686,828 ---------------- SHORT-TERM INVESTMENTS -- 1.22% UBS Supplementary Trust U.S. Cash Management Prime Fund, yield of 1.23% (Cost $2,198,275) 2,198,275 2,198,275 ---------------- Total Investments (Cost $213,057,316) -- 97.21% (a) 174,746,507 Cash and other assets, less liabilities -- 2.79% 5,007,996 ---------------- Total Net Assets -- 100% $ 179,754,503 ================
83 NOTES TO SCHEDULE OF INVESTMENTS (a) Aggregate cost for federal income tax purposes was $213,057,316; and net unrealized depreciation consisted of: Gross unrealized appreciation $ 12,086,027 Gross unrealized depreciation (50,396,836) ---------------- Net unrealized depreciation $ (38,310,809) ================
(b) Non-income producing security. (c) Step Bonds -- coupon rate increases in increments to maturity. Rate disclosed is as of December 31, 2003. Maturity date disclosed is the ultimate maturity date. (d) Variable rate security -- The rate disclosed is that in effect at December 31, 2003. (e) Security is in default. (f) Security is illiquid. These securities amounted to $1,266,722 or 0.70% of net assets. (g) Security is being fair valued by a management committee under the direction of the Board of Trustees. At December 31, 2003, the value of these securities amounted to $646,271 or 0.36% 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 December 31, 2003 the value of these securities amounted to $35,500,461 or 19.75% of net assets. PIK: Payment in Kind. See accompanying notes to financial statements 84 UBS INTERNATIONAL EQUITY FUND Over the six months ended December 31, 2003, Class Y shares of UBS International Equity Fund returned 23.77%, compared to the 26.42% return for the Fund's benchmark, the MSCI World Ex USA (Free) Index (the "Index"). Since inception on August 31, 1993, the Fund's Class Y shares have returned 4.41% on an annualized basis, compared to 4.48% for the Index. (Returns for all share classes over various time periods are shown on page 87. 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.) While the Fund did well on an absolute basis, it underperformed the Index because of underweights to technology hardware, Japanese bank stocks and some small cap areas of the market that were driven primarily by a speculative wave. SIX-MONTH MARKET REVIEW After a modest start, international stock markets--aided by double-digit returns in the last three months of the review period -- delivered strong returns for investors over the six months ended December 31, 2003. The strong showing of the foreign markets was driven primarily by the global economic recovery. A steady stream of improving global economic statistics, combined with the quick resolution of major combat in Iraq, succeeded in restoring investor confidence. As a result, formerly risk-averse investors returned to stocks. Almost every foreign country offered opportunities for growth, but emerging markets were clearly the stars. Highly cyclical, they attracted investors eager to capitalize on the rapidly expanding global economy. In Europe, market performance was led by Germany. Finally, in the wake of SARS, unexpected success came from the Asian markets, especially Japan. Reversing a decade-long decline, the Japanese stock market posted a positive return over the period. Across all of these markets, there was a preference for lower-quality, more speculative stocks. In fact, technology and Internet-related stocks, which had lost nearly all of their value in the bear market of the past few years, rebounded sharply. The strong global economic recovery also boosted cyclical industries, including auto, paper and mining. GLOBAL NETWORK OF ANALYSTS GUIDED SECTOR STRATEGY Our disciplined investment approach relies on in-depth research and analysis to identify stocks selling for less than their intrinsic value. Employing an extensive network of global analysts and investment specialists, we thoroughly review the underlying fundamentals of a country, industry or sector, looking for price-to-intrinsic value discrepancies. This research process proved effective during the six months covered by this report, helping to drive the Fund to strong absolute performance. Historically, low-cost, low-quality stocks tend to outperform during the early stages of an economic recovery. Investors are drawn to their depressed prices and their potential to produce immediate profits in a recovery period. Our analysis determined, however, that many of these higher-risk securities, including those found in the semiconductors and technology hardware areas, did not have long-term investment merit and were not appropriate for our portfolio. Instead, our investment process guided us toward fundamentally sound companies in areas such as healthcare, financial services and utilities. Within healthcare--which was one of the Fund's largest overweights relative to the Index over the period--we identified opportunities in select pharmaceutical companies that offered attractive valuations and the potential to deliver long-term sustainable growth. In financial services, we increased our exposure to the sector, and it ultimately was our largest overweight at period-end. Based on research findings, we opted to underweight insurance companies in this sector, 85 concentrating instead on more promising areas, including banks. Some specific examples of holdings in this sector were Royal Bank of Scotland, Westpac Bank, and Barclays. The exception was Japanese banks, where an underweight to lower-quality names, which did well, hurt performance. Within telecommunications, we benefited from our focus on companies--including Vodafone--with strong market positions and acceptable debt loads. Alternately, we underweighted some sectors whose valuations reflected the fact that they had a run of strong performance, including industrial cyclicals and technology hardware. As we have already noted, technology hardware was a beneficiary of the speculative trend that was dominating the market. As a result, our underweight to the sector ultimately proved to be a primary factor behind the Fund's relative underperformance over the period. On a geographic level, the Fund's weighting reflected our sector and regional views. Overweights to continental Europe and the UK were a result of both stock-specific views and the attractive valuations of those markets. We underweighted Germany, because many of the companies in this space were significantly leveraged (both financially and economically), and because we felt its deep cyclical structure was not attractively valued. However, the outperformance of this market detracted from the Fund's relative performance. Finally, we reduced our underweight to Japan modestly when we found some buying opportunities in the export sector. While we cited currency allocation as a major factor behind performance when we last reported to you, it provided little contribution over the last six months. Currency positions were scaled back during the year as the euro outperformed versus the pound sterling, and the Australian dollar appreciated versus the yen. By year-end, our currency position was near neutral. LOOKING AHEAD We are optimistic about the opportunities in the international stock markets in 2004, although we are not expecting gains in line with what we saw in 2003. In our opinion, the technology sectors are fully valued, even on optimistic assumptions. 86 TOTAL RETURN
6 MONTHS 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION* ENDED ENDED ENDED ENDED ENDED TO 12/31/03 12/31/03 12/31/03 12/31/03 12/31/03 12/31/03 - -------------------------------------------------------------------------------------------------------- UBS International Equity Fund Class A 23.36% 31.24% -2.29% 0.12% N/A 0.91% UBS International Equity Fund Class B 22.95 30.30 N/A N/A N/A 7.71 UBS International Equity Fund Class C 23.04 30.21 N/A N/A N/A 7.33 UBS International Equity Fund Class Y 23.77 31.66 -2.09 0.33 4.93% 4.41 UBS International Equity Fund Class A** 16.52 24.07 -4.12 -1.00 N/A 0.04 UBS International Equity Fund Class B** 17.95 25.30 N/A N/A N/A 5.71 UBS International Equity Fund Class C** 22.04 29.21 N/A N/A N/A 7.33 MSCI World Ex USA (Free) Index 26.42 39.49 -2.61 0.42 4.76 4.48
* INCEPTION DATE OF UBS INTERNATIONAL EQUITY FUND CLASS A SHARES IS 6/30/97. INCEPTION DATES OF CLASS B AND CLASS C SHARES ARE 2/12/02 AND 1/25/02, RESPECTIVELY. INCEPTION DATE OF CLASS Y SHARES AND 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. PAST PERFORMANCE IS NOT AN INDICATION OF FUTURE RESULTS. 87 TOP TEN INTERNATIONAL EQUITY HOLDINGS AS OF DECEMBER 31, 2003 (UNAUDITED)
PERCENTAGE OF NET ASSETS - ------------------------------------------------------- Vodafone Group PLC 2.9% Total S.A., Class B 2.8 BP PLC 2.8 Nestle S.A. 2.8 GlaxoSmithKline PLC 2.4 Royal Bank of Scotland Group 2.1 Shell Transport & Trading Co. PLC 2.0 Honda Motor Co., Ltd. 2.0 Diageo PLC 1.9 Bank of Ireland 1.8 - ------------------------------------------------------- Total 23.5%
INDUSTRY DIVERSIFICATION AS A PERCENT OF NET ASSETS AS OF DECEMBER 31, 2003 (UNAUDITED) INTERNATIONAL EQUITIES Aerospace & Defense 0.64% Appliances & Household Durables 0.48 Autos/Durables 3.43 Banks 17.60 Beverages & Tobacco 2.25 Broadcasting & Publishing 4.27 Building Materials 1.37 Chemicals 4.14 Computer Software 0.64 Construction 1.74 Data Processing 0.54 Electric Components 2.86 Electronics 0.38 Energy 5.31 Financial Services 3.99 Food & House Products 6.06 Forest Products 0.73 Health: Drugs 8.07 Health: Non-Drugs 1.47 Housing/Paper 1.04 Industrial Components 0.31 Insurance 1.91 Machinery & Engineering 0.62 Merchandising 1.47 Metals Non-Ferrous 2.07 Multi-Industry 0.58 Oil 2.04 Paper & Forest Products 0.14 Publishing & Printing 0.30 Real Estate 1.20 Recreation 1.97 Retail/Apparel 0.85 Services/Miscellaneous 1.52 Telecommunications 9.28 Transportation 2.24 Utilities 2.21 Wholesale & International Trade 0.64 ------ Total International Equities 96.36 International Corporate Bonds 0.35 Investments of Cash Collateral for Securities Loaned 6.76 SHORT-TERM INVESTMENTS 2.51 ------ TOTAL INVESTMENTS 105.98 LIABILITIES, IN EXCESS OF CASH AND OTHER ASSETS (5.98) ------ NET ASSETS 100.00% ======
88 UBS INTERNATIONAL EQUITY FUND -- SCHEDULE OF INVESTMENTS DECEMBER 31, 2003 (UNAUDITED)
SHARES VALUE --------------- ---------------- INTERNATIONAL EQUITIES -- 96.36% AUSTRALIA -- 3.77% Australia & New Zealand Banking Group Ltd. 49,860 $ 664,184 Australian Gas Light Co., Ltd. 37,620 318,311 News Corp., Ltd., Preferred 50,988 384,169 QBE Insurance Group Ltd. (c) 91,734 732,639 Rio Tinto Ltd. 459 12,865 Westpac Banking Corp. 123,491 1,487,776 Woolworths Ltd. 33,748 300,043 ---------------- 3,899,987 ---------------- BELGIUM -- 1.11% Fortis 56,853 1,143,084 ---------------- CANADA -- 4.07% Alcan, Inc. 21,940 1,028,366 Bank of Nova Scotia (c) 14,400 733,233 BCE, Inc. 25,600 572,521 Canadian National Railway Co. 9,700 615,515 Magna International, Inc., Class A 4,000 322,043 Toronto Dominion Bank 27,800 931,292 ---------------- 4,202,970 ---------------- FINLAND -- 2.30% Nokia Oyj 93,892 1,623,687 UPM-Kymmene Oyj (c) 39,478 752,911 ---------------- 2,376,598 ---------------- FRANCE -- 9.42% Aventis S.A. (c) 26,913 1,778,811 BNP Paribas (b) (c) 23,867 1,502,826 Cap Gemini S.A. (b) (c) 14,829 658,589 Compagnie de Saint-Gobain 8,941 437,689 France Telecom S.A. (b) 34,131 975,540 Sanofi-Synthelabo S.A 4,410 332,085 Suez S.A 29,720 597,174 Total S.A 15,528 2,887,017 Unibail (c) 6,035 565,972 ---------------- 9,735,703 ---------------- GERMANY -- 0.61% Allianz AG (c) 2,662 336,041 Bayer AG 10,118 296,342 ---------------- 632,383 ---------------- HONG KONG -- 0.49% Cheung Kong Holdings Ltd. 64,000 509,042 ---------------- IRELAND -- 2.81% Bank of Ireland 136,311 1,856,911 CRH PLC 50,951 1,046,269 ---------------- 2,903,180 ---------------- ITALY -- 3.43% Assicurazioni Generali Spa (c) 20,076 531,781 ENI Spa (c) 84,944 1,602,879 UniCredito Italiano Spa (c) 261,805 1,413,377 ---------------- 3,548,037 ---------------- JAPAN -- 16.60% AIFUL Corp. 7,450 $ 545,003 Canon, Inc. 12,000 558,738 Fuji Photo Film Co., Ltd. 23,000 742,559 Funai Electric Co. Ltd 2,000 274,517 Honda Motor Co., Ltd. 47,200 2,096,408 Hoya Corp. 4,600 422,357 Kao Corp. 42,000 854,344 Keyence Corp. 900 189,708 Mitsubishi Corp. 62,000 657,199 Mitsubishi Tokyo Financial Group, Inc. 56 436,839 Mitsui Fudosan Co., Ltd. 18,000 162,583 Murata Manufacturing Co., Ltd. 5,600 302,547 Nintendo Co., Ltd. 13,900 1,297,005 Nippon Telegraph & Telephone Corp. 124 598,190 Nippon Unipac Holding 28 144,481 NTT DoCoMo, Inc. 303 687,030 Rohm Co., Ltd. 6,200 726,621 Sekisui House Ltd. 54,000 557,787 Sompo Japan Insurance, Inc. (c) 120,000 986,470 Sumitomo Chemical Co., Ltd. 60,000 247,457 Sumitomo Mitsui Financial Group, Inc. 104 554,110 Taiheiyo Cement Corp. 600 1,696 Takeda Chemical Industries Ltd. 33,600 1,332,462 Takefuji Corp. 3,540 165,488 Toppan Printing Co., Ltd. 30,000 312,121 Toyota Industries Corp. 24,000 509,471 Toyota Motor Corp. 42,700 1,442,325 West Japan Railway Co. 88 345,694 ---------------- 17,151,210 ---------------- NETHERLANDS -- 7.00% ABN AMRO Holding NV 49,138 1,149,735 Koninklijke Philips Electronics NV 34,629 1,011,177 Reed Elsevier NV 119,587 1,485,787 TPG NV 57,720 1,351,993 VNU NV 46,410 1,466,411 Wolters Kluwer NV 48,844 763,958 ---------------- 7,229,061 ---------------- PORTUGAL -- 0.77% Electricidade de Portugal S.A 67,540 178,051 Portugal Telecom, SGPS, S.A 61,020 614,202 ---------------- 792,253 ---------------- SPAIN -- 2.65% Antena 3 Television, S.A Banco Bilbao Vizcaya Argentaria S.A 94,256 1,301,846 Banco Santander Central Hispano S.A 56,597 670,340 Telefonica S.A 52,029 763,897 ---------------- 2,736,083 ---------------- SWEDEN -- 4.33% Electrolux AB, B Shares 22,800 500,660 Hennes & Mauritz AB, B Shares 24,350 578,690 Nordea AB (c) 134,000 1,005,656 Svenska Cellulosa AB 26,290 1,074,210 Svenska Handelsbanken AB 26,150 534,245 Swedish Match AB 76,140 777,770 ---------------- 4,471,231 ----------------
89
SHARES VALUE --------------- ---------------- SWITZERLAND -- 7.17% Adecco S.A 12,108 $ 778,319 Givaudan S.A 866 449,543 Holcim Ltd. 11,520 536,529 Nestle S.A. (c) 11,545 2,884,499 Novartis AG 14,462 656,593 Roche Holding AG 17,104 1,725,267 Swiss Reinsurance Co. 5,507 371,809 ---------------- 7,402,559 ---------------- UNITED KINGDOM -- 29.83% AstraZeneca PLC 22,924 1,099,807 Balfour Beatty PLC 50,595 197,902 Barclays PLC 200,779 1,790,840 BOC Group PLC 26,421 403,686 BP PLC 355,783 2,885,192 BT Group PLC 209,336 705,456 Carlton Communications PLC 76,303 314,167 Centrica PLC 179,262 677,114 Compass Group PLC 83,702 569,391 Diageo PLC 148,631 1,955,636 Electrocomponents PLC 78,264 455,341 Gallaher Group PLC 143,839 1,544,967 GlaxoSmithKline PLC 109,610 2,511,606 HSBC Holdings PLC 53,921 847,508 Invensys PLC 396,042 129,388 Kesa Electricals PLC 86,166 396,810 Kingfisher PLC (b) 176,470 879,807 National Grid Transco PLC 151,115 1,082,755 Rentokil Initial PLC 228,784 778,163 Rio Tinto PLC 39,861 1,101,046 Rolls-Royce Group PLC 207,686 658,999 Royal Bank of Scotland Group PLC 72,875 2,147,335 Scottish & Southern Energy PLC 84,785 1,021,469 Shell Transport & Trading Co. PLC 282,767 2,103,251 Tesco PLC 329,737 1,521,450 Vodafone Group PLC 1,227,537 3,043,517 ---------------- 30,822,603 ---------------- Total International Equities (Cost $72,566,583) 99,555,984 ---------------- FACE AMOUNT --------------- INTERNATIONAL BONDS -- 0.35% CAYMAN ISLANDS -- 0.35% SMFG Finance Ltd., 144A 2.25%, due 07/11/05 (d) JPY 21,000,000 357,229 ---------------- Total International Bonds (Cost $222,030) 357,229 ---------------- SHARES --------------- SHORT-TERM INVESTMENTS -- 2.51% UBS Supplementary Trust U.S. Cash Management Prime Fund, yield of 1.23% (Cost $2,589,409) 2,589,409 2,589,409 ---------------- INVESTMENTS OF CASH COLLATERAL FOR SECURITIES LOANED -- 6.76% UBS Supplementary Trust U.S. Cash Management Prime Fund, yield of 1.23% (Cost $6,986,516) 6,986,516 $ 6,986,516 ---------------- Total Investments (Cost $82,364,538) 105.98% (a) 109,489,138 Liabilities, in excess of cash and other assets -- (5.98%) (6,175,917) ---------------- Total Net Assets -- 100% $ 103,313,221 ================
90 NOTES TO SCHEDULE OF INVESTMENTS (a) Aggregate cost for federal income tax purposes was $82,364,538; and net unrealized appreciation consisted of: Gross unrealized appreciation $ 27,501,790 Gross unrealized depreciation (377,190) ---------------- Net unrealized appreciation $ 27,124,600 ================
(b) Non-income producing security (c) Security, or portion thereof, was on loan at December 31, 2003. (d) Security is in default. 144A: Security exemption from registration under Rule 144A of the Securities Act of 1933. This securities may be resold in transactions exempt from registration, normally to qualified buyers. At December 31, 2003, the value of these securities amounted to $357,229 or 0.35% of net assets. % Represents a percentage of net assets FORWARD FOREIGN CURRENCY CONTRACTS UBS International Equity Fund had the following open forward foreign currency contracts as of December 31, 2003:
SETTLEMENT LOCAL CURRENT UNREALIZED DATE CURRENCY VALUE GAIN/(LOSS) ---------- ----------- ----------- ---------- FORWARD FOREIGN CURRENCY BUY CONTRACTS: Australian Dollar (AUD) 06/03/04 1,100,000 $ 813,986 $ 40,686 Canadian Dollar (CAD) 06/03/04 2,100,000 1,615,115 26,673 Danish Krone (DKK) 06/03/04 4,000,000 674,715 42,704 Euro (EUR) 06/03/04 1,750,000 2,198,550 122,695 Hong Kong Dollar (HKD) 06/03/04 7,300,000 944,083 955 Japanese Yen (JPY) 01/05/04 83,000,000 774,470 1,802 Japanese Yen (JPY) 01/06/04 96,100,000 896,735 1,530 Japanese Yen (JPY) 06/03/04 420,000,000 3,938,123 82,897 Singapore Dollar (SGD) 06/03/04 1,200,000 707,686 8,263 FORWARD FOREIGN CURRENCY SALE CONTRACTS: British Pound (GBP) 06/03/04 5,000,000 8,843,873 (442,756) Japanese Yen (JPY) 06/03/04 53,700,000 503,517 1,182 Swedish Krona (SEK) 06/03/04 15,400,000 2,125,938 (100,849) Swiss Franc (CHF) 06/03/04 500,000 405,748 (5,290) ---------- Total net unrealized loss on Forward Foreign Currency Contracts $ (219,508) ==========
See accompanying notes to financial statements. 91 UBS U.S. VALUE EQUITY FUND Over the six months ended December 31, 2003, Class Y shares of UBS U.S. Value Equity Fund returned 16.41%, in line with the 16.55% return of the Russell 1000 Value Index (the "Index"). Since the Fund's inception on June 29, 2001, through December 31, 2003, its Class Y shares have generated an average annual return of 3.93% per year, compared to a 1.98% return for the Index. (Returns for all share classes over various time periods are shown on page 94. 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 focus on quality--on both an industry and an individual stock level-- supported relative performance during the six-month period. In particular, the Fund benefited from overweights in construction, banking and healthcare, as well as an underweight in technology hardware. We believe the Fund's performance over the semiannual period underscores the effectiveness of our price to intrinsic value approach. The Fund's focus on quality produced strong positive results, despite the fact that, overall, more speculative stocks were the market leaders over the year. SIX-MONTH MARKET REVIEW Historically, stock styles have moved in cycles, with either growth or value clearly outperforming over a given period of time. The six months ended December 31, 2003 defied this convention, however, as the broad based market rally allowed both styles to deliver strong returns, with value slightly outperforming growth. The market as a whole rose 16.28%, as measured by the Russell 3000 Index, while the Russell 1000 Value and Growth Indexes returned 16.55% and 14.73%, respectively. In general, the last six months represented quite a comeback story for the market. The economy gained momentum, spurred on by aggressive fiscal stimulus (including increased government spending and tax cuts), and the lowest short-term interest rates in 45 years. The abundance of improving economic statistics buoyed investors, who, optimistic that a recovery was finally underway, rotated their portfolios back into stocks. Virtually every sector of the equity market benefited, but the more speculative issues--that is, low-cost, low-quality stocks--led the rally. In fact, many of the stocks that suffered so conspicuously in recent years were the top performers during the review period. This included stocks in Internet services, semiconductors and communications technology. On a capitalization basis, small-cap stocks were the best performing segment of the market, outpacing both mid- and large-cap stocks. From July 1, 2003 through December 31, 2003, the Russell 2000 Index (a measure of small cap stock performance) posted a gain of 24.92%, compared to a 15.47% return for the Russell Midcap Index, and a 12.34% return for the Russell 1000 Index. The technology-laden Nasdaq Composite turned in the best performance, however, climbing 23.45% over the six months. OUR RESEARCH LED US TO IDENTIFY COMPELLING OPPORTUNITIES Our disciplined investment approach relies on in-depth research and analysis to identify stocks we believe are selling for less than their price to intrinsic value. Using an extensive global network of analysts and investment specialists, we thoroughly review a company's underlying fundamentals and employ forward-looking projections to seek to determine its ability to generate future cash flow. Throughout the period, our analysis indicated that the majority of the market was trading in the fair value range. The exception was the more speculative end of the market, where investor interest drove up the prices of stocks in some sectors, such as technology hardware, beyond what we believed was justified by the underlying fundamentals. With fewer price-to-intrinsic value opportunities available, we relied on our research to uncover securities that we believed had the potential to enhance investment results. On an industry level, this research led us to overweight banking, construction and 92 healthcare, positions that added to our performance relative to the Index. In banking, we focused on companies, including Citigroup, that we believed were benefiting from a prior consolidation trend within the industry. In healthcare, our analysis uncovered a number of solid pharmaceutical companies selling at, in our opinion, very attractive valuations. In particular, we focused on firms with compelling and established drug pipelines, including Wyeth. These holdings rose in value as investors realized their true worth. Finally, in construction, we identified opportunities that have benefited from the robust housing market of the last several years. A notable position within this sector was Masco, a building products manufacturer and installer. Our most notable industry underweight, and perhaps the greatest detractor from performance over the period, was computer hardware, specifically, semiconductors. Semiconductors numbered among the top performing sectors in 2003. However, while we saw improvement in the industry's underlying fundamentals, we did not believe it supported the price appreciation that these stocks were seeing. On an individual stock level, some notable holdings included Nextel, which continued to perform well as competitors' offerings lagged well behind the industry standard the company has established. Martin Marietta Materials rallied when state budgets strengthened, and, as a result, the potential for highway construction initiatives grew. Alternately, we saw disappointing results from Newell Rubbermaid, which we no longer own. LOOKING AHEAD As the economic recovery continues to unfold, we believe we will see a return to conventional wisdom, whereby investors reward companies with superior balance sheets and proven earnings trends. That said, we feel that the broad market is fairly valued; for this reason, we believe bottom-up stock selection will be the driver of performance in 2004. As always, we remain committed to our research-based investment approach, searching for opportunities with the potential to generate superior risk-adjusted returns over the long term. Currently, we are finding these opportunities in the healthcare and financials sectors, which remain attractive. 93 TOTAL RETURN
6 MONTHS 1 YEAR INCEPTION* ENDED ENDED TO 12/31/03 12/31/03 12/31/03 - ------------------------------------------------------------------------------------------------------- UBS U.S. Value Equity Fund Class A 16.30% 30.45% 4.76% UBS U.S. Value Equity Fund Class B 15.79 29.42 5.42 UBS U.S. Value Equity Fund Class C 15.87 29.49 5.20 UBS U.S. Value Equity Fund Class Y 16.41 30.85 3.93 UBS U.S. Value Equity Fund Class A** 9.92 23.32 1.92 UBS U.S. Value Equity Fund Class B** 10.79 24.42 4.09 UBS U.S. Value Equity Fund Class C** 14.87 28.49 5.20 Russell 1000 Value Index 16.55 30.03 1.98
* 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 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. PAST PERFORMANCE IS NOT AN INDICATION OF FUTURE RESULTS. 94 TOP TEN EQUITY HOLDINGS AS OF DECEMBER 31, 2003 (UNAUDITED)
PERCENTAGE OF NET ASSETS - ------------------------------------------------------- American International Group, Inc. 6.0% ExxonMobil Corp. 5.0 Nextel Communications, Inc., Class A 4.7 Citigroup, Inc. 4.6 Wells Fargo & Co. 4.3 Bank of America Corp. 4.3 J.P. Morgan Chase & Co. 3.5 UnitedHealth Group, Inc. 3.2 Fannie Mae 3.0 Morgan Stanley 2.7 - ------------------------------------------------------- Total 41.3%
95 UBS U.S. VALUE EQUITY FUND -- SCHEDULE OF INVESTMENTS DECEMBER 31, 2003 (UNAUDITED)
SHARES VALUE --------------- ---------------- U.S. EQUITIES -- 96.64% AEROSPACE & DEFENSE -- 0.10% United Technologies Corp. 1,700 $ 161,109 ---------------- AIRLINES -- 0.45% Delta Air Lines, Inc. 59,100 697,971 ---------------- AUTOS/DURABLES -- 1.22% Johnson Controls, Inc. 16,400 1,904,368 ---------------- BANKS -- 12.35% Bank of America Corp. 82,400 6,627,432 FleetBoston Financial Corp. 48,501 2,117,069 GreenPoint Financial Corp. 71,100 2,511,252 PNC Financial Services Group 22,400 1,225,952 Wells Fargo & Co. 114,250 6,728,182 ---------------- 19,209,887 ---------------- BROADCASTING & PUBLISHING -- 1.86% Gannett Co., Inc. 18,500 1,649,460 McGraw-Hill Cos., Inc. (The) 17,800 1,244,576 ---------------- 2,894,036 ---------------- CAPITAL GOODS -- 3.67% Illinois Tool Works, Inc. 43,150 3,620,717 Pentair, Inc. 45,800 2,093,060 ---------------- 5,713,777 ---------------- COMPUTER SYSTEMS -- 0.62% Hewlett-Packard Co. 41,900 962,443 ---------------- CONSTRUCTION -- 1.46% Martin Marietta Materials, Inc. 48,300 2,268,651 ---------------- CONSUMER -- 1.17% Kimberly-Clark Corp. 30,900 1,825,881 ---------------- ELECTRONICS -- 0.61% TXU Corp. 39,700 941,684 ---------------- ENERGY -- 13.78% American Electric Power Co., Inc. 25,100 765,801 Anadarko Petroleum Corp. 25,300 1,290,553 ConocoPhillips 59,149 3,878,400 Exelon Corp. 40,250 2,670,990 ExxonMobil Corp. 189,250 7,759,250 FirstEnergy Corp. 87,000 3,062,400 Progress Energy, Inc. 1,600 72,416 Sempra Energy 64,100 1,926,846 ---------------- 21,426,656 ---------------- FINANCIAL SERVICES -- 24.30% American International Group, Inc. 140,676 9,323,980 Citigroup, Inc. 145,976 7,085,675 Fannie Mae 62,700 4,706,262 Freddie Mac 54,750 3,193,020 Lehman Brothers Holdings, Inc. 1 77 Hartford Financial Services Group, Inc. (The) 41,150 2,429,085 J.P. Morgan Chase & Co. 147,670 5,423,919 Mellon Financial Corp. 43,100 1,383,941 Morgan Stanley 73,200 4,236,084 ---------------- 37,782,043 ---------------- HEALTH: DRUGS -- 5.92% Bristol-Myers Squibb Co. 128,000 $ 3,660,800 Cephalon, Inc. (b) 34,200 1,655,622 Wyeth 91,700 3,892,665 ---------------- 9,209,087 ---------------- HEALTH: NON-DRUGS -- 6.01% Aflac, Inc. 40,700 1,472,526 Anthem, Inc. (b) 17,300 1,297,500 Baxter International, Inc. 32,550 993,426 Johnson & Johnson 11,100 573,426 UnitedHealth Group, Inc. 86,200 5,015,116 ---------------- 9,351,994 ---------------- MEDIA AND ENTERTAINMENT -- 1.05% Viacom, Inc., Class B (b) 36,700 1,628,746 ---------------- METALS NON-FERROUS -- 2.07% Masco Corp. 117,550 3,222,046 ---------------- MULTI-INDUSTRY -- 2.01% Time Warner, Inc. (b) 174,000 3,130,260 ---------------- NON-DURABLES -- 0.68% Albertson's, Inc. 46,700 1,057,755 ---------------- RETAIL/APPAREL -- 1.41% Costco Wholesale Corp. (b) 44,400 1,650,792 Newell Rubbermaid, Inc. 23,500 535,095 ---------------- 2,185,887 ---------------- SERVICES/MISCELLANEOUS -- 2.54% First Data Corp. 55,700 2,288,713 MeadWestvaco Corp. 55,600 1,654,100 ---------------- 3,942,813 ---------------- TELECOMMUNICATIONS- SERVICES -- 8.45% BellSouth Corp. 81,400 2,303,620 Nextel Communications, Inc., Class A (b) 261,400 7,334,884 SBC Communications, Inc. 134,350 3,502,504 ---------------- 13,141,008 ---------------- TRANSPORTATION -- 4.45% Boeing Co. (The) 38,800 1,635,032 Burlington Northern Santa Fe Corp. 61,800 1,999,230 Norfolk Southern Corp. 138,600 3,277,890 ---------------- 6,912,152 ---------------- UTILITIES -- 0.46% CMS Energy Corp. (b) 83,950 715,254 ---------------- Total U.S. Equities (Cost $132,143,476) 150,285,508 ---------------- SHORT-TERM INVESTMENTS -- 3.82% UBS Supplementary Trust U.S. Cash Management Prime Fund, yield of 1.23% (Cost $5,937,342) 5,937,342 5,937,342 ---------------- Total Investments (Cost $138,080,818) -- 100.46% (a) 156,222,850 Liabilities, in excess of cash and other assets -- (0.46)% (710,201) ---------------- Total Net Assets -- 100% $ 155,512,649 ================
96 NOTES TO SCHEDULE OF INVESTMENTS (a) Aggregate cost for federal income tax purposes was $138,080,818; and net unrealized appreciation consisted of: Gross unrealized appreciation $ 18,637,821 Gross unrealized depreciation (495,789) ---------------- Net unrealized appreciation $ 18,142,032 ================
(b) Non-income producing security % Represents a percentage of net assets FUTURES CONTRACTS UBS U.S. Value Equity Fund had the following open futures contracts as of December 31, 2003:
EXPIRATION CURRENT UNREALIZED DATE COST VALUE GAIN ---------- ------------ ------------ ---------- INDEX FUTURES BUY CONTRACTS: Standard & Poor's 500, 19 contracts March 2004 $ 5,025,289 $ 5,275,350 $ 250,061 ==========
The aggregate cash collateral pledged to cover margin requirements for the open futures contracts at December 31, 2003 was $496,000. See accompanying notes to financial statements 97 THE UBS FUNDS -- FINANCIAL STATEMENTS STATEMENTS OF ASSETS AND LIABILITIES DECEMBER 31, 2003 (UNAUDITED)
UBS GLOBAL UBS UBS ALLOCATION GLOBAL EQUITY GLOBAL BOND FUND FUND FUND - ----------------------------------------------------------------------------------------------------------------- ASSETS: Investments, at cost: Unaffiliated issuers $ 878,937,751 $ 387,042,180 $ 52,014,851 Affiliated issuers 172,485,826 367,171 1,286,072 Investments of cash collateral received for securities loaned, at cost 76,573,284 -- -- Foreign currency, at cost 2,466,729 1,765,270 51,395 --------------- --------------- --------------- $ 1,130,463,590 $ 389,174,621 $ 53,352,318 =============== =============== =============== Investments, at value: Unaffiliated issuers $ 985,432,605 $ 492,675,257 $ 57,297,547 Affiliated issuers 199,436,674 367,171 1,286,072 Investments of cash collateral received for securities loaned, at value 76,573,284 -- -- Foreign currency, at value 2,503,383 1,828,292 52,268 Cash 8,760 16,977 -- Receivables: Investment securities sold 8,179,810 10,978,791 -- Due from Advisor -- -- -- Dividends 974,176 923,406 -- Interest 3,526,562 1,703 1,009,871 Fund shares sold 6,129,292 139,724 19,967 Variation margin 11,750 -- -- Cash collateral, due from broker -- -- -- Other assets 48,263 -- -- Unrealized appreciation on forward foreign currency contracts 2,298,014 366,461 280,480 --------------- --------------- --------------- TOTAL ASSETS 1,285,122,573 507,297,782 59,946,205 --------------- --------------- --------------- LIABILITIES: Payables: Cash collateral from securities loaned 76,573,284 -- -- Investment securities purchased 31,832,147 1,623,997 283,726 Investment advisory fees 746,774 114,591 22,621 Fund shares redeemed 871,703 3,148,185 118,308 Distribution and service fees 277,314 167,996 2,632 Trustees' Fees 2,723 902 2,192 Due to custodian bank -- -- -- Accrued expenses 989,513 587,471 72,231 Unrealized depreciation on forward foreign currency contracts 3,709,034 3,951,499 427,857 --------------- --------------- --------------- TOTAL LIABILITIES 115,002,492 9,594,641 929,567 --------------- --------------- --------------- NET ASSETS $ 1,170,120,081 $ 497,703,141 $ 59,016,638 =============== =============== =============== NET ASSETS CONSIST OF: Paid in Capital $ 1,039,037,242 $ 1,297,640,324 $ 55,349,231 Accumulated undistributed net investment income (loss) (3,946,189) (95,141) (1,155,873) Accumulated undistributed net realized gain (loss) 2,835,434 (902,023,359) (378,265) Net unrealized appreciation (depreciation) 132,193,594 102,181,317 5,201,545 --------------- --------------- --------------- NET ASSETS $ 1,170,120,081 $ 497,703,141 $ 59,016,638 =============== =============== ===============
* The market value for securities loaned for UBS Global Allocation Fund as of December 31, 2003 is $74,684,439. ** The market value for securities loaned for UBS International Equity Fund as of December 31, 2003 is $6,686,161. See accompanying notes to financial statements 98
UBS UBS UBS U.S. ALLOCATION U.S. EQUITY U.S. LARGE CAP FUND FUND GROWTH FUND - ----------------------------------------------------------------------------------------------------------------- ASSETS: Investments, at cost: Unaffiliated issuers $ 28,392,441 $ 98,456,279 $ 4,621,632 Affiliated issuers 7,031,135 3,553,964 185,577 Investments of cash collateral received for securities loaned, at cost -- -- -- Foreign currency, at cost -- -- -- --------------- --------------- --------------- $ 35,423,576 $ 102,010,243 $ 4,807,209 =============== =============== =============== Investments, at value: Unaffiliated issuers $ 32,291,406 $ 129,275,456 $ 5,330,643 Affiliated issuers 7,224,751 3,553,964 185,577 Investments of cash collateral received for securities loaned, at value -- -- -- Foreign currency, at value -- -- -- Cash 3,973 4,997 -- Receivables: Investment securities sold 56,528 318,771 96,231 Due from Advisor -- -- 14,574 Dividends 25,603 151,054 2,605 Interest 106,386 4,941 145 Fund shares sold 63,670 109,405 -- Variation margin 3,625 9,425 -- Cash collateral, due from broker 125,000 -- -- Other assets -- -- -- Unrealized appreciation on forward foreign currency contracts -- -- -- --------------- --------------- --------------- TOTAL ASSETS 39,900,942 133,428,013 5,629,775 --------------- --------------- --------------- LIABILITIES: Payables: Cash collateral from securities loaned -- -- -- Investment securities purchased 376,962 220,476 80,983 Investment advisory fees 4,218 75,478 -- Fund shares redeemed 70,204 25,190 22,004 Distribution and service fees 4,936 1,688 1,731 Trustees' Fees 4,057 3,518 2,200 Due to custodian bank -- -- 9,987 Accrued expenses 50,175 125,993 9,695 Unrealized depreciation on forward foreign currency contracts -- -- -- --------------- --------------- --------------- TOTAL LIABILITIES 510,552 452,343 126,600 --------------- --------------- --------------- NET ASSETS $ 39,390,390 $ 132,975,670 $ 5,503,175 =============== =============== =============== NET ASSETS CONSIST OF: Paid in Capital $ 37,295,491 $ 108,558,267 $ 8,901,251 Accumulated undistributed net investment income (loss) (69,832) 719 (3,012) Accumulated undistributed net realized gain (loss) (1,980,254) (6,526,389) (4,104,075) Net unrealized appreciation (depreciation) 4,144,985 30,943,073 709,011 --------------- --------------- --------------- NET ASSETS $ 39,390,390 $ 132,975,670 $ 5,503,175 =============== =============== =============== UBS UBS UBS U.S. SMALL CAP U.S. BOND HIGH YIELD GROWTH FUND FUND FUND - ----------------------------------------------------------------------------------------------------------------- ASSETS: Investments, at cost: Unaffiliated issuers $ 132,272,117 $ 111,340,819 $ 210,859,041 Affiliated issuers 13,553,400 4,228,728 2,198,275 Investments of cash collateral received for securities loaned, at cost -- -- -- Foreign currency, at cost -- -- -- --------------- --------------- --------------- $ 145,825,517 $ 115,569,547 $ 213,057,316 =============== =============== =============== Investments, at value: Unaffiliated issuers $ 149,446,721 $ 113,873,464 $ 172,548,232 Affiliated issuers 13,553,400 4,228,728 2,198,275 Investments of cash collateral received for securities loaned, at value -- -- -- Foreign currency, at value -- -- -- Cash 2,563 1,078 -- Receivables: Investment securities sold 359,348 -- 2,063,340 Due from Advisor -- -- -- Dividends 47,113 -- 11,125 Interest 5,067 1,050,917 3,553,534 Fund shares sold 53,538 57,950 17,917 Variation margin -- -- -- Cash collateral, due from broker -- -- -- Other assets -- -- -- Unrealized appreciation on forward foreign currency contracts -- -- -- --------------- --------------- --------------- TOTAL ASSETS 163,467,750 119,212,137 180,392,423 --------------- --------------- --------------- LIABILITIES: Payables: Cash collateral from securities loaned -- -- -- Investment securities purchased 9,261,942 2,229,274 -- Investment advisory fees 55,400 33,724 88,663 Fund shares redeemed 96,827 97,049 291,623 Distribution and service fees 17,562 2,855 59,233 Trustees' Fees 2,179 1,900 1,592 Due to custodian bank -- -- -- Accrued expenses 165,469 58,848 196,809 Unrealized depreciation on forward foreign currency contracts -- -- -- --------------- --------------- --------------- TOTAL LIABILITIES 9,599,379 2,423,650 637,920 --------------- --------------- --------------- NET ASSETS $ 153,868,371 $ 116,788,487 $ 179,754,503 =============== =============== =============== NET ASSETS CONSIST OF: Paid in Capital $ 134,464,928 $ 115,839,327 $ 455,226,887 Accumulated undistributed net investment income (loss) (400,060) (341,636) (138,738) Accumulated undistributed net realized gain (loss) 2,628,899 (1,241,849) (237,022,837) Net unrealized appreciation (depreciation) 17,174,604 2,532,645 (38,310,809) --------------- --------------- --------------- NET ASSETS $ 153,868,371 $ 116,788,487 $ 179,754,503 =============== =============== =============== UBS UBS INTERNATIONAL U.S. VALUE EQUITY FUND EQUITY FUND - ---------------------------------------------------------------------------------------------- ASSETS: Investments, at cost: Unaffiliated issuers $ 72,788,613 $ 132,143,476 Affiliated issuers 2,589,409 5,937,342 Investments of cash collateral received for securities loaned, at cost 6,986,516 -- Foreign currency, at cost 1,830,936 -- --------------- --------------- $ 84,195,474 $ 138,080,818 =============== =============== Investments, at value: Unaffiliated issuers $ 99,913,213 $ 150,285,508 Affiliated issuers 2,589,409 5,937,342 Investments of cash collateral received for securities loaned, at value 6,986,516 -- Foreign currency, at value 1,875,485 -- Cash -- -- Receivables: Investment securities sold 24,682 220,591 Due from Advisor -- -- Dividends 334,645 160,327 Interest 2,584 5,782 Fund shares sold 165,486 400 Variation margin -- 13,775 Cash collateral, due from broker -- 496,000 Other assets 4,890 -- Unrealized appreciation on forward foreign currency contracts 329,387 -- --------------- --------------- TOTAL ASSETS 112,226,297 157,119,725 --------------- --------------- LIABILITIES: Payables: Cash collateral from securities loaned 6,986,516 -- Investment securities purchased 1,033,498 556,920 Investment advisory fees 42,422 71,041 Fund shares redeemed 147,405 786,057 Distribution and service fees 1,212 36,553 Trustees' Fees 5,607 2,787 Due to custodian bank -- -- Accrued expenses 147,521 153,718 Unrealized depreciation on forward foreign currency contracts 548,895 -- --------------- --------------- TOTAL LIABILITIES 8,913,076 1,607,076 --------------- --------------- NET ASSETS $ 103,313,221 $ 155,512,649 =============== =============== NET ASSETS CONSIST OF: Paid in Capital $ 91,483,906 $ 121,215,782 Accumulated undistributed net investment income (loss) (333,004) (26,235) Accumulated undistributed net realized gain (loss) (14,840,646) 15,931,009 Net unrealized appreciation (depreciation) 27,002,965 18,392,093 --------------- --------------- NET ASSETS $ 103,313,221 $ 155,512,649 =============== ===============
See accompanying notes to financial statements 99 NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE: DECEMBER 31, 2003 (UNAUDITED)
UBS GLOBAL UBS UBS ALLOCATION GLOBAL EQUITY GLOBAL BOND FUND FUND FUND - --------------------------------------------------------------------------------------------------------------- CLASS A: Net assets $ 485,090,270 $ 125,232,320 $ 13,282,980 Shares outstanding 40,026,103 12,147,956 1,304,374 Net asset value per share (NAV per share / shares outstanding) $ 12.12 $ 10.31 $ 10.18 Offering price per share (NAV per share plus maximum sales charge)(a) $ 12.83 $ 10.91 $ 10.66 Redemption proceeds per share $ 12.12 $ 10.31 $ 10.18 CLASS B: Net assets $ 102,392,898 $ 149,975,611 $ 1,678,314 Shares outstanding 8,562,688 14,694,892 164,646 Net asset value per share (NAV per share / shares outstanding) $ 11.96 $ 10.21 $ 10.19 Offering price per share $ 11.96 $ 10.21 $ 10.19 Redemption proceeds per share (NAV per share less maximum redemption charge)(a) $ 11.36 $ 9.70 $ 9.68 CLASS C: Net assets $ 351,796,494 $ 94,447,316 $ 3,709,085 Shares outstanding 29,398,491 9,282,265 364,723 Net asset value per share (NAV per share / shares outstanding) $ 11.97 $ 10.18 $ 10.17 Offering price per share $ 11.97 $ 10.18 $ 10.17 Redemption proceeds per share (NAV per share less maximum redemption charge)(a) $ 11.85 $ 10.08 $ 10.09 CLASS Y: Net assets $ 230,840,419 $ 128,047,894 $ 40,346,259 Shares outstanding 18,859,363 12,254,881 3,612,878 Net asset value per share (NAV per share / shares outstanding) $ 12.24 $ 10.45 $ 11.17 Offering price per share $ 12.24 $ 10.45 $ 11.17 Redemption proceeds per share $ 12.24 $ 10.45 $ 11.17
(a) For Class A, the maximum sales charge is 5.50%, except for the UBS Global Bond Fund, UBS U.S. Bond Fund, and the UBS High Yield Fund which is 4.50%. Effective October 1, 2003, Class C no longer charges a maximum sales charge of 1.00%. Classes B, C 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 contingent deferred sales charges. See accompanying notes to financial statements 100
UBS UBS UBS U.S. ALLOCATION U.S. EQUITY U.S. LARGE CAP FUND FUND GROWTH FUND - --------------------------------------------------------------------------------------------------------------- CLASS A: Net assets $ 8,230,464 $ 5,797,456 $ 1,773,419 Shares outstanding 818,121 371,803 240,202 Net asset value per share (NAV per share / shares outstanding) $ 10.06 $ 15.59 $ 7.38 Offering price per share (NAV per share plus maximum sales charge)(a) $ 10.65 $ 16.50 $ 7.81 Redemption proceeds per share $ 10.06 $ 15.59 $ 7.38 CLASS B: Net assets $ 3,876,103 $ 1,043,400 $ 403,827 Shares outstanding 387,930 67,791 55,505 Net asset value per share (NAV per share / shares outstanding) $ 9.99 $ 15.39 $ 7.28 Offering price per share $ 9.99 $ 15.39 $ 7.28 Redemption proceeds per share (NAV per share less maximum redemption charge)(a) $ 9.49 $ 14.62 $ 6.92 CLASS C: Net assets $ 2,446,121 $ 1,514,388 $ 311,160 Shares outstanding 244,596 98,486 42,790 Net asset value per share (NAV per share / shares outstanding) $ 10.00 $ 15.38 $ 7.27 Offering price per share $ 10.00 $ 15.38 $ 7.27 Redemption proceeds per share (NAV per share less maximum redemption charge)(a) $ 9.90 $ 15.23 $ 7.20 CLASS Y: Net assets $ 24,837,702 $ 124,620,426 $ 3,014,769 Shares outstanding 2,453,141 7,939,724 401,309 Net asset value per share (NAV per share / shares outstanding) $ 10.12 $ 15.70 $ 7.51 Offering price per share $ 10.12 $ 15.70 $ 7.51 Redemption proceeds per share $ 10.12 $ 15.70 $ 7.51 UBS UBS UBS U.S. SMALL CAP U.S. BOND HIGH YIELD GROWTH FUND FUND FUND - --------------------------------------------------------------------------------------------------------------- CLASS A: Net assets $ 51,631,650 $ 34,039,857 $ 72,834,813 Shares outstanding 4,147,443 3,157,990 10,197,281 Net asset value per share (NAV per share / shares outstanding) $ 12.45 $ 10.78 $ 7.14 Offering price per share (NAV per share plus maximum sales charge)(a) $ 13.17 $ 11.29 $ 7.48 Redemption proceeds per share $ 12.45 $ 10.78 $ 7.14 CLASS B: Net assets $ 13,700,452 $ 2,734,456 $ 10,763,889 Shares outstanding 1,117,375 253,961 1,507,186 Net asset value per share (NAV per share / shares outstanding) $ 12.26 $ 10.77 $ 7.14 Offering price per share $ 12.26 $ 10.77 $ 7.14 Redemption proceeds per share (NAV per share less maximum redemption charge)(a) $ 11.65 $ 10.23 $ 6.78 CLASS C: Net assets $ 10,026,999 $ 2,650,128 $ 20,061,207 Shares outstanding 818,665 246,119 2,808,411 Net asset value per share (NAV per share / shares outstanding) $ 12.25 $ 10.77 $ 7.14 Offering price per share $ 12.25 $ 10.77 $ 7.14 Redemption proceeds per share (NAV per share less maximum redemption charge)(a) $ 12.13 $ 10.69 $ 7.09 CLASS Y: Net assets $ 78,509,270 $ 77,364,046 $ 76,094,594 Shares outstanding 6,203,518 7,166,939 10,593,065 Net asset value per share (NAV per share / shares outstanding) $ 12.66 $ 10.79 $ 7.18 Offering price per share $ 12.66 $ 10.79 $ 7.18 Redemption proceeds per share $ 12.66 $ 10.79 $ 7.18 UBS UBS INTERNATIONAL U.S. VALUE EQUITY FUND EQUITY FUND - --------------------------------------------------------------------------------------------- CLASS A: Net assets $ 4,798,597 $ 100,697,639 Shares outstanding 571,455 9,319,146 Net asset value per share (NAV per share / shares outstanding) $ 8.40 $ 10.81 Offering price per share (NAV per share plus maximum sales charge)(a) $ 8.89 $ 11.44 Redemption proceeds per share $ 8.40 $ 10.81 CLASS B: Net assets $ 698,949 $ 30,210,417 Shares outstanding 83,957 2,833,124 Net asset value per share (NAV per share / shares outstanding) $ 8.33 $ 10.66 Offering price per share $ 8.33 $ 10.66 Redemption proceeds per share (NAV per share less maximum redemption charge)(a) $ 7.91 $ 10.13 CLASS C: Net assets $ 880,026 $ 20,148,841 Shares outstanding 106,060 1,887,414 Net asset value per share (NAV per share / shares outstanding) $ 8.30 $ 10.68 Offering price per share $ 8.30 $ 10.68 Redemption proceeds per share (NAV per share less maximum redemption charge)(a) $ 8.22 $ 10.57 CLASS Y: Net assets $ 96,935,649 $ 4,455,752 Shares outstanding 11,486,661 411,128 Net asset value per share (NAV per share / shares outstanding) $ 8.44 $ 10.84 Offering price per share $ 8.44 $ 10.84 Redemption proceeds per share $ 8.44 $ 10.84
101 STATEMENTS OF OPERATIONS FOR THE SIX MONTHS ENDED DECEMBER 31, 2003 (UNAUDITED)
UBS GLOBAL UBS UBS ALLOCATION GLOBAL EQUITY GLOBAL BOND FUND FUND FUND - ----------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME: Dividends $ 4,654,084 $ 4,235,526 $ -- Interest 3,293,489 102,146 815,478 Securities lending-net 84,867 -- -- Foreign tax withheld (154,606) (188,010) (354) --------------- --------------- --------------- TOTAL INCOME 7,877,834 4,149,662 815,124 --------------- --------------- --------------- EXPENSES: Advisory and administration fees 3,621,558 1,935,724 220,795 Professional services 44,160 30,017 27,855 Shareholder reports 45,722 182,288 6,119 Distribution and service fees: Class A 389,491 155,993 15,272 Class B 366,096 732,496 8,282 Class C 1,185,775 470,519 13,418 Custodian 336,283 190,597 21,745 Federal and State registration 16,563 16,142 15,428 Transfer agency fees: Class A 53,885 114,174 6,502 Class B 28,803 188,905 1,281 Class C 59,798 123,934 1,086 Class Y 29,176 9,919 7,585 Trustees 3,946 3,098 3,099 Other 11,130 5,746 3,453 --------------- --------------- --------------- TOTAL OPERATING EXPENSES 6,192,386 4,159,552 351,920 --------------- --------------- --------------- Expenses waived by Advisor -- (462,041) (74,850) --------------- --------------- --------------- NET OPERATING EXPENSES 6,192,386 3,697,511 277,070 Interest Expense 283 85 1,590 --------------- --------------- --------------- NET INVESTMENT INCOME (LOSS) 1,685,165 452,066 536,464 --------------- --------------- --------------- Net realized gain (loss) on: Investments 18,254,074 19,319,335 98,893 Futures contracts (22,512) -- -- Foreign forward currency transactions 914,355 (1,425,029) 1,043,502 --------------- --------------- --------------- Net realized gain (loss) 19,145,917 17,894,306 1,142,395 --------------- --------------- --------------- Change in net unrealized appreciation (depreciation) on: Investments and foreign currency 102,696,220 59,930,656 2,333,543 Futures contracts 39,418 -- -- Foreign Forward Currency Contracts (1,145,421) (4,130,991) (51,232) Translation of other assets and liabilities denominated in foreign currency (35,259) 71,757 45,216 --------------- --------------- --------------- Change in net unrealized appreciation (depreciation) 101,554,958 55,871,422 2,327,527 --------------- --------------- --------------- Net realized and unrealized gain (loss) 120,700,875 73,765,728 3,469,922 --------------- --------------- --------------- Net increase in net assets resulting from operations $ 122,386,040 $ 74,217,794 $ 4,006,386 =============== =============== ===============
See accompanying notes to financial statements 102
UBS UBS UBS U.S. ALLOCATION U.S. EQUITY U.S. LARGE CAP FUND FUND GROWTH FUND - ----------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME: Dividends $ 201,314 $ 1,052,565 $ 17,717 Interest 247,738 45,752 1,008 Securities lending-net -- -- -- Foreign tax withheld -- -- -- --------------- --------------- --------------- TOTAL INCOME 449,052 1,098,317 18,725 --------------- --------------- --------------- EXPENSES: Advisory and administration fees 134,290 456,239 18,153 Professional services 22,454 30,154 14,695 Shareholder reports 1,915 2,521 605 Distribution and service fees: Class A 7,726 6,426 1,758 Class B 15,414 4,029 1,835 Class C 10,244 6,094 1,431 Custodian 9,097 30,907 1,230 Federal and State registration 15,301 15,680 15,344 Transfer agency fees: Class A 1,594 4,367 413 Class B 2,005 315 109 Class C 808 291 84 Class Y 516 9,457 802 Trustees 3,099 3,099 3,564 Other 3,130 3,686 2,614 --------------- --------------- --------------- TOTAL OPERATING EXPENSES 227,593 573,265 62,637 --------------- --------------- --------------- Expenses waived by Advisor (55,986) (1,122) (38,921) --------------- --------------- --------------- NET OPERATING EXPENSES 171,607 572,143 23,716 Interest Expense -- -- -- --------------- --------------- --------------- NET INVESTMENT INCOME (LOSS) 277,445 526,174 (4,991) --------------- --------------- --------------- Net realized gain (loss) on: Investments 661,498 3,385,997 (51,177) Futures contracts 7,427 333,970 -- Foreign forward currency transactions -- -- -- --------------- --------------- --------------- Net realized gain (loss) 668,925 3,719,967 (51,177) --------------- --------------- --------------- Change in net unrealized appreciation (depreciation) on: Investments and foreign currency 2,308,250 12,988,745 729,584 Futures contracts 52,402 277,064 -- Foreign Forward Currency Contracts -- -- -- Translation of other assets and liabilities denominated in foreign currency -- -- -- --------------- --------------- --------------- Change in net unrealized appreciation (depreciation) 2,360,652 13,265,809 729,584 --------------- --------------- --------------- Net realized and unrealized gain (loss) 3,029,577 16,985,776 678,407 --------------- --------------- --------------- Net increase in net assets resulting from operations $ 3,307,022 $ 17,511,950 $ 673,416 =============== =============== =============== UBS UBS UBS U.S. SMALL CAP U.S. BOND HIGH YIELD GROWTH FUND FUND FUND - ----------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME: Dividends $ 199,848 $ -- $ 22,255 Interest 25,290 2,507,072 8,654,958 Securities lending-net -- -- -- Foreign tax withheld -- -- -- --------------- --------------- --------------- TOTAL INCOME 225,138 2,507,072 8,677,213 --------------- --------------- --------------- EXPENSES: Advisory and administration fees 505,397 333,820 607,211 Professional services 18,416 19,466 24,762 Shareholder reports 3,025 4,387 47,386 Distribution and service fees: Class A 34,620 40,553 96,637 Class B 24,651 15,438 58,564 Class C 18,091 10,607 72,692 Custodian 26,144 30,480 47,229 Federal and State registration 15,513 15,765 16,773 Transfer agency fees: Class A 21,683 7,743 71,837 Class B 6,382 2,948 9,658 Class C 4,701 1,535 19,017 Class Y 9,949 8,758 15,967 Trustees 3,099 3,099 3,099 Other 3,847 4,659 6,338 --------------- --------------- --------------- TOTAL OPERATING EXPENSES 695,518 499,258 1,097,170 --------------- --------------- --------------- Expenses waived by Advisor (70,320) (85,505) (39,694) --------------- --------------- --------------- NET OPERATING EXPENSES 625,198 413,753 1,057,476 Interest Expense -- -- 2,686 --------------- --------------- --------------- NET INVESTMENT INCOME (LOSS) (400,060) 2,093,319 7,617,051 --------------- --------------- --------------- Net realized gain (loss) on: Investments 5,978,757 (837,449) (9,703,387) Futures contracts -- -- -- Foreign forward currency transactions -- -- -- --------------- --------------- --------------- Net realized gain (loss) 5,978,757 (837,449) (9,703,387) --------------- --------------- --------------- Change in net unrealized appreciation (depreciation) on: Investments and foreign currency 11,755,110 (1,032,063) 17,678,734 Futures contracts -- -- -- Foreign Forward Currency Contracts -- -- -- Translation of other assets and liabilities denominated in foreign currency -- -- -- --------------- --------------- --------------- Change in net unrealized appreciation (depreciation) 11,755,110 (1,032,063) 17,678,734 --------------- --------------- --------------- Net realized and unrealized gain (loss) 17,733,867 (1,869,512) 7,975,347 --------------- --------------- --------------- Net increase in net assets resulting from operations $ 17,333,807 $ 223,807 $ 15,592,398 =============== =============== =============== UBS UBS INTERNATIONAL U.S. VALUE EQUITY FUND EQUITY FUND - ---------------------------------------------------------------------------------------------- INVESTMENT INCOME: Dividends $ 672,288 $ 394,858 Interest 10,919 7,718 Securities lending-net 15,978 -- Foreign tax withheld (16,707) -- --------------- --------------- TOTAL INCOME 682,478 402,576 --------------- --------------- EXPENSES: Advisory and administration fees 357,135 191,729 Professional services 31,656 18,450 Shareholder reports 2,318 1,756 Distribution and service fees: Class A 3,954 35,397 Class B 2,014 45,639 Class C 3,111 31,941 Custodian 44,897 12,988 Federal and State registration 17,025 13,914 Transfer agency fees: Class A 1,249 9,978 Class B 590 6,721 Class C 345 3,016 Class Y 32,520 1,101 Trustees 3,099 3,099 Other 2,472 864 --------------- --------------- TOTAL OPERATING EXPENSES 502,385 376,593 --------------- --------------- Expenses waived by Advisor (87,868) (48,511) --------------- --------------- NET OPERATING EXPENSES 414,517 328,082 Interest Expense 1,992 -- --------------- --------------- NET INVESTMENT INCOME (LOSS) 265,969 74,494 --------------- --------------- Net realized gain (loss) on: Investments 4,178,477 17,842,859 Futures contracts -- 82,592 Foreign forward currency transactions 179,574 -- --------------- --------------- Net realized gain (loss) 4,358,051 17,925,451 --------------- --------------- Change in net unrealized appreciation (depreciation) on: Investments and foreign currency 13,984,282 17,695,419 Futures contracts -- 250,061 Foreign Forward Currency Contracts (316,437) -- Translation of other assets and liabilities denominated in foreign currency 22,833 -- --------------- --------------- Change in net unrealized appreciation (depreciation) 13,690,678 17,945,480 --------------- --------------- Net realized and unrealized gain (loss) 18,048,729 35,870,931 --------------- --------------- Net increase in net assets resulting from operations $ 18,314,698 $ 35,945,425 =============== ===============
103 STATEMENTS OF CHANGES IN NET ASSETS
UBS GLOBAL ALLOCATION FUND -------------------------------------- SIX MONTHS YEAR ENDED ENDED DECEMBER 31, 2003 JUNE 30, (UNAUDITED) 2003 - ------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income (loss) $ 1,685,165 $ 2,419,328 Net realized gain (loss) 19,145,917 3,879,544 Change in net unrealized appreciation (depreciation) 101,554,958 24,982,954 ----------------- ----------------- Net increase (decrease) in net assets from operations 122,386,040 31,281,826 ----------------- ----------------- DISTRIBUTIONS TO SHAREHOLDERS BY CLASS: Class A: Distributions from net investment income and net foreign currency gains (5,969,968) (816,676) Distributions from net realized gain -- -- ----------------- ----------------- Total Class A distributions (5,969,968) (816,676) ----------------- ----------------- Class B: Distributions from net investment income and net foreign currency gains (915,014) (159,173) Distributions from net realized gain -- -- ----------------- ----------------- Total Class B distributions (915,014) (159,173) ----------------- ----------------- Class C: Distributions from net investment income and net foreign currency gains (3,309,142) (255,507) Distributions from net realized gain -- -- ----------------- ----------------- Total Class C distributions (3,309,142) (255,507) ----------------- ----------------- Class Y: Distributions from net investment income and net foreign currency gains (3,180,388) (6,269,057) Distributions from net realized gain -- -- ----------------- ----------------- Total Class Y distributions (3,180,388) (6,269,057) ----------------- ----------------- Decrease in net assets from dstributions (13,374,512) (7,500,413) ----------------- ----------------- CAPITAL SHARE TRANSACTIONS BY CLASS: Class A: Shares sold 294,911,467 169,870,324 Shares issued on reinvestment of distributions 5,542,217 694,883 Shares redeemed (32,671,056) (13,014,963) ----------------- ----------------- Total Class A transactions 267,782,628 157,550,244 ----------------- ----------------- Class B: Shares sold 48,599,337 51,012,178 Shares issued on reinvestment of distributions 834,777 153,482 Shares redeemed (6,339,645) (5,976,414) ----------------- ----------------- Total Class B transactions 43,094,469 45,189,246 ----------------- ----------------- Class C: Shares sold 195,966,786 136,999,043 Shares issued on reinvestment of distributions 3,119,652 238,616 Shares redeemed (16,044,930) (9,106,623) ----------------- ----------------- Total Class C transactions 183,041,508 128,131,036 ----------------- ----------------- Class Y: Shares sold 44,316,796 74,326,144 Shares issued on reinvestment of distributions 2,552,124 4,205,702 Shares redeemed (35,503,392) (52,998,670) ----------------- ----------------- Total Class Y transactions 11,365,528 25,533,176 ----------------- ----------------- Net increase (decrease) in net assets resulting from capital share transactions 505,284,133 356,403,702 ----------------- ----------------- INCREASE (DECREASE) IN NET ASSETS 614,295,661 380,185,115 NET ASSETS, BEGINNING OF PERIOD 555,824,420 175,639,305 ----------------- ----------------- NET ASSETS, END OF PERIOD $ 1,170,120,081 $ 555,824,420 ================= ================= Net assets include accumulated undistributed net investment income (loss) $ (3,946,189) $ 7,743,158 ================= ================= UBS GLOBAL EQUITY FUND -------------------------------------- SIX MONTHS YEAR ENDED ENDED DECEMBER 31, 2003 JUNE 30, (UNAUDITED) 2003 - ------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income (loss) $ 452,066 $ 2,549,429 Net realized gain (loss) 17,894,306 (18,437,985) Change in net unrealized appreciation (depreciation) 55,871,422 44,889,458 ----------------- ----------------- Net increase (decrease) in net assets from operations 74,217,794 29,000,902 ----------------- ----------------- DISTRIBUTIONS TO SHAREHOLDERS BY CLASS: Class A: Distributions from net investment income and net foreign currency gains (1,327,685) (391,438) Distributions from net realized gain -- -- ----------------- ----------------- Total Class A distributions (1,327,685) (391,438) ----------------- ----------------- Class B: Distributions from net investment income and net foreign currency gains (1,295,502) (18,143) Distributions from net realized gain -- -- ----------------- ----------------- Total Class B distributions (1,295,502) (18,143) ----------------- ----------------- Class C: Distributions from net investment income and net foreign currency gains (806,282) (28,866) Distributions from net realized gain -- -- ----------------- ----------------- Total Class C distributions (806,282) (28,866) ----------------- ----------------- Class Y: Distributions from net investment income and net foreign currency gains (1,461,737) (1,343,765) Distributions from net realized gain -- -- ----------------- ----------------- Total Class Y distributions (1,461,737) (1,343,765) ----------------- ----------------- Decrease in net assets from dstributions (4,891,206) (1,782,212) ----------------- ----------------- CAPITAL SHARE TRANSACTIONS BY CLASS: Class A: Shares sold 13,708,229 118,638,055* Shares issued on reinvestment of distributions 1,259,765 329,028 Shares redeemed (31,820,105) (18,681,217) ----------------- ----------------- Total Class A transactions (16,852,111) 100,285,866 ----------------- ----------------- Class B: Shares sold 1,404,988 141,490,442* Shares issued on reinvestment of distributions 1,212,343 17,409 Shares redeemed (18,135,565) (9,779,696) ----------------- ----------------- Total Class B transactions (15,518,234) 131,728,155 ----------------- ----------------- Class C: Shares sold 1,020,746 93,437,144* Shares issued on reinvestment of distributions 764,619 21,402 Shares redeemed (14,564,287) (8,141,946) ----------------- ----------------- Total Class C transactions (12,778,922) 85,316,600 ----------------- ----------------- Class Y: Shares sold 61,471,899 58,747,356* Shares issued on reinvestment of distributions 1,196,944 972,071 Shares redeemed (13,608,782) (36,459,204) ----------------- ----------------- Total Class Y transactions 49,060,061 23,260,223 ----------------- ----------------- Net increase (decrease) in net assets resulting from capital share transactions 3,910,794 340,590,844 ----------------- ----------------- INCREASE (DECREASE) IN NET ASSETS 73,237,382 367,809,534 NET ASSETS, BEGINNING OF PERIOD 424,465,759 56,656,225 ----------------- ----------------- NET ASSETS, END OF PERIOD $ 497,703,141 $ 424,465,759 ================= ================= Net assets include accumulated undistributed net investment income (loss) $ (95,141) $ 4,343,999 ================= =================
* The 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. See accompanying notes to financial statements 104
UBS GLOBAL BOND FUND -------------------------------------- SIX MONTHS YEAR ENDED ENDED DECEMBER 31, 2003 JUNE 30, (UNAUDITED) 2003 - ------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income (loss) $ 536,464 $ 1,120,047 Net realized gain (loss) 1,142,395 5,017,299 Change in net unrealized appreciation (depreciation) 2,327,527 4,495 ----------------- ----------------- Net increase (decrease) in net assets from operations 4,006,386 6,141,841 ----------------- ----------------- DISTRIBUTIONS TO SHAREHOLDERS BY CLASS: Class A: Distributions from net investment income and net foreign currency gains (1,032,593) (105,953) Distributions from net realized gain -- -- ----------------- ----------------- Total Class A distributions (1,032,593) (105,953) ----------------- ----------------- Class B: Distributions from net investment income and net foreign currency gains (121,575) (17,619) Distributions from net realized gain -- -- ----------------- ----------------- Total Class B distributions (121,575) (17,619) ----------------- ----------------- Class C: Distributions from net investment income and net foreign currency gains (281,178) (13,518) Distributions from net realized gain -- -- ----------------- ----------------- Total Class C distributions (281,178) (13,518) ----------------- ----------------- Class Y: Distributions from net investment income and net foreign currency gains (2,798,428) (853,243) Distributions from net realized gain -- -- ----------------- ----------------- Total Class Y distributions (2,798,428) (853,243) ----------------- ----------------- Decrease in net assets from dstributions (4,233,774) (990,333) ----------------- ----------------- CAPITAL SHARE TRANSACTIONS BY CLASS: Class A: Shares sold 5,520,029 12,487,314 Shares issued on reinvestment of distributions 755,955 89,825 Shares redeemed (4,534,049) (3,273,617) ----------------- ----------------- Total Class A transactions 1,741,935 9,303,522 ----------------- ----------------- Class B: Shares sold 269,966 1,854,490 Shares issued on reinvestment of distributions 99,650 15,420 Shares redeemed (431,082) (639,402) ----------------- ----------------- Total Class B transactions (61,466) 1,230,508 ----------------- ----------------- Class C: Shares sold 650,661 3,390,992 Shares issued on reinvestment of distributions 141,395 10,557 Shares redeemed (267,839) (267,872) ----------------- ----------------- Total Class C transactions 524,217 3,133,677 ----------------- ----------------- Class Y: Shares sold 24,189,457 48,090,421 Shares issued on reinvestment of distributions 2,486,763 662,981 Shares redeemed (21,733,256) (52,213,738) ----------------- ----------------- Total Class Y transactions 4,942,964 (3,460,336) ----------------- ----------------- Net increase (decrease) in net assets resulting from capital share transactions 7,147,650 10,207,371 ----------------- ----------------- INCREASE (DECREASE) IN NET ASSETS 6,920,262 15,358,879 NET ASSETS, BEGINNING OF PERIOD 52,096,376 36,737,497 ----------------- ----------------- NET ASSETS, END OF PERIOD $ 59,016,638 $ 52,096,376 ================= ================= Net assets include accumulated undistributed net investment income (loss) $ (1,155,873) $ 2,541,437 ================= ================= UBS U.S. ALLOCATION FUND -------------------------------------- SIX MONTHS YEAR ENDED ENDED DECEMBER 31, 2003 JUNE 30, (UNAUDITED) 2003 - ------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income (loss) $ 277,445 $ 501,432 Net realized gain (loss) 668,925 (1,244,046) Change in net unrealized appreciation (depreciation) 2,360,652 2,366,513 ----------------- ----------------- Net increase (decrease) in net assets from operations 3,307,022 1,623,899 ----------------- ----------------- DISTRIBUTIONS TO SHAREHOLDERS BY CLASS: Class A: Distributions from net investment income and net foreign currency gains (124,097) (64,035) Distributions from net realized gain -- -- ----------------- ----------------- Total Class A distributions (124,097) (64,035) ----------------- ----------------- Class B: Distributions from net investment income and net foreign currency gains (35,175) (35,979) Distributions from net realized gain -- -- ----------------- ----------------- Total Class B distributions (35,175) (35,979) ----------------- ----------------- Class C: Distributions from net investment income and net foreign currency gains (22,205) (21,002) Distributions from net realized gain -- -- ----------------- ----------------- Total Class C distributions (22,205) (21,002) ----------------- ----------------- Class Y: Distributions from net investment income and net foreign currency gains (417,553) (431,180) Distributions from net realized gain -- -- ----------------- ----------------- Total Class Y distributions (417,553) (431,180) ----------------- ----------------- Decrease in net assets from dstributions (599,030) (552,196) ----------------- ----------------- CAPITAL SHARE TRANSACTIONS BY CLASS: Class A: Shares sold 4,887,473 2,034,371 Shares issued on reinvestment of distributions 119,699 60,100 Shares redeemed (1,466,154) (694,275) ----------------- ----------------- Total Class A transactions 3,541,018 1,400,196 ----------------- ----------------- Class B: Shares sold 1,258,990 2,317,056 Shares issued on reinvestment of distributions 30,006 29,916 Shares redeemed (398,830) (703,282) ----------------- ----------------- Total Class B transactions 890,166 1,643,690 ----------------- ----------------- Class C: Shares sold 639,006 1,512,637 Shares issued on reinvestment of distributions 20,481 18,542 Shares redeemed (260,949) (173,434) ----------------- ----------------- Total Class C transactions 398,538 1,357,745 ----------------- ----------------- Class Y: Shares sold 2,521,804 6,497,803 Shares issued on reinvestment of distributions 407,915 418,301 Shares redeemed (2,182,227) (6,953,197) ----------------- ----------------- Total Class Y transactions 747,492 (37,093) ----------------- ----------------- Net increase (decrease) in net assets resulting from capital share transactions 5,577,214 4,364,538 ----------------- ----------------- INCREASE (DECREASE) IN NET ASSETS 8,285,206 5,436,241 NET ASSETS, BEGINNING OF PERIOD 31,105,184 25,668,943 ----------------- ----------------- NET ASSETS, END OF PERIOD $ 39,390,390 $ 31,105,184 ================= ================= Net assets include accumulated undistributed net investment income (loss) $ (69,832) $ 251,753 ================= ================= UBS U.S. EQUITY FUND -------------------------------------- SIX MONTHS YEAR ENDED ENDED DECEMBER 31, 2003 JUNE 30, (UNAUDITED) 2003 - ------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income (loss) $ 526,174 $ 1,011,024 Net realized gain (loss) 3,719,967 (6,746,844) Change in net unrealized appreciation (depreciation) 13,265,809 7,805,668 ----------------- ----------------- Net increase (decrease) in net assets from operations 17,511,950 2,069,848 ----------------- ----------------- DISTRIBUTIONS TO SHAREHOLDERS BY CLASS: Class A: Distributions from net investment income and net foreign currency gains (53,821) (35,257) Distributions from net realized gain -- (174,016) ----------------- ----------------- Total Class A distributions (53,821) (209,273) ----------------- ----------------- Class B: Distributions from net investment income and net foreign currency gains (6,045) (3,439) Distributions from net realized gain -- (15,413) ----------------- ----------------- Total Class B distributions (6,045) (18,852) ----------------- ----------------- Class C: Distributions from net investment income and net foreign currency gains (8,425) (2,486) Distributions from net realized gain -- (8,679) ----------------- ----------------- Total Class C distributions (8,425) (11,165) ----------------- ----------------- Class Y: Distributions from net investment income and net foreign currency gains (1,467,244) (897,680) Distributions from net realized gain -- (2,331,732) ----------------- ----------------- Total Class Y distributions (1,467,244) (3,229,412) ----------------- ----------------- Decrease in net assets from dstributions (1,535,535) (3,468,702) ----------------- ----------------- CAPITAL SHARE TRANSACTIONS BY CLASS: Class A: Shares sold 631,860 4,229,809 Shares issued on reinvestment of distributions 46,652 135,067 Shares redeemed (284,450) (12,394,051) ----------------- ----------------- Total Class A transactions 394,062 (8,029,175) ----------------- ----------------- Class B: Shares sold 384,607 593,667 Shares issued on reinvestment of distributions 5,998 18,852 Shares redeemed (94,498) (205,380) ----------------- ----------------- Total Class B transactions 296,107 407,139 ----------------- ----------------- Class C: Shares sold 552,189 903,316 Shares issued on reinvestment of distributions 8,372 10,921 Shares redeemed (239,417) (31,363) ----------------- ----------------- Total Class C transactions 321,144 882,874 ----------------- ----------------- Class Y: Shares sold 19,886,834 28,395,966 Shares issued on reinvestment of distributions 1,325,429 2,905,921 Shares redeemed (10,980,360) (19,108,822) ----------------- ----------------- Total Class Y transactions 10,231,903 12,193,065 ----------------- ----------------- Net increase (decrease) in net assets resulting from capital share transactions 11,243,216 5,453,903 ----------------- ----------------- INCREASE (DECREASE) IN NET ASSETS 27,219,631 4,055,049 NET ASSETS, BEGINNING OF PERIOD 105,756,039 101,700,990 ----------------- ----------------- NET ASSETS, END OF PERIOD $ 132,975,670 $ 105,756,039 ================= ================= Net assets include accumulated undistributed net investment income (loss) $ 719 $ 1,010,080 ================= ================= UBS U.S. LARGE CAP GROWTH FUND -------------------------------------- SIX MONTHS YEAR ENDED ENDED DECEMBER 31, 2003 JUNE 30, (UNAUDITED) 2003 - ------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income (loss) $ (4,991) $ 1,979 Net realized gain (loss) (51,177) (1,284,113) Change in net unrealized appreciation (depreciation) 729,584 1,210,064 ----------------- ----------------- Net increase (decrease) in net assets from operations 673,416 (72,070) ----------------- ----------------- DISTRIBUTIONS TO SHAREHOLDERS BY CLASS: Class A: Distributions from net investment income and net foreign currency gains -- -- Distributions from net realized gain -- -- ----------------- ----------------- Total Class A distributions -- -- ----------------- ----------------- Class B: Distributions from net investment income and net foreign currency gains -- -- Distributions from net realized gain -- -- ----------------- ----------------- Total Class B distributions -- -- ----------------- ----------------- Class C: Distributions from net investment income and net foreign currency gains -- -- Distributions from net realized gain -- -- ----------------- ----------------- Total Class C distributions -- -- ----------------- ----------------- Class Y: Distributions from net investment income and net foreign currency gains -- -- Distributions from net realized gain -- -- ----------------- ----------------- Total Class Y distributions -- -- ----------------- ----------------- Decrease in net assets from dstributions -- -- ----------------- ----------------- CAPITAL SHARE TRANSACTIONS BY CLASS: Class A: Shares sold 675,520 775,010 Shares issued on reinvestment of distributions -- -- Shares redeemed (271,130) (756,172) ----------------- ----------------- Total Class A transactions 404,390 18,838 ----------------- ----------------- Class B: Shares sold 119,113 440,475 Shares issued on reinvestment of distributions -- -- Shares redeemed (86,398) (239,759) ----------------- ----------------- Total Class B transactions 32,715 200,716 ----------------- ----------------- Class C: Shares sold 12,496 257,136 Shares issued on reinvestment of distributions -- -- Shares redeemed (8,514) (529,714) ----------------- ----------------- Total Class C transactions 3,982 (272,578) ----------------- ----------------- Class Y: Shares sold 980,560 435,368 Shares issued on reinvestment of distributions -- -- Shares redeemed (285,734) (749,106) ----------------- ----------------- Total Class Y transactions 694,826 (313,738) ----------------- ----------------- Net increase (decrease) in net assets resulting from capital share transactions 1,135,913 (366,762) ----------------- ----------------- INCREASE (DECREASE) IN NET ASSETS 1,809,329 (438,832) NET ASSETS, BEGINNING OF PERIOD 3,693,846 4,132,678 ----------------- ----------------- NET ASSETS, END OF PERIOD $ 5,503,175 $ 3,693,846 ================= ================= Net assets include accumulated undistributed net investment income (loss) $ (3,012) $ 1,979 ================= =================
105
UBS U.S. SMALL CAP GROWTH FUND ---------------------------------------- SIX MONTHS YEAR ENDED ENDED DECEMBER 31, 2003 JUNE 30, (UNAUDITED) 2003 - --------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income (loss) $ (400,060) $ (266,297) Net realized gain (loss) 5,978,757 (1,381,955) Change in net unrealized appreciation (depreciation) 11,755,110 3,331,910 ----------------- ----------------- Net increase (decrease) in net assets from operations 17,333,807 1,683,658 ----------------- ----------------- DISTRIBUTIONS TO SHAREHOLDERS BY CLASS: Class A: Distributions from net investment income and net foreign currency gains -- -- Distributions from net realized gain (117,271) -- ----------------- ----------------- Total Class A distributions (117,271) -- ----------------- ----------------- Class B: Distributions from net investment income and net foreign currency gains -- -- Distributions from net realized gain (37,628) -- ----------------- ----------------- Total Class B distributions (37,628) -- ----------------- ----------------- Class C: Distributions from net investment income and net foreign currency gains -- -- Distributions from net realized gain (27,152) -- ----------------- ----------------- Total Class C distributions (27,152) -- ----------------- ----------------- Class Y: Distributions from net investment income and net foreign currency gains -- -- Distributions from net realized gain (213,659) -- ----------------- ----------------- Total Class Y distributions (213,659) -- ----------------- ----------------- Decrease in net assets from distributions (395,710) -- ----------------- ----------------- CAPITAL SHARE TRANSACTIONS BY CLASS: Class A: Shares sold 44,918,725** 10,938,839 Shares issued on reinvestment of distributions 88,533 -- Shares redeemed (7,677,890) (3,805,325) ----------------- ----------------- Total Class A transactions 37,329,368 7,133,514 ----------------- ----------------- Class B: Shares sold 13,030,220** 851,729 Shares issued on reinvestment of distributions 36,899 -- Shares redeemed (768,513) (421,955) ----------------- ----------------- Total Class B transactions 12,298,606 429,774 ----------------- ----------------- Class C: Shares sold 9,870,300** 475,355 Shares issued on reinvestment of distributions 27,032 -- Shares redeemed (814,792) (151,517) ----------------- ----------------- Total Class C transactions 9,082,540 323,838 ----------------- ----------------- Class Y: Shares sold 41,759,996** 22,370,201 Shares issued on reinvestment of distributions 208,127 -- Shares redeemed (15,263,841) (19,597,886) ----------------- ----------------- Total Class Y transactions 26,704,282 2,772,315 ----------------- ----------------- Net increase (decrease) in net assets resulting from capital share transactions 85,414,796 10,659,441 ----------------- ----------------- INCREASE (DECREASE) IN NET ASSETS 102,352,893 12,343,099 NET ASSETS, BEGINNING OF PERIOD 51,515,478 39,172,379 ----------------- ----------------- NET ASSETS, END OF PERIOD $ 153,868,371 $ 51,515,478 ================= ================= Net assets include accumulated undistributed net investment income (loss) $ (400,060) $ -- ================= ================= UBS U.S. BOND FUND ---------------------------------------- SIX MONTHS YEAR ENDED ENDED DECEMBER 31, 2003 JUNE 30, (UNAUDITED) 2003 - --------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income (loss) $ 2,093,319 $ 3,984,990 Net realized gain (loss) (837,449) 1,963,615 Change in net unrealized appreciation (depreciation) (1,032,063) 2,696,545 ----------------- ----------------- Net increase (decrease) in net assets from operations 223,807 8,645,150 ----------------- ----------------- DISTRIBUTIONS TO SHAREHOLDERS BY CLASS: Class A: Distributions from net investment income and net foreign currency gains (687,154) (1,055,349) Distributions from net realized gain -- -- ----------------- ----------------- Total Class A distributions (687,154) (1,055,349) ----------------- ----------------- Class B: Distributions from net investment income and net foreign currency gains (50,372) (120,485) Distributions from net realized gain -- -- ----------------- ----------------- Total Class B distributions (50,372) (120,485) ----------------- ----------------- Class C: Distributions from net investment income and net foreign currency gains (51,372) (71,609) Distributions from net realized gain -- -- ----------------- ----------------- Total Class C distributions (51,372) (71,609) ----------------- ----------------- Class Y: Distributions from net investment income and net foreign currency gains (1,736,935) (3,120,824) Distributions from net realized gain -- -- ----------------- ----------------- Total Class Y distributions (1,736,935) (3,120,824) ----------------- ----------------- Decrease in net assets from distributions (2,525,833) (4,368,267) ----------------- ----------------- CAPITAL SHARE TRANSACTIONS BY CLASS: Class A: Shares sold 8,150,342 30,904,206 Shares issued on reinvestment of distributions 470,346 774,239 Shares redeemed (5,361,310) (19,984,705) ----------------- ----------------- Total Class A transactions 3,259,378 11,693,740 ----------------- ----------------- Class B: Shares sold 1,320,774 4,225,401 Shares issued on reinvestment of distributions 34,815 77,727 Shares redeemed (2,187,683) (2,182,579) ----------------- ----------------- Total Class B transactions (832,094) 2,120,549 ----------------- ----------------- Class C: Shares sold 374,150 3,233,996 Shares issued on reinvestment of distributions 31,119 50,843 Shares redeemed (859,042) (1,334,026) ----------------- ----------------- Total Class C transactions (453,773) 1,950,813 ----------------- ----------------- Class Y: Shares sold 21,656,992 40,216,437 Shares issued on reinvestment of distributions 1,699,140 3,009,977 Shares redeemed (23,192,797) (27,160,470) ----------------- ----------------- Total Class Y transactions 163,335 16,065,944 ----------------- ----------------- Net increase (decrease) in net assets resulting from capital share transactions 2,136,846 31,831,046 ----------------- ----------------- INCREASE (DECREASE) IN NET ASSETS (165,180) 36,107,929 NET ASSETS, BEGINNING OF PERIOD 116,953,667 80,845,738 ----------------- ----------------- NET ASSETS, END OF PERIOD $ 116,788,487 $ 116,953,667 ================= ================= Net assets include accumulated undistributed net investment income (loss) $ (341,636) $ 90,878 ================= =================
* The 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 ** The capital transactions include amounts from a taxable reorganization in which the UBS U.S. Small Cap Growth Fund acquired assets and liabilities of the UBS Enhanced NASDAQ-100 Fund on November 7, 2003. The amounts were $9,615,448 for Class A, $12,098,521 for Class B, $9,185,495 for Class C, and $640,425 for Class Y. *** The capital transactions include amounts from a tax-free reorganization in which the UBS U.S. Value Equity Fund acquired assets and liabilities of the UBS Financial Sector Fund on November 7, 2003. The amounts were $93,138,892 for Class A, $30,423,510 for Class B, $18,702,929 for Class C, and $1,009,363 for Class Y. See accompanying notes to financial statements 106
UBS HIGH YIELD FUND ---------------------------------------- SIX MONTHS YEAR ENDED ENDED DECEMBER 31, 2003 JUNE 30, (UNAUDITED) 2003 - --------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income (loss) $ 7,617,051 $ 14,002,697 Net realized gain (loss) (9,703,387) (17,579,211) Change in net unrealized appreciation (depreciation) 17,678,734 31,593,930 ----------------- ----------------- Net increase (decrease) in net assets from operations 15,592,398 28,017,416 ----------------- ----------------- DISTRIBUTIONS TO SHAREHOLDERS BY CLASS: Class A: Distributions from net investment income and net foreign currency gains (3,334,416) (6,210,427) Distributions from net realized gain -- -- ----------------- ----------------- Total Class A distributions (3,334,416) (6,210,427) ----------------- ----------------- Class B: Distributions from net investment income and net foreign currency gains (459,230) (1,155,342) Distributions from net realized gain -- -- ----------------- ----------------- Total Class B distributions (459,230) (1,155,342) ----------------- ----------------- Class C: Distributions from net investment income and net foreign currency gains (785,399) (1,524,490) Distributions from net realized gain -- -- ----------------- ----------------- Total Class C distributions (785,399) (1,524,490) ----------------- ----------------- Class Y: Distributions from net investment income and net foreign currency gains (3,206,244) (5,513,259) Distributions from net realized gain -- -- ----------------- ----------------- Total Class Y distributions (3,206,244) (5,513,259) ----------------- ----------------- Decrease in net assets from distributions (7,785,289) (14,403,518) ----------------- ----------------- CAPITAL SHARE TRANSACTIONS BY CLASS: Class A: Shares sold 28,424,993 34,591,438 Shares issued on reinvestment of distributions 1,523,186 2,814,936 Shares redeemed (36,791,180) (32,540,087) ----------------- ----------------- Total Class A transactions (6,843,001) 4,866,287 ----------------- ----------------- Class B: Shares sold 637,053 2,018,183 Shares issued on reinvestment of distributions 196,329 471,694 Shares redeemed (3,682,303) (5,977,148) ----------------- ----------------- Total Class B transactions (2,848,921) (3,487,271) ----------------- ----------------- Class C: Shares sold 2,030,674 2,115,099 Shares issued on reinvestment of distributions 399,271 710,226 Shares redeemed (2,200,237) (3,147,724) ----------------- ----------------- Total Class C transactions 229,708 (322,399) ----------------- ----------------- Class Y: Shares sold 22,903,777 82,297,200 Shares issued on reinvestment of distributions 2,692,789 4,987,025 Shares redeemed (24,413,603) (61,319,664) ----------------- ----------------- Total Class Y transactions 1,182,963 25,964,561 ----------------- ----------------- Net increase (decrease) in net assets resulting from capital share transactions (8,279,251) 27,021,178 ----------------- ----------------- INCREASE (DECREASE) IN NET ASSETS (472,142) 40,635,076 NET ASSETS, BEGINNING OF PERIOD 180,226,645 139,591,569 ----------------- ----------------- NET ASSETS, END OF PERIOD $ 179,754,503 $ 180,226,645 ================= ================= Net assets include accumulated undistributed net investment income (loss) $ (138,738) $ 29,500 ================= ================= UBS INTERNATIONAL EQUITY FUND ---------------------------------------- SIX MONTHS YEAR ENDED ENDED DECEMBER 31, 2003 JUNE 30, (UNAUDITED) 2003 - --------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income (loss) $ 265,969 $ 1,448,032 Net realized gain (loss) 4,358,051 (5,644,725) Change in net unrealized appreciation (depreciation) 13,690,678 (3,854,936) ----------------- ----------------- Net increase (decrease) in net assets from operations 18,314,698 (8,051,629) ----------------- ----------------- DISTRIBUTIONS TO SHAREHOLDERS BY CLASS: Class A: Distributions from net investment income and net foreign currency gains (119,344) (102,615) Distributions from net realized gain -- (3,166) ----------------- ----------------- Total Class A distributions (119,344) (105,781) ----------------- ----------------- Class B: Distributions from net investment income and net foreign currency gains (12,292) (12,207) Distributions from net realized gain -- (392) ----------------- ----------------- Total Class B distributions (12,292) (12,599) ----------------- ----------------- Class C: Distributions from net investment income and net foreign currency gains (20,942) (10,789) Distributions from net realized gain -- (354) ----------------- ----------------- Total Class C distributions (20,942) (11,143) ----------------- ----------------- Class Y: Distributions from net investment income and net foreign currency gains (2,572,922) (4,107,868) Distributions from net realized gain -- (119,936) ----------------- ----------------- Total Class Y distributions (2,572,922) (4,227,804) ----------------- ----------------- Decrease in net assets from distributions (2,725,500) (4,357,327) ----------------- ----------------- CAPITAL SHARE TRANSACTIONS BY CLASS: Class A: Shares sold 6,724,851 12,910,694 Shares issued on reinvestment of distributions 110,711 100,144 Shares redeemed (5,830,360) (12,304,565) ----------------- ----------------- Total Class A transactions 1,005,202 706,273 ----------------- ----------------- Class B: Shares sold 320,348 273,328 Shares issued on reinvestment of distributions 12,025 12,357 Shares redeemed (62,617) (40,559) ----------------- ----------------- Total Class B transactions 269,756 245,126 ----------------- ----------------- Class C: Shares sold 501,135 775,367 Shares issued on reinvestment of distributions 20,787 10,420 Shares redeemed (158,355) (542,989) ----------------- ----------------- Total Class C transactions 363,567 242,798 ----------------- ----------------- Class Y: Shares sold 62,176,207 139,188,726 Shares issued on reinvestment of distributions 2,508,360 3,923,965 Shares redeemed (73,010,545) (138,240,572) ----------------- ----------------- Total Class Y transactions (8,325,978) 4,872,119 ----------------- ----------------- Net increase (decrease) in net assets resulting from capital share transactions (6,687,453) 6,066,316 ----------------- ----------------- INCREASE (DECREASE) IN NET ASSETS 8,901,745 (6,342,640) NET ASSETS, BEGINNING OF PERIOD 94,411,476 100,754,116 ----------------- ----------------- NET ASSETS, END OF PERIOD $ 103,313,221 $ 94,411,476 ================= ================= Net assets include accumulated undistributed net investment income (loss) $ (333,004) $ 2,126,527 ================= ================= UBS U.S. VALUE EQUITY FUND ---------------------------------------- SIX MONTHS YEAR ENDED ENDED DECEMBER 31, 2003 JUNE 30, (UNAUDITED) 2003 - --------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income (loss) $ 74,494 $ 83,786 Net realized gain (loss) 17,925,451 (837,648) Change in net unrealized appreciation (depreciation) 17,945,480 795,473 ----------------- ----------------- Net increase (decrease) in net assets from operations 35,945,425 41,611 ----------------- ----------------- DISTRIBUTIONS TO SHAREHOLDERS BY CLASS: Class A: Distributions from net investment income and net foreign currency gains (157,600) (6,980) Distributions from net realized gain -- (8,594) ----------------- ----------------- Total Class A distributions (157,600) (15,574) ----------------- ----------------- Class B: Distributions from net investment income and net foreign currency gains (12,230) (2,449) Distributions from net realized gain -- (5,316) ----------------- ----------------- Total Class B distributions (12,230) (7,765) ----------------- ----------------- Class C: Distributions from net investment income and net foreign currency gains (6,159) (2,890) Distributions from net realized gain -- (5,570) ----------------- ----------------- Total Class C distributions (6,159) (8,460) ----------------- ----------------- Class Y: Distributions from net investment income and net foreign currency gains (8,428) (32,891) Distributions from net realized gain -- (30,988) ----------------- ----------------- Total Class Y distributions (8,428) (63,879) ----------------- ----------------- Decrease in net assets from distributions (184,417) (95,678) ----------------- ----------------- CAPITAL SHARE TRANSACTIONS BY CLASS: Class A: Shares sold 97,996,604*** 1,313,870* Shares issued on reinvestment of distributions 137,814 14,112 Shares redeemed (43,187,821) (983,232) ----------------- ----------------- Total Class A transactions 54,946,597 344,750 ----------------- ----------------- Class B: Shares sold 48,070,396*** 834,994* Shares issued on reinvestment of distributions 11,008 7,755 Shares redeemed (12,682,216) (423,048) ----------------- ----------------- Total Class B transactions 35,399,188 419,701 ----------------- ----------------- Class C: Shares sold 26,497,671*** 831,028* Shares issued on reinvestment of distributions 5,513 2,916 Shares redeemed (4,387,121) (109,240) ----------------- ----------------- Total Class C transactions 22,116,063 724,704 ----------------- ----------------- Class Y: Shares sold 5,721,120*** 2,862,951* Shares issued on reinvestment of distributions 6,590 48,665 Shares redeemed (6,035,261) (854,907) ----------------- ----------------- Total Class Y transactions (307,551) 2,056,709 ----------------- ----------------- Net increase (decrease) in net assets resulting from capital share transactions 112,154,297 3,545,864 ----------------- ----------------- INCREASE (DECREASE) IN NET ASSETS 147,915,305 3,491,797 NET ASSETS, BEGINNING OF PERIOD 7,597,344 4,105,547 ----------------- ----------------- NET ASSETS, END OF PERIOD $ 155,512,649 $ 7,597,344 ================= ================= Net assets include accumulated undistributed net investment income (loss) $ (26,235) $ 83,688 ================= =================
See accompanying notes to financial statements 107 UBS GLOBAL ALLOCATION FUND -- FINANCIAL HIGHLIGHTS THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD PRESENTED.
SIX MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, 2003 -------------------------- CLASS A (UNAUDITED) 2003 2002 - --------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 10.69 $ 10.60 $ 11.10 ----------------- ---------- ---------- Income (loss) from investment operations: Net investment income 0.04** 0.10** 0.10** Net realized and unrealized gain (loss) 1.55 0.41 0.40 ----------------- ---------- ---------- Total income (loss) from investment operations 1.59 0.51 0.50 ----------------- ---------- ---------- Less distributions: Distributions from net investment income and net foreign currency gains (0.16) (0.42) (0.19) Distributions from net realized gains -- -- (0.81) ----------------- ---------- ---------- Total distributions (0.16) (0.42) (1.00) ----------------- ---------- ---------- Net asset value, end of period $ 12.12 $ 10.69 $ 10.60 ================= ========== ========== Total return+ 14.84%^ 5.35% 4.84% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 485,090 $ 175,415 $ 6,914 Ratio of expenses to average net assets: Before expense reimbursement 1.27%*** 1.35% 1.35% After expense reimbursement 1.27%*** 1.35% 1.35% Ratio of net investment income to average net assets: Before expense reimbursement 0.63%*** 0.98% 0.98% After expense reimbursement 0.63%*** 0.98% 0.98% Portfolio turnover rate 39% 66% 116% YEAR ENDED JUNE 30, ----------------------------------------- CLASS A 2001 2000 1999 - ----------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 11.20 $ 11.99 $ 12.75 ---------- ---------- ---------- Income (loss) from investment operations: Net investment income 0.22 0.19** 0.27 Net realized and unrealized gain (loss) 0.31 (0.30) 0.25 ---------- ---------- ---------- Total income (loss) from investment operations 0.53 (0.11) 0.52 ---------- ---------- ---------- Less distributions: Distributions from net investment income and net foreign currency gains -- (0.16) (0.44) Distributions from net realized gains (0.63) (0.52) (0.84) ---------- ---------- ---------- Total distributions (0.63) (0.68) (1.28) ---------- ---------- ---------- Net asset value, end of period $ 11.10 $ 11.20 $ 11.99 ========== ========== ========== Total return+ 4.95% (0.80)% 4.47% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 237 $ 202 $ 1,576 Ratio of expenses to average net assets: Before expense reimbursement 1.30% 1.24% 1.21% After expense reimbursement 1.30% 1.24% 1.21% Ratio of net investment income to average net assets: Before expense reimbursement 1.52% 1.74% 1.98% After expense reimbursement 1.52% 1.74% 1.98% Portfolio turnover rate 115% 98% 105% SIX MONTHS ENDED YEAR FOR THE DECEMBER 31, 2003 ENDED PERIOD ENDED CLASS B (UNAUDITED) JUNE 30, 2003 JUNE 30, 2002* - ------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 10.55 $ 10.52 $ 11.21 ----------------- ------------- -------------- Income (loss) from investment operations: Net investment income (loss) (0.01)** 0.02** 0.12** Net realized and unrealized gain 1.53 0.41 0.19 ----------------- ------------- -------------- Total income from investment operations 1.52 0.43 0.31 ----------------- ------------- -------------- Less distributions: Distributions from net investment income and net foreign currency gains (0.11) (0.40) (0.19) Distributions from net realized gains -- -- (0.81) ----------------- ------------- -------------- Total distributions (0.11) (0.40) (1.00) ----------------- ------------- -------------- Net asset value, end of period $ 11.96 $ 10.55 $ 10.52 ================= ============= ============== Total return+ 14.42%^ 4.60% 3.00%^ Ratios/Supplemental data: Net assets, end of period (in 000s) $ 102,393 $ 49,573 $ 1,570 Ratio of expenses to average net assets: Before expense reimbursement 2.06%*** 2.10% 2.10%*** After expense reimbursement 2.06%*** 2.10% 2.10%*** Ratio of net investment income to average net assets: Before expense reimbursement (0.16)%*** 0.23% 2.17%*** After expense reimbursement (0.16)%*** 0.23% 2.17%*** Portfolio turnover rate 39% 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. 108
SIX MONTHS ENDED YEAR FOR THE DECEMBER 31, 2003 ENDED PERIOD ENDED CLASS C (UNAUDITED) JUNE 30, 2003 JUNE 30, 2002* - ------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 10.56 $ 10.54 $ 11.10 ----------------- ------------- -------------- Income (loss) from investment operations: Net investment income (loss) (0.01)** 0.02** 0.11** Net realized and unrealized gain 1.54 0.41 0.33 ----------------- ------------- -------------- Total income from investment operations 1.53 0.43 0.44 ----------------- ------------- -------------- Less distributions: Distributions from net investment income and net foreign currency gains (0.12) (0.41) (0.19) Distributions from net realized gains -- -- (0.81) ----------------- ------------- -------------- Total distributions (0.12) (0.41) (1.00) ----------------- ------------- -------------- Net asset value, end of period $ 11.97 $ 10.56 $ 10.54 ================= ============= ============== Total return+ 14.47%^ 4.55% 4.23%^ Ratios/Supplemental data: Net assets, end of period (in 000s) $ 351,796 $ 137,078 $ 1,525 Ratio of expenses to average net assets: Before expense reimbursement 2.03%*** 2.10% 2.10%*** After expense reimbursement 2.03%*** 2.10% 2.10%*** Ratio of net investment income to average net assets: Before expense reimbursement (0.13)%*** 0.23% 1.77%*** After expense reimbursement (0.13)%*** 0.23% 1.77%*** Portfolio turnover rate 39% 66% 116% SIX MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, 2003 -------------------------- CLASS Y (UNAUDITED) 2003 2002 - --------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 10.79 $ 10.69 $ 11.18 ----------------- ---------- ---------- Income (loss) from investment operations: Net investment income 0.05** 0.12** 0.13** Net realized and unrealized gain (loss) 1.57 0.41 0.38 ----------------- ---------- ---------- Total income (loss) from investment operations 1.62 0.53 0.51 ----------------- ---------- ---------- Less distributions: Distributions from net investment income and net foreign currency gains (0.17) (0.43) (0.19) Distributions from net realized gains -- -- (0.81) ----------------- ---------- ---------- Total distributions (0.17) (0.43) (1.00) ----------------- ---------- ---------- Net asset value, end of period $ 12.24 $ 10.79 $ 10.69 ================= ========== ========== Total return++ 15.00%^ 5.50% 4.91% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 230,840 $ 193,758 $ 165,630 Ratio of expenses to average net assets: Before expense reimbursement 1.01%*** 1.10% 1.10% After expense reimbursement 1.01%*** 1.10% 1.10% Ratio of net investment income to average net assets: Before expense reimbursement 0.89%*** 1.23% 1.24% After expense reimbursement 0.89%*** 1.23% 1.24% Portfolio turnover rate 39% 64% 116% YEAR ENDED JUNE 30, ----------------------------------------- CLASS Y 2001 2000 1999 - ----------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 11.25 $ 12.02 $ 12.77 ---------- ---------- ---------- Income (loss) from investment operations: Net investment income 0.25 0.23** 0.30 Net realized and unrealized gain (loss) 0.31 (0.30) 0.25 ---------- ---------- ---------- Total income (loss) from investment operations 0.56 (0.07) 0.55 ---------- ---------- ---------- Less distributions: Distributions from net investment income and net foreign currency gains -- (0.18) (0.46) Distributions from net realized gains (0.63) (0.52) (0.84) ---------- ---------- ---------- Total distributions (0.63) (0.70) (1.30) ---------- ---------- ---------- Net asset value, end of period $ 11.18 $ 11.25 $ 12.02 ========== ========== ========== Total return++ 5.20% (0.48)% 4.76% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 156,130 $ 284,229 $ 469,080 Ratio of expenses to average net assets: Before expense reimbursement 1.05% 0.99% 0.96% After expense reimbursement 1.05% 0.99% 0.96% Ratio of net investment income to average net assets: Before expense reimbursement 1.77% 1.99% 2.23% After expense reimbursement 1.77% 1.99% 2.23% Portfolio turnover rate 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. 109 UBS GLOBAL EQUITY FUND -- FINANCIAL HIGHLIGHTS THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD PRESENTED.
SIX MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, 2003 -------------------------- CLASS A (UNAUDITED) 2003 2002 - --------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 8.89 $ 9.37 $ 10.61 ----------------- ---------- ---------- Income from investment operations: Net investment income 0.02** 0.16** 0.04** Net realized and unrealized gain (loss) 1.51 (0.39) (0.88) ----------------- ---------- ---------- Total income (loss) from investment operations 1.53 (0.23) (0.84) ----------------- ---------- ---------- Less distributions: Distributions from net investment income and net foreign currency gains (0.11) (0.25) (0.06) Distributions from net realized gains -- -- (0.34) ----------------- ---------- ---------- Total distributions (0.11) (0.25) (0.40) ----------------- ---------- ---------- Net asset value, end of period $ 10.31 $ 8.89 $ 9.37 ================= ========== ========== Total return+ 17.21%^ (2.23)% (8.05)% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 125,232 $ 123,756 $ 15,173 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.44%*** 1.44% 1.47% After expense reimbursement and earnings credits 1.25%*** 1.25% 1.25% Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 0.33%*** 1.73% 0.17% After expense reimbursement and earnings credits 0.52%*** 1.92% 0.39% Portfolio turnover rate 29% 206% 117% YEAR ENDED JUNE 30, ----------------------------------------- CLASS A 2001 2000 1999 - ----------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 12.44 $ 13.40 $ 12.53 ---------- ---------- ---------- Income from investment operations: Net investment income 0.07 0.04** 0.10** Net realized and unrealized gain (loss) (0.56) 0.27 1.09 ---------- ---------- ---------- Total income (loss) from investment operations (0.49) 0.31 1.19 ---------- ---------- ---------- Less distributions: Distributions from net investment income and net foreign currency gains (0.02) (0.06) (0.14) Distributions from net realized gains (1.32) (1.21) (0.18) ---------- ---------- ---------- Total distributions (1.34) (1.27) (0.32) ---------- ---------- ---------- Net asset value, end of period $ 10.61 $ 12.44 $ 13.40 ========== ========== ========== Total return+ (4.45)% 2.49% 9.80% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 302 $ 224 $ 220 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.37% 1.33% 1.30% After expense reimbursement and earnings credits 1.25% 1.25% 1.25% Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 0.65% 0.23% 0.80% After expense reimbursement and earnings credits 0.77% 0.31% 0.85% Portfolio turnover rate 81% 111% 86% SIX MONTHS ENDED YEAR FOR THE DECEMBER 31, 2003 ENDED PERIOD ENDED CLASS B (UNAUDITED) JUNE 30, 2003 JUNE 30, 2002* - ------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 8.82 $ 9.34 $ 10.17 ----------------- ------------- -------------- Income (loss) from investment operations: Net investment income (loss) (0.01)** 0.10** 0.05** Net realized and unrealized gain (loss) 1.49 (0.39) (0.48) ----------------- ------------- -------------- Total loss from investment operations 1.48 (0.29) (0.43) ----------------- ------------- -------------- Less distributions: Distributions from net investment income and net foreign currency gains (0.09) (0.23) (0.06) Distributions from net realized gains -- -- (0.34) ----------------- ------------- -------------- Total distributions (0.09) (0.23) (0.40) ----------------- ------------- -------------- Net asset value, end of period $ 10.21 $ 8.82 $ 9.34 ================= ============= ============== Total return+ 16.78%^ (2.91)% (4.38)%^ Ratios/Supplemental data: Net assets, end of period (in 000s) $ 149,976 $ 144,232 $ 418 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 2.26%*** 2.20% 2.25%*** After expense reimbursement and earnings credits 2.00%*** 2.00% 2.00%*** Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits (0.49)%*** 0.97% 0.72%*** After expense reimbursement and earnings credits (0.22)%*** 1.17% 0.97%*** Portfolio turnover rate 29% 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. 110
SIX MONTHS ENDED YEAR FOR THE DECEMBER 31, 2003 ENDED PERIOD ENDED CLASS C (UNAUDITED) JUNE 30, 2003 JUNE 30, 2002* - --------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 8.79 $ 9.33 $ 10.18 ----------------- ------------- -------------- Income (loss) from investment operations: Net investment income (loss) (0.01)** 0.10** 0.04** Net realized and unrealized gain (loss) 1.49 (0.40) (0.49) ----------------- ------------- -------------- Total loss from investment operations 1.48 (0.30) (0.45) ----------------- ------------- -------------- Less distributions: Distributions from net investment income and net foreign currency gains (0.09) (0.24) (0.06) Distributions from net realized gains -- -- (0.34) ----------------- ------------- -------------- Total distributions (0.09) (0.24) (0.40) ----------------- ------------- -------------- Net asset value, end of period $ 10.18 $ 8.79 $ 9.33 ================= ============= ============== Total return+ 16.82%^ (2.93)% (4.57)%^ Ratios/Supplemental data: Net assets, end of period (in 000s) $ 94,447 $ 93,605 $ 351 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 2.27%*** 2.24% 2.23%*** After expense reimbursement and earnings credits 2.00%*** 2.00% 2.00%*** Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits (0.50)%*** 0.93% 0.55%*** After expense reimbursement and earnings credits (0.22)%*** 1.17% 0.78%*** Portfolio turnover rate 29% 206% 117% SIX MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, 2003 -------------------------- CLASS Y (UNAUDITED) 2003 2002 - --------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 8.99 $ 9.47 $ 10.68 ----------------- ---------- ---------- Income from investment operations: Net investment income 0.04** 0.18** 0.06** Net realized and unrealized gain (loss) 1.54 (0.39) (0.87) ----------------- ---------- ---------- Total income (loss) from investment operations 1.58 (0.21) (0.81) ----------------- ---------- ---------- Less distributions: Distributions from net investment income and net foreign currency gains (0.12) (0.27) (0.06) Distributions from net realized gains -- -- (0.34) ----------------- ---------- ---------- Total distributions (0.12) (0.27) (0.40) ----------------- ---------- ---------- Net asset value, end of period $ 10.45 $ 8.99 $ 9.47 ================= ========== ========== Total return++ 17.61%^ (1.93)% (7.71)% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 128,048 $ 62,873 $ 40,714 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.02%*** 1.16% 1.19% After expense reimbursement and earnings credits 1.00%*** 1.00% 1.00% Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 0.75%*** 2.01% 0.45% After expense reimbursement and earnings credits 0.78%*** 2.17% 0.64% Portfolio turnover rate 29% 206% 117% YEAR ENDED JUNE 30, ----------------------------------------- CLASS Y 2001 2000 1999 - ----------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 12.47 $ 13.42 $ 12.54 ---------- ---------- ---------- Income from investment operations: Net investment income 0.09 0.07** 0.14** Net realized and unrealized gain (loss) (0.54) 0.27 1.09 ---------- ---------- ---------- Total income (loss) from investment operations (0.45) 0.34 1.23 ---------- ---------- ---------- Less distributions: Distributions from net investment income and net foreign currency gains (0.02) (0.08) (0.17) Distributions from net realized gains (1.32) (1.21) (0.18) ---------- ---------- ---------- Total distributions (1.34) (1.29) (0.35) ---------- ---------- ---------- Net asset value, end of period $ 10.68 $ 12.47 $ 13.42 ========== ========== ========== Total return++ (4.07)% 2.69% 10.14% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 49,306 $ 40,538 $ 42,106 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.12% 1.08% 1.05% After expense reimbursement and earnings credits 1.00% 1.00% 1.00% Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 0.90% 0.48% 1.05% After expense reimbursement and earnings credits 1.02% 0.56% 1.10% Portfolio turnover rate 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. 111 UBS GLOBAL BOND FUND -- FINANCIAL HIGHLIGHTS THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD PRESENTED.
SIX MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, 2003 -------------------------- CLASS A (UNAUDITED) 2003 2002 - --------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 10.24 $ 9.01 $ 8.58 ----------------- ---------- ---------- Income from investment operations: Net investment income 0.10** 0.24** 0.17** Net realized and unrealized gain (loss) 0.66 1.21 0.43 ----------------- ---------- ---------- Total income (loss) from investment operations 0.76 1.45 0.60 ----------------- ---------- ---------- Less distributions: Distributions from net investment income and net foreign currency gains (0.82) (0.22) -- Distributions from net realized gains -- -- -- Distributions from return of capital -- -- (0.17) ----------------- ---------- ---------- Total distributions (0.82) (0.22) (0.17) ----------------- ---------- ---------- Net asset value, end of period $ 10.18 $ 10.24 $ 9.01 ================= ========== ========== Total return+ 7.49%^ 16.34% 7.18% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 13,283 $ 11,659 $ 1,925 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.48%*** 1.53% 1.49% After expense reimbursement and earnings credits 1.15%*** 1.15% 1.15% Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 1.57%*** 2.06% 2.72% After expense reimbursement and earnings credits 1.90%*** 2.44% 3.06% Portfolio turnover rate 62% 140% 157% YEAR ENDED JUNE 30, ------------------------------------------- CLASS A 2001 2000 1999 - ------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 9.09 $ 9.16 $ 9.40 ---------- ---------- ---------- Income from investment operations: Net investment income 0.33** 0.37** 0.37** Net realized and unrealized gain (loss) (0.72) (0.43) (0.07) ---------- ---------- ---------- Total income (loss) from investment operations (0.39) (0.06) 0.30 ---------- ---------- ---------- Less distributions: Distributions from net investment income and net foreign currency gains (0.06) -- (0.46) Distributions from net realized gains -- (0.01) (0.08) Distributions from return of capital -- -- -- ---------- ---------- ---------- Total distributions (0.06) (0.01) (0.54) ---------- ---------- ---------- Net asset value, end of period $ 8.64 $ 9.09 $ 9.16 ========== ========== ========== Total return+ (4.27)% (0.66)% 2.89% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 3 $ 1 $ 1,085 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.37% 1.30% 1.15% After expense reimbursement and earnings credits 1.15% 1.19%++ 1.15% Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 3.60% 4.09% 3.80% After expense reimbursement and earnings credits 3.82% 4.20% 3.80% Portfolio turnover rate 165% 87% 138% SIX MONTHS ENDED YEAR FOR THE DECEMBER 31, 2003 ENDED PERIOD ENDED CLASS B (UNAUDITED) JUNE 30, 2003 JUNE 30, 2002* - ------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 10.25 $ 9.01 $ 8.35 ----------------- ------------- -------------- Income from investment operations: Net investment income 0.06** 0.16** 0.11** Net realized and unrealized gain 0.66 1.23 0.69 ----------------- ------------- -------------- Total income from investment operations 0.72 1.39 0.80 ----------------- ------------- -------------- Less distributions: Distributions from net investment income and net foreign currency gains (0.78) (0.15) -- Distributions from return of capital -- -- (0.14) ----------------- ------------- -------------- Total distributions (0.78) (0.15) (0.14) ----------------- ------------- -------------- Net asset value, end of period $ 10.19 $ 10.25 $ 9.01 ================= ============= ============== Total return+ 7.05%^ 15.61% 9.67%^ Ratios/Supplemental data: Net assets, end of period (in 000s) $ 1,678 $ 1,755 $ 392 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 2.28%*** 2.30% 2.25%*** After expense reimbursement and earnings credits 1.90%*** 1.90% 1.90%*** Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 0.77%*** 1.29% 1.94%*** After expense reimbursement and earnings credits 1.15%*** 1.69% 2.29%*** Portfolio turnover rate 62% 140% 157%
* For period July 3, 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 1.15%. See accompanying notes to financial statements. 112
SIX MONTHS ENDED FOR THE DECEMBER 31, 2003 PERIOD ENDED CLASS C (UNAUDITED) JUNE 30, 2003* - ------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $ 10.23 $ 9.00 ----------------- -------------- Income from investment operations: Net investment income 0.07** 0.19** Net realized and unrealized gain 0.66 1.22 ----------------- -------------- Total income from investment operations 0.73 1.41 ----------------- -------------- Less distributions: Distributions from net investment income and net foreign currency gains (0.79) (0.18) ----------------- -------------- Net asset value, end of period $ 10.17 $ 10.23 ================= ============== Total return+ 7.26%^ 15.84%^ Ratios/Supplemental data: Net assets, end of period (in 000s) $ 3,709 $ 3,198 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.93%*** 2.01%*** After expense reimbursement and earnings credits 1.65%*** 1.65%*** Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 1.12%*** 1.58%*** After expense reimbursement and earnings credits 1.40%*** 1.94%*** Portfolio turnover rate 62% 145% SIX MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, 2003 -------------------------- CLASS Y (UNAUDITED) 2003 2002 - --------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 11.16 $ 9.79 $ 8.57 ----------------- ---------- ---------- Income from investment operations: Net investment income 0.12** 0.28** 0.31** Net realized and unrealized gain (loss) 0.72 1.33 1.09 ----------------- ---------- ---------- Total income (loss) from investment operations 0.84 1.61 1.40 ----------------- ---------- ---------- Less distributions: Distributions from net investment income and net foreign currency gains (0.83) (0.24) -- Distributions from net realized gains -- -- -- Distributions from return of capital -- -- (0.18) ----------------- ---------- ---------- Total distributions (0.83) (0.24) (0.18) ----------------- ---------- ---------- Net asset value, end of period $ 11.17 $ 11.16 $ 9.79 ================= ========== ========== Total return++ 7.65%^ 16.72% 16.57% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 40,346 $ 35,484 $ 34,421 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.16%*** 1.32% 1.17% After expense reimbursement and earnings credits 0.90%*** 0.90% 0.90% Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 1.89%*** 2.27% 3.14% After expense reimbursement and earnings credits 2.15%*** 2.69% 3.41% Portfolio turnover rate 62% 145% 157% YEAR ENDED JUNE 30, ------------------------------------------ CLASS Y 2001 2000 1999 - ------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $ 9.01 $ 9.18 $ 9.41 ---------- ---------- ---------- Income from investment operations: Net investment income 0.36** 0.40** 0.39** Net realized and unrealized gain (loss) (0.72) (0.43) (0.07) ---------- ---------- ---------- Total income (loss) from investment operations (0.36) (0.03) 0.32 ---------- ---------- ---------- Less distributions: Distributions from net investment income and net foreign currency gains (0.08) (0.13) (0.47) Distributions from net realized gains -- (0.01) (0.08) Distributions from return of capital ---------- ---------- ---------- Total distributions (0.08) (0.14) (0.55) ---------- ---------- ---------- Net asset value, end of period $ 8.57 $ 9.01 $ 9.18 ========== ========== ========== Total return++ (4.02)% (0.34)% 3.13% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 37,822 $ 43,467 $ 92,832 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.12% 1.05% 0.90% After expense reimbursement and earnings credits 0.90% 0.94%# 0.90% Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 3.85% 4.34% 4.05% After expense reimbursement and earnings credits 4.07% 4.45% 4.05% Portfolio turnover rate 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%. See accompanying notes to financial statements. 113 UBS U.S. ALLOCATION FUND -- FINANCIAL HIGHLIGHTS THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD PRESENTED.
SIX MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, 2003 -------------------------- CLASS A (UNAUDITED) 2003 2002 - --------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 9.32 $ 9.04 $ 9.38 ----------------- ---------- ---------- Income from investment operations: Net investment income 0.07** 0.16** 0.20** Net realized and unrealized gain (loss) 0.83 0.31 (0.25) ----------------- ---------- ---------- Total income (loss) from investment operations 0.90 0.47 (0.05) ----------------- ---------- ---------- Less distributions: Distributions from net investment income (0.16) (0.19) (0.29) Distributions from net realized gains -- -- -- ----------------- ---------- ---------- Total distributions (0.16) (0.19) (0.29) ----------------- ---------- ---------- Net asset value, end of period $ 10.06 $ 9.32 $ 9.04 ================= ========== ========== Total return+ 9.63%^ 5.43% (0.60)% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 8,230 $ 4,164 $ 2,583 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.40%*** 1.56% 1.57% After expense reimbursement and earnings credits 1.05%*** 1.05% 1.05% Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 1.19%*** 1.35% 1.63% After expense reimbursement and earnings credits 1.54%*** 1.86% 2.15% Portfolio turnover rate 49% 96% 147% YEAR ENDED JUNE 30, ------------------------------------------ CLASS A 2001 2000 1999 - ------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $ 8.57 $ 9.38 $ 12.27 ---------- ---------- ---------- Income from investment operations: Net investment income 0.28 0.23** 0.29** Net realized and unrealized gain (loss) 0.89 (0.74) 0.18 ---------- ---------- ---------- Total income (loss) from investment operations 1.17 (0.51) 0.47 ---------- ---------- ---------- Less distributions: Distributions from net investment income (0.36) (0.24) (0.71) Distributions from net realized gains -- (0.06) (2.65) ---------- ---------- ---------- Total distributions (0.36) (0.30) (3.36) ---------- ---------- ---------- Net asset value, end of period $ 9.38 $ 8.57 $ 9.38 ========== ========== ========== Total return+ 13.89% (5.39)% 4.17% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 1 $ 1 $ 1 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.39% 1.26% 1.21% After expense reimbursement and earnings credits 1.05% 1.06%++ 1.05% Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 2.81% 2.55% 2.75% After expense reimbursement and earnings credits 3.15% 2.75% 2.91% Portfolio turnover rate 159% 96% 113% SIX MONTHS ENDED YEAR FOR THE DECEMBER 31, 2003 ENDED PERIOD ENDED CLASS B (UNAUDITED) JUNE 30, 2003 JUNE 30, 2002* - ------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 9.24 $ 9.00 $ 9.39 ----------------- ------------- -------------- Income from investment operations: Net investment income 0.04** 0.10** 0.08** Net realized and unrealized gain (loss) 0.81 0.31 (0.19) ----------------- ------------- -------------- Total income (loss) from investment operations 0.85 0.41 (0.11) ----------------- ------------- -------------- Less distributions: Distributions from net investment income (0.10) (0.17) (0.28) ----------------- ------------- -------------- Net asset value, end of period $ 9.99 $ 9.24 $ 9.00 ================= ============= ============== Total return+ 9.16%^ 4.67% (1.18)%^ Ratios/Supplemental data: Net assets, end of period (in 000s) $ 3,876 $ 2,733 $ 913 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 2.22%*** 2.27% 2.41%*** After expense reimbursement and earnings credits 1.80%*** 1.80% 1.80%*** Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 0.37%*** 0.64% 0.69%*** After expense reimbursement and earnings credits 0.80%*** 1.11% 1.30%*** Portfolio turnover rate 49% 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%. See accompanying notes to financial statements. 114
SIX MONTHS ENDED YEAR FOR THE DECEMBER 31, 2003 ENDED PERIOD ENDED CLASS C (UNAUDITED) JUNE 30, 2003 JUNE 30, 2002* - ------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 9.25 $ 9.01 $ 9.36 ----------------- ------------- -------------- Income from investment operations: Net investment income 0.04** 0.10** 0.08** Net realized and unrealized gain (loss) 0.80 0.31 (0.15) ----------------- ------------- -------------- Total income (loss) from investment operations 0.84 0.41 (0.07) ----------------- ------------- -------------- Less distributions: Distributions from net investment income (0.09) (0.17) (0.28) ----------------- ------------- -------------- Net asset value, end of period $ 10.00 $ 9.25 $ 9.01 ================= ============= ============== Total return+ 9.14%^ 4.70% (0.76)%^ Ratios/Supplemental data: Net assets, end of period (in 000s) $ 2,446 $ 1,881 $ 402 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 2.17%*** 2.30% 2.37%*** After expense reimbursement and earnings credits 1.80%*** 1.80% 1.80%*** Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 0.42%*** 0.61% 0.75%*** After expense reimbursement and earnings credits 0.79%*** 1.11% 1.32%*** Portfolio turnover rate 49% 96% 147% SIX MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, 2003 -------------------------- CLASS Y (UNAUDITED) 2003 2002 - --------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 9.38 $ 9.09 $ 9.41 ----------------- ---------- ---------- Income from investment operations: Net investment income 0.09** 0.18** 0.24** Net realized and unrealized gain (loss) 0.82 0.32 (0.27) ----------------- ---------- ---------- Total income (loss) from investment operations 0.91 0.50 (0.03) ----------------- ---------- ---------- Less distributions: Distributions from net investment income (0.17) (0.21) (0.29) Distributions from net realized gains -- -- -- ----------------- ---------- ---------- Total distributions (0.17) (0.21) (0.29) ----------------- ---------- ---------- Net asset value, end of period $ 10.12 $ 9.38 $ 9.09 ================= ========== ========== Total return++ 9.75%^ 5.70% (0.36)% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 24,838 $ 22,328 $ 21,771 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.10%*** 1.34% 1.24% After expense reimbursement and earnings credits 0.80%*** 0.80% 0.80% Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 1.49%*** 1.57% 2.17% After expense reimbursement and earnings credits 1.79%*** 2.11% 2.61% Portfolio turnover rate 49% 96% 147% YEAR ENDED JUNE 30, ------------------------------------------ CLASS Y 2001 2000 1999 - ------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $ 8.59 $ 9.38 $ 12.24 ---------- ---------- ---------- Income from investment operations: Net investment income 0.31 0.26** 0.34** Net realized and unrealized gain (loss) 0.89 (0.74) 0.18 ---------- ---------- ---------- Total income (loss) from investment operations 1.20 (0.48) 0.52 ---------- ---------- ---------- Less distributions: Distributions from net investment income (0.38) (0.25) (0.73) Distributions from net realized gains -- (0.06) (2.65) ---------- ---------- ---------- Total distributions (0.38) (0.31) (3.38) ---------- ---------- ---------- Net asset value, end of period $ 9.41 $ 8.59 $ 9.38 ========== ========== ========== Total return++ 14.18% (5.07)% 4.74% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 25,719 $ 11,136 $ 37,603 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.14% 1.01% 0.96% After expense reimbursement and earnings credits 0.80% 0.81%# 0.80% Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 3.06% 2.80% 3.00% After expense reimbursement and earnings credits 3.40% 3.00% 3.16% Portfolio turnover rate 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%. See accompanying notes to financial statements. 115 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.
SIX MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, 2003 -------------------------- CLASS A (UNAUDITED) 2003 2002 - --------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 13.63 $ 13.94 $ 15.97 ----------------- ---------- ---------- Income from investment operations: Net investment income 0.04** 0.11** 0.08** Net realized and unrealized gain (loss) 2.07 0.04 (1.38) ----------------- ---------- ---------- Total income (loss) from investment operations 2.11 0.15 (1.30) ----------------- ---------- ---------- Less distributions: Distributions from net investment income (0.15) (0.08) (0.04) Distributions from net realized gains -- (0.38) (0.69) ----------------- ---------- ---------- Total distributions (0.15) (0.46) (0.73) ----------------- ---------- ---------- Net asset value, end of period $ 15.59 $ 13.63 $ 13.94 ================= ========== ========== Total return+ 15.47%^ 1.37% (8.41)% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 5,797 $ 4,702 $ 13,698 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.34%*** 1.30% 1.19% After expense reimbursement and earnings credits 1.30%*** 1.05% 1.05% Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 0.52%*** 0.64% 0.40% After expense reimbursement and earnings credits 0.56%*** 0.89% 0.54% Portfolio turnover rate 20% 33% 60% YEAR ENDED JUNE 30, ------------------------------------------ CLASS A 2001 2000 1999 - ------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $ 15.97 $ 21.39 $ 19.88 ---------- ---------- ---------- Income from investment operations: Net investment income 0.08** 0.13** 0.08** Net realized and unrealized gain (loss) 1.56 (3.75) 2.67 ---------- ---------- ---------- Total income (loss) from investment operations 1.64 (3.62) 2.75 ---------- ---------- ---------- Less distributions: Distributions from net investment income (0.29) (0.03) (0.12) Distributions from net realized gains (1.35) (1.77) (1.12) ---------- ---------- ---------- Total distributions (1.64) (1.80) (1.24) ---------- ---------- ---------- Net asset value, end of period $ 15.97 $ 15.97 $ 21.39 ========== ========== ========== Total return+ 10.63% (17.24)% 14.75% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 7,067 $ 7,191 $ 7,563 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.17% 1.09% 1.05% After expense reimbursement and earnings credits 1.05% 1.05% 1.05% Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 0.37% 0.64% 0.57% After expense reimbursement and earnings credits 0.49% 0.68% 0.57% Portfolio turnover rate 54% 55% 48% SIX MONTHS ENDED YEAR FOR THE DECEMBER 31, 2003 ENDED PERIOD ENDED CLASS B (UNAUDITED) JUNE 30, 2003 JUNE 30, 2002* - ------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 13.45 $ 13.87 $ 14.76 ----------------- ------------- -------------- Income (loss) from investment operations: Net investment income (loss) (0.01)** 0.02** 0.06** Net realized and unrealized gain (loss) 2.04 0.02 (0.22) ----------------- ------------- -------------- Total income (loss) from investment operations 2.03 0.04 (0.16) ----------------- ------------- -------------- Less distributions: Distributions from net investment income (0.09) (0.08) (0.04) Distributions from net realized gains -- (0.38) (0.69) ----------------- ------------- -------------- Total distributions (0.09) (0.46) (0.73) ----------------- ------------- -------------- Net asset value, end of period $ 15.39 $ 13.45 $ 13.87 ================= ============= ============== Total return+ 15.11%^ 0.63% (1.39)%^ Ratios/Supplemental data: Net assets, end of period (in 000s) $ 1,043 $ 635 $ 223 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 2.00%*** 2.04% 1.99%*** After expense reimbursement and earnings credits 2.00%*** 1.80% 1.80%*** Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits (0.14)%*** (0.10)% 0.46%*** After expense reimbursement and earnings credits (0.14)%*** 0.14% 0.65%*** Portfolio turnover rate 20% 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. 116
SIX MONTHS ENDED YEAR FOR THE DECEMBER 31, 2003 ENDED PERIOD ENDED CLASS C (UNAUDITED) JUNE 30, 2003 JUNE 30, 2002* - ------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 13.44 $ 13.88 $ 15.20 ----------------- ------------- -------------- Income (loss) from investment operations: Net investment income (loss) (0.01)** 0.02** 0.07** Net realized and unrealized gain (loss) 2.04 0.03 (0.66) ----------------- ------------- -------------- Total income (loss) from investment operations 2.03 0.05 (0.59) ----------------- ------------- -------------- Less distributions: Distributions from net investment income (0.09) (0.11) (0.04) Distributions from net realized gains -- (0.38) (0.69) ----------------- ------------- -------------- Total distributions (0.09) (0.49) (0.73) ----------------- ------------- -------------- Net asset value, end of period $ 15.38 $ 13.44 $ 13.88 ================= ============= ============== Total return+ 15.12%^ 0.68% (4.18)%^ Ratios/Supplemental data: Net assets, end of period (in 000s) $ 1,514 $ 1,020 $ 70 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.97%*** 2.04% 1.97%*** After expense reimbursement and earnings credits 1.97%*** 1.80% 1.80%*** Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits (0.11)%*** (0.10)% 0.56%*** After expense reimbursement and earnings credits (0.11)%*** 0.14% 0.73%*** Portfolio turnover rate 20% 33% 60% SIX MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, 2003 -------------------------- CLASS Y (UNAUDITED) 2003 2002 - --------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 13.73 $ 14.07 $ 16.07 ----------------- ---------- ---------- Income from investment operations: Net investment income 0.07** 0.14** 0.12** Net realized and unrealized gain (loss) 2.09 0.04 (1.39) ----------------- ---------- ---------- Total income (loss) from investment operations 2.16 0.18 (1.27) ----------------- ---------- ---------- Less distributions: Distributions from net investment income (0.19) (0.14) (0.04) Distributions from net realized gains -- (0.38) (0.69) ----------------- ---------- ---------- Total distributions (0.19) (0.52) (0.73) ----------------- ---------- ---------- Net asset value, end of period $ 15.70 $ 13.73 $ 14.07 ================= ========== ========== Total return++ 15.74%^ 1.69% (8.17)% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 124,620 $ 99,398 $ 87,710 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 0.94%*** 1.04% 0.93% After expense reimbursement and earnings credits 0.94%*** 0.80% 0.80% Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 0.92%*** 0.90% 0.66% After expense reimbursement and earnings credits 0.92%*** 1.14% 0.79% Portfolio turnover rate 20% 33% 60% YEAR ENDED JUNE 30, ----------------------------------------- CLASS Y 2001 2000 1999 - ----------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 16.07 $ 21.48 $ 19.91 ---------- ---------- ---------- Income from investment operations: Net investment income 0.12** 0.16** 0.17** Net realized and unrealized gain (loss) 1.57 (3.75) 2.67 ---------- ---------- ---------- Total income (loss) from investment operations 1.69 (3.59) 2.84 ---------- ---------- ---------- Less distributions: Distributions from net investment income (0.34) (0.05) (0.15) Distributions from net realized gains (1.35) (1.77) (1.12) ---------- ---------- ---------- Total distributions (1.69) (1.82) (1.27) ---------- ---------- ---------- Net asset value, end of period $ 16.07 $ 16.07 $ 21.48 ========== ========== ========== Total return++ 10.88% (17.00)% 15.22% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 125,997 $ 167,870 $ 713,321 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 0.92% 0.84% 0.80% After expense reimbursement and earnings credits 0.80% 0.80% 0.80% Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 0.62% 0.89% 0.82% After expense reimbursement and earnings credits 0.74% 0.93% 0.82% Portfolio turnover rate 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. 117 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.
SIX MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, 2003 ------------------------- CLASS A (UNAUDITED) 2003 2002 - -------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 6.39 $ 6.38 $ 8.90 ----------------- ---------- ---------- Income loss from investment operations: Net investment income (loss) (0.01)** 0.00#** (0.02)** Net realized and unrealized gain (loss) 1.00 0.01 (2.45) ----------------- ---------- ---------- Total gain (loss) from investment operations 0.99 0.01 (2.47) ----------------- ---------- ---------- Less distributions: Distributions from net realized gains -- -- (0.05) ----------------- ---------- ---------- Net asset value, end of period $ 7.38 $ 6.39 $ 6.38 ================= ========== ========== Total return+ 15.49%^ 0.16% (27.89)% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 1,773 $ 1,163 $ 1,155 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 2.71%*** 3.91% 2.51% After expense reimbursement and earnings credits 1.05%*** 1.05% 1.05% Ratio of net investment income (loss) to average net assets: Before expense reimbursement and earnings credits (1.91)%*** (2.82)% (1.71)% After expense reimbursement and earnings credits (0.25)%*** 0.04% (0.25)% Portfolio turnover rate 42% 86% 93% YEAR ENDED JUNE 30, FOR THE ------------------------- PERIOD ENDED CLASS A 2001 2000 JUNE 30, 1999* - ------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 15.20 $ 13.88 $ 11.84 ---------- ---------- ---------- Income loss from investment operations: Net investment income (loss) (0.07) (0.02)** (0.01) Net realized and unrealized gain (loss) (4.32) 2.29 2.05 ---------- ---------- ---------- Total gain (loss) from investment operations (4.39) 2.27 2.04 ---------- ---------- ---------- Less distributions: Distributions from net realized gains (1.91) (0.95) -- ---------- ---------- ---------- Net asset value, end of period $ 8.90 $ 15.20 $ 13.88 ========== ========== ========== Total return+ (31.59)% 17.18% 17.23%^ Ratios/Supplemental data: Net assets, end of period (in 000s) $ 1 $ 1 $ 1 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.59% 2.11% 2.63%*** After expense reimbursement and earnings credits 1.05% 1.05% 1.05%*** Ratio of net investment income (loss) to average net assets: Before expense reimbursement and earnings credits (0.91)% (1.22)% (1.51)%*** After expense reimbursement and earnings credits (0.37)% (0.16)% 0.07%*** Portfolio turnover rate 56% 86% 51% SIX MONTHS ENDED YEAR FOR THE DECEMBER 31, 2003 ENDED PERIOD ENDED CLASS B (UNAUDITED) JUNE 30, 2003 JUNE 30, 2002^^ - ------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 6.32 $ 6.36 $ 7.86 ----------------- ------------- -------------- Income (loss) from investment operations: Net investment loss (0.03)** (0.04)** (0.05)** Net realized and unrealized gain (loss) 0.99 -- (1.40) ----------------- ------------- -------------- Total gain (loss) from investment operations 0.96 (0.04) (1.45) ----------------- ------------- -------------- Less distributions: Distributions from net realized gains -- -- (0.05) ----------------- ------------- -------------- Net asset value, end of period $ 7.28 $ 6.32 $ 6.36 ================= ============= ============== Total return+ 15.19%^ (0.63)% (18.61)%^ Ratios/Supplemental data: Net assets, end of period (in 000s) $ 404 $ 321 $ 115 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 3.44%*** 4.54% 3.06%*** After expense reimbursement and earnings credits 1.80%*** 1.80% 1.80%*** Ratio of net investment income (loss) to average net assets: Before expense reimbursement and earnings credits (2.64)%*** (3.45)% (2.28)%*** After expense reimbursement and earnings credits (0.99)%*** (0.71)% (1.02)%*** Portfolio turnover rate 42% 87% 93%
* For the period December 31, 1998 (commencement of operations) through June 30, 1999. ** 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. ^^ For the period November 7, 2001 (commencement of issuance) through June 30, 2002. See accompanying notes to financial statements. 118
SIX MONTHS ENDED YEAR FOR THE DECEMBER 31, 2003 ENDED PERIOD ENDED CLASS C (UNAUDITED) JUNE 30, 2003 JUNE 30, 2002* - --------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 6.32 $ 6.35 $ 8.18 ----------------- ------------- -------------- Income (loss) from investment operations: Net investment loss (0.03)** (0.04)** (0.05)** Net realized and unrealized gain (loss) 0.98 0.01 (1.73) ----------------- ------------- -------------- Total loss from investment operations 0.95 (0.03) (1.78) ----------------- ------------- -------------- Less distributions: Distributions from net realized gains -- -- (0.05) ----------------- ------------- -------------- Net asset value, end of period $ 7.27 $ 6.32 $ 6.35 ================= ============= ============== Total return+ 15.03%^ (0.47)% (21.91)%^ Ratios/Supplemental data: Net assets, end of period (in 000s) $ 311 $ 267 $ 572 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 3.45%*** 4.71% 3.22%*** After expense reimbursement and earnings credits 1.80%*** 1.80% 1.80%*** Ratio of net investment income (loss) to average net assets: Before expense reimbursement and earnings credits (2.65)%*** (3.62)% (2.44)%*** After expense reimbursement and earnings credits (1.00)%*** (0.71)% (1.02)%*** Portfolio turnover rate 42% 86% 93% SIX MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, 2003 ------------------------- CLASS Y (UNAUDITED) 2003 2002 - -------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 6.49 $ 6.47 $ 8.99 ----------------- ---------- ---------- Income (loss) from investment operations: Net investment income (loss) 0.00#** 0.02** 0.00#** Net realized and unrealized gain (loss) 1.02 0.00# (2.47) ----------------- ---------- ---------- Total income (loss) from investment operations 1.02 0.02 (2.47) ----------------- ---------- ---------- Less distributions: Distributions from net investment income -- -- (0.05) Distributions from net realized gains -- -- -- ----------------- ---------- ---------- Total distributions -- -- (0.05) ----------------- ---------- ---------- Net asset value, end of period $ 7.51 $ 6.49 $ 6.47 ================= ========== ========== Total return++ 15.72%^ 0.31% (27.61)% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 3,015 $ 1,943 $ 2,291 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 2.46%*** 3.72% 2.14% After expense reimbursement and earnings credits 0.80%*** 0.80% 0.80% Ratio of net investment income (loss) to average net assets: Before expense reimbursement and earnings credits (1.66)%*** (2.62)% (1.39)% After expense reimbursement and earnings credits 0.00%*** 0.29% (0.05)% Portfolio turnover rate 42% 86% 93% SIX MONTHS YEAR ENDED JUNE 30, ENDED ------------------------- JUNE 30, CLASS Y 2001 2000 1999(a) - ----------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 15.28 $ 13.91 $ 11.84 ---------- ---------- ---------- Income (loss) from investment operations: Net investment income (loss) (0.01) 0.03** 0.02 Net realized and unrealized gain (loss) (4.37) 2.29 2.05 ---------- ---------- ---------- Total income (loss) from investment operations (4.38) 2.32 2.07 ---------- ---------- ---------- Less distributions: Distributions from net investment income -- -- -- Distributions from net realized gains (1.91) (0.95) -- ---------- ---------- ---------- Total distributions (1.91) (0.95) -- ---------- ---------- ---------- Net asset value, end of period $ 8.99 $ 15.28 $ 13.91 ========== ========== ========== Total return++ (31.33)% 17.52% 17.48%^ Ratios/Supplemental data: Net assets, end of period (in 000s) $ 3,299 $ 5,885 $ 2,947 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.34% 1.86% 2.38%*** After expense reimbursement and earnings credits 0.80% 0.80% 0.80%*** Ratio of net investment income (loss) to average net assets: Before expense reimbursement and earnings credits (0.66)% (0.97)% (1.26)%*** After expense reimbursement and earnings credits (0.12)% 0.09% 0.32%*** Portfolio turnover rate 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. 119 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.
SIX MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, 2003 ------------------------- CLASS A (UNAUDITED) 2003 2002 - -------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 10.00 $ 9.79 $ 11.76 ----------------- ---------- ---------- Income (loss) from investment operations: Net investment loss (0.05)** (0.08)** (0.11)** Net realized and unrealized gain (loss) 2.53 0.29 (1.42) ----------------- ---------- ---------- Total income (loss) from investment operations 2.48 0.21 (1.53) ----------------- ---------- ---------- Less distributions: Distributions from net realized gains (0.03) -- (0.44) ----------------- ---------- ---------- Net asset value, end of period $ 12.45 $ 10.00 $ 9.79 ================= ========== ========== Total return+ 24.85%^ 2.14% (13.18)% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 51,632 $ 9,841 $ 1,789 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.55%*** 1.71% 1.69% After expense reimbursement and earnings credits 1.34%*** 1.40% 1.40% Ratio of net investment loss to average net assets: Before expense reimbursement and earnings credits (1.10)%*** (1.21)% (1.35)% After expense reimbursement and earnings credits (0.89)%*** (0.90)% (1.06)% Portfolio turnover rate 56% 69% 71% FOR THE YEAR ENDED JUNE 30, PERIOD ENDED ------------------------- JUNE 30, 2001 2000 1999* ------------------------------------------ Net asset value, beginning of period $ 16.20 $ 9.16 $ 8.80 ---------- ---------- ---------- Income (loss) from investment operations: Net investment loss (0.09) (0.08)** (0.04) Net realized and unrealized gain (loss) (1.52) 7.12 0.40 ---------- ---------- ---------- Total income (loss) from investment operations (1.61) 7.04 0.36 ---------- ---------- ---------- Less distributions: Distributions from net realized gains (2.83) -- -- ---------- ---------- ---------- Net asset value, end of period $ 11.76 $ 16.20 $ 9.16 ========== ========== ========== Total return+ (11.00)% 76.86% 4.09%^ Ratios/Supplemental data: Net assets, end of period (in 000s) $ 2 $ 2 $ 1 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.48% 1.56% 1.57%*** After expense reimbursement and earnings credits 1.40% 1.40% 1.40%*** Ratio of net investment loss to average net assets: Before expense reimbursement and earnings credits (0.87)% (1.01)% (0.87)%*** After expense reimbursement and earnings credits (0.79)% (0.85)% (0.70)%*** Portfolio turnover rate 93% 104% 71% SIX MONTHS ENDED YEAR FOR THE DECEMBER 31, 2003 ENDED PERIOD ENDED CLASS B (UNAUDITED) JUNE 30, 2003 JUNE 30, 2002++ - -------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 9.89 $ 9.75 $ 10.18 ----------------- ------------- -------------- Income from investment operations: Net investment loss (0.10)** (0.14)** (0.11)** Net realized and unrealized gain 2.50 0.28 0.12 ----------------- ------------- -------------- Total income from investment operations 2.40 0.14 0.01 ----------------- ------------- -------------- Less distributions: Distributions from net realized gains (0.03) -- (0.44) ----------------- ------------- -------------- Net asset value, end of period $ 12.26 $ 9.89 $ 9.75 ================= ============= ============== Total return+ 24.32%^ 1.44% (0.11)%^ Ratios/Supplemental data: Net assets, end of period (in 000s) $ 13,700 $ 1,132 $ 656 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 2.33%*** 2.47% 2.46%*** After expense reimbursement and earnings credits 2.04%*** 2.15% 2.15%*** Ratio of net investment loss to average net assets: Before expense reimbursement and earnings credits (1.88)%*** (1.97)% (1.93)%*** After expense reimbursement and earnings credits (1.59)%*** (1.65)% (1.62)%*** Portfolio turnover rate 56% 69% 71%
* For the period December 31, 1998 (commencement of operations) through June 30, 1999. ** 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. ++ For the period November 7, 2001 (commencement of issuance) through June 30, 2002. See accompanying notes to financial statements. 120
SIX MONTHS ENDED YEAR FOR THE DECEMBER 31, 2003 ENDED PERIOD ENDED CLASS C (UNAUDITED) JUNE 30, 2003 JUNE 30, 2002* - --------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 9.88 $ 9.74 $ 10.37 ----------------- ------------- -------------- Income (loss) from investment operations: Net investment loss (0.10)** (0.14)** (0.10)** Net realized and unrealized gain (loss) 2.50 0.28 (0.09) ----------------- ------------- -------------- Total loss from investment operations 2.40 0.14 (0.19) ----------------- ------------- -------------- Less distributions: Distributions from net realized gains (0.03) -- (0.44) ----------------- ------------- -------------- Net asset value, end of period $ 12.25 $ 9.88 $ 9.74 ================= ============= ============== Total return+ 24.34%^ 1.44% (2.04)%^ Ratios/Supplemental data: Net assets, end of period (in 000s) $ 10,027 $ 757 $ 410 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 2.34%*** 2.47% 2.46%*** After expense reimbursement and earnings credits 2.05%*** 2.15% 2.15%*** Ratio of net investment loss to average net assets: Before expense reimbursement and earnings credits (1.89)%*** (1.97)% (1.90)%*** After expense reimbursement and earnings credits (1.60)%*** (1.65)% (1.59)%*** Portfolio turnover rate 56% 69% 71% SIX MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, 2003 -------------------------- CLASS Y (UNAUDITED) 2003 2002 - --------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 10.15 $ 9.92 $ 11.86 ----------------- ---------- ---------- Income (loss) from investment operations: Net investment loss (0.04)** (0.06)** (0.09)** Net realized and unrealized gain (loss) 2.58 0.29 (1.41) ----------------- ---------- ---------- Total income (loss) from investment operations 2.54 0.23 (1.50) ----------------- ---------- ---------- Less distributions: Distributions from net realized gains (0.03) -- (0.44) ----------------- ---------- ---------- Net asset value, end of period $ 12.66 $ 10.15 $ 9.92 ================= ========== ========== Total return++ 25.07%^ 2.32% (12.90)% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 78,509 $ 39,785 $ 36,318 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.19%*** 1.49% 1.41% After expense reimbursement and earnings credits 1.10%*** 1.15% 1.15% Ratio of net investment loss to average net assets: Before expense reimbursement and earnings credits (0.74)%*** (1.00)% (1.07)% After expense reimbursement and earnings credits (0.65)%*** (0.66)% (0.81)% Portfolio turnover rate 56% 69% 71% YEAR ENDED JUNE 30, SIX MONTHS ENDED ------------------------- JUNE 30, CLASS Y 2001 2000 1999(a) - ---------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 16.27 $ 9.18 $ 8.80 ---------- ---------- ---------- Income (loss) from investment operations: Net investment loss (0.07) (0.03)** (0.02) Net realized and unrealized gain (loss) (1.51) 7.12 0.40 ---------- ---------- ---------- Total income (loss) from investment operations (1.58) 7.09 0.38 ---------- ---------- ---------- Less distributions: Distributions from net realized gains (2.83) -- -- ---------- ---------- ---------- Net asset value, end of period $ 11.86 $ 16.27 $ 9.18 ========== ========== ========== Total return++ (10.74)% 77.23% 4.32%^ Ratios/Supplemental data: Net assets, end of period (in 000s) $ 44,057 $ 50,975 $ 35,211 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.23% 1.31% 1.32%*** After expense reimbursement and earnings credits 1.15% 1.15% 1.15%*** Ratio of net investment loss to average net assets: Before expense reimbursement and earnings credits (0.62)% (0.76)% (0.62)%*** After expense reimbursement and earnings credits (0.54)% (0.60)% (0.45)%*** Portfolio turnover rate 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. 121 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.
SIX MONTHS ENDED DECEMBER 31, 2003 YEAR ENDED JUNE 30, CLASS A (UNAUDITED) 2003 2002 - --------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 10.99 $ 10.51 $ 10.33 ----------------- ---------- ---------- Income from investment operations: Net investment income 0.19** 0.42** 0.53** Net realized and unrealized gain (loss) (0.17) 0.52 0.32 ----------------- ---------- ---------- Total income from investment operations 0.02 0.94 0.85 ----------------- ---------- ---------- Less distributions: Distributions from net investment income (0.23) (0.46) (0.67) Distributions from net realized gains -- -- -- ----------------- ---------- ---------- Total distributions (0.23) (0.46) (0.67) ----------------- ---------- ---------- Net asset value, end of period $ 10.78 $ 10.99 $ 10.51 ================= ========== ========== Total return+ 0.19%^ 9.17% 8.41% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 34,040 $ 31,337 $ 18,558 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.01%*** 1.04% 1.21% After expense reimbursement and earnings credits 0.85%*** 0.85% 0.86%++ Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 3.31%*** 3.70% 4.68% After expense reimbursement and earnings credits 3.47%*** 3.89% 5.03% Portfolio turnover rate 69% 180% 452% YEAR ENDED JUNE 30, CLASS A 2001 2000 1999 - ------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $ 9.99 $ 10.30 $ 10.58 ---------- ---------- ---------- Income from investment operations: Net investment income 0.62** 0.58** 0.57** Net realized and unrealized gain (loss) 0.41 (0.25) (0.26) ---------- ---------- ---------- Total income from investment operations 1.03 0.33 0.31 ---------- ---------- ---------- Less distributions: Distributions from net investment income (0.69) (0.64) (0.44) Distributions from net realized gains -- -- (0.15) ---------- ---------- ---------- Total distributions (0.69) (0.64) (0.59) ---------- ---------- ---------- Net asset value, end of period $ 10.33 $ 9.99 $ 10.30 ========== ========== ========== Total return+ 10.56% 3.29% 2.88% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 123 $ 1 $ 1 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 0.98% 0.92% 0.86% After expense reimbursement and earnings credits 0.85% 0.85% 0.85% Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 5.86% 5.87% 5.17% After expense reimbursement and earnings credits 5.99% 5.94% 5.18% Portfolio turnover rate 314% 170% 260% SIX MONTHS ENDED YEAR FOR THE DECEMBER 31, 2003 ENDED PERIOD ENDED CLASS B (UNAUDITED) JUNE 30, 2003 JUNE 30, 2002* - ------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 10.97 $ 10.50 $ 10.76 ----------------- ------------- -------------- Income from investment operations: Net investment income 0.15** 0.34** 0.29** Net realized and unrealized gain (loss) (0.17) 0.52 (0.22) ----------------- ------------- -------------- Total income from investment operations (0.02) 0.86 0.07 ----------------- ------------- -------------- Less distributions: Distributions from net investment income (0.18) (0.39) (0.33) ----------------- ------------- -------------- Net asset value, end of period $ 10.77 $ 10.97 $ 10.50 ================= ============= ============== Total return+ (0.16)%^ 8.30% 0.70%^ Ratios/Supplemental data: Net assets, end of period (in 000s) $ 2,734 $ 3,646 $ 1,405 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.90%*** 1.79% 1.96%*** After expense reimbursement and earnings credits 1.60%*** 1.60% 1.60%*** Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 2.42%*** 2.95% 3.93%*** After expense reimbursement and earnings credits 2.72%*** 3.14% 4.29%*** Portfolio turnover rate 69% 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%. See accompanying notes to financial statements. 122
SIX MONTHS ENDED YEAR FOR THE DECEMBER 31, 2003 ENDED PERIOD ENDED CLASS C (UNAUDITED) JUNE 30, 2003 JUNE 30, 2002* - ------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 10.98 $ 10.50 $ 10.77 ----------------- ------------- -------------- Income from investment operations: Net investment income 0.16** 0.37** 0.31** Net realized and unrealized gain (loss) (0.17) 0.52 (0.24) ----------------- ------------- -------------- Total income from investment operations (0.01) 0.89 0.07 ----------------- ------------- -------------- Less distributions: Distributions from net investment income (0.20) (0.41) (0.34) ----------------- ------------- -------------- Net asset value, end of period $ 10.77 $ 10.98 $ 10.50 ================= ============= ============== Total return+ (0.09)%^ 8.65% 0.72%^ Ratios/Supplemental data: Net assets, end of period (in 000s) $ 2,650 $ 3,164 $ 1,143 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.57%*** 1.54% 1.61%*** After expense reimbursement and earnings credits 1.35%*** 1.35% 1.35%*** Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 2.75%*** 3.20% 4.32%*** After expense reimbursement and earnings credits 2.97%*** 3.39% 4.58%*** Portfolio turnover rate 69% 180% 452% SIX MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, 2003 -------------------------- CLASS Y (UNAUDITED) 2003 2002 - ---------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 11.01 $ 10.53 $ 10.35 ----------------- ---------- ---------- Income from investment operations: Net investment income 0.20** 0.45** 0.56** Net realized and unrealized gain (loss) (0.18) 0.52 0.31 ----------------- ---------- ---------- Total income from investment operations 0.02 0.97 0.87 ----------------- ---------- ---------- Less distributions: Distributions from net investment income (0.24) (0.49) (0.69) Distributions from net realized gains -- -- -- ----------------- ---------- ---------- Total distributions (0.24) (0.49) (0.69) ----------------- ---------- ---------- Net asset value, end of period $ 10.79 $ 11.01 $ 10.53 ================= ========== ========== Total return++ 0.24%^ 9.42% 8.59% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 77,364 $ 78,807 $ 59,740 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 0.73%*** 0.79% 0.80% After expense reimbursement and earnings credits 0.60%*** 0.60% 0.64%# Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 3.59%*** 3.95% 5.10% After expense reimbursement and earnings credits 3.72%*** 4.14% 5.26% Portfolio turnover rate 69% 180% 452% YEAR ENDED JUNE 30, ------------------------------------------ CLASS Y 2001 2000 1999 - ------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $ 10.00 $ 10.28 $ 10.58 ---------- ---------- ---------- Income from investment operations: Net investment income 0.64** 0.62** 0.58** Net realized and unrealized gain (loss) 0.42 (0.25) (0.26) ---------- ---------- ---------- Total income from investment operations 1.06 0.37 0.32 ---------- ---------- ---------- Less distributions: Distributions from net investment income (0.71) (0.65) (0.47) Distributions from net realized gains -- -- (0.15) ---------- ---------- ---------- Total distributions (0.71) (0.65) (0.62) ---------- ---------- ---------- Net asset value, end of period $ 10.35 $ 10.00 $ 10.28 ========== ========== ========== Total return++ 10.86% 3.74% 2.97% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 62,514 $ 58,121 $ 92,030 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 0.73% 0.67% 0.61% After expense reimbursement and earnings credits 0.60% 0.60% 0.60% Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 6.11% 6.12% 5.42% After expense reimbursement and earnings credits 6.24% 6.19% 5.43% Portfolio turnover rate 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%. See accompanying notes to financial statements. 123 UBS HIGH YIELD FUND -- FINANCIAL HIGHLIGHTS THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD PRESENTED.
SIX MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, 2003 -------------------------- CLASS A (UNAUDITED) 2003 2002 - --------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 6.84 $ 6.36 $ 7.87 ----------------- ---------- ---------- Income (loss) from investment operations: Net investment income 0.29** 0.56** 0.76** Net realized and unrealized gain (loss) 0.31 0.50 (0.96) ----------------- ---------- ---------- Total income (loss) from investment operations 0.60 1.06 (0.20) ----------------- ---------- ---------- Less distributions: Distributions from net investment income (0.30) (0.58) (1.31) Distributions from net realized gains -- -- -- ----------------- ---------- ---------- Total distributions (0.30) (0.58) (1.31) ----------------- ---------- ---------- Net asset value, end of period $ 7.14 $ 6.84 $ 6.36 ================= ========== ========== Total return+ 9.01%^ 17.70% (3.01)% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 72,835 $ 76,309 $ 65,832 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.27%*** 1.29% 1.26% After expense reimbursement and earnings credits 1.20%*** 0.95% 0.95% Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 8.36%*** 8.38% 10.71% After expense reimbursement and earnings credits 8.43%*** 8.72% 11.02% Portfolio turnover rate 43% 71% 120% FOR THE YEAR ENDED JUNE 30, PERIOD ENDED --------------------------- JUNE 30, CLASS A 2001 2000 1999(a) - -------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 9.18 $ 9.95 $ 9.98 ---------- ---------- ---------- Income (loss) from investment operations: Net investment income 0.85** 0.90** 0.42** Net realized and unrealized gain (loss) (1.08) (0.90) (0.15) ---------- ---------- ---------- Total income (loss) from investment operations (0.23) -- 0.27 ---------- ---------- ---------- Less distributions: Distributions from net investment income (1.08) (0.70) (0.30) Distributions from net realized gains -- (0.07) -- ---------- ---------- ---------- Total distributions (1.08) (0.77) (0.30) ---------- ---------- ---------- Net asset value, end of period $ 7.87 $ 9.18 $ 9.95 ========== ========== ========== Total return+ (2.28)% (0.13)% 2.71%^ Ratios/Supplemental data: Net assets, end of period (in 000s) $ 1 $ 1 $ 1 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.14% 1.11% 1.08%*** After expense reimbursement and earnings credits 0.97%++ 0.95% 0.95%*** Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 9.65% 9.06% 8.29%*** After expense reimbursement and earnings credits 9.82% 9.22% 8.42%*** Portfolio turnover rate 87% 73% 77% SIX MONTHS ENDED YEAR FOR THE DECEMBER 31, 2003 ENDED PERIOD ENDED CLASS B (UNAUDITED) JUNE 30, 2003 JUNE 30, 2002* - --------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 6.83 $ 6.35 $ 7.02 ----------------- ------------- -------------- Income (loss) from investment operations: Net investment income 0.27** 0.51** 0.45** Net realized and unrealized gain (loss) 0.31 0.50 (0.61) ----------------- ------------- -------------- Total income (loss) from investment operations 0.58 1.01 (0.16) ----------------- ------------- -------------- Less distributions: Distributions from net investment income (0.27) (0.53) (0.51) ----------------- ------------- -------------- Net asset value, end of period $ 7.14 $ 6.83 $ 6.35 ================= ============= ============== Total return+ 8.77%^ 16.83% (2.70)%^ Ratios/Supplemental data: Net assets, end of period (in 000s) $ 10,764 $ 13,130 $ 15,692 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 2.00%*** 2.05% 2.05%*** After expense reimbursement and earnings credits 1.95%*** 1.70% 1.70%*** Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 7.63%*** 7.62% 9.88%*** After expense reimbursement and earnings credits 7.68%*** 7.97% 10.23%*** Portfolio turnover rate 43% 71% 120%
(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. ++ The ratio of net operating expenses to average net assets for Class A was 0.95%. See accompanying notes to financial statements. 124
SIX MONTHS ENDED YEAR FOR THE DECEMBER 31, 2003 ENDED PERIOD ENDED CLASS C (UNAUDITED) JUNE 30, 2003 JUNE 30, 2002* - ------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 6.84 $ 6.35 $ 7.02 ----------------- ------------- -------------- Income (loss) from investment operations: Net investment income 0.28** 0.53** 0.46** Net realized and unrealized gain (loss) 0.30 0.51 (0.61) ----------------- ------------- -------------- Total income (loss) from investment operations 0.58 1.04 (0.15) ----------------- ------------- -------------- Less distributions: Distributions from net investment income (0.28) (0.55) (0.52) ----------------- ------------- -------------- Net asset value, end of period $ 7.14 $ 6.84 $ 6.35 ================= ============= ============== Total return+ 8.73%^ 17.29% (2.54)%^ Ratios/Supplemental data: Net assets, end of period (in 000s) $ 20,061 $ 18,969 $ 17,947 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.78%*** 1.79% 1.79%*** After expense reimbursement and earnings credits 1.70%*** 1.45% 1.45%*** Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 7.85%*** 7.88% 10.15%*** After expense reimbursement and earnings credits 7.93%*** 8.22% 10.49%*** Portfolio turnover rate 43% 71% 120% SIX MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, 2003 -------------------------- CLASS Y (UNAUDITED) 2003 2002 - --------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 6.87 $ 6.38 $ 7.90 ----------------- ---------- ---------- Income (loss) from investment operations: Net investment income 0.31** 0.58** 0.81** Net realized and unrealized gain (loss) 0.31 0.50 (1.01) ----------------- ---------- ---------- Total income (loss) from investment operations 0.62 1.08 (0.20) ----------------- ---------- ---------- Less distributions: Distributions from net investment income (0.31) (0.59) (1.32) Distributions from net realized gains -- -- -- ----------------- ---------- ---------- Total distributions (0.31) (0.59) (1.32) ----------------- ---------- ---------- Net asset value, end of period $ 7.18 $ 6.87 $ 6.38 ================= ========== ========== Total return++ 9.31%^ 18.08% (2.98)% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 76,095 $ 71,819 $ 40,120 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 0.88%*** 1.05% 1.02% After expense reimbursement and earnings credits 0.88%*** 0.70% 0.70%# Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 8.75%*** 8.62% 10.77% After expense reimbursement and earnings credits 8.75%*** 8.97% 11.09% Portfolio turnover rate 43% 71% 120% YEAR ENDED JUNE 30, SIX MONTHS ENDED -------------------------- JUNE 30, 2001 2000 1999(a) ----------------------------------------------- Net asset value, beginning of period $ 9.19 $ 9.96 $ 9.98 ---------- ---------- ---------- Income (loss) from investment operations: Net investment income 0.88** 0.91** 0.44** Net realized and unrealized gain (loss) (1.08) (0.90) (0.15) ---------- ---------- ---------- Total income (loss) from investment operations (0.20) 0.01 0.29 ---------- ---------- ---------- Less distributions: Distributions from net investment income (1.09) (0.71) (0.31) Distributions from net realized gains -- (0.07) -- ---------- ---------- ---------- Total distributions (1.09) (0.78) (0.31) ---------- ---------- ---------- Net asset value, end of period $ 7.90 $ 9.19 $ 9.96 ========== ========== ========== Total return++ (1.83)% 0.02% 2.91%^ Ratios/Supplemental data: Net assets, end of period (in 000s) $ 54,560 $ 50,845 $ 60,044 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 0.89% 0.86% 0.83%*** After expense reimbursement and earnings credits 0.72%# 0.70% 0.70%*** Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 9.90% 9.31% 8.54%*** After expense reimbursement and earnings credits 10.07% 9.47% 8.67%*** Portfolio turnover rate 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. 125 UBS INTERNATIONAL EQUITY FUND -- FINANCIAL HIGHLIGHTS THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD PRESENTED.
SIX MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, 2003 -------------------------- CLASS A (UNAUDITED) 2003 2002 - --------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 6.99 $ 8.08 $ 10.61 ----------------- ---------- ---------- Income (loss) from investment operations: Net investment income 0.02** 0.10** 0.13** Net realized and unrealized gain (loss) 1.62 (0.87) (0.79) ----------------- ---------- ---------- Total income (loss) from investment operations 1.64 (0.77) (0.66) ----------------- ---------- ---------- Less distributions: Distributions from net investment income and net foreign currency gains (0.23) (0.31) (0.27) Distributions from net realized gains -- (0.01) (1.60) ----------------- ---------- ---------- Total distributions (0.23) (0.32) (1.87) ----------------- ---------- ---------- Net asset value, end of period $ 8.40 $ 6.99 $ 8.08 ================= ========== ========== Total return+ 23.36%^ (9.24)% (5.91)% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 4,799 $ 3,146 $ 2,599 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.46%*** 1.47% 1.41% After expense reimbursement and earnings credits 1.25%*** 1.25% 1.25% Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 0.21%*** 1.21% 1.38% After expense reimbursement and earnings credits 0.42%*** 1.43% 1.54% Portfolio turnover rate 64% 120% 82% YEAR ENDED JUNE 30, ------------------------------------------ 2001 2000 1999 ------------------------------------------ Net asset value, beginning of period $ 13.57 $ 12.30 $ 12.14 ---------- ---------- ---------- Income (loss) from investment operations: Net investment income 0.00^^** 0.08** 0.12 Net realized and unrealized gain (loss) (2.15) 1.33 0.27 ---------- ---------- ---------- Total income (loss) from investment operations (2.15) 1.41 0.39 ---------- ---------- ---------- Less distributions: Distributions from net investment income and net foreign currency gains (0.04) -- (0.11) Distributions from net realized gains (0.77) (0.14) (0.12) ---------- ---------- ---------- Total distributions (0.81) (0.14) (0.23) ---------- ---------- ---------- Net asset value, end of period $ 10.61 $ 13.57 $ 12.30 ========== ========== ========== Total return+ (16.37)% 11.51% 3.30% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 301 $ 1 $ 15 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.31% 1.25% 1.24% After expense reimbursement and earnings credits 1.28%# 1.25%++ 1.24% Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 0.77% 0.64% 1.10% After expense reimbursement and earnings credits 0.80% 0.64% 1.10% Portfolio turnover rate 62% 59% 74% SIX MONTHS ENDED YEAR FOR THE DECEMBER 31, 2003, ENDED PERIOD ENDED CLASS B (UNAUDITED) JUNE 30, 2003 JUNE 30, 2002* - ------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 6.92 $ 8.05 $ 7.75 ----------------- ------------- -------------- Income (loss) from investment operations: Net investment income (loss) (0.01)** 0.04** 0.05** Net realized and unrealized gain (loss) 1.60 (0.86) 0.25 ----------------- ------------- -------------- Total income (loss) from investment operations 1.59 (0.82) 0.30 ----------------- ------------- -------------- Less distributions: Distributions from net investment income and net foreign currency gains (0.18) (0.30) -- Distributions from net realized gains -- (0.01) -- ----------------- ------------- -------------- (0.18) (0.31) -- ----------------- ------------- -------------- Net asset value, end of period $ 8.33 $ 6.92 $ 8.05 ================= ============= ============== Total return+ 22.95%^ (9.94)% 3.87%^ Ratios/Supplemental data: Net assets, end of period (in 000s) $ 699 $ 352 $ 120 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 2.42%*** 2.18% 2.05%*** After expense reimbursement and earnings credits 2.00%*** 2.00% 2.00%*** Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits (0.75)%*** 0.50% 1.45%*** After expense reimbursement and earnings credits (0.34)%*** 0.68% 1.50%*** Portfolio turnover rate 64% 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%. ^^ Amount is less than $.01 per share. See accompanying notes to financial statements. 126
SIX MONTHS ENDED YEAR FOR THE DECEMBER 31, 2003 ENDED PERIOD ENDED CLASS C (UNAUDITED) JUNE 30, 2003 JUNE 30, 2002* - ------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 6.90 $ 8.05 $ 7.75 ----------------- ------------- -------------- Income (loss) from investment operations: Net investment income (loss) (0.01)** 0.04** 0.04** Net realized and unrealized gain (loss) 1.60 (0.89) 0.26 ----------------- ------------- -------------- Total income (loss) from investment operations 1.59 (0.85) 0.30 ----------------- ------------- -------------- Less distributions: Distributions from net investment income and net foreign currency gains (0.19) (0.29) -- Distributions from net realized gains -- (0.01) -- ----------------- ------------- -------------- Total distributions (0.19) (0.30) -- ----------------- ------------- -------------- Net asset value, end of period $ 8.30 $ 6.90 $ 8.05 ================= ============= ============== Total return+ 23.04%^ (10.29)% 3.87%^ Ratios/Supplemental data: Net assets, end of period (in 000s) $ 880 $ 399 $ 183 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 2.24%*** 2.21% 2.19%*** After expense reimbursement and earnings credits 2.00%*** 2.00% 2.00%*** Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits (0.57)%*** 0.47% 0.91%*** After expense reimbursement and earnings credits (0.34)%*** 0.68% 1.10%*** Portfolio turnover rate 64% 120% 82% SIX MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, 2003 -------------------------- CLASS Y (UNAUDITED) 2003 2002 - --------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 7.01 $ 8.12 $ 10.64 ----------------- ---------- ---------- Income (loss) from investment operations: Net investment income 0.03** 0.11** 0.09** Net realized and unrealized gain (loss) 1.63 (0.88) (0.74) ----------------- ---------- ---------- Total income (loss) from investment operations 1.66 (0.77) (0.65) ----------------- ---------- ---------- Less distributions: Distributions from net investment income and net foreign currency gains (0.23) (0.33) (0.27) Distributions from net realized gains -- (0.01) (1.60) ----------------- ---------- ---------- Total distributions (0.23) (0.34) (1.87) ----------------- ---------- ---------- Net asset value, end of period $ 8.44 $ 7.01 $ 8.12 ================= ========== ========== Total return++ 23.77%^ (9.21)% (5.78)% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 96,936 $ 90,514 $ 97,851 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.21%*** 1.21% 1.13% After expense reimbursement and earnings credits 1.00%*** 1.00% 1.00% Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 0.46%*** 1.47% 0.92% After expense reimbursement and earnings credits 0.64%*** 1.68% 1.05% Portfolio turnover rate 64% 120% 82% YEAR ENDED JUNE 30, ------------------------------------------ 2001 2000 1999 ------------------------------------------ Net asset value, beginning of period $ 13.57 $ 12.34 $ 12.15 ---------- ---------- ---------- Income (loss) from investment operations: Net investment income 0.13** 0.11** 0.16 Net realized and unrealized gain (loss) (2.25) 1.33 0.27 ---------- ---------- ---------- Total income (loss) from investment operations (2.12) 1.44 0.43 ---------- ---------- ---------- Less distributions: Distributions from net investment income and net foreign currency gains (0.04) (0.07) (0.12) Distributions from net realized gains (0.77) (0.14) (0.12) ---------- ---------- ---------- Total distributions (0.81) (0.21) (0.24) ---------- ---------- ---------- Net asset value, end of period $ 10.64 $ 13.57 $ 12.34 ========== ========== ========== Total return++ (16.15)% 11.76% 3.65% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 192,408 $ 411,985 $ 490,322 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.06% 1.00% 0.99% After expense reimbursement and earnings credits 1.03%## 1.00%# 0.99% Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 1.02% 0.89% 1.35% After expense reimbursement and earnings credits 1.05% 0.89% 1.35% Portfolio turnover rate 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. 127 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.
SIX MONTHS ENDED YEAR FOR THE DECEMBER 31, 2003 ENDED PERIOD ENDED CLASS A (UNAUDITED) JUNE 30, 2003 JUNE 30, 2002* - ------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 9.31 $ 9.37 $ 9.96 ----------------- ------------- -------------- Income (loss) from investment operations: Net investment income 0.03** 0.11** 0.05** Net realized and unrealized gain (loss) 1.49 (0.06) (0.64) ----------------- ------------- -------------- Total income (loss) from investment operations 1.52 0.05 (0.59) ----------------- ------------- -------------- Less distributions: Distributions from net investment income (0.02) (0.05) -- Distributions from net realized gains -- (0.06) -- ----------------- ------------- -------------- Total distributions (0.02) (0.11) -- ----------------- ------------- -------------- Net asset value, end of period $ 10.81 $ 9.31 $ 9.37 ================= ============= ============== Total return+ 16.30%^ 0.61% (5.92)%^ Ratios/Supplemental data: Net assets, end of period (in 000s) $ 100,698 $ 1,073 $ 751 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.21%*** 2.85% 3.82%*** After expense reimbursement and earnings credits 1.10%*** 1.10% 1.10%*** Ratio of net investment income (loss) to average net assets: Before expense reimbursement and earnings credits 0.39%*** (0.42)% (1.85)%*** After expense reimbursement and earnings credits 0.50%*** 1.33% 0.87%*** Portfolio turnover rate 227% 59% 39% SIX MONTHS ENDED YEAR FOR THE DECEMBER 31, 2003 ENDED PERIOD ENDED CLASS B (UNAUDITED) JUNE 30, 2003 JUNE 30, 2002* - ------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 9.21 $ 9.32 $ 9.62 ----------------- ------------- -------------- Income (loss) from investment operations: Net investment income (loss) (0.01)** 0.05** 0.01** Net realized and unrealized gain (loss) 1.47 (0.07) (0.31) ----------------- ------------- -------------- Total income (loss) from investment operations 1.46 (0.02) (0.30) ----------------- ------------- -------------- Less distributions: Distributions from net investment income (0.01) (0.03) -- Distributions from net realized gains -- (0.06) -- ----------------- ------------- -------------- Total distributions (0.01) (0.09) -- ----------------- ------------- -------------- Net asset value, end of period $ 10.66 $ 9.21 $ 9.32 ================= ============= ============== Total return+ 15.79%^ (0.17)% (3.12)%^ Ratios/Supplemental data: Net assets, end of period (in 000s) $ 30,210 $ 709 $ 301 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 2.05%*** 3.42% 4.66%*** After expense reimbursement and earnings credits 1.85%*** 1.85% 1.85%*** Ratio of net investment income (loss) to average net assets: Before expense reimbursement and earnings credits (0.45)%*** (0.99)% (2.72)%*** After expense reimbursement and earnings credits (0.25)%*** 0.58% 0.09%*** Portfolio turnover rate 227% 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. 128
SIX MONTHS ENDED YEAR FOR THE DECEMBER 31, 2003 ENDED PERIOD ENDED CLASS C (UNAUDITED) JUNE 30, 2003 JUNE 30, 2002* - ------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 9.22 $ 9.33 $ 9.73 ----------------- ------------- -------------- Income (loss) from investment operations: Net investment income (loss) (0.01)** 0.05** 0.00#** Net realized and unrealized gain (loss) 1.48 (0.07) (0.40) ----------------- ------------- -------------- Total loss from investment operations 1.47 (0.02) (0.40) ----------------- ------------- -------------- Less distributions: Distributions from net investment income (0.01) (0.03) -- Distributions from net realized gains -- (0.06) -- ----------------- ------------- -------------- Total distributions (0.01) (0.09) -- ----------------- ------------- -------------- Net asset value, end of period $ 10.68 $ 9.22 $ 9.33 ================= ============= ============== Total return+ 15.87%^ (0.13)% (4.11)%^ Ratios/Supplemental data: Net assets, end of period (in 000s) $ 20,149 $ 1,025 $ 234 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 2.04%*** 3.04% 4.58%*** After expense reimbursement and earnings credits 1.85%*** 1.85% 1.85%*** Ratio of net investment income (loss) to average net assets: Before expense reimbursement and earnings credits (0.44)%*** (0.61)% (2.68)%*** After expense reimbursement and earnings credits (0.25)%*** 0.58% 0.05%*** Portfolio turnover rate 227% 59% 39% SIX MONTHS ENDED YEAR FOR THE DECEMBER 31, 2003 ENDED PERIOD ENDED CLASS Y (UNAUDITED) JUNE 30, 2003 JUNE 30, 2002* - ------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 9.33 $ 9.38 $ 10.00 ----------------- ------------- -------------- Income (loss) from investment operations: Net investment income 0.04** 0.13** 0.11** Net realized and unrealized gain (loss) 1.49 (0.06) (0.73) ----------------- ------------- -------------- Total income (loss) from investment operations 1.53 0.07 (0.62) ----------------- ------------- -------------- Less distributions: Distributions from net investment income (0.02) (0.06) -- Distributions from net realized gains -- (0.06) -- ----------------- ------------- -------------- Total distributions (0.02) (0.12) -- ----------------- ------------- -------------- Net asset value, end of period $ 10.84 $ 9.33 $ 9.38 ================= ============= ============== Total return++ 16.41%^ 0.89% (6.20)%^ Ratios/Supplemental data: Net assets, end of period (in 000s) $ 4,456 $ 4,790 $ 2,819 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.44%*** 2.62% 3.15%*** After expense reimbursement and earnings credits 0.85%*** 0.85% 0.85%*** Ratio of net investment income (loss) to average net assets: Before expense reimbursement and earnings credits 0.16%*** (0.19)% (1.17)%*** After expense reimbursement and earnings credits 0.75%*** 1.58% 1.13%*** Portfolio turnover rate 227% 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 is less than $0.01 per share See accompanying notes to financial statements. 129 THE UBS FUNDS -- NOTES TO FINANCIAL STATTEMENTS 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 offers multiple series, eleven of which are covered by this report: UBS Global Allocation Fund, UBS Global Equity Fund, UBS Global Bond Fund, UBS U.S. Allocation 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 Fund and the classes are identical except for differences in their sales charge structure, ongoing service and distribution charges, and certain transfer agency related services expenses. The following is a summary of significant accounting policies followed by the Funds in the preparation of their financial statements. On December 2, 2003, the Board of Trustees approved the name changes for the UBS U.S. Equity Fund to UBS U.S. Large Cap Equity Fund and UBS U.S. Value Equity Fund to UBS U.S. Large Cap Value Equity Fund as of February 2004. 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 (Americas) Inc. ("UBS Global AM" or "Advisor"). 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 forward exchange rates quoted by independent pricing services. 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. Realized 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. F. CONCENTRATION OF RISK: Investing in securities of foreign issuers and currency transactions may involve certain considerations and risks not typically associated with investments in the United States. These risks include revaluation of currencies, adverse fluctuations in foreign currency values and possible adverse political, social and economic developments, including those particular to a specific industry, country or region, which could cause the securities and their markets to be less liquid and prices more volatile than those of comparable U.S. companies and U.S. government securities. 130 Small capitalization ("small cap") companies may be more vulnerable than larger capitalization companies to adverse business or economic developments. Small cap companies may also have limited product lines, markets or financial resources, and may be dependent on a relatively small management group. Securities of such companies may be less liquid and more volatile than securities of larger capitalization companies or the market averages in general and therefore may involve greater risk than investing in larger capitalization companies. In addition, small cap companies may not be well-known to the investing public, may not have institutional ownership and may have only cyclical, static or moderated growth prospects. The ability of the issuers of debt securities held by the Portfolios to meet their obligations may be affected by economic and political developments particular to a specific industry, country, state or region. G. 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. Distributions of net investment Income and net capital gains 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 transfer agency and service and distribution related expenses. H. 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. 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 AM, 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, served as Sub-Advisor for these Funds pursuant to a Sub-Advisory Agreement (the "Sub-Advisory Agreement") with the Advisor. The Sub-Advisor received 0.10% from the Advisor, not the Fund, for services it provided under the Sub-Advisory Agreement. The Sub-Advisor merged into the Advisor on December 31, 2003 and the Advisor assumed management of the above-referenced Funds as of that date. The advisory fees as at December 31, 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. Allocation 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 0.85 UBS U.S. Bond Fund 0.50 UBS High Yield Fund 0.60 UBS International Equity Fund 0.80 UBS U.S. Value Equity 0.70
131 On December 2, 2003, the Board of Trustees approved the change in investment advisory fees for the UBS Global Equity Fund from 0.75% to the following breakpoint schedule effective January 1, 2004:
ASSETS UNDER MANAGEMENT FEE - ----------------------- ---- $0-$250 million 0.75% On the next $250-$500 million 0.70 On the next $500 million - $1 billion 0.68 On amounts above $1 billion 0.65
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 at December 31, 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% $ 3,311,138 -- UBS Global Equity Fund 1.25 2.00 2.00 1.00 1,759,376 $ 462,041 UBS Global Bond Fund 1.15 1.90 1.65 0.90 200,723 74,850 UBS U.S. Allocation Fund 1.05 1.80 1.80 0.80 121,294 55,986 UBS U.S. Equity Fund 1.30 2.05 2.05 1.05 412,087 1,122 UBS U.S. Large Cap Growth Fund 1.05 1.80 1.80 0.80 16,397 38,921 UBS U.S. Small Cap Growth Fund 1.28 2.03 2.03 1.03 468,049 70,320 UBS U.S. Bond Fund 0.85 1.60 1.35 0.60 290,278 85,505 UBS High Yield Fund 1.20 1.95 1.70 0.95 539,743 39,694 UBS International Equity Fund 1.25 2.00 2.00 1.00 326,523 87,868 UBS U.S. Value Equity 1.10 1.85 1.85 0.85 173,175 48,511
Each Fund will reimburse UBS Global AM for any fee it waives or expenses it reimburses for a period three years following such fee waivers and expense reimbursements, to the extent such reimbursements will not cause a Fund to exceed any applicable expense limit for the Fund. Each Fund pays an administration fee that is computed daily and paid monthly at an annual rate of 0.075% of average daily net assets of such Fund. For the six months ended, December 31, 2003, certain funds owed and/or paid UBS Global AM for administrative fees as follows:
ADMINISTRATION ADMINISTRATION FUND FEES OWED FEES PAID - ---- -------------- -------------- UBS Global Allocation Fund $ 229,897 $ 0 UBS Global Equity Fund 31,212 247,330 UBS Global Bond Fund 3,669 41,015 UBS U.S. Allocation Fund 2,459 27,707 UBS U.S. Equity Fund 8,189 85,651 UBS U.S. Large Cap Growth Fund 343 3,286 UBS U.S. Small Cap Growth Fund 9,258 75,270 UBS U.S. Bond Fund 7,481 93,174 UBS High Yield Fund 11,413 148,200 UBS International Equity Fund 6,229 71,382 UBS U.S. Value Equity 9,470 12,982
132 The Funds may invest in shares of certain affiliated investment companies also sponsored by the Advisor were as follows: UBS GLOBAL ALLOCATION FUND
NET CHANGE IN SALES REALIZED NET UNREALIZED AFFILIATES PURCHASES PROCEEDS GAIN/(LOSS) GAIN/(LOSS) VALUE - ---------- ------------- ------------ ----------- -------------- ------------- UBS Small Cap Equity Relationship Fund $ 20,000,000 -- -- $ 4,808,010 $ 40,206,186 UBS High Yield Relationship Fund 17,000,000 $ 4,500,000 $ 843,023 1,642,639 32,895,767 UBS Emerging Markets Equity Relationship Fund 20,000,000 -- -- 13,381,481 67,022,329 UBS Emerging Markets Debt Relationship Fund 9,000,000 8,000,000 2,966,005 (2,329,555) 9,916,294 UBS Supplementary Trust U.S. Cash Management Prime Fund 304,422,914 288,562,951 -- -- 49,396,098
UBS U.S. ALLOCATION FUND
NET CHANGE IN SALES REALIZED NET UNREALIZED AFFILIATES PURCHASES PROCEEDS GAIN/(LOSS) GAIN/(LOSS) VALUE - ---------- ------------- ------------ ----------- -------------- ------------- UBS Small Cap Equity Relationship Fund $ 2,200,000 $ -- $ -- $ 139,013 $ 2,339,013 UBS High Yield Relationship Fund 1,800,000 -- -- 54,603 1,854,603 UBS Supplementary Trust U.S. Cash Management Prime Fund 9,925,958 7,644,268 -- -- 3,031,135
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. Supplementary Trust pays no management fees to the Advisor. Distributions received from the Supplementary Trust are reflected as interest income in the Statements of Operations. Amounts relating to those investments for the six months ended December 31, 2003, were as follows:
% OF SALES INTEREST NET FUND PURCHASES PROCEEDS INCOME VALUE ASSETS - ---- -------------- -------------- ---------- ------------- ------ UBS Global Allocation Fund $ 304,422,914 $ 288,562,951 $ 180,749 $ 49,396,098 4.22% UBS Global Equity Fund 66,829,308 69,654,295 25,232 367,171 0.07 UBS Global Bond Fund 33,895,010 33,264,112 10,506 1,286,072 2.18 UBS U.S. Allocation Fund 9,925,958 7,644,268 8,577 3,031,135 7.70 UBS U.S. Equity Fund 20,460,110 23,464,442 34,909 3,553,964 2.67 UBS U.S. Large Cap Growth Fund 1,927,297 1,886,744 1,008 185,577 3.37 UBS U.S. Small Cap Growth Fund 86,215,702 79,700,248 25,189 13,553,393 8.81 UBS U.S. Bond Fund 44,016,464 42,073,390 15,842 4,228,728 3.62 UBS High Yield Fund 68,479,345 66,281,070 25,185 2,198,275 1.22 UBS International Equity Fund 47,123,513 47,093,368 10,519 2,589,409 2.51 UBS U.S. Value Equity Fund 16,206,955 10,465,007 7,718 5,937,342 3.82
The following Funds incurred brokerage commissions with affiliated broker dealers as listed below. Amounts relating to those transactions at December 31, 2003, were as follows:
FUND UBS SECURITIES, LLC - ---- ------------------- UBS Global Allocation Fund $ 53,480 UBS Global Equity Fund 187,764 UBS U.S. Allocation Fund 5,952 UBS U.S. Equity Fund 10,209 UBS U.S. Large Cap Growth Fund 646 UBS U.S. Small Cap Growth Fund 16,796 UBS International Equity Fund 341 UBS U.S. Value Equity Fund 3,141
133 3. INVESTMENT TRANSACTIONS Investment transactions at December 31, 2003 excluding long-term U.S. government securities and short-term investments, were as follows:
SALES FUND PURCHASES PROCEEDS - ---- -------------- -------------- UBS Global Allocation Fund $ 622,397,895 $ 155,981,677 UBS Global Equity Fund 131,036,210 133,679,727 UBS Global Bond Fund 24,224,339 25,492,664 UBS U.S. Allocation Fund 12,439,426 8,396,443 UBS U.S. Equity Fund 35,541,913 22,078,895 UBS U.S. Large Cap Growth Fund 2,934,125 1,901,536 UBS U.S. Small Cap Growth Fund 134,186,779 53,061,621 UBS U.S. Bond Fund 22,116,063 25,495,266 UBS High Yield Fund 73,778,656 87,437,286 UBS International Equity Fund 53,008,945 65,100,505 UBS U.S. Value Equity 217,253,780 109,987,785
At December 31, 2003, purchases and sales of long-term U.S. government securities were as follows:
SALES FUND PURCHASES PROCEEDS - ---- -------------- -------------- UBS Global Allocation Fund $ 174,073,465 $ 149,912,099 UBS Global Bond Fund 8,031,712 8,475,225 UBS U.S. Allocation Fund 6,924,688 7,882,727 UBS U.S. Bond Fund 55,151,700 52,656,205
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. Fluctuations in the value of forward foreign currency contracts are recorded daily as net unrealized gains or losses on forward foreign currency contracts. 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 at December 31, 2003, was the Funds' custodian. 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 on the forward foreign currency contract. The unrealized gain, if any, represents the credit risk to each Fund on a forward foreign currency contract. 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 future contracts to hedge a portion of their portfolio or equitize cash. 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 future contract value and are recorded as unrealized gains or losses on future contracts. The Funds recognize a realized gain or loss on future contracts when the contract is closed or expires. The statements of operations reflect net realized and net unrealized gains and losses on these contracts. 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. 134 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 $83,559,800 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 December 31, 2003, were as follows:
CASH MARKET COLLATERAL MARKET VALUE OF VALUE OF RECEIVED FOR INVESTMENTS SECURITIES SECURITIES OF CASH COLLATERAL FUND LOANED LOANED RECEIVED - ---- ------------- ------------- ------------------ UBS Global Allocation Fund $ 74,684,439 $ 76,573,284 $ 76,573,284 UBS International Equity Fund 6,686,161 6,986,516 6,986,516
7. DISTRIBUTION PLANS The Trust has adopted distribution and/or service plans (each a "Plan" and, collectively, 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 Plans 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. Allocation 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 0.25 1.00 1.00
For the six months ended December 31, 2003, certain Funds owed UBS Global AM service and distribution fees as follows:
SERVICE & DISTRIBUTION FUND FEES OWED - ---- ------------ UBS Global Allocation Fund $ 277,314 UBS Global Equity Fund 167,996 UBS Global Bond Fund 2,632 UBS U.S. Allocation Fund 4,936 UBS U.S. Equity Fund 1,688 UBS U.S. Large Cap Growth Fund 1,731 UBS U.S. Small Cap Growth Fund 17,562 UBS U.S. Bond Fund 2,855 UBS High Yield Fund 59,233 UBS International Equity Fund 1,212 UBS U.S. Value Equity 36,553
135 8. TRANSFER AGENCY SERVICES FEES UBS Financial Services, Inc. provided transfer agency related services to each Fund pursuant to a delegation of authority from PFPC, Inc. ("PFPC"), each Fund's transfer agent, and is compensated for these services by PFPC, not the Funds. For the six months ended December 31, 2003, UBS Financial Services Inc. received from PFPC, not the Funds, compensation for related transfer agency services approximately the following:
AMOUNT FUND PAID - ---- ---------- UBS Global Allocation Fund $ 102,654 UBS Global Equity Fund 201,285 UBS Global Bond Fund 9,346 UBS U.S. Allocation Fund 8,232 UBS U.S. Equity Fund 8,269 UBS U.S. Large Cap Growth Fund 842 UBS U.S. Small Cap Growth Fund 25,543 UBS U.S. Bond Fund 11,919 UBS High Yield Fund 66,160 UBS International Equity Fund 26,753 UBS U.S. Value Equity 10,448
9. LINE OF CREDIT The Trust has entered into an agreement with JP Morgan Chase Bank to provide a 364-day $50 million committed line of credit to 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 0.50%. The Funds pay an annual commitment fee of 0.09% of the average daily balance of the line of credit not utilized. Prior to September 10, 2003, UBS AG Stamford Branch provided the funds with a committed line of credit. The average borrowings under the agreement at December 31, 2003, were as follows:
AVERAGE NUMBER OF DAYS INTEREST FUND BORROWINGS OUTSTANDING PAID - ---- ----------- -------------- -------- UBS Global Allocation Fund $ 6,616,500 4 $ 283 UBS Global Equity Fund 940,600 2 85 UBS Global Bond Fund 12,400,000 7 1,590 UBS High Yield Fund 3,575,000 6 2,686 UBS International Equity Fund 5,208,200 8 1,992
The UBS Global Allocation Fund, UBS Global Bond Fund, and UBS High Yield Fund borrowed from the Line of Credit from the UBS AG Stamford Branch $5,025,000, $5,400,000 and $3,575,000, respectively. 10. REORGANIZATION At the close of business November 7, 2003, UBS U.S. Small Cap Growth Fund ("Acquiring Fund") acquired the assets and liabilities of UBS Enhanced Nasdaq-100 Fund ("Acquired Fund") by effecting a taxable reorganization whereby shares of the Acquiring Fund were exchanged for those of the Acquired Fund pursuant to a plan of reorganization approved by the Board of Trustees and shareholders of the Acquired Fund. Net assets as of the reorganization date were as follows:
UBS ENHANCED UBS U.S. NASDAQ-100 SMALL CAP FUND GROWTH FUND SHARES ACQUIRED SHARES NET UNREALIZED FUND ACQUIRED EXCHANGED NET ASSETS ISSUED DEPRECIATION - ------------- ------------ ------------ ------------ -------------- UBS Enhanced NASDAQ-100 Fund Class A $ 772,009 $ 9,615,448 $ 3,384,462 $ (201,339) Class B 984,556 12,098,521 1,132,226 Class C 748,327 9,185,495 852,438 Class Y 50,566 640,425 6,122,472 ------------ Total Net Assets $ 31,539,889 ------------
136 At the close of business November 7, 2003, UBS U.S. Value Equity Fund ("Acquiring Fund") acquired the assets and liabilities of UBS Financial Sector Fund Inc. ("Acquired Fund") by effecting a tax-free reorganization whereby shares of the Acquiring Fund were exchanged for those of the Acquired Fund pursuant to a plan of reorganization approved by the Board of Directors and shareholders of the Acquired Fund. Net assets as of the reorganization date were as follows:
UBS FINANCIAL UBS U.S. SECTOR VALUE EQUITY FUND INC. FUND SHARES ACQUIRED SHARES NET UNREALIZED FUND ACQUIRED EXCHANGED NET ASSETS ISSUED DEPRECIATION - ------------- ------------- ------------- ------------- -------------- UBS Financial Sector Fund Class A $ 9,306,444 $ 93,138,892 $ 9,458,007 $ (856,437) Class B 3,080,643 30,423,510 3,167,885 Class C 1,891,918 18,702,929 2,002,831 Class Y 100,566 1,009,363 698,623 ------------- Total Net Assets $ 143,274,694 -------------
At the close of business on October 4, 2002, the UBS U.S. Value Equity Fund ("Acquiring Fund") acquired assets and liabilities of the UBS U.S. Large Cap Equity Fund ("Acquired Fund") by effecting a tax-free reorganization whereby shares of the Acquiring Fund were exchanged for shares of the Acquired Fund, pursuant to a plan of reorganization approved by the Board of Trustees and shareholders of the Acquired Fund. Net assets as of the reorganization date were as follows:
UBS U.S. UBS U.S. LARGE CAP VALUE EQUITY FUND EQUITY FUND NET SHARES ACQUIRED SHARES UNREALIZED FUND ACQUIRED EXCHANGED NET ASSETS ISSUED DEPRECIATION - ------------- ------------- ------------- ------------- -------------- UBS U.S. Large Cap Equity Fund $ (709,288) Class A 88,889 $ 524,863 70,357 Class B 25,429 149,087 20,132 Class C 93,477 549,128 74,042 Class Y 285,930 1,680,096 224,762 ------------- Total Net Assets $ 2,903,174 -------------
UBS U.S. Value Equity Fund's net assets immediately before the reorganization were $3,199,099. 11. SHARES OF BENEFICIAL INTEREST For the six months ended December 31, 2003, transactions in shares of beneficial interest for each of the Funds were as follows:
NET INCREASE (DECREASE) SHARES DIVIDENDS IN SHARES CLASS A SHARES SOLD REPURCHASED REINVESTED OUTSTANDING - ------- ------------ ------------ ----------- ------------ UBS Global Allocation Fund 26,021,341 (2,875,230) 464,172 23,610,283 UBS Global Equity Fund 1,479,246 (3,372,078) 124,605 (1,768,227) UBS Global Bond Fund 532,823 (441,346) 74,654 166,131 UBS U.S. Allocation Fund 509,750 (150,276) 12,018 371,492 UBS U.S. Equity Fund 43,416 (19,741) 3,041 26,716 UBS U.S. Large Cap Growth Fund 98,154 (39,934) -- 58,220 UBS U.S. Small Cap Growth Fund 3,792,009 (635,684) 7,174 3,163,499 UBS U.S. Bond Fund 761,214 (498,309) 43,789 306,694 UBS High Yield Fund 4,159,778 (5,346,388) 220,561 (966,049) UBS International Equity Fund 883,155 (775,368) 13,501 121,288 UBS U.S. Value Equity Fund 9,584,151 (393,193) 12,989 9,203,947
137
NET INCREASE (DECREASE) SHARES DIVIDENDS IN SHARES CLASS B SHARES SOLD REPURCHASED REINVESTED OUTSTANDING - ------- ------------ ------------ ------------ ------------ UBS Global Allocation Fund 4,366,450 (574,270) 70,864 3,863,044 UBS Global Equity Fund 146,763 (1,925,710) 121,113 (1,657,834) UBS Global Bond Fund 25,983 (42,385) 9,837 (6,565) UBS U.S. Allocation Fund 130,999 (41,942) 3,034 92,091 UBS U.S. Equity Fund 26,921 (6,723) 396 20,594 UBS U.S. Large Cap Growth Fund 17,731 (12,940) -- 4,791 UBS U.S. Small Cap Growth Fund 1,064,773 (64,932) 3,034 1,002,875 UBS U.S. Bond Fund 120,595 (202,255) 3,247 (78,413) UBS High Yield Fund 92,849 (535,348) 28,419 (414,080) UBS International Equity Fund 40,030 (8,449) 1,479 33,060 UBS U.S. Value Equity Fund 3,128,686 (373,593) 1,051 2,756,144 NET INCREASE (DECREASE) SHARES DIVIDENDS IN SHARES CLASS C SHARES SOLD REPURCHASED REINVESTED OUTSTANDING - ------- ------------ ------------ ------------ ------------ UBS Global Allocation Fund 17,590,864 (1,437,310) 264,602 16,418,156 UBS Global Equity Fund 105,150 (1,545,931) 76,616 (1,364,165) UBS Global Bond Fund 64,549 (26,371) 13,994 52,172 UBS U.S. Allocation Fund 66,086 (26,980) 2,069 41,175 UBS U.S. Equity Fund 39,361 (17,373) 553 22,541 UBS U.S. Large Cap Growth Fund 1,888 (1,306) -- 582 UBS U.S. Small Cap Growth Fund 805,106 (65,334) 2,225 741,997 UBS U.S. Bond Fund 34,805 (79,839) 2,901 (42,133) UBS High Yield Fund 293,010 (317,509) 57,727 33,228 UBS International Equity Fund 65,232 (19,554) 2,563 48,241 UBS U.S. Value Equity Fund 1,896,086 (120,382) 526 1,776,230 NET INCREASE (DECREASE) SHARES DIVIDENDS IN SHARES CLASS Y SHARES SOLD REPURCHASED REINVESTED OUTSTANDING - ------- ------------ ------------ ------------ ------------ UBS Global Allocation Fund 3,830,554 (3,135,442) 211,619 906,731 UBS Global Equity Fund 6,586,036 (1,440,886) 116,889 5,262,039 UBS Global Bond Fund 2,161,739 (1,952,755) 224,216 433,200 UBS U.S. Allocation Fund 261,914 (228,588) 40,710 74,036 UBS U.S. Equity Fund 1,375,454 (762,229) 85,844 699,069 UBS U.S. Large Cap Growth Fund 142,748 (40,633) -- 102,115 UBS U.S. Small Cap Growth Fund 3,529,914 (1,261,744) 16,584 2,284,754 UBS U.S. Bond Fund 2,009,734 (2,160,374) 157,999 7,359 UBS High Yield Fund 3,308,150 (3,550,043) 387,266 145,373 UBS International Equity Fund 8,190,393 (9,913,058) 304,413 (1,418,252) UBS U.S. Value Equity Fund 238,161 (341,109) 619 (102,329)
138 For the year ended June 30, 2003, transactions in shares of beneficial interest for each of the Funds were as follows:
NET INCREASE (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. Allocation 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 NET INCREASE (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. Allocation 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 NET INCREASE (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. Allocation 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
139
NET INCREASE (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. Allocation 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
140 THE UBS FUNDS -- PROXY POLICIES & PROCEDURES PROXY VOTING POLICIES & 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. 141 [UBS LOGO] Presorted Standard U.S. Postage PAID Smithtown, NY Permit 700 UBS GLOBAL ASSET MANAGEMENT One North Wacker Drive Chicago, Illinois 60606 ITEM 2. CODE OF ETHICS. Form N-CSR disclosure requirement not applicable to this filing of a semi-annual report. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. Form N-CSR disclosure requirement not applicable to this filing of a semi-annual report. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. Form N-CSR disclosure requirement not applicable to this filing of a semi-annual report. 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. PURCHASE OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. Not applicable to the registrant. 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 disclosure requirement not applicable to this filing of a semi-annual report. (a) (2) Certifications of principal executive officer and principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 is attached hereto as Exhibit EX-99.CERT. (b) Certifications of principal executive officer and principal financial officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 is attached hereto as Exhibit EX-99.906CERT. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. The UBS Funds By: /s/ Joseph A. Varnas -------------------- Joseph A. Varnas President Date: March 9, 2004 ------------- 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: March 9, 2004 By: /s/ Paul H. Schubert -------------------- Paul H. Schubert Treasurer & Principal Accounting Officer Date: March 9, 2004 ------------- EX-99.CERT 3 a2129925zex-99_cert.txt EXHIBIT 99.CERT Exhibit EX-99.CERT CERTIFICATIONS I, Joseph A. Varnas, President of The UBS Funds certify that: 1. I have reviewed this report on Form N-CSR of The UBS Funds; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. By: /s/ Joseph A. Varnas -------------------- Joseph A. Varnas President Date: March 9, 2004 ------------- I, Paul H. Schubert, Treasurer & Principal Accounting Officer of The UBS Funds, certify that: 1. I have reviewed this report on Form N-CSR of The UBS Funds; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. By: /s/ Paul H. Schubert -------------------- Paul H. Schubert Treasurer & Principal Accounting Officer Date: March 9, 2004 ------------- EX-99.906CERT 4 a2129925zex-99_906cert.txt EXHIBIT 99.906CERTR Exhibit EX-99.906CERT Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) In connection with the attached report of The UBS Funds (the "Registrant") on Form N-CSR (the "Report"), each of the undersigned officers of the Registrant does hereby certify that, to the best of such officer's knowledge: 1) the Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; 2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant as of, and for, the periods presented in the Report. Dated: March 9, 2004 ------------- By: /s/ Joseph A. Varnas -------------------- Joseph A. Varnas President Dated: March 9, 2004 ------------- By: /s/ Paul H. Schubert -------------------- Paul H. Schubert Treasurer & Principal Accounting Officer This certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Report or as a separate disclosure document. -----END PRIVACY-ENHANCED MESSAGE-----