N-CSR 1 a2141550zn-csr.txt N-CSR UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number: 811-6637 -------------------------------------------- The UBS Funds -------------------------------------------------------------------------------- (Exact name of registrant as specified in charter) 51 West 52nd Street, New York, New York 10019-6114 -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) Mark F. Kemper, Esq. UBS Global Asset Management (US) Inc. 51 West 52nd Street New York, NY 10019-6114 (Name and address of agent for service) Copy to: 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: June 30, 2004 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. LARGE CAP 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. LARGE CAP VALUE EQUITY FUND ANNUAL REPORT JUNE 30, 2004 TABLE OF CONTENTS Portfolio Managers' Commentary and Schedules of Investments UBS Global Allocation Fund 3 UBS Global Equity Fund 19 UBS Global Bond Fund 26 UBS U.S. Large Cap Equity Fund 34 UBS U.S. Large Cap Growth Fund 40 UBS U.S. Small Cap Growth Fund 46 UBS U.S. Bond Fund 52 UBS High Yield Fund 62 UBS International Equity Fund 69 UBS U.S. Large Cap Value Equity Fund 75 Statements of Assets and Liabilities 80 Statements of Operations 84 Statements of Changes in Net Assets 86 Financial Highlights 90 Notes to Financial Statements 110 Report of Independent Registered Public Accounting Firm 125 Trustee & Officer Information 126 Federal Tax Information 130
1 PORTFOLIO MANAGERS' COMMENTARY AND SCHEDULES OF INVESTMENTS 2 UBS GLOBAL ALLOCATION FUND For the fiscal year ended June 30, 2004, Class Y shares of UBS Global Allocation Fund returned 17.44%, slightly outperforming the 17.15% return of the Fund's benchmark, the GSMI Mutual Fund Index (the "Index").* Since inception on August 31, 1992, through period end, the Fund returned 8.70% on an annualized basis, in line with the 8.78% annualized return for the Index. (Returns for all share classes over various time periods are shown on page 5; please note that these returns do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.) Proactive adjustments in response to the rapidly changing financial markets helped the Fund outperform the Index during the fiscal year. Signs of a long-awaited economic recovery buoyed investors' confidence in the second half of 2003 and early 2004, increasing risk tolerance and rewarding the more speculative ends of the equity and bond markets. However, as the fiscal year drew to a close, concerns over inflation, interest rate hikes and the geopolitical environment took center stage. During this period, the global equity markets posted only modest returns, while most fixed income markets fell sharply. The Fund's asset allocation strategy allowed us to add incremental value in this challenging environment. EQUITIES: OUR GLOBAL ANALYST NETWORK GUIDED COUNTRY AND INDUSTRY POSITIONING The Fund enjoys access to a global network of analysts and investment specialists. Collectively, these on-site experts offer insight into local economies, financial markets, and specific investments. This input proved particularly valuable during the past six months, when global equity markets offered fewer opportunities to add value. At the asset allocation level, our research team assesses the relative valuations available across and within asset classes. While this research found the global equity markets generally undervalued in 2003, continued economic growth and market appreciation eliminated many of the value discrepancies in 2004. At the same time, our research indicated that, while global bond markets were generally overvalued in 2003, falling prices had brought most markets closer to intrinsic value in 2004. The Fund responded to these changes with strategic adjustments to its allocation. We pared our equity exposure, but, overall, still favored global equities over global fixed income. This asset allocation mix benefited performance as equities outperformed bonds over the fiscal year. Within equities, the Fund saw strong returns early in the fiscal year from its international and emerging markets equities positions. However, as market appreciation reduced growth potential, we adjusted the Fund's allocation. In the last few months of the review period, we viewed the US and developed international markets as being slightly undervalued. The larger value discrepancy--and bigger opportunity in our opinion--was in emerging markets countries. Almost every emerging equities market appreciated during the first nine months of the fiscal year, as investors' tolerance for risk grew. However, these stocks fell sharply in the final three months of the period, due to concerns over rising US interest rates. Fears of an economic slowdown in China further hurt investor confidence in emerging markets. We used this period of weakness as a buying opportunity and increased the Fund's emerging markets equities exposure. (At period end, the Fund had no exposure to emerging markets debt, in part, to offset the risk exposure of the Fund's emerging markets equity position.) Our research suggests that while the US and other developed markets should see strong earnings and moderate appreciation, emerging markets offer greater potential. Our in-depth research also guided the Fund's sector positioning during the period. In the US, the Fund was overweight the financials sector, bypassing troubled insurance companies in favor of what we considered to be more promising opportunities in banks and diversified financial services companies. This sector came under pressure in the second quarter of 2004, when the Federal Reserve Board raised interest rates for the first time in four years. Investors assumed rising rates would hurt results in the sector. However, we believe our holdings--banks with * 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 MASTER INDEX. 3 substantial capital markets exposure--will see minimal impact from rising rates. Other positioning themes in US equities were overweights to pharmaceuticals and telecommunications. The Fund also held overweights to international financials, food, beverage and tobacco stocks. Conversely, our principal underweights outside the US were away from insurance and capital goods. FIXED INCOME: BALANCING RISK AND REWARD IN A FALLING MARKET The global bond markets showed surprising resilience over much of the fiscal year. Despite increasing signs of a global economic recovery, bonds in general held their own through the first nine months of the reporting period. But, ultimately, the improving economic environment, coupled with the threat of inflation and rising rates, drove bond markets down sharply in the final months of the period. We made a strategic move in 2003, to increase exposure to areas of the fixed income markets that we believed offered incremental yields. This strategy was beneficial over the review period, as holdings in the high yield and emerging markets debt sectors performed extremely well. Our analysis showed these sectors overvalued in the second half of the period, however, encouraging us to take our profits and reduce the Fund's exposure. Proceeds from these sales were invested in more conservative sectors, including US bonds. As the fiscal year unfolded, we also made changes to the Fund's country allocations, slightly increasing its exposure to the US market, and decreasing our overall exposure to international markets. Two areas where we took relatively larger positions at the end of the period were in Canada and Japan. We believe Japanese bonds will likely follow the path (rising yields, falling prices) taken by US bonds. Global fixed income markets were increasingly preoccupied in 2004 with the US Federal Reserve Board and its near-term monetary policy. Long before rates were raised on June 30, 2004, the markets had factored in an increase in short-term rates. We positioned the Fund to minimize the effect of this, by underweighting shorter-term bonds. On a final note, currency allocation had only a slightly negative impact on performance over the reporting period. Early in the period, the Fund's currency positions were scaled back, and the overall size of our active positioning was fairly low. LOOKING AHEAD Despite some lingering issues, we believe the short-term global economic outlook is positive. In the absence of large value discrepancies between markets, we will seek to add value to the Fund in the near-term through our asset allocation strategy and security selection in both the equity and fixed income markets. At period end, the Fund was 60.3% invested in equities and 24.2% invested in fixed income.** We have no plans to dramatically alter the Fund's asset allocation breakdown, as we continue to favor global equities over global bonds. Within equities, we believe investors will continue their migration toward higher-quality companies that offer fundamentally sound financials and sustainable earnings growth. We believe the portfolio is well positioned for this environment. We also do not anticipate any significant shifts in country allocations. As such, the Fund will likely maintain its slight preference for international developed markets over the US. We will remain underweight in Japan, until we see some evidence that the country's expansion can be sustained through domestic demand. The Fund will remain underweight Japanese bonds relative to the Index, as we favor continental Europe's fixed income market. Within the US, we continue to see better opportunities in conventional bonds over high yield securities. In our opinion, long-term US Treasury yields are now at fair value. To add incremental return, we anticipate maintaining the Fund's overweight position in asset-backed and mortgage-backed bonds. As always, we will rely on our network of researchers and analysts located around the world to provide timely information on the rapidly changing marketplace. Leveraging this input, we will seek to invest in compelling opportunities across asset classes, countries, currencies and individual securities. ** FIGURES REPRESENT PERCENTAGES OF NET ASSETS AS OF JUNE 30, 2004. THE FUND IS ACTIVELY MANAGED, AND ITS COMPOSITION WILL CHANGE OVER TIME. 4 UBS GLOBAL ALLOCATION FUND (UNAUDITED) TOTAL RETURN
1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION* ENDED ENDED ENDED ENDED TO 6/30/04 6/30/04 6/30/04 6/30/04 6/30/04 ---------------------------------------------------------------------------------------- UBS GLOBAL ALLOCATION FUND CLASS A 17.02% 8.93% 6.12% N/A 6.13% UBS GLOBAL ALLOCATION FUND CLASS B 16.14 N/A N/A N/A 9.21 UBS GLOBAL ALLOCATION FUND CLASS C 16.19 N/A N/A N/A 9.49 UBS GLOBAL ALLOCATION FUND CLASS Y 17.44 9.14 6.36 9.16% 8.70 UBS GLOBAL ALLOCATION FUND CLASS A** 10.60 6.88 4.92 N/A 5.28 UBS GLOBAL ALLOCATION FUND CLASS B** 11.14 N/A N/A N/A 8.17 UBS GLOBAL ALLOCATION FUND CLASS C** 15.19 N/A N/A N/A 9.49 GSMI MUTUAL FUND INDEX*** 17.15 4.97 2.62 8.80 8.78 MSCI WORLD EQUITY (FREE) INDEX 24.35 1.16 -1.46 7.42 8.35 CITIGROUP WORLD GOVERNMENT BOND INDEX 5.65 11.94 7.00 6.56 6.44
* 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 SHARES 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 MASTER 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. ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000 This chart shows the growth in the value of an investment in UBS Global Allocation Fund Class Y shares, the GSMI Mutual Fund Index, the MSCI World Equity (Free) Index and the Citigroup World Government Bond Index, if you had invested $10,000 on August 31, 1992, and had reinvested all your income dividends and capital gain distributions through June 30, 2004. The performance of Class A, Class B and Class C shares will vary based upon the different inception dates, class specific expenses and sales charges. No adjustment has been made for any income taxes payable by shareholders on income dividends and capital gain distributions. Past performance is no guarantee of future results. Share price and returns will vary with market conditions; investors may realize a gain or loss upon redemption. [CHART] UBS GLOBAL ALLOCATION FUND CLASS Y VS. GSMI MUTUAL FUND INDEX, MSCI WORLD EQUITY (FREE) INDEX AND CITIGROUP WORLD GOVERNMENT BOND INDEX Wealth Value With Dividends
UBS GLOBAL ALLOCATION GSMI MUTUAL MSCI WORLD EQUITY CITIGROUP WORLD GOVERNMENT FUND CLASS Y FUND INDEX (FREE) INDEX BOND INDEX 8/31/92 $ 10,000 $ 10,000 $ 10,000 $ 10,000 9/30/92 $ 10,130 $ 10,053 $ 9,914 $ 10,100 10/31/92 $ 10,070 $ 9,975 $ 9,647 $ 9,825 11/30/92 $ 10,220 $ 10,174 $ 9,819 $ 9,669 12/31/92 $ 10,329 $ 10,308 $ 9,902 $ 9,727 1/31/93 $ 10,481 $ 10,424 $ 9,936 $ 9,898 2/28/93 $ 10,684 $ 10,555 $ 10,171 $ 10,093 3/31/93 $ 10,811 $ 10,873 $ 10,760 $ 10,248 4/30/93 $ 10,862 $ 10,939 $ 11,258 $ 10,464 5/31/93 $ 10,974 $ 11,169 $ 11,516 $ 10,569 6/30/93 $ 11,076 $ 11,193 $ 11,420 $ 10,546 7/31/93 $ 11,106 $ 11,271 $ 11,654 $ 10,576 8/31/93 $ 11,341 $ 11,663 $ 12,198 $ 10,894 9/30/93 $ 11,341 $ 11,653 $ 11,975 $ 11,024 10/31/93 $ 11,433 $ 11,822 $ 12,307 $ 11,005 11/30/93 $ 11,310 $ 11,530 $ 11,606 $ 10,927 12/31/93 $ 11,481 $ 11,798 $ 12,170 $ 11,019 1/31/94 $ 11,736 $ 12,188 $ 12,973 $ 11,107 2/28/94 $ 11,523 $ 12,004 $ 12,802 $ 11,035 3/31/94 $ 11,183 $ 11,599 $ 12,251 $ 11,020 4/30/94 $ 11,225 $ 11,726 $ 12,636 $ 11,032 5/31/94 $ 11,246 $ 11,763 $ 12,674 $ 10,935 6/30/94 $ 11,161 $ 11,648 $ 12,637 $ 11,092 7/31/94 $ 11,322 $ 11,890 $ 12,878 $ 11,181 8/31/94 $ 11,568 $ 12,204 $ 13,268 $ 11,142 9/30/94 $ 11,397 $ 12,012 $ 12,917 $ 11,222 10/31/94 $ 11,375 $ 12,199 $ 13,289 $ 11,402 11/30/94 $ 11,226 $ 11,852 $ 12,716 $ 11,244 12/31/94 $ 11,264 $ 11,966 $ 12,837 $ 11,276 1/31/95 $ 11,395 $ 12,087 $ 12,649 $ 11,513 2/28/95 $ 11,679 $ 12,413 $ 12,836 $ 11,807 3/31/95 $ 11,832 $ 12,812 $ 13,456 $ 12,509 4/30/95 $ 12,061 $ 13,112 $ 13,926 $ 12,740 5/31/95 $ 12,444 $ 13,440 $ 14,052 $ 13,099 6/30/95 $ 12,564 $ 13,645 $ 14,047 $ 13,177 7/31/95 $ 12,841 $ 14,071 $ 14,751 $ 13,208 8/31/95 $ 13,007 $ 14,021 $ 14,421 $ 12,754 9/30/95 $ 13,228 $ 14,396 $ 14,847 $ 13,038 10/31/95 $ 13,328 $ 14,306 $ 14,617 $ 13,135 11/30/95 $ 13,715 $ 14,734 $ 15,126 $ 13,283 12/31/95 $ 13,982 $ 15,006 $ 15,570 $ 13,423 1/31/96 $ 14,243 $ 15,251 $ 15,861 $ 13,258 2/29/96 $ 14,183 $ 15,295 $ 15,958 $ 13,190 3/31/96 $ 14,290 $ 15,425 $ 16,223 $ 13,172 4/30/96 $ 14,479 $ 15,691 $ 16,604 $ 13,119 5/31/96 $ 14,527 $ 15,807 $ 16,617 $ 13,122 6/30/96 $ 14,623 $ 15,840 $ 16,706 $ 13,225 7/31/96 $ 14,407 $ 15,423 $ 16,115 $ 13,479 8/31/96 $ 14,635 $ 15,672 $ 16,306 $ 13,532 9/30/96 $ 15,113 $ 16,188 $ 16,945 $ 13,587 10/31/96 $ 15,365 $ 16,350 $ 17,062 $ 13,841 11/30/96 $ 15,963 $ 17,038 $ 18,024 $ 14,024 12/31/96 $ 15,954 $ 16,886 $ 17,737 $ 13,910 1/31/97 $ 16,153 $ 17,133 $ 17,955 $ 13,539 2/28/97 $ 16,298 $ 17,214 $ 18,159 $ 13,437 3/31/97 $ 16,047 $ 16,835 $ 17,796 $ 13,335 4/30/97 $ 16,219 $ 17,176 $ 18,380 $ 13,218 5/31/97 $ 16,894 $ 18,044 $ 19,517 $ 13,577 6/30/97 $ 17,370 $ 18,690 $ 20,488 $ 13,739 7/31/97 $ 17,925 $ 19,434 $ 21,433 $ 13,632 8/31/97 $ 17,462 $ 18,722 $ 19,983 $ 13,624 9/30/97 $ 18,005 $ 19,533 $ 21,069 $ 13,914 10/31/97 $ 17,476 $ 18,903 $ 19,963 $ 14,203 11/30/97 $ 17,515 $ 19,071 $ 20,312 $ 13,986 12/31/97 $ 17,709 $ 19,301 $ 20,561 $ 13,944 1/31/98 $ 17,913 $ 19,561 $ 21,137 $ 14,079 2/28/98 $ 18,570 $ 20,507 $ 22,567 $ 14,193 3/31/98 $ 18,993 $ 21,089 $ 23,517 $ 14,053 4/30/98 $ 19,023 $ 21,296 $ 23,747 $ 14,278 5/31/98 $ 18,920 $ 20,996 $ 23,459 $ 14,310 6/30/98 $ 18,808 $ 21,262 $ 24,007 $ 14,332 7/31/98 $ 18,764 $ 21,151 $ 23,971 $ 14,351 8/31/98 $ 17,261 $ 19,011 $ 20,776 $ 14,741 9/30/98 $ 17,806 $ 19,668 $ 21,146 $ 15,525 10/31/98 $ 18,454 $ 20,842 $ 23,060 $ 15,985 11/30/98 $ 18,970 $ 21,694 $ 24,434 $ 15,759 12/31/98 $ 19,183 $ 22,476 $ 25,622 $ 16,076 1/31/99 $ 19,215 $ 22,788 $ 26,185 $ 15,928 2/28/99 $ 18,744 $ 22,184 $ 25,489 $ 15,417 3/31/99 $ 19,053 $ 22,885 $ 26,546 $ 15,455 4/30/99 $ 19,833 $ 23,681 $ 27,597 $ 15,449 5/31/99 $ 19,475 $ 23,082 $ 26,580 $ 15,190 6/30/99 $ 19,703 $ 23,787 $ 27,817 $ 14,924 7/31/99 $ 19,654 $ 23,660 $ 27,734 $ 15,289 8/31/99 $ 19,343 $ 23,594 $ 27,683 $ 15,360 9/30/99 $ 19,064 $ 23,494 $ 27,422 $ 15,599 10/31/99 $ 19,031 $ 24,333 $ 28,847 $ 15,592 11/30/99 $ 19,113 $ 24,903 $ 29,657 $ 15,428 12/31/99 $ 19,469 $ 26,263 $ 32,059 $ 15,391 1/31/2000 $ 18,894 $ 25,380 $ 30,225 $ 15,063 2/29/2000 $ 18,615 $ 25,834 $ 30,304 $ 14,955 3/31/2000 $ 19,260 $ 26,842 $ 32,401 $ 15,418 4/30/2000 $ 19,260 $ 25,767 $ 31,029 $ 14,914 5/31/2000 $ 19,312 $ 25,235 $ 30,244 $ 15,030 6/30/2000 $ 19,608 $ 26,156 $ 31,262 $ 15,396 7/31/2000 $ 19,521 $ 25,689 $ 30,381 $ 15,135 8/31/2000 $ 19,765 $ 26,579 $ 31,370 $ 15,022 9/30/2000 $ 19,434 $ 25,731 $ 29,704 $ 14,992 10/31/2000 $ 19,399 $ 25,255 $ 29,207 $ 14,801 11/30/2000 $ 19,591 $ 24,064 $ 27,431 $ 15,095 12/31/2000 $ 20,739 $ 24,659 $ 27,866 $ 15,636 1/31/2001 $ 21,311 $ 25,292 $ 28,406 $ 15,616 2/28/2001 $ 20,924 $ 23,874 $ 26,009 $ 15,610 3/31/2001 $ 20,167 $ 22,729 $ 24,299 $ 15,160 4/30/2001 $ 20,739 $ 23,827 $ 26,097 $ 15,106 5/31/2001 $ 20,776 $ 23,806 $ 25,767 $ 15,060 6/30/2001 $ 20,628 $ 23,396 $ 24,959 $ 14,922 7/31/2001 $ 20,684 $ 23,261 $ 24,630 $ 15,299 8/31/2001 $ 20,721 $ 22,732 $ 23,449 $ 15,874 9/30/2001 $ 19,521 $ 21,313 $ 21,382 $ 15,990 10/31/2001 $ 20,019 $ 21,797 $ 21,794 $ 16,117 11/30/2001 $ 20,924 $ 22,652 $ 23,085 $ 15,890 12/31/2001 $ 21,196 $ 22,810 $ 23,232 $ 15,481 1/31/2002 $ 21,075 $ 22,460 $ 22,530 $ 15,195 2/28/2002 $ 21,237 $ 22,378 $ 22,336 $ 15,273 3/31/2002 $ 21,844 $ 23,020 $ 23,324 $ 15,231 4/30/2002 $ 22,026 $ 22,795 $ 22,537 $ 15,777 5/31/2002 $ 22,229 $ 22,851 $ 22,583 $ 16,223 6/30/2002 $ 21,642 $ 22,037 $ 21,215 $ 17,006 7/31/2002 $ 20,488 $ 20,813 $ 19,429 $ 17,173 8/31/2002 $ 20,771 $ 21,017 $ 19,466 $ 17,473 9/30/2002 $ 18,989 $ 19,675 $ 17,326 $ 17,664 10/31/2002 $ 20,002 $ 20,540 $ 18,607 $ 17,591 11/30/2002 $ 20,970 $ 21,342 $ 19,613 $ 17,613 12/31/2002 $ 20,547 $ 20,923 $ 18,666 $ 18,499 1/31/2003 $ 20,145 $ 20,597 $ 18,102 $ 18,752 2/28/2003 $ 19,955 $ 20,458 $ 17,791 $ 19,015 3/31/2003 $ 20,018 $ 20,474 $ 17,738 $ 19,073 4/30/2003 $ 21,478 $ 21,756 $ 19,316 $ 19,302 5/31/2003 $ 22,515 $ 22,834 $ 20,425 $ 20,139 6/30/2003 $ 22,833 $ 23,102 $ 20,782 $ 19,814 7/31/2003 $ 23,023 $ 23,240 $ 21,207 $ 19,225 8/31/2003 $ 23,383 $ 23,677 $ 21,667 $ 19,121 9/30/2003 $ 23,721 $ 24,035 $ 21,801 $ 20,205 10/31/2003 $ 24,631 $ 24,980 $ 23,098 $ 20,103 11/30/2003 $ 25,012 $ 25,333 $ 23,453 $ 20,442 12/31/2003 $ 26,257 $ 26,473 $ 24,930 $ 21,257 1/31/2004 $ 26,493 $ 26,867 $ 25,334 $ 21,314 2/29/2004 $ 26,943 $ 27,244 $ 25,765 $ 21,347 3/31/2004 $ 26,900 $ 27,254 $ 25,596 $ 21,653 4/30/2004 $ 26,321 $ 26,509 $ 25,077 $ 20,726 5/31/2004 $ 26,407 $ 26,657 $ 25,316 $ 20,888 6/30/2004 $ 26,814 $ 27,065 $ 25,842 $ 20,933
8/31/92 = $10,000 FUND RETURNS ARE NET OF ALL FEES AND COSTS, WHILE THE INDEX RETURNS ARE BASED SOLELY ON MARKET RETURNS WITHOUT DEDUCTION FOR FEES OR TRANSACTION COSTS FOR REBALANCING. 5 TOP TEN EQUITY HOLDINGS AS OF JUNE 30, 2004
PERCENTAGE OF NET ASSETS --------------------------------------------------------------- Citigroup, Inc. 1.7% Nextel Communications, Inc., Class A 1.6 Microsoft Corp. 1.3 Allergan, Inc. 1.3 Wells Fargo & Co. 1.3 Burlington Northern Santa Fe Corp. 1.1 Morgan Stanley 1.0 UnitedHealth Group, Inc. 1.0 Illinois Tool Works, Inc. 1.0 ExxonMobil Corp. 1.0 --------------------------------------------------------------- Total 12.3%
TOP TEN FIXED INCOME HOLDINGS AS OF JUNE 30, 2004
PERCENTAGE OF NET ASSETS --------------------------------------------------------------- U.S. Treasury Note 3.375%, due 12/15/08 1.4% U.S. Treasury Note 4.250%, due 08/15/13 1.1 Deutche Bundesrepublik 6.000%, due 01/04/07 0.6 Deutche Bundesrepublik 6.500%, due 07/04/27 0.6 U.S. Treasury Note 5.375%, due 02/15/31 0.6 Federal Home Loan Mortgage Corp. 5.125%, due 07/15/12 0.5 Federal Home Loan Mortgage Corp., Gold 6.000%, due 08/15/34 0.5 U.S. Treasury Bond 6.250%, due 08/15/23 0.4 U.S. Treasury Bond 6.250%, due 05/15/30 0.4 U.S. Treasury Note 1.625%, due 02/28/06 0.4 --------------------------------------------------------------- Total 6.5%
6 INDUSTRY DIVERSIFICATION AS A PERCENT OF NET ASSETS AS OF JUNE 30, 2004 EQUITIES U.S. EQUITIES Aerospace & Defense 1.23% Airlines 0.09 Auto Components 0.39 Biotechnology 0.89 Building Products 0.93 Chemicals 0.24 Commercial Banks 1.70 Commercial Services & Supplies 0.42 Computers & Peripherals 0.24 Construction Materials 0.50 Diversified Financial Services 1.69 Electric Utilities 2.12 Electronic Equipment & Instruments 0.35 Food & Staples Retailing 1.29 Gas Utilities 0.36 Health Care Equipment & Supplies 0.51 Health Care Providers & Services 1.64 Household Products 0.58 Insurance 1.85 Machinery 1.51 Media 3.06 Multiline Retail 0.33 Oil & Gas 1.65 Paper & Forest Products 0.24 Pharmaceuticals 4.13 Road & Rail 1.13 Software 1.97 Specialty Retail 0.28 Steel 2.77 Telecommunications Services 0.32 Thrifts & Mortgage Finance 0.95 Wireless Telecommunication Services 1.57 ----- Total U.S. Equities 36.93 INTERNATIONAL EQUITIES Air Freight & Logistics 0.30 Auto Components 0.26 Automobiles 0.85 Beverages 0.56 Capital Markets 0.29 Chemicals 0.23 Commercial Banks 4.25 Commercial Services & Supplies 0.27 Communications Equipment 0.31 Construction & Engineering 0.05 Construction Materials 0.46 Diversified Financial Services 0.29 Diversified Telecommunication Services 1.11 Electric Utilities 0.28 Electronic Equipment & Instruments 0.19 Food & Staples Retailing 0.56 Food Products 0.77 Gas Utilities 0.24 Health Care Providers & Services 0.08 Hotels, Restaurants & Leisure 0.12 Household Durables 0.58 Household Products 0.31 Insurance 0.84 IT Services 0.13 Leisure Equipment & Products 0.13 Machinery 0.05 Media 0.97 Metals & Mining 0.43 Multi-Utilities & Unregulated Power 0.33 Multiline Retail 0.03% Office Electronics 0.31 Oil & Gas 2.09 Paper & Forest Products 0.54 Pharmaceuticals 1.96 Real Estate 0.37 Road & Rail 0.34 Semiconductors & Semiconductor Equipment 0.23 Software 0.12 Specialty Retail 0.42 Tobacco 0.41 Trading Companies & Distributors 0.19 Wireless Telecommunication Services 1.11 ----- Total International Equities 23.36 TOTAL EQUITIES 60.29 U.S. BONDS U.S. CORPORATE BONDS Aerospace & Defense 0.03 Airlines 0.02 Automobiles 0.15 Beverages 0.08 Capital Markets 0.23 Chemicals 0.11 Commercial Banks 0.22 Commercial Services & Supplies 0.06 Communications Equipment 0.02 Consumer Finance 0.45 Diversified Financial Services 0.39 Diversified Telecommunication Services 0.11 Electric Utilities 0.26 Energy Equipment & Services 0.05 Food & Staples Retailing 0.11 Food Products 0.07 Gas Utilities 0.02 Hotels, Restaurants & Leisure 0.02 Household Durables 0.04 Insurance 0.10 IT Services 0.03 Leisure Equipment & Products 0.02 Machinery 0.02 Media 0.20 Metals & Mining 0.02 Multi-Utilities & Unregulated Power 0.04 Multiline Retail 0.05 Non-Agency 0.02 Oil & Gas 0.16 Paper & Forest Products 0.04 Personal Products 0.01 Pharmaceuticals 0.04 Real Estate 0.05 Road & Rail 0.08 Steel 0.03 Telecommunications Services 0.04 Thrifts & Mortgage Finance 0.11 Tobacco 0.03 Wireless Telecommunication Services 0.02 ----- Total U.S. Corporate Bonds 3.55 Asset-Backed Securities 0.62 Commercial Mortgage-Backed Securities 1.74 Mortgage & Agency Debt Securities 8.02 U.S. Government Obligations 4.38 ----- Total U.S. Bonds 18.31 International Corporate Bonds 0.36 Foreign Government Bond 5.48
7 Sovereign/Supranational Bonds 0.02% ------ Total International Bonds 5.86 TOTAL BONDS 24.17 INVESTMENT COMPANIES 12.46 SHORT-TERM INVESTMENTS 2.16 INVESTMENT OF CASH COLLATERAL FOR SECURITIES LOANED 6.69 ------ TOTAL INVESTMENTS 105.77 LIABILITIES, IN EXCESS OF CASH AND OTHER ASSETS (5.77) ------ NET ASSETS 100.00% ======
THE FUND HELD A SHORT POSITION IN STOCK INDEX FUTURES WHICH REDUCED THE U.S. EQUITY EXPOSURE FROM 36.93% TO 35.36%. THE FUND ALSO HELD A LONG POSITION IN U.S. TREASURY FUTURES WHICH INCREASED THE U.S. BOND EXPOSURE FROM 18.31% TO 19.51%. THESE ADJUSTMENTS RESULTED IN A NET DECREASE TO THE FUNDS EXPOSURE TO SHORT-TERM INVESTMENTS FROM 2.16% TO 1.79%. 8 UBS GLOBAL ALLOCATION FUND -- SCHEDULE OF INVESTMENTS JUNE 30, 2004
SHARES VALUE --------------- ----------------- EQUITIES -- 60.29% U.S. EQUITIES -- 36.93% Aflac, Inc. 154,200 $ 6,292,902 Albertson's, Inc. (c) 338,300 8,978,482 Allergan, Inc. 258,500 23,140,920 American Electric Power Co., Inc. 204,300 6,537,600 American International Group, Inc. 155,821 11,106,921 Anthem, Inc. (b) (c) 81,800 7,326,008 Boeing Co. 194,500 9,937,005 Bristol-Myers Squibb Co. 256,900 6,294,050 Burlington Northern Santa Fe Corp. 590,000 20,691,300 Cephalon, Inc. (b) (c) 128,500 6,939,000 Citigroup, Inc. 665,707 30,955,375 CMS Energy Corp. (b) (c) 261,900 2,391,147 ConocoPhillips 123,334 9,409,151 Costco Wholesale Corp. 357,300 14,674,311 Dell, Inc. (b) 120,500 4,316,310 Delta Air Lines, Inc. (b) (c) 241,400 1,718,768 Dominion Resources, Inc. 67,900 4,283,132 Eastman Chemical Co. 97,000 4,484,310 Equifax, Inc. 141,400 3,499,650 Exelon Corp. 394,500 13,132,905 ExxonMobil Corp. 404,400 17,959,404 FirstEnergy Corp. 275,063 10,290,107 Freddie Mac 275,600 17,445,480 Gannett Co., Inc. 59,400 5,040,090 Genzyme Corp. (b) 198,800 9,409,204 Guidant Corp. 64,800 3,621,024 Hartford Financial Services Group, Inc. 110,400 7,588,896 Illinois Tool Works, Inc. 191,300 18,343,757 Ingersoll-Rand Co., Class A 136,700 9,337,977 Interpublic Group of Cos., Inc. (b) 448,400 6,156,532 JPMorgan Chase & Co. 437,100 16,946,367 Johnson & Johnson 320,638 17,859,537 Johnson Controls, Inc. 132,400 7,067,512 Kerr-McGee Corp. 54,050 2,906,269 Kimberly-Clark Corp. 161,000 10,606,680 Kohl's Corp. (b) 143,800 6,079,864 Martin Marietta Materials, Inc. 207,984 9,219,931 Masco Corp. 548,600 17,105,348 MeadWestvaco Corp. 147,700 4,340,903 Medtronic, Inc. 115,800 5,641,776 Mellon Financial Corp. 512,100 15,019,893 Mettler Toledo, Inc. (b) 130,100 6,393,114 Microsoft Corp. 841,100 24,021,816 Morgan Stanley 355,450 18,757,096 Mylan Labs, Inc. 605,750 12,266,437 Nextel Communications, Inc., Class A (b) 1,079,700 28,784,802 Northrop Grumman Corp. 154,600 8,302,020 Omnicom Group 172,600 13,098,614 Oracle Corp. (b) 664,800 7,931,064 Pepco Holdings, Inc. (c) 118,600 2,168,008 PNC Financial Services Group 151,800 8,057,544 Quest Diagnostics, Inc. 49,900 4,239,005 SBC Communications, Inc. 241,100 5,846,675 Sempra Energy Corp. 193,800 6,672,534 Time Warner, Inc. (b) 751,700 13,214,886 TJX Cos., Inc. 214,600 5,180,444 UnitedHealth Group, Inc. 298,300 18,569,175 United Technologies Corp. 47,300 $ 4,327,004 Veritas Software Corp. (b) 147,200 4,077,440 Viacom, Inc., Class B 418,300 14,941,676 Viad Corp. (b) (c) 154,000 4,159,540 Wells Fargo & Co. 403,000 23,063,690 Westwood One, Inc. (b) 154,700 3,681,860 Willis Group Holdings, Ltd. 239,600 8,973,020 Wyeth 448,500 16,217,760 ----------------- Total U.S. Equities 677,041,022 ----------------- INTERNATIONAL EQUITIES -- 23.36% AUSTRALIA -- 1.01% Australia & New Zealand Banking Group Ltd. 209,719 2,670,530 Australian Gas Light Co., Ltd. 158,887 1,342,557 News Corp., Ltd., Preferred 373,312 3,055,578 QBE Insurance Group Ltd. (c) 430,391 3,837,573 Rio Tinto Ltd. 5,755 144,121 Westpac Banking Corp. 518,297 6,354,404 Woolworths Ltd. 139,206 1,105,468 ----------------- 18,510,231 ----------------- BELGIUM -- 0.29% Fortis 238,683 5,285,165 ----------------- CANADA -- 1.27% Alcan, Inc. 92,020 3,788,554 Bank of Nova Scotia (c) 121,100 3,235,355 BCE, Inc. 107,900 2,148,745 Canadian National Railway Co. 88,400 3,808,304 Canadian Tire Corp. 12,700 463,196 Magna International, Inc., Class A 16,900 1,432,293 Shoppers Drug Mart Corp. (b) 96,500 2,403,953 Suncor Energy, Inc. 90,700 2,300,733 Toronto Dominion Bank (c) 116,800 3,735,509 ----------------- 23,316,642 ----------------- FINLAND -- 0.48% Nokia Oyj 394,190 5,687,953 UPM-Kymmene Oyj 165,840 3,155,671 ----------------- 8,843,624 ----------------- FRANCE -- 1.79% Aventis S.A. (c) 50,239 3,792,700 BNP Paribas 72,810 4,477,936 Cap Gemini S.A. (b) 60,283 2,419,596 France Telecom S.A. 193,146 5,033,509 Sanofi-Synthelabo S.A. (c) 34,999 2,218,498 Suez S.A. 55,189 1,148,863 Total S.A. 58,269 11,108,931 Unibail 25,387 2,625,403 ----------------- 32,825,436 ----------------- GERMANY -- 0.19% Allianz AG 32,113 3,478,428 ----------------- HONG KONG -- 0.25% Cheung Kong Holdings Ltd. 270,000 1,990,436 Sun Hung Kai Properties Ltd. 255,000 2,092,361 Television Broadcasts Ltd. 112,000 479,602 ----------------- 4,562,399 -----------------
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SHARES VALUE --------------- ----------------- IRELAND -- 0.66% Bank of Ireland 569,676 $ 7,610,198 CRH PLC 214,017 4,520,263 ----------------- 12,130,461 ----------------- ITALY -- 0.65% Assicurazioni Generali SpA (c) 84,517 2,279,688 ENI SpA 210,349 4,176,633 UniCredito Italiano SpA 1,099,203 5,429,623 ----------------- 11,885,944 ----------------- JAPAN -- 4.20% Canon, Inc. 107,800 5,680,704 Fuji Photo Film Co., Ltd. 76,000 2,382,074 Funai Electric Co., Ltd. 15,600 2,350,401 Honda Motor Co., Ltd. (c) 215,500 10,388,398 Hoya Corp. 12,400 1,297,787 Kao Corp. 239,000 5,760,620 Mitsubishi Corp. 252,000 2,448,059 Mitsubishi Tokyo Financial Group, Inc. 235 2,175,228 Nintendo Co., Ltd. 19,200 2,225,909 Nippon Telegraph & Telephone Corp. 125 667,873 Nippon Unipac Holding (c) 486 2,543,243 Nitto Denko Corp. 4,300 219,896 NTT DoCoMo, Inc. 4,332 7,741,740 Rohm Co., Ltd. 35,500 4,249,003 Sekisui House Ltd. (c) 219,000 2,430,546 Sompo Japan Insurance, Inc. 413,000 4,220,272 Sumitomo Mitsui Financial Group, Inc. (c) 436 2,988,847 Takeda Pharmaceutical Co., Ltd. 140,900 6,185,318 Toyota Industries Corp. 141,900 3,407,213 Toyota Motor Corp. 127,600 5,168,785 West Japan Railway Co. 584 2,354,947 ----------------- 76,886,863 ----------------- NETHERLANDS -- 1.72% ABN AMRO Holding NV 156,931 3,432,923 Koninklijke Philips Electronics NV 145,476 3,916,864 Reed Elsevier NV 408,268 5,732,141 Royal KPN NV (b) 570,596 4,345,790 TPG NV 242,305 5,536,351 VNU NV (c) 198,412 5,762,170 Wolters Kluwer NV 152,152 2,761,927 ----------------- 31,488,166 ----------------- PORTUGAL -- 0.20% Electricidade de Portugal S.A. 284,740 796,786 Portugal Telecom, SGPS, S.A. 256,624 2,769,406 ----------------- 3,566,192 ----------------- SPAIN -- 0.54% Banco Bilbao Vizcaya Argentaria S.A. (c) 395,696 5,286,031 Banco Santander Central Hispano S.A. (c) 230,022 2,387,174 Telefonica S.A. 151,535 2,240,036 ----------------- 9,913,241 ----------------- SWEDEN -- 0.77% Electrolux AB, B Shares 100,700 1,931,667 Hennes & Mauritz AB, B Shares 98,750 2,549,715 Svenska Cellulosa AB, B Shares 110,600 4,199,099 Svenska Handelsbanken AB, A Shares (c) 110,020 $ 2,205,380 Swedish Match AB 320,620 3,277,300 ----------------- 14,163,161 ----------------- SWITZERLAND -- 1.88% Adecco S.A. (b) (c) 50,938 2,537,952 Credit Suisse Group (b) 150,417 5,344,584 Givaudan S.A. 3,646 2,110,628 Holcim Ltd. 72,878 3,962,785 Nestle S.A. 34,635 9,236,737 Novartis AG 60,820 2,683,092 Roche Holding AG 71,765 7,105,446 Swiss Reinsurance Co. 23,233 1,509,106 ----------------- 34,490,330 ----------------- UNITED KINGDOM -- 7.46% Abbey National PLC 194,786 1,813,027 Alliance Unichem PLC 124,662 1,475,136 AstraZeneca PLC 142,587 6,397,306 Balfour Beatty PLC 197,813 952,438 Barclays PLC 937,091 7,982,998 BOC Group PLC 111,307 1,863,124 BP PLC 1,352,558 11,945,445 BT Group PLC 880,113 3,168,228 Cadbury Schweppes PLC 575,737 4,967,300 Centrica PLC 753,630 3,068,259 Compass Group PLC 352,406 2,150,532 Diageo PLC 758,152 10,222,444 Electrocomponents PLC 329,452 2,132,936 Gallaher Group PLC 355,881 4,301,525 GlaxoSmithKline PLC 375,314 7,595,851 HSBC Holdings PLC 366,683 5,452,832 Invensys PLC (b) 2,651,632 865,572 Kingfisher PLC 987,732 5,127,458 National Grid Transco PLC 634,479 4,895,920 Rentokil Initial PLC 929,840 2,436,652 Rio Tinto PLC 164,424 3,953,905 Royal Bank of Scotland Group PLC 368,324 10,607,133 Scottish & Southern Energy PLC 356,061 4,400,558 Shell Transport & Trading Co. PLC 1,186,238 8,701,775 Tesco PLC 1,383,799 6,681,594 Vodafone Group PLC 5,767,080 12,628,757 Wolseley PLC 66,477 1,030,754 ----------------- 136,819,459 ----------------- Total International Equities 428,165,742 ----------------- Total Equities (Cost $1,021,781,478) 1,105,206,764 ----------------- FACE AMOUNT --------------- BONDS -- 24.17% U.S. BONDS -- 18.31% U.S. CORPORATE BONDS -- 3.55% Alcoa, Inc. 6.000%, due 01/15/12 $ 300,000 317,204 Allstate Corp. (The) 7.200%, due 12/01/09 125,000 142,522 Altria Group, Inc. 7.750%, due 01/15/27 310,000 316,964
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FACE AMOUNT VALUE --------------- ----------------- American Electric Power Co., Inc. (c) 6.125%, due 05/15/06 $ 470,000 $ 493,390 American Express Co. 3.750%, due 11/20/07 85,000 84,735 Anadarko Finance Co., Series B 7.500%, due 05/01/31 70,000 79,702 Anheuser-Busch Cos., Inc. 9.000%, due 12/01/09 220,000 267,433 AT&T Corp. (c) 8.000%, due 11/15/31 505,000 492,937 AT&T Wireless Services, Inc. 8.750%, due 03/01/31 375,000 457,188 Avalonbay Communities, Inc. 7.500%, due 08/01/09 375,000 420,711 Avon Products, Inc. 7.150%, due 11/15/09 195,000 219,183 Bank of America Corp. 7.400%, due 01/15/11 1,375,000 1,558,312 Bank One Corp. 7.875%, due 08/01/10 650,000 751,826 Boeing Capital Corp. 7.375%, due 09/27/10 450,000 508,832 Bombardier Capital, Inc., 144A (c) 6.125%, due 06/29/06 675,000 668,084 Bristol-Myers Squibb Co. 5.750%, due 10/01/11 300,000 312,596 Burlington Northern Santa Fe Corp. 6.875%, due 12/01/27 5,000 5,292 7.082%, due 05/13/29+ 150,000 162,824 Caterpillar, Inc. (c) 6.550%, due 05/01/11 400,000 442,673 Cendant Corp. (c) 6.250%, due 01/15/08 300,000 319,924 Centex Corp. 7.875%, due 02/01/11 375,000 424,065 9.750%, due 06/15/05 155,000 164,241 Citigroup, Inc. 7.250%, due 10/01/10 1,675,000 1,886,393 Citizens Communications Co. (c) 9.250%, due 05/15/11 775,000 810,022 Coca-Cola Co. 4.000%, due 06/01/05 35,000 35,439 Comcast Cable Communications, Inc. (c) 6.750%, due 01/30/11 1,300,000 1,402,808 Commonwealth Edison Co. 6.150%, due 03/15/12 300,000 320,457 Computer Sciences Corp. (c) 3.500%, due 04/15/08 325,000 318,765 ConAgra Foods, Inc. 6.750%, due 09/15/11 300,000 328,709 ConocoPhillips 8.500%, due 05/25/05 425,000 446,825 8.750%, due 05/25/10 675,000 815,833 Consolidated Edison, Inc., Series B 7.500%, due 09/01/10 250,000 286,029 Coors Brewing Co. 6.375%, due 05/15/12 300,000 321,363 Countrywide Home Loans, Inc. 3.250%, due 05/21/08 325,000 312,633 C.S. First Boston USA, Inc. 3.875%, due 01/15/09 (c) $ 400,000 $ 390,085 6.500%, due 01/15/12 475,000 510,430 DaimlerChrysler NA Holding Corp.+ 4.050%, due 06/04/08 1,675,000 1,642,379 Devon Financing Corp., ULC 6.875%, due 09/30/11 475,000 517,112 Dominion Resources, Inc. 8.125%, due 06/15/10 225,000 259,650 Dominion Resources, Inc., Class B 7.625%, due 07/15/05 190,000 199,593 Dow Chemical Co. (The) (c) 6.125%, due 02/01/11 775,000 819,914 Duke Energy Field Services, LLC 7.875%, due 08/16/10 450,000 512,850 Eastman Kodak Co. 6.375%, due 06/15/06 400,000 415,502 EOP Operating LP 7.250%, due 06/15/28 425,000 440,250 Erac U.S.A. Finance Co., 144A 8.000%, due 01/15/11 250,000 290,715 Federated Department Stores, Inc. 6.625%, due 04/01/11 300,000 325,192 First Data Corp. 5.625%, due 11/01/11 300,000 313,019 FirstEnergy Corp., Series B (c) 6.450%, due 11/15/11 300,000 311,028 FleetBoston Financial Corp. (c) 7.375%, due 12/01/09 145,000 163,503 Ford Motor Co. (c) 7.450%, due 07/16/31 625,000 595,762 Ford Motor Credit Co. (c) 5.800%, due 01/12/09 2,175,000 2,195,443 7.375%, due 02/01/11 550,000 580,122 FPL Group Capital, Inc. 7.625%, due 09/15/06 300,000 327,075 GATX Financial Corp. 6.875%, due 11/01/04 245,000 249,084 General Electric Capital Corp. 6.000%, due 06/15/12 3,350,000 3,535,215 6.750%, due 03/15/32 550,000 591,258 General Motors Acceptance Corp. 6.875%, due 09/15/11 800,000 820,238 8.000%, due 11/01/31 800,000 819,670 General Motors Corp. (c) 8.375%, due 07/15/33 475,000 502,784 Goldman Sachs Group, Inc. 6.875%, due 01/15/11 1,310,000 1,438,080 Harrah's Operating Co., Inc. 7.500%, due 01/15/09 400,000 438,181 Hartford Financial Services Group (The) 4.700%, due 09/01/07 575,000 589,233 Hertz Corp. 7.625%, due 08/15/07 550,000 589,460 Household Finance Corp. 6.750%, due 05/15/11 925,000 1,010,842 ICI Wilmington, Inc. 4.375%, due 12/01/08 700,000 686,659
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FACE AMOUNT VALUE --------------- ----------------- International Lease Finance Corp. 3.500%, due 04/01/09 $ 395,000 $ 375,602 International Paper Co. (c) 6.750%, due 09/01/11 300,000 325,158 J.P. Morgan Chase & Co. 3.625%, due 05/01/08 575,000 568,635 6.750%, due 02/01/11 500,000 544,952 John Deere Capital Corp. 7.000%, due 03/15/12 400,000 447,644 Kerr-McGee Corp. 7.875%, due 09/15/31 70,000 77,208 Key Bank N.A. 7.000%, due 02/01/11 120,000 131,929 Kimberly-Clark Corp., 144A 4.500%, due 07/30/05 45,000 45,860 Kohl's Corp. 7.250%, due 06/01/29 275,000 306,477 Kraft Foods, Inc. 5.625%, due 11/01/11 675,000 686,673 Kroger Co. 7.500%, due 04/01/31 475,000 525,720 Lincoln National Corp. (c) 6.200%, due 12/15/11 400,000 424,518 Lockheed Martin Corp. 8.500%, due 12/01/29 250,000 313,590 Marathon Oil Corp. 6.125%, due 03/15/12 475,000 501,180 Marsh & McClennan Cos., Inc. 6.250%, due 03/15/12 250,000 268,179 McKesson Corp., Inc. 7.750%, due 02/01/12 170,000 193,600 MidAmerican Energy Co. 5.125%, due 01/15/13 10,000 9,937 MidAmerican Energy Holding Co. 5.875%, due 10/01/12 325,000 330,008 Miller Brewing Co., 144A 5.500%, due 08/15/13 600,000 602,094 Morgan Stanley 6.750%, due 04/15/11 1,780,000 1,950,647 Morgan Stanley Dean Witter Capital I, Class A1+ 7.420%, due 11/15/36 369,446 400,376 Motorola, Inc. (c) 7.625%, due 11/15/10 265,000 298,352 Newell Rubbermaid, Inc. 4.000%, due 05/01/10 140,000 132,895 News America Holdings, Inc. 7.125%, due 04/08/28 300,000 319,007 Northwest Airlines Corp.+ 8.072%, due 10/01/19 357,075 381,966 Pepsi Bottling Holdings, Inc., 144A (c) 5.625%, due 02/17/09 150,000 158,487 Pitney Bowes, Inc. 4.625%, due 10/01/12 245,000 238,520 PP&L Capital Funding, Inc.+ 7.750%, due 04/15/05 155,000 160,643 PPL Capital Funding Trust I, 144A 4.330%, due 03/01/09 330,000 319,439 Praxair, Inc. 6.375%, due 04/01/12 $ 180,000 $ 195,741 Progress Energy, Inc. (c) 7.000%, due 10/30/31 300,000 308,726 PSEG Power LLC 7.750%, due 04/15/11 230,000 260,482 Qwest Capital Funding, Inc. (c) 7.900%, due 08/15/10 95,000 84,075 Rohm & Haas Co. 7.850%, due 07/15/29 275,000 329,904 Safeway, Inc. (c) 6.500%, due 03/01/11 475,000 503,292 SBC Communications, Inc. 5.875%, due 02/01/12 35,000 36,027 Sempra Energy Corp. 7.950%, due 03/01/10 275,000 316,083 SLM Corp. 5.625%, due 04/10/07 575,000 604,247 Southern California Edison Co. 8.000%, due 02/15/07 520,000 574,425 Southern Power Co., Series B 6.250%, due 07/15/12 475,000 498,892 Southwestern Electric Power, Series B 4.500%, due 07/01/05 10,000 10,185 Sprint Capital Corp. 8.375%, due 03/15/12 300,000 344,799 Target Corp. (c) 7.000%, due 07/15/31 300,000 335,066 Time Warner, Inc. 7.625%, due 04/15/31 925,000 1,000,980 Transocean Sedco Forex, Inc. 6.625%, due 04/15/11 775,000 845,660 Travelers Property Casualty Corp. (c) 5.000%, due 03/15/13 350,000 339,017 U.S. Bank N.A., Minnesota 6.375%, due 08/01/11 375,000 405,097 Unilever Capital Corp. 7.125%, due 11/01/10 300,000 339,385 Union Pacific Corp. 6.700%, due 12/01/06 475,000 509,774 United Technologies Corp. 6.100%, due 05/15/12 300,000 321,300 UST, Inc. (c) 6.625%, due 07/15/12 250,000 270,742 Valero Energy Corp. (c) 7.500%, due 04/15/32 475,000 528,379 Verizon New England, Inc. (c) 6.500%, due 09/15/11 115,000 122,537 Verizon New York, Inc. (c) 6.875%, due 04/01/12 625,000 670,071 Verizon New York, Inc., Series B (c) 7.375%, due 04/01/32 250,000 263,141 Viacom, Inc. 6.625%, due 05/15/11 475,000 516,792 Wachovia Bank N.A. 7.800%, due 08/18/10 525,000 606,674 Wal-Mart Stores, Inc. 6.875%, due 08/10/09 825,000 919,928
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FACE AMOUNT VALUE --------------- ----------------- Walt Disney Co. (The) (c) 6.375%, due 03/01/12 $ 325,000 $ 348,737 Washington Mutual, Inc. 5.625%, due 01/15/07 1,625,000 1,699,956 Waste Management, Inc. 7.375%, due 08/01/10 375,000 421,324 Wells Fargo Bank, N.A. 6.450%, due 02/01/11 425,000 463,375 Weyerhaeuser Co. 7.375%, due 03/15/32 300,000 326,228 Wyeth (c) 5.250%, due 03/15/13 350,000 337,788 Xcel Energy, Inc. 7.000%, due 12/01/10 300,000 331,853 ----------------- 65,006,220 ----------------- ASSET-BACKED SECURITIES -- 0.62% Americredit Automobile Receivables Trust, 01-B, Class A4+ 5.370%, due 06/12/08 749,041 764,288 Americredit Automobile Receivables Trust, 03-AM, Class A2B+ 1.630%, due 10/06/06 40,629 40,634 Associates Manufactured Housing Pass-Thru, CTFS 99-2, Class A5 6.900%, due 06/15/27 342,696 353,045 Capital One Multi-Asset Execution Trust, 03-A1, Class A1+ 1.629%, due 01/15/09 280,000 281,283 Centerpoint Energy Transition, 01-1, Class A4+ 5.630%, due 09/15/15 310,000 323,323 Conseco Finance Securitizations Corp., 00-2, Class A4+ 8.480%, due 12/01/30 2,500,000 2,575,123 Conseco Finance Securitizations Corp., 00-5, Class A4+ 7.470%, due 02/01/32 959,447 994,835 Conseco Finance Securitizations Corp., 00-B, Class AF4+ 7.870%, due 02/15/31 1,766 1,780 Conseco Finance Securitizations Corp., 02-B, Class A2+ 5.590%, due 05/15/33 17,033 17,101 Countrywide Asset-Backed Certificates, 03-SD3, Class A1, 144A+ 1.720%, due 12/25/32 292,043 293,215 Countrywide Asset-Backed Certificates, 04-SD1, Class A1, 144A+ 1.640%, due 06/25/33 1,071,342 1,073,250 Greentree Financial Corp., 96-4, Class A6 7.400%, due 06/15/27 432,816 459,577 Paragon Mortgages PLC, 7A, Class B1A, 144A+ 2.305%, due 05/15/43 1,040,000 1,040,000 Peco Energy Transition Trust, 99-A, Class A7+ 6.130%, due 03/01/09 230,000 246,918 Providian Gateway Master Trust, 04-AA, Class C, 144A+ 2.139%, due 03/15/11 $ 400,000 $ 400,520 Providian Gateway Master Trust, 04-AA, Class D, 144A+ 3.089%, due 03/15/11 460,000 460,368 Providian Gateway Master Trust, 04-BA, Class D, 144A+ 2.525%, due 07/15/10 840,000 840,000 RAFC Asset-Backed Trust, 01-1, Class A3+ 5.115%, due 01/25/15 545,233 554,321 Sears Credit Account Master Trust 01-1, Class A+ 1.419%, due 02/15/10 280,000 279,809 Structured Asset Securities Corp., 03-AL2, Class A, 144A+ 3.356%, due 01/25/31 301,159 274,937 Vanderbilt Mortgage Finance, 00-B, Class 1A3+ 8.255%, due 05/07/17 128,873 132,465 ----------------- 11,406,792 ----------------- COMMERCIAL MORTGAGE-BACKED SECURITIES -- 1.74% Asset Securitization Corp., 95-MD4, Class A3+ 7.384%, due 08/13/29 3,250,000 3,567,082 Bear Stearns Commercial Mortgage Securities, 00-WF1, Class A2+ 7.780%, due 02/15/32 455,000 518,517 Bear Stearns Commercial Mortgage Securities, 00-WF2, Class A2+ 7.320%, due 10/15/32 1,500,000 1,689,878 Commercial Mortgage Trust, 01-FL5A, Class E, 144A+ 2.739%, due 11/15/13 440,000 441,248 Commercial Mortgage Trust, 01-FL5A, Class F, 144A+ 2.197%, due 11/15/13 515,000 515,909 C.S. First Boston Mortgage Securities Corp., 01-CF2, Class A1+ 5.257%, due 02/15/34 303,902 307,083 C.S. First Boston Mortgage Securities Corp., 99-C1 Class A2+ 7.290%, due 09/15/41 3,500,000 3,909,489 DLJ Commercial Mortgage Corp., 99-CG3, Class A1B+ 7.340%, due 10/10/32 385,000 433,234 DLJ Commercial Mortgage Corp., 00-CKP1, Class A1B+ 7.180%, due 08/10/10 1,275,000 1,424,332 First Union Commercial Mortgage Securities, Inc., 97-C2, Class A3 6.650%, due 11/18/29 1,259,058 1,339,204 First Union Commercial Mortgage Securities, Inc., 98-C2, Class A1+ 6.280%, due 11/18/35 430,280 440,653 GMAC Commercial Mortgage Securities, Inc., 97-C2, Class A2 6.550%, due 04/16/29 87,215 87,991
13
FACE AMOUNT VALUE --------------- ----------------- Greenwich Capital Commercial Funding Corp., 03-FL1, Class A, 144A+ 1.681%, due 07/05/18 $ 193,835 $ 193,863 GS Mortgage Securities Corp., II, 96-PL, Class A2+ 7.410%, due 02/15/27 9,681 9,736 GS Mortgage Securities Corp., II, 98-GLII, Class A1+ 6.312%, due 04/13/31 2,152,779 2,257,415 Heller Financial Commercial Mortgage Assets, 99-PH1, Class A1 6.500%, due 05/15/31 784,719 827,667 Host Marriott Pool Trust, 99-HMTA, Class A, 144A+ 6.980%, due 08/03/15 319,311 341,173 Host Marriott Pool Trust, 99-HMTA, Class C, 144A+ 7.730%, due 08/03/15 750,000 840,196 Host Marriott Pool Trust, 99-HMTA, Class D, 144A+ 7.970%, due 08/03/15 460,000 512,811 Host Marriott Pool Trust, 99-HMTA, Class E, 144A+ 8.070%, due 08/03/15 460,000 504,520 JP Morgan Commercial Mortgage Finance Corp., 99-C8, Class A1 7.325%, due 07/15/31 885,473 922,871 JP Morgan Commercial Mortgage Finance Corp., 99-C8, Class A2 7.400%, due 07/15/31 1,000,000 1,110,174 LB Commercial Conduit Mortgage Trust, 99-C1, Class A1+ 6.410%, due 06/15/31 455,982 476,120 LB Commercial Conduit Mortgage Trust, 99-C2, Class A2 7.325%, due 10/15/32 200,000 223,982 Merrill Lynch Mortgage Investors, Inc., 97-C1, Class A3+ 7.120%, due 06/18/29 371,439 397,161 Merrill Lynch Mortgage Investors, Inc., 98-C1, Class A1+ 6.310%, due 11/15/26 1,733,759 1,785,319 Morgan Stanley Dean Witter Capital I, 96-WF1, Class A3, 144A+ 7.684%, due 11/15/28 448,179 463,574 Morgan Stanley Dean Witter Capital I, 00-LIFE, Class A2+ 7.570%, due 12/15/09 150,000 169,963 Nomura Asset Securities Corp., 95-MD3, Class A1B+ 8.150%, due 04/04/27 766,451 786,484 Nomura Asset Securities Corp., 98-D6, Class A1A+ 6.280%, due 03/15/30 1,491,938 1,561,355 PNC Mortgage Acceptance Corp., 00-C1, Class A2+ 7.610%, due 02/15/10 2,000,000 2,264,559 Prudential Mortgage Capital Funding, LLC, 01-ROCK, Class A2+ 6.605%, due 05/10/34 1,055,000 1,149,136 Salomon Brothers Mortgage Securities VII, 00-C3, Class A2+ 6.592%, due 12/18/33 $ 80,000 $ 87,082 Starwood Asset Receivables Trust, 03-1A, Class A1, 144A+ 1.570%, due 08/28/22 491,049 491,050 ----------------- 32,050,831 ----------------- MORTGAGE & AGENCY DEBT SECURITIES -- 8.02% Countrywide Home Loan Mortgage Pass-Thru Trust, 03-20, Class 3A2 4.750%, due 07/25/18 906,278 914,039 C.S. First Boston Mortgage Securities Corp., 01-26, Class 5A1 7.430%, due 11/25/31 243,593 249,705 C.S. First Boston Mortgage Securities Corp., 02-10, Class 2A1 7.500%, due 05/25/32 69,890 72,359 C.S. First Boston Mortgage Securities Corp., 03-8, Class 5A1 6.500%, due 04/25/33 2,353,963 2,412,217 C.S. First Boston Mortgage Securities Corp., 03-27, Class 9A1 7.000%, due 11/25/33 1,169,642 1,201,662 Federal Home Loan Mortgage Corp. 2.875%, due 11/03/06+ 390,000 385,867 3.875%, due 01/12/09+ 2,600,000 2,555,956 5.000%, due 01/30/14 (c) 5,335,000 5,163,714 5.125%, due 07/15/12 (c) 9,715,000 9,816,308 Federal Home Loan Mortgage Corp., 2148, Class ZA 6.000%, due 04/15/29 1,362,372 1,369,361 Federal Home Loan Mortgage Corp., 2426, Class GH 6.000%, due 08/15/30 1,395,000 1,430,899 Federal Home Loan Mortgage Corp., Gold 5.000%, due 11/01/07 141,616 144,498 5.500%, due 09/01/17 85,227 87,298 5.500%, due 01/01/18 186,554 191,087 5.500%, due 04/01/18 586,970 601,072 5.500%, due 12/01/18 1,476,210 1,511,676 5.500%, due 01/01/19 2,484,566 2,544,258 6.000%, due 12/01/17 541,833 565,379 6.000%, due 10/01/29 47,938 49,203 6.000%, due 12/01/30 662,392 679,051 6.000%, due 03/01/31 898,798 919,112 6.000%, due 08/15/34 8,535,000 8,679,028 6.500%, due 02/01/17 212,382 224,385 6.500%, due 10/01/17 1,149,882 1,214,868 6.500%, due 01/01/29 4,573,867 4,770,932 6.500%, due 04/01/29 123,719 129,049 6.500%, due 08/15/34 5,305,000 5,507,253 7.000%, due 06/01/28 426,792 450,451 Federal National Mortgage Association 2.625%, due 01/19/07+ (c) 4,855,000 4,759,289 3.376%, due 09/01/33+ 271,325 271,505 3.831%, due 08/01/33+ 4,869,861 4,828,790 3.925%, due 05/01/33+ 751,701 756,977 4.341%, due 03/01/34+ 775,318 789,438
14
FACE AMOUNT VALUE --------------- ----------------- Federal National Mortgage Association 4.440%, due 06/01/33+ $ 676,083 $ 684,654 4.585%, due 11/01/33+ 3,471,833 3,493,011 5.000%, due 03/01/34 2,886,956 2,792,082 5.125%, due 01/02/14 135,000 131,377 5.500%, due 03/15/11 (c) 670,000 700,781 5.500%, due 12/01/17 72,709 74,538 5.500%, due 01/01/18 2,564,389 2,628,888 5.500%, due 11/01/23 240,855 240,015 5.500%, due 11/01/33 4,231,364 4,216,605 6.000%, due 09/01/08 3,421,684 3,569,309 6.000%, due 06/01/14 2,072,686 2,162,110 6.000%, due 08/01/17 1,325,173 1,382,346 6.000%, due 04/01/18 572,157 596,842 6.000%, due 11/01/28 243,721 249,116 6.000%, due 03/01/29 1,432,947 1,464,668 6.000%, due 07/01/29 1,436,954 1,468,764 6.000%, due 06/01/31 23,232 23,746 6.000%, due 01/01/33 3,403,376 3,478,717 6.000%, due 12/01/33 2,337,897 2,389,651 6.250%, due 02/01/11 (c) 625,000 671,026 6.500%, due 12/01/10 3,435,899 3,631,154 6.500%, due 03/01/17 936,369 989,581 6.500%, due 04/01/17 925,399 977,988 6.500%, due 03/01/28 261,300 272,274 6.500%, due 05/01/28 3,322,464 3,461,994 6.500%, due 10/01/28 1,588,713 1,655,433 6.500%, due 12/01/28 291,663 303,912 6.500%, due 04/01/29 1,085,538 1,131,126 6.500%, due 06/01/29 1,266,458 1,319,644 6.500%, due 08/01/29 395,850 413,068 6.500%, due 05/01/30 269,151 280,454 6.500%, due 11/01/31 16,086 16,762 6.500%, due 08/15/34 945,000 980,437 7.000%, due 08/01/32 2,559,574 2,701,461 7.000%, due 03/01/33 1,295,055 1,366,845 7.000%, due 05/01/33 359,732 379,673 7.000%, due 12/01/33 2,093,090 2,209,118 7.000%, due 01/01/34 1,815,275 1,922,746 7.500%, due 05/01/31 43,853 46,942 7.500%, due 02/01/33 767,680 823,202 7.500%, due 07/25/41 3,088,191 3,321,535 Federal National Mortgage Association Grantor Trust, 00-T6, Class A1 7.500%, due 06/25/30 716,700 767,987 Federal National Mortgage Association Grantor Trust, 01-T5, Class A3 7.500%, due 06/19/30 168,049 180,075 Federal National Mortgage Association Whole Loan, 01-W3, Class A 7.000%, due 09/25/41 179,210 189,851 Federal National Mortgage Association Grantor Trust, 02-T19, Class A1 6.500%, due 07/25/42 3,733,369 3,901,389 Federal National Mortgage Association Whole Loan, 03-W6, Class 6A+ 4.501%, due 08/25/42 554,922 580,744 Federal National Mortgage Association Whole Loan, 03-W11, Class A1+ 5.308%, due 06/25/33 $ 628,388 $ 641,987 Federal National Mortgage Association Whole Loan, 95-W3, Class A 9.000%, due 04/25/25 2,448 2,695 GMAC Mortgage Corp. Loan Trust, 03-AR2, Class 4A1+ 4.764%, due 12/19/33 1,786,053 1,746,386 Government National Mortgage Association 4.000%, due 10/20/29 449,206 451,640 6.000%, due 11/20/28 79,101 81,080 6.000%, due 01/15/29 77,291 79,322 6.000%, due 02/20/29 68,942 70,667 6.000%, due 05/20/29 176,680 181,101 6.000%, due 07/15/29 1,521,712 1,561,689 6.500%, due 03/15/26 838,127 876,786 6.500%, due 04/15/31 875,973 916,377 6.500%, due 01/20/34 1,990,734 2,067,560 8.000%, due 12/15/22 23,414 25,889 9.000%, due 11/15/04 440 484 9.000%, due 11/15/04 35 38 MLCC Mortgage Investors, Inc., 03-D, Class XA1++ 1.000%, due 08/25/28 (d) 16,301,106 257,889 Structured Adjustable Rate Mortgage Loan Trust, 04-3AC, Class A1+ 4.940%, due 03/25/34 1,400,481 1,404,722 Structured Asset Securities Corp., 02-23XS, Class A7+ 6.080%, due 11/25/32 5,170,000 5,138,253 ----------------- 146,994,892 ----------------- U.S. GOVERNMENT OBLIGATIONS -- 4.38% U.S. Treasury Bonds 6.250%, due 08/15/23 (c) 7,090,000 7,851,069 6.250%, due 05/15/30 (c) 6,815,000 7,630,401 8.750%, due 05/15/17 810,000 1,097,930 U.S. Treasury Notes 1.625%, due 02/28/06 (c) 6,610,000 6,513,176 1.875%, due 11/30/05 (c) 1,195,000 1,186,738 3.375%, due 12/15/08 (c) 25,905,000 25,575,126 4.250%, due 08/15/13 (c) 20,285,000 19,801,649 5.375%, due 02/15/31 (c) 10,510,000 10,599,913 ----------------- 80,256,002 ----------------- Total U.S. Bonds 335,714,737 ----------------- INNTERNATIONAL BONDS -- 5.86% INTERNATIONAL CORPORATE BONDS -- 0.36% AUSTRALIA -- 0.01% International Bank for Reconstruction & Development (c) 4.375%, due 09/28/06 225,000 231,292 ----------------- CANADA -- 0.06% Bombardier, Inc., 144A (c) 6.300%, due 05/01/14 575,000 488,375 Burlington Resources Finance Co. 6.680%, due 02/15/11 250,000 273,306
15
FACE AMOUNT VALUE --------------- ----------------- Canadian National Railway Co. 6.900%, due 07/15/28 $ 15,000 $ 16,235 Telus Corp. 8.000%, due 06/01/11 310,000 352,334 ----------------- 1,130,250 ----------------- CAYMAN ISLANDS -- 0.01% Santander Central Hispano Issuances Ltd. 7.625%, due 09/14/10 115,000 131,327 ----------------- FRANCE -- 0.01% France Telecom S.A. 8.500%, due 03/01/31 205,000 257,279 ----------------- LUXEMBOURG -- 0.02% Telecom Italia Capital Corp., 144A 5.250%, due 11/15/13 325,000 314,550 ----------------- NETHERLANDS -- 0.02% Deutsche Telekom International Finance BV 8.250%, due 06/15/30 295,000 359,055 ----------------- UNITED KINGDOM -- 0.23% Abbey National PLC 6.690%, due 10/17/05 260,000 272,797 7.950%, due 10/26/29 150,000 177,991 Diageo PLC (c) 3.500%, due 11/19/07 325,000 321,242 HSBC Holdings PLC (c) 5.250%, due 12/12/12 325,000 322,832 Permanent Financing PLC, 04, Class 2C+ 2.130%, due 06/10/42 2,500,000 2,499,481 Royal Bank of Scotland Group PLC+ 9.118%, due 03/31/10 225,000 271,125 Vodafone Group PLC (c) 7.875%, due 02/15/30 250,000 297,399 ----------------- 4,162,867 ----------------- Total International Corporate Bonds 6,586,620 ----------------- FOREIGN GOVERNMENT BONDS -- 5.48% AUSTRALIA -- 0.03% Government of Australia 7.500%, due 09/15/09 AUD 715,000 537,570 ----------------- AUSTRIA -- 0.43% Republic of Austria 3.800%, due 10/20/13 EUR 2,880,000 3,370,301 5.875%, due 07/15/06 3,510,000 4,527,860 ----------------- 7,898,161 ----------------- BELGIUM -- 0.16% Government of Belgium 5.750%, due 03/28/08 EUR 2,255,000 2,972,519 ----------------- CANADA -- 0.32% Government of Canada 5.750%, due 06/01/29 CAD 1,040,000 817,184 6.000%, due 09/01/05 3,275,000 2,530,721 6.000%, due 06/01/08 1,200,000 957,064 6.000%, due 06/01/11 1,005,000 807,328 8.000%, due 06/01/23 700,000 689,167 ----------------- 5,801,464 ----------------- CAYMAN ISLANDS -- 0.09% SMFG Finance Ltd. 2.250%, due 07/11/05 JPY 18,000,000 $ 396,781 SMFG Finance Ltd., 2.250%, due 07/11/05 60,000,000 1,319,709 ----------------- 1,716,490 ----------------- DENMARK -- 0.20% Kingdom of Denmark 5.000%, due 08/15/05 DKK 5,940,000 998,258 5.000%, due 11/15/13 7,130,000 1,212,027 6.000%, due 11/15/09 7,680,000 1,383,038 ----------------- 3,593,323 ----------------- FINLAND -- 0.30% Government of Finland 5.000%, due 07/04/07 EUR 1,300,000 1,665,819 5.750%, due 02/23/11 2,890,000 3,881,148 ----------------- 5,546,967 ----------------- FRANCE -- 0.79% Government of France 5.000%, due 10/25/16 EUR 1,545,000 1,965,553 5.500%, due 04/25/07 2,580,000 3,341,844 5.500%, due 04/25/10 3,180,000 4,207,016 5.500%, due 04/25/29 1,595,000 2,094,670 8.500%, due 10/25/19 1,635,000 2,822,281 ----------------- 14,431,364 ----------------- GERMANY -- 1.83% Deutsche Bundesrepublik 4.500%, due 07/04/09 EUR 1,300,000 1,644,835 5.000%, due 07/04/12 4,630,000 5,960,615 6.000%, due 01/05/06 3,000,000 3,831,353 6.000%, due 01/04/07 8,835,000 11,519,191 6.500%, due 07/04/27 7,165,000 10,657,332 ----------------- 33,613,326 ----------------- ITALY -- 0.48% Buoni Poliennali Del Tesoro 5.250%, due 11/01/29 EUR 895,000 1,118,680 5.500%, due 11/01/10 1,740,000 2,297,947 8.750%, due 07/01/06 3,930,000 5,332,012 ----------------- 8,748,639 ----------------- MEXICO -- 0.07% United Mexican States 8.125%, due 12/30/19 $ 1,215,000 1,300,050 ----------------- NETHERLANDS -- 0.23% Government of Netherlands 5.000%, due 07/15/11 EUR 3,305,000 4,256,697 ----------------- POLAND 0.14% Republic of Poland 5.750%, due 06/24/08 PLN 9,850,000 2,505,757 ----------------- SWEDEN 0.06% Government of Sweden 6.750%, due 05/05/14 SEK 3,480,000 536,255 8.000%, due 08/15/07 4,170,000 625,089 ----------------- 1,161,344 -----------------
16
FACE AMOUNT VALUE --------------- ----------------- UNITED KINGDOM -- 0.35% U.K. Gilts 4.750%, due 09/07/15 GBP 2,610,000 $ 4,594,678 5.000%, due 03/07/12 590,000 1,062,475 5.750%, due 12/07/09 390,000 730,110 ----------------- 6,387,263 ----------------- Total Foreign Government Bonds 100,470,934 ----------------- SOVEREIGN/SUPRANATIONAL BOND -- 0.02% Pemex Project Funding Master Trust 8.000%, due 11/15/11 $ 320,000 346,400 ----------------- Total International Bonds 107,403,954 ----------------- Total Bonds (Cost $444,854,260) 443,118,691 ----------------- SHARES --------------- INVESTMENT COMPANIES -- 12.46% UBS Emerging Markets Equity Relationship Fund 12,134,248 149,570,381 UBS High Yield Relationship Fund 987,139 16,815,518 UBS Small Cap Equity Relationship Fund 1,775,432 62,085,614 ----------------- Total Investment Companies (Cost $200,640,168) 228,471,513 ----------------- SHORT-TERM INVESTMENTS -- 2.16% OTHER -- 2.11% UBS Supplementary Trust U.S. Cash Management Prime Fund, yield of 1.05% 38,597,478 38,597,478 ----------------- FACE AMOUNT --------------- U.S. GOVERNMENT OBLIGATION -- 0.05% U.S. Treasury Bills, yield of 1.00% due 08/05/04 (e) $ 1,000,000 998,954 ----------------- Total Short-Term Investments (Cost $39,596,515) 39,596,432 ----------------- SHARES --------------- INVESTMENTS OF CASH COLLATERAL FOR SECURITIES LOANED -- 6.69% UBS Supplementary Trust U.S. Cash Management Prime Fund, yield of 1.05% (Cost $122,602,637) 122,602,637 122,602,637 ----------------- Total Investments (Cost $1,829,475,058) -- 105.77% (a) 1,938,996,037 Liabilities, in excess of cash and other assets -- (5.77)% (105,805,272) ----------------- Net Assets -- 100% $ 1,833,190,765 =================
17 NOTES TO SCHEDULE OF INVESTMENTS (a) Aggregate cost for federal income tax purposes was $1,835,622,051; and net unrealized appreciation consisted of: Gross unrealized appreciation $ 124,193,848 Gross unrealized depreciation (20,819,862) ----------------- Net unrealized appreciation $ 103,373,986 =================
(b) Non-income producing security. (c) Securities, or portion thereof, was on loan at June 30, 2004. (d) Security is illiquid. This security amounted to $257,889 or 0.01% of net assets (e) All or portion of these securities was pledged to cover margin requirements for futures contracts. + Variable rate note - The rate disclosed is that in effect at June 30, 2004. ++ Interest Only Security. This security entitles the holder to receive interst payments from an underlying pool of mortgages. The risk associated with this security is related to the speed of the principle 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 being received and cause the yield to increase. % Represents a percentage of net assets. 144A: Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities are considered liquid and may be resold in transactions exempt from registration, normally to qualified institutional buyers. At June 30, 2004 the value of these securities amounted to $11,574,238 or 0.63% of net assets. AUD Australian Dollar CAD Canadian Dollar CHF Swiss Franc DKK Danish Krone EUR Euro GBP British Pound JPY Japanese Yen MXN Mexican Peso PLN Polish Zloty SGD Singapore Dollar SGPS Sociedade Gestora de Participacoes Sociais ULC Unlimited Liability Company FORWARD FOREIGN CURRENCY CONTRACTS UBS Global Allocation Fund had the following open forward foreign currency contracts as of June 30, 2004:
UNREALIZED CONTRACTS IN EXCHANGE MATURITY APPRECIATION TO DELIVER FOR DATES (DEPRECIATION) ---------- -------------------- -------- -------------- British Pound 51,000,000 USD 91,185,450 12/3/04 $ (94,236) Swiss Franc 44,000,000 EUR 29,299,541 12/3/04 290,859 United States Dollar 28,626,030 CHF 36,100,000 12/3/04 342,140 United States Dollar 20,657,142 EUR 17,100,000 12/3/04 118,997 United States Dollar 62,312,204 JPY 6,885,000,000 12/3/04 1,304,040 United States Dollar 36,109,986 SGD 61,500,000 12/3/04 (251,266) ------------ Total net unrealized appreciation on forward foreign currency contracts $ 1,710,534 ============
FUTURES CONTRACTS UBS Global Allocation Fund had the following open futures contracts as of June 30, 2004:
UNREALIZED EXPIRATION COST/ CURRENT APPRECIATION DATE PROCEEDS VALUE (DEPRECIATION) -------------- ------------ ------------ -------------- U.S. INTEREST RATE FUTURES BUY CONTRACTS: 20 Year U.S. Long Bond (Chicago Board of Trade), 23 contracts September 2004 $ 2,406,005 $ 2,446,625 $ 40,620 5 Year U.S. Treasury Notes, 174 contracts September 2004 18,748,359 18,911,625 163,266 10 Year U.S. Treasury Notes, 6 contracts September 2004 646,870 655,969 9,099 INDEX FUTURES SALE CONTRACTS: S&P 500 Index, 101 contracts September 2004 28,602,493 28,795,100 (192,607) --------- Total net unrealized appreciation on futures contracts $ 20,378 =========
The aggregate market value of investments pledged to cover margin requirements for the open futures positions at June 30, 2004 was $998,954. See accompanying notes to financial statements 18 UBS GLOBAL EQUITY FUND For the fiscal year ended June 30, 2004, Class Y shares of UBS Global Equity Fund returned 20.09%, underperforming the 24.35% return of the Fund's benchmark, the MSCI World Equity (Free) Index (the "Index"). Since inception on January 28, 1994 through period end, the Fund returned 6.77% on an annualized basis, in line with the 6.84% annualized 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 posted strong returns over the period on an absolute basis, it trailed the results of the Index. This underperformance can be traced primarily to the Fund's allocation strategy in the first half of the period. At that time, lower-quality, speculative stocks were leading an equity market rally. The Fund's ongoing focus on fundamentally sound companies with long-term growth potential caused us to avoid many of these stocks, limiting our participation in this speculative-driven rally. However, in 2004, investors shifted their focus back to higher-quality companies with predictable growth prospects, benefiting the portfolio. ON-SITE ANALYSTS PROVIDED TIMELY, VALUABLE INSIGHT Investment decisions for the Fund are guided by our disciplined price to intrinsic value approach. This approach is founded on the belief that discrepancies between a stock's current price and its future--or intrinsic--value arise from market behavior and market structure, providing opportunities to outperform. To arrive at these decisions, we relied on our global network of analysts and investment specialists, who provide on-site intelligence on the status of local economies, politics, industry trends and specific companies. This input proved particularly valuable in making country and sector allocation decisions over the last 12 months. Responding to several years of fiscal and monetary stimulus, the global economy launched a long-awaited recovery in 2003. Eager investors quickly drove the global equity markets up to what we considered fair valuation. Against this backdrop, the Fund maintained an underweight to the US, largely as a result of an underweighting to US technology hardware, rather than strictly a preference for foreign equity markets over the US. In Japan, the Fund's exposure aided performance on an absolute basis, when the Japanese markets began to show signs of recovery. We reduced our exposure to Japan in the second half of the period, when we took profits in response to concerns that Japan's growth was being fueled primarily by demand from China--a potentially unreliable source as Chinese authorities attempt to dampen their runaway economy. In terms of sectors, the Fund held a significant overweight in financial services, bypassing the troubled insurance industry in favor of what we considered to be more promising areas, including banks and US diversified financial services companies. Bank of Ireland and Freddie Mac are examples of holdings in this sector that supported performance. The Fund's overweighting in healthcare produced mixed results. Positive stock selection was overshadowed by the market's preference for more cyclical sectors. The Fund maintained an underweight to technology during the fiscal year, with neutral results. Technology, which had been one of the top-performing sectors in 2003, by mid-period began to lag the overall market. Our research continues to suggest a cautious approach to the sector, citing unrealistic earnings expectations and inflated valuations. On a final note, currency allocation was a modest detractor to performance over the fiscal year, as the British pound strengthened relative to other major currencies. Our largest underweight position was in British pounds; our largest overweight position was in euros. We also had a small US dollar underweight, given our belief that the currency could depreciate further in the coming months. LOOKING AHEAD The UK is enjoying strong growth and low inflation, but high personal debt levels may pose a threat to the recovery. Japan continues to report robust growth, but it relies heavily on demand from China, where authorities are trying to dampen the economy. The Fund will approach these uncertain times with the same disciplined investment process that has guided us thus far: in-depth research and analysis to identify stocks across countries and sectors that are selling for less than their intrinsic value. 19 UBS GLOBAL EQUITY FUND (UNAUDITED) TOTAL RETURN
1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION* ENDED ENDED ENDED ENDED TO 6/30/04 6/30/04 6/30/04 6/30/04 6/30/04 ----------------------------------------------------------------------------------------------- UBS GLOBAL EQUITY FUND CLASS A 19.49% 2.41% 1.02% N/A 3.29% UBS GLOBAL EQUITY FUND CLASS B 18.61 N/A N/A N/A 3.85 UBS GLOBAL EQUITY FUND CLASS C 18.54 N/A N/A N/A 3.68 UBS GLOBAL EQUITY FUND CLASS Y 20.09 2.82 1.38 7.58% 6.77 UBS GLOBAL EQUITY FUND CLASS A** 12.88 0.49 -0.12 N/A 2.46 UBS GLOBAL EQUITY FUND CLASS B** 13.61 N/A N/A N/A 2.73 UBS GLOBAL EQUITY FUND CLASS C** 17.54 N/A N/A N/A 3.68 MSCI WORLD EQUITY (FREE) INDEX 24.35 1.16 -1.46 7.42 6.84
* 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. ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000 This chart shows the growth in the value of an investment in UBS Global Equity Fund Class Y shares and the MSCI World Equity (Free) Index, if you had invested $10,000 on January 31, 1994, and had reinvested all your income dividends and capital gain distributions through June 30, 2004. The performance of Class A, Class B and Class C shares will vary based upon the different inception dates, class specific expenses and sales charges. No adjustment has been made for any income taxes payable by shareholders on income dividends and capital gain distributions. Past performance is no guarantee of future results. Share price and returns will vary with market conditions; investors may realize a gain or loss upon redemption. [CHART] UBS GLOBAL EQUITY FUND CLASS Y VS. MSCI WORLD EQUITY (FREE) INDEX Wealth Value With Dividends
UBS GLOBAL EQUITY FUND CLASS Y MSCI WORLD EQUITY (FREE) INDEX 1/31/94 $ 10,000 $ 10,000 2/28/94 $ 9,780 $ 9,869 3/31/94 $ 9,350 $ 9,443 4/30/94 $ 9,570 $ 9,741 5/31/94 $ 9,640 $ 9,770 6/30/94 $ 9,530 $ 9,741 7/31/94 $ 9,671 $ 9,927 8/31/94 $ 10,083 $ 10,228 9/30/94 $ 9,811 $ 9,957 10/31/94 $ 9,832 $ 10,244 11/30/94 $ 9,570 $ 9,802 12/31/94 $ 9,565 $ 9,896 1/31/95 $ 9,423 $ 9,750 2/28/95 $ 9,575 $ 9,895 3/31/95 $ 9,656 $ 10,372 4/30/95 $ 9,910 $ 10,735 5/31/95 $ 10,042 $ 10,832 6/30/95 $ 10,108 $ 10,829 7/31/95 $ 10,576 $ 11,371 8/31/95 $ 10,750 $ 11,117 9/30/95 $ 10,944 $ 11,445 10/31/95 $ 10,924 $ 11,267 11/30/95 $ 11,312 $ 11,660 12/31/95 $ 11,663 $ 12,002 1/31/96 $ 12,013 $ 12,227 2/29/96 $ 12,067 $ 12,301 3/31/96 $ 12,275 $ 12,505 4/30/96 $ 12,613 $ 12,799 5/31/96 $ 12,646 $ 12,809 6/30/96 $ 12,702 $ 12,878 7/31/96 $ 12,296 $ 12,423 8/31/96 $ 12,515 $ 12,569 9/30/96 $ 12,933 $ 13,062 10/31/96 $ 12,976 $ 13,152 11/30/96 $ 13,635 $ 13,894 12/31/96 $ 13,677 $ 13,673 1/31/97 $ 13,797 $ 13,840 2/28/97 $ 13,989 $ 13,998 3/31/97 $ 13,929 $ 13,718 4/30/97 $ 14,013 $ 14,168 5/31/97 $ 14,842 $ 15,045 6/30/97 $ 15,403 $ 15,793 7/31/97 $ 15,910 $ 16,522 8/31/97 $ 15,173 $ 15,404 9/30/97 $ 15,825 $ 16,241 10/31/97 $ 14,968 $ 15,389 11/30/97 $ 14,956 $ 15,658 12/31/97 $ 15,143 $ 15,849 1/31/98 $ 15,396 $ 16,294 2/28/98 $ 16,343 $ 17,396 3/31/98 $ 17,009 $ 18,128 4/30/98 $ 16,983 $ 18,306 5/31/98 $ 16,929 $ 18,083 6/30/98 $ 16,788 $ 18,506 7/31/98 $ 16,707 $ 18,478 8/31/98 $ 14,873 $ 16,015 9/30/98 $ 15,114 $ 16,300 10/31/98 $ 16,118 $ 17,776 11/30/98 $ 16,734 $ 18,835 12/31/98 $ 17,268 $ 19,751 1/31/99 $ 17,268 $ 20,185 2/28/99 $ 16,760 $ 19,648 3/31/99 $ 17,282 $ 20,463 4/30/99 $ 18,476 $ 21,273 5/31/99 $ 17,804 $ 20,490 6/30/99 $ 18,490 $ 21,443 7/31/99 $ 18,421 $ 21,379 8/31/99 $ 18,132 $ 21,340 9/30/99 $ 17,622 $ 21,139 10/31/99 $ 17,870 $ 22,237 11/30/99 $ 18,311 $ 22,861 12/31/99 $ 19,491 $ 24,713 1/31/2000 $ 18,166 $ 23,299 2/29/2000 $ 17,800 $ 23,360 3/31/2000 $ 18,425 $ 24,977 4/30/2000 $ 18,227 $ 23,919 5/31/2000 $ 18,379 $ 23,314 6/30/2000 $ 18,988 $ 24,099 7/31/2000 $ 18,562 $ 23,419 8/31/2000 $ 18,897 $ 24,182 9/30/2000 $ 18,333 $ 22,897 10/31/2000 $ 18,546 $ 22,514 11/30/2000 $ 18,394 $ 21,146 12/31/2000 $ 19,475 $ 21,481 1/31/2001 $ 19,900 $ 21,897 2/28/2001 $ 18,743 $ 20,049 3/31/2001 $ 17,653 $ 18,731 4/30/2001 $ 18,709 $ 20,117 5/31/2001 $ 18,556 $ 19,863 6/30/2001 $ 18,215 $ 19,240 7/31/2001 $ 17,994 $ 18,986 8/31/2001 $ 17,550 $ 18,076 9/30/2001 $ 16,186 $ 16,483 10/31/2001 $ 16,459 $ 16,800 11/30/2001 $ 17,482 $ 17,796 12/31/2001 $ 17,716 $ 17,909 1/31/2002 $ 17,326 $ 17,368 2/28/2002 $ 17,308 $ 17,218 3/31/2002 $ 18,000 $ 17,980 4/30/2002 $ 17,681 $ 17,373 5/31/2002 $ 17,823 $ 17,409 6/30/2002 $ 16,811 $ 16,354 7/31/2002 $ 15,320 $ 14,976 8/31/2002 $ 15,480 $ 15,005 9/30/2002 $ 13,527 $ 13,357 10/31/2002 $ 14,699 $ 14,344 11/30/2002 $ 15,622 $ 15,120 12/31/2002 $ 14,964 $ 14,389 1/31/2003 $ 14,414 $ 13,954 2/28/2003 $ 14,102 $ 13,713 3/31/2003 $ 13,919 $ 13,672 4/30/2003 $ 15,313 $ 14,889 5/31/2003 $ 16,174 $ 15,743 6/30/2003 $ 16,486 $ 16,019 7/31/2003 $ 16,725 $ 16,346 8/31/2003 $ 16,926 $ 16,700 9/30/2003 $ 17,073 $ 16,804 10/31/2003 $ 17,862 $ 17,804 11/30/2003 $ 18,173 $ 18,077 12/31/2003 $ 19,389 $ 19,215 1/31/2004 $ 19,464 $ 19,527 2/29/2004 $ 19,723 $ 19,859 3/31/2004 $ 19,556 $ 19,729 4/30/2004 $ 19,259 $ 19,329 5/31/2004 $ 19,297 $ 19,513 6/30/2004 $ 19,798 $ 19,919
1/31/94 = $10,000 FUND RETURNS ARE NET OF ALL FEES AND COSTS, WHILE THE INDEX RETURNS ARE BASED SOLELY ON MARKET RETURNS WITHOUT DEDUCTION FOR FEES OR TRANSACTION COSTS FOR REBALANCING. 20 TOP TEN INTERNATIONAL EQUITY HOLDINGS AS OF JUNE 30, 2004
PERCENTAGE OF NET ASSETS ---------------------------------------------------------------- Honda Motor Co., Ltd. 2.2% BP PLC 2.0 Shell Transport & Trading Co. PLC 1.8 Vodafone Group PLC 1.7 Bank of Ireland 1.6 Total S.A. 1.6 Diageo PLC 1.6 Royal Bank of Scotland Group PLC 1.3 Gallaher Group PLC 1.3 France Telecom S.A. 1.1 ---------------------------------------------------------------- Total 16.2%
TOP TEN US EQUITY HOLDINGS AS OF JUNE 30, 2004
PERCENTAGE OF NET ASSETS ---------------------------------------------------------------- Citigroup, Inc. 3.5% Microsoft Corp. 2.6 Nextel Communications, Inc., Class A 2.1 General Electric Co. 2.1 Freddie Mac 2.0 Johnson & Johnson 1.8 Mellon Financial Corp. 1.6 Wyeth 1.6 Masco Corp. 1.6 Wells Fargo & Co. 1.6 ---------------------------------------------------------------- Total 20.5%
GEOGRAPHIC ALLOCATION AS OF JUNE 30, 2004
PERCENTAGE OF NET ASSETS ---------------------------------------------------------------- United States 48.5% United Kingdom 18.0 Japan 8.1 France 5.1 Netherlands 4.4 Switzerland 2.7 Ireland 2.6 Australia 1.9 Italy 1.6 Sweden 1.6 Canada 1.4 Finland 1.4 Belgium 0.8 Spain 0.7 Germany 0.5 Hong Kong 0.5 Portugal 0.2 ---------------------------------------------------------------- 100.0%
21 INDUSTRY DIVERSIFICATION AS A PERCENT OF NET ASSETS AS OF JUNE 30, 2004 EQUITIES U.S. EQUITIES Aerospace & Defense 2.20% Biotechnology 1.33 Building Products 1.58 Commercial Banks 1.58 Computers & Peripherals 0.79 Diversified Financial Services 3.51 Electric Utilities 1.25 Food & Staples Retailing 2.08 Gas Utilities 0.32 Health Care Equipment & Supplies 0.73 Health Care Providers & Services 1.34 Industrial Conglomerates 2.14 Insurance 2.14 Machinery 1.74 Media 3.63 Multiline Retail 0.30 Pharmaceuticals 6.14 Road & Rail 1.04 Software 3.39 Steel 4.18 Telecommunications Services 1.27 Thrifts & Mortgage Finance 1.97 Tobacco 1.35 Wireless Telecommunication Services 2.15 ------ Total U.S. Equities 48.15 INTERNATIONAL EQUITIES Air Freight & Logistics 0.94 Auto Components 0.37 Automobiles 2.16 Beverages 1.56 Chemicals 0.04 Commercial Banks 9.11 Commercial Services & Supplies 1.04 Communications Equipment 0.80% Construction Materials 1.51 Diversified Financial Services 0.79 Diversified Telecommunication Services 1.70 Electric Utilities 0.91 Electronic Equipment & Instruments 0.54 Food & Staples Retailing 1.30 Food Products 1.80 Gas Utilities 0.26 Household Durables 1.35 Household Products 0.75 Insurance 2.02 IT Services 0.51 Machinery 0.16 Media 2.21 Metals & Mining 0.90 Multi-Utilities & Unregulated Power 0.55 Office Electronics 0.24 Oil & Gas 6.63 Paper & Forest Products 1.58 Pharmaceuticals 2.21 Real Estate 0.92 Semiconductors & Semiconductor Equipment 0.69 Software 0.43 Specialty Retail 0.93 Tobacco 1.70 Wireless Telecommunication Services 2.80 ------ Total International Equities 51.41 TOTAL EQUITIES 99.56 SHORT-TERM INVESTMENT 0.19 ------ TOTAL INVESTMENTS 99.75 CASH AND OTHER ASSETS, LESS LIABILITIES 0.25 ------ NET ASSETS 100.00% ======
22 UBS GLOBAL EQUITY FUND -- SCHEDULE OF INVESTMENTS JUNE 30, 2004
SHARES VALUE --------------- ----------------- EQUITIES -- 99.56% U.S. EQUITIES -- 48.15% Aflac, Inc. 36,000 $ 1,469,160 Albertson's, Inc. 109,500 2,906,130 Allergan, Inc. 77,600 6,946,752 Altria Group, Inc. 121,300 6,071,065 American Electric Power Co., Inc. 65,900 2,108,800 American International Group, Inc. 49,847 3,553,094 Boeing Co. 100,900 5,154,981 Bristol-Myers Squibb Co. 54,000 1,323,000 Burlington Northern Santa Fe Corp. 132,700 4,653,789 Cephalon, Inc. (b) 63,000 3,402,000 Citigroup, Inc. 338,500 15,740,250 Costco Wholesale Corp. 156,700 6,435,669 Dell, Inc. (b) 58,000 2,077,560 FirstEnergy Corp. 63,307 2,368,315 Freddie Mac 139,900 8,855,670 General Electric Co. 296,700 9,613,080 Genzyme Corp. (b) 54,600 2,584,218 Guidant Corp. 24,100 1,346,708 Hewlett-Packard Co. 70,791 1,493,690 Illinois Tool Works, Inc. 64,600 6,194,494 Ingersoll-Rand Co., Class A 23,600 1,612,116 Interpublic Group of Cos., Inc. (b) 202,300 2,777,579 JPMorgan Chase & Co. 149,200 5,784,484 Johnson & Johnson 146,902 8,182,442 Kohl's Corp. (b) 32,400 1,369,872 Masco Corp. 228,300 7,118,394 McGraw-Hill Cos., Inc. 17,300 1,324,661 Medtronic, Inc. 39,800 1,939,056 Mellon Financial Corp. 246,800 7,238,644 Microsoft Corp. 416,400 11,892,384 Morgan Stanley 108,600 5,730,822 Mylan Labs, Inc. 191,200 3,871,800 Nextel Communications, Inc., Class A (b) 361,400 9,634,924 Northrop Grumman Corp. 42,800 2,298,360 Omnicom Group 43,700 3,316,393 Oracle Corp. (b) 86,400 1,030,752 Pepco Holdings, Inc. 61,900 1,131,538 Raytheon Co. 67,300 2,407,321 SBC Communications, Inc. 234,400 5,684,200 Sempra Energy Corp. 41,400 1,425,402 St. Paul Travelers Cos., Inc. 58,963 2,390,360 Time Warner, Inc. (b) 211,400 3,716,412 UnitedHealth Group, Inc. 96,500 6,007,125 Veritas Software Corp. (b) 83,300 2,307,410 Viacom, Inc., Class B 131,900 4,711,468 Wells Fargo & Co. 124,100 7,102,243 Westwood One, Inc. (b) 18,900 449,820 Willis Group Holdings, Ltd. 59,200 2,217,040 Wyeth 199,900 7,228,384 ----------------- Total U.S. Equities 216,199,831 ----------------- INTERNATIONAL EQUITIES -- 51.41% AUSTRALIA -- 1.93% Australia & New Zealand Banking Group Ltd. 76,329 971,962 QBE Insurance Group Ltd. 361,852 3,226,446 Westpac Banking Corp. 364,353 4,467,027 ----------------- 8,665,435 ----------------- BELGIUM -- 0.79% Fortis 160,087 $ 3,544,812 ----------------- CANADA -- 1.40% Alcan, Inc. 43,800 1,803,289 Shoppers Drug Mart Corp. (b) 60,200 1,499,668 Suncor Energy, Inc. 117,300 2,975,479 ----------------- 6,278,436 ----------------- FINLAND -- 1.37% Nokia Oyj 248,250 3,582,116 UPM-Kymmene Oyj 134,700 2,563,126 ----------------- 6,145,242 ----------------- FRANCE -- 5.06% BNP Paribas 64,959 3,995,087 Cap Gemini S.A. 56,533 2,269,081 France Telecom S.A. 188,215 4,905,004 Sanofi-Synthelabo S.A. 28,226 1,789,175 Suez S.A. 34,403 716,163 Total S.A. 37,015 7,056,875 Unibail 19,251 1,990,847 ----------------- 22,722,232 ----------------- GERMANY -- 0.52% Allianz AG 21,383 2,316,171 ----------------- HONG KONG -- 0.47% Sun Hung Kai Properties Ltd. 260,000 2,133,388 ----------------- IRELAND -- 2.60% Bank of Ireland 544,891 7,279,100 CRH PLC 209,175 4,417,994 ----------------- 11,697,094 ----------------- ITALY -- 1.59% ENI SpA 139,311 2,766,122 UniCredito Italiano SpA 882,078 4,357,112 ----------------- 7,123,234 ----------------- JAPAN -- 8.12% Canon, Inc. 20,600 1,085,552 Honda Motor Co., Ltd. 201,300 9,703,872 Hoya Corp. 9,800 1,025,670 Kao Corp. 140,000 3,374,421 Mitsubishi Tokyo Financial Group, Inc. 146 1,351,418 Nintendo Co., Ltd. 16,500 1,912,890 Nippon Unipac Holding 340 1,779,224 Nitto Denko Corp. 3,500 178,985 NTT DoCoMo, Inc. 2,712 4,846,630 Rohm Co., Ltd. 25,800 3,088,008 Sekisui House Ltd. 197,000 2,186,381 Sompo Japan Insurance, Inc. 192,000 1,961,967 Sumitomo Mitsui Financial Group, Inc. 173 1,185,941 Takeda Pharmaceutical Co., Ltd. 25,300 1,110,636 Toyota Industries Corp. 69,300 1,663,988 ----------------- 36,455,583 ----------------- NETHERLANDS -- 4.38% ABN AMRO Holding NV 44,560 974,766 Koninklijke Philips Electronics NV 100,669 2,710,459 Reed Elsevier NV 313,268 4,398,327
23
SHARES VALUE --------------- ----------------- Royal KPN NV (b) 238,115 $ 1,813,539 TPG NV 184,483 4,215,195 VNU NV 129,964 3,774,342 Wolters Kluwer NV 97,718 1,773,818 ----------------- 19,660,446 ----------------- PORTUGAL -- 0.20% Portugal Telecom, SGPS, S.A. 84,107 907,656 ----------------- SPAIN -- 0.70% Banco Bilbao Vizcaya Argentaria S.A. 233,914 3,124,815 ----------------- SWEDEN -- 1.57% Electrolux AB, B Shares 60,900 1,168,208 Hennes & Mauritz AB, B Shares 44,650 1,152,858 Svenska Cellulosa AB, B Shares 72,950 2,769,659 Swedish Match AB 192,200 1,964,622 ----------------- 7,055,347 ----------------- SWITZERLAND -- 2.72% Adecco S.A. 50,227 2,502,527 Holcim Ltd. 43,711 2,376,812 Nestle S.A. 13,960 3,722,964 Roche Holding AG 20,910 2,070,297 Swiss Reinsurance Co. 24,086 1,564,513 ----------------- 12,237,113 ----------------- UNITED KINGDOM -- 17.99% AstraZeneca PLC 56,347 2,528,064 Barclays PLC 529,612 4,511,719 BP PLC 998,232 8,816,129 Cadbury Schweppes PLC 507,622 4,379,623 Centrica PLC 284,047 1,156,442 Diageo PLC 520,698 7,020,764 Electrocomponents PLC 214,213 1,386,856 Gallaher Group PLC 467,948 5,656,076 GlaxoSmithKline PLC 119,051 2,409,432 HSBC Holdings PLC 187,586 2,789,535 Invensys PLC (b) 2,225,574 726,494 Kingfisher PLC 586,435 3,044,268 National Grid Transco PLC 226,719 1,749,464 Rentokil Initial PLC 820,466 2,150,037 Rio Tinto PLC 92,609 2,226,969 Royal Bank of Scotland Group PLC 204,766 5,896,928 Scottish & Southern Energy PLC 331,096 4,092,016 Shell Transport & Trading Co. PLC 1,109,162 8,136,376 Tesco PLC 898,972 4,340,635 Vodafone Group PLC 3,551,529 7,777,141 ----------------- 80,794,968 ----------------- Total International Equities 230,861,972 ----------------- Total Equities (Cost $362,978,295) 447,061,803 ----------------- SHORT-TERM INVESTMENT -- 0.19% UBS Supplementary Trust U.S. Cash Management Prime Fund, yield of 1.05% (Cost $849,939) 849,939 $ 849,939 ----------------- Total Investments (Cost $363,828,234) -- 99.75% (a) 447,911,742 Cash and other assets, less liabilities -- 0.25% 1,109,425 ----------------- Net Assets -- 100% $ 449,021,167 =================
24 NOTES TO SCHEDULE OF INVESTMENTS (a) Aggregate cost for federal income tax purposes was $368,428,611; and net unrealized appreciation consisted of: Gross unrealized appreciation $ 82,326,594 Gross unrealized depreciation (2,843,463) ----------------- Net unrealized appreciation $ 79,483,131 =================
(b) Non-income producing security. % Represents a percentage of net assets CAD Canadian Dollar CHF Swiss Franc EUR Euro GBP British Pound JPY Japanese Yen SGD Singapore Dollar SGPS Sociedade Gestora de Participacoes Sociais. FORWARD FOREIGN CURRENCY CONTRACTS UBS Global Equity Fund had the following open forward foreign currency contracts as of June 30, 2004:
UNREALIZED CONTRACTS IN EXCHANGE MATURITY APPRECIATION TO DELIVER FOR DATES (DEPRECIATION) ---------- -------------------- -------- -------------- British Pound 32,300,000 USD 57,750,785 12/3/04 $ (59,683) Euro 4,600,000 USD 5,561,052 12/3/04 (27,851) Swedish Krona 21,200,000 USD 2,812,212 12/3/04 2,224 Swiss Franc 11,400,000 EUR 7,591,245 12/3/04 75,359 United States Dollar 5,538,127 CAD 7,600,000 12/3/04 120,466 United States Dollar 11,260,100 CHF 14,200,000 12/3/04 134,582 United States Dollar 2,245,375 GBP 1,250,000 12/3/04 (8,128) United States Dollar 7,765,268 JPY 858,000,000 12/3/04 162,508 United States Dollar 10,979,784 SGD 18,700,000 12/3/04 (76,401) ------------- Total net unrealized appreciation on forward foreign currency contracts $ 323,076 =============
See accompanying notes to financial statements 25 UBS GLOBAL BOND FUND For the fiscal year ended June 30, 2004, Class Y shares of UBS Global Bond Fund returned 5.43%, outperforming the 4.60% return of the Fund's benchmark, the Lehman Brothers Global Aggregrate Index (the "Index"). Since inception on July 31, 1993 through period end, the Fund returned 6.20% on an annualized basis, compared with a 6.48% annualized return for the Index. The Index has been designated as the Fund's new benchmark, replacing the Citigroup World Government Bond Index. This change was made because we believe the Index is a more accurate index against which to benchmark the Fund's performance. For comparison purposes, the Citigroup World Government Bond Index returned 5.65% and 6.45% over the 12-month and since inception periods ended June 30, 2004. (Returns for all share classes over various time periods are shown on page 27; 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 global bond market held on longer than most experts predicted, posting positive returns through the first quarter 2004. Eventually, the ongoing economic recovery, combined with inflation fears, drove bond yields upward, while prices moved down. The Fund was able to quickly adapt to these changing conditions, ultimately outperforming the Index over the 12-month period. The principal factors contributing to the Fund's relative returns were our ability to actively anticipate shifts in the level of government bond yields, and careful security selection within the non-government sector. ACTIVE MANAGEMENT IMPROVED FUND'S RISK/REWARD PROFILE Changing economic and market conditions in the second half of 2003 and into 2004 created opportunities that we were able to maximize through a series of strategic moves. For example, the research and analysis conducted by the sector specialists and fixed income strategists who make up the Fund's portfolio management team indicated that the economic recovery was stronger than was generally perceived by the market, leaving the fixed income markets extremely vulnerable. We actively managed the Fund's duration (duration is a measure of a portfolio's sensitivity to interest rates) at this time, keeping it below the Index's, and this contributed to relative return. In particular, in March 2004, when the US released surprisingly strong employment data, followed by equally impressive gains in April, concerns of a "jobless" economic recovery diminished, and bond yields subsequently rose sharply while prices fell. During this time, the Fund's shorter duration strategy helped to protect it from the full brunt of this market shift. Country allocation, which we derive through our valuation assessments, also played a role in the Fund's performance over the fiscal year. In the first half of the review period, we shifted assets within the European Monetary Union, moving out of Italy and Spain to pursue what we believed were more attractive opportunities in Germany and Austria. We also increased our exposure to short and intermediate maturity Japanese government bonds during this period, buying into that market's weakness. We identified fewer value discrepancies in the latter part of the review period, as most of the European markets moved in unison with each other and the US. Japan was the exception. The volatility in other fixed income markets initially had little effect on Japanese bonds, as domestic institutional demand provided support. By June 2004, however, the economic pressure had grown too strong. First quarter 2004 gross domestic product in Japan posted a very strong 6.1% growth rate, causing yields to rise rapidly. In fact, the benchmark 10-year Japanese government bond reached 1.9%, its highest level since 2000. We used this as an opportunity to increase our Japanese exposure. LOOKING AHEAD Recent data support continued global economic growth. Furthermore, inflation data have been higher than expected, most likely due to stubbornly high energy prices. In this environment, we believe that corporate bond spreads in lower investment grade segments are, in our opinion, likely to remain stable. In order to take advantage of this while minimizing risk, we expect to favor short maturities--those up to 5 years. As always, we will continue to employ our disciplined investment approach as we manage the Fund, leveraging the expertise of our global network of sector specialists, fixed income investment strategists and credit analysts. 26 UBS GLOBAL BOND FUND (UNAUDITED) TOTAL RETURN
1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION* ENDED ENDED ENDED ENDED TO 6/30/04 6/30/04 6/30/04 6/30/04 6/30/04 ---------------------------------------------------------------------------------------------- UBS GLOBAL BOND FUND CLASS A 5.21% N/A N/A N/A 10.79% UBS GLOBAL BOND FUND CLASS B 4.38 N/A N/A N/A 11.42 UBS GLOBAL BOND FUND CLASS C 4.64 N/A N/A N/A 10.13 UBS GLOBAL BOND FUND CLASS Y 5.43 12.78% 6.53% 6.87% 6.20 UBS GLOBAL BOND FUND CLASS A** 0.50 N/A N/A N/A 8.90 UBS GLOBAL BOND FUND CLASS B** -0.44 N/A N/A N/A 10.44 UBS GLOBAL BOND FUND CLASS C** 3.92 N/A N/A N/A 10.13 LEHMAN BROTHERS GLOBAL AGGREGATE INDEX 4.60 10.42 6.57 6.87 6.48 CITIGROUP WORLD GOVERNMENT BOND INDEX 5.65 11.94 7.00 6.56 6.45
* 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. ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000 This chart shows the growth in the value of an investment in UBS Global Bond Fund Class Y shares, the Citigroup World Government Bond Index and the Lehman Brothers Global Aggregate Index, if you had invested $10,000 on July 31, 1993, and had reinvested all your income dividends and capital gain distributions through June 30, 2004. The performance of Class A, Class B and Class C shares will vary based upon the different inception dates, class specific expenses and sales charges. No adjustment has been made for any income taxes payable by shareholders on income dividends and capital gain distributions. Past performance is no guarantee of future results. Share price and returns will vary with market conditions; investors may realize a gain or loss upon redemption. [CHART] UBS GLOBAL BOND FUND CLASS Y VS. LEHMAN BROTHERS GLOBAL AGGREGATE INDEX AND CITIGROUP WORLD GOVERNMENT BOND INDEX Wealth Value With Dividends
UBS GLOBAL BOND FUND CLASS Y LEHMAN BROTHERS GLOBAL AGGREGATE INDEX CITIGROUP WORLD GOVERNMENT BOND INDEX 7/31/93 $ 10,000 $ 10,000 $ 10,000 8/31/93 $ 10,190 $ 10,255 $ 10,301 9/30/93 $ 10,220 $ 10,344 $ 10,424 10/31/93 $ 10,321 $ 10,354 $ 10,406 11/30/93 $ 10,230 $ 10,262 $ 10,332 12/31/93 $ 10,386 $ 10,357 $ 10,419 1/31/94 $ 10,458 $ 10,480 $ 10,503 2/28/94 $ 10,210 $ 10,348 $ 10,434 3/31/94 $ 10,076 $ 10,223 $ 10,420 4/30/94 $ 10,025 $ 10,198 $ 10,431 5/31/94 $ 9,942 $ 10,141 $ 10,339 6/30/94 $ 9,921 $ 10,209 $ 10,488 7/31/94 $ 9,994 $ 10,357 $ 10,572 8/31/94 $ 10,005 $ 10,345 $ 10,535 9/30/94 $ 10,015 $ 10,328 $ 10,611 10/31/94 $ 10,057 $ 10,437 $ 10,781 11/30/94 $ 10,036 $ 10,333 $ 10,632 12/31/94 $ 10,024 $ 10,381 $ 10,662 1/31/95 $ 10,128 $ 10,598 $ 10,886 2/28/95 $ 10,306 $ 10,860 $ 11,164 3/31/95 $ 10,441 $ 11,223 $ 11,828 4/30/95 $ 10,692 $ 11,398 $ 12,046 5/31/95 $ 11,067 $ 11,750 $ 12,386 6/30/95 $ 11,046 $ 11,830 $ 12,459 7/31/95 $ 11,227 $ 11,885 $ 12,489 8/31/95 $ 11,344 $ 11,740 $ 12,059 9/30/95 $ 11,482 $ 11,958 $ 12,328 10/31/95 $ 11,674 $ 12,101 $ 12,420 11/30/95 $ 11,908 $ 12,245 $ 12,560 12/31/95 $ 12,061 $ 12,422 $ 12,692 1/31/96 $ 12,121 $ 12,374 $ 12,536 2/29/96 $ 12,001 $ 12,261 $ 12,472 3/31/96 $ 12,049 $ 12,224 $ 12,454 4/30/96 $ 12,170 $ 12,168 $ 12,405 5/31/96 $ 12,206 $ 12,179 $ 12,407 6/30/96 $ 12,317 $ 12,322 $ 12,505 7/31/96 $ 12,439 $ 12,483 $ 12,745 8/31/96 $ 12,537 $ 12,508 $ 12,795 9/30/96 $ 12,746 $ 12,644 $ 12,847 10/31/96 $ 13,016 $ 12,921 $ 13,088 11/30/96 $ 13,261 $ 13,123 $ 13,260 12/31/96 $ 13,183 $ 13,032 $ 13,153 1/31/97 $ 12,977 $ 12,822 $ 12,802 2/28/97 $ 12,990 $ 12,762 $ 12,706 3/31/97 $ 12,798 $ 12,642 $ 12,609 4/30/97 $ 12,729 $ 12,670 $ 12,498 5/31/97 $ 13,100 $ 12,895 $ 12,838 6/30/97 $ 13,266 $ 13,035 $ 12,991 7/31/97 $ 13,211 $ 13,095 $ 12,890 8/31/97 $ 13,169 $ 13,065 $ 12,882 9/30/97 $ 13,431 $ 13,330 $ 13,156 10/31/97 $ 13,610 $ 13,572 $ 13,430 11/30/97 $ 13,431 $ 13,498 $ 13,224 12/31/97 $ 13,398 $ 13,525 $ 13,185 1/31/98 $ 13,513 $ 13,654 $ 13,313 2/28/98 $ 13,599 $ 13,728 $ 13,420 3/31/98 $ 13,456 $ 13,693 $ 13,288 4/30/98 $ 13,628 $ 13,863 $ 13,500 5/31/98 $ 13,628 $ 13,960 $ 13,531 6/30/98 $ 13,623 $ 13,986 $ 13,552 7/31/98 $ 13,623 $ 14,069 $ 13,569 8/31/98 $ 13,782 $ 14,364 $ 13,938 9/30/98 $ 14,448 $ 15,045 $ 14,680 10/31/98 $ 14,767 $ 15,237 $ 15,114 11/30/98 $ 14,665 $ 15,145 $ 14,901 12/31/98 $ 15,004 $ 15,379 $ 15,201 1/31/99 $ 15,004 $ 15,318 $ 15,061 2/28/99 $ 14,519 $ 14,863 $ 14,577 3/31/99 $ 14,504 $ 14,883 $ 14,614 4/30/99 $ 14,534 $ 14,868 $ 14,608 5/31/99 $ 14,277 $ 14,651 $ 14,363 6/30/99 $ 14,049 $ 14,439 $ 14,111 7/31/99 $ 14,309 $ 14,661 $ 14,457 8/31/99 $ 14,248 $ 14,637 $ 14,523 9/30/99 $ 14,386 $ 14,818 $ 14,750 10/31/99 $ 14,309 $ 14,795 $ 14,743 11/30/99 $ 14,095 $ 14,634 $ 14,588 12/31/99 $ 14,063 $ 14,583 $ 14,553 1/31/2000 $ 13,705 $ 14,334 $ 14,243 2/29/2000 $ 13,628 $ 14,307 $ 14,140 3/31/2000 $ 13,923 $ 14,594 $ 14,579 4/30/2000 $ 13,426 $ 14,237 $ 14,102 5/31/2000 $ 13,503 $ 14,303 $ 14,212 6/30/2000 $ 14,001 $ 14,666 $ 14,557 7/31/2000 $ 13,705 $ 14,519 $ 14,311 8/31/2000 $ 13,550 $ 14,455 $ 14,204 9/30/2000 $ 13,472 $ 14,496 $ 14,175 10/31/2000 $ 13,177 $ 14,378 $ 13,995 11/30/2000 $ 13,534 $ 14,625 $ 14,273 12/31/2000 $ 14,254 $ 15,047 $ 14,785 1/31/2001 $ 14,254 $ 15,119 $ 14,766 2/28/2001 $ 14,191 $ 15,144 $ 14,760 3/31/2001 $ 13,720 $ 14,834 $ 14,334 4/30/2001 $ 13,705 $ 14,816 $ 14,283 5/31/2001 $ 13,532 $ 14,844 $ 14,240 6/30/2001 $ 13,438 $ 14,739 $ 14,110 7/31/2001 $ 13,846 $ 15,077 $ 14,466 8/31/2001 $ 14,410 $ 15,531 $ 15,010 9/30/2001 $ 14,410 $ 15,652 $ 15,120 10/31/2001 $ 14,567 $ 15,793 $ 15,239 11/30/2001 $ 14,452 $ 15,609 $ 15,025 12/31/2001 $ 14,064 $ 15,283 $ 14,638 1/31/2002 $ 13,833 $ 15,146 $ 14,367 2/28/2002 $ 13,926 $ 15,248 $ 14,442 3/31/2002 $ 13,899 $ 15,158 $ 14,402 4/30/2002 $ 14,446 $ 15,606 $ 14,917 5/31/2002 $ 14,944 $ 15,956 $ 15,339 6/30/2002 $ 15,665 $ 16,512 $ 16,080 7/31/2002 $ 15,683 $ 16,660 $ 16,238 8/31/2002 $ 15,941 $ 16,932 $ 16,521 9/30/2002 $ 16,073 $ 17,119 $ 16,702 10/31/2002 $ 16,045 $ 17,071 $ 16,633 11/30/2002 $ 16,127 $ 17,115 $ 16,654 12/31/2002 $ 16,953 $ 17,809 $ 17,492 1/31/2003 $ 17,212 $ 18,009 $ 17,731 2/28/2003 $ 17,513 $ 18,242 $ 17,980 3/31/2003 $ 17,549 $ 18,288 $ 18,035 4/30/2003 $ 17,782 $ 18,522 $ 18,251 5/31/2003 $ 18,516 $ 19,180 $ 19,043 6/30/2003 $ 18,284 $ 18,972 $ 18,735 7/31/2003 $ 17,806 $ 18,420 $ 18,178 8/31/2003 $ 17,729 $ 18,378 $ 18,080 9/30/2003 $ 18,704 $ 19,261 $ 19,105 10/31/2003 $ 18,608 $ 19,153 $ 19,009 11/30/2003 $ 18,924 $ 19,403 $ 19,329 12/31/2003 $ 19,683 $ 20,037 $ 20,100 1/31/2004 $ 19,681 $ 20,112 $ 20,153 2/29/2004 $ 19,696 $ 20,215 $ 20,184 3/31/2004 $ 19,958 $ 20,439 $ 20,474 4/30/2004 $ 19,156 $ 19,692 $ 19,597 5/31/2004 $ 19,225 $ 19,788 $ 19,750 6/30/2004 $ 19,276 $ 19,846 $ 19,793
7/31/93 = $10,000 FUND RETURNS ARE NET OF ALL FEES AND COSTS, WHILE THE INDEX RETURNS ARE BASED SOLELY ON MARKET RETURNS WITHOUT DEDUCTION FOR FEES OR TRANSACTION COSTS FOR REBALANCING. 27 COUNTRY EXPOSURE, TOP FIVE AS OF JUNE 30, 2004
PERCENTAGE OF NET ASSETS --------------------------------------------------------------- United States 44.36% Germany 12.37 Japan 10.10 France 9.44 United Kingdom 5.17 --------------------------------------------------------------- Total 81.44%
CURRENCY EXPOSURE, TOP FIVE AS OF JUNE 30, 2004
PERCENTAGE OF MARKET VALUE --------------------------------------------------------------- United States Dollar 45.4% Euro 39.3 Japanese Yen 10.2 British Pound 2.3 Canadian Dollar 1.6 --------------------------------------------------------------- Total 98.8%
INDUSTRY DIVERSIFICATION AS A PERCENT OF NET ASSETS AS OF JUNE 30, 2004 BONDS U.S. BONDS U.S. CORPORATE BONDS Automobiles 0.87% Beverages 0.10 Capital Markets 0.36 Chemicals 0.15 Commercial Banks 0.55 Commercial Services & Supplies 0.19 Consumer Finance 2.08 Diversified Financial Services 0.72 Diversified Telecommunication Services 0.28 Electric Utilities 0.59 Food & Staples Retailing 0.19 Food Products 0.29 Gas Utilities 0.35 Hotels, Restaurants & Leisure 0.75 Industrial Conglomerates 0.50 Insurance 0.21 IT Services 0.10 Media 0.62 Metals & Mining 0.11 Multi-Utilities & Unregulated Power 0.19 Oil & Gas 0.11 Paper & Forest Products 0.26 Personal Products 0.09 Pharmaceuticals 0.04 Real Estate 0.34% Road & Rail 0.33 Telecommunications Services 0.04 Thrifts & Mortgage Finance 0.34 Tobacco 0.20 Wireless Telecommunication Services 0.11 ------ Total U.S. Corporate Bonds 11.06 Asset-Backed Securities 0.73 Commercial Mortgage-Backed Securities 3.29 Mortgage-Backed Securities 2.68 U.S. Government Obligations 9.02 ------ Total U.S. Bonds 26.78 INTERNATIONAL BONDS International Corporate Bonds 15.42 Foreign Government Bonds 38.23 Sovereign/Supranational Bonds 0.74 ------ Total International Bonds 54.39 TOTAL BONDS 81.17 INVESTMENT COMPANY 16.62 SHORT-TERM INVESTMENT 0.96 ------ TOTAL INVESTMENTS 98.75 CASH AND OTHER ASSETS, LESS LIABILITIES 1.25 ------ NET ASSETS 100.00% ======
TOP TEN FIXED INCOME HOLDINGS AS OF JUNE 30, 2004
PERCENTAGE OF MARKET VALUE --------------------------------------------------------------- Government of Japan 1.300%, due 06/20/11 7.9% Bundesschatzanweisungen 2.500%, due 03/18/05 4.3 Deutsche Bundesrepublik 5.000%, due 07/04/12 3.0 Deutsche Bundesrepublik 6.250%, due 01/04/24 3.0 U.S. Treasury Note 5.000%, due 02/15/11 2.8 Government of France 6.500%, due 04/25/11 2.4% Government of France 5.500%, due 04/25/07 2.2 U.S. Treasury Bond 6.250%, due 05/15/30 2.1 U.S. Treasury Note 5.375%, due 02/15/31 1.9 Federal Home Loan Mortgage Corp. 2.875%, due 12/15/06 1.6 --------------------------------------------------------------- Total 31.2%
28 UBS GLOBAL BOND FUND -- SCHEDULE OF INVESTMENTS JUNE 30, 2004
FACE AMOUNT VALUE --------------- ----------------- BONDS -- 81.17% U.S. BONDS -- 26.78% U.S. CORPORATE BONDS -- 11.06% Alcoa, Inc. 6.000%, due 01/15/12 $ 60,000 $ 63,441 Altria Group, Inc. 7.750%, due 01/15/27 110,000 112,471 American Electric Power Co., Inc. 6.125%, due 05/15/06 80,000 83,981 American General Finance Corp. 5.875%, due 07/14/06 60,000 63,000 AT&T Wireless Services, Inc. 7.350%, due 03/01/06 60,000 64,026 Avon Products, Inc.+ 7.150%, due 11/15/09 50,000 56,201 Bank of America Corp. 7.400%, due 01/15/11 30,000 33,999 Bank One Corp. 7.875%, due 08/01/10 50,000 57,833 Boeing Capital Corp. 7.375%, due 09/27/10 50,000 56,537 Bombardier Capital, Inc., 144A 6.125%, due 06/29/06 120,000 118,770 Cendant Corp. 6.875%, due 08/15/06 110,000 117,535 Citigroup, Inc. 7.250%, due 10/01/10 130,000 146,407 Citizens Communications Co. 9.250%, due 05/15/11 110,000 114,971 Comcast Cable Communications, Inc. 6.750%, due 01/30/11 110,000 118,699 Commonwealth Edison Co. 6.150%, due 03/15/12 60,000 64,091 Computer Sciences Corp. 3.500%, due 04/15/08 60,000 58,849 ConAgra Foods, Inc. 7.500%, due 09/15/05 60,000 63,119 Countrywide Home Loans, Inc. 3.250%, due 05/21/08 60,000 57,717 C.S. First Boston USA, Inc. 6.500%, due 01/15/12 60,000 64,475 DaimlerChrysler N.A. Holding Corp.+ 4.050%, due 06/04/08 150,000 147,079 Devon Financing Corp., ULC 6.875%, due 09/30/11 60,000 65,319 Dominion Resources, Inc., Class B 7.625%, due 07/15/05 90,000 94,544 Dow Chemical Co. (The)+ 5.970%, due 01/15/09 60,000 63,223 Duke Energy Field Services, LLC 7.500%, due 08/16/05 110,000 115,488 EOP Operating LP 8.375%, due 03/15/06 190,000 205,618 Erac U.S.A. Finance Co., 144A 8.000%, due 01/15/11 100,000 116,286 Ford Motor Co. 7.450%, due 07/16/31 25,000 23,830 Ford Motor Credit Co. 5.800%, due 01/12/09 $ 360,000 $ 363,384 6.250%, due 06/18/07 65,000 83,426 6.875%, due 02/01/06 170,000 178,312 FPL Group Capital, Inc. 6.125%, due 05/15/07 110,000 117,339 General Electric Capital Corp. 2.850%, due 01/30/06 240,000 240,315 4.125%, due 12/15/06 35,000 61,959 4.375%, due 01/20/10 35,000 43,285 6.750%, due 03/15/32 110,000 118,252 General Motors Acceptance Corp. 6.000%, due 07/03/08 80,000 102,445 6.125%, due 02/01/07 170,000 177,394 6.875%, due 09/15/11 90,000 92,277 8.000%, due 11/01/31 110,000 112,705 Goldman Sachs Group, Inc. 6.875%, due 01/15/11 60,000 65,866 Harrah's Operating Co., Inc. 7.500%, due 01/15/09 50,000 54,773 Hilton Hotels Corp.,144A+ 7.055%, due 10/03/15 369,320 400,277 Household Finance Corp. 6.750%, due 05/15/11 25,000 27,320 7.875%, due 03/01/07 190,000 209,922 ICI Wilmington, Inc. 4.375%, due 12/01/08 25,000 24,524 International Paper Co. 6.750%, due 09/01/11 60,000 65,032 Kinder Morgan, Inc. 6.650%, due 03/01/05 150,000 154,168 Kraft Foods, Inc. 5.625%, due 11/01/11 110,000 111,902 Kroger Co.+ 8.050%, due 02/01/10 50,000 57,571 Miller Brewing Co., 144A 5.500%, due 08/15/13 60,000 60,209 Morgan Stanley 6.750%, due 04/15/11 140,000 153,422 NationsBank Corp. 7.500%, due 09/15/06 220,000 238,475 Qwest Capital Funding, Inc. 7.900%, due 08/15/10 30,000 26,550 Reed Elsevier Capital, Inc. 5.750%, due 07/31/08 100,000 130,485 Sempra Energy Corp. 7.950%, due 03/01/10 50,000 57,470 SLM Corp. 5.625%, due 04/10/07 90,000 94,578 Sprint Capital Corp. 8.375%, due 03/15/12 50,000 57,466 Time Warner, Inc. 7.625%, due 04/15/31 60,000 64,928 Union Pacific Corp. 6.700%, due 12/01/06 80,000 85,857 UST, Inc. 6.625%, due 07/15/12 10,000 10,830 Wal-Mart Stores, Inc. 6.875%, due 08/10/09 50,000 55,753
29
FACE AMOUNT VALUE --------------- ----------------- Walt Disney Co. (The) 6.375%, due 03/01/12 $ 60,000 $ 64,382 Washington Mutual, Inc. 5.625%, due 01/15/07 140,000 146,458 Weyerhaeuser Co. 6.125%, due 03/15/07 90,000 95,089 Wyeth 5.250%, due 03/15/13 25,000 24,128 Zurich Finance (USA), Inc.+ 5.750%, due 10/02/23 100,000 126,016 ----------------- 6,702,053 ----------------- ASSET-BACKED SECURITIES -- 0.73% Americredit Automobile Receivables Trust, 03-AM, Class A2B+ 1.630%, due 10/06/06 11,081 11,082 Capital One Multi-Asset Execution Trust, 03-A1, Class A1+ 1.629%, due 01/15/09 75,000 75,344 Centerpoint Energy Transition, 01-1, Class A4+ 5.630%, due 09/15/15 30,000 31,289 Conseco Finance Securitizations Corp., 00-B, Class AF4+ 7.870%, due 02/15/31 416 420 Countrywide Asset-Backed Certificates, 04-SD1, Class A1,144A+ 1.640%, due 06/25/33 33,832 33,892 Paragon Mortgages PLC, 7A, Class B1A, 144A+ 2.305%, due 05/15/43 100,000 100,000 Peco Energy Transition Trust, 99-A, Class A7+ 6.130%, due 03/01/09 55,000 59,046 RAFC Asset-Backed Trust, 01-1, Class A3 (b) 5.115%, due 01/25/15 33,553 34,112 Sears Credit Account Master Trust, 01-1, Class A+ 1.419%, due 02/15/10 75,000 74,949 Structured Asset Securities Corp., 03-AL2, Class A, 144A+ 3.356%, due 01/25/31 23,776 21,706 ----------------- 441,840 ----------------- COMMERCIAL MORTGAGE-BACKED SECURITIES -- 3.29% Asset Securitization Corp., 95-MD4, Class A3+ 7.384%, due 08/13/29 350,000 384,147 Bear Stearns Commercial Mortgage Securities, 00-WF2, Class A2+ 7.320%, due 10/15/32 80,000 90,127 DLJ Commercial Mortgage Corp., 99-CG1, Class A1B+ 6.460%, due 03/10/32 20,000 21,595 DLJ Commercial Mortgage Corp., 99-CG3, Class A1B+ 7.340%, due 10/10/32 85,000 95,649 DLJ Commercial Mortgage Corp., 00-CKP1, Class A1B+ 7.180%, due 08/10/10 $ 290,000 $ 323,966 First Union Commercial Mortgage Securities, Inc., 97-C2, Class A3+ 6.650%, due 11/18/29 102,086 108,584 GMAC Commercial Mortgage Securities, Inc., 97-C2, Class A2 6.550%, due 04/16/29 17,443 17,598 Greenwich Capital Commercial Funding Corp., 03-FL1, Class A, 144A+ 1.681%, due 07/05/18 28,268 28,272 JP Morgan Commercial Mortgage Finance Corp., 99-C8, Class A1 7.325%, due 07/15/31 62,357 64,991 JP Morgan Commercial Mortgage Finance Corp., 99-C8, Class A2 7.400%, due 07/15/31 85,000 94,365 LB Commercial Conduit Mortgage Trust, 99-C1, Class A1+ 6.410%, due 06/15/31 60,395 63,062 LB Commercial Conduit Mortgage Trust, 99-C2, Class A2 7.325%, due 10/15/32 50,000 55,995 Merrill Lynch Mortgage Investors, Inc., 96-C2, Class A3+ 6.960%, due 11/21/28 29,843 31,565 Merrill Lynch Mortgage Investors, Inc., 97-C2, Class A2+ 6.540%, due 12/10/29 20,000 21,387 Morgan Stanley Dean Witter Capital I, 00-LIF2, Class A1+ 6.960%, due 10/15/33 25,589 27,555 Nomura Asset Securities Corp., 95-MD3, Class A1B+ 8.150%, due 04/04/27 14,811 15,198 PNC Mortgage Acceptance Corp., 00-C1, Class A2+ 7.610%, due 02/15/10 375,000 424,605 Starwood Asset Receivables Trust, 03-1A, Class A1,144A+ 1.570%, due 08/28/22 122,762 122,762 ----------------- 1,991,423 ----------------- MORTGAGE-BACKED SECURITIES -- 2.68% Federal Home Loan Mortgage Corp. 2.875%, due 11/03/06+ 5,000 4,947 2.875%, due 12/15/06+ 985,000 975,401 3.875%, due 01/12/09+ 105,000 103,222 5.000%, due 01/30/14 85,000 82,271 Federal National Mortgage Association 2.625%, due 01/19/07+ 70,000 68,620 5.125%, due 01/02/14 25,000 24,329 6.250%, due 02/01/11 55,000 59,050 Government National Mortgage Association 6.500%, due 04/15/31 295,604 309,239 ----------------- 1,627,079 -----------------
30
FACE AMOUNT VALUE --------------- ----------------- U.S. GOVERNMENT OBLIGATIONS -- 9.02% U.S. Treasury Bonds 6.250%, due 08/15/23 $ 140,000 $ 155,028 6.250%, due 05/15/30 1,130,000 1,265,202 8.750%, due 05/15/17 85,000 115,215 U.S. Treasury Notes 3.375%, due 12/15/08 970,000 957,648 4.750%, due 11/15/08 95,000 99,216 5.000%, due 02/15/11 1,620,000 1,695,685 5.375%, due 02/15/31 1,170,000 1,180,009 ----------------- 5,468,003 ----------------- Total U.S. Bonds 16,230,398 ----------------- INTERNATIONAL BONDS -- 54.39% INTERNATIONAL CORPORATE BONDS -- 15.42% AUSTRALIA -- 0.27% Australia & New Zealand Banking Group Ltd. 5.500%, due 02/23/05 EUR 100,000 124,009 Telstra Corp., Ltd. 6.375%, due 06/29/11 30,000 40,640 ----------------- 164,649 ----------------- BELGIUM -- 0.14% SCA Coordination Center NV 5.375%, due 06/25/07 EUR 65,000 83,079 ----------------- CANADA 0.09% Telus Corp. 8.000%, due 06/01/11 $ 50,000 56,828 ----------------- DENMARK -- 0.14% TDC A/S 5.875%, due 04/24/06 EUR 65,000 82,763 ----------------- FINLAND -- 0.11% Fortum Oyj 6.475%, due 11/03/06 EUR 50,000 65,076 ----------------- FRANCE -- 2.39% Aventis S.A. 5.000%, due 04/18/06 EUR 230,000 289,769 Banque PSA Finance 4.625%, due 02/20/08 65,000 81,335 BNP Paribas 5.625%, due 08/07/08 100,000 129,935 Casino Guichard Perrachon S.A. 5.875%, due 11/23/07 130,000 167,867 Dexia Credit Local 5.250%, due 04/25/08 195,000 251,302 France Telecom S.A. 6.000%, due 09/28/07 195,000 254,098 GIE Suez Alliance Corp. 4.250%, due 06/24/10 80,000 96,550 LVMH Moet Hennessy Louis Vuitton S.A. 5.750%, due 02/28/05 50,000 62,059 Veolia Environnement 5.875%, due 06/27/08 90,000 117,378 ----------------- 1,450,293 ----------------- GERMANY -- 5.49% Bosch (Robert) 5.250%, due 07/19/06 EUR 65,000 82,594 Bundesschatzanweisungen 2.500%, due 03/18/05 EUR 2,120,000 $ 2,583,913 Deutsche Bank AG 5.000%, due 05/19/05 165,000 205,080 KFW Bankengruppe 4.750%, due 08/17/07 325,000 413,489 VW Financial Services AG 5.375%, due 01/25/12 35,000 43,884 ----------------- 3,328,960 ----------------- NETHERLANDS -- 3.28% Bank Nederlandse Gemeenten NV 4.625%, due 08/17/07 EUR 65,000 82,115 BMW Finance NV 5.250%, due 09/01/06 165,000 210,072 Deutsche Telekom International Finance BV 7.500%, due 05/29/07 130,000 175,106 8.125%, due 05/29/12 65,000 96,119 E.ON International Finance BV 5.750%, due 05/29/09 35,000 46,013 ENBW International Finance BV 5.125%, due 02/28/07 160,000 202,963 Generali Finance BV 4.750%, due 05/12/14 65,000 79,761 International Endesa BV 5.250%, due 02/22/06 115,000 145,077 Koninklijke KNP NV 4.750%, due 11/05/08 65,000 81,454 Koninklijke Philips Electronics NV 5.750%, due 05/16/08 50,000 64,890 Olivetti Finance NV 6.125%, due 04/24/07 65,000 85,134 6.125%, due 07/30/09 65,000 86,207 Prudential Finance BV 9.375%, due 06/04/07 GBP 35,000 69,747 RWE Finance BV 5.500%, due 10/26/07 EUR 100,000 129,331 Telefonica Europe BV 5.125%, due 10/30/06 100,000 126,829 Unilever NV 4.250%, due 09/26/07 245,000 305,583 ----------------- 1,986,401 ----------------- SINGAPORE -- 0.11% Singapore Telecommunications Ltd. 6.000%, due 11/21/11 EUR 50,000 66,292 ----------------- UNITED KINGDOM -- 3.40% Anglian Water Services Financing PLC 4.625%, due 10/07/13 EUR 25,000 29,899 Barclays Bank, PLC 4.875%, due 06/26/06 100,000 126,157 Credit Suisse Group 6.375%, due 06/07/13 30,000 40,977 Gallaher Group PLC 5.875%, due 08/06/08 95,000 123,442 Glaxo Wellcome PLC 8.750%, due 12/01/05 GBP 30,000 56,862 Halifax PLC 8.750%, due 07/10/06 50,000 96,123
31
FACE AMOUNT VALUE --------------- ----------------- HBOS Treasury Services PLC 4.750%, due 02/06/07 EUR 195,000 $ 246,461 Imperial Tobacco Finance PLC 6.250%, due 06/06/07 100,000 130,122 Lloyds TSB Bank PLC 4.750%, due 03/18/11 80,000 100,222 7.750%, due 06/18/07 GBP 35,000 67,345 National Westminster Bank PLC 6.000%, due 01/21/10 EUR 115,000 152,482 Permanent Financing PLC, 04, Class 2C 2.130%, due 06/10/42 $ 250,000 249,948 Rio Tinto Finance PLC 5.125%, due 05/10/07 EUR 145,000 184,755 Sainsbury (J) PLC 5.625%, due 07/11/08 65,000 83,084 Tesco PLC 5.250%, due 05/07/08 130,000 167,224 Vodafone Group PLC 5.750%, due 10/27/06 160,000 205,538 ----------------- 2,060,641 ----------------- Total International Corporate Bonds 9,344,982 ----------------- FOREIGN GOVERNMENT BONDS -- 38.23% AUSTRALIA -- 0.96% Government of Australia 8.750%, due 08/15/08 AUD 750,000 581,534 ----------------- AUSTRIA -- 2.22% Republic of Austria 5.250%, due 01/04/11 EUR 355,000 464,024 5.875%, due 07/15/06 685,000 883,642 ----------------- 1,347,666 ----------------- BELGIUM -- 1.28% Kingdom of Belgium 5.000%, due 09/28/11 EUR 195,000 251,182 6.500%, due 03/31/05 420,000 526,827 ----------------- 778,009 ----------------- CANADA -- 1.74% Government of Canada 6.000%, due 09/01/05 CAD 390,000 301,368 6.000%, due 06/01/08 390,000 311,046 6.000%, due 06/01/11 390,000 313,292 8.000%, due 06/01/23 130,000 127,988 ----------------- 1,053,694 ----------------- FINLAND -- 1.34% Government of Finland 5.000%, due 07/04/07 EUR 295,000 378,013 5.750%, due 02/23/11 325,000 436,461 ----------------- 814,474 ----------------- FRANCE -- 7.05% Government of France 5.500%, due 04/25/07 EUR 1,040,000 1,347,100 6.000%, due 10/25/25 490,000 685,527 6.500%, due 04/25/11 1,040,000 1,455,936 8.500%, due 10/25/19 455,000 785,405 ----------------- 4,273,968 ----------------- GERMANY -- 6.88% Deutsche Bundesrepublik 5.000%, due 07/04/11 EUR 390,000 503,516 5.000%, due 07/04/12 EUR 1,430,000 $ 1,840,967 6.250%, due 01/04/24 1,270,000 1,827,365 ----------------- 4,171,848 ----------------- ITALY -- 3.27% Buoni Poliennali Del Tesoro 4.000%, due 07/15/05 EUR 250,000 309,173 4.250%, due 11/01/09 260,000 323,814 5.000%, due 02/01/12 455,000 583,196 5.250%, due 11/01/29 230,000 287,482 6.750%, due 02/01/07 360,000 477,989 ----------------- 1,981,654 ----------------- JAPAN -- 10.10% Government of Japan 0.500%, due 06/20/06 JPY 74,000,000 682,547 1.300%, due 06/20/11 520,000,000 4,768,545 2.200%, due 06/22/20 72,000,000 669,594 ----------------- 6,120,686 ----------------- NETHERLANDS -- 1.62% Government of Netherlands 4.000%, due 07/15/05 EUR 405,000 500,763 5.000%, due 07/15/11 375,000 482,984 ----------------- 983,747 ----------------- UNITED KINGDOM -- 1.77% U.K. Gilts 5.000%, due 03/07/12 GBP 160,000 288,129 5.750%, due 12/07/09 210,000 393,136 6.000%, due 12/07/28 35,000 73,551 8.000%, due 06/07/21 130,000 315,683 ----------------- 1,070,499 ----------------- Total Foreign Government Bonds 23,177,779 ----------------- SOVEREIGN/SUPRANATIONAL BONDS -- 0.74% European Investment Bank 4.000%, due 01/15/07 EUR 360,000 448,614 ----------------- Total International Bonds 32,971,375 ----------------- Total Bonds (Cost $48,668,775) 49,201,773 ----------------- SHARES --------------- INVESTMENT COMPANY -- 16.62% UBS U.S. Securitized Mortgage Relationship Fund (Cost $10,055,767) 883,058 10,074,455 ----------------- SHORT-TERM INVESTMENT -- 0.96% UBS Supplementary Trust U.S. Cash Management Prime Fund, yield of 1.05% (Cost $580,224) 580,224 580,224 ----------------- Total Investments (Cost $59,304,766) -- 98.75% (a) 59,856,452 Cash and other assets, less liabilities -- 1.25% 756,238 ----------------- Net Assets -- 100% $ 60,612,690 =================
32 NOTES TO SCHEDULE OF INVESTMENTS (a) Aggregate cost for federal income tax purposes was $59,320,364; and net unrealized appreciation consisted of: Gross unrealized appreciation $ 853,310 Gross unrealized depreciation (317,222) ----------------- Net unrealized appreciation $ 536,088 =================
+ Variable rate note -- The rate disclosed is that in effect at June 30, 2004. % Represents a percentage of net assets 144A: Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities are considered liquid and may be resold in transactions exempt from registration, normally to qualified institutional buyers. At June 30, 2004 the value of these securities amounted to $1,002,174 or 1.65% of net assets. AUD Australian Dollar BV Besloten Venootschap CAD Canadian Dollar DKK Danish Krone EUR Euro GBP British Pound JPY Japanese Yen SEK Swedish Krona SGD Singapore Dollar ULC Unlimited Liability Company FORWARD FOREIGN CURRENCY CONTRACTS UBS Global Bond Fund had the following open forward foreign currency contracts as of June 30, 2004:
UNREALIZED CONTRACTS IN EXCHANGE MATURITY APPRECIATION TO DELIVER FOR DATES (DEPRECIATION) ---------- -------------------- -------- -------------- Australian Dollar 490,000 USD 340,428 12/3/04 $ 4,510 Euro 3,880,000 USD 4,687,118 12/3/04 (27,001) United States Dollar 308,422 DKK 1,900,000 12/3/04 2,071 United States Dollar 5,158,745 JPY 570,000,000 12/3/04 107,960 United States Dollar 305,098 SEK 2,300,000 12/3/04 (241) United States Dollar 686,970 SGD 1,170,000 12/3/04 (4,780) ------------ Total net unrealized appreciation on forward foreign currency contracts $ 82,519 ============
See accompanying notes to financial statements 33 UBS U.S. LARGE CAP EQUITY FUND For the fiscal year ended June 30, 2004, Class Y shares of UBS U.S. Large Cap Equity Fund (formerly UBS U.S. Equity Fund) returned 19.50%, in line with the 19.48% return of the Fund's benchmark, the Russell 1000 Index (the "Index"). Since inception on February 22, 1994, through period end, the Fund returned 10.88% on an annualized basis, in line with the 10.83% annualized return of the Index. (Returns for all share classes over various time periods are shown on page 36; 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 fiscal year brought dramatic changes to the large-cap market, starting with a speculative stock-led rally in 2003, and ending with virtually flat performance in the second quarter of 2004. The Fund performed in line with its benchmark during this challenging period, supported by careful stock selection and strategic industry positioning. DISCIPLINED INVESTMENT PHILOSOPHY KEPT FOCUS ON QUALITY Our disciplined investment approach relies on in-depth research and analysis to identify what we believe to be large-cap stocks of fundamentally sound companies that are selling for less than their intrinsic value. This approach proved particularly effective throughout the fiscal year, when the US equity market was close to what we consider fair value. In the absence of large price-to-value discrepancies, we leveraged the work conducted by our network of equity analysts, who combine fundamental research with the extensive use of sophisticated risk management tools, to identify pockets of opportunity in the marketplace. Our research directed us to select bank holdings in 2003, including Citigroup and Freddie Mac. The overweight we had in this sector delivered solid returns until investors became concerned about rising interest rates. As soon as it became clear that the Federal Reserve Board would raise rates, bank stocks began to fall. We believe this was an inappropriate response, and that increasing interest rates could actually benefit certain banks, especially those with credit card businesses. Despite this setback, we continue to view banks as attractive opportunities in the current environment, with the exception of regional banks that carry large acquisition premiums. The Fund generated mixed results from its overweight in pharmaceuticals. Regulatory issues, Medicare reform and company-specific scandals led to relatively weak performance in 2003. Our analysis, however, revealed that the industry was solid, supported by an aging population, ongoing research and development, and proprietary products. Indeed, several of the Fund's holdings performed well during the first half of the period. However, the sector took a downturn in the second half of the period, when negative press about how drug re-importation programs could affect pharmaceutical companies drove down the sector as a whole. In our opinion, we do not believe that this program, if implemented, would have a significant impact on these companies. The Fund's underweight exposure to technology hardware also delivered mixed results. We believed that investor enthusiasm, rather than fundamentals, drove up the stock prices of technology hardware companies in 2003. Our limited exposure to the sector hurt relative performance in the first half of the reporting period, when technology hardware was one of the best-performing segments of the market. However, as investors became more risk averse in 2004, they pulled back from the sector, driving stock prices down sharply. At that point, our underweight became a significant benefit to the Fund's relative performance. On a stock level, the Fund saw positive contributions from names such as Masco and Allergan. Conversely, the Fund's worst performers over the year were Wyeth and Freddie Mac. 34 LOOKING AHEAD In our opinion, the near-term outlook for large-cap stocks depends a great deal on investor confidence. Economic and corporate profitability data are promising, but increasing concerns over inflation, rising interest rates and geopolitical events could easily dampen investors' tolerance for risk. In these uncertain times, we will continue to maintain our focus on in-depth research and stock selection, with the expectation that by holding higher-quality, fundamentally sound companies, we will be better able to offer our shareholders the potential for long-term growth and competitive risk-adjusted returns. 35 UBS U.S. LARGE CAP EQUITY FUND (UNAUDITED) TOTAL RETURN
1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION* ENDED ENDED ENDED ENDED TO 6/30/04 6/30/04 6/30/04 6/30/04 6/30/04 ---------------------------------------------------------------------------------------------- UBS U.S. LARGE CAP EQUITY FUND CLASS A 19.10% 3.41% 0.25% N/A 5.00% UBS U.S. LARGE CAP EQUITY FUND CLASS B 18.25 N/A N/A N/A 6.22 UBS U.S. LARGE CAP EQUITY FUND CLASS C 18.26 N/A N/A N/A 5.14 UBS U.S. LARGE CAP EQUITY FUND CLASS Y 19.50 3.72 0.53 11.63% 10.88 UBS U.S. LARGE CAP EQUITY FUND CLASS A** 12.57 1.47 -0.88 N/A 4.15 UBS U.S. LARGE CAP EQUITY FUND CLASS B** 13.25 N/A N/A N/A 5.19 UBS U.S. LARGE CAP EQUITY FUND CLASS C** 17.26 N/A N/A N/A 5.14 RUSSELL 1000 INDEX*** 19.48 -0.32 -1.65 11.83 10.83
* INCEPTION DATE OF UBS U.S. LARGE CAP EQUITY FUND (FORMERLY 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. *** 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. ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000 This chart shows the growth in the value of an investment in UBS U.S. Large Cap Equity Fund Class Y shares and the Russell 1000 Index, if you had invested $10,000 on February 22, 1994, and had reinvested all your income dividends and capital gain distributions through June 30, 2004. The performance of Class A, Class B and Class C shares will vary based upon the different inception dates, class specific expenses and sales charges. No adjustment has been made for any income taxes payable by shareholders on income dividends and capital gain distributions. Past performance is no guarantee of future results. Share price and returns will vary with market conditions; investors may realize a gain or loss upon redemption. [CHART] UBS U.S. LARGE CAP EQUITY FUND CLASS Y VS. RUSSELL 1000 INDEX Wealth Value With Dividends
UBS U.S. LARGE CAP EQUITY FUND CLASS Y RUSSELL 1000 INDEX 2/22/94 $ 10,000 $ 10,000 3/31/94 $ 9,420 $ 9,505 4/30/94 $ 9,640 $ 9,619 5/31/94 $ 9,840 $ 9,747 6/30/94 $ 9,690 $ 9,486 7/31/94 $ 9,911 $ 9,796 8/31/94 $ 10,544 $ 10,210 9/30/94 $ 10,182 $ 9,972 10/31/94 $ 10,132 $ 10,160 11/30/94 $ 9,781 $ 9,794 12/31/94 $ 9,827 $ 9,933 1/31/95 $ 10,030 $ 10,190 2/28/95 $ 10,487 $ 10,605 3/31/95 $ 10,752 $ 10,878 4/30/95 $ 10,985 $ 11,167 5/31/95 $ 11,392 $ 11,595 6/30/95 $ 11,768 $ 11,902 7/31/95 $ 12,187 $ 12,357 8/31/95 $ 12,411 $ 12,450 9/30/95 $ 12,881 $ 12,963 10/31/95 $ 12,840 $ 12,904 11/30/95 $ 13,575 $ 13,479 12/31/95 $ 13,815 $ 13,684 1/31/96 $ 14,381 $ 14,127 2/29/96 $ 14,612 $ 14,311 3/31/96 $ 14,885 $ 14,439 4/30/96 $ 15,168 $ 14,659 5/31/96 $ 15,409 $ 15,011 6/30/96 $ 15,367 $ 15,028 7/31/96 $ 14,629 $ 14,303 8/31/96 $ 15,188 $ 14,692 9/30/96 $ 15,872 $ 15,517 10/31/96 $ 16,209 $ 15,860 11/30/96 $ 17,336 $ 17,031 12/31/96 $ 17,359 $ 16,755 1/31/97 $ 17,989 $ 17,749 2/28/97 $ 18,092 $ 17,817 3/31/97 $ 17,496 $ 17,015 4/30/97 $ 18,035 $ 17,935 5/31/97 $ 19,354 $ 19,084 6/30/97 $ 20,265 $ 19,875 7/31/97 $ 21,815 $ 21,501 8/31/97 $ 20,965 $ 20,487 9/30/97 $ 21,907 $ 21,610 10/31/97 $ 20,747 $ 20,910 11/30/97 $ 21,161 $ 21,817 12/31/97 $ 21,657 $ 22,260 1/31/98 $ 21,805 $ 22,426 2/28/98 $ 23,702 $ 24,024 3/31/98 $ 25,070 $ 25,236 4/30/98 $ 24,823 $ 25,495 5/31/98 $ 24,466 $ 24,944 6/30/98 $ 24,617 $ 25,867 7/31/98 $ 23,999 $ 25,556 8/31/98 $ 20,574 $ 21,736 9/30/98 $ 22,070 $ 23,200 10/31/98 $ 23,752 $ 25,032 11/30/98 $ 24,741 $ 26,582 12/31/98 $ 25,680 $ 28,275 1/31/99 $ 25,509 $ 29,284 2/28/99 $ 24,575 $ 28,355 3/31/99 $ 25,377 $ 29,441 4/30/99 $ 27,665 $ 30,672 5/31/99 $ 27,323 $ 30,009 6/30/99 $ 28,363 $ 31,539 7/31/99 $ 27,175 $ 30,576 8/31/99 $ 26,224 $ 30,289 9/30/99 $ 24,323 $ 29,456 10/31/99 $ 24,336 $ 31,436 11/30/99 $ 24,481 $ 32,245 12/31/99 $ 24,640 $ 34,188 1/31/2000 $ 22,985 $ 32,788 2/29/2000 $ 21,109 $ 32,701 3/31/2000 $ 23,204 $ 35,680 4/30/2000 $ 24,127 $ 34,491 5/31/2000 $ 24,332 $ 33,599 6/30/2000 $ 23,541 $ 34,455 7/31/2000 $ 23,629 $ 33,883 8/31/2000 $ 25,138 $ 36,391 9/30/2000 $ 24,274 $ 34,702 10/31/2000 $ 25,094 $ 34,284 11/30/2000 $ 24,464 $ 31,149 12/31/2000 $ 25,437 $ 31,525 1/31/2001 $ 26,621 $ 32,563 2/28/2001 $ 25,615 $ 29,525 3/31/2001 $ 24,464 $ 27,564 4/30/2001 $ 25,810 $ 29,779 5/31/2001 $ 26,524 $ 29,980 6/30/2001 $ 26,103 $ 29,303 7/31/2001 $ 25,924 $ 28,903 8/31/2001 $ 24,966 $ 27,141 9/30/2001 $ 22,773 $ 24,840 10/31/2001 $ 23,244 $ 25,357 11/30/2001 $ 25,290 $ 27,309 12/31/2001 $ 25,913 $ 27,600 1/31/2002 $ 25,896 $ 27,250 2/28/2002 $ 25,709 $ 26,707 3/31/2002 $ 26,799 $ 27,804 4/30/2002 $ 26,050 $ 26,211 5/31/2002 $ 25,743 $ 25,980 6/30/2002 $ 23,971 $ 24,063 7/31/2002 $ 22,284 $ 22,282 8/31/2002 $ 22,557 $ 22,399 9/30/2002 $ 19,848 $ 19,993 10/31/2002 $ 21,313 $ 21,654 11/30/2002 $ 22,744 $ 22,921 12/31/2002 $ 21,624 $ 21,624 1/31/2003 $ 21,020 $ 21,100 2/28/2003 $ 20,576 $ 20,774 3/31/2003 $ 20,789 $ 20,989 4/30/2003 $ 22,725 $ 22,683 5/31/2003 $ 23,950 $ 23,976 6/30/2003 $ 24,376 $ 24,292 7/31/2003 $ 24,802 $ 24,776 8/31/2003 $ 25,050 $ 25,279 9/30/2003 $ 24,890 $ 25,020 10/31/2003 $ 26,346 $ 26,487 11/30/2003 $ 26,630 $ 26,804 12/31/2003 $ 28,212 $ 28,088 1/31/2004 $ 28,445 $ 28,622 2/29/2004 $ 29,020 $ 29,018 3/31/2004 $ 28,517 $ 28,622 4/30/2004 $ 28,284 $ 28,105 5/31/2004 $ 28,481 $ 28,510 6/30/2004 $ 29,128 $ 29,024
2/22/94 = $10,000 FUND RETURNS ARE NET OF ALL FEES AND COSTS, WHILE THE INDEX RETURNS ARE BASED SOLELY ON MARKET RETURNS WITHOUT DEDUCTION FOR FEES OR TRANSACTION COSTS FOR REBALANCING. 36 TOP TEN EQUITY HOLDINGS AS OF JUNE 30, 2004
PERCENTAGE OF NET ASSETS ---------------------------------------------------------------- Citigroup, Inc. 4.4% Nextel Communications, Inc., Class A 4.1 Microsoft Corp. 3.4 Allergan, Inc. 3.3 Wells Fargo & Co. 3.3 Burlington Northern Santa Fe Corp. 2.9 Morgan Stanley 2.7 UnitedHealth Group, Inc. 2.6 Illinois Tool Works, Inc. 2.6 ExxonMobil Corp. 2.5 ---------------------------------------------------------------- Total 31.8%
37 UBS U.S. LARGE CAP EQUITY FUND -- SCHEDULE OF INVESTMENTS JUNE 30, 2004
SHARES VALUE --------------- ----------------- U.S. EQUITIES -- 95.88% AEROSPACE & DEFENSE -- 3.19% Boeing Co. 45,100 $ 2,304,159 Northrop Grumman Corp. 35,800 1,922,460 United Technologies Corp. 11,000 1,006,280 ----------------- 5,232,899 ----------------- AIRLINES -- 0.24% Delta Air Lines, Inc. (b) 56,000 398,720 ----------------- AUTO COMPONENTS -- 1.01% Johnson Controls, Inc. 31,200 1,665,456 ----------------- BIOTECHNOLOGY -- 2.32% Cephalon, Inc. (b) 29,800 1,609,200 Genzyme Corp. (b) 46,600 2,205,578 ----------------- 3,814,778 ----------------- BUILDING PRODUCTS -- 2.41% Masco Corp. 127,200 3,966,096 ----------------- CHEMICALS -- 0.63% Eastman Chemical Co. 22,450 1,037,864 ----------------- COMMERCIAL BANKS -- 4.39% PNC Financial Services Group, Inc. 35,200 1,868,416 Wells Fargo & Co. 93,400 5,345,282 ----------------- 7,213,698 ----------------- COMMERCIAL SERVICES & SUPPLIES -- 1.08% Equifax, Inc. 32,800 811,800 Viad Corp. (b) 35,750 965,607 ----------------- 1,777,407 ----------------- COMPUTERS & PERIPHERALS -- 0.61% Dell, Inc. (b) 27,900 999,378 ----------------- CONSTRUCTION MATERIALS -- 1.30% Martin Marietta Materials, Inc. 48,207 2,137,016 ----------------- DIVERSIFIED FINANCIAL SERVICES -- 4.43% Citigroup, Inc. 156,561 7,280,086 ----------------- ELECTRIC UTILITIES -- 5.50% American Electric Power Co., Inc. 48,600 1,555,200 CMS Energy Corp. (b) 60,750 554,648 Dominion Resources, Inc. 15,800 996,664 Exelon Corp. 91,400 3,042,706 FirstEnergy Corp. 63,745 2,384,700 Pepco Holdings, Inc. 27,500 502,700 ----------------- 9,036,618 ----------------- ELECTRONIC EQUIPMENT & INSTRUMENTS -- 0.90% Mettler Toledo, Inc. (b) 30,200 1,484,028 ----------------- FINANCE -- 7.20% JPMorgan Chase & Co. 101,300 3,927,401 Mellon Financial Corp. 120,500 3,534,265 Morgan Stanley 82,700 4,364,079 ----------------- 11,825,745 ----------------- FOOD & STAPLES RETAILING -- 3.33% Albertson's, Inc. 78,400 2,080,736 Costco Wholesale Corp. 82,700 3,396,489 ----------------- 5,477,225 ----------------- GAS UTILITIES -- 0.94% Sempra Energy Corp. 44,900 $ 1,545,907 ----------------- HEALTH CARE EQUIPMENT & SUPPLIES -- 1.32% Guidant Corp. 15,200 849,376 Medtronic, Inc. 27,000 1,315,440 ----------------- 2,164,816 ----------------- HEALTH CARE PROVIDERS & SERVICES -- 4.26% Anthem, Inc. (b) 19,000 1,701,640 Quest Diagnostics, Inc. 11,700 993,915 UnitedHealth Group, Inc. 69,200 4,307,700 ----------------- 7,003,255 ----------------- HOUSEHOLD PRODUCTS -- 1.50% Kimberly-Clark Corp. 37,350 2,460,618 ----------------- INSURANCE -- 4.82% Aflac, Inc. 35,800 1,460,998 American International Group, Inc. 36,159 2,577,414 Hartford Financial Services Group, Inc. 25,600 1,759,744 Willis Group Holdings Ltd. 56,400 2,112,180 ----------------- 7,910,336 ----------------- MACHINERY -- 3.93% Illinois Tool Works, Inc. 44,400 4,257,516 Ingersoll-Rand Co., Class A 32,200 2,199,582 ----------------- 6,457,098 ----------------- MEDIA -- 8.00% Gannett Co., Inc. 13,800 1,170,930 Interpublic Group of Cos., Inc. (b) 104,800 1,438,904 Omnicom Group 40,000 3,035,600 Time Warner, Inc. (b) 177,400 3,118,692 Viacom, Inc., Class B 99,100 3,539,852 Westwood One, Inc. (b) 35,600 847,280 ----------------- 13,151,258 ----------------- MULTILINE RETAIL -- 0.86% Kohl's Corp. (b) 33,500 1,416,380 ----------------- OIL & GAS -- 4.29% ConocoPhillips 28,882 2,203,408 ExxonMobil Corp. 93,800 4,165,658 Kerr-McGee Corp. 12,500 672,125 ----------------- 7,041,191 ----------------- PAPER & FOREST PRODUCTS -- 0.61% MeadWestvaco Corp. 34,300 1,008,077 ----------------- PHARMACEUTICALS -- 10.69% Allergan, Inc. 59,900 5,362,248 Bristol-Myers Squibb Co. 59,600 1,460,200 Johnson & Johnson 74,344 4,140,961 Mylan Labs, Inc. 140,450 2,844,112 Wyeth 104,000 3,760,640 ----------------- 17,568,161 ----------------- ROAD & RAIL -- 2.92% Burlington Northern Santa Fe Corp. 136,800 4,797,576 -----------------
38
SHARES VALUE --------------- ----------------- SOFTWARE -- 5.11% Microsoft Corp. 195,300 $ 5,577,768 Oracle Corp. (b) 157,400 1,877,782 Veritas Software Corp. (b) 34,100 944,570 ----------------- 8,400,120 ----------------- SPECIALTY RETAIL -- 0.73% TJX Cos., Inc. 49,700 1,199,758 ----------------- TELECOMMUNICATIONS SERVICES -- 0.83% SBC Communications, Inc. 55,900 1,355,575 ----------------- THRIFTS & MORTGAGE FINANCE -- 2.46% Freddie Mac 63,900 4,044,870 ----------------- WIRELESS TELECOMMUNICATION SERVICES -- 4.07% Nextel Communications, Inc., Class A (b) 251,000 6,691,660 ----------------- Total U.S. Equities (Cost $130,169,835) 157,563,670 ----------------- SHORT-TERM INVESTMENTS -- 4.53% OTHER -- 4.11% UBS Supplementary Trust U.S. Cash Management Prime Fund, yield of 1.05% 6,756,537 $ 6,756,537 ----------------- FACE AMOUNT --------------- U.S. GOVERNMENT OBLIGATION -- 0.42% U.S. Treasury Bills, yield of 1.00% due 08/05/04 (c) $ 700,000 699,268 ----------------- Total Short-Term Investments (Cost $7,455,859) 7,455,805 ----------------- Total Investments (Cost $137,625,694) -- 100.41% (a) 165,019,475 Liabilities, in excess of cash and other assets (0.41%) (679,969) ----------------- Net Assets -- 100% $ 164,339,506 =================
NOTES TO SCHEDULE OF INVESTMENTS (a) Aggregate cost for federal income tax purposes was $139,536,185; and net unrealized appreciation consisted of: Gross unrealized appreciation $ 29,607,521 Gross unrealized depreciation (4,124,231) ----------------- Net unrealized appreciation $ 25,483,290 =================
(b) Non-income producing security. (c) All or portion of these securities was pledged to cover margin requirements for futures contracts. % Represents a percentage of net assets. FUTURES CONTRACTS UBS U.S. Large Cap Equity Fund had the following open futures contracts as of June 30, 2004:
EXPIRATION CURRENT UNREALIZED DATE VALUE COST APPRECIATION -------------- ------------ ------------ ----------------- INDEX FUTURES BUY CONTRACTS S&P 500 Index, 19 contracts September 2004 $ 5,428,450 $ 5,392,483 $ 35,967
The aggregate market value of investments pledged to cover margin requirements for the open futures positions at June 30, 2004 was $699,268. 39 UBS U.S. LARGE CAP GROWTH FUND For the fiscal year ended June 30, 2004, Class Y shares of UBS U.S. Large Cap Growth Fund returned 20.96%, outperforming the 17.88% return of the Fund's benchmark, the Russell 1000 Growth Index (the "Index"). Since inception on October 14, 1997 through period end, the Fund returned 0.50% on an annualized basis, underperforming the 1.22% annualized return of the Index. (Returns for all share classes over various time periods are shown on page 42; 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 relative to the Index during the reporting period was primarily due to security selection, with contributions from holdings in a wide variety of industries. Our overall sector positioning was beneficial for performance as well. STOCK SELECTION WAS KEY AS THE MARKET LEVELED OUT Large-cap growth stocks generated strong results during the fiscal year, particularly in the first six months. From July through December 2003, the Russell 1000 Growth Index returned 14.73%. The market lost some of its momentum in the second half of the fiscal period, rising only 2.74% during that time. Perhaps more important than the numbers, however, was the change in investment sentiment. Buoyed by the quick resolution of major combat in Iraq, historically low interest rates and signs of an improving economy, investors were willing to take on risk in 2003, favoring low-quality stocks in more speculative industries. However, continued geopolitical tensions, inflationary fears, and the increasing potential for interest rate hikes caused investors to become more cautious in 2004. As a result, many of last year's dominant sectors, such as technology, have lagged the overall market year-to-date. The Fund navigated this changing environment by adhering to an investment process that utilizes a combination of rigorous quantitative and fundamental analysis in order to identify companies that we believe possess a competitive advantage over their peers, and that offer the potential for superior results over the long term. In technology, the Fund saw success in the first half of the period, with its investments in Internet companies such as eBay and Yahoo. Qualcomm and Analog Devices also enhanced results as their stock prices rebounded with the support of global economic growth and the increasing demand for mobile electronics. Stock selection in technology became more challenging in the second half of the period, when fears of deceleration and tepid order patterns pushed most technology stocks down. The Fund continued to find solid performers, however, by concentrating on smaller software companies with defensible franchises, such as Adobe and Symantec. The Fund's health care holdings also played a significant role in relative performance. In 2003, we underweighted large pharmaceuticals, concentrating our holdings in specialty pharmaceuticals, biotechnology and medical devices. This positioning added to relative performance in 2003, and during the first three months of 2004. However, in the final three months of the period, the Fund's health care holdings underperformed on a relative basis, owing both to poor stock selection and to several macro factors, such as concerns about the Presidential elections in the US, and cost-containment efforts such as drug re-importation. These factors led to P/E multiple compression in all of healthcare, which disproportionately affected the Fund's holdings. We continue to believe that the Fund's current healthcare positioning is appropriate, and should lead to outperformance in the sector over the long term. Not all of the Fund's holdings met our expectations during the year. More specifically, the Fund's performance was hindered by our large underweight in consumer staples, and our position in Autozone. Specific examples of stocks that detracted from results in technology and healthcare were Novellus Systems, First Data and Guidant. 40 LOOKING AHEAD Given the current backdrop of rising interest rate expectations, continued threats of terrorism and the pending presidential election, investors have shown a preference for the mega cap stocks over smaller, less diversified securities. Our analysis shows that many of these mega cap companies do not possess the fundamentals that we believe are necessary to generate superior and sustainable earnings over time. In fact, we believe that the recent correction of many quality mid-cap growth companies that we own has resulted in significantly lower valuations than existed six months ago, while the underlying fundamentals remain superior. While we admit that the geo-political outlook is uncertain, we are very optimistic about the strong business models of the companies that we own, and believe that these companies have even higher return potential give current valuations. We continue to adhere to a disciplined investment process that uses extensive research and analytical capabilities, and thus helps us to identify opportunities that possess attractive prospects. At this point, we are finding these opportunities in financials, healthcare and energy. 41 UBS U.S. LARGE CAP GROWTH FUND (UNAUDITED) TOTAL RETURN
1 YEAR 3 YEARS 5 YEARS INCEPTION* ENDED ENDED ENDED TO 6/30/04 6/30/04 6/30/04 6/30/04 ------------------------------------------------------------------------------------ UBS U.S. LARGE CAP GROWTH FUND CLASS A 20.66% -4.48% -6.92% -3.57% UBS U.S. LARGE CAP GROWTH FUND CLASS B 19.78 N/A N/A -1.19 UBS U.S. LARGE CAP GROWTH FUND CLASS C 19.62 N/A N/A -2.75 UBS U.S. LARGE CAP GROWTH FUND CLASS Y 20.96 -4.23 -6.65 0.50 UBS U.S. LARGE CAP GROWTH FUND CLASS A** 14.05 -6.28 -7.97 -4.56 UBS U.S. LARGE CAP GROWTH FUND CLASS B** 14.78 N/A N/A -2.32 UBS U.S. LARGE CAP GROWTH FUND CLASS C** 18.62 N/A N/A -2.75 RUSSELL 1000 GROWTH INDEX 17.88 -3.74 -6.48 1.22
* 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. ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000 This chart shows the growth in the value of an investment in UBS U.S. Large Cap Growth Fund Class Y shares and the Russell 1000 Growth Index, if you had invested $10,000 on October 14, 1997, and had reinvested all your income dividends and capital gain distributions through June 30, 2004. The performance of Class A, Class B and Class C shares will vary based upon the different inception dates, class specific expenses and sales charges. No adjustment has been made for any income taxes payable by shareholders on income dividends and capital gain distributions. Past performance is no guarantee of future results. Share price and returns will vary with market conditions; investors may realize a gain or loss upon redemption. [CHART] UBS U.S. LARGE CAP GROWTH FUND CLASS Y VS. RUSSELL 1000 GROWTH INDEX Wealth Value With Dividends
UBS U.S. LARGE CAP GROWTH FUND CLASS Y RUSSELL 1000 GROWTH INDEX 10/14/97 $ 10,000 $ 10,000 11/30/97 $ 9,750 $ 9,787 12/31/97 $ 9,943 $ 9,897 1/31/98 $ 9,872 $ 10,193 2/1/98 $ 10,444 $ 10,959 3/31/98 $ 10,855 $ 11,396 4/30/98 $ 11,075 $ 11,554 5/31/98 $ 10,825 $ 11,226 6/30/98 $ 11,256 $ 11,914 7/31/98 $ 11,205 $ 11,835 8/31/98 $ 9,321 $ 10,059 9/30/98 $ 9,822 $ 10,831 10/31/98 $ 10,805 $ 11,702 11/30/98 $ 11,587 $ 12,592 12/31/98 $ 12,421 $ 13,727 1/31/99 $ 13,208 $ 14,533 2/28/99 $ 12,631 $ 13,869 3/31/99 $ 13,250 $ 14,600 4/30/99 $ 13,743 $ 14,619 5/31/99 $ 13,575 $ 14,169 6/30/99 $ 14,592 $ 15,162 7/31/99 $ 13,994 $ 14,680 8/31/99 $ 13,984 $ 14,920 9/30/99 $ 13,512 $ 14,606 10/31/99 $ 14,257 $ 15,709 11/30/99 $ 14,980 $ 16,557 12/31/99 $ 16,486 $ 18,279 1/31/2000 $ 15,847 $ 17,422 2/29/2000 $ 16,576 $ 18,274 3/31/2000 $ 17,665 $ 19,582 4/30/2000 $ 17,182 $ 18,650 5/31/2000 $ 16,509 $ 17,711 6/30/2000 $ 17,148 $ 19,053 7/31/2000 $ 16,733 $ 18,259 8/31/2000 $ 17,698 $ 19,912 9/30/2000 $ 16,105 $ 18,028 10/31/2000 $ 15,790 $ 17,175 11/30/2000 $ 14,062 $ 14,644 12/31/2000 $ 13,833 $ 14,180 1/31/2001 $ 14,592 $ 15,160 2/28/2001 $ 12,457 $ 12,586 3/31/2001 $ 11,147 $ 11,216 4/30/2001 $ 12,339 $ 12,635 5/31/2001 $ 12,195 $ 12,449 6/30/2001 $ 11,776 $ 12,161 7/31/2001 $ 11,449 $ 11,857 8/31/2001 $ 10,479 $ 10,888 9/30/2001 $ 9,418 $ 9,800 10/31/2001 $ 9,877 $ 10,314 11/30/2001 $ 10,807 $ 11,305 12/31/2001 $ 10,685 $ 11,284 1/31/2002 $ 10,461 $ 11,085 2/28/2002 $ 9,987 $ 10,625 3/31/2002 $ 10,330 $ 10,992 4/30/2002 $ 9,526 $ 10,095 5/31/2002 $ 9,328 $ 9,851 6/30/2002 $ 8,525 $ 8,940 7/31/2002 $ 7,945 $ 8,448 8/31/2002 $ 7,998 $ 8,473 9/30/2002 $ 7,141 $ 7,595 10/31/2002 $ 7,800 $ 8,291 11/30/2002 $ 8,156 $ 8,741 12/31/2002 $ 7,629 $ 8,137 1/31/2003 $ 7,497 $ 7,939 2/28/2003 $ 7,471 $ 7,903 3/31/2003 $ 7,589 $ 8,050 4/30/2003 $ 8,064 $ 8,646 5/31/2003 $ 8,459 $ 9,077 6/30/2003 $ 8,551 $ 9,202 7/31/2003 $ 8,815 $ 9,431 8/31/2003 $ 8,973 $ 9,666 9/30/2003 $ 8,920 $ 9,562 10/31/2003 $ 9,394 $ 10,099 11/30/2003 $ 9,552 $ 10,205 12/31/2003 $ 9,895 $ 10,558 1/31/2004 $ 10,198 $ 10,774 2/29/2004 $ 10,343 $ 10,842 3/31/2004 $ 10,198 $ 10,641 4/30/2004 $ 9,974 $ 10,517 5/31/2004 $ 10,158 $ 10,713 6/30/2004 $ 10,343 $ 10,847
10/14/97 = $10,000 FUND RETURNS ARE NET OF ALL FEES AND COSTS, WHILE THE INDEX RETURNS ARE BASED SOLELY ON MARKET RETURNS WITHOUT DEDUCTION FOR FEES OR TRANSACTION COSTS FOR REBALANCING. 42 TOP TEN EQUITY HOLDINGS As of June 30, 2004
PERCENTAGE OF NET ASSETS ----------------------------------------------------------------- eBay, Inc. 3.1% Pfizer, Inc. 2.9 Microsoft Corp. 2.9 Citigroup, Inc. 2.7 Intel Corp. 2.7 Nextel Communications, Inc., Class A 2.6 Cisco Systems, Inc. 2.5 XTO Energy, Inc. 2.4 Forest Laboratories, Inc. 2.4 Yahoo!, Inc. 2.4 ----------------------------------------------------------------- Total 26.6%
43 UBS U.S. LARGE CAP GROWTH FUND -- SCHEDULE OF INVESTMENTS JUNE 30, 2004
SHARES VALUE --------------- ----------------- U.S. EQUITIES -- 97.69% AEROSPACE & DEFENSE -- 1.68% United Technologies Corp. 1,200 $ 109,776 ----------------- AUTO COMPONENTS -- 1.14% Johnson Controls, Inc. 1,400 74,732 ----------------- BIOTECHNOLOGY -- 4.89% Genentech, Inc. (b) 1,600 89,920 Gilead Sciences, Inc. (b) 1,800 120,600 Medimmune, Inc. (b) 4,700 109,980 ----------------- 320,500 ----------------- COMMERCIAL SERVICES & SUPPLIES -- 1.55% Manpower, Inc. 2,000 101,540 ----------------- COMMUNICATIONS EQUIPMENT -- 5.18% Adtran, Inc. 2,200 73,414 Cisco Systems, Inc. (b) 6,900 163,530 QUALCOMM, Inc. 1,400 102,172 ----------------- 339,116 ----------------- COMPUTERS & PERIPHERALS -- 3.16% Dell, Inc. (b) 4,300 154,026 International Business Machines Corp. 600 52,890 ----------------- 206,916 ----------------- DIVERSIFIED FINANCIAL SERVICES -- 3.97% Citigroup, Inc. 3,783 175,909 Moody's Corp. 1,300 84,058 ----------------- 259,967 ----------------- ENERGY EQUIPMENT & SERVICES -- 2.23% GlobalSantaFe Corp. 2,400 63,600 Schlumberger Ltd. 1,300 82,563 ----------------- 146,163 ----------------- FINANCE -- 3.58% Goldman Sachs Group, Inc. 1,400 131,824 Morgan Stanley 1,950 102,902 ----------------- 234,726 ----------------- FOOD & STAPLES RETAILING -- 2.01% Wal-Mart Stores, Inc. 2,500 131,900 ----------------- HEALTH CARE EQUIPMENT & SUPPLIES -- 7.13% Boston Scientific Corp. (b) 2,300 98,440 Guidant Corp. 2,700 150,876 Varian Medical Systems, Inc. (b) 1,300 103,155 Zimmer Holdings, Inc. (b) 1,300 114,660 ----------------- 467,131 ----------------- HEALTH CARE PROVIDERS & SERVICES -- 4.06% Anthem, Inc. (b) 900 80,604 UnitedHealth Group, Inc. 1,900 118,275 WellPoint Health Networks Corp. (b) 600 67,206 ----------------- 266,085 ----------------- HOUSEHOLD DURABLES -- 1.19% Pulte Homes, Inc. 1,500 78,045 ----------------- HOUSEHOLD PRODUCTS -- 1.00% Proctor & Gamble Co. 1,200 65,328 ----------------- INDUSTRIAL CONGLOMERATES -- 1.98% General Electric Co. 4,000 $ 129,600 ----------------- INSURANCE -- 3.78% American International Group, Inc. 900 64,152 Progressive Corp. 700 59,710 Willis Group Holdings, Ltd. 3,300 123,585 ----------------- 247,447 ----------------- INTERNET & CATALOG RETAIL -- 3.09% eBay, Inc. (b) 2,200 202,290 ----------------- INTERNET SOFTWARE & SERVICES -- 2.38% Yahoo!, Inc. (b) 4,300 156,219 ----------------- IT SERVICES -- 1.30% Accenture Ltd., Class A (b) 3,100 85,188 ----------------- MACHINERY -- 1.56% Ingersoll-Rand Co., Class A 1,500 102,465 ----------------- MEDIA -- 1.89% Echostar Communications Corp., Class A (b) 1,950 59,963 Fox Entertainment Group, Inc., Class A (b) 2,400 64,080 ----------------- 124,043 ----------------- METALS & MINING -- 1.63% Freeport-McMoran Copper & Gold, Inc. 2,400 79,560 Newmont Mining Corp. 700 27,132 ----------------- 106,692 ----------------- OIL & GAS -- 3.49% Anadarko Petroleum Corp. 600 35,160 Devon Energy Corp. 500 33,000 XTO Energy, Inc. 5,375 160,121 ----------------- 228,281 ----------------- PHARMACEUTICALS -- 6.35% Allergan, Inc. 750 67,140 Forest Laboratories, Inc. (b) 2,800 158,564 Pfizer, Inc. 5,550 190,254 ----------------- 415,958 ----------------- SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 5.89% Analog Devices, Inc. 2,200 103,576 Intel Corp. 6,350 175,260 Linear Technology Corp. 1,200 47,364 Xilinx, Inc. 1,800 59,958 ----------------- 386,158 ----------------- SOFTWARE -- 7.65% Adobe Systems, Inc. 2,700 125,550 Electronic Arts, Inc. (b) 1,500 81,825 Microsoft Corp. 6,600 188,496 Symantec Corp. (b) 2,400 105,072 ----------------- 500,943 ----------------- SPECIALTY RETAIL -- 8.03% Autozone, Inc. (b) 1,100 88,110 Best Buy Co., Inc. 2,300 116,702 Lowe's Cos., Inc. 1,700 89,335 Ross Stores, Inc. 2,300 61,548 Sherwin-Williams Co. 2,500 103,875 Tiffany & Co. 1,800 66,330 ----------------- 525,900 -----------------
44
SHARES VALUE --------------- ----------------- TEXTILES, APPAREL & LUXURY GOODS -- 1.52% Coach, Inc. (b) 2,200 $ 99,418 ----------------- THRIFTS & MORTGAGE FINANCE -- 1.82% Countrywide Financial Corp. 1,700 119,425 ----------------- WIRELESS TELECOMMUNICATION SERVICES -- 2.56% Nextel Communications, Inc., Class A (b) 6,300 167,958 ----------------- Total U.S. Equities (Cost $5,624,329) 6,399,910 ----------------- INVESTMENT COMPANY -- 1.82% iShares Russell 1000 Growth Index Fund (Cost $118,372) 2,500 119,625 ----------------- SHORT-TERM INVESTMENT -- 2.36% UBS Supplementary Trust U.S. Cash Management Prime Fund, yield of 1.05% (Cost $154,554) 154,554 154,554 ----------------- Total Investments (Cost $5,897,255) -- 101.87% (a) 6,674,089 Liabilities, in excess of cash and other assets -- (1.87%) (122,615) ----------------- Net Assets -- 100% $ 6,551,474 =================
NOTES TO SCHEDULE OF INVESTMENTS (a) Aggregate cost for federal income tax purposes was $6,179,932; and net unrealized appreciation consisted of: Gross unrealized appreciation $ 584,647 Gross unrealized depreciation (90,490) ----------------- Net unrealized appreciation $ 494,157 =================
(b) Non-income producing security. % Represents a percentage of net assets. See accompanying notes to financial statements 45 UBS U.S. SMALL CAP GROWTH FUND For the fiscal year ended June 30, 2004, Class Y shares of UBS U.S. Small Cap Growth Fund returned 24.78%, underperforming the 31.55% return of the Fund's benchmark, the Russell 2000 Growth Index (the "Index"). Since inception on September 30, 1997 through period end, the Fund returned 7.37% on an annualized basis, compared with a 0.37% annualized return for the Index. (Returns for all share classes over various time periods are shown on page 48; please note that these returns do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.) The Fund's underperformance relative to the Index is largely attributable to sector allocation and stock selection in the first quarter of 2004. In particular, poor results from holdings in information technology and healthcare created a drag on Fund performance. While these recent results were disappointing, historically, our disciplined investment approach has enabled the Fund to achieve its goal of outperforming the Index over longer time periods. IN THE CHANGING SMALL CAP MARKETPLACE, RELATIVE PERFORMANCE LAGGED The small-cap market has gone through some significant changes over the last 12 months. In 2003, small cap stocks in general were at the forefront of the market's recovery, with the most speculative companies leading the rally. These lower-quality companies continued to perform well into early 2004; however, as the reporting period progressed, investors gradually shifted their focus back to companies with solid earnings and business prospects. During the last three months of the fiscal year, small-cap stocks were relatively flat as investors grew increasingly preoccupied with the looming federal funds rate hike. While the Fund generated strong absolute returns, it lagged its benchmark during the fiscal year. Toward the end of 2003, our quantitative models (which incorporate relative price strength) began to favor an increased allocation of higher beta names, and we chose to add some of these names to the Fund near the end of the calendar year. In hindsight, this was not a well-timed move. Many of these companies sold off sharply when the market rotated to lower beta names. Fund performance was also hurt during this time as investors grew concerned about the rising valuations of some of the small-cap sector's best performing stocks--a number of which were held by the Fund. We continue to hold these securities, as we believe the underlying factors supporting their purchase remain attractive. In selecting stocks for the Fund, we employ an investment process that utilizes a combination of rigorous quantitative and fundamental analysis in order to identify small-cap companies with excellent management, strong balance sheets, and above-average sales and earnings growth prospects. This process is supported by proprietary systems, including risk management and a global information-sharing network. We believe our approach helps us maintain a long-term perspective and to minimize the risk inherent in small-cap investing. The top contributors to performance during the fiscal year were Cognizant Technology Solutions, a provider of offshore IT services; Chico's FAS, a specialty apparel retailer; and Quicksilver Resources, a natural gas company in Michigan, Canada and Texas. The Fund was largely sector-neutral throughout the fiscal year. At the industry level, the portfolio benefited from slight overweights in medical services, thrifts and energy. LOOKING AHEAD On the heels of strong small-cap performance, investors have begun to question the near-term prospects for the small-cap market. These concerns have been amplified by the fact that small caps have, historically, not fared well in the second year of an economic recovery, especially at a time when the Federal Reserve Board is raising interest rates. However, we think there are many reasons for long-term investors to allocate a portion of their portfolios to the asset class. These include the fact that small-cap earnings are still growing faster than their large-cap counterparts, and that 46 strong economic growth has tended to disproportionately help smaller, more economically sensitive companies. For the coming months, we are cautiously optimistic about prospects for the small-cap market. Although this asset class can experience substantial short-term volatility, we believe that, over the course of a market cycle, patient investors can realize attractive returns from a portfolio consisting of high-quality small-cap companies. To that end, we will continue to adhere to our disciplined investment process in order to identify suitable opportunities. 47 UBS U.S. SMALL CAP GROWTH FUND (UNAUDITED) TOTAL RETURN
1 YEAR 3 YEARS 5 YEARS INCEPTION* ENDED ENDED ENDED TO 6/30/04 6/30/04 6/30/04 6/30/04 ------------------------------------------------------------------------------------ UBS U.S. SMALL CAP GROWTH FUND CLASS A 24.45% 3.31% 11.66% 11.36% UBS U.S. SMALL CAP GROWTH FUND CLASS B 23.40 N/A N/A 8.78 UBS U.S. SMALL CAP GROWTH FUND CLASS C 23.43 N/A N/A 8.09 UBS U.S. SMALL CAP GROWTH FUND CLASS Y 24.78 3.60 11.96 7.37 UBS U.S. SMALL CAP GROWTH FUND CLASS A** 17.63 1.39 10.41 10.22 UBS U.S. SMALL CAP GROWTH FUND CLASS B** 18.40 N/A N/A 7.78 UBS U.S. SMALL CAP GROWTH FUND CLASS C** 22.43 N/A N/A 8.09 RUSSELL 2000 GROWTH INDEX 31.55 -0.22 -0.45 0.37
* 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 INVESTS IN IPOs WHICH MAY HAVE A MAGNIFIED IMPACT ON PERFORMANCE. PAST PERFORMANCE IS NOT AN INDICATION OF FUTURE RESULTS. ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000 This chart shows the growth in the value of an investment in UBS U.S. Small Cap Growth Fund Class Y shares and the Russell 2000 Growth Index, if you had invested $10,000 on September 30, 1997, and had reinvested all your income dividends and capital gain distributions through June 30, 2004. The performance of Class A, Class B and Class C shares will vary based upon the different inception dates, class specific expenses and sales charges. No adjustment has been made for any income taxes payable by shareholders on income dividends and capital gain distributions. Past performance is no guarantee of future results. Share price and returns will vary with market conditions; investors may realize a gain or loss upon redemption. [CHART] UBS U.S. SMALL CAP GROWTH FUND CLASS Y VS. RUSSELL 2000 GROWTH INDEX Wealth Value With Dividends
UBS U.S. SMALL CAP GROWTH FUND CLASS Y RUSSELL 2000 GROWTH INDEX 9/30/97 $ 10,000 $ 10,000 10/30/97 $ 9,540 $ 9,399 11/30/97 $ 9,370 $ 9,175 12/30/97 $ 9,440 $ 9,180 1/30/98 $ 9,330 $ 9,058 2/28/98 $ 10,080 $ 9,858 3/30/98 $ 10,500 $ 10,271 4/30/98 $ 10,470 $ 10,334 5/30/98 $ 9,910 $ 9,583 6/30/98 $ 9,710 $ 9,681 7/30/98 $ 8,880 $ 8,873 8/30/98 $ 7,000 $ 6,825 9/30/98 $ 7,395 $ 7,517 10/30/98 $ 7,885 $ 7,909 11/30/98 $ 8,075 $ 8,522 12/30/98 $ 8,806 $ 9,293 1/30/99 $ 8,816 $ 9,711 2/28/99 $ 8,075 $ 8,823 3/30/99 $ 8,255 $ 9,137 4/30/99 $ 8,235 $ 9,944 5/30/99 $ 8,595 $ 9,960 6/30/99 $ 9,186 $ 10,484 7/30/99 $ 9,266 $ 10,160 8/30/99 $ 9,066 $ 9,780 9/30/99 $ 9,386 $ 9,969 10/30/99 $ 9,746 $ 10,224 11/30/99 $ 11,277 $ 11,305 12/30/99 $ 12,478 $ 13,298 1/30/2000 $ 12,128 $ 13,174 2/29/2000 $ 14,059 $ 16,239 3/30/2000 $ 15,270 $ 14,532 4/30/2000 $ 14,729 $ 13,065 5/30/2000 $ 13,779 $ 11,921 6/30/2000 $ 16,280 $ 13,461 7/30/2000 $ 15,440 $ 12,307 8/30/2000 $ 17,571 $ 13,602 9/30/2000 $ 17,251 $ 12,926 10/30/2000 $ 16,711 $ 11,877 11/30/2000 $ 13,799 $ 9,721 12/30/2000 $ 15,279 $ 10,315 1/31/2001 $ 15,634 $ 11,150 2/28/2001 $ 13,784 $ 9,622 3/31/2001 $ 12,497 $ 8,747 4/30/2001 $ 14,164 $ 9,818 5/31/2001 $ 14,213 $ 10,045 6/30/2001 $ 14,531 $ 10,319 7/31/2001 $ 13,784 $ 9,439 8/31/2001 $ 13,110 $ 8,849 9/30/2001 $ 11,517 $ 7,422 10/31/2001 $ 12,191 $ 8,136 11/30/2001 $ 13,036 $ 8,815 12/31/2001 $ 13,716 $ 9,363 1/31/2002 $ 13,461 $ 9,030 2/28/2002 $ 13,078 $ 8,446 3/31/2002 $ 14,125 $ 9,180 4/30/2002 $ 13,933 $ 8,981 5/31/2002 $ 13,334 $ 8,456 6/30/2002 $ 12,657 $ 7,739 7/31/2002 $ 11,496 $ 6,550 8/31/2002 $ 11,496 $ 6,546 9/30/2002 $ 10,807 $ 6,074 10/31/2002 $ 11,509 $ 6,381 11/30/2002 $ 11,968 $ 7,013 12/31/2002 $ 11,190 $ 6,529 1/31/2003 $ 10,858 $ 6,352 2/28/2003 $ 10,680 $ 6,182 3/31/2003 $ 10,718 $ 6,276 4/30/2003 $ 11,598 $ 6,869 5/31/2003 $ 12,542 $ 7,643 6/30/2003 $ 12,951 $ 7,791 7/31/2003 $ 13,895 $ 8,380 8/31/2003 $ 14,826 $ 8,830 9/30/2003 $ 14,520 $ 8,606 10/31/2003 $ 15,720 $ 9,350 11/30/2003 $ 16,281 $ 9,655 12/31/2003 $ 16,198 $ 9,698 1/31/2004 $ 16,697 $ 10,207 2/29/2004 $ 16,505 $ 10,191 3/31/2004 $ 16,211 $ 10,239 4/30/2004 $ 15,353 $ 9,725 5/31/2004 $ 15,405 $ 9,919 6/30/2004 $ 16,160 $ 10,249
9/30/97 = $ 10,000 FUND RETURNS ARE NET OF ALL FEES AND COSTS, WHILE THE INDEX RETURNS ARE BASED SOLELY ON MARKET RETURNS WITHOUT DEDUCTION FOR FEES OR TRANSACTION COSTS FOR REBALANCING. 48 TOP TEN EQUITY HOLDINGS AS OF JUNE 30, 2004
PERCENTAGE OF NET ASSETS --------------------------------------------------------------- Cognizant Technology Solutions Corp., Class A 2.7% Pediatrix Medical Group, Inc. 2.6 VCA Antech, Inc. 2.4 Quicksilver Resources, Inc. 2.3 Chico's FAS, Inc. 2.3 Inamed Corp. 2.0 Investors Financial Services Corp. 2.0 UCBH Holdings, Inc. 2.0 Patina Oil & Gas Corp. 1.8 Cognex Corp. 1.8 --------------------------------------------------------------- Total 21.9%
49 UBS U.S. SMALL CAP GROWTH FUND -- SCHEDULE OF INVESTMENTS JUNE 30, 2004
SHARES VALUE --------------- ----------------- U.S. EQUITIES -- 96.23% AEROSPACE & DEFENSE -- 1.68% Engineered Support Systems, Inc. 53,575 $ 3,134,673 ----------------- AIR FREIGHT & LOGISTICS -- 0.85% UTI Worldwide, Inc. 30,000 1,580,700 ----------------- AIRLINES -- 0.44% Pinnacle Airlines Corp. (b) 72,700 821,510 ----------------- AUTO COMPONENTS -- 1.29% American Axle & Manufacturing Holdings, Inc. 66,200 2,407,032 ----------------- BEVERAGES -- 2.46% Constellation Brands, Inc., Class A (b) 56,700 2,105,271 Cott Corp. (b) 76,900 2,491,560 ----------------- 4,596,831 ----------------- BIOTECHNOLOGY -- 4.44% Affymetrix, Inc. (b) 27,200 890,256 Amylin Pharmaceuticals, Inc. (b) 36,400 829,920 Corgentech, Inc. (b) 38,200 615,784 Incyte Corp. (b) 125,100 955,764 Isis Pharmaceuticals, Inc. (b) 100,500 576,870 Neurocrine Biosciences, Inc. (b) 36,700 1,902,895 NPS Pharmaceuticals, Inc. (b) 49,400 1,037,400 Telik, Inc. (b) 61,300 1,463,231 ----------------- 8,272,120 ----------------- COMMERCIAL BANKS -- 1.97% UCBH Holdings, Inc. 93,100 3,679,312 ----------------- COMMERCIAL SERVICES & SUPPLIES -- 1.63% Korn/Ferry International (b) 44,000 852,280 Labor Ready, Inc. (b) 56,400 874,200 Tetra Tech, Inc. (b) 80,500 1,313,760 ----------------- 3,040,240 ----------------- COMMUNICATIONS EQUIPMENT -- 1.94% Atheros Communications, Inc. (b) 8,300 87,482 Avocent Corp. (b) 38,700 1,421,838 C-COR.net Corp. (b) 62,400 642,096 Foundry Networks, Inc. (b) 104,100 1,464,687 ----------------- 3,616,103 ----------------- COMPUTERS & PERIPHERALS -- 0.97% Advanced Digital Info Corp. (b) 36,100 350,170 Dot Hill Systems Corp. (b) 130,900 1,467,389 ----------------- 1,817,559 ----------------- CONSTRUCTION & ENGINEERING -- 2.36% Dycom Industries, Inc. (b) 99,900 2,797,200 EMCOR Group, Inc. (b) 36,400 1,600,872 ----------------- 4,398,072 ----------------- ELECTRONIC EQUIPMENT & INSTRUMENTS -- 5.09% Benchmark Electronics, Inc. 103,000 2,997,300 Cognex Corp. 88,300 3,397,784 Radisys Corp. (b) 74,500 1,383,465 TTM Technologies, Inc. (b) 144,600 1,713,510 ----------------- 9,492,059 ----------------- ENERGY EQUIPMENT & SERVICES -- 2.28% Patterson-UTI Energy, Inc. 46,200 $ 1,543,542 Tetra Technologies, Inc. (b) 101,050 2,713,193 ----------------- 4,256,735 ----------------- FINANCE -- 2.00% Investors Financial Services Corp. 85,400 3,721,732 ----------------- FOOD & STAPLES RETAILING -- 0.71% Performance Food Group Co. (b) 49,600 1,316,384 ----------------- HEALTH CARE EQUIPMENT & SUPPLIES -- 6.28% Advanced Neuromodulation Systems, Inc. (b) 49,400 1,620,320 Arthrocare Corp. (b) 97,400 2,832,392 Fisher Scientific International, Inc. (b) 35,800 2,067,450 Inamed Corp. (b) 60,500 3,802,425 Kinetic Concepts, Inc. (b) 9,800 489,020 ResMed, Inc. (b) 17,500 891,800 ----------------- 11,703,407 ----------------- HEALTH CARE PROVIDERS & SERVICES -- 10.13% Inveresk Research Group, Inc. (b) 47,500 1,464,900 Odyssey HealthCare, Inc. (b) 110,975 2,088,549 Patterson Dental Co. 43,300 3,312,017 Pediatrix Medical Group, Inc. (b) 69,400 4,847,590 Select Medical Corp. 5,200 69,784 United Surgical Partners International, Inc. (b) 60,000 2,368,200 VCA Antech, Inc. (b) 99,200 4,446,144 WellCare Health Plans, Inc. 17,900 304,300 ----------------- 18,901,484 ----------------- HOUSEHOLD DURABLES 1.71% Hovnanian Enterprises, Inc. (b) 47,100 1,634,841 NVR, Inc. (b) 3,200 1,549,440 ----------------- 3,184,281 ----------------- INSURANCE -- 1.09% Hilb, Rogal & Hamilton Co. 25,900 924,112 RLI Corp. 30,600 1,116,900 ----------------- 2,041,012 ----------------- INTERNET SOFTWARE & SERVICES -- 1.64% Digital River, Inc. (b) 93,600 3,054,168 ----------------- IT SERVICES -- 4.42% CACI International, Inc., Class A (b) 79,500 3,214,980 Cognizant Technology Solutions Corp., Class A (b) 197,800 5,026,098 ----------------- 8,241,078 ----------------- MACHINERY -- 1.69% ESCO Technologies, Inc. (b) 36,400 1,942,304 JLG Industries, Inc. 86,600 1,202,874 ----------------- 3,145,178 ----------------- MEDIA -- 1.27% Cumulus Media, Inc., Class A (b) 106,200 1,785,222 Salem Communications Corp., Class A (b) 21,300 577,869 ----------------- 2,363,091 ----------------- METALS & MINING -- 1.49% Steel Dynamics, Inc. (b) 97,200 2,782,836 -----------------
50
SHARES VALUE --------------- ----------------- OIL & GAS -- 4.14% Patina Oil & Gas Corp. 113,800 $ 3,399,206 Quicksilver Resources, Inc. (b) 64,500 4,326,015 ----------------- 7,725,221 ----------------- PHARMACEUTICALS -- 3.28% First Horizon Pharmaceutical Corp. (b) 112,200 2,120,580 Medicines Co. (b) 49,100 1,498,041 Penwest Pharmaceuticals Co. (b) 73,600 942,816 Taro Pharmaceutical Industries (b) 35,800 1,557,300 ----------------- 6,118,737 ----------------- REAL ESTATE -- 3.64% American Financial Realty (REIT) 80,400 1,148,916 Government Properties Trust, Inc. (REIT) 27,800 290,510 Highland Hospitality Corp. (REIT) 74,600 749,730 Mills Corp. (REIT) 46,300 2,162,210 Ventas, Inc. (REIT) 104,600 2,442,410 ----------------- 6,793,776 ----------------- RESTAURANTS -- 3.32% CKE Restaurants, Inc. (b) 148,300 1,976,839 Panera Bread Co., Class A (b) 46,900 1,682,772 Ruby Tuesday, Inc. 92,500 2,539,125 ----------------- 6,198,736 ----------------- ROAD & RAIL -- 1.01% Landstar System, Inc. (b) 35,700 1,887,459 ----------------- SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 5.75% Artisan Components, Inc. (b) 54,600 1,408,680 August Technology Corp. (b) 66,600 835,164 Cree, Inc. (b) 41,100 956,808 Exar Corp. (b) 90,000 1,319,400 Microsemi Corp. (b) 170,500 2,422,805 Power Integrations, Inc. (b) 70,200 1,747,980 Rudolph Technologies, Inc. (b) 56,400 1,025,916 SiRF Technology Holdings, Inc. (b) 11,400 148,998 Standard Micosystems Corp. (b) 36,400 848,848 ----------------- 10,714,599 ----------------- SOFTWARE -- 6.50% Blackboard, Inc. (b) 13,700 $ 274,685 Factset Research Systems, Inc. 32,400 1,531,548 Fair Isaac Corp. 91,550 3,055,939 Magma Design Automation, Inc. (b) 103,100 1,982,613 RSA Security, Inc. (b) 106,600 2,182,102 Secure Computing Corp. (b) 104,300 1,215,095 THQ, Inc. (b) 61,950 1,418,655 Verisity Ltd. (b) 77,300 463,800 ----------------- 12,124,437 ----------------- SPECIALTY RETAIL -- 7.61% Aeropostale, Inc. (b) 116,700 3,140,397 Cabela's, Inc. (b) 9,200 247,940 Chico's FAS, Inc. (b) 95,500 4,312,780 Electronics Boutique Holdings Corp. (b) 61,500 1,619,910 Guitar Center, Inc. (b) 49,000 2,179,030 Petco Animal Supplies, Inc. (b) 84,000 2,705,640 ----------------- 14,205,697 ----------------- THRIFTS & MORTGAGE FINANCE -- 1.15% BankUnited Financial Corp., Class A (b) 56,000 1,444,800 Harbor Florida Bancshares, Inc. 25,200 693,252 ----------------- 2,138,052 ----------------- Total U.S. Equities (Cost $161,566,763) 179,474,311 ----------------- INVESTMENT COMPANY -- 2.37% iShares Russell 2000 Index Fund (Cost $4,325,711) 37,400 4,412,826 ----------------- SHORT-TERM INVESTMENT -- 2.46% UBS Supplementary Trust U.S. Cash Management Prime Fund, yield of 1.05% (Cost $4,595,089) 4,595,089 4,595,089 ----------------- Total Investments (Cost $170,487,563) -- 101.06% (a) 188,482,226 Liabilities, in excess of cash and other assets -- (1.06%) (1,979,687) ----------------- Net Assets -- 100% $ 186,502,539 =================
NOTES TO SCHEDULE OF INVESTMENTS (a) Aggregate cost for federal income tax purposes was $171,440,614; and net unrealized appreciation consisted of: Gross unrealized appreciation $ 27,282,626 Gross unrealized depreciation (10,241,014) ----------------- Net unrealized appreciation $ 17,041,612 =================
(b) Non-income producing security. % Represents a percentage of net assets. REIT Real Estate Investment Trust See accompanying notes to financial statements 51 UBS U.S. BOND FUND For the fiscal year ended June 30, 2004, Class Y shares of UBS U.S. Bond Fund returned 0.40%, outperforming the 0.32% return of the Fund's benchmark, the Lehman U.S. Aggregate Bond Index (the "Index"). Since inception on August 31, 1995 through period end, the Fund returned 6.58% on an annualized basis, underperforming the 6.84% annualized return of the Index. (Returns for all share classes over various time periods are shown on page 54; please note that these returns do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.) During the period, active duration and yield curve management, combined with good security selection, drove the Fund to outperform the Index. ACTIVE MANAGEMENT WAS KEY AMID CHANGING MARKET CONDITIONS Throughout much of the fiscal year, the US bond market demonstrated great resilience. During the first eight months of the period, yields were volatile before falling to levels not seen since the summer of 2003. This rally came to an abrupt halt, however, when rising employment figures confirmed that the economic recovery appeared to be sustainable. Increasing fears over rising inflation, anticipated interest rate hikes, and speculation that the Bank of Japan might slow its purchase of US Treasuries together resulted in a quick rise in yields and a significant decline in bond prices during the second quarter of 2004. During the period, research and analysis conducted by the sector specialists and fixed income strategists who make up the Fund's portfolio management team indicated that the economic recovery was stronger than was generally perceived by the market. Acting on this insight, we actively managed the Fund's duration (duration is a measure of a portfolio's sensitivity to interest rates), reducing it below that of the Index. This decision contributed to the Fund's relative return over the period. The Fund also benefited from a "barbell" strategy that we adopted in 2003. (Barbell strategies overweight securities at both ends of the maturity spectrum.) When we last reported to you, we explained that we were anticipating a scenario in which we believed that the then-steep yield curve would likely return to a more normal shape. Our expectation was that interest rates would rise, causing yields on shorter and intermediate maturities to move higher and at a faster rate than longer-dated maturities, resulting in a flatter yield curve. This was exactly what we saw starting in April 2004, when the yield on the two-year US Treasury bond rose 111 basis points (or bps; a basis point is 1/100th of a percentage point), and the yield on the 30-year bond rose 52 bps. While the Fund was underweight corporate bonds in general, our exposure to BBB-rated corporate bonds was greater than that of the Index. This allocation delivered strong performance, boosting the Fund's relative returns during the fiscal year. In particular, we held overweights to Ford and GM, which, through our bottom-up, fundamental investment process, we identified as being priced below what we perceived were their intrinsic, or true, values. Both issuers are benefiting from a stronger economy, diversified revenue base and stronger margins from their main operations and subsidiaries. On a sector level, the Fund's relative performance was aided by our overweight in asset-backed bonds and commercial mortgage-backed securities (CMBS). Our valuation assessments, combined with our bottom-up research, determined that both of these sectors offered attractive spreads and fundamentals, plus expectations that they had the potential to remain less volatile than many high-quality corporate bonds. The CMBS we held had longer durations than the Index, and were high quality issues diversified by property type, geographic location and loan sizes. Alternately, we strategically reduced our exposure to residential mortgage-backed securities during the period, as our research indicated that these securities were expensive given market conditions. LOOKING AHEAD By period end, we moved our duration strategy back to neutral. We believe the Federal Reserve will continue with a measured rate increase, which we believe has already been largely priced into the market. We will continue to 52 seek investment opportunities related to duration management. In the current environment, we favor asset-backed and commercial mortgage-backed securities over more expensively valued corporate bonds. As always, we believe that our bottom-up fundamental process, whereby we seek to identify price to intrinsic value opportunities, and our adherence to our institutional-quality investment discipline to help manage risk and provide broad portfolio diversification across sectors, issuers and maturities, will continue to add value within the Fund's portfolio. 53 UBS U.S. BOND FUND (UNAUDITED) TOTAL RETURN
1 YEAR 3 YEARS 5 YEARS INCEPTION* ENDED ENDED ENDED TO 6/30/04 6/30/04 6/30/04 6/30/04 ------------------------------------------------------------------------------------ UBS U.S. BOND FUND CLASS A 0.18% 5.84% 6.25% 6.33% UBS U.S. BOND FUND CLASS B -0.55 N/A N/A 3.12 UBS U.S. BOND FUND CLASS C -0.37 N/A N/A 3.32 UBS U.S. BOND FUND CLASS Y 0.40 6.06 6.53 6.58 UBS U.S. BOND FUND CLASS A** -4.35 4.22 5.27 5.63 UBS U.S. BOND FUND CLASS B** -5.36 N/A N/A 2.05 UBS U.S. BOND FUND CLASS C** -1.09 N/A N/A 3.32 LEHMAN BROTHERS U.S. AGGREGATE BOND INDEX 0.32 6.36 6.95 6.84
* 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. ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000 This chart shows the growth in the value of an investment in UBS U.S. Bond Fund Class Y shares and the Lehman Brothers U.S. Aggregate Bond Index, if you had invested $10,000 on August 31, 1995, and had reinvested all your income dividends and capital gain distributions through June 30, 2004. The performance of Class A, Class B and Class C shares will vary based upon the different inception dates, class specific expenses and sales charges. No adjustment has been made for any income taxes payable by shareholders on income dividends and capital gain distributions. Past performance is no guarantee of future results. Share price and returns will vary with market conditions; investors may realize a gain or loss upon redemption. [CHART] UBS U.S. BOND FUND CLASS Y VS. LEHMAN BROTHERS U.S. AGGREGATE BOND INDEX Wealth Value With Dividends
UBS U.S. BOND FUND CLASS Y LEHMAN BROTHERS U.S. AGGREGATE BOND INDEX 8/31/95 $ 10,000 $ 10,000 9/30/95 $ 10,090 $ 10,097 10/31/95 $ 10,240 $ 10,228 11/30/95 $ 10,400 $ 10,382 12/31/95 $ 10,549 $ 10,527 1/31/96 $ 10,611 $ 10,597 2/29/96 $ 10,386 $ 10,412 3/31/96 $ 10,314 $ 10,339 4/30/96 $ 10,232 $ 10,281 5/31/96 $ 10,201 $ 10,261 6/30/96 $ 10,360 $ 10,398 7/31/96 $ 10,391 $ 10,426 8/31/96 $ 10,329 $ 10,409 9/30/96 $ 10,548 $ 10,590 10/31/96 $ 10,819 $ 10,825 11/30/96 $ 11,090 $ 11,010 12/31/96 $ 10,922 $ 10,908 1/31/97 $ 10,943 $ 10,941 2/28/97 $ 10,965 $ 10,969 3/31/97 $ 10,813 $ 10,847 4/30/97 $ 10,987 $ 11,010 5/31/97 $ 11,095 $ 11,114 6/30/97 $ 11,236 $ 11,247 7/31/97 $ 11,587 $ 11,550 8/31/97 $ 11,488 $ 11,452 9/30/97 $ 11,642 $ 11,621 10/31/97 $ 11,806 $ 11,790 11/30/97 $ 11,839 $ 11,844 12/31/97 $ 11,975 $ 11,964 1/31/98 $ 12,113 $ 12,117 2/28/98 $ 12,113 $ 12,107 3/31/98 $ 12,148 $ 12,148 4/30/98 $ 12,206 $ 12,212 5/31/98 $ 12,322 $ 12,328 6/30/98 $ 12,426 $ 12,432 7/31/98 $ 12,438 $ 12,459 8/31/98 $ 12,649 $ 12,662 9/30/98 $ 12,872 $ 12,958 10/31/98 $ 12,825 $ 12,889 11/30/98 $ 12,919 $ 12,963 12/31/98 $ 12,977 $ 13,002 1/31/99 $ 13,087 $ 13,094 2/28/99 $ 12,867 $ 12,865 3/31/99 $ 12,952 $ 12,935 4/30/99 $ 12,989 $ 12,977 5/31/99 $ 12,855 $ 12,863 6/30/99 $ 12,795 $ 12,822 7/31/99 $ 12,733 $ 12,768 8/31/99 $ 12,696 $ 12,761 9/30/99 $ 12,858 $ 12,909 10/31/99 $ 12,870 $ 12,957 11/30/99 $ 12,895 $ 12,956 12/31/99 $ 12,842 $ 12,894 1/31/2000 $ 12,789 $ 12,851 2/29/2000 $ 12,934 $ 13,007 3/31/2000 $ 13,092 $ 13,178 4/30/2000 $ 13,013 $ 13,140 5/31/2000 $ 12,960 $ 13,133 6/30/2000 $ 13,273 $ 13,407 7/31/2000 $ 13,380 $ 13,529 8/31/2000 $ 13,565 $ 13,725 9/30/2000 $ 13,658 $ 13,811 10/31/2000 $ 13,711 $ 13,902 11/30/2000 $ 13,977 $ 14,130 12/31/2000 $ 14,231 $ 14,393 1/31/2001 $ 14,456 $ 14,628 2/28/2001 $ 14,597 $ 14,755 3/31/2001 $ 14,682 $ 14,829 4/30/2001 $ 14,569 $ 14,767 5/31/2001 $ 14,654 $ 14,855 6/30/2001 $ 14,715 $ 14,912 7/31/2001 $ 15,099 $ 15,246 8/31/2001 $ 15,256 $ 15,421 9/30/2001 $ 15,455 $ 15,600 10/31/2001 $ 15,765 $ 15,926 11/30/2001 $ 15,524 $ 15,706 12/31/2001 $ 15,429 $ 15,606 1/31/2002 $ 15,558 $ 15,732 2/28/2002 $ 15,711 $ 15,885 3/31/2002 $ 15,420 $ 15,621 4/30/2002 $ 15,750 $ 15,924 5/31/2002 $ 15,882 $ 16,059 6/30/2002 $ 15,981 $ 16,199 7/31/2002 $ 16,111 $ 16,395 8/31/2002 $ 16,391 $ 16,672 9/30/2002 $ 16,601 $ 16,942 10/31/2002 $ 16,531 $ 16,864 11/30/2002 $ 16,547 $ 16,859 12/31/2002 $ 16,866 $ 17,208 1/31/2003 $ 16,880 $ 17,224 2/28/2003 $ 17,084 $ 17,461 3/31/2003 $ 17,081 $ 17,447 4/30/2003 $ 17,237 $ 17,592 5/31/2003 $ 17,521 $ 17,919 6/30/2003 $ 17,487 $ 17,884 7/31/2003 $ 16,907 $ 17,283 8/31/2003 $ 17,038 $ 17,397 9/30/2003 $ 17,493 $ 17,858 10/31/2003 $ 17,317 $ 17,691 11/30/2003 $ 17,386 $ 17,734 12/31/2003 $ 17,528 $ 17,914 1/31/2004 $ 17,675 $ 18,058 2/29/2004 $ 17,851 $ 18,254 3/31/2004 $ 17,979 $ 18,391 4/30/2004 $ 17,551 $ 17,912 5/31/2004 $ 17,472 $ 17,840 6/30/2004 $ 17,558 $ 17,941
8/31/95 = $10,000 FUND RETURNS ARE NET OF ALL FEES AND COSTS, WHILE THE INDEX RETURNS ARE BASED SOLELY ON MARKET RETURNS WITHOUT DEDUCTION FOR FEES OR TRANSACTION COSTS FOR REBALANCING. 54 TOP TEN US BOND HOLDINGS AS OF JUNE 30, 2004
PERCENTAGE OF NET ASSETS ---------------------------------------------------------------- U.S. Treasury Note 4.250%, due 08/15/13 5.0% U.S. Treasury Note 5.375%, due 02/15/31 3.6 Federal National Mortgage Association 5.500%, due 01/01/18 3.3 U.S. Treasury Bond 6.250%, due 08/15/23 2.7 Federal National Mortgage Association 5.500%, due 03/15/11 2.3 U.S. Treasury Note 3.375%, due 12/15/08 2.2 U.S. Treasury Bond 6.250%, due 05/15/30 1.9 Federal National Mortgage Association 6.500%, due 05/01/28 1.7 Federal National Mortgage Association 2.625%, due 01/19/07 1.7 Federal National Mortgage Association 5.500%, due 03/01/33 1.4 ---------------------------------------------------------------- Total 25.8%
INDUSTRY DIVERSIFICATION AS A PERCENT OF NET ASSETS AS OF JUNE 30, 2004 U.S. CORPORATE BONDS Aerospace & Defense 0.26% Automobiles 0.69 Beverages 0.66 Capital Markets 1.04 Chemicals 0.50 Commercial Banks 1.76 Commercial Services & Supplies 0.33 Communications Equipment 0.09 Consumer Finance 2.39 Diversified Financial Services 2.04 Diversified Telecommunication Services 0.68 Electric Utilities 1.57 Energy Equipment & Services 0.24 Food & Staples Retailing 0.47 Food Products 0.53 Gas Utilities 0.09 Hotels, Restaurants & Leisure 0.14 Household Durables 0.36 Insurance 0.33 IT Services 0.20 Leisure Equipment & Products 0.10 Machinery 0.05 Media 0.95 Metals & Mining 0.09 Multi-Utilities & Unregulated Power 0.14 Multiline Retail 0.29 Oil & Gas 0.84 Paper & Forest Products 0.19% Personal Products 0.14 Pharmaceuticals 0.22 Real Estate 0.22 Road & Rail 0.70 Steel 0.20 Telecommunications Services 0.37 Thrifts & Mortgage Finance 0.64 Tobacco 0.21 Wireless Telecommunication Services 0.13 ------ Total U.S. Corporate Bonds 19.85 Asset-Backed Securities 6.88 Commercial Mortgage-Backed Securities 9.88 Mortgage & Agency Debt Securities 42.73 U.S. Government Obligations 16.02 ------ Total U.S. Bonds 95.36 International Corporate Bonds 1.71 Sovereign/Supranational Bonds 0.63 ------ Total International Bonds 2.34 Total Bonds 97.70 SHORT-TERM INVESTMENTS 1.97 ------ TOTAL INVESTMENTS 99.67 CASH AND OTHER ASSETS, LESS LIABILITIES 0.33 ------ NET ASSETS 100.00% ======
55 UBS U.S. BOND FUND -- SCHEDULE OF INVESTMENTS JUNE 30, 2004
FACE AMOUNT VALUE --------------- ----------------- BONDS -- 97.70% U.S. BONDS -- 95.36% U.S. CORPORATE BONDS -- 19.85% Alcoa, Inc. 6.000%, due 01/15/12 $ 105,000 $ 111,022 Allstate Corp. (The) 7.200%, due 12/01/09 100,000 114,018 Altria Group, Inc. 7.750%, due 01/15/27 110,000 112,471 American Electric Power Co., Inc. 6.125%, due 05/15/06 125,000 131,221 Anheuser-Busch Cos., Inc. 9.000%, due 12/01/09 280,000 340,369 AT&T Corp. 8.000%, due 11/15/31 175,000 170,820 AT&T Wireless Services, Inc. 8.750%, due 03/01/31 130,000 158,492 Avalonbay Communities, Inc. 7.500%, due 08/01/09 95,000 106,580 Avon Products, Inc. 7.150%, due 11/15/09 150,000 168,602 Bank of America Corp. 7.400%, due 01/15/11 440,000 498,660 Bank One Corp. 7.875%, due 08/01/10 345,000 399,046 Boeing Capital Corp. 7.375%, due 09/27/10 150,000 169,611 Bombardier Capital, Inc., 144A 6.125%, due 06/29/06 300,000 296,926 Bristol-Myers Squibb Co. 5.750%, due 10/01/11 110,000 114,619 Burlington Northern Santa Fe Corp.+ 7.082%, due 05/13/29 200,000 217,099 Caterpillar, Inc. 6.550%, due 05/01/11 55,000 60,868 Cendant Corp. 6.250%, due 01/15/08 180,000 191,954 Centex Corp. 9.750%, due 06/15/05 320,000 339,078 Citigroup, Inc. 7.250%, due 10/01/10 570,000 641,937 Citizens Communications Co. 9.250%, due 05/15/11 290,000 303,105 Comcast Cable Communications, Inc. 6.750%, due 01/30/11 425,000 458,610 Commonwealth Edison Co. 6.150%, due 03/15/12 65,000 69,432 Computer Sciences Corp. 3.500%, due 04/15/08 165,000 161,835 ConAgra Foods, Inc. 6.750%, due 09/15/11 100,000 109,570 ConocoPhillips 8.500%, due 05/25/05 190,000 199,757 8.750%, due 05/25/10 150,000 181,296 Consolidated Edison, Inc., Series B 7.500%, due 09/01/10 300,000 343,234 Coors Brewing Co. 6.375%, due 05/15/12 135,000 144,613 Countrywide Home Loans, Inc. 3.250%, due 05/21/08 $ 205,000 $ 197,200 C.S. First Boston USA, Inc. 3.875%, due 01/15/09 105,000 102,397 6.500%, due 01/15/12 180,000 193,426 DaimlerChrysler N.A. Holding Corp.+ 4.050%, due 06/04/08 530,000 519,678 Devon Financing Corp., ULC 6.875%, due 09/30/11 105,000 114,309 Dominion Resources, Inc., Class B 7.625%, due 07/15/05 235,000 246,865 Dow Chemical Co. (The) 6.125%, due 02/01/11 275,000 290,937 Duke Energy Field Services, LLC 7.875%, due 08/16/10 155,000 176,648 Eastman Kodak Co. 3.625%, due 05/15/08 130,000 122,988 EOP Operating LP 7.250%, due 06/15/28 165,000 170,921 Erac U.S.A. Finance Co., 144A 8.000%, due 01/15/11 200,000 232,572 Federated Department Stores, Inc. 6.625%, due 04/01/11 100,000 108,397 First Data Corp. 5.625%, due 11/01/11 85,000 88,689 FirstEnergy Corp., Series B 6.450%, due 11/15/11 105,000 108,860 FleetBoston Financial Corp. 7.375%, due 12/01/09 110,000 124,037 Ford Motor Co. 7.450%, due 07/16/31 175,000 166,813 Ford Motor Credit Co. 5.800%, due 01/12/09 745,000 752,002 7.375%, due 02/01/11 165,000 174,037 GATX Financial Corp. 6.875%, due 11/01/04 115,000 116,917 General Electric Capital Corp. 6.000%, due 06/15/12 1,145,000 1,208,305 6.750%, due 03/15/32 140,000 150,502 General Motors Acceptance Corp. 6.875%, due 09/15/11 225,000 230,692 8.000%, due 11/01/31 240,000 245,901 General Motors Corp. 8.375%, due 07/15/33 165,000 174,651 Goldman Sachs Group, Inc. 6.875%, due 01/15/11 500,000 548,885 Harrah's Operating Co., Inc. 7.500%, due 01/15/09 155,000 169,795 Hertz Corp. 7.625%, due 08/15/07 165,000 176,838 Household Finance Corp. 6.750%, due 05/15/11 295,000 322,377 ICI Wilmington, Inc. 4.375%, due 12/01/08 220,000 215,807 International Lease Finance Corp. 3.500%, due 04/01/09 185,000 175,915 International Paper Co. 6.750%, due 09/01/11 130,000 140,902
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FACE AMOUNT VALUE --------------- ----------------- JPMorgan Chase & Co. 6.750%, due 02/01/11 $ 225,000 $ 245,229 John Deere Capital Corp. 7.000%, due 03/15/12 145,000 162,271 Kerr-McGee Corp. 5.375%, due 04/15/05 250,000 255,172 Kohl's Corp. 6.300%, due 03/01/11 100,000 107,604 Kraft Foods, Inc. 5.625%, due 11/01/11 320,000 325,534 Kroger Co. 7.500%, due 04/01/31 105,000 116,212 Lincoln National Corp. 6.200%, due 12/15/11 80,000 84,904 Lockheed Martin Corp. 8.500%, due 12/01/29 100,000 125,436 Marathon Oil Corp. 6.125%, due 03/15/12 120,000 126,614 Marsh & McClennan Cos., Inc. 6.250%, due 03/15/12 90,000 96,544 MBNA Capital, Series B+ 1.979%, due 02/01/27 205,000 192,902 McKesson Corp., Inc. 7.750%, due 02/01/12 95,000 108,188 MidAmerican Energy Co. 5.125%, due 01/15/13 45,000 44,717 Miller Brewing Co., 144A 5.500%, due 08/15/13 225,000 225,785 Morgan Stanley 6.750%, due 04/15/11 680,000 745,191 Motorola, Inc. 7.625%, due 11/15/10 105,000 118,215 Newell Rubbermaid, Inc. 4.000%, due 05/01/10 120,000 113,910 News America Holdings, Inc. 7.125%, due 04/08/28 65,000 69,118 Pepsi Bottling Holdings, Inc., 144A 5.625%, due 02/17/09 110,000 116,224 PP&L Capital Funding, Inc. 7.750%, due 04/15/05 105,000 108,823 PPL Capital Funding Trust I, 144A+ 4.330%, due 03/01/09 125,000 121,000 Praxair, Inc. 6.375%, due 04/01/12 55,000 59,810 Progress Energy, Inc. 7.000%, due 10/30/31 145,000 149,217 Qwest Capital Funding, Inc. 7.900%, due 08/15/10 360,000 318,600 Rohm & Haas Co. 7.850%, due 07/15/29 50,000 59,983 Safeway, Inc. 6.500%, due 03/01/11 155,000 164,232 SBC Communications, Inc. 5.875%, due 02/01/12 145,000 149,254 Sempra Energy Corp. 7.950%, due 03/01/10 100,000 114,939 SLM Corp. 5.625%, due 04/10/07 250,000 262,716 Southern California Edison Co. 8.000%, due 02/15/07 $ 275,000 $ 303,782 Southern Power Co., Series B 6.250%, due 07/15/12 175,000 183,802 Southwestern Electric Power, Series B 4.500%, due 07/01/05 45,000 45,831 Sprint Capital Corp. 8.375%, due 03/15/12 95,000 109,186 Target Corp. 7.000%, due 07/15/31 135,000 150,780 Time Warner, Inc. 7.625%, due 04/15/31 335,000 362,517 Transocean Sedco Forex, Inc. 6.625%, due 04/15/11 275,000 300,073 Travelers Property Casualty Corp. 5.000%, due 03/15/13 125,000 121,077 U.S. Bank N.A., Minnesota 6.375%, due 08/01/11 240,000 259,262 Unilever Capital Corp. 7.125%, due 11/01/10 200,000 226,257 Union Pacific Corp. 6.700%, due 12/01/06 235,000 252,204 United Technologies Corp. 6.100%, due 05/15/12 185,000 198,135 UST, Inc. 6.625%, due 07/15/12 135,000 146,200 Valero Energy Corp. 7.500%, due 04/15/32 150,000 166,856 Verizon New England, Inc. 6.500%, due 09/15/11 175,000 186,469 Verizon New York, Inc., Series B 7.375%, due 04/01/32 70,000 73,680 Viacom, Inc. 6.625%, due 05/15/11 120,000 130,558 Wachovia Bank N.A. 7.800%, due 08/18/10 345,000 398,671 Wal-Mart Stores, Inc. 6.875%, due 08/10/09 275,000 306,643 Walt Disney Co. (The) 6.375%, due 03/01/12 150,000 160,956 Washington Mutual, Inc. 5.625%, due 01/15/07 575,000 601,523 Waste Management, Inc. 7.375%, due 08/01/10 100,000 112,353 Wells Fargo Bank, N.A. 6.450%, due 02/01/11 480,000 523,342 Weyerhaeuser Co. 7.375%, due 03/15/32 90,000 97,868 Wyeth 5.250%, due 03/15/13 170,000 164,069 Xcel Energy, Inc. 7.000%, due 12/01/10 100,000 110,618 Westdeutsche Landesbank 6.750% due 6/15/05 130,000 135,393 ----------------- 24,799,557 ----------------- ASSET-BACKED SECURITIES -- 6.88% Americredit Automobile Receivables Trust, 01-B, Class A4+ 5.370%, due 06/12/08 749,041 764,288
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FACE AMOUNT VALUE --------------- ----------------- Americredit Automobile Receivables Trust, 03-AM, Class A2B+ 1.630%, due 10/06/06 $ 144,047 $ 144,065 Capital One Multi-Asset Execution Trust, 03-A1, Class A1+ 1.629%, due 01/15/09 970,000 974,443 Centerpoint Energy Transition, 01-1, Class A4+ 5.630%, due 09/15/15 310,000 323,323 Conseco Finance Securitizations Corp., 00-1, Class A4+ 7.620%, due 05/01/31 1,443,948 1,469,263 Conseco Finance Securitizations Corp., 00-2, Class A4+ 8.480%, due 12/01/30 500,000 515,025 Conseco Finance Securitizations Corp., 00-5, Class A4+ 7.470%, due 02/01/32 539,689 559,594 Conseco Finance Securitizations Corp., 00-B, Class AF4+ 7.870%, due 02/15/31 4,778 4,817 Countrywide Asset-Backed Certificates, 03-SD3, Class A1, 144A+ 1.720%, due 12/25/32 216,946 217,817 Countrywide Asset-Backed Certificates, 04-SD1, Class A1, 144A+ 1.640%, due 06/25/33 492,441 493,318 Greentree Financial Corp., 94-5, Class A5 8.300%, due 11/15/19 219,353 235,170 Greentree Financial Corp., 99-3, Class A5 6.160%, due 02/01/31 729,016 745,600 Providian Gateway Master Trust, 04-AA, Class C, 144A+ 2.139%, due 03/15/11 190,000 190,247 Providian Gateway Master Trust, 04-AA, Class D, 144A+ 3.089%, due 03/15/11 220,000 220,176 RAFC Asset-Backed Trust, 01-1, Class A3 5.115%, due 01/25/15 490,111 498,280 Sears Credit Account Master Trust 01-1, Class A+ 1.419%, due 02/15/10 970,000 969,338 Structured Asset Securities Corp., 03-AL2, Class A, 144A+ 3.356%, due 01/25/31 293,234 267,702 ----------------- 8,592,466 ----------------- COMMERCIAL MORTGAGE-BACKED SECURITIES -- 9.88% Bear Stearns Commercial Mortgage Securities, 00-WF1, Class A2+ 7.780%, due 02/15/32 1,215,000 1,384,611 Bear Stearns Commercial Mortgage Securities, 00-WF2, Class A2+ 7.320%, due 10/15/32 200,000 225,317 Commercial Mortgage Trust, 01-FL5A, Class E, 144A+ 2.739%, due 11/15/13 205,000 205,582 Commercial Mortgage Trust, 01-FL5A, Class F, 144A+ 2.197%, due 11/15/13 240,000 240,424 DLJ Commercial Mortgage Corp., 99-CG1, Class A1B+ 6.460%, due 03/10/32 $ 220,000 $ 237,542 DLJ Commercial Mortgage Corp., 99-CG3, Class A1B+ 7.340%, due 10/10/32 200,000 225,057 DLJ Commercial Mortgage Corp., 00-CKP1, Class A1B+ 7.180%, due 08/10/10 850,000 949,555 First Union Commercial Mortgage Securities, Inc., 97-C2, Class A3 6.650%, due 11/18/29 481,262 511,897 GMAC Commercial Mortgage Securities, Inc., 97-C2, Class A2 6.550%, due 04/16/29 230,248 232,297 Greenwich Capital Commercial Funding Corp., 03-FL1, Class A, 144A+ 1.681%, due 07/05/18 399,785 399,843 GS Mortgage Securities Corp., II, 96-PL, Class A2+ 7.410%, due 02/15/27 28,299 28,461 Heller Financial Commercial Mortgage Assets, 99-PH1, Class A1 6.500%, due 05/15/31 653,933 689,723 Host Marriott Pool Trust, 99-HMTA, Class A, 144A+ 6.980%, due 08/03/15 273,695 292,434 Host Marriott Pool Trust, 99-HMTA, Class C, 144A+ 7.730%, due 08/03/15 360,000 403,294 Host Marriott Pool Trust, 99-HMTA, Class D, 144A+ 7.970%, due 08/03/15 220,000 245,258 Host Marriott Pool Trust, 99-HMTA, Class E, 144A+ 8.070%, due 08/03/15 220,000 241,292 JP Morgan Commercial Mortgage Finance Corp., 99-C8, Class A1 7.325%, due 07/15/31 318,022 331,454 LB Commercial Conduit Mortgage Trust, 99-C1, Class A1+ 6.410%, due 06/15/31 425,785 444,590 LB Commercial Conduit Mortgage Trust, 99-C2, Class A2 7.325%, due 10/15/32 325,000 363,970 Merrill Lynch Mortgage Investors, Inc., 96-C2, Class A3+ 6.960%, due 11/21/28 319,320 337,740 Merrill Lynch Mortgage Investors, Inc., 97-C2, Class A2+ 6.540%, due 12/10/29 265,000 283,374 Morgan Stanley Dean Witter Capital I, 96-WF1, Class A3, 144A+ 7.684%, due 11/15/28 292,072 302,105 Morgan Stanley Dean Witter Capital I, 00-LIF2, Class A1+ 6.960%, due 10/15/33 239,894 258,328
58
FACE AMOUNT VALUE --------------- ----------------- Nomura Asset Securities Corp., 95-MD3, Class A1B+ 8.150%, due 04/04/27 $ 255,484 $ 262,162 PNC Mortgage Acceptance Corp., 00-C1, Class A2+ 7.610%, due 02/15/10 1,000,000 1,132,279 Prudential Mortgage Capital Funding, LLC, 00-ROCK, Class A2+ 6.605%, due 05/10/34 115,000 125,261 Salomon Brothers Mortgage Securities VII, 00-C1, Class A2+ 7.520%, due 12/18/09 1,250,000 1,411,497 Starwood Asset Receivables Trust, 03-1A, Class A1, 144A+ 1.570%, due 08/28/22 274,169 274,169 Strategic Hotel Capital, Inc., 03-1, Class D, 144A+ 2.389%, due 02/15/13 310,000 308,802 ----------------- 12,348,318 ----------------- MORTGAGE & AGENCY DEBT SECURITIES -- 42.73% Citicorp Mortgage Securities, Inc., 94-9, Class A8 5.750%, due 06/25/09 54,095 54,496 C.S. First Boston Mortgage Securities Corp., 02-10, Class 2A1 7.500%, due 05/25/32 559,122 578,873 C.S. First Boston Mortgage Securities Corp., 03-8, Class 5A1 6.500%, due 04/25/33 870,966 892,520 Federal Home Loan Mortgage Corp. 2.875%, due 11/03/06 140,000 138,516 3.875%, due 01/12/09 1,455,000 1,430,352 5.000%, due 01/30/14 1,390,000 1,345,373 5.125%, due 07/15/12 615,000 621,413 Federal Home Loan Mortgage Corp., 1595, Class D 7.000%, due 10/15/13 290,064 304,530 Federal Home Loan Mortgage Corp., 2148, Class ZA 6.000%, due 04/15/29 1,021,779 1,027,021 Federal Home Loan Mortgage Corp., 2297, Class NB 6.000%, due 03/15/16 460,000 482,639 Federal Home Loan Mortgage Corp., 2426, Class GH 6.000%, due 08/15/30 820,000 841,102 Federal Home Loan Mortgage Corp., 2532, Class PD 5.500%, due 06/15/26 810,000 840,696 Federal Home Loan Mortgage Corp., Gold 5.500%, due 09/01/17 371,344 380,368 5.500%, due 01/01/18 746,214 764,347 5.500%, due 04/01/18 626,541 641,594 5.500%, due 12/01/18 632,002 647,186 6.000%, due 12/01/17 656,451 684,978 6.000%, due 10/01/29 506,472 519,832 6.000%, due 08/15/34 660,000 671,137 6.500%, due 06/01/29 127,447 132,938 6.500%, due 09/01/29 282,200 294,359 6.500%, due 03/01/32 $ 93,182 $ 97,197 6.500%, due 11/01/32 103,555 108,017 6.500%, due 08/15/34 1,420,000 1,474,137 Federal National Mortgage Association 2.625%, due 01/19/07+ 2,195,000 2,151,728 3.376%, due 09/01/33+ 109,340 109,412 4.296%, due 04/01/34+ 1,375,642 1,379,891 4.341%, due 03/01/34+ 726,861 740,099 4.440%, due 06/01/33+ 260,292 263,592 4.585%, due 11/01/33+ 1,084,948 1,091,566 5.000%, due 03/01/34 1,275,072 1,233,169 5.125%, due 01/02/14 430,000 418,461 5.500%, due 03/15/11 2,770,000 2,897,259 5.500%, due 12/01/17 317,670 325,660 5.500%, due 01/01/18 3,966,997 4,067,238 5.500%, due 09/01/24 653,685 651,405 5.500%, due 03/01/33 1,805,264 1,798,967 6.000%, due 07/01/17 249,874 260,655 6.000%, due 06/01/23 377,558 389,544 6.000%, due 03/01/28 120,239 123,358 6.000%, due 03/01/29 134,477 137,454 6.000%, due 05/01/29 126,980 129,791 6.000%, due 07/01/29 563,621 576,098 6.000%, due 06/01/31 102,187 104,449 6.000%, due 01/01/33 746,418 762,941 6.000%, due 06/01/33 164,807 168,455 6.000%, due 10/01/33 1,284,722 1,313,162 6.000%, due 12/01/33 935,299 956,004 6.250%, due 02/01/11 665,000 713,971 6.500%, due 05/01/28 2,073,622 2,160,706 6.500%, due 08/01/29 914,271 952,667 6.500%, due 08/01/32 1,126,790 1,174,111 6.500%, due 08/15/34 460,000 477,250 7.000%, due 03/01/31 49,284 52,308 7.000%, due 11/01/31 239,716 253,004 7.000%, due 04/01/32 482,261 508,995 7.000%, due 08/01/32 371,422 392,011 7.000%, due 11/01/32 741,350 782,446 Federal National Mortgage Association Grantor Trust, 00-T6, Class A1 7.500%, due 06/25/30 991,104 1,062,027 Federal National Mortgage Association Grantor Trust, 01-T5, Class A3 7.500%, due 06/19/30 138,394 148,297 Federal National Mortgage Association Grantor Trust, 01-T10, Class A2 7.500%, due 12/25/41 107,511 115,611 Federal National Mortgage Association Whole Loan, 03-W6, Class 6A+ 4.501%, due 08/25/42 421,596 441,214 Federal National Mortgage Association Whole Loan, 03-W11, Class A1+ 5.308%, due 06/25/33 620,863 634,299 Federal National Mortgage Association Whole Loan, 95-W3, Class A 9.000%, due 04/25/25 15,071 16,591 GMAC Mortgage Corp. Loan Trust, 03-AR2, Class 4A1+ 4.764%, due 12/19/33 1,214,516 1,187,542
59
FACE AMOUNT VALUE --------------- ----------------- Government National Mortgage Association 4.000%, due 10/20/29 $ 362,367 $ 364,330 6.000%, due 12/20/28 175,562 180,324 6.000%, due 05/20/29 844,832 865,971 6.000%, due 07/15/29 499,073 512,184 6.000%, due 08/20/29 621,436 636,985 6.500%, due 10/15/24 598,188 630,192 6.500%, due 08/15/27 2,834 2,965 7.000%, due 07/15/25 14,809 15,815 7.000%, due 07/15/31 188,654 200,453 8.500%, due 12/15/17 320,815 356,006 9.000%, due 11/15/04 418 460 GS Mortgage Securities Corp., 01-2, Class A, 144A 7.500%, due 06/19/32 286,605 306,150 Impac Secured Assets Common Owner Trust, 01-3, Class A2+ 7.250%, due 04/25/31 77,721 79,830 MLCC Mortgage Investors, Inc., 03-D, Class XA1++ 1.000%, due 08/25/28 (b) 13,044,201 206,363 Residential Funding Mortgage Securitization I, 95-S16, Class A7 7.500%, due 11/25/25 135,678 135,521 Structured Adjustable Rate Mortgage Loan Trust, 04-3AC, Class A1+ 4.940%, due 03/25/34 793,606 796,009 ----------------- 53,386,587 ----------------- U.S. GOVERNMENT OBLIGATIONS -- 16.02% U.S. Treasury Bonds 6.250%, due 08/15/23 3,000,000 3,322,032 6.250%, due 05/15/30 2,105,000 2,356,859 8.750%, due 05/15/17 665,000 901,387 U.S. Treasury Notes 3.375%, due 12/15/08 2,725,000 2,690,300 4.250%, due 08/15/13 6,415,000 6,262,143 5.375%, due 02/15/31 4,450,000 4,488,070 ----------------- 20,020,791 ----------------- Total U.S. Bonds 119,147,719 ----------------- INTERNATIONAL BONDS -- 2.34% INTERNATIONAL CORPORATE BONDS -- 1.71% AUSTRALIA -- 0.35% International Bank for Reconstruction & Development 4.375%, due 09/28/06 425,000 436,886 ----------------- CANADA -- 0.24% Bombardier, Inc., 144A 6.300%, due 05/01/14 125,000 106,169 Burlington Resources Finance Co.+ 6.680%, due 02/15/11 65,000 71,059 Telus Corp. 8.000%, due 06/01/11 110,000 125,022 ----------------- 302,250 ----------------- FRANCE -- 0.07% France Telecom S.A. 8.500%, due 03/01/31 70,000 87,851 ----------------- LUXEMBOURG -- 0.09% Telecom Italia Capital Corp., 144A 5.250%, due 11/15/13 $ 120,000 $ 116,142 ----------------- MEXICO -- 0.39% United Mexican States 8.125%, due 12/30/19 450,000 481,500 ----------------- NETHERLANDS -- 0.09% Deutsche Telekom International Finance BV 8.250%, due 06/15/30 90,000 109,542 ----------------- UNITED KINGDOM -- 0.48% Diageo Capital PLC 3.375%, due 03/20/08 120,000 117,520 HSBC Holdings PLC 5.250%, due 12/12/12 65,000 64,566 Rio Tinto Finance USA Ltd. 2.625%, due 09/30/08 240,000 225,124 Royal Bank of Scotland+ 9.118%, due 03/31/10 70,000 84,350 Vodafone Group PLC 7.875%, due 02/15/30 90,000 107,064 ----------------- 598,624 ----------------- Total International Corporate Bonds 2,132,795 ----------------- SOVEREIGN/SUPRANATIONAL BONDS -- 0.63% European Investment Bank 4.875%, due 09/06/06 315,000 327,006 Inter-American Development Bank 5.750%, due 02/26/08 325,000 347,975 Pemex Project Funding Master Trust 8.000%, due 11/15/11 100,000 108,250 ----------------- 783,231 ----------------- Total International Bonds 2,916,026 ----------------- Total Bonds (Cost $122,113,798) 122,063,745 ----------------- SHARES --------------- SHORT-TERM INVESTMENT -- 1.97% UBS Supplementary Trust U.S. Cash Management Prime Fund, yield of 1.05% (Cost $2,466,400) 2,466,400 2,466,400 ----------------- Total Investments (Cost $124,580,198) -- 99.67% (a) 124,530,145 Cash and other assets, less liabilities -- 0.33% 408,662 ----------------- Net Assets -- 100% $ 124,938,807 =================
60 NOTES TO SCHEDULE OF INVESTMENTS (a) Aggregate cost for federal income tax purposes was $125,138,900; and net unrealized depreciation consisted of: Gross unrealized appreciation $ 1,176,738 Gross unrealized depreciation (1,785,493) ----------------- Net unrealized depreciation $ (608,755) =================
(b) Security is illiquid. This security amounted to $206,363 or 0.17% of net assets. + Variable rate security - The rate disclosed is that in effect at June 30, 2004. ++ 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. 144A: Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities are considered liquid and may be resold in transactions exempt from registration, normally to qualified institutional buyers. At June 30, 2004 the value of these securities amounted to $5,823,431 or 4.66% of net assets. ULC Unlimited Liability Company. See accompanying notes to financial statements 61 UBS HIGH YIELD FUND For the fiscal year ended June 30, 2004, UBS High Yield Fund's Class Y shares returned 12.66%, compared with the 9.97% return of the Fund's 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 5.53% on an annualized basis, compared with a 5.18% annualized return for the Index. (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 strong performance over the review period is attributable primarily to security selection and industry positioning. RESEARCH IDENTIFIED AREAS OF ATTRACTIVE OPPORTUNITY After posting impressive gains during the first half of the period, the high yield market generated more modest returns in the second half, as investors grew increasingly risk-averse amid ongoing geopolitical tensions, rising oil prices and the Federal Reserve Board's rate hike. Ironically, this performance came at a time when the market was benefiting from improving fundamentals, including lower default rates, a falling distress ratio, improvement in the ratio of downgrades to upgrades, operating improvements, higher recovery rates and greater access to the capital markets. Our positive outlook for the economy led us to overweight some cyclical sectors. This view, for example, led us to overweight the chemicals sector, thus positioning the Fund to benefit from that sector's recovery during the period. Chemicals had lagged the overall high yield market in 2003, but the sector launched a comeback, aided by the ongoing economic recovery and an increase in merger and acquisition activity. Throughout the 12-month period, the Fund was overweight in B-rated bonds, at the expense of BB- and CCC-rated bonds. The underweight in CCC-rated bonds negatively impacted performance. We continue to believe that as the economy strengthens, the B-rated sector should continue to provide stronger return performance. LOOKING AHEAD The US high yield market continues to benefit from the improved economic outlook, which should lead to lower default rates, more credit upgrades and positive earnings results. We also believe the market will be positively impacted by expected equity issuances from high yield issuers, and the increased merger and acquisitions activity. However, we also believe that a lot of this positive news is already reflected in the market. As a result, we expect to see increased volatility, at least until the outlook for interest rates is further clarified. Against this backdrop, we expect to continue to implement our research-driven investment process, drawing upon the extensive research and risk management capabilities available to us in order to identify securities through a bottom-up approach. 62 UBS HIGH YIELD FUND (UNAUDITED) TOTAL RETURN
1 YEAR 3 YEARS 5 YEARS INCEPTION* ENDED ENDED ENDED TO 6/30/04 6/30/04 6/30/04 6/30/04 ------------------------------------------------------------------------------------ UBS HIGH YIELD FUND CLASS A 12.15% 8.58% 4.55% 4.64% UBS HIGH YIELD FUND CLASS B 11.48 N/A N/A 9.37 UBS HIGH YIELD FUND CLASS C 11.59 N/A N/A 9.64 UBS HIGH YIELD FUND CLASS Y 12.66 8.87 4.85 5.53 UBS HIGH YIELD FUND CLASS A** 7.14 6.93 3.59 3.77 UBS HIGH YIELD FUND CLASS B** 6.48 N/A N/A 8.38 UBS HIGH YIELD FUND CLASS C** 10.84 N/A N/A 9.64 MERRILL LYNCH HIGH YIELD CASH PAY INDEX 9.97 8.88 5.39 5.18
* 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. ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000 This chart shows the growth in the value of an investment in UBS High Yield Fund Class Y shares and the Merrill Lynch High Yield Cash Pay Index, if you had invested $10,000 on September 30, 1997, and had reinvested all your income dividends and capital gain distributions through June 30, 2004. The performance of Class A, Class B and Class C shares will vary based upon the different inception dates, class specific expenses and sales charges. No adjustment has been made for any income taxes payable by shareholders on income dividends and capital gain distributions. Past performance is no guarantee of future results. Share price and returns will vary with market conditions; investors may realize a gain or loss upon redemption. [CHART] UBS HIGH YIELD FUND CLASS Y VS. MERRILL LYNCH HIGH YIELD CASH PAY INDEX Wealth Value With Dividends
UBS HIGH YIELD FUND CLASS Y MERRILL LYNCH HIGH YIELD CASH PAY INDEX 9/30/97 $ 10,000 $ 10,000 10/30/97 $ 9,952 $ 10,066 11/30/97 $ 10,052 $ 10,162 12/30/97 $ 10,239 $ 10,258 1/30/98 $ 10,470 $ 10,411 2/28/98 $ 10,542 $ 10,454 3/30/98 $ 10,673 $ 10,544 4/30/98 $ 10,680 $ 10,594 5/30/98 $ 10,710 $ 10,668 6/30/98 $ 10,822 $ 10,721 7/30/98 $ 10,979 $ 10,782 8/30/98 $ 10,424 $ 10,317 9/30/98 $ 10,571 $ 10,337 10/30/98 $ 10,504 $ 10,167 11/30/98 $ 11,101 $ 10,630 12/30/98 $ 11,028 $ 10,634 1/30/99 $ 11,293 $ 10,739 2/28/99 $ 11,349 $ 10,657 3/30/99 $ 11,470 $ 10,749 4/30/99 $ 11,636 $ 10,917 5/30/99 $ 11,404 $ 10,841 6/30/99 $ 11,349 $ 10,821 7/30/99 $ 11,337 $ 10,837 8/30/99 $ 11,280 $ 10,727 9/30/99 $ 11,246 $ 10,686 10/30/99 $ 11,246 $ 10,623 11/30/99 $ 11,474 $ 10,745 12/30/99 $ 11,564 $ 10,801 1/30/2000 $ 11,419 $ 10,748 2/29/2000 $ 11,383 $ 10,757 3/30/2000 $ 11,118 $ 10,606 4/30/2000 $ 11,191 $ 10,610 5/30/2000 $ 11,154 $ 10,493 6/30/2000 $ 11,351 $ 10,673 7/30/2000 $ 11,474 $ 10,750 8/30/2000 $ 11,610 $ 10,881 9/30/2000 $ 11,462 $ 10,818 10/30/2000 $ 11,104 $ 10,500 11/30/2000 $ 10,597 $ 10,171 12/30/2000 $ 10,965 $ 10,392 1/31/2001 $ 11,535 $ 11,011 2/28/2001 $ 11,657 $ 11,185 3/31/2001 $ 11,454 $ 11,037 4/30/2001 $ 11,440 $ 10,917 5/31/2001 $ 11,535 $ 11,127 6/30/2001 $ 11,144 $ 10,897 7/31/2001 $ 11,270 $ 11,067 8/31/2001 $ 11,369 $ 11,174 9/30/2001 $ 10,636 $ 10,457 10/31/2001 $ 10,976 $ 10,765 11/30/2001 $ 11,471 $ 11,115 12/31/2001 $ 11,419 $ 11,036 1/31/2002 $ 11,414 $ 11,098 2/28/2002 $ 11,161 $ 10,991 3/31/2002 $ 11,389 $ 11,253 4/30/2002 $ 11,503 $ 11,431 5/31/2002 $ 11,371 $ 11,370 6/30/2002 $ 10,811 $ 10,561 7/31/2002 $ 10,625 $ 10,141 8/31/2002 $ 10,889 $ 10,395 9/30/2002 $ 10,731 $ 10,228 10/31/2002 $ 10,745 $ 10,142 11/30/2002 $ 11,250 $ 10,750 12/31/2002 $ 11,331 $ 10,911 1/31/2003 $ 11,502 $ 11,225 2/28/2003 $ 11,612 $ 11,370 3/31/2003 $ 11,969 $ 11,665 4/30/2003 $ 12,479 $ 12,320 5/31/2003 $ 12,497 $ 12,453 6/30/2003 $ 12,765 $ 12,793 7/31/2003 $ 12,669 $ 12,610 8/31/2003 $ 12,898 $ 12,775 9/30/2003 $ 13,164 $ 13,116 10/31/2003 $ 13,443 $ 13,384 11/30/2003 $ 13,572 $ 13,568 12/31/2003 $ 13,954 $ 13,883 1/31/2004 $ 14,284 $ 14,098 2/29/2004 $ 14,271 $ 14,093 3/31/2004 $ 14,349 $ 14,193 4/30/2004 $ 14,387 $ 14,090 5/31/2004 $ 14,161 $ 13,865 6/30/2004 $ 14,381 $ 14,068
9/30/97 = $10,000 FUND RETURNS ARE NET OF ALL FEES AND COSTS, WHILE THE INDEX RETURNS ARE BASED SOLELY ON MARKET RETURNS WITHOUT DEDUCTION FOR FEES OR TRANSACTION COSTS FOR REBALANCING. 63 TOP TEN FIXED INCOME HOLDINGS AS OF JUNE 30, 2004
PERCENTAGE OF NET ASSETS ----------------------------------------------------------------- Charter Communications Holdings 10.000%, due 04/01/09 1.1% Le-Natures, Inc. 9.000%, due 06/15/13 1.1 AK Steel Corp. 7.750%, due 06/15/12 1.1 Omnova Solutions, Inc. 11.250%, due 06/01/10 1.0 Crown Cork & Seal Co., Inc. 8.000%, due 04/15/23 1.0 Houghton Mifflin Co. 8.250%, due 02/01/11 1.0 AES Corp. 9.375%, due 09/15/10 1.0 American Airlines, Inc. 7.155%, due 04/15/06 1.0 Mediacom LLC 9.500%, due 01/15/13 1.0 Petroleum Geo-Services ASA 10.000%, due 11/05/10 1.0 ----------------------------------------------------------------- Total 10.3%
INDUSTRY DIVERSIFICATION AS A PERCENT OF NET ASSETS AS OF JUNE 30, 2004 U.S. CORPORATE BONDS Aerospace & Defense 1.79% Airlines 1.92 Auto Components 3.08 Beverages 1.13 Building Products 0.36 Chemicals 7.08 Commercial Services & Supplies 3.23 Containers & Packaging 6.80 Distributors 0.57 Diversified Financial Services 2.59 Electric Utilities 1.61 Electronic Equipment & Instruments 0.87 Energy Equipment & Services 2.83 Food & Staples Retailing 1.74 Food Products 5.33 Forest Products 0.69 Industrial Conglomerates 0.32 Health Care Equipment & Supplies 0.70 Health Care Providers & Services 0.80 Household Durables 1.08 Household Products 0.67 Machinery 11.06 Media 11.23 Metals & Mining 1.42% Multi-Utilities & Unregulated Power 4.78 Oil & Gas 4.61 Paper & Forest Products 2.28 Real Estate 1.82 Road & Rail 0.38 Software 1.44 Specialty Retail 0.89 Steel 0.35 Telecommunications Services 4.10 Textiles, Apparel & Luxury Goods 2.33 Wireless Telecommunication Services 3.36 ------ Total U.S. Corporate Bonds 95.24 U.S. EQUITIES Metals & Mining 0.46 Warrants 0.97 ------ Total U.S Equities 1.43 SHORT-TERM INVESTMENTS 2.15 ------ TOTAL INVESTMENTS 98.82 CASH AND OTHER ASSETS, LESS LIABILITIES 1.18 ------ NET ASSETS 100.00% ======
64 UBS HIGH YIELD FUND -- SCHEDULE OF INVESTMENTS JUNE 30, 2004
FACE AMOUNT VALUE --------------- ----------------- U.S. BONDS -- 95.24% U.S. CORPORATE BONDS -- 95.24% ACC Escrow Corp. 10.000%, due 08/01/11 $ 1,250,000 $ 1,078,125 Activant Solutions, Inc. 10.500%, due 06/15/11 1,000,000 1,055,000 Advanced Accessory Systems LLC 10.750%, due 06/15/11 1,250,000 1,212,500 Advanstar Communications, Inc. 10.750%, due 08/15/10 1,000,000 1,106,250 AES Corp. 9.375%, due 09/15/10 1,396,000 1,488,485 AK Steel Corp. 7.750%, due 06/15/12 1,750,000 1,579,375 Alliance Imaging, Inc. 10.375%, due 04/15/11 1,110,000 1,162,725 American Airlines, Inc. 6.977%, due 05/23/21 601,765 535,663 7.155%, due 04/15/06 1,500,000 1,474,908 8.608%, due 10/01/12 875,000 795,750 American Color Graphics, Inc. 10.000%, due 06/15/10 1,000,000 892,500 American Eco Corp., Series B (d) (e) (f) 9.625%, due 05/15/08 5,500,000 550 American Rock Salt Co. LLC, 144A 9.500%, due 03/15/14 1,250,000 1,281,250 Amscan Holding, Inc., 144A 8.750%, due 05/01/14 1,000,000 982,500 Anchor Glass Container Corp. 11.000%, due 02/15/13 700,000 800,625 Armor Holdings, Inc. 8.250%, due 08/15/13 600,000 642,000 B&G Foods, Inc., Series D 9.625%, due 08/01/07 725,000 737,687 Bally Total Fitness Holding Corp. 9.875%, due 10/15/07 500,000 415,000 10.500%, due 07/15/11 900,000 846,000 BCP Caylux Holdings Luxembourg SCA, 144A 9.625%, due 06/15/14 500,000 518,125 BE Aerospace, Inc., Series B 8.875%, due 05/01/11 1,175,000 1,092,750 Bear Island Paper Co., LLC, Series B 10.000%, due 12/01/07 625,000 587,500 Berry Plastics Corp. 10.750%, due 07/15/12 300,000 333,000 Blue Ridge Paper Products, Inc. 9.500%, due 12/15/08 1,000,000 930,000 Buckeye Technologies, Inc. 8.000%, due 10/15/10 1,250,000 1,146,875 Buffets, Inc. 11.250%, due 07/15/10 1,250,000 1,306,250 Building Materials Corp. of America, Series B 7.750%, due 07/15/05 500,000 502,500 Cadmus Communications Corp., 144A 8.375%, due 06/15/14 800,000 800,000 Calpine Canada Energy Finance Corp. 8.500%, due 05/01/08 1,500,000 990,000 Calpine Corp. 8.500%, due 02/15/11 1,300,000 848,250 Celestica, Inc. 7.875%, due 07/01/11 $ 750,000 $ 765,000 Cellu Tissue Holdings, Inc., 144A 9.750%, due 03/15/10 1,300,000 1,248,000 Charter Communications Holdings 10.000%, due 04/01/09 2,000,000 1,670,000 10.000%, due 05/15/11 500,000 396,250 Charter Communications Operating LLC, 144A 8.000%, due 04/30/12 250,000 241,875 8.375%, due 04/30/14 250,000 241,875 CHC Helicopter Corp., 144A 7.375%, due 05/01/14 500,000 491,250 Chesapeake Energy Corp., 144A 7.500%, due 06/15/14 850,000 875,500 Chukchansi Economic Development Authority, 144A 14.500%, due 06/15/09 500,000 620,000 Cincinnati Bell, Inc. 8.375%, due 01/15/14 1,000,000 890,000 Coinstar International, Inc. 11.000%, due 12/01/12 425,000 397,375 Collins & Aikman Products Corp. 10.750%, due 12/31/11 1,250,000 1,256,250 11.500%, due 04/15/06 500,000 492,500 Comstock Resources, Inc. 6.875%, due 03/01/12 750,000 712,500 Couche-Tard U.S. Finance Corp. 7.500%, due 12/15/13 500,000 500,000 Crown Castle International Corp. 9.375%, due 08/01/11 250,000 275,000 Crown Cork & Seal Co., Inc. 8.000%, due 04/15/23 1,750,000 1,522,500 Crown Euro Holdings S.A 10.875%, due 03/01/13 900,000 1,026,000 CSC Holdings, Inc., Series B 7.625%, due 04/01/11 1,050,000 1,052,625 8.125%, due 08/15/09 1,175,000 1,222,000 Da-Lite Screen Co., Inc., 144A 9.500%, due 05/15/11 1,000,000 1,040,000 Delco Remy International, Inc., 144A 9.375%, due 04/15/12 1,000,000 972,500 Desa International, Inc. (d) (e) (f) 9.875%, due 12/15/07 3,000,000 30,000 Dobson Communications Corp. 10.875%, due 07/01/10 1,150,000 989,000 DRS Technologies, Inc. 6.875%, due 11/01/13 650,000 633,750 Dura Operating Corp., Series D 9.000%, due 05/01/09 580,000 568,400 Dynegy Holdings, Inc. 6.875%, due 04/01/11 1,600,000 1,378,000 Edison Mission Energy Corp. 10.000%, due 08/15/08 1,250,000 1,334,375 El Pollo Loco, Inc., 144A 9.250%, due 12/15/09 1,100,000 1,111,000 Energy Partners Ltd. 8.750%, due 08/01/10 1,000,000 1,045,000 Equinox Holdings, Inc., 144A 9.000%, due 12/15/09 1,000,000 995,000
65
FACE AMOUNT VALUE --------------- ----------------- Equistar Chemicals LP 8.750%, due 02/15/09 $ 500,000 $ 521,250 FastenTech, Inc., 144A 11.500%, due 05/01/11 1,000,000 1,107,500 Fedders North America, Inc. 144A 9.875%, due 03/01/14 750,000 686,250 Felcor Lodging LP 8.500%, due 06/01/11 175,000 180,688 9.500%, due 09/15/08 208,000 219,440 Georgia-Pacific Corp. 8.875%, due 05/15/31 1,175,000 1,254,312 Giant Industries, Inc. 8.000%, due 05/15/14 1,000,000 1,000,000 11.000%, due 05/15/12 967,000 1,078,205 Granite Broadcasting Corp., 144A 9.750%, due 12/01/10 1,250,000 1,162,500 Herbst Gaming, Inc., 144A 8.125%, due 06/01/12 925,000 937,719 Hollinger International Publishing Corp. 9.000%, due 12/15/10 750,000 866,250 Hornbeck-Leevac Marine Services Corp. 10.625%, due 08/01/08 750,000 818,437 Host Marriott LP 7.125%, due 11/01/13 1,250,000 1,225,000 Houghton Mifflin Co 8.250%, due 02/01/11 1,500,000 1,500,000 IMC Global, Inc. 10.875%, due 08/01/13 500,000 596,250 IMC Global, Inc. 11.250%, due 06/01/11 1,000,000 1,152,500 Ingles Markets, Inc. 8.875%, due 12/01/11 1,000,000 1,027,500 Insight Communications Co., Inc. (c) 12.250%, due 02/15/11 1,375,000 1,237,500 Interface, Inc. 10.375%, due 02/01/10 800,000 892,000 Invensys PLC, 144A 9.875%, due 03/15/11 850,000 845,750 IPC Acquisition Corp. 11.500%, due 12/15/09 975,000 1,053,000 Jacobs Entertainment Co. 11.875%, due 02/01/09 1,000,000 1,115,000 Jafra Cosmetics International, Inc. 10.750%, due 05/15/11 750,000 836,250 John Q. Hammons Hotels, Inc., Series B 8.875%, due 05/15/12 400,000 434,000 Kansas City Southern Railway Co. 7.500%, due 06/15/09 550,000 550,000 Land O Lakes, Inc. 8.750%, due 11/15/11 1,000,000 920,000 Le-Natures, Inc., 144A 9.000%, due 06/15/13 1,600,000 1,656,000 Levi Strauss & Co. 12.250%, due 12/15/12 1,000,000 985,000 MAAX Corp., 144A 9.750%, due 06/15/12 450,000 463,500 Majestic Star Casino LLC 9.500%, due 10/15/10 400,000 402,000 Massey Energy Co. 6.950%, due 03/01/07 $ 475,000 $ 488,063 MCI, Inc.+ 5.908%, due 05/01/07 994,270 964,442 6.688%, due 05/01/09 379,270 350,825 7.735%, due 05/01/14 325,089 290,955 Mediacom LLC 9.500%, due 01/15/13 1,515,000 1,461,975 Merisant Co., 144A 9.500%, due 07/15/13 975,000 1,038,375 Meristar Hospitality Corp. 9.000%, due 01/15/08 1,025,000 1,035,250 Midwest Generation LLC, 144A 8.750%, due 05/01/34 1,000,000 1,010,000 Millar Western Forest Products Ltd. 7.750%, due 11/15/13 1,000,000 1,005,000 Millennium America, Inc. 9.250%, due 06/15/08 575,000 618,125 Mirant Americas Generation, Inc. (d) 7.625%, due 05/01/06 1,450,000 1,098,375 Mothers Work, Inc. 11.250%, due 08/01/10 525,000 534,188 MTR Gaming Group, Inc. 9.750%, due 04/01/10 500,000 537,500 Nexstar Finance Holdings, Inc., LLC (c) 11.375%, due 04/01/13 1,325,000 947,375 Nexstar Finance, Inc., LLC 7.000%, due 01/15/14 750,000 708,750 Omnova Solutions, Inc. 11.250%, due 06/01/10 1,400,000 1,526,000 Orion Refining Corp. (d) (e) (f) 10.000%, due 11/15/04 3,829,177 383 Owens-Brockway Glass Containers Corp. 8.250%, due 05/15/13 500,000 516,250 8.875%, due 02/15/09 1,000,000 1,080,000 Owens-Illinois, Inc. 7.350%, due 05/15/08 400,000 399,000 Pantry, Inc. 7.750%, due 02/15/14 525,000 511,875 Parker Drilling Corp. 9.625%, due 10/01/13 1,350,000 1,400,625 Pathmark Stores, Inc. 8.750%, due 02/01/12 1,000,000 1,000,000 Penn National Gaming, Inc. 8.875%, due 03/15/10 975,000 1,059,094 Perry Ellis International, Inc. 8.875%, due 09/15/13 525,000 542,062 Perry Ellis International, Inc., Series B 9.500%, due 03/15/09 1,000,000 1,075,000 Petroleum Geo-Services ASA 10.000%, due 11/05/10 1,375,000 1,423,125 Pinnacle Foods Holding Corp., 144A 8.250%, due 12/01/13 1,350,000 1,302,750 Plains Exploration & Production Co., Series B 8.750%, due 07/01/12 825,000 899,250 Pliant Corp. 11.125%, due 09/01/09 750,000 802,500 Port Townsend Paper Corp., 144A 11.000%, due 04/15/11 1,000,000 1,010,000
66
FACE AMOUNT VALUE --------------- ----------------- Premier Graphics, Inc. (d) (e) (f) 11.500%, due 12/01/05 $ 4,250,000 $ 0 Pride International, Inc., 144A 7.375%, due 07/15/14 540,000 545,400 Qwest Communications International, Inc., 144A 7.250%, due 02/15/11 1,525,000 1,422,062 Qwest Corp., 144A 8.875%, due 03/15/12 550,000 594,000 Reliant Energy, Inc. 9.250%, due 07/15/10 600,000 640,500 Reliant Resources, Inc. 9.500%, due 07/15/13 500,000 538,750 Rhodia S.A., 144A 8.875%, due 06/01/11 1,545,000 1,305,525 10.250%, due 06/01/10 550,000 555,500 River Rock Entertainment Authority Corp. 9.750%, due 11/01/11 1,000,000 1,090,000 Riverside Forest Products Corp., 144A 7.875%, due 03/01/14 750,000 765,000 Rockwood Specialties Group, Inc. 10.625%, due 05/15/11 1,150,000 1,224,750 Samina Corp. 10.375%, due 01/15/10 450,000 515,250 SBA Communications Corp. 10.250%, due 02/01/09 1,175,000 1,204,375 Sbarro, Inc. 11.000%, due 09/15/09 780,000 682,500 Seminis Vegetable Seeds, Inc. 10.250%, due 10/01/13 1,250,000 1,359,375 Seneca Gaming Corp., 144A 7.250%, due 05/01/12 750,000 749,062 Sequa Corp. 9.000%, due 08/01/09 225,000 239,063 Sheridan Acquisition Corp., 144A 10.250%, due 08/15/11 1,250,000 1,315,625 Sheridan Group, Inc., 144A 10.250%, due 08/15/11 500,000 526,250 Solo Cup Co., 144A 8.500%, due 02/15/14 1,100,000 1,023,000 Stena AB 7.500%, due 11/01/13 1,000,000 988,750 Tekni-plex, Inc. 12.750%, due 06/15/10 1,250,000 1,200,000 Tembec Industries, Inc. 7.750%, due 03/15/12 650,000 627,250 8.500%, due 02/01/11 250,000 252,500 8.625%, due 06/30/09 250,000 253,125 Terra Capital, Inc. 11.500%, due 06/01/10 500,000 547,500 12.875%, due 10/15/08 750,000 892,500 Tommy Hilfiger USA, Inc. 6.850%, due 06/01/08 800,000 801,000 Town Sports International, Inc. 9.625%, due 04/15/11 900,000 864,000 Triton PCS, Inc. 9.375%, due 02/01/11 1,000,000 855,000 Universal Hospital Services, Inc. 10.125%, due 11/01/11 1,000,000 1,015,000 US Unwired, Inc., 144A 10.000%, due 06/15/12 $ 500,000 $ 505,000 Vertis, Inc., Series B 10.875%, due 06/15/09 1,250,000 1,343,750 Von Hoffmann Corp. 10.250%, due 03/15/09 1,150,000 1,183,062 Warner Music Group, 144A 7.375%, due 04/15/14 1,000,000 965,000 Westlake Chemical Corp. 8.750%, due 07/15/11 550,000 596,750 Wheeling Island Gaming, Inc. 10.125%, due 12/15/09 1,275,000 1,351,500 Whiting Petroleum Corp., 144A 7.250%, due 05/01/12 575,000 569,250 WRC Media, Inc. 12.750%, due 11/15/09 1,250,000 1,139,062 Wynn Las Vegas LLC 12.000%, due 11/01/10 251,000 300,573 ----------------- Total U.S. Bonds (Cost $153,319,995) 139,043,140 ----------------- SHARES --------------- EQUITIES -- 1.43% U.S. EQUITIES -- 0.46% AEROSPACE & DEFENSE -- 0.00% Sabreliner Corp. (b) (e) (f) 8,400 0 ----------------- COMMERCIAL SERVICES & SUPPLIES -- 0.00% Waste Systems International, Inc. (b) 664,249 0 ----------------- FOOD PRODUCTS -- 0.00% Aurora Foods, Inc. (b) (e) (f) 174 0 ----------------- MEDIA -- 0.00% RCN Corp. (b) 466 58 ----------------- METALS & MINING -- 0.46% Metal Management, Inc. (b) (f) 33,570 665,022 ----------------- RESTAURANTS -- 0.00% American Restaurant Group, Inc. (b) (e) (f) 972 0 ----------------- SPECIALTY RETAIL -- 0.00% Samuels Jewelers, Inc. (b) (e) (f) 605,400 5,448 ----------------- TELECOMMUNICATIONS SERVICES -- 0.00% Telcove, Inc. (e) (f) 167 1,722 ----------------- WIRELESS TELECOMMUNICATION SERVICES -- 0.00% PNV, Inc. (b) (f) 79,417 24 ----------------- 672,274 ----------------- CONVERTIBLE PREFERRED -- 0.00% COMMERCIAL SERVICES & SUPPLIES -- 0.00% Waste Systems International, Inc., Series E, PIK 8.000%, (d) (e) (f) 5,428 0 ----------------- METALS & MINING -- 0.00% Weirton Steel Corp., Series C Convertible (Zero Coupon) (f) 1,800 306 ----------------- RESTAURANTS -- 0.00% American Restaurant Group, Inc., Series B, PIK (b) (e) (f) 1 0 ----------------- 306 -----------------
67
SHARES VALUE --------------- ----------------- WARRANTS (b) (f) -- 0.97% Arcadia Financial Ltd., expires 03/15/07 (e) 6,000 $ 0 Dayton Superior Corp., 144A, expires 06/15/09 225 2 InterAct Electronic Marketing, Inc., expires 12/31/09 (e) 19,500 0 Knology, Inc., 144A, expires 10/15/07 (e) 16,995 0 Nuco2, Inc., expires 10/31/04 (e) 109,290 1,418,584 Pathnet, Inc., expires 04/15/08 (e) 6,275 0 Pliant Corp., 144A, expires 06/01/10 160 2 UIH Australia Pacific, Inc., expires 5/15/06 (e) 10,000 0 Wam!Net, Inc., expires 3/1/05 (e) 26,250 263 ----------------- 1,418,851 ----------------- Total Equities (Cost $16,608,624) 2,091,431 ----------------- SHORT-TERM INVESTMENT -- 2.15% UBS Supplementary Trust U.S. Cash Management Prime Fund, yield of 1.05% (Cost $3,138,878) 3,138,878 $ 3,138,878 ----------------- Total Investments (Cost $173,067,497) -- 98.82% (a) 144,273,449 Cash and other assets, less liabilities -- 1.18% 1,721,548 ----------------- Net Assets -- 100% $ 145,994,997 =================
NOTES TO SCHEDULE OF INVESTMENTS (a) Aggregate cost for federal income tax purposes was $173,090,664; and net unrealized depreciation consisted of: Gross unrealized appreciation $ 6,050,922 Gross unrealized depreciation (34,868,137) ----------------- Net unrealized depreciation $ (28,817,215) =================
(b) Non-income producing security. (c) Step Bonds - coupon rate increases in increments to maturity. Rate disclosed is as of June 30, 2004. Maturity date disclosed is the ultimate maturity date. (d) Security is in default (e) Security is being fair valued by a management committee under the direction of the Board of Trustees. At June 30, 2004, the value of these securities amounted to $1,456,950 or 1.00% of net assets. (f) Security is illiquid. These securities amounted to $2,122,306 or 1.45% of net assets + Variable rate security -- The rate disclosed is that in effect at June 30, 2004. % Represents a percentage of net assets 144A: Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities are considered liquid and may be resold in transactions exempt from registration, normally to qualified institutional buyers. At June 30, 2004 the value of these securities amounted to $33,479,897 or 22.93% of net assets. PIK: Payment in Kind. See accompanying notes to financial statements 68 UBS INTERNATIONAL EQUITY FUND For the fiscal year ended June 30, 2004, Class Y shares of UBS International Equity Fund returned 26.56%, versus 31.92% for the Fund's benchmark, the MSCI World Ex USA (Free) Index (the "Index"). Since inception on August 31, 1993 through period end, the Fund returned 4.42% on an annualized basis, compared with a 4.68% annualized return for the Index. (Returns for all share classes over various time periods are shown on page 70; 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 delivered strong absolute returns, it trailed the performance of the Index over the fiscal year primarily due to stock selection. A DISCIPLINED APPROACH UNDER CHANGING MARKET CONDITIONS Investment decisions for the Fund are guided by our disciplined price to intrinsic value approach. This approach is founded on the belief that discrepancies between a stock's current price and its future--or intrinsic--value arise from market behavior and market structure, providing opportunities to outperform. Given the equity market's overall rise over the period, our research indicated that it had moved into what we considered fair value, resulting in a dearth of broad price-to-intrinsic value discrepancies. We utilized the expertise of our global network of equity analysts--which uses a unique approach that combines fundamental research with the extensive use of sophisticated risk management tools--to identify pockets of opportunity from a stock-specific perspective. Our search for fundamentally sound companies with solid growth prospects led us to overweight relatively noncyclical sectors, such as telecommunications, consumer staples and healthcare. Holdings in the telecommunications industry included Vodafone and other European telecommunications providers that hold strong market positions and acceptable debt loads. Within healthcare, we emphasized pharmaceutical companies, but stock selection in this area was a slight negative for performance. The Fund also held a small underweight in the financials sector, although we did overweight banks, including Bank of Ireland and Royal Bank of Scotland. However, our research found that the stocks of Japanese banks were generally overvalued, and possessed excessive risk. Given our valuation concerns, the Fund was underweight industrials and technology hardware. Both of these sectors benefited from investors' increased appetite for risk. As a result, stock selection within these industries detracted from results. On a geographic level, the Fund's weightings are a derivative of our sector and stock views. In Europe, the Fund held a substantial overweight to the UK, more as a function of stock-specific opportunities than macro opportunities. We held an underweight to Germany, where valuations were a concern given corporate debt levels and the country's poor economic prospects. While this underweight detracted from results, our stock selection in Germany generated positive results. The Fund was also underweight to Japan during the period, which detracted from results. Japan's surprising economic recovery has helped its stock market rise sharply, but we were concerned about its ability to sustain growth, which led us to take some profits. The Japanese holdings we retained were in export-driven, large-cap companies. On a final note, currency allocation was not a substantial contributor to performance over the fiscal year. Our largest underweight position was in British pounds; our largest overweight position was in euros. LOOKING AHEAD The UK is enjoying strong growth and low inflation, but high personal debt levels may pose a threat to the recovery. Japan continues to report robust growth, but it relies heavily on demand from China, where authorities are trying to dampen the economy. The Fund will approach these uncertain times with the same disciplined investment process that has guided us thus far: in-depth research and analysis that seeks to identify stocks across countries and sectors that we believe are selling for less than their intrinsic value. As always, our risk management process will guide us as we seek to avoid uncompensated risk at the asset class, country, currency, industry/sector and security level. 69 UBS INTERNATIONAL EQUITY FUND (UNAUDITED) TOTAL RETURN
1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION* ENDED ENDED ENDED ENDED TO 6/30/04 6/30/04 6/30/04 6/30/04 6/30/04 ---------------------------------------------------------------------------------------------- UBS INTERNATIONAL EQUITY FUND CLASS A 26.00% 2.47% 0.07% N/A 1.15% UBS INTERNATIONAL EQUITY FUND CLASS B 25.17 N/A N/A N/A 6.86 UBS INTERNATIONAL EQUITY FUND CLASS C 25.26 N/A N/A N/A 6.58 UBS INTERNATIONAL EQUITY FUND CLASS Y 26.56 2.68 0.29 5.05% 4.42 UBS INTERNATIONAL EQUITY FUND CLASS A** 19.02 0.55 -1.06 N/A 0.34 UBS INTERNATIONAL EQUITY FUND CLASS B** 20.17 N/A N/A N/A 5.70 UBS INTERNATIONAL EQUITY FUND CLASS C** 24.26 N/A N/A N/A 6.58 MSCI WORLD EX USA (FREE) INDEX 31.92 4.13 0.43 4.39 4.68
* 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. ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000 This chart shows the growth in the value of an investment in UBS International Equity Fund Class Y shares and the MSCI World Ex USA (Free) Index, if you had invested $10,000 on August 31, 1993, and had reinvested all your income dividends and capital gain distributions through June 30, 2004. The performance of Class A, Class B and Class C shares will vary based upon the different inception dates, class specific expenses and sales charges. No adjustment has been made for any income taxes payable by shareholders on income dividends and capital gain distributions. Past performance is no guarantee of future results. Share price and returns will vary with market conditions; investors may realize a gain or loss upon redemption. [CHART] UBS INTERNATIONAL EQUITY FUND CLASS Y VS. MSCI WORLD EX USA (FREE) INDEX Wealth Value With Dividends
UBS INTERNATIONAL EQUITY FUND CLASS Y MSCI WORLD EX USA (FREE) INDEX 8/31/93 $ 10,000 $ 10,000 9/30/93 $ 9,720 $ 9,768 10/31/93 $ 9,970 $ 10,096 11/30/93 $ 9,290 $ 9,232 12/31/93 $ 9,655 $ 9,888 1/31/94 $ 10,336 $ 10,709 2/28/94 $ 10,026 $ 10,657 3/31/94 $ 9,575 $ 10,198 4/30/94 $ 9,845 $ 10,619 5/31/94 $ 9,855 $ 10,569 6/30/94 $ 9,755 $ 10,688 7/31/94 $ 9,906 $ 10,807 8/31/94 $ 10,198 $ 11,078 9/30/94 $ 9,906 $ 10,752 10/31/94 $ 10,078 $ 11,095 11/30/94 $ 9,745 $ 10,560 12/31/94 $ 9,745 $ 10,628 1/31/95 $ 9,403 $ 10,213 2/28/95 $ 9,363 $ 10,210 3/31/95 $ 9,524 $ 10,840 4/30/95 $ 9,836 $ 11,241 5/31/95 $ 9,846 $ 11,136 6/30/95 $ 9,745 $ 10,955 7/31/95 $ 10,329 $ 11,618 8/31/95 $ 10,490 $ 11,191 9/30/95 $ 10,662 $ 11,406 10/31/95 $ 10,561 $ 11,111 11/30/95 $ 10,823 $ 11,427 12/31/95 $ 11,261 $ 11,875 1/31/96 $ 11,486 $ 11,956 2/29/96 $ 11,443 $ 11,991 3/31/96 $ 11,593 $ 12,243 4/30/96 $ 12,022 $ 12,604 5/31/96 $ 11,968 $ 12,388 6/30/96 $ 12,049 $ 12,447 7/31/96 $ 11,715 $ 12,081 8/31/96 $ 11,768 $ 12,133 9/30/96 $ 12,124 $ 12,463 10/31/96 $ 12,092 $ 12,378 11/30/96 $ 12,707 $ 12,895 12/31/96 $ 12,696 $ 12,719 1/31/97 $ 12,628 $ 12,330 2/28/97 $ 12,834 $ 12,513 3/31/97 $ 12,914 $ 12,519 4/30/97 $ 13,005 $ 12,599 5/31/97 $ 13,853 $ 13,432 6/30/97 $ 14,491 $ 14,144 7/31/97 $ 14,756 $ 14,407 8/31/97 $ 13,720 $ 13,324 9/30/97 $ 14,491 $ 14,072 10/31/97 $ 13,582 $ 13,013 11/30/97 $ 13,352 $ 12,860 12/31/97 $ 13,425 $ 12,982 1/31/98 $ 13,873 $ 13,539 2/28/98 $ 14,606 $ 14,420 3/31/98 $ 15,165 $ 14,887 4/30/98 $ 15,290 $ 15,002 5/31/98 $ 15,290 $ 14,935 6/30/98 $ 15,184 $ 14,998 7/31/98 $ 15,333 $ 15,097 8/31/98 $ 13,434 $ 13,169 9/30/98 $ 13,109 $ 12,793 10/31/98 $ 14,121 $ 14,128 11/30/98 $ 14,846 $ 14,846 12/31/98 $ 15,357 $ 15,405 1/31/99 $ 15,319 $ 15,403 2/28/99 $ 14,825 $ 15,016 3/31/99 $ 15,256 $ 15,636 4/30/99 $ 15,965 $ 16,312 5/31/99 $ 15,129 $ 15,477 6/30/99 $ 15,737 $ 16,074 7/31/99 $ 16,196 $ 16,539 8/31/99 $ 16,107 $ 16,584 9/30/99 $ 16,031 $ 16,769 10/31/99 $ 16,413 $ 17,417 11/30/99 $ 16,809 $ 18,024 12/31/99 $ 18,300 $ 19,683 1/31/2000 $ 16,914 $ 18,488 2/29/2000 $ 16,965 $ 19,006 3/31/2000 $ 17,523 $ 19,787 4/30/2000 $ 16,836 $ 18,758 5/31/2000 $ 16,667 $ 18,304 6/30/2000 $ 17,588 $ 19,094 7/31/2000 $ 16,914 $ 18,364 8/31/2000 $ 16,978 $ 18,603 9/30/2000 $ 16,253 $ 17,639 10/31/2000 $ 15,825 $ 17,159 11/30/2000 $ 15,747 $ 16,466 12/31/2000 $ 16,636 $ 17,032 1/31/2001 $ 16,471 $ 17,064 2/28/2001 $ 15,518 $ 15,713 3/31/2001 $ 14,593 $ 14,647 4/30/2001 $ 15,463 $ 15,671 5/31/2001 $ 15,035 $ 15,160 6/30/2001 $ 14,748 $ 14,541 7/31/2001 $ 14,526 $ 14,286 8/31/2001 $ 14,401 $ 13,905 9/30/2001 $ 13,195 $ 12,500 10/31/2001 $ 13,361 $ 12,806 11/30/2001 $ 13,639 $ 13,309 12/31/2001 $ 13,810 $ 13,393 1/31/2002 $ 13,211 $ 12,712 2/28/2002 $ 13,314 $ 12,788 3/31/2002 $ 13,913 $ 13,468 4/30/2002 $ 14,084 $ 13,551 5/31/2002 $ 14,375 $ 13,732 6/30/2002 $ 13,895 $ 13,175 7/31/2002 $ 12,458 $ 11,864 8/31/2002 $ 12,407 $ 11,844 9/30/2002 $ 10,935 $ 10,588 10/31/2002 $ 11,671 $ 11,144 11/30/2002 $ 12,236 $ 11,657 12/31/2002 $ 11,860 $ 11,280 1/31/2003 $ 11,230 $ 10,850 2/28/2003 $ 10,942 $ 10,636 3/31/2003 $ 10,762 $ 10,431 4/30/2003 $ 11,770 $ 11,437 5/31/2003 $ 12,436 $ 12,149 6/30/2003 $ 12,616 $ 12,447 7/31/2003 $ 12,832 $ 12,732 8/31/2003 $ 13,084 $ 13,058 9/30/2003 $ 13,408 $ 13,449 10/31/2003 $ 14,128 $ 14,291 11/30/2003 $ 14,560 $ 14,614 12/31/2003 $ 15,615 $ 15,735 1/31/2004 $ 15,652 $ 15,954 2/29/2004 $ 15,930 $ 16,320 3/31/2004 $ 15,948 $ 16,397 4/30/2004 $ 15,560 $ 15,969 5/31/2004 $ 15,634 $ 16,048 6/30/2004 $ 15,967 $ 16,420
8/31/93 = $10,000 FUND RETURNS ARE NET OF ALL FEES AND COSTS, WHILE THE INDEX RETURNS ARE BASED SOLELY ON MARKET RETURNS WITHOUT DEDUCTION FOR FEES OR TRANSACTION COSTS FOR REBALANCING. 70 TOP TEN INTERNATIONAL EQUITY HOLDINGS AS OF JUNE 30, 2004
PERCENTAGE OF NET ASSETS --------------------------------------------------------------- Vodafone Group PLC 2.9% BP PLC 2.7 Total S.A 2.5 Royal Bank of Scotland Group PLC 2.4 Honda Motor Co., Ltd. 2.3 Diageo PLC 2.3 Nestle S.A 2.1 Shell Transport & Trading Co. PLC 2.0 Barclays PLC 1.8 NTT DoCoMo, Inc. 1.7 --------------------------------------------------------------- Total 22.7%
INDUSTRY DIVERSIFICATION AS A PERCENT OF NET ASSETS AS OF JUNE 30, 2004 INTERNATIONAL EQUITIES Air Freight & Logistics 1.25% Auto Components 1.10 Automobiles 3.52 Beverages 2.31 Capital Markets 1.21 Chemicals 0.94 Commercial Banks 17.59 Commercial Services & Supplies 1.14 Communications Equipment 1.28 Construction & Engineering 0.25 Construction Materials 1.91 Diversified Financial Services 1.19 Diversified Telecommunication Services 4.57 Electric Utilities 1.18 Electronic Equipment & Instruments 0.77 Food & Staples Retailing 2.30 Food Products 3.21 Gas Utilities 1.00 Health Care Providers & Services 0.33 Hotels, Restaurants & Leisure 0.48 Household Durables 3.73 Insurance 3.45 IT Services 0.56 Leisure Equipment & Products 0.54 Machinery 0.21 Media 4.02 Metals & Mining 1.76 Multi-Utilities & Unregulated Power 1.40% Multiline Retail 0.11 Office Electronics 1.28 Oil & Gas 8.64 Paper & Forest Products 2.25 Pharmaceuticals 8.08 Real Estate 1.51 Road & Rail 1.41 Semiconductors & Semiconductor Equipment 0.96 Software 0.53 Specialty Retail 1.75 Tobacco 1.71 Trading Companies & Distributors 0.82 Wireless Telecommunication Services 4.60 ------ Total International Equities 96.85 INVESTMENT COMPANY 0.97 INTERNATIONAL BONDS Diversified Financial Services 0.36 ------ Total International Bonds 0.36 SHORT-TERM INVESTMENTS 1.88 INVESTMENT OF CASH COLLATERAL FOR SECURITIES LOANED 5.72 ------ TOTAL INVESTMENTS 105.78 LIABILITIES, IN EXCESS OF CASH AND OTHER ASSETS (5.78) ------ NET ASSETS 100.00% ======
71 UBS INTERNATIONAL EQUITY FUND -- SCHEDULE OF INVESTMENTS JUNE 30, 2004
SHARES VALUE --------------- ----------------- INTERNATIONAL EQUITIES -- 96.85% AUSTRALIA -- 4.15% Australia & New Zealand Banking Group Ltd. 52,283 $ 665,764 Australian Gas Light Co., Ltd. 40,187 339,570 News Corp., Ltd., Preferred 93,148 762,421 QBE Insurance Group Ltd. (c) 107,463 958,192 Westpac Banking Corp. 129,619 1,589,150 Woolworths Ltd. 35,307 280,381 ----------------- 4,595,478 ----------------- BELGIUM -- 1.19% Fortis 59,665 1,321,164 ----------------- CANADA -- 5.26% Alcan, Inc. 22,940 944,462 Bank of Nova Scotia (c) 30,200 806,835 BCE, Inc. 26,900 535,693 Canadian National Railway Co. 22,100 952,076 Canadian Tire Corp. 3,200 116,711 Magna International, Inc., Class A 4,300 364,430 Shoppers Drug Mart Corp. (b) 24,000 597,874 Suncor Energy, Inc. 22,600 573,281 Toronto Dominion Bank (c) 29,200 933,877 ----------------- 5,825,239 ----------------- FINLAND -- 1.99% Nokia Oyj 98,542 1,421,909 UPM-Kymmene Oyj 41,378 787,357 ----------------- 2,209,266 ----------------- FRANCE -- 7.40% Aventis S.A. 11,875 896,481 BNP Paribas (b) 18,193 1,118,900 Cap Gemini S.A. (b) 15,547 624,014 France Telecom S.A. (b) 47,670 1,242,311 Sanofi-Synthelabo S.A. (c) 8,774 556,162 Suez S.A. 15,796 328,823 Total S.A. 14,588 2,781,189 Unibail 6,328 654,412 ----------------- 8,202,292 ----------------- GERMANY -- 0.78% Allianz AG 8,015 868,172 ----------------- HONG KONG -- 1.04% Cheung Kong Holdings Ltd. 67,000 493,923 Sun Hung Kai Properties Ltd. 63,000 516,936 Television Broadcasts Ltd. 32,000 137,029 ----------------- 1,147,888 ----------------- IRELAND -- 2.74% Bank of Ireland 142,525 1,903,965 CRH PLC 53,475 1,129,448 ----------------- 3,033,413 ----------------- ITALY -- 2.68% Assicurazioni Generali SpA 21,045 567,650 ENI SpA 52,555 1,043,518 UniCredito Italiano SpA 274,778 1,357,293 ----------------- 2,968,461 ----------------- JAPAN -- 17.48% Canon, Inc. 26,900 $ 1,417,541 Fuji Photo Film Co., Ltd. 19,000 595,518 Funai Electric Co., Ltd. 4,000 602,667 Honda Motor Co., Ltd. 54,000 2,603,125 Hoya Corp. 3,100 324,447 Kao Corp. 60,000 1,446,181 Mitsubishi Corp. 65,000 631,444 Mitsubishi Tokyo Financial Group, Inc. 59 546,121 Nintendo Co., Ltd. 5,100 591,257 Nippon Telegraph & Telephone Corp. 34 181,666 Nippon Unipac Holding (c) 125 654,126 Nitto Denko Corp. 1,100 56,253 NTT DoCoMo, Inc. 1,084 1,937,222 Rohm Co., Ltd. 8,900 1,065,243 Sekisui House Ltd. 56,000 621,509 Sompo Japan Insurance, Inc. 103,000 1,052,513 Sumitomo Mitsui Financial Group, Inc. (c) 109 747,212 Taiheiyo Cement Corp. 600 1,496 Takeda Pharmaceutical Co., Ltd. 35,200 1,545,232 Toyota Industries Corp. 35,400 850,002 Toyota Motor Corp. 31,900 1,292,196 West Japan Railway Co. 151 608,899 ----------------- 19,371,870 ----------------- NETHERLANDS -- 7.10% ABN AMRO Holding NV 39,168 856,814 Koninklijke Philips Electronics NV 36,331 978,193 Reed Elsevier NV 102,082 1,433,246 Royal KPN NV 142,537 1,085,594 TPG NV 60,579 1,384,151 VNU NV (c) 49,612 1,440,804 Wolters Kluwer NV 37,929 688,503 ----------------- 7,867,305 ----------------- PORTUGAL -- 0.81% Electricidade de Portugal S.A. (c) 76,183 213,182 Portugal Telecom, SGPS, S.A. 63,982 690,474 ----------------- 903,656 ----------------- SPAIN -- 2.25% Banco Bilbao Vizcaya Argentaria S.A. (c) 98,923 1,321,495 Banco Santander Central Hispano S.A. (c) 59,343 615,863 Telefonica S.A. 37,735 557,810 ----------------- 2,495,168 ----------------- SWEDEN -- 3.21% Electrolux AB, B Shares 25,100 481,478 Hennes & Mauritz AB, B Shares 25,500 658,407 Svenska Cellulosa AB, B Shares 27,590 1,047,497 Svenska Handelsbanken AB, A Shares 27,350 548,238 Swedish Match AB (c) 80,140 819,172 ----------------- 3,554,792 ----------------- SWITZERLAND -- 7.78% Adecco S.A. (c) 12,697 632,620 Credit Suisse Group 37,604 1,336,137 Givaudan S.A. 907 525,052 Holcim Ltd. 18,199 989,581
72
SHARES VALUE --------------- ----------------- Nestle S.A. 8,669 $ 2,311,918 Novartis AG 15,166 669,053 Roche Holding AG 17,955 1,777,723 Swiss Reinsurance Co. 5,766 374,532 ----------------- 8,616,616 ----------------- UNITED KINGDOM -- 30.99% Abbey National PLC 49,335 459,200 Alliance Unichem PLC 30,415 359,903 AstraZeneca PLC 35,666 1,600,190 Balfour Beatty PLC 57,229 275,549 Barclays PLC 234,502 1,997,702 BOC Group PLC 27,681 463,341 BP PLC 338,659 2,990,949 BT Group PLC 219,550 790,335 Cadbury Schweppes PLC 143,889 1,241,435 Centrica PLC 188,000 765,406 Compass Group PLC 87,737 535,409 Diageo PLC 189,784 2,558,928 Electrocomponents PLC 82,027 531,059 Gallaher Group PLC 88,915 1,074,713 GlaxoSmithKline PLC 94,085 1,904,154 HSBC Holdings PLC 91,675 1,363,271 Invensys PLC (b) 724,944 236,643 Kingfisher PLC 246,928 1,281,838 National Grid Transco PLC 158,582 1,223,689 Rentokil Initial PLC 239,919 628,709 Rio Tinto PLC 41,861 1,006,632 Royal Bank of Scotland Group PLC 92,213 2,655,585 Scottish & Southern Energy PLC 88,966 1,099,531 Shell Transport & Trading Co. PLC 296,871 2,177,729 Tesco PLC 346,119 1,671,216 Vodafone Group PLC 1,444,144 3,162,388 Wolseley PLC 17,934 278,074 ----------------- 34,333,578 ----------------- Total International Equities (Cost $82,208,282) 107,314,358 ----------------- INVESTMENT COMPANY -- 0.97% iShares MSCI EAFE Index Fund (Cost $1,065,680) 7,500 1,072,500 ----------------- FACE AMOUNT VALUE --------------- ----------------- INTERNATIONAL BONDS -- 0.36% CAYMAN ISLANDS -- 0.36% SMFG Finance Ltd., 144A 2.25%, due 07/11/05 (Cost $166,976) JPY 18,000,000 $ 395,912 ----------------- SHARES --------------- SHORT-TERM INVESTMENT -- 1.88% UBS Supplementary Trust U.S. Cash Management Prime Fund, yield of 1.05% (Cost $2,086,439) 2,086,439 2,086,439 ----------------- INVESTMENT OF CASH COLLATERAL FOR SECURITIES LOANED -- 5.72% UBS Supplementary Trust U.S. Cash Management Prime Fund, yield of 1.05% (Cost $6,336,449) 6,336,449 6,336,449 ----------------- Total Investments (Cost $91,863,826) -- 105.78% (a) 117,205,658 Liabilities, in excess of cash and other assets -- (5.78%) (6,404,362) ----------------- Net Assets -- 100% $ 110,801,296 =================
73 NOTES TO SCHEDULE OF INVESTMENTS (a) Aggregate cost for federal income tax purposes was $93,015,393; and net unrealized appreciation consisted of: Gross unrealized appreciation $ 24,881,026 Gross unrealized depreciation (690,761) ----------------- Net unrealized appreciation $ 24,190,265 =================
(b) Non-income producing security, (c) Security, or portion thereof, was on loan at June 30, 2004. (d) Security is in default. 144A: Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities are considered liquid and may be resold in transactions exempt from registration, normally to qualified institutional buyers. At June 30, 2004 the value of this security amounted to $395,912 or 0.36% of net assets. % Represents a percentage of net assets CAD Canadian Dollar CHF Swiss Franc DKK Danish Krone EUR Euro GBP British Pound HKD Hong Kong Dollar JPY Japanese Yen NOK Norwegian Krone SGD Singapore Dollar SGPS Sociedade Gestora de Participacoes Sociais. FORWARD FOREIGN CURRENCY CONTRACTS UBS International Equity Fund had the following open forward foreign currency contracts as of June 30, 2004:
UNREALIZED CONTRACTS IN EXCHANGE MATURITY APPRECIATION TO DELIVER FOR DATES (DEPRECIATION) ---------- -------------------- -------- -------------- Australian Dollar 850,000 USD 590,538 12/3/04 $ 7,823 British Pound 7,750,000 USD 13,856,613 12/3/04 (14,320) Euro 750,000 USD 913,125 12/3/04 1,891 Swedish Krona 8,900,000 USD 1,180,598 12/3/04 934 Swiss Franc 2,900,000 EUR 1,931,106 12/3/04 19,170 United States Dollar 947,311 CAD 1,300,000 12/3/04 20,606 United States Dollar 1,070,503 CHF 1,350,000 12/3/04 12,795 United States Dollar 649,308 DKK 4,000,000 12/3/04 4,360 United States Dollar 6,040,100 EUR 5,000,000 12/3/04 34,795 United States Dollar 1,169,380 GBP 650,000 12/3/04 (6,011) United States Dollar 553,753 HKD 4,300,000 12/3/04 (12) United States Dollar 4,808,167 JPY 530,300,000 12/3/04 91,716 United States Dollar 555,832 NOK 3,800,000 12/3/04 (7,802) United States Dollar 1,996,324 SGD 3,400,000 12/3/04 (13,891) ------------ Total net unrealized appreciation on forward foreign currency contracts $ 152,054 ============
See accompanying notes to financial statements 74 UBS U.S. LARGE CAP VALUE EQUITY FUND For the fiscal year ended June 30, 2004, Class Y shares of UBS U.S. Large Cap Value Equity Fund (formerly UBS U.S. Value Equity Fund) returned 20.49%, slightly underperforming the 21.13% return of the Fund's benchmark, the Russell 1000 Value Index (the "Index"). Since inception on June 29, 2001, through period end, the Fund returned 4.47% on an annualized basis, outperforming the 2.96% annualized return of the Index. (Returns for all share classes over various time periods are shown on page 76; 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 continues to maintain its focus on fundamentally sound, high-quality stocks. While this was a slight negative given the market's speculative slant for much of the fiscal year, the Fund's relative performance was enhanced by prudent sector positioning and stock selection. BOTTOM-UP OPPORTUNITIES DROVE SECTOR AND RISK EXPOSURE We are essentially bottom-up stock pickers, relying on in-depth research and analysis to identify securities that we believe are selling for less than their intrinsic value. Risk management is another integral part of our portfolio construction process, as we strive to take only those risks that are likely to be compensated. Throughout the 12-month period, our research indicated that much of the stock market was trading at or above fair value range. We did, however, identify pockets of opportunity. While investors were focused on the more speculative end of the stock market for most of the fiscal year, our careful analysis led us to overweight more conservative, low-risk sectors, including banking, healthcare, and construction. In banking, we focused on companies that we believed were benefiting from a prior consolidation trend in the industry. Many of our bank holdings, including Citigroup, delivered strong results through the end of the period, at which point the sector as a whole fell on expectations for rising interest rates. We believe the decline was excessive, and that certain banks could actually benefit over the long term in a rising rate environment. For example, banks with credit card businesses could generate incremental revenue. As a result, we continue to view selective banks as attractive opportunities for the Fund. Our research also identified a number of promising holdings in the healthcare and construction sectors. In healthcare, the Fund primarily held pharmaceuticals. Several holdings in this sector delivered strong returns in the first half of the period, but prices receded in the second half of the period, after a series of negative articles raised concerns about the impact of drug re-importation programs. According to our analysis, the effects of such a program, if implemented, would be negligible, convincing us that our holdings still offer long-term potential. In construction, our research highlighted sound companies benefiting from the housing boom. Among these was Masco, a building products manufacturer and installer, and, ultimately, one of the Fund's top performers over the fiscal year. While technology and energy stocks delivered impressive returns over the fiscal year, the Fund was underweight both sectors, which detracted from relative performance. We remain cautious of these more speculative industries. Our analysis has found promising stocks in technology software, but we believe technology hardware is particularly overvalued, and unlikely to meet earnings expectations. Along the same vein, the energy sector has performed very well, due in large part to rising oil prices. However, our analysis concluded that prevailing oil prices include a premium related to the unrest in the Middle East, and that the long-term "normal price" is considerably lower. We expect that energy prices will stabilize and decline once the geopolitical situation improves. LOOKING AHEAD We currently believe the US equity market is essentially at fair value. That said, we are finding significant opportunities to own what we believe to be mispriced stocks, which, most frequently, we are uncovering in the sectors we have just discussed. As always, we intend to continue to employ our disciplined, bottom-up stock selection process, which calls for investing in stocks trading below what we perceive to be their intrinsic value. We believe this approach will better enable us to produce attractive risk-adjusted returns over a variety of market cycles. 75 UBS U.S. LARGE CAP VALUE EQUITY FUND (UNAUDITED) TOTAL RETURN
1 YEAR 3 YEAR INCEPTION* ENDED ENDED TO 6/30/04 6/30/04 6/30/04 ---------------------------------------------------------------------------------------- UBS U.S. LARGE CAP VALUE EQUITY FUND CLASS A 20.28% N/A 5.19% UBS U.S. LARGE CAP VALUE EQUITY FUND CLASS B 19.38 N/A 5.59 UBS U.S. LARGE CAP VALUE EQUITY FUND CLASS C 19.34 N/A 5.38 UBS U.S. LARGE CAP VALUE EQUITY FUND CLASS Y 20.49 4.47% 4.47 UBS U.S. LARGE CAP VALUE EQUITY FUND CLASS A** 13.68 N/A 2.89 UBS U.S. LARGE CAP VALUE EQUITY FUND CLASS B** 14.38 N/A 4.54 UBS U.S. LARGE CAP VALUE EQUITY FUND CLASS C** 18.34 N/A 5.38 RUSSELL 1000 VALUE INDEX 21.13 2.96 2.96
* INCEPTION DATES OF UBS U.S. LARGE CAP VALUE EQUITY FUND (FORMERLY UBS U.S. VALUE EQUITY FUND) CLASS A SHARES IS 12/07/01. INCEPTION DATES OF CLASS B AND CLASS C SHARES ARE 11/08/01 AND 12/12/01, RESPECTIVELY. INCEPTION DATE OF CLASS Y SHARES 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. ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000 This chart shows the growth in the value of an investment in UBS U.S. Large Cap Value Equity Fund Class Y shares and the Russell 1000 Value Index, if you had invested $10,000 on June 29, 2001, and had reinvested all your income dividends and capital gain distributions through June 30, 2004. The performance of Class A, Class B and Class C shares will vary based upon the different inception dates, class specific expenses and sales charges. No adjustment has been made for any income taxes payable by shareholders on income dividends and capital gain distributions. Past performance is no guarantee of future results. Share price and returns will vary with market conditions; investors may realize a gain or loss upon redemption. [CHART] UBS U.S. LARGE CAP VALUE EQUITY FUND CLASS Y VS. RUSSELL 1000 VALUE INDEX Wealth Value With Dividends
UBS U.S. LARGE CAP VALUE EQUITY FUND CLASS Y RUSSELL 1000 VALUE INDEX 6/29/2001 $ 10,000 $ 10,000 7/31/2001 $ 10,110 $ 9,979 8/31/2001 $ 9,730 $ 9,579 9/30/2001 $ 9,180 $ 8,905 10/31/2001 $ 9,170 $ 8,828 11/30/2001 $ 9,800 $ 9,341 12/31/2001 $ 9,970 $ 9,561 1/31/2002 $ 9,870 $ 9,488 2/28/2002 $ 9,900 $ 9,503 3/31/2002 $ 10,330 $ 9,953 4/30/2002 $ 10,020 $ 9,611 5/31/2002 $ 9,990 $ 9,659 6/30/2002 $ 9,380 $ 9,105 7/31/2002 $ 8,640 $ 8,258 8/31/2002 $ 8,810 $ 8,321 9/30/2002 $ 7,670 $ 7,396 10/31/2002 $ 8,260 $ 7,943 11/30/2002 $ 8,750 $ 8,444 12/31/2002 $ 8,419 $ 8,077 1/31/2003 $ 8,246 $ 7,882 2/28/2003 $ 8,043 $ 7,671 3/31/2003 $ 8,084 $ 7,684 4/30/2003 $ 8,865 $ 8,361 5/31/2003 $ 9,352 $ 8,900 6/30/2003 $ 9,463 $ 9,012 7/31/2003 $ 9,575 $ 9,146 8/31/2003 $ 9,615 $ 9,288 9/30/2003 $ 9,595 $ 9,198 10/31/2003 $ 10,194 $ 9,761 11/30/2003 $ 10,254 $ 9,893 12/31/2003 $ 11,016 $ 10,503 1/31/2004 $ 11,117 $ 10,688 2/29/2004 $ 11,372 $ 10,917 3/31/2004 $ 11,219 $ 10,821 4/30/2004 $ 11,067 $ 10,557 5/31/2004 $ 11,168 $ 10,664 6/30/2004 $ 11,402 $ 10,916
6/29/01 = $10,000 FUND RETURNS ARE NET OF ALL FEES AND COSTS, WHILE THE INDEX RETURNS ARE BASED SOLELY ON MARKET RETURNS WITHOUT DEDUCTION FOR FEES OR TRANSACTION COSTS FOR REBALANCING. 76 TOP TEN EQUITY HOLDINGS AS OF JUNE 30, 2004
PERCENTAGE OF NET ASSETS ---------------------------------------------------------------- Bank of America Corp. 5.2% ExxonMobil Corp. 4.7 American International Group, Inc. 4.5 Citigroup, Inc. 4.3 Wells Fargo & Co. 4.0 Nextel Communications, Inc., Class A 3.9 J.P. Morgan Chase & Co. 3.7 UnitedHealth Group, Inc. 3.0 ConocoPhillips 2.8 Illinois Tool Works, Inc. 2.6 ---------------------------------------------------------------- Total 38.7%
77 UBS U.S. LARGE CAP VALUE EQUITY FUND -- SCHEDULE OF INVESTMENTS JUNE 30, 2004
SHARES VALUE --------------- ----------------- U.S. EQUITIES -- 94.72% AEROSPACE & DEFENSE -- 2.45% Boeing Co. 32,100 $ 1,639,989 Northrop Grumman Corp. 28,600 1,535,820 United Technologies Corp. 4,600 420,808 ----------------- 3,596,617 ----------------- AIRLINES -- 0.31% Delta Air Lines, Inc. (b) 64,300 457,816 ----------------- AUTO COMPONENTS 1.28% Johnson Controls, Inc. 35,300 1,884,314 ----------------- BIOTECHNOLOGY -- 1.04% Cephalon, Inc. (b) 28,300 1,528,200 ----------------- BUILDING PRODUCTS -- 2.07% Masco Corp. 97,350 3,035,373 ----------------- COMMERCIAL BANKS -- 11.18% Bank of America Corp. 90,511 7,659,041 PNC Financial Services Group 53,800 2,855,704 Wells Fargo & Co. 103,450 5,920,443 ----------------- 16,435,188 ----------------- COMMERCIAL SERVICES & SUPPLIES -- 0.53% Equifax, Inc. 31,400 777,150 ----------------- CONSTRUCTION MATERIALS -- 1.40% Martin Marietta Materials, Inc. 46,500 2,061,345 ----------------- DIVERSIFIED FINANCIAL SERVICES -- 4.33% Citigroup, Inc. 136,976 6,369,384 ----------------- ELECTRIC UTILITIES -- 6.37% American Electric Power Co., Inc. 88,000 2,816,000 CMS Energy Corp. (b) 68,950 629,513 Exelon Corp. 66,700 2,220,443 FirstEnergy Corp. 72,000 2,693,520 Pepco Holdings, Inc. 55,100 1,007,228 ----------------- 9,366,704 ----------------- FINANCE -- 9.27% J.P. Morgan Chase & Co. 141,470 5,484,792 Mellon Financial Corp. 119,400 3,502,002 Morgan Stanley 60,600 3,197,862 Northern Trust Corp. 33,900 1,433,292 ----------------- 13,617,948 ----------------- FOOD & STAPLES RETAILING -- 2.96% Albertson's, Inc. 70,600 1,873,724 Costco Wholesale Corp. 60,300 2,476,521 ----------------- 4,350,245 ----------------- GAS UTILITIES -- 1.24% Sempra Energy Corp. 53,000 1,824,790 ----------------- HEALTH CARE PROVIDERS & SERVICES -- 3.20% Quest Diagnostics, Inc. 3,100 263,345 UnitedHealth Group, Inc. 71,400 4,444,650 ----------------- 4,707,995 ----------------- HOUSEHOLD PRODUCTS -- 1.15% Kimberly-Clark Corp. 25,600 1,686,528 ----------------- INSURANCE -- 7.24% Aflac, Inc. 42,000 $ 1,714,020 American International Group, Inc. 92,476 6,591,689 Hartford Financial Services Group, Inc. 34,050 2,340,597 ----------------- 10,646,306 ----------------- IT SERVICES -- 1.03% First Data Corp. 33,900 1,509,228 ----------------- MACHINERY -- 2.59% Illinois Tool Works, Inc. 39,650 3,802,039 ----------------- MEDIA -- 6.88% Gannett Co., Inc. 15,300 1,298,205 Interpublic Group of Cos., Inc. (b) 113,400 1,556,982 Time Warner, Inc. (b) 202,900 3,566,982 Viacom, Inc., Class B 103,300 3,689,876 ----------------- 10,112,045 ----------------- OIL & GAS -- 7.52% ConocoPhillips 53,549 4,085,253 ExxonMobil Corp. 156,850 6,965,709 ----------------- 11,050,962 ----------------- PAPER & FOREST PRODUCTS -- 0.92% MeadWestvaco Corp. 45,900 1,349,001 ----------------- PHARMACEUTICALS -- 4.32% Bristol-Myers Squibb Co. 64,500 1,580,250 Johnson & Johnson 36,300 2,021,910 Wyeth 75,900 2,744,544 ----------------- 6,346,704 ----------------- ROAD & RAIL -- 3.61% Burlington Northern Santa Fe Corp. 60,300 2,114,721 CSX Corp. 97,500 3,195,075 ----------------- 5,309,796 ----------------- TELECOMMUNICATIONS SERVICES -- 3.04% BellSouth Corp. 67,400 1,767,228 SBC Communications, Inc. 111,350 2,700,238 ----------------- 4,467,466 ----------------- THRIFTS & MORTGAGE FINANCE -- 4.86% Fannie Mae 52,000 3,710,720 Freddie Mac 54,150 3,427,695 ----------------- 7,138,415 ----------------- WIRELESS TELECOMMUNICATION SERVICES -- 3.93% Nextel Communications, Inc., Class A (b) 216,700 5,777,222 ----------------- Total U.S. Equities (Cost $124,177,729) 139,208,781 ----------------- SHORT-TERM INVESTMENTS -- 5.58% OTHER -- 5.18% UBS Supplementary Trust U.S. Cash Management Prime Fund, yield of 1.05% (Cost $7,610,129) 7,610,129 7,610,129 -----------------
78
FACE AMOUNT VALUE --------------- ----------------- U.S. GOVERNMENT OBLIGATION -- 0.40% U.S. Treasury Bills, yield of 1.00% due 08/05/04 (Cost $599,419) (c) $ 600,000 $ 599,372 ----------------- Total Short-Term Investments (Cost $8,209,548) 8,209,501 ----------------- Total Investments (Cost $132,387,277) -- 100.30% (a) 147,418,282 Liabilities, in excess of cash and other assets -- (0.30%) (447,248) ----------------- Net Assets -- 100% $ 146,971,034 =================
NOTES TO SCHEDULE OF INVESTMENTS (a) Aggregate cost for federal income tax purposes was $133,827,332; and net unrealized appreciation consisted of: Gross unrealized appreciation $ 15,850,422 Gross unrealized depreciation (2,259,472) ----------------- Net unrealized appreciation $ 13,590,950 =================
(b) Non-income producing security. (c) This security was pledged to cover margin requirements for futures contracts. % Represents a percentage of net assets FUTURES CONTRACTS UBS U.S. Large Cap Value Equity Fund had the following open futures contracts as of June 30, 2004:
EXPIRATION CURRENT UNREALIZED DATE COST VALUE APPRECIATION -------------- ----------- ----------- ------------ INDEX FUTURES BUY CONTRACTS S&P 500 Index, 21 contracts September 2004 $ 5,947,347 $ 5,987,100 $ 39,753 ============
The aggregate market value of investments pledged to cover margin requirements for the open futures positions at June 30, 2004 was $599,372. See accompanying notes to financial statements 79 THE UBS FUNDS -- FINANCIAL STATEMENTS STATEMENTS OF ASSETS AND LIABILITIES JUNE 30, 2004
UBS GLOBAL UBS ALLOCATION GLOBAL EQUITY FUND* FUND ----------------------------------------------------------------------------------- ASSETS: Investments, at cost: Unaffiliated issuers $ 1,467,634,775 $ 362,978,295 Affiliated issuers 239,237,646 849,939 Investments of cash collateral received for securities loaned, at cost 122,602,637 -- Foreign currency, at cost 3,324,834 2,300,119 --------------- ---------------- $ 1,832,799,892 $ 366,128,353 =============== ================ Investments, at value: Unaffiliated issuers $ 1,549,324,409 $ 447,061,803 Affiliated issuers 267,068,991 849,939 Investments of cash collateral for securities loaned, at value 122,602,637 -- Foreign currency, at value 3,322,110 2,059,381 Cash 4,134,593 -- Receivables: Investment securities sold 24,943,451 3,725,861 Due from Advisor -- -- Dividends 1,972,449 1,041,548 Interest 6,195,596 2,559 Fund shares sold 13,321,870 530,384 Variation margin -- -- Due from Broker 877,135 -- Other assets 167,472 137,328 Unrealized appreciation on forward foreign currency contracts 2,056,036 495,139 --------------- ---------------- TOTAL ASSETS 1,995,986,749 455,903,942 --------------- ---------------- LIABILITIES: Payables: Cash collateral from securities loaned 122,602,637 -- Investment securities purchased 30,226,509 3,712,581 Investment advisory fees 1,166,867 281,703 Fund shares redeemed 6,483,058 1,947,055 Distribution fees 421,646 136,753 Trustees' fees 2,839 4,694 Due to custodian bank -- -- Variation margin 3,275 -- Accrued expenses 1,543,651 627,926 Unrealized depreciation on forward foreign currency contracts 345,502 172,063 --------------- ---------------- TOTAL LIABILITIES 162,795,984 6,882,775 --------------- ---------------- NET ASSETS $ 1,833,190,765 $ 449,021,167 =============== ================ NET ASSETS CONSIST OF: Paid in Capital $ 1,678,692,992 $ 1,241,290,267 Accumulated undistributed net investment income (loss) 6,892,140 (3,562,832) Accumulated undistributed net realized gain (loss) 36,345,540 (873,121,072) Net unrealized appreciation (depreciation) 111,260,093 84,414,804 --------------- ---------------- NET ASSETS $ 1,833,190,765 $ 449,021,167 =============== ================
* The market value for securities loaned for UBS Global Allocation Fund as of June 30, 2004 is $145,004,475. ** The market value for securities loaned for UBS International Equity Fund as of June 30, 2004 is $5,015,483. See accompanying notes to financial statements 80
UBS UBS UBS UBS GLOBAL BOND U.S. LARGE CAP U.S. LARGE CAP U.S. SMALL CAP FUND EQUITY FUND GROWTH FUND GROWTH FUND ------------------------------------------------------------------------------------------------------------------------- ASSETS: Investments, at cost: Unaffiliated issuers $ 48,668,775 $ 130,869,157 $ 5,742,701 $ 165,892,474 Affiliated issuers 10,635,991 6,756,537 154,554 4,595,089 Investments of cash collateral received for securities loaned, at cost -- -- -- -- Foreign currency, at cost 497,238 -- -- -- ---------------- ---------------- ---------------- ---------------- $ 59,802,004 $ 137,625,694 $ 5,897,255 $ 170,487,563 ================ ================ ================ ================ Investments, at value: Unaffiliated issuers $ 49,201,773 $ 158,262,938 $ 6,519,535 $ 183,887,137 Affiliated issuers 10,654,679 6,756,537 154,554 4,595,089 Investments of cash collateral for securities loaned, at value -- -- -- -- Foreign currency, at value 498,254 -- -- -- Cash -- -- -- -- Receivables: Investment securities sold 980,081 697,498 40,441 1,457,593 Due from Advisor -- -- 21,895 -- Dividends -- 135,363 2,448 32,502 Interest 859,133 6,753 173 3,917 Fund shares sold 142,103 323,281 -- 501,764 Variation margin -- 21,850 -- -- Due from Broker -- -- -- -- Other assets 45,762 2,271 100 77,336 Unrealized appreciation on forward foreign currency contracts 114,541 -- -- -- ---------------- ---------------- ---------------- ---------------- TOTAL ASSETS 62,496,326 166,206,491 6,739,146 190,555,338 ---------------- ---------------- ---------------- ---------------- LIABILITIES: Payables: Cash collateral from securities loaned -- -- -- -- Investment securities purchased 988,407 -- 71,360 2,565,878 Investment advisory fees 37,530 95,916 3,785 122,498 Fund shares redeemed 698,561 1,562,031 81,173 1,085,747 Distribution fees 2,322 1,926 1,815 15,365 Trustees' fees 2,429 3,387 2,646 1,973 Due to custodian bank 32 15,370 -- -- Variation margin -- -- -- -- Accrued expenses 122,333 188,355 26,893 261,338 Unrealized depreciation on forward foreign currency contracts 32,022 -- -- -- ---------------- ---------------- ---------------- ---------------- TOTAL LIABILITIES 1,883,636 1,866,985 187,672 4,052,799 ---------------- ---------------- ---------------- ---------------- NET ASSETS $ 60,612,690 $ 164,339,506 $ 6,551,474 $ 186,502,539 ================ ================ ================ ================ NET ASSETS CONSIST OF: Paid in Capital $ 58,955,104 $ 134,960,304 $ 9,671,554 $ 166,981,807 Accumulated undistributed net investment income (loss) 2,241,307 479,438 -- -- Accumulated undistributed net realized gain (loss) (1,224,140) 1,470,016 (3,896,915) 1,526,069 Net unrealized appreciation (depreciation) 640,419 27,429,748 776,835 17,994,663 ---------------- ---------------- ---------------- ---------------- NET ASSETS $ 60,612,690 $ 164,339,506 $ 6,551,474 $ 186,502,539 ================ ================ ================ ================ UBS UBS UBS UBS U.S. LARGE CAP U.S. BOND HIGH YIELD INTERNATIONAL VALUE EQUITY FUND FUND EQUITY FUND** FUND ------------------------------------------------------------------------------------------------------------------------- ASSETS: Investments, at cost: Unaffiliated issuers $ 122,113,798 $ 169,928,619 $ 83,440,938 $ 124,777,148 Affiliated issuers 2,466,400 3,138,878 2,086,439 7,610,129 Investments of cash collateral received for securities loaned, at cost -- -- 6,336,449 -- Foreign currency, at cost -- -- 929,395 -- ---------------- ---------------- ---------------- ---------------- $ 124,580,198 $ 173,067,497 $ 92,793,221 $ 132,387,277 ================ ================ ================ ================ Investments, at value: Unaffiliated issuers $ 122,063,745 $ 141,134,571 $ 108,782,770 $ 139,808,153 Affiliated issuers 2,466,400 3,138,878 2,086,439 7,610,129 Investments of cash collateral for securities loaned, at value -- -- 6,336,449 -- Foreign currency, at value -- -- 929,612 -- Cash 17,879 397,311 -- -- Receivables: Investment securities sold 2,767,759 323,157 351,772 -- Due from Advisor -- -- -- -- Dividends -- -- 464,525 80,346 Interest 1,230,118 2,872,903 1,418 9,369 Fund shares sold 213,305 238,644 321,658 157,073 Variation margin -- -- -- 24,150 Due from Broker -- -- -- -- Other assets 58,233 27,193 71,560 110,418 Unrealized appreciation on forward foreign currency contracts -- -- 194,090 -- ---------------- ---------------- ---------------- ---------------- TOTAL ASSETS 128,817,439 148,132,657 119,540,293 147,799,638 ---------------- ---------------- ---------------- ---------------- LIABILITIES: Payables: Cash collateral from securities loaned -- -- 6,336,449 -- Investment securities purchased 3,447,437 745,139 1,294,587 -- Investment advisory fees 51,369 78,438 74,917 88,168 Fund shares redeemed 248,140 1,016,002 725,033 479,916 Distribution fees 2,076 55,739 1,592 25,950 Trustees' fees 1,880 1,423 5,633 2,639 Due to custodian bank -- -- -- -- Variation margin -- -- -- -- Accrued expenses 127,730 240,919 258,750 231,931 Unrealized depreciation on forward foreign currency contracts -- -- 42,036 -- ---------------- ---------------- ---------------- ---------------- TOTAL LIABILITIES 3,878,632 2,137,660 8,738,997 828,604 ---------------- ---------------- ---------------- ---------------- NET ASSETS $ 124,938,807 $ 145,994,997 $ 110,801,296 $ 146,971,034 ================ ================ ================ ================ NET ASSETS CONSIST OF: Paid in Capital $ 126,860,252 $ 406,475,598 $ 96,850,305 $ 111,494,900 Accumulated undistributed net investment income (loss) 108,438 306,444 184,526 558,197 Accumulated undistributed net realized gain (loss) (1,979,830) (231,992,996) (11,751,788) 19,847,179 Net unrealized appreciation (depreciation) (50,053) (28,794,049) 25,518,253 15,070,758 ---------------- ---------------- ---------------- ---------------- NET ASSETS $ 124,938,807 $ 145,994,997 $ 110,801,296 $ 146,971,034 ================ ================ ================ ================
81 NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE: JUNE 30, 2004
UBS GLOBAL UBS ALLOCATION GLOBAL EQUITY FUND FUND ----------------------------------------------------------------------------------- CLASS A: Net assets $ 876,635,480 $ 117,083,601 Shares outstanding 70,960,306 11,140,061 Net asset value per share (NAV per share / shares outstanding) $ 12.35 $ 10.51 Offering price per share (NAV per share plus maximum sales charge)(a) $ 13.07 $ 11.12 Redemption proceeds per share $ 12.35 $ 10.51 CLASS B: Net assets $ 153,481,322 $ 134,419,050 Shares outstanding 12,642,186 12,967,009 Net asset value per share (NAV per share / shares outstanding) $ 12.14 $ 10.37 Offering price per share $ 12.14 $ 10.37 Redemption proceeds per share (NAV per share less maximum redemption charge)(a) $ 11.53 $ 9.85 CLASS C: Net assets $ 539,399,256 $ 82,683,782 Shares outstanding 44,384,780 8,000,510 Net asset value per share (NAV per share / shares outstanding) $ 12.15 $ 10.33 Offering price per share $ 12.15 $ 10.33 Redemption proceeds per share (NAV per share less maximum redemption charge)(a) $ 12.03 $ 10.23 CLASS Y: Net assets $ 263,674,707 $ 114,834,734 Shares outstanding 21,096,359 10,765,803 Net asset value per share (NAV per share / shares outstanding) $ 12.50 $ 10.67 Offering price per share $ 12.50 $ 10.67 Redemption proceeds per share $ 12.50 $ 10.67
(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 82
UBS UBS UBS UBS GLOBAL BOND U.S. LARGE CAP U.S. LARGE CAP U.S. SMALL CAP FUND EQUITY FUND GROWTH FUND GROWTH FUND ------------------------------------------------------------------------------------------------------------------------- CLASS A: Net assets $ 14,609,877 $ 7,885,075 $ 2,275,047 $ 73,833,303 Shares outstanding 1,480,482 490,496 295,138 5,950,737 Net asset value per share (NAV per share / shares outstanding) $ 9.87 $ 16.08 $ 7.71 $ 12.41 Offering price per share (NAV per share plus maximum sales charge)(a) $ 10.34 $ 17.02 $ 8.16 $ 13.13 Redemption proceeds per share $ 9.87 $ 16.08 $ 7.71 $ 12.41 CLASS B: Net assets $ 1,535,678 $ 1,217,070 $ 341,823 $ 11,682,917 Shares outstanding 155,436 76,991 45,165 959,713 Net asset value per share (NAV per share / shares outstanding) $ 9.88 $ 15.81 $ 7.57 $ 12.17 Offering price per share $ 9.88 $ 15.81 $ 7.57 $ 12.17 Redemption proceeds per share (NAV per share less maximum redemption charge)(a) $ 9.39 $ 15.02 $ 7.19 $ 11.56 CLASS C: Net assets $ 3,450,904 $ 1,629,448 $ 432,222 $ 9,580,266 Shares outstanding 350,282 103,149 57,159 787,875 Net asset value per share (NAV per share / shares outstanding) $ 9.85 $ 15.80 $ 7.56 $ 12.16 Offering price per share $ 9.85 $ 15.80 $ 7.56 $ 12.16 Redemption proceeds per share (NAV per share less maximum redemption charge)(a) $ 9.78 $ 15.64 $ 7.48 $ 12.04 CLASS Y: Net assets $ 41,016,231 $ 153,607,913 $ 3,502,382 $ 91,406,053 Shares outstanding 3,787,411 9,477,454 446,046 7,238,440 Net asset value per share (NAV per share / shares outstanding) $ 10.83 $ 16.21 $ 7.85 $ 12.63 Offering price per share $ 10.83 $ 16.21 $ 7.85 $ 12.63 Redemption proceeds per share $ 10.83 $ 16.21 $ 7.85 $ 12.63 UBS UBS UBS UBS U.S. LARGE CAP U.S. BOND HIGH YIELD INTERNATIONAL VALUE EQUITY FUND FUND EQUITY FUND FUND ------------------------------------------------------------------------------------------------------------------------- CLASS A: Net assets $ 31,419,851 $ 72,614,145 $ 7,865,976 $ 108,368,925 Shares outstanding 2,974,934 10,280,052 916,489 9,694,711 Net asset value per share (NAV per share / shares outstanding) $ 10.56 $ 7.06 $ 8.58 $ 11.18 Offering price per share (NAV per share plus maximum sales charge)(a) $ 11.06 $ 7.39 $ 9.08 $ 11.83 Redemption proceeds per share $ 10.56 $ 7.06 $ 8.58 $ 11.18 CLASS B: Net assets $ 2,042,556 $ 7,844,329 $ 814,985 $ 14,555,719 Shares outstanding 193,417 1,110,544 96,135 1,324,573 Net asset value per share (NAV per share / shares outstanding) $ 10.56 $ 7.06 $ 8.48 $ 10.99 Offering price per share $ 10.56 $ 7.06 $ 8.48 $ 10.99 Redemption proceeds per share (NAV per share less maximum redemption charge)(a) $ 10.03 $ 6.71 $ 8.06 $ 10.44 CLASS C: Net assets $ 2,195,135 $ 17,498,415 $ 1,338,295 $ 19,530,398 Shares outstanding 208,001 2,477,115 158,344 1,775,069 Net asset value per share (NAV per share / shares outstanding) $ 10.55 $ 7.06 $ 8.45 $ 11.00 Offering price per share $ 10.55 $ 7.06 $ 8.45 $ 11.00 Redemption proceeds per share (NAV per share less maximum redemption charge)(a) $ 10.47 $ 7.01 $ 8.37 $ 10.89 CLASS Y: Net assets $ 89,281,265 $ 48,038,108 $ 100,782,040 $ 4,515,992 Shares outstanding 8,445,542 6,767,314 11,680,433 402,321 Net asset value per share (NAV per share / shares outstanding) $ 10.57 $ 7.10 $ 8.63 $ 11.22 Offering price per share $ 10.57 $ 7.10 $ 8.63 $ 11.22 Redemption proceeds per share $ 10.57 $ 7.10 $ 8.63 $ 11.22
83 STATEMENT OF OPERATIONS FOR THE YEAR ENDED JUNE 30, 2004
UBS GLOBAL UBS ALLOCATION GLOBAL EQUITY FUND FUND ----------------------------------------------------------------------------------- INVESTMENT INCOME: Dividends $ 16,762,757 $ 11,266,365 Interest 10,335,618 91,973 Affiliated interest 418,995 47,182 Securities lending-net 340,727 -- Foreign tax withheld (956,169) (720,781) ---------------- ---------------- TOTAL INCOME 26,901,928 10,684,739 ---------------- ---------------- EXPENSES: Advisory and administration fees 10,295,479 3,870,177 Distribution and service fees: Class A 1,242,088 306,832 Class B 1,018,951 1,439,687 Class C 3,487,598 908,298 Custodian 845,395 386,897 Federal and state registration 60,557 62,729 Transfer agency fees: Class A 273,849 227,155 Class B 120,551 376,064 Class C 279,029 245,391 Class Y 104,405 29,152 Professional services 89,841 78,421 Shareholder reports 124,014 367,977 Trustees 16,811 12,624 Other 37,785 16,636 ---------------- ---------------- TOTAL OPERATING EXPENSES 17,996,353 8,328,040 Expenses waived by Advisor -- (921,625) ---------------- ---------------- NET OPERATING EXPENSES 17,996,353 7,406,415 Interest Expense 427 3,513 NET INVESTMENT INCOME (LOSS) 8,905,148 3,274,811 ---------------- ---------------- Net realized gain (loss) on: Investments 58,054,650 47,804,066 Futures contracts 23,140 -- Foreign forward currency contracts and foreign currency transactions (1,646,010) (6,312,066) ---------------- ---------------- Net realized gain (loss) 56,431,780 41,492,000 ---------------- ---------------- Change in net unrealized appreciation (depreciation) on: Investments 78,628,760 38,315,388 Futures contracts 11,673 -- Foreign forward currency contracts 1,976,133 (222,877) Translation of other assets and liabilities denominated in foreign currency 4,891 12,398 ---------------- ---------------- Change in net unrealized appreciation (depreciation) 80,621,457 38,104,909 ---------------- ---------------- Net realized and unrealized gain (loss) 137,053,237 79,596,909 ---------------- ---------------- Net increase in net assets resulting from operations $ 145,958,385 $ 82,871,720 ================ ================
See accompanying notes to financial statements 84
UBS UBS UBS UBS GLOBAL BOND U.S. LARGE CAP U.S. LARGE CAP U.S. SMALL CAP FUND EQUITY FUND GROWTH FUND GROWTH FUND ------------------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME: Dividends $ -- $ 2,292,152 $ 37,293 $ 500,404 Interest 1,703,161 -- -- -- Affiliated interest 16,964 71,449 1,832 52,665 Securities lending-net -- -- -- -- Foreign tax withheld -- -- -- -- ---------------- ---------------- ---------------- ---------------- TOTAL INCOME 1,720,125 2,363,601 39,125 553,069 ---------------- ---------------- ---------------- ---------------- EXPENSES: Advisory and administration fees 473,879 1,060,701 41,884 1,317,090 Distribution and service fees: Class A 33,472 15,146 4,337 116,369 Class B 15,933 9,423 3,629 87,017 Class C 26,484 13,947 3,369 66,785 Custodian 49,068 71,854 2,837 72,212 Federal and state registration 27,053 25,659 25,108 31,053 Transfer agency fees: Class A 16,454 10,340 1,016 92,642 Class B 2,561 957 212 40,096 Class C 2,531 861 194 29,954 Class Y 24,794 33,406 1,808 68,756 Professional services 65,600 69,362 47,331 59,648 Shareholder reports 43,846 37,411 3,259 38,294 Trustees 6,292 6,516 6,611 6,556 Other 7,191 6,552 5,222 9,162 ---------------- ---------------- ---------------- ---------------- TOTAL OPERATING EXPENSES 795,158 1,362,135 146,817 2,035,634 Expenses waived by Advisor (203,137) (3,428) (92,288) (313,930) ---------------- ---------------- ---------------- ---------------- NET OPERATING EXPENSES 592,021 1,358,707 54,529 1,721,704 Interest Expense 1,590 -- -- -- NET INVESTMENT INCOME (LOSS) 1,126,514 1,004,894 (15,404) (1,168,635) ---------------- ---------------- ---------------- ---------------- Net realized gain (loss) on: Investments 329,504 11,088,263 155,984 4,874,967 Futures contracts -- 628,109 -- -- Foreign forward currency contracts and foreign currency transactions 3,350,498 -- -- -- ---------------- ---------------- ---------------- ---------------- Net realized gain (loss) 3,680,002 11,716,372 155,984 4,874,967 ---------------- ---------------- ---------------- ---------------- Change in net unrealized appreciation (depreciation) on: Investments (2,398,340) 9,563,349 797,408 12,575,169 Futures contracts -- 189,135 -- -- Foreign forward currency contracts 178,664 -- -- -- Translation of other assets and liabilities denominated in foreign currency (13,923) -- -- -- ---------------- ---------------- ---------------- ---------------- Change in net unrealized appreciation (depreciation) (2,233,599) 9,752,484 797,408 12,575,169 ---------------- ---------------- ---------------- ---------------- Net realized and unrealized gain (loss) 1,446,403 21,468,856 953,392 17,450,136 ---------------- ---------------- ---------------- ---------------- Net increase in net assets resulting from operations $ 2,572,917 $ 22,473,750 $ 937,988 $ 16,281,501 ================ ================ ================ ================ UBS UBS UBS UBS U.S. LARGE CAP U.S. BOND HIGH YIELD INTERNATIONAL VALUE EQUITY FUND FUND EQUITY FUND FUND ------------------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME: Dividends $ -- $ 24,921 $ 2,729,666 $ 1,912,779 Interest 5,259,673 16,210,872 -- 2,422 Affiliated interest 32,962 48,245 18,848 47,736 Securities lending-net -- -- 59,561 -- Foreign tax withheld -- -- (230,212) -- ---------------- ---------------- ---------------- ---------------- TOTAL INCOME 5,292,635 16,284,038 2,577,863 1,962,937 ---------------- ---------------- ---------------- ---------------- EXPENSES: Advisory and administration fees 687,023 1,158,505 839,584 775,460 Distribution and service fees: Class A 82,193 185,165 12,140 167,249 Class B 27,456 103,968 5,767 149,431 Class C 19,216 143,976 8,773 130,607 Custodian 62,729 90,107 105,548 52,531 Federal and state registration 35,114 45,587 27,860 28,709 Transfer agency fees: Class A 36,544 143,771 7,155 138,765 Class B 7,244 18,995 2,574 55,813 Class C 3,980 37,596 1,739 26,440 Class Y 38,234 36,106 101,129 3,496 Professional services 48,914 59,723 72,062 75,203 Shareholder reports 40,676 115,925 37,057 34,323 Trustees 6,442 6,560 6,405 6,502 Other 9,766 10,710 6,524 3,031 ---------------- ---------------- ---------------- ---------------- TOTAL OPERATING EXPENSES 1,105,531 2,156,694 1,234,317 1,647,560 Expenses waived by Advisor (261,013) (117,168) (251,053) (344,777) ---------------- ---------------- ---------------- ---------------- NET OPERATING EXPENSES 844,518 2,039,526 983,264 1,302,783 Interest Expense -- 5,460 2,308 -- NET INVESTMENT INCOME (LOSS) 4,448,117 14,239,052 1,592,291 660,154 ---------------- ---------------- ---------------- ---------------- Net realized gain (loss) on: Investments (825,059) (20,836,259) 7,449,784 24,912,296 Futures contracts -- -- -- 741,344 Foreign forward currency contracts and foreign currency transactions -- -- (821,447) -- ---------------- ---------------- ---------------- ---------------- Net realized gain (loss) (825,059) (20,836,259) 6,628,337 25,653,640 ---------------- ---------------- ---------------- ---------------- Change in net unrealized appreciation (depreciation) on: Investments (3,614,761) 27,195,494 12,156,966 (8,815,799) Futures contracts -- -- -- 39,753 Foreign forward currency contracts -- -- 55,124 -- Translation of other assets and liabilities denominated in foreign currency -- -- (6,124) -- ---------------- ---------------- ---------------- ---------------- Change in net unrealized appreciation (depreciation) (3,614,761) 27,195,494 12,205,966 (8,776,046) ---------------- ---------------- ---------------- ---------------- Net realized and unrealized gain (loss) (4,439,820) 6,359,235 18,834,303 16,877,594 ---------------- ---------------- ---------------- ---------------- Net increase in net assets resulting from operations $ 8,297 $ 20,598,287 $ 20,426,594 $ 17,537,748 ================ ================ ================ ================
85 STATEMENTS OF CHANGES IN NET ASSETS
UBS GLOBAL ALLOCATION FUND ----------------------------------- YEAR ENDED JUNE 30, 2004 2003 ----------------------------------------------------------------------------------- OPERATIONS: Net investment income (loss) $ 8,905,148 $ 2,419,328 Net realized gain (loss) 56,431,780 3,879,544 Change in net unrealized appreciation (depreciation) 80,621,457 24,982,954 ---------------- ---------------- Net increase (decrease) in net assets from operations 145,958,385 31,281,826 ---------------- ---------------- DISTRIBUTIONS TO SHAREHOLDERS BY CLASS: Class A: Distributions from net investment income and net foreign currency gains (5,970,967) (816,676) Distributions from net realized gain -- -- ---------------- ---------------- Total Class A distributions (5,970,967) (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 (3,074,862) (6,269,057) Distributions from net realized gain -- -- ---------------- ---------------- Total Class Y distributions (3,074,862) (6,269,057) ---------------- ---------------- Decrease in net assets from distributions (13,269,985) (7,500,413) ---------------- ---------------- CAPITAL SHARE TRANSACTIONS BY CLASS: Class A: Shares sold 771,649,248 169,855,469 Shares issued on reinvestment of distributions 5,548,907 694,883 Shares redeemed (129,489,601) (13,014,963) Shares converted from Class B to Class A 212,390 -- ---------------- ---------------- Total Class A transactions 647,920,944 157,535,389 ---------------- ---------------- Class B: Shares sold 109,114,997 51,012,178 Shares issued on reinvestment of distributions 829,767 153,482 Shares redeemed (17,242,894) (5,976,414) Shares converted from Class B to Class A (212,390) -- ---------------- ---------------- Total Class B transactions 92,489,480 45,189,246 ---------------- ---------------- Class C: Shares sold 405,152,193 136,999,043 Shares issued on reinvestment of distributions 3,122,784 238,616 Shares redeemed (43,352,522) (9,106,623) ---------------- ---------------- Total Class C transactions 364,922,455 128,131,036 ---------------- ---------------- Class Y: Shares sold 96,284,650 74,301,709 Shares issued on reinvestment of distributions 2,446,598 4,205,702 Shares redeemed (59,577,632) (52,998,670) ---------------- ---------------- Total Class Y transactions 39,153,616 25,508,741 ---------------- ---------------- Redemption fees 191,450 39,290 ---------------- ---------------- Net increase (decrease) in net assets resulting from capital share transactions 1,144,677,945 356,403,702 ---------------- ---------------- INCREASE (DECREASE) IN NET ASSETS 1,277,366,345 380,185,115 NET ASSETS, BEGINNING OF PERIOD 555,824,420 175,639,305 ---------------- ---------------- NET ASSETS, END OF PERIOD $ 1,833,190,765 $ 555,824,420 ================ ================ Net assets include accumulated undistributed net investment income (loss) $ 6,892,140 $ 7,743,158 ================ ================
* The capital share transactions include amounts from a tax-free reorganization in which the UBS U.S. 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 86
UBS UBS GLOBAL EQUITY FUND GLOBAL BOND FUND ----------------------------------- ----------------------------------- YEAR ENDED JUNE 30, YEAR ENDED JUNE 30, 2004 2003 2004 2003 ------------------------------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income (loss) $ 3,274,811 $ 2,549,429 $ 1,126,514 $ 1,120,047 Net realized gain (loss) 41,492,000 (18,437,985) 3,680,002 5,017,299 Change in net unrealized appreciation (depreciation) 38,104,909 44,889,458 (2,233,599) 4,495 ---------------- ---------------- ---------------- ---------------- Net increase (decrease) in net assets from operations 82,871,720 29,000,902 2,572,917 6,141,841 ---------------- ---------------- ---------------- ---------------- DISTRIBUTIONS TO SHAREHOLDERS BY CLASS: Class A: Distributions from net investment income and net foreign currency gains (1,327,685) (391,438) (1,172,161) (105,953) Distributions from net realized gain -- -- -- -- ---------------- ---------------- ---------------- ---------------- Total Class A distributions (1,327,685) (391,438) (1,172,161) (105,953) ---------------- ---------------- ---------------- ---------------- Class B: Distributions from net investment income and net foreign currency gains (1,295,502) (18,143) (130,281) (17,619) Distributions from net realized gain -- -- -- -- ---------------- ---------------- ---------------- ---------------- Total Class B distributions (1,295,502) (18,143) (130,281) (17,619) ---------------- ---------------- ---------------- ---------------- Class C: Distributions from net investment income and net foreign currency gains (806,282) (28,866) (306,676) (13,518) Distributions from net realized gain -- -- -- -- ---------------- ---------------- ---------------- ---------------- Total Class C distributions (806,282) (28,866) (306,676) (13,518) ---------------- ---------------- ---------------- ---------------- Class Y: Distributions from net investment income and net foreign currency gains (1,461,737) (1,343,765) (3,219,023) (853,243) Distributions from net realized gain -- -- -- -- ---------------- ---------------- ---------------- ---------------- Total Class Y distributions (1,461,737) (1,343,765) (3,219,023) (853,243) ---------------- ---------------- ---------------- ---------------- Decrease in net assets from distributions (4,891,206) (1,782,212) (4,828,141) (990,333) ---------------- ---------------- ---------------- ---------------- CAPITAL SHARE TRANSACTIONS BY CLASS: Class A: Shares sold 23,475,971 118,615,222* 10,737,328 12,487,314 Shares issued on reinvestment of distributions 1,259,846 329,028 868,518 89,825 Shares redeemed (52,291,281) (18,681,217) (8,238,128) (3,273,617) Shares converted from Class B to Class A 172,521 -- 205,268 -- ---------------- ---------------- ---------------- ---------------- Total Class A transactions (27,382,943) 100,263,033 3,572,986 9,303,522 ---------------- ---------------- ---------------- ---------------- Class B: Shares sold 2,617,886 141,490,442* 804,290 1,854,490 Shares issued on reinvestment of distributions 1,212,343 17,409 106,625 15,420 Shares redeemed (36,891,178) (9,779,696) (867,095) (639,402) Shares converted from Class B to Class A (172,521) -- (205,268) -- ---------------- ---------------- ---------------- ---------------- Total Class B transactions (33,233,470) 131,728,155 (161,448) 1,230,508 ---------------- ---------------- ---------------- ---------------- Class C: Shares sold 2,167,175 93,437,144* 918,969 3,390,992 Shares issued on reinvestment of distributions 764,619 21,402 155,154 10,557 Shares redeemed (28,846,302) (8,141,946) (696,421) (267,872) ---------------- ---------------- ---------------- ---------------- Total Class C transactions (25,914,508) 85,316,600 377,702 3,133,677 ---------------- ---------------- ---------------- ---------------- Class Y: Shares sold 88,053,616 58,686,302* 35,901,499 48,090,421 Shares issued on reinvestment of distributions 1,196,944 972,071 2,866,034 662,981 Shares redeemed (56,220,029) (36,459,204) (31,785,235) (52,213,738) ---------------- ---------------- ---------------- ---------------- Total Class Y transactions 33,030,531 23,199,169 6,982,298 (3,460,336) ---------------- ---------------- ---------------- ---------------- Redemption fees 75,284 83,887 -- -- ---------------- ---------------- ---------------- ---------------- Net increase (decrease) in net assets resulting from capital share transactions (53,425,106) 340,590,844 10,771,538 10,207,371 ---------------- ---------------- ---------------- ---------------- INCREASE (DECREASE) IN NET ASSETS 24,555,408 367,809,534 8,516,314 15,358,879 NET ASSETS, BEGINNING OF PERIOD 424,465,759 56,656,225 52,096,376 36,737,497 ---------------- ---------------- ---------------- ---------------- NET ASSETS, END OF PERIOD $ 449,021,167 $ 424,465,759 $ 60,612,690 $ 52,096,376 ================ ================ ================ ================ Net assets include accumulated undistributed net investment income (loss) $ (3,562,832) $ 4,343,999 $ 2,241,307 $ 2,541,437 ================ ================ ================ ================ UBS UBS U.S. LARGE CAP EQUITY FUND U.S. LARGE CAP GROWTH FUND ----------------------------------- ----------------------------------- YEAR ENDED JUNE 30, YEAR ENDED JUNE 30, 2004 2003 2004 2003 ------------------------------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income (loss) $ 1,004,894 $ 1,011,024 $ (15,404) $ 1,979 Net realized gain (loss) 11,716,372 (6,746,844) 155,984 (1,284,113) Change in net unrealized appreciation (depreciation) 9,752,484 7,805,668 797,408 1,210,064 ---------------- ---------------- ---------------- ---------------- Net increase (decrease) in net assets from operations 22,473,750 2,069,848 937,988 (72,070) ---------------- ---------------- ---------------- ---------------- 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 (1,467,245) (897,680) -- -- Distributions from net realized gain -- (2,331,732) -- -- ---------------- ---------------- ---------------- ---------------- Total Class Y distributions (1,467,245) (3,229,412) -- -- ---------------- ---------------- ---------------- ---------------- Decrease in net assets from distributions (1,535,536) (3,468,702) -- -- ---------------- ---------------- ---------------- ---------------- CAPITAL SHARE TRANSACTIONS BY CLASS: Class A: Shares sold 2,527,329 4,229,809 1,320,185 775,010 Shares issued on reinvestment of distributions 46,600 135,067 -- -- Shares redeemed (522,243) (12,394,051) (508,947) (756,172) Shares converted from Class B to Class A 209,919 -- 9,322 -- ---------------- ---------------- ---------------- ---------------- Total Class A transactions 2,261,605 (8,029,175) 820,560 18,838 ---------------- ---------------- ---------------- ---------------- Class B: Shares sold 757,699 593,667 130,574 440,475 Shares issued on reinvestment of distributions 5,998 18,852 -- -- Shares redeemed (120,732) (205,380) (166,741) (239,759) Shares converted from Class B to Class A (209,919) -- (9,322) -- ---------------- ---------------- ---------------- ---------------- Total Class B transactions 433,046 407,139 (45,489) 200,716 ---------------- ---------------- ---------------- ---------------- Class C: Shares sold 729,594 903,316 249,647 257,136 Shares issued on reinvestment of distributions 8,372 10,921 -- -- Shares redeemed (344,284) (31,363) (142,483) (529,714) ---------------- ---------------- ---------------- ---------------- Total Class C transactions 393,682 882,874 107,164 (272,578) ---------------- ---------------- ---------------- ---------------- Class Y: Shares sold 61,668,516 28,395,966 2,144,735 435,368 Shares issued on reinvestment of distributions 1,325,429 2,905,921 -- -- Shares redeemed (28,437,025) (19,108,822) (1,107,330) (749,106) ---------------- ---------------- ---------------- ---------------- Total Class Y transactions 34,556,920 12,193,065 1,037,405 (313,738) ---------------- ---------------- ---------------- ---------------- Redemption fees -- -- -- -- ---------------- ---------------- ---------------- ---------------- Net increase (decrease) in net assets resulting from capital share transactions 37,645,253 5,453,903 1,919,640 (366,762) ---------------- ---------------- ---------------- ---------------- INCREASE (DECREASE) IN NET ASSETS 58,583,467 4,055,049 2,857,628 (438,832) NET ASSETS, BEGINNING OF PERIOD 105,756,039 101,700,990 3,693,846 4,132,678 ---------------- ---------------- ---------------- ---------------- NET ASSETS, END OF PERIOD $ 164,339,506 $ 105,756,039 $ 6,551,474 $ 3,693,846 ================ ================ ================ ================ Net assets include accumulated undistributed net investment income (loss) $ 479,438 $ 1,010,080 $ -- $ 1,979 ================ ================ ================ ================
87
UBS U.S. SMALL CAP GROWTH FUND ----------------------------------- YEAR ENDED JUNE 30, 2004 2003 ----------------------------------------------------------------------------------- OPERATIONS: Net investment income (loss) $ (1,168,635) $ (266,297) Net realized gain (loss) 4,874,967 (1,381,955) Change in net unrealized appreciation (depreciation) 12,575,169 3,331,910 ---------------- ---------------- Net increase (decrease) in net assets from operations 16,281,501 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 (117,997) -- ---------------- ---------------- Total Class A distributions (117,997) -- ---------------- ---------------- Class B: Distributions from net investment income and net foreign currency gains -- -- Distributions from net realized gain (38,599) -- ---------------- ---------------- Total Class B distributions (38,599) -- ---------------- ---------------- Class C: Distributions from net investment income and net foreign currency gains -- -- Distributions from net realized gain (28,117) -- ---------------- ---------------- Total Class C distributions (28,117) -- ---------------- ---------------- 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 (398,372) -- ---------------- ---------------- CAPITAL SHARE TRANSACTIONS BY CLASS: Class A: Shares sold 79,682,848* 10,938,839 Shares issued on reinvestment of distributions 88,533 -- Shares redeemed (20,308,345) (3,805,325) Shares converted from Class B to Class A 506,429 -- ---------------- ---------------- Total Class A transactions 59,969,465 7,133,514 ---------------- ---------------- Class B: Shares sold 13,388,030* 851,729 Shares issued on reinvestment of distributions 36,899 -- Shares redeemed (2,540,767) (421,955) Shares converted from Class B to Class A (506,429) -- ---------------- ---------------- Total Class B transactions 10,377,733 429,774 ---------------- ---------------- Class C: Shares sold 11,020,360* 475,355 Shares issued on reinvestment of distributions 27,032 -- Shares redeemed (2,320,081) (151,517) ---------------- ---------------- Total Class C transactions 8,727,311 323,838 ---------------- ---------------- Class Y: Shares sold 74,590,383* 22,370,201 Shares issued on reinvestment of distributions 208,127 -- Shares redeemed (34,769,087) (19,597,886) ---------------- ---------------- Total Class Y transactions 40,029,423 2,772,315 ---------------- ---------------- Redemption fees -- -- ---------------- ---------------- Net increase (decrease) in net assets resulting from capital share transactions 119,103,932 10,659,441 ---------------- ---------------- INCREASE (DECREASE) IN NET ASSETS 134,987,061 12,343,099 NET ASSETS, BEGINNING OF PERIOD 51,515,478 39,172,379 ---------------- ---------------- NET ASSETS, END OF PERIOD $ 186,502,539 $ 51,515,478 ================ ================ Net assets include accumulated undistributed net investment income (loss) $ -- $ -- ================ ================
* 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. Large Cap 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. *** The capital share transactions include amounts from a tax-free reorganization in which the UBS U.S. Large Cap Value Equity Fund acquired the assets and liabilities of the UBS 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. See accompanying notes to financial statements 88
UBS UBS U.S. BOND FUND HIGH YIELD FUND ------------------------------------------------------------------------- YEAR ENDED JUNE 30, YEAR ENDED JUNE 30, 2004 2003 2004 2003 ------------------------------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income (loss) $ 4,448,117 $ 3,984,990 $ 14,239,052 $ 14,002,697 Net realized gain (loss) (825,059) 1,963,615 (20,836,259) (17,579,211) Change in net unrealized appreciation (depreciation) (3,614,761) 2,696,545 27,195,494 31,593,930 ---------------- ---------------- ---------------- ---------------- Net increase (decrease) in net assets from operations 8,297 8,645,150 20,598,287 28,017,416 ---------------- ---------------- ---------------- ---------------- DISTRIBUTIONS TO SHAREHOLDERS BY CLASS: Class A: Distributions from net investment income and net foreign currency gains (1,363,453) (1,055,349) (6,142,642) (6,210,427) Distributions from net realized gain -- -- -- -- ---------------- ---------------- ---------------- ---------------- Total Class A distributions (1,363,453) (1,055,349) (6,142,642) (6,210,427) ---------------- ---------------- ---------------- ---------------- Class B: Distributions from net investment income and net foreign currency gains (87,991) (120,485) (783,588) (1,155,342) Distributions from net realized gain -- -- -- -- ---------------- ---------------- ---------------- ---------------- Total Class B distributions (87,991) (120,485) (783,588) (1,155,342) ---------------- ---------------- ---------------- ---------------- Class C: Distributions from net investment income and net foreign currency gains (91,612) (71,609) (1,491,309) (1,524,490) Distributions from net realized gain -- -- -- -- ---------------- ---------------- ---------------- ---------------- Total Class C distributions (91,612) (71,609) (1,491,309) (1,524,490) ---------------- ---------------- ---------------- ---------------- Class Y: Distributions from net investment income and net foreign currency gains (3,637,869) (3,120,824) (5,825,885) (5,513,259) Distributions from net realized gain -- -- -- -- ---------------- ---------------- ---------------- ---------------- Total Class Y distributions (3,637,869) (3,120,824) (5,825,885) (5,513,259) ---------------- ---------------- ---------------- ---------------- Decrease in net assets from distributions (5,180,925) (4,368,267) (14,243,424) (14,403,518) ---------------- ---------------- ---------------- ---------------- CAPITAL SHARE TRANSACTIONS BY CLASS: Class A: Shares sold 13,169,422 30,904,206 38,224,758 34,591,438 Shares issued on reinvestment of distributions 919,891 774,239 2,837,990 2,814,936 Shares redeemed (13,259,217) (19,984,705) (51,323,858) (32,540,087) Shares converted from Class B to Class A 484,515 -- 3,895,932 -- ---------------- ---------------- ---------------- ---------------- Total Class A transactions 1,314,611 11,693,740 (6,365,178) 4,866,287 ---------------- ---------------- ---------------- ---------------- Class B: Shares sold 1,557,618 4,225,401 1,224,503 2,018,183 Shares issued on reinvestment of distributions 61,132 77,727 339,097 471,694 Shares redeemed (2,620,051) (2,182,579) (3,360,363) (5,977,148) Shares converted from Class B to Class A (484,515) -- (3,895,932) -- ---------------- ---------------- ---------------- ---------------- Total Class B transactions (1,485,816) 2,120,549 (5,692,695) (3,487,271) ---------------- ---------------- ---------------- ---------------- Class C: Shares sold 715,096 3,233,996 2,746,770 2,115,099 Shares issued on reinvestment of distributions 56,695 50,843 764,102 710,226 Shares redeemed (1,638,269) (1,334,026) (5,644,297) (3,147,724) ---------------- ---------------- ---------------- ---------------- Total Class C transactions (866,478) 1,950,813 (2,133,425) (322,399) ---------------- ---------------- ---------------- ---------------- Class Y: Shares sold 51,186,011 40,216,437 32,636,437 82,297,200 Shares issued on reinvestment of distributions 3,568,538 3,009,977 5,056,124 4,987,025 Shares redeemed (40,559,098) (27,160,470) (64,087,774) (61,319,664) ---------------- ---------------- ---------------- ---------------- Total Class Y transactions 14,195,451 16,065,944 (26,395,213) 25,964,561 ---------------- ---------------- ---------------- ---------------- Redemption fees -- -- -- -- ---------------- ---------------- ---------------- ---------------- Net increase (decrease) in net assets resulting from capital share transactions 13,157,768 31,831,046 (40,586,511) 27,021,178 ---------------- ---------------- ---------------- ---------------- INCREASE (DECREASE) IN NET ASSETS 7,985,140 36,107,929 (34,231,648) 40,635,076 NET ASSETS, BEGINNING OF PERIOD 116,953,667 80,845,738 180,226,645 139,591,569 ---------------- ---------------- ---------------- ---------------- NET ASSETS, END OF PERIOD $ 124,938,807 $ 116,953,667 $ 145,994,997 $ 180,226,645 ================ ================ ================ ================ Net assets include accumulated undistributed net investment income (loss) $ 108,438 $ 90,878 $ 306,444 $ 29,500 ================ ================ ================ ================ UBS UBS INTERNATIONAL EQUITY FUND U.S. LARGE CAP VALUE EQUITY FUND ------------------------------------------------------------------------- YEAR ENDED JUNE 30, YEAR ENDED JUNE 30, 2004 2003 2004 2003 ------------------------------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income (loss) $ 1,592,291 $ 1,448,032 $ 660,154 $ 83,786 Net realized gain (loss) 6,628,337 (5,644,725) 25,653,640 (837,648) Change in net unrealized appreciation (depreciation) 12,205,966 (3,854,936) (8,776,046) 795,473 ---------------- ---------------- ---------------- ---------------- Net increase (decrease) in net assets from operations 20,426,594 (8,051,629) 17,537,748 41,611 ---------------- ---------------- ---------------- ---------------- DISTRIBUTIONS TO SHAREHOLDERS BY CLASS: Class A: Distributions from net investment income and net foreign currency gains (115,181) (102,615) (157,601) (6,980) Distributions from net realized gain -- (3,166) -- (8,594) ---------------- ---------------- ---------------- ---------------- Total Class A distributions (115,181) (105,781) (157,601) (15,574) ---------------- ---------------- ---------------- ---------------- Class B: Distributions from net investment income and net foreign currency gains (11,686) (12,207) (12,230) (2,449) Distributions from net realized gain -- (392) -- (5,316) ---------------- ---------------- ---------------- ---------------- Total Class B distributions (11,686) (12,599) (12,230) (7,765) ---------------- ---------------- ---------------- ---------------- Class C: Distributions from net investment income and net foreign currency gains (19,918) (10,789) (6,159) (2,890) Distributions from net realized gain -- (354) -- (5,570) ---------------- ---------------- ---------------- ---------------- Total Class C distributions (19,918) (11,143) (6,159) (8,460) ---------------- ---------------- ---------------- ---------------- Class Y: Distributions from net investment income and net foreign currency gains (2,568,936) (4,107,868) (8,428) (32,891) Distributions from net realized gain -- (119,936) -- (30,988) ---------------- ---------------- ---------------- ---------------- Total Class Y distributions (2,568,936) (4,227,804) (8,428) (63,879) ---------------- ---------------- ---------------- ---------------- Decrease in net assets from distributions (2,715,721) (4,357,327) (184,418) (95,678) ---------------- ---------------- ---------------- ---------------- CAPITAL SHARE TRANSACTIONS BY CLASS: Class A: Shares sold 10,535,620 12,862,500 94,872,481** 1,313,870*** Shares issued on reinvestment of distributions 106,895 100,144 137,814 14,112 Shares redeemed (6,742,523) (12,304,565) (14,305,692) (983,232) Shares converted from Class B to Class A 17,341 -- 15,504,956 -- ---------------- ---------------- ---------------- ---------------- Total Class A transactions 3,917,333 658,079 96,209,559 344,750 ---------------- ---------------- ---------------- ---------------- Class B: Shares sold 486,242 273,328 31,303,438** 834,994*** Shares issued on reinvestment of distributions 11,433 12,357 11,007 7,755 Shares redeemed (109,390) (40,559) (5,037,643) (423,048) Shares converted from Class B to Class A (17,341) -- (15,504,956) -- ---------------- ---------------- ---------------- ---------------- Total Class B transactions 370,944 245,126 10,771,846 419,701 ---------------- ---------------- ---------------- ---------------- Class C: Shares sold 1,605,427 775,367 19,640,767** 831,028*** Shares issued on reinvestment of distributions 19,771 10,420 5,513 2,916 Shares redeemed (821,150) (542,989) (3,347,983) (109,240) ---------------- ---------------- ---------------- ---------------- Total Class C transactions 804,048 242,798 16,298,297 724,704 ---------------- ---------------- ---------------- ---------------- Class Y: Shares sold 95,066,857 139,047,377 3,522,730** 2,862,951*** Shares issued on reinvestment of distributions 2,506,952 3,923,965 6,589 48,665 Shares redeemed (104,041,605) (138,240,572) (4,788,661) (854,907) ---------------- ---------------- ---------------- ---------------- Total Class Y transactions (6,467,796) 4,730,770 (1,259,342) 2,056,709 ---------------- ---------------- ---------------- ---------------- Redemption fees 54,418 189,543 -- -- ---------------- ---------------- ---------------- ---------------- Net increase (decrease) in net assets resulting from capital share transactions (1,321,053) 6,066,316 122,020,360 3,545,864 ---------------- ---------------- ---------------- ---------------- INCREASE (DECREASE) IN NET ASSETS 16,389,820 (6,342,640) 139,373,690 3,491,797 NET ASSETS, BEGINNING OF PERIOD 94,411,476 100,754,116 7,597,344 4,105,547 ---------------- ---------------- ---------------- ---------------- NET ASSETS, END OF PERIOD $ 110,801,296 $ 94,411,476 $ 146,971,034 $ 7,597,344 ================ ================ ================ ================ Net assets include accumulated undistributed net investment income (loss) $ 184,526 $ 2,126,527 $ 558,197 $ 83,688 ================ ================ ================ ================
89 UBS GLOBAL ALLOCATION FUND -- FINANCIAL HIGHLIGHTS THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD PRESENTED.
YEAR ENDED JUNE 30, ------------------------------------------------------------------------------ CLASS A 2004 2003 2002 2001 2000 ------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of year $ 10.69 $ 10.60 $ 11.10 $ 11.20 $ 11.99 ----------- ----------- ----------- ----------- ----------- Income (loss) from investment operations: Net investment income 0.12** 0.10** 0.10** 0.22 0.19** Net realized and unrealized gain (loss) 1.69 0.41 0.40 0.31 (0.30) ----------- ----------- ----------- ----------- ----------- Total income (loss) from investment operations 1.81 0.51 0.50 0.53 (0.11) ----------- ----------- ----------- ----------- ----------- Less distributions: Distributions from net investment income and net foreign currency gains (0.15) (0.42) (0.19) -- (0.16) Distributions from net realized gains -- -- (0.81) (0.63) (0.52) ----------- ----------- ----------- ----------- ----------- Total distributions (0.15) (0.42) (1.00) (0.63) (0.68) ----------- ----------- ----------- ----------- ----------- Net asset value, end of year $ 12.35 $ 10.69 $ 10.60 $ 11.10 $ 11.20 =========== =========== =========== =========== =========== Total return+ 17.02% 5.35% 4.84% 4.95% (0.80)% Ratios/Supplemental data: Net assets, end of year (in 000s) $ 876,636 $ 175,415 $ 6,914 $ 237 $ 202 Ratio of expenses to average net assets: Before expense reimbursement 1.28% 1.35% 1.35% 1.30% 1.24% After expense reimbursement 1.28% 1.35% 1.35% 1.30% 1.24% Ratio of net investment income to average net assets: Before expense reimbursement 1.00% 0.98% 0.98% 1.52% 1.74% After expense reimbursement 1.00% 0.98% 0.98% 1.52% 1.74% Portfolio turnover rate 78% 66% 116% 115% 98% YEAR ENDED JUNE 30, FOR THE ---------------------------- PERIOD ENDED CLASS B 2004 2003 JUNE 30, 2002* ------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $ 10.55 $ 10.52 $ 11.21 ----------- ----------- --------------- Income from investment operations: Net investment income 0.02** 0.02** 0.12** Net realized and unrealized gain 1.68 0.41 0.19 ----------- ----------- --------------- Total income from investment operations 1.70 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 $ 12.14 $ 10.55 $ 10.52 =========== =========== =============== Total return+ 16.14% 4.60% 3.00%@ Ratios/Supplemental data: Net assets, end of period (in 000s) $ 153,481 $ 49,573 $ 1,570 Ratio of expenses to average net assets: Before expense reimbursement 2.09% 2.10% 2.10%*** After expense reimbursement 2.09% 2.10% 2.10%*** Ratio of net investment income to average net assets: Before expense reimbursement 0.19% 0.23% 2.17%*** After expense reimbursement 0.19% 0.23% 2.17%*** Portfolio turnover rate 78% 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 90
YEAR ENDED JUNE 30, FOR THE ---------------------------- PERIOD ENDED CLASS C 2004 2003 JUNE 30, 2002* ------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $ 10.56 $ 10.54 $ 11.10 ----------- ----------- --------------- Income from investment operations: Net investment income 0.03** 0.02** 0.11** Net realized and unrealized gain 1.68 0.41 0.33 ----------- ----------- --------------- Total income from investment operations 1.71 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 $ 12.15 $ 10.56 $ 10.54 =========== =========== =============== Total return+ 16.19% 4.55% 4.23%@ Ratios/Supplemental data: Net assets, end of period (in 000s) $ 539,399 $ 137,078 $ 1,525 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 0.23% 0.23% 1.77%*** After expense reimbursement 0.23% 0.23% 1.77%*** Portfolio turnover rate 78% 66% 116% YEAR ENDED JUNE 30, ------------------------------------------------------------------------------ CLASS Y 2004 2003 2002 2001 2000 ------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of year $ 10.79 $ 10.69 $ 11.18 $ 11.25 $ 12.02 ----------- ----------- ----------- ----------- ----------- Income (loss) from investment operations: Net investment income 0.15** 0.12** 0.13** 0.25 0.23** Net realized and unrealized gain (loss) 1.73 0.41 0.38 0.31 (0.30) ----------- ----------- ----------- ----------- ----------- Total income (loss) from investment operations 1.88 0.53 0.51 0.56 (0.07) ----------- ----------- ----------- ----------- ----------- Less distributions: Distributions from net investment income and net foreign currency gains (0.17) (0.43) (0.19) -- (0.18) Distributions from net realized gains -- -- (0.81) (0.63) (0.52) ----------- ----------- ----------- ----------- ----------- Total distributions (0.17) (0.43) (1.00) (0.63) (0.70) ----------- ----------- ----------- ----------- ----------- Net asset value, end of year $ 12.50 $ 10.79 $ 10.69 $ 11.18 $ 11.25 =========== =========== =========== =========== =========== Total return++ 17.44% 5.50% 4.91% 5.20% (0.48)% Ratios/Supplemental data: Net assets, end of year (in 000s) $ 263,675 $ 193,758 $ 165,630 $ 156,130 $ 284,229 Ratio of expenses to average net assets: Before expense reimbursement 1.02% 1.10% 1.10% 1.05% 0.99% After expense reimbursement 1.02% 1.10% 1.10% 1.05% 0.99% Ratio of net investment income to average net assets: Before expense reimbursement 1.26% 1.23% 1.24% 1.77% 1.99% After expense reimbursement 1.26% 1.23% 1.24% 1.77% 1.99% Portfolio turnover rate 78% 66% 116% 115% 98%
* 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 91 UBS GLOBAL EQUITY FUND -- FINANCIAL HIGHLIGHTS THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD PRESENTED.
YEAR ENDED JUNE 30, ------------------------------------------------------------------------------ CLASS A 2004 2003 2002 2001 2000 ------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of year $ 8.89 $ 9.37 $ 10.61 $ 12.44 $ 13.40 ----------- ----------- ----------- ----------- ----------- Income (loss) from investment operations: Net investment income 0.10** 0.16** 0.04** 0.07 0.04** Net realized and unrealized gain (loss) 1.63 (0.39) (0.88) (0.56) 0.27 ----------- ----------- ----------- ----------- ----------- Total income (loss) from investment operations 1.73 (0.23) (0.84) (0.49) 0.31 ----------- ----------- ----------- ----------- ----------- Less distributions: Distributions from net investment income and net foreign currency gains (0.11) (0.25) (0.06) (0.02) (0.06) Distributions from net realized gains -- -- (0.34) (1.32) (1.21) ----------- ----------- ----------- ----------- ----------- Total distributions (0.11) (0.25) (0.40) (1.34) (1.27) ----------- ----------- ----------- ----------- ----------- Net asset value, end of year $ 10.51 $ 8.89 $ 9.37 $ 10.61 $ 12.44 =========== =========== =========== =========== =========== Total return+ 19.49% (2.23)% (8.05)% (4.45)% 2.49% Ratios/Supplemental data: Net assets, end of year (in 000s) $ 117,084 $ 123,756 $ 15,173 $ 302 $ 224 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.44% 1.44% 1.47% 1.37% 1.33% After expense reimbursement and earnings credits 1.25% 1.25% 1.25% 1.25% 1.25% Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 0.80% 1.73% 0.17% 0.65% 0.23% After expense reimbursement and earnings credits 0.99% 1.92% 0.39% 0.77% 0.31% Portfolio turnover rate 50% 206% 117% 81% 111% YEAR ENDED JUNE 30, FOR THE ---------------------------- PERIOD ENDED CLASS B 2004 2003 JUNE 30, 2002* ---------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 8.82 $ 9.34 $ 10.17 ----------- ----------- --------------- Income (loss) from investment operations: Net investment income 0.02** 0.10** 0.05** Net realized and unrealized gain (loss) 1.62 (0.39) (0.48) ----------- ----------- --------------- Total income (loss) from investment operations 1.64 (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 $ 10.37 $ 8.82 $ 9.34 =========== =========== =============== Total return+ 18.61% (2.91)% (4.38)%@ Ratios/Supplemental data: Net assets, end of period (in 000s) $ 134,419 $ 144,232 $ 418 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 2.27% 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 (0.03)% 0.97% 0.72%*** After expense reimbursement and earnings credits 0.24% 1.17% 0.97%*** Portfolio turnover rate 50% 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 92
YEAR ENDED JUNE 30, FOR THE ---------------------------- PERIOD ENDED CLASS C 2004 2003 JUNE 30, 2002* ---------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 8.79 $ 9.33 $ 10.18 ----------- ----------- --------------- Income (loss) from investment operations: Net investment income 0.02** 0.10** 0.04** Net realized and unrealized gain (loss) 1.61 (0.40) (0.49) ----------- ----------- --------------- Total income (loss) from investment operations 1.63 (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 $ 10.33 $ 8.79 $ 9.33 =========== =========== =============== Total return+ 18.54% (2.93)% (4.57)%@ Ratios/Supplemental data: Net assets, end of period (in 000s) $ 82,684 $ 93,605 $ 351 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 2.28% 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 (0.03)% 0.93% 0.55%*** After expense reimbursement and earnings credits 0.25% 1.17% 0.78%*** Portfolio turnover rate 50% 206% 117% YEAR ENDED JUNE 30, ------------------------------------------------------------------------------ CLASS Y 2004 2003 2002 2001 2000 ------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of year $ 8.99 $ 9.47 $ 10.68 $ 12.47 $ 13.42 ----------- ----------- ----------- ----------- ----------- Income (loss) from investment operations: Net investment income 0.13** 0.18** 0.06** 0.09 0.07** Net realized and unrealized gain (loss) 1.67 (0.39) (0.87) (0.54) 0.27 ----------- ----------- ----------- ----------- ----------- Total income (loss) from investment operations 1.80 (0.21) (0.81) (0.45) 0.34 ----------- ----------- ----------- ----------- ----------- Less distributions: Distributions from net investment income and net foreign currency gains (0.12) (0.27) (0.06) (0.02) (0.08) Distributions from net realized gains -- -- (0.34) (1.32) (1.21) ----------- ----------- ----------- ----------- ----------- Total distributions (0.12) (0.27) (0.40) (1.34) (1.29) ----------- ----------- ----------- ----------- ----------- Net asset value, end of year $ 10.67 $ 8.99 $ 9.47 $ 10.68 $ 12.47 =========== =========== =========== =========== =========== Total return++ 20.09% (1.93)% (7.71)% (4.07)% 2.69% Ratios/Supplemental data: Net assets, end of year (in 000s) $ 114,835 $ 62,873 $ 40,714 $ 49,306 $ 40,538 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.03% 1.16% 1.19% 1.12% 1.08% After expense reimbursement and earnings credits 1.00% 1.00% 1.00% 1.00% 1.00% Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 1.21% 2.01% 0.45% 0.90% 0.48% After expense reimbursement and earnings credits 1.24% 2.17% 0.64% 1.02% 0.56% Portfolio turnover rate 50% 206% 117% 81% 111%
* 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 93 UBS GLOBAL BOND FUND -- FINANCIAL HIGHLIGHTS THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD PRESENTED.
YEAR ENDED JUNE 30, ------------------------------------------------------------------------------ CLASS A 2004 2003 2002 2001 2000 ------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of year $ 10.24 $ 9.01 $ 8.58 $ 9.09 $ 9.16 ----------- ----------- ----------- ----------- ----------- Income (loss) from investment operations: Net investment income 0.19** 0.24** 0.17** 0.33** 0.37** Net realized and unrealized gain (loss) 0.35 1.21 0.43 (0.72) (0.43) ----------- ----------- ----------- ----------- ----------- Total income (loss) from investment operations 0.54 1.45 0.60 (0.39) (0.06) ----------- ----------- ----------- ----------- ----------- Less distributions: Distributions from net investment income and net foreign currency gains (0.91) (0.22) -- (0.06) -- Distributions from net realized gains -- -- -- -- (0.01) Distributions from return of capital -- -- (0.17) -- -- ----------- ----------- ----------- ----------- ----------- Total distributions (0.91) (0.22) (0.17) (0.06) (0.01) ----------- ----------- ----------- ----------- ----------- Net asset value, end of year $ 9.87 $ 10.24 $ 9.01 $ 8.64 $ 9.09 =========== =========== =========== =========== =========== Total return+ 5.21% 16.34% 7.18% (4.27)% (0.66)% Ratios/Supplemental data: Net assets, end of year (in 000s) $ 14,610 $ 11,659 $ 1,925 $ 3 $ 1 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.55% 1.53% 1.49% 1.37% 1.30% After expense reimbursement and earnings credits 1.15% 1.15% 1.15% 1.15% 1.19%++ Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 1.44% 2.06% 2.72% 3.60% 4.09% After expense reimbursement and earnings credits 1.84% 2.44% 3.06% 3.82% 4.20% Portfolio turnover rate 186% 145% 157% 165% 87% YEAR ENDED JUNE 30, FOR THE ---------------------------- PERIOD ENDED CLASS B 2004 2003 JUNE 30, 2002* ---------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 10.25 $ 9.01 $ 8.35 ----------- ----------- --------------- Income from investment operations: Net investment income 0.11** 0.16** 0.11** Net realized and unrealized gain 0.35 1.23 0.69 ----------- ----------- --------------- Total income from investment operations 0.46 1.39 0.80 ----------- ----------- --------------- Less distributions: Distributions from net investment income and net foreign currency gains (0.83) (0.15) -- Distributions from return of capital -- -- (0.14) ----------- ----------- --------------- Total distributions (0.83) (0.15) (0.14) ----------- ----------- --------------- Net asset value, end of period $ 9.88 $ 10.25 $ 9.01 =========== =========== =============== Total return+ 4.38% 15.61% 9.67%@ Ratios/Supplemental data: Net assets, end of period (in 000s) $ 1,536 $ 1,755 $ 392 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 2.33% 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 0.66% 1.29% 1.94%*** After expense reimbursement and earnings credits 1.09% 1.69% 2.29%*** Portfolio turnover rate 186% 145% 157%
* On July 2, 2001 Class A was fully liquidated. For the period November 5, 2001 and November 26, 2001 (commencement of reissuance and issuance for Class A and B, respectively through June 30, 2002. ** The net investment income per share data was determined by using average shares outstanding throughout the period. *** Annualized. @ The return is non-annualized. + The returns do not include sales charges. ++ The ratio of net operating expenses to average net assets for Class A was 1.15%. See accompanying notes to financial statements 94
YEAR FOR THE ENDED PERIOD ENDED CLASS C JUNE 30, 2004 JUNE 30, 2003* --------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 10.23 $ 9.00 --------------- --------------- Income from investment operations: Net investment income 0.14** 0.19** Net realized and unrealized gain 0.34 1.22 --------------- --------------- Total income from investment operations 0.48 1.41 --------------- --------------- Less distributions: Distributions from net investment income and net foreign currency gains (0.86) (0.18) --------------- --------------- Net asset value, end of period $ 9.85 $ 10.23 =============== =============== Total return+ 4.64% 15.84%@ Ratios/Supplemental data: Net assets, end of period (in 000s) $ 3,451 $ 3,198 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.99% 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 1.00% 1.58%*** After expense reimbursement and earnings credits 1.34% 1.94%*** Portfolio turnover rate 186% 145% YEAR ENDED JUNE 30, ------------------------------------------------------------------------------ CLASS Y 2004 2003 2002 2001 2000 ------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of year $ 11.16 $ 9.79 $ 8.57 $ 9.01 $ 9.18 ----------- ----------- ----------- ----------- ----------- Income (loss) from investment operations: Net investment income 0.23** 0.28** 0.31** 0.36** 0.40** Net realized and unrealized gain (loss) 0.38 1.33 1.09 (0.72) (0.43) ----------- ----------- ----------- ----------- ----------- Total income (loss) from investment operations 0.61 1.61 1.40 (0.36) (0.03) ----------- ----------- ----------- ----------- ----------- Less distributions: Distributions from net investment income and net foreign currency gains (0.94) (0.24) -- (0.08) (0.13) Distributions from net realized gains -- -- -- -- (0.01) Distributions from return of capital -- -- (0.18) -- -- ----------- ----------- ----------- ----------- ----------- Total distributions (0.94) (0.24) (0.18) (0.08) (0.14) ----------- ----------- ----------- ----------- ----------- Net asset value, end of year $ 10.83 $ 11.16 $ 9.79 $ 8.57 $ 9.01 =========== =========== =========== =========== =========== Total return++ 5.43% 16.72% 16.57% (4.02)% (0.34)% Ratios/Supplemental data: Net assets, end of year (in 000s) $ 41,016 $ 35,484 $ 34,421 $ 37,822 $ 43,467 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.24% 1.32% 1.17% 1.12% 1.05% After expense reimbursement and earnings credits 0.90% 0.90% 0.90% 0.90% 0.94%# Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 1.75% 2.27% 3.14% 3.85% 4.34% After expense reimbursement and earnings credits 2.09% 2.69% 3.41% 4.07% 4.45% Portfolio turnover rate 186% 145% 157% 165% 87%
* 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 95 UBS U.S. LARGE CAP EQUITY FUND -- FINANCIAL HIGHLIGHTS THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD PRESENTED.
YEAR ENDED JUNE 30, ------------------------------------------------------------------------------ CLASS A 2004 2003 2002 2001 2000 ------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of year $ 13.63 $ 13.94 $ 15.97 $ 15.97 $ 21.39 ----------- ----------- ----------- ----------- ----------- Income (loss) from investment operations: Net investment income 0.06** 0.11** 0.08** 0.08** 0.13** Net realized and unrealized gain (loss) 2.54 0.04 (1.38) 1.56 (3.75) ----------- ----------- ----------- ----------- ----------- Total income (loss) from investment operations 2.60 0.15 (1.30) 1.64 (3.62) ----------- ----------- ----------- ----------- ----------- Less distributions: Distributions from net investment income (0.15) (0.08) (0.04) (0.29) (0.03) Distributions from net realized gains -- (0.38) (0.69) (1.35) (1.77) ----------- ----------- ----------- ----------- ----------- Total distributions (0.15) (0.46) (0.73) (1.64) (1.80) ----------- ----------- ----------- ----------- ----------- Net asset value, end of year $ 16.08 $ 13.63 $ 13.94 $ 15.97 $ 15.97 =========== =========== =========== =========== =========== Total return+ 19.10% 1.37% (8.41)% 10.63% (17.24)% Ratios/Supplemental data: Net assets, end of year (in 000s) $ 7,886 $ 4,702 $ 13,698 $ 7,067 $ 7,191 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.36% 1.30% 1.19% 1.17% 1.09% After expense reimbursement and earnings credits 1.30% 1.05% 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% 0.40% 0.37% 0.64% After expense reimbursement and earnings credits 0.43% 0.89% 0.54% 0.49% 0.68% Portfolio turnover rate 43% 33% 60% 54% 55% YEAR ENDED JUNE 30, FOR THE ---------------------------- PERIOD ENDED CLASS B 2004 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) (0.05)** 0.02** 0.06** Net realized and unrealized gain (loss) 2.50 0.02 (0.22) ----------- ----------- --------------- Total income (loss) from investment operations 2.45 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 $ 15.81 $ 13.45 $ 13.87 =========== =========== =============== Total return+ 18.25% 0.63% (1.39)%@ Ratios/Supplemental data: Net assets, end of period (in 000s) $ 1,217 $ 635 $ 223 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 2.04% 2.04% 1.99%*** After expense reimbursement and earnings credits 2.04% 1.80% 1.80%*** Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits (0.31)% (0.10)% 0.46%*** After expense reimbursement and earnings credits (0.31)% 0.14% 0.65%*** Portfolio turnover rate 43% 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 96
YEAR ENDED JUNE 30, FOR THE ---------------------------- PERIOD ENDED CLASS C 2004 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) (0.04)** 0.02** 0.07** Net realized and unrealized gain (loss) 2.49 0.03 (0.66) ----------- ----------- --------------- Total income (loss) from investment operations 2.45 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 $ 15.80 $ 13.44 $ 13.88 =========== =========== =============== Total return+ 18.26% 0.68% (4.18)%@ Ratios/Supplemental data: Net assets, end of period (in 000s) $ 1,629 $ 1,020 $ 70 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 2.00% 2.04% 1.97%*** 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 (0.27)% (0.10)% 0.56%*** After expense reimbursement and earnings credits (0.27)% 0.14% 0.73%*** Portfolio turnover rate 43% 33% 60% YEAR ENDED JUNE 30, ------------------------------------------------------------------------------ CLASS Y 2004 2003 2002 2001 2000 ------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of year $ 13.73 $ 14.07 $ 16.07 $ 16.07 $ 21.48 ----------- ----------- ----------- ----------- ----------- Income (loss) from investment operations: Net investment income 0.12** 0.14** 0.12** 0.12** 0.16** Net realized and unrealized gain (loss) 2.55 0.04 (1.39) 1.57 (3.75) ----------- ----------- ----------- ----------- ----------- Total income (loss) from investment operations 2.67 0.18 (1.27) 1.69 (3.59) ----------- ----------- ----------- ----------- ----------- Less distributions: Distributions from net investment income (0.19) (0.14) (0.04) (0.34) (0.05) Distributions from net realized gains -- (0.38) (0.69) (1.35) (1.77) ----------- ----------- ----------- ----------- ----------- Total distributions (0.19) (0.52) (0.73) (1.69) (1.82) ----------- ----------- ----------- ----------- ----------- Net asset value, end of year $ 16.21 $ 13.73 $ 14.07 $ 16.07 $ 16.07 =========== =========== =========== =========== =========== Total return++ 19.50% 1.69% (8.17)% 10.88% (17.00)% Ratios/Supplemental data: Net assets, end of year (in 000s) $ 153,608 $ 99,398 $ 87,710 $ 125,997 $ 167,870 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 0.96% 1.04% 0.93% 0.92% 0.84% After expense reimbursement and earnings credits 0.96% 0.80% 0.80% 0.80% 0.80% Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 0.76% 0.90% 0.66% 0.62% 0.89% After expense reimbursement and earnings credits 0.76% 1.14% 0.79% 0.74% 0.93% Portfolio turnover rate 43% 33% 60% 54% 55%
* 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 97 UBS U.S. LARGE CAP GROWTH FUND -- FINANCIAL HIGHLIGHTS THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD PRESENTED.
YEAR ENDED JUNE 30, ------------------------------------------------------------------------------ CLASS A 2004 2003 2002 2001 2000 ------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of year $ 6.39 $ 6.38 $ 8.90 $ 15.20 $ 13.88 ----------- ----------- ----------- ----------- ----------- Income (loss) from investment operations: Net investment income (loss) (0.02)** 0.00#** (0.02)** (0.07) (0.02)** Net realized and unrealized gain (loss) 1.34 0.01 (2.45) (4.32) 2.29 ----------- ----------- ----------- ----------- ----------- Total income (loss) from investment operations 1.32 0.01 (2.47) (4.39) 2.27 ----------- ----------- ----------- ----------- ----------- Less distributions: Distributions from net realized gains -- -- (0.05) (1.91) (0.95) ----------- ----------- ----------- ----------- ----------- Net asset value, end of year $ 7.71 $ 6.39 $ 6.38 $ 8.90 $ 15.20 =========== =========== =========== =========== =========== Total return+ 20.66% 0.16% (27.89)% (31.59)% 17.18% Ratios/Supplemental data: Net assets, end of year (in 000s) $ 2,275 $ 1,163 $ 1,155 $ 1 $ 1 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 2.76% 3.91% 2.51% 1.59% 2.11% After expense reimbursement and earnings credits 1.05% 1.05% 1.05% 1.05% 1.05% Ratio of net investment income (loss) to average net assets: Before expense reimbursement and earnings credits (2.03)% (2.82)% (1.71)% (0.91)% (1.22)% After expense reimbursement and earnings credits (0.32)% 0.04% (0.25)% (0.37)% (0.16)% Portfolio turnover rate 102% 86% 93% 56% 86% YEAR ENDED JUNE 30, FOR THE ---------------------------- PERIOD ENDED CLASS B 2004 2003 JUNE 30, 2002* ---------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 6.32 $ 6.36 $ 7.86 ----------- ----------- --------------- Income (loss) from investment operations: Net investment loss (0.08)** (0.04)** (0.05)** Net realized and unrealized gain (loss) 1.33 -- (1.40) ----------- ----------- --------------- Total income (loss) from investment operations 1.25 (0.04) (1.45) ----------- ----------- --------------- Less distributions: Distributions from net realized gains -- -- (0.05) ----------- ----------- --------------- Net asset value, end of period $ 7.57 $ 6.32 $ 6.36 =========== =========== =============== Total return+ 19.78% (0.63)% (18.61)%@ Ratios/Supplemental data: Net assets, end of period (in 000s) $ 342 $ 321 $ 115 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 3.48% 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 (2.75)% (3.45)% (2.28)%*** After expense reimbursement and earnings credits (1.07)% (0.71)% (1.02)%*** Portfolio turnover rate 102% 86% 93%
* For the period November 7, 2001 (commencement of issuance) through June 30, 2002. ** The net investment income per share data was determined by using average shares outstanding throughout the period. *** Annualized. @ The return is non-annualized. + The returns do not include sales charges. # Amount is less than $0.01 per share. See accompanying notes to financial statements 98
YEAR ENDED JUNE 30, FOR THE ---------------------------- PERIOD ENDED CLASS C 2004 2003 JUNE 30, 2002* ---------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 6.32 $ 6.35 $ 8.18 ----------- ----------- --------------- Income (loss) from investment operations: Net investment loss (0.08)** (0.04)** (0.05)** Net realized and unrealized gain (loss) 1.32 0.01 (1.73) ----------- ----------- --------------- Total income (loss) from investment operations 1.24 (0.03) (1.78) ----------- ----------- --------------- Less distributions: Distributions from net realized gains -- -- (0.05) ----------- ----------- --------------- Net asset value, end of period $ 7.56 $ 6.32 $ 6.35 =========== =========== =============== Total return+ 19.62% (0.47)% (21.91)%@ Ratios/Supplemental data: Net assets, end of period (in 000s) $ 432 $ 267 $ 572 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 3.54% 4.71% 3.22%*** After expense reimbursement and earnings credits 1.80% 1.80% 1.80%*** Ratio of net investment loss to average net assets: Before expense reimbursement and earnings credits (2.81)% (3.62)% (2.44)%*** After expense reimbursement and earnings credits (1.08)% (0.71)% (1.02)%*** Portfolio turnover rate 102% 86% 93% YEAR ENDED JUNE 30, ------------------------------------------------------------------------------ CLASS Y 2004 2003 2002 2001 2000 ------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of year $ 6.49 $ 6.47 $ 8.99 $ 15.28 $ 13.91 ----------- ----------- ----------- ----------- ----------- Income (loss) from investment operations: Net investment income (loss) (0.01)** 0.02** 0.00#** (0.01) 0.03** Net realized and unrealized gain (loss) 1.37 0.00# (2.47) (4.37) 2.29 ----------- ----------- ----------- ----------- ----------- Total income (loss) from investment operations 1.36 0.02 (2.47) (4.38) 2.32 ----------- ----------- ----------- ----------- ----------- Less distributions: Distributions from net investment income -- -- (0.05) -- -- Distributions from net realized gains -- -- -- (1.91) (0.95) ----------- ----------- ----------- ----------- ----------- Total distributions -- -- (0.05) (1.91) (0.95) ----------- ----------- ----------- ----------- ----------- Net asset value, end of year $ 7.85 $ 6.49 $ 6.47 $ 8.99 $ 15.28 =========== =========== =========== =========== =========== Total return++ 20.96% 0.31% (27.61)% (31.33)% 17.52% Ratios/Supplemental data: Net assets, end of year (in 000s) $ 3,502 $ 1,943 $ 2,291 $ 3,299 $ 5,885 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 2.51% 3.72% 2.14% 1.34% 1.86% After expense reimbursement and earnings credits 0.80% 0.80% 0.80% 0.80% 0.80% Ratio of net investment income (loss) to average net assets: Before expense reimbursement and earnings credits (1.78)% (2.62)% (1.39)% (0.66)% (0.97)% After expense reimbursement and earnings credits (0.07)% 0.29% (0.05)% (0.12)% 0.09% Portfolio turnover rate 102% 86% 93% 56% 86%
* 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. # Amount is less than $0.01 per share. See accompanying notes to financial statements 99 UBS U.S. SMALL CAP GROWTH FUND -- FINANCIAL HIGHLIGHTS THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD PRESENTED.
YEAR ENDED JUNE 30, ------------------------------------------------------------------------------ CLASS A 2004 2003 2002 2001 2000 ------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of year $ 10.00 $ 9.79 $ 11.76 $ 16.20 $ 9.16 ----------- ----------- ----------- ----------- ----------- Income (loss) from investment operations: Net investment loss (0.11)** (0.08)** (0.11)** (0.09) (0.08)** Net realized and unrealized gain (loss) 2.55 0.29 (1.42) (1.52) 7.12 ----------- ----------- ----------- ----------- ----------- Total income (loss) from investment operations 2.44 0.21 (1.53) (1.61) 7.04 ----------- ----------- ----------- ----------- ----------- Less distributions: Distributions from net realized gains (0.03) -- (0.44) (2.83) -- ----------- ----------- ----------- ----------- ----------- Net asset value, end of year $ 12.41 $ 10.00 $ 9.79 $ 11.76 $ 16.20 =========== =========== =========== =========== =========== Total return+ 24.45% 2.14% (13.18)% (11.00)% 76.86% Ratios/Supplemental data: Net assets, end of year (in 000s) $ 73,833 $ 9,841 $ 1,789 $ 2 $ 2 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.56% 1.71% 1.69% 1.48% 1.56% After expense reimbursement and earnings credits 1.28% 1.40% 1.40% 1.40% 1.40% Ratio of net investment loss to average net assets: Before expense reimbursement and earnings credits (1.16)% (1.21)% (1.35)% (0.87)% (1.01)% After expense reimbursement and earnings credits (0.90)% (0.90)% (1.06)% (0.79)% (0.85)% Portfolio turnover rate 75% 69% 71% 93% 104% YEAR ENDED JUNE 30, FOR THE ---------------------------- PERIOD ENDED CLASS B 2004 2003 JUNE 30, 2002* ---------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 9.89 $ 9.75 $ 10.18 ----------- ----------- --------------- Income (loss) from investment operations: Net investment loss (0.20)** (0.14)** (0.11)** Net realized and unrealized gain 2.51 0.28 0.12 ----------- ----------- --------------- Total income from investment operations 2.31 0.14 0.01 ----------- ----------- --------------- Less distributions: Distributions from net realized gains (0.03) -- (0.44) ----------- ----------- --------------- Net asset value, end of period $ 12.17 $ 9.89 $ 9.75 =========== =========== =============== Total return+ 23.40% 1.44% (0.11)%@ Ratios/Supplemental data: Net assets, end of period (in 000s) $ 11,683 $ 1,132 $ 656 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 2.55% 2.47% 2.46%*** After expense reimbursement and earnings credits 2.03% 2.15% 2.15%*** Ratio of net investment loss to average net assets: Before expense reimbursement and earnings credits (2.14)% (1.97)% (1.93)%*** After expense reimbursement and earnings credits (1.62)% (1.65)% (1.62)%*** Portfolio turnover rate 75% 69% 71%
* For the period November 7, 2001 (commencement of issuance) through June 30, 2002. ** The net investment income per share data was determined by using average shares outstanding throughout the period. *** Annualized. @ The return is non-annualized. + The returns do not include sales charges. See accompanying notes to financial statements 100
YEAR ENDED JUNE 30, FOR THE ---------------------------- PERIOD ENDED CLASS C 2004 2003 JUNE 30, 2002* ---------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 9.88 $ 9.74 $ 10.37 ----------- ----------- --------------- Income (loss) from investment operations: Net investment loss (0.20)** (0.14)** (0.10)** Net realized and unrealized gain (loss) 2.51 0.28 (0.09) ----------- ----------- --------------- Total income (loss) from investment operations 2.31 0.14 (0.19) ----------- ----------- --------------- Less distributions: Distributions from net realized gains (0.03) -- (0.44) ----------- ----------- --------------- Net asset value, end of period $ 12.16 $ 9.88 $ 9.74 =========== =========== =============== Total return+ 23.43% 1.44% (2.04)%@ Ratios/Supplemental data: Net assets, end of period (in 000s) $ 9,580 $ 757 $ 410 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 2.54% 2.47% 2.46%*** After expense reimbursement and earnings credits 2.03% 2.15% 2.15%*** Ratio of net investment loss to average net assets: Before expense reimbursement and earnings credits (2.13)% (1.97)% (1.90)%*** After expense reimbursement and earnings credits (1.63)% (1.65)% (1.59)%*** Portfolio turnover rate 75% 69% 71% YEAR ENDED JUNE 30, ------------------------------------------------------------------------------ CLASS Y 2004 2003 2002 2001 2000 ------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of year $ 10.15 $ 9.92 $ 11.86 $ 16.27 $ 9.18 ----------- ----------- ----------- ----------- ----------- Income (loss) from investment operations: Net investment loss (0.08)** (0.06)** (0.09)** (0.07) (0.03)** Net realized and unrealized gain (loss) 2.59 0.29 (1.41) (1.51) 7.12 ----------- ----------- ----------- ----------- ----------- Total income (loss) from investment operations 2.51 0.23 (1.50) (1.58) 7.09 ----------- ----------- ----------- ----------- ----------- Less distributions: Distributions from net realized gains (0.03) -- (0.44) (2.83) -- ----------- ----------- ----------- ----------- ----------- Net asset value, end of year $ 12.63 $ 10.15 $ 9.92 $ 11.86 $ 16.27 =========== =========== =========== =========== =========== Total return++ 24.78% 2.32% (12.90)% (10.74)% 77.23% Ratios/Supplemental data: Net assets, end of year (in 000s) $ 91,406 $ 39,785 $ 36,318 $ 44,057 $ 50,975 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.21% 1.49% 1.41% 1.23% 1.31% After expense reimbursement and earnings credits 1.03% 1.15% 1.15% 1.15% 1.15% Ratio of net investment loss to average net assets: Before expense reimbursement and earnings credits (0.81)% (1.00)% (1.07)% (0.62)% (0.76)% After expense reimbursement and earnings credits (0.66)% (0.66) (0.81)% (0.54)% (0.60)% Portfolio turnover rate 75% 69% 71% 93% 104%
* 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. See accompanying notes to financial statements 101 UBS U.S. BOND FUND -- FINANCIAL HIGHLIGHTS THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD PRESENTED.
YEAR ENDED JUNE 30, ------------------------------------------------------------------------------ CLASS A 2004 2003 2002 2001 2000 ------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of year $ 10.99 $ 10.51 $ 10.33 $ 9.99 $ 10.30 ----------- ----------- ----------- ----------- ----------- Income (loss) from investment operations: Net investment income 0.39** 0.42** 0.53** 0.62** 0.58** Net realized and unrealized gain (loss) (0.37) 0.52 0.32 0.41 (0.25) ----------- ----------- ----------- ----------- ----------- Total income from investment operations 0.02 0.94 0.85 1.03 0.33 ----------- ----------- ----------- ----------- ----------- Less distributions: Distributions from net investment income (0.45) (0.46) (0.67) (0.69) (0.64) ----------- ----------- ----------- ----------- ----------- Net asset value, end of year $ 10.56 $ 10.99 $ 10.51 $ 10.33 $ 9.99 =========== =========== =========== =========== =========== Total return+ 0.18% 9.17% 8.41% 10.56% 3.29% Ratios/Supplemental data: Net assets, end of year (in 000s) $ 31,420 $ 31,337 $ 18,558 $ 123 $ 1 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.11% 1.04% 1.21% 0.98% 0.92% After expense reimbursement and earnings credits 0.85% 0.85% 0.86%++ 0.85% 0.85% Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 3.32% 3.70% 4.68% 5.86% 5.87% After expense reimbursement and earnings credits 3.58% 3.89% 5.03% 5.99% 5.94% Portfolio turnover rate 137% 180% 452% 314% 170% YEAR ENDED JUNE 30, FOR THE ---------------------------- PERIOD ENDED CLASS B 2004 2003 JUNE 30, 2002* ---------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 10.97 $ 10.50 $ 10.76 ----------- ----------- --------------- Income (loss) from investment operations: Net investment income 0.30** 0.34** 0.29** Net realized and unrealized gain (loss) (0.36) 0.52 (0.22) ----------- ----------- --------------- Total income (loss) from investment operations (0.06) 0.86 0.07 ----------- ----------- --------------- Less distributions: Distributions from net investment income (0.35) (0.39) (0.33) ----------- ----------- --------------- Net asset value, end of period $ 10.56 $ 10.97 $ 10.50 =========== =========== =============== Total return+ (0.55)% 8.30% 0.70%@ Ratios/Supplemental data: Net assets, end of period (in 000s) $ 2,043 $ 3,646 $ 1,405 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 2.00% 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 2.82% 3.14% 4.29%*** Portfolio turnover rate 137% 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 102
YEAR ENDED JUNE 30, FOR THE ---------------------------- PERIOD ENDED CLASS C 2004 2003 JUNE 30, 2002* ---------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 10.98 $ 10.50 $ 10.77 ----------- ----------- --------------- Income (loss) from investment operations: Net investment income 0.33** 0.37** 0.31** Net realized and unrealized gain (loss) (0.37) 0.52 (0.24) ----------- ----------- --------------- Total income (loss) from investment operations (0.04) 0.89 0.07 ----------- ----------- --------------- Less distributions: Distributions from net investment income (0.39) (0.41) (0.34) ----------- ----------- --------------- Net asset value, end of period $ 10.55 $ 10.98 $ 10.50 =========== =========== =============== Total return+ (0.37)% 8.65% 0.72%@ Ratios/Supplemental data: Net assets, end of period (in 000s) $ 2,195 $ 3,164 $ 1,143 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.65% 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 2.78% 3.20% 4.32%*** After expense reimbursement and earnings credits 3.08% 3.39% 4.58%*** Portfolio turnover rate 137% 180% 452% YEAR ENDED JUNE 30, ------------------------------------------------------------------------------ CLASS A 2004 2003 2002 2001 2000 ------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of year $ 11.01 $ 10.53 $ 10.35 $ 10.00 $ 10.28 ----------- ----------- ----------- ----------- ----------- Income (loss) from investment operations: Net investment income 0.41** 0.45** 0.56** 0.64** 0.62** Net realized and unrealized gain (loss) (0.37) 0.52 0.31 0.42 (0.25) ----------- ----------- ----------- ----------- ----------- Total income from investment operations 0.04 0.97 0.87 1.06 0.37 ----------- ----------- ----------- ----------- ----------- Less distributions: Distributions from net investment income (0.48) (0.49) (0.69) (0.71) (0.65) ----------- ----------- ----------- ----------- ----------- Net asset value, end of year $ 10.57 $ 11.01 $ 10.53 $ 10.35 $ 10.00 =========== =========== =========== =========== =========== Total return++ 0.40% 9.42% 8.59% 10.86% 3.74% Ratios/Supplemental data: Net assets, end of year (in 000s) $ 89,281 $ 78,807 $ 59,740 $ 62,514 $ 58,121 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 0.80% 0.79% 0.80% 0.73% 0.67% After expense reimbursement and earnings credits 0.60% 0.60% 0.64%# 0.60% 0.60% Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 3.63% 3.95% 5.10% 6.11% 6.12% After expense reimbursement and earnings credits 3.83% 4.14% 5.26% 6.24% 6.19% Portfolio turnover rate 137% 180% 452% 314% 170%
* 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 103 UBS HIGH YIELD FUND -- FINANCIAL HIGHLIGHTS THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD PRESENTED.
YEAR ENDED JUNE 30, ------------------------------------------------------------------------------ CLASS A 2004 2003 2002 2001 2000 ------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of year $ 6.84 $ 6.36 $ 7.87 $ 9.18 $ 9.95 ----------- ----------- ----------- ----------- ----------- Income (loss) from investment operations: Net investment income 0.58** 0.56** 0.76** 0.85** 0.90** Net realized and unrealized gain (loss) 0.22 0.50 (0.96) (1.08) (0.90) ----------- ----------- ----------- ----------- ----------- Total income (loss) from investment operations 0.80 1.06 (0.20) (0.23) -- ----------- ----------- ----------- ----------- ----------- Less distributions: Distributions from net investment income (0.58) (0.58) (1.31) (1.08) (0.70) Distributions from net realized gains -- -- -- -- (0.07) ----------- ----------- ----------- ----------- ----------- Total distributions (0.58) (0.58) (1.31) (1.08) (0.77) ----------- ----------- ----------- ----------- ----------- Net asset value, end of year $ 7.06 $ 6.84 $ 6.36 $ 7.87 $ 9.18 =========== =========== =========== =========== =========== Total return+ 12.15% 17.70% (3.01)% (2.28)% (0.13)% Ratios/Supplemental data: Net assets, end of year (in 000s) $ 72,614 $ 76,309 $ 65,832 $ 1 $ 1 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.31% 1.29% 1.26% 1.14% 1.11% After expense reimbursement and earnings credits 1.20% 0.95% 0.95% 0.97%++ 0.95% Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 8.16% 8.38% 10.71% 9.65% 9.06% After expense reimbursement and earnings credits 8.27% 8.72% 11.02% 9.82% 9.22% Portfolio turnover rate 80% 71% 120% 87% 73% YEAR ENDED JUNE 30, FOR THE ---------------------------- PERIOD ENDED CLASS B 2004 2003 JUNE 30, 2002* ---------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 6.83 $ 6.35 $ 7.02 ----------- ----------- --------------- Income (loss) from investment operations: Net investment income 0.53** 0.51** 0.45** Net realized and unrealized gain (loss) 0.23 0.50 (0.61) ----------- ----------- --------------- Total income (loss) from investment operations 0.76 1.01 (0.16) ----------- ----------- --------------- Less distributions: Distributions from net investment income (0.53) (0.53) (0.51) ----------- ----------- --------------- Net asset value, end of period $ 7.06 $ 6.83 $ 6.35 =========== =========== =============== Total return+ 11.48% 16.83% (2.70)%@ Ratios/Supplemental data: Net assets, end of period (in 000s) $ 7,844 $ 13,130 $ 15,692 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 2.05% 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 7.43% 7.62% 9.88%*** After expense reimbursement and earnings credits 7.53% 7.97% 10.23%*** Portfolio turnover rate 80% 71% 120%
* 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 104
YEAR ENDED JUNE 30, FOR THE ---------------------------- PERIOD ENDED CLASS C 2004 2003 JUNE 30, 2002* ---------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 6.84 $ 6.35 $ 7.02 ----------- ----------- --------------- Income (loss) from investment operations: Net investment income 0.55** 0.53** 0.46** Net realized and unrealized gain (loss) 0.22 0.51 (0.61) ----------- ----------- --------------- Total income (loss) from investment operations 0.77 1.04 (0.15) ----------- ----------- --------------- Less distributions: Distributions from net investment income (0.55) (0.55) (0.52) ----------- ----------- --------------- Net asset value, end of period $ 7.06 $ 6.84 $ 6.35 =========== =========== =============== Total return+ 11.59% 17.29% (2.54)%@ Ratios/Supplemental data: Net assets, end of period (in 000s) $ 17,499 $ 18,969 $ 17,947 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.82% 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 7.66% 7.88% 10.15%*** After expense reimbursement and earnings credits 7.78% 8.22% 10.49%*** Portfolio turnover rate 80% 71% 120% YEAR ENDED JUNE 30, ------------------------------------------------------------------------------ CLASS A 2004 2003 2002 2001 2000 ------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of year $ 6.87 $ 6.38 $ 7.90 $ 9.19 $ 9.96 ----------- ----------- ----------- ----------- ----------- Income (loss) from investment operations: Net investment income 0.61** 0.58** 0.81** 0.88** 0.91** Net realized and unrealized gain (loss) 0.23 0.50 (1.01) (1.08) (0.90) ----------- ----------- ----------- ----------- ----------- Total income (loss) from investment operations 0.84 1.08 (0.20) (0.20) 0.01 ----------- ----------- ----------- ----------- ----------- Less distributions: Distributions from net investment income (0.61) (0.59) (1.32) (1.09) (0.71) Distributions from net realized gains -- -- -- -- (0.07) ----------- ----------- ----------- ----------- ----------- Total distributions (0.61) (0.59) (1.32) (1.09) (0.78) ----------- ----------- ----------- ----------- ----------- Net asset value, end of year $ 7.10 $ 6.87 $ 6.38 $ 7.90 $ 9.19 =========== =========== =========== =========== =========== Total return++ 12.66% 18.08% (2.98)% (1.83)% 0.02% Ratios/Supplemental data: Net assets, end of year (in 000s) $ 48,038 $ 71,819 $ 40,120 $ 54,560 $ 50,845 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 0.92% 1.05% 1.02% 0.89% 0.86% After expense reimbursement and earnings credits 0.92% 0.70% 0.70% 0.72%# 0.70% Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 8.55% 8.62% 10.77% 9.90% 9.31% After expense reimbursement and earnings credits 8.55% 8.97% 11.09% 10.07% 9.47% Portfolio turnover rate 80% 71% 120% 87% 73%
* 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. ++ 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 105 UBS INTERNATIONAL EQUITY FUND -- FINANCIAL HIGHLIGHTS THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD PRESENTED.
YEAR ENDED JUNE 30, ------------------------------------------------------------------------------ CLASS A 2004 2003 2002 2001 2000 ------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of year $ 6.99 $ 8.08 $ 10.61 $ 13.57 $ 12.30 ----------- ----------- ----------- ----------- ----------- Income (loss) from investment operations: Net investment income 0.12** 0.10** 0.13** --^** 0.08** Net realized and unrealized gain (loss) 1.69 (0.87) (0.79) (2.15) 1.33 ----------- ----------- ----------- ----------- ----------- Total income (loss) from investment operations 1.81 (0.77) (0.66) (2.15) 1.41 ----------- ----------- ----------- ----------- ----------- Less distributions: Distributions from net investment income and net foreign currency gains (0.22) (0.31) (0.27) (0.04) -- Distributions from net realized gains -- (0.01) (1.60) (0.77) (0.14) ----------- ----------- ----------- ----------- ----------- Total distributions (0.22) (0.32) (1.87) (0.81) (0.14) ----------- ----------- ----------- ----------- ----------- Net asset value, end of year $ 8.58 $ 6.99 $ 8.08 $ 10.61 $ 13.57 =========== =========== =========== =========== =========== Total return+ 26.00% (9.24)% (5.91)% (16.37)% 11.51% Ratios/Supplemental data: Net assets, end of year (in 000s) $ 7,866 $ 3,146 $ 2,599 $ 301 $ 1 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.55% 1.47% 1.41% 1.31% 1.25% After expense reimbursement and earnings credits 1.25% 1.25% 1.25% 1.28%# 1.25%++ Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 1.13% 1.21% 1.38% 0.77% 0.64% After expense reimbursement and earnings credits 1.43% 1.43% 1.54% 0.80% 0.64% Portfolio turnover rate 108% 120% 82% 62% 59% YEAR ENDED JUNE 30, FOR THE ---------------------------- PERIOD ENDED CLASS B 2004 2003 JUNE 30, 2002* ---------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 6.92 $ 8.05 $ 7.75 ----------- ----------- --------------- Income (loss) from investment operations: Net investment income 0.06** 0.04** 0.05** Net realized and unrealized gain (loss) 1.67 (0.86) 0.25 ----------- ----------- --------------- Total income (loss) from investment operations 1.73 (0.82) 0.30 ----------- ----------- --------------- Less distributions: Distributions from net investment income and net foreign currency gains (0.17) (0.30) -- Distributions from net realized gains -- (0.01) -- ----------- ----------- --------------- (0.17) (0.31) -- ----------- ----------- --------------- Net asset value, end of period $ 8.48 $ 6.92 $ 8.05 =========== =========== =============== Total return+ 25.17% (9.94)% 3.87%@ Ratios/Supplemental data: Net assets, end of period (in 000s) $ 815 $ 352 $ 120 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 2.60% 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 0.09% 0.50% 1.45%*** After expense reimbursement and earnings credits 0.69% 0.68% 1.50%*** Portfolio turnover rate 108% 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 106
YEAR ENDED JUNE 30, FOR THE ---------------------------- PERIOD ENDED CLASS C 2004 2003 JUNE 30, 2002* ---------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 6.90 $ 8.05 $ 7.75 ----------- ----------- --------------- Income (loss) from investment operations: Net investment income 0.06** 0.04** 0.04** Net realized and unrealized gain (loss) 1.68 (0.89) 0.26 ----------- ----------- --------------- Total income (loss) from investment operations 1.74 (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 $ 8.45 $ 6.90 $ 8.05 =========== =========== =============== Total return+ 25.26% (10.29)% 3.87%@ Ratios/Supplemental data: Net assets, end of period (in 000s) $ 1,338 $ 399 $ 183 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 2.35% 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 0.34% 0.47% 0.91%*** After expense reimbursement and earnings credits 0.69% 0.68% 1.10%*** Portfolio turnover rate 108% 120% 82% YEAR ENDED JUNE 30, ------------------------------------------------------------------------------ CLASS Y 2004 2003 2002 2001 2000 ------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of year $ 7.01 $ 8.12 $ 10.64 $ 13.57 $ 12.34 ----------- ----------- ----------- ----------- ----------- Income (loss) from investment operations: Net investment income 0.14** 0.11** 0.09** 0.13** 0.11** Net realized and unrealized gain (loss) 1.71 (0.88) (0.74) (2.25) 1.33 ----------- ----------- ----------- ----------- ----------- Total income (loss) from investment operations 1.85 (0.77) (0.65) (2.12) 1.44 ----------- ----------- ----------- ----------- ----------- Less distributions: Distributions from net investment income and net foreign currency gains (0.23) (0.33) (0.27) (0.04) (0.07) Distributions from net realized gains -- (0.01) (1.60) (0.77) (0.14) ----------- ----------- ----------- ----------- ----------- Total distributions (0.23) (0.34) (1.87) (0.81) (0.21) ----------- ----------- ----------- ----------- ----------- Net asset value, end of year $ 8.63 $ 7.01 $ 8.12 $ 10.64 $ 13.57 =========== =========== =========== =========== =========== Total return++ 26.56% (9.21)% (5.78)% (16.15)% 11.76% Ratios/Supplemental data: Net assets, end of year (in 000s) $ 100,782 $ 90,514 $ 97,851 $ 192,408 $ 411,985 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.26% 1.21% 1.13% 1.06% 1.00% After expense reimbursement and earnings credits 1.00% 1.00% 1.00% 1.03%## 1.00%# Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 1.43% 1.47% 0.92% 1.02% 0.89% After expense reimbursement and earnings credits 1.69% 1.68% 1.05% 1.05% 0.89% Portfolio turnover rate 108% 120% 82% 62% 59%
* 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 107 UBS U.S. LARGE CAP VALUE EQUITY FUND -- FINANCIAL HIGHLIGHTS THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT THE PERIOD PRESENTED.
YEAR ENDED JUNE 30, FOR THE ---------------------------- PERIOD ENDED CLASS A 2004 2003 JUNE 30, 2002* ---------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 9.31 $ 9.37 $ 9.96 ----------- ----------- --------------- Income (loss) from investment operations: Net investment income 0.09** 0.11** 0.05** Net realized and unrealized gain (loss) 1.80 (0.06) (0.64) ----------- ----------- --------------- Total income (loss) from investment operations 1.89 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 $ 11.18 $ 9.31 $ 9.37 =========== =========== =============== Total return+ 20.28% 0.61% (5.92)%@ Ratios/Supplemental data: Net assets, end of year (in 000s) $ 108,369 $ 1,073 $ 751 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.42% 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 0.54% (0.42)% (1.85)%*** After expense reimbursement and earnings credits 0.86% 1.33% 0.87%*** Portfolio turnover rate 170% 59% 39% YEAR ENDED JUNE 30, FOR THE ---------------------------- PERIOD ENDED CLASS B 2004 2003 JUNE 30, 2002* ---------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 9.21 $ 9.32 $ 9.62 ----------- ----------- --------------- Income (loss) from investment operations: Net investment income 0.01** 0.05** 0.01** Net realized and unrealized gain (loss) 1.77 (0.07) (0.31) ----------- ----------- --------------- Total income (loss) from investment operations 1.78 (0.02) (0.30) ----------- ----------- --------------- Less distributions: Distributions from net investment income 0.00# (0.03) -- Distributions from net realized gains -- (0.06) -- ----------- ----------- --------------- Total distributions 0.00 (0.09) -- ----------- ----------- --------------- Net asset value, end of period $ 10.99 $ 9.21 $ 9.32 =========== =========== =============== Total return+ 19.38% (0.17)% (3.12)%@ Ratios/Supplemental data: Net assets, end of period (in 000s) $ 14,556 $ 709 $ 301 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 2.31% 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 (0.35)% (0.99)% (2.72)%*** After expense reimbursement and earnings credits 0.11% 0.58% 0.09%*** Portfolio turnover rate 170% 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. # Amount is less than $0.01 per share. See accompanying notes to financial statements 108
YEAR ENDED JUNE 30, FOR THE ---------------------------- PERIOD ENDED CLASS C 2004 2003 JUNE 30, 2002* ---------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 9.22 $ 9.33 $ 9.73 ----------- ----------- --------------- Income (loss) from investment operations: Net investment income 0.01** 0.05** 0.00# ** Net realized and unrealized gain (loss) 1.77 (0.07) (0.40) ----------- ----------- --------------- Total income (loss) from investment operations 1.78 (0.02) (0.40) ----------- ----------- --------------- Less distributions: Distributions from net investment income 0.00# (0.03) -- Distributions from net realized gains -- (0.06) -- ----------- ----------- --------------- Total distributions 0.00 (0.09) -- ----------- ----------- --------------- Net asset value, end of period $ 11.00 $ 9.22 $ 9.33 =========== =========== =============== Total return+ 19.34% (0.13)% (4.11)%@ Ratios/Supplemental data: Net assets, end of period (in 000s) $ 19,530 $ 1,025 $ 234 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 2.17% 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 (0.21)% (0.61)% (2.68)%*** After expense reimbursement and earnings credits 0.11% 0.58% 0.05%*** Portfolio turnover rate 170% 59% 39% YEAR ENDED JUNE 30, FOR THE ---------------------------- PERIOD ENDED CLASS Y 2004 2003 JUNE 30, 2002* ---------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 9.33 $ 9.38 $ 10.00 ----------- ----------- --------------- Income (loss) from investment operations: Net investment income 0.11** 0.13** 0.11** Net realized and unrealized gain (loss) 1.80 (0.06) (0.73) ----------- ----------- --------------- Total income (loss) from investment operations 1.91 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 $ 11.22 $ 9.33 $ 9.38 =========== =========== =============== Total return++ 20.49% 0.89% (6.20)%@ Ratios/Supplemental data: Net assets, end of period (in 000s) $ 4,516 $ 4,790 $ 2,819 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.27% 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 0.68% (0.19)% (1.17)%*** After expense reimbursement and earnings credits 1.10% 1.58% 1.13%*** Portfolio turnover rate 170% 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 109 THE UBS FUNDS -- NOTES TO FINANCIAL STATEMENTS 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES The UBS Funds (the "Trust") is registered with the Securities and Exchange Commission under the Investment Company Act of 1940, as amended, as an open-end management investment company currently offering multiple series representing separate investment portfolio. The Trust is organized as a Delaware statutory trust under the laws of the State of Delaware by Certificate of Trust dated August 15, 1994 and thereafter. The trustees of the Trust have the authority to issue an unlimited number of shares of beneficial interest at a par value of $0.001 per share. The Trust has ten Funds available for investment, each having its own investment objectives and policies. UBS Global Allocation Fund, UBS Global Equity Fund, UBS Global Bond Fund, UBS U.S. Large Cap 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. Large Cap Value Equity Fund (collectively, the "Funds"). As of February 2004, the Board of Trustees approved the name change 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. Each Fund currently offers Class A, Class B, Class C and Class Y shares. Each class represents interests in the same assets of the applicable Fund and the classes are identical except for differences in their sales charge structures, ongoing service and distribution charges and certain transfer agency and related services expenses. In addition, Class B shares and all corresponding reinvested dividend shares automatically convert to Class A shares within a certain number of years after issuance which varies depending upon the amount invested. All classes of shares have equal voting privileges except that each class has exclusive voting rights with respect to its service and/or distribution plan, if any. Class Y shares have no service or distribution plan. Certain 2003 balances have been reclassified to conform to the current year presentation. In the normal course of business the Funds enter into contracts that contain a variety of representations that provide general indemnification. The Funds maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Funds that have not yet occurred. However, the Funds have had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote. The preparation of financial statements in accordance with U.S. generally accepted accounting principles requires the Trust's management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. The following is a summary of significant accounting policies: 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"), the investment manager and administrator of the Funds, or by the relevant Fund investment advisor, where applicable. Investments in affiliated investment companies are valued at the daily closing net asset value of the respective investment company. UBS Global AM is an indirect wholly owned asset management subsidiary of UBS AG, an international diversified organization with headquarters in Zurich, Switzerland and operations in many areas of the financial services industry. If a market value is not available from an independent pricing source for a particular security, that security is valued at fair value as determined in good faith by or under the direction of the Trust's Board of Trustees (the "Board"). Factors that are considered in making this determination include, but are not limited to, fundamental analytical data relating to the investment; the nature and duration of restrictions on disposition of the securities; and the evaluation of forces which influence the market in which the securities are purchased and sold. 110 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 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 foreign forward currency contracts and foreign currency transactions in the statements of operations. C. INVESTMENT TRANSACTIONS, INVESTMENT INCOME AND EXPENSES: Investment transactions are recorded on the trade date. Realized gains and losses from investment transactions and foreign exchange transactions are calculated using the identified cost method. Dividend income is recorded on the ex-dividend date ("ex-date") (except in the case of certain dividends from foreign securities, which are recorded, as soon after the ex-date as the respective Fund, using reasonable diligence, becomes aware of such dividends). Interest income is recorded on an accrual basis. Discounts are accreted and premiums are amortized as adjustments to interest income and the identified cost of investments. Income, expenses (excluding class-specific expenses) and realized/unrealized gains/losses are allocated proportionately to each class of shares based upon the relative net asset value of outstanding shares of each class at the beginning of the day after adjusting for current capital share activity of the respective classes. Class specific expenses are charged directly to the applicable class of shares. D. FORWARD FOREIGN CURRENCY CONTRACTS: The Funds may engage in portfolio hedging with respect to changes in currency exchange rates by entering into forward foreign currency contracts to purchase or sell currencies. Forward foreign currency contracts are also used to achieve currency allocation strategies. A forward foreign currency contract is a commitment to purchase or sell a foreign currency at a future date at a negotiated forward rate. Risks associated with such contracts include movement in the value of the foreign currency relative to the U.S. dollar and the ability of the counterparty to perform. The unrealized gain, if any, represents the credit risk to each Fund on a forward foreign currency contract. Fluctuations in the value of the forward foreign currency contracts are recorded daily as net unrealized gains or losses. The Funds realize a gain or loss upon settlement of the contracts. The statements of operations reflect net realized and net unrealized gains and losses on these contracts. The counterparty to all forward foreign currency contracts as of June 30, 2004 was the Funds' custodian. E. FUTURES CONTRACTS: The Funds may purchase or sell exchange-traded futures contracts, which are contracts that obligate the Funds to make or take delivery of a financial instrument or the cash value of a securities index at a specified future date at a specified price. The Funds' enter into such contracts to hedge a portion of their portfolio or equalize cash. Risks of entering into futures contracts include the possibility that there may be an illiquid market or that a change in the value of the contract may not correlate with changes in the value of the underlying securities. Upon entering into a futures contract, the Funds are required to deposit either cash or securities (initial margin). Subsequent payments (variation margin) are made or received by the Funds', generally on a daily basis. The variation margin payments are equal to the daily changes in the contract value and are recorded as unrealized gains or losses. The Funds recognize a realized gain or loss when the contract is closed or expires. The statements of operations reflect net realized and net unrealized gains and losses on these contracts. 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. 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 111 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 Funds 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-date. Distributions of net investment income and net capital gains are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. Differences in dividends from net investment income per-share between the classes are due to service and distribution related expenses. H. EARNINGS CREDITS: The Funds have entered into an arrangement with their custodian whereby interest earned on uninvested cash balances is used to offset a portion of the Funds' expenses. These amounts, if any, are reflected in the statements of operations. I. USE OF ESTIMATES: The preparation of financial statements in conformity with U.S. generally accepted accounting principles 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 ("UBS Global AM (Americas)" or the "Advisor"), a registered investment advisor, provides the Funds with investment management services. As compensation for these services, each Fund pays the Advisor a monthly fee, accrued daily and paid monthly, based on each Fund's respective average daily net assets in accordance with the following per annum schedule:
FUND ADVISORY FEE ---- ------------ UBS Global Allocation Fund 0.80% UBS Global Bond Fund 0.75 UBS U.S. Large Cap 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. Large Cap Value Equity Fund 0.70
* Prior to November 10, 2003, the Fund's investment advisory fee was 1.00%. On December 2, 2003, the Board of Trustees approved the change in investment advisory fees for the UBS Global Equity Fund from 0.75% per annum to the following breakpoint schedule effective January 1, 2004:
AVERAGE DAILY NET ASSETS 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%
112 On June 7, 2004, the Board of Trustees approved the change in investment advisory fees for The UBS Funds to the following breakpoint schedule effective July 1, 2004:
AVERAGE DAILY NET ASSETS --------------------------------------------------------------------------- $0 TO $500 MM TO $1 BILLION TO $1.5 BILLION TO $2.0 BILLION FUND $500 MM $1 BILLION $1.5 BILLION $2.0 BILLION AND OVER ---- ------- ---------- ------------- --------------- ------------ UBS Global Allocation Fund 0.800% 0.750% 0.700% 0.675% 0.650% UBS Global Bond Fund 0.750 0.700 0.650 0.600 0.550 UBS High Yield Fund 0.600 0.550 0.525 -- -- UBS International Equity Fund 0.800 0.750 0.700 0.675 0.650 UBS U.S. Bond Fund 0.500 0.475 0.450 0.425 0.400 UBS U.S. Large Cap Equity Fund 0.700 0.650 0.600 0.575 0.550 UBS U.S. Large Cap Growth Fund 0.700 0.650 0.600 0.575 0.550 UBS U.S. Large Cap Value Equity Fund 0.700 0.650 0.600 0.575 0.550 UBS U.S. Small Cap Growth Fund 0.850 -- 0.825 -- --
The Advisor has agreed to waive its fees and reimburse each Fund to the extent that total annualized operating expenses exceed a specified percentage of each Fund's respective average daily net assets. Investment advisory fees and other transactions for the year ended June 30, 2004, 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% $ 9,413,003 -- UBS Global Equity Fund 1.25 2.00 2.00 1.00 3,512,624 $ 921,625 UBS Global Bond Fund 1.15 1.90 1.65 0.90 430,799 203,137 UBS U.S. Large Cap Equity Fund 1.30 2.05 2.05 1.05 958,052 3,428 UBS U.S. Large Cap Growth Fund 1.05 1.80 1.80 0.80 37,831 92,288 UBS U.S. Small Cap Growth Fund 1.28 2.03 2.03 1.03 1,213,928 313,930 UBS U.S. Bond Fund 0.85 1.60 1.35 0.60 597,411 261,013 UBS High Yield Fund 1.20 1.95 1.70 0.95 1,029,782 117,168 UBS International Equity Fund 1.25 2.00 2.00 1.00 767,619 251,053 UBS U.S. Large Cap Value Equity Fund 1.10 1.85 1.85 0.85 700,415 344,777
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. The expenses waived for the year ended June 30, 2004 are subject to repayment through June 30, 2007. 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 year ended, June 30, 2004, certain funds incurred and owed UBS Global AM administrative fees as follows:
ADMINISTRATIVE ADMINISTRATIVE FUND FEES OWED FEES INCURRED ---- -------------- -------------- UBS Global Allocation Fund $ 109,100 $ 882,476 UBS Global Equity Fund 28,695 357,553 UBS Global Bond Fund 3,737 43,080 UBS U.S. Large Cap Equity Fund 10,094 102,649 UBS U.S. Large Cap Growth Fund 406 4,053 UBS U.S. Small Cap Growth Fund 11,100 103,162 UBS U.S. Bond Fund 7,639 89,612 UBS High Yield Fund 9,134 128,723 UBS International Equity Fund 6,962 71,965 UBS U.S. Large Cap Value Equity 9,046 75,045
113 The Funds may invest in shares of certain affiliated investment companies also sponsored by the Advisor at and for the year ended June 30, 2004 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 $ 39,000,000 -- -- $ 7,687,449 $ 62,085,614 UBS High Yield Relationship Fund 32,000,000 $ 36,500,000 $ 4,828,446 (1,423,036) 16,815,518 UBS Emerging Markets Equity Relationship Fund 101,000,000 -- (34,301) 14,963,787 149,570,381 UBS Emerging Markets Debt Relationship Fund 9,000,000 18,015,212 3,546,233 (2,810,865) -- UBS Supplementary Trust U.S. Cash Management Prime Fund 1,232,329,844 1,137,618,893 -- -- 161,200,115 UBS GLOBAL BOND FUND ------------------------------------------------- NET CHANGE IN REALIZED NET UNREALIZED AFFILIATES PURCHASES PROCEEDS GAIN/(LOSS) GAIN/(LOSS) VALUE ---------- --------------- --------------- ------------ --------------- ------------ UBS U.S. Securitized Mortgage Relationship Fund $ 10,055,767 -- $ -- $ 18,688 $ 10,074,455 UBS Supplementary Trust U.S. Cash Management Prime Fund 45,965,679 $ 46,040,629 -- -- 580,224
The Funds may invest in shares of the UBS Supplementary Trust U.S. Cash Management Prime Fund ("Supplementary Trust"). Supplementary Trust is managed by the Advisor and is offered as a cash management option only to mutual funds and certain other accounts managed by the Advisor. The Supplementary Trust pays no management fees to the Advisor. Distributions received from the Supplementary Trust are reflected as interest income in the statements of operations. Amounts relating to those investments at June 30, 2004 and for the year ended were as follows:
% OF SALES INTEREST NET FUND PURCHASES PROCEEDS INCOME VALUE ASSETS ---------- --------------- --------------- ------------ --------------- ------------ UBS Global Allocation Fund $ 1,232,329,844 $ 1,137,618,893 $ 1,287,624 $ 161,200,115 8.80% UBS Global Equity Fund 152,666,422 155,008,641 47,182 849,939 0.19 UBS Global Bond Fund 45,965,679 46,040,629 16,964 580,224 0.96 UBS U.S. Large Cap Equity Fund 49,911,253 49,713,012 71,449 6,756,537 4.11 UBS U.S. Large Cap Growth Fund 4,522,219 4,512,689 1,832 154,554 2.36 UBS U.S. Small Cap Growth Fund 126,227,624 128,670,474 52,665 4,595,089 2.46 UBS U.S. Bond Fund 81,289,359 81,108,613 32,962 2,466,400 1.97 UBS High Yield Fund 125,549,135 122,410,257 48,245 3,138,878 2.15 UBS International Equity Fund 138,363,268 142,086,032 116,022 8,422,888 7.60 UBS U.S. Large Cap Value Equity Fund 47,222,662 39,807,927 47,736 7,610,129 5.18
The following Funds have incurred brokerage commissions with an affiliated broker dealer. Amounts relating to those transactions for the year ended June 30, 2004, were as follows:
FUND UBS SECURITIES LLC ---- ------------------ UBS Global Allocation Fund $ 38,178 UBS Global Equity Fund 13,774 UBS U.S. Large Cap Equity Fund 5,759 UBS U.S. Large Cap Growth Fund 699 UBS U.S. Small Cap Growth Fund 12,138 UBS International Equity Fund 372 UBS U.S. Large Cap Value Equity Fund 7,485
114 FEDERAL INCOME TAXES: It is the Funds' policy to comply with all requirements of the Internal Revenue Code (the "Code") applicable to regulated investment companies and to distribute substantially all of their taxable income to their shareholders. The Funds met the requirements of the Code applicable to regulated investment companies for the year ended June 30, 2004, therefore, no federal income tax provision was required. At June 30, 2004, the following Funds had capital loss carryforwards for federal income tax purposes available to offset future net capital gains through the indicated expiration dates:
EXPIRATION DATE EXPIRATION DATE EXPIRATION DATE EXPIRATION DATE EXPIRATION DATE JUNE 30, 2008 JUNE 30, 2009 JUNE 30, 2010 JUNE 30, 2011 JUNE 30, 2012 --------------- --------------- --------------- --------------- --------------- UBS Global Bond Fund -- $ 1,208,541 -- -- -- UBS U.S. Large Cap Growth Fund -- -- $ 1,265,393 $ 1,745,070 $ 603,775 UBS U.S. Bond Fund -- 404,247 -- -- 614,333 UBS International Equity Fund -- -- -- 10,745,480 -- UBS U.S. Large Cap Value Equity Fund $ 498,492 83,503+ 273,335+ 290,997 --
+ Due to merger with the UBS U.S. Large Cap Equity Fund, utilization of capital loss carryforwards in subsequent years may be limited. At June 30, 2004, the UBS Global Equity Fund had the following capital loss carryforwards for federal income tax purposes available to offset future capital gains through the indicated expiration dates:
EXPIRATION DATE EXPIRATION DATE EXPIRATION DATE EXPIRATION DATE EXPIRATION DATE JUNE 30, 2007 JUNE 30, 2008 JUNE 30, 2009 JUNE 30, 2010 JUNE 30, 2011 --------------- --------------- --------------- --------------- --------------- $ 81,478,790 $ 143,090,067 $ 389,124,210 $ 253,636,661+ $ 4,283,846+
+ Due to merger with the UBS Strategy Fund, utilization of capital loss carryforwards in subsequent years may be limited. At June 30, 2004 the UBS High Yield Fund had the following capital loss carryforwards for federal income tax purposes available to offset future capital gains through the indicated expiration dates:
EXPIRATION DATE EXPIRATION DATE EXPIRATION DATE EXPIRATION DATE EXPIRATION DATE EXPIRATION DATE JUNE 30, 2005 JUNE 30, 2006 JUNE 30, 2007 JUNE 30, 2008 JUNE 30, 2009 JUNE 30, 2010 ------------------ --------------- --------------- --------------- --------------- --------------- $ 10,089,023 $ 11,387,957 $ 18,661,457 $ 98,009,332+ $ 23,205,714+ $ 6,612,767+ EXPIRATION DATE EXPIRATION DATE JUNE 30, 2011 JUNE 30, 2012 --------------- ---------------- $ 37,425,637+ $ 15,791,570+
+ Due to merger with Paine Webber High Income Fund, utilization of capital loss carryforwards in subsequent years may be limited. Capital loss carryforwards in the amount of $16,663,383 expired as of June 30, 2003. For the fiscal year ended June 30, 2004, the Fund's utilized the following capital loss carryforwards: UBS Global Allocation Fund $ 6,898,051 UBS Global Equity Fund 23,152,165 UBS Global Bond Fund 303,789 UBS U.S. Large Cap Equity Fund 3,307,470 UBS U.S. Small Cap Growth Fund 2,064,972 UBS International Equity Fund 703,258 UBS U.S. Large Cap Value Equity Fund 3,752,268
Post-October losses are deemd to arise on the first business day of a Fund's next taxable year. For the year ended June 30, 2004, the following funds incurred, and elected to defer, losses of the following:
NET NET CAPITAL CURRENCY LOSSES LOSSES --------------- --------------- UBS Global Equity Fund -- $ 4,503,992 UBS U.S. Bond Fund $ 402,546 UBS High Yield Fund 10,786,372 -- UBS International Equity Fund -- 871,073
115 The tax character of distributions paid during the fiscal years ended June 30, 2004 and 2003, were as follows:
2004 2003 ------------------------------------------- ------------------------------------------- DISTRIBUTIONS DISTRIBUTIONS DISTRIBUTIONS DISTRIBUTIONS PAID FROM PAID FROM NET TOTAL PAID FROM PAID FROM NET TOTAL ORDINARY LONG-TERM DISTRIBUTIONS ORDINARY LONG-TERM DISTRIBUTIONS FUND INCOME CAPITAL GAINS PAID INCOME CAPITAL GAINS PAID ---- ------------- ------------- ------------- ------------- ------------- ------------- UBS Global Allocation Fund $ 13,269,985 -- $ 13,269,985 $ 7,500,413 -- $ 7,500,413 UBS Global Equity Fund 4,891,206 -- 4,891,206 1,782,212 -- 1,782,212 UBS Global Bond Fund 4,828,141 -- 4,828,141 990,333 -- 990,333 UBS U.S. Large Cap Equity Fund 1,535,536 -- 1,535,536 938,862 $ 2,529,840 3,468,702 UBS U.S. Small Cap Growth Fund -- $ 398,372 398,372 -- -- -- UBS U.S. Bond Fund 5,180,925 -- 5,180,925 4,368,267 -- 4,368,267 UBS High Yield Fund 14,243,424 -- 14,243,424 14,403,518 -- 14,403,518 UBS International Equity Fund 2,715,721 -- 2,715,721 4,357,327 -- 4,357,327 UBS U.S. Large Cap Value Equity Fund 184,418 -- 184,418 95,678 -- 95,678
At June 30, 2004, the components of accumulated earnings (deficit) on a tax basis were as follows:
UNDISTRIBUTED UNDISTRIBUTED ACCUMULATED LONG-TERM ORDINARY CAPITAL AND FUND CAPITAL GAIN INCOME OTHER LOSSES ---- ------------- ------------- --------------- UBS Global Allocation Fund $ 16,191,799 $ 36,855,931 $ -- UBS Global Equity Fund -- 1,677,213 (876,117,562) UBS Global Bond Fund -- 3,030,723 (1,208,541) UBS U.S. Large Cap Equity Fund 3,416,475 479,441 -- UBS U.S. Large Cap Growth Fund -- -- (3,614,238) UBS U.S. Small Cap Growth Fund 2,501,890 -- -- UBS U.S. Bond Fund -- 108,438 (1,421,126) UBS High Yield Fund -- 412,262 (231,969,829) UBS International Equity Fund -- 1,435,007 (11,616,553) UBS U.S. Large Cap Value Equity Fund 20,557,478 1,761,671 (1,146,327)
Due to inherent differences in the recognition of income, expenses and realized gains/losses under U.S. generally accepted accounting principles in the United States and federal income tax purposes, permanent differences between book and tax basis reporting for current fiscal year have been identified and appropriately reclassified. Reclassifications for the year ended June 30, 2004, were as follows:
ACCUMULATED UNDISTRIBUTED ACCUMULATED NET INVESTMENT NET REALIZED FUND INCOME (LOSS) GAIN (LOSS) PAID IN CAPITAL ---- -------------- -------------- --------------- UBS Global Allocation Fund $ 3,513,819 $ (3,775,757) $ 261,938 UBS Global Equity Fund (6,290,436) 5,304,593 985,843 UBS Global Bond Fund 3,401,495 (3,383,482) (18,013) UBS U.S. Large Cap Growth Fund 13,426 -- (13,426) UBS U.S. Small Cap Growth Fund 1,168,636 3,622 (1,172,258) UBS U.S. Bond Fund 750,369 (750,369) -- UBS High Yield Fund 281,316 16,162,712 (16,444,028) UBS International Equity Fund (818,572) 818,572 -- UBS U.S. Large Cap Value Equity Fund (1,227) (3,812,019) 3,813,246
116 3. INVESTMENT TRANSACTIONS Investment transactions for the year ended June 30, 2004, excluding long-term U.S. government securities and short-term investments, were as follows:
SALES FUND PURCHASES PROCEEDS ---- ---------------- ---------------- UBS Global Allocation Fund $ 1,554,598,114 $ 480,993,865 UBS Global Equity Fund 230,710,184 285,880,873 UBS Global Bond Fund 83,534,807 83,807,428 UBS U.S. Large Cap Equity Fund 93,574,046 55,400,418 UBS U.S. Large Cap Growth Fund 7,299,650 5,353,155 UBS U.S. Small Cap Growth Fund 214,208,297 98,358,992 UBS U.S. Bond Fund 64,294,286 55,657,995 UBS High Yield Fund 131,695,613 175,709,172 UBS International Equity Fund 102,990,765 107,684,477 UBS U.S. Large Cap Value Equity Fund 248,026,335 155,795,524
For the year ended June 30, 2004, purchases and sales of long-term U.S. government securities were as follows:
SALES FUND PURCHASES PROCEEDS ---- ---------------- ---------------- UBS Global Allocation Fund $ 452,405,910 $ 407,893,947 UBS Global Bond Fund 22,681,558 19,815,951 UBS U.S. Bond Fund 105,088,369 103,318,969
4. 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 income 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 UBS Global Allocation Fund received securities as collateral amounting to $25,304,956, which cannot be resold. The Funds monitor the market value of securities loaned on a daily basis and initially require collateral against the loaned securities in an amount at least equal to 102% of the value of domestic securities loaned and 105% of the value of foreign securities loaned. The value of loaned securities and related collateral outstanding at June 30, 2004, were as follows:
MARKET COLLATERAL MARKET VALUE OF VALUE OF RECEIVED FOR INVESTMENTS SECURITIES SECURITIES OF CASH COLLATERAL FUND LOANED LOANED RECEIVED ---- ---------------- ---------------- ------------------ UBS Global Allocation Fund $ 145,004,475 $ 147,907,593 $ 122,602,637 UBS International Equity Fund 5,015,483 6,336,449 6,336,449
117 5. DISTRIBUTION PLANS The Trust has adopted distribution and/or service plans (the "Plans") pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended, for Class A, Class B and Class C. Each Plan governs payments made for the expenses incurred in the service and/or distribution of Class A, Class B and Class C. Annual fees under the Plan as a percentage of the average daily net assets of the Class of each of the Funds are as follows:
FUND UBS CLASS A UBS CLASS B UBS CLASS C ---- ----------- ----------- ----------- UBS Global Allocation Fund 0.25% 1.00% 1.00% UBS Global Equity Fund 0.25 1.00 1.00 UBS Global Bond Fund 0.25 1.00 0.75 UBS U.S. Large Cap 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. Large Cap Value Equity Fund 0.25 1.00 1.00
At June 30, 2004, certain Funds owed UBS Global AM service and distribution fees as follows:
SERVICE & DISTRIBUTION FUND FEES OWED ---- ------------- UBS Global Allocation Fund $ 421,646 UBS Global Equity Fund 136,753 UBS Global Bond Fund 2,322 UBS U.S. Large Cap Equity Fund 1,926 UBS U.S. Large Cap Growth Fund 1,815 UBS U.S. Small Cap Growth Fund 15,365 UBS U.S. Bond Fund 2,076 UBS High Yield Fund 55,739 UBS International Equity Fund 1,592 UBS U.S. Large Cap Value Equity Fund 25,950
6. REDEMPTION FEES UBS Global Allocation Fund, UBS Global Equity Fund and UBS International Equity Fund charged a 1.00% redemption fee if you sell or exchange Class A shares or Class Y shares less than 90 days after the purchase date. This amount is paid to the applicable Fund, not the Advisor. The redemption fees are disclosed by Fund in the statements of changes in net assets. 7. 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. 118 For the year ended June 30, 2004, UBS Financial Services Inc. received from PFPC, not the Funds, compensation for related transfer agency services approximately the following:
FUND AMOUNT PAID ---- ----------- UBS Global Allocation Fund $ 280,453 UBS Global Equity Fund 277,479 UBS Global Bond Fund 9,114 UBS U.S. Large Cap Equity Fund 1,628 UBS U.S. Large Cap Growth Fund 1,237 UBS U.S. Small Cap Growth Fund 33,180 UBS U.S. Bond Fund 4,670 UBS High Yield Fund 64,585 UBS International Equity Fund 2,847 UBS U.S. Large Cap Value Equity Fund 53,633
8. LINE OF CREDIT The Trust has entered into an agreement with UBS AG, Stamford Branch 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. The average borrowings under the agreement for the year ended June 30, 2004, were as follows:
AVERAGE NUMBER OF DAYS INTEREST FUND BORROWINGS OUTSTANDING PAID ---- ------------ -------------- ------------ UBS Global Allocation Fund $ 3,308,250 7 $ 427 UBS Global Equity Fund 26,950,000 3 3,414 UBS High Yield Fund 9,329,947 12 5,460 UBS International Equity Fund 5,367,160 10 2,308
9. 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 and other data as of the reorganization date were as follows:
UBS ENHANCED UBS U.S. NASDAQ-100 SMALL CAP FUND GROWTH FUND NET UNREALIZED SHARES ACQUIRED SHARES APPRECIATION FUND ACQUIRED EXCHANGED NET ASSETS ISSUED (DEPRECIATION) ------------- ------------- ------------- ------------- -------------- UBS Enhanced NASDAQ-100 Fund Class A 771,863 $ 9,615,448 3,384,317 $ (1,446,402) Class B 983,469 12,098,521 1,131,138 (74,255) Class C 748,037 9,185,495 852,149 1,721,997 Class Y 50,567 640,425 6,122,472 (201,339) ------------- Total Net Assets $ 31,539,889 -------------
UBS U.S. Small Cap Growth Fund's net assets immediately before the reorganization were $112,531,458. 119 At the close of business November 7, 2003, UBS U.S. Large Cap 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 and other data as of the reorganization date were as follows:
UBS U.S. UBS FINANCIAL LARGE CAP SECTOR VALUE EQUITY FUND, INC. FUND NET UNREALIZED SHARES ACQUIRED SHARES APPRECIATION FUND ACQUIRED EXCHANGED NET ASSETS ISSUED (DEPRECIATION) ------------- --------------- --------------- --------------- --------------- UBS Financial Sector Fund, Inc Class A 9,306,444 $ 93,138,892 9,458,007 $ 37,107,129 Class B 3,080,643 30,423,510 3,167,885 (8,254,747) Class C 1,891,918 18,702,929 2,002,831 (4,595,754) Class Y 100,566 1,009,363 698,623 (856,437) --------------- Total Net Assets $ 143,274,694 ---------------
UBS U.S. Large Cap Value Equity Fund's net assets immediately before the reorganization were $9,477,451. At the close of business on March 21, 2003, the UBS Global Equity Fund ("Acquiring Fund") acquired assets and liabilities of the UBS Strategy 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 GLOBAL UBS STRATEGY EQUITY FUND FUND NET UNREALIZED SHARES ACQUIRED SHARES APPRECIATION FUND ACQUIRED EXCHANGED NET ASSETS ISSUED (DEPRECIATION) ------------- --------------- --------------- --------------- --------------- UBS Strategy Fund Class A 24,432,272 $ 102,576,449 12,985,675 $ 3,478,346 Class B 33,154,353 135,637,778 17,276,497 4,068,582 Class C 21,713,359 88,842,381 11,352,062 2,693,416 Class Y 556,745 2,358,930 295,546 1,422,122 --------------- Total Net Assets $ 329,415,538 ---------------
UBS Global Equity Fund's net assets immediately before the reorganization were $61,924,738. 120 At the close of business on October 4, 2002, the UBS U.S. Large Cap 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 and other data as of the reorganization date were as follows:
UBS U.S. UBS U.S. LARGE CAP LARGE CAP VALUE EQUITY FUND, INC. EQUITY FUND NET SHARES ACQUIRED SHARES UNREALIZED FUND ACQUIRED EXCHANGED NET ASSETS ISSUED APPRECIATION ------------- ----------------- --------------- --------------- --------------- UBS U.S. Large Cap Equity Fund Class A 88,889 $ 524,863 70,357 $ 124,587 Class B 25,429 149,087 20,132 47,356 Class C 93,477 549,128 74,042 80,966 Class Y 285,930 1,680,096 224,762 456,477 --------------- Total Net Assets $ 2,903,174 ---------------
UBS U.S. Large Cap Value Equity Fund's net assets immediately before the reorganization were $3,199,099. The pre-merger activity of the acquired funds are not reflected in the statements of operations or changes in net assets and the financial statement highlights. 10. SHARES OF BENEFICIAL INTEREST For the year ended June 30, 2004, transactions in shares of beneficial interest for each of the Funds were as follows:
NET INCREASE (DECREASE) SHARES SHARES CONVERTED FROM DIVIDENDS IN SHARES SHARES SOLD REPURCHASED CLASS B TO CLASS A REINVESTED OUTSTANDING ------------- ------------- ---------------------- ------------- ------------- CLASS A UBS Global Allocation Fund 64,841,376 (10,778,674) 17,053 464,731 54,544,486 UBS Global Equity Fund 2,422,308 (5,339,601) 16,558 124,613 (2,776,122) UBS Global Bond Fund 1,046,908 (810,687) 20,105 85,913 342,239 UBS U.S. Large Cap Equity Fund 163,425 (34,801) 13,747 3,038 145,409 UBS U.S. Large Cap Growth Fund 183,341 (71,381) 1,196 -- 113,156 UBS U.S. Small Cap Growth Fund 6,574,820 (1,656,216) 41,015 7,174 4,966,793 UBS U.S. Bond Fund 1,225,634 (1,232,450) 44,765 85,689 123,638 UBS High Yield Fund 5,535,038 (7,379,532) 556,500 404,716 (883,278) UBS International Equity Fund 1,333,420 (882,205) 2,067 13,040 466,322 UBS U.S. Large Cap Value Equity Fund 9,471,490 (1,327,756) 1,422,789 12,989 9,579,512 CLASS B UBS Global Allocation Fund 9,368,229 (1,478,822) (17,304) 70,439 7,942,542 UBS Global Equity Fund 263,939 (3,754,027) (16,742) 121,113 (3,385,717) UBS Global Bond Fund 79,135 (85,358) (20,085) 10,533 (15,775) UBS U.S. Large Cap Equity Fund 51,141 (7,798) (13,945) 396 29,794 UBS U.S. Large Cap Growth Fund 19,285 (23,619) (1,215) -- (5,549) UBS U.S. Small Cap Growth Fund 1,093,902 (210,033) (41,690) 3,034 845,213 UBS U.S. Bond Fund 142,697 (242,536) (44,819) 5,701 (138,957) UBS High Yield Fund 174,686 (477,082) (556,713) 48,387 (810,722) UBS International Equity Fund 59,858 (13,934) (2,092) 1,406 45,238 UBS U.S. Large Cap Value Equity Fund 3,166,443 (476,389) (1,443,512) 1,051 1,247,593
121
NET INCREASE (DECREASE) SHARES DIVIDENDS IN SHARES SHARES SOLD REPURCHASED REINVESTED OUTSTANDING --------------- --------------- --------------- --------------- CLASS C UBS Global Allocation Fund 34,837,342 (3,697,764) 264,867 31,404,445 UBS Global Equity Fund 216,713 (2,939,249) 76,616 (2,645,920) UBS Global Bond Fund 91,510 (69,151) 15,372 37,731 UBS U.S. Large Cap Equity Fund 50,769 (24,118) 553 27,204 UBS U.S. Large Cap Growth Fund 34,172 (19,221) -- 14,951 UBS U.S. Small Cap Growth Fund 898,082 (189,100) 2,225 711,207 UBS U.S. Bond Fund 66,970 (152,513) 5,292 (80,251) UBS High Yield Fund 391,859 (798,716) 108,789 (298,068) UBS International Equity Fund 197,097 (99,010) 2,438 100,525 UBS U.S. Large Cap Value Equity Fund 1,978,857 (315,498) 526 1,663,885 CLASS Y UBS Global Allocation Fund 8,013,540 (5,072,682) 202,869 3,143,727 UBS Global Equity Fund 9,113,553 (5,457,481) 116,889 3,772,961 UBS Global Bond Fund 3,216,552 (2,867,578) 258,759 607,733 UBS U.S. Large Cap Equity Fund 4,012,064 (1,861,109) 85,844 2,236,799 UBS U.S. Large Cap Growth Fund 294,474 (147,622) -- 146,852 UBS U.S. Small Cap Growth Fund 6,106,167 (2,803,075) 16,584 3,319,676 UBS U.S. Bond Fund 4,730,090 (3,776,541) 332,413 1,285,962 UBS High Yield Fund 4,653,189 (9,049,563) 715,996 (3,680,378) UBS International Equity Fund 12,031,210 (13,559,941) 304,251 (1,224,480) UBS U.S. Large Cap Value Equity Fund 345,284 (457,039) 619 (111,136)
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 SHARES SOLD REPURCHASED REINVESTED OUTSTANDING --------------- --------------- --------------- --------------- CLASS A 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. Large Cap 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. Large Cap Value Equity Fund 149,657 (116,271) 1,670 35,056 CLASS B 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. Large Cap 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. Large Cap Value Equity Fund 95,615 (51,874) 923 44,664
122
NET INCREASE (DECREASE) SHARES DIVIDENDS IN SHARES SHARES SOLD REPURCHASED REINVESTED OUTSTANDING --------------- --------------- --------------- --------------- CLASS C 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. Large Cap 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. Large Cap Value Equity Fund 98,897 (13,115) 347 86,129 CLASS Y 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. Large Cap 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. Large Cap Value Equity Fund 309,081 (101,808) 5,752 213,025
123 THE UBS FUNDS -- GENERAL INFORMATION (UNAUDITED) 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. 124 THE UBS FUNDS -- REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Trustees and Shareholders The UBS Funds We have audited the accompanying statements of assets and liabilities, including the schedules of investments, of The UBS Funds (comprising, respectively, UBS Global Allocation Fund, UBS Global Equity Fund, UBS Global Bond Fund, UBS U.S. Large Cap 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. Large Cap Value Equity Fund) (collectively, the "Funds") as of June 30, 2004, and the related statements of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Funds' management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights. Our procedures included confirmation of investments owned as of June 30, 2004, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of The UBS Funds at June 30, 2004, and the results of their operations for the year then ended, the changes in their net assets for each of the two years in the period then ended and the financial highlights for each of the indicated periods, in conformity with U.S. generally accepted accounting principles. /s/ Ernst & Young LLP New York, New York August 18, 2004 125 TRUSTEE & OFFICER INFORMATION (UNAUDITED) The Trust is a Delaware business trust. Under Delaware law, the Board has overall responsibility for managing the business and affairs of the Trust, including general supervision and review of its investment activities. The Trustees elect the officers of the Trust, who are responsible for administering the day-to-day operations of the Trust and the Funds. The table below shows, for each Trustee and Officer, his or her name, address and age, the position held with the Trust, the length of time served as a Trustee or Officer of the Trust, the Trustee's or Officer's principal occupations during the last five years, the number of funds in the UBS Family of Funds overseen by the Trustee or Officer and other directorships held by such Trustee. The Trust's Statement of Additional Information contains additional information about the Trustees and is available, without charge, upon request, by calling 1-800-647-1568. NON-INTERESTED TRUSTEES:
TERM OF OFFICE (1) AND POSITION(S) LENGTH OF NUMBER OF PORTFOLIOS HELD WITH TIME PRINCIPAL OCCUPATION(S) IN FUND COMPLEX OTHER DIRECTORSHIPS NAME, ADDRESS, AND AGE TRUST SERVED DURING PAST 5 YEARS OVERSEEN BY TRUSTEE HELD BY TRUSTEE ---------------------- ----------- ---------- ------------------------ --------------------------- ------------------------- Walter E. Auch; 83 Trustee Since 1994 Mr. Auch is retired Mr. Auch is a trustee of Mr. Auch is a Trustee of 6001 N. 62nd Place (since 1986). three investment Advisors Series Trust (16 Paradise Valley, AZ companies (consisting portfolios); Smith 85253 of 41 portfolios) for Barney Fund Complex which UBS Global AM (27 portfolios); Nicholas or one of its affiliates Applegate Institutional serves as investment Funds (19 portfolios). advisor, sub-advisor or manager. Frank K. Reilly; 68 Chairman Since 1994 Mr. Reilly is a Mr. Reilly is a director Mr. Reilly is a Director Mendoza College of and Professor at the or trustee of four of Discover Bank; Business Trustee University of Notre investment companies Morgan Stanley Trust. University of Notre Dame since 1982. (consisting of 42 Dame portfolios) for which Notre Dame, IN UBS Global AM or one 46556-5649 of its affiliates serves as investment advisor, sub- advisor or manager. Edward M. Roob; 69 Trustee Since 1994 Mr. Roob is retired Mr. Roob is a director or Mr. Roob is a Trustee of 841 Woodbine Lane (since 1993). Mr. Roob trustee of four the AHA Investment Northbrook, IL was a Committee investment companies Funds (4 portfolios). 60002 Member of the Chicago (consisting of 42 Stock Exchange from portfolios) for which 1993-1999. UBS Global AM or one of its affiliates serves as investment advisor, sub- advisor or manager.
126
TERM OF OFFICE (1) AND POSITION(S) LENGTH OF NUMBER OF PORTFOLIOS HELD WITH TIME PRINCIPAL OCCUPATION(S) IN FUND COMPLEX OTHER DIRECTORSHIPS NAME, ADDRESS, AND AGE TRUST SERVED DURING PAST 5 YEARS OVERSEEN BY TRUSTEE HELD BY TRUSTEE ---------------------- ----------- ---------- ------------------------ --------------------------- ------------------------- Adela Cepeda; 46 Director/ Since 2004 Ms. Cepeda is founder Ms. Cepeda is a Ms. Cepeda is a A.C. Advisory, Inc. Trustee and president of A.C. director or trustee of director of Lincoln 161 No. Clark Street, Advisory, Inc. (since four investment National Income Fund, Suite 4975 1995). companies (consisting Inc. and Lincoln Chicago, Illinois of 42 portfolios) for National Convertible 60601 which UBS Global AM Securities Fund. She is or one of its affiliates also a Director of serves as investment Amalgamated Bank of advisor, sub-advisor or Chicago (2003). manager. J. Mikesell Thomas, Director/ Since 2004 Mr. Thomas is an Mr. Thomas is a director Mr. Thomas is a director 53 Trustee independent financial or trustee of four and chairman of the c/o UBS Global Asset advisor (since 2001). investment companies Finance Committee for Management He was a managing (consisting of 42 Evanston Northwestern (Americas) Inc. director of Lazard portfolios) for which Healthcare. He is also a One N. Wacker Drive Freres & Co. (1995 to UBS Global AM or one vice president of the Chicago, Illinois 2001). of its affiliates serves as Board of Trustees for 60606 investment advisor, sub- Mid-Day Club. advisor or manager.
OFFICERS:
TERM OF OFFICE (1) AND PRINCIPAL OCCUPATION(S) POSITION(S) LENGTH OF DURING PAST 5 YEARS AND HELD WITH TIME NUMBER OF FUNDS IN NAME, ADDRESS, AND AGE TRUST SERVED COMPLEX OVERSEEN ---------------------- -------------- ---------- ------------------------------------------------ W. Douglas Beck*; Vice President Since 2003 Mr. Beck is an executive director and head of 37 mutual fund product management of UBS Global AM (since 2002). From March 1998 to November 2002, he held various positions at Merrill Lynch, the most recent being first vice president and co-manager of the managed solutions group. Mr. Beck is vice president of 19 investment companies (consisting of 75 portfolios) for which UBS Global AM or one of its affiliates serves as investment advisor, sub-advisor or manager.
127
TERM OF OFFICE (1) AND PRINCIPAL OCCUPATION(S) POSITION(S) LENGTH OF DURING PAST 5 YEARS AND HELD WITH TIME NUMBER OF FUNDS IN NAME, ADDRESS, AND AGE TRUST SERVED COMPLEX OVERSEEN ---------------------- -------------- ---------- ------------------------------------------------ Thomas Disbrow*; Assistant Since 2004 Mr. Disbrow is a director and co-head of the 38 Treasurer mutual fund finance department of UBS Global AM. Prior to November 1999, he was a vice president of Zweig/Glaser Advisers. Mr. Disbrow is a vice president and treasurer of 16 investment companies (consisting of 34 portfolios) and assistant treasurer of four investment companies (consisting of 42 portfolios) for which UBS Global AM or one of its affiliates serves as investment advisor, sub-advisor or manager. Mark F. Kemper**; Assistant Since 2004 Mr. Kemper is general counsel of UBS Global Asset 46 Secretary Management - Americas region (since July 2004). Mr. Kemper also is an executive director of UBS Global Asset Management (Americas) Inc. ("UBS Global AM (Americas")) and was its deputy general counsel from July 2001 to July 2004. He has been secretary of UBS Global AM (Americas) since 1999 and assistant secretary of UBS Global Asset Management Trust Company since 1993. Mr. Kemper is secretary of UBS Global AM (since 2004). Mr. Kemper is vice president and secretary of 16 investment companies (consisting of 34 portfolios) and assistant secretary of four investment companies (consisting of 42 portfolios) for which UBS Global AM (Americas) or one of its affiliates serves as investment advisor, sub-advisor or manager. Joseph T. Malone *; Treasurer and Since 2004 Mr. Malone is a director and co-head of the 36 Principal mutual fund finance department of UBS Global AM. Accounting From August 2000 through June 2001, he was the Officer controller at AEA Investors Inc. From March 1998 to August 2000, Mr. Malone was a manager within investment management services of PricewaterhouseCoopers LLC. Mr. Malone is vice president and assistant treasurer of 16 investment companies (consisting of 34 portfolios) and treasurer and principal accounting officer of four investment companies (consisting of 42 portfolios) for which UBS Global AM or one of its affiliates serves as investment advisor, sub-advisor or manager.
128
TERM OF OFFICE (1) AND PRINCIPAL OCCUPATION(S) POSITION(S) LENGTH OF DURING PAST 5 YEARS AND HELD WITH TIME NUMBER OF FUNDS IN NAME, ADDRESS, AND AGE TRUST SERVED COMPLEX OVERSEEN ---------------------- -------------- ---------- ------------------------------------------------ Joseph A. Varnas*; President Since 2003 Mr. Varnas is a managing director (since 36 March 2003), global head of information technology and operations (since March 2004) and head of product management-Americas (since November 2002) of UBS Global AM. He was head of technology of UBS Global AM from November 2002 to March 2004. From 2000 to 2001, he was manager of product development in Investment Consulting Services at UBS Financial Services Inc. Mr. Varnas was a senior analyst in the Global Securities Research and Economics Group at Merrill Lynch from 1995 to 1999. Mr. Varnas is president of 20 investment companies (consisting of 76 portfolios) for which UBS Global AM or one of its affiliates serves as investment advisor, sub-advisor or manager.
(1) Each Trustee holds office for an indefinite term. * This person's business address is UBS Global Asset Management (US) Inc., 51 West 52nd Street, New York, NY 10019-6114. ** This person's business address is UBS Global Asset Management (Americas) Inc., One North Wacker Drive, Chicago, IL 60606. 129 THE UBS FUNDS -- FEDERAL TAX INFORMATION (UNAUDITED) For the year ended June 30, 2004, the percentage of dividends paid that qualify for the 70% dividends received deduction for corporate shareholders, the designation of long-term capital gain and the amounts expected to be passed through to the shareholders as foreign tax credits are approximated as follows:
DIVIDENDS 20% RECEIVED LONG-TERM FOREIGN TAX FUND DEDUCTION CAPITAL GAIN CREDIT ---- ------------ ------------ ------------ UBS Global Allocation Fund 17.75% $ -- $ -- UBS Global Equity Fund 40.21 -- 720,781 UBS U.S. Large Cap Equity Fund 100.00 -- -- UBS International Equity Fund -- -- 230,211 UBS U.S. Large Cap Value Equity Fund 90.09 -- --
In addition, for the year ended June 30, 2004, gross income derived from sources within foreign countries amounted to $2,731,113 for UBS International Equity Fund. For the year ended June 30, 2004, the percentage of income earned from direct treasury obligations approximately amounted to the following:
DIRECT TREASURY FUND OBLIGATIONS ---- ----------- UBS Global Allocation Fund 17.30% UBS Global Bond Fund 15.50 UBS U.S. Bond Fund 24.81
130 This page intentionally left blank. This page intentionally left blank. [UBS LOGO] Presorted Standard UBS GLOBAL ASSET MANAGEMENT U.S.Postage One North Wacker Drive PAID Chicago, Illinois 60606 Smithtown, NY Permit 700 ITEM 2. CODE OF ETHICS. The registrant has adopted a code of ethics that applies to its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions pursuant to Section 406 of the Sarbanes-Oxley Act of 2002. (The registrant has designated the code of ethics adopted pursuant to Sarbanes-Oxley as a "Code of Conduct" to lessen the risk of confusion with its separate code of ethics adopted pursuant to Rule 17j-1 under the Investment Company Act of 1940, as amended.) ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. The registrant's Board of Trustees has determined that the following person serving on the registrant's Audit Committee is an "audit committee financial expert" as defined in item 3 of Form N-CSR : J. Mikesell Thomas. Mr. Thomas is independent as defined in item 3 of Form N-CSR. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. (a) AUDIT FEES: For the fiscal years ended June 30, 2004 and June 30, 2003, the aggregate Ernst & Young LLP (E&Y) audit fees for professional services rendered to the registrant were approximately $356,700 and $326,400, respectively. Fees included in the audit fees category are those associated with the annual audits of financial statements and services that are normally provided in connection with statutory and regulatory filings. (b) AUDIT-RELATED FEES: In each of the fiscal years ended June 30, 2004 and June 30, 2003, the aggregate audit-related fees billed by E&Y for services rendered to the registrant that are reasonably related to the performance of the audits of the financial statements, but not reported as audit fees, were approximately $16,500 and $24,000, respectively which includes amounts related to non-audit services prior to May 6, 2003 that would have been subject to pre-approval if the SEC rules relating to the pre-approval of non-audit services had been in effect at that time. Fees included in the audit-related category are those associated with (1) the reading and providing of comments on the 2003 and 2002 semiannual financial statements, and (2) review of portions of the registrant's semiannual 2002 Form N-SAR filing. There were no audit-related fees required to be approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X during the fiscal years indicated above. (c) TAX FEES: In each of the fiscal years ended June 30, 2004 and June 30, 2003, the aggregate tax fees billed by E&Y for professional services rendered to the registrant were approximately $33,000 and $11,600, respectively, which includes amounts related to tax services prior to May 6, 2003 that would have been subject to pre-approval if the SEC rules relating to the pre-approval of non-audit services had been in effect at that time. Fees included in the tax fees category comprise all services performed by professional staff in the independent accountant's tax division except those services related to the audits. This category comprises fees for tax return preparation and review of excise tax calculations. There were no tax fees required to be approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X during the fiscal years indicated above. (d) ALL OTHER FEES: In each of the fiscal years ended June 30, 2004 and June 30, 2003, there were no fees billed by E&Y for products and services, other than the services reported in Item 4(a)-(c) above, rendered to the registrant. Fees included in the all other fees category would consist of services related to internal control reviews, strategy and other consulting, financial information systems design and implementation, consulting on other information systems, and other tax services unrelated to the registrant. There were no "all other fees" required to be approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X during the fiscal years indicated above. (e) (1) AUDIT COMMITTEE PRE-APPROVAL POLICIES AND PROCEDURES: The registrant's Audit Committee must pre-approve all audit and non-audit services provided by the auditors relating to any series of the registrant's operations or financial reporting. Prior to the commencement of any audit or non-audit services, the Audit Committee reviews the services to determine whether they are appropriate and permissible under applicable law. The registrant's Audit Committee has adopted a charter that, among other things, provides a framework for the Audit Committee's consideration of non-audit services by the registrant's auditors. The charter requires pre-approval of any non-audit services to be provided by the auditors to a series of the registrant when, without such pre-approval, the auditors would not be independent of the registrant under the applicable federal securities laws, rules or auditing standards. The charter also requires pre-approval of all non-audit services to be provided by the registrant's auditors to the registrant's investment adviser or any entity that it controls, is controlled by or is under common control with the registrant's investment adviser and that provides ongoing services to the registrant when, without such pre-approval, the auditors would not be independent of the registrant under applicable federal securities laws, rules or auditing standards. All non-audit services must be approved in advance of provision of the service either: (i) by resolution of the Audit Committee; (ii) by oral or written approval of the Chairman of the Audit Committee and one other Audit Committee member; or (iii) if the Chairman is unavailable, by oral or written approval of two other members of the Audit Committee. (e) (2) Services approved pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X: AUDIT-RELATED FEES: There were no amounts that were approved by the Audit Committee pursuant to the de minimis exception for the fiscal years ended June 30, 2004 and June 30, 2003 on behalf of the registrant. There were no amounts that were required to be approved by the Audit Committee pursuant to the de minimis exception for the fiscal years ended June 30, 2004 and June 30, 2003 on behalf of the registrant's service providers that relate directly to the operations and financial reporting of the registrant. TAX FEES: There were no amounts that were approved by the audit committee pursuant to the de minimis exception for the fiscal years ended June 30, 2004 and June 30, 2003 on behalf of the registrant. There were no amounts that were required to be approved by the Audit Committee pursuant to the de minimis exception for the fiscal years ended June 30, 2004 and June 30, 2003 on behalf of the registrant's service providers that relate directly to the operations and financial reporting of the registrant. ALL OTHER FEES: There were no amounts that were approved by the Audit Committee pursuant to the de minimis exception for the fiscal years ended June 30, 2004 and June 30, 2003 on behalf of the registrant. There were no amounts that were required to be approved by the Audit Committee pursuant to the de minimis exception for the fiscal years ended June 30, 2004 and June 30, 2003 on behalf of the registrant's service providers that relate directly to the operations and financial reporting of the registrant. (f) According to E&Y, for the fiscal year ended June 30, 2004, the percentage of hours spent on the audit of the registrant's financial statements for the most recent fiscal year that were attributed to work performed by persons who are not full-time, permanent employees of E&Y was 0%. (g) For the fiscal years ended June 30, 2004 and June 30, 2003, the aggregate fees billed by E&Y of $1,770,429 and $1,420,676, respectively, for non-audit services rendered on behalf of the registrant ("covered"), its investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser) and any entity controlling, controlled by, or under common control with the adviser ("non-covered") that provides ongoing services to the registrant for each of the last two fiscal years of the registrant is shown in the table below:
2004 2003 ---- ---- Covered Services $ 49,500 $ 35,600 Non-Covered Services 1,720,929 1,385,076
(h) The registrant's audit committee was not required to consider whether the provision of non-audit services that were rendered to the registrant's investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining the principal accountant's independence. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. Not applicable to the registrant. ITEM 6. SCHEDULE OF INVESTMENTS Form N-CSR disclosure requirement not yet effective with respect to the registrant. ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable to the registrant. ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. Not applicable to the registrant. ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. The registrant's Board has established a Nominating Committee. The Nominating Committee will consider nominees recommended by shareholders if a vacancy occurs among those board members who are not "interested persons" as defined in Section 2(a)(19) of the Investment Company Act of 1940, as amended. In order to recommend a nominee, a shareholder should send a letter to the chairperson of the Nominating Committee, Mr. Walter E. Auch, care of the Secretary of the registrant at UBS Global Asset Management (Americas) Inc., One North Wacker Drive, Chicago, Illinois 60606, and indicate on the envelope "Nominating Committee." The shareholder's letter should state the nominee's name and should include the nominee's resume or curriculum vitae, and must be accompanied by a written consent of the individual to stand for election if nominated for the Board and to serve if elected by shareholders. ITEM 10. 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 11. EXHIBITS. (a) (1) Code of Ethics as required pursuant to Section 406 of the Sarbanes-Oxley Act of 2002 (and designated by registrant as a "Code of Conduct") is attached hereto as Exhibit EX-99.CODE ETH. (a) (2) Certifications of principal executive officer and principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 is attached hereto as Exhibit EX-99.CERT. (b) Certifications of principal executive officer and principal financial officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 is attached hereto as Exhibit EX-99.906CERT. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. The UBS Funds By: /s/ Joseph A. Varnas -------------------- Joseph A. Varnas President Date: September 7, 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: September 7, 2004 ----------------- By: /s/ Joseph T. Malone -------------------- Joseph T. Malone Treasurer & Principal Accounting Officer Date: September 7, 2004 -----------------