N-CSRS 1 a2150803zn-csrs.txt N-CSRS UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number: 811-06637 ------------------------------------------------- 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: December 31, 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 SEMI-ANNUAL REPORT DECEMBER 31, 2004 TABLE OF CONTENTS Portfolio Managers' Commentary and Schedules of Investments UBS Global Allocation Fund 3 UBS Global Equity Fund 20 UBS Global Bond Fund 29 UBS U.S. Large Cap Equity Fund 40 UBS U.S. Large Cap Growth Fund 47 UBS U.S. Small Cap Growth Fund 53 UBS U.S. Bond Fund 60 UBS High Yield Fund 70 UBS International Equity Fund 78 UBS U.S. Large Cap Value Equity Fund 86 Statements of Assets and Liabilities 92 Statements of Operations 96 Statements of Changes in Net Assets 98 Financial Highlights 102 Notes to Financial Statements 122 General Information 134
1 Portfolio Managers' Commentary and Schedules of Investments 2 UBS GLOBAL ALLOCATION FUND For the six months ended December 31, 2004, Class Y shares of UBS Global Allocation Fund (the "Fund") returned 12.15%, outperforming the 10.13% 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 9.34% on an annualized basis, slightly outperforming the 9.26% annualized return of the Index. (Class Y shares have lower expenses than other share classes in the series. 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). Asset allocation based on relative valuation analysis helped the Fund outperform its Index over the reporting period. In addition, the Fund benefited from its country and sector strategy in global equities and its defensive posture in global fixed income. EQUITIES: BOTTOM-UP RESEARCH AND ANALYSIS GUIDED COUNTRY AND SECTOR STRATEGY Our long-term investment process is made up of three components: fundamental valuation, risk management and market behavior analysis. Together, these components allow us to calculate the intrinsic value of assets, markets and currencies, and to determine where there is a discrepancy between market price and intrinsic value and why that discrepancy exists. This process is particularly important in global asset allocation, where we are making investment choices between and within asset classes, and considering the risk impact of those decisions. During the last six months, investors grew more encouraged by the ongoing global economic recovery. Given what appeared to be a greater appetite for risk, investors reached for extra returns, driving up most equity markets and the more speculative instruments in the fixed income markets. Our research and analysis of prevailing conditions led us to adjust our allocation in August of 2004, increasing global equities at the expense of global fixed income, in advance of other investors' push into risky assets. In our opinion, global bonds were not providing sufficient compensation for risk at then-current yields, especially in longer-dated issues. Conversely, equities in the US, the UK, and especially in many emerging markets countries, offered more attractive valuations. Within equities, the Fund's relative performance benefited from its country allocation. We were underweighted to the US relative to the Index, but this was due primarily to our large underweight in technology hardware, rather than a preference for other markets. Our largest overweight position was in the UK, where our bottom-up analysis highlighted numerous sectors and securities that offered potential. We also saw strength from our exposure to equities in Belgium, Amsterdam and several emerging markets countries. The Fund's relative performance was also helped by our underweight exposure to Japan, where the slowing pace of growth and concerns regarding the export sector hindered market performance. At the sector level, we saw strong contributions from our holdings in financial services, healthcare and telecommunications. In financial services, we avoided insurance companies in favor of banks and US diversified financial conglomerates. Our position in healthcare was based almost entirely on an overweight to the pharmaceuticals subsector. In telecommunications, the Fund saw strong contributions from many holdings, including Vodafone Group PLC and Nextel Communications, Inc, the latter of which benefited from an announced deal with Sprint. The Fund's most noteworthy underweights for the period were in technology hardware and energy. While technology hardware has suffered from low capital spending, valuations have declined to the point where they are now becoming of interest to us. We will continue to monitor this sector for opportunities. Our underweight position in energy hindered the Fund's relative performance, as the sector was strongly supported by rising oil prices. Our research suggests that the stocks in this sector are at or above intrinsic value, however, and that oil prices are likely to stabilize and decline once the geopolitical situation clears. * 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 FIXED INCOME: CONSERVATIVE APPROACH TO A TIGHT SPREAD ENVIRONMENT Despite interest rate increases from the US Federal Reserve Board and several other central banks, global fixed income markets in general saw yields fall and prices rise during the reporting period. The exception to this trend was in the US, where Treasury yields rose substantially for shorter maturities, and longer-term issues remained largely unchanged. This anomaly was the result, in part, of substantial foreign investments in the US fixed income market. By purchasing Treasuries, authorities in these countries hoped to stop their currencies from appreciating against the US dollar. In doing so, their exports would appear more attractive. Investors' search for yield drove up prices in lower quality global fixed income. This strong demand, coupled with improving fundamentals at the country and security levels, put pressure on spreads, driving them down to near historic levels. (Spread is the premium investors are paid to hold bonds riskier than US Treasuries). Given the higher prices and tight spreads, we determined that most global fixed income markets did not offer an attractive reward for risk taken. We responded to these conditions by decreasing our US fixed income position, especially our exposure to US Treasuries. We also limited our holdings in emerging markets bonds, Japanese bonds and global inflation-linked securities, all of which we considered overvalued. While currencies were relatively stable in the first half of the period, the US dollar depreciated substantially in the second half, falling against European currencies and, to a lesser extent, Asian currencies. This decline coincided with a growing concern over the US current account deficit, a risk that had earlier prompted us to reduce our US dollar exposure. Overall, the Fund was underweight the US dollar and the UK pound; however, we built a position in Asian currencies, which we believe remain undervalued. Currency positions were a modest detractor to added value during the second half of 2004. LOOKING AHEAD The world's political and economic climate is undergoing significant changes that we feel will have a direct impact on the financial markets. We will be closely monitoring these changes from a top-down perspective to analyze the potential impact on current and prospective Fund positions. We will also rely on our proven research-driven process to identify bottom-up opportunities at the sector and security level. Our investment strategy at this time is to maintain modest equity overweights versus the Index, particularly in select European and emerging markets. In fixed income, we expect to maintain or further reduce our underweight exposure to credit securities. We do not foresee any significant changes to our underweight of the US dollar and the British pound in favor of Asian currencies. 4 TOTAL RETURN (UNAUDITED)
6 MONTHS 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION* ENDED ENDED ENDED ENDED ENDED TO 12/31/04 12/31/04 12/31/04 12/31/04 12/31/04 12/31/04 ----------------------------------------------------------------------------------------------------------------------- UBS GLOBAL ALLOCATION FUND CLASS A 12.03% 14.15% 12.18% 8.85% N/A 7.32% UBS GLOBAL ALLOCATION FUND CLASS B 11.58 13.26 11.24 N/A N/A 11.57 UBS GLOBAL ALLOCATION FUND CLASS C 11.58 13.26 11.27 N/A N/A 11.76 UBS GLOBAL ALLOCATION FUND CLASS Y 12.15 14.53 12.37 9.09 10.32% 9.34 UBS GLOBAL ALLOCATION FUND CLASS A** 5.86 7.84 10.10 7.62 N/A 6.52 UBS GLOBAL ALLOCATION FUND CLASS B** 6.58 8.26 10.42 N/A N/A 11.04 UBS GLOBAL ALLOCATION FUND CLASS C** 10.58 12.26 11.27 N/A N/A 11.76 GSMI MUTUAL FUND INDEX*** 10.13 12.60 9.33 2.56 9.56 9.26 MSCI WORLD EQUITY (FREE) INDEX 10.97 15.03 7.27 -2.21 8.37 8.92 CITIGROUP WORLD GOVERNMENT BOND INDEX 12.06 10.35 14.86 8.79 7.60 7.16
* 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, FOR PURPOSES OF THIS ILLUSTRATION, 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. THE Y SHARE CLASS IS OUR LOWEST FEE SHARE CLASS. OUR OTHER SHARE CLASSES INCLUDE HIGHER FEE AND LOADS, WHICH IF DEDUCTED WOULD RESULT IN LOWER PERFORMANCE. 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. 5 EXPLANATION OF EXPENSE DISCLOSURE (UNAUDITED) As a shareholder of the Fund, you incur two types of costs: (1) transactional costs (as applicable); including sales charges (loads) on purchase payments; and (2) ongoing costs, including management fees; distribution and/or service (12b-1) fees (if applicable); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example below is based on an investment of $1,000 invested at the beginning of the period and held for the entire period, July 1, 2004 to December 31, 2004. ACTUAL EXPENSES The first line of each class of shares in the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over a period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second line for each class of shares in the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratios for each class of shares and an assumed rate of return of 5% per year before expenses, which is not the actual Fund's return for each class of shares. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs (as applicable), such as sales charges (loads). Therefore, the second line in the table for each class of shares is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
BEGINNING ENDING EXPENSES PAID ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD* JULY 1, 2004 DECEMBER 31, 2004 7/1/04 - 12/31/04 --------------------------------------------------------------------------------------------------------- CLASS A ACTUAL $ 1,000.00 $ 1,120.30 $ 5.97 HYPOTHETICAL (5% RETURN BEFORE EXPENSES) 1,000.00 1,019.57 5.69 CLASS B ACTUAL 1,000.00 1,115.80 10.26 HYPOTHETICAL (5% RETURN BEFORE EXPENSES) 1,000.00 1,015.51 9.77 CLASS C ACTUAL 1,000.00 1,115.80 10.09 HYPOTHETICAL (5% RETURN BEFORE EXPENSES) 1,000.00 1,015.67 9.61 CLASS Y ACTUAL 1,000.00 1,121.50 4.59 HYPOTHETICAL (5% RETURN BEFORE EXPENSES) 1,000.00 1,020.88 4.38
* EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO: CLASS A: 1.12%, CLASS B: 1.92%, CLASS C: 1.89%, CLASS Y: 0.86%, MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 184 DIVIDED BY 365 (TO REFLECT THE ONE-HALF YEAR PERIOD). 6 TOP TEN EQUITY HOLDINGS AS OF DECEMBER 31, 2004 (UNAUDITED)
PERCENTAGE OF NET ASSETS ----------------------------------------------------- Citigroup, Inc. 1.7% Johnson & Johnson 1.6 Nextel Communications, Inc., Class A 1.4 Wells Fargo & Co. 1.4 Burlington Northern Santa Fe Corp. 1.4 Morgan Stanley 1.2 Allergan, Inc. 1.1 ExxonMobil Corp. 1.1 Microsoft Corp. 1.1 Freddie Mac 1.1 ----------------------------------------------------- Total 13.1%
TOP TEN FIXED INCOME HOLDINGS AS OF DECEMBER 31, 2004 (UNAUDITED)
PERCENTAGE OF NET ASSETS ----------------------------------------------------- U.S. Treasury Note 4.000%, due 02/15/14 1.2% U.S. Treasury Note 2.750%, due 07/31/06 1.1 U.S. Treasury Note 3.375%, due 09/15/09 1.0 Federal National Mortgage Association 6.500%, due 01/25/34 0.6 Deutsche Bundesrepublik 6.000%, due 01/05/06 0.6 U.S. Treasury Note 2.500%, due 09/30/06 0.6 Deutsche Bundesrepublik 6.500%, due 07/04/27 0.5 Deutsche Bundesrepublik 6.000%, due 01/04/07 0.5 Federal Home Loan Mortgage Corp. 5.125%, due 07/15/12 0.4 Washington Mutual, 04-AR7, Class A6 3.957%, due 07/25/34 0.4 ----------------------------------------------------- Total 6.9%
7 INDUSTRY DIVERSIFICATION AS A PERCENT OF NET ASSETS AS OF DECEMBER 31, 2004 (UNAUDITED) EQUITIES U.S. EQUITIES Aerospace & Defense 0.87% Auto Components 0.54 Biotechnology 1.07 Building Products 1.09 Capital Markets 2.11 Commercial Banks 1.83 Commercial Services & Supplies 0.22 Computers & Peripherals 0.24 Construction Materials 0.61 Diversified Financial Services 2.66 Diversified Telecommunication Services 0.34 Electric Utilities 2.10 Food & Staples Retailing 2.03 Health Care Equipment & Supplies 0.28 Health Care Providers & Services 1.95 Household Products 0.57 Insurance 1.19 Internet & Catalog Retail 0.38 Machinery 0.96 Media 3.66 Multi-Utilities & Unregulated Power 0.53 Multiline Retail 0.38 Oil & Gas 1.72 Pharmaceuticals 5.07 Road & Rail 1.35 Software 1.80 Specialty Retail 0.48 Thrifts & Mortgage Finance 1.10 Wireless Telecommunication Services 1.39 --------- Total U.S. Equities 38.52 INTERNATIONAL EQUITIES Air Freight & Logistics 0.32 Airlines 0.08 Auto Components 0.34 Automobiles 0.60 Beverages 0.71 Biotechnology 0.13 Capital Markets 0.45 Chemicals 0.49 Commercial Banks 4.24 Commercial Services & Supplies 0.36 Communications Equipment 0.30 Construction & Engineering 0.06 Construction Materials 0.49 Consumer Finance 0.12 Diversified Financial Services 0.24 Diversified Telecommunication Services 1.48 Electric Utilities 0.23 Electronic Equipment & Instruments 0.75 Food & Staples Retailing 0.57 Food Products 0.50 Health Care Equipment & Supplies 0.08 Household Durables 0.55 Household Products 0.30 Insurance 1.53 Internet & Catalog Retail 0.12 IT Services 0.09 Leisure Equipment & Products 0.13 Machinery 0.20 Media 0.83 Metals & Mining 0.27 Multi-Utilities & Unregulated Power 0.12 Multiline Retail 0.04% Office Electronics 0.41 Oil & Gas 2.28 Paper & Forest Products 0.36 Pharmaceuticals 1.60 Real Estate 0.44 Road & Rail 0.33 Semiconductors & Semiconductor Equipment 0.27 Specialty Retail 0.58 Textiles, Apparel & Luxury Goods 0.09 Tobacco 0.44 Trading Companies & Distributors 0.28 Wireless Telecommunication Services 1.16 --------- Total International Equities 24.96 TOTAL EQUITIES 63.48 U.S. BONDS U.S. CORPORATE BONDS Aerospace & Defense 0.03 Airlines 0.02 Automobiles 0.27 Beverages 0.05 Capital Markets 0.22 Chemicals 0.08 Commercial Banks 0.27 Commercial Services & Supplies 0.03 Communications Equipment 0.01 Consumer Finance 0.23 Diversified Financial Services 0.33 Diversified Telecommunication Services 0.10 Electric Utilities 0.25 Energy Equipment & Services 0.03 Food & Staples Retailing 0.07 Food Products 0.05 Gas Utilities 0.01 Hotels, Restaurants & Leisure 0.01 Household Durables 0.02 Insurance 0.09 IT Services 0.03 Leisure Equipment & Products 0.01 Machinery 0.01 Media 0.13 Metals & Mining 0.01 Multi-Utilities & Unregulated Power 0.04 Multiline Retail 0.01 Oil & Gas 0.10 Paper & Forest Products 0.03 Personal Products 0.01 Pharmaceuticals 0.03 Real Estate 0.03 Road & Rail 0.04 Thrifts & Mortgage Finance 0.09 Tobacco 0.02 Wireless Telecommunication Services 0.02 --------- Total U.S. Corporate Bonds 2.78 Asset-Backed Securities 1.13 Commercial Mortgage-Backed Securities 1.33 Mortgage & Agency Debt Securities 6.93 U.S. Government Obligations 4.27 --------- Total U.S. Bonds 16.44 INTERNATIONAL CORPORATE BONDS Aerospace & Defense 0.03 Commercial Banks 0.04 Diversified Financial Services 0.18 Diversified Telecommunication Services 0.05
8 Oil & Gas 0.01% Wireless Telecommunication Services 0.01 --------- Total International Corporate Bonds 0.32 Foreign Government Bonds 4.96 Sovereign/Supranational Bond 0.02 --------- Total International Bonds 5.30 TOTAL BONDS 21.74 INVESTMENT COMPANIES 11.90 SHORT-TERM INVESTMENTS 2.41 INVESTMENT OF CASH COLLATERAL FOR SECURITIES LOANED 5.11 --------- TOTAL INVESTMENTS 104.64 LIABILITIES, IN EXCESS OF CASH AND OTHER ASSETS (4.64) --------- NET ASSETS 100.00% =========
THE FUND HELD A SHORT POSITION IN STOCK INDEX FUTURES WHICH REDUCED THE U.S. EQUITY EXPOSURE FROM 38.52% TO 37.31%. THE FUND ALSO HELD A LONG POSITION IN U.S. TREASURY FUTURES WHICH INCREASED THE U.S. BOND EXPOSURE FROM 16.44% TO 17.61%. THESE ADJUSTMENTS RESULTED IN A NET DECREASE TO THE FUNDS EXPOSURE TO SHORT-TERM INVESTMENTS FROM 2.41% TO 2.37%. 9 UBS GLOBAL ALLOCATION FUND -- SCHEDULE OF INVESTMENTS DECEMBER 31, 2004 (UNAUDITED)
SHARES VALUE --------------- --------------- EQUITIES -- 63.48% U.S. EQUITIES -- 38.52% Advance Auto Parts, Inc. (a) 110,700 $ 4,835,376 Aflac, Inc. 211,600 8,430,144 Albertson's, Inc. (b) 575,600 13,745,328 Allergan, Inc. 354,700 28,755,529 Allstate Corp. 215,100 11,124,972 American Electric Power Co., Inc. (b) 280,400 9,628,936 BEA Systems, Inc. (a) (b) 128,417 1,137,775 Bristol-Myers Squibb Co. 352,500 9,031,050 Burlington Northern Santa Fe Corp. 722,900 34,200,399 Cephalon, Inc. (a) (b) 176,300 8,970,144 Citigroup, Inc. 913,607 44,017,585 CMS Energy Corp. (a) (b) 359,400 3,755,730 Costco Wholesale Corp. 489,900 23,716,059 Dex Media, Inc. 219,700 5,483,712 Equifax, Inc. 194,100 5,454,210 Exelon Corp. 541,300 23,855,091 ExxonMobil Corp. 555,000 28,449,300 FirstEnergy Corp. 377,463 14,913,563 Freddie Mac 378,200 27,873,340 Genzyme Corp. (a) 312,600 18,152,682 Hartford Financial Services Group, Inc. 151,600 10,507,396 Hewlett-Packard Co. 291,400 6,110,658 IAC/InterActiveCorp. (a) 344,300 9,509,566 Illinois Tool Works, Inc. 262,500 24,328,500 Johnson & Johnson 623,038 39,513,070 Johnson Controls, Inc. 215,200 13,652,288 JPMorgan Chase & Co. 599,800 23,398,198 Kerr-McGee Corp. 74,250 4,290,908 Kimberly-Clark Corp. 221,000 14,544,010 Kohl's Corp. (a) 197,300 9,701,241 Kroger Co. (a) 796,000 13,961,840 Lockheed Martin Corp. 189,200 10,510,060 Marathon Oil Corp. 288,700 10,858,007 Martin Marietta Materials, Inc. 285,384 15,313,705 Masco Corp. 752,900 27,503,437 Medco Health Solutions, Inc. (a) 49,600 2,063,360 Medtronic, Inc. 144,000 7,152,480 Mellon Financial Corp. 702,800 21,864,108 Microsoft Corp. 1,058,200 28,264,522 Morgan Stanley 569,450 31,615,864 Mylan Laboratories, Inc. 708,450 12,525,396 Nextel Communications, Inc., Class A (a) 1,170,500 35,115,000 Northrop Grumman Corp. 212,200 11,535,192 Omnicom Group, Inc. (b) 257,600 21,720,832 Oracle Corp. (a) 1,168,500 16,031,820 Pepco Holdings, Inc. 219,200 4,673,344 Pfizer, Inc. 454,000 12,208,060 PNC Financial Services Group, Inc. 208,300 11,964,752 Quest Diagnostics, Inc. 68,500 6,545,175 SBC Communications, Inc. 330,800 8,524,716 Sempra Energy (b) 266,000 9,756,880 Time Warner, Inc. (a) 1,031,500 20,052,360 TJX Cos., Inc. 294,500 7,400,785 Tribune Co. 247,300 10,421,222 UnitedHealth Group, Inc. 316,600 27,870,298 Univision Communications, Inc. (a) 285,400 8,353,658 Viacom, Inc., Class B 730,000 $ 26,564,700 WellPoint, Inc. (a) 112,300 12,914,500 Wells Fargo & Co. 553,100 34,375,165 Wyeth 615,400 26,209,886 --------------- Total U.S. Equities 974,957,884 --------------- INTERNATIONAL EQUITIES -- 24.96% AUSTRALIA -- 0.77% Australia & New Zealand Banking Group Ltd. 260,013 4,196,740 National Australia Bank Ltd. (b) 209,883 4,741,676 Qantas Airways Ltd. 680,755 1,979,819 QBE Insurance Group Ltd. (b) 542,685 6,530,056 Woolworths Ltd. 170,263 2,003,372 --------------- 19,451,663 --------------- AUSTRIA -- 0.23% Telekom Austria AG 301,550 5,717,852 --------------- BELGIUM -- 0.34% Fortis 221,605 6,129,758 Solvay S.A. 22,573 2,485,270 --------------- 8,615,028 --------------- CANADA -- 1.40% Alcan, Inc. (b) 137,520 6,748,885 Bank of Nova Scotia (b) 111,200 3,777,357 BCE, Inc. (b) 152,500 3,680,925 Canadian National Railway Co. (b) 109,300 6,665,735 Canadian Tire Corp. Ltd. (b) 21,400 1,003,959 Cott Corp. (a) 68,200 1,689,418 Great-West Lifeco, Inc. (b) 81,200 1,809,490 Magna International, Inc., Class A (b) 35,000 2,879,397 Petro-Canada 70,000 3,573,760 Shoppers Drug Mart Corp. (a) 115,800 3,602,108 --------------- 35,431,034 --------------- FINLAND -- 0.56% Nokia Oyj 487,057 7,692,814 UPM-Kymmene Oyj 290,940 6,469,729 --------------- 14,162,543 --------------- FRANCE -- 2.02% BNP Paribas (b) 90,021 6,521,844 Cap Gemini S.A. (a) (b) 74,868 2,397,567 France Telecom S.A. 280,212 9,278,192 LVMH Moet Hennessy Louis Vuitton S.A. (b) 31,091 2,381,376 Sanofi-Aventis S.A. (b) 123,119 9,840,151 Total S.A. (b) 71,853 15,694,957 Unibail (b) 31,413 4,944,442 --------------- 51,058,529 --------------- GERMANY -- 0.10% Volkswagen AG 53,724 2,435,362 --------------- HONG KONG -- 0.27% Cheung Kong Holdings Ltd. 323,000 3,220,567 Sun Hung Kai Properties Ltd. 306,000 3,060,905 Television Broadcasts Ltd. 137,000 636,291 --------------- 6,917,763 ---------------
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SHARES VALUE --------------- --------------- IRELAND -- 0.74% Bank of Ireland 702,912 $ 11,704,056 CRH PLC 264,481 7,082,067 --------------- 18,786,123 --------------- ITALY -- 0.57% ENI SpA 260,092 6,512,023 UniCredito Italiano SpA 1,357,994 7,807,960 --------------- 14,319,983 --------------- JAPAN -- 4.34% Canon, Inc. 191,500 10,334,683 East Japan Railway Co. 308 1,713,282 Fuji Photo Film Co., Ltd. 90,900 3,317,712 Funai Electric Co., Ltd. 26,600 3,301,962 Honda Motor Co., Ltd. (b) 139,900 7,249,624 Kao Corp. 296,000 7,568,264 Meitec Corp. (b) 36,100 1,345,779 Mitsubishi Corp. 323,700 4,182,481 Murata Manufacturing Co., Ltd. 55,100 3,081,126 NGK Spark Plug Co., Ltd. (b) 368,000 3,810,364 Nippon Paper Group, Inc. (b) 604 2,711,428 Nissan Motor Co., Ltd. 501,500 5,452,044 Nitto Denko Corp. 98,900 5,424,202 NTT DoCoMo, Inc. 5,351 9,869,611 Rohm Co., Ltd. 64,900 6,713,575 Sekisui House Ltd. 272,000 3,169,396 Shin-Etsu Chemical Co., Ltd. 59,900 2,455,158 SKY Perfect Communications, Inc. (b) 1,127 1,220,816 Sompo Japan Insurance, Inc. 511,000 5,206,246 Sumitomo Mitsui Financial Group, Inc. (b) 524 3,809,700 Sumitomo Trust & Banking Co., Ltd. (b) 437,000 3,160,115 Takeda Pharmaceutical Co., Ltd. 174,000 8,761,979 Takefuji Corp. 45,570 3,081,879 Toyota Industries Corp. 79,200 1,978,647 Yokogawa Electric Corp. (b) 68,000 909,144 --------------- 109,829,217 --------------- NETHERLANDS -- 2.00% ABN AMRO Holding NV 493,341 13,069,483 Heineken NV 88,657 2,956,037 Koninklijke (Royal) Philips Electronics NV 130,838 3,469,689 Reed Elsevier NV 504,832 6,882,515 Royal KPN NV 921,712 8,757,331 TPG NV 299,327 8,129,067 VNU NV 246,594 7,283,524 --------------- 50,547,646 --------------- PORTUGAL -- 0.20% Energias de Portugal S.A. (b) 359,158 1,088,654 Portugal Telecom, SGPS, S.A. 318,207 3,935,958 --------------- 5,024,612 --------------- SPAIN -- 0.14% Banco Santander Central Hispano S.A. 285,716 3,545,722 --------------- SWEDEN -- 0.84% Electrolux AB, B Shares 171,200 3,915,852 Hennes & Mauritz AB, B Shares 126,650 4,411,996 Sandvik AB 124,900 5,037,048 Svenska Handelsbanken AB, A Shares 131,820 $ 3,431,676 Swedish Match AB 397,120 4,601,414 --------------- 21,397,986 --------------- SWITZERLAND -- 2.57% Actelion NV (a) 31,915 3,278,227 Adecco S.A. 86,661 4,363,154 Clariant AG 120,824 1,949,802 Credit Suisse Group 271,824 11,426,600 Holcim Ltd. 90,207 5,434,157 Mettler Toledo International, Inc. (a) 235,800 12,098,898 Nestle S.A. 23,199 6,069,565 Nobel Biocare Holding AG 10,774 1,951,846 Roche Holding AG 125,700 14,470,258 Swiss Reinsurance Co. 56,402 4,022,691 --------------- 65,065,198 --------------- UNITED KINGDOM -- 7.87% AstraZeneca PLC 206,966 7,506,017 Balfour Beatty PLC 250,537 1,516,371 Barclays PLC 1,327,258 14,932,467 BP PLC 1,667,726 16,265,485 BT Group PLC 1,586,455 6,183,045 Cadbury Schweppes PLC 711,958 6,629,408 Diageo PLC 935,235 13,340,994 Electrocomponents PLC 505,385 2,762,897 Gallaher Group PLC 427,840 6,501,460 GUS PLC 171,234 3,085,339 HBOS PLC 301,803 4,913,580 HSBC Holdings PLC 302,067 5,097,659 ITV PLC 804,397 1,625,441 Kesa Electricals PLC 548,637 2,975,652 Kingfisher PLC 1,220,931 7,260,743 National Grid Transco PLC 309,224 2,944,649 Prudential PLC 882,014 7,671,005 Rentokil Initial PLC 1,155,084 3,276,572 Reuters Group PLC 446,396 3,235,310 Royal Bank of Scotland Group PLC 498,427 16,765,414 Scottish & Southern Energy PLC 285,794 4,787,372 Shell Transport & Trading Co. PLC 1,825,458 15,560,854 Tesco PLC 1,407,189 8,692,598 Vodafone Group PLC 7,178,288 19,466,503 Willis Group Holdings Ltd. 328,900 13,540,813 Wolseley PLC 152,429 2,848,932 --------------- 199,386,580 --------------- Total International Equities 631,692,841 --------------- Total Equities (Cost $1,395,477,867) 1,606,650,725 --------------- FACE AMOUNT --------------- BONDS -- 21.74% U.S. BONDS -- 16.44% U.S. CORPORATE BONDS -- 2.78% Alcoa, Inc. 6.000%, due 01/15/12 $ 300,000 327,725 Allstate Corp. 7.200%, due 12/01/09 125,000 141,660 Altria Group, Inc. 7.750%, due 01/15/27 310,000 347,936 American Electric Power Co., Inc. 6.125%, due 05/15/06 900,000 932,745
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FACE AMOUNT VALUE --------------- --------------- Anadarko Finance Co., Series B 7.500%, due 05/01/31 $ 300,000 $ 371,684 Anheuser-Busch Cos., Inc. 9.000%, due 12/01/09 125,000 151,575 AT&T Corp. (b) 8.000%, due 11/15/31 450,000 537,188 AT&T Wireless Services, Inc. 8.750%, due 03/01/31 375,000 505,617 AvalonBay Communities, Inc. 7.500%, due 08/01/09 275,000 310,081 Avon Products, Inc. 7.150%, due 11/15/09 195,000 220,395 Bank of America Corp. 7.400%, due 01/15/11 2,000,000 2,316,756 Bank One Corp. 7.875%, due 08/01/10 950,000 1,108,108 Boeing Capital Corp. 7.375%, due 09/27/10 375,000 432,346 Bombardier Capital, Inc., 144A (b) 6.125%, due 06/29/06 425,000 425,000 Bristol-Myers Squibb Co. 5.750%, due 10/01/11 300,000 321,293 Burlington Northern Santa Fe Corp. 7.082%, due 05/13/29 150,000 175,337 C.S. First Boston USA, Inc. 3.875%, due 01/15/09 300,000 298,246 6.500%, due 01/15/12 400,000 445,193 Caterpillar, Inc. (b) 6.550%, due 05/01/11 275,000 308,639 Cendant Corp. 6.250%, due 01/15/08 300,000 320,165 Centex Corp. 7.875%, due 02/01/11 (b) 275,000 321,228 9.750%, due 06/15/05 155,000 158,973 Citigroup, Inc., 144A 5.000%, due 09/15/14 2,425,000 2,436,698 Comcast Cable Communications, Inc. (b) 6.750%, due 01/30/11 1,500,000 1,684,474 Computer Sciences Corp. (b) 3.500%, due 04/15/08 325,000 322,228 ConAgra Foods, Inc. 6.750%, due 09/15/11 300,000 337,522 ConocoPhillips 8.750%, due 05/25/10 600,000 732,224 Coors Brewing Co. 6.375%, due 05/15/12 300,000 329,840 Countrywide Home Loans, Inc. (b) 3.250%, due 05/21/08 325,000 317,794 DaimlerChrysler N.A. Holding Corp. (b) 4.050%, due 06/04/08 2,025,000 2,020,820 Devon Financing Corp., ULC 6.875%, due 09/30/11 400,000 453,023 Dominion Resources, Inc. 8.125%, due 06/15/10 255,000 300,143 Dow Chemical Co. (b) 6.125%, due 02/01/11 700,000 766,720 Duke Energy Field Services LLC 7.875%, due 08/16/10 375,000 437,367 Eastman Kodak Co. 6.375%, due 06/15/06 $ 300,000 $ 311,643 EOP Operating LP 7.250%, due 06/15/28 425,000 481,467 Erac U.S.A. Finance Co., 144A 8.000%, due 01/15/11 250,000 294,296 Federated Department Stores, Inc. (b) 6.625%, due 04/01/11 300,000 335,432 First Data Corp. 5.625%, due 11/01/11 300,000 322,370 FirstEnergy Corp., Series B 6.450%, due 11/15/11 700,000 760,529 Ford Motor Co. (b) 7.450%, due 07/16/31 1,475,000 1,483,464 Ford Motor Credit Co. 5.800%, due 01/12/09 2,750,000 2,810,890 FPL Group Capital, Inc. 7.625%, due 09/15/06 300,000 320,451 General Electric Capital Corp. 6.000%, due 06/15/12 4,200,000 4,578,155 6.750%, due 03/15/32 525,000 614,486 General Motors Acceptance Corp. 6.875%, due 09/15/11 1,100,000 1,127,272 8.000%, due 11/01/31 825,000 848,005 General Motors Corp. (b) 8.375%, due 07/15/33 425,000 440,335 Goldman Sachs Group, Inc. 6.875%, due 01/15/11 2,200,000 2,481,992 Harrah's Operating Co., Inc. 7.500%, due 01/15/09 275,000 304,740 Hartford Financial Services Group, Inc. 4.700%, due 09/01/07 575,000 586,459 HSBC Finance Corp. 6.750%, due 05/15/11 1,350,000 1,515,000 ICI Wilmington, Inc. 4.375%, due 12/01/08 600,000 603,386 International Lease Finance Corp. 3.500%, due 04/01/09 300,000 292,117 International Paper Co. (b) 6.750%, due 09/01/11 300,000 336,340 John Deere Capital Corp. 7.000%, due 03/15/12 400,000 461,185 JPMorgan Chase & Co. 6.750%, due 02/01/11 500,000 561,704 Kraft Foods, Inc. 5.625%, due 11/01/11 575,000 608,892 Kroger Co. (b) 7.500%, due 04/01/31 400,000 478,139 Lincoln National Corp. 6.200%, due 12/15/11 275,000 298,207 Lockheed Martin Corp. (b) 8.500%, due 12/01/29 250,000 342,069 Marathon Oil Corp. 6.125%, due 03/15/12 400,000 435,853 Marsh & McLennan Cos., Inc. 6.250%, due 03/15/12 470,000 491,820 McKesson Corp. 7.750%, due 02/01/12 170,000 195,589
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FACE AMOUNT VALUE --------------- --------------- Miller Brewing Co., 144A (b) 5.500%, due 08/15/13 $ 600,000 $ 627,148 Morgan Stanley 6.750%, due 04/15/11 2,225,000 2,495,645 Motorola, Inc. 7.625%, due 11/15/10 265,000 307,390 Newell Rubbermaid, Inc. 4.000%, due 05/01/10 140,000 135,857 News America, Inc., 144A 6.200%, due 12/15/34 295,000 298,988 Northwest Airlines, Inc. 8.072%, due 10/01/19 351,236 392,497 Pacific Gas & Electric Co. 6.050%, due 03/01/34 725,000 752,997 Pepsi Bottling Holdings, Inc., 144A 5.625%, due 02/17/09 150,000 159,916 PP&L Capital Funding, Inc. 7.750%, due 04/15/05 155,000 156,855 PPL Capital Funding Trust I 4.330%, due 03/01/09 330,000 326,158 PPL Energy Supply LLC. 6.400%, due 11/01/11 390,000 428,832 Praxair, Inc. 6.375%, due 04/01/12 180,000 200,957 Progress Energy, Inc. 7.000%, due 10/30/31 300,000 332,242 Prudential Financial, Inc. (b) 3.750%, due 05/01/08 500,000 497,161 PSEG Power LLC (b) 7.750%, due 04/15/11 230,000 268,179 Qwest Capital Funding, Inc. (b) 7.900%, due 08/15/10 95,000 95,950 Rohm & Haas Co. 7.850%, due 07/15/29 275,000 358,747 Safeway, Inc. (b) 6.500%, due 03/01/11 475,000 520,212 SBC Communications, Inc. 5.875%, due 02/01/12 35,000 37,695 Sempra Energy 7.950%, due 03/01/10 275,000 317,855 SLM Corp. 5.625%, due 04/10/07 575,000 599,640 Southern California Edison Co. (b) 8.000%, due 02/15/07 520,000 566,270 Sprint Capital Corp. 8.375%, due 03/15/12 775,000 944,060 Time Warner, Inc. 7.625%, due 04/15/31 725,000 877,077 Transocean, Inc. 6.625%, due 04/15/11 675,000 754,664 Travelers Property Casualty Corp. (b) 5.000%, due 03/15/13 350,000 342,114 TXU Energy Co. LLC (b) 7.000%, due 03/15/13 1,175,000 1,312,300 U.S. Bank N.A. (b) 6.375%, due 08/01/11 275,000 305,402 Unilever Capital Corp. 7.125%, due 11/01/10 300,000 345,066 Union Pacific Corp. 6.700%, due 12/01/06 $ 475,000 $ 502,156 United Technologies Corp. 6.100%, due 05/15/12 300,000 330,095 UST, Inc. (b) 6.625%, due 07/15/12 250,000 279,152 Valero Energy Corp. (b) 7.500%, due 04/15/32 525,000 633,245 Verizon New York, Inc. (b) 6.875%, due 04/01/12 550,000 617,363 Verizon New York, Inc., Series B 7.375%, due 04/01/32 250,000 286,764 Viacom, Inc. (b) 6.625%, due 05/15/11 400,000 449,143 Wachovia Bank N.A. 7.800%, due 08/18/10 1,150,000 1,350,631 Wal-Mart Stores, Inc. 6.875%, due 08/10/09 675,000 757,951 Washington Mutual, Inc. (b) 5.625%, due 01/15/07 1,975,000 2,056,779 Waste Management, Inc. 7.375%, due 08/01/10 275,000 315,220 Wells Fargo Bank N.A. (b) 6.450%, due 02/01/11 1,575,000 1,751,501 Weyerhaeuser Co. (b) 7.375%, due 03/15/32 300,000 355,754 Wyeth (b) 5.250%, due 03/15/13 350,000 363,763 Xcel Energy, Inc. 7.000%, due 12/01/10 300,000 338,169 --------------- 70,484,590 --------------- ASSET-BACKED SECURITIES -- 1.13% Americredit Automobile Receivables Trust, 01-B, Class A4 5.370%, due 06/12/08 532,073 538,619 Americredit Automobile Receivables Trust, 03-AM, Class A2B+ 2.601%, due 10/06/06 582 582 Associates Manufactured Housing Pass Thru CTFS 99-2, Class A5 6.900%, due 06/15/27 248,375 253,295 Capital One Multi-Asset Execution Trust, 03-A1, Class A1+ (b) 2.793%, due 01/15/09 280,000 281,311 Centerpoint Energy Transition Bond Co. LLC, 01-1, Class A4 5.630%, due 09/15/15 310,000 331,622 Conseco Finance Securitizations Corp., 00-1, Class A4 7.620%, due 05/01/31 2,558,741 2,619,507 Conseco Finance Securitizations Corp., 00-2, Class A4 8.480%, due 12/01/30 2,130,334 2,221,786 Conseco Finance Securitizations Corp., 00-5, Class A4 7.470%, due 02/01/32 696,073 714,245
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FACE AMOUNT VALUE --------------- --------------- Conseco Finance Securitizations Corp., 00-B, Class AF4 7.870%, due 02/15/31 $ 244 $ 248 Countrywide Asset-Backed Certificates, 03-SD3, Class A1, 144A+ 2.838%, due 12/25/32 191,601 191,987 Countrywide Asset-Backed Certificates, 04-SD1, Class A1, 144A+ 2.758%, due 06/25/33 765,327 766,627 First Franklin Mortgage Loan Asset Backed Certificates, 04-FFB, Class A1 (c) 4.167%, due 06/25/24 1,494,071 1,481,076 Green Tree Financial Corp., 96-4, Class A6 7.400%, due 06/15/27 393,571 425,896 Metris Master Trust, 04-2, Class B+ 3.080%, due 10/20/10 1,500,000 1,500,000 Metris Master Trust, 04-2, Class C, 144A+ 3.610%, due 10/20/10 1,500,000 1,502,637 Paragon Mortgages PLC, 7A, Class B1A, 144A+ 3.040%, due 05/15/43 1,040,000 1,042,966 Peco Energy Transition Trust, 99-A, Class A7 6.130%, due 03/01/09 230,000 245,950 Providian Gateway Master Trust, 04-AA, Class A, 144A+ 2.633%, due 03/15/11 2,000,000 2,004,400 Providian Gateway Master Trust, 04-AA, Class C, 144A+ 3.303%, due 03/15/11 400,000 402,160 Providian Gateway Master Trust, 04-AA, Class D, 144A+ 4.253%, due 03/15/11 460,000 461,012 Providian Gateway Master Trust, 04-BA, Class D, 144A+ 3.803%, due 07/15/10 840,000 846,350 RAFC Asset-Backed Trust, 01-1, Class A3 (c) 5.115%, due 11/25/29 344,794 347,046 Sears Credit Account Master Trust, 01-1, Class A+ 2.583%, due 02/15/10 280,000 279,937 Structured Asset Securities Corp., 03-AL2, Class A, 144A 3.357%, due 01/25/31 273,635 253,647 Vanderbilt Mortgage Finance, 00-B, Class 1A3 8.255%, due 05/07/17 72,156 73,207 Washington Mutual, 04-AR7, Class A6+ 3.957%, due 07/25/34 10,000,000 9,881,590 --------------- 28,667,703 --------------- COMMERCIAL MORTGAGE-BACKED SECURITIES -- 1.33% Asset Securitization Corp., 95-MD4, Class A3+ 7.384%, due 08/13/29 3,250,000 3,544,243 C.S. First Boston Mortgage Securities Corp., 01-CF2, Class A1 5.257%, due 02/15/34 192,290 193,380 C.S. First Boston Mortgage Securities Corp., 99-C1 Class A2 7.290%, due 09/15/41 3,500,000 3,929,188 Commercial Mortgage Trust, 01-FL5A, Class E, 144A+ 3.903%, due 11/15/13 $ 440,000 $ 440,320 Commercial Mortgage Trust, 01-FL5A, Class F, 144A+ 2.953%, due 11/15/13 515,000 507,595 DLJ Commercial Mortgage Corp., 00-CKP1, Class A1B 7.180%, due 11/10/33 1,275,000 1,445,414 DLJ Commercial Mortgage Corp., 99-CG3, Class A1B 7.340%, due 10/10/32 385,000 436,202 First Union Lehman Brothers Bank of America, 98-C2, Class A1 (b) 6.280%, due 11/18/35 247,867 249,406 First Union Lehman Commercial Mortgage Securities, Inc., 97-C2, Class A3 6.650%, due 11/18/29 1,075,286 1,144,250 Greenwich Capital Commercial Funding Corp., 03-FL1, Class A, 144A+ 2.651%, due 07/05/18 134,594 134,652 GS Mortgage Securities Corp., II, 98-GLII, Class A1 6.312%, due 04/13/31 1,879,803 1,952,998 Heller Financial Commercial Mortgage Assets, 99-PH1, Class A1 6.500%, due 05/15/31 643,898 668,599 Host Marriott Pool Trust, 99-HMTA, Class A, 144A 6.980%, due 08/03/15 293,497 314,591 Host Marriott Pool Trust, 99-HMTA, Class C, 144A 7.730%, due 08/03/15 750,000 853,350 Host Marriott Pool Trust, 99-HMTA, Class D, 144A 7.970%, due 08/03/15 460,000 520,983 Host Marriott Pool Trust, 99-HMTA, Class E, 144A 8.070%, due 08/03/15 460,000 512,221 JP Morgan Commercial Mortgage Finance Corp., 99-C8, Class A1 7.325%, due 07/15/31 786,856 810,087 JP Morgan Commercial Mortgage Finance Corp., 99-C8, Class A2 7.400%, due 07/15/31 1,000,000 1,118,035 LB Commercial Conduit Mortgage Trust, 99-C1, Class A1 6.410%, due 06/15/31 378,755 391,795 LB Commercial Conduit Mortgage Trust, 99-C2, Class A2 7.325%, due 10/15/32 200,000 224,864 Mach One Trust Commercial Mortgage-Backed, 04-1A, Class A1, 144A 3.890%, due 05/28/40 2,450,424 2,440,420 Merrill Lynch Mortgage Investors, Inc., 97-C1, Class A3 7.120%, due 06/18/29 261,306 274,571 Merrill Lynch Mortgage Investors, Inc., 98-C1, Class A1+ 6.310%, due 11/15/26 1,355,009 1,381,540
14
FACE AMOUNT VALUE --------------- --------------- Morgan Stanley Capital I, 96-WF1, Class A3, 144A+ 7.700%, due 11/15/28 $ 304,934 $ 313,045 Morgan Stanley Dean Witter Capital I, 00-LIFE, Class A1 7.420%, due 11/15/36 336,302 360,600 Morgan Stanley Dean Witter Capital I, 00-LIFE, Class A2 7.570%, due 11/15/36 150,000 171,286 Nomura Asset Securities Corp., 95-MD3, Class A1B 8.150%, due 04/04/27 546,904 551,835 Nomura Asset Securities Corp., 96-MD5, Class A4+ 7.970%, due 04/13/39 3,500,000 3,720,460 Nomura Asset Securities Corp., 98-D6, Class A1A 6.280%, due 03/15/30 1,268,758 1,314,328 PNC Mortgage Acceptance Corp., 00-C1, Class A2 7.610%, due 02/15/10 2,000,000 2,271,145 Prudential Mortgage Capital Funding LLC, 00-ROCK, Class A2 6.605%, due 05/10/34 1,055,000 1,181,908 Salomon Brothers Mortgage Securities VII, 00-C3, Class A2 6.592%, due 12/18/33 80,000 88,413 Starwood Asset Receivables Trust, 03-1A, Class A1, 144A+ 2.670%, due 08/28/22 271,940 271,976 --------------- 33,733,700 --------------- MORTGAGE & AGENCY DEBT SECURITIES -- 6.93% C.S. First Boston Mortgage Securities Corp., 01-26, Class 5A1+ 7.400%, due 11/25/31 168,929 171,135 C.S. First Boston Mortgage Securities Corp., 02-10, Class 2A1 7.500%, due 05/25/32 49,099 50,450 C.S. First Boston Mortgage Securities Corp., 03-27, Class 9A1 7.000%, due 11/25/33 764,016 785,167 C.S. First Boston Mortgage Securities Corp., 03-8, Class 5A1 6.500%, due 04/25/33 1,613,884 1,643,353 Countrywide Home Loan Mortgage Pass Thru Trust, 03-20, Class 3A2 4.750%, due 07/25/18 798,950 805,771 Federal Home Loan Mortgage Corp. 3.500%, due 04/01/08 1,420,000 1,411,933 3.875%, due 01/12/09 2,600,000 2,589,272 5.000%, due 01/30/14 (b) 5,335,000 5,336,440 5.125%, due 07/15/12 (b) 10,815,000 11,370,069 Federal Home Loan Mortgage Corp., 2148, Class ZA 6.000%, due 04/15/29 1,271,882 1,305,990 Federal Home Loan Mortgage Corp., 2426, Class GH 6.000%, due 08/15/30 1,277,154 1,303,179 Federal Home Loan Mortgage Corp., Gold 5.000%, due 11/01/07 $ 103,202 $ 105,426 5.500%, due 09/01/17 75,376 77,949 5.500%, due 01/01/18 159,114 164,544 5.500%, due 04/01/18 513,204 530,531 5.500%, due 12/01/18 1,358,772 1,404,647 5.500%, due 01/01/19 2,307,798 2,385,715 6.000%, due 12/01/17 443,244 464,370 6.000%, due 10/01/29 42,614 44,172 6.000%, due 12/01/30 528,374 546,698 6.000%, due 03/01/31 681,168 705,223 6.000%, due 07/01/34 7,865,416 8,129,050 6.000%, due 11/01/34 4,499,079 4,649,880 6.500%, due 02/01/17 176,237 186,625 6.500%, due 10/01/17 951,822 1,007,919 6.500%, due 01/01/29 3,616,257 3,801,830 6.500%, due 04/01/29 99,976 105,059 6.500%, due 11/01/29 2,076,563 2,184,169 7.000%, due 06/01/28 329,899 350,132 7.000%, due 04/01/32 3,245,359 3,440,647 Federal National Mortgage Association 2.625%, due 01/19/07 3,640,000 3,594,121 3.283%, due 07/01/34+ 1,919,957 1,989,867 3.331%, due 09/01/33+ 206,375 207,512 3.843%, due 08/01/33+ 4,415,802 4,407,942 3.955%, due 05/01/33+ 583,880 596,892 4.323%, due 03/01/34+ 678,537 685,256 4.376%, due 06/01/33+ 494,421 498,409 4.577%, due 11/01/33+ 2,863,253 2,895,502 5.000%, due 03/01/34 2,710,294 2,694,395 5.500%, due 03/15/11 (b) 5,670,000 6,080,230 5.500%, due 01/25/19 2,500,000 2,582,813 5.500%, due 11/01/23 218,073 221,442 6.000%, due 09/01/08 2,593,678 2,701,022 6.000%, due 06/01/14 1,747,573 1,834,523 6.000%, due 08/01/17 1,114,986 1,169,032 6.000%, due 04/01/18 484,826 508,508 6.000%, due 11/01/28 206,838 214,732 6.000%, due 03/01/29 1,240,882 1,287,518 6.000%, due 07/01/29 1,162,412 1,207,110 6.000%, due 06/01/31 19,815 20,535 6.000%, due 01/01/33 3,064,527 3,173,032 6.000%, due 12/01/33 2,323,127 2,403,248 6.250%, due 02/01/11 4,295,000 4,708,673 6.500%, due 12/01/10 2,793,865 2,929,916 6.500%, due 03/01/17 809,492 858,549 6.500%, due 06/01/17 805,647 854,478 6.500%, due 03/01/28 220,523 231,863 6.500%, due 05/01/28 2,631,748 2,765,529 6.500%, due 10/01/28 1,404,339 1,475,727 6.500%, due 12/01/28 237,375 249,442 6.500%, due 04/01/29 886,977 931,866 6.500%, due 06/01/29 1,032,948 1,085,047 6.500%, due 08/01/29 320,831 337,013 6.500%, due 10/01/29 2,477,710 2,603,661 6.500%, due 12/01/29 2,964,526 3,116,973 6.500%, due 05/01/30 216,456 227,459 6.500%, due 11/01/31 13,535 14,208 6.500%, due 01/25/34 15,000,000 15,726,570
15
FACE AMOUNT VALUE --------------- --------------- 7.000%, due 08/01/32 $ 1,811,486 $ 1,920,309 7.000%, due 05/01/33 240,796 255,161 7.000%, due 01/01/34 1,378,109 1,464,471 7.500%, due 05/01/31 37,791 40,491 7.500%, due 02/01/33 631,481 676,846 Federal National Mortgage Association Grantor Trust, 00-T6, Class A1 7.500%, due 06/25/30 581,212 624,622 Federal National Mortgage Association Grantor Trust, 01-T4, Class A1 7.500%, due 07/25/41 2,532,125 2,706,452 Federal National Mortgage Association Grantor Trust, 01-T5, Class A3+ 7.500%, due 06/19/30 131,373 140,206 Federal National Mortgage Association Grantor Trust, 02-T19, Class A1 6.500%, due 07/25/42 3,116,577 3,258,771 Federal National Mortgage Association Whole Loan, 95-W3, Class A 9.000%, due 04/25/25 2,058 2,252 Federal National Mortgage Association Whole Loan, 01-W3, Class A 7.000%, due 09/25/41 141,779 149,323 Federal National Mortgage Association Whole Loan, 03-W11, Class A1+ 6.880%, due 06/25/33 461,912 468,589 Federal National Mortgage Association Whole Loan, 03-W6, Class 6A+ 4.228%, due 08/25/42 456,257 458,041 Federal National Mortgage Association Whole Loan, 04-W11, Class 1A3 7.000%, due 05/25/44 3,577,308 3,800,045 First Horizon Alternative Mortgage Securities, 04-AA3, Class A1+ 5.358%, due 09/25/34 1,618,194 1,639,705 First Horizon Asset Securities, Inc., 04-FL1, Class 1A1+ 2.680%, due 02/25/35 3,000,000 3,000,000 Government National Mortgage Association 4.000%, due 10/20/29+ 367,333 374,869 6.000%, due 11/20/28 63,874 66,356 6.000%, due 01/15/29 70,247 73,009 6.000%, due 02/20/29 55,428 57,538 6.000%, due 05/20/29 140,798 146,158 6.000%, due 07/15/29 1,271,102 1,321,081 6.500%, due 03/15/26 627,566 662,765 6.500%, due 04/15/31 677,702 714,021 6.500%, due 01/20/34 1,650,310 1,738,141 8.000%, due 12/15/22 18,908 20,690 MLCC Mortgage Investors, Inc., 03-D, Class XA1 (d)+ 1.000%, due 08/25/28 12,990,024 189,269 Sequoia Mortgage Trust, 04-11, Class XAI ++ 0.950%, due 12/20/34 89,178,630 2,421,922 Structured Adjustable Rate Mortgage Loan Trust, 04-3AC, Class A1+ 4.940%, due 03/25/34 1,200,683 1,200,534 Structured Asset Securities Corp., 02-23XS, Class A7 (c) 6.080%, due 11/25/32 $ 5,170,000 $ 5,230,819 Wells Fargo Mortgage Backed Securities Trust, 03-18, Class A2 5.250%, due 12/25/33 4,275,367 4,241,164 --------------- 175,211,580 --------------- U.S. GOVERNMENT OBLIGATIONS -- 4.27% U.S. Treasury Bonds 4.000%, due 02/15/14 (b) 29,900,000 29,487,709 5.375%, due 02/15/31 (b) 655,000 708,270 6.250%, due 08/15/23 85,000 99,513 6.250%, due 05/15/30 (b) 2,330,000 2,785,715 6.625%, due 02/15/27 (b) 3,240,000 3,993,679 8.750%, due 05/15/17 (b) 3,815,000 5,345,620 U.S. Treasury Notes 2.500%, due 09/30/06 (b) 14,410,000 14,285,599 2.750%, due 07/31/06 (b) 27,285,000 27,196,542 3.375%, due 09/15/09 (b) 24,285,000 24,063,011 --------------- 107,965,658 --------------- Total U.S. Bonds 416,063,231 --------------- INTERNATIONAL BONDS -- 5.30% INTERNATIONAL CORPORATE BONDS -- 0.32% CANADA -- 0.05% Bombardier, Inc., 144A (b) 6.300%, due 05/01/14 $ 900,000 780,750 Burlington Resources Finance Co. 6.680%, due 02/15/11 250,000 279,412 TELUS Corp. 8.000%, due 06/01/11 250,000 296,270 --------------- 1,356,432 --------------- CAYMAN ISLANDS -- 0.08% SMFG Finance Ltd.+ 2.250%, due 07/11/05 JPY 27,000,000 627,906 2.250%, due 07/11/05, 144A 60,000,000 1,395,384 --------------- 2,023,290 --------------- FRANCE -- 0.01% France Telecom S.A. 8.500%, due 03/01/31 $ 205,000 277,896 --------------- LUXEMBOURG -- 0.01% Telecom Italia Capital S.A. 5.250%, due 11/15/13 $ 325,000 328,489 --------------- NETHERLANDS -- 0.02% Deutsche Telekom International Finance BV 8.750%, due 06/15/30 $ 295,000 389,535 --------------- UNITED KINGDOM -- 0.15% Abbey National PLC 7.950%, due 10/26/29 $ 295,000 380,455 HSBC Holdings PLC 5.250%, due 12/12/12 325,000 336,916 Permanent Financing PLC, 04, Class 2C+ 3.180%, due 06/10/42 2,500,000 2,499,673
16
FACE AMOUNT VALUE --------------- --------------- Royal Bank of Scotland Group PLC 9.118%, due 03/31/10 $ 225,000 $ 274,056 Vodafone Group PLC 7.875%, due 02/15/30 250,000 322,353 --------------- 3,813,453 --------------- Total International Corporate Bonds 8,189,095 --------------- FOREIGN GOVERNMENT BONDS -- 4.96% AUSTRALIA -- 0.02% Government of Australia 7.500%, due 09/15/09 AUD 742,000 636,333 --------------- AUSTRIA -- 0.41% Republic of Austria 5.875%, due 07/15/06 EUR 4,230,000 6,044,836 3.800%, due 10/20/13, 144A 3,120,000 4,304,520 --------------- 10,349,356 --------------- BELGIUM -- 0.15% Government of Belgium 5.750%, due 03/28/08 EUR 2,500,000 3,704,813 --------------- CANADA -- 0.20% Government of Canada 5.000%, due 06/01/14 CAD 1,360,000 1,196,037 5.750%, due 06/01/29 475,000 447,903 6.000%, due 06/01/08 1,200,000 1,085,463 6.000%, due 06/01/11 2,015,000 1,870,621 8.000%, due 06/01/23 320,000 373,846 --------------- 4,973,870 --------------- FINLAND -- 0.28% Government of Finland 5.000%, due 07/04/07 EUR 1,480,000 2,126,169 5.750%, due 02/23/11 3,280,000 5,079,650 --------------- 7,205,819 --------------- FRANCE -- 0.82% Government of France 5.000%, due 10/25/16 EUR 3,660,000 5,547,187 5.500%, due 04/25/07 2,380,000 3,444,815 5.500%, due 04/25/10 2,025,000 3,073,677 5.500%, due 04/25/29 1,850,000 2,989,105 8.500%, due 10/25/19 2,765,000 5,679,241 --------------- 20,734,025 --------------- GERMANY -- 1.90% Bundesobligation 3.500%, due 10/10/08 EUR 1,290,000 1,793,276 Deutsche Bundesrepublik 4.500%, due 07/04/09 2,495,000 3,605,956 4.750%, due 07/04/34 180,000 263,659 5.000%, due 07/04/12 570,000 855,373 6.000%, due 01/05/06 11,145,000 15,703,743 6.000%, due 01/04/07 8,835,000 12,818,463 6.500%, due 07/04/27 7,165,000 12,972,198 --------------- 48,012,668 --------------- ITALY -- 0.45% Buoni Poliennali Del Tesoro 5.250%, due 11/01/29 EUR 1,305,000 $ 2,001,947 5.500%, due 11/01/10 1,740,000 2,648,861 8.750%, due 07/01/06 4,515,000 6,705,105 --------------- 11,355,913 --------------- MEXICO -- 0.08% United Mexican States 8.125%, due 12/30/19 $ 1,625,000 1,913,438 --------------- NETHERLANDS -- 0.19% Government of Netherlands 5.000%, due 07/15/11 EUR 3,305,000 4,948,332 --------------- SWEDEN -- 0.08% Government of Sweden 6.750%, due 05/05/14 SEK 5,250,000 963,272 8.000%, due 08/15/07 6,290,000 1,070,040 --------------- 2,033,312 --------------- UNITED KINGDOM -- 0.38% U.K. Gilts 4.750%, due 09/07/15 GBP 3,505,000 6,835,168 5.000%, due 03/07/12 980,000 1,936,442 5.750%, due 12/07/09 445,000 901,174 --------------- 9,672,784 --------------- Total Foreign Government Bonds 125,540,663 --------------- SOVEREIGN/SUPRANATIONAL BOND--0.02% Pemex Project Funding Master Trust 8.000%, due 11/15/11 $ 320,000 368,800 --------------- Total International Bonds 134,098,558 --------------- Total Bonds (Cost $533,134,164) 550,161,789 --------------- SHARES --------------- INVESTMENT COMPANIES -- 11.90% UBS Emerging Markets Equity Relationship Fund 13,423,298 212,892,165 UBS High Yield Relationship Fund 987,139 18,533,038 UBS Small Cap Equity Relationship Fund 1,775,432 69,778,745 --------------- Total Investment Companies (Cost $220,640,168) 301,203,948 --------------- SHORT-TERM INVESTMENTS -- 2.41% OTHER -- 2.34% UBS Supplementary Trust U.S. Cash Management Prime Fund, yield of 2.28% 59,218,480 59,218,480 --------------- FACE AMOUNT --------------- FOREIGN GOVERNMENT BOND -- 0.03% UNITED KINGDOM -- 0.03% U.K. Treasury Bills, yield of 8.74%* due 02/21/05 GBP 425,000 810,566 ---------------
17
FACE AMOUNT VALUE --------------- --------------- U.S. GOVERNMENT OBLIGATION -- 0.04% U.S. Treasury Bills, yield of 1.70% due 02/03/05 (e) $ 1,000,000 $ 998,117 --------------- Total Short-Term Investments (Cost $61,001,430) 61,027,163 --------------- SHARES --------------- INVESTMENT OF CASH COLLATERAL FOR SECURITIES LOANED -- 5.11% UBS Supplementary Trust U.S. Cash Management Prime Fund, yield of 2.28% (Cost $129,173,700) 129,173,700 129,173,700 --------------- Total Investments (Cost $2,339,427,329) -- 104.64% 2,648,217,325 Liabilities, in excess of cash and other assets -- (4.64)% (117,330,535) --------------- Net Assets -- 100% $ 2,530,886,790 ===============
NOTES TO SCHEDULE OF INVESTMENTS Aggregate cost for federal income tax purposes was $2,339,427,329; and net unrealized appreciation consisted of:
Gross unrealized appreciation $ 320,727,770 Gross unrealized depreciation (11,937,774) --------------- Net unrealized appreciation $ 308,789,996 ===============
+ Variable rate note - The rate disclosed is that in effect at December 31, 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 being received and cause the yield to increase. (a) Non-income producing security. (b) Securities, or portion thereof, were on loan at December 31, 2004. (c) Step Bonds - Coupon rate increases in increments to maturity. Rate disclosed is as of December 31, 2004. Maturity date disclosed is the ultimate maturity date. (d) Security is illiquid. This security amounted to $189,269 or 0.01% of net assets. (e) These securities were pledged to cover margin requirements for futures contracts. * Reflects annualized yield at December 31, 2004 on zero coupon bonds. % 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 December 31, 2004 the value of these securities amounted to $24,503,639 or 0.97% of net assets. AUD Australian Dollar CAD Canadian Dollar EUR Euro GBP British Pound JPY Japanese Yen SEK Swedish Krona SGD Singapore Dollar SGPS Sociedade Gestora de Participacoes Sociais THB Thailand Baht USD United States Dollar 18 FORWARD FOREIGN CURRENCY CONTRACTS UBS Global Allocation Fund had the following open forward foreign currency contracts as of December 31, 2004:
UNREALIZED CONTRACTS IN EXCHANGE MATURITY APPRECIATION TO DELIVER FOR DATES (DEPRECIATION) -------------- ------------------- -------------- -------------- British Pound 66,000,000 USD 123,414,060 06/03/05 $ (2,232,340) South African Rand 74,000,000 USD 12,228,373 06/03/05 (657,146) Swiss Franc 15,800,000 USD 13,899,274 06/03/05 (109,148) United States Dollar 126,978,502 JPY 12,900,000,000 06/03/05 335,094 United States Dollar 48,886,575 SGD 79,800,000 06/03/05 245,440 United States Dollar 42,650,419 THB 1,680,000,000 06/03/05 616,959 -------------- Total net unrealized depreciation on forward foreign currency contracts $ (1,801,141) ==============
FUTURES CONTRACTS UBS Global Allocation Fund had the following open futures contracts as of December 31, 2004:
UNREALIZED EXPIRATION COST/ CURRENT APPRECIATION DATES PROCEEDS VALUE (DEPRECIATION) -------------- -------------- -------------- -------------- U.S. TREASURY NOTE FUTURES BUY CONTRACTS: 5 Year U.S. Treasury Notes, 268 contracts March 2005 $ 29,207,314 $ 29,354,375 $ 147,061 10 Year U.S. Treasury Notes, 2 contracts March 2005 221,639 223,875 2,236 INDEX FUTURE SALE CONTRACTS: S&P 500 Index, 101 contracts March 2005 30,435,643 30,645,925 (210,282) -------------- Total net unrealized depreciation on futures contracts $ (60,985) ==============
The aggregate market value of investments pledged to cover margin requirements for the open futures positions at December 31, 2004 was $998,117. See accompanying notes to financial statements 19 UBS GLOBAL EQUITY FUND For the six months ended December 31, 2004, Class Y shares of UBS Global Equity Fund (the "Fund") returned 11.90%, outperforming the 10.97% 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 7.55% on an annualized basis, in line with the 7.54% annualized return of the Index. (Class Y shares have lower expenses than other share classes in the series. Returns for all share classes over various time periods are shown on page 22; 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 solid performance relative to its Index can be traced primarily to sector allocation and security selection. RESEARCH-BASED APPROACH TO CHANGING MARKET CONDITIONS After a weak start, the global equity markets rallied in the last two months of the reporting period, driven mainly by external factors, such as investors' increased appetite for risk and falling energy prices, rather than any changes in market fundamentals. As always, we opted to steer clear of emotion-driven investing, choosing instead to rely on our research-based process to guide us through this changing environment. Our global network of analysts and investment specialists sought to identify the individual securities that, in our opinion, were offering the most attractive opportunities. For the majority of the reporting period, investors adopted a cautious approach to global equities. This was largely due to concerns about the US Federal Reserve Board's tightening cycle, rising oil prices and weak capital spending in most countries. As these concerns lessened over the period, investors returned to the equity market in force, driving prices sharply higher in the fourth quarter of 2004. As is often the case, much of what happened in the global arena was a result of changes in the US economy and stock market. In our opinion, the US economic recovery was advancing as expected and the stock market offered sound fundamental valuation. Nonetheless, we were underweight the US compared to the Index. This position was largely due to our significant underweight in US technology hardware, however, rather than a preference for foreign equity markets. The Fund was also underweight Japan throughout the reporting period. After several robust quarters, Japan's economic growth began to slow down. Much of the problem ties back to the export sector, where the strong yen has raised fears about future earnings. In contrast, the Fund's largest geographical overweight was in the UK. Our increased exposure to this market resulted more from attractive security-level opportunities rather than an overall favorable opinion of the market. Our investments for the reporting period focused on industries that we believed exhibited strong fundamentals. Relative performance benefited from our overweight position and stock selection in banks. Stock selection in healthcare equipment and services also enhanced results, as did stock selection within the pharmaceuticals sector, where we avoided the large declines of Merck and Pfizer. Our position in healthcare was based almost entirely on our overweight in pharmaceuticals sub-sector. Despite the prospect of healthcare reform in the US, we believe our holdings in specialty pharmaceuticals will continue to offer solid long-term potential. Our weight to telecommunications generated strong returns on an absolute and relative return basis. While NTT DoCoMo Inc. performed poorly, this was more than offset by the strong performance of France Telecom S.A. and Vodafone Group PLC. One of the Fund's most noteworthy underweights for the period was in technology hardware. While technology hardware has suffered from low capital spending, valuations have declined to the point where they are beginning to attract our interest. We will continue to monitor this sector for opportunities. The Fund also had an underweight position in energy stocks, since our research suggested that the stocks in this sector were at or beyond intrinsic value. In addition, we felt that oil prices were likely to stabilize and decline once the geopolitical situation improved. While oil prices did, indeed, fall toward the end of the reporting period, stock selection in this sector still contributed to results. 20 Currency positions were scaled back during the year, as the euro outperformed versus the pound sterling, and the Australian dollar appreciated versus the yen. By year end, our currency position was near neutral, with a minor contribution to the portfolio's risk. LOOKING AHEAD In our opinion, the global equity market as a whole is currently trading near fair value. However, at the stock level, we are still finding many attractively priced stocks as a result of our bottom-up, research-intense process. 21 TOTAL RETURN (UNAUDITED)
6 MONTHS 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION* ENDED ENDED ENDED ENDED ENDED TO 12/31/04 12/31/04 12/31/04 12/31/04 12/31/04 12/31/04 ----------------------------------------------------------------------------------------------------------------------- UBS GLOBAL EQUITY FUND CLASS A 11.80% 13.97% 7.39% 2.24% N/A 4.61% UBS GLOBAL EQUITY FUND CLASS B 11.38 13.12 6.60 N/A N/A 6.91 UBS GLOBAL EQUITY FUND CLASS C 11.42 13.07 6.58 N/A N/A 6.74 UBS GLOBAL EQUITY FUND CLASS Y 11.90 14.26 7.74 2.59 8.76% 7.55 UBS GLOBAL EQUITY FUND CLASS A** 5.67 7.70 5.37 1.09 N/A 3.82 UBS GLOBAL EQUITY FUND CLASS B** 6.38 8.12 5.71 N/A N/A 6.33 UBS GLOBAL EQUITY FUND CLASS C** 10.42 12.07 6.58 N/A N/A 6.74 MSCI WORLD EQUITY (FREE) INDEX 10.97 15.03 7.27 -2.21 8.37 7.54
* 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. THE Y SHARE CLASS IS OUR LOWEST FEE SHARE CLASS. OUR OTHER SHARE CLASSES INCLUDE HIGHER FEE AND LOADS, WHICH IF DEDUCTED WOULD RESULT IN LOWER PERFORMANCE. 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. 22 EXPLANATION OF EXPENSE DISCLOSURE (UNAUDITED) As a shareholder of the Fund, you incur two types of costs: (1) transactional costs (as applicable); including sales charges (loads) on purchase payments; and (2) ongoing costs, including management fees; distribution and/or service (12b-1) fees (if applicable); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example below is based on an investment of $1,000 invested at the beginning of the period and held for the entire period, July 1, 2004 to December 31, 2004. ACTUAL EXPENSES The first line of each class of shares in the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over a period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second line for each class of shares in the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratios for each class of shares and an assumed rate of return of 5% per year before expenses, which is not the actual Fund's return for each class of shares. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs (as applicable), such as sales charges (loads). Therefore, the second line in the table for each class of shares is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
BEGINNING ENDING EXPENSES PAID ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD* JULY 1, 2004 DECEMBER 31, 2004 7/1/04 - 12/31/04 ------------------------------------------------------------------------------------------------------- CLASS A ACTUAL $ 1,000.00 $ 1,118.00 $ 6.67 HYPOTHETICAL (5% RETURN BEFORE EXPENSES) 1,000.00 1,018.90 6.36 CLASS B ACTUAL 1,000.00 1,113.80 10.66 HYPOTHETICAL (5% RETURN BEFORE EXPENSES) 1,000.00 1,015.12 10.16 CLASS C ACTUAL 1,000.00 1,114.20 10.66 HYPOTHETICAL (5% RETURN BEFORE EXPENSES) 1,000.00 1,015.12 10.16 CLASS Y ACTUAL 1,000.00 1,119.00 5.26 HYPOTHETICAL (5% RETURN BEFORE EXPENSES) 1,000.00 1,020.24 5.02
* EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO: CLASS A: 1.25%, CLASS B: 2.00%, CLASS C: 2.00%, CLASS Y: 0.99%, MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 184 DIVIDED BY 365 (TO REFLECT THE ONE-HALF YEAR PERIOD). 23 TOP TEN INTERNATIONAL EQUITY HOLDINGS AS OF DECEMBER 31, 2004 (UNAUDITED)
PERCENTAGE OF NET ASSETS ---------------------------------------------------- Total S.A. 2.1% Vodafone Group PLC 1.9 Shell Transport & Trading Co. PLC 1.9 Bank of Ireland 1.8 Barclays PLC 1.6 Diageo PLC 1.5 BP PLC 1.5 France Telecom S.A. 1.4 Gallaher Group PLC 1.4 Royal Bank of Scotland Group PLC 1.4 ---------------------------------------------------- Total 16.5%
TOP TEN U.S. EQUITY HOLDINGS AS OF DECEMBER 31, 2004 (UNAUDITED)
PERCENTAGE OF NET ASSETS ---------------------------------------------------- Citigroup, Inc. 3.3% General Electric Co. 2.2 Microsoft Corp. 2.0 Freddie Mac 1.9 Johnson & Johnson 1.9 Nextel Communications, Inc., Class A 1.8 Morgan Stanley 1.8 Wyeth 1.7 Masco Corp. 1.7 Allergan, Inc. 1.6 --------------------------------------------------- Total 19.9%
COUNTRY EXPOSURE, TOP FIVE AS OF DECEMBER 31, 2004 (UNAUDITED)
PERCENTAGE OF NET ASSETS ---------------------------------------------------- United States 47.9% United Kingdom 17.0 Japan 8.0 France 5.9 Netherlands 5.4 --------------------------------------------------- Total 84.2%
24 INDUSTRY DIVERSIFICATION AS A PERCENT OF NET ASSETS AS OF DECEMBER 31, 2004 (UNAUDITED) EQUITIES U.S. EQUITIES Aerospace & Defense 0.98% Biotechnology 1.27 Building Products 1.67 Capital Markets 3.36 Commercial Banks 2.02 Computers & Peripherals 0.74 Diversified Financial Services 4.45 Diversified Telecommunication Services 0.78 Electric Utilities 1.34 Food & Staples Retailing 1.76 Health Care Providers & Services 1.07 Industrial Conglomerates 2.17 Insurance 1.44 Internet & Catalog Retail 0.43 Machinery 1.20 Media 4.32 Multi-Utilities & Unregulated Power 0.59 Multiline Retail 0.34 Pharmaceuticals 6.85 Road & Rail 1.26 Semiconductors & Semiconductor Equipment 0.48 Software 2.93 Specialty Retail 0.42 Thrifts & Mortgage Finance 1.89 Tobacco 1.49 Wireless Telecommunication Services 1.84 --------- Total U.S. Equities 47.09 INTERNATIONAL EQUITIES Air Freight & Logistics 1.00 Airlines 0.33 Auto Components 0.42 Automobiles 1.85 Beverages 2.08% Chemicals 0.82 Commercial Banks 9.44 Commercial Services & Supplies 1.35 Communications Equipment 0.78 Construction Materials 1.87 Diversified Telecommunication Services 3.35 Electronic Equipment & Instruments 0.49 Food & Staples Retailing 1.72 Food Products 1.68 Health Care Equipment & Supplies 0.27 Household Durables 1.29 Household Products 0.72 Insurance 3.30 IT Services 0.36 Machinery 0.13 Media 1.59 Metals & Mining 0.43 Office Electronics 0.68 Oil & Gas 7.02 Paper & Forest Products 1.24 Pharmaceuticals 2.34 Real Estate 1.13 Semiconductors & Semiconductor Equipment 0.54 Specialty Retail 0.70 Tobacco 1.42 Wireless Telecommunication Services 2.93 --------- Total International Equities 53.27 TOTAL EQUITIES 100.36 SHORT-TERM INVESTMENT 0.76 --------- TOTAL INVESTMENTS 101.12 LIABILITIES, IN EXCESS OF CASH AND OTHER ASSETS (1.12) --------- NET ASSETS 100.00% =========
25 UBS GLOBAL EQUITY FUND -- SCHEDULE OF INVESTMENTS DECEMBER 31, 2004 (UNAUDITED)
SHARES VALUE --------------- --------------- EQUITIES -- 100.36% U.S. EQUITIES -- 47.09% Advance Auto Parts, Inc. (a) 45,600 $ 1,991,808 Aflac, Inc. 33,800 1,346,592 Albertson's, Inc. 104,800 2,502,624 Allergan, Inc. 91,200 7,393,584 Allstate Corp. 36,200 1,872,264 Altria Group, Inc. 114,300 6,983,730 American Electric Power Co., Inc. 61,900 2,125,646 American International Group, Inc. 23,547 1,546,332 BEA Systems, Inc. (a) 62,300 551,978 Bristol-Myers Squibb Co. 48,100 1,232,322 Burlington Northern Santa Fe Corp. 125,300 5,927,943 Cephalon, Inc. (a) 59,200 3,012,096 Citigroup, Inc. 320,300 15,432,054 Costco Wholesale Corp. 73,600 3,562,976 FirstEnergy Corp. 60,107 2,374,828 Freddie Mac 120,600 8,888,220 General Electric Co. 279,100 10,187,150 Genzyme Corp. (a) 51,300 2,978,991 Hewlett-Packard Co. 166,391 3,489,219 IAC/InterActiveCorp. (a) 73,600 2,032,832 Illinois Tool Works, Inc. 60,800 5,634,944 Intel Corp. 96,000 2,245,440 Interpublic Group of Cos., Inc. (a) 187,900 2,517,860 Johnson & Johnson 138,702 8,796,481 JPMorgan Chase & Co. 141,000 5,500,410 Kohl's Corp. (a) 32,400 1,593,108 Kroger Co. (a) 125,500 2,201,270 Lockheed Martin Corp. 43,600 2,421,980 Lucent Technologies, Inc. (a) 1,067 1,686 Masco Corp. 214,700 7,842,991 McGraw-Hill Cos., Inc. 15,200 1,391,408 Medco Health Solutions, Inc. (a) 4,100 170,560 Mellon Financial Corp. 233,400 7,261,074 Microsoft Corp. 347,100 9,271,041 Morgan Stanley 153,400 8,516,768 Mylan Laboratories, Inc. 183,300 3,240,744 Nextel Communications, Inc., Class A (a) 288,200 8,646,000 Northrop Grumman Corp. 40,200 2,185,272 Omnicom Group, Inc. 60,800 5,126,656 Oracle Corp. (a) 287,300 3,941,756 Pepco Holdings, Inc. 85,100 1,814,332 Pfizer, Inc. 130,400 3,506,456 PNC Financial Services Group, Inc. 38,300 2,199,952 SBC Communications, Inc. 142,600 3,674,802 Sempra Energy 75,300 2,762,004 St. Paul Travelers Cos., Inc. 54,663 2,026,357 Time Warner, Inc. (a) 198,700 3,862,728 UnitedHealth Group, Inc. 55,400 4,876,862 Univision Communications, Inc. (a) 53,500 1,565,945 Viacom, Inc., Class B 159,900 5,818,761 Wells Fargo & Co. 117,400 7,296,410 Wyeth 188,000 8,006,920 --------------- Total U.S. Equities 221,352,167 --------------- INTERNATIONAL EQUITIES -- 53.27% AUSTRALIA -- 1.74% National Australia Bank Ltd. 107,816 $ 2,435,779 Qantas Airways Ltd. 539,954 1,570,332 QBE Insurance Group Ltd. 346,918 4,174,417 --------------- 8,180,528 --------------- AUSTRIA -- 0.64% Telekom Austria AG 158,736 3,009,879 --------------- CANADA -- 2.87% Alcan, Inc. 40,700 1,997,379 BCE, Inc. 114,900 2,773,366 Jean Coutu Group, Inc. 80,100 1,143,187 Magna International, Inc., Class A 23,900 1,966,217 Shoppers Drug Mart Corp. (a) 55,000 1,710,846 Suncor Energy, Inc. 110,300 3,903,284 --------------- 13,494,279 --------------- FINLAND -- 1.39% Nokia Oyj 233,300 3,684,853 UPM-Kymmene Oyj 129,000 2,868,616 --------------- 6,553,469 --------------- FRANCE -- 5.91% BNP Paribas 61,029 4,421,430 Cap Gemini S.A. (a) 53,029 1,698,197 France Telecom S.A. 205,225 6,795,273 Sanofi-Aventis S.A. 26,423 2,111,829 Total S.A. 45,397 9,916,134 Unibail 18,140 2,855,257 --------------- 27,798,120 --------------- GERMANY -- 0.57% Allianz AG 20,107 2,667,451 --------------- HONG KONG -- 0.52% Sun Hung Kai Properties Ltd. 246,000 2,460,728 --------------- IRELAND -- 2.94% Bank of Ireland 512,438 8,532,509 CRH PLC 197,242 5,281,594 --------------- 13,814,103 --------------- ITALY -- 1.71% ENI SpA 130,914 3,277,744 UniCredito Italiano SpA 830,707 4,776,256 --------------- 8,054,000 --------------- JAPAN -- 7.95% Canon, Inc. 59,100 3,189,450 Funai Electric Co., Ltd. 10,100 1,253,752 Honda Motor Co., Ltd. 109,300 5,663,931 Kao Corp. 132,000 3,375,037 Meitec Corp. 24,100 898,429 Mitsubishi Tokyo Financial Group, Inc. 137 1,390,456 Murata Manufacturing Co., Ltd. 21,800 1,219,030 Nissan Motor Co., Ltd. 279,300 3,036,403 Nitto Denko Corp. 70,200 3,850,141 NTT DoCoMo, Inc. 2,548 4,699,639 Rohm Co., Ltd. 24,700 2,555,089 Sekisui House Ltd. 182,000 2,120,699
26
SHARES VALUE --------------- --------------- Sompo Japan Insurance, Inc. 180,000 $ 1,833,903 Sumitomo Mitsui Financial Group, Inc. 146 1,061,481 Takeda Pharmaceutical Co., Ltd. 23,800 1,198,478 --------------- 37,345,918 --------------- NETHERLANDS -- 5.38% ABN AMRO Holding NV 213,330 5,651,492 Heineken NV 83,591 2,787,125 Koninklijke (Royal) Philips Electronics NV 55,958 1,483,948 Reed Elsevier NV 282,222 3,847,611 Royal KPN NV 333,788 3,171,372 TPG NV 173,729 4,718,100 VNU NV 122,605 3,621,323 --------------- 25,280,971 --------------- SWEDEN -- 0.89% Electrolux AB, B Shares 52,700 1,205,405 Svenska Cellulosa AB, B Shares 69,850 2,979,877 --------------- 4,185,282 --------------- SWITZERLAND -- 3.77% Adecco S.A. 64,274 3,236,027 Holcim Ltd. 58,456 3,521,446 Nestle S.A. 13,115 3,431,283 Nobel Biocare Holding AG 6,954 1,259,805 Roche Holding AG 40,294 4,638,541 Swiss Reinsurance Co. 22,607 1,612,371 --------------- 17,699,473 --------------- UNITED KINGDOM -- 16.99% AstraZeneca PLC 83,886 3,042,286 Barclays PLC 650,154 7,314,632 BP PLC 716,200 6,985,164 Cadbury Schweppes PLC 477,129 4,442,794 Diageo PLC 491,015 7,004,259 Electrocomponents PLC 200,499 1,096,111 Gallaher Group PLC 440,020 6,686,547 HBOS PLC 135,047 2,198,667 Invensys PLC (a) 1,973,731 587,352 Kingfisher PLC 551,079 3,277,206 Prudential PLC 335,913 2,921,485 Rentokil Initial PLC 777,661 2,205,954 Royal Bank of Scotland Group PLC 195,092 6,562,241 Shell Transport & Trading Co. PLC 1,047,395 8,928,368 Tesco PLC 846,917 5,231,642 Vodafone Group PLC 3,339,883 9,057,291 Willis Group Holdings Ltd. 55,600 2,289,052 --------------- 79,831,051 --------------- Total International Equities 250,375,252 --------------- Total Equities (Cost $359,680,713) 471,727,419 --------------- SHORT-TERM INVESTMENT -- 0.76% UBS Supplementary Trust U.S. Cash Management Prime Fund, yield of 2.28% (Cost $3,554,614) 3,554,614 $ 3,554,614 --------------- Total Investments (Cost $363,235,327) -- 101.12% 475,282,033 Liabilities, in excess of cash and other assets -- (1.12%) (5,241,384) --------------- Net Assets -- 100% $ 470,040,649 ===============
27 NOTES TO SCHEDULE OF INVESTMENTS Aggregate cost for federal income tax purposes was $363,235,327; and net unrealized appreciation consisted of: Gross unrealized appreciation $ 114,526,422 Gross unrealized depreciation (2,479,716) --------------- Net unrealized appreciation $ 112,046,706 ===============
(a) Non-income producing security. % Represents a percentage of net assets. AUD Australian Dollar CAD Canadian Dollar GBP British Pound JPY Japanese Yen SGD Singapore Dollar USD United States Dollar FORWARD FOREIGN CURRENCY CONTRACTS UBS Global Equity Fund had the following open forward foreign currency contracts as of December 31, 2004:
UNREALIZED CONTRACTS IN EXCHANGE MATURITY APPRECIATION TO DELIVER FOR DATES (DEPRECIATION) ----------- ------------------ -------- -------------- British Pound 24,550,000 USD 45,906,291 06/03/05 $ (830,364) Canadian Dollar 4,900,000 USD 4,114,155 06/03/05 23,948 Euro 12,800,000 USD 16,952,064 06/03/05 (484,309) Swiss Franc 4,500,000 USD 3,958,740 06/03/05 (31,086) United States Dollar 2,562,120 AUD 3,300,000 06/03/05 (3,190) United States Dollar 4,147,973 CAD 4,900,000 06/03/05 (57,765) United States Dollar 3,756,431 GBP 1,950,000 06/03/05 (44,151) United States Dollar 18,702,260 JPY 1,900,000,000 06/03/05 49,355 United States Dollar 11,455,877 SGD 18,700,000 06/03/05 57,515 -------------- Total net depreciation on forward foreign currency contracts $ (1,320,047) ==============
See accompanying notes to financial statements 28 UBS GLOBAL BOND FUND For the six months ended December 31, 2004, Class Y shares of UBS Global Bond Fund (the "Fund") returned 9.38%, versus the 10.32% return of the Fund's benchmark, the Lehman Brothers Global Aggregate Index (the "Index"). Since inception on July 31, 1993, through period end, the Fund returned 6.75% on an annualized basis, compared to the 7.11% annualized return for the Index. (Returns for all share classes over various time periods are shown on page 31; 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 markets were increasingly driven by external factors, rather than fundamentals, over the reporting period. The Fund navigated this challenging environment by maintaining a defensive posture, characterized by a shorter-than-Index duration and active management of country and sector allocation, as well as security selection. ANALYSIS OF MARKET BEHAVIOR LED TO CONSERVATIVE STANCE Our investment process is built on three components: fundamental valuation, risk management and market behavior analysis. This last component was particularly valuable during the reporting period, when the markets were heavily influenced by investor sentiment, rather than fundamentals. For example, the Federal Reserve Board (the "Fed") and several other central banks raised interest rates over the six months ended December 31, 2004. Rate increases generally drive bond yields up and bond prices down. This was not the case during the reporting period, as investors focused more on the increasing price of crude oil than interest rates. Concerned that higher oil prices would slow down the economic recovery, investors favored bonds, driving yields down and prices up in most markets. The exception to this trend was in the US, where Treasury yields rose substantially in shorter maturities, while longer-term issues remained largely unchanged. This anomaly was due in part to substantial foreign investments in the US fixed income market. By purchasing Treasuries, these countries hoped to stop their currencies from appreciating against the U.S. dollar; in doing so, this would make their exports more attractive. In the third quarter of 2004, there was a general decline in yields that left most markets overvalued, in our opinion. We responded by reducing our global interest rate exposure. This was implemented by lowering the duration on our US, UK and Japanese holdings. By the beginning of the fourth quarter of 2004, the average duration of the Fund was almost one year shorter than the Index. This strategy detracted from the Fund's relative performance over the reporting period. Our country allocation contributed to performance over the reporting period. Overall, we favored market opportunities in Europe and Asia over the US. Specifically, we continued to reduce our position in US Treasuries, which we considered overvalued. We also moved from an overweight to a slight underweight in Eurozone bonds, investing some of the proceeds in one year Canadian government bonds. We held a slight underweight in the UK, which hindered relative performance, as the UK bond market had some of the best performance over the period. Yields on UK bonds declined on fears that a housing market slowdown had begun. Our analysis found that the prevailing prices remained above our estimate of intrinsic value and, therefore, we did not increase our exposure. We also retained our underweight position in Japan, as we believe that market, too, was overvalued. In the non-government bond sectors, the portfolio generally maintained a neutral or underweight exposure to the credit markets. This was due to our belief that credit spreads were very narrow and offered little value above government bonds. Our overweights were focused on non-corporate sectors such as US commercial mortgage-backed securities. This made a small positive contribution to the portfolio's performance. From a currency perspective, during the reporting period we remained overall close to neutral, and this had little impact on performance. However, we believe the depreciation in the US dollar has taken it to undervalued levels. We currently favor an underweight position in the UK pound, offset by overweights in Asian currencies such as the Thai Baht and Japanese yen. 29 LOOKING AHEAD Foreign markets continue to take their cue from events in the US. With that in mind, we will be closely monitoring Fed policy, payroll data and inflation, all of which have the potential to drive the US market. In terms of portfolio strategy, we will continue to take a cautious approach, focusing on shorter maturities and underweighting markets that we believe are overvalued. 30 TOTAL RETURN (UNAUDITED)
6 MONTHS 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION* ENDED ENDED ENDED ENDED ENDED TO 12/31/04 12/31/04 12/31/04 12/31/04 12/31/04 12/31/04 -------------------------------------------------------------------------------------------------------------------------- UBS GLOBAL BOND FUND CLASS A 9.22% 6.91% 14.15% N/A N/A 12.08% UBS GLOBAL BOND FUND CLASS B 8.87 6.16 13.39 N/A N/A 12.52 UBS GLOBAL BOND FUND CLASS C 9.01 6.35 N/A N/A N/A 11.80 UBS GLOBAL BOND FUND CLASS Y 9.38 7.12 14.45 8.44% 7.72% 6.75 UBS GLOBAL BOND FUND CLASS A** 4.26 2.10 12.40 N/A N/A 10.47 UBS GLOBAL BOND FUND CLASS B** 3.87 1.16 12.61 N/A N/A 12.02 UBS GLOBAL BOND FUND CLASS C** 8.26 5.60 N/A N/A N/A 11.80 LEHMAN BROTHERS GLOBAL AGGREGATE INDEX 10.32 9.27 12.73 8.47 7.75 7.11
* 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. THE Y SHARE CLASS IS OUR LOWEST FEE SHARE CLASS. OUR OTHER SHARE CLASSES INCLUDE HIGHER FEE AND LOADS, WHICH IF DEDUCTED WOULD RESULT IN LOWER PERFORMANCE. 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. 31 EXPLANATION OF EXPENSE DISCLOSURE (UNAUDITED) As a shareholder of the Fund, you incur two types of costs: (1) transactional costs (as applicable); including sales charges (loads) on purchase payments; and (2) ongoing costs, including management fees; distribution and/or service (12b-1) fees (if applicable); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example below is based on an investment of $1,000 invested at the beginning of the period and held for the entire period, July 1, 2004 to December 31, 2004. ACTUAL EXPENSES The first line of each class of shares in the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over a period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second line for each class of shares in the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratios for each class of shares and an assumed rate of return of 5% per year before expenses, which is not the actual Fund's return for each class of shares. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs (as applicable), such as sales charges (loads). Therefore, the second line in the table for each class of shares is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
BEGINNING ENDING EXPENSES PAID ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD* JULY 1, 2004 DECEMBER 31, 2004 7/1/04 - 12/31/04 ------------------------------------------------------------------------------------------------ CLASS A ACTUAL $ 1,000.00 $ 1,092.20 $ 6.06 HYPOTHETICAL (5% RETURN BEFORE EXPENSES) 1,000.00 1,019.41 5.85 CLASS B ACTUAL 1,000.00 1,088.70 10.00 HYPOTHETICAL (5% RETURN BEFORE EXPENSES) 1,000.00 1,015.63 9.65 CLASS C ACTUAL 1,000.00 1,090.10 8.69 HYPOTHETICAL (5% RETURN BEFORE EXPENSES) 1,000.00 1,016.89 8.39 CLASS Y ACTUAL 1,000.00 1,093.80 4.75 HYPOTHETICAL (5% RETURN BEFORE EXPENSES) 1,000.00 1,020.67 4.58
* EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO: CLASS A: 1.15%, CLASS B: 1.90%, CLASS C: 1.65%, CLASS Y: 0.90%, MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 184 DIVIDED BY 365 (TO REFLECT THE ONE-HALF YEAR PERIOD). 32 COUNTRY EXPOSURE, TOP FIVE AS OF DECEMBER 31, 2004 (UNAUDITED)
PERCENTAGE OF NET ASSETS --------------------------------------------------- United States 44.2% Germany 17.8 Japan 10.2 United Kingdom 6.0 France 5.5 --------------------------------------------------- Total 83.7%
CURRENCY EXPOSURE, TOP FIVE AS OF DECEMBER 31, 2004 (UNAUDITED)
PERCENTAGE OF MARKET VALUE --------------------------------------------------- United States Dollar 42.3% Euro 40.3 Japanese Yen 12.0 British Pound 3.2 Canadian Dollar 1.4 --------------------------------------------------- Total 99.2%
TOP TEN FIXED INCOME HOLDINGS AS OF DECEMBER 31, 2004 (UNAUDITED)
PERCENTAGE OF NET ASSETS --------------------------------------------------- Government of Japan 0.800%, due 03/20/13 4.2% Bundesschatzanweisungen 2.500%, due 03/18/05 4.0 Government of Japan 1.300%, due 06/20/11 4.0 U.S. Treasury Note 4.000%, due 02/15/14 3.8 Deutsche Bundesrepublik 6.250%, due 01/04/24 3.1 Deutsche Bundesrepublik 5.000%, due 07/04/12 2.9% U.S. Treasury Note 2.750%, due 07/31/06 2.9 Deutsche Bundesrepublik 6.000%, due 01/04/07 2.6 Republic of Austria 5.875%, due 07/15/06 2.3 Government of France 5.500%, due 04/25/07 2.1 --------------------------------------------------- Total 31.9%
33 UBS GLOBAL BOND FUND INDUSTRY DIVERSIFICATION AS A PERCENT OF NET ASSETS AS OF DECEMBER 31, 2004 (UNAUDITED) BONDS U.S. BONDS U.S. CORPORATE BONDS Automobiles 1.11% Beverages 0.09 Capital Markets 0.31 Chemicals 0.12 Commercial Banks 0.27 Commercial Services & Supplies 0.16 Consumer Finance 1.15 Diversified Financial Services 1.07 Diversified Telecommunication Services 0.17 Electric Utilities 0.49 Food & Staples Retailing 0.16 Food Products 0.16 Gas Utilities 0.29 Hotels, Restaurants & Leisure 0.08 Industrial Conglomerates 0.43 Insurance 0.31 IT Services 0.08 Media 0.53 Metals & Mining 0.09 Multi-Utilities & Unregulated Power 0.16 Oil & Gas 0.09 Paper & Forest Products 0.15 Personal Products 0.08 Pharmaceuticals 0.04 Real Estate 0.28 Road & Rail 0.28 Thrifts & Mortgage Finance 0.28 Tobacco 0.19 Wireless Telecommunication Services 0.09 ------ Total U.S. Corporate Bonds 8.71 Asset-Backed Securities 0.57 Commercial Mortgage-Backed Securities 3.38 Mortgage and Agency Debt Securities 3.86 U.S. Government Obligations 9.55 ------ Total U.S. Bonds 26.07 INTERNATIONAL BONDS INTERNATIONAL CORPORATE BONDS Capital Markets 0.20% Commercial Banks 3.40 Commercial Services & Supplies 0.50 Construction Materials 0.43 Diversified Financial Services 1.72 Diversified Telecommunication Services 2.22 Electric Utilities 1.26 Food & Staples Retailing 0.71 Household Durables 0.10 Insurance 0.46 Internet Software & Services 0.13 Metals & Mining 0.29 Multi-Utilities & Unregulated Power 0.26 Non-Agency 0.35 Paper & Forest Products 0.23 Textiles, Apparel & Luxury Goods 0.09 Tobacco 0.48 Water Utilities 0.92 Wireless Telecommunication Services 1.26 ------ Total International Corporate Bonds 15.01 Foreign Government Bonds 39.32 Sovereign/Supranational Bond 0.70 ------ Total International Bonds 55.03 TOTAL BONDS 81.10 INVESTMENT COMPANY 16.50 SHORT-TERM INVESTMENT 1.61 ------ TOTAL INVESTMENTS 99.21 CASH AND OTHER ASSETS, LESS LIABILITIES 0.79 ------ NET ASSETS 100.00% ======
34 UBS GLOBAL BOND FUND -- SCHEDULE OF INVESTMENTS DECEMBER 31, 2004 (UNAUDITED)
FACE AMOUNT VALUE --------------- --------------- BONDS -- 81.10% U.S. BONDS -- 26.07% U.S. CORPORATE BONDS -- 8.71% Alcoa, Inc. 6.000%, due 01/15/12 $ 60,000 $ 65,545 Altria Group, Inc. 7.750%, due 01/15/27 110,000 123,461 American Electric Power Co., Inc. 6.125%, due 05/15/06 80,000 82,911 American General Finance Corp. 5.875%, due 07/14/06 60,000 62,210 AT&T Wireless Services, Inc. 7.350%, due 03/01/06 60,000 62,768 Avon Products, Inc. 7.150%, due 11/15/09 50,000 56,512 Bank of America Corp. 7.400%, due 01/15/11 30,000 34,751 Bank One Corp. 7.875%, due 08/01/10 50,000 58,321 Boeing Capital Corp. 7.375%, due 09/27/10 50,000 57,646 Bombardier Capital, Inc., 144A 6.125%, due 06/29/06 120,000 120,000 C.S. First Boston USA, Inc. 6.500%, due 01/15/12 60,000 66,779 Cendant Corp. 6.875%, due 08/15/06 110,000 115,727 Citigroup, Inc., 144A 5.000%, due 09/15/14 153,000 153,738 Comcast Cable Communications, Inc. 6.750%, due 01/30/11 110,000 123,528 Commonwealth Edison Co. 6.150%, due 03/15/12 60,000 65,957 Computer Sciences Corp. 3.500%, due 04/15/08 60,000 59,488 Countrywide Home Loans, Inc. 3.250%, due 05/21/08 60,000 58,670 DaimlerChrysler N.A. Holding Corp. 4.050%, due 06/04/08 150,000 149,690 Devon Financing Corp., ULC 6.875%, due 09/30/11 60,000 67,953 Dominion Resources, Inc., Class B 7.625%, due 07/15/05 90,000 92,137 Dow Chemical Co. 5.970%, due 01/15/09 60,000 64,330 Duke Energy Field Services LLC 7.500%, due 08/16/05 110,000 112,906 EOP Operating LP 8.375%, due 03/15/06 190,000 200,406 Erac U.S.A. Finance Co., 144A 8.000%, due 01/15/11 100,000 117,718 FleetBoston Financial Corp. 7.375%, due 12/01/09 90,000 102,794 Ford Motor Co. 7.450%, due 07/16/31 100,000 100,574 Ford Motor Credit Co. 5.800%, due 01/12/09 270,000 275,978 6.750%, due 01/14/08 65,000 94,832 FPL Group Capital, Inc. 6.125%, due 05/15/07 $ 110,000 $ 116,289 General Electric Capital Corp. 2.850%, due 01/30/06 240,000 239,393 4.125%, due 12/15/06 35,000 66,440 4.375%, due 01/20/10 35,000 49,980 6.750%, due 03/15/32 110,000 128,749 General Motors Acceptance Corp. 6.000%, due 07/03/08 80,000 112,784 6.125%, due 02/01/07 170,000 174,569 6.875%, due 09/15/11 90,000 92,231 8.000%, due 11/01/31 110,000 113,067 Goldman Sachs Group, Inc. 6.875%, due 01/15/11 60,000 67,691 Harrah's Operating Co., Inc. 7.500%, due 01/15/09 50,000 55,407 Household Finance Corp. 6.750%, due 05/15/11 25,000 28,056 7.875%, due 03/01/07 190,000 206,754 ICI Wilmington, Inc. 4.375%, due 12/01/08 25,000 25,141 International Lease Finance Corp. 6.000%, due 10/24/07 210,000 307,903 International Paper Co. 6.750%, due 09/01/11 60,000 67,268 Kinder Morgan, Inc. 6.650%, due 03/01/05 150,000 150,976 Kraft Foods, Inc. 5.625%, due 11/01/11 110,000 116,484 Kroger Co. 8.050%, due 02/01/10 50,000 58,528 Marsh & Mclennan Cos., Inc. 6.250%, due 03/15/12 70,000 73,250 Miller Brewing Co., 144A 5.500%, due 08/15/13 60,000 62,715 Morgan Stanley 6.750%, due 04/15/11 140,000 157,029 Qwest Capital Funding, Inc. 7.900%, due 08/15/10 30,000 30,300 Reed Elsevier Capital, Inc. 5.750%, due 07/31/08 125,000 185,099 Sempra Energy 7.950%, due 03/01/10 50,000 57,792 SLM Corp. 5.625%, due 04/10/07 90,000 93,857 Sprint Capital Corp. 8.375%, due 03/15/12 75,000 91,361 Time Warner, Inc. 7.625%, due 04/15/31 60,000 72,586 Union Pacific Corp. 6.700%, due 12/01/06 80,000 84,574 UST, Inc. 6.625%, due 07/15/12 10,000 11,166 Wal-Mart Stores, Inc. 6.875%, due 08/10/09 50,000 56,145 Washington Mutual, Inc. 5.625%, due 01/15/07 140,000 145,797 Weyerhaeuser Co. 6.125%, due 03/15/07 39,000 41,065
35
FACE AMOUNT VALUE --------------- --------------- Wyeth 5.250%, due 03/15/13 $ 25,000 $ 25,983 Zurich Finance (USA), Inc.+ 5.750%, due 10/02/23 100,000 148,067 --------------- 6,261,826 --------------- ASSET-BACKED SECURITIES -- 0.57% Americredit Automobile Receivables Trust, 03-AM, Class A2B+ 2.601%, due 10/06/06 159 159 Capital One Multi-Asset Execution Trust, 03-A1, Class A1+ 2.793%, due 01/15/09 75,000 75,351 Centerpoint Energy Transition Bond Co., LLC 01-1, Class A4 5.630%, due 09/15/15 30,000 32,093 Conseco Finance Securitizations Corp., 00-B, Class AF4 7.870%, due 02/15/31 58 58 Countrywide Asset-Backed Certificates, 04-SD1, Class A1, 144A+ 2.758%, due 06/25/33 24,168 24,209 Paragon Mortgages PLC, 7A, Class B1A, 144A+ 3.040%, due 05/15/43 100,000 100,285 Peco Energy Transition Trust, 99-A, Class A7 6.130%, due 03/01/09 55,000 58,814 RAFC Asset-Backed Trust, 01-1, Class A3 (a) 5.115%, due 11/25/29 21,218 21,357 Sears Credit Account Master Trust, 01-1, Class A+ 2.583%, due 02/15/10 75,000 74,983 Structured Asset Securities Corp., 03-AL2, Class A, 144A 3.357%, due 01/25/31 21,603 20,025 --------------- 407,334 --------------- COMMERCIAL MORTGAGE-BACKED SECURITIES -- 3.38% Asset Securitization Corp., 95-MD4, Class A3+ 7.384%, due 08/13/29 350,000 381,688 Bear Stearns Commercial Mortgage Securities, 00-WF2, Class A2 7.320%, due 10/15/32 80,000 91,293 DLJ Commercial Mortgage Corp., 00-CKP1, Class A1B 7.180%, due 11/10/33 290,000 328,761 DLJ Commercial Mortgage Corp., 99-CG1, Class A1B 6.460%, due 03/10/32 20,000 21,694 DLJ Commercial Mortgage Corp., 99-CG3, Class A1B 7.340%, due 10/10/32 85,000 96,304 First Union Lehman Commercial Mortgage Securities, Inc., 97-C2, Class A3 6.650%, due 11/18/29 87,185 92,777 Greenwich Capital Commercial Funding Corp., 03-FL1, Class A, 144A+ 2.651%, due 07/05/18 $ 19,628 $ 19,637 Hilton Hotels Pool Trust, 00-HLTA, Class A1, 144A 7.055%, due 10/03/15 348,206 380,842 JP Morgan Commercial Mortgage Finance Corp., 99-C8, Class A1 7.325%, due 07/15/31 55,412 57,049 JP Morgan Commercial Mortgage Finance Corp., 99-C8, Class A2 7.400%, due 07/15/31 85,000 95,033 LB Commercial Conduit Mortgage Trust, 99-C1, Class A1 6.410%, due 06/15/31 50,166 51,893 LB Commercial Conduit Mortgage Trust, 99-C2, Class A2 7.325%, due 10/15/32 50,000 56,216 Mach One Trust Commercial Mortgage-Backed, 04-1A, Class A1, 144A 3.890%, due 05/28/40 181,331 180,591 Merrill Lynch Mortgage Investors, Inc., 96-C2, Class A3 6.960%, due 11/21/28 26,129 27,263 Merrill Lynch Mortgage Investors, Inc., 97-C2, Class A2 6.540%, due 12/10/29 18,716 19,875 Morgan Stanley Dean Witter Capital I, 00-LIF2, Class A1 6.960%, due 10/15/33 24,254 26,022 Nomura Asset Securities Corp., 95-MD3, Class A1B 8.150%, due 04/04/27 10,568 10,664 PNC Mortgage Acceptance Corp., 00-C1, Class A2 7.610%, due 02/15/10 375,000 425,840 Starwood Asset Receivables Trust, 03-1A, Class A1, 144A+ 2.670%, due 08/28/22 67,985 67,994 --------------- 2,431,436 --------------- MORTGAGE AND AGENCY DEBT SECURITIES -- 3.86% Federal Home Loan Mortgage Corp. 3.500%, due 04/01/08 30,000 29,829 3.875%, due 01/12/09 105,000 104,567 5.000%, due 01/30/14 85,000 85,023 5.125%, due 07/15/12 1,110,000 1,166,969 Federal National Mortgage Association 2.250%, due 05/15/06 670,000 662,036 2.625%, due 01/19/07 50,000 49,370 6.000%, due 05/15/08 320,000 344,333 6.250%, due 02/01/11 85,000 93,187 Government National Mortgage Association 6.500%, due 04/15/31 228,696 240,952 --------------- 2,776,266 ---------------
36
FACE AMOUNT VALUE --------------- --------------- U.S. GOVERNMENT OBLIGATIONS -- 9.55% U.S. Treasury Bonds 8.750%, due 05/15/17 $ 50,000 $ 70,061 U.S. Treasury Notes 1.625%, due 02/28/06 100,000 98,644 2.500%, due 09/30/06 1,260,000 1,249,122 2.750%, due 07/31/06 2,065,000 2,058,305 3.375%, due 09/15/09 270,000 267,532 4.000%, due 02/15/14 2,780,000 2,741,667 5.000%, due 02/15/11 355,000 377,645 --------------- 6,862,976 --------------- Total U.S. Bonds 18,739,838 --------------- INTERNATIONAL BONDS -- 55.03% INTERNATIONAL CORPORATE BONDS -- 15.01% AUSTRALIA -- 0.07% Telstra Corp., Ltd. 6.375%, due 06/29/11 EUR 30,000 47,004 --------------- BELGIUM -- 0.13% SCA Coordination Center NV 5.375%, due 06/25/07 EUR 65,000 93,421 --------------- CANADA -- 0.08% Telus Corp. 8.000%, due 06/01/11 $ 50,000 59,254 --------------- FINLAND -- 0.10% Fortum Oyj 6.475%, due 11/03/06 EUR 50,000 72,362 --------------- FRANCE -- 2.15% BNP Paribas 5.625%, due 08/07/08 EUR 100,000 147,368 5.750%, due 01/24/22 GBP 80,000 162,396 Casino Guichard Perrachon S.A. 5.875%, due 11/23/07 EUR 130,000 189,321 Dexia Credit Local 5.250%, due 04/25/08 195,000 283,924 France Telecom S.A. 6.000%, due 09/28/07 195,000 286,025 GIE Suez Alliance 4.250%, due 06/24/10 80,000 112,548 Lafarge S.A. 6.375%, due 07/26/07 110,000 162,166 LVMH Moet Hennessy Louis Vuitton S.A. 5.750%, due 02/28/05 50,000 68,286 Veolia Environnement 5.875%, due 06/27/08 90,000 133,148 --------------- 1,545,182 --------------- GERMANY -- 4.83% Bundesschatzanweisungen 2.500%, due 03/18/05 EUR 2,120,000 2,883,305 KFW Kreditanstalt fuer Wiederaufbau 4.750%, due 08/17/07 410,000 586,451 --------------- 3,469,756 --------------- IRELAND -- 0.32% Bank of Ireland 6.450%, due 02/10/10 EUR 150,000 231,919 --------------- NETHERLANDS -- 2.45% Bank Nederlandse Gemeenten NV 4.625%, due 08/17/07 $ 65,000 $ 92,376 Deutsche Telekom International Finance BV 7.500%, due 05/29/07 130,000 194,951 8.125%, due 05/29/12 65,000 112,025 E.ON International Finance BV 5.750%, due 05/29/09 225,000 337,356 6.375%, due 05/29/12 GBP 100,000 207,987 Generali Finance BV 4.750%, due 05/12/14 EUR 65,000 94,460 Koninklijke (Royal) KNP NV 4.750%, due 11/05/08 65,000 92,976 Koninklijke (Royal) Philips Electronics NV 5.750%, due 05/16/08 50,000 73,406 Olivetti Finance NV 6.500%, due 04/24/07 65,000 95,144 6.575%, due 07/30/09 65,000 99,058 Prudential Finance BV 9.375%, due 06/04/07 GBP 35,000 73,674 RWE Finance BV 5.500%, due 10/26/07 EUR 200,000 290,803 --------------- 1,764,216 --------------- SINGAPORE -- 0.11% Singapore Telecommunications Ltd. 6.000%, due 11/21/11 EUR 50,000 76,768 --------------- UNITED KINGDOM -- 4.77% Anglian Water Services Financing PLC 4.625%, due 10/07/13 EUR 25,000 35,544 AWG PLC 5.375%, due 07/02/09 210,000 308,934 Barclays Bank PLC 5.750%, due 09/14/26 GBP 80,000 164,114 Credit Suisse Group Finance Guernsey Ltd. 6.375%, due 06/07/13 EUR 65,000 103,683 Gallaher Group PLC 5.875%, due 08/06/08 95,000 140,283 HBOS Treasury Services PLC 4.750%, due 02/06/07 195,000 276,053 Imperial Tobacco Finance PLC 6.250%, due 06/06/07 100,000 145,961 Lloyds TSB Bank PLC 4.750%, due 03/18/11 80,000 116,459 5.875%, due 06/20/14 GBP 110,000 221,622 7.750%, due 06/18/07 35,000 71,548 mmO2 PLC 6.375%, due 01/25/07 EUR 65,000 94,501 National Westminster Bank PLC 6.000%, due 01/21/10 115,000 174,864 6.500%, due 09/07/21 GBP 110,000 240,818 Permanent Financing PLC, 04, Class 2C+ 3.180%, due 06/10/42 $ 250,000 249,967 Rentokil Initial PLC 5.750%, due 05/21/07 EUR 250,000 358,602 Rio Tinto Finance PLC 5.125%, due 05/10/07 145,000 206,964
37
FACE AMOUNT VALUE --------------- --------------- Tesco PLC 5.250%, due 05/07/08 EUR 220,000 $ 319,576 Travelers Insurance Co. Institutional Funding Ltd. 5.750%, due 12/06/11 GBP 100,000 198,375 --------------- 3,427,868 --------------- Total International Corporate Bonds 10,787,750 --------------- FOREIGN GOVERNMENT BONDS -- 39.32% AUSTRALIA -- 0.90% Government of Australia 10.000%, due 10/15/07 AUD 730,000 644,042 --------------- AUSTRIA -- 2.26% Republic of Austria 5.875%, due 07/15/06 EUR 1,135,000 1,621,960 --------------- BELGIUM -- 1.38% Kingdom of Belgium 5.750%, due 03/28/08 EUR 280,000 414,939 6.500%, due 03/31/05 420,000 576,526 --------------- 991,465 --------------- CANADA -- 1.38% Government of Canada 5.000%, due 06/01/14 CAD 180,000 158,299 6.000%, due 09/01/05 390,000 332,614 6.000%, due 06/01/08 390,000 352,775 8.000%, due 06/01/23 130,000 151,875 --------------- 995,563 --------------- FINLAND -- 0.59% Government of Finland 5.000%, due 07/04/07 EUR 295,000 423,797 --------------- FRANCE -- 3.36% Government of France 5.500%, due 04/25/07 EUR 1,040,000 1,505,297 5.500%, due 04/25/29 140,000 226,203 6.000%, due 10/25/25 400,000 681,395 --------------- 2,412,895 --------------- GERMANY -- 12.95% Deutsche Bundesrepublik 4.250%, due 01/04/14 EUR 370,000 527,627 4.500%, due 07/04/09 830,000 1,199,576 5.000%, due 07/04/12 1,400,000 2,100,916 6.000%, due 01/05/06 1,000,000 1,409,039 6.000%, due 01/04/07 1,285,000 1,864,372 6.250%, due 01/04/24 1,270,000 2,206,812 --------------- 9,308,342 --------------- ITALY -- 3.52% Buoni Poliennali Del Tesoro 4.000%, due 07/15/05 EUR 250,000 342,904 5.000%, due 02/01/12 875,000 1,305,622 5.250%, due 11/01/29 230,000 352,834 6.750%, due 02/01/07 360,000 531,302 --------------- 2,532,662 --------------- JAPAN -- 10.18% Government of Japan 0.300%, due 09/20/07 JPY 126,000,000 $ 1,232,756 0.800%, due 03/20/13 318,850,000 3,017,298 1.300%, due 06/20/11 286,000,000 2,869,177 1.500%, due 03/20/14 20,000,000 198,000 --------------- 7,317,231 --------------- NETHERLANDS -- 1.55% Government of Netherlands 4.000%, due 07/15/05 EUR 405,000 555,522 5.000%, due 07/15/11 375,000 561,460 --------------- 1,116,982 --------------- UNITED KINGDOM -- 1.25% U.K. Gilts 5.000%, due 03/07/12 GBP 100,000 197,596 6.000%, due 12/07/28 35,000 82,288 8.000%, due 06/07/21 230,000 618,102 --------------- 897,986 --------------- Total Foreign Government Bonds 28,262,925 --------------- SOVEREIGN/SUPRANATIONAL BOND -- 0.70% European Investment Bank 4.000%, due 01/15/07 EUR 360,000 503,117 --------------- Total International Bonds 39,553,792 --------------- Total Bonds (Cost $53,606,833) 58,293,630 --------------- SHARES --------------- INVESTMENT COMPANY -- 16.50% UBS U.S. Securitized Mortgage Relationship Fund (Cost $11,530,767) 1,010,545 11,857,030 --------------- SHORT-TERM INVESTMENT -- 1.61% UBS Supplementary Trust U.S. Cash Management Prime Fund, yield of 2.28% (Cost $1,155,451) 1,155,451 1,155,451 --------------- Total Investments (Cost $66,293,051) -- 99.21% 71,306,111 Cash and other assets, less liabilities -- 0.79% 567,444 --------------- Net Assets -- 100% $ 71,873,555 ===============
38 NOTES TO SCHEDULE OF INVESTMENTS Aggregate cost for federal income tax purposes was $66,293,051; and net unrealized appreciation consisted of: Gross unrealized appreciation $ 5,072,674 Gross unrealized depreciation (59,614) ------------ Net unrealized appreciation $ 5,013,060 ============
+ Variable rate note - The rate disclosed is that in effect at December 31, 2004. (a) Step Bonds - Coupon rate increases in increments to maturity. Rate disclosed is as of December 31, 2004. Maturity date disclosed is the ultimate maturity date. % 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 December 31, 2004 the value of these securities amounted to $1,247,754 or 1.74% of net assets. AUD Australian Dollar CAD Canadian Dollar DKK Danish Krone EUR Euro GBP British Pound JPY Japanese Yen SEK Swedish Krone SGD Singapore Dollar THB Thailand Baht USD United States Dollar FORWARD FOREIGN CURRENCY CONTRACTS UBS Global Bond Fund had the following open forward foreign currency contracts as of December 31, 2004:
UNREALIZED CONTRACTS IN EXCHANGE MATURITY APPRECIATION TO DELIVER FOR DATES (DEPRECIATION) ---------- --------------------- -------- -------------- Australian Dollar 490,000 USD 380,436 06/03/05 $ 474 British Pound 500,000 USD 934,955 06/03/05 (16,912) Canadian Dollar 1,000,000 USD 846,525 06/03/05 11,789 Euro 5,380,000 USD 7,130,406 06/03/05 (198,320) Euro 200,000 USD 273,060 01/06/05 1,207 United States Dollar 1,230,774 CAD 1,470,000 06/03/05 (3,712) United States Dollar 445,680 DKK 2,500,000 06/03/05 12,065 United States Dollar 1,370,098 EUR 1,030,000 06/03/05 32,985 United States Dollar 571,026 GBP 300,000 06/03/05 94 United States Dollar 6,939,523 JPY 705,000,000 06/03/05 18,313 United States Dollar 796,398 SGD 1,300,000 06/03/05 3,998 United States Dollar 385,108 SEK 2,600,000 06/03/05 7,158 United States Dollar 761,615 THB 30,000,000 06/03/05 11,017 -------------- Total net unrealized depreciation on forward foreign currency contracts $ (119,844) ==============
See accompanying notes to financial statements 39 UBS U.S. LARGE CAP EQUITY FUND For the six months ended December 31, 2004, Class Y shares of UBS U.S. Large Cap Equity Fund (the "Fund") returned 9.77%, outperforming the 7.81% of the Fund's benchmark, the Russell 1000 Index (the "Index"). Since inception on February 22, 1994 through period end, the Fund returned 11.30% on an annualized basis, slightly outperforming the 11.07% annualized return of the Index. (Class Y shares have lower expenses than other share classes in the series. 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). During the period, a combination of stock selection and sector allocation decisions helped the Fund outperform during the period. BOTTOM-UP RESEARCH GUIDED SECTOR ALLOCATIONS In our opinion, the US stock market was trading at close to fair value during much of the reporting period. In this environment, we relied on our in-depth, bottom-up research analysis to uncover sector and stock selection opportunities. This research directed us to overweight select segments of the materials, transportation and healthcare industries, while underweighting technology hardware. The Fund's exposure to materials companies supported relative performance over the reporting period. Our holdings in this area were concentrated in construction companies. In transportation, the Fund's overweight was primarily a result of its position in railroads, where our analysis suggested the potential for strong growth, as well as a favorable pricing environment and enhanced productivity. For example, the Fund saw strong contributions from its position in Burlington Northern Santa Fe Corp., a North American railroad network that provides transportation services for a wide range of products and commodities. Burlington Northern Santa Fe Corp. stock rose over the holding period, as continued strong pricing power and increased volume boosted the company's earnings. The Fund's overweight in healthcare was comprised largely of pharmaceuticals companies, stocks that provided mixed results during the period. Pharmaceuticals stocks in general were hurt by negative press, raising investors' fears about the impact of drug re-importation and Medicare prescription drug benefits. In our opinion, the proposed changes will have little effect--and may potentially benefit--our holdings, which are generally targeted "niche" companies and companies with solid drug pipelines. Among our pharmaceuticals stocks that delivered solid returns over the six months was Wyeth. The Fund also benefited from other holdings in the healthcare industry, including UnitedHealth Group Inc., a diversified health services company. The Fund maintained its underweight exposure to technology over the last six months. Early in the review period, we added opportunistically to our computer software exposure, but remained underweight relative to the benchmark. This underweight helped the Fund's relative performance as software continued to find its footing in the economic recovery. In contrast, the Fund's underweight in energy hindered performance. Energy stocks were supported over the period by rising oil prices. Our analysis suggests that oil prices have peaked, however, and should decline as the geopolitical situation stabilizes. In our opinion, energy stock prices in general are overvalued and do not represent an attractive value opportunity for the Fund. LOOKING AHEAD At year-end, the overall market was, in our estimate, in the fair value range. There were no identifiable macro themes driving our portfolio strategy. We believe the most attractive opportunities going forward are in high-quality, low-volatility stocks. The Fund is positioned toward companies with strong cash flows and with the ability to pay or increase dividends and/or repurchase shares. We expect moderate earnings growth above the long-term trend, but below what we have seen in 2004. Against this backdrop, the Fund's beta position was close to neutral at year-end. Going into 2005, we continue to find excellent bottom-up stock selection opportunities. We continue to believe some of the most attractive opportunities are in the financial and health care sectors. The pharmaceuticals sector grabbed the headlines as fears of drug re-importation 40 reemerged. We remain underweighted to technology and energy stocks, as current valuations, in our opinion, are not attractive. 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. 41 TOTAL RETURN (UNAUDITED)
6 MONTHS 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION* ENDED ENDED ENDED ENDED ENDED TO 12/31/04 12/31/04 12/31/04 12/31/04 12/31/04 12/31/04 ------------------------------------------------------------------------------------------------------------------------ UBS U.S. LARGE CAP EQUITY FUND CLASS A 9.62% 13.06% 6.93% 5.04% N/A 5.94% UBS U.S. LARGE CAP EQUITY FUND CLASS B 9.22 12.20 6.15 N/A N/A 8.18 UBS U.S. LARGE CAP EQUITY FUND CLASS C 9.22 12.20 6.17 N/A N/A 7.28 UBS U.S. LARGE CAP EQUITY FUND CLASS Y 9.77 13.34 7.26 5.35 12.52% 11.30 UBS U.S. LARGE CAP EQUITY FUND CLASS A** 3.56 6.83 4.92 3.86 N/A 5.14 UBS U.S. LARGE CAP EQUITY FUND CLASS B** 4.22 7.20 5.26 N/A N/A 7.65 UBS U.S. LARGE CAP EQUITY FUND CLASS C** 8.22 11.20 6.17 N/A N/A 7.28 RUSSELL 1000 INDEX*** 7.81 11.40 4.27 -1.76 12.16 11.07
* INCEPTION DATE OF UBS U.S. LARGE CAP 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. THE Y SHARE CLASS IS OUR LOWEST FEE SHARE CLASS. OUR OTHER SHARE CLASSES INCLUDE HIGHER FEE AND LOADS, WHICH IF DEDUCTED WOULD RESULT IN LOWER PERFORMANCE. 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. 42 EXPLANATION OF EXPENSE DISCLOSURE (UNAUDITED) As a shareholder of the Fund, you incur two types of costs: (1) transactional costs (as applicable); including sales charges (loads) on purchase payments; and (2) ongoing costs, including management fees; distribution and/or service (12b-1) fees (if applicable); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example below is based on an investment of $1,000 invested at the beginning of the period and held for the entire period, July 1, 2004 to December 31, 2004. ACTUAL EXPENSES The first line of each class of shares in the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over a period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second line for each class of shares in the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratios for each class of shares and an assumed rate of return of 5% per year before expenses, which is not the actual Fund's return for each class of shares. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs (as applicable), such as sales charges (loads). Therefore, the second line in the table for each class of shares is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
BEGINNING ENDING EXPENSES PAID ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD* JULY 1, 2004 DECEMBER 31, 2004 7/1/04 - 12/31/04 --------------------------------------------------------------------------------------------- CLASS A ACTUAL $ 1,000.00 $ 1,096.20 $ 6.31 HYPOTHETICAL (5% RETURN BEFORE EXPENSES) 1,000.00 1,019.18 6.08 CLASS B ACTUAL 1,000.00 1,092.20 10.77 HYPOTHETICAL (5% RETURN BEFORE EXPENSES) 1,000.00 1,014.91 10.38 CLASS C ACTUAL 1,000.00 1,092.20 10.50 HYPOTHETICAL (5% RETURN BEFORE EXPENSES) 1,000.00 1,015.17 10.12 CLASS Y ACTUAL 1,000.00 1,097.70 5.02 HYPOTHETICAL (5% RETURN BEFORE EXPENSES) 1,000.00 1,020.42 4.83
* EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO: CLASS A: 1.19%, CLASS B: 2.04%, CLASS C: 1.99%, CLASS Y: 0.95%, MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 184 DIVIDED BY 365 (TO REFLECT THE ONE-HALF YEAR PERIOD). 43 TOP TEN EQUITY HOLDINGS AS OF DECEMBER 31, 2004 (UNAUDITED)
PERCENTAGE OF NET ASSETS ------------------------------------------------------- Citigroup, Inc. 4.2% Johnson & Johnson 3.8 Nextel Communications, Inc., Class A 3.3 Wells Fargo & Co. 3.3 Burlington Northern Santa Fe Corp. 3.3 Morgan Stanley 3.0 Allergan, Inc. 2.7 ExxonMobil Corp. 2.7 Microsoft Corp. 2.7 Freddie Mac 2.7 ------------------------------------------------------- Total 31.7%
INDUSTRY DIVERSIFICATION AS A PERCENT OF NET ASSETS AS OF DECEMBER 31, 2004 (UNAUDITED) U.S. EQUITIES Aerospace & Defense 2.10% Auto Components 1.30 Biotechnology 2.50 Building Products 2.62 Capital Markets 5.09 Commercial Banks 4.41 Commercial Services & Supplies 0.52 Computers & Peripherals 0.58 Construction Materials 1.46 Diversified Financial Services 6.42 Diversified Telecommunication Services 0.81 Electric Utilities 5.05 Electronic Equipment & Instruments 1.15 Food & Staples Retailing 4.90 Health Care Equipment & Supplies 0.68 Health Care Providers & Services 4.70 Household Products 1.38 Insurance 4.15 Internet & Catalog Retail 0.91% Machinery 2.32 Media 8.81 Multi-Utilities & Unregulated Power 1.29 Multiline Retail 0.92 Oil & Gas 4.15 Pharmaceuticals 12.28 Road & Rail 3.26 Software 4.33 Specialty Retail 1.17 Thrifts & Mortgage Finance 2.65 Wireless Telecommunication Services 3.31 --------- Total U.S. Equities 95.22 SHORT-TERM INVESTMENTS 6.77 --------- TOTAL INVESTMENTS 101.99 LIABILITIES, IN EXCESS OF CASH AND OTHER ASSETS (1.99) --------- NET ASSETS 100.00% =========
44 UBS U.S. LARGE CAP EQUITY FUND -- SCHEDULE OF INVESTMENTS DECEMBER 31, 2004 (UNAUDITED)
SHARES VALUE --------------- --------------- U.S. EQUITIES -- 95.22% AEROSPACE & DEFENSE -- 2.10% Lockheed Martin Corp. 37,400 $ 2,077,570 Northrop Grumman Corp. 41,900 2,277,684 --------------- 4,355,254 --------------- AUTO COMPONENTS -- 1.30% Johnson Controls, Inc. 42,500 2,696,200 --------------- BIOTECHNOLOGY -- 2.50% Cephalon, Inc. (a) 34,800 1,770,624 Genzyme Corp. (a) 59,000 3,426,130 --------------- 5,196,754 --------------- BUILDING PRODUCTS -- 2.62% Masco Corp. 148,700 5,432,011 --------------- CAPITAL MARKETS -- 5.09% Mellon Financial Corp. 138,800 4,318,068 Morgan Stanley 112,500 6,246,000 --------------- 10,564,068 --------------- COMMERCIAL BANKS -- 4.41% PNC Financial Services Group, Inc. 41,100 2,360,784 Wells Fargo & Co. 109,200 6,786,780 --------------- 9,147,564 --------------- COMMERCIAL SERVICES & SUPPLIES -- 0.52% Equifax, Inc. 38,300 1,076,230 --------------- COMPUTERS & PERIPHERALS -- 0.58% Hewlett-Packard Co. 57,600 1,207,872 --------------- CONSTRUCTION MATERIALS -- 1.46% Martin Marietta Materials, Inc. 56,407 3,026,800 --------------- DIVERSIFIED FINANCIAL SERVICES -- 6.42% Citigroup, Inc. 180,461 8,694,611 JPMorgan Chase & Co. 118,500 4,622,685 --------------- 13,317,296 --------------- DIVERSIFIED TELECOMMUNICATION SERVICES -- 0.81% SBC Communications, Inc. 65,300 1,682,781 --------------- ELECTRIC UTILITIES -- 5.05% American Electric Power Co., Inc. 55,400 1,902,436 Exelon Corp. 106,900 4,711,083 FirstEnergy Corp. 74,545 2,945,273 Pepco Holdings, Inc. 43,300 923,156 --------------- 10,481,948 --------------- ELECTRONIC EQUIPMENT & INSTRUMENTS -- 1.15% Mettler Toledo International, Inc. (a) 46,600 2,391,046 --------------- FOOD & STAPLES RETAILING -- 4.90% Albertson's, Inc. 113,700 2,715,156 Costco Wholesale Corp. 96,800 4,686,088 Kroger Co. (a) 157,200 2,757,288 --------------- 10,158,532 --------------- HEALTH CARE EQUIPMENT & SUPPLIES -- 0.68% Medtronic, Inc. 28,400 1,410,628 --------------- HEALTH CARE PROVIDERS & SERVICES -- 4.70% Medco Health Solutions, Inc. (a) 9,800 $ 407,680 Quest Diagnostics, Inc. 13,500 1,289,925 UnitedHealth Group, Inc. 62,500 5,501,875 WellPoint, Inc. (a) 22,200 2,553,000 --------------- 9,752,480 --------------- HOUSEHOLD PRODUCTS -- 1.38% Kimberly-Clark Corp. 43,650 2,872,606 --------------- INSURANCE -- 4.15% Aflac, Inc. 41,800 1,665,312 Allstate Corp. 42,500 2,198,100 Hartford Financial Services Group, Inc. 29,900 2,072,369 Willis Group Holdings Ltd. 65,000 2,676,050 --------------- 8,611,831 --------------- INTERNET & CATALOG RETAIL -- 0.91% IAC/InterActiveCorp. (a) 68,100 1,880,922 --------------- MACHINERY -- 2.32% Illinois Tool Works, Inc. 51,900 4,810,092 --------------- MEDIA -- 8.81% Dex Media, Inc. 43,400 1,083,264 Omnicom Group, Inc. 50,900 4,291,888 Time Warner, Inc. (a) 203,700 3,959,928 Tribune Co. 48,900 2,060,646 Univision Communications, Inc. (a) 56,300 1,647,901 Viacom, Inc., Class B 144,200 5,247,438 --------------- 18,291,065 --------------- MULTI-UTILITIES & UNREGULATED POWER -- 1.29% CMS Energy Corp. (a) 70,950 741,428 Sempra Energy 52,500 1,925,700 --------------- 2,667,128 --------------- MULTILINE RETAIL -- 0.92% Kohl's Corp. (a) 39,000 1,917,630 --------------- OIL & GAS -- 4.15% ExxonMobil Corp. 109,600 5,618,096 Kerr-McGee Corp. 14,700 849,513 Marathon Oil Corp. 57,000 2,143,770 --------------- 8,611,379 --------------- PHARMACEUTICALS -- 12.28% Allergan, Inc. 70,100 5,683,007 Bristol-Myers Squibb Co. 69,600 1,783,152 Johnson & Johnson 123,044 7,803,450 Mylan Laboratories, Inc. 148,350 2,622,828 Pfizer, Inc. 89,700 2,412,033 Wyeth 121,600 5,178,944 --------------- 25,483,414 --------------- ROAD & RAIL -- 3.26% Burlington Northern Santa Fe Corp. 142,800 6,755,868 --------------- SOFTWARE -- 4.33% BEA Systems, Inc. (a) 25,800 228,588 Microsoft Corp. 209,000 5,582,390 Oracle Corp. (a) 230,800 3,166,576 --------------- 8,977,554 ---------------
45
SHARES VALUE --------------- --------------- SPECIALTY RETAIL -- 1.17% Advance Auto Parts, Inc. (a) 21,900 $ 956,592 TJX Cos., Inc. 58,200 1,462,566 --------------- 2,419,158 --------------- THRIFTS & MORTGAGE FINANCE -- 2.65% Freddie Mac 74,700 5,505,390 --------------- WIRELESS TELECOMMUNICATION SERVICES -- 3.31% Nextel Communications, Inc., Class A (a) 228,800 6,864,000 --------------- Total U.S. Equities (Cost $157,667,985) 197,565,501 --------------- SHORT-TERM INVESTMENTS -- 6.77% OTHER -- 6.43% UBS Supplementary Trust U.S. Cash Management Prime Fund, yield of 2.28% 13,353,349 13,353,349 ---------------
FACE AMOUNT VALUE --------------- --------------- U.S. GOVERNMENT OBLIGATIONS -- 0.34% U.S. Treasury Bills, yield of 1.70% due 02/03/05 (b) $ 700,000 $ 698,681 --------------- Total Short-Term Investments (Cost $14,052,259) 14,052,030 --------------- Total Investments (Cost $171,720,244) -- 101.99% 211,617,531 Liabilities, in excess of cash and other assets -- (1.99%) (4,128,814) --------------- Net Assets -- 100% $ 207,488,717 ===============
NOTES TO SCHEDULE OF INVESTMENTS Aggregate cost for federal income tax purposes was $171,720,244; and net unrealized appreciation consisted of: Gross unrealized appreciation $ 42,361,112 Gross unrealized depreciation (2,463,825) --------------- Net unrealized appreciation $ 39,897,287 ===============
(a) Non-income producing security. (b) These securities were 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 December 31, 2004:
EXPIRATION CURRENT UNREALIZED DATE COST VALUE APPRECIATION ---------- ------------ ------------ ------------- INDEX FUTURES BUY CONTRACTS: S&P 500 Index, 23 contracts March 2005 $ 6,919,736 $ 6,978,775 $ 59,039 =============
The aggregate market value of investments pledged to cover margin requirements for the open futures position at December 31, 2004 was $698,681. See accompanying notes to financial statements 46 UBS U.S. LARGE CAP GROWTH FUND For the six months ended December 31, 2004, Class Y shares of UBS U.S. Large Cap Growth Fund (the "Fund") returned 7.13%, outperforming the 3.47% return of the Fund's benchmark, the Russell 1000 Growth Index (the "Index"). Since performance inception on October 14, 1997 through period end, the Fund returned 1.43% on an annualized basis, versus the 1.61% annualized return of the Index. (Class Y shares have lower expenses than other share classes in the series. 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 delivered strong absolute and relative performance over the reporting period. However, it was generally considered a difficult year for growth investors. Rising interest rates, the continuing war on terrorism and the presidential election left uncertain investors favoring large-cap value stocks over their large-cap growth counterparts for much of the reporting period. Against this backdrop, stock selection, industry selection and risk factors all contributed to the Fund's relative outperformance. GROWTH INVESTMENT PHILOSOPHY AND PERFORMANCE SUMMARY Our long-standing investment process calls for us to identify large-cap companies that we believe will grow faster, more profitably and for a longer period of time than the market is discounting at the time of our purchase. We believe that as our thesis comes to fruition, our equity holdings in these companies will outperform the broader market. In the reporting period, we favored energy, financial services and telecommunications sectors but focused the majority of our attention on finding individual companies that offered the greatest potential outperformance. Relative performance was helped by our overweight in energy, a sector supported by rising oil prices. We expect crude oil prices will stay above $40.00 longer than the consensus opinion, and we believe that the intrinsic value of the reserves is understated by current stock prices. We own independent energy companies that have significant undeveloped acreage and a record of drilling and extraction success to expand reserves organically. In the sector, our favorite companies remain XTO Energy Inc. and EOG Resources Inc. Our underweight in pharmaceuticals was another position that helped the Fund's relative performance, as these stocks were dragged down by investors' concerns over proposed healthcare reform programs. We did, however, have several holdings in the healthcare sector that did very well. For example, Guidant Corp., a medical products company, and UnitedHealth Group Inc., a medical services company, were both among the Fund's top performing stocks for the reporting period. Underweight positions in the leisure industry hindered performance, including our lack of exposure in restaurants and hotels. We were also hurt by underweights in department stores and the freight industry. LOOKING AHEAD In an economic environment where the corporate earnings growth rate declines, the market tends to place a premium on the sustainability of earnings and the quality of a business model. In 2005, we do expect corporate earnings to slow from the torrid pace of the past two years. Thus, we expect the faster growing companies that possess decent earnings visibility to outperform the market. To that extent, we will continue to focus our research efforts on identifying companies that can grow revenues due to significant secular demand, have some pricing power, and have high returns on incremental capital deployed. With the valuation gap between growth and the value, near the low end of its range, we expect many of our companies to outperform when the valuation premium rises back to average levels. We remain optimistic that the business models that we own will continue to perform well in a slowing environment. 47 TOTAL RETURN (UNAUDITED)
6 MONTHS 1 YEAR 3 YEARS 5 YEARS INCEPTION* ENDED ENDED ENDED ENDED TO 12/31/04 12/31/04 12/31/04 12/31/04 12/31/04 ------------------------------------------------------------------------------------------------------ UBS U.S. LARGE CAP GROWTH FUND CLASS A 6.87% 11.65% 0.95% -7.92% -2.20% UBS U.S. LARGE CAP GROWTH FUND CLASS B 6.47 10.71 0.21 N/A 0.99 UBS U.S. LARGE CAP GROWTH FUND CLASS C 6.48 10.73 0.17 N/A -0.32 UBS U.S. LARGE CAP GROWTH FUND CLASS Y 7.13 11.98 1.22 -7.64 1.43 UBS U.S. LARGE CAP GROWTH FUND CLASS A** 0.98 5.51 -0.95 -8.95 -3.12 UBS U.S. LARGE CAP GROWTH FUND CLASS B** 1.47 5.71 -0.80 N/A 0.36 UBS U.S. LARGE CAP GROWTH FUND CLASS C** 5.48 9.73 0.17 N/A -0.32 RUSSELL 1000 GROWTH INDEX 3.47 6.30 -0.18 -9.29 1.61
* 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. THE Y SHARE CLASS IS OUR LOWEST FEE SHARE CLASS. OUR OTHER SHARE CLASSES INCLUDE HIGHER FEE AND LOADS, WHICH IF DEDUCTED WOULD RESULT IN LOWER PERFORMANCE. 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. 48 EXPLANATION OF EXPENSE DISCLOSURE (UNAUDITED) As a shareholder of the Fund, you incur two types of costs: (1) transactional costs (as applicable); including sales charges (loads) on purchase payments; and (2) ongoing costs, including management fees; distribution and/or service (12b-1) fees (if applicable); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example below is based on an investment of $1,000 invested at the beginning of the period and held for the entire period, July 1, 2004 to December 31, 2004. ACTUAL EXPENSES The first line of each class of shares in the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over a period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second line for each class of shares in the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratios for each class of shares and an assumed rate of return of 5% per year before expenses, which is not the actual Fund's return for each class of shares. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs (as applicable), such as sales charges (loads). Therefore, the second line in the table for each class of shares is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
BEGINNING ENDING EXPENSES PAID ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD* JULY 1, 2004 DECEMBER 31, 2004 7/1/04 - 12/31/04 ------------------------------------------------------------------------------------------------ CLASS A ACTUAL $ 1,000.00 $ 1,068.70 $ 5.47 HYPOTHETICAL (5% RETURN BEFORE EXPENSES) 1,000.00 1,019.91 5.35 CLASS B ACTUAL 1,000.00 1,064.70 9.37 HYPOTHETICAL (5% RETURN BEFORE EXPENSES) 1,000.00 1,016.13 9.15 CLASS C ACTUAL 1,000.00 1,064.80 9.37 HYPOTHETICAL (5% RETURN BEFORE EXPENSES) 1,000.00 1,016.13 9.15 CLASS Y ACTUAL 1,000.00 1,071.30 4.18 HYPOTHETICAL (5% RETURN BEFORE EXPENSES) 1,000.00 1,021.17 4.08
* EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO: CLASS A: 1.05%, CLASS B: 1.80%, CLASS C: 1.80%, CLASS Y: 0.80%, MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 184 DIVIDED BY 365 (TO REFLECT THE ONE-HALF YEAR PERIOD). 49 TOP TEN EQUITY HOLDINGS AS OF DECEMBER 31, 2004 (UNAUDITED)
PERCENTAGE OF NET ASSETS -------------------------------------------------------- eBay, Inc. 3.5% Wal-Mart Stores, Inc. 2.8 XTO Energy, Inc. 2.5 Dell, Inc. 2.4 Microsoft Corp. 2.4 Citigroup, Inc. 2.3 Forest Laboratories, Inc. 2.3 Guidant Corp. 2.3 Nextel Communications, Inc., Class A 2.1 Varian Medical Systems, Inc. 2.1 -------------------------------------------------------- Total 24.7%
INDUSTRY DIVERSIFICATION AS A PERCENTAGE OF NET ASSETS AS OF DECEMBER 31, 2004 (UNAUDITED) EQUITIES U.S. EQUITIES Aerospace & Defense 2.01% Auto Components 0.85 Biotechnology 4.56 Capital Markets 3.39 Communications Equipment 3.94 Computers & Peripherals 3.87 Diversified Financial Services 4.49 Energy Equipment & Services 3.05 Food & Staples Retailing 2.84 Health Care Equipment & Supplies 6.55 Health Care Providers & Services 4.51 Hotels, Restaurants & Leisure 1.18 Household Durables 1.52 Household Products 1.65 Industrial Conglomerates 0.65 Insurance 1.67 Internet & Catalog Retail 3.48 Internet Software & Services 3.77 IT Services 1.49 Machinery 3.03% Media 2.18 Oil & Gas 4.51 Personal Products 1.04 Pharmaceuticals 4.95 Semiconductors & Semiconductor Equipment 4.15 Software 7.42 Specialty Retail 5.95 Textiles, Apparel & Luxury Goods 1.49 Wireless Telecommunication Services 2.11 ------ Total U.S. Equities 92.30 INTERNATIONAL EQUITIES Industrial Conglomerates 1.33 ------ TOTAL EQUITIES 93.63 INVESTMENT COMPANY 4.04 SHORT-TERM INVESTMENT 2.62 ------ TOTAL INVESTMENTS 100.29 LIABILITIES, IN EXCESS OF CASH AND OTHER ASSETS (0.29) ------ NET ASSETS 100.00% ======
50 UBS U.S. LARGE CAP GROWTH FUND -- SCHEDULE OF INVESTMENTS DECEMBER 31, 2004 (UNAUDITED)
SHARES VALUE --------------- --------------- EQUITIES -- 93.63% U.S. EQUITIES -- 92.30% AEROSPACE & DEFENSE -- 2.01% United Technologies Corp. 1,300 $ 134,355 --------------- AUTO COMPONENTS -- 0.85% Johnson Controls, Inc. 900 57,096 --------------- BIOTECHNOLOGY -- 4.56% Genentech, Inc. (a) 800 43,552 Gilead Sciences, Inc. (a) 3,600 125,964 Medimmune, Inc. (a) 5,000 135,550 --------------- 305,066 --------------- CAPITAL MARKETS -- 3.39% Goldman Sachs Group, Inc. 1,300 135,252 Morgan Stanley 1,650 91,608 --------------- 226,860 --------------- COMMUNICATIONS EQUIPMENT -- 3.94% Avaya, Inc. (a) 4,100 70,520 Cisco Systems, Inc. (a) 6,400 123,520 Lucent Technologies, Inc. (a) 1,031 1,629 QUALCOMM, Inc. 1,600 67,840 --------------- 263,509 --------------- COMPUTERS & PERIPHERALS -- 3.87% Dell, Inc. (a) 3,800 160,132 International Business Machines Corp. 1,000 98,580 --------------- 258,712 --------------- DIVERSIFIED FINANCIAL SERVICES -- 4.49% CIT Group, Inc. 1,500 68,730 Citigroup, Inc. 3,183 153,357 Moody's Corp. 900 78,165 --------------- 300,252 --------------- ENERGY EQUIPMENT & SERVICES -- 3.05% GlobalSantaFe Corp. 2,600 86,086 Noble Corp. (a) 1,300 64,662 Schlumberger Ltd. 800 53,560 --------------- 204,308 --------------- FOOD & STAPLES RETAILING -- 2.84% Wal-Mart Stores, Inc. 3,600 190,152 --------------- HEALTH CARE EQUIPMENT & SUPPLIES -- 6.55% Guidant Corp. 2,100 151,410 Medtronic, Inc. 900 44,703 Varian Medical Systems, Inc. (a) 3,200 138,368 Zimmer Holdings, Inc. (a) 1,300 104,156 --------------- 438,637 --------------- HEALTH CARE PROVIDERS & SERVICES -- 4.51% Aetna, Inc. 600 74,850 UnitedHealth Group, Inc. 1,400 123,242 WellPoint, Inc. (a) 900 103,500 --------------- 301,592 --------------- HOTELS, RESTAURANTS & LEISURE -- 1.18% International Game Technology 2,300 79,074 --------------- HOUSEHOLD DURABLES -- 1.52% Pulte Homes, Inc. 1,600 $ 102,080 --------------- HOUSEHOLD PRODUCTS -- 1.65% Proctor & Gamble Co. 2,000 110,160 --------------- INDUSTRIAL CONGLOMERATES -- 0.65% General Electric Co. 1,200 43,800 --------------- INSURANCE -- 1.67% American International Group, Inc. 1,700 111,639 --------------- INTERNET & CATALOG RETAIL -- 3.48% eBay, Inc. (a) 2,000 232,560 --------------- INTERNET SOFTWARE & SERVICES -- 3.77% Google, Inc. (a) 700 135,170 Yahoo!, Inc. (a) 3,100 116,808 --------------- 251,978 --------------- IT SERVICES -- 1.49% Accenture Ltd., Class A (a) 3,700 99,900 --------------- MACHINERY -- 3.03% Illinois Tool Works, Inc. 800 74,144 Ingersoll-Rand Co., Class A 1,600 128,480 --------------- 202,624 --------------- MEDIA -- 2.18% EchoStar Communications Corp., Class A 1,750 58,170 Fox Entertainment Group, Inc., Class A (a) 2,800 87,528 --------------- 145,698 --------------- OIL & GAS -- 4.51% Devon Energy Corp. 1,400 54,488 EOG Resources, Inc. 1,100 78,496 XTO Energy, Inc. 4,775 168,939 --------------- 301,923 --------------- PERSONAL PRODUCTS -- 1.04% Avon Products, Inc. 1,800 69,660 --------------- PHARMACEUTICALS -- 4.95% Forest Laboratories, Inc. (a) 3,400 152,524 Johnson & Johnson 1,500 95,130 Schering-Plough Corp. 4,000 83,520 --------------- 331,174 --------------- SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 4.15% Analog Devices, Inc. 1,500 55,380 Broadcom Corp. (a) 2,000 64,560 Intel Corp. 4,750 111,103 Linear Technology Corp. 1,200 46,512 --------------- 277,555 --------------- SOFTWARE -- 7.42% Adobe Systems, Inc. 1,700 106,658 Electronic Arts, Inc. (a) 1,800 111,024 Microsoft Corp. 5,900 157,589 Symantec Corp. (a) 4,700 121,072 --------------- 496,343 ---------------
51
SHARES VALUE --------------- --------------- SPECIALTY RETAIL -- 5.95% Abercrombie & Fitch Co. 2,000 $ 93,900 Best Buy Co., Inc. 1,400 83,188 Circuit City Stores, Inc. 3,500 54,740 Lowe's Cos., Inc. 1,800 103,662 Sherwin-Williams Co. 1,400 62,482 --------------- 397,972 --------------- TEXTILES, APPAREL & LUXURY GOODS -- 1.49% Nike, Inc. 1,100 99,759 --------------- WIRELESS TELECOMMUNICATION SERVICES -- 2.11% Nextel Communications, Inc., Class A (a) 4,700 141,000 --------------- Total U.S. Equities 6,175,438 --------------- INTERNATIONAL EQUITIES -- 1.33% INDUSTRIAL CONGLOMERATES -- 1.33% Tyco International Ltd. 2,500 89,350 --------------- Total Equities (Cost $5,243,387) 6,264,788 --------------- INVESTMENT COMPANY -- 4.04% iShares Russell 1000 Growth Index Fund (Cost $264,783) 5,500 270,325 --------------- SHORT-TERM INVESTMENT -- 2.62% UBS Supplementary Trust U.S. Cash Management Prime Fund, yield of 2.28% (Cost $175,146) 175,146 175,146 --------------- Total Investments (Cost $5,683,316) -- 100.29% 6,710,259 Liabilities, in excess of cash and other assets -- (0.29%) (19,340) --------------- Net Assets -- 100% $ 6,690,919 ===============
NOTES TO SCHEDULE OF INVESTMENTS Aggregate cost for federal income tax purposes was $5,683,316; and net unrealized appreciation consisted of: Gross unrealized appreciation $ 1,074,949 Gross unrealized depreciation (48,006) --------------- Net unrealized appreciation $ 1,026,943 ===============
(a) Non-income producing security. % Represents a percentage of net assets. See accompanying notes to financial statements 52 UBS U.S. SMALL CAP GROWTH FUND For the six months ended December 31, 2004, Class Y shares of UBS U.S. Small Cap Growth Fund (the "Fund") returned 11.18%, outperforming the 8.16% 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 8.41% compared to an annualized return of 1.43% for the Index. (Class Y shares have lower expenses than other share classes in the series. 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). Small-cap stocks generated modest gains throughout most of the reporting period, until a fourth quarter post-election rally drove the asset class as a whole to a solid return. During this period, the Fund strongly outperformed the benchmark Index, with both stock selection and sector allocation enhancing results. SECTOR DIVERSIFICATION AND STRONG STOCK SELECTION WERE KEY TO ADDING VALUE Regardless of transitory market conditions, we adhered to our disciplined investment process throughout the period. In particular, we focused on companies that we believed had strong competitive positions and demonstrated the ability to generate above-average sales and earnings growth over time. As always, we maintained a well-diversified portfolio during the period, relying on stock selection to add value. The Fund saw strong contributions from its overweight positions in materials and health care, and its underweight in information technology. In the materials sector, the Fund was overweight in construction, with our investment in NVR, Inc. serving as an example of a stock that performed well. NVR, Inc. builds and sells single-family detached homes, townhouses and condominium buildings. Over the reporting period, NVR, Inc. saw revenues climb as a result of increased prices and new unit sales growth. The Fund's positioning in healthcare also benefited performance, particularly our overweight in medical services stocks. We also saw strong contributions from our holdings in information services, a subsector of the software industry. Several of the Fund's best performing stocks were in this area, including Cognizant Technology Solutions Corp., and CACI International Inc., both of which returned more than 55% over the reporting period. Conversely, relative performance was hindered by our underweight exposure to chemicals, heavy machinery and hotels. Our overweight in the hardware industry also hurt performance, particularly our exposure in semiconductors. While this area did not do well overall, we did see some strong results from select holdings. For example, semiconductor companies Cree, Inc. and Micosemi Corp. were two of the Fund's better performing stocks over the period. LOOKING AHEAD Small-cap stock valuations, although slightly above their longer-term historical average, appear reasonable to us given anticipated solid earnings growth. This combination of reasonable relative valuations and strong fundamentals bolsters our confidence in the long-term prospects for small-cap stocks. Of course, an unexpected downturn in the economy or a major increase in geopolitical tensions would likely be detrimental to the overall equity market. Going forward, we will continue to favor companies with above average sales and earnings growth, strong competitive positions, excellent management teams and solid balance sheets. We believe these characteristics can lead to solid risk-adjusted performance in a variety of market conditions. 53 TOTAL RETURN (UNAUDITED)
6 MONTHS 1 YEAR 3 YEARS 5 YEARS INCEPTION* ENDED ENDED ENDED ENDED TO 12/31/04 12/31/04 12/31/04 12/31/04 12/31/04 ---------------------------------------------------------------------------------------------------------------------- UBS U.S. SMALL CAP GROWTH FUND CLASS A 11.05% 10.70% 9.18% 7.29% 12.30% UBS U.S. SMALL CAP GROWTH FUND CLASS B 10.70 9.88 8.35 N/A 10.84 UBS U.S. SMALL CAP GROWTH FUND CLASS C 10.62 9.81 8.33 N/A 10.25 UBS U.S. SMALL CAP GROWTH FUND CLASS Y 11.18 10.92 9.41 7.56 8.41 UBS U.S. SMALL CAP GROWTH FUND CLASS A** 4.96 4.65 7.13 6.08 11.25 UBS U.S. SMALL CAP GROWTH FUND CLASS B** 5.70 4.88 7.50 N/A 10.33 UBS U.S. SMALL CAP GROWTH FUND CLASS C** 9.62 8.81 8.33 N/A 10.25 RUSSELL 2000 GROWTH INDEX 8.16 14.31 5.79 -3.57 1.43
* 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. THE Y SHARE CLASS IS OUR LOWEST FEE SHARE CLASS. OUR OTHER SHARE CLASSES INCLUDE HIGHER FEE AND LOADS, WHICH IF DEDUCTED WOULD RESULT IN LOWER PERFORMANCE. 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. 54 EXPLANATION OF EXPENSE DISCLOSURE (UNAUDITED) As a shareholder of the Fund, you incur two types of costs: (1) transactional costs (as applicable); including sales charges (loads) on purchase payments; and (2) ongoing costs, including management fees; distribution and/or service (12b-1) fees (if applicable); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example below is based on an investment of $1,000 invested at the beginning of the period and held for the entire period, July 1, 2004 to December 31, 2004. ACTUAL EXPENSES The first line of each class of shares in the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over a period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second line for each class of shares in the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratios for each class of shares and an assumed rate of return of 5% per year before expenses, which is not the actual Fund's return for each class of shares. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs (as applicable), such as sales charges (loads). Therefore, the second line in the table for each class of shares is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
BEGINNING ENDING EXPENSES PAID ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD* JULY 1, 2004 DECEMBER 31, 2004 7/1/04 - 12/31/04 ------------------------------------------------------------------------------------------------ CLASS A ACTUAL $ 1,000.00 $ 1,110.50 $ 6.81 HYPOTHETICAL (5% RETURN BEFORE EXPENSES) 1,000.00 1,018.75 6.51 CLASS B ACTUAL 1,000.00 1,107.00 10.78 HYPOTHETICAL (5% RETURN BEFORE EXPENSES) 1,000.00 1,014.97 10.31 CLASS C ACTUAL 1,000.00 1,106.20 10.78 HYPOTHETICAL (5% RETURN BEFORE EXPENSES) 1,000.00 1,014.97 10.31 CLASS Y ACTUAL 1,000.00 1,111.80 5.48 HYPOTHETICAL (5% RETURN BEFORE EXPENSES) 1,000.00 1,020.01 5.24
* EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO: CLASS A: 1.28%, CLASS B: 2.03%, CLASS C: 2.03%, CLASS Y: 1.03%, MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 184 DIVIDED BY 365 (TO REFLECT THE ONE-HALF YEAR PERIOD). 55 TOP TEN EQUITY HOLDINGS AS OF DECEMBER 31, 2004 (UNAUDITED)
PERCENTAGE OF NET ASSETS ---------------------------------------------------------------------------- Cognizant Technology Solutions Corp., Class A 3.0% UCBH Holdings, Inc. 2.4 CACI International, Inc., Class A 2.3 Quicksilver Resources, Inc. 2.3 Pediatrix Medical Group, Inc. 2.2 Investors Financial Services Corp. 2.1 Patina Oil & Gas Corp. 2.1 Digital River, Inc. 1.9 VCA Antech, Inc. 1.9 Inamed Corp. 1.9 ---------------------------------------------------------------------------- Total 22.1%
INDUSTRY DIVERSIFICATION AS A PERCENT OF NET ASSETS AS OF DECEMBER 31, 2004 (UNAUDITED) U.S. EQUITIES Aerospace & Defense 1.56% Air Freight & Logistics 2.25 Airlines 0.46 Auto Components 1.00 Beverages 2.23 Biotechnology 4.24 Capital Markets 2.10 Commercial Banks 2.36 Commercial Services & Supplies 1.36 Communications Equipment 1.52 Computers & Peripherals 0.36 Construction & Engineering 1.98 Distributors 0.35 Diversified Financial Services 0.12 Diversified Telecommunication Services 0.05 Electrical Equipment 0.87 Electronic Equipment & Instruments 4.51 Energy Equipment & Services 2.29 Food & Staples Retailing 0.43 Health Care Equipment & Supplies 6.52 Health Care Providers & Services 5.72 Hotels, Restaurants & Leisure 3.37 Household Durables 2.38 Internet Software & Services 1.98% IT Services 5.39 Machinery 2.04 Media 1.12 Metals & Mining 1.00 Oil & Gas 4.43 Pharmaceuticals 2.96 Real Estate 3.96 Road & Rail 1.72 Semiconductors & Semiconductor Equipment 6.27 Software 6.42 Specialty Retail 7.66 Textiles, Apparel & Luxury Goods 0.49 Thrifts & Mortgage Finance 1.27 ------ Total U.S. Equities 94.74 INVESTMENT COMPANY 1.61 SHORT-TERM INVESTMENT 2.58 ------ TOTAL INVESTMENTS 98.93 CASH AND OTHER ASSETS, LESS LIABILITIES 1.07 ------ NET ASSETS 100.00% ======
56 UBS U.S. SMALL CAP GROWTH FUND -- SCHEDULE OF INVESTMENTS DECEMBER 31, 2004 (UNAUDITED)
SHARES VALUE --------------- --------------- U.S. EQUITIES -- 94.74% AEROSPACE & DEFENSE -- 1.56% Engineered Support Systems, Inc. 57,575 $ 3,409,592 --------------- AIR FREIGHT & LOGISTICS -- 2.25% EGL, Inc. (a) 96,700 2,890,363 UTI Worldwide, Inc. 30,000 2,040,600 --------------- 4,930,963 --------------- AIRLINES -- 0.46% Pinnacle Airlines Corp. (a) 72,700 1,013,438 --------------- AUTO COMPONENTS -- 1.00% American Axle & Manufacturing Holdings, Inc. 71,100 2,179,926 --------------- BEVERAGES -- 2.23% Constellation Brands, Inc., Class A (a) 60,900 2,832,459 Cott Corp. (a) 82,600 2,042,698 --------------- 4,875,157 --------------- BIOTECHNOLOGY -- 4.24% Affymetrix, Inc. (a) 29,200 1,067,260 Amylin Pharmaceuticals, Inc. (a) 39,000 911,040 Charles River Laboratories International, Inc. (a) 24,480 1,126,325 Corgentech, Inc. (a) 46,200 382,536 Incyte Corp. (a) 134,600 1,344,654 Isis Pharmaceuticals, Inc. (a) 107,900 636,610 Neurocrine Biosciences, Inc. (a) 31,800 1,567,740 NPS Pharmaceuticals, Inc. (a) 53,000 968,840 Telik, Inc. (a) 65,800 1,259,412 --------------- 9,264,417 --------------- CAPITAL MARKETS -- 2.10% Investors Financial Services Corp. 91,700 4,583,166 --------------- COMMERCIAL BANKS -- 2.36% UCBH Holdings, Inc. 112,600 5,159,332 --------------- COMMERCIAL SERVICES & SUPPLIES -- 1.36% Charles River Associates, Inc. (a) 17,100 799,767 Korn/Ferry International Corp. (a) 52,000 1,079,000 Labor Ready, Inc. (a) 64,700 1,094,724 --------------- 2,973,491 --------------- COMMUNICATIONS EQUIPMENT -- 1.52% Avocent Corp. (a) 30,600 1,239,912 C-COR, Inc. (a) 67,100 624,030 Foundry Networks, Inc. (a) 111,700 1,469,972 --------------- 3,333,914 --------------- COMPUTERS & PERIPHERALS -- 0.36% Dot Hill Systems Corp. (a) 100,600 788,704 --------------- CONSTRUCTION & ENGINEERING -- 1.98% Dycom Industries, Inc. (a) 107,300 3,274,796 EMCOR Group, Inc. (a) 23,300 1,052,694 --------------- 4,327,490 --------------- DISTRIBUTORS -- 0.35% Beacon Roofing Supply, Inc. (a) 38,900 772,554 --------------- DIVERSIFIED FINANCIAL SERVICES -- 0.12% China Finance Online Co. Ltd. (a) 24,200 266,684 --------------- DIVERSIFIED TELECOMMUNICATION SERVICES -- 0.05% The9 Ltd. (a) 4,800 $ 113,376 --------------- ELECTRICAL EQUIPMENT -- 0.87% Genlyte Group, Inc. (a) 22,200 1,902,096 --------------- ELECTRONIC EQUIPMENT & INSTRUMENTS -- 4.51% Benchmark Electronics, Inc. (a) 110,600 3,771,460 Cognex Corp. 95,000 2,650,500 Radisys Corp. (a) 82,200 1,607,010 TTM Technologies, Inc. (a) 155,900 1,839,620 --------------- 9,868,590 --------------- ENERGY EQUIPMENT & SERVICES -- 2.29% Patterson-UTI Energy, Inc. 99,200 1,929,440 Tetra Technologies, Inc. (a) 108,550 3,071,965 --------------- 5,001,405 --------------- FOOD & STAPLES RETAILING -- 0.43% Performance Food Group Co. (a) 35,000 941,850 --------------- HEALTH CARE EQUIPMENT & SUPPLIES -- 6.52% Advanced Neuromodulation Systems, Inc. (a) 53,100 2,095,326 Arthrocare Corp. (a) 111,800 3,584,308 Inamed Corp. (a) 65,000 4,111,250 Patterson Cos., Inc. (a) 80,600 3,497,234 Resmed, Inc. (a) 18,800 960,680 --------------- 14,248,798 --------------- HEALTH CARE PROVIDERS & SERVICES -- 5.72% Odyssey HealthCare, Inc. (a) 66,075 903,906 Pediatrix Medical Group, Inc. (a) 74,400 4,765,320 United Surgical Partners International, Inc. (a) 63,500 2,647,950 VCA Antech, Inc. (a) 213,100 4,176,760 --------------- 12,493,936 --------------- HOTELS, RESTAURANTS & LEISURE -- 3.37% CKE Restaurants, Inc. (a) 189,100 2,743,841 Panera Bread Co., Class A (a) 50,300 2,028,096 Ruby Tuesday, Inc. 99,300 2,589,744 --------------- 7,361,681 --------------- HOUSEHOLD DURABLES -- 2.38% Hovnanian Enterprises, Inc. (a) 50,500 2,500,760 NVR, Inc. (a) 3,500 2,692,900 --------------- 5,193,660 --------------- INTERNET SOFTWARE & SERVICES -- 1.98% Digital River, Inc. (a) 100,500 4,181,805 Housevalues, Inc. (a) 9,700 145,694 --------------- 4,327,499 --------------- IT SERVICES -- 5.39% CACI International, Inc., Class A (a) 75,200 5,123,376 Cognizant Technology Solutions Corp., Class A (a) 157,200 6,654,276 --------------- 11,777,652 --------------- MACHINERY -- 2.04% ESCO Technologies, Inc. (a) 38,700 2,966,355 Middleby Corp. 29,400 1,491,168 --------------- 4,457,523 ---------------
57
SHARES VALUE --------------- --------------- MEDIA -- 1.12% Cumulus Media, Inc., Class A (a) 114,100 $ 1,720,628 Salem Communications Corp., Class A (a) 29,500 736,025 --------------- 2,456,653 --------------- METALS & MINING -- 1.00% Steel Dynamics, Inc. 57,600 2,181,888 --------------- OIL & GAS -- 4.43% Patina Oil & Gas Corp. 122,200 4,582,500 Quicksilver Resources, Inc. (a) 138,600 5,097,708 --------------- 9,680,208 --------------- PHARMACEUTICALS -- 2.96% First Horizon Pharmaceutical Corp. (a) 120,400 2,755,956 Medicines Co. (a) 52,700 1,517,760 Penwest Pharmaceuticals Co. (a) 73,600 880,256 Taro Pharmaceutical Industries (a) 38,500 1,310,155 --------------- 6,464,127 --------------- REAL ESTATE -- 3.96% American Financial Realty Trust REIT 28,100 454,658 BioMed Realty Trust, Inc. REIT 60,900 1,352,589 Government Properties Trust, Inc. REIT 19,400 191,284 Highland Hospitality Corp. REIT 36,900 414,756 Mills Corp. REIT 49,700 3,168,872 Ventas, Inc. REIT 112,300 3,078,143 --------------- 8,660,302 --------------- ROAD & RAIL -- 1.72% Landstar System, Inc. (a) 51,100 3,763,004 --------------- SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 6.27% August Technology Corp. (a) 71,500 752,895 Cree, Inc. (a) 44,000 1,763,520 Exar Corp. (a) 96,600 1,370,754 Microsemi Corp. (a) 183,100 3,178,616 Portalplayer, Inc. (a) 8,700 214,716 Power Integrations, Inc. (a) 75,400 1,491,412 Rudolph Technologies, Inc. (a) 52,500 901,425 Silicon Image, Inc. (a) 203,300 3,346,318 Standard Micosystems Corp. (a) 39,100 697,153 --------------- 13,716,809 --------------- SOFTWARE -- 6.42% Factset Research Systems, Inc. 34,800 2,033,712 Fair Isaac Corp. 67,050 2,459,394 Magma Design Automation, Inc. (a) 53,000 665,680 NAVTEQ Corp. (a) 41,800 1,937,848 RSA Security, Inc. (a) 114,400 2,294,864 Secure Computing Corp. (a) 112,100 1,118,758 THQ, Inc. (a) 66,450 1,524,363 Verint Systems, Inc. (a) 42,200 1,533,126 Verisity Ltd. (a) 56,100 460,020 --------------- 14,027,765 --------------- SPECIALTY RETAIL -- 7.66% Aeropostale, Inc. (a) 102,200 $ 3,007,746 Build-A-Bear Workshop, Inc. (a) 12,600 442,890 Chico's FAS, Inc. (a) 84,700 3,856,391 Electronics Boutique Holdings Corp. (a) 66,100 2,838,334 Guitar Center, Inc. (a) 57,500 3,029,675 Petco Animal Supplies, Inc. (a) 90,200 3,561,096 --------------- 16,736,132 --------------- TEXTILES, APPAREL & LUXURY GOODS -- 0.49% Phillips-Van Heusen Corp. 39,500 1,066,500 --------------- THRIFTS & MORTGAGE FINANCE -- 1.27% BankUnited Financial Corp., Class A (a) 56,000 1,789,200 Harbor Florida Bancshares, Inc. 28,300 979,463 --------------- 2,768,663 --------------- Total U.S. Equities (Cost $170,586,805) 207,088,945 --------------- INVESTMENT COMPANY -- 1.61% iShares Russell 2000 Index Fund (Cost $3,384,589) 27,100 3,509,450 --------------- SHORT-TERM INVESTMENT -- 2.58% UBS Supplementary Trust U.S. Cash Management Prime Fund, yield of 2.28% (Cost $5,645,450) 5,645,450 5,645,450 --------------- Total Investments (Cost $179,616,844) -- 98.93% 216,243,845 Cash and other assets, less liabilities -- 1.07% 2,337,117 --------------- Net Assets -- 100% $ 218,580,962 ===============
58 UBS U.S. SMALL CAP GROWTH FUND -- SCHEDULE OF INVESTMENTS DECEMBER 31, 2004 (UNAUDITED) NOTES TO SCHEDULE OF INVESTMENTS Aggregate cost for federal income tax purposes was $179,616,844; and net unrealized appreciation consisted of: Gross unrealized appreciation $ 46,717,749 Gross unrealized depreciation (10,090,748) --------------- Net unrealized appreciation $ 36,627,001 ===============
(a) Non-income producing security. % Represents a percentage of net assets. REIT Real Estate Investment Trust See accompanying notes to financial statements 59 UBS U.S. BOND FUND For the six months ended December 31, 2004, Class Y shares of UBS U.S. Bond Fund (the "Fund") returned 3.93%, closely tracking the 4.18% return of the Fund's benchmark, the Lehman Brothers U.S. Aggregate Bond Index (the "Index"). Since inception on August 31, 1995, through period end, the Fund returned 6.66% on an annualized basis, slightly underperforming the 6.93% annualized return for the Index. (Class Y shares have lower expenses than other share classes in the series. Returns for all share classes over various time periods are shown on page 61; please note that these returns do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares). The Fund's performance relative to its benchmark was primarily a function of our duration/yield curve positioning and sector allocation. CONSERVATIVE APPROACH TO NAVIGATE CHANGING MARKET CONDITIONS The bond market continued to defy expectations over the reporting period. While many investors feared we would see a repeat of 1994, when rising interest rates led to negative returns, the market withstood several interest rate hikes and still produced positive results. In our opinion, during the fiscal year, the US bond market was influenced more by external factors than economic and financial fundamentals. For example, yields were greatly influenced over the reporting period by Asian central banks and "carry trades." A carry trade is a strategy that investment managers, including hedge funds, employ, whereby managers lend out shorter-term maturities and buy longer-term maturities. Asian banks, such as the Bank of Japan, have attempted to support the US dollar and temper their currencies' appreciation by buying US bonds. This demand has artificially kept bond yields low. Faced with worse-than-anticipated October payroll data, these trades were generally reversed, driving yields up suddenly. Our approach in this environment was to complement our fundamental research with market behavior analysis, which is basically a study of the market environment to identify why prices are not reflecting intrinsic value. The result of our research led us to believe the US bond market was generally overvalued, and suggested we adopt a defensive posture that emphasized security selection to add incremental value. Positive contributors to issue selection came primarily from the asset-backed securities (ABS) and the mortgage-backed securities (MBS) sectors. Within ABS, our issue selection within the manufactured housing sector was very strong, and within MBS, we owned adjustable-rate mortgages (ARMs), which performed well. The Fund also benefited from its sector allocation strategy during the period. For example, the Fund was overweight asset-backed securities (ABS) and commercial mortgage-backed securities (CMBS) versus Treasuries. In our view, ABS and CMBS offered a more attractive risk-return profile and greater opportunities at the issue-specific level. Our strategy within MBS was to hold a shorter-than-benchmark duration, favoring positions in collateralized mortgage obligations and hybrid adjustable rate mortgages over fixed rate pass-throughs. Overall, we felt the corporate bond sector offered few opportunities, as prices rose given strong investor demand. In our analysis, this was not a compelling risk/reward scenario, leading us to underweight corporate and high-quality noncorporate bonds relative to the Index. The only significant exception to this was the Fund's position in autos, our largest corporate bond sector overweight. As part of our defensive stance, we maintained the Fund's barbell strategy, which overweights securities at both ends of the maturity spectrum. As the yield curve flattened, this positioning contributed to the Fund's relative performance. We also actively managed the Fund's duration over the period (duration is a measure of a portfolio's sensitivity to interest rates). By keeping average duration below that of its benchmark, we minimized the effect of interest rate increases, helping the Fund's relative performance. LOOKING AHEAD Our analysis of recent economic data and the continued dollar weakness suggest that the Fed will continue to raise interest rates in the coming months. Given this forecast, we expect to maintain the Fund's short duration stance and barbell yield curve strategy. 60 TOTAL RETURN (UNAUDITED)
6 MONTHS 1 YEAR 3 YEARS 5 YEARS INCEPTION* ENDED ENDED ENDED ENDED TO 12/31/04 12/31/04 12/31/04 12/31/04 12/31/04 ----------------------------------------------------------------------------------------------------- UBS U.S. BOND FUND CLASS A 3.85% 3.83% 5.49% 7.02% 6.42% UBS U.S. BOND FUND CLASS B 3.40 3.00 4.70 N/A 3.71 UBS U.S. BOND FUND CLASS C 3.60 3.30 4.95 N/A 3.95 UBS U.S. BOND FUND CLASS Y 3.93 4.10 5.75 7.28 6.66 UBS U.S. BOND FUND CLASS A** -0.85 -0.86 3.89 6.04 5.78 UBS U.S. BOND FUND CLASS B** -1.60 -1.99 3.78 N/A 3.12 UBS U.S. BOND FUND CLASS C** 2.85 2.56 4.95 N/A 3.95 LEHMAN BROTHERS U.S. AGGREGATE BOND INDEX 4.18 4.34 6.20 7.71 6.93
* 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. THE Y SHARE CLASS IS OUR LOWEST FEE SHARE CLASS. OUR OTHER SHARE CLASSES INCLUDE HIGHER FEE AND LOADS, WHICH IF DEDUCTED WOULD RESULT IN LOWER PERFORMANCE. 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. 61 EXPLANATION OF EXPENSE DISCLOSURE (UNAUDITED) As a shareholder of the Fund, you incur two types of costs: (1) transactional costs (as applicable); including sales charges (loads) on purchase payments; and (2) ongoing costs, including management fees; distribution and/or service (12b-1) fees (if applicable); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example below is based on an investment of $1,000 invested at the beginning of the period and held for the entire period, July 1, 2004 to December 31, 2004. ACTUAL EXPENSES The first line of each class of shares in the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over a period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second line for each class of shares in the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratios for each class of shares and an assumed rate of return of 5% per year before expenses, which is not the actual Fund's return for each class of shares. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs (as applicable), such as sales charges (loads). Therefore, the second line in the table for each class of shares is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
BEGINNING ENDING EXPENSES PAID ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD* JULY 1, 2004 DECEMBER 31, 2004 7/1/04 - 12/31/04 ------------------------------------------------------------------------------------------------------- CLASS A ACTUAL $ 1,000.00 $ 1,038.50 $ 4.37 HYPOTHETICAL (5% RETURN BEFORE EXPENSES) 1,000.00 1,020.92 4.33 CLASS B ACTUAL 1,000.00 1,034.00 8.20 HYPOTHETICAL (5% RETURN BEFORE EXPENSES) 1,000.00 1,017.14 8.13 CLASS C ACTUAL 1,000.00 1,036.00 6.93 HYPOTHETICAL (5% RETURN BEFORE EXPENSES) 1,000.00 1,018.40 6.87 CLASS Y ACTUAL 1,000.00 1,039.30 3.08 HYPOTHETICAL (5% RETURN BEFORE EXPENSES) 1,000.00 1,022.18 3.06
* EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO: CLASS A: 0.85%, CLASS B: 1.60%, CLASS C: 1.35%, CLASS Y: 0.60%, MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 184 DIVIDED BY 365 (TO REFLECT THE ONE-HALF YEAR PERIOD). 62 TOP TEN U.S. BOND HOLDINGS AS OF DECEMBER 31, 2004 (UNAUDITED)
PERCENTAGE OF NET ASSETS ------------------------------------------------------------------------------------- U.S. Treasury Note 4.000%, due 02/15/14 5.1% U.S. Treasury Note 2.500%, due 09/30/06 4.3 Federal National Mortgage Association 5.500%, due 01/25/19 3.1 Federal National Mortgage Association 5.500%, due 03/15/11 2.4 U.S. Treasury Note 2.750%, due 07/31/06 1.8 U.S. Treasury Bond 8.750%, due 05/15/17 1.6 Federal Home Loan Mortgage Corp., Gold 7.000%, due 07/01/32 1.4 Federal Home Loan Mortgage Corp. 5.125%, due 07/15/12 1.4 Federal National Mortgage Association 6.500%, due 05/01/28 1.4 U.S. Treasury Bond 6.625%, due 02/15/27 1.4 ------------------------------------------------------------------------------------- Total 23.9%
INDUSTRY DIVERSIFICATION AS A PERCENT OF NET ASSETS AS OF DECEMBER 31, 2004 (UNAUDITED) U.S. CORPORATE BONDS Aerospace & Defense 0.27% Automobiles 1.48 Beverages 0.67 Capital Markets 1.26 Chemicals 0.52 Commercial Banks 1.70 Commercial Services & Supplies 0.33 Communications Equipment 0.10 Consumer Finance 1.30 Diversified Financial Services 1.91 Diversified Telecommunication Services 0.84 Electric Utilities 1.34 Energy Equipment & Services 0.25 Food & Staples Retailing 0.48 Food Products 0.55 Gas Utilities 0.09 Hotels, Restaurants & Leisure 0.14 Household Durables 0.36 Insurance 0.40 IT Services 0.20 Machinery 0.05 Media 0.76 Metals & Mining 0.09 Multi-Utilities & Unregulated Power 0.24 Multiline Retail 0.18 Oil & Gas 0.49 Paper & Forest Products 0.20 Personal Products 0.14 Pharmaceuticals 0.24 Real Estate 0.24 Road & Rail 0.57% Thrifts & Mortgage Finance 0.48 Tobacco 0.22 Wireless Telecommunication Services 0.14 ------ Total U.S. Corporate Bonds 18.23 Asset-Backed Securities 5.73 Commercial Mortgage-Backed Securities 9.74 Mortgage & Agency Debt Securities 45.96 U.S. Government Obligation 16.33 ------ Total U.S. Bonds 95.99 International Bonds International Corporate Bonds Aerospace & Defense 0.09 Commercial Banks 0.15 Diversified Financial Services 0.18 Diversified Telecommunication Services 0.37 Oil & Gas 0.15 Wireless Telecommunication Services 0.09 ------ Total International Corporate Bonds 1.03 Foreign Government Bond 0.42 Sovereign/Supranational Bonds 0.63 ------ Total International Bonds 2.08 TOTAL BONDS 98.07 SHORT-TERM INVESTMENT 6.63 ------ TOTAL INVESTMENTS 104.70 LIABILITIES, IN EXCESS OF CASH AND OTHER ASSETS (4.70) ------ NET ASSETS 100.00% ======
63 UBS U.S. BOND FUND -- SCHEDULE OF INVESTMENTS DECEMBER 31, 2004 (UNAUDITED)
FACE AMOUNT VALUE --------------- --------------- BONDS -- 98.07% U.S. BONDS -- 95.99% U.S. CORPORATE BONDS -- 18.23% Alcoa, Inc. 6.000%, due 01/15/12 $ 105,000 $ 114,704 Allstate Corp. 7.200%, due 12/01/09 100,000 113,328 Altria Group, Inc. 7.750%, due 01/15/27 110,000 123,461 American Electric Power Co., Inc. 6.125%, due 05/15/06 175,000 181,367 Anheuser-Busch Cos., Inc. 9.000%, due 12/01/09 280,000 339,528 AT&T Corp. 8.000%, due 11/15/31 175,000 208,906 AT&T Wireless Services, Inc. 8.750%, due 03/01/31 130,000 175,281 AvalonBay Communities, Inc. 7.500%, due 08/01/09 95,000 107,119 Avon Products, Inc. 7.150%, due 11/15/09 150,000 169,535 Bank of America Corp. 7.400%, due 01/15/11 440,000 509,686 Bank One Corp. 7.875%, due 08/01/10 345,000 402,418 Boeing Capital Corp. 7.375%, due 09/27/10 150,000 172,938 Bombardier Capital, Inc., 144A 6.125%, due 06/29/06 300,000 300,000 Bristol-Myers Squibb Co. 5.750%, due 10/01/11 110,000 117,807 Burlington Northern Santa Fe Corp. 7.082%, due 05/13/29 200,000 233,783 C.S. First Boston USA, Inc. 3.875%, due 01/15/09 105,000 104,386 6.500%, due 01/15/12 180,000 200,337 Caterpillar, Inc. 6.550%, due 05/01/11 55,000 61,728 Cendant Corp. 6.250%, due 01/15/08 180,000 192,099 Centex Corp. 9.750%, due 06/15/05 320,000 328,203 Citigroup, Inc., 144A 5.000%, due 09/15/14 672,000 675,242 Comcast Cable Communications, Inc. 6.750%, due 01/30/11 425,000 477,268 Computer Sciences Corp. 3.500%, due 04/15/08 165,000 163,593 ConAgra Foods, Inc. 6.750%, due 09/15/11 100,000 112,507 ConocoPhillips 8.750%, due 05/25/10 150,000 183,056 Coors Brewing Co. 6.375%, due 05/15/12 135,000 148,428 DaimlerChrysler N.A. Holding Corp. 4.050%, due 06/04/08 530,000 528,906 Devon Financing Corp., ULC 6.875%, due 09/30/11 105,000 118,918 Dominion Resources, Inc. 8.125%, due 06/15/10 $ 105,000 $ 123,588 Dow Chemical Co. 6.125%, due 02/01/11 275,000 301,211 Duke Energy Field Services, LLC 7.875%, due 08/16/10 155,000 180,779 EOP Operating LP 7.250%, due 06/15/28 165,000 186,923 Erac U.S.A. Finance Co., 144A 8.000%, due 01/15/11 200,000 235,437 Federated Department Stores, Inc. 6.625%, due 04/01/11 100,000 111,811 First Data Corp. 5.625%, due 11/01/11 85,000 91,338 FirstEnergy Corp., Series B 6.450%, due 11/15/11 105,000 114,079 Ford Motor Co. 7.450%, due 07/16/31 390,000 392,238 Ford Motor Credit Co. 5.800%, due 01/12/09 745,000 761,496 General Electric Capital Corp. 6.000%, due 06/15/12 1,145,000 1,248,092 6.750%, due 03/15/32 140,000 163,863 General Motors Acceptance Corp. 6.875%, due 09/15/11 225,000 230,578 8.000%, due 11/01/31 240,000 246,692 General Motors Corp. 8.375%, due 07/15/33 165,000 170,954 Goldman Sachs Group, Inc. 6.875%, due 01/15/11 500,000 564,089 Harrah's Operating Co., Inc. 7.500%, due 01/15/09 155,000 171,762 HSBC Finance Corp. 6.750%, due 05/15/11 295,000 331,055 ICI Wilmington, Inc. 4.375%, due 12/01/08 220,000 221,242 International Lease Finance Corp. 3.500%, due 04/01/09 185,000 180,139 International Paper Co. 6.750%, due 09/01/11 130,000 145,747 John Deere Capital Corp. 7.000%, due 03/15/12 145,000 167,180 JPMorgan Chase & Co. 6.750%, due 02/01/11 225,000 252,767 Kohl's Corp. 6.300%, due 03/01/11 100,000 109,558 Kraft Foods, Inc. 5.625%, due 11/01/11 320,000 338,861 Kroger Co. 7.500%, due 04/01/31 105,000 125,512 Lincoln National Corp. 6.200%, due 12/15/11 80,000 86,751 Lockheed Martin Corp. 8.500%, due 12/01/29 100,000 136,828 Marathon Oil Corp. 6.125%, due 03/15/12 120,000 130,756 Marsh & McLennan Cos., Inc. 6.250%, due 03/15/12 170,000 177,892
64
FACE AMOUNT VALUE --------------- --------------- McKesson Corp. 7.750%, due 02/01/12 $ 95,000 $ 109,300 Miller Brewing Co., 144A 5.500%, due 08/15/13 225,000 235,180 Morgan Stanley 6.750%, due 04/15/11 680,000 762,714 Motorola, Inc. 7.625%, due 11/15/10 105,000 121,796 Newell Rubbermaid, Inc. 4.000%, due 05/01/10 120,000 116,449 News America, Inc., 144A 6.200%, due 12/15/34 65,000 65,879 Pacific Gas & Electric Co. 6.050%, due 03/01/34 130,000 135,020 Pepsi Bottling Holdings, Inc., 144A 5.625%, due 02/17/09 110,000 117,272 PP&L Capital Funding, Inc. 7.750%, due 04/15/05 105,000 106,256 PPL Capital Funding Trust I 4.330%, due 03/01/09 125,000 123,545 PPL Energy Supply LLC 6.400%, due 11/01/11 200,000 219,914 Praxair, Inc. 6.375%, due 04/01/12 55,000 61,404 Progress Energy, Inc. 7.000%, due 10/30/31 145,000 160,583 Qwest Capital Funding, Inc. 7.900%, due 08/15/10 360,000 363,600 Rohm & Haas Co. 7.850%, due 07/15/29 50,000 65,227 Safeway, Inc. 6.500%, due 03/01/11 155,000 169,754 Sempra Energy 7.950%, due 03/01/10 100,000 115,584 Southern California Edison Co. 8.000%, due 02/15/07 275,000 299,470 Sprint Capital Corp. 8.375%, due 03/15/12 170,000 207,084 Time Warner, Inc. 7.625%, due 04/15/31 225,000 272,196 Transocean, Inc. 6.625%, due 04/15/11 275,000 307,455 Travelers Property Casualty Corp. 5.000%, due 03/15/13 125,000 122,183 TXU Energy Co. LLC 7.000%, due 03/15/13 195,000 217,786 U.S. Bank N.A. 6.375%, due 08/01/11 240,000 266,533 Unilever Capital Corp. 7.125%, due 11/01/10 200,000 230,044 Union Pacific Corp. 6.700%, due 12/01/06 235,000 248,435 United Technologies Corp. 6.100%, due 05/15/12 185,000 203,559 UST, Inc. 6.625%, due 07/15/12 135,000 150,742 Valero Energy Corp. 7.500%, due 04/15/32 150,000 180,927 Verizon New England, Inc. 6.500%, due 09/15/11 175,000 192,508 Verizon New York, Inc., Series B 7.375%, due 04/01/32 $ 70,000 $ 80,294 Viacom, Inc. 6.625%, due 05/15/11 120,000 134,743 Wachovia Bank N.A. 7.800%, due 08/18/10 345,000 405,189 Wal-Mart Stores, Inc. 6.875%, due 08/10/09 275,000 308,795 Washington Mutual, Inc. 5.625%, due 01/15/07 575,000 598,809 Waste Management, Inc. 7.375%, due 08/01/10 100,000 114,625 Wells Fargo Bank N.A. 6.450%, due 02/01/11 480,000 533,791 Weyerhaeuser Co. 7.375%, due 03/15/32 90,000 106,726 Wyeth 5.250%, due 03/15/13 170,000 176,685 Xcel Energy, Inc. 7.000%, due 12/01/10 100,000 112,723 --------------- 22,784,529 --------------- ASSET-BACKED SECURITIES -- 5.73% Americredit Automobile Receivables Trust, 01-B, Class A4 5.370%, due 06/12/08 532,073 538,619 Americredit Automobile Receivables Trust, 03-AM, Class A2B+ 2.601%, due 10/06/06 2,063 2,063 Capital One Multi-Asset Execution Trust, 03-A1, Class A1+ 2.793%, due 01/15/09 970,000 974,542 Centerpoint Energy Transition Bond Co. LLC, 01-1, Class A4 5.630%, due 09/15/15 310,000 331,622 Conseco Finance Securitizations Corp., 00-1, Class A4 7.620%, due 05/01/31 1,201,496 1,230,030 Conseco Finance Securitizations Corp., 00-2, Class A4 8.480%, due 12/01/30 426,067 444,357 Conseco Finance Securitizations Corp., 00-5, Class A4 7.470%, due 02/01/32 391,541 401,762 Conseco Finance Securitizations Corp., 00-B, Class AF4 7.870%, due 02/15/31 661 670 Countrywide Asset-Backed Certificates, 03-SD3, Class A1, 144A+ 2.838%, due 12/25/32 142,332 142,619 Countrywide Asset-Backed Certificates, 04-SD1, Class A1, 144A+ 2.758%, due 06/25/33 351,782 352,379 Green Tree Financial Corp., 94-5, Class A5 8.300%, due 11/15/19 187,893 200,265 Green Tree Financial Corp., 99-3, Class A5 6.160%, due 02/01/31 587,894 603,235
65
FACE AMOUNT VALUE --------------- --------------- Providian Gateway Master Trust, 04-AA, Class C, 144A+ 3.303%, due 03/15/11 $ 190,000 $ 191,026 Providian Gateway Master Trust, 04-AA, Class D, 144A+ 4.253%, due 03/15/11 220,000 220,484 RAFC Asset-Backed Trust, 01-1, Class A3 (a) 5.115%, due 11/25/29 309,935 311,959 Sears Credit Account Master Trust, 01-1, Class A+ 2.583%, due 02/15/10 970,000 969,782 Structured Asset Securities Corp., 03-AL2, Class A, 144A 3.357%, due 01/25/31 266,434 246,972 --------------- 7,162,386 --------------- COMMERCIAL MORTGAGE-BACKED SECURITIES -- 9.74% Bear Stearns Commercial Mortgage Securities, 00-WF1, Class A2 7.780%, due 02/15/32 1,215,000 1,398,633 Bear Stearns Commercial Mortgage Securities, 00-WF2, Class A2 7.320%, due 10/15/32 200,000 228,233 Commercial Mortgage Pass-Through Certificate, 04-HTL1, Class A2, 144A+ 2.723%, due 07/15/16 325,000 325,489 Commercial Mortgage Trust, 01-FL5A, Class E, 144A+ 3.903%, due 11/15/13 205,000 205,149 Commercial Mortgage Trust, 01-FL5A, Class F, 144A+ 2.953%, due 11/15/13 240,000 236,549 DLJ Commercial Mortgage Corp., 99-CG1, Class A1B 6.460%, due 03/10/32 220,000 238,637 DLJ Commercial Mortgage Corp., 99-CG3, Class A1B 7.340%, due 10/10/32 200,000 226,598 DLJ Commercial Mortgage Corp., 00-CKP1, Class A1B 7.180%, due 11/10/33 850,000 963,609 First Union Commercial Mortgage Securities, Inc., 97-C2, Class A3 6.650%, due 11/18/29 411,017 437,378 Greenwich Capital Commercial Funding Corp., 03-FL1, Class A, 144A+ 2.651%, due 07/05/18 277,600 277,719 Heller Financial Commercial Mortgage Assets, 99-PH1, Class A1 6.500%, due 05/15/31 536,582 557,166 Host Marriott Pool Trust, 99-HMTA, Class A, 144A 6.980%, due 08/03/15 251,569 269,649 Host Marriott Pool Trust, 99-HMTA, Class C, 144A 7.730%, due 08/03/15 360,000 409,608 Host Marriott Pool Trust, 99-HMTA, Class D, 144A 7.970%, due 08/03/15 $ 220,000 $ 249,166 Host Marriott Pool Trust, 99-HMTA, Class E, 144A 8.070%, due 08/03/15 220,000 244,975 JPMorgan Commercial Mortgage Finance Corp., 99-C8, Class A1 7.325%, due 07/15/31 282,603 290,947 LB Commercial Conduit Mortgage Trust, 99-C1, Class A1 6.410%, due 06/15/31 353,672 365,848 LB Commercial Conduit Mortgage Trust, 99-C2, Class A2 7.325%, due 10/15/32 325,000 365,404 Mach One Trust Commercial Mortgage-Backed, 04-1A, Class A1, 144A 3.890%, due 05/28/40 862,549 859,028 Merrill Lynch Mortgage Investors, Inc., 96-C2, Class A3 6.960%, due 11/21/28 279,576 291,717 Merrill Lynch Mortgage Investors, Inc., 97-C2, Class A2 6.540%, due 12/10/29 247,985 263,345 Morgan Stanley Capital I, 96-WF1, Class A3, 144A+ 7.700%, due 11/15/28 198,721 204,007 Morgan Stanley Dean Witter Capital I, 00-LIF2, Class A1 6.960%, due 10/15/33 227,378 243,953 Nomura Asset Securities Corp., 95-MD3, Class A1B 8.150%, due 04/04/27 182,302 183,946 PNC Mortgage Acceptance Corp., 00-C1, Class A2 7.610%, due 02/15/10 1,000,000 1,135,572 Prudential Mortgage Capital Funding LLC, 00-ROCK, Class A2 6.605%, due 05/10/34 115,000 128,834 Salomon Brothers Mortgage Securities VII, 00-C1, Class A2 7.520%, due 12/18/09 1,250,000 1,420,435 Starwood Asset Receivables Trust, 03-1A, Class A1, 144A+ 2.670%, due 08/28/22 151,833 151,853 --------------- 12,173,447 --------------- MORTGAGE & AGENCY DEBT SECURITIES -- 45.96% C.S. First Boston Mortgage Securities Corp., 02-10, Class 2A1 7.500%, due 05/25/32 392,790 403,600 C.S. First Boston Mortgage Securities Corp., 03-8, Class 5A1 6.500%, due 04/25/33 597,137 608,041 Citicorp Mortgage Securities, Inc., 94-9, Class A8 5.750%, due 06/25/09 32,381 32,450
66
FACE AMOUNT VALUE --------------- --------------- Countrywide Alternative Loan Trust, 04-J8, Class 2A1 7.000%, due 08/25/34 $ 1,056,745 $ 1,117,422 Federal Home Loan Mortgage Corp. 3.500%, due 04/01/08 640,000 636,364 3.875%, due 01/12/09 1,455,000 1,448,997 5.000%, due 01/30/14 155,000 155,042 5.125%, due 07/15/12 1,665,000 1,750,455 Federal Home Loan Mortgage Corp., 1595, Class D 7.000%, due 10/15/13 247,507 257,701 Federal Home Loan Mortgage Corp., 2148, Class ZA 6.000%, due 04/15/29 953,912 979,492 Federal Home Loan Mortgage Corp., 2297, Class NB 6.000%, due 03/15/16 460,000 485,081 Federal Home Loan Mortgage Corp., 2426, Class GH 6.000%, due 08/15/30 750,728 766,026 Federal Home Loan Mortgage Corp., 2532, Class PD 5.500%, due 06/15/26 810,000 834,555 Federal Home Loan Mortgage Corp., Gold 5.500%, due 09/01/17 328,424 339,634 5.500%, due 01/01/18 636,455 658,178 5.500%, due 04/01/18 547,802 566,297 5.500%, due 12/01/18 581,724 601,364 6.000%, due 12/01/17 537,007 562,602 6.000%, due 10/01/29 450,226 466,689 6.000%, due 07/01/34 606,550 626,880 6.000%, due 10/01/34 1,148,922 1,187,432 6.500%, due 06/01/29 102,708 107,930 6.500%, due 09/01/29 241,576 253,973 6.500%, due 11/01/29 663,286 697,657 6.500%, due 03/01/32 83,391 87,585 6.500%, due 11/01/32 86,041 90,347 7.000%, due 07/01/32 1,674,728 1,775,504 Federal National Mortgage Association 2.625%, due 01/19/07 1,645,000 1,624,266 3.331%, due 09/01/33+ 83,166 83,624 4.318%, due 04/01/34+ 1,301,290 1,305,346 4.323%, due 03/01/34+ 636,128 642,428 4.376%, due 06/01/33+ 190,352 191,887 4.577%, due 11/01/33+ 894,767 904,845 5.000%, due 03/01/34 1,197,047 1,190,025 5.500%, due 03/15/11 2,770,000 2,970,412 5.500%, due 01/25/19 3,750,000 3,874,219 5.500%, due 09/01/24 521,577 529,058 5.500%, due 03/01/33 1,664,669 1,691,942 5.500%, due 11/01/34 1,293,031 1,313,469 6.000%, due 07/01/17 209,917 220,104 6.000%, due 06/01/23 336,858 350,475 6.000%, due 03/01/28 103,449 107,337 6.000%, due 03/01/29 116,452 120,829 6.000%, due 05/01/29 106,569 110,574 6.000%, due 07/01/29 455,936 473,468 6.000%, due 06/01/31 87,155 90,321 6.000%, due 01/01/33 672,103 695,900 6.000%, due 06/01/33 $ 133,915 $ 138,534 6.000%, due 12/01/33 929,390 961,443 6.250%, due 02/01/11 1,140,000 1,249,799 6.500%, due 05/01/28 1,642,531 1,726,027 6.500%, due 08/01/29 736,518 773,666 6.500%, due 12/01/29 1,097,973 1,154,435 6.500%, due 01/25/34 1,600,000 1,677,501 6.500%, due 08/01/34 1,148,079 1,204,384 7.000%, due 03/01/31 35,307 37,602 7.000%, due 11/01/31 168,688 178,826 7.000%, due 04/01/32 400,856 424,937 Federal National Mortgage Association Grantor Trust, 00-T6, Class A1 7.500%, due 06/25/30 803,742 863,772 Federal National Mortgage Association Grantor Trust, 01-T10, Class A2 7.500%, due 12/25/41 87,976 94,080 Federal National Mortgage Association Grantor Trust, 01-T5, Class A3+ 7.500%, due 06/19/30 108,189 115,463 Federal National Mortgage Association Whole Loan, 95-W3, Class A 9.000%, due 04/25/25 12,670 13,866 Federal National Mortgage Association Whole Loan, 03-W6, Class 6A+ 4.228%, due 08/25/42 346,637 347,993 Federal National Mortgage Association Whole Loan, 03-W11, Class A1+ 6.880%, due 06/25/33 456,380 462,977 Federal National Mortgage Association Whole Loan, 04-W12, Class 1A3 7.000%, due 07/25/44 970,397 1,030,866 Federal National Mortgage Association Whole Loan, 04-W15, Class 1A3 7.000%, due 12/25/44 975,000 1,035,861 First Horizon Alternative Mortgage Securities, 04-AA3, Class A1+ 5.358%, due 09/25/34 1,097,081 1,111,665 First Horizon Asset Securities, Inc., 04-FL1, Class 1A1+ 2.680%, due 02/25/35 1,000,000 1,000,000 Government National Mortgage Association 4.000%, due 10/20/29+ 296,321 302,400 6.000%, due 12/20/28 142,402 147,935 6.000%, due 05/20/29 673,257 698,885 6.000%, due 07/15/29 416,881 433,272 6.000%, due 08/20/29 508,417 527,770 6.500%, due 10/15/24 498,561 527,502 6.500%, due 08/15/27 2,247 2,371 7.000%, due 07/15/25 11,880 12,679 7.000%, due 07/15/31 128,279 136,346 8.500%, due 12/15/17 267,269 294,613 GSMPS Mortgage Loan Trust, 01-2, Class A, 144A 7.500%, due 06/19/32 226,938 241,539 Impac Secured Assets Common Owner Trust, 01-3, Class A2+ 7.250%, due 04/25/31 28,029 28,084
67
FACE AMOUNT VALUE --------------- --------------- MLCC Mortgage Investors, Inc., 03-D, Class XA1 (b)++ 1.000%, due 08/25/28 $ 10,394,662 $ 151,453 Morgan Stanley Mortgage Loan Trust, 04-4, Class 2A+ 6.544%, due 09/25/34 847,988 869,919 Structured Adjustable Rate Mortgage Loan Trust, 04-3AC, Class A1+ 4.940%, due 03/25/34 680,387 680,302 Structured Asset Securities Corp., 04-20, Class 4A1 6.000%, due 11/25/34 762,923 787,201 --------------- 57,433,795 --------------- U.S. GOVERNMENT OBLIGATIONS -- 16.33% U.S. Treasury Bonds 5.375%, due 02/15/31 365,000 394,685 6.250%, due 08/15/23 265,000 310,247 6.250%, due 05/15/30 930,000 1,111,895 6.625%, due 02/15/27 1,375,000 1,694,848 8.750%, due 05/15/17 1,405,000 1,968,701 U.S. Treasury Notes 2.500%, due 09/30/06 5,455,000 5,407,907 2.750%, due 07/31/06 2,300,000 2,292,543 3.375%, due 09/15/09 860,000 852,139 4.000%, due 02/15/14 6,460,000 6,370,923 --------------- 20,403,888 --------------- Total U.S. Bonds 119,958,045 --------------- INTERNATIONAL BONDS -- 2.08% INTERNATIONAL CORPORATE BONDS -- 1.03% AUSTRALIA -- 0.18% Rio Tinto Finance USA Ltd. 2.625%, due 09/30/08 240,000 230,119 --------------- CANADA -- 0.25% Bombardier, Inc., 144A 6.300%, due 05/01/14 125,000 108,437 Burlington Resources Finance Co. 6.680%, due 02/15/11 65,000 72,647 TELUS Corp. 8.000%, due 06/01/11 110,000 130,359 --------------- 311,443 --------------- FRANCE -- 0.08% France Telecom S.A. 8.500%, due 03/01/31 70,000 94,892 --------------- LUXEMBOURG -- 0.10% Telecom Italia Capital S.A. 5.250%, due 11/15/13 120,000 121,288 --------------- NETHERLANDS -- 0.10% Deutsche Telekom International Finance BV 8.750%, due 06/15/30 90,000 118,841 --------------- UNITED KINGDOM -- 0.32% Abbey National PLC 7.950%, due 10/26/29 $ 105,000 $ 135,416 HSBC Holdings PLC 5.250%, due 12/12/12 65,000 67,383 Royal Bank of Scotland Group PLC 9.118%, due 03/31/10 70,000 85,262 Vodafone Group PLC 7.875%, due 02/15/30 90,000 116,047 --------------- 404,108 --------------- Total International Corporate Bonds 1,280,691 --------------- FOREIGN GOVERNMENT BOND -- 0.42% MEXICO -- 0.42% United Mexican States 8.125%, due 12/30/19 450,000 529,875 --------------- SOVEREIGN/SUPRANATIONAL BONDS -- 0.63% European Investment Bank 4.875%, due 09/06/06 315,000 323,782 Inter-American Development Bank 5.750%, due 02/26/08 325,000 346,809 Pemex Project Funding Master Trust 8.000%, due 11/15/11 100,000 115,250 --------------- 785,841 --------------- Total International Bonds 2,596,407 --------------- Total Bonds (Cost $121,092,881) 122,554,452 --------------- SHARES --------------- SHORT-TERM INVESTMENT -- 6.63% UBS Supplementary Trust U.S. Cash Management Prime Fund, yield of 2.28% (Cost $8,279,484) 8,279,484 8,279,484 --------------- Total Investments (Cost $129,372,365) -- 104.70% 130,833,936 Liabilities, in excess of cash and other assets -- (4.70%) (5,870,517) --------------- Net Assets -- 100% $ 124,963,419 ===============
68 Aggregate cost for federal income tax purposes was $129,372,365; and net unrealized appreciation consisted of: Gross unrealized appreciation $ 2,071,000 Gross unrealized depreciation (609,429) --------------- Net unrealized appreciation $ 1,461,571 ===============
+ Variable rate security - The rate disclosed is that in effect at December 31, 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. (a) Step Bonds - Coupon rate increase in increments to maturity. Rate disclosed is as of December 31, 2004. Maturity date disclosed is the ultimate maturity date. (b) Security is illiquid. This security amounted to $151,453 or 0.12% of net assets. % Represents a percentage of net assets. 144A Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities are considered liquid and may be resold in transactions exempt from registration, normally to qualified institutional buyers. At December 31, 2004 the value of these securities amounted to $6,565,658 or 5.25% of net assets. See accompanying notes to financial statements 69 UBS HIGH YIELD FUND For the six months ended December 31, 2004, Class Y shares of UBS High Yield Fund (the "Fund") returned 9.98%, outperforming the 9.31% 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 returned 6.53% on an annualized basis, outperforming the 6.11% annualized return for the Index. (Class Y shares have lower expenses than other share classes in the series. Returns for all share classes over various time periods are shown on page 71; 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). Our view that a strong economy would bode well for high yield in general, and cyclicals and lower rated credits in particular, led to our portfolio positioning in 2004. The Fund's outperformance during the period is attributable to its overweight to cyclical sectors, its large overweight to B-rated securities versus BB bonds, and solid security selection. BOTTOM-UP ANALYSIS ADDED VALUE IN TIGHT SPREAD MARKET The US high yield market generated very strong results during the reporting period, driven by positive fundamentals and better technicals. In terms of fundamentals, as the economy in general has improved, the high yield market has benefited in the form of substantially lower default rates, a falling distress ratio, operating improvements and greater access to capital markets. In addition, the market has been experiencing positive events, including increased merger and acquisition activity and equity issuance. Market technicals also improved over the reporting period, with cash inflows up significantly from earlier in the year. A large portion of this demand came from new sources, including pension funds, hedge funds, insurance companies and foreign investors searching for incremental yield. Spreads tightened over the reporting period, falling below the historical average. (Spreads are the premium investors demand for investing in high yield securities instead of the safety of US Treasuries.) Security selection becomes even more important in a tight spread environment, as there are fewer opportunities to add incremental value. To obtain the maximum benefit from the growing US economy, the Fund overweighted cyclical sectors, including chemicals, printing and paper. The chemical industry in particular added to the Fund's relative performance, as it benefited from strong demand, increased pricing and higher merger and acquisition activity. The portfolio's position in secured airline bonds was another significant factor behind the Fund's performance. We maintained an overweight to B-rated bonds at the expense of BB-rated bonds, based on our belief that, as the economy strengthened, the B-rated sector would benefit most. This strategy helped performance. However, our underweight to CCC-rated bonds was a drag on performance toward the end of the review period. LOOKING AHEAD We expect high yield bonds to continue to enjoy a positive credit environment in 2005. However, given the tight spreads and current price levels, we are concerned that the market has reached fair value. As always, we will rely heavily on our research-driven investment process, drawing upon our team's expertise to identify compelling sector and securities opportunities. 70 TOTAL RETURN (UNAUDITED)
6 MONTHS 1 YEAR 3 YEARS 5 YEARS INCEPTION* ENDED ENDED ENDED ENDED TO 12/31/04 12/31/04 12/31/04 12/31/04 12/31/04 ----------------------------------------------------------------------------------------------------- UBS HIGH YIELD FUND CLASS A 9.84% 13.01% 11.14% 6.16% 5.89% UBS HIGH YIELD FUND CLASS B 9.42 12.15 10.29 N/A 10.94 UBS HIGH YIELD FUND CLASS C 9.71 12.59 10.62 N/A 11.26 UBS HIGH YIELD FUND CLASS Y 9.98 13.35 11.47 6.46 6.53 UBS HIGH YIELD FUND CLASS A** 4.94 7.87 9.46 5.19 5.08 UBS HIGH YIELD FUND CLASS B** 4.42 7.15 9.46 N/A 10.43 UBS HIGH YIELD FUND CLASS C** 8.96 11.84 10.62 N/A 11.26 MERRILL LYNCH HIGH YIELD CASH PAY INDEX 9.31 10.76 11.68 7.32 6.11
* 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. THE Y SHARE CLASS IS OUR LOWEST FEE SHARE CLASS. OUR OTHER SHARE CLASSES INCLUDE HIGHER FEE AND LOADS, WHICH IF DEDUCTED WOULD RESULT IN LOWER PERFORMANCE. 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. 71 EXPLANATION OF EXPENSE DISCLOSURE (UNAUDITED) As a shareholder of the Fund, you incur two types of costs: (1) transactional costs (as applicable); including sales charges (loads) on purchase payments; and (2) ongoing costs, including management fees; distribution and/or service (12b-1) fees (if applicable); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example below is based on an investment of $1,000 invested at the beginning of the period and held for the entire period, July 1, 2004 to December 31, 2004. ACTUAL EXPENSES The first line of each class of shares in the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over a period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second line for each class of shares in the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratios for each class of shares and an assumed rate of return of 5% per year before expenses, which is not the actual Fund's return for each class of shares. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs (as applicable), such as sales charges (loads). Therefore, the second line in the table for each class of shares is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
BEGINNING ENDING EXPENSES PAID ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD* JULY 1, 2004 DECEMBER 31, 2004 7/1/04 - 12/31/04 ------------------------------------------------------------------------------------------------------- CLASS A ACTUAL $ 1,000.00 $ 1,098.40 $ 6.36 HYPOTHETICAL (5% RETURN BEFORE EXPENSES) 1,000.00 1,019.14 6.12 CLASS B ACTUAL 1,000.00 1,094.20 10.31 HYPOTHETICAL (5% RETURN BEFORE EXPENSES) 1,000.00 1,015.36 9.92 CLASS C ACTUAL 1,000.00 1,097.10 9.00 HYPOTHETICAL (5% RETURN BEFORE EXPENSES) 1,000.00 1,016.62 8.66 CLASS Y ACTUAL 1,000.00 1,099.80 4.96 HYPOTHETICAL (5% RETURN BEFORE EXPENSES) 1,000.00 1,020.48 4.78
* EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO: CLASS A: 1.20%, CLASS B: 1.95%, CLASS C: 1.70%, CLASS Y: 0.94%, MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 184 DIVIDED BY 365 (TO REFLECT THE ONE-HALF YEAR PERIOD). 72 TOP TEN FIXED INCOME HOLDINGS AS OF DECEMBER 31, 2004 (UNAUDITED)
PERCENTAGE OF NET ASSETS ------------------------------------------------------------------------------------- Crown Cork & Seal Co., Inc. 8.000%, due 04/15/23 1.6% Georgia-Pacific Corp. 8.875%, due 05/15/31 1.6 Calpine Canada Energy Finance Corp. 8.500%, due 05/01/08 1.5 Sheridan Acquisition Corp. 10.250%, due 08/15/11 1.4 AK Steel Corp. 7.750%, due 06/15/12 1.3 Anchor Glass Container Corp. 11.000%, due 02/15/13 1.3 Dynegy Holdings, Inc. 7.125%, due 05/15/18 1.3 Le-Natures, Inc. 10.000%, due 06/15/13 1.3 Charter Communications Holdings LLC 10.000%, due 04/01/09 1.2 American Rock Salt Co. LLC 9.500%, due 03/15/14 1.1 ------------------------------------------------------------------------------------- Total 13.6%
INDUSTRY DIVERSIFICATION AS A PERCENT OF NET ASSETS AS OF DECEMBER 31, 2004 (UNAUDITED) U.S. CORPORATE BONDS Aerospace & Defense 2.88% Airlines 1.19 Auto Components 2.86 Beverages 1.26 Building Products 1.21 Chemicals 6.15 Commercial Services & Supplies 1.42 Containers & Packaging 8.99 Distributors 0.55 Diversified Financial Services 5.47 Diversified Telecommunication Services 5.97 Electric Utilities 1.81 Energy Equipment & Services 3.48 Food & Staples Retailing 2.87 Food Products 4.10 Health Care Equipment & Supplies 0.68 Health Care Providers & Services 0.57 Hotels, Restaurants & Leisure 8.76 Household Durables 0.60 Household Products 0.49 Industrial Conglomerates 1.19 Machinery 0.75 Media 10.96% Metals & Mining 2.17 Multi-Utilities & Unregulated Power 3.59 Oil & Gas 4.70 Paper & Forest Products 3.75 Real Estate 0.70 Road & Rail 0.38 Software 1.40 Textiles, Apparel & Luxury Goods 1.69 Transportation Infrastructure 1.04 Wireless Telecommunication Services 2.56 ------ Total U.S. Corporate Bonds 96.19 U.S. EQUITIES Metals & Mining 0.59 Trading Companies & Distributors 1.46 ------ Total U.S. Equities 2.05 SHORT-TERM INVESTMENT 1.08 ------ TOTAL INVESTMENTS 99.32 CASH AND OTHER ASSETS, LESS LIABILITIES 0.68 ------ NET ASSETS 100.00% ======
73 UBS HIGH YIELD FUND -- SCHEDULE OF INVESTMENTS DECEMBER 31, 2004 (UNAUDITED)
FACE AMOUNT VALUE --------------- --------------- U.S. BONDS -- 96.19% U.S. CORPORATE BONDS -- 96.19% AAC Group Holding Corp., 144A (a) 10.250%, due 10/01/12 $ 850,000 $ 571,625 ACC Escrow Corp. 10.000%, due 08/01/11 1,275,000 1,093,312 Activant Solutions, Inc. 10.500%, due 06/15/11 1,000,000 1,075,000 Advanced Accessory Systems LLC 10.750%, due 06/15/11 1,100,000 1,045,000 Advanstar Communications, Inc. 10.750%, due 08/15/10 750,000 846,562 Aearo Co. I 8.250%, due 04/15/12 750,000 772,500 AES Corp. 9.375%, due 09/15/10 396,000 460,350 Ainsworth Lumber Co., Ltd., 144A 7.250%, due 10/01/12 1,000,000 1,017,500 AK Steel Corp. 7.750%, due 06/15/12 2,000,000 2,060,000 Allied Waste North America 8.500%, due 12/01/08 750,000 795,000 American Airlines, Inc. 6.977%, due 05/23/21 594,618 557,877 8.608%, due 04/01/11 1,375,000 1,265,213 American Color Graphics, Inc. 10.000%, due 06/15/10 350,000 295,313 American Rock Salt Co. LLC 9.500%, due 03/15/14 1,650,000 1,724,250 Amscan Holdings, Inc. 8.750%, due 05/01/14 750,000 750,000 Anchor Glass Container Corp. 11.000%, due 02/15/13 1,850,000 1,979,500 Armor Holdings, Inc. 8.250%, due 08/15/13 1,000,000 1,120,000 AT&T Corp. 8.000%, due 11/15/11 550,000 633,188 8.000%, due 11/15/31 1,375,000 1,641,406 BE Aerospace, Inc., Series B 8.875%, due 05/01/11 1,175,000 1,227,875 Bear Island Paper Co. LLC, Series B 10.000%, due 12/01/07 625,000 600,000 Berry Plastics Corp. 10.750%, due 07/15/12 1,000,000 1,145,000 Buckeye Technologies, Inc. 8.000%, due 10/15/10 1,250,000 1,250,000 Buffets, Inc. 11.250%, due 07/15/10 1,300,000 1,391,000 Building Materials Corp. of America, Series B 7.750%, due 07/15/05 750,000 763,125 Cadmus Communications Corp. 8.375%, due 06/15/14 1,000,000 1,088,750 Calpine Canada Energy Finance ULC 8.500%, due 05/01/08 2,750,000 2,255,000 Cellu Tissue Holdings, Inc. 9.750%, due 03/15/10 1,300,000 1,348,750 Century Aluminum Co., 144A 7.500%, due 08/15/14 $ 850,000 $ 905,250 Charter Communications Holdings LLC 10.000%, due 04/01/09 2,000,000 1,800,000 10.000%, due 05/15/11 500,000 427,500 Chesapeake Energy Corp 7.500%, due 06/15/14 600,000 655,500 Chukchansi Economic Development Authority, 144A 14.500%, due 06/15/09 500,000 630,000 Cincinnati Bell, Inc. 8.375%, due 01/15/14 1,400,000 1,417,500 Circus & Eldorado Joint Venture Corp. 10.125%, due 03/01/12 650,000 706,875 Collins & Aikman Products Co. 10.750%, due 12/31/11 775,000 790,500 12.875%, due 08/15/12, 144A 800,000 691,000 Comstock Resources, Inc. 6.875%, due 03/01/12 1,000,000 1,032,500 Constar International, Inc. 11.000%, due 12/01/12 1,000,000 1,037,500 Crown Cork & Seal Co., Inc. 8.000%, due 04/15/23 2,500,000 2,462,500 Crown European Holdings S.A. 10.875%, due 03/01/13 400,000 473,000 CSC Holdings, Inc., Series B 7.625%, due 04/01/11 1,050,000 1,131,375 8.125%, due 08/15/09 1,175,000 1,285,156 Da-Lite Screen Co., Inc. 9.500%, due 05/15/11 1,250,000 1,375,000 Dobson Cellular Systems, 144A 9.875%, due 11/01/12 350,000 344,750 Dobson Communications Corp. 10.875%, due 07/01/10 1,150,000 891,250 DRS Technologies, Inc. 6.875%, due 11/01/13 900,000 940,500 Dura Operating Corp., Series D 9.000%, due 05/01/09 780,000 772,200 Dynegy Holdings, Inc. 7.125%, due 05/15/18 2,175,000 1,938,469 Edison Mission Energy 10.000%, due 08/15/08 750,000 860,625 El Pollo Loco, Inc. 9.250%, due 12/15/09 1,100,000 1,157,750 Energy Partners Ltd. 8.750%, due 08/01/10 1,000,000 1,090,000 Equinox Holdings, Inc. 9.000%, due 12/15/09 1,000,000 1,065,000 FastenTech, Inc., 144A 11.500%, due 05/01/11 1,000,000 1,150,000 Frontier Oil Corp., 144A 6.625%, due 10/01/11 300,000 306,000 Georgia-Pacific Corp. 8.875%, due 05/15/31 1,925,000 2,406,250 Giant Industries, Inc. 11.000%, due 05/15/12 967,000 1,121,720 Granite Broadcasting Corp. 9.750%, due 12/01/10 1,250,000 1,193,750
74
FACE AMOUNT VALUE --------------- --------------- Great Atlantic & Pacific Tea Co. 7.750%, due 04/15/07 $ 1,000,000 $ 990,000 Gulfmark Offshore, Inc., 144A 7.750%, due 07/15/14 1,500,000 1,590,000 Hawk Corp., 144A 8.750%, due 11/01/14 350,000 358,750 Herbst Gaming, Inc. 8.125%, due 06/01/12 925,000 989,750 Hornbeck Offshore Services, Inc.,144A 6.125%, due 12/01/14 875,000 879,375 Houghton Mifflin Co. (a) 8.250%, due 02/01/11 875,000 931,875 11.500%, due 10/15/13 1,000,000 735,000 Ingles Markets, Inc. 8.875%, due 12/01/11 250,000 267,500 Insight Communications Co., Inc. (a) 12.250%, due 02/15/11 1,375,000 1,337,187 Interface, Inc. 10.375%, due 02/01/10 800,000 920,000 Intrawest Corp., 144A 7.500%, due 10/15/13 350,000 372,313 IPC Acquisition Corp. 11.500%, due 12/15/09 975,000 1,067,625 Jacobs Entertainment Co. 11.875%, due 02/01/09 505,000 570,650 Jafra Cosmetics International, Inc. 10.750%, due 05/15/11 750,000 847,500 Jean Coutu Group, Inc., 144A 8.500%, due 08/01/14 1,250,000 1,281,250 Kansas City Southern Railway Co. 7.500%, due 06/15/09 550,000 577,500 Land O' Lakes, Inc. 8.750%, due 11/15/11 600,000 597,000 Landry's Restaurants, Inc., 144A 7.500%, due 12/15/14 575,000 570,688 Le-Natures, Inc., 144A 10.000%, due 06/15/13 1,750,000 1,933,750 Levi Strauss & Co. 11.625%, due 01/15/08 400,000 420,000 12.250%, due 12/15/12 550,000 611,875 MAAX Corp., 144A 9.750%, due 06/15/12 1,000,000 1,057,500 MCI, Inc. 6.908%, due 05/01/07 1,244,000 1,273,545 8.735%, due 05/01/14 1,000,000 1,075,000 Mediacom LLC 9.500%, due 01/15/13 1,515,000 1,520,681 Merisant Co., 144A 9.750%, due 07/15/13 975,000 867,750 Meristar Hospitality Corp. 9.000%, due 01/15/08 1,025,000 1,080,094 Methanex Corp. 8.750%, due 08/15/12 1,000,000 1,167,500 Midwest Generation LLC 8.750%, due 05/01/34 1,000,000 1,135,000 Millar Western Forest Products Ltd. 7.750%, due 11/15/13 1,000,000 1,070,000 Mirant Americas Generation LLC (c) 7.625%, due 05/01/06 1,450,000 1,558,750 MTR Gaming Group, Inc. 9.750%, due 04/01/10 $ 1,000,000 $ 1,100,000 National Mentor, Inc., 144A 9.625%, due 12/01/12 825,000 876,562 Nexstar Finance Holdings LLC (a) 11.375%, due 04/01/13 1,325,000 1,046,750 Nexstar Finance, Inc. 7.000%, due 01/15/14 250,000 247,500 Omnova Solutions, Inc. 11.250%, due 06/01/10 1,400,000 1,575,000 Owens-Brockway 6.750%, due 12/01/14, 144A 450,000 454,500 8.250%, due 05/15/13 500,000 550,000 Owens-Illinois, Inc. 7.800%, due 05/15/18 1,200,000 1,248,000 Pantry, Inc. 7.750%, due 02/15/14 850,000 905,250 Parker Drilling Co. 9.625%, due 10/01/13 1,100,000 1,234,750 Pathmark Stores, Inc. 8.750%, due 02/01/12 1,000,000 955,000 Perry Ellis International, Inc., Series B 9.500%, due 03/15/09 1,000,000 1,052,500 Petroleum Geo-Services ASA 10.000%, due 11/05/10 1,375,000 1,567,500 Pinnacle Foods Holding Corp., 144A 8.250%, due 12/01/13 750,000 714,375 Plains Exploration & Production Co. 8.750%, due 07/01/12 825,000 921,937 Pliant Corp. 11.125%, due 09/01/09 1,000,000 1,090,000 Port Townsend Paper Corp., 144A 11.000%, due 04/15/11 1,000,000 1,065,000 Premier Graphics, Inc. (b) (c) (d) 11.500%, due 12/01/05 4,250,000 0 Pride International, Inc. 7.375%, due 07/15/14 540,000 589,950 Qwest Communications International, Inc., 144A (a) 7.500%, due 02/15/11 1,525,000 1,563,125 Qwest Corp., 144A 7.875%, due 09/01/11 850,000 922,250 8.875%, due 03/15/12 550,000 635,250 Reliant Energy, Inc. 9.250%, due 07/15/10 600,000 669,000 9.500%, due 07/15/13 500,000 568,125 Resolution Performance Products, Inc. 13.500%, due 11/15/10 1,250,000 1,359,375 Rhodia S.A. 8.875%, due 06/01/11 395,000 397,963 10.250%, due 06/01/10 550,000 618,750 Riddell Bell Holdings, Inc., 144A 8.375%, due 10/01/12 1,250,000 1,293,750 River Rock Entertainment Authority 9.750%, due 11/01/11 1,400,000 1,569,750 Riverside Forest Products Ltd. 7.875%, due 03/01/14 1,000,000 1,100,000
75
FACE AMOUNT VALUE --------------- --------------- Rockwood Specialties Group, Inc. 10.625%, due 05/15/11 $ 1,150,000 $ 1,322,500 Rogers Wireless Communications, Inc., 144A 7.250%, due 12/15/12 300,000 318,000 7.500%, due 03/15/15 300,000 316,500 8.000%, due 12/15/12 150,000 158,625 Sbarro, Inc. 11.000%, due 09/15/09 780,000 787,800 Seminis Vegetable Seeds, Inc. 10.250%, due 10/01/13 1,250,000 1,406,250 Seneca Gaming Corp. 7.250%, due 05/01/12 1,000,000 1,052,500 Sequa Corp. 9.000%, due 08/01/09 1,000,000 1,127,500 Sheridan Acquisition Corp. 10.250%, due 08/15/11 2,000,000 2,187,500 Solo Cup Co. 8.500%, due 02/15/14 1,500,000 1,560,000 Stanadyne Corp., 144A 10.000%, due 08/15/14 1,000,000 1,080,000 Stena AB 7.000%, due 12/01/16, 144A 250,000 247,500 7.500%, due 11/01/13 1,000,000 1,047,500 Tekni-plex, Inc. 12.750%, due 06/15/10 1,250,000 1,187,500 Tembec Industries, Inc. 7.750%, due 03/15/12 650,000 628,875 8.500%, due 02/01/11 250,000 251,250 8.625%, due 06/30/09 100,000 100,500 Terra Capital, Inc. 11.500%, due 06/01/10 487,000 555,180 12.875%, due 10/15/08 1,075,000 1,343,750 Texas Genco LLC., 144A 6.875%, due 12/15/14 750,000 775,313 Tommy Hilfiger USA, Inc. 6.850%, due 06/01/08 500,000 502,500 Triton PCS, Inc. 9.375%, due 02/01/11 1,000,000 800,000 Universal Hospital Services, Inc. 10.125%, due 11/01/11 1,000,000 1,040,000 Vertis, Inc., Series B 10.875%, due 06/15/09 1,350,000 1,464,750 Virgin River Casino Corp., 144A 9.000%, due 01/15/12 300,000 312,000 Warner Music Group, 144A 7.375%, due 04/15/14 1,000,000 1,025,000 Wheeling Island Gaming, Inc. 10.125%, due 12/15/09 1,275,000 1,357,875 Whiting Petroleum Corp. 7.250%, due 05/01/12 1,150,000 1,201,750 WRC Media, Inc. 12.750%, due 11/15/09 1,300,000 1,236,625 Wynn Las Vegas LLC, 144A 6.625%, due 12/01/14 750,000 742,500 --------------- Total U.S. Bonds (Cost $144,704,885) 147,517,379 --------------- SHARES VALUE --------------- --------------- EQUITIES -- 2.05% U.S. EQUITIES -- 2.05% AEROSPACE & DEFENSE -- 0.00% Sabreliner Corp. (b) (d) (e) 8,400 $ 0 --------------- COMMERCIAL SERVICES & SUPPLIES -- 0.00% Waste Systems International, Inc. (b) (d) (e) 664,249 0 --------------- FOOD PRODUCTS -- 0.00% Aurora Foods, Inc. 144A (b) (d) (e) 174 0 --------------- HOTELS, RESTAURANTS & LEISURE -- 0.00% American Restaurant Group, Inc. (b) (d) (e) 972 0 --------------- METALS & MINING -- 0.59% Metal Management, Inc. (e) 33,570 902,026 --------------- SPECIALTY RETAIL -- 0.00% Samuels Jewelers, Inc. (b) (d) (e) 605,400 5,448 --------------- TRADING COMPANIES & DISTRIBUTORS -- 1.46% Nuco2, Inc. (b) (d) (e) 111,701 2,230,781 --------------- 3,138,255 --------------- CONVERTIBLE PREFERRED -- 0.00% (b) (d) (e) COMMERCIAL SERVICES & SUPPLIES -- 0.00% Waste Systems International, Inc., Series E, PIK 8.000% (c) 5,428 0 --------------- HOTELS, RESTAURANTS & LEISURE -- 0.00% American Restaurant Group, Inc., Series B, PIK 12.000% 1 0 --------------- 0 --------------- WARRANTS -- 0.00% (b) (e) Arcadia Financial Ltd., expires 03/15/07 (d) 6,000 0 Dayton Superior Corp., expires 06/15/09, 144A (f) 225 2 InterAct Electronic Marketing, Inc., expires 12/31/09 (d) 19,500 0 Knology, Inc., expires 10/15/07, 144A (d)(f) 16,995 0 Pathnet, Inc., expires 04/15/08 (d) 6,275 0 Pliant Corp., expires 06/01/10, 144A (f) 160 2 Wam!Net, Inc., expires 3/1/05 (d) 26,250 0 --------------- 4 --------------- Total Equities (Cost $15,186,920) 3,138,259 --------------- SHORT-TERM INVESTMENT -- 1.08% UBS Supplementary Trust U.S. Cash Management Prime Fund, yield of 2.28% (Cost $1,655,160) 1,655,160 1,655,160 --------------- Total Investments (Cost $161,546,965) -- 99.32% 152,310,798 Cash and other assets, less liabilities -- 0.68% 1,041,821 --------------- Net Assets -- 100% $ 153,352,619 ===============
76 NOTES TO SCHEDULE OF INVESTMENTS Aggregate cost for federal income tax purposes was $161,546,965; and net unrealized depreciation consisted of: Gross unrealized appreciation $ 10,366,598 Gross unrealized depreciation (19,602,765) --------------- Net unrealized depreciation $ (9,236,167) ===============
(a) Step Bonds - Coupon rate increases in increments to maturity. Rate disclosed is as of December 31, 2004. Maturity date disclosed is the ultimate maturity date. (b) Security is illiquid. These securities amounted to $2,236,233 or 1.46% of net assets. (c) Security is in default. (d) Security is being fair valued by a valuation committee under the direction of the Board of Trustees. At December 31, 2004 the value of these securities amounted to $2,236,229 or 1.46% of net assets. (e) Non-income producing security. (f) Represents a restricted security. % 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 December 31, 2004 the value of these securities amounted to $27,027,755 or 17.62% of net assets. PIK Payment-In-Kind. RESTRICTED SECURITIES
ACQUISITION COST MARKET VALUE ACQUISITION ACQUISITION PERCENTAGE MARKET PERCENTAGE OF DATE COST OF NET ASSETS VALUE NET ASSETS ----------- ----------- ------------- ------ ------------- Dayton Superior Corp., expires 06/15/09 144A 08/07/00 $ 0 0.00% $ 2 0.00% Knology, Inc., expires 10/15/07 144A 06/08/98 0 0.00 0 0.00 Pliant Corp., expires 06/01/10 144A 10/20/00 0 0.00 2 0.00
See accompanying notes to financial statements 77 UBS INTERNATIONAL EQUITY FUND For the six months ended December 31, 2004, Class Y shares of UBS International Equity Fund (the "Fund") returned 14.66%, underperforming the 15.34% return of 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 5.48% on an annualized basis, trailing the 5.80% annualized return of the Index. (Class Y shares have lower expenses than other share classes in the series. Returns for all share classes over various time periods are shown on page 80; 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 performance, it trailed its benchmark for the reporting period. This was primarily attributable to stock selection, which also guided country and sector allocation decisions. RESEARCH-DRIVEN STOCK SELECTION GUIDED PORTFOLIO CONSTRUCTION International equity markets traded in a fairly narrow range in the first half of the reporting period. Investors distracted by rising interest rates, high oil prices and worries over the sustainability of a global economic recovery pulled back from riskier countries and economically sensitive industries. However, the global equity markets rallied sharply in the fourth quarter of 2004, due largely to falling oil prices and the conclusion of the US Presidential election. Stock selection was critical in this market environment. Our stock selection process rests on the premise that stocks often sell for more or less than their intrinsic value. Our global network of equity analysts employ fundamental research, uncovering price discrepancies that offer opportunity for investment. In particular, the Fund saw sizeable gains from holdings in the banking and transportation sectors. In banking, one of the portfolio's best performers was Barclays, while transportation companies TPG NV (Netherlands) and Canadian National Railway Co. also generated strong performance. Also notable was the return generated by the portfolio's investment in UK utility Scottish & Southern Energy PLC. Conversely, stock selection in the materials and media sectors hurt the Fund's relative performance. On a sector level, telecommunications services companies delivered strong results over the reporting period, driven primarily by domestic demand and a favorable regulatory environment. Although this industry may have been given to excess in the late 1990's, many companies have brought their balance sheets into order and begun to generate steady cash flows. While an overweight to telecommunications benefited relative performance, stock selection within the sector detracted from performance. Strong performance from Vodafone Group PLC, France Telecom S.A. was offset by weak performance from NTT DoCoMo Inc. Underweights in technology hardware and capital goods aided performance, as many names in these sectors continued to struggle with large inventories and lower demand. While relative performance was hurt over the reporting period by our underweight in utilities, stock selection in this area generated good results. The portfolio's geographic weighting reflected our bottom-up stock views. The Fund's largest overweight position was in the UK, where we were attracted to the country's financial services industry--notable positions included Royal Bank of Scotland Group PLC and Barclays PLCand the food, beverages and tobacco sector. Examples of holdings in this sector included Cadbury Schweppes PLC, Gallaher Group PLC and Diageo PLC. This position enhanced the Fund's relative results. Performance was also helped by our underweight exposure to Japan, where economic growth continues to slow. In contrast, relative performance was hurt by the Fund's underweight position in Spain, although stock selection in the country was a positive. Currency positions were scaled back during the period, as the euro outperformed versus the pound sterling, and the Australian dollar appreciated versus the yen. By year-end, our currency position was near neutral, with only a minor contribution to the portfolio's risk. LOOKING AHEAD The global economy is expected to grow, but at a more moderate rate than most investors, in our opinion hope. While earnings remain strong, expectations for US corporate profit 78 growth has declined, and the same seems to be occurring in Japan. Expectations in Europe, which were not as high as those in Japan and the US, have now moved in line with global earnings expectations. Despite these more challenging conditions, we are confident that our global research team will continue to find areas of opportunity. We believe the strong cash flow-generating companies we currently hold in the portfolio are well positioned as we move into the later stages of economic recovery. We continue to favor telecommunications stocks, and have been adding attractive healthcare companies to the portfolio. We expect to continue gradually increasing our technology exposure going forward. Based on our analysis, we believe that these companies' business cycles can turn quickly, driving prices up abruptly. We do not want to be underweight if this occurs. 79 TOTAL RETURN (UNAUDITED)
6 MONTHS 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION* ENDED ENDED ENDED ENDED ENDED TO 12/31/04 12/31/04 12/31/04 12/31/04 12/31/04 12/31/04 ---------------------------------------------------------------------------------------------------------------- UBS INTERNATIONAL EQUITY FUND CLASS A 14.68% 17.14% 9.64% -0.18% N/A 2.93% UBS INTERNATIONAL EQUITY FUND CLASS B 14.12 16.18 N/A N/A N/A 10.58 UBS INTERNATIONAL EQUITY FUND CLASS C 14.19 16.26 N/A N/A N/A 10.30 UBS INTERNATIONAL EQUITY FUND CLASS Y 14.66 17.25 9.86 0.01 6.51% 5.48 UBS INTERNATIONAL EQUITY FUND CLASS A** 8.36 10.68 7.58 -1.30 N/A 2.16 UBS INTERNATIONAL EQUITY FUND CLASS B** 9.12 11.18 N/A N/A N/A 9.71 UBS INTERNATIONAL EQUITY FUND CLASS C** 13.19 15.26 N/A N/A N/A 10.30 MSCI WORLD EX USA (FREE) INDEX 15.34 20.36 12.24 -0.77 5.95 5.80
* 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. THE Y SHARE CLASS IS OUR LOWEST FEE SHARE CLASS. OUR OTHER SHARE CLASSES INCLUDE HIGHER FEE AND LOADS, WHICH IF DEDUCTED WOULD RESULT IN LOWER PERFORMANCE. 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. 80 EXPLANATION OF EXPENSE DISCLOSURE (UNAUDITED) As a shareholder of the Fund, you incur two types of costs: (1) transactional costs (as applicable); including sales charges (loads) on purchase payments; and (2) ongoing costs, including management fees; distribution and/or service (12b-1) fees (if applicable); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example below is based on an investment of $1,000 invested at the beginning of the period and held for the entire period, July 1, 2004 to December 31, 2004. ACTUAL EXPENSES The first line of each class of shares in the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over a period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second line for each class of shares in the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratios for each class of shares and an assumed rate of return of 5% per year before expenses, which is not the actual Fund's return for each class of shares. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs (as applicable), such as sales charges (loads). Therefore, the second line in the table for each class of shares is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
BEGINNING ENDING EXPENSES PAID ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD* JULY 1, 2004 DECEMBER 31, 2004 7/1/04 - 12/31/04 ------------------------------------------------------------------------------------------------------- CLASS A ACTUAL $ 1,000.00 $ 1,146.80 $ 6.76 HYPOTHETICAL (5% RETURN BEFORE EXPENSES) 1,000.00 1,018.89 6.36 CLASS B ACTUAL 1,000.00 1,141.20 10.79 HYPOTHETICAL (5% RETURN BEFORE EXPENSES) 1,000.00 1,015.12 10.16 CLASS C ACTUAL 1,000.00 1,141.90 10.80 HYPOTHETICAL (5% RETURN BEFORE EXPENSES) 1,000.00 1,015.12 10.16 CLASS Y ACTUAL 1,000.00 1,146.60 5.41 HYPOTHETICAL (5% RETURN BEFORE EXPENSES) 1,000.00 1,020.16 5.09
* EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO: CLASS A: 1.25%, CLASS B: 2.00%, CLASS C: 2.00%, CLASS Y: 1.00%, MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 184 DIVIDED BY 365 (TO REFLECT THE ONE-HALF YEAR PERIOD). 81 TOP TEN INTERNATIONAL EQUITY HOLDINGS AS OF DECEMBER 31, 2004 (UNAUDITED)
PERCENTAGE OF NET ASSETS ------------------------------------------------------------------------------------- Vodafone Group PLC 3.0% Royal Bank of Scotland Group PLC 2.5 BP PLC 2.5 Shell Transport & Trading Co. PLC 2.4 Total S.A. 2.4 Barclays PLC 2.3 Roche Holding AG 2.2 Diageo PLC 2.0 ABN AMRO Holding NV 2.0 Bank of Ireland 1.8 ------------------------------------------------------------------------------------- Total 23.1%
INDUSTRY DIVERSIFICATION AS A PERCENT OF NET ASSETS AS OF DECEMBER 31, 2004 (UNAUDITED) INTERNATIONAL EQUITIES Air Freight & Logistics 1.22% Airlines 0.31 Auto Components 1.35 Automobiles 2.29 Beverages 2.74 Biotechnology 0.52 Capital Markets 1.75 Chemicals 1.88 Commercial Banks 16.36 Commercial Services & Supplies 1.37 Communications Equipment 1.15 Construction & Engineering 0.23 Construction Materials 1.87 Consumer Finance 0.48 Diversified Financial Services 0.94 Diversified Telecommunication Services 5.77 Electric Utilities 0.90 Electronic Equipment & Instruments 1.03 Food & Staples Retailing 2.19 Food Products 1.90 Health Care Equipment & Supplies 0.33 Household Durables 2.13 Household Products 1.14 Insurance 3.80 Internet & Catalog Retail 0.50 IT Services 0.37 Leisure Equipment & Products 0.51 Machinery 0.79 Media 3.19 Metals & Mining 1.02 Multi-Utilities & Unregulated Power 0.47% Multiline Retail 0.18 Office Electronics 1.57 Oil & Gas 8.79 Paper & Forest Products 1.39 Pharmaceuticals 6.15 Real Estate 1.75 Road & Rail 1.27 Semiconductors & Semiconductor Equipment 1.02 Specialty Retail 2.21 Textiles, Apparel & Luxury Goods 0.37 Tobacco 1.69 Trading Companies & Distributors 1.08 Wireless Telecommunication Services 4.45 ------ Total International Equities 92.42 INVESTMENT COMPANY 4.79 INTERNATIONAL BOND Diversified Financial Services 0.33 ------ Total International Bonds 0.33 SHORT-TERM INVESTMENT 1.07 INVESTMENT OF CASH COLLATERAL FOR SECURITIES LOANED 11.28 ------ TOTAL INVESTMENTS 109.89 LIABILITIES, IN EXCESS OF CASH AND OTHER ASSETS (9.89) ------ NET ASSETS 100.00% ======
82 UBS INTERNATIONAL EQUITY FUND -- SCHEDULE OF INVESTMENTS DECEMBER 31, 2004 (UNAUDITED)
SHARES VALUE --------------- --------------- INTERNATIONAL EQUITIES -- 92.42% AUSTRALIA -- 2.95% Australia & New Zealand Banking Group Ltd. 49,398 $ 797,308 National Australia Bank Ltd. 40,633 917,981 Qantas Airways Ltd. 134,732 391,837 QBE Insurance Group Ltd. (b) 103,789 1,248,879 Woolworths Ltd. 35,307 415,434 --------------- 3,771,439 --------------- AUSTRIA -- 0.92% Telekom Austria AG 62,167 1,178,782 --------------- BELGIUM -- 1.32% Fortis 43,566 1,205,068 Solvay S.A. 4,427 487,409 --------------- 1,692,477 --------------- CANADA -- 5.48% Alcan, Inc. (b) 26,640 1,307,376 Bank of Nova Scotia (b) 22,100 750,716 BCE, Inc. (b) 30,500 736,185 Canadian National Railway Co. 20,900 1,274,601 Canadian Tire Corp., Ltd. (b) 4,800 225,187 Cott Corp. (a) 13,600 336,893 Great-West Lifeco, Inc. (b) 16,100 358,778 Magna International, Inc., Class A (b) 7,000 575,879 Petro-Canada 14,400 735,173 Shoppers Drug Mart Corp. (a) 22,700 706,113 --------------- 7,006,901 --------------- FINLAND -- 2.13% Nokia Oyj 93,492 1,476,658 UPM-Kymmene Oyj 55,978 1,244,801 --------------- 2,721,459 --------------- FRANCE -- 7.73% BNP Paribas (b) 17,241 1,249,076 Cap Gemini S.A. (a) (b) 14,658 469,407 France Telecom S.A. 54,284 1,797,416 LVMH Moet Hennessy Louis Vuitton S.A. 6,149 470,975 Sanofi-Aventis S.A. (b) 24,062 1,923,129 Total S.A. (b) 13,869 3,029,426 Unibail (b) 5,978 940,944 --------------- 9,880,373 --------------- GERMANY -- 0.38% Volkswagen AG 10,808 489,937 --------------- HONG KONG -- 1.13% Cheung Kong Holdings Ltd. 67,000 668,043 Sun Hung Kai Properties Ltd. 63,000 630,187 Television Broadcasts Ltd. 32,000 148,623 --------------- 1,446,853 --------------- IRELAND -- 2.82% Bank of Ireland 135,363 2,253,904 CRH PLC 50,699 1,357,579 --------------- 3,611,483 --------------- ITALY -- 2.15% ENI SpA 49,801 $ 1,246,887 UniCredito Italiano SpA 260,654 1,498,663 --------------- 2,745,550 --------------- JAPAN -- 16.70% Canon, Inc. 37,300 2,012,970 East Japan Railway Co. 63 350,444 Fuji Photo Film Co., Ltd. 18,000 656,973 Funai Electric Co., Ltd. (b) 5,300 657,910 Honda Motor Co., Ltd. 27,000 1,399,141 Kao Corp. (b) 57,000 1,457,402 Meitec Corp. (b) 7,100 264,682 Mitsubishi Corp. (b) 61,000 788,172 Murata Manufacturing Co., Ltd. 11,000 615,107 NGK Spark Plug Co., Ltd. (b) 73,000 755,860 Nippon Paper Group, Inc. (b) 119 534,205 Nissan Motor Co., Ltd. 97,000 1,054,533 Nitto Denko Corp. 19,000 1,042,061 NTT DoCoMo, Inc. 1,029 1,897,931 Rohm Co., Ltd. 12,600 1,303,406 Sekisui House Ltd. 53,000 617,566 Shin-Etsu Chemical Co., Ltd. 11,800 483,654 SKY Perfect Communications, Inc. 222 240,480 Sompo Japan Insurance, Inc. 98,000 998,458 Sumitomo Mitsui Financial Group, Inc. (b) 103 748,853 Sumitomo Trust & Banking Co., Ltd. 87,000 629,131 Taiheiyo Cement Corp. 600 1,493 Takeda Pharmaceutical Co., Ltd. 33,400 1,681,897 Takefuji Corp. 9,110 616,105 Toyota Industries Corp. 15,800 394,730 Yokogawa Electric Corp. (b) 11,000 147,068 --------------- 21,350,232 --------------- NETHERLANDS -- 7.68% ABN AMRO Holding NV 95,969 2,542,390 Heineken NV 18,216 607,365 Koninklijke (Royal) Philips Electronics NV 26,279 696,892 Reed Elsevier NV 96,842 1,320,274 Royal KPN NV 178,663 1,697,505 TPG NV 57,466 1,560,651 VNU NV 47,341 1,398,288 --------------- 9,823,365 --------------- PORTUGAL -- 0.77% Energias de Portugal S.A. (b) 76,183 230,920 Portugal Telecom, SGPS, S.A. 60,447 747,680 --------------- 978,600 --------------- SPAIN -- 0.54% Banco Santander Central Hispano S.A. 56,019 695,193 --------------- SWEDEN -- 3.27% Electrolux AB, B Shares 32,900 752,520 Hennes & Mauritz AB, B Shares 24,050 837,809 Sandvik AB 24,900 1,004,183 Svenska Handelsbanken AB, A Shares 27,350 712,004 Swedish Match AB 75,640 876,438 --------------- 4,182,954 ---------------
83
SHARES VALUE --------------- --------------- SWITZERLAND -- 8.08% Actelion NV (a) 6,494 $ 667,047 Adecco S.A. 16,730 842,312 Clariant AG 24,548 396,144 Credit Suisse Group 53,103 2,232,278 Holcim Ltd. 17,238 1,038,434 Nestle S.A. 4,458 1,166,349 Nobel Biocare Holding AG 2,332 422,471 Roche Holding AG 24,224 2,788,604 Swiss Reinsurance Co. 10,965 782,043 --------------- 10,335,682 --------------- UNITED KINGDOM -- 28.37% AstraZeneca PLC 40,386 1,464,675 Balfour Beatty PLC 49,298 298,375 Barclays PLC 258,452 2,907,744 BP PLC 322,002 3,140,515 BT Group PLC 312,123 1,216,467 Cadbury Schweppes PLC 136,440 1,270,463 Diageo PLC 180,363 2,572,852 Electrocomponents PLC 101,016 552,246 Gallaher Group PLC 84,270 1,280,568 GUS PLC 35,178 633,846 HBOS PLC 58,050 945,098 HSBC Holdings PLC 59,258 1,000,033 ITV PLC 158,671 320,626 Kesa Electricals PLC 109,009 591,234 Kingfisher PLC 234,218 1,392,869 National Grid Transco PLC 63,523 604,911 Prudential PLC 168,705 1,467,252 Rentokil Initial PLC 226,468 642,411 Reuters Group PLC 89,111 645,843 Royal Bank of Scotland Group PLC 96,849 3,257,676 Scottish & Southern Energy PLC 55,304 926,404 Shell Transport & Trading Co. PLC 360,314 3,071,445 Tesco PLC 273,276 1,688,102 Vodafone Group PLC 1,400,016 3,796,646 Wolseley PLC 31,316 585,303 --------------- 36,273,604 --------------- Total International Equities (Cost $84,610,157) 118,184,884 --------------- INVESTMENT COMPANY -- 4.79% iShares MSCI EAFE Index Fund (Cost $5,743,139) 38,200 $ 6,121,550 --------------- FACE AMOUNT --------------- INTERNATIONAL BOND -- 0.33% CAYMAN ISLANDS -- 0.33% SMFG Finance Ltd., 144A 2.250%, due 07/11/05 (Cost $174,433) JPY 18,000,000 418,615 --------------- SHARES --------------- SHORT-TERM INVESTMENT -- 1.07% UBS Supplementary Trust U.S. Cash Management Prime Fund, yield of 2.28% (Cost $1,374,626) 1,374,626 1,374,626 --------------- INVESTMENT OF CASH COLLATERAL FOR SECURITIES LOANED -- 11.28% UBS Supplementary Trust U.S. Cash Management Prime Fund, yield of 2.28% (Cost $14,418,350) 14,418,350 14,418,350 --------------- Total Investments (Cost $106,320,705) -- 109.89% 140,518,025 Liabilities, in excess of cash and other assets -- (9.89)% (12,646,822) --------------- Net Assets -- 100% $ 127,871,203 ===============
84 NOTES TO SCHEDULE OF INVESTMENTS Aggregate cost for federal income tax purposes was $106,320,705; and net unrealized appreciation consisted of: Gross unrealized appreciation $ 34,920,330 Gross unrealized depreciation (723,010) --------------- Net unrealized appreciation $ 34,197,320 ===============
(a) Non-income producing security. (b) Security, or portion thereof, was on loan at December 31, 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 December 31, 2004 the value of this security amounted to $418,615 or 0.33% of net assets. AUD Australian Dollar CAD Canadian Dollar DKK Danish Krone EUR Euro HKD Hong Kong Dollar JPY Japanese Yen NOK Norwegian Krone SGD Singapore Dollar SGPS Sociedade Gestora de Participacoes Sociais USD United States Dollar FORWARD FOREIGN CURRENCY CONTRACTS UBS International Equity Fund had the following open forward foreign currency contracts as of December 31, 2004:
UNREALIZED CONTRACTS IN EXCHANGE MATURITY APPRECIATION TO DELIVER FOR DATES (DEPRECIATION) ---------- ---------------- -------- -------------- British Pound 5,930,000 USD 11,088,566 06/03/05 $ (200,572) Swedish Krona 8,900,000 USD 1,318,255 06/03/05 (24,501) Swiss Franc 2,700,000 USD 2,375,192 06/03/05 (18,652) United States Dollar 636,648 AUD 820,000 06/03/05 (793) United States Dollar 592,568 CAD 700,000 06/03/05 (8,252) United States Dollar 891,361 DKK 5,000,000 06/03/05 24,131 United States Dollar 5,204,813 EUR 3,930,000 06/03/05 148,698 United States Dollar 558,514 HKD 4,300,000 06/03/05 (129) United States Dollar 6,496,575 JPY 660,000,000 06/03/05 17,144 United States Dollar 620,155 NOK 3,800,000 06/03/05 9,254 United States Dollar 2,082,887 SGD 3,400,000 06/03/05 10,457 -------------- Total net unrealized depreciation on forward foreign currency contracts. $ (43,215) ==============
See accompanying notes to financial statements 85 UBS U.S. LARGE CAP VALUE EQUITY FUND For the six months ended December 31, 2004, Class Y shares of UBS U.S. Large Cap Value Equity Fund (the "Fund") returned 10.38%, underperforming the 12.08% 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 6.78% on an annualized basis, outperforming the 5.93% annualized return of the Index. (Class Y shares have lower expenses than other share classes in the series. Returns for all share classes over various time periods are shown on page 87; please note that these returns do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares). The six-month reporting period can best be viewed as two distinct phases. The first four months made up the first phase, which was primarily a continuation of a trend that we saw in early 2004, whereby risk-averse investors placed a premium on stability and quality. The last two months constituted the second phase, which was characterized by a short-lived rally favoring lower-quality, higher-risk stocks. The Fund is less exposed to these more volatile stocks than the market as a whole, and that positioning prevented it from fully participating in this late rally. QUALITY FOCUS FOR LONG-TERM RESULTS We maintained a bias toward lower-risk sectors during the reporting period, as our continued research indicated that these sectors offered attractive risk-adjusted return potential. This strategy led us to overweight select segments of materials, transportation and healthcare, while underweighting technology and energy. The Fund's position in materials, which made a significant contribution to performance over the period, was almost exclusively due to an overweight in construction and real property. In transportation, the Fund focused on railroads, where our research suggested the potential for strong volume growth across most markets. Top performing Burlington Northern Santa Fe Corp. is one example of a transportation holding that generated strong results over the period. Conversely, our healthcare exposure detracted from performance. For the most part, the Fund's healthcare position was a result of an overweight in pharmaceuticals. Pharmaceutical stocks in general were hurt by negative press, raising investors' fears about the impact of drug re-importation and Medicare prescription drug benefits. In our opinion, the proposed changes will have little effect--and may potentially benefit--our holdings, which are generally targeted "niche" companies and companies with solid drug pipelines. Among our pharmaceutical stocks that delivered solid returns over the six months were Wyeth and Johnson & Johnson, and the portfolio's performance was benefited by not owning Merck. The Fund maintained its underweight exposure to technology over the last six months. Early in the review period, we added opportunistically to our computer software exposure, but remained underweight relative to the benchmark. This underweight helped the Fund's relative performance as software continues to find its footing in the economic recovery. In contrast, the Fund's underweight in energy hindered performance. Energy stocks were supported over the period by rising oil prices. Our analysis suggests that oil prices have peaked, however, and should decline as the geopolitical situation stabilizes. In our opinion, energy stock prices in general are overvalued and do not represent an attractive value opportunity for the Fund. LOOKING AHEAD At year-end, the overall market was, in our estimate, in the fair value range. There were no identifiable macro themes driving our portfolio strategy. We believe the most attractive opportunities going forward are in high-quality, low-volatility stocks. The Fund is positioned toward companies with strong cash flows and with the ability to pay or increase dividends and/or repurchase shares. We expect moderate earnings growth above the long-term trend, but below what we have seen in 2004. Against this backdrop, the Fund's beta position was close to neutral at year-end. Going into 2005, we continue to find excellent bottom-up stock selection opportunities. We continue to believe some of the most attractive opportunities are in the financial and health care sectors. The pharmaceuticals sector grabbed the headlines as fears of drug re-importation emerged. We remain underweighted to technology and energy stocks, as current valuations, in our opinion, are not attractive. 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. 86 TOTAL RETURN (UNAUDITED)
6 MONTHS 1 YEAR 3 YEARS INCEPTION* ENDED ENDED ENDED TO 12/31/04 12/31/04 12/31/04 12/31/04 ----------------------------------------------------------------------------------------------------- UBS U.S. LARGE CAP VALUE EQUITY FUND CLASS A 10.21% 13.98% 7.82% 7.68% UBS U.S. LARGE CAP VALUE EQUITY FUND CLASS B 9.75 13.15 6.97 7.82 UBS U.S. LARGE CAP VALUE EQUITY FUND CLASS C 9.88 13.18 7.02 7.75 UBS U.S. LARGE CAP VALUE EQUITY FUND CLASS Y 10.38 14.25 8.07 6.78 UBS U.S. LARGE CAP VALUE EQUITY FUND CLASS A** 4.16 7.71 5.81 5.71 UBS U.S. LARGE CAP VALUE EQUITY FUND CLASS B** 5.14 8.40 6.09 7.27 UBS U.S. LARGE CAP VALUE EQUITY FUND CLASS C** 8.96 12.23 7.02 7.75 RUSSELL 1000 VALUE INDEX 12.08 16.49 8.57 5.93
* Inception dates of UBS U.S. Large Cap 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. The Y share class is our lowest fee share class. Our other share classes include higher fee and loads, which if deducted would result in lower performance. All total returns in excess of 1 year are average annualized returns. All total returns less than 1 year are cumulative returns. Past performance is not an indication of future results. 87 EXPLANATION OF EXPENSE DISCLOSURE (UNAUDITED) As a shareholder of the Fund, you incur two types of costs: (1) transactional costs (as applicable); including sales charges (loads) on purchase payments; and (2) ongoing costs, including management fees; distribution and/or service (12b-1) fees (if applicable); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example below is based on an investment of $1,000 invested at the beginning of the period and held for the entire period, July 1, 2004 to December 31, 2004. ACTUAL EXPENSES The first line of each class of shares in the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over a period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second line for each class of shares in the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratios for each class of shares and an assumed rate of return of 5% per year before expenses, which is not the actual Fund's return for each class of shares. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs (as applicable), such as sales charges (loads). Therefore, the second line in the table for each class of shares is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
BEGINNING ENDING EXPENSES PAID ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD* JULY 1, 2004 DECEMBER 31, 2004 7/1/04 - 12/31/04 ------------------------------------------------------------------------------------------------------- CLASS A ACTUAL $ 1,000.00 $ 1,102.10 $ 5.83 HYPOTHETICAL (5% RETURN BEFORE EXPENSES) 1,000.00 1,019.66 5.60 CLASS B ACTUAL 1,000.00 1,097.50 9.78 HYPOTHETICAL (5% RETURN BEFORE EXPENSES) 1,000.00 1,015.88 9.40 CLASS C ACTUAL 1,000.00 1,098.80 9.79 HYPOTHETICAL (5% RETURN BEFORE EXPENSES) 1,000.00 1,015.88 9.40 CLASS Y ACTUAL 1,000.00 1,103.80 4.51 HYPOTHETICAL (5% RETURN BEFORE EXPENSES) 1,000.00 1,020.92 4.33
* Expenses are equal to the Fund's annualized expense ratio: Class A: 1.10%, Class B: 1.85%, Class C: 1.85%, Class Y: 0.85%, multiplied by the average account value over the period, multiplied by 184 divided by 365 (to reflect the one-half year period). 88 UBS U.S. LARGE CAP VALUE EQUITY FUND TOP TEN EQUITY HOLDINGS AS OF DECEMBER 31, 2004 (UNAUDITED)
PERCENTAGE OF NET ASSETS -------------------------------------------------------- ExxonMobil Corp. 5.1% Citigroup, Inc. 5.0 Morgan Stanley 4.3 Wells Fargo & Co. 4.2 JPMorgan Chase & Co. 4.1 Nextel Communications, Inc., Class A 3.4 Freddie Mac 3.3 Marathon Oil Corp. 2.8 Time Warner, Inc. 2.5 UnitedHealth Group, Inc. 2.5 -------------------------------------------------------- Total 37.2%
INDUSTRY DIVERSIFICATION AS A PERCENT OF NET ASSETS AS OF DECEMBER 31, 2004 (UNAUDITED) U.S. EQUITIES Aerospace & Defense 2.43% Auto Components 1.41 Biotechnology 0.99 Building Products 2.13 Capital Markets 7.99 Commercial Banks 8.09 Commercial Services & Supplies 0.59 Computers & Peripherals 1.16 Construction Materials 1.99 Diversified Financial Services 9.09 Diversified Telecommunication Services 1.95 Electric Utilities 6.81 Food & Staples Retailing 4.71 Health Care Providers & Services 3.17 Household Products 1.15 Insurance 4.33 Internet & Catalog Retail 0.90 Machinery 2.48% Media 8.70 Multi-Utilities & Unregulated Power 1.84 Oil & Gas 7.96 Pharmaceuticals 6.41 Road & Rail 4.72 Software 0.89 Thrifts & Mortgage Finance 3.31 Wireless Telecommunication Services 3.37 ------ Total U.S. Equities 98.57 SHORT-TERM INVESTMENTS 1.71 ------ TOTAL INVESTMENTS 100.28 LIABILITIES, IN EXCESS OF CASH AND OTHER ASSETS (0.28) ------ NET ASSETS 100.00% ======
89 UBS U.S. LARGE CAP VALUE EQUITY FUND -- SCHEDULE OF INVESTMENTS DECEMBER 31, 2004 (UNAUDITED)
SHARES VALUE --------------- --------------- U.S. EQUITIES -- 98.57% AEROSPACE & DEFENSE -- 2.43% Lockheed Martin Corp. 37,500 $ 2,083,125 Northrop Grumman Corp. 27,400 1,489,464 --------------- 3,572,589 --------------- AUTO COMPONENTS -- 1.41% Johnson Controls, Inc. 32,700 2,074,488 --------------- BIOTECHNOLOGY -- 0.99% Cephalon, Inc. (a) 28,500 1,450,080 --------------- BUILDING PRODUCTS -- 2.13% Masco Corp. 85,850 3,136,101 --------------- CAPITAL MARKETS -- 7.99% Mellon Financial Corp. 110,300 3,431,433 Morgan Stanley 115,000 6,384,800 Northern Trust Corp. 39,600 1,923,768 --------------- 11,740,001 --------------- COMMERCIAL BANKS -- 8.09% Bank of America Corp. 60,822 2,858,026 PNC Financial Services Group, Inc. 49,700 2,854,768 Wells Fargo & Co. 99,350 6,174,602 --------------- 11,887,396 --------------- COMMERCIAL SERVICES & SUPPLIES -- 0.59% Equifax, Inc. 30,900 868,290 --------------- COMPUTERS & PERIPHERALS -- 1.16% Hewlett-Packard Co. 81,500 1,709,055 --------------- CONSTRUCTION MATERIALS -- 1.99% Martin Marietta Materials, Inc. 54,500 2,924,470 --------------- DIVERSIFIED FINANCIAL SERVICES -- 9.09% Citigroup, Inc. 153,176 7,380,019 JPMorgan Chase & Co. 153,170 5,975,162 --------------- 13,355,181 --------------- DIVERSIFIED TELECOMMUNICATION SERVICES -- 1.95% SBC Communications, Inc. 111,250 2,866,913 --------------- ELECTRIC UTILITIES -- 6.81% American Electric Power Co., Inc. 82,400 2,829,616 Exelon Corp. 66,500 2,930,655 FirstEnergy Corp. 72,000 2,844,720 Pepco Holdings, Inc. 65,500 1,396,460 --------------- 10,001,451 --------------- FOOD & STAPLES RETAILING -- 4.71% Albertson's, Inc. 91,500 2,185,020 Costco Wholesale Corp. 57,600 2,788,416 Kroger Co. (a) 110,900 1,945,186 --------------- 6,918,622 --------------- HEALTH CARE PROVIDERS & SERVICES -- 3.17% Medco Health Solutions, Inc. (a) 6,700 278,720 Quest Diagnostics, Inc. 7,500 716,625 UnitedHealth Group, Inc. 41,600 3,662,048 --------------- 4,657,393 --------------- HOUSEHOLD PRODUCTS -- 1.15% Kimberly-Clark Corp. 25,600 $ 1,684,736 --------------- INSURANCE -- 4.33% Aflac, Inc. 40,400 1,609,536 Allstate Corp. 45,900 2,373,948 Hartford Financial Services Group, Inc. 34,250 2,373,867 --------------- 6,357,351 --------------- INTERNET & CATALOG RETAIL -- 0.90% IAC/InterActiveCorp. (a) 47,800 1,320,236 --------------- MACHINERY -- 2.48% Illinois Tool Works, Inc. 39,350 3,646,958 --------------- MEDIA -- 8.70% Omnicom Group, Inc. 33,800 2,850,016 Time Warner, Inc. (a) 190,900 3,711,096 Tribune Co. 32,500 1,369,550 Univision Communications, Inc. (a) 45,800 1,340,566 Viacom, Inc., Class B 96,700 3,518,913 --------------- 12,790,141 --------------- MULTI-UTILITIES & UNREGULATED POWER -- 1.84% CMS Energy Corp. (a) 70,450 736,203 Sempra Energy 53,600 1,966,048 --------------- 2,702,251 --------------- OIL & GAS -- 7.96% ExxonMobil Corp. 146,750 7,522,405 Marathon Oil Corp. 111,100 4,178,471 --------------- 11,700,876 --------------- PHARMACEUTICALS -- 6.41% Bristol-Myers Squibb Co. 61,900 1,585,878 Johnson & Johnson 46,800 2,968,056 Pfizer, Inc. 60,500 1,626,845 Wyeth 76,200 3,245,358 --------------- 9,426,137 --------------- ROAD & RAIL -- 4.72% Burlington Northern Santa Fe Corp. 71,100 3,363,741 CSX Corp. 89,100 3,571,128 --------------- 6,934,869 --------------- SOFTWARE -- 0.89% Oracle Corp. (a) 94,800 1,300,656 --------------- THRIFTS & MORTGAGE FINANCE -- 3.31% Freddie Mac 66,050 4,867,885 --------------- WIRELESS TELECOMMUNICATION SERVICES -- 3.37% Nextel Communications, Inc., Class A (a) 165,000 4,950,000 --------------- Total U.S. Equities (Cost $122,665,275) 144,844,126 --------------- SHORT-TERM INVESTMENTS -- 1.71% OTHER -- 1.30% UBS Supplementary Trust U.S. Cash Management Prime Fund, yield of 2.28% 1,912,919 1,912,919 ---------------
90
FACE AMOUNT VALUE --------------- --------------- U.S. GOVERNMENT OBLIGATIONS -- 0.41% U.S. Treasury Bills, yield of 1.70% due 02/03/05 (b) $ 600,000 $ 598,870 --------------- Total Short-Term Investments (Cost $2,511,985) 2,511,789 --------------- Total Investments (Cost $125,177,260) -- 100.28% 147,355,915 Liabilities, in excess of cash and other assets -- (0.28%) (410,238) --------------- Net Assets -- 100% $ 146,945,677 ===============
NOTES TO SCHEDULE OF INVESTMENTS Aggregate cost for federal income tax purposes was $125,177,260; and net unrealized appreciation consisted of: Gross unrealized appreciation $ 22,603,792 Gross unrealized depreciation (425,137) --------------- Net unrealized appreciation $ 22,178,655 ===============
(a) Non-income producing. (b) These securities were 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 December 31, 2004:
EXPIRATION CURRENT UNREALIZED DATE COST VALUE APPRECIATION --------------- --------------- --------------- --------------- INDEX FUTURES BUY CONTRACTS: S&P 500 Index, 7 contracts March 2005 $ 2,109,499 $ 2,123,975 $ 14,476 ===============
The aggregate market value of investments pledged to cover margin requirements for the open futures positions at December 31, 2004 was $598,870. See accompanying notes to financial statements 91 THE UBS FUNDS -- FINANCIAL STATEMENTS STATEMENTS OF ASSETS AND LIABILITIES DECEMBER 31, 2004 (UNAUDITED)
UBS GLOBAL UBS ALLOCATION GLOBAL EQUITY FUND* FUND ----------------------------------------------------------------------------------- ASSETS: Investments, at cost: Unaffiliated issuers $ 1,930,394,981 $ 359,680,713 Affiliated issuers 279,858,648 3,554,614 Investments of cash collateral received in affiliated issuers for securities loaned, at cost 129,173,700 -- Foreign currency, at cost 2,604,423 114,252 --------------- --------------- $ 2,342,031,752 $ 363,349,579 =============== =============== Investments, at value: Unaffiliated issuers $ 2,158,621,197 $ 471,727,419 Affiliated issuers 360,422,428 3,554,614 Investments of cash collateral in affiliated issuers received for securities loaned, at value 129,173,700 -- Foreign currency, at value 2,680,200 116,223 Cash 817,686 -- Receivables: Investment securities sold 3,022,126 833,208 Due from advisor -- -- Dividends 1,667,981 776,102 Interest 7,981,405 2,226 Fund shares sold 22,359,520 337,208 Variation margin 63,469 -- Due from broker 877,135 -- Other assets 194,506 37,686 Unrealized appreciation on forward foreign currency contracts 1,197,493 130,818 --------------- --------------- TOTAL ASSETS 2,689,078,846 477,515,504 --------------- --------------- LIABILITIES: Payables: Cash collateral from securities loaned 129,173,700 -- Investment securities purchased 20,597,000 237,928 Loan payable -- 1,683,270 Investment advisory fees 1,446,854 240,554 Fund shares redeemed 2,734,062 1,771,609 Distribution and service fees 565,728 132,721 Trustees' fees 11,174 5,242 Due to custodian bank -- 1,591,417 Variation margin -- -- Accrued expenses 664,904 361,249 Unrealized depreciation on forward foreign currency contracts 2,998,634 1,450,865 --------------- --------------- TOTAL LIABILITIES 158,192,056 7,474,855 --------------- --------------- NET ASSETS $ 2,530,886,790 $ 470,040,649 =============== =============== NET ASSETS CONSIST OF: Paid in capital $ 2,214,639,208 $ 1,212,719,869 Accumulated undistributed net investment income (loss) (13,387,879) (1,817,368) Accumulated undistributed net realized gain (loss) 22,339,988 (851,626,906) Net unrealized appreciation (depreciation) 307,295,473 110,765,054 --------------- --------------- NET ASSETS $ 2,530,886,790 $ 470,040,649 =============== ===============
* The market value of securities loaned for UBS Global Allocation Fund as of December 31, 2004 is $215,900,896. ** The market value of securities loaned for UBS International Equity Fund as of December 31, 2004 is $13,732,091. See accompanying notes to financial statements 92
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 $ 53,606,833 $ 158,366,896 $ 5,508,170 $ 173,971,394 Affiliated issuers 12,686,218 13,353,349 175,146 5,645,450 Investments of cash collateral received in affiliated issuers for securities loaned, at cost -- -- -- -- Foreign currency, at cost 202,264 -- -- -- --------------- --------------- --------------- --------------- $ 66,495,315 $ 171,720,245 $ 5,683,316 $ 179,616,844 =============== =============== =============== =============== Investments, at value: Unaffiliated issuers $ 58,293,630 $ 198,264,182 $ 6,535,113 $ 210,598,395 Affiliated issuers 13,012,481 13,353,349 175,146 5,645,450 Investments of cash collateral in affiliated issuers received for securities loaned, at value -- -- -- -- Foreign currency, at value 203,373 -- -- -- Cash -- 115,214 2,222 2,325,916 Receivables: Investment securities sold -- 669,904 -- 1,946,385 Due from advisor -- -- 7,815 -- Dividends -- 154,616 2,629 79,623 Interest 1,208,858 18,891 229 9,018 Fund shares sold 100,171 183,110 92,813 452,968 Variation margin -- -- -- -- Due from broker -- -- -- -- Other assets 263 -- -- -- Unrealized appreciation on forward foreign currency contracts 99,100 -- -- -- --------------- --------------- --------------- --------------- TOTAL ASSETS 72,917,876 212,759,266 6,815,967 221,057,755 --------------- --------------- --------------- --------------- LIABILITIES: Payables: Cash collateral from securities loaned -- -- -- -- Investment securities purchased -- 4,914,268 93,432 1,305,950 Loan payable 591,123 -- -- -- Investment advisory fees 29,756 119,307 -- 115,673 Fund shares redeemed 70,019 30,375 -- 902,946 Distribution and service fees 2,401 2,177 1,772 15,558 Trustees' fees 1,538 2,550 1,728 1,232 Due to custodian bank -- -- -- -- Variation margin -- 5,750 -- -- Accrued expenses 130,540 196,122 28,116 135,434 Unrealized depreciation on forward foreign currency contracts 218,944 -- -- -- --------------- --------------- --------------- --------------- TOTAL LIABILITIES 1,044,321 5,270,549 125,048 2,476,793 --------------- --------------- --------------- --------------- NET ASSETS $ 71,873,555 $ 207,488,717 $ 6,690,919 $ 218,580,962 =============== =============== =============== =============== NET ASSETS CONSIST OF: Paid in capital $ 67,357,966 $ 167,290,010 $ 9,435,698 $ 179,908,573 Accumulated undistributed net investment income (loss) (204,414) 19,710 11,816 (846,486) Accumulated undistributed net realized gain (loss) (242,129) 222,671 (3,783,539) 2,891,874 Net unrealized appreciation (depreciation) 4,962,132 39,956,326 1,026,944 36,627,001 --------------- --------------- --------------- --------------- NET ASSETS $ 71,873,555 $ 207,488,717 $ 6,690,919 $ 218,580,962 =============== =============== =============== =============== 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 $ 121,092,881 $ 159,891,805 $ 90,527,729 $ 123,264,340 Affiliated issuers 8,279,484 1,655,160 1,374,626 1,912,919 Investments of cash collateral received in affiliated issuers for securities loaned, at cost -- -- 14,418,350 -- Foreign currency, at cost -- -- 1,565,775 -- --------------- --------------- --------------- --------------- $ 129,372,365 $ 161,546,965 $ 107,886,480 $ 125,177,259 =============== =============== =============== =============== Investments, at value: Unaffiliated issuers $ 122,554,452 $ 150,655,638 $ 124,725,049 $ 145,442,996 Affiliated issuers 8,279,484 1,655,160 1,374,626 1,912,919 Investments of cash collateral in affiliated issuers received for securities loaned, at value -- -- 14,418,350 -- Foreign currency, at value -- -- 1,575,429 -- Cash -- 229,957 73,030 112,468 Receivables: Investment securities sold 9,154,354 397,929 -- 327,545 Due from advisor -- -- -- -- Dividends -- -- 285,487 111,046 Interest 1,144,434 2,782,565 1,311 12,307 Fund shares sold 226,914 72,174 278,959 25,020 Variation margin -- -- -- -- Due from broker -- -- -- -- Other assets -- -- 25,576 -- Unrealized appreciation on forward foreign currency contracts -- -- 209,684 -- --------------- --------------- --------------- --------------- TOTAL ASSETS 141,359,638 155,793,423 142,967,501 147,944,301 --------------- --------------- --------------- --------------- LIABILITIES: Payables: Cash collateral from securities loaned -- -- 14,418,350 -- Investment securities purchased 5,566,029 -- -- 327,964 Loan payable 8,279,484 -- -- -- Investment advisory fees 27,433 78,362 65,437 52,424 Fund shares redeemed 204,381 2,135,017 138,762 401,783 Distribution and service fees 2,088 55,036 1,943 22,359 Trustees' fees 4,215 605 4,832 1,881 Due to custodian bank 2,189,645 -- -- -- Variation margin -- -- -- 1,750 Accrued expenses 122,944 171,784 214,075 190,463 Unrealized depreciation on forward foreign currency contracts -- -- 252,899 -- --------------- --------------- --------------- --------------- TOTAL LIABILITIES 16,396,219 2,440,804 15,096,298 998,624 --------------- --------------- --------------- --------------- NET ASSETS $ 124,963,419 $ 153,352,619 $ 127,871,203 $ 146,945,677 =============== =============== =============== =============== NET ASSETS CONSIST OF: Paid in capital $ 124,860,809 $ 405,862,033 $ 99,412,498 $ 122,159,518 Accumulated undistributed net investment income (loss) (287,259) 4,068 (776,672) (43,223) Accumulated undistributed net realized gain (loss) (1,071,702) (243,277,315) (4,962,926) 2,636,251 Net unrealized appreciation (depreciation) 1,461,571 (9,236,167) 34,198,303 22,193,131 --------------- --------------- --------------- --------------- NET ASSETS $ 124,963,419 $ 153,352,619 $ 127,871,203 $ 146,945,677 =============== =============== =============== ===============
93 NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE: DECEMBER 31, 2004 (UNAUDITED)
UBS GLOBAL UBS ALLOCATION GLOBAL EQUITY FUND FUND ---------------------------------------------------------------------------------- CLASS A: Net assets $ 1,269,937,889 $ 119,594,853 Shares outstanding 95,311,840 10,178,178 Net asset value per share (NAV / shares outstanding) $ 13.32 $ 11.75 Offering price per share (NAV per share plus maximum sales charge)(a) $ 14.10 $ 12.43 Redemption proceeds per share $ 13.32 $ 11.75 CLASS B: Net assets $ 193,380,448 $ 128,899,364 Shares outstanding 14,740,336 11,164,411 Net asset value per share (NAV / shares outstanding) $ 13.12 $ 11.55 Offering price per share $ 13.12 $ 11.55 Redemption proceeds per share (NAV per share less maximum redemption charge)(a) $ 12.46 $ 10.97 CLASS C: Net assets $ 752,789,473 $ 79,850,435 Shares outstanding 57,357,207 6,937,146 Net asset value per share (NAV / shares outstanding) $ 13.12 $ 11.51 Offering price per share $ 13.12 $ 11.51 Redemption proceeds per share (NAV per share less maximum redemption charge)(a) $ 12.99 $ 11.39 CLASS Y: Net assets $ 314,778,980 $ 141,695,997 Shares outstanding 23,350,111 11,866,350 Net asset value per share (NAV / shares outstanding) $ 13.48 $ 11.94 Offering price per share $ 13.48 $ 11.94 Redemption proceeds per share $ 13.48 $ 11.94
(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%. 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 contigent deferred sales charges. See accompanying notes to financial statements 94
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 $ 17,052,377 $ 11,330,004 $ 2,432,943 $ 92,841,632 Shares outstanding 1,655,437 664,743 295,241 6,836,351 Net asset value per share (NAV / shares outstanding) $ 10.30 $ 17.04 $ 8.24 $ 13.58 Offering price per share (NAV per share plus maximum sales charge)(a) $ 10.79 $ 18.03 $ 8.72 $ 14.37 Redemption proceeds per share $ 10.30 $ 17.04 $ 8.24 $ 13.58 CLASS B: Net assets $ 1,356,309 $ 1,251,941 $ 356,231 $ 11,038,627 Shares outstanding 131,463 74,579 44,199 831,870 Net asset value per share (NAV / shares outstanding) $ 10.32 $ 16.79 $ 8.06 $ 13.27 Offering price per share $ 10.32 $ 16.79 $ 8.06 $ 13.27 Redemption proceeds per share (NAV per share less maximum redemption charge)(a) $ 9.80 $ 15.95 $ 7.66 $ 12.61 CLASS C: Net assets $ 3,914,751 $ 2,014,514 $ 312,673 $ 10,000,258 Shares outstanding 380,851 120,066 38,819 754,482 Net asset value per share (NAV / shares outstanding) $ 10.28 $ 16.78 $ 8.05 $ 13.25 Offering price per share $ 10.28 $ 16.78 $ 8.05 $ 13.25 Redemption proceeds per share (NAV per share less maximum redemption charge)(a) $ 10.20 $ 16.61 $ 7.97 $ 13.12 CLASS Y: Net assets $ 49,550,118 $ 192,892,258 $ 3,589,072 $ 104,700,445 Shares outstanding 4,365,341 11,232,777 426,998 7,563,247 Net asset value per share (NAV / shares outstanding) $ 11.35 $ 17.17 $ 8.41 $ 13.84 Offering price per share $ 11.35 $ 17.17 $ 8.41 $ 13.84 Redemption proceeds per share $ 11.35 $ 17.17 $ 8.41 $ 13.84 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 $ 32,406,499 $ 81,032,372 $ 11,782,208 $ 113,351,194 Shares outstanding 3,017,470 10,884,592 1,211,502 11,026,255 Net asset value per share (NAV / shares outstanding) $ 10.74 $ 7.44 $ 9.73 $ 10.28 Offering price per share (NAV per share plus maximum sales charge)(a) $ 11.25 $ 7.79 $ 10.30 $ 10.88 Redemption proceeds per share $ 10.74 $ 7.44 $ 9.73 $ 10.28 CLASS B: Net assets $ 1,894,757 $ 5,825,503 $ 1,052,384 $ 8,828,764 Shares outstanding 176,354 782,550 109,506 870,368 Net asset value per share (NAV / shares outstanding) $ 10.74 $ 7.44 $ 9.61 $ 10.14 Offering price per share $ 10.74 $ 7.44 $ 9.61 $ 10.14 Redemption proceeds per share (NAV per share less maximum redemption charge)(a) $ 10.20 $ 7.07 $ 9.13 $ 9.63 CLASS C: Net assets $ 2,285,703 $ 17,828,350 $ 1,644,033 $ 19,007,449 Shares outstanding 213,014 2,394,454 171,809 1,875,223 Net asset value per share (NAV / shares outstanding) $ 10.73 $ 7.45 $ 9.57 $ 10.14 Offering price per share $ 10.73 $ 7.45 $ 9.57 $ 10.14 Redemption proceeds per share (NAV per share less maximum redemption charge)(a) $ 10.65 $ 7.39 $ 9.47 $ 10.04 CLASS Y: Net assets $ 88,376,460 $ 48,666,394 $ 113,392,578 $ 5,758,270 Shares outstanding 8,226,055 6,505,491 11,589,997 558,838 Net asset value per share (NAV / shares outstanding) $ 10.74 $ 7.48 $ 9.78 $ 10.30 Offering price per share $ 10.74 $ 7.48 $ 9.78 $ 10.30 Redemption proceeds per share $ 10.74 $ 7.48 $ 9.78 $ 10.30
95 STATEMENTS OF OPERATIONS FOR THE SIX MONTHS ENDED DECEMBER 31, 2004 (UNAUDITED)
UBS GLOBAL UBS ALLOCATION GLOBAL EQUITY FUND FUND ----------------------------------------------------------------------------------- INVESTMENT INCOME: Dividends $ 14,402,329 $ 5,246,787 Interest 8,813,760 -- Affiliated interest 1,391,278 10,001 Securities lending-net 134,968 -- Foreign tax withheld (425,689) (104,718) --------------- --------------- TOTAL INCOME 24,316,646 5,152,070 --------------- --------------- EXPENSES: Advisory and administration fees 8,346,955 1,785,803 Distribution and service fees: Class A 1,267,370 143,253 Class B 842,615 641,918 Class C 3,063,494 397,400 Custodian 175,877 180,629 Federal and state registration 64,727 29,818 Tranfer agency fees: Class A 199,759 99,433 Class B 39,331 164,994 Class C 197,037 102,853 Class Y 22,064 16,698 Professional services 58,803 53,625 Shareholder reports 68,115 68,272 Trustees 15,902 6,598 Other 5,000 13,706 --------------- --------------- TOTAL OPERATING EXPENSES 14,367,049 3,705,000 Expenses waived by Advisor -- (298,523) --------------- --------------- NET OPERATING EXPENSES 14,367,049 3,406,477 Interest expense 868 129 --------------- --------------- NET INVESTMENT INCOME 9,948,729 1,745,464 --------------- --------------- Net realized gain (loss) from: Investments 36,171,506 21,808,973 Futures contracts (965,253) -- Foreign forward currency transactions and foreign currency transactions 8,134,250 (314,807) --------------- --------------- Net realized gain (loss) 43,340,503 21,494,166 --------------- --------------- Change in net unrealized appreciation (depreciation) on: Investments 199,269,017 27,965,874 Futures contracts (81,363) -- Foreign forward currency contracts (3,511,675) (1,643,123) Translation of other assets and liabilities denominated in foreign currency 359,401 27,499 --------------- --------------- Change in net unrealized appreciation (depreciation) 196,035,380 26,350,250 --------------- --------------- Net realized and unrealized gain 239,375,883 47,844,416 --------------- --------------- Net increase in net assets resulting from operations $ 249,324,612 $ 49,589,880 =============== ===============
See accompanying notes to financial statements 96
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 $ -- $ 2,007,481 $ 41,194 $ 315,790 Interest 908,810 5,596 -- -- Affiliated interest 14,584 65,613 1,210 38,687 Securities lending-net -- -- -- -- Foreign tax withheld (1,859) -- -- -- --------------- --------------- --------------- --------------- TOTAL INCOME 921,535 2,078,690 42,404 354,477 --------------- --------------- --------------- --------------- EXPENSES: Advisory and administration fees 270,331 694,871 23,466 894,282 Distribution and service fees: Class A 19,892 11,261 2,635 101,260 Class B 6,803 5,895 1,602 53,254 Class C 13,576 9,085 2,044 46,326 Custodian 34,406 47,071 1,590 50,756 Federal and state registration 24,789 26,576 23,620 26,073 Tranfer agency fees: Class A 10,869 1,100 2,251 17,691 Class B 1,289 723 350 23,466 Class C 1,312 670 438 17,210 Class Y 20,222 22,727 3,509 10,854 Professional services 31,625 40,985 30,743 42,295 Shareholder reports 11,250 11,250 2,078 20,303 Trustees 2,966 3,687 2,588 3,836 Other 4,013 5,821 2,881 41,782 --------------- --------------- --------------- --------------- TOTAL OPERATING EXPENSES 453,343 881,722 99,795 1,349,388 Expenses waived by Advisor (117,038) -- (69,207) (148,425) --------------- --------------- --------------- --------------- NET OPERATING EXPENSES 336,305 881,722 30,588 1,200,963 Interest expense 88 -- -- -- --------------- --------------- --------------- --------------- NET INVESTMENT INCOME 585,142 1,196,968 11,816 (846,486) --------------- --------------- --------------- --------------- Net realized gain (loss) from: Investments 316,568 4,008,578 113,376 4,526,988 Futures contracts -- 279,614 -- -- Foreign forward currency transactions and foreign currency transactions 665,443 -- -- -- --------------- --------------- --------------- --------------- Net realized gain (loss) 982,011 4,288,192 113,376 4,526,988 --------------- --------------- --------------- --------------- Change in net unrealized appreciation (depreciation) on: Investments 4,461,374 12,503,506 250,109 18,632,338 Futures contracts -- 23,072 -- -- Foreign forward currency contracts (202,363) -- -- -- Translation of other assets and liabilitie denominated in foreign currency 62,702 -- -- -- --------------- --------------- --------------- --------------- Change in net unrealized appreciation (depreciation) 4,321,713 12,526,578 250,109 18,632,338 --------------- --------------- --------------- --------------- Net realized and unrealized gain 5,303,724 16,814,770 363,485 23,159,326 --------------- --------------- --------------- --------------- Net increase in net assets resulting from operations $ 5,888,866 $ 18,011,738 $ 375,301 $ 22,312,840 =============== =============== =============== =============== UBS UBS UBS UBS U.S. LARGE CAP U.S. BOND HIGH YIELD INTERNATIONAL VALUE EQUITY FUND FUND EQUITY FUND FUND ------------------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME: Dividends $ -- $ 2,518 $ 1,045,290 $ 1,471,981 Interest 2,853,615 6,979,555 -- 4,796 Affiliated interest 50,756 25,668 97,438 67,514 Securities lending-net -- -- 14,486 -- Foreign tax withheld -- -- (102,091) -- --------------- --------------- --------------- --------------- TOTAL INCOME 2,904,371 7,007,741 1,055,123 1,544,291 --------------- --------------- --------------- --------------- EXPENSES: Advisory and administration fees 373,302 521,554 486,569 561,622 Distribution and service fees: Class A 40,178 96,462 11,476 137,650 Class B 10,104 34,846 4,423 54,638 Class C 8,385 67,897 7,117 93,674 Custodian 34,083 40,565 61,169 38,045 Federal and state registration 26,758 27,462 26,044 28,543 Tranfer agency fees: Class A 26,659 69,037 3,829 82,996 Class B 2,564 6,657 898 24,464 Class C 1,579 17,835 703 16,524 Class Y 24,608 21,273 42,199 1,608 Professional services 39,846 39,314 38,154 43,190 Shareholder reports 11,250 22,718 11,250 34,790 Trustees 6,568 3,563 3,312 3,562 Other 4,930 6,638 4,743 3,788 --------------- --------------- --------------- --------------- TOTAL OPERATING EXPENSES 610,814 975,821 701,886 1,125,094 Expenses waived by Advisor (162,018) (43,671) (120,697) (220,823) --------------- --------------- --------------- --------------- NET OPERATING EXPENSES 448,796 932,150 581,189 904,271 Interest expense 632 2,227 -- -- --------------- --------------- --------------- --------------- NET INVESTMENT INCOME 2,454,943 6,073,364 473,934 640,020 --------------- --------------- --------------- --------------- Net realized gain (loss) from: Investments 908,128 (11,284,319) 6,320,103 5,844,830 Futures contracts -- -- -- 413,092 Foreign forward currency transactions and foreign currency transactions -- -- 468,759 -- --------------- --------------- --------------- --------------- Net realized gain (loss) 908,128 (11,284,319) 6,788,862 6,257,922 --------------- --------------- --------------- --------------- Change in net unrealized appreciation (depreciation) on: Investments 1,511,624 19,557,882 8,855,488 7,147,650 Futures contracts -- -- -- (25,277) Foreign forward currency contracts -- -- (195,269) -- Translation of other assets and liabilitie denominated in foreign currency -- -- 19,831 -- --------------- --------------- --------------- --------------- Change in net unrealized appreciation (depreciation) 1,511,624 19,557,882 8,680,050 7,122,373 --------------- --------------- --------------- --------------- Net realized and unrealized gain 2,419,752 8,273,563 15,468,912 13,380,295 --------------- --------------- --------------- --------------- Net increase in net assets resulting from operations $ 4,874,695 $ 14,346,927 $ 15,942,846 $ 14,020,315 =============== =============== =============== ===============
97 STATEMENTS OF CHANGES IN NET ASSETS
UBS GLOBAL ALLOCATION FUND ------------------------------------ SIX MONTHS ENDED DECEMBER 31, 2004 YEAR ENDED (UNAUDITED) JUNE 30, 2004 --------------------------------------------------------------------------------------- OPERATIONS: Net investment income $ 9,948,729 $ 8,905,148 Net realized gain 43,340,503 56,431,780 Change in net unrealized appreciation (depreciation) 196,035,380 80,621,457 ---------------- ---------------- Net increase in net assets from operations 249,324,612 145,958,385 ---------------- ---------------- DISTRIBUTIONS TO SHAREHOLDERS BY CLASS: Class A: Distributions from net investment income and net foreign currency gains (17,320,841) (5,970,967) Distributions from net realized gain (28,236,813) -- ---------------- ---------------- Total Class A distributions (45,557,654) (5,970,967) ---------------- ---------------- Class B: Distributions from net investment income and net foreign currency gains (1,509,441) (915,014) Distributions from net realized gain (4,518,318) -- ---------------- ---------------- Total Class B distributions (6,027,759) (915,014) ---------------- ---------------- Class C: Distributions from net investment income and net foreign currency gains (6,340,465) (3,309,142) Distributions from net realized gain (17,233,197) -- ---------------- ---------------- Total Class C distributions (23,573,662) (3,309,142) ---------------- ---------------- Class Y: Distributions from net investment income and net foreign currency gains (5,058,001) (3,074,862) Distributions from net realized gain (7,357,727) -- ---------------- ---------------- Total Class Y distributions (12,415,728) (3,074,862) ---------------- ---------------- Decrease in net assets from distributions (87,574,803) (13,269,985) ---------------- ---------------- BENEFICIAL INTEREST TRANSACTIONS: Shares sold 638,726,711 1,382,201,088 Shares issued on reinvestment of distributions 81,506,288 11,948,056 Shares redeemed (184,324,864) (249,662,649) Redemption fees 38,081 191,450 ---------------- ---------------- Net increase (decrease) in net assets resulting from beneficial interest transactions 535,946,216 1,144,677,945 ---------------- ---------------- INCREASE IN NET ASSETS 697,696,025 1,277,366,345 NET ASSETS, BEGINNING OF PERIOD 1,833,190,765 555,824,420 ---------------- ---------------- NET ASSETS, END OF PERIOD $ 2,530,886,790 $ 1,833,190,765 ================ ================ Net assets include accumulated undistributed net investment income (loss) $ (13,387,879) $ 6,892,140 ================ ================
See accompanying notes to financial statements 98
UBS UBS GLOBAL EQUITY FUND GLOBAL BOND FUND ------------------------------------ ------------------------------------ SIX MONTHS ENDED SIX MONTHS ENDED DECEMBER 31, 2004 YEAR ENDED DECEMBER 31, 2004 YEAR ENDED (UNAUDITED) JUNE 30, 2004 (UNAUDITED) JUNE 30, 2004 ------------------------------------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income $ 1,745,464 $ 3,274,811 $ 585,142 $ 1,126,514 Net realized gain 21,494,166 41,492,000 982,011 3,680,002 Change in net unrealized appreciation (depreciation) 26,350,250 38,104,909 4,321,713 (2,233,599) ---------------- ---------------- ---------------- ---------------- Net increase in net assets from operations 49,589,880 82,871,720 5,888,866 2,572,917 ---------------- ---------------- ---------------- ---------------- DISTRIBUTIONS TO SHAREHOLDERS BY CLASS: Class A: Distributions from net investment income and net foreign currency gains -- (1,327,685) (751,715) (1,172,161) Distributions from net realized gain -- -- -- -- ---------------- ---------------- ---------------- ---------------- Total Class A distributions -- (1,327,685) (751,715) (1,172,161) ---------------- ---------------- ---------------- ---------------- Class B: Distributions from net investment income and net foreign currency gains -- (1,295,502) (55,219) (130,281) Distributions from net realized gain -- -- -- -- ---------------- ---------------- ---------------- ---------------- Total Class B distributions -- (1,295,502) (55,219) (130,281) ---------------- ---------------- ---------------- ---------------- Class C: Distributions from net investment income and net foreign currency gains -- (806,282) (166,543) (306,676) Distributions from net realized gain -- -- -- -- ---------------- ---------------- ---------------- ---------------- Total Class C distributions -- (806,282) (166,543) (306,676) ---------------- ---------------- ---------------- ---------------- Class Y: Distributions from net investment income and net foreign currency gains -- (1,461,737) (2,057,386) (3,219,023) Distributions from net realized gain -- -- -- -- ---------------- ---------------- ---------------- ---------------- Total Class Y distributions -- (1,461,737) (2,057,386) (3,219,023) ---------------- ---------------- ---------------- ---------------- Decrease in net assets from distributions -- (4,891,206) (3,030,863) (4,828,141) ---------------- ---------------- ---------------- ---------------- BENEFICIAL INTEREST TRANSACTIONS: Shares sold 29,810,189 116,314,648 14,120,363 48,362,086 Shares issued on reinvestment of distribution -- 4,433,752 2,774,147 3,996,331 Shares redeemed (58,392,892) (174,248,790) (8,491,648) (41,586,879) Redemption fees 12,305 75,284 -- -- ---------------- ---------------- ---------------- ---------------- Net increase (decrease) in net assets resulting from beneficial interest transactions (28,570,398) (53,425,106) 8,402,862 10,771,538 ---------------- ---------------- ---------------- ---------------- INCREASE IN NET ASSETS 21,019,482 24,555,408 11,260,865 8,516,314 NET ASSETS, BEGINNING OF PERIOD 449,021,167 424,465,759 60,612,690 52,096,376 ---------------- ---------------- ---------------- ---------------- NET ASSETS, END OF PERIOD $ 470,040,649 $ 449,021,167 $ 71,873,555 $ 60,612,690 ================ ================ ================ ================ Net assets include accumulated undistributed net investment income (loss) $ (1,817,368) $ (3,562,832) $ (204,414) $ 2,241,307 ================ ================ ================ ================ UBS UBS U.S. LARGE CAP EQUITY FUND U.S. LARGE CAP GROWTH FUND ------------------------------------ ------------------------------------ SIX MONTHS ENDED SIX MONTHS ENDED DECEMBER 31, 2004 YEAR ENDED DECEMBER 31, 2004 YEAR ENDED (UNAUDITED) JUNE 30, 2004 (UNAUDITED) JUNE 30, 2004 ------------------------------------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income $ 1,196,968 $ 1,004,894 $ 11,816 $ (15,404) Net realized gain 4,288,192 11,716,372 113,376 155,984 Change in net unrealized appreciation (depreciation) 12,526,578 9,752,484 250,109 797,408 ---------------- ---------------- ---------------- ---------------- Net increase in net assets from operations 18,011,738 22,473,750 375,301 937,988 ---------------- ---------------- ---------------- ---------------- DISTRIBUTIONS TO SHAREHOLDERS BY CLASS: Class A: Distributions from net investment income and net foreign currency gains (70,530) (53,821) -- -- Distributions from net realized gain (307,072) -- -- -- ---------------- ---------------- ---------------- ---------------- Total Class A distributions (377,602) (53,821) -- -- ---------------- ---------------- ---------------- ---------------- Class B: Distributions from net investment income and net foreign currency gains -- (6,045) -- -- Distributions from net realized gain (33,274) -- -- -- ---------------- ---------------- ---------------- ---------------- Total Class B distributions (33,274) (6,045) -- -- ---------------- ---------------- ---------------- ---------------- Class C: Distributions from net investment income and net foreign currency gains -- (8,425) -- -- Distributions from net realized gain (55,839) -- -- -- ---------------- ---------------- ---------------- ---------------- Total Class C distributions (55,839) (8,425) -- -- ---------------- ---------------- ---------------- ---------------- Class Y: Distributions from net investment income and net foreign currency gains (1,586,166) (1,467,245) -- -- Distributions from net realized gain (5,139,352) -- -- -- ---------------- ---------------- ---------------- ---------------- Total Class Y distributions (6,725,518) (1,467,245) -- -- ---------------- ---------------- ---------------- ---------------- Decrease in net assets from distributions (7,192,233) (1,535,536) -- -- ---------------- ---------------- ---------------- ---------------- BENEFICIAL INTEREST TRANSACTIONS: Shares sold 38,046,003 65,683,138 1,348,636 3,845,141 Shares issued on reinvestment of distribution 6,546,536 1,386,399 -- -- Shares redeemed (12,262,833) (29,424,284) (1,584,492) (1,925,501) Redemption fees -- -- -- -- ---------------- ---------------- ---------------- ---------------- Net increase (decrease) in net assets resulting from beneficial interest transactions 32,329,706 37,645,253 (235,856) 1,919,640 ---------------- ---------------- ---------------- ---------------- INCREASE IN NET ASSETS 43,149,211 58,583,467 139,445 2,857,628 NET ASSETS, BEGINNING OF PERIOD 164,339,506 105,756,039 6,551,474 3,693,846 ---------------- ---------------- ---------------- ---------------- NET ASSETS, END OF PERIOD $ 207,488,717 $ 164,339,506 $ 6,690,919 $ 6,551,474 ================ ================ ================ ================ Net assets include accumulated undistributed net investment income (loss) $ 19,710 $ 479,438 $ 11,816 $ -- ================ ================ ================ ================
99 STATEMENTS OF CHANGES IN NET ASSETS
UBS U.S. SMALL CAP GROWTH FUND ------------------------------------ SIX MONTHS ENDED DECEMBER 31, 2004 YEAR ENDED (UNAUDITED) JUNE 30, 2004 --------------------------------------------------------------------------------------- OPERATIONS: Net investment income (loss) $ (846,486) $ (1,168,635) Net realized gain (loss) 4,526,988 4,874,967 Change in net unrealized appreciation (depreciation) 18,632,338 12,575,169 ---------------- ---------------- Net increase in net assets from operations 22,312,840 16,281,501 ---------------- ---------------- DISTRIBUTIONS TO SHAREHOLDERS BY CLASS: Class A: Distributions from net investment income and net foreign currency gains -- -- Distributions from net realized gain (1,360,386) (117,997) ---------------- ---------------- Total Class A distributions (1,360,386) (117,997) ---------------- ---------------- Class B: Distributions from net investment income and net foreign currency gains -- -- Distributions from net realized gain (164,894) (38,599) ---------------- ---------------- Total Class B distributions (164,894) (38,599) ---------------- ---------------- Class C: Distributions from net investment income and net foreign currency gains -- -- Distributions from net realized gain (148,667) (28,117) ---------------- ---------------- Total Class C distributions (148,667) (28,117) ---------------- ---------------- Class Y: Distributions from net investment income and net foreign currency gains -- -- Distributions from net realized gain (1,487,236) (213,659) ---------------- ---------------- Total Class Y distributions (1,487,236) (213,659) ---------------- ---------------- Decrease in net assets from dstributions (3,161,183) (398,372) ---------------- ---------------- BENEFICIAL INTEREST TRANSACTIONS: Shares sold 41,352,186 178,681,621* Shares issued on reinvestment of distributions 2,732,746 360,591 Shares redeemed (31,158,166) (59,938,280) Redemption fees -- -- ---------------- ---------------- Net increase (decrease) in net assets resulting from beneficial interest transactions 12,926,766 119,103,932 ---------------- ---------------- INCREASE (DECREASE) IN NET ASSETS 32,078,423 134,987,061 NET ASSETS, BEGINNING OF PERIOD 186,502,539 51,515,478 ---------------- ---------------- NET ASSETS, END OF PERIOD $ 218,580,962 $ 186,502,539 ================ ================ Net assets include accumulated undistributed net investment income (loss) $ (846,486) $ -- ================ ================
* The beneficial interest 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 beneficial interest 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 Inc. on November 7, 2003. The amounts were $93,138,892 for Class A, $30,423,510 for Class B, $18,702,929 for Class C, and $1,009,363 for Class Y. See accompanying notes to financial statements 100
UBS UBS U.S. BOND FUND HIGH YIELD FUND ------------------------------------ ------------------------------------ SIX MONTHS ENDED SIX MONTHS ENDED DECEMBER 31, 2004 YEAR ENDED DECEMBER 31, 2004 YEAR ENDED (UNAUDITED) JUNE 30, 2004 (UNAUDITED) JUNE 30, 2004 ------------------------------------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income (loss) $ 2,454,943 $ 4,448,117 $ 6,073,364 $ 14,239,052 Net realized gain (loss) 908,128 (825,059) (11,284,319) (20,836,259) Change in net unrealized appreciation (depreciation) 1,511,624 (3,614,761) 19,557,882 27,195,494 ---------------- ---------------- ---------------- ---------------- Net increase in net assets from operations 4,874,695 8,297 14,346,927 20,598,287 ---------------- ---------------- ---------------- ---------------- DISTRIBUTIONS TO SHAREHOLDERS BY CLASS: Class A: Distributions from net investment income a net foreign currency gains (666,948) (1,363,453) (3,195,561) (6,142,642) Distributions from net realized gain -- -- -- -- ---------------- ---------------- ---------------- ---------------- Total Class A distributions (666,948) (1,363,453) (3,195,561) (6,142,642) ---------------- ---------------- ---------------- ---------------- Class B: Distributions from net investment income a net foreign currency gains (33,216) (87,991) (258,305) (783,588) Distributions from net realized gain -- -- -- -- ---------------- ---------------- ---------------- ---------------- Total Class B distributions (33,216) (87,991) (258,305) (783,588) ---------------- ---------------- ---------------- ---------------- Class C: Distributions from net investment income a net foreign currency gains (41,183) (91,612) (698,190) (1,491,309) Distributions from net realized gain -- -- -- -- ---------------- ---------------- ---------------- ---------------- Total Class C distributions (41,183) (91,612) (698,190) (1,491,309) ---------------- ---------------- ---------------- ---------------- Class Y: Distributions from net investment income a net foreign currency gains (2,109,293) (3,637,869) (2,223,684) (5,825,885) Distributions from net realized gain -- -- -- -- ---------------- ---------------- ---------------- ---------------- Total Class Y distributions (2,109,293) (3,637,869) (2,223,684) (5,825,885) ---------------- ---------------- ---------------- ---------------- Decrease in net assets from dstributions (2,850,640) (5,180,925) (6,375,740) (14,243,424) ---------------- ---------------- ---------------- ---------------- BENEFICIAL INTEREST TRANSACTIONS: Shares sold 17,910,791 66,628,147 34,623,658 74,832,468 Shares issued on reinvestment of distribution 2,591,771 4,606,256 4,415,355 8,997,313 Shares redeemed (22,502,005) (58,076,635) (39,652,578) (124,416,292) Redemption fees -- -- -- -- ---------------- ---------------- ---------------- ---------------- Net increase (decrease) in net assets resulti from beneficial interest transactions (1,999,443) 13,157,768 (613,565) (40,586,511) ---------------- ---------------- ---------------- ---------------- INCREASE (DECREASE) IN NET ASSETS 24,612 7,985,140 7,357,622 (34,231,648) NET ASSETS, BEGINNING OF PERIOD 124,938,807 116,953,667 145,994,997 180,226,645 ---------------- ---------------- ---------------- ---------------- NET ASSETS, END OF PERIOD $ 124,963,419 $ 124,938,807 $ 153,352,619 $ 145,994,997 ================ ================ ================ ================ Net assets include accumulated undistributed net investment income (loss) $ (287,259) $ 108,438 $ 4,068 $ 306,444 ================ ================ ================ ================ UBS UBS INTERNATIONAL EQUITY FUND U.S. LARGE CAP VALUE EQUITY FUND ------------------------------------ ------------------------------------ SIX MONTHS ENDED SIX MONTHS ENDED DECEMBER 31, 2004 YEAR ENDED DECEMBER 31, 2004 YEAR ENDED (UNAUDITED) JUNE 30, 2004 (UNAUDITED) JUNE 30, 2004 ------------------------------------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income (loss) $ 473,934 $ 1,592,291 $ 640,020 $ 660,154 Net realized gain (loss) 6,788,862 6,628,337 6,257,922 25,653,640 Change in net unrealized appreciation (depreciation) 8,680,050 12,205,966 7,122,373 (8,776,046) ---------------- ---------------- ---------------- ---------------- Net increase in net assets from operations 15,942,846 20,426,594 14,020,315 17,537,748 ---------------- ---------------- ---------------- ---------------- DISTRIBUTIONS TO SHAREHOLDERS BY CLASS: Class A: Distributions from net investment income a net foreign currency gains (125,017) (115,181) (1,124,509) (157,601) Distributions from net realized gain -- -- (18,062,835) -- ---------------- ---------------- ---------------- ---------------- Total Class A distributions (125,017) (115,181) (19,187,344) (157,601) ---------------- ---------------- ---------------- ---------------- Class B: Distributions from net investment income a net foreign currency gains (7,169) (11,686) -- (12,230) Distributions from net realized gain -- -- (1,432,842) -- ---------------- ---------------- ---------------- ---------------- Total Class B distributions (7,169) (11,686) (1,432,842) (12,230) ---------------- ---------------- ---------------- ---------------- Class C: Distributions from net investment income a net foreign currency gains (13,122) (19,918) (40,144) (6,159) Distributions from net realized gain -- -- (3,064,856) -- ---------------- ---------------- ---------------- ---------------- Total Class C distributions (13,122) (19,918) (3,105,000) (6,159) ---------------- ---------------- ---------------- ---------------- Class Y: Distributions from net investment income a net foreign currency gains (1,289,824) (2,568,936) (76,787) (8,428) Distributions from net realized gain -- -- (908,317) -- ---------------- ---------------- ---------------- ---------------- Total Class Y distributions (1,289,824) (2,568,936) (985,104) (8,428) ---------------- ---------------- ---------------- ---------------- Decrease in net assets from dstributions (1,435,132) (2,715,721) (24,710,290) (184,418) ---------------- ---------------- ---------------- ---------------- BENEFICIAL INTEREST TRANSACTIONS: Shares sold 15,637,459 107,694,146 8,779,906 149,339,416** Shares issued on reinvestment of distribution 1,397,657 2,645,051 21,978,823 160,923 Shares redeemed (14,474,772) (111,714,668) (20,094,111) (27,479,979) Redemption fees 1,849 54,418 -- -- ---------------- ---------------- ---------------- ---------------- Net increase (decrease) in net assets resulti from beneficial interest transactions 2,562,193 (1,321,053) 10,664,618 122,020,360 ---------------- ---------------- ---------------- ---------------- INCREASE (DECREASE) IN NET ASSETS 17,069,907 16,389,820 (25,357) 139,373,690 NET ASSETS, BEGINNING OF PERIOD 110,801,296 94,411,476 146,971,034 7,597,344 ---------------- ---------------- ---------------- ---------------- NET ASSETS, END OF PERIOD $ 127,871,203 $ 110,801,296 $ 146,945,677 $ 146,971,034 ================ ================ ================ ================ Net assets include accumulated undistributed net investment income (loss) $ (776,672) $ 184,526 $ (43,223) $ 558,197 ================ ================ ================ ================
101 UBS GLOBAL ALLOCATION FUND -- FINANCIAL HIGHLIGHTS THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH PERIOD PRESENTED.
SIX MONTHS ENDED DECEMBER 31, YEAR ENDED JUNE 30, 2004 ---------------------------------------------------------------- CLASS A (UNAUDITED) 2004 2003 2002 2001 2000 --------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 12.35 $ 10.69 $ 10.60 $ 11.10 $ 11.20 $ 11.99 -------------- ---------- ---------- -------- -------- -------- Income (loss) from investment operations: Net investment income 0.08** 0.12** 0.10** 0.10** 0.22 0.19** Net realized and unrealized gain (loss) 1.40 1.69 0.41 0.40 0.31 (0.30) -------------- ---------- ---------- -------- -------- -------- Total income (loss) from investment operations 1.48 1.81 0.51 0.50 0.53 (0.11) -------------- ---------- ---------- -------- -------- -------- Less distributions: Distributions from net investment income and net foreign currency gains (0.19) (0.15) (0.42) (0.19) -- (0.16) Distributions from net realized gains (0.32) -- -- (0.81) (0.63) (0.52) -------------- ---------- ---------- -------- -------- -------- Total distributions (0.51) (0.15) (0.42) (1.00) (0.63) (0.68) -------------- ---------- ---------- -------- -------- -------- Net asset value, end of period $ 13.32 $ 12.35 $ 10.69 $ 10.60 $ 11.10 $ 11.20 ============== ========== ========== ======== ======== ======== Total return+ 12.03% 17.02% 5.35% 4.84% 4.95% (0.80)% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 1,269,938 $ 876,636 $ 175,415 $ 6,914 $ 237 $ 202 Ratio of expenses to average net assets 1.12%*** 1.28% 1.35% 1.35% 1.30% 1.24% Ratio of net investment income to average net assets 1.21%*** 1.00% 0.98% 0.98% 1.52% 1.74% Portfolio turnover rate 28% 78% 66% 116% 115% 98% SIX MONTHS ENDED DECEMBER 31, YEAR ENDED JUNE 30, FOR THE 2004 --------------------------------- PERIOD ENDED CLASS B (UNAUDITED) 2004 2003 JUNE 30, 2002* --------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 12.14 $ 10.55 $ 10.52 $ 11.21 -------------- -------------- -------------- -------------- Income from investment operations: Net investment income 0.03** 0.02** 0.02** 0.12** Net realized and unrealized gain 1.38 1.68 0.41 0.19 -------------- -------------- -------------- -------------- Total income from investment operations 1.41 1.70 0.43 0.31 -------------- -------------- -------------- -------------- Less distributions: Distributions from net investment income and net foreign currency gains (0.11) (0.11) (0.40) (0.19) Distributions from net realized gains (0.32) -- -- (0.81) -------------- -------------- -------------- -------------- Total distributions (0.43) (0.11) (0.40) (1.00) -------------- -------------- -------------- -------------- Net asset value, end of period $ 13.12 $ 12.14 $ 10.55 $ 10.52 ============== ============== ============== ============== Total return+ 11.58% 16.14% 4.60% 3.00% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 193,380 $ 153,481 $ 49,573 $ 1,570 Ratio of expenses to average net assets 1.92%*** 2.09% 2.10% 2.10%*** Ratio of net investment income to average net assets: 0.41%*** 0.19% 0.23% 2.17%*** Portfolio turnover rate 28% 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. + Total investment return is calculated assuming a $10,000 investment on the first day of each period reported, reinvestment of all dividends and distributions, if any, at net asset value on the ex-dividend dates, and a sale at net asset value on the last day of each period reported. The figures do not include any applicable sales charges; results would be lower if they were included. Total investment return for periods of less than one year have not been annualized. Returns do not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of shares. See accompanying notes to financial statements 102
SIX MONTHS ENDED DECEMBER 31, YEAR ENDED JUNE 30, FOR THE 2004 --------------------------------- PERIOD ENDED CLASS C (UNAUDITED) 2004 2003 JUNE 30, 2002* --------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 12.15 $ 10.56 $ 10.54 $ 11.10 -------------- -------------- -------------- -------------- Income from investment operations: Net investment income 0.03** 0.03** 0.02** 0.11** Net realized and unrealized gain 1.38 1.68 0.41 0.33 -------------- -------------- -------------- -------------- Total income from investment operations 1.41 1.71 0.43 0.44 -------------- -------------- -------------- -------------- Less distributions: Distributions from net investment income and net foreign currency gains (0.12) (0.12) (0.41) (0.19) Distributions from net realized gains (0.32) -- -- (0.81) -------------- -------------- -------------- -------------- Total distributions (0.44) (0.12) (0.41) (1.00) -------------- -------------- -------------- -------------- Net asset value, end of period $ 13.12 $ 12.15 $ 10.56 $ 10.54 ============== ============== ============== ============== Total return+ 11.58% 16.19% 4.55% 4.23% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 752,789 $ 539,399 $ 137,078 $ 1,525 Ratio of expenses to average net assets 1.89%*** 2.06% 2.10% 2.10%*** Ratio of net investment income to average net assets: 0.44%*** 0.23% 0.23% 1.77%*** Portfolio turnover rate 28% 78% 66% 116% SIX MONTHS ENDED DECEMBER 31, YEAR ENDED JUNE 30, 2004 ------------------------------------------------------------------ CLASS Y (UNAUDITED) 2004 2003 2002 2001 2000 ----------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 12.50 $ 10.79 $ 10.69 $ 11.18 $ 11.25 $ 12.02 -------------- ---------- ---------- --------- --------- --------- Income (loss) from investment operations: Net investment income 0.10** 0.15** 0.12** 0.13** 0.25 0.23** Net realized and unrealized gain (loss) 1.42 1.73 0.41 0.38 0.31 (0.30) -------------- ---------- ---------- --------- --------- --------- Total income (loss) from investment operations 1.52 1.88 0.53 0.51 0.56 (0.07) -------------- ---------- ---------- --------- --------- --------- Less distributions: Distributions from net investment income and net foreign currency gains (0.22) (0.17) (0.43) (0.19) -- (0.18) Distributions from net realized gains (0.32) -- -- (0.81) (0.63) (0.52) -------------- ---------- ---------- --------- --------- --------- Total distributions (0.54) (0.17) (0.43) (1.00) (0.63) (0.70) -------------- ---------- ---------- --------- --------- --------- Net asset value, end of period $ 13.48 $ 12.50 $ 10.79 $ 10.69 $ 11.18 $ 11.25 ============== ========== ========== ========= ========= ========= Total return+ 12.15% 17.44% 5.50% 4.91% 5.20% (0.48)% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 314,779 $ 263,675 $ 193,758 $ 165,630 $ 156,130 $ 284,229 Ratio of expenses to average net assets 0.86%*** 1.02% 1.10% 1.10% 1.05% 0.99% Ratio of net investment income to average net assets: 1.47%*** 1.26% 1.23% 1.24% 1.77% 1.99% Portfolio turnover rate 28% 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. + Total investment return is calculated assuming a $10,000 investment on the first day of each period reported, reinvestment of all dividends and distributions, if any, at net asset value on the ex-dividend dates, and a sale at net asset value on the last day of each period reported. The figures do not include any applicable sales charges; results would be lower if they were included. Total investment return for periods of less than one year have not been annualized. Returns do not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of shares. See accompanying notes to financial statements 103 UBS GLOBAL EQUITY FUND -- FINANCIAL HIGHLIGHTS THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH PERIOD PRESENTED.
SIX MONTHS ENDED DECEMBER 31, YEAR ENDED JUNE 30, 2004 ---------------------------------------------------------------- CLASS A (UNAUDITED) 2004 2003 2002 2001 2000 --------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 10.51 $ 8.89 $ 9.37 $ 10.61 $ 12.44 $ 13.40 -------------- ---------- ---------- -------- -------- -------- Income (loss) from investment operations: Net investment income 0.06** 0.10** 0.16** 0.04** 0.07 0.04** Net realized and unrealized gain (loss) 1.18 1.63 (0.39) (0.88) (0.56) 0.27 -------------- ---------- ---------- -------- -------- -------- Total income (loss) from investment operations 1.24 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 period $ 11.75 $ 10.51 $ 8.89 $ 9.37 $ 10.61 $ 12.44 ============== ========== ========== ======== ======== ======== Total return+ 11.80% 19.49% (2.23)% (8.05)% (4.45)% 2.49% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 119,595 $ 117,084 $ 123,756 $ 15,173 $ 302 $ 224 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.38%*** 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% 1.25% Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 0.93%*** 0.80% 1.73% 0.17% 0.65% 0.23% After expense reimbursement and earnings credits 1.06%*** 0.99% 1.92% 0.39% 0.77% 0.31% Portfolio turnover rate 19% 50% 206% 117% 81% 111% SIX MONTHS ENDED DECEMBER 31, YEAR ENDED JUNE 30, FOR THE 2004 --------------------------------- PERIOD ENDED CLASS B (UNAUDITED) 2004 2003 JUNE 30, 2002* --------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 10.37 $ 8.82 $ 9.34 $ 10.17 -------------- -------------- -------------- -------------- Income (loss) from investment operations: Net investment income 0.02** 0.02** 0.10** 0.05** Net realized and unrealized gain (loss) 1.16 1.62 (0.39) (0.48) -------------- -------------- -------------- -------------- Total income (loss) from investment operations 1.18 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 $ 11.55 $ 10.37 $ 8.82 $ 9.34 ============== ============== ============== ============== Total return+ 11.38% 18.61% (2.91)% (4.38)% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 128,899 $ 134,419 $ 144,232 $ 418 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 2.21%*** 2.27% 2.20% 2.25%*** After expense reimbursement and earnings credits 2.00%*** 2.00% 2.00% 2.00%*** Ratio of net investment income (loss) to average net assets: Before expense reimbursement and earnings credits 0.10%*** (0.03)% 0.97% 0.72%*** After expense reimbursement and earnings credits 0.31%*** 0.24% 1.17% 0.97%*** Portfolio turnover rate 19% 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. + Total investment return is calculated assuming a $10,000 investment on the first day of each period reported, reinvestment of all dividends and distributions, if any, at net asset value on the ex-dividend dates, and a sale at net asset value on the last day of each period reported. The figures do not include any applicable sales charges; results would be lower if they were included. Total investment return for periods of less than one year have not been annualized. Returns do not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of shares. See accompanying notes to financial statements 104
SIX MONTHS ENDED DECEMBER 31, YEAR ENDED JUNE 30, FOR THE 2004 --------------------------------- PERIOD ENDED CLASS C (UNAUDITED) 2004 2003 JUNE 30, 2002* --------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 10.33 $ 8.79 $ 9.33 $ 10.18 -------------- -------------- -------------- -------------- Income (loss) from investment operations: Net investment income 0.02** 0.02** 0.10** 0.04** Net realized and unrealized gain (loss) 1.16 1.61 (0.40) (0.49) -------------- -------------- -------------- -------------- Total income (loss) from investment operations 1.18 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 $ 11.51 $ 10.33 $ 8.79 $ 9.33 ============== ============== ============== ============== Total return+ 11.42% 18.54% (2.93)% (4.57)% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 79,851 $ 82,684 $ 93,605 $ 351 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 2.22%*** 2.28% 2.24% 2.23%*** After expense reimbursement and earnings credits 2.00%*** 2.00% 2.00% 2.00%*** Ratio of net investment income (loss) to average net assets: Before expense reimbursement and earnings credits 0.09%*** (0.03)% 0.93% 0.55%*** After expense reimbursement and earnings credits 0.31%*** 0.25% 1.17% 0.78%*** Portfolio turnover rate 19% 50% 206% 117% SIX MONTHS ENDED DECEMBER 31, YEAR ENDED JUNE 30, 2004 ---------------------------------------------------------------- CLASS Y (UNAUDITED) 2004 2003 2002 2001 2000 --------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 10.67 $ 8.99 $ 9.47 $ 10.68 $ 12.47 $ 13.42 -------------- ---------- ---------- -------- -------- -------- Income (loss) from investment operations: Net investment income 0.07** 0.13** 0.18** 0.06** 0.09 0.07** Net realized and unrealized gain (loss) 1.20 1.67 (0.39) (0.87) (0.54) 0.27 -------------- ---------- ---------- -------- -------- -------- Total income (loss) from investment operations 1.27 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 period $ 11.94 $ 10.67 $ 8.99 $ 9.47 $ 10.68 $ 12.47 ============== ========== ========== ======== ======== ======== Total return+ 11.90% 20.09% (1.93)% (7.71)% (4.07)% 2.69% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 141,696 $ 114,835 $ 62,873 $ 40,714 $ 49,306 $ 40,538 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 0.99%*** 1.03% 1.16% 1.19% 1.12% 1.08% After expense reimbursement and earnings credits 0.99%*** 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 1.32%*** 1.21% 2.01% 0.45% 0.90% 0.48% After expense reimbursement and earnings credits 1.32%*** 1.24% 2.17% 0.64% 1.02% 0.56% Portfolio turnover rate 19% 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. + Total investment return is calculated assuming a $10,000 investment on the first day of each period reported, reinvestment of all dividends and distributions, if any, at net asset value on the ex-dividend dates, and a sale at net asset value on the last day of each period reported. The figures do not include any applicable sales charges; results would be lower if they were included. Total investment return for periods of less than one year have not been annualized. Returns do not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of shares. See accompanying notes to financial statements 105 UBS GLOBAL BOND FUND -- FINANCIAL HIGHLIGHTS THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH PERIOD PRESENTED.
SIX MONTHS ENDED DECEMBER 31, YEAR ENDED JUNE 30, 2004 ---------------------------------------------------------------- CLASS A (UNAUDITED) 2004 2003 2002 2001 2000 --------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 9.87 $ 10.24 $ 9.01 $ 8.58 $ 9.09 $ 9.16 -------------- ---------- ---------- -------- -------- -------- Income (loss) from investment operations: Net investment income 0.08** 0.19** 0.24** 0.17** 0.33** 0.37** Net realized and unrealized gain (loss) 0.82 0.35 1.21 0.43 (0.72) (0.43) -------------- ---------- ---------- -------- -------- -------- Total income (loss) from investment operations 0.90 0.54 1.45 0.60 (0.39) (0.06) -------------- ---------- ---------- -------- -------- -------- Less distributions: Distributions from net investment income and net foreign currency gains (0.47) (0.91) (0.22) -- (0.06) -- Distributions from net realized gains -- -- -- -- -- (0.01) Distributions from return of capital -- -- -- (0.17) -- -- -------------- ---------- ---------- -------- -------- -------- Total distributions (0.47) (0.91) (0.22) (0.17) (0.06) (0.01) -------------- ---------- ---------- -------- -------- -------- Net asset value, end of period $ 10.30 $ 9.87 $ 10.24 $ 9.01 $ 8.64 $ 9.09 ============== ========== ========== ======== ======== ======== Total return+ 9.22% 5.21% 16.34% 7.18% (4.27)% (0.66)% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 17,052 $ 14,610 $ 11,659 $ 1,925 $ 3 $ 1 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.54%*** 1.55% 1.53% 1.49% 1.37% 1.30% After expense reimbursement and earnings credits 1.15%*** 1.15% 1.15% 1.15% 1.15% 1.19%++ Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 1.26%*** 1.44% 2.06% 2.72% 3.60% 4.09% After expense reimbursement and earnings credits 1.65%*** 1.84% 2.44% 3.06% 3.82% 4.20% Portfolio turnover rate 48% 186% 145% 157% 165% 87% SIX MONTHS ENDED DECEMBER 31, YEAR ENDED JUNE 30, FOR THE 2004 --------------------------------- PERIOD ENDED CLASS B (UNAUDITED) 2004 2003 JUNE 30, 2002* --------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 9.88 $ 10.25 $ 9.01 $ 8.35 -------------- -------------- -------------- -------------- Income from investment operations: Net investment income 0.05** 0.11** 0.16** 0.11** Net realized and unrealized gain 0.82 0.35 1.23 0.69 -------------- -------------- -------------- -------------- Total income from investment operations 0.87 0.46 1.39 0.80 -------------- -------------- -------------- -------------- Less distributions: Distributions from net investment income and net foreign currency gains (0.43) (0.83) (0.15) -- Distributions from return of capital -- -- -- (0.14) -------------- -------------- -------------- -------------- Total distributions (0.43) (0.83) (0.15) (0.14) -------------- -------------- -------------- -------------- Net asset value, end of period $ 10.32 $ 9.88 $ 10.25 $ 9.01 ============== ============== ============== ============== Total return+ 8.87% 4.38% 15.61% 9.67% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 1,356 $ 1,536 $ 1,755 $ 392 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 2.35%*** 2.33% 2.30% 2.25%*** After expense reimbursement and earnings credits 1.90%*** 1.90% 1.90% 1.90%*** Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 0.45%*** 0.66% 1.29% 1.94%*** After expense reimbursement and earnings credits 0.90%*** 1.09% 1.69% 2.29%*** Portfolio turnover rate 48% 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. + Total investment return is calculated assuming a $10,000 investment on the first day of each period reported, reinvestment of all dividends and distributions, if any, at net asset value on the ex-dividend dates, and a sale at net asset value on the last day of each period reported. The figures do not include any applicable sales charges; results would be lower if they were included. Total investment return for periods of less than one year have not been annualized. Returns do not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of shares. ++ The ratio of net operating expenses to average net assets for Class A was 1.15%. See accompanying notes to financial statements 106
SIX MONTHS ENDED DECEMBER 31, YEAR FOR THE 2004 ENDED PERIOD ENDED CLASS C (UNAUDITED) JUNE 30, 2004 JUNE 30, 2003* -------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 9.85 $ 10.23 $ 9.00 -------------- -------------- -------------- Income from investment operations: Net investment income 0.06** 0.14** 0.19** Net realized and unrealized gain 0.82 0.34 1.22 -------------- -------------- -------------- Total income from investment operations 0.88 0.48 1.41 -------------- -------------- -------------- Less distributions: Distributions from net investment income and net foreign currency gains (0.45) (0.86) (0.18) -------------- -------------- -------------- Net asset value, end of period $ 10.28 $ 9.85 $ 10.23 ============== ============== ============== Total return+ 9.01% 4.64% 15.84% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 3,915 $ 3,451 $ 3,198 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.97%*** 1.99% 2.01%*** After expense reimbursement and earnings credits 1.65%*** 1.65% 1.65%*** Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 0.83%*** 1.00% 1.58%*** After expense reimbursement and earnings credits 1.15%*** 1.34% 1.94%*** Portfolio turnover rate 48% 186% 145% SIX MONTHS ENDED DECEMBER 31, YEAR ENDED JUNE 30, 2004 ------------------------------------------------------------------ CLASS Y (UNAUDITED) 2004 2003 2002 2001 2000 --------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 10.83 $ 11.16 $ 9.79 $ 8.57 $ 9.01 $ 9.18 ------------- ---------- ---------- ---------- ---------- ---------- Income (loss) from investment operations: Net investment income 0.11** 0.23** 0.28** 0.31** 0.36** 0.40** Net realized and unrealized gain (loss) 0.90 0.38 1.33 1.09 (0.72) (0.43) ------------- ---------- ---------- ---------- ---------- ---------- Total income (loss) from investment operations 1.01 0.61 1.61 1.40 (0.36) (0.03) ------------- ---------- ---------- ---------- ---------- ---------- Less distributions: Distributions from net investment income and net foreign currency gains (0.49) (0.94) (0.24) -- (0.08) (0.13) Distributions from net realized gains -- -- -- -- -- (0.01) Distributions from return of capital -- -- -- (0.18) ------------- ---------- ---------- ---------- ---------- ---------- Total distributions (0.49) (0.94) (0.24) (0.18) (0.08) (0.14) ------------- ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 11.35 $ 10.83 $ 11.16 $ 9.79 $ 8.57 $ 9.01 ============= ========== ========== ========== ========== ========== Total return+ 9.38% 5.43% 16.72% 16.57% (4.02)% (0.34)% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 49,550 $ 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%*** 1.24% 1.32% 1.17% 1.12% 1.05% After expense reimbursement and earnings credits 0.90%*** 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 1.56%*** 1.75% 2.27% 3.14% 3.85% 4.34% After expense reimbursement and earnings credits 1.90%*** 2.09% 2.69% 3.41% 4.07% 4.45% Portfolio turnover rate 48% 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. + Total investment return is calculated assuming a $10,000 investment on the first day of each period reported, reinvestment of all dividends and distributions, if any, at net asset value on the ex-dividend dates, and a sale at net asset value on the last day of each period reported. The figures do not include any applicable sales charges; results would be lower if they were included. Total investment return for periods of less than one year have not been annualized. Returns do not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of shares. # The ratio of net operating expenses to average net assets for Class Y was 0.90%. See accompanying notes to financial statements 107 UBS U.S. LARGE CAP EQUITY FUND -- FINANCIAL HIGHLIGHTS THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH PERIOD PRESENTED.
SIX MONTHS ENDED DECEMBER 31, YEAR ENDED JUNE 30, 2004 ------------------------------------------------------------------ CLASS A (UNAUDITED) 2004 2003 2002 2001 2000 --------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 16.08 $ 13.63 $ 13.94 $ 15.97 $ 15.97 $ 21.39 ------------- ---------- ---------- ---------- ---------- ---------- Income (loss) from investment operations: Net investment income 0.09** 0.06** 0.11** 0.08** 0.08** 0.13** Net realized and unrealized gain (loss) 1.46 2.54 0.04 (1.38) 1.56 (3.75) ------------- ---------- ---------- ---------- ---------- ---------- Total income (loss) from investment operations 1.55 2.60 0.15 (1.30) 1.64 (3.62) ------------- ---------- ---------- ---------- ---------- ---------- Less distributions: Distributions from net investment income (0.11) (0.15) (0.08) (0.04) (0.29) (0.03) Distributions from net realized gains (0.48) -- (0.38) (0.69) (1.35) (1.77) ------------- ---------- ---------- ---------- ---------- ---------- Total distributions (0.59) (0.15) (0.46) (0.73) (1.64) (1.80) ------------- ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 17.04 $ 16.08 $ 13.63 $ 13.94 $ 15.97 $ 15.97 ============= ========== ========== ========== ========== ========== Total return+ 9.62% 19.10% 1.37% (8.41)% 10.63% (17.24)% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 11,330 $ 7,886 $ 4,702 $ 13,698 $ 7,067 $ 7,191 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.19%*** 1.36% 1.30% 1.19% 1.17% 1.09% After expense reimbursement and earnings credits 1.19%*** 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 1.12%*** 0.37% 0.64% 0.40% 0.37% 0.64% After expense reimbursement and earnings credits 1.12%*** 0.43% 0.89% 0.54% 0.49% 0.68% Portfolio turnover rate 18% 43% 33% 60% 54% 55% SIX MONTHS ENDED DECEMBER 31, YEAR ENDED JUNE 30, FOR THE 2004 --------------------------- PERIOD ENDED CLASS B (UNAUDITED) 2004 2003 JUNE 30, 2002* ----------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 15.81 $ 13.45 $ 13.87 $ 14.76 ------------- ---------- ---------- -------------- Income (loss) from investment operations: Net investment income (loss) 0.02** (0.05)** 0.02** 0.06** Net realized and unrealized gain (loss) 1.44 2.50 0.02 (0.22) ------------- ---------- ---------- -------------- Total income (loss) from investment operations 1.46 2.45 0.04 (0.16) ------------- ---------- ---------- -------------- Less distributions: Distributions from net investment income -- (0.09) (0.08) (0.04) Distributions from net realized gains (0.48) -- (0.38) (0.69) ------------- ---------- ---------- -------------- Total distributions (0.48) (0.09) (0.46) (0.73) ------------- ---------- ---------- -------------- Net asset value, end of period $ 16.79 $ 15.81 $ 13.45 $ 13.87 ============= ========== ========== ============== Total return+ 9.22% 18.25% 0.63% (1.39)% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 1,252 $ 1,217 $ 635 $ 223 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 2.04%*** 2.04% 2.04% 1.99%*** After expense reimbursement and earnings credits 2.04%*** 2.04% 1.80% 1.80%*** Ratio of net investment income (loss) to average net assets: Before expense reimbursement and earnings credits 0.27%*** (0.31)% (0.10)% 0.46%*** After expense reimbursement and earnings credits 0.27%*** (0.31)% 0.14% 0.65%*** Portfolio turnover rate 18% 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. + Total investment return is calculated assuming a $10,000 investment on the first day of each period reported, reinvestment of all dividends and distributions, if any, at net asset value on the ex-dividend dates, and a sale at net asset value on the last day of each period reported. The figures do not include any applicable sales charges; results would be lower if they were included. Total investment return for periods of less than one year have not been annualized. Returns do not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of shares. See accompanying notes to financial statements 108
SIX MONTHS ENDED DECEMBER 31, YEAR ENDED JUNE 30, FOR THE 2004 --------------------------- PERIOD ENDED CLASS C (UNAUDITED) 2004 2003 JUNE 30, 2002* ----------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 15.80 $ 13.44 $ 13.88 $ 15.20 ------------- ---------- ---------- -------------- Income (loss) from investment operations: Net investment income (loss) 0.03** (0.04)** 0.02** 0.07** Net realized and unrealized gain (loss) 1.43 2.49 0.03 (0.66) ------------- ---------- ---------- -------------- Total income (loss) from investment operations 1.46 2.45 0.05 (0.59) ------------- ---------- ---------- -------------- Less distributions: Distributions from net investment income -- (0.09) (0.11) (0.04) Distributions from net realized gains (0.48) -- (0.38) (0.69) ------------- ---------- ---------- -------------- Total distributions (0.48) (0.09) (0.49) (0.73) ------------- ---------- ---------- -------------- Net asset value, end of period $ 16.78 $ 15.80 $ 13.44 $ 13.88 ============= ========== ========== ============== Total return+ 9.22% 18.26% 0.68% (4.18)% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 2,015 $ 1,629 $ 1,020 $ 70 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.99%*** 2.00% 2.04% 1.97%*** After expense reimbursement and earnings credits 1.99%*** 2.00% 1.80% 1.80%*** Ratio of net investment income (loss) to average net assets: Before expense reimbursement and earnings credits 0.32%*** (0.27)% (0.10)% 0.56%*** After expense reimbursement and earnings credits 0.32%*** (0.27)% 0.14% 0.73%*** Portfolio turnover rate 18% 43% 33% 60% SIX MONTHS ENDED DECEMBER 31, YEAR ENDED JUNE 30, 2004 ------------------------------------------------------------------ CLASS Y (UNAUDITED) 2004 2003 2002 2001 2000 --------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 16.21 $ 13.73 $ 14.07 $ 16.07 $ 16.07 $ 21.48 ------------- ---------- ---------- ---------- ---------- ---------- Income (loss) from investment operations: Net investment income 0.11** 0.12** 0.14** 0.12** 0.12** 0.16** Net realized and unrealized gain (loss) 1.48 2.55 0.04 (1.39) 1.57 (3.75) ------------- ---------- ---------- ---------- ---------- ---------- Total income (loss) from investment operations 1.59 2.67 0.18 (1.27) 1.69 (3.59) ------------- ---------- ---------- ---------- ---------- ---------- Less distributions: Distributions from net investment income (0.15) (0.19) (0.14) (0.04) (0.34) (0.05) Distributions from net realized gains (0.48) -- (0.38) (0.69) (1.35) (1.77) ------------- ---------- ---------- ---------- ---------- ---------- Total distributions (0.63) (0.19) (0.52) (0.73) (1.69) (1.82) ------------- ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 17.17 $ 16.21 $ 13.73 $ 14.07 $ 16.07 $ 16.07 ============= ========== ========== ========== ========== ========== Total return+ 9.77% 19.50% 1.69% (8.17)% 10.88% (17.00)% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 192,892 $ 153,608 $ 99,398 $ 87,710 $ 125,997 $ 167,870 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 0.95%*** 0.96% 1.04% 0.93% 0.92% 0.84% After expense reimbursement and earnings credits 0.95%*** 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 1.36%*** 0.76% 0.90% 0.66% 0.62% 0.89% After expense reimbursement and earnings credits 1.36%*** 0.76% 1.14% 0.79% 0.74% 0.93% Portfolio turnover rate 18% 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. + Total investment return is calculated assuming a $10,000 investment on the first day of each period reported, reinvestment of all dividends and distributions, if any, at net asset value on the ex-dividend dates, and a sale at net asset value on the last day of each period reported. The figures do not include any applicable sales charges; results would be lower if they were included. Total investment return for periods of less than one year have not been annualized. Returns do not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of shares. See accompanying notes to financial statements 109 UBS U.S. LARGE CAP GROWTH FUND -- FINANCIAL HIGHLIGHTS
SIX MONTHS ENDED DECEMBER 31, YEAR ENDED JUNE 30, 2004 ------------------------------------------------------------------ CLASS A (UNAUDITED) 2004 2003 2002 2001 2000 --------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 7.71 $ 6.39 $ 6.38 $ 8.90 $ 15.20 $ 13.88 ------------- ---------- ---------- ---------- ---------- ---------- Income (loss) from investment operations: Net investment income (loss) 0.01* (0.02)* 0.00#* (0.02)* (0.07) (0.02)* Net realized and unrealized gain (loss) 0.52 1.34 0.01 (2.45) (4.32) 2.29 ------------- ---------- ---------- ---------- ---------- ---------- Total income (loss) from investment operations 0.53 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 period $ 8.24 $ 7.71 $ 6.39 $ 6.38 $ 8.90 $ 15.20 ============= ========== ========== ========== ========== ========== Total return+ 6.87% 20.66% 0.16% (27.89)% (31.59)% 17.18% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 2,433 $ 2,275 $ 1,163 $ 1,155 $ 1 $ 1 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 3.33%*** 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% 1.05% Ratio of net investment income (loss) to average net assets: Before expense reimbursement and earnings credits (1.93)%*** (2.03)% (2.82)% (1.71)% (0.91)% (1.22)% After expense reimbursement and earnings credits 0.35%*** (0.32)% 0.04% (0.25)% (0.37)% (0.16)% Portfolio turnover rate 47% 102% 86% 93% 56% 86% SIX MONTHS ENDED DECEMBER 31, YEAR ENDED JUNE 30, FOR THE 2004 --------------------------- PERIOD ENDED CLASS B (UNAUDITED) 2004 2003 JUNE 30, 2002^ ----------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 7.57 $ 6.32 $ 6.36 $ 7.86 ------------- ---------- ---------- -------------- Income (loss) from investment operations: Net investment loss (0.02)* (0.08)* (0.04)* (0.05)* Net realized and unrealized gain (loss) 0.51 1.33 -- (1.40) ------------- ---------- ---------- -------------- Total income (loss) from investment operations 0.49 1.25 (0.04) (1.45) ------------- ---------- ---------- -------------- Less distributions: Distributions from net realized gains -- -- -- (0.05) ------------- ---------- ---------- -------------- Net asset value, end of period $ 8.06 $ 7.57 $ 6.32 $ 6.36 ============= ========== ========== ============== Total return+ 6.47% 19.78% (0.63)% (18.61)% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 356 $ 342 $ 321 $ 115 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 4.07%** 3.48% 4.54% 3.06%** After expense reimbursement and earnings credits 1.80%** 1.80% 1.80% 1.80%** Ratio of net investment loss to average net assets: Before expense reimbursement and earnings credits (2.67)%** (2.75)% (3.45)% (2.28)%** After expense reimbursement and earnings credits (0.40)%** (1.07)% (0.71)% (1.02)%** Portfolio turnover rate 47% 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. + Total investment return is calculated assuming a $10,000 investment on the first day of each period reported, reinvestment of all dividends and distributions, if any, at net asset value on the ex-dividend dates, and a sale at net asset value on the last day of each period reported. The figures do not include any applicable sales charges; results would be lower if they were included. Total investment return for periods of less than one year have not been annualized. Returns do not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of shares. # Amount is less than $0.01 per share. See accompanying notes to financial statements 110
SIX MONTHS ENDED DECEMBER 31, YEAR ENDED JUNE 30, FOR THE 2004 --------------------------- PERIOD ENDED CLASS C (UNAUDITED) 2004 2003 JUNE 30, 2002* ----------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 7.56 $ 6.32 $ 6.35 $ 8.18 ------------- ---------- ---------- -------------- Income (loss) from investment operations: Net investment loss (0.02)** (0.08)** (0.04)** (0.05)** Net realized and unrealized gain (loss) 0.51 1.32 0.01 (1.73) ------------- ---------- ---------- -------------- Total income (loss) from investment operations 0.49 1.24 (0.03) (1.78) ------------- ---------- ---------- -------------- Less distributions: Distributions from net realized gains -- -- -- (0.05) ------------- ---------- ---------- -------------- Net asset value, end of period $ 8.05 $ 7.56 $ 6.32 $ 6.35 ============= ========== ========== ============== Total return+ 6.48% 19.62% (0.47)% (21.91)% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 313 $ 432 $ 267 $ 572 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 4.08%*** 3.54% 4.71% 3.22%*** After expense reimbursement and earnings credits 1.80%*** 1.80% 1.80% 1.80%*** Ratio of net investment loss to average net assets: Before expense reimbursement and earnings credits (2.68)%*** (2.81)% (3.62)% (2.44)%*** After expense reimbursement and earnings credits (0.40)%*** (1.08)% (0.71)% (1.02)%*** Portfolio turnover rate 47% 102% 86% 93% SIX MONTHS ENDED DECEMBER 31, YEAR ENDED JUNE 30, 2004 ------------------------------------------------------------------ CLASS Y (UNAUDITED) 2004 2003 2002 2001 2000 --------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 7.85 $ 6.49 $ 6.47 $ 8.99 $ 15.28 $ 13.91 ------------- ---------- ---------- ---------- ---------- ---------- Income (loss) from investment operations: Net investment income (loss) 0.02** (0.01)** 0.02** 0.00#** (0.01) 0.03** Net realized and unrealized gain (loss) 0.54 1.37 0.00# (2.47) (4.37) 2.29 ------------- ---------- ---------- ---------- ---------- ---------- Total income (loss) from investment operations 0.56 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 period $ 8.41 $ 7.85 $ 6.49 $ 6.47 $ 8.99 $ 15.28 ============= ========== ========== ========== ========== ========== Total return+ 7.13% 20.96% 0.31% (27.61)% (31.33)% 17.52% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 3,589 $ 3,502 $ 1,943 $ 2,291 $ 3,299 $ 5,885 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 3.08%*** 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% 0.80% Ratio of net investment income (loss) to average net assets: Before expense reimbursement and earnings credits (1.69)%*** (1.78)% (2.62)% (1.39)% (0.66)% (0.97)% After expense reimbursement and earnings credits 0.59%*** (0.07)% 0.29% (0.05)% (0.12)% 0.09% Portfolio turnover rate 47% 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. + Total investment return is calculated assuming a $10,000 investment on the first day of each period reported, reinvestment of all dividends and distributions, if any, at net asset value on the ex-dividend dates, and a sale at net asset value on the last day of each period reported. The figures do not include any applicable sales charges; results would be lower if they were included. Total investment return for periods of less than one year have not been annualized. Returns do not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of shares. # Amount is less than $0.01 per share. See accompanying notes to financial statements 111 UBS U.S. SMALL CAP GROWTH FUND -- FINANCIAL HIGHLIGHTS THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH PERIOD PRESENTED.
SIX MONTHS ENDED DECEMBER 31, YEAR ENDED JUNE 30, 2004 ------------------------------------------------------------------ CLASS A (UNAUDITED) 2004 2003 2002 2001 2000 --------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 12.41 $ 10.00 $ 9.79 $ 11.76 $ 16.20 $ 9.16 ------------- ---------- ---------- ---------- ---------- ---------- Income (loss) from investment operations: Net investment loss (0.06)** (0.11)** (0.08)** (0.11)** (0.09) (0.08)** Net realized and unrealized gain (loss) 1.43 2.55 0.29 (1.42) (1.52) 7.12 ------------- ---------- ---------- ---------- ---------- ---------- Total income (loss) from investment operations 1.37 2.44 0.21 (1.53) (1.61) 7.04 ------------- ---------- ---------- ---------- ---------- ---------- Less distributions: Distributions from net realized gains (0.20) (0.03) -- (0.44) (2.83) -- ------------- ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 13.58 $ 12.41 $ 10.00 $ 9.79 $ 11.76 $ 16.20 ============= ========== ========== ========== ========== ========== Total return+ 11.05% 24.45% 2.14% (13.18)% (11.00)% 76.86% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 92,842 $ 73,833 $ 9,841 $ 1,789 $ 2 $ 2 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.40%*** 1.56% 1.71% 1.69% 1.48% 1.56% After expense reimbursement and earnings credits 1.28%*** 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 (1.03)%*** (1.16)% (1.21)% (1.35)% (0.87)% (1.01)% After expense reimbursement and earnings credits (0.91)%*** (0.90)% (0.90)% (1.06)% (0.79)% (0.85)% Portfolio turnover rate 23% 75% 69% 71% 93% 104% SIX MONTHS ENDED DECEMBER 31, YEAR ENDED JUNE 30, FOR THE 2004 --------------------------- PERIOD ENDED CLASS B (UNAUDITED) 2004 2003 JUNE 30, 2002* ----------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 12.17 $ 9.89 $ 9.75 $ 10.18 ------------- ---------- ---------- -------------- Income (loss) from investment operations: Net investment loss (0.10)** (0.20)** (0.14)** (0.11)** Net realized and unrealized gain 1.40 2.51 0.28 0.12 ------------- ---------- ---------- -------------- Total income from investment operations 1.30 2.31 0.14 0.01 ------------- ---------- ---------- -------------- Less distributions: Distributions from net realized gains (0.20) (0.03) -- (0.44) ------------- ---------- ---------- -------------- Net asset value, end of period $ 13.27 $ 12.17 $ 9.89 $ 9.75 ============= ========== ========== ============== Total return+ 10.70% 23.40% 1.44% (0.11)% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 11,039 $ 11,683 $ 1,132 $ 656 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 2.55%*** 2.55% 2.47% 2.46%*** After expense reimbursement and earnings credits 2.03%*** 2.03% 2.15% 2.15%*** Ratio of net investment loss to average net assets: Before expense reimbursement and earnings credits (2.18)%*** (2.14)% (1.97)% (1.93)%*** After expense reimbursement and earnings credits (1.66)%*** (1.62)% (1.65)% (1.62)%*** Portfolio turnover rate 23% 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. + Total investment return is calculated assuming a $10,000 investment on the first day of each period reported, reinvestment of all dividends and distributions, if any, at net asset value on the ex-dividend dates, and a sale at net asset value on the last day of each period reported. The figures do not include any applicable sales charges; results would be lower if they were included. Total investment return for periods of less than one year have not been annualized. Returns do not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of shares. See accompanying notes to financial statements 112
SIX MONTHS ENDED DECEMBER 31, YEAR ENDED JUNE 30, FOR THE 2004 -------------------------- PERIOD ENDED CLASS C (UNAUDITED) 2004 2003 JUNE 30, 2002* -------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 12.16 $ 9.88 $ 9.74 $ 10.37 ------------ ---------- ---------- -------------- Income (loss) from investment operations: Net investment loss (0.10)** (0.20)** (0.14)** (0.10)** Net realized and unrealized gain (loss) 1.39 2.51 0.28 (0.09) ------------ ---------- ---------- -------------- Total income (loss) from investment operations 1.29 2.31 0.14 (0.19) ------------ ---------- ---------- -------------- Less distributions: Distributions from net realized gains (0.20) (0.03) -- (0.44) ------------ ---------- ---------- -------------- Net asset value, end of period $ 13.25 $ 12.16 $ 9.88 $ 9.74 ============ ========== ========== ============== Total return+ 10.62% 23.43% 1.44% (2.04)% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 10,000 $ 9,580 $ 757 $ 410 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 2.48%*** 2.54% 2.47% 2.46%*** After expense reimbursement and earnings credits 2.03%*** 2.03% 2.15% 2.15%*** Ratio of net investment loss to average net assets: Before expense reimbursement and earnings credits (2.11)%*** (2.13)% (1.97)% (1.90)%*** After expense reimbursement and earnings credits (1.66)%*** (1.63)% (1.65)% (1.59)%*** Portfolio turnover rate 23% 75% 69% 71% SIX MONTHS ENDED DECEMBER 31, YEAR ENDED JUNE 30, 2004 ------------------------------------------------------------------------- CLASS Y (UNAUDITED) 2004 2003 2002 2001 2000 --------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 12.63 $ 10.15 $ 9.92 $ 11.86 $ 16.27 $ 9.18 ------------ ---------- ---------- ---------- ---------- ---------- Income (loss) from investment operations: Net investment loss (0.04)** (0.08)** (0.06)** (0.09)** (0.07) (0.03)** Net realized and unrealized gain (loss) 1.45 2.59 0.29 (1.41) (1.51) 7.12 ------------ ---------- ---------- ---------- ---------- ---------- Total income (loss) from investment operations 1.41 2.51 0.23 (1.50) (1.58) 7.09 ------------ ---------- ---------- ---------- ---------- ---------- Less distributions: Distributions from net realized gains (0.20) (0.03) -- (0.44) (2.83) -- ------------ ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 13.84 $ 12.63 $ 10.15 $ 9.92 $ 11.86 $ 16.27 ============ ========== ========== ========== ========== ========== Total return+ 11.18% 24.78% 2.32% (12.90)% (10.74)% 77.23% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 104,700 $ 91,406 $ 39,785 $ 36,318 $ 44,057 $ 50,975 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.14%*** 1.21% 1.49% 1.41% 1.23% 1.31% After expense reimbursement and earnings credits 1.03%*** 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 (0.77)%*** (0.81)% (1.00)% (1.07)% (0.62)% (0.76)% After expense reimbursement and earnings credits (0.66)%*** (0.66)% (0.66)% (0.81)% (0.54)% (0.60)% Portfolio turnover rate 23% 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. + Total investment return is calculated assuming a $10,000 investment on the first day of each period reported, reinvestment of all dividends and distributions, if any, at net asset value on the ex-dividend dates, and a sale at net asset value on the last day of each period reported. The figures do not include any applicable sales charges; results would be lower if they were included. Total investment return for periods of less than one year have not been annualized. Returns do not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of shares. See accompanying notes to financial statements 113 UBS U.S. BOND FUND -- FINANCIAL HIGHLIGHTS THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH PERIOD PRESENTED.
SIX MONTHS ENDED DECEMBER 31, YEAR ENDED JUNE 30, 2004 ------------------------------------------------------------------------- CLASS A (UNAUDITED) 2004 2003 2002 2001 2000 --------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 10.56 $ 10.99 $ 10.51 $ 10.33 $ 9.99 $ 10.30 ------------ ---------- ---------- ---------- ---------- ---------- Income (loss) from investment operations: Net investment income 0.20** 0.39** 0.42** 0.53** 0.62** 0.58** Net realized and unrealized gain (loss) 0.20 (0.37) 0.52 0.32 0.41 (0.25) ------------ ---------- ---------- ---------- ---------- ---------- Total income from investment operations 0.40 0.02 0.94 0.85 1.03 0.33 ------------ ---------- ---------- ---------- ---------- ---------- Less distributions: Distributions from net investment income (0.22) (0.45) (0.46) (0.67) (0.69) (0.64) ------------ ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 10.74 $ 10.56 $ 10.99 $ 10.51 $ 10.33 $ 9.99 ============ ========== ========== ========== ========== ========== Total return+ 3.85% 0.18% 9.17% 8.41% 10.56% 3.29% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 32,406 $ 31,420 $ 31,337 $ 18,558 $ 123 $ 1 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.18%*** 1.11% 1.04% 1.21% 0.98% 0.92% After expense reimbursement and earnings credits 0.85%*** 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 3.28%*** 3.32% 3.70% 4.68% 5.86% 5.87% After expense reimbursement and earnings credits 3.61%*** 3.58% 3.89% 5.03% 5.99% 5.94% Portfolio turnover rate 71% 137% 180% 452% 314% 170% SIX MONTHS ENDED DECEMBER 31, YEAR ENDED JUNE 30, FOR THE 2004 -------------------------- PERIOD ENDED CLASS B (UNAUDITED) 2004 2003 JUNE 30, 2002* -------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 10.56 $ 10.97 $ 10.50 $ 10.76 ------------ ---------- ---------- -------------- Income (loss) from investment operations: Net investment income 0.15** 0.30** 0.34** 0.29** Net realized and unrealized gain (loss) 0.21 (0.36) 0.52 (0.22) ------------ ---------- ---------- -------------- Total income (loss) from investment operations 0.36 (0.06) 0.86 0.07 ------------ ---------- ---------- -------------- Less distributions: Distributions from net investment income (0.18) (0.35) (0.39) (0.33) ------------ ---------- ---------- -------------- Net asset value, end of period $ 10.74 $ 10.56 $ 10.97 $ 10.50 ============ ========== ========== ============== Total return+ 3.40% (0.55)% 8.30% 0.70% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 1,895 $ 2,043 $ 3,646 $ 1,405 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 2.02%*** 2.00% 1.79% 1.96%*** After expense reimbursement and earnings credits 1.60%*** 1.60% 1.60% 1.60%*** Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 2.44%*** 2.42% 2.95% 3.93%*** After expense reimbursement and earnings credits 2.86%*** 2.82% 3.14% 4.29%*** Portfolio turnover rate 71% 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. + Total investment return is calculated assuming a $10,000 investment on the first day of each period reported, reinvestment of all dividends and distributions, if any, at net asset value on the ex-dividend dates, and a sale at net asset value on the last day of each period reported. The figures do not include any applicable sales charges; results would be lower if they were included. Total investment return for periods of less than one year have not been annualized. Returns do not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of shares. ++ The ratio of net operating expenses to average net assets for Class A was 0.85%. See accompanying notes to financial statements 114
SIX MONTHS ENDED DECEMBER 31, YEAR ENDED JUNE 30, FOR THE 2004 --------------------------- PERIOD ENDED CLASS C (UNAUDITED) 2004 2003 JUNE 30, 2002* ----------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 10.55 $ 10.98 $ 10.50 $ 10.77 ------------- ---------- ---------- -------------- Income (loss) from investment operations: Net investment income 0.17** 0.33** 0.37** 0.31** Net realized and unrealized gain (loss) 0.21 (0.37) 0.52 (0.24) ------------- ---------- ---------- -------------- Total income (loss) from investment operations 0.38 (0.04) 0.89 0.07 ------------- ---------- ---------- -------------- Less distributions: Distributions from net investment income (0.20) (0.39) (0.41) (0.34) ------------- ---------- ---------- -------------- Net asset value, end of period $ 10.73 $ 10.55 $ 10.98 $ 10.50 ============= ========== ========== ============== Total return+ 3.60% (0.37)% 8.65% 0.72% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 2,286 $ 2,195 $ 3,164 $ 1,143 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.65%*** 1.65% 1.54% 1.61%*** After expense reimbursement and earnings credits 1.35%*** 1.35% 1.35% 1.35%*** Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 2.81%*** 2.78% 3.20% 4.32%*** After expense reimbursement and earnings credits 3.11%*** 3.08% 3.39% 4.58%*** Portfolio turnover rate 71% 137% 180% 452% SIX MONTHS ENDED DECEMBER 31, YEAR ENDED JUNE 30, 2004 ------------------------------------------------------------------ CLASS Y (UNAUDITED) 2004 2003 2002 2001 2000 --------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 10.57 $ 11.01 $ 10.53 $ 10.35 $ 10.00 $ 10.28 ------------- ---------- ---------- ---------- ---------- ---------- Income (loss) from investment operations: Net investment income 0.21** 0.41** 0.45** 0.56** 0.64** 0.62** Net realized and unrealized gain (loss) 0.20 (0.37) 0.52 0.31 0.42 (0.25) ------------- ---------- ---------- ---------- ---------- ---------- Total income from investment operations 0.41 0.04 0.97 0.87 1.06 0.37 ------------- ---------- ---------- ---------- ---------- ---------- Less distributions: Distributions from net investment income (0.24) (0.48) (0.49) (0.69) (0.71) (0.65) ------------- ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 10.74 $ 10.57 $ 11.01 $ 10.53 $ 10.35 $ 10.00 ============= ========== ========== ========== ========== ========== Total return+ 3.93% 0.40% 9.42% 8.59% 10.86% 3.74% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 88,376 $ 89,281 $ 78,807 $ 59,740 $ 62,514 $ 58,121 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 0.82%*** 0.80% 0.79% 0.80% 0.73% 0.67% After expense reimbursement and earnings credits 0.60%*** 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 3.64%*** 3.63% 3.95% 5.10% 6.11% 6.12% After expense reimbursement and earnings credits 3.86%*** 3.83% 4.14% 5.26% 6.24% 6.19% Portfolio turnover rate 71% 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. + Total investment return is calculated assuming a $10,000 investment on the first day of each period reported, reinvestment of all dividends and distributions, if any, at net asset value on the ex-dividend dates, and a sale at net asset value on the last day of each period reported. The figures do not include any applicable sales charges; results would be lower if they were included. Total investment return for periods of less than one year have not been annualized. Returns do not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of shares. # The ratio of net operating expenses to average net assets for Class Y was 0.60%. See accompanying notes to financial statements 115 UBS HIGH YIELD FUND -- FINANCIAL HIGHLIGHTS THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH PERIOD PRESENTED.
SIX MONTHS ENDED DECEMBER 31, YEAR ENDED JUNE 30, 2004 ------------------------------------------------------------------ CLASS A (UNAUDITED) 2004 2003 2002 2001 2000 --------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 7.06 $ 6.84 $ 6.36 $ 7.87 $ 9.18 $ 9.95 ------------- ---------- ---------- ---------- ---------- ---------- Income (loss) from investment operations: Net investment income 0.29** 0.58** 0.56** 0.76** 0.85** 0.90** Net realized and unrealized gain (loss) 0.39 0.22 0.50 (0.96) (1.08) (0.90) ------------- ---------- ---------- ---------- ---------- ---------- Total income (loss) from investment operations 0.68 0.80 1.06 (0.20) (0.23) -- ------------- ---------- ---------- ---------- ---------- ---------- Less distributions: Distributions from net investment income (0.30) (0.58) (0.58) (1.31) (1.08) (0.70) Distributions from net realized gains -- -- -- -- -- (0.07) ------------- ---------- ---------- ---------- ---------- ---------- Total distributions (0.30) (0.58) (0.58) (1.31) (1.08) (0.77) ------------- ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 7.44 $ 7.06 $ 6.84 $ 6.36 $ 7.87 $ 9.18 ============= ========== ========== ========== ========== ========== Total return+ 9.84% 12.15% 17.70% (3.01)% (2.28)% (0.13)% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 81,032 $ 72,614 $ 76,309 $ 65,832 $ 1 $ 1 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.28%*** 1.31% 1.29% 1.26% 1.14% 1.11% After expense reimbursement and earnings credits 1.20%*** 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 7.76%*** 8.16% 8.38% 10.71% 9.65% 9.06% After expense reimbursement and earnings credits 7.84%*** 8.27% 8.72% 11.02% 9.82% 9.22% Portfolio turnover rate 39% 80% 71% 120% 87% 73% SIX MONTHS ENDED DECEMBER 31, YEAR ENDED JUNE 30, FOR THE 2004 --------------------------- PERIOD ENDED CLASS B (UNAUDITED) 2004 2003 JUNE 30, 2002* ----------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 7.06 $ 6.83 $ 6.35 $ 7.02 ------------- ---------- ---------- -------------- Income (loss) from investment operations: Net investment income 0.26** 0.53** 0.51** 0.45** Net realized and unrealized gain (loss) 0.39 0.23 0.50 (0.61) ------------- ---------- ---------- -------------- Total income (loss) from investment operations 0.65 0.76 1.01 (0.16) ------------- ---------- ---------- -------------- Less distributions: Distributions from net investment income (0.27) (0.53) (0.53) (0.51) ------------- ---------- ---------- -------------- Net asset value, end of period $ 7.44 $ 7.06 $ 6.83 $ 6.35 ============= ========== ========== ============== Total return+ 9.42% 11.48% 16.83% (2.70)% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 5,826 $ 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% 2.05%*** After expense reimbursement and earnings credits 1.95%*** 1.95% 1.70% 1.70%*** Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 6.99%*** 7.43% 7.62% 9.88%*** After expense reimbursement and earnings credits 7.09%*** 7.53% 7.97% 10.23%*** Portfolio turnover rate 39% 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. + Total investment return is calculated assuming a $10,000 investment on the first day of each period reported, reinvestment of all dividends and distributions, if any, at net asset value on the ex-dividend dates, and a sale at net asset value on the last day of each period reported. The figures do not include any applicable sales charges; results would be lower if they were included. Total investment return for periods of less than one year have not been annualized. Returns do not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of shares. ++ The ratio of net operating expenses to average net assets for Class A was 0.95%. See accompanying notes to financial statements 116
SIX MONTHS ENDED DECEMBER 31, YEAR ENDED JUNE 30, FOR THE 2004 ----------------------------- PERIOD ENDED CLASS C (UNAUDITED) 2004 2003 JUNE 30, 2002* ------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 7.06 $ 6.84 $ 6.35 $ 7.02 ------------ ------------ ------------ -------------- Income (loss) from investment operations: Net investment income 0.27** 0.55** 0.53** 0.46** Net realized and unrealized gain (loss) 0.40 0.22 0.51 (0.61) ------------ ------------ ------------ -------------- Total income (loss) from investment operations 0.67 0.77 1.04 (0.15) ------------ ------------ ------------ -------------- Less distributions: Distributions from net investment income (0.28) (0.55) (0.55) (0.52) ------------ ------------ ------------ -------------- Net asset value, end of period $ 7.45 $ 7.06 $ 6.84 $ 6.35 ============ ============ ============ ============== Total return+ 9.71% 11.59% 17.29% (2.54)% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 17,828 $ 17,499 $ 18,969 $ 17,947 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.80%*** 1.82% 1.79% 1.79%*** After expense reimbursement and earnings credits 1.70%*** 1.70% 1.45% 1.45%*** Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 7.24%*** 7.66% 7.88% 10.15%*** After expense reimbursement and earnings credits 7.34%*** 7.78% 8.22% 10.49%*** Portfolio turnover rate 39% 80% 71% 120% SIX MONTHS ENDED DECEMBER 31, YEAR ENDED JUNE 30, 2004 --------------------------------------------------------------------- CLASS Y (UNAUDITED) 2004 2003 2002 2001 2000 --------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 7.10 $ 6.87 $ 6.38 $ 7.90 $ 9.19 $ 9.96 --------- --------- --------- --------- --------- --------- Income (loss) from investment operations: Net investment income 0.30** 0.61** 0.58** 0.81** 0.88** 0.91** Net realized and unrealized gain (loss) 0.39 0.23 0.50 (1.01) (1.08) (0.90) --------- --------- --------- --------- --------- --------- Total income (loss) from investment operations 0.69 0.84 1.08 (0.20) (0.20) 0.01 --------- --------- --------- --------- --------- --------- Less distributions: Distributions from net investment income (0.31) (0.61) (0.59) (1.32) (1.09) (0.71) Distributions from net realized gains -- -- -- -- -- (0.07) --------- --------- --------- --------- --------- --------- Total distributions (0.31) (0.61) (0.59) (1.32) (1.09) (0.78) --------- --------- --------- --------- --------- --------- Net asset value, end of period $ 7.48 $ 7.10 $ 6.87 $ 6.38 $ 7.90 $ 9.19 ========= ========= ========= ========= ========= ========= Total return+ 9.98% 12.66% 18.08% (2.98)% (1.83)% 0.02% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 48,666 $ 48,038 $ 71,819 $ 40,120 $ 54,560 $ 50,845 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 0.94%*** 0.92% 1.05% 1.02% 0.89% 0.86% After expense reimbursement and earnings credits 0.94%*** 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 8.10%*** 8.55% 8.62% 10.77% 9.90% 9.31% After expense reimbursement and earnings credits 8.10%*** 8.55% 8.97% 11.09% 10.07% 9.47% Portfolio turnover rate 39% 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. + Total investment return is calculated assuming a $10,000 investment on the first day of each period reported, reinvestment of all dividends and distributions, if any, at net asset value on the ex-dividend dates, and a sale at net asset value on the last day of each period reported. The figures do not include any applicable sales charges; results would be lower if they were included. Total investment return for periods of less than one year have not been annualized. Returns do not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of shares. # The ratio of net operating expenses to average net assets for Class Y was 0.70%. See accompanying notes to financial statements 117 UBS INTERNATIONAL EQUITY FUND -- FINANCIAL HIGHLIGHTS THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH PERIOD PRESENTED.
SIX MONTHS ENDED DECEMBER 31, YEAR ENDED JUNE 30, 2004 --------------------------------------------------------------------- CLASS A (UNAUDITED) 2004 2003 2002 2001 2000 --------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 8.58 $ 6.99 $ 8.08 $ 10.61 $ 13.57 $ 12.30 --------- --------- --------- --------- --------- --------- Income (loss) from investment operations: Net investment income 0.03** 0.12** 0.10** 0.13** 0.00^** 0.08** Net realized and unrealized gain (loss) 1.23 1.69 (0.87) (0.79) (2.15) 1.33 --------- --------- --------- --------- --------- --------- Total income (loss) from investment operations 1.26 1.81 (0.77) (0.66) (2.15) 1.41 --------- --------- --------- --------- --------- --------- Less distributions: Distributions from net investment income and net foreign currency gains (0.11) (0.22) (0.31) (0.27) (0.04) -- Distributions from net realized gains -- -- (0.01) (1.60) (0.77) (0.14) --------- --------- --------- --------- --------- --------- Total distributions (0.11) (0.22) (0.32) (1.87) (0.81) (0.14) --------- --------- --------- --------- --------- --------- Net asset value, end of period $ 9.73 $ 8.58 $ 6.99 $ 8.08 $ 10.61 $ 13.57 ========= ========= ========= ========= ========= ========= Total return+ 14.68% 26.00% (9.24)% (5.91)% (16.37)% 11.51% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 11,782 $ 7,866 $ 3,146 $ 2,599 $ 301 $ 1 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.46%*** 1.55% 1.47% 1.41% 1.31% 1.25% After expense reimbursement and earnings credits 1.25%*** 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 0.40%*** 1.13% 1.21% 1.38% 0.77% 0.64% After expense reimbursement and earnings credits 0.61%*** 1.43% 1.43% 1.54% 0.80% 0.64% Portfolio turnover rate 30% 108% 120% 82% 62% 59% SIX MONTHS ENDED DECEMBER 31, YEAR ENDED JUNE 30, FOR THE 2004 ----------------------------- PERIOD ENDED CLASS B (UNAUDITED) 2004 2003 JUNE 30, 2002* ------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 8.48 $ 6.92 $ 8.05 $ 7.75 ------------ ------------ ------------ -------------- Income (loss) from investment operations: Net investment income 0.00^** 0.06** 0.04** 0.05** Net realized and unrealized gain (loss) 1.20 1.67 (0.86) 0.25 ------------ ------------ ------------ -------------- Total income (loss) from investment operations 1.20 1.73 (0.82) 0.30 ------------ ------------ ------------ -------------- Less distributions: Distributions from net investment income and net foreign currency gains (0.07) (0.17) (0.30) -- Distributions from net realized gains -- -- (0.01) -- ------------ ------------ ------------ -------------- Total distributions (0.07) (0.17) (0.31) -- ------------ ------------ ------------ -------------- Net asset value, end of period $ 9.61 $ 8.48 $ 6.92 $ 8.05 ============ ============ ============ ============== Total return+ 14.12% 25.17% (9.94)% 3.87% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 1,052 $ 815 $ 352 $ 120 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 2.33%*** 2.60% 2.18% 2.05%*** After expense reimbursement and earnings credits 2.00%*** 2.00% 2.00% 2.00%*** Ratio of net investment income (loss) to average net assets: Before expense reimbursement and earnings credits (0.44)%*** 0.09% 0.50% 1.45%*** After expense reimbursement and earnings credits (0.14)%*** 0.69% 0.68% 1.50%*** Portfolio turnover rate 30% 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. + Total investment return is calculated assuming a $10,000 investment on the first day of each period reported, reinvestment of all dividends and distributions, if any, at net asset value on the ex-dividend dates, and a sale at net asset value on the last day of each period reported. The figures do not include any applicable sales charges; results would be lower if they were included. Total investment return for periods of less than one year have not been annualized. Returns do not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of shares. ++ 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 118
SIX MONTHS ENDED DECEMBER 31, YEAR ENDED JUNE 30, FOR THE 2004 -------------------------- PERIOD ENDED CLASS C (UNAUDITED) 2004 2003 JUNE 30, 2002* ------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $ 8.45 $ 6.90 $ 8.05 $ 7.75 ------------ ---------- ---------- -------------- Income (loss) from investment operations: Net investment income 0.00^** 0.06** 0.04** 0.04** Net realized and unrealized gain (loss) 1.20 1.68 (0.89) 0.26 ------------ ---------- ---------- -------------- Total income (loss) from investment operations 1.20 1.74 (0.85) 0.30 ------------ ---------- ---------- -------------- Less distributions: Distributions from net investment income and net foreign currency gains (0.08) (0.19) (0.29) -- Distributions from net realized gains -- -- (0.01) -- ------------ ---------- ---------- -------------- Total distributions (0.08) (0.19) (0.30) -- ------------ ---------- ---------- -------------- Net asset value, end of period $ 9.57 $ 8.45 $ 6.90 $ 8.05 ============ ========== ========== ============== Total return+ 14.19% 25.26% (10.29)% 3.87% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 1,644 $ 1,338 $ 399 $ 183 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 2.19%*** 2.35% 2.21% 2.19%*** After expense reimbursement and earnings credits 2.00%*** 2.00% 2.00% 2.00%*** Ratio of net investment income (loss) to average net assets: Before expense reimbursement and earnings credits (0.34)%*** 0.34% 0.47% 0.91%*** After expense reimbursement and earnings credits (0.15)%*** 0.69% 0.68% 1.10%*** Portfolio turnover rate 30% 108% 120% 82% SIX MONTHS ENDED DECEMBER 31, YEAR ENDED JUNE 30, 2004 ------------------------------------------------------------------- CLASS Y (UNAUDITED) 2004 2003 2002 2001 2000 ------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 8.63 $ 7.01 $ 8.12 $ 10.64 $ 13.57 $ 12.34 ------------ ----------- ----------- ----------- ----------- ---------- Income (loss) from investment operations: Net investment income 0.04** 0.14** 0.11** 0.09** 0.13** 0.11** Net realized and unrealized gain (loss) 1.22 1.71 (0.88) (0.74) (2.25) 1.33 ------------ ----------- ----------- ----------- ----------- ---------- Total income (loss) from investment operations 1.26 1.85 (0.77) (0.65) (2.12) 1.44 ------------ ----------- ----------- ----------- ----------- ---------- Less distributions: Distributions from net investment income and net foreign currency gains (0.11) (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 (0.11) (0.23) (0.34) (1.87) (0.81) (0.21) ------------ ----------- ----------- ----------- ----------- ---------- Net asset value, end of period $ 9.78 $ 8.63 $ 7.01 $ 8.12 $ 10.64 $ 13.57 ============ =========== =========== =========== =========== ========== Total return+ 14.66% 26.56% (9.21)% (5.78)% (16.15)% 11.76% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 113,393 $ 100,782 $ 90,514 $ 97,851 $ 192,408 $ 411,985 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.19%*** 1.26% 1.21% 1.13% 1.06% 1.00% After expense reimbursement and earnings credits 1.00%*** 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 0.67%*** 1.43% 1.47% 0.92% 1.02% 0.89% After expense reimbursement and earnings credits 0.86%*** 1.69% 1.68% 1.05% 1.05% 0.89% Portfolio turnover rate 30% 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 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%. ^ Amount is less than $.01 per share. + Total investment return is calculated assuming a $10,000 investment on the first day of each period reported, reinvestment of all dividends and distributions, if any, at net asset value on the ex-dividend dates, and a sale at net asset value on the last day of each period reported. The figures do not include any applicable sales charges; results would be lower if they were included. Total investment return for periods of less than one year have not been annualized. Returns do not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of shares. See accompanying notes to financial statements 119 UBS U.S. LARGE CAP VALUE EQUITY FUND -- FINANCIAL HIGHLIGHTS
SIX MONTHS ENDED DECEMBER 31, YEAR ENDED JUNE 30, FOR THE 2004 -------------------------- PERIOD ENDED CLASS A (UNAUDITED) 2004 2003 JUNE 30, 2002* ------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $ 11.18 $ 9.31 $ 9.37 $ 9.96 ------------ ---------- ---------- -------------- Income (loss) from investment operations: Net investment income 0.06** 0.09** 0.11** 0.05** Net realized and unrealized gain (loss) 1.08 1.80 (0.06) (0.64) ------------ ---------- ---------- -------------- Total income (loss) from investment operations 1.14 1.89 0.05 (0.59) ------------ ---------- ---------- -------------- Less distributions: Distributions from net investment income (0.12) (0.02) (0.05) -- Distributions from net realized gains (1.92) -- (0.06) -- ------------ ---------- ---------- -------------- Total distributions (2.04) (0.02) (0.11) -- ------------ ---------- ---------- -------------- Net asset value, end of period $ 10.28 $ 11.18 $ 9.31 $ 9.37 ============ ========== ========== ============== Total return+ 10.21% 20.28% 0.61% (5.92)% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 113,351 $ 108,369 $ 1,073 $ 751 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.38%*** 1.42% 2.85% 3.82%*** After expense reimbursement and earnings credits 1.10%*** 1.10% 1.10% 1.10%*** Ratio of net investment income (loss) to average net assets: Before expense reimbursement and earnings credits 0.75%*** 0.54% (0.42)% (1.85)%*** After expense reimbursement and earnings credits 1.03%*** 0.86% 1.33% 0.87%*** Portfolio turnover rate 24% 170% 59% 39% SIX MONTHS ENDED DECEMBER 31, YEAR ENDED JUNE 30, FOR THE 2004 -------------------------- PERIOD ENDED CLASS B (UNAUDITED) 2004 2003 JUNE 30, 2002* ------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $ 10.99 $ 9.21 $ 9.32 $ 9.62 ------------ ---------- ---------- -------------- Income (loss) from investment operations: Net investment income 0.02** 0.01** 0.05** 0.01** Net realized and unrealized gain (loss) 1.05 1.77 (0.07) (0.31) ------------ ---------- ---------- -------------- Total income (loss) from investment operations 1.07 1.78 (0.02) (0.30) ------------ ---------- ---------- -------------- Less distributions: Distributions from net investment income -- 0.00# (0.03) -- Distributions from net realized gains (1.92) -- (0.06) -- ------------ ---------- ---------- -------------- Total distributions (1.92) 0.00 (0.09) -- ------------ ---------- ---------- -------------- Net asset value, end of period $ 10.14 $ 10.99 $ 9.21 $ 9.32 ============ ========== ========== ============== Total return+ 9.75% 19.38% (0.17)% (3.12)% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 8,829 $ 14,556 $ 709 $ 301 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 2.43%*** 2.31% 3.42% 4.66%*** After expense reimbursement and earnings credits 1.85%*** 1.85% 1.85% 1.85%*** Ratio of net investment income (loss) to average net assets: Before expense reimbursement and earnings credits (0.30)%*** (0.35)% (0.99)% (2.72)%*** After expense reimbursement and earnings credits 0.28%*** 0.11% 0.58% 0.09%*** Portfolio turnover rate 24% 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. + Total investment return is calculated assuming a $10,000 investment on the first day of each period reported, reinvestment of all dividends and distributions, if any, at net asset value on the ex-dividend dates, and a sale at net asset value on the last day of each period reported. The figures do not include any applicable sales charges; results would be lower if they were included. Total investment return for periods of less than one year have not been annualized. Returns do not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of shares. # Amount is less than $0.01 per share. See accompanying notes to financial statements 120
SIX MONTHS ENDED DECEMBER 31, YEAR ENDED JUNE 30, FOR THE 2004 -------------------------- PERIOD ENDED CLASS C (UNAUDITED) 2004 2003 JUNE 30, 2002* ------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $ 11.00 $ 9.22 $ 9.33 $ 9.73 ------------ ---------- ---------- -------------- Income (loss) from investment operations: Net investment income 0.02** 0.01** 0.05** 0.00#** Net realized and unrealized gain (loss) 1.07 1.77 (0.07) (0.40) ------------ ---------- ---------- -------------- Total income (loss) from investment operations 1.09 1.78 (0.02) (0.40) ------------ ---------- ---------- -------------- Less distributions: Distributions from net investment income (0.03) 0.00# (0.03) -- Distributions from net realized gains (1.92) -- (0.06) -- ------------ ---------- ---------- -------------- Total distributions (1.95) 0.00 (0.09) -- ------------ ---------- ---------- -------------- Net asset value, end of period $ 10.14 $ 11.00 $ 9.22 $ 9.33 ============ ========== ========== ============== Total return+ 9.88% 19.34% (0.13)% (4.11)% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 19,007 $ 19,530 $ 1,025 $ 234 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 2.16%*** 2.17% 3.04% 4.58%*** After expense reimbursement and earnings credits 1.85%*** 1.85% 1.85% 1.85%*** Ratio of net investment income (loss) to average net assets: Before expense reimbursement and earnings credits (0.03)%*** (0.21)% (0.61)% (2.68)%*** After expense reimbursement and earnings credits 0.28%*** 0.11% 0.58% 0.05%*** Portfolio turnover rate 24% 170% 59% 39% SIX MONTHS ENDED DECEMBER 31, YEAR ENDED JUNE 30, FOR THE 2004 -------------------------- PERIOD ENDED CLASS Y (UNAUDITED) 2004 2003 JUNE 30, 2002* ------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $ 11.22 $ 9.33 $ 9.38 $ 10.00 ------------ ---------- ---------- -------------- Income (loss) from investment operations: Net investment income 0.07** 0.11** 0.13** 0.11** Net realized and unrealized gain (loss) 1.09 1.80 (0.06) (0.73) ------------ ---------- ---------- -------------- Total income (loss) from investment operations 1.16 1.91 0.07 (0.62) ------------ ---------- ---------- -------------- Less distributions: Distributions from net investment income (0.16) (0.02) (0.06) -- Distributions from net realized gains (1.92) -- (0.06) -- ------------ ---------- ---------- -------------- Total distributions (2.08) (0.02) (0.12) -- ------------ ---------- ---------- -------------- Net asset value, end of period $ 10.30 $ 11.22 $ 9.33 $ 9.38 ============ ========== ========== ============== Total return+ 10.38% 20.49% 0.89% (6.20)% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 5,758 $ 4,516 $ 4,790 $ 2,819 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.04%*** 1.27% 2.62% 3.15%*** After expense reimbursement and earnings credits 0.85%*** 0.85% 0.85% 0.85%*** Ratio of net investment income (loss) to average net assets: Before expense reimbursement and earnings credits 1.09%*** 0.68% (0.19)% (1.17)%*** After expense reimbursement and earnings credits 1.28%*** 1.10% 1.58% 1.13%*** Portfolio turnover rate 24% 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. + Total investment return is calculated assuming a $10,000 investment on the first day of each period reported, reinvestment of all dividends and distributions, if any, at net asset value on the ex-dividend dates, and a sale at net asset value on the last day of each period reported. The figures do not include any applicable sales charges; results would be lower if they were included. Total investment return for periods of less than one year have not been annualized. Returns do not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of shares. # Amount is less than $0.01 per share. See accompanying notes to financial statements 121 THE UBS FUNDS -- NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 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 portfolios. 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"). 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 not 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. 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. Investments in affiliated investment companies are valued at the daily closing net asset value of the respective investment company. If a market value is not readily 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. Securities in which the Funds invest are traded in markets that close before 4:00 p.m. Eastern Time. Normally, developments that occur between the close of the foreign markets and 4:00 p.m. Eastern Time will not be reflected in the Fund's NAV. However, funds may determine that such developments are so significant that they will materially affect the value of the Fund's securities, 122 the Fund may adjust the previous closing prices to reflect what the Board of Trustees believes to be the fair value of these securities as of 4:00 p.m. Eastern Time. 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 maturities 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 (or the value of dividend-eligible shares, as appropriate) 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 during the six months ended December 31, 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. 123 Small capitalization ("small cap") companies may be more vulnerable than larger capitalization companies to adverse business or economic developments. Small cap companies may also have limited product lines, markets or financial resources, and may be dependent on a relatively small management group. Securities of such companies may be less liquid and more volatile than securities of larger capitalization companies or the market averages in general and therefore may involve greater risk than investing in larger capitalization companies. In addition, small cap companies may not be well known to the investing public, may not have institutional ownership and may have only cyclical, static or moderated growth prospects. The ability of the issuers of debt securities held by the 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-dividend 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 accouting 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 (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:
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 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. Small Cap Growth Fund 0.850 0.850 0.825 0.825 0.825 UBS U.S. Bond Fund 0.500 0.475 0.450 0.425 0.400 UBS High Yield Fund 0.600 0.550 0.525 0.525 0.525 UBS International Equity Fund 0.800 0.750 0.700 0.675 0.650 UBS U.S. Large Cap Value Equity Fund 0.700 0.650 0.600 0.575 0.550
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 ADVISORY 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%
124 Prior to June 7, 2004, the investment advisory fees for the Funds were 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
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 six months ended December 31, 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 Equity Fund 1.25% 2.00% 2.00% 1.00% $ 1,619,063 $ 298,523 UBS Global Bond Fund 1.15 1.90 1.65 0.90 245,755 117,038 UBS U.S. Large Cap Equity Fund 1.30 2.05 2.05 1.05 627,625 -- UBS U.S. Large Cap Growth Fund 1.05 1.80 1.80 0.80 21,195 69,207 UBS U.S. Small Cap Growth Fund 1.28 2.03 2.03 1.03 821,772 148,425 UBS U.S. Bond Fund 0.85 1.60 1.35 0.60 324,610 162,018 UBS High Yield Fund 1.20 1.95 1.70 0.95 463,603 43,671 UBS International Equity Fund 1.25 2.00 2.00 1.00 444,863 120,697 UBS U.S. Large Cap Value Equity Fund 1.10 1.85 1.85 0.85 507,271 220,823
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 six months ended December 31, 2004 are subject to repayment through June 30, 2008. Each Fund pays an administration fee that is computed daily and paid monthly at an annual rate of 0.075% of the average daily net assets of such Fund. For the six months ended December 31, 2004, certain funds incurred and owed UBS Global AM administrative fees as follows:
ADMINISTRATIVE ADMINISTRATIVE FUND FEES OWED FEES INCURRED ---- -------------- --------------- UBS Global Allocation Fund $ 150,935 $ 779,691 UBS Global Equity Fund 29,595 166,740 UBS Global Bond Fund 4,485 24,576 UBS U.S. Large Cap Equity Fund 12,617 67,246 UBS U.S. Large Cap Growth Fund 409 2,271 UBS U.S. Small Cap Growth Fund 13,432 72,510 UBS U.S. Bond Fund 8,285 48,692 UBS High Yield Fund 9,755 57,951 UBS International Equity Fund 7,709 41,706 UBS U.S. Large Cap Value Equity Fund 9,212 54,351
125 The Funds may invest in shares of certain affiliated investment companies also sponsored by the Advisor and for the six months ended December 31, 2004 were as follows:
UBS GLOBAL ALLOCATION FUND --------------------------------------------- NET CHANGE IN SALES REALIZED NET UNREALIZED AFFILIATES PURCHASES PROCEEDS GAIN/(LOSS) GAIN/(LOSS) VALUE ---------- --------------- -------------- ----------- -------------- -------------- UBS Emerging Markets Equity Relationship Fund $ 20,000,000 -- -- $ 43,321,784 $ 212,892,165 UBS High Yield Relationship Fund -- -- -- 1,717,520 18,533,038 UBS Small Cap Equity Relationship Fund -- -- -- 7,693,131 69,778,745 UBS Supplementary Trust U.S. Cash Management Prime Fund 689,643,301 $ 662,451,236 -- -- 188,392,180 UBS GLOBAL BOND FUND --------------------------------------------- NET CHANGE IN SALES REALIZED NET UNREALIZED AFFILIATES PURCHASES PROCEEDS GAIN/(LOSS) GAIN/(LOSS) VALUE ---------- --------------- -------------- ----------- -------------- -------------- UBS U.S. Securitized Mortgage Relationship Fund $ 1,475,000 -- -- $ 307,575 $ 11,857,030 UBS Supplementary Trust U.S. Cash Management Prime Fund 9,616,018 $ 9,040,791 -- -- 1,155,451
The Funds may invest in shares of the UBS Supplementary Trust--U.S. Cash Management Prime Fund ("Supplementary Trust"). Supplementary Trust is managed by the Advisor and is offered as a cash management option only to mutual funds and certain other accounts managed by the Advisor. Supplementary Trust pays no management fees to the Advisor. Distributions received from Supplementary Trust are reflected as affiliated interest income in the statements of operations. Amounts relating to those investments at December 31, 2004 and for the six months ended were as follows:
% OF SALES INTEREST NET FUND PURCHASES PROCEEDS INCOME VALUE ASSETS ---- -------------- -------------- ------------ -------------- -------- UBS Global Allocation Fund $ 689,643,301 $ 662,451,236 $ 1,391,278 $ 188,392,180 7.45% UBS Global Equity Fund 34,864,431 32,159,756 10,001 3,554,614 0.76 UBS Global Bond Fund 9,616,018 9,040,791 14,584 1,155,451 1.61 UBS U.S. Large Cap Equity Fund 38,631,066 32,034,254 65,613 13,353,349 6.43 UBS U.S. Large Cap Growth Fund 1,690,171 1,669,579 1,210 175,146 2.62 UBS U.S. Small Cap Growth Fund 34,468,146 33,417,785 38,687 5,645,450 2.58 UBS U.S. Bond Fund 34,712,700 28,899,616 50,756 8,279,484 6.63 UBS High Yield Fund 46,945,553 48,429,271 25,668 1,655,160 1.08 UBS International Equity Fund 45,558,721 38,188,633 97,438 15,792,976 12.35 UBS U.S. Large Cap Value Equity Fund 15,254,531 20,951,741 67,514 1,912,919 1.30
The following Funds have incurred brokerage commissions with an affiliated broker-dealer. Amounts relating to those transactions for the six months ended December 31, 2004, were as follows:
FUND UBS SECURITIES LLC ---- ------------------ UBS Global Allocation Fund $ 106,886 UBS Global Equity Fund 32,478 UBS U.S. Large Cap Equity Fund 24,572 UBS U.S. Large Cap Growth Fund 611 UBS U.S. Small Cap Growth Fund 930 UBS International Equity Fund 3,169 UBS U.S. Large Cap Value Equity Fund 12,047
126 3. INVESTMENT TRANSACTIONS Investment transactions for the six months ended December 31, 2004, excluding short-term investments, were as follows:
SALES FUND PURCHASES PROCEEDS ---- ---------------- --------------- UBS Global Allocation Fund $ 1,023,547,943 $ 576,663,126 UBS Global Equity Fund 82,953,898 108,060,454 UBS Global Bond Fund 34,682,166 28,961,189 UBS U.S. Large Cap Equity Fund 54,197,049 30,707,477 UBS U.S. Large Cap Growth Fund 2,809,442 3,157,348 UBS U.S. Small Cap Growth Fund 48,039,934 44,488,002 UBS U.S. Bond Fund 88,697,133 90,146,680 UBS High Yield Fund 58,613,514 57,742,639 UBS International Equity Fund 33,937,935 33,170,059 UBS U.S. Large Cap Value Equity Fund 33,129,111 40,486,395
For the six months ended December 31, 2004, purchases and sales of long-term U.S. government securities were as follows:
SALES FUND PURCHASES PROCEEDS ---- ---------------- --------------- UBS Global Allocation Fund $ 212,904,951 $ 187,785,325 UBS Global Bond Fund 11,234,191 10,061,593 UBS U.S. Bond Fund 56,772,209 57,269,854
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 revenues 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 Global Allocation Fund received securities as collateral amounting to $92,970,397, 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 December 31, 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 $ 215,900,896 $ 222,144,097 $ 129,173,700 UBS International Equity Fund 13,732,091 14,418,350 14,418,350
127 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 December 31, 2004, certain Funds owed UBS Global AM service and distribution fees as follows:
SERVICE & DISTRIBUTION FUND FEES OWED ---- ------------ UBS Global Allocation Fund $ 565,728 UBS Global Equity Fund 132,721 UBS Global Bond Fund 2,401 UBS U.S. Large Cap Equity Fund 2,177 UBS U.S. Large Cap Growth Fund 1,772 UBS U.S. Small Cap Growth Fund 15,558 UBS U.S. Bond Fund 2,088 UBS High Yield Fund 55,036 UBS International Equity Fund 1,943 UBS U.S. Large Cap Value Equity Fund 22,359
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. 128 For the six months ended December 31, 2004, UBS Financial Services Inc. received from PFPC, not the Funds, total transfer agency and related services fees paid by the Funds to PFPC as follows:
FUND AMOUNT PAID ---- ----------- UBS Global Allocation Fund $ 299,753 UBS Global Equity Fund 165,510 UBS Global Bond Fund 7,141 UBS U.S. Large Cap Equity Fund 1,368 UBS U.S. Large Cap Growth Fund 867 UBS U.S. Small Cap Growth Fund 26,407 UBS U.S. Bond Fund 2,594 UBS High Yield Fund 38,680 UBS International Equity Fund 2,727 UBS U.S. Large Cap Value Equity Fund 41,676
8. LINE OF CREDIT The Trust has entered into an agreement with JPMorgan Chase Bank to provide a 364-day $50 million committed line of credit to the Funds ("Committed Credit Facility"). Borrowings will be made for temporary purposes to fund redemptions. Interest on amounts borrowed is calculated based on the federal funds rate in effect at the time of borrowing plus 0.50%. The Trust has agreed to pay commitment fees, pro rata based on the relative asset size of the Funds in the Committed Credit Facility in the amount of 0.09% per annum on the average daily balance of the line of credit not utilized. The average borrowings under the agreement for the six months ended December 31, 2004, were as follows:
AVERAGE NUMBER OF DAYS INTEREST FUND BORROWINGS OUTSTANDING PAID ---- -------------- -------------- -------- UBS Global Allocation Fund $ 11,364,950 1 $ 868 UBS Global Equity Fund 1,683,270 1 129 UBS Global Bond Fund 1,155,500 1 88 UBS U.S. Bond Fund 8,279,485 1 632 UBS High Yield Fund 9,730,000 4 2,227
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. 129 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 FUND, INC. EQUITY 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. The pre-merger activity of the acquired funds are not reflected in the statements of operations or changes in net assets and the financial highlights. 10. 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 requirement of the Code applicable to regulated investment companies, therefore, no federal income tax provision was required. The tax character of distributions paid during the fiscal year ended June 30, 2004 were as follows:
DISTRIBUTIONS PAID FROM DISTRIBUTIONS PAID FROM TOTAL FUND ORDINARY INCOME NET LONG-TERM CAPITAL GAINS DISTRIBUTIONS PAID ---- ----------------------- --------------------------- ------------------ UBS Global Allocation Fund $ 13,269,985 -- $ 13,269,985 UBS Global Equity Fund 4,891,206 -- 4,891,206 UBS Global Bond Fund 4,828,141 -- 4,828,141 UBS U.S. Large Cap Equity Fund 1,535,536 -- 1,535,536 UBS U.S. Small Cap Growth Fund -- $ 398,372 398,372 UBS U.S. Bond Fund 5,180,925 -- 5,180,925 UBS High Yield Fund 14,243,424 -- 14,243,424 UBS International Equity Fund 2,715,721 -- 2,715,721 UBS U.S. Large Cap Value Equity Fund 184,418 -- 184,418
The components of accumulated earnings (deficit) on a tax basis for the current fiscal year will be determined after the Fund's fiscal year ending June 30, 2005. 130 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 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 JUNE 30, 2005 JUNE 30, 2006 JUNE 30, 2007 JUNE 30, 2008 JUNE 30, 2009 --------------- --------------- --------------- --------------- --------------- $ 10,089,023 $ 11,387,957 $ 18,661,457 $ 98,009,332+ $ 23,205,714+ EXPIRATION DATE EXPIRATION DATE EXPIRATION DATE JUNE 30, 2010 JUNE 30, 2011 JUNE 30, 2012 --------------- --------------- --------------- $ 6,612,767+ $ 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. 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
131 11. SHARES OF BENEFICIAL INTEREST For the six months ended December 31, 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 29,571,618 (8,475,492) 11,649 3,243,759 24,351,534 UBS Global Equity Fund 490,176 (1,454,259) 2,200 -- (961,883) UBS Global Bond Fund 274,777 (184,635) 25,063 59,750 174,955 UBS U.S. Large Cap Equity Fund 213,548 (67,902) 8,237 20,364 174,247 UBS U.S. Large Cap Growth Fund 61,597 (63,693) 2,199 -- 103 UBS U.S. Small Cap Growth Fund 1,985,628 (1,206,530) 34,578 71,938 885,614 UBS U.S. Bond Fund 342,588 (349,749) 9,060 40,637 42,536 UBS High Yield Fund 1,358,660 (1,246,597) 243,193 249,284 604,540 UBS International Equity Fund 347,075 (64,617) 131 12,424 295,013 UBS U.S. Large Cap Value Equity Fund 88,428 (901,404) 485,353 1,659,167 1,331,544 CLASS B UBS Global Allocation Fund 2,580,969 (906,076) (11,882) 435,139 2,098,150 UBS Global Equity Fund 85,890 (1,886,251) (2,237) -- (1,802,598) UBS Global Bond Fund 15,194 (18,550) (25,036) 4,419 (23,973) UBS U.S. Large Cap Equity Fund 15,623 (11,715) (8,237) 1,917 (2,412) UBS U.S. Large Cap Growth Fund 13,203 (11,970) (2,199) -- (966) UBS U.S. Small Cap Growth Fund 22,614 (127,996) (34,578) 12,117 (127,843) UBS U.S. Bond Fund 13,213 (23,267) (9,060) 2,051 (17,063) UBS High Yield Fund 26,039 (125,696) (243,193) 14,856 (327,994) UBS International Equity Fund 17,100 (4,278) (132) 681 13,371 UBS U.S. Large Cap Value Equity Fund 35,702 (120,215) (494,383) 124,691 (454,205) NET INCREASE (DECREASE) SHARES DIVIDENDS IN SHARES SHARES SOLD REPURCHASED REINVESTED OUTSTANDING ------------- ------------- ---------- ------------- CLASS C UBS Global Allocation Fund 14,527,896 (3,291,896) 1,736,427 12,972,427 UBS Global Equity Fund 119,314 (1,182,678) -- (1,063,364) UBS Global Bond Fund 61,784 (40,358) 9,143 30,569 UBS U.S. Large Cap Equity Fund 20,625 (6,885) 3,177 16,917 UBS U.S. Large Cap Growth Fund 7,537 (25,877) -- (18,340) UBS U.S. Small Cap Growth Fund 37,260 (81,442) 10,789 (33,393) UBS U.S. Bond Fund 16,285 (14,226) 2,954 5,013 UBS High Yield Fund 173,123 (304,348) 48,564 (82,661) UBS International Equity Fund 24,804 (12,654) 1,315 13,465 UBS U.S. Large Cap Value Equity Fund 26,196 (210,900) 284,858 100,154 CLASS Y UBS Global Allocation Fund 3,298,055 (1,835,102) 790,799 2,253,752 UBS Global Equity Fund 2,042,470 (941,923) -- 1,100,547 UBS Global Bond Fund 909,543 (511,865) 180,252 577,930 UBS U.S. Large Cap Equity Fund 2,054,999 (657,326) 357,650 1,755,323 UBS U.S. Large Cap Growth Fund 86,526 (105,574) -- (19,048) UBS U.S. Small Cap Growth Fund 1,284,606 (1,066,605) 106,806 324,807 UBS U.S. Bond Fund 1,284,895 (1,700,014) 195,632 (219,487) UBS High Yield Fund 2,991,196 (3,547,674) 294,655 (261,823) UBS International Equity Fund 1,357,247 (1,579,413) 131,730 (90,436) UBS U.S. Large Cap Value Equity Fund 141,406 (65,883) 80,994 156,517
132 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 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)
133 THE UBS FUNDS -- GENERAL INFORMATION (UNAUDITED) QUARTERLY FORM N-Q PORTFOLIO SCHEDULE The Funds will file their complete schedules of investments with the Securities and Exchange Commission ("SEC") for the first and third quarters of each fiscal year on Form N-Q. The Fund's Forms N-Q are available on the SEC's website at http://www.sec.gov. The Fund's Forms N-Q may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the SEC's Public Reference Room may be obtained by calling 1-800-SEC-0330. Additionally, you may obtain copies of Forms N-Q from the Funds upon request by calling 1-800-647-1568. PROXY VOTING POLICIES & PROCEDURES You may obtain a description of the Funds' proxy voting policies and procedures and their proxy voting records; without charge, upon request by contacting the Funds directly at 1-800-647-1568, online on the Fund's Web site: www.ubs.com/ubsglobalam-proxy, or on the EDGAR Database on the SEC's website (http://www.sec.gov). 134 This page intentionally left blank. This page intentionally left blank. [UBS LOGO] Presorted Standard U.S.Postage UBS GLOBAL ASSET MANAGEMENT PAID One North Wacker Drive Smithtown, NY Chicago, Illinois 60606 Permit 700 ITEM 2. CODE OF ETHICS. Form N-CSR disclosure requirement not applicable to this filing of a semi-annual report. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. Form N-CSR disclosure requirement not applicable to this filing of a semi-annual report. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. Form N-CSR disclosure requirement not applicable to this filing of a semi-annual report. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. Not applicable to the registrant. ITEM 6. SCHEDULE OF INVESTMENTS. Included as part of the report to shareholders filed under Item 1 of this form. ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable to the registrant. ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable to the registrant. ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. Not applicable to the registrant. ITEM 10. 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 11. 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 12. EXHIBITS. (a) (1) Code of Ethics - Form N-CSR disclosure requirement not applicable to this filing of a semi-annual report. (a) (2) Certifications of principal executive officer and principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 is attached hereto as Exhibit EX-99.CERT. (a) (3) Written solicitation to purchase securities under Rule 23c-1 under the Investment Company Act of 1940 sent or given during the period covered by the report by or on behalf of the registrant to 10 or more persons - not applicable to the registrant. (b) Certifications of principal executive officer and principal financial officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 is attached hereto as Exhibit EX-99.906CERT. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. The UBS Funds By: /s/ Joseph A. Varnas -------------------- Joseph A. Varnas President Date: March 4, 2005 ------------- Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /s/ Joseph A. Varnas -------------------- Joseph A. Varnas President Date: March 4, 2005 ------------- By: /s/ Joseph T. Malone -------------------- Joseph T. Malone Treasurer & Principal Accounting Officer Date: March 4, 2005 -------------