N-CSR 1 a2162621zn-csr.txt N-CSR UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number: 811-06637 ----------------------------------------------- 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: June 30, 2005 ITEM 1. REPORTS TO STOCKHOLDERS. [UBS GLOBAL ASSET MANAGEMENT LOGO] UBS GLOBAL ALLOCATION FUND UBS GLOBAL EQUITY FUND UBS GLOBAL BOND FUND UBS INTERNATIONAL EQUITY FUND UBS U.S. LARGE CAP EQUITY FUND UBS U.S. LARGE CAP GROWTH FUND UBS U.S. LARGE CAP VALUE EQUITY FUND UBS U.S. SMALL CAP GROWTH FUND UBS DYNAMIC ALPHA FUND UBS U.S. BOND FUND UBS ABSOLUTE RETURN BOND FUND UBS HIGH YIELD FUND ANNUAL REPORT JUNE 30, 2005 TABLE OF CONTENTS Portfolio Managers' Commentary and Schedules of Investments UBS Global Allocation Fund 2 UBS Global Equity Fund 20 UBS Global Bond Fund 30 UBS International Equity Fund 41 UBS U.S. Large Cap Equity Fund 50 UBS U.S. Large Cap Growth Fund 57 UBS U.S. Large Cap Value Equity Fund 65 UBS U.S. Small Cap Growth Fund 72 UBS Dynamic Alpha Fund 79 UBS U.S. Bond Fund 87 UBS Absolute Return Bond Fund 99 UBS High Yield Fund 109 Statements of Assets and Liabilities 118 Statements of Operations 122 Statements of Changes in Net Assets 124 Financial Highlights 128 Notes to Financial Statements 152 Report of Independent Registered Public Accounting Firm 171 Trustee & Officer Information 176 Federal Tax Information 182
1 UBS GLOBAL ALLOCATION FUND For the fiscal year ended June 30, 2005, Class A shares of UBS Global Allocation Fund (the "Fund") returned 12.11% and Class Y shares returned 12.40%, versus the 10.40% return of the Fund's benchmark, the GSMI Mutual Fund Index (the "Index").* Since inception on June 30, 1997, through period end, the Fund's A shares returned 6.86% against the Index return of 6.04%, and since inception on August 31, 1992, through period end, the Fund's Y shares returned 8.98% on an annualized basis, versus the 8.90% 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 4; 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 outperformance relative to the Index was a result of strategic asset allocation decisions, as well as strong stock selection in global equities. We implemented a number of asset allocation strategy changes during the period. In August 2004, we increased US equities relative to the benchmark by 2.5%. Prices in US equities fell well below intrinsic value in the early part of August, recovering later in the quarter to finish with a more modest negative. We decreased our conventional US bonds relative to the benchmark by 2.5% as interest rates declined and three-year expected returns fell below 3% for the asset class. In the first quarter of 2005, we reduced overall equity market exposure by selling 2.5% of our position in emerging markets equities and 2.5% of our position in US equities relative to the benchmark, placing the proceeds into US and developed country bonds outside of Japan. During May we increased the Fund's exposure to high yield debt while still maintaining an underweight position versus the Index overall, by selling global (ex-US) bonds. Finally, in June we reduced our exposure to global (ex-US) equities and developed market bonds, putting the proceeds from those sales into cash equivalents. Currency strategy changed a few times over the course of the fiscal year, as well. In October 2004, we sold half of our euro overweight positions into Japanese yen, looking to take advantage of the relative undervaluation of the yen. In early November we bought a 2% position in Thai baht versus US dollars, and sold 1% euro for US dollars later in the month. We sold 1% Australian dollar for US dollar in February, 3% euro into Swedish krona during May, and finally sold 2% British pounds into more Swedish krona in June. EQUITIES: BOTTOM-UP STOCK SELECTION GUIDES COUNTRY AND SECTOR STRATEGY The fiscal year ending June 30, 2005, provided several challenges for global investors. The world's economies were out of step, with the US showing signs of relative strength while many other countries continued to struggle. In addition, global equities and fixed income securities appeared to be increasingly influenced by external factors rather than economic and market fundamentals. For example, a dip in oil prices and the resolution of the US presidential race boosted investor confidence late in 2004, leading to a rally in the more speculative ends of the global equity and fixed income markets. But that confidence waned quickly in 2005, when oil prices began to climb again, the threat of inflation rose and many geopolitical issues remained unsettled. In our view, the world global economy was naturally moving from the fast-paced growth of 2004 to a slower, more sustainable rate of growth. In the midst of this change, stock and bond markets struggled. The Fund navigated these volatile times by adhering to its long-standing investment process, relying on fundamental research and analysis to guide the portfolio. The Fund's investment strategy in this environment was to remain focused on our long-standing, research-intensive investment process and make prudent asset allocation decisions. Our global network of researchers and analysts employ fundamental valuation techniques to evaluate opportunities both between asset classes and within them. Within equities, we felt that most developed country markets were trading close to their intrinsic value, with modest regional variations. One of the Fund's largest country overweight positions was in the UK. This position was more a function of attractive stock opportunities than * AN UNMANAGED INDEX COMPILED BY THE ADVISOR, CURRENTLY CONSTRUCTED AS FOLLOWS: 40% RUSSELL 3000 INDEX; 22% MSCI WORLD EX USA (FREE) INDEX; 21% CITIGROUP BIG INDEX; 9% CITIGROUP WGBI NON-US (IN USD); 2% J.P. MORGAN EMBI GLOBAL; 3% MSCI EMERGING MARKETS FREE INDEX; AND 3% MERRILL LYNCH U.S. HIGH YIELD CASH PAY CONSTRAINED INDEX. 2 an overriding view of the country. We also held overweights to equities in Switzerland and the Netherlands. In each country, we saw appreciation potential. The Fund was neutral to the US equity market on average, although it was slightly overweight to US equities in the middle of the period. We remained neutral to Japan throughout the period. Another area of focus for the Fund throughout the period was emerging markets equities, where we retained a significant overweight, even after reducing the position toward the end of the reporting period. This allocation greatly contributed to the Fund's performance. At the sector level, the Fund held overweight exposures to what we considered fundamentally strong industries that had attractive potential, including healthcare, financial services, and telecommunications. The Fund was underweight to technology for most of the reporting period. This position benefited relative performance as technology delivered disappointing results for the fiscal year. In contrast, our underweight position to energy hurt relative performance. Energy was the top-performing industry for the period, buoyed by rising oil prices. In our opinion, these high oil prices are not sustainable, given inventory levels and fundamentals. We will continue to monitor the energy sector closely as oil prices fluctuate. FIXED INCOME: A DEFENSIVE POSTURE BASED ON MARKET FUNDAMENTALS The global bond markets continued to defy expectations over the one-year reporting period. The US Federal Reserve Board and several other central banks announced interest rate increases over the period. Despite these rate hikes, global bond yields fell and prices rose, allowing most global bond markets to finish the fiscal year in positive territory. The markets' reaction appeared to be a vote of no-confidence in the global economy. Certain foreign policymakers apparently agreed, with Sweden announcing a larger-than-expected interest rate cut in the second quarter of 2005 and two members of the Bank of England's monetary policy committee voting to cut rates. At the country level, the Fund moved to an underweight to US bonds, which helped Fund performance over the period. We also maintained a slight overweight to German bonds while slightly underweighting Italian bonds. In Japan, we remained significantly underweight throughout the period. The Japanese economy saw a slowdown in the second half of 2004, making it unlikely that the Bank of Japan would move to tighten monetary policy in the foreseeable future. Even at current yields, however, our analysis concluded that Japanese bonds did not provide adequate compensation given the potential underlying risks. We also maintained a small exposure to high yield bonds throughout the period, while still remaining underweight to the Index overall. THIS LETTER IS INTENDED TO ASSIST SHAREHOLDERS IN UNDERSTANDING HOW THE FUND PERFORMED DURING THE FISCAL YEAR ENDED JUNE 30, 2005. THE VIEWS AND OPINIONS IN THE LETTER WERE CURRENT AS OF AUGUST 1, 2005. THEY ARE NOT GUARANTEES OF PERFORMANCE OR INVESTMENT RESULTS AND SHOULD NOT BE TAKEN AS INVESTMENT ADVICE. INVESTMENT DECISIONS REFLECT A VARIETY OF FACTORS, AND WE RESERVE THE RIGHT TO CHANGE OUR VIEWS ABOUT INDIVIDUAL SECURITIES, SECTORS AND MARKETS AT ANY TIME. AS A RESULT, THE VIEWS EXPRESSED SHOULD NOT BE RELIED UPON AS A FORECAST OF THE FUND'S FUTURE INVESTMENT INTENT. WE ENCOURAGE YOU TO CONSULT YOUR FINANCIAL ADVISOR REGARDING YOUR PERSONAL INVESTMENT PROGRAM. MUTUAL FUNDS ARE SOLD BY PROSPECTUS ONLY. YOU SHOULD READ IT CAREFULLY AND CONSIDER A FUND'S INVESTMENT OBJECTIVES, RISKS, CHARGES, EXPENSES AND OTHER IMPORTANT INFORMATION CONTAINED IN THE PROSPECTUS BEFORE INVESTING. PROSPECTUSES FOR MOST OF OUR FUNDS CAN BE OBTAINED FROM YOUR FINANCIAL ADVISOR, BY CALLING UBS FUNDS AT 800-647 1568 OR BY VISITING OUR WEB SITE AT www.ubs.com/globalam-us. 3 AVERAGE ANNUAL TOTAL RETURN (UNAUDITED)
1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION* ENDED ENDED ENDED ENDED TO 6/30/05 6/30/05 6/30/05 6/30/05 6/30/05 ----------------------------------------------------------------------------------------------------------------------- UBS GLOBAL ALLOCATION FUND CLASS A 12.11% 11.39% 8.75% N/A 6.86% UBS GLOBAL ALLOCATION FUND CLASS B 11.24 10.56 N/A N/A 9.78 UBS GLOBAL ALLOCATION FUND CLASS C 11.32 10.58 N/A N/A 10.00 UBS GLOBAL ALLOCATION FUND CLASS Y 12.40 11.67 8.98 9.14% 8.98 UBS GLOBAL ALLOCATION FUND CLASS A** 5.94 9.30 7.53 N/A 6.11 UBS GLOBAL ALLOCATION FUND CLASS B** 6.24 9.73 N/A N/A 9.33 UBS GLOBAL ALLOCATION FUND CLASS C** 10.32 10.58 N/A N/A 10.00 GSMI MUTUAL FUND INDEX*** 10.40 10.68 2.70 8.15 8.90 MSCI WORLD EQUITY (FREE) INDEX 10.40 10.37 -1.81 7.34 8.51 CITIGROUP WORLD GOVERNMENT BOND INDEX 7.61 9.82 7.91 5.51 6.53
* 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. ON JUNE 1, 2005, THE 40% RUSSELL 3000 INDEX REPLACED THE 40% WILSHIRE 5000 INDEX, AND THE 3% MERRILL LYNCH U.S. HIGH YIELD CASH PAY CONSTRAINED INDEX REPLACED THE 3% MERRILL LYNCH U.S. HIGH YIELD CASH PAY INDEX. ** RETURNS INCLUDE SALES CHARGES. *** AN UNMANAGED INDEX COMPILED BY THE ADVISOR, CONSTRUCTED CURRENTLY 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 U.S. HIGH YIELD CASH PAY CONSTRAINED INDEX. THE Y SHARE CLASS IS OUR LOWEST FEE SHARE CLASS. OUR OTHER SHARE CLASSES INCLUDE HIGHER FEES AND LOADS, WHICH IF DEDUCTED WOULD RESULT IN LOWER PERFORMANCE. PAST PERFORMANCE DOES NOT PREDICT FUTURE PERFORMANCE, AND THE PERFORMANCE INFORMATION PROVIDED DOES NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PERFORMANCE RESULTS ASSUME REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS AT NET ASSET VALUE ON THE EX-DIVIDEND DATES. TOTALS RETURNS FOR PERIODS OF LESS THAN ONE YEAR HAVE NOT BEEN ANNUALIZED. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE DATA QUOTED. FOR MONTH-END PERFORMANCE FIGURES, PLEASE VISIT http://www.ubs.com. 4 ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000 This chart shows the growth in the value of an investment in UBS Global Allocation Fund Class Y shares, the GSMI Mutual Fund Index, the MSCI World Equity (Free) Index and the Citigroup World Government Bond Index, if you had invested $10,000 on August 31, 1992, and had reinvested all your income dividends and capital gain distributions through June 30, 2005. The performance of Class A, Class B and Class C shares will vary based upon the different inception dates, class specific expenses and sales charges. No adjustment has been made for any income taxes payable by shareholders on income dividends and capital gain distributions. Past performance is no guarantee of future results. Share price and returns will vary with market conditions; investors may realize a gain or loss upon redemption. [CHART] UBS GLOBAL ALLOCATION FUND CLASS Y VS. GSMI MUTUAL FUND INDEX, MSCI WORLD EQUITY (FREE) INDEX AND CITIGROUP WORLD GOVERNMENT BOND INDEX Wealth Value With Dividends Reinvested
CITIGROUP WORLD UBS GLOBAL ALLOCATION GSMI MUTUAL MSCI WORLD EQUITY GOVERNMENT FUND CLASS Y FUND INDEX (FREE) INDEX BOND INDEX 8/31/1992 $ 10,000 $ 10,000 $ 10,000 $ 10,000 9/30/1992 $ 10,130 $ 10,053 $ 9,914 $ 10,100 10/31/1992 $ 10,070 $ 9,975 $ 9,647 $ 9,825 11/30/1992 $ 10,220 $ 10,174 $ 9,819 $ 9,669 12/31/1992 $ 10,329 $ 10,308 $ 9,902 $ 9,727 1/31/1993 $ 10,481 $ 10,424 $ 9,936 $ 9,898 2/28/1993 $ 10,684 $ 10,555 $ 10,171 $ 10,093 3/31/1993 $ 10,811 $ 10,873 $ 10,760 $ 10,248 4/30/1993 $ 10,862 $ 10,939 $ 11,258 $ 10,464 5/31/1993 $ 10,974 $ 11,169 $ 11,516 $ 10,569 6/30/1993 $ 11,076 $ 11,193 $ 11,420 $ 10,546 7/31/1993 $ 11,106 $ 11,271 $ 11,654 $ 10,576 8/31/1993 $ 11,341 $ 11,663 $ 12,198 $ 10,894 9/30/1993 $ 11,341 $ 11,653 $ 11,975 $ 11,024 10/31/1993 $ 11,433 $ 11,822 $ 12,307 $ 11,005 11/30/1993 $ 11,310 $ 11,530 $ 11,606 $ 10,927 12/31/1993 $ 11,481 $ 11,798 $ 12,170 $ 11,019 1/31/1994 $ 11,736 $ 12,188 $ 12,973 $ 11,107 2/28/1994 $ 11,523 $ 12,004 $ 12,802 $ 11,035 3/31/1994 $ 11,183 $ 11,599 $ 12,251 $ 11,020 4/30/1994 $ 11,225 $ 11,726 $ 12,636 $ 11,032 5/31/1994 $ 11,246 $ 11,763 $ 12,674 $ 10,935 6/30/1994 $ 11,161 $ 11,648 $ 12,637 $ 11,092 7/31/1994 $ 11,322 $ 11,890 $ 12,878 $ 11,181 8/31/1994 $ 11,568 $ 12,204 $ 13,268 $ 11,142 9/30/1994 $ 11,397 $ 12,012 $ 12,917 $ 11,222 10/31/1994 $ 11,375 $ 12,199 $ 13,289 $ 11,402 11/30/1994 $ 11,226 $ 11,852 $ 12,716 $ 11,244 12/31/1994 $ 11,264 $ 11,966 $ 12,837 $ 11,276 1/31/1995 $ 11,395 $ 12,087 $ 12,649 $ 11,513 2/28/1995 $ 11,679 $ 12,413 $ 12,836 $ 11,807 3/31/1995 $ 11,832 $ 12,812 $ 13,456 $ 12,509 4/30/1995 $ 12,061 $ 13,112 $ 13,926 $ 12,740 5/31/1995 $ 12,444 $ 13,440 $ 14,052 $ 13,099 6/30/1995 $ 12,564 $ 13,645 $ 14,047 $ 13,177 7/31/1995 $ 12,841 $ 14,071 $ 14,751 $ 13,208 8/31/1995 $ 13,007 $ 14,021 $ 14,421 $ 12,754 9/30/1995 $ 13,228 $ 14,396 $ 14,847 $ 13,038 10/31/1995 $ 13,328 $ 14,306 $ 14,617 $ 13,135 11/30/1995 $ 13,715 $ 14,734 $ 15,126 $ 13,283 12/31/1995 $ 13,982 $ 15,006 $ 15,570 $ 13,423 1/31/1996 $ 14,243 $ 15,251 $ 15,861 $ 13,258 2/29/1996 $ 14,183 $ 15,295 $ 15,958 $ 13,190 3/31/1996 $ 14,290 $ 15,425 $ 16,223 $ 13,172 4/30/1996 $ 14,479 $ 15,691 $ 16,604 $ 13,119 5/31/1996 $ 14,527 $ 15,807 $ 16,617 $ 13,122 6/30/1996 $ 14,623 $ 15,840 $ 16,706 $ 13,225 7/31/1996 $ 14,407 $ 15,423 $ 16,115 $ 13,479 8/31/1996 $ 14,635 $ 15,672 $ 16,306 $ 13,532 9/30/1996 $ 15,113 $ 16,188 $ 16,945 $ 13,587 10/31/1996 $ 15,365 $ 16,350 $ 17,062 $ 13,841 11/30/1996 $ 15,963 $ 17,038 $ 18,024 $ 14,024 12/31/1996 $ 15,954 $ 16,886 $ 17,737 $ 13,910 1/31/1997 $ 16,153 $ 17,133 $ 17,955 $ 13,539 2/28/1997 $ 16,298 $ 17,214 $ 18,159 $ 13,437 3/31/1997 $ 16,047 $ 16,835 $ 17,796 $ 13,335 4/30/1997 $ 16,219 $ 17,176 $ 18,380 $ 13,218 5/31/1997 $ 16,894 $ 18,044 $ 19,517 $ 13,577 6/30/1997 $ 17,370 $ 18,690 $ 20,488 $ 13,739 7/31/1997 $ 17,925 $ 19,434 $ 21,433 $ 13,632 8/31/1997 $ 17,462 $ 18,722 $ 19,983 $ 13,624 9/30/1997 $ 18,005 $ 19,533 $ 21,069 $ 13,914 10/31/1997 $ 17,476 $ 18,903 $ 19,963 $ 14,203 11/30/1997 $ 17,515 $ 19,071 $ 20,312 $ 13,986 12/31/1997 $ 17,709 $ 19,301 $ 20,561 $ 13,944 1/31/1998 $ 17,913 $ 19,561 $ 21,137 $ 14,079 2/28/1998 $ 18,570 $ 20,507 $ 22,567 $ 14,193 3/31/1998 $ 18,993 $ 21,089 $ 23,517 $ 14,053 4/30/1998 $ 19,023 $ 21,296 $ 23,747 $ 14,278 5/31/1998 $ 18,920 $ 20,996 $ 23,459 $ 14,310 6/30/1998 $ 18,808 $ 21,262 $ 24,007 $ 14,332 7/31/1998 $ 18,764 $ 21,151 $ 23,971 $ 14,351 8/31/1998 $ 17,261 $ 19,011 $ 20,776 $ 14,741 9/30/1998 $ 17,806 $ 19,668 $ 21,146 $ 15,525 10/31/1998 $ 18,454 $ 20,842 $ 23,060 $ 15,985 11/30/1998 $ 18,970 $ 21,694 $ 24,434 $ 15,759 12/31/1998 $ 19,183 $ 22,476 $ 25,622 $ 16,076 1/31/1999 $ 19,215 $ 22,788 $ 26,185 $ 15,928 2/28/1999 $ 18,744 $ 22,184 $ 25,489 $ 15,417 3/31/1999 $ 19,053 $ 22,885 $ 26,546 $ 15,455 4/30/1999 $ 19,833 $ 23,681 $ 27,597 $ 15,449 5/31/1999 $ 19,475 $ 23,082 $ 26,580 $ 15,190 6/30/1999 $ 19,703 $ 23,787 $ 27,817 $ 14,924 7/31/1999 $ 19,654 $ 23,660 $ 27,734 $ 15,289 8/31/1999 $ 19,343 $ 23,594 $ 27,683 $ 15,360 9/30/1999 $ 19,064 $ 23,494 $ 27,422 $ 15,599 10/31/1999 $ 19,031 $ 24,333 $ 28,847 $ 15,592 11/30/1999 $ 19,113 $ 24,903 $ 29,657 $ 15,428 12/31/1999 $ 19,469 $ 26,263 $ 32,059 $ 15,391 1/31/2000 $ 18,894 $ 25,380 $ 30,225 $ 15,063 2/29/2000 $ 18,615 $ 25,834 $ 30,304 $ 14,955 3/31/2000 $ 19,260 $ 26,842 $ 32,401 $ 15,418 4/30/2000 $ 19,260 $ 25,767 $ 31,029 $ 14,914 5/31/2000 $ 19,312 $ 25,235 $ 30,244 $ 15,030 6/30/2000 $ 19,608 $ 26,156 $ 31,262 $ 15,396 7/31/2000 $ 19,521 $ 25,689 $ 30,381 $ 15,135 8/31/2000 $ 19,765 $ 26,579 $ 31,370 $ 15,022 9/30/2000 $ 19,434 $ 25,731 $ 29,704 $ 14,992 10/31/2000 $ 19,399 $ 25,255 $ 29,207 $ 14,801 11/30/2000 $ 19,591 $ 24,064 $ 27,431 $ 15,095 12/31/2000 $ 20,739 $ 24,659 $ 27,866 $ 15,636 1/31/2001 $ 21,311 $ 25,292 $ 28,406 $ 15,616 2/28/2001 $ 20,924 $ 23,874 $ 26,009 $ 15,610 3/31/2001 $ 20,167 $ 22,729 $ 24,299 $ 15,160 4/30/2001 $ 20,739 $ 23,827 $ 26,097 $ 15,106 5/31/2001 $ 20,776 $ 23,806 $ 25,767 $ 15,060 6/30/2001 $ 20,628 $ 23,396 $ 24,959 $ 14,922 7/31/2001 $ 20,684 $ 23,261 $ 24,630 $ 15,299 8/31/2001 $ 20,721 $ 22,732 $ 23,449 $ 15,874 9/30/2001 $ 19,521 $ 21,313 $ 21,382 $ 15,990 10/31/2001 $ 20,019 $ 21,797 $ 21,794 $ 16,117 11/30/2001 $ 20,924 $ 22,652 $ 23,085 $ 15,890 12/31/2001 $ 21,196 $ 22,810 $ 23,232 $ 15,481 1/31/2002 $ 21,075 $ 22,460 $ 22,530 $ 15,195 2/28/2002 $ 21,237 $ 22,378 $ 22,336 $ 15,273 3/31/2002 $ 21,844 $ 23,020 $ 23,324 $ 15,231 4/30/2002 $ 22,026 $ 22,795 $ 22,537 $ 15,777 5/31/2002 $ 22,229 $ 22,851 $ 22,583 $ 16,223 6/30/2002 $ 21,642 $ 22,037 $ 21,215 $ 17,006 7/31/2002 $ 20,488 $ 20,813 $ 19,429 $ 17,173 8/31/2002 $ 20,771 $ 21,017 $ 19,466 $ 17,473 9/30/2002 $ 18,989 $ 19,675 $ 17,326 $ 17,664 10/31/2002 $ 20,002 $ 20,540 $ 18,607 $ 17,591 11/30/2002 $ 20,970 $ 21,342 $ 19,613 $ 17,613 12/31/2002 $ 20,547 $ 20,923 $ 18,666 $ 18,499 1/31/2003 $ 20,145 $ 20,597 $ 18,102 $ 18,752 2/28/2003 $ 19,955 $ 20,458 $ 17,791 $ 19,015 3/31/2003 $ 20,018 $ 20,474 $ 17,738 $ 19,073 4/30/2003 $ 21,478 $ 21,756 $ 19,316 $ 19,302 5/31/2003 $ 22,515 $ 22,834 $ 20,425 $ 20,139 6/30/2003 $ 22,833 $ 23,102 $ 20,782 $ 19,814 7/31/2003 $ 23,023 $ 23,240 $ 21,206 $ 19,225 8/31/2003 $ 23,383 $ 23,677 $ 21,667 $ 19,121 9/30/2003 $ 23,721 $ 24,035 $ 21,801 $ 20,205 10/31/2003 $ 24,631 $ 24,980 $ 23,098 $ 20,103 11/30/2003 $ 25,012 $ 25,332 $ 23,453 $ 20,442 12/31/2003 $ 26,257 $ 26,472 $ 24,929 $ 21,257 1/31/2004 $ 26,493 $ 26,867 $ 25,334 $ 21,314 2/29/2004 $ 26,943 $ 27,243 $ 25,765 $ 21,347 3/31/2004 $ 26,900 $ 27,254 $ 25,596 $ 21,653 4/30/2004 $ 26,321 $ 26,509 $ 25,076 $ 20,726 5/31/2004 $ 26,407 $ 26,657 $ 25,315 $ 20,888 6/30/2004 $ 26,814 $ 27,065 $ 25,842 $ 20,933 7/31/2004 $ 26,257 $ 26,521 $ 25,004 $ 20,826 8/31/2004 $ 26,771 $ 26,826 $ 25,119 $ 21,319 9/30/2004 $ 27,286 $ 27,285 $ 25,600 $ 21,619 10/31/2004 $ 27,994 $ 27,860 $ 26,231 $ 22,258 11/30/2004 $ 29,067 $ 28,949 $ 27,616 $ 23,061 12/31/2004 $ 30,073 $ 29,807 $ 28,677 $ 23,457 1/31/2005 $ 29,627 $ 29,355 $ 28,036 $ 23,128 2/28/2005 $ 30,296 $ 29,967 $ 28,933 $ 23,162 3/31/2005 $ 29,761 $ 29,437 $ 28,377 $ 22,852 4/30/2005 $ 29,471 $ 29,120 $ 27,770 $ 23,192 5/31/2005 $ 29,805 $ 29,633 $ 28,275 $ 22,723 6/30/2005 $ 30,140 $ 29,882 $ 28,529 $ 22,526
8/31/92 = $10,000 PAST PERFORMANCE DOES NOT PREDICT FUTURE PERFORMANCE, AND THE PERFORMANCE INFORMATION PROVIDED DOES NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PERFORMANCE RESULTS ASSUME REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS AT NET ASSET VALUE ON THE EX-DIVIDEND DATES. TOTALS RETURNS FOR PERIODS OF LESS THAN ONE YEAR HAVE NOT BEEN ANNUALIZED. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE DATA QUOTED. FOR MONTH-END PERFORMANCE FIGURES, PLEASE VISIT http://www.ubs.com. 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, January 1, 2005 to June 30, 2005. 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* JANUARY 1, 2005 JUNE 30, 2005 1/1/05 - 6/30/05 ------------------------------------------------------------------------------------------------------ CLASS A ACTUAL $ 1,000.00 $ 1,000.70 $ 6.18 HYPOTHETICAL (5% RETURN BEFORE EXPENSES) 1,000.00 1,018.62 6.23 CLASS B ACTUAL 1,000.00 997.00 9.86 HYPOTHETICAL (5% RETURN BEFORE EXPENSES) 1,000.00 1,014.92 9.95 CLASS C ACTUAL 1,000.00 997.70 9.89 HYPOTHETICAL (5% RETURN BEFORE EXPENSES) 1,000.00 1,014.89 9.98 CLASS Y ACTUAL 1,000.00 1,002.20 4.94 HYPOTHETICAL (5% RETURN BEFORE EXPENSES) 1,000.00 1,019.86 4.98
* EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO: CLASS A: 1.25%, CLASS B: 1.99%, CLASS C: 2.00%, CLASS Y: 0.99%, MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 181 DIVIDED BY 365 (TO REFLECT THE ONE-HALF YEAR PERIOD). 6 TOP TEN EQUITY HOLDINGS AS OF JUNE 30, 2005 (UNAUDITED)
PERCENTAGE OF NET ASSETS --------------------------------------------------------------- Citigroup, Inc. 1.7% Nextel Communications, Inc., Class A 1.3 Johnson & Johnson 1.3 Wells Fargo & Co. 1.2 Microsoft Corp. 1.2 UnitedHealth Group, Inc. 1.2 Morgan Stanley 1.1 Exelon Corp. 1.0 JPMorgan Chase & Co. 0.9 Freddie Mac 0.9 --------------------------------------------------------------- Total 11.8%
TOP TEN FIXED INCOME HOLDINGS AS OF JUNE 30, 2005 (UNAUDITED)
PERCENTAGE OF NET ASSETS --------------------------------------------------------------- U.S. Treasury Note 3.750%, due 03/31/07 1.6% U.S. Treasury Note 3.625%, due 01/15/10 0.8 U.S. Treasury Note 2.000%, due 01/15/14 0.8 U.S. Treasury Note 3.625%, due 04/30/07 0.5 Deutsche Bundesrepublik 6.000%, due 01/04/07 0.5 Federal National Mortgage Association 4.951%, due 02/01/35 0.4 Deutsche Bundesrepublik 4.500%, due 07/04/09 0.4 Washington Mutual, Inc., 04-AR7, Class A6 3.953%, due 07/25/34 0.3 Bear Stearns Alt-A Trust, 05-3, Class B1 5.420%, due 04/25/35 0.2 Federal National Mortgage Association 5.500%, due 04/01/24 0.2 --------------------------------------------------------------- Total 5.7%
7 INDUSTRY DIVERSIFICATION AS A PERCENT OF NET ASSETS AS OF JUNE 30, 2005 (UNAUDITED) EQUITIES U.S. EQUITIES Aerospace & Defense 1.08% Air Freight & Logistics 0.26 Auto Components 0.44 Biotechnology 1.08 Building Products 0.86 Capital Markets 1.76 Commercial Banks 2.17 Commercial Services & Supplies 0.24 Computers & Peripherals 0.51 Construction Materials 0.66 Diversified Financial Services 2.64 Diversified Telecommunication Services 0.48 Electric Utilities 2.10 Electronic Equipment & Instruments 0.39 Energy Equipment & Services 0.20 Food & Staples Retailing 1.99 Gas Utilities 0.25 Health Care Equipment & Supplies 0.35 Health Care Providers & Services 2.47 Hotels, Restaurants & Leisure 0.31 Household Products 0.50 Insurance 1.84 Internet & Catalog Retail 0.47 Machinery 0.75 Media 2.26 Multi-Utilities & Unregulated Power 0.39 Multiline Retail 0.40 Oil & Gas 1.19 Pharmaceuticals 3.69 Road & Rail 0.52 Semiconductors & Semiconductor Equipment 0.58 Software 2.10 Specialty Retail 0.27 Thrifts & Mortgage Finance 0.89 Wireless Telecommunication Services 1.34 ------ Total U.S. Equities 37.43* INTERNATIONAL EQUITIES Air Freight & Logistics 0.28 Airlines 0.13 Auto Components 0.29 Automobiles 0.49 Beverages 0.62 Biotechnology 0.14 Capital Markets 0.57 Chemicals 0.47 Commercial Banks 3.85 Commercial Services & Supplies 0.25 Communications Equipment 0.35 Construction & Engineering 0.06 Construction Materials 0.37 Consumer Finance 0.12 Diversified Financial Services 0.20 Diversified Telecommunication Services 1.06 Electric Utilities 0.42 Electronic Equipment & Instruments 0.30 Food & Staples Retailing 0.66 Food Products 0.20 Health Care Equipment & Supplies 0.10 Health Care Providers & Services 0.14 Household Durables 0.50 Household Products 0.15 Insurance 1.25 Internet & Catalog Retail 0.12 Leisure Equipment & Products 0.20% Machinery 0.17 Marine 0.06 Media 0.71 Metals & Mining 0.15 Multiline Retail 0.09 Office Electronics 0.26 Oil & Gas 1.98 Paper & Forest Products 0.29 Pharmaceuticals 1.20 Real Estate 0.40 Road & Rail 0.23 Semiconductors & Semiconductor Equipment 0.42 Specialty Retail 0.47 Textiles, Apparel & Luxury Goods 0.21 Tobacco 0.23 Trading Companies & Distributors 0.28 Wireless Telecommunication Services 1.45 ------ Total International Equities 21.89* TOTAL EQUITIES 59.32 BONDS U.S. BONDS U.S. CORPORATE BONDS Aerospace & Defense 0.01 Airlines 0.01 Automobiles 0.10 Beverages 0.05 Capital Markets 0.24 Chemicals 0.08 Commercial Banks 0.20 Commercial Services & Supplies 0.04 Communications Equipment 0.01 Consumer Finance 0.28 Diversified Financial Services 0.41 Diversified Telecommunication Services 0.13 Electric Utilities 0.15 Food & Staples Retailing 0.04 Food Products 0.05 Gas Utilities 0.01 Hotels, Restaurants & Leisure 0.01 Household Durables 0.03 Insurance 0.07 IT Services 0.01 Leisure Equipment & Products 0.01 Machinery 0.01 Media 0.13 Metals & Mining 0.02 Multi-Utilities & Unregulated Power 0.11 Oil & Gas 0.08 Paper & Forest Products 0.03 Personal Products 0.01 Pharmaceuticals 0.02 Real Estate 0.05 Road & Rail 0.06 Thrifts & Mortgage Finance 0.09 Tobacco 0.03 Wireless Telecommunication Services 0.02 ------ Total U.S. Corporate Bonds 2.60 Asset-Backed Securities 0.69 Commercial Mortgage-Backed Securities 1.67 Mortgage & Agency Debt Securities 7.50 Municipal Notes & Bonds 0.19 U.S. Government Obligations 4.32 ------ Total U.S. Bonds 16.97*
8 INTERNATIONAL CORPORATE BONDS Aerospace & Defense 0.02% Commercial Banks 0.09 Diversified Financial Services 0.02 Diversified Telecommunication Services 0.03 Oil & Gas 0.03 Thrifts & Mortgage Finance 0.04 ------ Total International Corporate Bonds 0.23 International Asset-Backed 0.29 Foreign Government Bonds 3.56 Sovereign/Supranational Bond 0.01 ------ Total International Bonds 4.09 TOTAL BONDS 21.06 INVESTMENT COMPANIES 10.45 SHORT-TERM INVESTMENTS 9.55* INVESTMENT OF CASH COLLATERAL FOR SECURITIES LOANED 5.69 ------ TOTAL INVESTMENTS 106.07 LIABILITIES, IN EXCESS OF CASH AND OTHER ASSETS (6.07) ------ NET ASSETS 100.00% ======
* THE FUND HELD A LONG POSITION IN U.S. TREASURY NOTE FUTURES WHICH HAD NO EFFECT ON THE TOTAL U.S. BOND HOLDINGS. THE FUND ALSO HELD A POSITION IN BOTH LONG AND SHORT INTERNATIONAL STOCK INDEX FUTURES, WHICH RESULTED IN A NET INCREASE TO THE INTERNATIONAL EQUITY EXPOSURE, FROM 21.89% TO 21.92%. THE FUND ALSO HELD A SHORT POSITION IN U.S. STOCK INDEX FUTURES WHICH INCREASED THE U.S. EQUITY EXPOSURE FROM 37.43% TO 37.44%. THESE ADJUSTMENTS RESULTED IN A NET INCREASE TO THE FUND'S EXPOSURE TO SHORT-TERM INVESTMENTS FROM 9.55% TO 9.59%. 9 UBS GLOBAL ALLOCATION FUND -- SCHEDULE OF INVESTMENTS JUNE 30, 2005
SHARES VALUE ---------------- ---------------- EQUITIES -- 59.32% U.S. EQUITIES -- 37.43% 7-Eleven, Inc. (a) 93,000 $ 2,812,320 Aflac, Inc. 230,300 9,967,384 Albertson's, Inc. (b) 830,700 17,178,876 Allergan, Inc. 298,900 25,478,236 Allstate Corp. 234,200 13,993,450 American Electric Power Co., Inc. 305,200 11,252,724 American International Group, Inc. 338,900 19,690,090 Applied Materials, Inc. 626,200 10,131,916 Baker Hughes, Inc. (b) 118,200 6,047,112 Borg-Warner, Inc. 20,400 1,094,868 Bristol-Myers Squibb Co. 383,700 9,584,826 Burlington Northern Santa Fe Corp. 320,900 15,107,972 Caremark Rx, Inc. (a) 145,800 6,491,016 Carnival Corp. 174,100 9,497,155 Cendant Corp. 467,600 10,460,212 Cephalon, Inc. (a) (b) 191,900 7,639,539 Citigroup, Inc. 1,102,707 50,978,145 Clear Channel Communications, Inc. 389,700 12,053,421 Costco Wholesale Corp. 533,200 23,898,024 Dex Media, Inc. 279,100 6,812,831 DIRECTV Group, Inc. (a) (b) 294,500 4,564,750 Exelon Corp. 586,100 30,084,513 ExxonMobil Corp. 334,500 19,223,715 FedEx Corp. 90,700 7,347,607 Fifth Third Bancorp 339,700 13,999,037 FirstEnergy Corp. 410,763 19,761,808 Freddie Mac 411,700 26,855,191 Genzyme Corp. (a) 352,100 21,157,689 Hartford Financial Services Group, Inc. 165,000 12,338,700 Hewlett-Packard Co. 648,500 15,246,235 IAC/InterActiveCorp. (a) (b) 588,600 14,155,830 Illinois Tool Works, Inc. 285,700 22,764,576 Johnson & Johnson 598,638 38,911,470 Johnson Controls, Inc. 234,200 13,192,486 JPMorgan Chase & Co. 767,000 27,090,440 Kimberly-Clark Corp. 240,500 15,052,895 Kohl's Corp. (a) 214,700 12,003,877 Kroger Co. (a) 866,400 16,487,592 Lockheed Martin Corp. 280,400 18,189,548 Marathon Oil Corp. 314,300 16,774,191 Martin Marietta Materials, Inc. 294,684 20,368,558 Masco Corp. 819,500 26,027,320 Medco Health Solutions, Inc. (a) 294,000 15,687,840 Medtronic, Inc. 156,700 8,115,493 Mellon Financial Corp. 765,000 21,947,850 Mettler Toledo International, Inc. (a) 256,700 11,957,086 Microsoft Corp. 1,484,600 36,877,464 Millennium Pharmaceuticals, Inc. (a) 158,600 1,470,222 Morgan Stanley 619,850 32,523,529 Mylan Laboratories, Inc. 708,450 13,630,578 Nextel Communications, Inc., Class A (a) 1,235,700 39,925,467 NiSource, Inc. 303,900 7,515,447 Northrop Grumman Corp. 253,200 13,989,300 Office Depot, Inc. (a) 371,900 8,494,196 Omnicom Group, Inc. 212,100 16,938,306 Oracle Corp. (a) 1,271,800 16,787,760 Pepco Holdings, Inc. 238,500 5,709,690 PNC Financial Services Group, Inc. 265,700 14,470,022 SBC Communications, Inc. 607,100 $ 14,418,625 Sempra Energy 289,500 11,959,245 Time Warner, Inc. (a) 1,122,700 18,760,317 UnitedHealth Group, Inc. 689,200 35,934,888 Univision Communications, Inc. (a) 343,500 9,463,425 Veritas Software Corp. (a) 408,800 9,974,720 Waters Corp. (a) 70,200 2,609,334 WellPoint, Inc. (a) 244,400 17,020,016 Wells Fargo & Co. 602,000 37,071,160 Wyeth 555,100 24,701,950 Xilinx, Inc. 288,700 7,361,850 ---------------- Total U.S. Equities 1,137,083,925 ---------------- INTERNATIONAL EQUITIES -- 21.89% AUSTRALIA -- 0.71% Australia & New Zealand Banking Group Ltd. (b) 288,790 4,787,831 National Australia Bank Ltd. (b) 233,394 5,472,345 Qantas Airways Ltd. 1,493,789 3,837,219 QBE Insurance Group Ltd. 604,713 7,388,908 ---------------- 21,486,303 ---------------- AUSTRIA -- 0.22% Telekom Austria AG (b) 338,550 6,586,540 ---------------- BELGIUM -- 0.36% Fortis 152,625 4,240,597 KBC Groep NV 52,801 4,174,206 Solvay S.A. 25,270 2,598,886 ---------------- 11,013,689 ---------------- CANADA -- 0.99% Alcan, Inc. 153,520 4,610,112 Bank of Nova Scotia (b) 127,600 4,223,468 Canadian National Railway Co. 49,100 2,833,433 Canadian Tire Corp. Ltd. 58,900 2,722,827 Cott Corp. (a) 135,800 2,959,260 Magna International, Inc., Class A 40,200 2,824,634 Petro-Canada 80,300 5,228,548 Shoppers Drug Mart Corp. 132,800 4,608,099 ---------------- 30,010,381 ---------------- DENMARK -- 0.06% A.P. Moller - Maersk A/S 177 1,690,836 ---------------- FINLAND -- 0.55% Nokia Oyj 628,607 10,540,169 UPM-Kymmene Oyj 324,440 6,233,471 ---------------- 16,773,640 ---------------- FRANCE -- 2.05% BNP Paribas (b) 96,547 6,627,358 Christian Dior S.A. 19,233 1,492,532 France Telecom S.A. (b) 378,108 11,059,396 LVMH Moet Hennessy Louis Vuitton S.A. (b) 35,712 2,762,699 Pernod-Ricard S.A. (b) 13,864 2,215,548 Sanofi-Aventis (b) 137,561 11,307,946 Total S.A. 95,429 22,447,696 Unibail (b) 34,957 4,490,226 ---------------- 62,403,401 ----------------
10
SHARES VALUE ---------------- ---------------- GERMANY -- 1.00% Bayerische Motoren Werke AG 75,892 $ 3,466,581 Deutsche Postbank AG 76,804 3,781,609 Deutsche Telekom AG 344,993 6,390,286 E.ON AG 102,519 9,144,766 Fresenius Medical Care AG (b) 50,994 4,362,875 Hannover Rueckversicherung AG (b) 52,641 1,991,557 Premiere AG (a) (b) 38,977 1,349,563 ---------------- 30,487,237 ---------------- HONG KONG -- 0.37% Esprit Holdings Ltd. 477,500 3,455,338 Hutchison Telecommunications International Ltd. (a) (b) 2,087,000 2,067,320 Sun Hung Kai Properties Ltd. 351,000 3,465,613 Yue Yuen Industrial Holdings (b) 727,000 2,225,901 ---------------- 11,214,172 ---------------- IRELAND -- 0.61% Bank of Ireland 785,918 12,768,749 CRH PLC 213,713 5,679,160 ---------------- 18,447,909 ---------------- ITALY -- 0.44% ENI SpA (b) 210,277 5,424,926 UniCredito Italiano SpA (b) 1,515,939 8,015,549 ---------------- 13,440,475 ---------------- JAPAN -- 4.57% Aeon Co., Ltd. 207,700 3,169,576 Asahi Breweries, Ltd. (b) 271,400 3,237,892 Bank of Yokohama, Ltd. 807,000 4,668,234 Bridgestone Co. 16,000 308,275 Canon, Inc. (b) 148,000 7,800,018 East Japan Railway Co. 832 4,279,758 Fast Retailing Co., Ltd. (b) 34,200 1,777,746 Fuji Photo Film Co., Ltd. 104,400 3,363,487 Funai Electric Co., Ltd. (b) 30,600 3,142,568 Honda Motor Co., Ltd. 88,700 4,378,567 Kao Corp. 197,000 4,648,994 KDDI Corp. 717 3,319,385 Meitec Corp. (b) 40,500 1,246,323 Mitsubishi Corp. (b) 359,500 4,892,392 Mitsui Fudosan Co., Ltd. 361,000 4,055,997 Mitsui Sumitomo Insurance Co., Ltd. 378,000 3,407,833 Murata Manufacturing Co., Ltd. 63,000 3,212,255 NEC Electronics Corp. (b) 30,500 1,376,230 NGK Spark Plug Co., Ltd. (b) 183,000 2,112,237 Nippon Paper Group, Inc. (b) 676 2,482,917 Nissan Motor Co., Ltd. (b) 699,000 6,926,288 Nitto Denko Corp. 110,000 6,313,510 NOK Corp. (b) 130,100 3,639,653 Nomura Holdings, Inc. (b) 178,600 2,138,816 NTN Corp. (b) 369,000 1,984,695 NTT DoCoMo, Inc. 4,388 6,494,287 Rohm Co., Ltd. 72,400 6,991,066 Sekisui House Ltd. (b) 409,000 4,137,614 Shin-Etsu Chemical Co., Ltd. 138,600 5,265,824 SKY Perfect Communications, Inc. (b) 1,015 765,761 Sompo Japan Insurance, Inc. 569,000 5,751,105 Sumitomo Mitsui Financial Group, Inc. 908 $ 6,147,733 Sumitomo Trust & Banking Co., Ltd. (b) 502,000 3,057,937 Takefuji Corp. 52,320 3,541,197 Tokyo Gas Co., Ltd. (b) 740,000 2,771,410 Yamaha Corp. (b) 162,700 2,540,123 Yokogawa Electric Corp. 275,200 3,404,920 ---------------- 138,752,623 ---------------- NETHERLANDS -- 1.59% ABN AMRO Holding NV 632,759 15,589,111 ASML Holding NV (a) (b) 286,159 4,510,628 Heineken NV 7,349 227,231 Koninklijke (Royal) Philips Electronics NV 150,176 3,799,841 Reed Elsevier NV 295,043 4,114,873 Royal KPN NV 501,961 4,217,431 TNT NV 334,194 8,476,202 VNU NV (b) 258,722 7,226,027 ---------------- 48,161,344 ---------------- NORWAY -- 0.13% Telenor ASA 499,400 3,991,197 ---------------- SINGAPORE -- 0.08% DBS Group Holdings Ltd. 300,000 2,542,524 ---------------- SPAIN -- 0.16% Repsol YPF S.A. (b) 189,428 4,852,644 ---------------- SWEDEN -- 0.24% Electrolux AB, B Shares 190,100 4,053,253 Sandvik AB (b) 89,000 3,310,880 ---------------- 7,364,133 ---------------- SWITZERLAND -- 2.27% Actelion NV (a) (b) 36,631 3,805,781 Adecco S.A. (b) 96,348 4,392,103 Credit Suisse Group 388,197 15,317,585 Holcim Ltd. 89,781 5,466,332 Nestle S.A. 23,625 6,048,708 Novartis AG 170,335 8,117,205 Roche Holding AG (b) 107,152 13,566,509 Serono S.A. 542 346,498 Straumann Holding AG (b) 15,167 3,161,025 Swiss Reinsurance 140,082 8,616,393 ---------------- 68,838,139 ---------------- UNITED KINGDOM -- 5.49% AstraZeneca PLC 82,229 3,406,215 Balfour Beatty PLC 285,610 1,693,247 Barclays PLC 1,285,503 12,799,830 BP PLC 1,866,694 19,440,002 Collins Stewart Tullett PLC 247,246 1,979,889 Diageo PLC 699,388 10,317,276 Electrocomponents PLC 565,792 2,439,040 Gallaher Group PLC 478,929 7,116,603 GUS PLC 233,640 3,687,428 HBOS PLC 335,666 5,177,323 ITV PLC 900,509 1,985,364 Kesa Electricals PLC 630,013 3,156,301 Kingfisher PLC 1,362,710 6,008,770 O2 PLC (a) 3,344,521 8,168,033
11
SHARES VALUE ---------------- ---------------- Prudential PLC 1,220,632 $ 10,857,562 Rentokil Initial PLC 646,664 1,851,683 Royal Bank of Scotland Group PLC 557,938 16,861,281 Scottish & Southern Energy PLC 199,287 3,618,557 Taylor Nelson Sofres PLC 792,311 3,106,639 Tesco PLC 2,125,884 12,146,099 Vodafone Group PLC 9,901,120 24,136,277 Wolseley PLC 174,960 3,681,747 WPP Group PLC 298,724 3,076,148 ---------------- 166,711,314 ---------------- Total International Equities 664,768,501 ---------------- Total Equities (Cost $1,680,033,639) 1,801,852,426 ---------------- FACE AMOUNT ---------------- BONDS -- 21.06% U.S. BONDS -- 16.97% U.S. CORPORATE BONDS -- 2.60% Alcoa, Inc. 6.000%, due 01/15/12 $ 500,000 541,490 Allstate Corp. 7.200%, due 12/01/09 525,000 586,196 Altria Group, Inc. (b) 7.750%, due 01/15/27 525,000 630,440 American Electric Power Co., Inc. 6.125%, due 05/15/06 373,000 379,553 American General Finance Corp. 5.375%, due 10/01/12 630,000 650,329 Anheuser-Busch Cos., Inc. 9.000%, due 12/01/09 125,000 148,605 AT&T Corp. 9.750%, due 11/15/31 450,000 585,563 AvalonBay Communities, Inc. 7.500%, due 08/01/09 275,000 306,612 Avon Products, Inc. 7.150%, due 11/15/09 195,000 217,515 Bank of America Corp. 7.400%, due 01/15/11 2,000,000 2,288,958 BellSouth Corp. 6.550%, due 06/15/34 675,000 768,553 Boeing Capital Corp. 7.375%, due 09/27/10 700,000 800,717 Bombardier Capital, Inc., 144A 6.125%, due 06/29/06 425,000 427,125 Bristol-Myers Squibb Co. 5.750%, due 10/01/11 300,000 320,967 Burlington Northern Santa Fe Corp. 7.082%, due 05/13/29 425,000 527,491 C.S. First Boston USA, Inc. 3.875%, due 01/15/09 575,000 568,240 6.500%, due 01/15/12 450,000 500,126 Capital One Financial Corp. 5.500%, due 06/01/15 685,000 700,782 Caterpillar, Inc. 6.550%, due 05/01/11 275,000 304,993 Cendant Corp. 6.250%, due 01/15/08 300,000 312,935 Centex Corp. 7.875%, due 02/01/11 $ 700,000 $ 800,265 Citigroup, Inc. 5.000%, due 09/15/14 1,275,000 1,304,256 5.150%, due 05/21/26 GBP 580,000 1,070,009 5.625%, due 08/27/12 $ 1,415,000 1,511,403 Comcast Cable Communications, Inc. 6.750%, due 01/30/11 1,800,000 1,985,859 Computer Sciences Corp. 3.500%, due 04/15/08 325,000 317,498 ConAgra Foods, Inc. 6.750%, due 09/15/11 525,000 580,990 Coors Brewing Co. 6.375%, due 05/15/12 300,000 325,422 Countrywide Home Loans, Inc. 3.250%, due 05/21/08 850,000 825,319 DaimlerChrysler N.A. Holding Corp. 4.050%, due 06/04/08 2,550,000 2,510,944 Devon Financing Corp. ULC 6.875%, due 09/30/11 1,050,000 1,174,915 Dominion Resources, Inc. 8.125%, due 06/15/10 450,000 518,486 Dow Chemical Co. 6.125%, due 02/01/11 1,325,000 1,438,560 Duke Capital LLC 5.668%, due 08/15/14 975,000 1,012,909 Duke Energy Field Services LLC 7.875%, due 08/16/10 1,000,000 1,147,981 Eastman Kodak Co. 6.375%, due 06/15/06 300,000 302,934 EOP Operating LP 7.250%, due 06/15/28 1,000,000 1,165,689 Erac U.S.A. Finance Co., 144A 8.000%, due 01/15/11 700,000 810,548 FirstEnergy Corp., Series B 6.450%, due 11/15/11 700,000 764,838 Ford Motor Co. 7.450%, due 07/16/31 575,000 480,019 Ford Motor Credit Co. 5.800%, due 01/12/09 3,425,000 3,251,339 FPL Group Capital, Inc. 7.625%, due 09/15/06 300,000 312,275 General Electric Capital Corp. 6.000%, due 06/15/12 4,200,000 4,580,596 6.750%, due 03/15/32 525,000 647,844 General Motors Acceptance Corp. 6.875%, due 09/15/11 2,975,000 2,746,187 Goldman Sachs Group, Inc. 6.875%, due 01/15/11 2,525,000 2,815,456 Harrah's Operating Co., Inc. 7.500%, due 01/15/09 275,000 300,377 Hartford Financial Services Group, Inc. 4.700%, due 09/01/07 575,000 577,981 HSBC Finance Corp. 6.750%, due 05/15/11 1,350,000 1,498,433 ICI Wilmington, Inc. 4.375%, due 12/01/08 600,000 595,442 International Lease Finance Corp. 3.500%, due 04/01/09 825,000 794,437
12
FACE AMOUNT VALUE ---------------- ---------------- International Paper Co. 6.750%, due 09/01/11 $ 300,000 $ 327,014 John Deere Capital Corp. 7.000%, due 03/15/12 700,000 803,104 JPMorgan Chase & Co. 6.750%, due 02/01/11 1,550,000 1,714,145 Kraft Foods, Inc. 5.625%, due 11/01/11 975,000 1,034,302 Kroger Co. 7.500%, due 04/01/31 400,000 481,707 Lincoln National Corp. 6.200%, due 12/15/11 275,000 300,842 Lockheed Martin Corp. 8.500%, due 12/01/29 250,000 361,044 Marathon Oil Corp. 6.125%, due 03/15/12 400,000 435,363 Marsh & McLennan Cos., Inc. 6.250%, due 03/15/12 470,000 496,068 McKesson Corp. 7.750%, due 02/01/12 450,000 522,933 Miller Brewing Co., 144A 5.500%, due 08/15/13 1,000,000 1,036,311 Morgan Stanley 6.750%, due 04/15/11 2,325,000 2,574,324 Motorola, Inc. 7.625%, due 11/15/10 265,000 303,220 New Cingular Wireless Services, Inc. 8.750%, due 03/01/31 375,000 525,614 Newell Rubbermaid, Inc. 4.000%, due 05/01/10 140,000 135,692 News America, Inc. 6.200%, due 12/15/34 550,000 577,221 Northwest Airlines, Inc. 8.072%, due 10/01/19 345,304 377,292 Pacific Gas & Electric Co. 6.050%, due 03/01/34 725,000 799,015 PPL Energy Supply LLC 6.400%, due 11/01/11 650,000 711,838 Progress Energy, Inc. 7.000%, due 10/30/31 300,000 346,499 PSEG Power LLC 7.750%, due 04/15/11 500,000 576,459 Qwest Capital Funding, Inc. (b) 7.900%, due 08/15/10 95,000 94,525 Rohm & Haas Co. 7.850%, due 07/15/29 275,000 374,781 Safeway, Inc. 7.250%, due 02/01/31 520,000 602,142 SBC Communications, Inc. 5.875%, due 02/01/12 475,000 507,763 Sempra Energy 7.950%, due 03/01/10 275,000 312,281 Sprint Capital Corp. 8.375%, due 03/15/12 775,000 932,186 Time Warner, Inc. 7.625%, due 04/15/31 725,000 905,445 TXU Energy Co. LLC 7.000%, due 03/15/13 700,000 780,662 U.S. Bank N.A. 6.375%, due 08/01/11 $ 625,000 $ 689,558 Union Pacific Corp. 6.700%, due 12/01/06 475,000 490,543 UST, Inc. 6.625%, due 07/15/12 250,000 279,365 Valero Energy Corp. 7.500%, due 04/15/32 745,000 919,568 Verizon New York, Inc., Series B 7.375%, due 04/01/32 975,000 1,145,154 Viacom, Inc. 6.625%, due 05/15/11 400,000 429,642 Wachovia Bank N.A. 7.800%, due 08/18/10 1,150,000 1,335,771 Washington Mutual, Inc. 5.625%, due 01/15/07 2,000,000 2,044,104 Waste Management, Inc. 7.375%, due 08/01/10 275,000 307,519 Wells Fargo Bank N.A. 6.450%, due 02/01/11 1,625,000 1,792,393 Weyerhaeuser Co. 7.375%, due 03/15/32 500,000 589,588 Wyeth 5.500%, due 03/15/13 350,000 368,358 ---------------- 79,077,756 ---------------- ASSET-BACKED SECURITIES -- 0.69% AmeriCredit Automobile Receivables Trust, 01-B, Class A4 5.370%, due 06/12/08 354,988 356,379 Associates Manufactured Housing Pass Thru CTFS, 99-2, Class A5 6.900%, due 06/15/27 162,128 163,763 Capital One Multi-Asset Execution Trust, 03-A1, Class A1+ 3.610%, due 01/15/09 280,000 280,778 CenterPoint Energy Transition Bond Co. LLC, 01-1, Class A4 5.630%, due 09/15/15 310,000 332,249 Conseco Finance Corp., 01-D, Class M2+ 4.970%, due 11/15/32 2,263,849 2,283,817 Conseco Finance Securitizations Corp., 00-1, Class A4 7.620%, due 05/01/31 1,636,469 1,658,423 Conseco Finance Securitizations Corp., 00-2, Class A4 8.480%, due 12/01/30 1,558,351 1,600,278 Conseco Finance Securitizations Corp., 00-5, Class A4 7.470%, due 02/01/32 472,331 480,818 Countrywide Asset-Backed Certificates, 03-SD3, Class A1, 144A+ 3.734%, due 12/25/32 116,336 116,978 Countrywide Asset-Backed Certificates, 04-SD1, Class A1, 144A+ 3.654%, due 06/25/33 543,330 544,319 First Franklin Mortgage Loan Asset Backed Certificates, 04-FFB, Class A1 (c) 4.167%, due 06/25/24 920,410 918,101
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FACE AMOUNT VALUE ---------------- ---------------- Green Tree Financial Corp., 96-4, Class A6 7.400%, due 06/15/27 $ 354,765 $ 378,545 Metris Master Trust, 04-2, Class B+ 3.930%, due 10/20/10 1,500,000 1,505,157 Metris Master Trust, 04-2, Class C, 144A+ 4.610%, due 10/20/10 2,500,000 2,520,703 Peco Energy Transition Trust, 99-A, Class A7 6.130%, due 03/01/09 230,000 241,684 Providian Gateway Master Trust, 04-AA, Class A, 144A+ 3.450%, due 03/15/11 2,000,000 2,005,600 Providian Gateway Master Trust, 04-AA, Class C, 144A+ 4.120%, due 03/15/11 400,000 402,800 Providian Gateway Master Trust, 04-AA, Class D, 144A+ 5.070%, due 03/15/11 460,000 468,740 Providian Gateway Master Trust, 04-BA, Class D, 144A+ 4.620%, due 07/15/10 840,000 846,468 Providian Gateway Master Trust, 04-EA, Class C, 144A+ 3.800%, due 11/15/11 3,000,000 3,006,797 RAFC Asset-Backed Trust, 01-1, Class A3 (c) 5.115%, due 11/25/29 195,710 195,531 Sears Credit Account Master Trust, 01-1, Class A+ 3.400%, due 02/15/10 280,000 279,985 Structured Asset Securities Corp., 03-AL2, Class A, 144A 3.357%, due 01/25/31 251,143 239,222 Vanderbilt Mortgage Finance, 00-B, Class IA3 8.255%, due 05/07/17 33,790 34,230 ---------------- 20,861,365 ---------------- COMMERCIAL MORTGAGE-BACKED SECURITIES -- 1.67% Asset Securitization Corp., 95-MD4, Class A3+ 7.384%, due 08/13/29 3,250,000 3,468,927 C.S. First Boston Mortgage Securities Corp., 99-C1 Class A2 7.290%, due 09/15/41 4,100,000 4,507,977 Commercial Mortgage Pass-Through Certificates, 01-FL5A, Class E, 144A+ 4.720%, due 11/15/13 268,360 268,272 Commercial Mortgage Pass-Through Certificates, 01-FL5A, Class F, 144A+ 3.884%, due 11/15/13 515,000 510,394 DLJ Commercial Mortgage Corp., 00-CKP1, Class A1B 7.180%, due 11/10/33 1,275,000 1,427,399 DLJ Commercial Mortgage Corp., 99-CG3, Class A1B 7.340%, due 10/10/32 385,000 429,490 First Union Commercial Mortgage Securities, Inc., 97-C2, Class A3 6.650%, due 11/18/29 $ 910,932 $ 952,437 Four Times Square Trust, 00-4TS, Class C, 144A 7.860%, due 04/15/15 6,000,000 6,826,451 Greenwich Capital Commercial Funding Corp., 03-FL1, Class A, 144A+ 3.470%, due 07/05/18 68,564 68,575 GS Mortgage Securities Corp., II, 98-GLII, Class A1 6.312%, due 04/13/31 1,592,474 1,633,251 Heller Financial Commercial Mortgage Assets, 99-PH1, Class A1 6.500%, due 05/15/31 536,603 548,297 Host Marriott Pool Trust, 99-HMTA, Class A, 144A 6.980%, due 08/03/15 266,703 281,787 Host Marriott Pool Trust, 99-HMTA, Class C, 144A 7.730%, due 08/03/15 750,000 832,884 Host Marriott Pool Trust, 99-HMTA, Class D, 144A 7.970%, due 08/03/15 5,300,000 5,831,210 Host Marriott Pool Trust, 99-HMTA, Class E, 144A 8.070%, due 08/03/15 460,000 499,138 JPMorgan Commercial Mortgage Finance Corp., 99-C8, Class A1 7.325%, due 07/15/31 456,043 471,371 JPMorgan Commercial Mortgage Finance Corp., 99-C8, Class A2 7.400%, due 07/15/31 1,000,000 1,099,841 LB Commercial Conduit Mortgage Trust, 99-C1, Class A1 6.410%, due 06/15/31 330,549 336,511 LB Commercial Conduit Mortgage Trust, 99-C2, Class A2 7.325%, due 10/15/32 580,000 641,642 Mach One Trust Commercial Mortgage-Backed, 04-1A, Class A1, 144A 3.890%, due 05/28/40 2,654,658 2,621,475 Meristar Commercial Mortgage Trust, 99-C1, Class A2, 144A 7.610%, due 03/03/16 6,500,000 7,262,232 Merrill Lynch Mortgage Investors, Inc., 97-C1, Class A3 7.120%, due 06/18/29 193,846 199,345 Merrill Lynch Mortgage Investors, Inc., 98-C1, Class A1+ 6.310%, due 11/15/26 961,948 970,752 Morgan Stanley Capital I, 96-WF1, Class A3, 144A+ 7.708%, due 11/15/28 149,719 150,237 Morgan Stanley Dean Witter Capital I, 00-LIFE, Class A1 7.420%, due 11/15/36 228,739 240,243
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FACE AMOUNT VALUE ---------------- ---------------- Morgan Stanley Dean Witter Capital I, 00-LIFE, Class A2 7.570%, due 11/15/36 $ 150,000 $ 168,200 Nomura Asset Securities Corp., 96-MD5, Class A4+ 8.268%, due 04/13/39 3,500,000 3,626,820 Nomura Asset Securities Corp., 98-D6, Class A1A 6.280%, due 03/15/30 944,751 963,258 PNC Mortgage Acceptance Corp., 00-C1, Class A2 7.610%, due 02/15/10 2,000,000 2,231,411 Prudential Mortgage Capital Funding LLC, 01-ROCK, Class A2 6.605%, due 05/10/34 1,055,000 1,168,637 Salomon Brothers Mortgage Securities VII, 00-C3, Class A2 6.592%, due 12/18/33 540,000 590,375 ---------------- 50,828,839 ---------------- MORTGAGE & AGENCY DEBT SECURITIES -- 7.50% Adjustable Rate Mortgage Trust, 05-2, Class CB1+ 4.894%, due 06/25/35 5,752,802 5,757,300 Bear Stearns Alt-A Trust, 05-3, Class B1+ 5.420%, due 04/25/35 7,397,158 7,572,840 C.S. First Boston Mortgage Securities Corp., 01-26, Class 5A1+ 7.404%, due 11/25/31 129,568 129,999 C.S. First Boston Mortgage Securities Corp., 02-10, Class 2A1 7.500%, due 05/25/32 33,210 33,958 C.S. First Boston Mortgage Securities Corp., 03-27, Class 9A1 7.000%, due 11/25/33 443,998 454,626 C.S. First Boston Mortgage Securities Corp., 03-8, Class 5A1 6.500%, due 04/25/33 1,086,496 1,098,856 Countrywide Alternative Loan Trust, 05-J2, Class 2A1 7.500%, due 04/25/35 3,626,930 3,763,441 Countrywide Home Loan Mortgage Pass Thru Trust, 03-20, Class 3A2 4.750%, due 07/25/18 687,972 687,083 Federal Home Loan Mortgage Corp. 3.875%, due 06/15/08 5,645,000 5,646,067 3.875%, due 01/12/09 7,085,000 7,023,623 5.000%, due 01/30/14 5,335,000 5,349,335 5.125%, due 07/15/12 (b) 6,850,000 7,261,089 5.625%, due 03/15/11 5,295,000 5,717,027 Federal Home Loan Mortgage Corp., 2148, Class ZA 6.000%, due 04/15/29 1,072,730 1,095,973 Federal Home Loan Mortgage Corp., 2426, Class GH 6.000%, due 08/15/30 940,590 955,329 Federal Home Loan Mortgage Corp., Gold 5.000%, due 11/01/07 81,765 82,901 5.500%, due 09/01/17 68,190 70,012 5.500%, due 01/01/18 $ 139,798 $ 143,532 5.500%, due 04/01/18 454,748 466,990 5.500%, due 01/01/19 2,140,476 2,198,100 6.000%, due 12/01/17 379,734 392,622 6.000%, due 10/01/29 37,497 38,563 6.000%, due 12/01/30 462,690 475,475 6.000%, due 03/01/31 597,908 614,647 6.000%, due 07/01/34 2,002,484 2,054,652 6.000%, due 11/01/34 4,319,206 4,431,729 6.500%, due 02/01/17 155,206 161,511 6.500%, due 10/01/17 763,881 794,986 6.500%, due 01/01/29 2,484,203 2,581,255 6.500%, due 04/01/29 84,697 87,974 6.500%, due 11/01/29 1,681,854 1,747,432 7.000%, due 06/01/28 269,923 284,651 7.000%, due 04/01/32 2,569,559 2,705,722 Federal National Mortgage Association 3.323%, due 09/01/33+ 160,574 162,566 3.782%, due 08/01/33+ 3,821,177 3,816,476 3.945%, due 05/01/33+ 486,273 498,885 4.300%, due 03/01/34+ 572,308 574,569 4.371%, due 01/01/35+ 4,026,586 4,028,819 4.383%, due 06/01/33+ 410,983 413,116 4.664%, due 01/01/35+ 5,823,550 5,865,168 4.951%, due 02/01/35+ 13,193,041 13,283,496 5.500%, due 03/15/11 (b) 5,670,000 6,081,920 5.500%, due 12/01/17 5,103,937 5,234,700 5.500%, due 11/01/23 202,914 205,792 5.500%, due 04/01/24 7,176,613 7,323,732 6.000%, due 05/15/08 2,620,000 2,769,458 6.000%, due 09/01/08 2,042,979 2,100,676 6.000%, due 06/01/14 1,488,501 1,540,097 6.000%, due 08/01/17 943,378 975,731 6.000%, due 04/01/18 410,909 424,983 6.000%, due 03/01/20 6,970,166 7,210,426 6.000%, due 11/01/28 181,465 186,620 6.000%, due 03/01/29 1,085,755 1,115,937 6.000%, due 07/01/29 934,106 961,266 6.000%, due 06/01/31 17,052 17,522 6.000%, due 01/01/33 2,778,519 2,850,427 6.250%, due 02/01/11 (b) 5,535,000 6,065,065 6.500%, due 12/01/10 2,248,772 2,323,608 6.500%, due 03/01/17 698,428 727,400 6.500%, due 06/01/17 728,543 758,751 6.500%, due 03/01/28 189,844 197,154 6.500%, due 05/01/28 2,175,612 2,259,293 6.500%, due 07/01/28 4,677,581 4,857,496 6.500%, due 10/01/28 1,197,004 1,243,045 6.500%, due 12/01/28 198,658 206,299 6.500%, due 04/01/29 748,569 777,385 6.500%, due 06/01/29 847,709 880,363 6.500%, due 08/01/29 261,306 271,371 6.500%, due 10/01/29 2,070,729 2,150,376 6.500%, due 12/01/29 2,434,698 2,528,451 6.500%, due 05/01/30 183,610 190,672 6.500%, due 11/01/31 11,662 12,096 6.500%, due 07/01/32 5,203,378 5,394,039
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FACE AMOUNT VALUE ---------------- ---------------- 6.500%, due 01/01/35 $ 4,050,320 $ 4,193,121 7.000%, due 08/01/32 1,376,150 1,451,625 7.000%, due 05/01/33 206,030 217,273 7.000%, due 01/01/34 929,112 981,512 7.500%, due 05/01/31 30,327 32,405 7.500%, due 02/01/33 490,259 524,132 Federal National Mortgage Association Whole Loan, 95-W3, Class A 9.000%, due 04/25/25 1,752 1,919 Federal National Mortgage Association Grantor Trust, 00-T6, Class A1 7.500%, due 06/25/30 487,197 514,182 Federal National Mortgage Association Grantor Trust, 01-T4, Class A1 7.500%, due 07/25/41 2,134,074 2,295,082 Federal National Mortgage Association Grantor Trust, 01-T5, Class A3+ 7.500%, due 06/19/30 107,885 114,628 Federal National Mortgage Association Grantor Trust, 02-T19, Class A1 6.500%, due 07/25/42 2,640,270 2,752,400 Federal National Mortgage Association Whole Loan, 01-W3, Class A 7.000%, due 09/25/41 117,676 123,619 Federal National Mortgage Association Whole Loan, 03-W6, Class 6A+ 4.395%, due 08/25/42 386,192 395,437 Federal National Mortgage Association Whole Loan, 04-W11, Class 1A3 7.000%, due 05/25/44 3,002,703 3,184,492 First Horizon Alternative Mortgage Securities, 04-AA3, Class A1+ 5.346%, due 09/25/34 1,909,214 1,931,238 First Horizon Asset Securities, Inc., 04-FL1, Class 1A1+ 3.584%, due 02/25/35 2,189,882 2,188,023 Government National Mortgage Association 6.500%, due 08/20/31 4,102,699 4,369,051 Government National Mortgage Association 4.125%, due 10/20/29+ 294,741 298,951 6.000%, due 11/20/28 53,570 55,260 6.000%, due 01/15/29 61,117 63,162 6.000%, due 02/20/29 45,973 47,409 6.000%, due 05/20/29 116,414 120,050 6.000%, due 07/15/29 1,081,294 1,117,479 6.500%, due 03/15/26 525,525 550,661 6.500%, due 04/15/31 549,876 574,961 6.500%, due 01/20/34 1,318,616 1,375,719 8.000%, due 12/15/22 14,795 16,015 MLCC Mortgage Investors, Inc., 03-D, Class XA1++(d) 1.000%, due 08/25/28 10,361,400 133,160 Residential Asset Securitization Trust, 04-IP2, Class B1+ 5.482%, due 12/25/34 5,654,857 5,718,474 Sequoia Mortgage Trust, 04-11, Class XAI++(d) 0.802%, due 12/20/34 76,168,865 1,943,540 Structured Adjustable Rate Mortgage Loan Trust, 04-3AC, Class A1+ 4.940%, due 03/25/34 $ 981,994 $ 988,207 Structured Asset Securities Corp., 02-23XS, Class A7 (c) 6.080%, due 11/25/32 5,170,000 5,213,060 Washington Mutual, Inc., 04-AR7, Class A6+ 3.953%, due 07/25/34 10,000,000 9,881,805 Wells Fargo Mortgage Backed Securities Trust, 03-18, Class A2 5.250%, due 12/25/33 4,010,402 3,972,054 ---------------- 227,704,652 ---------------- MUNICIPAL NOTES AND BONDS -- 0.19% Puerto Rico Electric Power Authority Revenue Bonds 5.000%, due 07/01/35 5,440,000 5,870,903 ---------------- U.S. GOVERNMENT OBLIGATIONS -- 4.32% U.S. Treasury Bonds 6.250%, due 08/15/23 (b) 150,000 186,932 6.250%, due 05/15/30 (b) 4,140,000 5,392,511 8.750%, due 05/15/17 (b) 2,765,000 3,970,042 U.S. Treasury Notes 2.000%, due 01/15/14 (e) 23,422,650 24,126,243 3.375%, due 02/28/07 (b) 7,310,000 7,278,019 3.625%, due 04/30/07 13,975,000 13,967,356 3.625%, due 01/15/10 (b) 25,685,000 25,563,587 3.750%, due 03/31/07 (e) 49,330,000 49,405,130 4.750%, due 05/15/14 (b) 1,170,000 1,241,480 ---------------- 131,131,300 ---------------- Total U.S. Bonds 515,474,815 ---------------- INTERNATIONAL BONDS -- 4.09% INTERNATIONAL CORPORATE BONDS -- 0.23% CANADA -- 0.05% Anadarko Finance Co., Series B 7.500%, due 05/01/31 $ 300,000 378,750 Bombardier, Inc., 144A (b) 6.300%, due 05/01/14 900,000 814,500 Burlington Resources Finance Co. 6.680%, due 02/15/11 250,000 275,885 ---------------- 1,469,135 ---------------- FRANCE -- 0.06% BNP Paribas (b) 5.750%, due 01/24/22 GBP 684,000 1,343,223 France Telecom S.A. (b) 8.500%, due 03/01/31 $ 205,000 285,812 ---------------- 1,629,035 ---------------- LUXEMBOURG -- 0.01% Telecom Italia Capital S.A. 5.250%, due 11/15/13 $ 325,000 329,942 ---------------- NETHERLANDS -- 0.01% Deutsche Telekom International Finance BV 8.750%, due 06/15/30 $ 295,000 399,424 ----------------
16
FACE AMOUNT VALUE ---------------- ---------------- UNITED KINGDOM -- 0.10% Abbey National PLC 7.950%, due 10/26/29 $ 295,000 $ 401,150 Halifax PLC 9.375%, due 05/15/21 GBP 400,000 1,059,104 HSBC Holdings PLC 5.250%, due 12/12/12 $ 325,000 338,231 National Westminster Bank PLC 6.500%, due 09/07/21 GBP 510,000 1,074,737 Royal Bank of Scotland Group PLC 9.118%, due 03/31/10 225,000 267,961 ---------------- 3,141,183 ---------------- Total International Corporate Bonds 6,968,719 ---------------- INTERNATIONAL ASSET-BACKED SECURITIES -- 0.29% UNITED KINGDOM -- 0.29% Granite Mortgages PLC, 04-1, Class 1C+ 4.330%, due 03/20/44 $ 5,125,000 5,145,807 Paragon Mortgages PLC, 7A, Class B1A, 144A+ 4.018%, due 05/15/43 1,040,000 1,042,509 Permanent Financing PLC, 04, Class 2C+ 4.099%, due 06/10/42 2,700,000 2,713,234 ---------------- 8,901,550 ---------------- FOREIGN GOVERNMENT BONDS -- 3.56% AUSTRALIA -- 0.18% Government of Australia 6.750%, due 11/15/06 AUD 7,120,000 5,537,300 ---------------- AUSTRIA -- 0.33% Republic of Austria 3.800%, due 10/20/13, 144A EUR 3,300,000 4,228,174 5.875%, due 07/15/06 4,620,000 5,811,271 ---------------- 10,039,445 ---------------- BELGIUM -- 0.13% Government of Belgium 5.750%, due 03/28/08 EUR 2,890,000 3,828,843 ---------------- CANADA -- 0.16% Government of Canada 5.750%, due 06/01/29 CAD 1,120,000 1,111,075 6.000%, due 06/01/08 2,670,000 2,359,815 6.000%, due 06/01/11 785,000 725,484 8.000%, due 06/01/23 520,000 625,745 ---------------- 4,822,119 ---------------- FINLAND -- 0.23% Government of Finland 5.000%, due 07/04/07 EUR 1,610,000 2,060,117 5.750%, due 02/23/11 3,570,000 5,026,540 ---------------- 7,086,657 ---------------- FRANCE -- 0.64% Government of France 5.000%, due 10/25/16 EUR 2,900,000 4,092,607 5.500%, due 04/25/07 1,705,000 2,190,091 5.500%, due 04/25/10 3,300,000 4,535,888 5.500%, due 04/25/29 3,300,000 5,173,297 7.250%, due 04/25/06 2,750,000 3,466,314 ---------------- 19,458,197 ---------------- GERMANY -- 1.31% Bundesobligation 3.500%, due 10/10/08 EUR 2,715,000 $ 3,419,111 Deutsche Bundesrepublik 4.500%, due 07/04/09 9,735,000 12,754,814 4.750%, due 07/04/34 3,715,000 5,364,668 6.000%, due 01/04/07 10,775,000 13,800,919 6.500%, due 07/04/27 2,455,000 4,266,507 ---------------- 39,606,019 ---------------- ITALY -- 0.11% Buoni Poliennali Del Tesoro 8.750%, due 07/01/06 EUR 2,655,000 3,424,753 ---------------- MEXICO -- 0.07% United Mexican States 8.125%, due 12/30/19 $ 1,700,000 2,088,450 ---------------- NETHERLANDS -- 0.25% Government of Netherlands 4.000%, due 01/15/37 EUR 2,180,000 2,780,183 5.000%, due 07/15/11 3,555,000 4,853,808 ---------------- 7,633,991 ---------------- SWEDEN -- 0.06% Government of Sweden 6.750%, due 05/05/14 SEK 8,270,000 1,376,436 8.000%, due 08/15/07 2,250,000 324,724 ---------------- 1,701,160 ---------------- UNITED KINGDOM -- 0.09% U.K. Gilts 4.750%, due 09/07/15 GBP 1,245,000 2,339,632 5.000%, due 03/07/25 240,000 475,375 ---------------- 2,815,007 ---------------- Total Foreign Government Bonds 108,041,941 ---------------- SOVEREIGN/SUPRANATIONAL BOND -- 0.01% Pemex Project Funding Master Trust 8.000%, due 11/15/11 $ 320,000 363,200 ---------------- Total International Bonds 124,275,410 ---------------- Total Bonds (Cost $644,755,457) 639,750,225 ---------------- SHARES ---------------- INVESTMENT COMPANIES 10.45% UBS Emerging Markets Equity Relationship Fund 10,257,748 174,159,129 UBS High Yield Relationship Fund 3,165,711 59,464,074 UBS Small Cap Equity Relationship Fund 2,175,127 83,940,992 ---------------- Total Investment Companies (Cost $257,160,508) 317,564,195 ---------------- SHORT-TERM INVESTMENTS -- 9.55% OTHER -- 9.52% UBS Supplementary Trust -- U.S. Cash Management Prime Fund, yield of 3.28% 289,273,345 289,273,345 ----------------
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SHARES VALUE ---------------- ---------------- U.S. GOVERNMENT OBLIGATIONS -- 0.03% U.S. Treasury Bills, yield of 2.64% due 07/21/05 (f) 1,000,000 $ 998,539 ---------------- Total Short-Term Investments (Cost $290,271,881) 290,271,884 ---------------- INVESTMENT OF CASH COLLATERAL FOR SECURITIES LOANED -- 5.69% UBS Supplementary Trust-- U.S. Cash Management Prime Fund, yield of 3.28% (Cost $172,863,161) 172,863,161 172,863,161 ---------------- Total Investments (Cost $3,045,084,646)-- 106.07% 3,222,301,891 Liabilities, in excess of cash and other assets-- (6.07)% (184,396,532) ---------------- Net Assets-- 100.00% $ 3,037,905,359 ================
NOTES TO SCHEDULE OF INVESTMENTS Aggregate cost for federal income tax purposes was $3,049,087,456; and net unrealized appreciation consisted of: Gross unrealized appreciation $ 217,427,842 Gross unrealized depreciation (44,213,407) --------------- Net unrealized appreciation $ 173,214,435 ===============
+ Variable rate security - The rate disclosed is that in effect at June 30, 2005. ++ 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 June 30, 2005. (c) Step Bonds - Coupon rate increases in increments to maturity. Rate disclosed is as of June 30, 2005. Maturity date disclosed is the ultimate maturity date. (d) Security is illiquid. These securities amounted to $2,076,700 or 0.07% of net assets. (e) All or a portion of these securities have been pledged to cover open forward foreign currency contracts. (f) This security was pledged to cover margin requirements for futures contracts. 144A Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities are considered liquid and may be resold in transactions exempt from registration, normally to qualified institutional buyers. At June 30, 2005, the value of these securities amounted to $43,663,449 or 1.44% of net assets. AUD Australian Dollar CAD Canadian Dollar EUR Euro GBP British Pound SEK Swedish Krona 18 FORWARD FOREIGN CURRENCY CONTRACTS UBS Global Allocation Fund had the following open forward foreign currency contracts as of June 30, 2005:
UNREALIZED CONTRACTS IN EXCHANGE MATURITY APPRECIATION/ TO DELIVER FOR DATES (DEPRECIATION) ----------------- ------------------- ---------- -------------- Australian Dollar 40,355,000 USD 30,397,404 12/05/05 $ (109,766) British Pound 68,510,000 USD 124,644,696 12/05/05 2,299,539 British Pound 30,635,000 USD 55,607,549 12/05/05 899,566 Euro 104,920,000 USD 133,217,973 12/05/05 5,351,970 Swiss Franc 34,645,000 USD 28,660,655 12/05/05 1,278,797 United States Dollar 6,552,924 AUD 8,620,000 12/05/05 (36,463) United States Dollar 15,006,805 CAD 18,745,000 12/05/05 360,618 United States Dollar 82,583,768 EUR 67,035,000 12/05/05 (888,214) United States Dollar 30,866,256 GBP 17,040,000 12/05/05 (436,224) United States Dollar 147,249,078 JPY 15,565,700,000 12/05/05 (4,580,253) United States Dollar 15,364,038 JPY 1,671,300,000 12/05/05 (45,587) United States Dollar 87,679,745 SEK 633,530,000 12/05/05 (5,820,039) United States Dollar 72,749,779 SEK 543,630,000 12/05/05 (2,506,236) United States Dollar 63,985,280 SGD 105,195,000 12/05/05 (1,207,510) United States Dollar 57,002,988 THB 2,289,240,000 12/06/05 (1,616,786) -------------- Total net unrealized depreciation on forward foreign currency contracts $ (7,056,588) ==============
Currency Type Abbreviations AUD Australian Dollar CAD Canadian Dollar EUR Euro GBP British Pound JPY Japanese Yen SEK Swedish Krona SGD Singapore Dollar THB Thai Baht USD United States Dollar FUTURES CONTRACTS UBS Global Allocation Fund had the following open futures contracts as of June 30, 2005:
UNREALIZED EXPIRATION COST/ CURRENT APPRECIATION/ DATE PROCEEDS VALUE (DEPRECIATION) -------------- ------------- ------------- -------------- U.S. TREASURY NOTES FUTURES BUY CONTRACTS: 5 Year U.S. Treasury Notes, 207 contracts September 2005 $ 22,445,980 $ 22,540,359 $ 94,379 10 Year U.S. Treasury Notes, 37 contracts September 2005 4,177,341 4,198,344 21,003 INDEX FUTURES BUY CONTRACTS: Amsterdam Exchanges Index, 326 contracts (EUR) September 2005 29,653,235 30,350,269 697,034 FTSE 100 Index, 326 contracts (GBP) September 2005 29,368,484 29,926,906 558,422 INDEX FUTURE SALE CONTRACTS: Merrill Lynch S&P 500 Index, 342 contracts (CAD) July 2005 30,819,501 31,055,879 (236,378) S&P ASX 200 Index, 368 contracts (AUD) September 2005 29,744,082 29,965,267 (221,185) S&P 500 Index, 68 contracts September 2005 20,621,510 20,323,500 298,010 -------------- Total net unrealized appreciation on futures contracts $ 1,211,285 ==============
The segregated aggregate market value of investments and cash collateral pledged to cover margin requirements for the open futures positions at June 30, 2005 was $7,175,671. Currency Type Abbreviations AUD Australian Dollar CAD Canadian Dollar EUR Euro GBP British Pound See accompanying notes to financial statements 19 UBS GLOBAL EQUITY FUND For the fiscal year ended June 30, 2005, Class A shares of UBS Global Equity Fund (the "Fund") returned 10.66% and Class Y shares returned 10.87%, versus the 10.40% return of the Fund's benchmark, the MSCI World Equity (Free) Index (the "Index"). Since inception on June 30, 1997, through period end, the Fund's A shares returned 4.18% compared with the 4.22% return of the Index, and since inception on January 28, 1994, through period end, the Fund's Y shares returned 7.13% on an annualized basis, versus the 7.15% 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 modestly outperformed its benchmark over the reporting period, which was primarily the result of stock selection. STOCK SELECTION DICTATES COUNTRY EXPOSURES Investors continued to benefit from exposure to the global equity markets over the reporting period, despite persistent concerns over high oil prices, rising interest rates and a potential real estate bubble. Our overall view of the asset class suggested that most countries were trading near fair value, with only small regional variations. Geographically, the Fund's largest overweight position relative to the Index was in the United Kingdom. This was driven more by attractive stock opportunities than an overall favorable opinion of the market. Along the same lines, the Fund was underweight to the US as a result of a small position in the technology hardware sector, which comprises a relatively large portion of that market. As the period closed, the Fund remained underweight to Japan. However, our analysts continued to monitor this market as Japan restructures its economy. BOTTOM-UP ANALYSIS TO GUIDE PORTFOLIO CONSTRUCTION In the choppy market environment that characterized the reporting period, our investment strategy relied on identifying what we believed to be good stock opportunities. Our research led us to select stocks that, in turn, led to overweights in sectors that we believed exhibited strong fundamentals, including telecommunication services, healthcare and financial services. Our overweight to healthcare, as well as consumer staples, contributed to relative performance. While neither sector offered standout performance as a whole over the reporting period, our strong stock selection in these areas contributed to Fund performance nevertheless. In healthcare, we continued to focus on specialty pharmaceuticals, including Allergan and Cephalon. In consumer staples, the Fund saw gains in stocks such as Gallaher Group PLC, Shoppers Drug Market Corp. and Altria Group*. The Fund benefited from its overweight exposure to financials, which delivered solid returns for the fiscal year. These gains were negated, however, by disappointing returns from select holdings, including Citigroup Inc. and Mellon Financial Corp. We continued to believe in the long-term potential of the Fund's financials holdings and intend to maintain a focus on US-based diversified financial companies and European banks in particular. Compared with its benchmark, the Fund was underweight to the information technology (IT) sector, especially in hardware. This proved to be a good decision, as the sector produced some of the worst returns of any sector over the fiscal year. The Fund was also underweight to the energy sector relative to its benchmark, which, unlike IT, produced some of the best returns of the year. Our research suggested that energy stocks were at or beyond their intrinsic * SECURITY NO LONGER HELD AS OF JUNE 30, 2005. 20 values. Oil prices have remained high, despite an increase in inventories, and we believe that the market is projecting these unsustainable levels too far into the future. It is our opinion that speculation and instability in Iraq are contributing to these prices and that they will eventually decline based on supply/demand economics, bringing down stock prices as well. We continue to monitor the sector closely. THIS LETTER IS INTENDED TO ASSIST SHAREHOLDERS IN UNDERSTANDING HOW THE FUND PERFORMED DURING THE FISCAL YEAR ENDED JUNE 30, 2005. THE VIEWS AND OPINIONS IN THE LETTER WERE CURRENT AS OF AUGUST 1, 2005. THEY ARE NOT GUARANTEES OF PERFORMANCE OR INVESTMENT RESULTS AND SHOULD NOT BE TAKEN AS INVESTMENT ADVICE. INVESTMENT DECISIONS REFLECT A VARIETY OF FACTORS, AND WE RESERVE THE RIGHT TO CHANGE OUR VIEWS ABOUT INDIVIDUAL SECURITIES, SECTORS AND MARKETS AT ANY TIME. AS A RESULT, THE VIEWS EXPRESSED SHOULD NOT BE RELIED UPON AS A FORECAST OF THE FUND'S FUTURE INVESTMENT INTENT. WE ENCOURAGE YOU TO CONSULT YOUR FINANCIAL ADVISOR REGARDING YOUR PERSONAL INVESTMENT PROGRAM. MUTUAL FUNDS ARE SOLD BY PROSPECTUS ONLY. YOU SHOULD READ IT CAREFULLY AND CONSIDER A FUND'S INVESTMENT OBJECTIVES, RISKS, CHARGES, EXPENSES AND OTHER IMPORTANT INFORMATION CONTAINED IN THE PROSPECTUS BEFORE INVESTING. PROSPECTUSES FOR MOST OF OUR FUNDS CAN BE OBTAINED FROM YOUR FINANCIAL ADVISOR, BY CALLING UBS FUNDS AT 800-647 1568 OR BY VISITING OUR WEB SITE AT www.ubs.com/globalam-us. 21 AVERAGE ANNUAL TOTAL RETURN (UNAUDITED)
1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION* ENDED ENDED ENDED ENDED TO 6/30/05 6/30/05 6/30/05 6/30/05 6/30/05 ----------------------------------------------------------------------------------------------------------------------- UBS GLOBAL EQUITY FUND CLASS A 10.66% 8.93% 2.58% N/A 4.18% UBS GLOBAL EQUITY FUND CLASS B 9.84 8.15 N/A N/A 5.50 UBS GLOBAL EQUITY FUND CLASS C 9.87 8.13 N/A N/A 5.37 UBS GLOBAL EQUITY FUND CLASS Y 10.87 9.30 2.94 8.06% 7.13 UBS GLOBAL EQUITY FUND CLASS A** 4.59 6.88 1.43 N/A 3.45 UBS GLOBAL EQUITY FUND CLASS B** 4.84 7.28 N/A N/A 5.01 UBS GLOBAL EQUITY FUND CLASS C** 8.87 8.13 N/A N/A 5.37 MSCI WORLD EQUITY (FREE) INDEX 10.40 10.37 -1.81 7.34 7.15
* 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. THE Y SHARE CLASS IS OUR LOWEST FEE SHARE CLASS. OUR OTHER SHARE CLASSES INCLUDE HIGHER FEES AND LOADS, WHICH IF DEDUCTED WOULD RESULT IN LOWER PERFORMANCE. PAST PERFORMANCE DOES NOT PREDICT FUTURE PERFORMANCE, AND THE PERFORMANCE INFORMATION PROVIDED DOES NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PERFORMANCE RESULTS ASSUME REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS AT NET ASSET VALUE ON THE EX-DIVIDEND DATES. TOTALS RETURNS FOR PERIODS OF LESS THAN ONE YEAR HAVE NOT BEEN ANNUALIZED. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE DATA QUOTED. FOR MONTH-END PERFORMANCE FIGURES, PLEASE VISIT http://www.ubs.com. 22 ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000 This chart shows the growth in the value of an investment in UBS Global Equity Fund Class Y shares and the MSCI World Equity (Free) Index, if you had invested $10,000 on January 31, 1994, and had reinvested all your income dividends and capital gain distributions through June 30, 2005. The performance of Class A, Class B and Class C shares will vary based upon the different inception dates, class specific expenses and sales charges. No adjustment has been made for any income taxes payable by shareholders on income dividends and capital gain distributions. Past performance is no guarantee of future results. Share price and returns will vary with the market conditions; investors may realize a gain or loss upon redemption. [CHART] UBS GLOBAL EQUITY FUND CLASS Y VS. MSCI WORLD EQUITY (FREE) INDEX Wealth Value With Dividends Reinvested
UBS GLOBAL EQUITY MSCI WORLD EQUITY FUND CLASS Y (FREE) INDEX 1/28/1994 $ 10,000 $ 10,000 2/28/1994 $ 9,780 $ 9,869 3/31/1994 $ 9,350 $ 9,443 4/30/1994 $ 9,570 $ 9,741 5/31/1994 $ 9,640 $ 9,770 6/30/1994 $ 9,530 $ 9,741 7/31/1994 $ 9,671 $ 9,927 8/31/1994 $ 10,083 $ 10,228 9/30/1994 $ 9,811 $ 9,957 10/31/1994 $ 9,832 $ 10,244 11/30/1994 $ 9,570 $ 9,802 12/31/1994 $ 9,565 $ 9,896 1/31/1995 $ 9,423 $ 9,750 2/28/1995 $ 9,575 $ 9,895 3/31/1995 $ 9,656 $ 10,372 4/30/1995 $ 9,910 $ 10,735 5/31/1995 $ 10,042 $ 10,832 6/30/1995 $ 10,108 $ 10,829 7/31/1995 $ 10,576 $ 11,371 8/31/1995 $ 10,750 $ 11,117 9/30/1995 $ 10,944 $ 11,445 10/31/1995 $ 10,924 $ 11,267 11/30/1995 $ 11,312 $ 11,660 12/31/1995 $ 11,663 $ 12,002 1/31/1996 $ 12,013 $ 12,227 2/29/1996 $ 12,067 $ 12,301 3/31/1996 $ 12,275 $ 12,505 4/30/1996 $ 12,613 $ 12,799 5/31/1996 $ 12,646 $ 12,809 6/30/1996 $ 12,702 $ 12,878 7/31/1996 $ 12,296 $ 12,423 8/31/1996 $ 12,515 $ 12,569 9/30/1996 $ 12,933 $ 13,062 10/31/1996 $ 12,976 $ 13,152 11/30/1996 $ 13,635 $ 13,894 12/31/1996 $ 13,677 $ 13,673 1/31/1997 $ 13,797 $ 13,840 2/28/1997 $ 13,989 $ 13,998 3/31/1997 $ 13,929 $ 13,718 4/30/1997 $ 14,013 $ 14,168 5/31/1997 $ 14,842 $ 15,045 6/30/1997 $ 15,403 $ 15,793 7/31/1997 $ 15,910 $ 16,522 8/31/1997 $ 15,173 $ 15,404 9/30/1997 $ 15,825 $ 16,241 10/31/1997 $ 14,968 $ 15,389 11/30/1997 $ 14,956 $ 15,658 12/31/1997 $ 15,143 $ 15,849 1/31/1998 $ 15,396 $ 16,294 2/28/1998 $ 16,343 $ 17,396 3/31/1998 $ 17,009 $ 18,128 4/30/1998 $ 16,983 $ 18,306 5/31/1998 $ 16,929 $ 18,083 6/30/1998 $ 16,788 $ 18,506 7/31/1998 $ 16,707 $ 18,478 8/31/1998 $ 14,873 $ 16,015 9/30/1998 $ 15,114 $ 16,300 10/31/1998 $ 16,118 $ 17,776 11/30/1998 $ 16,734 $ 18,835 12/31/1998 $ 17,268 $ 19,751 1/31/1999 $ 17,268 $ 20,185 2/28/1999 $ 16,760 $ 19,648 3/31/1999 $ 17,282 $ 20,463 4/30/1999 $ 18,476 $ 21,273 5/31/1999 $ 17,804 $ 20,490 6/30/1999 $ 18,490 $ 21,443 7/31/1999 $ 18,421 $ 21,379 8/31/1999 $ 18,132 $ 21,340 9/30/1999 $ 17,622 $ 21,139 10/31/1999 $ 17,870 $ 22,237 11/30/1999 $ 18,311 $ 22,861 12/31/1999 $ 19,491 $ 24,713 1/31/2000 $ 18,166 $ 23,299 2/29/2000 $ 17,800 $ 23,360 3/31/2000 $ 18,425 $ 24,977 4/30/2000 $ 18,227 $ 23,919 5/31/2000 $ 18,379 $ 23,314 6/30/2000 $ 18,988 $ 24,099 7/31/2000 $ 18,562 $ 23,419 8/31/2000 $ 18,897 $ 24,182 9/30/2000 $ 18,333 $ 22,897 10/31/2000 $ 18,546 $ 22,514 11/30/2000 $ 18,394 $ 21,146 12/31/2000 $ 19,475 $ 21,481 1/31/2001 $ 19,900 $ 21,897 2/28/2001 $ 18,743 $ 20,049 3/31/2001 $ 17,653 $ 18,731 4/30/2001 $ 18,709 $ 20,117 5/31/2001 $ 18,556 $ 19,863 6/30/2001 $ 18,215 $ 19,240 7/31/2001 $ 17,994 $ 18,986 8/31/2001 $ 17,550 $ 18,076 9/30/2001 $ 16,186 $ 16,483 10/31/2001 $ 16,459 $ 16,800 11/30/2001 $ 17,482 $ 17,796 12/31/2001 $ 17,716 $ 17,909 1/31/2002 $ 17,326 $ 17,368 2/28/2002 $ 17,308 $ 17,218 3/31/2002 $ 18,000 $ 17,980 4/30/2002 $ 17,681 $ 17,373 5/31/2002 $ 17,823 $ 17,409 6/30/2002 $ 16,811 $ 16,354 7/31/2002 $ 15,320 $ 14,976 8/31/2002 $ 15,480 $ 15,005 9/30/2002 $ 13,527 $ 13,357 10/31/2002 $ 14,699 $ 14,344 11/30/2002 $ 15,622 $ 15,120 12/31/2002 $ 14,964 $ 14,389 1/31/2003 $ 14,414 $ 13,954 2/28/2003 $ 14,102 $ 13,713 3/31/2003 $ 13,919 $ 13,672 4/30/2003 $ 15,313 $ 14,889 5/31/2003 $ 16,174 $ 15,743 6/30/2003 $ 16,486 $ 16,019 7/31/2003 $ 16,725 $ 16,346 8/31/2003 $ 16,926 $ 16,700 9/30/2003 $ 17,073 $ 16,804 10/31/2003 $ 17,862 $ 17,804 11/30/2003 $ 18,173 $ 18,077 12/31/2003 $ 19,389 $ 19,215 1/31/2004 $ 19,464 $ 19,527 2/29/2004 $ 19,723 $ 19,859 3/31/2004 $ 19,556 $ 19,729 4/30/2004 $ 19,259 $ 19,329 5/31/2004 $ 19,297 $ 19,513 6/30/2004 $ 19,798 $ 19,919 7/31/2004 $ 19,130 $ 19,272 8/31/2004 $ 19,371 $ 19,361 9/30/2004 $ 19,705 $ 19,732 10/31/2004 $ 20,354 $ 20,219 11/30/2004 $ 21,226 $ 21,286 12/31/2004 $ 22,154 $ 22,104 1/31/2005 $ 21,672 $ 21,610 2/28/2005 $ 22,117 $ 22,301 3/31/2005 $ 21,839 $ 21,873 4/30/2005 $ 21,412 $ 21,404 5/31/2005 $ 21,653 $ 21,794 6/30/2005 $ 21,950 $ 21,990
1/28/94 = $10,000 PAST PERFORMANCE DOES NOT PREDICT FUTURE PERFORMANCE, AND THE PERFORMANCE INFORMATION PROVIDED DOES NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PERFORMANCE RESULTS ASSUME REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS AT NET ASSET VALUE ON THE EX-DIVIDEND DATES. TOTALS RETURNS FOR PERIODS OF LESS THAN ONE YEAR HAVE NOT BEEN ANNUALIZED. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE DATA QUOTED. FOR MONTH-END PERFORMANCE FIGURES, PLEASE VISIT http://www.ubs.com. 23 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, January 1, 2005 to June 30, 2005. 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* JANUARY 1, 2005 JUNE 30, 2005 1/1/05 - 6/30/05 ------------------------------------------------------------------------------------------------------ CLASS A ACTUAL $ 1,000.00 $ 989.80 $ 6.17 HYPOTHETICAL (5% RETURN BEFORE EXPENSES) 1,000.00 1,018.60 6.26 CLASS B ACTUAL 1,000.00 986.10 9.85 HYPOTHETICAL (5% RETURN BEFORE EXPENSES) 1,000.00 1,014.88 9.99 CLASS C ACTUAL 1,000.00 986.10 9.85 HYPOTHETICAL (5% RETURN BEFORE EXPENSES) 1,000.00 1,014.88 9.99 CLASS Y ACTUAL 1,000.00 990.80 4.94 HYPOTHETICAL (5% RETURN BEFORE EXPENSES) 1,000.00 1,019.84 5.01
* 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 181 DIVIDED BY 365 (TO REFLECT THE ONE-HALF YEAR PERIOD). 24 TOP TEN INTERNATIONAL EQUITY HOLDINGS AS OF JUNE 30, 2005 (UNAUDITED)
PERCENTAGE OF NET ASSETS --------------------------------------------------------------- Vodafone Group PLC 2.4% Total S.A. 2.3 Bank of Ireland 1.8 BP PLC 1.6 Diageo PLC 1.6 Gallaher Group PLC 1.4 Barclays PLC 1.4 ABN AMRO Holding NV 1.4 France Telecom S.A. 1.3 Royal Bank of Scotland Group PLC 1.3 --------------------------------------------------------------- Total 16.5%
TOP TEN U.S. EQUITY HOLDINGS AS OF JUNE 30, 2005 (UNAUDITED)
PERCENTAGE OF NET ASSETS --------------------------------------------------------------- Citigroup, Inc. 3.2% Nextel Communications, Inc., Class A 1.9 Johnson & Johnson 1.9 Microsoft Corp. 1.8 Morgan Stanley 1.7 General Electric Co. 1.6 Wyeth 1.5 Masco Corp. 1.5 Freddie Mac 1.5 Mellon Financial Corp. 1.4 --------------------------------------------------------------- Total 18.0%
COUNTRY EXPOSURE, TOP FIVE AS OF JUNE 30, 2005 (UNAUDITED)
PERCENTAGE OF NET ASSETS --------------------------------------------------------------- United States 49.0% United Kingdom 14.2 Japan 8.6 France 5.8 Netherlands 4.4 --------------------------------------------------------------- Total 82.0%
25 INDUSTRY DIVERSIFICATION AS A PERCENT OF NET ASSETS AS OF JUNE 30, 2005 (UNAUDITED) EQUITIES U.S. EQUITIES Aerospace & Defense 1.60% Air Freight & Logistics 0.27 Biotechnology 1.75 Building Products 1.47 Capital Markets 3.16 Commercial Banks 2.71 Commercial Services & Supplies 0.53 Computers & Peripherals 0.83 Diversified Financial Services 4.21 Diversified Telecommunication Services 0.72 Electric Utilities 1.56 Energy Equipment & Services 0.46 Food & Staples Retailing 2.26 Gas Utilities 0.39 Health Care Equipment & Supplies 0.43 Health Care Providers & Services 2.43 Hotels, Restaurants & Leisure 0.46 Industrial Conglomerates 1.60 Insurance 1.55 Internet & Catalog Retail 0.68 Machinery 1.04 Media 3.33 Multi-Utilities and Unregulated Power 0.66 Multiline Retail 0.37 Pharmaceuticals 5.76 Road & Rail 0.66 Semiconductors & Semiconductor Equipment 1.23 Software 2.99 Specialty Retail 0.44 Thrifts & Mortgage Finance 1.46 Wireless Telecommunication Services 1.94 ------ Total U.S. Equities 48.95 INTERNATIONAL EQUITIES Air Freight & Logistics 0.94 Airlines 0.49 Auto Components 0.54% Automobiles 1.77 Beverages 2.11 Biotechnology 0.03 Chemicals 0.85 Commercial Banks 9.53 Commercial Services & Supplies 1.28 Communications Equipment 0.83 Construction Materials 1.87 Consumer Finance 0.31 Diversified Telecommunication Services 2.56 Electric Utilities 0.41 Electronic Equipment & Instruments 0.43 Food & Staples Retailing 2.40 Food Products 0.49 Household Durables 0.88 Household Products 0.67 Insurance 3.30 Machinery 0.07 Media 1.25 Metals & Mining 0.27 Office Electronics 0.67 Oil & Gas 6.58 Paper & Forest Products 0.48 Pharmaceuticals 2.03 Real Estate 1.04 Semiconductors & Semiconductor Equipment 0.83 Specialty Retail 0.86 Tobacco 1.41 Wireless Telecommunication Services 3.16 ------ Total International Equities 50.34 TOTAL EQUITIES 99.29 SHORT-TERM INVESTMENT 0.24 ------ TOTAL INVESTMENTS 99.53 CASH AND OTHER ASSETS, LESS LIABILITIES 0.47 ------ NET ASSETS 100.00% ======
26 UBS GLOBAL EQUITY FUND -- SCHEDULE OF INVESTMENTS JUNE 30, 2005
SHARES VALUE ---------------- ---------------- EQUITIES -- 99.29% U.S. EQUITIES -- 48.95% Albertson's, Inc. 151,100 $ 3,124,748 Allergan, Inc. 57,400 4,892,776 Allstate Corp. 34,500 2,061,375 American Electric Power Co., Inc. 59,500 2,193,765 American International Group, Inc. 47,300 2,748,130 Applied Materials, Inc. 213,000 3,446,340 Baker Hughes, Inc. 40,300 2,061,748 Bristol-Myers Squibb Co. 92,600 2,313,148 Burlington Northern Santa Fe Corp. 62,300 2,933,084 Caremark Rx, Inc. (a) 30,700 1,366,764 Carnival Corp. 37,600 2,051,080 Cendant Corp. 105,300 2,355,561 Cephalon, Inc. (a) 56,800 2,261,208 Citigroup, Inc. (b) 305,000 14,100,150 Clear Channel Communications, Inc. 98,900 3,058,977 Costco Wholesale Corp. 103,900 4,656,798 DIRECTV Group, Inc. (a) 61,200 948,600 FedEx Corp. 15,100 1,223,251 Fifth Third Bancorp 101,300 4,174,573 FirstEnergy Corp. 58,307 2,805,150 Freddie Mac 100,300 6,542,569 General Electric Co. 206,900 7,169,085 Genzyme Corp. (a) 75,900 4,560,831 Hartford Financial Services Group, Inc. 28,400 2,123,752 Hewlett-Packard Co. 157,691 3,707,315 IAC/InterActiveCorp. (a) 126,500 3,042,325 Illinois Tool Works, Inc. 58,300 4,645,344 Johnson & Johnson 132,402 8,606,130 JPMorgan Chase & Co. 133,500 4,715,220 Kohl's Corp. (a) 29,800 1,666,118 Kroger Co. (a) 120,800 2,298,824 Lockheed Martin Corp. 61,000 3,957,070 Masco Corp. 206,800 6,567,968 Medco Health Solutions, Inc. (a) 74,800 3,991,328 Medtronic, Inc. 27,900 1,444,941 Mellon Financial Corp. 223,300 6,406,477 Microsoft Corp. 332,700 8,264,268 Millennium Pharmaceuticals, Inc. (a) 109,400 1,014,138 Morgan Stanley 147,100 7,718,337 Mylan Laboratories, Inc. 169,400 3,259,256 Nextel Communications, Inc., Class A (a) 268,600 8,678,466 NiSource, Inc. 70,700 1,748,411 Northrop Grumman Corp. 57,500 3,176,875 Office Depot, Inc. (a) 85,400 1,950,536 Omnicom Group, Inc. 66,900 5,342,634 Oracle Corp. (a) 276,000 3,643,200 Pepco Holdings, Inc. 81,900 1,960,686 PNC Financial Services Group, Inc. 37,000 2,015,020 SBC Communications, Inc. 135,500 3,218,125 Sempra Energy 71,000 2,933,010 Time Warner, Inc. (a) 190,700 3,186,597 UnitedHealth Group, Inc. 105,400 5,495,556 Univision Communications, Inc. (a) 85,100 2,344,505 Veritas Software Corp. (a) 59,300 1,446,920 Waters Corp. (a) 12,500 464,625 Wells Fargo & Co. 96,200 5,923,996 Wyeth 150,400 $ 6,692,800 Xilinx, Inc. 80,500 2,052,750 ---------------- Total U.S. Equities 218,753,234 ---------------- INTERNATIONAL EQUITIES -- 50.34% AUSTRALIA -- 1.94% National Australia Bank Ltd. 103,862 2,435,233 Qantas Airways Ltd. 851,890 2,188,320 QBE Insurance Group Ltd. 328,968 4,019,616 ---------------- 8,643,169 ---------------- AUSTRIA -- 0.69% Telekom Austria AG 158,736 3,088,232 ---------------- CANADA -- 3.02% Alcan, Inc. 40,700 1,222,196 BCE, Inc. 108,900 2,578,462 Jean Coutu Group, Inc. 138,700 2,109,717 Magna International, Inc., Class A 34,100 2,396,020 Shoppers Drug Mart Corp. 52,700 1,828,666 Suncor Energy, Inc. 71,200 3,367,002 ---------------- 13,502,063 ---------------- FINLAND -- 0.83% Nokia Oyj ADR 220,750 3,701,426 ---------------- FRANCE -- 5.75% BNP Paribas 77,994 5,353,809 France Telecom S.A. 197,244 5,769,250 Sanofi-Aventis S.A. 25,702 2,112,785 Total S.A. 43,247 10,172,961 Unibail 17,714 2,275,363 ---------------- 25,684,168 ---------------- GERMANY -- 1.42% Allianz AG 19,675 2,262,142 Bayerische Motoren Werke AG 49,278 2,250,912 E.ON AG 20,502 1,828,792 ---------------- 6,341,846 ---------------- HONG KONG -- 0.60% Esprit Holdings Ltd. 44,000 318,398 Sun Hung Kai Properties Ltd. 239,000 2,359,776 ---------------- 2,678,174 ---------------- IRELAND -- 2.90% Bank of Ireland 491,277 7,981,740 CRH PLC 187,388 4,979,605 ---------------- 12,961,345 ---------------- ITALY -- 1.66% ENI SpA 125,757 3,244,399 UniCredito Italiano SpA 789,333 4,173,609 ---------------- 7,418,008 ---------------- JAPAN -- 8.61% Aeon Co., Ltd. 143,700 2,192,913 Bank of Yokohama, Ltd. 321,000 1,856,881 Canon, Inc. 56,700 2,988,250 Fast Retailing Co., Ltd. 21,900 1,138,381 Funai Electric Co., Ltd. 9,500 975,634 Honda Motor Co., Ltd. 62,000 3,060,554
27
SHARES VALUE ---------------- ---------------- Kao Corp. 127,000 $ 2,997,067 Meitec Corp. 24,100 741,639 Mitsui Sumitomo Insurance Co., Ltd. 153,000 1,379,361 Murata Manufacturing Co., Ltd. 20,700 1,055,455 Nissan Motor Co., Ltd. 262,500 2,601,074 Nitto Denko Corp. 66,600 3,822,543 NTT DoCoMo, Inc. 2,418 3,578,666 Rohm Co., Ltd. 23,700 2,288,512 Sekisui House Ltd. 182,000 1,841,188 Sompo Japan Insurance, Inc. 174,000 1,758,686 Sumitomo Mitsui Financial Group, Inc. 415 2,808,862 Takefuji Corp. 20,710 1,401,724 ---------------- 38,487,390 ---------------- NETHERLANDS -- 4.43% ABN AMRO Holding NV 247,291 6,092,441 ASML Holding NV (a) 91,420 1,441,022 Heineken NV 80,330 2,483,804 Reed Elsevier NV 161,263 2,249,085 TNT NV 165,101 4,187,476 VNU NV 120,223 3,357,792 ---------------- 19,811,620 ---------------- SWEDEN -- 0.73% Electrolux AB, B Shares 52,700 1,123,653 Svenska Cellulosa AB, B Shares 66,750 2,136,971 ---------------- 3,260,624 ---------------- SWITZERLAND -- 3.52% Adecco S.A. 61,955 2,824,270 Holcim Ltd. 55,322 3,368,290 Novartis AG 36,976 1,762,067 Roche Holding AG 41,118 5,205,948 Serono S.A. 188 120,187 Swiss Reinsurance Co. 39,850 2,451,159 ---------------- 15,731,921 ---------------- UNITED KINGDOM -- 14.24% Barclays PLC 623,772 6,210,935 BP PLC 690,241 7,188,262 Cadbury Schweppes PLC 229,256 2,190,256 Diageo PLC 471,512 6,955,681 Electrocomponents PLC 200,499 864,319 Gallaher Group PLC 423,317 6,290,241 Invensys PLC (a) 1,694,574 318,931 Kingfisher PLC 539,607 2,379,358 Prudential PLC 322,743 2,870,810 Rentokil Initial PLC 754,667 2,160,943 Royal Bank of Scotland Group PLC 187,157 5,656,017 Shell Transport & Trading Co. PLC 558,159 5,430,062 Tesco PLC 805,254 4,600,766 Vodafone Group PLC 4,319,259 10,529,196 ---------------- 63,645,777 ---------------- Total International Equities 224,955,763 ---------------- WARRANTS -- 0.00% Lucent Technologies, Inc. (a) 1,067 822 ---------------- Total Equities (Cost $358,822,844) 443,709,819 ---------------- SHORT-TERM INVESTMENT -- 0.24% UBS Supplementary Trust -- U.S. Cash Management Prime Fund, yield of 3.28% (Cost $1,055,690) 1,055,690 $ 1,055,690 ---------------- Total Investments (Cost $359,878,534) -- 99.53% 444,765,509 ---------------- Cash and other assets, less liabilities -- 0.47% 2,112,664 ---------------- Net Assets -- 100.00% $ 446,878,173 ================
28 NOTES TO SCHEDULE OF INVESTMENTS Aggregate cost for federal income tax purposes was $363,819,247; and net unrealized appreciation consisted of: Gross unrealized appreciation $ 86,287,137 Gross unrealized depreciation (5,340,875) --------------- Net unrealized appreciation $ 80,946,262 ===============
(a) Non-income producing security. (b) All or a portion of these securities have been pledged to cover open forward foreign currency contracts. ADR American Depository Receipts FORWARD FOREIGN CURRENCY CONTRACTS UBS Global Equity Fund had the following open forward foreign currency contracts as of June 30, 2005:
UNREALIZED CONTRACTS IN EXCHANGE MATURITY APPRECIATION/ TO DELIVER FOR DATES (DEPRECIATION) ----------------- ------------------- ---------- -------------- Australian Dollar 8,400,000 USD 6,327,300 12/05/05 $ (22,848) British Pound 17,700,000 USD 32,202,761 12/05/05 594,101 British Pound 4,945,000 USD 8,975,986 12/05/05 145,205 Euro 21,300,000 USD 27,044,823 12/05/05 1,086,513 Euro 2,120,000 USD 2,594,774 12/05/05 11,130 Japanese Yen 337,700,000 USD 3,222,513 12/05/05 127,293 Swiss Franc 8,600,000 USD 7,114,494 12/05/05 317,438 United States Dollar 4,911,535 CHF 5,985,000 12/05/05 (181,259) United States Dollar 14,574,780 JPY 1,540,700,000 12/05/05 (453,355) United States Dollar 13,099,439 SEK 94,650,000 12/05/05 (869,519) United States Dollar 9,229,719 SEK 68,970,000 12/05/05 (317,965) United States Dollar 2,415,756 SEK 18,460,000 12/05/05 (30,502) United States Dollar 11,374,350 SGD 18,700,000 12/05/05 (214,653) -------------- Total net unrealized appreciation on forward foreign currency contracts $ 191,579 ==============
Currency Type Abbreviations CHF Swiss Franc JPY Japanese Yen SEK Swedish Krona SGD Singapore Dollar USD United States Dollar See accompanying notes to financial statements 29 UBS GLOBAL BOND FUND For the fiscal year ended June 30, 2005, Class A shares of UBS Global Bond Fund (the "Fund") returned 5.05% and Class Y shares returned 5.36%, versus the 7.51% return of the Fund's benchmark, the Lehman Brothers Global Aggregate Index (the "Index"). Since inception on November 5, 2001, through period end, the Fund's A shares returned 9.19% versus the 9.11% Index return since November 30, 2001, and since inception on July 31, 1993, through period end, the Fund's Y shares returned 6.13% on an annualized basis, compared with the 6.57% 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 Fund trailed its benchmark Index for the reporting period, primarily due to the defensive posture of the portfolio that flowed out of our belief that global fixed income markets grew increasingly more expensive. EXTERNAL FACTORS DRIVE THE GLOBAL BOND MARKETS The global bond markets surpassed most expectations over the reporting period. After several years of low interest rates, it was generally assumed that the US and other central bank policymakers would raise short-term rates to control economic growth and combat inflation. This proved true in several countries, with the US Federal Reserve Board raising short-term interest rates 2.25% from June 30, 2004 through June 30, 2005. Ordinarily, rate increases would push bond yields up and prices down. But global bonds proved resistant, as they continued to post positive returns throughout most of the fiscal year. The market's reaction appeared to be driven more by external factors than fundamentals. Investors struggled to understand the global economy, weighing improving statistics against higher oil prices, continued geopolitical uncertainty and the threat of inflation. While the US economy appeared to be on solid footing, growth rates in many international developed countries were weak. In the second quarter of 2005, Sweden announced a larger-than-expected interest rate cut, and two of the nine members of the Bank of England's monetary policy committee voted to cut rates. A DEFENSIVE POSTURE IN AN OVERVALUED MARKET In our opinion, it is only natural for the global economy to move from the above-trend growth seen in 2004, especially in the US, to more sustainable growth. Based on our analysis of the situation, we believe that investors may have overreacted to the perceived economic soft patch in the US during the spring of 2005, driving global bond markets above their fair value. As a result, we maintained a defensive posture in the Fund, reducing our global interest rate exposure. This was implemented by lowering the Fund's average duration, which is a measure of sensitivity to changes in interest rates. Geographically, the Fund held an underweight exposure to US bonds, favoring shorter-term maturities over long-term US Treasuries. In contrast, the Fund increased its exposure to Eurozone bonds, as we believed the region's sluggish economic growth supported the market. The Fund retained its underweight position in Japan during the period. The Japanese economy saw a significant slowdown in the second half of 2004, making it unlikely, in our view, that the Bank of Japan would make any moves to tighten monetary policy in the foreseeable future. Our analysis suggested that the yields on these bonds do not currently provide adequate compensation given the potential underlying risks. The Fund maintained a neutral or underweight exposure to the corporate credit markets over the reporting period. Credit spreads began the fiscal year very narrow, offering what we felt was little value above government bonds (spread is the premium over US Treasuries that investors are paid to hold securities with higher risks). US markets were temporarily roiled in the spring of 2005, when the expected downgrade of GM and the unexpected downgrade of Ford widened spreads for a short period of time. THIS LETTER IS INTENDED TO ASSIST SHAREHOLDERS IN UNDERSTANDING HOW THE FUND PERFORMED DURING THE FISCAL YEAR ENDED JUNE 30, 2005. THE VIEWS AND OPINIONS IN THE LETTER WERE CURRENT AS OF AUGUST 1, 2005. THEY ARE NOT GUARANTEES OF PERFORMANCE OR INVESTMENT RESULTS AND SHOULD NOT BE TAKEN AS INVESTMENT ADVICE. INVESTMENT DECISIONS REFLECT A VARIETY OF FACTORS, AND WE RESERVE THE RIGHT TO CHANGE OUR VIEWS ABOUT INDIVIDUAL SECURITIES, SECTORS AND MARKETS AT ANY TIME. AS A RESULT, THE VIEWS EXPRESSED SHOULD NOT BE RELIED UPON AS A FORECAST OF THE FUND'S FUTURE INVESTMENT INTENT. WE ENCOURAGE YOU TO CONSULT YOUR FINANCIAL ADVISOR REGARDING YOUR PERSONAL INVESTMENT PROGRAM. MUTUAL FUNDS ARE SOLD BY PROSPECTUS ONLY. YOU SHOULD READ IT CAREFULLY AND CONSIDER A FUND'S INVESTMENT OBJECTIVES, RISKS, CHARGES, EXPENSES AND OTHER IMPORTANT INFORMATION CONTAINED IN THE PROSPECTUS BEFORE INVESTING. PROSPECTUSES FOR MOST OF OUR FUNDS CAN BE OBTAINED FROM YOUR FINANCIAL ADVISOR, BY CALLING UBS FUNDS AT 800-647 1568 OR BY VISITING OUR WEB SITE AT www.ubs.com/globalam-us. 30 AVERAGE ANNUAL TOTAL RETURN (UNAUDITED)
1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION* ENDED ENDED ENDED ENDED TO 6/30/05 6/30/05 6/30/05 6/30/05 6/30/05 ----------------------------------------------------------------------------------------------------- UBS GLOBAL BOND FUND CLASS A 5.05% 8.74% N/A N/A 9.19% UBS GLOBAL BOND FUND CLASS B 4.29 7.97 N/A N/A 9.39 UBS GLOBAL BOND FUND CLASS C 4.60 N/A N/A N/A 8.25 UBS GLOBAL BOND FUND CLASS Y 5.36 9.04 7.72% 6.28% 6.13 UBS GLOBAL BOND FUND CLASS A** 0.28 7.10 N/A N/A 7.83 UBS GLOBAL BOND FUND CLASS B** -0.70 7.10 N/A N/A 8.94 UBS GLOBAL BOND FUND CLASS C** 3.85 N/A N/A N/A 8.25 LEHMAN BROTHERS GLOBAL AGGREGATE INDEX 7.51 8.92 7.79 6.07 6.57
* 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. THE Y SHARE CLASS IS OUR LOWEST FEE SHARE CLASS. OUR OTHER SHARE CLASSES INCLUDE HIGHER FEES AND LOADS, WHICH IF DEDUCTED WOULD RESULT IN LOWER PERFORMANCE. PAST PERFORMANCE DOES NOT PREDICT FUTURE PERFORMANCE, AND THE PERFORMANCE INFORMATION PROVIDED DOES NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PERFORMANCE RESULTS ASSUME REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS AT NET ASSET VALUE ON THE EX-DIVIDEND DATES. TOTALS RETURNS FOR PERIODS OF LESS THAN ONE YEAR HAVE NOT BEEN ANNUALIZED. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE DATA QUOTED. FOR MONTH-END PERFORMANCE FIGURES, PLEASE VISIT http://www.ubs.com. 31 ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000 This chart shows the growth in the value of an investment in UBS Global Bond Fund Class Y shares and the Lehman Brothers Global Aggregate Index, if you had invested $10,000 on July 31, 1993, and had reinvested all your income dividends and capital gain distributions through June 30, 2005. The performance of Class A, Class B and Class C shares will vary based upon the different inception dates, class specific expenses and sales charges. No adjustment has been made for any income taxes payable by shareholders on income dividends and capital gain distributions. Past performance is no guarantee of future results. Share price and returns will vary with market conditions; investors may realize a gain or loss upon redemption. [CHART] UBS GLOBAL BOND FUND CLASS Y VS. LEHMAN BROTHERS GLOBAL AGGREGATE INDEX Wealth Value With Dividends
UBS GLOBAL BOND FUND CLASS Y LEHMAN BROTHERS GLOBAL AGGREGATE INDEX 7/31/1993 $ 10,000 $ 10,000 8/31/1993 $ 10,190 $ 10,255 9/30/1993 $ 10,220 $ 10,344 10/31/1993 $ 10,321 $ 10,354 11/30/1993 $ 10,230 $ 10,262 12/31/1993 $ 10,386 $ 10,357 1/31/1994 $ 10,458 $ 10,480 2/28/1994 $ 10,210 $ 10,348 3/31/1994 $ 10,076 $ 10,223 4/30/1994 $ 10,025 $ 10,198 5/31/1994 $ 9,942 $ 10,141 6/30/1994 $ 9,921 $ 10,209 7/31/1994 $ 9,994 $ 10,357 8/31/1994 $ 10,005 $ 10,345 9/30/1994 $ 10,015 $ 10,328 10/31/1994 $ 10,057 $ 10,437 11/30/1994 $ 10,036 $ 10,333 12/31/1994 $ 10,024 $ 10,381 1/31/1995 $ 10,128 $ 10,598 2/28/1995 $ 10,306 $ 10,860 3/31/1995 $ 10,441 $ 11,223 4/30/1995 $ 10,692 $ 11,398 5/31/1995 $ 11,067 $ 11,750 6/30/1995 $ 11,046 $ 11,830 7/31/1995 $ 11,227 $ 11,885 8/31/1995 $ 11,344 $ 11,740 9/30/1995 $ 11,482 $ 11,958 10/31/1995 $ 11,674 $ 12,101 11/30/1995 $ 11,908 $ 12,245 12/31/1995 $ 12,061 $ 12,422 1/31/1996 $ 12,121 $ 12,374 2/29/1996 $ 12,001 $ 12,261 3/31/1996 $ 12,049 $ 12,224 4/30/1996 $ 12,170 $ 12,168 5/31/1996 $ 12,206 $ 12,179 6/30/1996 $ 12,317 $ 12,322 7/31/1996 $ 12,439 $ 12,483 8/31/1996 $ 12,537 $ 12,508 9/30/1996 $ 12,746 $ 12,644 10/31/1996 $ 13,016 $ 12,921 11/30/1996 $ 13,261 $ 13,123 12/31/1996 $ 13,183 $ 13,032 1/31/1997 $ 12,977 $ 12,822 2/28/1997 $ 12,990 $ 12,762 3/31/1997 $ 12,798 $ 12,642 4/30/1997 $ 12,729 $ 12,670 5/31/1997 $ 13,100 $ 12,895 6/30/1997 $ 13,266 $ 13,035 7/31/1997 $ 13,211 $ 13,095 8/31/1997 $ 13,169 $ 13,065 9/30/1997 $ 13,431 $ 13,330 10/31/1997 $ 13,610 $ 13,572 11/30/1997 $ 13,431 $ 13,498 12/31/1997 $ 13,398 $ 13,525 1/31/1998 $ 13,513 $ 13,654 2/28/1998 $ 13,599 $ 13,728 3/31/1998 $ 13,456 $ 13,693 4/30/1998 $ 13,628 $ 13,863 5/31/1998 $ 13,628 $ 13,960 6/30/1998 $ 13,623 $ 13,986 7/31/1998 $ 13,623 $ 14,069 8/31/1998 $ 13,782 $ 14,364 9/30/1998 $ 14,448 $ 15,045 10/31/1998 $ 14,767 $ 15,237 11/30/1998 $ 14,665 $ 15,145 12/31/1998 $ 15,004 $ 15,379 1/31/1999 $ 15,004 $ 15,318 2/28/1999 $ 14,519 $ 14,863 3/31/1999 $ 14,504 $ 14,883 4/30/1999 $ 14,534 $ 14,868 5/31/1999 $ 14,277 $ 14,651 6/30/1999 $ 14,049 $ 14,439 7/31/1999 $ 14,309 $ 14,661 8/31/1999 $ 14,248 $ 14,637 9/30/1999 $ 14,386 $ 14,818 10/31/1999 $ 14,309 $ 14,795 11/30/1999 $ 14,095 $ 14,634 12/31/1999 $ 14,063 $ 14,583 1/31/2000 $ 13,705 $ 14,334 2/29/2000 $ 13,628 $ 14,307 3/31/2000 $ 13,923 $ 14,594 4/30/2000 $ 13,426 $ 14,237 5/31/2000 $ 13,503 $ 14,303 6/30/2000 $ 14,001 $ 14,666 7/31/2000 $ 13,705 $ 14,519 8/31/2000 $ 13,550 $ 14,455 9/30/2000 $ 13,472 $ 14,496 10/31/2000 $ 13,177 $ 14,378 11/30/2000 $ 13,534 $ 14,625 12/31/2000 $ 14,254 $ 15,047 1/31/2001 $ 14,254 $ 15,119 2/28/2001 $ 14,191 $ 15,144 3/31/2001 $ 13,720 $ 14,834 4/30/2001 $ 13,705 $ 14,816 5/31/2001 $ 13,532 $ 14,844 6/30/2001 $ 13,438 $ 14,739 7/31/2001 $ 13,846 $ 15,077 8/31/2001 $ 14,410 $ 15,531 9/30/2001 $ 14,410 $ 15,652 10/31/2001 $ 14,567 $ 15,793 11/30/2001 $ 14,452 $ 15,609 12/31/2001 $ 14,064 $ 15,283 1/31/2002 $ 13,833 $ 15,146 2/28/2002 $ 13,926 $ 15,248 3/31/2002 $ 13,899 $ 15,158 4/30/2002 $ 14,446 $ 15,606 5/31/2002 $ 14,944 $ 15,956 6/30/2002 $ 15,665 $ 16,512 7/31/2002 $ 15,683 $ 16,660 8/31/2002 $ 15,941 $ 16,932 9/30/2002 $ 16,073 $ 17,119 10/31/2002 $ 16,045 $ 17,071 11/30/2002 $ 16,127 $ 17,115 12/31/2002 $ 16,953 $ 17,809 1/31/2003 $ 17,212 $ 18,009 2/28/2003 $ 17,513 $ 18,242 3/31/2003 $ 17,549 $ 18,288 4/30/2003 $ 17,782 $ 18,522 5/31/2003 $ 18,516 $ 19,180 6/30/2003 $ 18,284 $ 18,972 7/31/2003 $ 17,806 $ 18,420 8/31/2003 $ 17,729 $ 18,378 9/30/2003 $ 18,704 $ 19,261 10/31/2003 $ 18,608 $ 19,153 11/30/2003 $ 18,924 $ 19,403 12/31/2003 $ 19,683 $ 20,037 1/31/2004 $ 19,681 $ 20,112 2/29/2004 $ 19,696 $ 20,215 3/31/2004 $ 19,958 $ 20,439 4/30/2004 $ 19,156 $ 19,692 5/31/2004 $ 19,225 $ 19,788 6/30/2004 $ 19,276 $ 19,846 7/31/2004 $ 19,255 $ 19,842 8/31/2004 $ 19,626 $ 20,276 9/30/2004 $ 19,837 $ 20,516 10/31/2004 $ 20,280 $ 21,007 11/30/2004 $ 20,795 $ 21,564 12/31/2004 $ 21,084 $ 21,894 1/31/2005 $ 20,817 $ 21,664 2/28/2005 $ 20,847 $ 21,705 3/31/2005 $ 20,617 $ 21,443 4/30/2005 $ 20,813 $ 21,723 5/31/2005 $ 20,487 $ 21,432 6/30/2005 $ 20,310 $ 21,336
7/31/93 = $10,000 PAST PERFORMANCE DOES NOT PREDICT FUTURE PERFORMANCE, AND THE PERFORMANCE INFORMATION PROVIDED DOES NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PERFORMANCE RESULTS ASSUME REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS AT NET ASSET VALUE ON THE EX-DIVIDEND DATES. TOTALS RETURNS FOR PERIODS OF LESS THAN ONE YEAR HAVE NOT BEEN ANNUALIZED. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE DATA QUOTED. FOR MONTH-END PERFORMANCE FIGURES, PLEASE VISIT http://www.ubs.com. 32 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, January 1, 2005 to June 30, 2005. 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* JANUARY 1, 2005 JUNE 30, 2005 1/1/05 - 6/30/05 ------------------------------------------------------------------------------------------------------ CLASS A ACTUAL $ 1,000.00 $ 961.80 $ 5.60 HYPOTHETICAL (5% RETURN BEFORE EXPENSES) 1,000.00 1,019.09 5.76 CLASS B ACTUAL 1,000.00 957.90 9.23 HYPOTHETICAL (5% RETURN BEFORE EXPENSES) 1,000.00 1,015.37 9.50 CLASS C ACTUAL 1,000.00 959.50 8.02 HYPOTHETICAL (5% RETURN BEFORE EXPENSES) 1,000.00 1,016.61 8.26 CLASS Y ACTUAL 1,000.00 963.30 4.39 HYPOTHETICAL (5% RETURN BEFORE EXPENSES) 1,000.00 1,020.33 4.51
* 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 181 DIVIDED BY 365 (TO REFLECT THE ONE-HALF YEAR PERIOD). 33 COUNTRY EXPOSURE, TOP FIVE AS OF JUNE 30, 2005 (UNAUDITED)
PERCENTAGE OF NET ASSETS --------------------------------------------------------------- United States 45.0% Germany 12.0 France 10.5 Japan 9.6 United Kingdom 6.0 --------------------------------------------------------------- Total 83.1%
CURRENCY EXPOSURE, TOP FIVE AS OF JUNE 30, 2005 (UNAUDITED)
PERCENTAGE OF MARKET VALUE --------------------------------------------------------------- United States Dollar 44.9% Euro 34.8 Japanese Yen 9.6 British Pound 3.6 Swedish Krona 2.9 --------------------------------------------------------------- Total 95.8%
TOP TEN FIXED INCOME HOLDINGS AS OF JUNE 30, 2005 (UNAUDITED)
PERCENTAGE OF NET ASSETS --------------------------------------------------- Deutsche Bundesrepublik 6.000%, due 02/16/06 4.6% U.S. Treasury Note 3.750%, due 03/31/07 3.4 French Treasury Note 5.000%, due 01/12/06 3.4 U.S. Treasury Note 2.500%, due 09/30/06 3.3 Deutsche Bundesrepublik 6.250%, due 01/04/24 3.1 Deutsche Bundesrepublik 4.250%, due 01/04/14 3.0% Government of Sweden 6.500%, due 05/05/08 2.9 Government of Japan 0.800%, due 03/20/13 2.9 Government of France 7.250%, due 04/25/06 2.8 Government of Japan 1.300%, due 06/20/11 2.7 --------------------------------------------------- Total 32.1%
34 INDUSTRY DIVERSIFICATION AS A PERCENT OF NET ASSETS AS OF JUNE 30, 2005 (UNAUDITED) BONDS U.S. BONDS U.S. CORPORATE BONDS Automobiles 0.20% Beverages 0.28 Capital Markets 0.57 Chemicals 0.12 Commercial Banks 0.26 Commercial Services & Supplies 0.15 Consumer Finance 0.97 Diversified Financial Services 1.16 Diversified Telecommunication Services 0.78 Electric Utilities 0.42 Food & Staples Retailing 0.62 Food Products 0.16 Gas Utilities 0.08 Hotels, Restaurants & Leisure 0.08 Industrial Conglomerates 0.68 Insurance 0.10 IT Services 0.08 Media 1.17 Metals & Mining 0.09 Multi-Utilities & Unregulated Power 0.15 Oil & Gas 0.09 Paper & Forest Products 0.14 Personal Products 0.08 Pharmaceuticals 0.04 Real Estate 0.27 Road & Rail 0.27 Thrifts & Mortgage Finance 0.79 Tobacco 0.39 Wireless Telecommunication Services 0.08 ------ Total U.S. Corporate Bonds 10.27 Asset-Backed Securities 0.39 Commercial Mortgage-Backed Securities 4.05 Mortgage & Agency Debt Securities 2.69 U.S. Government Obligations 7.75 ------ Total U.S. Bonds 25.15 INTERNATIONAL BONDS INTERNATIONAL CORPORATE BONDS Building Products 0.18% Capital Markets 0.18 Commercial Banks 4.36 Commercial Services & Supplies 0.44 Diversified Financial Services 0.64 Diversified Telecommunication Services 1.26 Electric Utilities 1.13 Food & Staples Retailing 0.39 Household Durables 0.09 Insurance 0.09 Internet Software & Services 0.12 Metals & Mining 0.25 Multi-Utilities & Unregulated Power 0.14 Paper & Forest Products 0.11 Tobacco 0.35 Water Utilities 0.55 Wireless Telecommunication Services 0.23 ------ Total International Corporate Bonds 10.51 International Asset-Backed Securities 0.48 Foreign Government Bonds 42.15 Sovereign/Supranational Bonds 0.61 ------ Total International Bonds 53.75 TOTAL BONDS 78.90 INVESTMENT COMPANY 17.13 SHORT-TERM INVESTMENT 2.95 ------ TOTAL INVESTMENTS 98.98 CASH AND OTHER ASSETS, LESS LIABILITIES 1.02 ------ NET ASSETS 100.00% ======
35 UBS GLOBAL BOND FUND -- SCHEDULE OF INVESTMENTS JUNE 30, 2005
FACE AMOUNT VALUE --------------- --------------- BONDS -- 78.90% U.S. BONDS -- 25.15% U.S. CORPORATE BONDS -- 10.27% Alcoa, Inc. 6.000%, due 01/15/12 $ 60,000 $ 64,979 Altria Group, Inc. 7.750%, due 01/15/27 230,000 276,193 American Electric Power Co., Inc. 6.125%, due 05/15/06 33,000 33,580 Avon Products, Inc. 7.150%, due 11/15/09 50,000 55,773 Bank of America Corp. 7.400%, due 01/15/11 30,000 34,334 Bank One Corp. 7.875%, due 08/01/10 50,000 57,806 Boeing Capital Corp. 7.375%, due 09/27/10 50,000 57,194 Bombardier Capital, Inc., 144A 6.125%, due 06/29/06 120,000 120,600 C.S. First Boston USA, Inc. 6.500%, due 01/15/12 60,000 66,684 Cendant Corp. 6.875%, due 08/15/06 110,000 113,088 Citigroup, Inc. 5.000%, due 09/15/14 225,000 230,163 5.625%, due 08/27/12 95,000 101,472 Comcast Cable Communications, Inc. 6.750%, due 01/30/11 420,000 463,367 Commonwealth Edison Co. 6.150%, due 03/15/12 60,000 66,339 Computer Sciences Corp. 3.500%, due 04/15/08 60,000 58,615 Countrywide Home Loans, Inc. 3.250%, due 05/21/08 185,000 179,628 DaimlerChrysler N.A. Holding Corp. 4.050%, due 06/04/08 150,000 147,703 Devon Financing Corp. ULC 6.875%, due 09/30/11 60,000 67,138 Dominion Resources, Inc., Class B 7.625%, due 07/15/05 90,000 90,151 Dow Chemical Co. 5.970%, due 01/15/09 60,000 63,361 Duke Energy Field Services LLC 7.500%, due 08/16/05 110,000 110,479 EOP Operating LP 8.375%, due 03/15/06 190,000 195,618 Erac U.S.A. Finance Co., 144A 8.000%, due 01/15/11 100,000 115,793 FleetBoston Financial Corp. 7.375%, due 12/01/09 90,000 101,014 Ford Motor Credit Co. 5.800%, due 01/12/09 80,000 75,944 FPL Group Capital, Inc. 6.125%, due 05/15/07 110,000 113,910 General Electric Capital Corp. 2.850%, due 01/30/06 240,000 238,795 4.125%, due 12/15/06 GBP 145,000 259,077 4.375%, due 01/20/10 EUR 35,000 45,449 6.750%, due 03/15/32 $ 110,000 135,739 Goldman Sachs Group, Inc. 6.875%, due 01/15/11 $ 60,000 $ 66,902 Harrah's Operating Co., Inc. 7.500%, due 01/15/09 50,000 54,614 HSBC Finance Corp. 6.750%, due 05/15/11 25,000 27,749 7.875%, due 03/01/07 390,000 412,963 ICI Wilmington, Inc. 4.375%, due 12/01/08 25,000 24,810 International Paper Co. 6.750%, due 09/01/11 60,000 65,403 Kraft Foods, Inc. 5.625%, due 11/01/11 110,000 116,691 Kroger Co. 8.050%, due 02/01/10 350,000 398,464 Marsh & McLennan Cos., Inc. 6.250%, due 03/15/12 70,000 73,882 Miller Brewing Co., 144A 5.500%, due 08/15/13 200,000 207,262 Morgan Stanley 5.300%, due 03/01/13 335,000 348,144 New Cingular Wireless Services, Inc. 7.350%, due 03/01/06 60,000 61,311 Qwest Capital Funding, Inc. 7.900%, due 08/15/10 30,000 29,850 Reed Elsevier Capital, Inc. 5.750%, due 07/31/08 EUR 125,000 165,654 Sempra Energy 7.950%, due 03/01/10 $ 50,000 56,778 SLM Corp. 5.625%, due 04/10/07 90,000 92,273 Sprint Capital Corp. 8.375%, due 03/15/12 450,000 541,269 Time Warner, Inc. 7.625%, due 04/15/31 190,000 237,289 Travelers Insurance Co. Institutional Funding Ltd. 5.750%, due 12/06/11 GBP 100,000 189,523 Union Pacific Corp. 6.700%, due 12/01/06 $ 80,000 82,618 UST, Inc. 6.625%, due 07/15/12 10,000 11,175 Wal-Mart Stores, Inc. 6.875%, due 08/10/09 50,000 55,102 Washington Mutual, Inc. 5.625%, due 01/15/07 390,000 398,600 Weyerhaeuser Co. 6.125%, due 03/15/07 39,000 40,097 Wyeth 5.500%, due 03/15/13 25,000 26,311 --------------- 7,524,720 --------------- ASSET-BACKED SECURITIES -- 0.39% Capital One Multi-Asset Execution Trust, 03-A1, Class A1+ 3.610%, due 01/15/09 75,000 75,209 CenterPoint Energy Transition Bond Co., LLC, 01-1, Class A4 5.630%, due 09/15/15 30,000 32,153
36
FACE AMOUNT VALUE --------------- --------------- Countrywide Asset-Backed Certificates, 04-SD1, Class A1, 144A+ 3.654%, due 06/25/33 $ 17,158 $ 17,189 Peco Energy Transition Trust, 99-A, Class A7 6.130%, due 03/01/09 55,000 57,794 RAFC Asset-Backed Trust, 01-1, Class A3 (a) 5.115%, due 11/25/29 12,044 12,033 Sears Credit Account Master Trust, 01-1, Class A+ 3.400%, due 02/15/10 75,000 74,996 Structured Asset Securities Corp., 03-AL2, Class A, 144A 3.357%, due 01/25/31 19,827 18,886 --------------- 288,260 --------------- COMMERCIAL MORTGAGE-BACKED SECURITIES -- 4.05% Asset Securitization Corp., 95-MD4, Class A3+ 7.384%, due 08/13/29 350,000 373,577 Bear Stearns Commercial Mortgage Securities, 00-WF2, Class A2 7.320%, due 10/15/32 80,000 90,209 DLJ Commercial Mortgage Corp., 99-CG1, Class A1B 6.460%, due 03/10/32 20,000 21,392 DLJ Commercial Mortgage Corp., 99-CG3, Class A1B 7.340%, due 10/10/32 85,000 94,822 DLJ Commercial Mortgage Corp., 00-CKP1, Class A1B 7.180%, due 11/10/33 290,000 324,663 First Union Commercial Mortgage Securities, Inc., 97-C2, Class A3 6.650%, due 11/18/29 109,031 113,998 Greenwich Capital Commercial Funding Corp., 03-FL1, Class A, 144A+ 3.470%, due 07/05/18 9,999 10,001 Hilton Hotels Pool Trust, 00-HLTA, Class A1, 144A 7.055%, due 10/03/15 325,651 350,906 JPMorgan Commercial Mortgage Finance Corp., 99-C8, Class A1 7.325%, due 07/15/31 32,116 33,195 JPMorgan Commercial Mortgage Finance Corp., 99-C8, Class A2 7.400%, due 07/15/31 85,000 93,486 LB Commercial Conduit Mortgage Trust, 99-C1, Class A1 6.410%, due 06/15/31 43,781 44,571 LB Commercial Conduit Mortgage Trust, 99-C2, Class A2 7.325%, due 10/15/32 50,000 55,314 Mach One Trust Commercial Mortgage-Backed, 04-1A, Class A1, 144A 3.890%, due 05/28/40 178,586 176,354 Meristar Commercial Mortgage Trust, 99-C1, Class A2, 144A 7.610%, due 03/03/16 500,000 558,633 Merrill Lynch Mortgage Investors, Inc., 96-C2, Class A3 6.960%, due 11/21/28 $ 22,117 $ 22,666 Morgan Stanley Dean Witter Capital I, 00-LIF2, Class A1 6.960%, due 10/15/33 17,460 18,395 PNC Mortgage Acceptance Corp., 00-C1, Class A2 7.610%, due 02/15/10 375,000 418,390 TIAA Retail Commercial Trust, 01-C1A, Class A2, 144A 6.300%, due 06/19/21 156,451 163,624 --------------- 2,964,196 --------------- MORTGAGE & AGENCY DEBT SECURITIES -- 2.69% Federal Home Loan Mortgage Corp. 2.875%, due 12/15/06 665,000 656,377 3.875%, due 06/15/08 595,000 595,113 3.875%, due 01/12/09 105,000 104,090 5.000%, due 01/30/14 85,000 85,228 Federal National Mortgage Association 6.000%, due 05/15/08 320,000 338,254 Government National Mortgage Association 6.500%, due 04/15/31 185,560 194,025 --------------- 1,973,087 --------------- U.S. GOVERNMENT OBLIGATIONS -- 7.75% U.S. Treasury Notes 2.500%, due 09/30/06 2,435,000 2,402,661 3.375%, due 02/28/07 445,000 443,053 3.750%, due 03/31/07 (b) 2,455,000 2,458,739 5.000%, due 02/15/11 355,000 377,174 --------------- 5,681,627 --------------- Total U.S. Bonds 18,431,890 --------------- INTERNATIONAL BONDS -- 53.75% INTERNATIONAL CORPORATE BONDS -- 10.51% AUSTRALIA -- 0.06% Telstra Corp., Ltd. 6.375%, due 06/29/11 EUR 30,000 42,532 --------------- CANADA -- 0.08% Telus Corp. 8.000%, due 06/01/11 $ 50,000 58,475 --------------- FINLAND -- 0.09% Fortum Oyj 6.475%, due 11/03/06 EUR 50,000 63,779 --------------- FRANCE -- 2.46% BNP Paribas 5.250%, due 12/17/12 EUR 140,000 192,654 5.625%, due 08/07/08 100,000 132,252 5.750%, due 01/24/22 GBP 80,000 157,102 Credit Lyonnais S.A.+ 5.000%, due 11/15/12 EUR 210,000 269,241 Dexia Credit Local 5.250%, due 04/25/08 195,000 254,438 France Telecom S.A 6.000%, due 09/28/07 195,000 254,692
37
FACE AMOUNT VALUE --------------- --------------- GIE Suez Alliance 4.250%, due 06/24/10 EUR 80,000 $ 102,884 Lafarge S.A. 5.875%, due 11/06/08 100,000 133,199 LVMH Moet Hennessy Louis Vuitton S.A 5.000%, due 04/29/10 140,000 184,764 Veolia Environnement 5.875%, due 06/27/08 90,000 119,164 --------------- 1,800,390 --------------- GERMANY -- 1.24% Kreditanstalt fuer Wiederaufbau 4.750%, due 08/17/07 EUR 710,000 906,375 --------------- IRELAND -- 0.29% Bank of Ireland 6.450%, due 02/10/10 EUR 150,000 210,128 --------------- NETHERLANDS -- 2.12% Deutsche Telekom International Finance BV 7.500%, due 05/29/07 EUR 130,000 172,312 8.125%, due 05/29/12 65,000 102,002 E.ON International Finance BV 5.750%, due 05/29/09 225,000 304,286 6.375%, due 05/29/12 GBP 100,000 197,416 Koninklijke (Royal) Philips Electronics NV 5.750%, due 05/16/08 EUR 50,000 65,823 Prudential Finance BV 9.375%, due 06/04/07 GBP 35,000 68,208 Royal KNP NV 4.750%, due 11/05/08 EUR 65,000 83,797 RWE Finance BV 5.500%, due 10/26/07 200,000 259,313 Telecom Italia Finance NV 6.500%, due 04/24/07 65,000 84,198 6.575%, due 07/30/09 160,000 219,287 --------------- 1,556,642 --------------- SINGAPORE -- 0.09% Singapore Telecommunications Ltd. 6.000%, due 11/21/11 EUR 50,000 70,327 --------------- SWEDEN -- 0.11% SCA Finans AB 5.375%, due 06/25/07 EUR 65,000 83,202 --------------- UNITED KINGDOM -- 3.97% Anglian Water Services Financing PLC 4.625%, due 10/07/13 EUR 25,000 32,887 AWG PLC 5.375%, due 07/02/09 210,000 279,864 Barclays Bank PLC 4.500%, due 03/04/19+ 70,000 91,256 5.750%, due 09/14/26 GBP 80,000 158,834 Gallaher Group PLC 5.875%, due 08/06/08 EUR 95,000 125,833 HBOS Treasury Services PLC 4.750%, due 02/06/07 195,000 245,641 Imperial Tobacco Finance PLC 6.250%, due 06/06/07 100,000 129,858 Lloyds TSB Bank PLC 5.875%, due 06/20/14 GBP 110,000 $ 211,886 7.750%, due 06/18/07 35,000 66,652 National Westminster Bank PLC 6.000%, due 01/21/10 EUR 335,000 462,407 6.500%, due 09/07/21 GBP 110,000 231,806 O2 PLC 6.375%, due 01/25/07 EUR 65,000 83,313 Rentokil Initial PLC 5.750%, due 05/21/07 250,000 319,629 Rio Tinto Finance PLC 5.125%, due 05/10/07 145,000 184,406 Tesco PLC 5.250%, due 05/07/08 220,000 286,821 --------------- 2,911,093 --------------- Total International Corporate Bonds 7,702,943 --------------- INTERNATIONAL ASSET-BACKED SECURITIES -- 0.48% UNITED KINGDOM -- 0.48% Paragon Mortgages PLC, 7A, Class B1A, 144A+ 4.018%, due 05/15/43 $ 100,000 100,241 Permanent Financing PLC, 04, Class 2C+ 4.099%, due 06/10/42 250,000 251,226 --------------- 351,467 --------------- FOREIGN GOVERNMENTS -- 42.15% AUSTRALIA -- 1.74% Government of Australia 6.500%, due 05/15/13 AUD 695,000 576,700 7.500%, due 09/15/09 230,000 190,994 10.000%, due 10/15/07 600,000 504,448 --------------- 1,272,142 --------------- AUSTRIA -- 1.95% Republic of Austria 5.875%, due 07/15/06 EUR 1,135,000 1,427,661 --------------- BELGIUM -- 0.51% Government of Belgium 5.750%, due 03/28/08 EUR 280,000 370,961 --------------- CANADA -- 1.34% Government of Canada 5.000%, due 06/01/14 CAD 180,000 160,190 6.000%, due 09/01/05 390,000 320,107 6.000%, due 06/01/08 390,000 344,692 8.000%, due 06/01/23 130,000 156,436 --------------- 981,425 --------------- FINLAND -- 0.51% Government of Finland 5.000%, due 07/04/07 EUR 295,000 377,475 --------------- FRANCE -- 8.08% French Treasury Note 5.000%, due 01/12/06 EUR 2,000,000 2,457,455 Government of France 5.500%, due 04/25/29 925,000 1,450,091 7.250%, due 04/25/06 1,600,000 2,016,764 --------------- 5,924,310 ---------------
38
FACE AMOUNT VALUE --------------- --------------- GERMANY -- 10.72% Deutsche Bundesrepublik 4.250%, due 01/04/14 EUR 1,640,000 $ 2,173,414 6.000%, due 02/16/06 2,725,000 3,377,663 6.250%, due 01/04/24 1,395,000 2,306,014 --------------- 7,857,091 --------------- ITALY -- 1.63% Buoni Poliennali Del Tesoro 5.000%, due 02/01/12 EUR 875,000 1,194,667 --------------- JAPAN -- 9.55% Government of Japan 0.800%, due 03/20/13 JPY 232,850,000 2,097,388 0.900%, due 12/22/08 150,000,000 1,386,759 1.300%, due 06/20/11 213,000,000 2,006,736 1.500%, due 03/20/14 105,000,000 987,753 1.900%, due 06/20/25 57,000,000 517,557 --------------- 6,996,193 --------------- NETHERLANDS -- 1.91% Government of Netherlands 4.000%, due 07/15/05 EUR 405,000 490,675 5.000%, due 07/15/11 665,000 907,956 --------------- 1,398,631 --------------- SWEDEN -- 2.91% Government of Sweden 6.500%, due 05/05/08 SEK 14,800,000 2,129,705 --------------- UNITED KINGDOM -- 1.30% U.K. Gilts 4.250%, due 06/07/32 GBP 350,000 632,125 5.000%, due 03/07/12 170,000 320,288 --------------- 952,413 --------------- Total Foreign Government Bonds 30,882,674 --------------- SOVEREIGN/SUPRANATIONAL BOND -- 0.61% European Investment Bank 4.000%, due 01/15/07 EUR 360,000 448,361 --------------- Total International Bonds 39,385,445 --------------- Total Bonds (Cost $58,100,496) 57,817,335 --------------- SHARES VALUE --------------- --------------- INVESTMENT COMPANY -- 17.13% UBS U.S. Securitized Mortgage Relationship Fund (Cost $12,108,952) 1,056,747 $ 12,554,053 --------------- SHORT-TERM INVESTMENT -- 2.95% UBS Supplementary Trust -- U.S. Cash Management Prime Fund, yield of 3.28% (Cost $2,163,203) 2,163,203 2,163,203 --------------- Total Investments (Cost $72,372,651) -- 98.98% 72,534,591 Cash and other assets, less liabilities -- 1.02% 746,869 --------------- Net Assets -- 100.00% $ 73,281,460 ===============
39 NOTES TO SCHEDULE OF INVESTMENTS Aggregate cost for federal income tax purposes was $72,372,671; and net unrealized appreciation consisted of: Gross unrealized appreciation $ 1,346,350 Gross unrealized depreciation (1,184,430) --------------- Net unrealized appreciation $ 161,920 ===============
+ Variable rate security - The rate disclosed is that in effect at June 30, 2005. (a) Step Bonds - Coupon rate increases in increments to maturity. Rate disclosed is as of June 30, 2005. Maturity date disclosed is the ultimate maturity date. (b) All or a portion of these securities have been pledged to cover open forward foreign currency contracts. 144A Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities are considered liquid and may be resold in transactions exempt from registration, normally to qualified institutional buyers. At June 30, 2005 the value of these securities amounted to $1,839,489 or 2.51% of net assets. AUD Australian Dollar CAD Canadian Dollar EUR Euro GBP British Pound JPY Japanese Yen SEK Swedish Krona FORWARD FOREIGN CURRENCY CONTRACTS UBS Global Bond Fund had the following open forward foreign currency contracts as of June 30, 2005:
UNREALIZED CONTRACTS IN EXCHANGE MATURITY APPRECIATION/ TO DELIVER FOR DATES (DEPRECIATION) ---------- --------------- --------- -------------- Australian Dollar 1,290,000 USD 971,693 12/05/05 $ (3,509) British Pound 200,000 USD 363,873 12/05/05 6,713 British Pound 420,000 USD 761,951 12/05/05 11,915 Euro 3,885,000 USD 4,932,823 12/05/05 198,174 United States Dollar 492,443 CAD 620,000 12/05/05 15,842 United States Dollar 424,480 DKK 2,490,000 12/05/05 (17,285) United States Dollar 7,850,724 JPY 829,900,000 12/05/05 (244,200) United States Dollar 396,169 SEK 2,970,000 12/05/05 (12,409) United States Dollar 875,886 SGD 1,440,000 12/05/05 (16,529) United States Dollar 829,681 THB 33,320,000 12/05/05 (23,532) -------------- Total net unrealized depreciation on forward foreign currency contracts $ (84,820) ==============
Currency Type Abbreviations CAD Canadian Dollar DKK Danish Krone JPY Japanese Yen SEK Swedish Krona SGD Singapore Dollar THB Thai Baht USD United States Dollar See accompanying notes to financial statements 40 UBS INTERNATIONAL EQUITY FUND For the fiscal year ended June 30, 2005, Class A shares of UBS International Equity Fund (the "Fund") returned 11.73% and Class Y shares returned 11.97%, versus the 14.58% return of the Fund's benchmark, the MSCI World Ex USA (Free) Index (the "Index"). Since its inception on June 30, 1997, the Fund's A shares returned 2.42% while the Index returned 3.63%, and since inception on August 31, 1993, through period end, the Fund's Y shares returned 5.03% on an annualized basis, compared with the 5.49% 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 43; 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 produced positive absolute returns over the last 12 months but trailed its benchmark. This relative performance can be traced primarily to our strong convictions in stock and sector positions that have not been rewarded by the current market. ADHERING TO OUR DISCIPLINED APPROACH Strong 12-month returns from the international equity markets during the fiscal year only tell part of the story. A closer look shows that the markets struggled for much of the period, stopping and starting as investors came to grips with the dichotomy of positive economic news coupled with increasing concerns over rising interest rates, high oil prices and a potential real estate bubble. A notable exception to the choppy markets was the fourth quarter of 2004, when a dip in oil prices and the conclusion of the US presidential election led to a short-lived but dramatic rally - a rally that accounted for much of the fiscal year's total gain. Rather than losing focus of underlying fundamentals, the Fund remained focused on in-depth research and strategic stock selection. This approach may not have allowed us to capitalize completely on the market's rally, but in our opinion, it remains the best means of meeting the Fund's long-term investment objectives. Several years of declining capital expenditures and interest costs have resulted in improved balance sheets and stronger cash flows across industries. We believe that historically high free cash flow yields, combined with increased cash on balance sheets across many industries, suggest that there is ample room to increase dividends and participate in merger and acquisition activity. We continue to prefer companies that generate strong free cash flow and have a good track record of creating value through acquisitions. LIMITED OPPORTUNITIES AT A COUNTRY LEVEL Our research suggested that the valuation differences between international equity markets tightened over the last twelve months, providing only limited geographic opportunities. For example, our analysis concluded that the UK and continental European equity markets were very close in terms of relative attractiveness. As a result, the Fund's country allocations were driven more by stock selection opportunities than overall market value. Geographically, the Fund's largest overweights relative to the Index at the end of the period were to the Netherlands, Switzerland and Ireland. Conversely, the Fund was underweight to Australia, Canada and Spain. STOCK SELECTION DRIVES SECTOR ALLOCATIONS Within countries, our research indicated that there were significant opportunities across industry sectors. Over the fiscal year, we focused the Fund on industries where we saw more attractive potential, including telecommunications and consumer discretionary stocks. While select holdings within the sector, including Telekom Austria AG, contributed to returns, the overall sector position hurt performance as the sector as a whole lagged undeservedly, in our opinion. Our research showed that even conservative growth expectations that take into account margin pressures result in price/ intrinsic value anomalies. In addition, continued high cash flow across many telecom firms led to reduced debt, increased dividends, and buybacks, all of which made those names more fiscally sound and attractive. Our conviction in the telecom sector led us to add to positions as their valuations became more attractive, and we remain confident that this position will be rewarded in the long term. The Fund saw similarly mixed results from its overweight to the consumer discretionary sector, where gains from holdings such as 41 Hennes & Mauritz* were negated by disappointing returns from other holdings such as Kingfisher PLC. Relative performance was helped by strong stock selection in both the consumer staples and healthcare sectors. Within consumer staples, the Fund benefited from its investment in companies such as Gallaher Group PLC and Shoppers Drug Mart Corp. In healthcare, Roche Holding AG, Nobel Biocare* and Sanofi-Aventis S.A. all helped the Fund over the fiscal year. Performance was hindered by an underweight exposure to utilities and energy relative to the benchmark, two of the top-performing sectors during the fiscal year. Strong stock selection in utilities compensated for some of these losses, including gains from a position in Scottish & Southern Energy PLC. An underweight to the materials sector, as well as specific stock selection within the sector, also hurt the Fund's relative return. * SECURITIES NO LONGER HELD AS OF JUNE 30, 2005. THIS LETTER IS INTENDED TO ASSIST SHAREHOLDERS IN UNDERSTANDING HOW THE FUND PERFORMED DURING THE FISCAL YEAR ENDED JUNE 30, 2005. THE VIEWS AND OPINIONS IN THE LETTER WERE CURRENT AS OF AUGUST 1, 2005. THEY ARE NOT GUARANTEES OF PERFORMANCE OR INVESTMENT RESULTS AND SHOULD NOT BE TAKEN AS INVESTMENT ADVICE. INVESTMENT DECISIONS REFLECT A VARIETY OF FACTORS, AND WE RESERVE THE RIGHT TO CHANGE OUR VIEWS ABOUT INDIVIDUAL SECURITIES, SECTORS AND MARKETS AT ANY TIME. AS A RESULT, THE VIEWS EXPRESSED SHOULD NOT BE RELIED UPON AS A FORECAST OF THE FUND'S FUTURE INVESTMENT INTENT. WE ENCOURAGE YOU TO CONSULT YOUR FINANCIAL ADVISOR REGARDING YOUR PERSONAL INVESTMENT PROGRAM. MUTUAL FUNDS ARE SOLD BY PROSPECTUS ONLY. YOU SHOULD READ IT CAREFULLY AND CONSIDER A FUND'S INVESTMENT OBJECTIVES, RISKS, CHARGES, EXPENSES AND OTHER IMPORTANT INFORMATION CONTAINED IN THE PROSPECTUS BEFORE INVESTING. PROSPECTUSES FOR MOST OF OUR FUNDS CAN BE OBTAINED FROM YOUR FINANCIAL ADVISOR, BY CALLING UBS FUNDS AT 800-647 1568 OR BY VISITING OUR WEB SITE AT www.ubs.com/globalam-us. 42 AVERAGE ANNUAL TOTAL RETURN (UNAUDITED)
1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION* ENDED ENDED ENDED ENDED TO 6/30/05 6/30/05 6/30/05 6/30/05 6/30/05 ------------------------------------------------------------------------------------------------------ UBS INTERNATIONAL EQUITY FUND CLASS A 11.73% 8.51% 0.11% N/A 2.42% UBS INTERNATIONAL EQUITY FUND CLASS B 10.92 7.73 N/A N/A 8.04 UBS INTERNATIONAL EQUITY FUND CLASS C 10.97 7.64 N/A N/A 7.84 UBS INTERNATIONAL EQUITY FUND CLASS Y 11.97 8.76 0.33 6.26% 5.03 UBS INTERNATIONAL EQUITY FUND CLASS A** 5.58 6.49 -1.02 N/A 1.70 UBS INTERNATIONAL EQUITY FUND CLASS B** 5.92 6.86 N/A N/A 7.55 UBS INTERNATIONAL EQUITY FUND CLASS C** 9.97 7.64 N/A N/A 7.84 MSCI WORLD EX USA (FREE) INDEX 14.58 12.61 -0.30 5.56 5.49
* 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. THE Y SHARE CLASS IS OUR LOWEST FEE SHARE CLASS. OUR OTHER SHARE CLASSES INCLUDE HIGHER FEES AND LOADS, WHICH IF DEDUCTED WOULD RESULT IN LOWER PERFORMANCE. PAST PERFORMANCE DOES NOT PREDICT FUTURE PERFORMANCE, AND THE PERFORMANCE INFORMATION PROVIDED DOES NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PERFORMANCE RESULTS ASSUME REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS AT NET ASSET VALUE ON THE EX-DIVIDEND DATES. TOTALS RETURNS FOR PERIODS OF LESS THAN ONE YEAR HAVE NOT BEEN ANNUALIZED. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE DATA QUOTED. FOR MONTH-END PERFORMANCE FIGURES, PLEASE VISIT http://www.ubs.com. 43 ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000 This chart shows the growth in the value of an investment in UBS International Equity Fund Class Y shares and the MSCI World Ex USA (Free) Index, if you had invested $10,000 on August 31, 1993, and had reinvested all your income dividends and capital gain distributions through June 30, 2005. The performance of Class A, Class B and Class C shares will vary based upon the different inception dates, class specific expenses and sales charges. No adjustment has been made for any income taxes payable by shareholders on income dividends and capital gain distributions. Past performance is no guarantee of future results. Share price and returns will vary with market conditions; investors may realize a gain or loss upon redemption. [CHART] UBS INTERNATIONAL EQUITY FUND CLASS Y VS. MSCI WORLD EX USA (FREE) INDEX Wealth Value With Dividends Reinvested
UBS INTERNATIONAL EQUITY FUND CLASS Y MSCI WORLD EX USA (FREE) INDEX 8/31/1993 $ 10,000 $ 10,000 9/30/1993 $ 9,720 $ 9,768 10/31/1993 $ 9,970 $ 10,096 11/30/1993 $ 9,290 $ 9,232 12/31/1993 $ 9,655 $ 9,888 1/31/1994 $ 10,336 $ 10,709 2/28/1994 $ 10,026 $ 10,657 3/31/1994 $ 9,575 $ 10,198 4/30/1994 $ 9,845 $ 10,619 5/31/1994 $ 9,855 $ 10,569 6/30/1994 $ 9,755 $ 10,688 7/31/1994 $ 9,906 $ 10,807 8/31/1994 $ 10,198 $ 11,078 9/30/1994 $ 9,906 $ 10,752 10/31/1994 $ 10,078 $ 11,095 11/30/1994 $ 9,745 $ 10,560 12/31/1994 $ 9,745 $ 10,628 1/31/1995 $ 9,403 $ 10,213 2/28/1995 $ 9,363 $ 10,210 3/31/1995 $ 9,524 $ 10,840 4/30/1995 $ 9,836 $ 11,241 5/31/1995 $ 9,846 $ 11,136 6/30/1995 $ 9,745 $ 10,955 7/31/1995 $ 10,329 $ 11,619 8/31/1995 $ 10,490 $ 11,191 9/30/1995 $ 10,662 $ 11,406 10/31/1995 $ 10,561 $ 11,111 11/30/1995 $ 10,823 $ 11,427 12/31/1995 $ 11,261 $ 11,875 1/31/1996 $ 11,486 $ 11,956 2/29/1996 $ 11,443 $ 11,991 3/31/1996 $ 11,593 $ 12,243 4/30/1996 $ 12,022 $ 12,604 5/31/1996 $ 11,968 $ 12,388 6/30/1996 $ 12,049 $ 12,447 7/31/1996 $ 11,715 $ 12,081 8/31/1996 $ 11,768 $ 12,133 9/30/1996 $ 12,124 $ 12,463 10/31/1996 $ 12,092 $ 12,378 11/30/1996 $ 12,707 $ 12,895 12/31/1996 $ 12,696 $ 12,719 1/31/1997 $ 12,628 $ 12,330 2/28/1997 $ 12,834 $ 12,513 3/31/1997 $ 12,914 $ 12,519 4/30/1997 $ 13,005 $ 12,599 5/31/1997 $ 13,853 $ 13,432 6/30/1997 $ 14,491 $ 14,144 7/31/1997 $ 14,756 $ 14,407 8/31/1997 $ 13,720 $ 13,324 9/30/1997 $ 14,491 $ 14,072 10/31/1997 $ 13,582 $ 13,013 11/30/1997 $ 13,352 $ 12,860 12/31/1997 $ 13,425 $ 12,982 1/31/1998 $ 13,873 $ 13,539 2/28/1998 $ 14,606 $ 14,420 3/31/1998 $ 15,165 $ 14,887 4/30/1998 $ 15,290 $ 15,002 5/31/1998 $ 15,290 $ 14,935 6/30/1998 $ 15,184 $ 14,998 7/31/1998 $ 15,333 $ 15,097 8/31/1998 $ 13,434 $ 13,169 9/30/1998 $ 13,109 $ 12,793 10/31/1998 $ 14,121 $ 14,128 11/30/1998 $ 14,846 $ 14,846 12/31/1998 $ 15,357 $ 15,405 1/31/1999 $ 15,319 $ 15,403 2/28/1999 $ 14,825 $ 15,016 3/31/1999 $ 15,256 $ 15,636 4/30/1999 $ 15,965 $ 16,312 5/31/1999 $ 15,129 $ 15,477 6/30/1999 $ 15,737 $ 16,074 7/31/1999 $ 16,196 $ 16,539 8/31/1999 $ 16,107 $ 16,584 9/30/1999 $ 16,031 $ 16,769 10/31/1999 $ 16,413 $ 17,417 11/30/1999 $ 16,809 $ 18,024 12/31/1999 $ 18,300 $ 19,683 1/31/2000 $ 16,914 $ 18,488 2/29/2000 $ 16,965 $ 19,006 3/31/2000 $ 17,523 $ 19,787 4/30/2000 $ 16,836 $ 18,758 5/31/2000 $ 16,667 $ 18,304 6/30/2000 $ 17,588 $ 19,094 7/31/2000 $ 16,914 $ 18,364 8/31/2000 $ 16,978 $ 18,603 9/30/2000 $ 16,253 $ 17,639 10/31/2000 $ 15,825 $ 17,159 11/30/2000 $ 15,747 $ 16,466 12/31/2000 $ 16,636 $ 17,032 1/31/2001 $ 16,471 $ 17,064 2/28/2001 $ 15,518 $ 15,713 3/31/2001 $ 14,593 $ 14,647 4/30/2001 $ 15,463 $ 15,671 5/31/2001 $ 15,035 $ 15,160 6/30/2001 $ 14,748 $ 14,541 7/31/2001 $ 14,526 $ 14,286 8/31/2001 $ 14,401 $ 13,905 9/30/2001 $ 13,195 $ 12,500 10/31/2001 $ 13,361 $ 12,806 11/30/2001 $ 13,639 $ 13,309 12/31/2001 $ 13,810 $ 13,393 1/31/2002 $ 13,211 $ 12,712 2/28/2002 $ 13,314 $ 12,788 3/31/2002 $ 13,913 $ 13,468 4/30/2002 $ 14,084 $ 13,551 5/31/2002 $ 14,375 $ 13,732 6/30/2002 $ 13,895 $ 13,175 7/31/2002 $ 12,458 $ 11,864 8/31/2002 $ 12,407 $ 11,844 9/30/2002 $ 10,935 $ 10,588 10/31/2002 $ 11,671 $ 11,144 11/30/2002 $ 12,236 $ 11,657 12/31/2002 $ 11,860 $ 11,280 1/31/2003 $ 11,230 $ 10,850 2/28/2003 $ 10,942 $ 10,635 3/31/2003 $ 10,762 $ 10,431 4/30/2003 $ 11,770 $ 11,436 5/31/2003 $ 12,436 $ 12,149 6/30/2003 $ 12,616 $ 12,446 7/31/2003 $ 12,832 $ 12,732 8/31/2003 $ 13,084 $ 13,057 9/30/2003 $ 13,408 $ 13,449 10/31/2003 $ 14,128 $ 14,291 11/30/2003 $ 14,560 $ 14,614 12/31/2003 $ 15,615 $ 15,734 1/31/2004 $ 15,652 $ 15,953 2/29/2004 $ 15,930 $ 16,320 3/31/2004 $ 15,948 $ 16,397 4/30/2004 $ 15,560 $ 15,968 5/31/2004 $ 15,634 $ 16,048 6/30/2004 $ 15,967 $ 16,420 7/31/2004 $ 15,560 $ 15,919 8/31/2004 $ 15,689 $ 15,983 9/30/2004 $ 16,078 $ 16,448 10/31/2004 $ 16,707 $ 17,039 11/30/2004 $ 17,595 $ 18,171 12/31/2004 $ 18,309 $ 18,938 1/31/2005 $ 17,878 $ 18,566 2/28/2005 $ 18,645 $ 19,391 3/31/2005 $ 18,178 $ 18,946 4/30/2005 $ 17,747 $ 18,472 5/31/2005 $ 17,672 $ 18,511 6/30/2005 $ 17,878 $ 18,815
8/31/93 = $10,000 PAST PERFORMANCE DOES NOT PREDICT FUTURE PERFORMANCE, AND THE PERFORMANCE INFORMATION PROVIDED DOES NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PERFORMANCE RESULTS ASSUME REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS AT NET ASSET VALUE ON THE EX-DIVIDEND DATES. TOTALS RETURNS FOR PERIODS OF LESS THAN ONE YEAR HAVE NOT BEEN ANNUALIZED. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE DATA QUOTED. FOR MONTH-END PERFORMANCE FIGURES, PLEASE VISIT http://www.ubs.com. 44 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, January 1, 2005 to June 30, 2005. 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* JANUARY 1, 2005 JUNE 30, 2005 1/1/05 - 6/30/05 ------------------------------------------------------------------------------------------------------ CLASS A ACTUAL $ 1,000.00 $ 974.30 $ 6.04 HYPOTHETICAL (5% RETURN BEFORE EXPENSES) 1,000.00 1,018.67 6.18 CLASS B ACTUAL 1,000.00 971.90 9.63 HYPOTHETICAL (5% RETURN BEFORE EXPENSES) 1,000.00 1,015.02 9.84 CLASS C ACTUAL 1,000.00 971.80 9.64 HYPOTHETICAL (5% RETURN BEFORE EXPENSES) 1,000.00 1,015.02 9.85 CLASS Y ACTUAL 1,000.00 976.50 4.84 HYPOTHETICAL (5% RETURN BEFORE EXPENSES) 1,000.00 1,019.90 4.95
* EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO: CLASS A: 1.23%, CLASS B: 1.97%, CLASS C: 1.97%, CLASS Y: 0.99%, MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 181 DIVIDED BY 365 (TO REFLECT THE ONE-HALF YEAR PERIOD). 45 TOP TEN INTERNATIONAL EQUITY HOLDINGS AS OF JUNE 30, 2005 (UNAUDITED)
PERCENTAGE OF NET ASSETS --------------------------------------------------- Vodafone Group PLC 3.5% Total S.A. 3.3 BP PLC 2.8 Royal Bank of Scotland Group PLC 2.5 Credit Suisse Group 2.3 ABN AMRO Holding NV 2.3 Roche Holding AG 2.0 Barclays PLC 1.9 Bank of Ireland 1.9 Tesco PLC 1.7 --------------------------------------------------- Total 24.2%
INDUSTRY DIVERSIFICATION AS A PERCENT OF NET ASSETS AS OF JUNE 30, 2005 (UNAUDITED) INTERNATIONAL EQUITIES Air Freight & Logistics 1.23% Airlines 0.57 Auto Components 1.33 Automobiles 2.15 Beverages 2.80 Biotechnology 0.59 Capital Markets 2.58 Chemicals 2.10 Commercial Banks 17.11 Commercial Services & Supplies 1.12 Communications Equipment 1.53 Construction & Engineering 0.26 Construction Materials 1.65 Consumer Finance 0.52 Diversified Financial Services 0.92 Diversified Telecommunication Services 4.65 Electric Utilities 1.87 Electronic Equipment & Instruments 1.33 Food & Staples Retailing 2.88 Food Products 0.88 Health Care Equipment & Supplies 0.47 Health Care Providers & Services 0.65 Household Durables 2.23 Household Products 0.68 Insurance 5.52 Internet & Catalog Retail 0.55 Leisure Equipment & Products 0.88 Media 2.91 Machinery 0.78% Marine 0.26 Metals & Mining 0.68 Multiline Retail 0.42 Office Electronics 1.15 Oil & Gas 8.83 Paper & Forest Products 1.30 Pharmaceuticals 5.32 Real Estate 1.78 Road & Rail 1.05 Semiconductors & Semiconductor Equipment 1.89 Specialty Retail 2.13 Textiles, Apparel & Luxury Goods 0.97 Tobacco 1.06 Trading Companies & Distributors 1.27 Wireless Telecommunication Services 6.49 ------ Total International Equities 97.34 INVESTMENT COMPANY 1.52 SHORT-TERM INVESTMENT 0.81 INVESTMENT OF CASH COLLATERAL FOR SECURITIES LOANED 13.20 ------ TOTAL INVESTMENTS 112.87 LIABILITIES, IN EXCESS OF CASH AND OTHER ASSETS (12.87) ------ NET ASSETS 100.00% ======
46 UBS INTERNATIONAL EQUITY FUND -- SCHEDULE OF INVESTMENTS JUNE 30, 2005
SHARES VALUE --------------- --------------- INTERNATIONAL EQUITIES -- 97.34% AUSTRALIA -- 3.12% Australia & New Zealand Banking Group Ltd. 56,025 $ 928,835 National Australia Bank Ltd. 45,287 1,061,835 Qantas Airways Ltd. 289,541 743,768 QBE Insurance Group Ltd. 110,610 1,351,529 --------------- 4,085,967 --------------- AUSTRIA -- 0.92% Telekom Austria AG (a) 62,167 1,209,468 --------------- BELGIUM -- 1.63% Fortis 29,366 815,917 KBC Groep NV S.A. 10,241 809,607 Solvay S.A. 5,024 516,692 --------------- 2,142,216 --------------- CANADA -- 4.44% Alcan, Inc. 29,740 893,074 Bank of Nova Scotia (a) 24,700 817,552 Canadian National Railway Co. 9,300 536,679 Canadian Tire Corp. Ltd. 11,900 550,113 Cott Corp. (b) 26,000 566,574 Magna International, Inc., Class A 7,800 548,063 Petro-Canada 15,600 1,015,758 Shoppers Drug Mart Corp. 25,800 895,248 --------------- 5,823,061 --------------- DENMARK -- 0.26% A.P. Moller - Maersk A/S 36 343,899 --------------- FINLAND -- 2.46% Nokia Oyj 119,942 2,011,128 UPM-Kymmene Oyj 62,978 1,209,997 --------------- 3,221,125 --------------- FRANCE -- 9.13% BNP Paribas (a) 18,357 1,260,095 Christian Dior S.A. 3,823 296,675 France Telecom S.A. (a) 72,235 2,112,824 LVMH Moet Hennessy Louis Vuitton S.A. (a) 6,920 535,335 Pernod-Ricard S.A. (a) 2,748 439,146 Sanofi-Aventis S.A. (a) 26,292 2,161,285 Total S.A. 18,287 4,301,638 Unibail (a) 6,781 871,019 --------------- 11,978,017 --------------- GERMANY -- 4.49% Bayerische Motoren Werke AG 14,616 667,627 Deutsche Postbank AG (a) 14,950 736,095 Deutsche Telekom AG 65,652 1,216,068 E.ON AG 19,753 1,761,981 Fresenius Medical Care AG (a) 9,897 846,754 Hannover Rueckversicherung AG (a) 10,354 391,721 Premiere AG (b) 7,769 268,999 --------------- 5,889,245 --------------- HONG KONG -- 1.66% Esprit Holdings Ltd. 91,500 $ 662,122 Hutchison Telecommunications International Ltd. (a) (b) 410,000 406,134 Sun Hung Kai Properties Ltd. 68,000 671,401 Yue Yuen Industrial Holdings 144,500 442,425 --------------- 2,182,082 --------------- IRELAND -- 2.71% Bank of Ireland 150,252 2,441,133 CRH PLC 41,841 1,111,873 --------------- 3,553,006 --------------- ITALY -- 1.96% ENI SpA (a) 40,311 1,039,982 UniCredito Italiano SpA (a) 289,141 1,528,837 --------------- 2,568,819 --------------- JAPAN -- 20.49% Aeon Co., Ltd. 40,200 613,466 Asahi Breweries, Ltd. (a) 54,100 645,431 Bank of Yokohama, Ltd. 153,000 885,055 Bridgestone Co. 3,000 57,802 Canon, Inc. 28,700 1,512,571 East Japan Railway Co. 163 838,462 Fast Retailing Co., Ltd. (a) 6,700 348,272 Fuji Photo Film Co., Ltd. 20,200 650,790 Funai Electric Co., Ltd. (a) 5,900 605,920 Honda Motor Co., Ltd. 16,900 834,248 Kao Corp. 38,000 896,760 KDDI Corp. 139 643,507 Meitec Corp. (a) 8,000 246,187 Mitsubishi Corp. 69,700 948,539 Mitsui Fudosan Co., Ltd. 70,000 786,481 Mitsui Sumitomo Insurance Co., Ltd. 73,000 658,127 Murata Manufacturing Co., Ltd. 12,200 622,056 NEC Electronics Corp. (a) 6,100 275,246 NGK Spark Plug Co., Ltd. 37,000 427,064 Nippon Paper Group, Inc.(a) 134 492,176 Nissan Motor Co., Ltd. 133,000 1,317,877 Nitto Denko Corp. 21,400 1,228,265 NOK Corp. (a) 25,400 710,586 Nomura Holdings, Inc. 31,300 374,832 NTN Corp. (a) 73,000 392,636 NTT DoCoMo, Inc. 848 1,255,049 Rohm Co., Ltd. 13,800 1,332,551 Sekisui House Ltd. (a) 79,000 799,197 Shin-Etsu Chemical Co., Ltd. 26,800 1,018,211 SKY Perfect Communications, Inc. 201 151,643 Sompo Japan Insurance, Inc. 110,000 1,111,813 Sumitomo Mitsui Financial Group, Inc. 175 1,182,375 Sumitomo Trust & Banking Co., Ltd. (a) 97,000 590,876 Taiheiyo Cement Corp. (a) 600 1,603 Takefuji Corp. 10,140 686,310 Tokyo Gas Co., Ltd. (a) 148,000 554,282 Yamaha Corp. (a) 32,300 504,278 Yokogawa Electric Corp. 53,400 660,693 --------------- 26,861,237 ---------------
47
SHARES VALUE --------------- --------------- NETHERLANDS -- 7.05% ABN AMRO Holding NV 121,092 $ 2,983,310 ASML Holding NV (b) 55,300 871,675 Heineken NV 1,399 43,257 Koninklijke Philips Electronics NV 29,122 736,862 Reed Elsevier NV 56,421 786,886 Royal KPN NV 92,916 780,672 TNT NV 63,769 1,617,381 VNU NV 50,769 1,417,963 --------------- 9,238,006 --------------- NORWAY -- 0.59% Telenor ASA 96,800 773,624 --------------- SINGAPORE -- 0.39% DBS Group Holdings Ltd. 60,000 508,505 --------------- SPAIN -- 0.72% Repsol YPF S.A. 36,960 946,817 --------------- SWEDEN -- 1.08% Electrolux AB, B Shares 36,900 786,770 Sandvik AB 17,000 632,416 --------------- 1,419,186 --------------- SWITZERLAND -- 10.12% Actelion NV (b) 7,103 737,967 Adecco S.A. (a) 18,688 851,908 Credit Suisse Group 76,174 3,005,695 Holcim Ltd. 17,302 1,053,435 Nestle S.A. 4,484 1,148,038 Novartis AG 32,822 1,564,111 Roche Holding AG 20,513 2,597,150 Serono S.A. 66 42,194 Straumann Holding AG 2,944 613,573 Swiss Reinsurance Co. 26,896 1,654,363 --------------- 13,268,434 --------------- UNITED KINGDOM -- 24.12% AstraZeneca PLC 15,672 649,189 Balfour Beatty PLC 56,776 336,598 Barclays PLC 247,871 2,468,066 BP PLC 357,539 3,723,459 Collins Stewart Tullett PLC 48,972 392,156 Diageo PLC 133,553 1,970,156 Electrocomponents PLC 106,060 $ 457,208 Gallaher Group PLC 93,440 1,388,463 GUS PLC 45,305 715,027 HBOS PLC 65,127 1,004,521 Kesa Electricals PLC 122,112 611,769 Kingfisher PLC 264,445 1,166,051 O2 PLC (b) 643,783 1,572,255 Prudential PLC 233,248 2,074,749 Rentokil Initial PLC 127,374 364,728 Royal Bank of Scotland Group PLC 106,828 3,228,418 Scottish & Southern Energy PLC 38,292 695,288 Taylor Nelson Sofres PLC 152,593 598,315 Tesco PLC 396,762 2,266,874 Vodafone Group PLC 1,898,276 4,627,488 Wolseley PLC 33,926 713,917 WPP Group PLC 58,293 600,279 --------------- 31,624,974 --------------- Total International Equities (Cost $104,935,680) 127,637,688 --------------- INVESTMENT COMPANY -- 1.52% iShares MSCI EAFE Index Fund (a) (Cost $1,983,589) 38,100 1,996,059 --------------- SHORT-TERM INVESTMENT -- 0.81% UBS Supplementary Trust -- U.S. Cash Management Prime Fund, yield of 3.28% (Cost $1,067,148) 1,067,148 1,067,148 --------------- INVESTMENT OF CASH COLLATERAL FOR SECURITIES LOANED -- 13.20% UBS Supplementary Trust -- U.S. Cash Management Prime Fund, yield of 3.28% (Cost $17,300,724) 17,300,724 17,300,724 --------------- Total Investments (Cost $125,287,141) -- 112.87% 148,001,619 Liabilities, in excess of cash and other assets -- (12.87)% (16,876,632) --------------- Net Assets -- 100.00% $ 131,124,987 ===============
48 NOTES TO SCHEDULE OF INVESTMENTS Aggregate cost for federal income tax purposes was $ 125,836,153; and net unrealized appreciation consisted of: Gross unrealized appreciation $ 24,972,846 Gross unrealized depreciation (2,807,380) --------------- Net unrealized appreciation $ 22,165,466 ===============
(a) Security, or portion thereof, was on loan at June 30, 2005. (b) Non-income producing security. FORWARD FOREIGN CURRENCY CONTRACTS UBS International Equity Fund had the following open forward foreign currency contracts as of June 30, 2005:
UNREALIZED CONTRACTS IN EXCHANGE MATURITY APPRECIATION/ TO DELIVER FOR DATES (DEPRECIATION) ----------- --------------- -------- -------------- Australian Dollar 2,005,000 USD 1,510,266 12/05/05 $ (5,454) British pound 4,150,000 USD 7,550,365 12/05/05 139,295 British pound 1,355,000 USD 2,459,547 12/05/05 39,788 Euro 2,180,000 USD 2,767,968 12/05/05 111,202 Euro 620,000 USD 751,260 12/05/05 (4,334) Euro 795,000 USD 966,800 12/05/05 (2,067) Japanese Yen 107,300,000 USD 1,023,914 12/05/05 40,446 Swiss Franc 5,735,000 USD 4,744,375 12/05/05 211,687 Swiss Franc 860,000 USD 695,523 12/05/05 15,817 United States Dollar 2,247,762 CAD 2,830,000 12/05/05 72,313 United States Dollar 729,838 CAD 895,000 12/05/05 3,896 United States Dollar 998,977 DKK 5,860,000 12/05/05 (40,679) United States Dollar 840,548 EUR 680,000 12/05/05 (11,832) United States Dollar 1,150,239 GBP 635,000 12/05/05 (16,256) United States Dollar 693,755 GBP 385,000 12/05/05 (6,221) United States Dollar 2,298,742 JPY 243,000,000 12/05/05 (71,503) United States Dollar 839,478 JPY 90,800,000 12/05/05 (7,242) United States Dollar 5,397,550 SEK 39,000,000 12/05/05 (358,281) United States Dollar 2,703,209 SEK 20,200,000 12/05/05 (93,126) United States Dollar 3,169,003 SGD 5,210,000 12/05/05 (59,804) -------------- Total net unrealized depreciation on forward foreign currency contracts $ (42,355) ==============
Currency Type Abbreviations CAD Canadian Dollar DKK Danish Krone EUR Euro GBP British Pound JPY Japanese Yen SEK Swedish Krona SGD Singapore Dollar USD United States Dollar See accompanying notes to financial statements 49 UBS U.S. LARGE CAP EQUITY FUND For the fiscal year ended June 30, 2005, Class A shares of UBS U.S. Large Cap Equity Fund (the "Fund") returned 11.10% and Class Y shares returned 11.37%, versus the 7.93% return of the Fund's benchmark, the Russell 1000 Index (the "Index"). Since inception on June 30, 1997, through period end, the Fund's A shares returned 5.74% and the Index returned 5.85%, and since inception on February 22, 1994, through period end, the Fund's Y shares returned 10.92% on an annualized basis, versus the 10.57% 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 51; 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 returns relative to its benchmark Index during the reporting period largely due to its sector weightings, which were driven by our research-intense stock selection process. High-quality, low-volatility stocks looked most attractive to us through much of the reporting period. No identifiable macro themes drove portfolio construction; rather, attractive opportunities at both the sector and stock level accounted for how we positioned the Fund. We emphasized companies with strong cash flow and the ability to pay or increase dividends and/or repurchase shares. LARGE CAPS DELIVER SOLID RETURNS For the most part, investors spent much of the last 12 months trying to make sense of a confusing economic picture. Critical statistics, such as consumer demand and gross domestic product (GDP), remained solid. But rising oil prices, the threat of inflation, and increasing concern over a real estate price correction left many market observers predicting an economic slowdown. In response to this uncertainty, many investors turned to the stability and quality of large cap stocks, favoring value-oriented stocks over growth-oriented stocks for much of the reporting period. RESEARCH-LED ALLOCATIONS AID PERFORMANCE The Fund's relative performance was supported by an overweight exposure to healthcare and construction and real property relative to its benchmark Index, as well as an underweight to technology hardware. Within healthcare, the Fund moved away from pharmaceuticals in favor of medical services companies. While the Fund continued to see solid returns from some of its pharmaceutical holdings, including top-performer Wyeth, we shifted our healthcare focus in 2005 toward medical services. In our opinion, the 2006 Medicare prescription drug benefit program rollout will create significant price pressure for some and significant opportunities for others. In our opinion, the services subsector, including pharmacy benefit managers, has solid fundamentals and is poised to benefit from the changing dynamics in the prescription drug arena. An overweight exposure to construction and real property also helped the Fund over the reporting period. While we shied away from most other areas of the materials industry, our research uncovered several attractive opportunities in construction and real property. One example is Martin Marietta Materials, Inc., the country's second largest producer of aggregates for highway, infrastructure, commercial and residential construction. The Fund's underweight in technology hardware included an underweight exposure to semiconductor stocks and computer hardware stocks, industries that posted negative returns in the uncertain economic climate. We continued to believe that earnings estimates for technology hardware are too high and stocks are overpriced. As a result, we remain cautious about opportunities in this area. The Fund's underweight in the top-performing energy sector was the principal drag on relative returns. The Fund did hold several stocks in energy that performed well, including Marathon Oil Corp. In our opinion, however, record high oil prices that are not at all sustainable pushed many energy stock prices beyond fair value. We will continue to monitor the situation as oil prices fluctuate, but we remain confident in our underweight position and believe that the energy stocks we do own should be less impacted than others by falling oil prices over time. THIS LETTER IS INTENDED TO ASSIST SHAREHOLDERS IN UNDERSTANDING HOW THE FUND PERFORMED DURING THE FISCAL YEAR ENDED JUNE 30, 2005. THE VIEWS AND OPINIONS IN THE LETTER WERE CURRENT AS OF AUGUST 1, 2005. THEY ARE NOT GUARANTEES OF PERFORMANCE OR INVESTMENT RESULTS AND SHOULD NOT BE TAKEN AS INVESTMENT ADVICE. INVESTMENT DECISIONS REFLECT A VARIETY OF FACTORS, AND WE RESERVE THE RIGHT TO CHANGE OUR VIEWS ABOUT INDIVIDUAL SECURITIES, SECTORS AND MARKETS AT ANY TIME. AS A RESULT, THE VIEWS EXPRESSED SHOULD NOT BE RELIED UPON AS A FORECAST OF THE FUND'S FUTURE INVESTMENT INTENT. WE ENCOURAGE YOU TO CONSULT YOUR FINANCIAL ADVISOR REGARDING YOUR PERSONAL INVESTMENT PROGRAM. MUTUAL FUNDS ARE SOLD BY PROSPECTUS ONLY. YOU SHOULD READ IT CAREFULLY AND CONSIDER A FUND'S INVESTMENT OBJECTIVES, RISKS, CHARGES, EXPENSES AND OTHER IMPORTANT INFORMATION CONTAINED IN THE PROSPECTUS BEFORE INVESTING. PROSPECTUSES FOR MOST OF OUR FUNDS CAN BE OBTAINED FROM YOUR FINANCIAL ADVISOR, BY CALLING UBS FUNDS AT 800-647 1568 OR BY VISITING OUR WEB SITE AT www.ubs.com/globalam-us. 50 AVERAGE ANNUAL TOTAL RETURN (UNAUDITED)
1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION* ENDED ENDED ENDED ENDED TO 6/30/05 6/30/05 6/30/05 6/30/05 6/30/05 ------------------------------------------------------------------------------------------------ UBS U.S. LARGE CAP EQUITY FUND CLASS A 11.10% 10.28% 6.33% N/A 5.74% UBS U.S. LARGE CAP EQUITY FUND CLASS B 10.19 9.45 N/A N/A 7.29 UBS U.S. LARGE CAP EQUITY FUND CLASS C 10.20 9.47 N/A N/A 6.51 UBS U.S. LARGE CAP EQUITY FUND CLASS Y 11.37 10.61 6.62 10.67% 10.92 UBS U.S. LARGE CAP EQUITY FUND CLASS A** 4.96 8.22 5.13 N/A 4.99 UBS U.S. LARGE CAP EQUITY FUND CLASS B** 5.19 8.61 N/A N/A 6.84 UBS U.S. LARGE CAP EQUITY FUND CLASS C** 9.20 9.47 N/A N/A 6.51 RUSSELL 1000 INDEX*** 7.93 9.19 -1.89 10.16 10.57
* 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. THE Y SHARE CLASS IS OUR LOWEST FEE SHARE CLASS. OUR OTHER SHARE CLASSES INCLUDE HIGHER FEES AND LOADS, WHICH IF DEDUCTED WOULD RESULT IN LOWER PERFORMANCE. PAST PERFORMANCE DOES NOT PREDICT FUTURE PERFORMANCE, AND THE PERFORMANCE INFORMATION PROVIDED DOES NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PERFORMANCE RESULTS ASSUME REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS AT NET ASSET VALUE ON THE EX-DIVIDEND DATES. TOTALS RETURNS FOR PERIODS OF LESS THAN ONE YEAR HAVE NOT BEEN ANNUALIZED. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE DATA QUOTED. FOR MONTH-END PERFORMANCE FIGURES, PLEASE VISIT HTTP://www.ubs.com. 51 ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000 This chart shows the growth in the value of an investment in UBS U.S. Large Cap Equity Fund Class Y shares and the Russell 1000 Index, if you had invested $10,000 on February 22, 1994, and had reinvested all your income dividends and capital gain distributions through June 30, 2005. The performance of Class A, Class B, Class C shares will vary based upon the different inception dates, class specific expenses and sales charges. No adjustment has been made for any income taxes payable by shareholders on income dividends and capital gain distributions. Past performance is no guarantee of future results. Share price and returns will vary with market conditions; investors may realize a gain or loss upon redemption. [CHART] UBS U.S. LARGE CAP EQUITY FUND CLASS Y VS. RUSSELL 1000 INDEX Wealth Value With Dividends Reinvested
UBS U.S. LARGE CAP EQUITY FUND CLASS Y RUSSELL 1000 INDEX 2/22/1994 $ 10,000 $ 10,000 2/28/1994 $ 9,990 $ 9,929 3/31/1994 $ 9,420 $ 9,505 4/30/1994 $ 9,640 $ 9,619 5/31/1994 $ 9,840 $ 9,747 6/30/1994 $ 9,690 $ 9,486 7/31/1994 $ 9,911 $ 9,796 8/31/1994 $ 10,544 $ 10,210 9/30/1994 $ 10,182 $ 9,972 10/31/1994 $ 10,132 $ 10,160 11/30/1994 $ 9,781 $ 9,794 12/31/1994 $ 9,827 $ 9,933 1/31/1995 $ 10,030 $ 10,190 2/28/1995 $ 10,487 $ 10,605 3/31/1995 $ 10,752 $ 10,878 4/30/1995 $ 10,985 $ 11,167 5/31/1995 $ 11,392 $ 11,595 6/30/1995 $ 11,768 $ 11,902 7/31/1995 $ 12,187 $ 12,357 8/31/1995 $ 12,411 $ 12,450 9/30/1995 $ 12,881 $ 12,963 10/31/1995 $ 12,840 $ 12,904 11/30/1995 $ 13,575 $ 13,479 12/31/1995 $ 13,815 $ 13,684 1/31/1996 $ 14,381 $ 14,127 2/29/1996 $ 14,612 $ 14,311 3/31/1996 $ 14,885 $ 14,439 4/30/1996 $ 15,168 $ 14,659 5/31/1996 $ 15,409 $ 15,011 6/30/1996 $ 15,367 $ 15,028 7/31/1996 $ 14,629 $ 14,303 8/31/1996 $ 15,188 $ 14,692 9/30/1996 $ 15,872 $ 15,517 10/31/1996 $ 16,209 $ 15,860 11/30/1996 $ 17,336 $ 17,031 12/31/1996 $ 17,359 $ 16,755 1/31/1997 $ 17,989 $ 17,749 2/28/1997 $ 18,092 $ 17,817 3/31/1997 $ 17,496 $ 17,015 4/30/1997 $ 18,035 $ 17,935 5/31/1997 $ 19,354 $ 19,084 6/30/1997 $ 20,265 $ 19,875 7/31/1997 $ 21,815 $ 21,501 8/31/1997 $ 20,965 $ 20,487 9/30/1997 $ 21,907 $ 21,610 10/31/1997 $ 20,747 $ 20,910 11/30/1997 $ 21,161 $ 21,817 12/31/1997 $ 21,657 $ 22,260 1/31/1998 $ 21,805 $ 22,426 2/1/1998 $ 23,702 $ 24,024 3/31/1998 $ 25,070 $ 25,236 4/30/1998 $ 24,823 $ 25,495 5/31/1998 $ 24,466 $ 24,944 6/30/1998 $ 24,617 $ 25,867 7/31/1998 $ 23,999 $ 25,556 8/31/1998 $ 20,574 $ 21,736 9/30/1998 $ 22,070 $ 23,200 10/31/1998 $ 23,752 $ 25,032 11/30/1998 $ 24,741 $ 26,582 12/31/1998 $ 25,680 $ 28,275 1/31/1999 $ 25,509 $ 29,284 2/28/1999 $ 24,575 $ 28,355 3/31/1999 $ 25,377 $ 29,441 4/30/1999 $ 27,665 $ 30,672 5/31/1999 $ 27,323 $ 30,009 6/30/1999 $ 28,363 $ 31,539 7/31/1999 $ 27,175 $ 30,576 8/31/1999 $ 26,224 $ 30,289 9/30/1999 $ 24,323 $ 29,456 10/31/1999 $ 24,336 $ 31,436 11/30/1999 $ 24,481 $ 32,245 12/31/1999 $ 24,640 $ 34,188 1/31/2000 $ 22,985 $ 32,788 2/29/2000 $ 21,109 $ 32,701 3/31/2000 $ 23,204 $ 35,680 4/30/2000 $ 24,127 $ 34,491 5/31/2000 $ 24,332 $ 33,599 6/30/2000 $ 23,541 $ 34,455 7/31/2000 $ 23,629 $ 33,883 8/31/2000 $ 25,138 $ 36,391 9/30/2000 $ 24,274 $ 34,702 10/31/2000 $ 25,094 $ 34,284 11/30/2000 $ 24,464 $ 31,149 12/31/2000 $ 25,437 $ 31,525 1/31/2001 $ 26,621 $ 32,563 2/28/2001 $ 25,615 $ 29,525 3/31/2001 $ 24,464 $ 27,564 4/30/2001 $ 25,810 $ 29,779 5/31/2001 $ 26,524 $ 29,980 6/30/2001 $ 26,103 $ 29,303 7/31/2001 $ 25,924 $ 28,903 8/31/2001 $ 24,966 $ 27,141 9/30/2001 $ 22,773 $ 24,840 10/31/2001 $ 23,244 $ 25,357 11/30/2001 $ 25,290 $ 27,309 12/31/2001 $ 25,913 $ 27,600 1/31/2002 $ 25,896 $ 27,250 2/28/2002 $ 25,709 $ 26,707 3/31/2002 $ 26,799 $ 27,804 4/30/2002 $ 26,050 $ 26,211 5/31/2002 $ 25,743 $ 25,980 6/30/2002 $ 23,971 $ 24,063 7/31/2002 $ 22,284 $ 22,282 8/31/2002 $ 22,557 $ 22,399 9/30/2002 $ 19,848 $ 19,993 10/31/2002 $ 21,313 $ 21,654 11/30/2002 $ 22,744 $ 22,921 12/31/2002 $ 21,624 $ 21,624 1/31/2003 $ 21,020 $ 21,100 2/28/2003 $ 20,576 $ 20,774 3/31/2003 $ 20,789 $ 20,989 4/30/2003 $ 22,725 $ 22,683 5/31/2003 $ 23,950 $ 23,976 6/30/2003 $ 24,376 $ 24,292 7/31/2003 $ 24,802 $ 24,776 8/31/2003 $ 25,050 $ 25,279 9/30/2003 $ 24,890 $ 25,020 10/31/2003 $ 26,346 $ 26,487 11/30/2003 $ 26,630 $ 26,804 12/31/2003 $ 28,212 $ 28,088 1/31/2004 $ 28,445 $ 28,622 2/29/2004 $ 29,020 $ 29,018 3/31/2004 $ 28,517 $ 28,622 4/30/2004 $ 28,284 $ 28,105 5/31/2004 $ 28,481 $ 28,510 6/30/2004 $ 29,128 $ 29,024 7/31/2004 $ 28,086 $ 28,005 8/31/2004 $ 28,535 $ 28,143 9/30/2004 $ 28,948 $ 28,498 10/31/2004 $ 29,541 $ 28,958 11/30/2004 $ 30,673 $ 30,198 12/31/2004 $ 31,976 $ 31,291 1/31/2005 $ 31,342 $ 30,503 2/28/2005 $ 31,770 $ 31,189 3/31/2005 $ 31,491 $ 30,695 4/30/2005 $ 31,118 $ 30,129 5/31/2005 $ 31,863 $ 31,197 6/30/2005 $ 32,441 $ 31,324
2/22/94 = $10,000 PAST PERFORMANCE DOES NOT PREDICT FUTURE PERFORMANCE, AND THE PERFORMANCE INFORMATION PROVIDED DOES NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PERFORMANCE RESULTS ASSUME REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS AT NET ASSET VALUE ON THE EX-DIVIDEND DATES. TOTALS RETURNS FOR PERIODS OF LESS THAN ONE YEAR HAVE NOT BEEN ANNUALIZED. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE DATA QUOTED. FOR MONTH-END PERFORMANCE FIGURES, PLEASE VISIT HTTP://www.ubs.com. 52 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, January 1, 2005 to June 30, 2005. 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* JANUARY 1, 2005 JUNE 30, 2005 1/1/05 - 6/30/05 ------------------------------------------------------------------------------------------------------ CLASS A ACTUAL $ 1,000.00 $ 1,013.50 $ 5.55 HYPOTHETICAL (5% RETURN BEFORE EXPENSES) 1,000.00 1,019.29 5.56 CLASS B ACTUAL 1,000.00 1,008.90 9.91 HYPOTHETICAL (5% RETURN BEFORE EXPENSES) 1,000.00 1,014.93 9.94 CLASS C ACTUAL 1,000.00 1,008.90 9.54 HYPOTHETICAL (5% RETURN BEFORE EXPENSES) 1,000.00 1,015.29 9.57 CLASS Y ACTUAL 1,000.00 1,014.60 4.29 HYPOTHETICAL (5% RETURN BEFORE EXPENSES) 1,000.00 1,020.53 4.31
* EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO: CLASS A: 1.11%, CLASS B: 1.99%, CLASS C: 1.92%, CLASS Y: 0.86%, MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 181 DIVIDED BY 365 (TO REFLECT THE ONE-HALF YEAR PERIOD). 53 TOP TEN EQUITY HOLDINGS AS OF JUNE 30, 2005 (UNAUDITED)
PERCENTAGE OF NET ASSETS ----------------------------------------------------- Citigroup, Inc. 4.3% Nextel Communications, Inc., Class A 3.4 Johnson & Johnson 3.3 Wells Fargo & Co. 3.2 Microsoft Corp. 3.1 UnitedHealth Group, Inc. 3.1 Morgan Stanley 2.8 Exelon Corp. 2.6 JPMorgan Chase & Co. 2.3 Freddie Mac 2.3 ----------------------------------------------------- Total 30.4%
INDUSTRY DIVERSIFICATION AS A PERCENT OF NET ASSETS AS OF JUNE 30, 2005 (UNAUDITED) U.S. EQUITIES Aerospace & Defense 2.74% Air Freight & Logistics 0.62 Auto Components 1.22 Biotechnology 3.05 Building Products 2.21 Capital Markets 4.63 Commercial Banks 5.57 Commercial Services & Supplies 0.89 Computers & Peripherals 1.30 Construction Materials 1.73 Diversified Financial Services 6.64 Diversified Telecommunication Services 1.22 Electric Utilities 5.68 Electronic Equipment & Instruments 1.02 Energy Equipment & Services 0.59 Food & Staples Retailing 5.13 Gas Utilities 0.64 Health Care Equipment & Supplies 1.07 Health Care Providers & Services 6.39 Hotels, Restaurants & Leisure 0.81 Household Products 1.28 Insurance 4.76 Internet & Catalog Retail 1.20 Machinery 1.94% Media 5.86 Multi-Utilities & Unregulated Power 1.02 Multiline Retail 1.02 Oil & Gas 2.83 Pharmaceuticals 9.11 Road & Rail 1.28 Semiconductors & Semiconductor Equipment 1.49 Software 5.41 Specialty Retail 0.72 Thrifts & Mortgage Finance 2.28 Wireless Telecommunication Services 3.39 ------ Total U.S. Equities 96.74 SHORT-TERM INVESTMENTS 3.56 ------ TOTAL INVESTMENTS 100.30 LIABILITIES, IN EXCESS OF CASH AND OTHER ASSETS (0.30) ------ NET ASSETS 100.00% ======
54 UBS U.S. LARGE CAP EQUITY FUND -- SCHEDULE OF INVESTMENTS JUNE 30, 2005
SHARES VALUE -------------- -------------- U.S. EQUITIES -- 96.74 AEROSPACE & DEFENSE -- 2.74% Lockheed Martin Corp. 94,500 $ 6,130,215 Northrop Grumman Corp. 85,300 4,712,825 -------------- 10,843,040 -------------- AIR FREIGHT & LOGISTICS -- 0.62% FedEx Corp. 30,600 2,478,906 -------------- AUTO COMPONENTS -- 1.22% Borg-Warner, Inc. 7,000 375,690 Johnson Controls, Inc. 78,900 4,444,437 -------------- 4,820,127 -------------- BIOTECHNOLOGY -- 3.05% Cephalon, Inc. (a) 64,700 2,575,707 Genzyme Corp. (a) 150,200 9,025,518 Millennium Pharmaceuticals, Inc. (a) 53,400 495,018 -------------- 12,096,243 -------------- BUILDING PRODUCTS -- 2.21% Masco Corp. 276,100 8,768,936 -------------- CAPITAL MARKETS -- 4.63% Mellon Financial Corp. 257,700 7,393,413 Morgan Stanley 208,800 10,955,736 -------------- 18,349,149 -------------- COMMERCIAL BANKS -- 5.57% Fifth Third Bancorp 114,400 4,714,424 PNC Financial Services Group, Inc. 89,500 4,874,170 Wells Fargo & Co. 202,800 12,488,424 -------------- 22,077,018 -------------- COMMERCIAL SERVICES & SUPPLIES -- 0.89% Cendant Corp. 157,500 3,523,275 -------------- COMPUTERS & PERIPHERALS -- 1.30% Hewlett-Packard Co. 218,500 5,136,935 -------------- CONSTRUCTION MATERIALS -- 1.73% Martin Marietta Materials, Inc. 99,507 6,877,924 -------------- DIVERSIFIED FINANCIAL SERVICES -- 6.64% Citigroup, Inc. 371,561 17,177,265 JPMorgan Chase & Co. 258,400 9,126,688 -------------- 26,303,953 -------------- DIVERSIFIED TELECOMMUNICATION SERVICES -- 1.22% SBC Communications, Inc. 204,500 4,856,875 -------------- ELECTRIC UTILITIES -- 5.68% American Electric Power Co., Inc. 102,800 3,790,236 Exelon Corp. 197,500 10,137,675 FirstEnergy Corp. 138,445 6,660,589 Pepco Holdings, Inc. 80,400 1,924,776 -------------- 22,513,276 -------------- ELECTRONIC EQUIPMENT & INSTRUMENTS -- 1.02% Mettler Toledo International, Inc. (a) 86,500 4,029,170 -------------- ENERGY EQUIPMENT & SERVICES -- 0.59% Baker Hughes, Inc. 46,000 2,353,360 -------------- FOOD & STAPLES RETAILING -- 5.13% 7-Eleven, Inc. (a) 31,300 $ 946,512 Albertson's, Inc. 279,900 5,788,332 Costco Wholesale Corp. 179,700 8,054,154 Kroger Co. (a) 291,900 5,554,857 -------------- 20,343,855 -------------- GAS UTILITIES -- 0.64% NiSource, Inc. 102,400 2,532,352 -------------- HEALTH CARE EQUIPMENT & SUPPLIES -- 1.07% Medtronic, Inc. 52,800 2,734,512 Waters Corp. (a) 40,900 1,520,253 -------------- 4,254,765 -------------- HEALTH CARE PROVIDERS & SERVICES -- 6.39% Caremark Rx, Inc. (a) 49,100 2,185,932 Medco Health Solutions, Inc. (a) 99,000 5,282,640 UnitedHealth Group, Inc. 232,200 12,106,908 WellPoint, Inc. (a) 82,400 5,738,336 -------------- 25,313,816 -------------- HOTELS, RESTAURANTS & LEISURE -- 0.81% Carnival Corp. 58,700 3,202,085 -------------- HOUSEHOLD PRODUCTS -- 1.28% Kimberly-Clark Corp. 81,050 5,072,919 -------------- INSURANCE -- 4.76% Aflac, Inc. 77,600 3,358,528 Allstate Corp. 78,900 4,714,275 American International Group, Inc. 114,200 6,635,020 Hartford Financial Services Group, Inc. 55,600 4,157,768 -------------- 18,865,591 -------------- INTERNET & CATALOG RETAIL -- 1.20% IAC/InterActiveCorp. (a) 198,300 4,769,115 -------------- MACHINERY -- 1.94% Illinois Tool Works, Inc. 96,300 7,673,184 -------------- MEDIA -- 5.86% Clear Channel Communications, Inc. 131,300 4,061,109 Dex Media, Inc. 94,000 2,294,540 DIRECTV Group, Inc. (a) 100,200 1,553,100 Omnicom Group, Inc. 72,600 5,797,836 Time Warner, Inc. (a) 378,300 6,321,393 Univision Communications, Inc. (a) 115,700 3,187,535 -------------- 23,215,513 -------------- MULTILINE RETAIL -- 1.02% Kohl's Corp. (a) 72,300 4,042,293 -------------- MULTI-UTILITIES & UNREGULATED POWER -- 1.02% Sempra Energy 97,500 4,027,725 -------------- OIL & GAS -- 2.83% ExxonMobil Corp. 97,000 5,574,590 Marathon Oil Corp. 105,900 5,651,883 -------------- 11,226,473 -------------- PHARMACEUTICALS -- 9.11% Allergan, Inc. 100,700 8,583,668 Bristol-Myers Squibb Co. 129,300 3,229,914 Johnson & Johnson 201,644 13,106,860
55
SHARES VALUE -------------- -------------- Mylan Laboratories, Inc. 148,350 $ 2,854,254 Wyeth 187,000 8,321,500 -------------- 36,096,196 -------------- ROAD & RAIL -- 1.28% Burlington Northern Santa Fe Corp. 108,100 5,089,348 -------------- SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 1.49% Applied Materials, Inc. 211,000 3,413,980 Xilinx, Inc. 97,300 2,481,150 -------------- 5,895,130 -------------- SOFTWARE -- 5.41% Microsoft Corp. 500,200 12,424,968 Oracle Corp. (a) 428,200 5,652,240 Veritas Software Corp. (a) 137,700 3,359,880 -------------- 21,437,088 -------------- SPECIALTY RETAIL -- 0.72% Office Depot, Inc. (a) 125,300 2,861,852 -------------- THRIFTS & MORTGAGE FINANCE -- 2.28% Freddie Mac 138,700 9,047,401 -------------- WIRELESS TELECOMMUNICATION SERVICES -- 3.39% Nextel Communications, Inc., Class A (a) 416,300 13,450,653 -------------- Total U.S. Equities 383,445,541 -------------- SHORT-TERM INVESTMENTS -- 3.56% OTHER -- 3.35% UBS Supplementary Trust -- U.S. Cash Management Prime Fund, yield of 3.28% 13,297,146 13,297,146 -------------- FACE AMOUNT VALUE -------------- -------------- U.S. GOVERNMENT OBLIGATION -- 0.21% U.S. Treasury Bills, yield of 2.64% due 07/21/05 (b) $ 825,000 $ 823,776 -------------- Total Short-Term Investments (Cost $14,120,929) 14,120,922 -------------- Total Investments -- 100.30% (Cost $355,676,745) 397,566,463 Liabilities, in excess of cash and other assets -- (0.30%) (1,188,192) -------------- Net Assets -- 100.00% $ 396,378,271 ==============
NOTES TO SCHEDULE OF INVESTMENTS Aggregate cost for federal income tax purposes was $357,636,565; and net unrealized appreciation consisted of: Gross unrealized appreciation $ 44,599,701 Gross unrealized depreciation (4,669,803) -------------- Net unrealized appreciation $ 39,929,898 ==============
(a) Non-income producing security. (b) This security was pledged to cover margin requirements for futures contracts. FUTURES CONTRACTS UBS U.S. Large Cap Equity Fund had the following open futures contracts as of June 30, 2005:
EXPIRATION CURRENT UNREALIZED DATE COST VALUE DEPRECIATION -------------- ------------ ----------- ------------ INDEX FUTURES BUY CONTRACTS: S&P 500 Index, 25 contracts September 2005 $ 7,581,550 $ 7,471,875 $ (109,675) ============
The segregated aggregate market value of investments pledged to cover margin requirements for the open futures positions at June 30, 2005 was $823,776. See accompanying notes to financial statements 56 UBS U.S. LARGE CAP GROWTH FUND For the fiscal year ended June 30, 2005, Class A shares of UBS U.S. Large Cap Growth Fund (the "Fund") returned 6.49% and Class Y shares returned 6.75%, versus the 1.68% return of the Fund's benchmark, the Russell 1000 Growth Index (the "Index"). Since inception on December 31, 1998, through period end, the Fund's A shares returned -2.09% while the Index returned -3.31%, and since inception on October 14, 1997, through period end, the Fund's Y shares returned 1.29% on an annualized basis, versus the 1.28% 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 59; please note that these returns do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.) In the midst of a challenging market for growth investors, the Fund delivered strong returns relative to its Index. The Fund's performance can be traced to its industry positioning, which was driven by our bottom-up stock selection. A CONSISTENT STRATEGY IN THE FACE OF MARKET UNCERTAINTY Concerned about rising oil prices, inflation, a real estate bubble and continued geopolitical unrest, investors remained risk-averse, favoring large caps over small caps and value-oriented stocks over growth-oriented stocks. For the 12 months ending June 30, 2005, large cap value stocks (as measured by the Russell 1000 Value Index) rose 14.06% compared with the 1.68% return from large cap growth stocks (Russell 1000 Growth Index). In this uncertain environment, we continued looking for the characteristics that we believe exemplify successful growth companies: increasing profitability, pricing power and high or improving return on invested capital. During the period, this led us to emphasize names in the energy space. During much of the period, we favored exploration and production firms with strong organic growth potential. More recently, we began focusing on oil service companies, which we believe will enjoy pricing power in the years to come. We have also emphasized holdings in Internet advertising through companies such as Google and Yahoo. A significant change is afoot in how advertising dollars are being deployed, and a selective investment in the hot Web portals will, we believe, harness this revenue shift through maturation of search activity. STOCK SELECTION KEY TO SECTOR ALLOCATIONS Based on our ongoing analysis, we considered the large-cap growth market to be slightly undervalued for much of the fiscal year, and viewed it to be substantially undervalued as the period closed. By focusing on bottom-up stock selection rather than a top-down sector strategy, we believe that we constructed a well-diversified portfolio, with the most significant positions being an overweight to the energy sector and an underweight to technology hardware. Relative performance was helped over the reporting period by our overweight exposure to the energy sector relative to the Index. Supported by oil prices that topped $60 a barrel, energy was able to deliver the best industry returns during the reporting period. Within the energy sector, the Fund held an overweight exposure to energy reserve companies. We also increased the Fund's position in oil services companies, as we expect them to display solid pricing power over the next two years. Stock selection also contributed to performance in the energy sector, with holdings such as XTO Energy, Inc. and EOG Resources, Inc. delivering strong returns. Relative performance was also helped over the fiscal year by an overweight to healthcare. In 57 particular, the Fund's holdings in healthcare providers and biotechnology stocks enhanced results, including WellPoint, Inc., UnitedHealth Group, Inc. and Gilead Sciences Inc*. Relative performance also suffered from the Fund's position in eBay, Inc., a business model that remains dominant but underwent scrutiny early in 2005 as it appeared US listing volume was slowing. In contrast, our pharmaceutical position hindered performance. While we believe we were correct to be underweight the space, an overweight to Forest Laboratories* and an underweight to Johnson & Johnson were among the largest detractors from Fund performance for the period. * SECURITIES NO LONGER HELD AS OF JUNE 30, 2005. THIS LETTER IS INTENDED TO ASSIST SHAREHOLDERS IN UNDERSTANDING HOW THE FUND PERFORMED DURING THE FISCAL YEAR ENDED JUNE 30, 2005. THE VIEWS AND OPINIONS IN THE LETTER WERE CURRENT AS OF AUGUST 1, 2005. THEY ARE NOT GUARANTEES OF PERFORMANCE OR INVESTMENT RESULTS AND SHOULD NOT BE TAKEN AS INVESTMENT ADVICE. INVESTMENT DECISIONS REFLECT A VARIETY OF FACTORS, AND WE RESERVE THE RIGHT TO CHANGE OUR VIEWS ABOUT INDIVIDUAL SECURITIES, SECTORS AND MARKETS AT ANY TIME. AS A RESULT, THE VIEWS EXPRESSED SHOULD NOT BE RELIED UPON AS A FORECAST OF THE FUND'S FUTURE INVESTMENT INTENT. WE ENCOURAGE YOU TO CONSULT YOUR FINANCIAL ADVISOR REGARDING YOUR PERSONAL INVESTMENT PROGRAM. MUTUAL FUNDS ARE SOLD BY PROSPECTUS ONLY. YOU SHOULD READ IT CAREFULLY AND CONSIDER A FUND'S INVESTMENT OBJECTIVES, RISKS, CHARGES, EXPENSES AND OTHER IMPORTANT INFORMATION CONTAINED IN THE PROSPECTUS BEFORE INVESTING. PROSPECTUSES FOR MOST OF OUR FUNDS CAN BE OBTAINED FROM YOUR FINANCIAL ADVISOR, BY CALLING UBS FUNDS AT 800-647 1568 OR BY VISITING OUR WEB SITE AT www.ubs.com/globalam-us. 58 AVERAGE ANNUAL TOTAL RETURN (UNAUDITED)
1 YEAR 3 YEARS 5 YEARS INCEPTION* ENDED ENDED ENDED TO 6/30/05 6/30/05 6/30/05 6/30/05 -------------------------------------------------------------------------------------------------- UBS U.S. LARGE CAP GROWTH FUND CLASS A 6.49% 8.77% -8.69% -2.09% UBS U.S. LARGE CAP GROWTH FUND CLASS B 5.68 7.95 N/A 0.65 UBS U.S. LARGE CAP GROWTH FUND CLASS C 5.82 8.00 N/A -0.45 UBS U.S. LARGE CAP GROWTH FUND CLASS Y 6.75 9.01 -8.43 1.29 UBS U.S. LARGE CAP GROWTH FUND CLASS A** 0.61 6.74 -9.71 -2.94 UBS U.S. LARGE CAP GROWTH FUND CLASS B** 0.68 7.08 N/A 0.11 UBS U.S. LARGE CAP GROWTH FUND CLASS C** 4.82 8.00 N/A -0.45 RUSSELL 1000 GROWTH INDEX 1.68 7.26 -10.36 1.28
* 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. THE Y SHARE CLASS IS OUR LOWEST FEE SHARE CLASS. OUR OTHER SHARE CLASSES INCLUDE HIGHER FEES AND LOADS, WHICH IF DEDUCTED WOULD RESULT IN LOWER PERFORMANCE. PAST PERFORMANCE DOES NOT PREDICT FUTURE PERFORMANCE, AND THE PERFORMANCE INFORMATION PROVIDED DOES NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PERFORMANCE RESULTS ASSUME REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS AT NET ASSET VALUE ON THE EX-DIVIDEND DATES. TOTALS RETURNS FOR PERIODS OF LESS THAN ONE YEAR HAVE NOT BEEN ANNUALIZED. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE DATA QUOTED. FOR MONTH-END PERFORMANCE FIGURES, PLEASE VISIT HTTP://www.ubs.com. 59 ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000 This chart shows the growth in the value of an investment in UBS U.S. Large Gap Growth Fund Class Y shares and the Russell 1000 Growth Index, if you had invested $10,000 on October 14, 1997, and had reinvested all your income dividends and capital gain distributions through June 30, 2005. The performance of Class A, Class B and Class C shares will vary based upon the different inception dates, class specific expenses and sales charges. No adjustment has been made for any income taxes payable by shareholders on income dividends and capital gain distributions. Past performance is no guarantee of future results. Share price and returns will vary with market conditions; investors may realize a gain or loss upon redemption. [CHART] UBS U.S. LARGE CAP GROWTH FUND CLASS Y VS. RUSSELL 1000 GROWTH INDEX Wealth Value With Dividends Reinvested
UBS U.S. LARGE CAP GROWTH FUND CLASS Y RUSSELL 1000 GROWTH INDEX 10/14/1997 $ 10,000 $ 10,000 10/31/1997 $ 9,570 $ 9,389 11/30/1997 $ 9,750 $ 9,788 12/31/1997 $ 9,943 $ 9,897 1/31/1998 $ 9,872 $ 10,193 2/1/1998 $ 10,444 $ 10,960 3/31/1998 $ 10,855 $ 11,397 4/30/1998 $ 11,075 $ 11,555 5/31/1998 $ 10,825 $ 11,227 6/30/1998 $ 11,256 $ 11,914 7/31/1998 $ 11,205 $ 11,835 8/31/1998 $ 9,321 $ 10,059 9/30/1998 $ 9,822 $ 10,832 10/31/1998 $ 10,805 $ 11,703 11/30/1998 $ 11,587 $ 12,593 12/31/1998 $ 12,421 $ 13,728 1/31/1999 $ 13,208 $ 14,534 2/28/1999 $ 12,631 $ 13,870 3/31/1999 $ 13,250 $ 14,601 4/30/1999 $ 13,743 $ 14,619 5/31/1999 $ 13,575 $ 14,170 6/30/1999 $ 14,592 $ 15,163 7/31/1999 $ 13,994 $ 14,681 8/31/1999 $ 13,984 $ 14,921 9/30/1999 $ 13,512 $ 14,607 10/31/1999 $ 14,257 $ 15,710 11/30/1999 $ 14,980 $ 16,558 12/31/1999 $ 16,486 $ 18,280 1/31/2000 $ 15,847 $ 17,423 2/29/2000 $ 16,576 $ 18,275 3/31/2000 $ 17,665 $ 19,583 4/30/2000 $ 17,182 $ 18,651 5/31/2000 $ 16,509 $ 17,712 6/30/2000 $ 17,148 $ 19,054 7/31/2000 $ 16,733 $ 18,260 8/31/2000 $ 17,698 $ 19,913 9/30/2000 $ 16,105 $ 18,029 10/31/2000 $ 15,790 $ 17,176 11/30/2000 $ 14,062 $ 14,645 12/31/2000 $ 13,833 $ 14,181 1/31/2001 $ 14,592 $ 15,161 2/28/2001 $ 12,457 $ 12,587 3/31/2001 $ 11,147 $ 11,217 4/30/2001 $ 12,339 $ 12,636 5/31/2001 $ 12,195 $ 12,450 6/30/2001 $ 11,776 $ 12,162 7/31/2001 $ 11,449 $ 11,858 8/31/2001 $ 10,479 $ 10,888 9/30/2001 $ 9,418 $ 9,801 10/31/2001 $ 9,877 $ 10,315 11/30/2001 $ 10,807 $ 11,306 12/31/2001 $ 10,685 $ 11,285 1/31/2002 $ 10,461 $ 11,086 2/28/2002 $ 9,987 $ 10,625 3/31/2002 $ 10,330 $ 10,993 4/30/2002 $ 9,526 $ 10,096 5/31/2002 $ 9,328 $ 9,852 6/30/2002 $ 8,525 $ 8,940 7/31/2002 $ 7,945 $ 8,449 8/31/2002 $ 7,998 $ 8,474 9/30/2002 $ 7,141 $ 7,595 10/31/2002 $ 7,800 $ 8,292 11/30/2002 $ 8,156 $ 8,742 12/31/2002 $ 7,629 $ 8,138 1/31/2003 $ 7,497 $ 7,941 2/28/2003 $ 7,471 $ 7,904 3/31/2003 $ 7,589 $ 8,051 4/30/2003 $ 8,064 $ 8,647 5/31/2003 $ 8,459 $ 9,078 6/30/2003 $ 8,551 $ 9,203 7/31/2003 $ 8,815 $ 9,432 8/31/2003 $ 8,973 $ 9,667 9/30/2003 $ 8,920 $ 9,563 10/31/2003 $ 9,394 $ 10,101 11/30/2003 $ 9,552 $ 10,206 12/31/2003 $ 9,895 $ 10,559 1/31/2004 $ 10,198 $ 10,775 2/29/2004 $ 10,343 $ 10,843 3/31/2004 $ 10,198 $ 10,642 4/30/2004 $ 9,974 $ 10,518 5/31/2004 $ 10,158 $ 10,714 6/30/2004 $ 10,343 $ 10,847 7/31/2004 $ 9,763 $ 10,234 8/31/2004 $ 9,724 $ 10,183 9/30/2004 $ 10,132 $ 10,280 10/31/2004 $ 10,303 $ 10,441 11/30/2004 $ 10,685 $ 10,800 12/31/2004 $ 11,081 $ 11,223 1/31/2005 $ 10,659 $ 10,849 2/28/2005 $ 10,896 $ 10,964 3/31/2005 $ 10,620 $ 10,764 4/30/2005 $ 10,330 $ 10,560 5/31/2005 $ 10,936 $ 11,070 6/30/2005 $ 11,041 $ 11,030
10/14/97 = $10,000 PAST PERFORMANCE DOES NOT PREDICT FUTURE PERFORMANCE, AND THE PERFORMANCE INFORMATION PROVIDED DOES NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PERFORMANCE RESULTS ASSUME REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS AT NET ASSET VALUE ON THE EX-DIVIDEND DATES. TOTALS RETURNS FOR PERIODS OF LESS THAN ONE YEAR HAVE NOT BEEN ANNUALIZED. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE DATA QUOTED. FOR MONTH-END PERFORMANCE FIGURES, PLEASE VISIT http://www.ubs.com. 60 UBS U.S. LARGE CAP GROWTH FUND 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, January 1, 2005 to June 30, 2005. 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* JANUARY 1, 2005 JUNE 30, 2005 1/1/05 - 6/30/05 -------------------------------------------------------------------------------------------------- CLASS A ACTUAL $ 1,000.00 $ 996.40 $ 5.20 HYPOTHETICAL (5% RETURN BEFORE EXPENSES) 1,000.00 1,019.59 5.26 CLASS B ACTUAL 1,000.00 992.60 8.89 HYPOTHETICAL (5% RETURN BEFORE EXPENSES) 1,000.00 1,015.87 9.00 CLASS C ACTUAL 1,000.00 993.80 8.90 HYPOTHETICAL (5% RETURN BEFORE EXPENSES) 1,000.00 1,015.87 9.00 CLASS Y ACTUAL 1,000.00 996.80 3.96 HYPOTHETICAL (5% RETURN BEFORE EXPENSES) 1,000.00 1,020.83 4.01
* 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 181 DIVIDED BY 365 (TO REFLECT THE ONE-HALF YEAR PERIOD). 61 TOP TEN EQUITY HOLDINGS AS OF JUNE 30, 2005 (UNAUDITED)
PERCENTAGE OF NET ASSETS --------------------------------------------------- Google, Inc. 4.5% WellPoint, Inc. 3.3 Johnson & Johnson 3.1 EOG Resources, Inc. 3.1 eBay, Inc. 3.1 General Electric Co. 2.9 Medimmune, Inc. 2.9 Pulte Homes, Inc. 2.8 Best Buy Co., Inc. 2.8 XTO Energy, Inc. 2.6 --------------------------------------------------- Total 31.1%
INDUSTRY DIVERSIFICATION AS A PERCENTAGE OF NET ASSETS AS OF JUNE 30, 2005 (UNAUDITED) EQUITIES U.S. EQUITIES Aerospace & Defense 2.20% Biotechnology 5.00 Capital Markets 1.55 Communications Equipment 2.19 Computers & Peripherals 6.20 Consumer Finance 1.48 Diversified Financial Services 1.46 Energy Equipment & Services 1.52 Food & Staples Retailing 2.13 Health Care Equipment & Supplies 8.17 Health Care Providers & Services 5.80 Household Durables 2.80 Household Products 2.19 Industrial Conglomerates 2.93 Insurance 1.13 Internet & Catalog Retail 3.06 Internet Software & Services 6.16 Machinery 1.43 Media 2.27 Oil & Gas 7.03% Pharmaceuticals 5.63 Semiconductors & Semiconductor Equipment 1.57 Software 9.57 Specialty Retail 6.67 Textiles, Apparel & Luxury Goods 2.16 Wireless Telecommunication Services 2.33 ------ Total U.S. Equities 94.63 INTERNATIONAL EQUITY Machinery 1.58 ------ TOTAL EQUITIES 96.21 INVESTMENT COMPANY 1.00 SHORT-TERM INVESTMENT 1.93 ------ TOTAL INVESTMENTS 99.14 CASH AND OTHER ASSETS, LESS LIABILITIES 0.86 ------ NET ASSETS 100.00% ======
62 UBS U.S. LARGE CAP GROWTH FUND -- SCHEDULE OF INVESTMENTS JUNE 30, 2005
SHARES VALUE -------------- -------------- EQUITIES -- 96.21% U.S. EQUITIES -- 94.63% AEROSPACE & DEFENSE -- 2.20% United Technologies Corp. 3,100 $ 159,185 -------------- BIOTECHNOLOGY -- 5.00% Genzyme Corp. (a) 2,500 150,225 Medimmune, Inc. (a) 7,900 211,088 -------------- 361,313 -------------- CAPITAL MARKETS -- 1.55% Goldman Sachs Group, Inc. 1,100 112,222 -------------- COMMUNICATIONS EQUIPMENT -- 2.19% QUALCOMM, Inc. 4,800 158,448 -------------- COMPUTERS & PERIPHERALS -- 6.20% Apple Computer, Inc. (a) 3,600 132,516 Dell, Inc. (a) 3,400 134,334 EMC Corp. (a) 13,200 180,972 -------------- 447,822 -------------- CONSUMER FINANCE -- 1.48% SLM Corp. 2,100 106,680 -------------- DIVERSIFIED FINANCIAL SERVICES -- 1.46% Citigroup, Inc. 2,283 105,543 -------------- ENERGY EQUIPMENT & SERVICES -- 1.52% GlobalSantaFe Corp. 2,700 110,160 -------------- FOOD & STAPLES RETAILING -- 2.13% Wal-Mart Stores, Inc. 3,200 154,240 -------------- HEALTH CARE EQUIPMENT & SUPPLIES -- 8.17% Kinetic Concepts, Inc. (a) 2,300 138,000 Medtronic, Inc. 2,700 139,833 Varian Medical Systems, Inc. (a) 4,500 167,985 Zimmer Holdings, Inc. (a) 1,900 144,723 -------------- 590,541 -------------- HEALTH CARE PROVIDERS & SERVICES -- 5.80% UnitedHealth Group, Inc. 3,500 182,490 WellPoint, Inc. (a) 3,400 236,776 -------------- 419,266 -------------- HOUSEHOLD DURABLES -- 2.80% Pulte Homes, Inc. 2,400 202,200 -------------- HOUSEHOLD PRODUCTS -- 2.19% Proctor & Gamble Co. 3,000 158,250 -------------- INDUSTRIAL CONGLOMERATES -- 2.93% General Electric Co. 6,100 211,365 -------------- INSURANCE -- 1.13% American International Group, Inc. 1,400 81,340 -------------- INTERNET & CATALOG RETAIL -- 3.06% eBay, Inc. (a) 6,700 221,167 -------------- INTERNET SOFTWARE & SERVICES -- 6.16% Google, Inc. (a) 1,100 323,565 Yahoo!, Inc. (a) 3,500 121,275 -------------- 444,840 -------------- MACHINERY -- 1.43% Illinois Tool Works, Inc. 1,300 $ 103,584 -------------- MEDIA -- 2.27% McGraw-Hill Cos., Inc. 3,700 163,725 -------------- OIL & GAS -- 7.03% EOG Resources, Inc. 4,000 227,200 Peabody Energy Corp. 1,800 93,672 XTO Energy, Inc. 5,499 186,911 -------------- 507,783 -------------- PHARMACEUTICALS -- 5.63% Allergan, Inc. 2,100 179,004 Johnson & Johnson 3,500 227,500 -------------- 406,504 -------------- SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 1.57% Broadcom Corp. (a) 3,200 113,632 -------------- SOFTWARE -- 9.57% Adobe Systems, Inc. 5,900 168,858 Autodesk, Inc. 3,400 116,858 Electronic Arts, Inc. (a) 2,300 130,203 Microsoft Corp. 5,500 136,620 Symantec Corp. (a) 6,400 139,136 -------------- 691,675 -------------- SPECIALTY RETAIL -- 6.67% Abercrombie & Fitch Co. 2,600 178,620 Best Buy Co., Inc. 2,900 198,795 Lowe's Cos., Inc. 1,800 104,796 -------------- 482,211 -------------- TEXTILES, APPAREL & LUXURY GOODS -- 2.16% Nike, Inc. 1,800 155,880 -------------- WIRELESS TELECOMMUNICATION SERVICES -- 2.33% Nextel Communications, Inc., Class A (a) 5,200 168,012 -------------- Total U.S. Equities 6,837,588 -------------- INTERNATIONAL EQUITY -- 1.58% BERMUDA -- 1.58% MACHINERY -- 1.58% Ingersoll-Rand Co., Class A 1,600 114,160 -------------- Total Equities (Cost $6,335,120) 6,951,748 -------------- INVESTMENT COMPANY -- 1.00% iShares Russell 1000 Growth Index Fund (Cost $73,193) 1,500 72,000 -------------- SHORT-TERM INVESTMENT -- 1.93% UBS Supplementary Trust -- U.S. Cash Management Prime Fund, yield of 3.28% (Cost $139,146) 139,146 139,146 -------------- Total Investments (Cost $6,547,459) -- 99.14% 7,162,894 Cash and other assets, less liabilities -- 0.86% 61,880 -------------- Net Assets -- 100% $ 7,224,774 ==============
63 NOTES TO SCHEDULE OF INVESTMENTS Aggregate cost for federal income tax purposes was $6,584,375 and net unrealized appreciation consisted of: Gross unrealized appreciation $ 700,936 Gross unrealized depreciation (122,417) ------------- Net unrealized appreciation $ 578,519 =============
(a) Non-income producing security. See accompanying notes to financial statements 64 UBS U.S. LARGE CAP VALUE EQUITY FUND For the fiscal year ended June 30, 2005, Class A shares of UBS U.S. Large Cap Value Equity Fund (the "Fund") returned 12.35% and Class Y shares returned 12.74%, versus the 14.06% return of the Fund's benchmark, the Russell 1000 Value Index (the "Index"). Since inception on December 7, 2001, through period end, the Fund's A shares returned 7.15% while the Index returned 8.35% since November 30, 2001, and since inception on June 29, 2001, through period end, the Fund's Y shares returned 6.47% on an annualized basis, compared with the 5.63% 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 67; please note that these returns do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.) The Fund delivered solid absolute results over the fiscal year, but trailed its benchmark Index. This relative performance was primarily a function of the Fund's high-quality bias. This focus was in keeping with our long-term process and objectives, but caused the Fund to miss return opportunities in the speculative-led rally of late 2004. FOCUS ON HIGH QUALITY, LOWER VOLATILITY Throughout the fiscal year, rising oil prices, the threat of inflation, a potential real estate bubble and continued geopolitical instability had many market observers fearing an economic slowdown. In our view, in this environment, investors showed a clear preference for stability and quality, favoring large caps over small caps and value over growth. The notable exception was in the fourth quarter of 2004, when oil prices took a dip and the US presidential race was decided, giving investors the confidence to jump back into higher-risk stocks in search of quick returns. The rally was short-lived, but carried enough weight to push the overall stock market into positive territory for the fiscal year. Our analysis concluded that the large-cap value market was trading at close to fair value for much of the fiscal year. The Fund's strategy in this situation was to remain focused on our bottom-up investment process, seeking out high-quality, lower-volatility stocks that were selling for less than their intrinsic value. SECTOR ALLOCATION BENEFICIAL IN MIXED-PICTURE ECONOMY The Fund's research-intense investment process led us to hold a well-diversified portfolio with a preference for noncyclical sectors. The Fund benefited from this strategy, as evidenced by the performance generated by our overweight positions to the healthcare and utilities sectors relative to the Index. The Fund's position in healthcare contributed to relative performance, as the sector produced strong returns for the year. Within healthcare, the Fund moved away from pharmaceuticals in favor of medical services companies. In our opinion, the 2006 Medicare prescription drug benefit program rollout will create significant price pressure for some and significant opportunities for others. In our opinion, the services subsector, including pharmacy benefit managers, has solid fundamentals and is poised to benefit from the changing dynamics in the prescription drug arena. Our overweight to utilities also enhanced results as the sector delivered some of the best industry returns for the 12-month period. Investors often avoid utilities in a rising interest rate environment, when a fixed dividend yield may no longer appear competitive. But, our research indicated that many utilities were still offering attractive yields relative to other industries, and valuations of these out-of-favor stocks were compelling. In particular, the Fund focused on nuclear and coal generation stocks. The Fund also benefited from its underweight exposure to some of the more economically sensitive sectors, such as technology. A large part of the Fund's underweight in technology was a result of our negative assessment of semiconductor companies. While our analysis suggests that there are select opportunities in this area, in most cases, the market continued to price in expected growth rates well above what we believe the companies can achieve. The Fund's underweight position to energy hindered relative performance. Energy was, by far, the best-performing sector during the fiscal year, buoyed by high oil prices. In our view, however, these prices are not sustainable given inventory levels. We have further reduced our position in energy, narrowing the group to companies that we believe can weather falling 65 oil prices. Performance was also hurt by the Fund's overweight exposure to banks. Several holdings in this area delivered disappointing results, including JPMorgan Chase & Co. and Mellon Financial Corp. We continued to broadly view banks and financials as attractive opportunities in the current environment, with the exception of regional banks that currently carry large acquisition premiums. We believe we will be rewarded for capital market exposure. THIS LETTER IS INTENDED TO ASSIST SHAREHOLDERS IN UNDERSTANDING HOW THE FUND PERFORMED DURING THE FISCAL YEAR ENDED JUNE 30, 2005. THE VIEWS AND OPINIONS IN THE LETTER WERE CURRENT AS OF AUGUST 1, 2005. THEY ARE NOT GUARANTEES OF PERFORMANCE OR INVESTMENT RESULTS AND SHOULD NOT BE TAKEN AS INVESTMENT ADVICE. INVESTMENT DECISIONS REFLECT A VARIETY OF FACTORS, AND WE RESERVE THE RIGHT TO CHANGE OUR VIEWS ABOUT INDIVIDUAL SECURITIES, SECTORS AND MARKETS AT ANY TIME. AS A RESULT, THE VIEWS EXPRESSED SHOULD NOT BE RELIED UPON AS A FORECAST OF THE FUND'S FUTURE INVESTMENT INTENT. WE ENCOURAGE YOU TO CONSULT YOUR FINANCIAL ADVISOR REGARDING YOUR PERSONAL INVESTMENT PROGRAM. MUTUAL FUNDS ARE SOLD BY PROSPECTUS ONLY. YOU SHOULD READ IT CAREFULLY AND CONSIDER A FUND'S INVESTMENT OBJECTIVES, RISKS, CHARGES, EXPENSES AND OTHER IMPORTANT INFORMATION CONTAINED IN THE PROSPECTUS BEFORE INVESTING. PROSPECTUSES FOR MOST OF OUR FUNDS CAN BE OBTAINED FROM YOUR FINANCIAL ADVISOR, BY CALLING UBS FUNDS AT 800-647 1568 OR BY VISITING OUR WEB SITE AT www.ubs.com/globalam-us. 66 AVERAGE ANNUAL TOTAL RETURN (UNAUDITED)
1 YEAR 3 YEAR INCEPTION* ENDED ENDED TO 6/30/05 6/30/05 6/30/05 ------------------------------------------------------------------------------------------ UBS U.S. LARGE CAP VALUE EQUITY FUND CLASS A 12.35% 10.78% 7.15% UBS U.S. LARGE CAP VALUE EQUITY FUND CLASS B 11.59 9.97 7.21 UBS U.S. LARGE CAP VALUE EQUITY FUND CLASS C 11.62 9.98 7.10 UBS U.S. LARGE CAP VALUE EQUITY FUND CLASS Y 12.74 11.07 6.47 UBS U.S. LARGE CAP VALUE EQUITY FUND CLASS A** 6.18 8.70 5.46 UBS U.S. LARGE CAP VALUE EQUITY FUND CLASS B** 6.90 9.14 6.75 UBS U.S. LARGE CAP VALUE EQUITY FUND CLASS C** 10.68 9.98 7.10 RUSSELL 1000 VALUE INDEX 14.06 11.00 5.63
* 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. 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. ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000 This chart shows the growth in the value of an investment in UBS U.S. Large Cap Value Equity Fund Class Y shares and the Russell 1000 Value Index, if you had invested $10,000 on June 29, 2001, and had reinvested all your income dividends and capital gain distributions through June 30, 2005. The performance of Class A, Class B and Class C shares will vary based upon the different inception dates, class specific expenses and sales charges. No adjustment has been made for any income taxes payable by shareholders on income dividends and capital gain distributions. Past performance is no guarantee of future results. Shares price and returns will vary with market conditions; investors may realize a gain or loss upon redemption. [CHART] UBS U.S. LARGE CAP VALUE EQUITY FUND CLASS Y VS. RUSSELL 1000 VALUE INDEX Wealth Value With Dividends Reinvested
UBS U.S. LARGE CAP VALUE EQUITY FUND CLASS Y RUSSELL 1000 VALUE INDEX 6/29/2001 $ 10,000 $ 10,000 7/31/2001 $ 10,110 $ 9,979 8/31/2001 $ 9,730 $ 9,579 9/30/2001 $ 9,180 $ 8,905 10/31/2001 $ 9,170 $ 8,828 11/30/2001 $ 9,800 $ 9,341 12/31/2001 $ 9,970 $ 9,561 1/31/2002 $ 9,870 $ 9,488 2/28/2002 $ 9,900 $ 9,503 3/31/2002 $ 10,330 $ 9,953 4/30/2002 $ 10,020 $ 9,611 5/31/2002 $ 9,990 $ 9,659 6/30/2002 $ 9,380 $ 9,105 7/31/2002 $ 8,640 $ 8,258 8/31/2002 $ 8,810 $ 8,321 9/30/2002 $ 7,670 $ 7,396 10/31/2002 $ 8,260 $ 7,943 11/30/2002 $ 8,750 $ 8,444 12/31/2002 $ 8,419 $ 8,077 1/31/2003 $ 8,246 $ 7,882 2/28/2003 $ 8,043 $ 7,671 3/31/2003 $ 8,084 $ 7,684 4/30/2003 $ 8,865 $ 8,361 5/31/2003 $ 9,352 $ 8,900 6/30/2003 $ 9,463 $ 9,012 7/31/2003 $ 9,575 $ 9,146 8/31/2003 $ 9,615 $ 9,288 9/30/2003 $ 9,595 $ 9,198 10/31/2003 $ 10,194 $ 9,761 11/30/2003 $ 10,254 $ 9,893 12/31/2003 $ 11,016 $ 10,503 1/31/2004 $ 11,117 $ 10,688 2/29/2004 $ 11,372 $ 10,917 3/31/2004 $ 11,219 $ 10,821 4/30/2004 $ 11,067 $ 10,557 5/31/2004 $ 11,168 $ 10,664 6/30/2004 $ 11,402 $ 10,916 7/31/2004 $ 11,189 $ 10,762 8/31/2004 $ 11,412 $ 10,916 9/30/2004 $ 11,504 $ 11,085 10/31/2004 $ 11,727 $ 11,269 11/30/2004 $ 12,164 $ 11,839 12/31/2004 $ 12,585 $ 12,235 1/31/2005 $ 12,329 $ 12,018 2/28/2005 $ 12,610 $ 12,416 3/31/2005 $ 12,500 $ 12,246 4/30/2005 $ 12,402 $ 12,026 5/31/2005 $ 12,622 $ 12,316 6/30/2005 $ 12,854 $ 12,451
6/29/01 = $10,000 PAST PERFORMANCE DOES NOT PREDICT FUTURE PERFORMANCE, AND THE PERFORMANCE INFORMATION PROVIDED DOES NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PERFORMANCE RESULTS ASSUME REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS AT NET ASSET VALUE ON THE EX-DIVIDEND DATES. TOTALS RETURNS FOR PERIODS OF LESS THAN ONE YEAR HAVE NOT BEEN ANNUALIZED. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE DATA QUOTED. FOR MONTH-END PERFORMANCE FIGURES, PLEASE VISIT http://www.ubs.com. 67 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, January 1, 2005 to June 30, 2005. 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* JANUARY 1, 2005 JUNE 30, 2005 1/1/05 - 6/30/05 ------------------------------------------------------------------------------------------------ CLASS A ACTUAL $ 1,000.00 $ 1,019.50 $ 5.51 HYPOTHETICAL (5% RETURN BEFORE EXPENSES) 1,000.00 1,019.34 5.51 CLASS B ACTUAL 1,000.00 1,016.80 9.25 HYPOTHETICAL (5% RETURN BEFORE EXPENSES) 1,000.00 1,015.62 9.25 CLASS C ACTUAL 1,000.00 1,015.80 9.25 HYPOTHETICAL (5% RETURN BEFORE EXPENSES) 1,000.00 1,015.62 9.25 CLASS Y ACTUAL 1,000.00 1,021.40 4.26 HYPOTHETICAL (5% RETURN BEFORE EXPENSES) 1,000.00 1,020.58 4.26
* 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 181 DIVIDED BY 365 (TO REFLECT THE ONE-HALF YEAR PERIOD). 68 TOP TEN U.S. EQUITY HOLDINGS AS OF JUNE 30, 2005 (UNAUDITED)
PERCENTAGE OF NET ASSETS --------------------------------------------------- Citigroup, Inc. 5.3% ExxonMobil Corp. 4.9 Wells Fargo & Co. 4.0 JPMorgan Chase & Co. 4.0 Morgan Stanley 3.8 Nextel Communications, Inc., Class A 3.4 Marathon Oil Corp. 3.0 UnitedHealth Group, Inc. 2.8 Freddie Mac 2.8 Martin Marietta Materials, Inc. 2.3 --------------------------------------------------- Total 36.3%
INDUSTRY DIVERSIFICATION AS A PERCENT OF NET ASSETS AS OF JUNE 30, 2005 (UNAUDITED) U.S. EQUITIES Aerospace & Defense 3.19% Air Freight & Logistics 0.96 Auto Components 1.33 Biotechnology 0.74 Building Products 1.78 Capital Markets 7.07 Commercial Banks 8.96 Commercial Services & Supplies 0.82 Computers & Peripherals 1.25 Construction Materials 2.34 Diversified Financial Services 9.27 Diversified Telecommunication Services 1.87 Electric Utilities 7.50 Energy Equipment & Services 0.60 Food & Staples Retailing 4.53 Gas Utilities 0.51 Health Care Providers & Services 4.30 Household Products 1.05 Insurance 6.05 Internet & Catalog Retail 1.14% Machinery 2.05 Media 4.85 Multi-Utilities & Unregulated Power 0.95 Oil & Gas 7.88 Pharmaceuticals 4.66 Road & Rail 1.46 Software 1.80 Specialty Retail 0.68 Thrifts & Mortgage Finance 2.81 Wireless Telecommunication Services 3.39 ------ Total U.S. Equities 95.79 INVESTMENT COMPANY 3.51 SHORT-TERM INVESTMENT 0.70 ------ TOTAL INVESTMENTS 100.00 LIABILITIES, IN EXCESS OF CASH AND OTHER ASSETS 0.00 ------ NET ASSETS 100.00% ======
69 UBS U.S. LARGE CAP VALUE EQUITY FUND -- SCHEDULE OF INVESTMENTS JUNE 30, 2005
SHARES VALUE -------------- -------------- U.S. EQUITIES -- 95.79% AEROSPACE & DEFENSE -- 3.19% Lockheed Martin Corp. 41,000 $ 2,659,670 Northrop Grumman Corp. 29,300 1,618,825 -------------- 4,278,495 -------------- AIR FREIGHT & LOGISTICS -- 0.96% FedEx Corp. 15,800 1,279,958 -------------- AUTO COMPONENTS -- 1.33% Borg-Warner, Inc. 3,300 177,111 Johnson Controls, Inc. 28,600 1,611,038 -------------- 1,788,149 -------------- BIOTECHNOLOGY -- 0.74% Cephalon, Inc. (a) 24,900 991,269 -------------- BUILDING PRODUCTS -- 1.78% Masco Corp. 75,050 2,383,588 -------------- CAPITAL MARKETS -- 7.07% Mellon Financial Corp. 96,500 2,768,585 Morgan Stanley 97,800 5,131,566 Northern Trust Corp. 34,600 1,577,414 -------------- 9,477,565 -------------- COMMERCIAL BANKS -- 8.96% Bank of America Corp. 53,222 2,427,455 Fifth Third Bancorp 45,000 1,854,450 PNC Financial Services Group, Inc. 43,500 2,369,010 Wells Fargo & Co. 86,950 5,354,381 -------------- 12,005,296 -------------- COMMERCIAL SERVICES & SUPPLIES -- 0.82% Cendant Corp. 49,300 1,102,841 -------------- COMPUTERS & PERIPHERALS -- 1.25% Hewlett-Packard Co. 71,200 1,673,912 -------------- CONSTRUCTION MATERIALS -- 2.34% Martin Marietta Materials, Inc. 45,300 3,131,136 -------------- DIVERSIFIED FINANCIAL SERVICES -- 9.27% Citigroup, Inc. 153,176 7,081,327 JPMorgan Chase & Co. 151,170 5,339,324 -------------- 12,420,651 -------------- DIVERSIFIED TELECOMMUNICATION SERVICES -- 1.87% SBC Communications, Inc. 105,250 2,499,688 -------------- ELECTRIC UTILITIES -- 7.50% American Electric Power Co., Inc. 72,000 2,654,640 Exelon Corp. 58,200 2,987,406 FirstEnergy Corp. 63,000 3,030,930 Pepco Holdings, Inc. 57,300 1,371,762 -------------- 10,044,738 -------------- ENERGY EQUIPMENT & SERVICES -- 0.60% Baker Hughes, Inc. 15,600 798,096 -------------- FOOD & STAPLES RETAILING -- 4.53% Albertson's, Inc. 94,900 1,962,532 Costco Wholesale Corp. 50,400 2,258,928 Kroger Co. (a) 97,000 1,845,910 -------------- 6,067,370 -------------- GAS UTILITIES -- 0.51% NiSource, Inc. 27,900 $ 689,967 -------------- HEALTH CARE PROVIDERS & SERVICES -- 4.30% Medco Health Solutions, Inc. (a) 36,800 1,963,648 UnitedHealth Group, Inc. 72,800 3,795,792 -------------- 5,759,440 -------------- HOUSEHOLD PRODUCTS -- 1.05% Kimberly-Clark Corp. 22,400 1,402,016 -------------- INSURANCE -- 6.05% Aflac, Inc. 35,300 1,527,784 Allstate Corp. 40,100 2,395,975 American International Group, Inc. 33,400 1,940,540 Hartford Financial Services Group, Inc. 29,950 2,239,661 -------------- 8,103,960 -------------- INTERNET & CATALOG RETAIL -- 1.14% IAC/InterActiveCorp. (a) 63,400 1,524,770 -------------- MACHINERY -- 2.05% Illinois Tool Works, Inc. 34,450 2,744,976 -------------- MEDIA -- 4.85% DIRECTV Group, Inc. (a) 39,200 607,600 Omnicom Group, Inc. 23,700 1,892,682 Time Warner, Inc. (a) 167,000 2,790,570 Univision Communications, Inc. (a) 43,900 1,209,445 -------------- 6,500,297 -------------- MULTI-UTILITIES & UNREGULATED POWER -- 0.95% Sempra Energy 30,900 1,276,479 -------------- OIL & GAS -- 7.88% ExxonMobil Corp. 113,550 6,525,718 Marathon Oil Corp. 75,600 4,034,772 -------------- 10,560,490 -------------- PHARMACEUTICALS -- 4.66% Bristol-Myers Squibb Co. 54,100 1,351,418 Johnson & Johnson 35,400 2,301,000 Wyeth 58,100 2,585,450 -------------- 6,237,868 -------------- ROAD & RAIL -- 1.46% Burlington Northern Santa Fe Corp. 41,700 1,963,236 -------------- SOFTWARE -- 1.80% Microsoft Corp. 96,900 2,406,996 -------------- SPECIALTY RETAIL -- 0.68% Office Depot, Inc. (a) 40,000 913,600 -------------- THRIFTS & MORTGAGE FINANCE -- 2.81% Freddie Mac 57,750 3,767,033 -------------- WIRELESS TELECOMMUNICATION SERVICES -- 3.39% Nextel Communications, Inc., Class A (a) 140,400 4,536,324 -------------- Total U.S. Equities (Cost $109,166,264) 128,330,204 -------------- INVESTMENT COMPANY -- 3.51% SPDR Trust, Series 1 (Cost $4,728,973) 39,400 4,695,692 --------------
70
SHARES VALUE -------------- -------------- SHORT-TERM INVESTMENT -- 0.70% UBS Supplementary Trust -- U.S. Cash Management Prime Fund, yield of 3.28% (Cost $944,120) 944,120 $ 944,120 -------------- Total Investments (Cost $114,839,357) -- 100.00% 133,970,016 Liabilities, in excess of cash and other assets -- (0.00)% (2,716) -------------- Net Assets -- 100.00% $ 133,967,300 ==============
NOTES TO SCHEDULE OF INVESTMENTS Aggregate cost for federal income tax purposes was $116,002,927; and net unrealized appreciation consisted of: Gross unrealized appreciation $ 19,565,128 Gross unrealized depreciation (1,598,039) --------------- Net unrealized appreciation $ 17,967,089 ===============
(a) Non-income producing security. See accompanying notes to financial statements 71 UBS U.S. SMALL CAP GROWTH FUND For the fiscal year ended June 30, 2005, Class A shares of UBS U.S. Small Cap Growth Fund (the "Fund") returned 11.63% and Class Y shares returned 11.90%, versus the 4.29% return of the Fund's benchmark, the Russell 2000 Growth Index (the "Index"). Since inception on December 31, 1998, through period end, the Fund's A shares returned 11.40% while the Index returned 2.18%, and since inception on September 30, 1997, through period end, the Fund's Y shares returned 7.95% on an annualized basis, compared with an annualized return of 0.86% 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 73; 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 for the reporting period, with sector allocation and stock selection both contributing to return. FUNDAMENTAL RESEARCH GUIDES PORTFOLIO CONSTRUCTION The small cap growth market moved higher over the 12-month period ending June 30, 2005. Coming off a strong finish in 2004, small cap stocks saw several weak months, as investors grappled with concerns over mixed economic signals, high oil prices and a potential correction in real estate. The small cap market bounced back strongly in May, however, to finish the fiscal year in positive territory. The Fund adhered to its disciplined investment process throughout the reporting period, focusing on fundamental research and analysis to identify high-quality companies with strong competitive positions and the ability to grow sales and earnings. This bottom-up stock selection process largely directed the Fund's sector allocations, which, in turn, benefited relative performance during the period. A DIVERSE LIST DROVE PERFORMANCE During the period, the Fund benefited from strong performance in several sectors, with the largest positive contributions coming from information technology, consumer discretionary and energy spaces. Within information technology, overweights to IT services and semiconductors proved to be good calls, and the specific names that we owned in the industries outperformed their peers, as well. Cognizant Technology Solutions Corp. and Microsemi Corp. each contributed significantly. In the consumer discretionary sector, the majority of the positive contribution came from holdings in specialty retail, where we also held an overweight position relative to the Index. Names such as Electronics Boutique Holdings Corp. and Chico's FAS provided substantial positive contributions. Our energy overweight provided a tailwind for the portfolio as oil ended the period above $60 per barrel--up significantly for the year. During the year, names such as Quicksilver Resources, Inc., Patina Oil & Gas* and Patterson-UTI Energy, Inc. took turns among our top holdings, and all made positive contributions to performance. During the year, our underweight to the industrials sector detracted from performance, as did stock-specific work in the financials and materials spaces. Despite individual stock holdings that performed well, in aggregate, these sectors were the largest negative contributors to performance. * SECURITY ACQUIRED BY NOBLE ENERGY IN MAY 2005. THIS LETTER IS INTENDED TO ASSIST SHAREHOLDERS IN UNDERSTANDING HOW THE FUND PERFORMED DURING THE FISCAL YEAR ENDED JUNE 30, 2005. THE VIEWS AND OPINIONS IN THE LETTER WERE CURRENT AS OF AUGUST 1, 2005. THEY ARE NOT GUARANTEES OF PERFORMANCE OR INVESTMENT RESULTS AND SHOULD NOT BE TAKEN AS INVESTMENT ADVICE. INVESTMENT DECISIONS REFLECT A VARIETY OF FACTORS, AND WE RESERVE THE RIGHT TO CHANGE OUR VIEWS ABOUT INDIVIDUAL SECURITIES, SECTORS AND MARKETS AT ANY TIME. AS A RESULT, THE VIEWS EXPRESSED SHOULD NOT BE RELIED UPON AS A FORECAST OF THE FUND'S FUTURE INVESTMENT INTENT. WE ENCOURAGE YOU TO CONSULT YOUR FINANCIAL ADVISOR REGARDING YOUR PERSONAL INVESTMENT PROGRAM. MUTUAL FUNDS ARE SOLD BY PROSPECTUS ONLY. YOU SHOULD READ IT CAREFULLY AND CONSIDER A FUND'S INVESTMENT OBJECTIVES, RISKS, CHARGES, EXPENSES AND OTHER IMPORTANT INFORMATION CONTAINED IN THE PROSPECTUS BEFORE INVESTING. PROSPECTUSES FOR MOST OF OUR FUNDS CAN BE OBTAINED FROM YOUR FINANCIAL ADVISOR, BY CALLING UBS FUNDS AT 800-647 1568 OR BY VISITING OUR WEB SITE AT www.ubs.com/globalam-us. 72 AVERAGE ANNUAL TOTAL RETURN (UNAUDITED)
1 YEAR 3 YEARS 5 YEARS INCEPTION* ENDED ENDED ENDED TO 6/30/05 6/30/05 6/30/05 6/30/05 ------------------------------------------------------------------------------------------- UBS U.S. SMALL CAP GROWTH FUND CLASS A 11.63% 12.37% 1.84% 11.40% UBS U.S. SMALL CAP GROWTH FUND CLASS B 10.86 11.54 N/A 9.34 UBS U.S. SMALL CAP GROWTH FUND CLASS C 10.87 11.55 N/A 8.85 UBS U.S. SMALL CAP GROWTH FUND CLASS Y 11.90 12.63 2.12 7.95 UBS U.S. SMALL CAP GROWTH FUND CLASS A** 5.50 10.27 0.70 10.44 UBS U.S. SMALL CAP GROWTH FUND CLASS B** 5.86 10.73 N/A 8.91 UBS U.S. SMALL CAP GROWTH FUND CLASS C** 9.87 11.55 N/A 8.85 RUSSELL 2000 GROWTH INDEX 4.29 11.37 -4.51 0.86
* 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. THE Y SHARE CLASS IS OUR LOWEST FEE SHARE CLASS. OUR OTHER SHARE CLASSES INCLUDE HIGHER FEES AND LOADS, WHICH IF DEDUCTED WOULD RESULT IN LOWER PERFORMANCE. THE FUND INVESTS IN IPOs WHICH MAY HAVE A MAGNIFIED IMPACT ON PERFORMANCE. PAST PERFORMANCE DOES NOT PREDICT FUTURE PERFORMANCE, AND THE PERFORMANCE INFORMATION PROVIDED DOES NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PERFORMANCE RESULTS ASSUME REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS AT NET ASSET VALUE ON THE EX-DIVIDEND DATES. TOTALS RETURNS FOR PERIODS OF LESS THAN ONE YEAR HAVE NOT BEEN ANNUALIZED. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE DATA QUOTED. FOR MONTH-END PERFORMANCE FIGURES, PLEASE VISIT http://www.ubs.com. 73 ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000 This chart shows the growth in the value of an investment in UBS US. Small Cap Growth Fund Class Y shares and the Russell 2000 Growth Index, if you had invested $10,000 on September 30, 1997, and had reinvested all your income dividends and capital gain distributions through June 30, 2005. The performance of Class A, Class B and Class C shares will vary based upon the different inception dates, class specific expenses and sales charges. No adjustment has been made for any income taxes payable by shareholders on income dividends and capital gain distributions. Past performance is no guarantee of future results. Share price and returns will vary with market conditions; investors may realize a gain or loss upon redemption. [CHART] UBS U.S. SMALL CAP GROWTH FUND CLASS Y VS. RUSSELL 2000 GROWTH INDEX Wealth Value With Dividends Reinvested
UBS U.S. SMALL CAP GROWTH FUND CLASS Y RUSSELL 2000 GROWTH INDEX 9/30/1997 $ 10,000 $ 10,000 10/31/1997 $ 9,540 $ 9,399 11/30/1997 $ 9,370 $ 9,175 12/31/1997 $ 9,440 $ 9,180 1/31/1998 $ 9,330 $ 9,058 2/28/1998 $ 10,080 $ 9,858 3/31/1998 $ 10,500 $ 10,271 4/30/1998 $ 10,470 $ 10,334 5/31/1998 $ 9,910 $ 9,583 6/30/1998 $ 9,710 $ 9,681 7/31/1998 $ 8,880 $ 8,873 8/31/1998 $ 7,000 $ 6,825 9/30/1998 $ 7,395 $ 7,517 10/31/1998 $ 7,885 $ 7,909 11/30/1998 $ 8,075 $ 8,522 12/31/1998 $ 8,806 $ 9,293 1/31/1999 $ 8,816 $ 9,711 2/28/1999 $ 8,075 $ 8,823 3/31/1999 $ 8,255 $ 9,137 4/30/1999 $ 8,235 $ 9,944 5/31/1999 $ 8,595 $ 9,960 6/30/1999 $ 9,186 $ 10,484 7/31/1999 $ 9,266 $ 10,160 8/31/1999 $ 9,066 $ 9,780 9/30/1999 $ 9,386 $ 9,969 10/31/1999 $ 9,746 $ 10,224 11/30/1999 $ 11,277 $ 11,305 12/31/1999 $ 12,478 $ 13,298 1/31/2000 $ 12,128 $ 13,174 2/29/2000 $ 14,059 $ 16,239 3/31/2000 $ 15,270 $ 14,532 4/30/2000 $ 14,729 $ 13,065 5/31/2000 $ 13,779 $ 11,921 6/30/2000 $ 16,280 $ 13,461 7/31/2000 $ 15,440 $ 12,307 8/31/2000 $ 17,571 $ 13,602 9/30/2000 $ 17,251 $ 12,926 10/31/2000 $ 16,711 $ 11,877 11/30/2000 $ 13,799 $ 9,721 12/31/2000 $ 15,279 $ 10,315 1/31/2001 $ 15,634 $ 11,150 2/28/2001 $ 13,784 $ 9,622 3/31/2001 $ 12,497 $ 8,747 4/30/2001 $ 14,164 $ 9,818 5/31/2001 $ 14,213 $ 10,045 6/30/2001 $ 14,531 $ 10,319 7/31/2001 $ 13,784 $ 9,439 8/31/2001 $ 13,110 $ 8,849 9/30/2001 $ 11,517 $ 7,422 10/31/2001 $ 12,191 $ 8,136 11/30/2001 $ 13,036 $ 8,815 12/31/2001 $ 13,716 $ 9,363 1/31/2002 $ 13,461 $ 9,030 2/28/2002 $ 13,078 $ 8,446 3/31/2002 $ 14,125 $ 9,180 4/30/2002 $ 13,933 $ 8,981 5/31/2002 $ 13,334 $ 8,456 6/30/2002 $ 12,657 $ 7,739 7/31/2002 $ 11,496 $ 6,550 8/31/2002 $ 11,496 $ 6,546 9/30/2002 $ 10,807 $ 6,074 10/31/2002 $ 11,509 $ 6,381 11/30/2002 $ 11,968 $ 7,013 12/31/2002 $ 11,190 $ 6,529 1/31/2003 $ 10,858 $ 6,352 2/28/2003 $ 10,680 $ 6,182 3/31/2003 $ 10,718 $ 6,276 4/30/2003 $ 11,598 $ 6,869 5/31/2003 $ 12,542 $ 7,643 6/30/2003 $ 12,951 $ 7,791 7/31/2003 $ 13,895 $ 8,380 8/31/2003 $ 14,826 $ 8,830 9/30/2003 $ 14,520 $ 8,607 10/31/2003 $ 15,720 $ 9,350 11/30/2003 $ 16,281 $ 9,655 12/31/2003 $ 16,198 $ 9,698 1/31/2004 $ 16,697 $ 10,208 2/29/2004 $ 16,505 $ 10,192 3/31/2004 $ 16,211 $ 10,239 4/30/2004 $ 15,353 $ 9,725 5/31/2004 $ 15,405 $ 9,919 6/30/2004 $ 16,160 $ 10,249 7/31/2004 $ 15,187 $ 9,329 8/31/2004 $ 14,982 $ 9,128 9/30/2004 $ 15,661 $ 9,633 10/31/2004 $ 16,198 $ 9,867 11/30/2004 $ 17,132 $ 10,701 12/31/2004 $ 17,966 $ 11,086 1/31/2005 $ 17,187 $ 10,586 2/28/2005 $ 17,654 $ 10,731 3/31/2005 $ 17,187 $ 10,329 4/30/2005 $ 16,369 $ 9,672 5/31/2005 $ 17,589 $ 10,353 6/30/2005 $ 18,083 $ 10,688
9/30/97 = $10,000 PAST PERFORMANCE DOES NOT PREDICT FUTURE PERFORMANCE, AND THE PERFORMANCE INFORMATION PROVIDED DOES NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PERFORMANCE RESULTS ASSUME REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS AT NET ASSET VALUE ON THE EX-DIVIDEND DATES. TOTALS RETURNS FOR PERIODS OF LESS THAN ONE YEAR HAVE NOT BEEN ANNUALIZED. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE DATA QUOTED. FOR MONTH-END PERFORMANCE FIGURES, PLEASE VISIT http://www.ubs.com. 74 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, January 1, 2005 to June 30, 2005. 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* JANUARY 1, 2005 JUNE 30, 2005 1/1/05 - 6/30/05 --------------------------------------------------------------------------------------------- CLASS A ACTUAL $ 1,000.00 $ 1,005.20 $ 6.36 HYPOTHETICAL (5% RETURN BEFORE EXPENSES) 1,000.00 1,018.45 6.41 CLASS B ACTUAL 1,000.00 1,001.50 10.07 HYPOTHETICAL (5% RETURN BEFORE EXPENSES) 1,000.00 1,014.73 10.14 CLASS C ACTUAL 1,000.00 1,002.30 10.08 HYPOTHETICAL (5% RETURN BEFORE EXPENSES) 1,000.00 1,014.73 10.14 CLASS Y ACTUAL 1,000.00 1,006.50 5.12 HYPOTHETICAL (5% RETURN BEFORE EXPENSES) 1,000.00 1,019.69 5.16
* 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 181 DIVIDED BY 365 (TO REFLECT THE ONE-HALF YEAR PERIOD). 75 TOP TEN EQUITY HOLDINGS AS OF JUNE 30, 2005 (UNAUDITED)
PERCENTAGE OF NET ASSETS --------------------------------------------------------------- Quicksilver Resources, Inc. 3.4% Pediatrix Medical Group, Inc. 2.4 CACI International, Inc., Class A 2.0 VCA Antech, Inc. 2.0 Cognizant Technology Solutions Corp., Class A 2.0 Inamed Corp. 1.9 Electronics Boutique Holdings Corp. 1.8 ESCO Technologies, Inc. 1.7 UCBH Holdings, Inc. 1.6 Chico's FAS, Inc. 1.6 --------------------------------------------------------------- Total 20.4%
INDUSTRY DIVERSIFICATION AS A PERCENT OF NET ASSETS AS OF JUNE 30, 2005 (UNAUDITED) EQUITIES U.S. EQUITIES Aerospace & Defense 1.33% Air Freight & Logistics 1.91 Airlines 0.29 Auto Components 0.78 Biotechnology 3.44 Capital Markets 1.50 Commercial Banks 1.64 Commercial Services & Supplies 3.42 Communications Equipment 0.96 Computers & Peripherals 0.32 Construction & Engineering 1.41 Distributors 0.94 Diversified Telecommunication Services 0.54 Electrical Equipment 0.97 Electronic Equipment & Instruments 3.80 Energy Equipment & Services 2.68 Food & Staples Retailing 0.69 Health Care Equipment & Supplies 6.11 Health Care Providers & Services 7.35 Hotels, Restaurants & Leisure 2.87 Household Durables 2.63 Household Products 1.35 IT Services 4.03 Leisure Equipment & Products 1.25 Machinery 2.35% Metals & Mining 0.65 Oil & Gas 3.39 Pharmaceuticals 2.43 Real Estate 3.58 Road & Rail 1.33 Semiconductors & Semiconductor Equipment 6.10 Software 6.09 Specialty Retail 7.84 Textiles, Apparel & Luxury Goods 1.53 Thrifts & Mortgage Finance 1.16 ------ Total U.S. Equities 88.66 INTERNATIONAL EQUITIES Air Freight & Logistics 1.00 Beverages 0.78 Hotels, Restaurants & Leisure 0.41 ------ Total International Equities 2.19 TOTAL EQUITIES 90.85 INVESTMENT COMPANY 1.07 SHORT-TERM INVESTMENT 2.94 ------ TOTAL INVESTMENTS 94.86 CASH AND OTHER ASSETS, LESS LIABILITIES 5.14 ------ NET ASSETS 100.00% ======
76 UBS U.S. SMALL CAP GROWTH FUND -- SCHEDULE OF INVESTMENTS JUNE 30, 2005
SHARES VALUE -------------- -------------- EQUITIES -- 90.85% U.S. EQUITIES -- 88.66% AEROSPACE & DEFENSE -- 1.33% Engineered Support Systems, Inc. 102,712 $ 3,680,171 -------------- AIR FREIGHT & LOGISTICS -- 1.91% EGL, Inc. (a) 115,100 2,338,832 HUB Group, Inc. (a) 116,800 2,925,840 -------------- 5,264,672 -------------- AIRLINES -- 0.29% Pinnacle Airlines Corp. (a) 93,200 800,588 -------------- AUTO COMPONENTS -- 0.78% American Axle & Manufacturing Holdings, Inc. 84,600 2,137,842 -------------- BIOTECHNOLOGY -- 3.44% Affymetrix, Inc. (a) 34,700 1,871,371 Amylin Pharmaceuticals, Inc. (a) 46,500 973,245 Charles River Laboratories International, Inc. (a) 29,180 1,407,935 Incyte Corp. (a) 160,200 1,145,430 Isis Pharmaceuticals, Inc. (a) 128,500 502,435 Neurocrine Biosciences, Inc. (a) 37,900 1,594,074 NPS Pharmaceuticals, Inc. (a) 63,100 716,185 Telik, Inc. (a) 78,400 1,274,784 -------------- 9,485,459 -------------- CAPITAL MARKETS -- 1.50% Investors Financial Services Corp. 109,200 4,129,944 -------------- COMMERCIAL BANKS -- 1.64% UCBH Holdings, Inc. 278,600 4,524,464 -------------- COMMERCIAL SERVICES & SUPPLIES -- 3.42% CRA International, Inc. (a) 73,500 3,957,975 Korn/Ferry International Corp. (a) 61,900 1,098,725 Labor Ready, Inc. (a) 187,200 4,363,632 -------------- 9,420,332 -------------- COMMUNICATIONS EQUIPMENT -- 0.96% Avocent Corp. (a) 36,400 951,496 C-COR, Inc. (a) 79,800 546,630 Foundry Networks, Inc. (a) 133,000 1,147,790 -------------- 2,645,916 -------------- COMPUTERS & PERIPHERALS -- 0.32% Dot Hill Systems Corp. (a) 167,400 877,176 -------------- CONSTRUCTION & ENGINEERING -- 1.41% Dycom Industries, Inc. (a) 127,700 2,529,737 EMCOR Group, Inc. (a) 27,800 1,359,420 -------------- 3,889,157 -------------- DISTRIBUTORS -- 0.94% Beacon Roofing Supply, Inc. (a) 46,400 1,220,320 Prestige Brands Holdings, Inc. (a) 70,800 1,380,600 -------------- 2,600,920 -------------- DIVERSIFIED TELECOMMUNICATION SERVICES -- 0.54% NeuStar, Inc. (a) 58,500 1,497,600 -------------- ELECTRICAL EQUIPMENT -- 0.97% Genlyte Group, Inc. (a) 54,600 $ 2,661,204 -------------- ELECTRONIC EQUIPMENT & INSTRUMENTS -- 3.80% Benchmark Electronics, Inc. (a) 131,700 4,006,314 Cognex Corp. 113,100 2,962,089 Dolby Laboratories, Inc. (a) 23,400 516,204 Radisys Corp. (a) 97,800 1,579,470 TTM Technologies, Inc. (a) 185,500 1,411,655 -------------- 10,475,732 -------------- ENERGY EQUIPMENT & SERVICES -- 2.68% Patterson-UTI Energy, Inc. 118,100 3,286,723 Tetra Technologies, Inc. (a) 129,150 4,113,428 -------------- 7,400,151 -------------- FOOD & STAPLES RETAILING -- 0.69% Performance Food Group Co. (a) 63,400 1,915,314 -------------- HEALTH CARE EQUIPMENT & SUPPLIES -- 6.11% Advanced Neuromodulation Systems, Inc. (a) 63,200 2,507,776 Arthrocare Corp. (a) 86,400 3,018,816 Aspect Medical Systems, Inc. (a) 74,300 2,209,682 Immucor, Inc. (a) 84,900 2,457,855 Inamed Corp. (a) 77,300 5,176,781 Resmed, Inc. (a) 22,400 1,478,176 -------------- 16,849,086 -------------- HEALTH CARE PROVIDERS & SERVICES -- 7.35% Pediatrix Medical Group, Inc. (a) 88,500 6,508,290 Psychiatric Solutions, Inc. (a) 85,800 4,179,318 United Surgical Partners International, Inc. (a) 75,600 3,937,248 VCA Antech, Inc. (a) 232,500 5,638,125 -------------- 20,262,981 -------------- HOTELS, RESTAURANTS & LEISURE -- 2.87% California Pizza Kitchen, Inc. (a) 114,600 3,125,142 CKE Restaurants, Inc. 225,100 3,133,392 Panera Bread Co., Class A (a) 26,800 1,663,878 -------------- 7,922,412 -------------- HOUSEHOLD DURABLES -- 2.63% Hovnanian Enterprises, Inc. (a) 60,100 3,918,520 Technical Olympic USA, Inc. 137,300 3,333,644 -------------- 7,252,164 -------------- HOUSEHOLD PRODUCTS -- 1.35% Central Garden & Pet Co. (a) 75,500 3,708,560 -------------- IT SERVICES -- 4.03% CACI International, Inc., Class A (a) 89,500 5,652,820 Cognizant Technology Solutions Corp., Class A (a) 115,900 5,462,367 -------------- 11,115,187 -------------- LEISURE EQUIPMENT & PRODUCTS -- 1.25% Nautilus, Inc. 121,400 3,459,900 -------------- MACHINERY -- 2.35% ESCO Technologies, Inc. (a) 46,000 4,636,800 Middleby Corp. (a) 34,900 1,844,814 -------------- 6,481,614 --------------
77
SHARES VALUE -------------- -------------- METALS & MINING -- 0.65% Steel Dynamics, Inc. 68,600 $ 1,800,750 -------------- OIL & GAS -- 3.39% Quicksilver Resources, Inc. (a) 146,200 9,346,566 -------------- PHARMACEUTICALS -- 2.43% First Horizon Pharmaceutical Corp. (a) 143,400 2,730,336 Medicines Co. (a) 62,700 1,466,553 Penwest Pharmaceuticals Co. (a) 100,000 1,182,000 Taro Pharmaceutical Industries (a) 45,800 1,331,406 -------------- 6,710,295 -------------- REAL ESTATE -- 3.58% American Financial Realty Trust REIT 33,500 515,230 BioMed Realty Trust, Inc. REIT 72,500 1,729,125 Mills Corp. REIT 59,200 3,598,768 Ventas, Inc. REIT 133,700 4,037,740 -------------- 9,880,863 -------------- ROAD & RAIL -- 1.33% Landstar System, Inc. (a) 121,800 3,668,616 -------------- SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 6.10% August Technology Corp. (a) 85,100 991,415 Cree, Inc. (a) 36,700 934,749 Exar Corp. (a) 114,900 1,710,861 Microsemi Corp. (a) 218,000 4,098,400 Photronics, Inc. (a) 109,000 2,544,060 Power Integrations, Inc. (a) 89,700 1,934,829 Rudolph Technologies, Inc. (a) 72,100 1,033,193 Silicon Image, Inc. (a) 242,000 2,482,920 Standard Micosystems Corp. (a) 46,600 1,089,508 -------------- 16,819,935 -------------- SOFTWARE -- 6.09% Factset Research Systems, Inc. 62,200 2,229,248 Fair Isaac Corp. 58,150 2,122,475 Magma Design Automation, Inc. (a) 15,100 126,236 Progress Software Corp. (a) 123,500 3,723,525 RSA Security, Inc. (a) 136,200 1,563,576 Secure Computing Corp. (a) 171,100 1,861,568 THQ, Inc. (a) 79,150 2,316,720 Verint Systems, Inc. (a) 88,300 2,839,728 -------------- 16,783,076 -------------- SPECIALTY RETAIL -- 7.84% Aeropostale, Inc. (a) 121,700 $ 4,089,120 Chico's FAS, Inc. (a) 131,800 4,518,104 DSW, Inc. (a) 35,100 875,745 Electronics Boutique Holdings Corp. (a) 78,700 4,996,663 Guitar Center, Inc. (a) 68,400 3,992,508 Petco Animal Supplies, Inc. (a) 107,400 3,148,968 -------------- 21,621,108 -------------- TEXTILES, APPAREL & LUXURY GOODS -- 1.53% Phillips-Van Heusen Corp. 129,000 4,217,010 -------------- THRIFTS & MORTGAGE FINANCE -- 1.16% BankUnited Financial Corp., Class A 72,000 1,946,880 Harbor Florida Bancshares, Inc. 33,700 1,261,728 -------------- 3,208,608 -------------- Total U.S. Equities 244,515,373 -------------- INTERNATIONAL EQUITIES -- 2.19% BERMUDA -- 0.41% Orient-Express Hotels Ltd. 35,400 1,121,118 -------------- BRITISH VIRGIN ISLANDS -- 1.00% UTI Worldwide, Inc. 39,600 2,756,952 -------------- CANADA -- 0.78% Cott Corp. (a) 98,300 2,145,889 -------------- Total International Equities 6,023,959 -------------- Total Equities (Cost $218,724,707) 250,539,332 -------------- INVESTMENT COMPANY -- 1.07% iShares Russell 2000 Index Fund (Cost $2,844,630) 46,200 2,942,940 -------------- SHORT-TERM INVESTMENT -- 2.94% UBS Supplementary Trust -- U.S. Cash Management Prime Fund, yield of 3.28% (Cost $8,103,287) 8,103,287 8,103,287 -------------- Total Investments (Cost $229,672,624) -- 94.86% 261,585,559 Cash and other assets, less liabilities -- 5.14% 14,187,171 -------------- Net Assets -- 100.00% $ 275,772,730 ==============
NOTES TO SCHEDULE OF INVESTMENTS Aggregate cost for federal income tax purposes was $231,134,629; and net unrealized appreciation consisted of: Gross unrealized appreciation $ 45,918,327 Gross unrealized depreciation (15,467,397) -------------- Net unrealized appreciation $ 30,450,930 ==============
(a) Non-income producing security. REIT Real Estate Investment Trust See accompanying notes to financial statements 78 UBS DYNAMIC ALPHA FUND For the period from its inception on January 27, 2005 through June 30, 2005, Class A shares of UBS Dynamic Alpha Fund (the "Fund") returned 2.20% and Class Y shares returned 2.30%, compared with the 1.03% return of the Merrill Lynch U.S. Treasury 1-5 Year index (the "Index") since January 31, 2005. (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 81; 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.) Much of the Fund's performance is attributable to its exposures to emerging and developed equity markets, as well as individual security selection within US equities. A CHALLENGING ECONOMIC BACKDROP The US economy faced a number of challenges during the reporting period, including record high energy prices in nominal terms, rising short-term interest rates, a mixed job market and geopolitical events. Despite these issues, the economy proved to be surprisingly resilient. Following a solid 3.8% gain in the fourth quarter of 2004, gross domestic product (GDP) growth was again 3.8% in the first quarter of 2005. The advance estimate for second quarter GDP growth was 3.4%, a slight decline. As expected, the Fed continued to raise interest rates in an attempt to temper growth and ward off a potential increase in inflation. After five rate hikes from June 2004 through December 2004, the Fed again increased its target for the federal funds four additional times during the reporting period. The Fed's nine rate hikes have driven the target for the federal funds rate from 1.00% to 3.25% at June 30, 2005. Coinciding with its last rate hike in June 2005, the Fed said, "Although energy prices have risen further, the expansion remains firm and labor market conditions continue to improve gradually. Pressures on inflation have stayed elevated, but longer-term inflation expectations remain well contained." The Fed also reiterated that it expected to raise rates at a "measured" pace. A NEW FUND NOT MANAGED TO A BENCHMARK INDEX The Fund is an extension of our existing global asset allocation strategies. The key difference is that this Fund is not managed to a benchmark and therefore has a broad opportunity set in which market decisions and security selection decisions can be made independently of each other. We're seeking to achieve an average annual return above inflation, net of management fees, over a complete market cycle, which is typically around five years. Of course, there is no guarantee that the Fund will achieve this goal, and it could lose money. The Fund invests in securities and other investments to gain exposure to the global capital markets, including equities, fixed income, cash equivalents, and currencies. We seek to meet the Fund's objective and reduce volatility through the dynamic management of three uncorrelated elements: asset allocation, security selection and currency management. We have the flexibility to adjust the Fund's exposures to security selection and market exposure independently of each other through the use of derivatives in order to capitalize on changing market conditions. We also employ proprietary risk management tools to ensure the risk positions in the Fund are commensurate with the opportunities we perceive. A STRATEGIC MIX OF STOCK SELECTION, MARKET EXPOSURE, AND CURRENCY STRATEGY Throughout the reporting period, the majority of the Fund's capital was invested in equity markets worldwide, including the US, developed markets outside the US, emerging markets, and US small capitalization. Our research showed that a broad range of attractive security opportunities existed across each of these segments of the global equity markets. In contrast, the global fixed income markets did not appear to offer great opportunities to garner incremental return through security selection, save for some modest occasional opportunities in the high yield bond sector. During the reporting period, our analysis indicated that most equity markets were priced in a range from slightly undervalued to fair value. Consequently, we wanted to have some positive exposure to equities, as we believed we would be compensated fairly (or better) for the risk of holding equities. With the best opportunities in locales including the UK, US, Netherlands and the emerging markets, we had 79 greater exposure to these markets. Because most of the Fund's capital, however, was invested in equities to take advantage of the superior security-level opportunities discussed above, we reduced the equity market exposure to more moderate levels through the sale of futures contracts in several markets. So, for example, although we sought to take advantage of superior stock selection opportunities in the US small capitalization sector, we largely eliminated our exposure to this market through the sale of Russell 2000 Index futures contracts. By contrast, the Fund had very limited fixed income market exposure throughout the period, which was consistent with our view that these markets were significantly overvalued. At the end of the period, the Fund held short positions in US, German, UK, Japanese, and Swiss bonds. Thus, the Fund will benefit from negative fixed income market returns. We actively adjusted the Fund's currency strategy during the period. Overall, our currency positioning exhibited a bias in favor of Asian currencies, such as the Japanese yen, Singapore dollar, and Thai baht, as we believed they were undervalued. Conversely, we were short the British pound and the Australian and New Zealand dollars. Another key factor in our currency positioning for the period was the "carry trade" and its implications for global currencies. Essentially, the idea of the carry trade is to take advantage of "cheap" financing in the US fixed income market to fund positions in other, higher-yielding assets. Investor appetite for these types of investment positions helped underpin the performance, and in our view, the overvaluation, of certain higher-yielding currencies versus the US dollar, namely the Australian dollar, the New Zealand dollar and the British pound. THIS LETTER IS INTENDED TO ASSIST SHAREHOLDERS IN UNDERSTANDING HOW THE FUND PERFORMED DURING THE FISCAL YEAR ENDED JUNE 30, 2005. THE VIEWS AND OPINIONS IN THE LETTER WERE CURRENT AS OF AUGUST 1, 2005. THEY ARE NOT GUARANTEES OF PERFORMANCE OR INVESTMENT RESULTS AND SHOULD NOT BE TAKEN AS INVESTMENT ADVICE. INVESTMENT DECISIONS REFLECT A VARIETY OF FACTORS, AND WE RESERVE THE RIGHT TO CHANGE OUR VIEWS ABOUT INDIVIDUAL SECURITIES, SECTORS AND MARKETS AT ANY TIME. AS A RESULT, THE VIEWS EXPRESSED SHOULD NOT BE RELIED UPON AS A FORECAST OF THE FUND'S FUTURE INVESTMENT INTENT. WE ENCOURAGE YOU TO CONSULT YOUR FINANCIAL ADVISOR REGARDING YOUR PERSONAL INVESTMENT PROGRAM. MUTUAL FUNDS ARE SOLD BY PROSPECTUS ONLY. YOU SHOULD READ IT CAREFULLY AND CONSIDER A FUND'S INVESTMENT OBJECTIVES, RISKS, CHARGES, EXPENSES AND OTHER IMPORTANT INFORMATION CONTAINED IN THE PROSPECTUS BEFORE INVESTING. PROSPECTUSES FOR MOST OF OUR FUNDS CAN BE OBTAINED FROM YOUR FINANCIAL ADVISOR, BY CALLING UBS FUNDS AT 800-647 1568 OR BY VISITING OUR WEB SITE AT www.ubs.com/globalam-us. 80 AVERAGE ANNUAL TOTAL RETURN (UNAUDITED)
INCEPTION* TO 6/30/05 -------------------------------------------------------------------------------------------- UBS DYNAMIC ALPHA FUND CLASS A 2.20% UBS DYNAMIC ALPHA FUND CLASS B 1.90 UBS DYNAMIC ALPHA FUND CLASS C 1.90 UBS DYNAMIC ALPHA FUND CLASS Y 2.30 UBS DYNAMIC ALPHA FUND CLASS A** -3.40 UBS DYNAMIC ALPHA FUND CLASS B** -3.10 UBS DYNAMIC ALPHA FUND CLASS C** 0.90 MERRILL LYNCH U.S. TREASURY 1-5 YEAR INDEX 1.03 CONSUMER PRICE INDEX 1.99
* INCEPTION DATE OF UBS DYNAMIC ALPHA FUND SHARES IS 1/27/05. INCEPTION DATE OF THE INDICES, FOR THE PURPOSE OF THIS ILLUSTRATION, IS 1/31/05. ** RETURNS INCLUDE SALES CHARGES. THE Y SHARE CLASS IS OUR LOWEST FEE SHARE CLASS. OUR OTHER SHARE CLASSES INCLUDE HIGHER FEES AND LOADS, WHICH IF DEDUCTED WOULD RESULT IN LOWER PERFORMANCE. PAST PERFORMANCE DOES NOT PREDICT FUTURE PERFORMANCE, AND THE PERFORMANCE INFORMATION PROVIDED DOES NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PERFORMANCE RESULTS ASSUME REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS AT NET ASSET VALUE ON THE EX-DIVIDEND DATES. TOTALS RETURNS FOR PERIODS OF LESS THAN ONE YEAR HAVE NOT BEEN ANNUALIZED. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE DATA QUOTED. FOR MONTH-END PERFORMANCE FIGURES, PLEASE VISIT http://www.ubs.com. 81 ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000 This chart shows the growth in the value of an investment in UBS Dynamic Alpha Fund Class Y shares, the Consumer Price Index and the Merrill Lynch U.S. Treasury 1-5 Year Index, if you had invested $10,000 on January 27, 2005, and had reinvested all your income dividends and capital gain distributions through June 30, 2005. The performance of Class A, Class B and Class C shares will vary based upon the different inception dates, class specific expenses and sales charges. No adjustment has been made for any income taxes payable by shareholders on income dividends and capital gain distributions. Past performance is no guarantee of future results. Share price and returns will vary with market conditions; investors may realize a gain or loss upon redemption. [CHART] UBS DYNAMIC ALPHA FUND CLASS Y VS. CONSUMER PRICE INDEX AND THE MERRILL LYNCH U.S. TREASURY 1-5 YEAR INDEX Wealth Value With Dividends Reinvested
MERRILL LYNCH U.S. TREASURY UBS DYNAMIC ALPHA FUND CLASS Y CONSUMER PRICE INDEX 1-5 YEAR INDEX 1/27/2005 $ 10,000 $ 10,000 $ 10,000 1/31/2005 $ 10,000 $ 10,000 $ 10,000 2/28/2005 $ 10,150 $ 10,058 $ 9,956 3/31/2005 $ 10,070 $ 10,136 $ 9,946 4/30/2005 $ 9,990 $ 10,205 $ 10,027 5/31/2005 $ 10,090 $ 10,194 $ 10,079 6/30/2005 $ 10,230 $ 10,199 $ 10,103
1/27/05 = $10,000 PAST PERFORMANCE DOES NOT PREDICT FUTURE PERFORMANCE, AND THE PERFORMANCE INFORMATION PROVIDED DOES NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PERFORMANCE RESULTS ASSUME REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS AT NET ASSET VALUE ON THE EX-DIVIDEND DATES. TOTALS RETURNS FOR PERIODS OF LESS THAN ONE YEAR HAVE NOT BEEN ANNUALIZED. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE DATA QUOTED. FOR MONTH-END PERFORMANCE FIGURES, PLEASE VISIT http://www.ubs.com. 82 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, January 1, 2005 to June 30, 2005. 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. Please note that the Fund commenced operations on January 27, 2005, therefore, "Actual Expenses Paid During the Period" reflect activity from January 27, 2005 through June 30, 2005. 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. Please note that while the Fund commenced investment operations on January 27, 2005, the "Hypothetical Expenses Paid During the Period" reflect projected activity for the full six month period for purposes of comparability. This projection assumes that the annualized expense ratios for all share classes were in effect during the period from January 1, 2005 to January 27, 2005.
ENDING EXPENSES PAID BEGINNING ACCOUNT VALUE DURING PERIOD** ACCOUNT VALUE* JUNE 30, 2005 1/1/05 - 6/30/05 --------------------------------------------------------------------------------------------------- CLASS A ACTUAL $ 1,000.00 $ 1,022.00 $ 5.67 HYPOTHETICAL (5% RETURN BEFORE EXPENSES) 1,000.00 1,018.25 6.61 CLASS B ACTUAL 1,000.00 1,019.00 8.96 HYPOTHETICAL (5% RETURN BEFORE EXPENSES) 1,000.00 1,014.43 10.44 CLASS C ACTUAL 1,000.00 1,019.00 8.96 HYPOTHETICAL (5% RETURN BEFORE EXPENSES) 1,000.00 1,014.43 10.44 CLASS Y ACTUAL 1,000.00 1,023.00 4.30 HYPOTHETICAL (5% RETURN BEFORE EXPENSES) 1,000.00 1,019.84 5.01
* THE FUND COMMENCED INVESTMENT OPERATIONS ON JANUARY 27, 2005. ** EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO: CLASS A: 1.32%, CLASS B: 2.09%, CLASS C: 2.09%, CLASS Y: 1.00%, MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 155 DIVIDED BY 365 (TO REFLECT THE ONE-HALF YEAR PERIOD). 83 INDUSTRY DIVERSIFICATION AS A PERCENT OF NET ASSETS AS OF JUNE 30, 2005 (UNAUDITED) INVESTMENT COMPANIES 96.06%* ------ TOTAL INVESTMENTS 96.06 CASH AND OTHER ASSETS, LESS LIABILITIES 3.94 ------ NET ASSETS 100.00% ======
* THE FUND HELD SHORT POSITIONS IN U.S. INTEREST RATE FUTURES AND INTERNATIONAL STOCK INDEX FUTURES AS WELL AS A LONG POSITION IN INTERNATIONAL STOCK INDEX FUTURES WHICH RESULTED IN A NET REDUCTION TO THE FUND'S INVESTMENTS IN INVESTMENT COMPANIES OF 0.18%. 84 UBS DYNAMIC ALPHA FUND -- SCHEDULE OF INVESTMENTS JUNE 30, 2005
SHARES VALUE -------------- -------------- INVESTMENT COMPANIES -- 96.06% UBS Emerging Markets Equity Relationship Fund 4,622,470 $ 78,481,689 UBS High Yield Relationship Fund 840,586 15,789,392 UBS International Equity Relationship Fund 14,792,005 203,718,452 UBS Small Cap Equity Relationship Fund 1,765,495 68,132,739 UBS U.S. Cash Management Prime Relationship Fund 39,093,077 39,093,077 UBS U.S. Large Cap Equity Relationship Fund 21,966,721 365,176,960 -------------- Total Investment Companies (Cost $755,487,572) 770,392,309 -------------- Total Investments (Cost $755,487,572) -- 96.06% 770,392,309 Cash and other assets, less liabilities -- 3.94% 31,621,084 -------------- Net Assets -- 100.00% $ 802,013,393 ==============
NOTES TO SCHEDULE OF INVESTMENTS Aggregate cost for federal income tax purposes was $755,487,572; and net unrealized appreciation consisted of: Gross unrealized appreciation $ 16,536,285 Gross unrealized depreciation (1,631,548) ------------- Net unrealized appreciation $ 14,904,737 =============
FORWARD FOREIGN CURRENCY CONTRACTS UBS Dynamic Alpha Fund had the following open forward foreign currency contracts as of June 30, 2005:
UNREALIZED CONTRACTS TO IN EXCHANGE MATURITY APPRECIATION/ DELIVER FOR DATES (DEPRECIATION) -------------- ----------------- -------- -------------- Australian Dollar 14,290,000 USD 10,853,326 11/25/05 $ 45,118 Brazilian Real 32,450,000 USD 12,621,548 8/23/05 (840,002) British Pound 49,270,000 USD 89,378,983 11/25/05 1,378,930 British Pound 3,255,000 USD 5,809,524 11/25/05 (4,159) Canadian Dollar 15,080,000 USD 12,076,560 11/25/05 (282,532) Euro 80,640,000 USD 99,306,144 11/25/05 1,079,456 Euro 4,200,000 USD 5,119,506 11/25/05 3,533 Euro 4,240,000 USD 5,159,529 11/25/05 (5,168) Japanese Yen 1,302,700,000 USD 12,314,251 11/25/05 386,770 New Zealand Dollar 31,320,000 USD 21,917,893 11/25/05 411,109 New Zealand Dollar 32,805,000 USD 23,127,525 11/25/05 601,024 New Zealand Dollar 5,950,000 USD 4,083,336 11/25/05 (2,403) South African Rand 47,690,000 USD 6,996,772 11/25/05 (54,309) South Korean Won 10,166,000,000 USD 10,060,366 8/23/05 224,060 Swiss Franc 15,325,000 USD 12,384,639 11/25/05 282,942 United States Dollar 33,627,667 SEK 251,350,000 11/25/05 (1,170,875) United States Dollar 20,936,872 SEK 156,210,000 11/25/05 (765,495) United States Dollar 4,297,702 SEK 33,290,000 11/25/05 1,031 United States Dollar 24,061,490 SGD 39,835,000 11/25/05 (300,907) United States Dollar 26,967,344 THB 1,094,200,000 11/25/05 (498,806) United States Dollar 16,358,084 TWD 508,900,000 8/23/05 (255,598) -------------- Total net unrealized appreciation on forward foreign currency contracts $ 233,719 ==============
Currency Type Abbreviations SEK Swedish Krona SGD Singapore Dollar THB Thai Baht TWD New Taiwan Dollar USD United States Dollar 85 FUTURES CONTRACTS UBS Dynamic Alpha Fund had the following open futures contracts as of June 30, 2005:
UNREALIZED EXPIRATION CURRENT APPRECIATION/ DATE COST/PROCEEDS VALUE (DEPRECIATION) -------------- ------------- ------------- -------------- INDEX FUTURES BUY CONTRACTS: Amsterdam Exchanges Index, 349 contracts (EUR) July 2005 $ 31,928,060 $ 32,491,546 $ 563,486 IBEX 35 Index, 62 contracts (EUR) July 2005 7,161,006 7,313,500 152,494 FTSE 100 Index, 589 contracts (GBP) September 2005 53,304,721 54,070,392 765,671 INDEX FUTURE SALE CONTRACTS: CAC 40 Euro Index, 387 contracts (EUR) September 2005 19,762,960 19,909,823 (146,863) DAX Index, 21 contracts (EUR) September 2005 2,938,903 2,938,021 882 DJ Euro STOXX 50 Index, 515 contracts (EUR) September 2005 19,682,268 19,939,042 (256,774) Nikkei 225 Index, 344 contracts (JPY) September 2005 34,749,811 35,887,014 (1,137,203) Russell 200 Index, 194 contracts September 2005 60,925,700 62,380,700 (1,455,000) S&P ASX 200 Index, 205 contracts (AUD) September 2005 16,709,006 16,692,608 16,398 S&P MIB Index, 44 contracts (EUR) September 2005 8,614,190 8,633,508 (19,318) S&P Toronto Stock Exchange 60 Index, 366 contracts (CAD) September 2005 33,220,100 33,235,238 (15,138) S&P 500 Index, 801 contracts September 2005 240,640,058 239,398,875 1,241,183 INTEREST RATE FUTURE SALE CONTRACTS: Euro-Bond, 122 contracts (EUR) September 2005 18,115,313 18,240,864 (125,551) Japanese 10 Year Bond, 14 contracts (JPY) September 2005 17,782,103 17,839,545 (57,442) Long Gilt, 90 contracts (GBP) September 2005 18,159,013 18,417,961 (258,948) U.S. Long Bond, 303 contracts September 2005 35,292,891 35,981,250 (688,359) -------------- Total net unrealized depreciation on futures contracts $ (1,420,482) ==============
The segregated aggregate value of cash collateral pledged to cover margin requirements for the open futures positions at June 30, 2005 was $36,000,000. Currency Type Abbreviations AUD Australian Dollar CAD Canadian Dollar EUR Euro GBP British Pound JPY Japanese Yen See accompanying notes to financial statements 86 UBS U.S. BOND FUND For the fiscal year ended June 30, 2005, Class A shares of the UBS U.S. Bond Fund (the "Fund") returned 5.72% and Class Y shares returned 5.95%, versus the 6.80% return of the Fund's benchmark, the Lehman Brothers U.S. Aggregate Bond Index (the "Index"). Since inception on June 30, 1997, through period end, the Class A shares of the Fund returned 6.25% while the Index returned 6.89%, and since inception August 31, 1995, through period end, the Fund's Y shares returned 6.52% on an annualized basis, compared with the 6.84% 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 89; 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 lagged its benchmark over the reporting period, but has provided returns more in line with the Index over the longer term. Relative performance over the fiscal year was primarily driven by the Fund's defensive stance on duration and sector allocation decisions, especially in the second half of the reporting period when yields on the 10-year Treasury continued to decline despite the continuing interest rate hikes by the Federal Reserve Board (the "Fed"). MIXED SIGNALS CREATE CHALLENGING BOND MARKET CONDITIONS Ordinarily, increasing interest rates and evidence of a growing economy would be bad news for the bond market. This did not prove to be the case for the 12 months ending June 30, 2005. The Fed raised short-term interest rates a total of 2.25% from June 30, 2004 to June 30, 2005 and suggested in their June 2005 policy statement that there was room for further increases. From the time the Fed started raising rates, the markets responded by pushing the yield on the 10-year Treasury 4.57% to 3.92% during the fiscal year. Prices have an inverse relationship with yields, so the bond market in general produced positive results. In our opinion, the US bond market remained a web of contradictions. Its reaction to a number of events was more a function of external factors and investor sentiment than economic and financial fundamentals. The market experienced some volatility in April 2005 when rating agency Standard & Poor's downgraded General Motors ("GM"), GMAC, Ford and Ford Motor Credit debt to noninvestment-grade status. In our view, while the downgrade of GM was broadly anticipated, S&P's decision to include Ford added an element of surprise. The small disruption was largely the result of anticipating changes in the commonly used indices. GM came out of investment-grade indices like the Lehman Brothers U.S. Aggregate Bond Index that the Fund uses to benchmark its performance, and it went into high yield indices instead, triggering selling by investors who manage to a US aggregate benchmark index. Overall, the bond market absorbed the downgrades and, we believe, benefited from the declining Treasury yields. Earlier in the period, our research suggested that yields were being kept artificially low by the strong demand from Asian central banks. These banks, including the Bank of Japan and the Bank of China, attempted to support the US dollar and temper their currencies' appreciation by buying US bonds. In addition, our market behavior analysis revealed that investors were growing more concerned about an economic soft patch, primarily due to oil prices reaching a record $60 a barrel and the first signs of declining rates in Europe. These factors aside, our research indicated that the US economy was relatively strong (the strongest among the developed countries), and that the bond market was trading above its fundamental value. Given our expectations for continued Fed rate hikes, the Fund maintained its defensive posture, relying on bottom-up research to identity individual bond opportunities. A DEFENSIVE STRATEGY GUIDES DURATION AND SECTOR ALLOCATION DECISIONS Part of our defensive strategy was to maintain a shorter-than-Index duration (duration is a measure of a portfolio's sensitivity to interest rates). By keeping average duration below that of the benchmark, the Fund sought to minimize the effect of interest rate increases. This positioning benefited the Fund in the early part of the reporting period, but proved to be a drag on relative performance later in the fiscal 87 year, when longer-term yields failed to respond to the Fed's rate increases. The Fund's sector allocation favored high-quality securities. In our opinion, the narrow spread (the risk premium paid to investors for holding corporate issues instead of similar duration US Treasuries) in most sectors pointed to limited opportunities. As a result, the Fund was underweight to corporate and high-quality non-corporate bonds relative to the Index. In contrast, the Fund was overweight asset-backed securities (ABS) and commercial mortgage-backed securities (CMBS), sectors that we believed offered attractive values. The Fund benefited from strong issue selection in these areas, including issue selection in the ABS manufactured housing industry and hybrid mortgages, and adjustable-rate mortgages within MBS. THIS LETTER IS INTENDED TO ASSIST SHAREHOLDERS IN UNDERSTANDING HOW THE FUND PERFORMED DURING THE FISCAL YEAR ENDED JUNE 30, 2005. THE VIEWS AND OPINIONS IN THE LETTER WERE CURRENT AS OF AUGUST 1, 2005. THEY ARE NOT GUARANTEES OF PERFORMANCE OR INVESTMENT RESULTS AND SHOULD NOT BE TAKEN AS INVESTMENT ADVICE. INVESTMENT DECISIONS REFLECT A VARIETY OF FACTORS, AND WE RESERVE THE RIGHT TO CHANGE OUR VIEWS ABOUT INDIVIDUAL SECURITIES, SECTORS AND MARKETS AT ANY TIME. AS A RESULT, THE VIEWS EXPRESSED SHOULD NOT BE RELIED UPON AS A FORECAST OF THE FUND'S FUTURE INVESTMENT INTENT. WE ENCOURAGE YOU TO CONSULT YOUR FINANCIAL ADVISOR REGARDING YOUR PERSONAL INVESTMENT PROGRAM. MUTUAL FUNDS ARE SOLD BY PROSPECTUS ONLY. YOU SHOULD READ IT CAREFULLY AND CONSIDER A FUND'S INVESTMENT OBJECTIVES, RISKS, CHARGES, EXPENSES AND OTHER IMPORTANT INFORMATION CONTAINED IN THE PROSPECTUS BEFORE INVESTING. PROSPECTUSES FOR MOST OF OUR FUNDS CAN BE OBTAINED FROM YOUR FINANCIAL ADVISOR, BY CALLING UBS FUNDS AT 800-647 1568 OR BY VISITING OUR WEB SITE AT www.ubs.com/globalam-us. 88 AVERAGE ANNUAL TOTAL RETURN (UNAUDITED)
1 YEAR 3 YEARS 5 YEARS INCEPTION* ENDED ENDED ENDED TO 6/30/05 6/30/05 6/30/05 6/30/05 ---------------------------------------------------------------------------------------------------- UBS U.S. BOND FUND CLASS A 5.72% 4.95% 6.74% 6.25% UBS U.S. BOND FUND CLASS B 4.96 4.17 N/A 3.62 UBS U.S. BOND FUND CLASS C 5.25 4.44 N/A 3.85 UBS U.S. BOND FUND CLASS Y 5.95 5.19 6.98 6.52 UBS U.S. BOND FUND CLASS A** 0.94 3.34 5.77 5.64 UBS U.S. BOND FUND CLASS B** -0.04 3.24 N/A 3.12 UBS U.S. BOND FUND CLASS C** 4.50 4.44 N/A 3.85 LEHMAN BROTHERS U.S. AGGREGATE BOND INDEX 6.80 5.76 7.40 6.84
* INCEPTION DATE OF UBS U.S. BOND FUND CLASS A SHARES IS 6/30/97. INCEPTION DATES OF CLASS B AND CLASS C SHARES ARE 11/06/01 AND 11/08/01, RESPECTIVELY. INCEPTION DATE OF CLASS Y SHARES AND THE INDEX IS 8/31/95. ** RETURNS INCLUDE SALES CHARGES. THE Y SHARE CLASS IS OUR LOWEST FEE SHARE CLASS. OUR OTHER SHARE CLASSES INCLUDE HIGHER FEES AND LOADS, WHICH IF DEDUCTED WOULD RESULT IN LOWER PERFORMANCE. PAST PERFORMANCE DOES NOT PREDICT FUTURE PERFORMANCE, AND THE PERFORMANCE INFORMATION PROVIDED DOES NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PERFORMANCE RESULTS ASSUME REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS AT NET ASSET VALUE ON THE EX-DIVIDEND DATES. TOTALS RETURNS FOR PERIODS OF LESS THAN ONE YEAR HAVE NOT BEEN ANNUALIZED. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE DATA QUOTED. FOR MONTH-END PERFORMANCE FIGURES, PLEASE VISIT http://www.ubs.com. 89 ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000 This chart shows the growth in the value of an investment in UBS U.S. Bond Fund Class Y shares and the Lehman Brothers U.S. Aggregate Bond Index, if you had invested $10,000 on August 31, 1995, and had reinvested all your income dividends and capital gain distributions through June 30, 2005. The performance of Class A, Class B and Class C shares will vary based upon the different inception dates, class specific expenses and sales charges. No adjustment has been made for any income taxes payable by shareholders on income dividends and capital gain distributions. Past performance is no guarantee of future results. Share price and returns will vary with market conditions; investors may realize a gain or loss upon redemption. [CHART] UBS U.S. BOND FUND CLASS Y VS. LEHMAN BROTHERS U.S. AGGREGATE BOND INDEX Wealth Value With Dividends
UBS U.S. BOND FUND CLASS Y LEHMAN BROTHERS U.S. AGGREGATE BOND INDEX 8/31/1995 $ 10,000 $ 10,000 9/30/1995 $ 10,090 $ 10,097 10/31/1995 $ 10,240 $ 10,228 11/30/1995 $ 10,400 $ 10,382 12/31/1995 $ 10,549 $ 10,527 1/31/1996 $ 10,611 $ 10,597 2/29/1996 $ 10,386 $ 10,412 3/31/1996 $ 10,314 $ 10,339 4/30/1996 $ 10,232 $ 10,281 5/31/1996 $ 10,201 $ 10,261 6/30/1996 $ 10,360 $ 10,399 7/31/1996 $ 10,391 $ 10,427 8/31/1996 $ 10,329 $ 10,409 9/30/1996 $ 10,548 $ 10,591 10/31/1996 $ 10,819 $ 10,826 11/30/1996 $ 11,090 $ 11,011 12/31/1996 $ 10,922 $ 10,909 1/31/1997 $ 10,943 $ 10,943 2/28/1997 $ 10,965 $ 10,970 3/31/1997 $ 10,813 $ 10,848 4/30/1997 $ 10,987 $ 11,011 5/31/1997 $ 11,095 $ 11,115 6/30/1997 $ 11,236 $ 11,247 7/31/1997 $ 11,587 $ 11,550 8/31/1997 $ 11,488 $ 11,452 9/30/1997 $ 11,642 $ 11,621 10/31/1997 $ 11,806 $ 11,789 11/30/1997 $ 11,839 $ 11,843 12/31/1997 $ 11,975 $ 11,962 1/31/1998 $ 12,113 $ 12,115 2/28/1998 $ 12,113 $ 12,105 3/31/1998 $ 12,148 $ 12,146 4/30/1998 $ 12,206 $ 12,210 5/31/1998 $ 12,322 $ 12,326 6/30/1998 $ 12,426 $ 12,430 7/31/1998 $ 12,438 $ 12,457 8/31/1998 $ 12,649 $ 12,660 9/30/1998 $ 12,872 $ 12,956 10/31/1998 $ 12,825 $ 12,887 11/30/1998 $ 12,919 $ 12,961 12/31/1998 $ 12,977 $ 12,999 1/31/1999 $ 13,087 $ 13,092 2/28/1999 $ 12,867 $ 12,863 3/31/1999 $ 12,952 $ 12,933 4/30/1999 $ 12,989 $ 12,975 5/31/1999 $ 12,855 $ 12,861 6/30/1999 $ 12,795 $ 12,819 7/31/1999 $ 12,733 $ 12,766 8/31/1999 $ 12,696 $ 12,759 9/30/1999 $ 12,858 $ 12,907 10/31/1999 $ 12,870 $ 12,955 11/30/1999 $ 12,895 $ 12,954 12/31/1999 $ 12,842 $ 12,892 1/31/2000 $ 12,789 $ 12,849 2/29/2000 $ 12,934 $ 13,004 3/31/2000 $ 13,092 $ 13,176 4/30/2000 $ 13,013 $ 13,138 5/31/2000 $ 12,960 $ 13,131 6/30/2000 $ 13,273 $ 13,404 7/31/2000 $ 13,380 $ 13,526 8/31/2000 $ 13,565 $ 13,723 9/30/2000 $ 13,658 $ 13,809 10/31/2000 $ 13,711 $ 13,900 11/30/2000 $ 13,977 $ 14,128 12/31/2000 $ 14,231 $ 14,390 1/31/2001 $ 14,456 $ 14,625 2/28/2001 $ 14,597 $ 14,752 3/31/2001 $ 14,682 $ 14,826 4/30/2001 $ 14,569 $ 14,765 5/31/2001 $ 14,654 $ 14,854 6/30/2001 $ 14,715 $ 14,910 7/31/2001 $ 15,099 $ 15,243 8/31/2001 $ 15,256 $ 15,418 9/30/2001 $ 15,455 $ 15,598 10/31/2001 $ 15,765 $ 15,924 11/30/2001 $ 15,524 $ 15,705 12/31/2001 $ 15,429 $ 15,605 1/31/2002 $ 15,558 $ 15,731 2/28/2002 $ 15,711 $ 15,883 3/31/2002 $ 15,420 $ 15,619 4/30/2002 $ 15,750 $ 15,922 5/31/2002 $ 15,882 $ 16,057 6/30/2002 $ 15,981 $ 16,196 7/31/2002 $ 16,111 $ 16,392 8/31/2002 $ 16,391 $ 16,668 9/30/2002 $ 16,601 $ 16,938 10/31/2002 $ 16,531 $ 16,861 11/30/2002 $ 16,547 $ 16,857 12/31/2002 $ 16,866 $ 17,205 1/31/2003 $ 16,880 $ 17,220 2/28/2003 $ 17,084 $ 17,458 3/31/2003 $ 17,081 $ 17,445 4/30/2003 $ 17,237 $ 17,589 5/31/2003 $ 17,521 $ 17,916 6/30/2003 $ 17,487 $ 17,881 7/31/2003 $ 16,907 $ 17,280 8/31/2003 $ 17,038 $ 17,394 9/30/2003 $ 17,493 $ 17,855 10/31/2003 $ 17,317 $ 17,688 11/30/2003 $ 17,386 $ 17,731 12/31/2003 $ 17,528 $ 17,911 1/31/2004 $ 17,675 $ 18,055 2/29/2004 $ 17,851 $ 18,251 3/31/2004 $ 17,979 $ 18,387 4/30/2004 $ 17,551 $ 17,909 5/31/2004 $ 17,472 $ 17,837 6/30/2004 $ 17,558 $ 17,941 7/31/2004 $ 17,724 $ 18,119 8/31/2004 $ 18,041 $ 18,465 9/30/2004 $ 18,110 $ 18,515 10/31/2004 $ 18,245 $ 18,670 11/30/2004 $ 18,109 $ 18,521 12/31/2004 $ 18,248 $ 18,691 1/31/2005 $ 18,326 $ 18,809 2/28/2005 $ 18,265 $ 18,698 3/31/2005 $ 18,188 $ 18,602 4/30/2005 $ 18,367 $ 18,853 5/31/2005 $ 18,522 $ 19,057 6/30/2005 $ 18,603 $ 19,161
8/31/95 = $10,000 PAST PERFORMANCE DOES NOT PREDICT FUTURE PERFORMANCE, AND THE PERFORMANCE INFORMATION PROVIDED DOES NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PERFORMANCE RESULTS ASSUME REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS AT NET ASSET VALUE ON THE EX-DIVIDEND DATES. TOTALS RETURNS FOR PERIODS OF LESS THAN ONE YEAR HAVE NOT BEEN ANNUALIZED. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE DATA QUOTED. FOR MONTH-END PERFORMANCE FIGURES, PLEASE VISIT http://www.ubs.com. 90 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, January 1, 2005 to June 30, 2005. 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* JANUARY 1, 2005 JUNE 30, 2005 1/1/05 - 6/30/05 --------------------------------------------------------------------------------------------------- CLASS A ACTUAL $ 1,000.00 $ 1,018.00 $ 4.25 HYPOTHETICAL (5% RETURN BEFORE EXPENSES) 1,000.00 1,020.58 4.26 CLASS B ACTUAL 1,000.00 1,015.00 7.99 HYPOTHETICAL (5% RETURN BEFORE EXPENSES) 1,000.00 1,016.86 8.00 CLASS C ACTUAL 1,000.00 1,015.90 6.75 HYPOTHETICAL (5% RETURN BEFORE EXPENSES) 1,000.00 1,018.10 6.76 CLASS Y ACTUAL 1,000.00 1,019.40 3.00 HYPOTHETICAL (5% RETURN BEFORE EXPENSES) 1,000.00 1,021.82 3.01
* 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 181 DIVIDED BY 365 (TO REFLECT THE ONE-HALF YEAR PERIOD). 91 TOP TEN FIXED INCOME HOLDINGS AS OF JUNE 30, 2005 (UNAUDITED)
PERCENTAGE OF NET ASSETS ------------------------------------------------------------------- U.S. Treasury Note 3.375%, due 02/28/07 8.8% U.S. Treasury Note 3.750%, due 03/31/07 5.8 U.S. Treasury Note 2.000%, due 01/15/14 4.1 Federal National Mortgage Association 5.500%, due 03/15/11 2.0 Federal National Mortgage Association 4.951%, due 02/01/35 2.0 Federal National Mortgage Association 5.000%, TBA 1.9 U.S. Treasury Note 3.625%, due 01/15/10 1.8 Federal National Mortgage Association 5.500%, TBA 1.8 U.S. Treasury Note 3.625%, due 04/30/07 1.3 U.S. Treasury Bond 6.250%, due 05/15/30 1.2 ------------------------------------------------------------------- Total 30.7%
INDUSTRY DIVERSIFICATION AS A PERCENT OF NET ASSETS AS OF JUNE 30, 2005 (UNAUDITED) BONDS U.S. BONDS U.S. CORPORATE BONDS Aerospace & Defense 0.10% Automobiles 0.53 Beverages 0.48 Capital Markets 1.06 Chemicals 0.40 Commercial Banks 1.42 Commercial Services & Supplies 0.28 Communications Equipment 0.08 Consumer Finance 1.54 Diversified Financial Services 2.16 Diversified Telecommunication Services 0.82 Electric Utilities 0.79 Food & Staples Retailing 0.19 Food Products 0.30 Gas Utilities 0.08 Hotels, Restaurants & Leisure 0.11 Household Durables 0.08 Insurance 0.26 IT Services 0.11 Machinery 0.04 Media 0.64 Metals & Mining 0.08 Multi-Utilities & Unregulated Power 0.20 Oil & Gas 0.44 Paper & Forest Products 0.17 Personal Products 0.11 Pharmaceuticals 0.20 Real Estate 0.20 Road & Rail 0.49 Thrifts & Mortgage Finance 0.54% Tobacco 0.19 Wireless Telecommunication Services 0.12 ------ Total U.S. Corporate Bonds 14.21 Asset-Backed Securities 5.32 Commercial Mortgage-Backed Securities 7.70 Mortgage & Agency Debt Securities 42.36 Municipal Notes and Bonds 1.10 U.S. Government Obligation 25.54 ------ Total U.S. Bonds 96.23 INTERNATIONAL BONDS INTERNATIONAL CORPORATE BONDS Aerospace & Defense 0.08 Commercial Banks 0.20 Diversified Financial Services 0.15 Diversified Telecommunication Services 0.32 Oil & Gas 0.05 ------ Total International Corporate Bonds 0.80 Foreign Government Bond 0.37 Sovereign/Supranational Bonds 0.52 ------ Total International Bonds 1.69 TOTAL BONDS 97.92 SHORT-TERM INVESTMENT 7.67 ------ TOTAL INVESTMENTS 105.59 LIABILITIES, IN EXCESS OF CASH AND OTHER ASSETS (5.59) ------ NET ASSETS 100.00% ======
92 UBS U.S. BOND FUND -- SCHEDULE OF INVESTMENTS JUNE 30, 2005
FACE AMOUNT VALUE ------------- --------------- BONDS -- 97.92% U.S. BONDS -- 96.23% U.S. CORPORATE BONDS -- 14.21% Alcoa, Inc. 6.000%, due 01/15/12 $ 105,000 $ 113,713 Allstate Corp. 7.200%, due 12/01/09 100,000 111,656 Altria Group, Inc. 7.750%, due 01/15/27 110,000 132,092 American Electric Power Co., Inc. 6.125%, due 05/15/06 72,000 73,265 American General Finance Corp. 5.375%, due 10/01/12 180,000 185,808 Anheuser-Busch Cos., Inc. 9.000%, due 12/01/09 280,000 332,875 AT&T Corp. 9.750%, due 11/15/31 175,000 227,719 AvalonBay Communities, Inc. 7.500%, due 08/01/09 95,000 105,921 Avon Products, Inc. 7.150%, due 11/15/09 150,000 167,319 Bank of America Corp. 7.400%, due 01/15/11 440,000 503,571 Bank One Corp. 7.875%, due 08/01/10 345,000 398,863 BellSouth Corp. 6.550%, due 06/15/34 125,000 142,325 Boeing Capital Corp. 7.375%, due 09/27/10 150,000 171,582 Bombardier Capital, Inc., 144A 6.125%, due 06/29/06 300,000 301,500 Bristol-Myers Squibb Co. 5.750%, due 10/01/11 110,000 117,688 Burlington Northern Santa Fe Corp. 7.082%, due 05/13/29 200,000 248,231 C.S. First Boston USA, Inc. 3.875%, due 01/15/09 105,000 103,766 6.500%, due 01/15/12 180,000 200,051 Capital One Financial Corp. 5.500%, due 06/01/15 170,000 173,917 Caterpillar, Inc. 6.550%, due 05/01/11 55,000 60,999 Cendant Corp. 6.250%, due 01/15/08 180,000 187,761 Citigroup, Inc. 5.000%, due 09/15/14 407,000 416,339 5.625%, due 08/27/12 310,000 331,120 Comcast Cable Communications, Inc. 6.750%, due 01/30/11 425,000 468,883 Computer Sciences Corp. 3.500%, due 04/15/08 165,000 161,191 ConAgra Foods, Inc. 6.750%, due 09/15/11 100,000 110,665 Coors Brewing Co. 6.375%, due 05/15/12 135,000 146,440 Countrywide Home Loans, Inc. 3.250%, due 05/21/08 215,000 208,757 DaimlerChrysler N.A. Holding Corp. 4.050%, due 06/04/08 530,000 521,883 Devon Financing Corp., ULC 6.875%, due 09/30/11 $ 260,000 $ 290,931 Dominion Resources, Inc. 8.125%, due 06/15/10 105,000 120,980 Dow Chemical Co. 6.125%, due 02/01/11 275,000 298,569 Duke Energy Field Services LLC 7.875%, due 08/16/10 155,000 177,937 EOP Operating LP 7.250%, due 06/15/28 165,000 192,339 Erac U.S.A. Finance Co., 144A 8.000%, due 01/15/11 200,000 231,585 FirstEnergy Corp., Series B 6.450%, due 11/15/11 105,000 114,726 Ford Motor Co. 7.450%, due 07/16/31 305,000 254,619 Ford Motor Credit Co. 5.800%, due 01/12/09 745,000 707,225 General Electric Capital Corp. 6.000%, due 06/15/12 1,145,000 1,248,758 6.750%, due 03/15/32 140,000 172,758 General Motors Acceptance Corp. 6.125%, due 09/15/06 (a) 140,000 140,100 6.875%, due 09/15/11 685,000 632,315 Goldman Sachs Group, Inc. 6.875%, due 01/15/11 500,000 557,516 Harrah's Operating Co., Inc. 7.500%, due 01/15/09 155,000 169,303 HSBC Finance Corp. 6.750%, due 05/15/11 295,000 327,435 ICI Wilmington, Inc. 4.375%, due 12/01/08 220,000 218,329 International Lease Finance Corp. 3.500%, due 04/01/09 185,000 178,146 International Paper Co. 6.750%, due 09/01/11 130,000 141,706 John Deere Capital Corp. 7.000%, due 03/15/12 145,000 166,357 JPMorgan Chase & Co. 6.750%, due 02/01/11 225,000 248,827 Kraft Foods, Inc. 5.625%, due 11/01/11 320,000 339,463 Kroger Co. 7.500%, due 04/01/31 105,000 126,448 Lincoln National Corp. 6.200%, due 12/15/11 80,000 87,518 Lockheed Martin Corp. 8.500%, due 12/01/29 100,000 144,418 Marathon Oil Corp. 6.125%, due 03/15/12 120,000 130,609 Marsh & McLennan Cos., Inc. 6.250%, due 03/15/12 170,000 179,429 McKesson Corp. 7.750%, due 02/01/12 95,000 110,397 Miller Brewing Co., 144A 5.500%, due 08/15/13 225,000 233,170 Morgan Stanley 6.750%, due 04/15/11 680,000 752,920
93
FACE AMOUNT VALUE ------------- --------------- Motorola, Inc. 7.625%, due 11/15/10 $ 105,000 $ 120,144 New Cingular Wireless Services, Inc. 8.750%, due 03/01/31 130,000 182,213 Newell Rubbermaid, Inc. 4.000%, due 05/01/10 120,000 116,308 News America, Inc. 6.200%, due 12/15/34 65,000 68,217 Pacific Gas & Electric Co. 6.050%, due 03/01/34 130,000 143,272 PPL Capital Funding Trust I 4.330%, due 03/01/09 125,000 124,033 PPL Energy Supply LLC 6.400%, due 11/01/11 200,000 219,027 Progress Energy, Inc. 7.000%, due 10/30/31 145,000 167,475 Qwest Capital Funding, Inc. 7.900%, due 08/15/10 360,000 358,200 Rohm & Haas Co. 7.850%, due 07/15/29 50,000 68,142 Safeway, Inc. 7.250%, due 02/01/31 130,000 150,535 Sempra Energy 7.950%, due 03/01/10 100,000 113,557 Sprint Capital Corp. 8.375%, due 03/15/12 170,000 204,480 Time Warner, Inc. 7.625%, due 04/15/31 225,000 281,000 TXU Energy Co. LLC 7.000%, due 03/15/13 195,000 217,470 U.S. Bank N.A. 6.375%, due 08/01/11 240,000 264,790 Union Pacific Corp. 6.700%, due 12/01/06 235,000 242,690 UST, Inc. 6.625%, due 07/15/12 135,000 150,857 Valero Energy Corp. 7.500%, due 04/15/32 185,000 228,349 Verizon New England, Inc. 6.500%, due 09/15/11 175,000 190,328 Verizon New York, Inc., Series B 7.375%, due 04/01/32 70,000 82,216 Viacom, Inc. 6.625%, due 05/15/11 120,000 128,893 Wachovia Bank N.A. 7.800%, due 08/18/10 345,000 400,731 Washington Mutual, Inc. 5.625%, due 01/15/07 575,000 587,680 Waste Management, Inc. 7.375%, due 08/01/10 100,000 111,825 Wells Fargo Bank N.A. 6.450%, due 02/01/11 480,000 529,445 Weyerhaeuser Co. 7.375%, due 03/15/32 90,000 106,126 Wyeth 5.500%, due 03/15/13 170,000 178,917 Xcel Energy, Inc. 7.000%, due 12/01/10 100,000 111,249 --------------- 20,968,902 --------------- ASSET-BACKED SECURITIES -- 5.32% Americredit Automobile Receivables Trust, 01-B, Class A4 5.370%, due 06/12/08 $ 354,988 $ 356,379 Capital One Multi-Asset Execution Trust, 03-A1, Class A1+ 3.610%, due 01/15/09 970,000 972,694 CenterPoint Energy Transition Bond Co. LLC, 01-1, Class A4 5.630%, due 09/15/15 310,000 332,249 Conseco Finance Corp., 01-D, Class M2+ 4.970%, due 11/15/32 905,540 913,527 Conseco Finance Securitizations Corp., 00-1, Class A4 7.620%, due 05/01/31 768,429 778,738 Conseco Finance Securitizations Corp., 00-2, Class A4 8.480%, due 12/01/30 311,670 320,056 Conseco Finance Securitizations Corp., 00-5, Class A4 7.470%, due 02/01/32 265,686 270,460 Countrywide Asset-Backed Certificates, 03-SD3, Class A1, 144A+ 3.734%, due 12/25/32 86,421 86,898 Countrywide Asset-Backed Certificates, 04-SD1, Class A1, 144A+ 3.654%, due 06/25/33 249,741 250,196 Green Tree Financial Corp., 94-5, Class A5 8.300%, due 11/15/19 158,765 167,868 Green Tree Financial Corp., 99-3, Class A5 6.160%, due 02/01/31 454,848 461,542 Providian Gateway Master Trust, 04-AA, Class C, 144A + 4.120%, due 03/15/11 190,000 191,330 Providian Gateway Master Trust, 04-AA, Class D, 144A + 5.070%, due 03/15/11 220,000 224,180 RAFC Asset-Backed Trust, 01-1, Class A3 (b) 5.115%, due 11/25/29 175,924 175,763 Sears Credit Account Master Trust, 01-1, Class A+ 3.400%, due 02/15/10 970,000 969,950 Structured Asset Securities Corp., 03-AL2, Class A, 144A 3.357%, due 01/25/31 244,534 232,927 WFS Financial Owner Trust, 03-2, Class B 2.480%, due 12/20/10 1,156,847 1,144,702 --------------- 7,849,459 --------------- COMMERCIAL MORTGAGE-BACKED SECURITIES -- 7.70% Bear Stearns Commercial Mortgage Securities, 00-WF1, Class A2 7.780%, due 02/15/32 (a) 1,215,000 1,373,562 Bear Stearns Commercial Mortgage Securities, 00-WF2, Class A2 7.320%, due 10/15/32 (a) 200,000 225,523
94
FACE AMOUNT VALUE ------------- --------------- Commercial Mortgage Pass-Through Certificates, 01-FL5A, Class E, 144A+ 4.720%, due 11/15/13 $ 125,031 $ 124,990 Commercial Mortgage Pass-Through Certificates, 01-FL5A, Class F, 144A+ 3.884%, due 11/15/13 240,000 237,853 Commercial Mortgage Pass-Through Certificate, 04-HTL1, Class A2, 144A+ 3.540%, due 07/15/16 325,000 325,286 DLJ Commercial Mortgage Corp., 99-CG1, Class A1B 6.460%, due 03/10/32 220,000 235,308 DLJ Commercial Mortgage Corp., 99-CG3, Class A1B 7.340%, due 10/10/32 200,000 223,112 DLJ Commercial Mortgage Corp., 00-CKP1, Class A1B 7.180%, due 11/10/33 850,000 951,600 First Union Lehman Commercial Mortgage Securities, Inc., 97-C2, Class A3 6.650%, due 11/18/29 348,194 364,059 Greenwich Capital Commercial Funding Corp., 03-FL1, Class A, 144A+ 3.470%, due 07/05/18 141,413 141,436 Heller Financial Commercial Mortgage Assets, 99-PH1, Class A1 6.500%, due 05/15/31 447,169 456,914 Host Marriott Pool Trust, 99-HMTA, Class A, 144A 6.980%, due 08/03/15 228,603 241,532 Host Marriott Pool Trust, 99-HMTA, Class C, 144A 7.730%, due 08/03/15 360,000 399,784 Host Marriott Pool Trust, 99-HMTA, Class D, 144A 7.970%, due 08/03/15 220,000 242,050 Host Marriott Pool Trust, 99-HMTA, Class E, 144A 8.070%, due 08/03/15 220,000 238,718 JPMorgan Commercial Mortgage Finance Corp., 99-C8, Class A1 7.325%, due 07/15/31 163,790 169,295 LB Commercial Conduit Mortgage Trust, 99-C1, Class A1 6.410%, due 06/15/31 308,659 314,226 LB Commercial Conduit Mortgage Trust, 99-C2, Class A2 7.325%, due 10/15/32 325,000 359,541 Mach One Trust Commercial Mortgage-Backed, 04-1A, Class A1, 144A 3.890%, due 05/28/40 849,491 838,872 Merrill Lynch Mortgage Investors, Inc., 96-C2, Class A3 6.960%, due 11/21/28 236,656 242,525 Morgan Stanley Capital I, 96-WF1, Class A3, 144A+ 7.708%, due 11/15/28 97,569 97,907 Morgan Stanley Dean Witter Capital I, 00-LIF2, Class A1 6.960%, due 10/15/33 163,686 172,448 PNC Mortgage Acceptance Corp., 00-C1, Class A2 7.610%, due 02/15/10 $ 1,000,000 $ 1,115,705 Prudential Mortgage Capital Funding LLC, 01-ROCK, Class A2 6.605%, due 05/10/34 115,000 127,387 Salomon Brothers Mortgage Securities VII, 00-C1, Class A2 7.520%, due 12/18/09 1,250,000 1,397,783 TIAA Retail Commercial Trust, 01-C1A, Class A2, 144A 6.300%, due 06/19/21 711,142 743,745 --------------- 11,361,161 --------------- MORTGAGE & AGENCY DEBT SECURITIES -- 42.36% C.S. First Boston Mortgage Securities Corp., 02-10, Class 2A1 7.500%, due 05/25/32 265,678 271,665 C.S. First Boston Mortgage Securities Corp., 03-8, Class 5A1 6.500%, due 04/25/33 402,004 406,577 Countrywide Alternative Loan Trust, 04-J8, Class 2A1 7.000%, due 08/25/34 718,827 731,677 Federal Home Loan Mortgage Corp. 3.875%, due 06/15/08 1,360,000 1,360,257 3.875%, due 01/12/09 1,710,000 1,695,186 5.000%, due 01/30/14 (a) 155,000 155,416 5.125%, due 07/15/12 1,685,000 1,786,122 5.625%, due 03/15/11 1,360,000 1,468,396 Federal Home Loan Mortgage Corp., 1595, Class D 7.000%, due 10/15/13 214,651 221,718 Federal Home Loan Mortgage Corp., 2148, Class ZA 6.000%, due 04/15/29 804,547 821,980 Federal Home Loan Mortgage Corp., 2297, Class NB 6.000%, due 03/15/16 460,000 481,952 Federal Home Loan Mortgage Corp., 2426, Class GH 6.000%, due 08/15/30 552,892 561,556 Federal Home Loan Mortgage Corp., 2532, Class PD 5.500%, due 06/15/26 810,000 824,206 Federal Home Loan Mortgage Corp., Gold 5.500%, due 09/01/17 297,116 305,051 5.500%, due 01/01/18 559,192 574,128 5.500%, due 04/01/18 485,405 498,473 6.000%, due 12/01/17 460,062 475,677 6.000%, due 10/01/29 396,168 407,427 6.000%, due 10/01/34 1,034,541 1,061,493 6.500%, due 06/01/29 84,174 87,430 6.500%, due 09/01/29 216,234 224,682 6.500%, due 11/01/29 537,210 558,157 6.500%, due 03/01/32 71,959 74,650 6.500%, due 11/01/32 72,183 74,838 7.000%, due 07/01/32 1,337,467 1,408,340
95
FACE AMOUNT VALUE ------------- --------------- Federal National Mortgage Association 5.000%, TBA $ 2,790,000 $ 2,783,895 5.500%, TBA 2,575,000 2,642,594 3.323%, due 09/01/33+ 64,709 65,512 4.300%, due 03/01/34+ 536,539 538,659 4.336%, due 04/01/34+ 1,152,901 1,150,607 4.383%, due 06/01/33+ 158,229 159,050 4.951%, due 02/01/35+ 2,939,408 2,959,561 5.500%, due 03/15/11 (a) 2,770,000 2,971,238 5.500%, due 12/01/17 1,416,403 1,452,692 5.500%, due 01/01/24 1,647,101 1,681,385 5.500%, due 02/01/24 1,371,806 1,399,927 5.500%, due 09/01/24 426,194 432,269 5.500%, due 03/01/33 1,526,579 1,549,064 5.500%, due 11/01/34 1,187,929 1,204,875 6.000%, due 05/15/08 1,180,000 1,247,313 6.000%, due 07/01/17 178,226 184,333 6.000%, due 06/01/23 287,782 296,496 6.000%, due 03/01/28 87,821 90,262 6.000%, due 03/01/29 101,894 104,726 6.000%, due 05/01/29 91,177 93,712 6.000%, due 07/01/29 366,387 377,040 6.000%, due 06/01/31 75,001 77,070 6.000%, due 01/01/33 609,376 625,147 6.000%, due 06/01/33 119,634 122,697 6.250%, due 02/01/11 1,370,000 1,501,199 6.500%, due 05/01/28 1,357,847 1,410,074 6.500%, due 08/01/29 614,921 638,608 6.500%, due 12/01/29 901,740 936,463 6.500%, due 01/01/35 1,408,807 1,458,477 7.000%, due 03/01/31 27,721 29,343 7.000%, due 11/01/31 141,826 149,596 7.000%, due 04/01/32 346,793 365,813 Federal National Mortgage Association Grantor Trust, 00-T6, Class A1 7.500%, due 06/25/30 673,731 711,047 Federal National Mortgage Association Grantor Trust, 01-T5, Class A3+ 7.500%, due 06/19/30 88,847 94,399 Federal National Mortgage Association Grantor Trust, 01-T10, Class A2 7.500%, due 12/25/41 72,945 77,956 Federal National Mortgage Association Whole Loan, 95-W3, Class A 9.000%, due 04/25/25 10,784 11,814 Federal National Mortgage Association Whole Loan, 03-W6, Class 6A+ 4.395%, due 08/25/42 293,406 300,429 Federal National Mortgage Association Whole Loan, 04-W12, Class 1A3 7.000%, due 07/25/44 813,572 859,113 Federal National Mortgage Association Whole Loan, 04-W15, Class 1A3 7.000%, due 08/25/44 821,647 872,956 First Horizon Alternative Mortgage Securities, 04-AA3, Class A1+ 5.346%, due 09/25/34 993,571 1,005,032 First Horizon Asset Securities, Inc., 04-FL1, Class 1A1+ 3.584%, due 02/25/35 729,961 729,341 Government National Mortgage Association 4.125%, due 10/20/29+ $ 237,762 $ 241,159 6.000%, due 12/20/28 118,247 121,979 6.000%, due 05/20/29 556,658 574,047 6.000%, due 07/15/29 354,630 366,497 6.000%, due 08/20/29 424,864 438,136 6.500%, due 10/15/24 428,113 448,941 6.500%, due 08/15/27 1,866 1,954 7.000%, due 07/15/25 9,901 10,525 7.000%, due 07/15/31 113,465 120,185 8.500%, due 12/15/17 230,155 251,100 GSMPS Mortgage Loan Trust, 01-2, Class A, 144A 7.500%, due 06/19/32 187,277 198,407 GSR Mortgage Loan Trust, 05-4F, Class 3A1 6.500%, due 04/25/20 1,223,094 1,290,957 Indymac Index Mortgage Loan Trust, 05-AR3, Class B1+ 5.475%, due 04/25/35 1,424,484 1,441,400 Indymac Index Mortgage Loan Trust, 05-AR7, Class 7A1+ 5.408%, due 06/25/35 1,706,437 1,734,833 MLCC Mortgage Investors, Inc., 03-D, Class XA1++(c) 1.000%, due 08/25/28 8,291,228 106,555 Morgan Stanley Mortgage Loan Trust, 04-4, Class 2A+ 6.515%, due 09/25/34 736,640 750,579 Residential Asset Securitization Trust, 04-IP2, Class B1+ 5.482%, due 12/25/34 1,229,317 1,243,147 Structured Adjustable Rate Mortgage Loan Trust, 04-3AC, Class A1+ 4.940%, due 03/25/34 556,463 559,984 Structured Asset Securities Corp., 04-20, Class 4A1 6.000%, due 11/25/34 674,362 690,985 --------------- 62,490,208 --------------- MUNICIPAL NOTES AND BONDS -- 1.10% Puerto Rico Electric Power Authority Revenue Bonds 5.000%, due 07/01/35 1,500,000 1,618,815 --------------- U.S. GOVERNMENT OBLIGATIONS -- 25.54% U.S. Treasury Bonds 6.250%, due 08/15/23 305,000 380,094 6.250%, due 05/15/30 1,410,000 1,836,580 8.750%, due 05/15/17 1,095,000 1,572,223 U.S. Treasury Notes 2.000%, due 01/15/14 5,912,258 6,089,856 3.375%, due 02/28/07 13,065,000 13,007,841 3.625%, due 04/30/07 1,985,000 1,983,914 3.625%, due 01/15/10 2,695,000 2,682,261 3.750%, due 03/31/07 8,525,000 8,537,984 4.750%, due 05/15/14 1,495,000 1,586,335 --------------- 37,677,088 --------------- Total U.S. Bonds 141,965,633 ---------------
96
FACE AMOUNT VALUE ------------- --------------- INTERNATIONAL BONDS -- 1.69% INTERNATIONAL CORPORATE BONDS -- 0.80% AUSTRALIA -- 0.15% Rio Tinto Finance USA Ltd. 2.625%, due 09/30/08 $ 240,000 $ 228,548 --------------- CANADA -- 0.21% Bombardier, Inc., 144A 6.300%, due 05/01/14 125,000 113,125 Burlington Resources Finance Co. 6.680%, due 02/15/11 65,000 71,731 Telus Corp. 8.000%, due 06/01/11 110,000 128,645 --------------- 313,501 --------------- FRANCE -- 0.07% France Telecom S.A. 8.500%, due 03/01/31 70,000 97,594 --------------- NETHERLANDS -- 0.17% Deutsche Telekom International Finance BV 8.750%, due 06/15/30 90,000 121,858 Telecom Italia Capital S.A. 5.250%, due 11/15/13 120,000 121,825 --------------- 243,683 --------------- UNITED KINGDOM -- 0.20% Abbey National PLC 7.950%, due 10/26/29 105,000 142,782 HSBC Holdings PLC 5.250%, due 12/12/12 65,000 67,646 Royal Bank of Scotland Group PLC 9.118%, due 03/31/10 70,000 83,366 --------------- 293,794 --------------- Total International Corporate Bonds 1,177,120 --------------- FOREIGN GOVERNMENT BOND -- 0.37% MEXICO -- 0.37% United Mexican States 8.125%, due 12/30/19 $ 450,000 $ 552,825 --------------- SOVEREIGN/SUPRANATIONAL BONDS -- 0.52% European Investment Bank 4.875%, due 09/06/06 315,000 319,087 Inter-American Development Bank 5.750%, due 02/26/08 325,000 340,280 Pemex Project Funding Master Trust 8.000%, due 11/15/11 100,000 113,500 --------------- 772,867 --------------- Total International Bonds 2,502,812 --------------- Total Bonds (Cost $143,287,162) 144,468,445 --------------- SHARES ------------- SHORT-TERM INVESTMENT -- 7.67% UBS Supplementary Trust -- U.S. Cash Management Prime Fund, yield of 3.28% (Cost $11,323,178) 11,323,178 11,323,178 --------------- Total Investments -- 105.59% (Cost $154,610,340) 155,791,623 Liabilities, in excess of cash and other assets -- (5.59)% (8,254,248) --------------- Net Assets -- 100.00% $ 147,537,375 ===============
97 NOTES TO SCHEDULE OF INVESTMENTS Aggregate cost for federal income tax purposes was $154,613,531; and net unrealized appreciation consisted of: Gross unrealized appreciation $ 2,023,260 Gross unrealized depreciation (845,168) ------------ Net unrealized appreciation $ 1,178,092 ============
+ Variable rate security - The rate disclosed is that in effect at June 30, 2005. ++ 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) All or a portion of this security is segregated for "to be announced" ("TBA") securities. (b) Step Bonds - Coupon rate increase in increments to maturity. Rate disclosed is as of June 30, 2005. Maturity date disclosed is the ultimate maturity date. (c) Security is illiquid. This security amounted to $106,555 or 0.07% of net assets. 144A Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities are considered liquid and may be resold in transactions exempt from registration, normally to qualified institutional buyers. At June 30, 2005, the value of these securities amounted to $5,695,491 or 3.86% of net assets. TBA (To Be Announced) Securities are purchase on a forward commitment basis with an approximate principal amount (generally +/- 1.0%) and no definite maturity date. The actual principal amount and maturity date will be determined upon settlement when the specific mortgage pools are assigned. See accompanying notes to financial statements 98 UBS ABSOLUTE RETURN BOND FUND For the period from its inception on April 27, 2005 through June 30, 2005, Class A shares of UBS Absolute Return Bond Fund (the "Fund") returned 0.06% and Class Y shares returned 0.09%, compared with the 0.57% return of the Merrill Lynch U.S. Treasury 1-3 Year Index (the "Index") since April 30, 2005. (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 101; please note that these returns do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.) A NEW GLOBAL BOND FUND THAT IS NOT MANAGED TO A BENCHMARK The Fund is an extension of our existing strategies. The key difference is that this Fund is not tied to a benchmark. Although not a guarantee, we seek to provide investors with a positive absolute return over rolling 18-month periods, regardless of the direction of interest rates. The Fund leverages the same time-tested capabilities we use to manage all of the UBS fixed income portfolios: global diversification, risk management and fundamental, in-depth research. At the core of UBS Absolute Return Bond Fund is a global portfolio of investment grade government, corporate and mortgage bonds. In addition to this core, which accounts for at least 60% of the portfolio, the Fund can also invest in bonds with lower ratings and higher earnings potential, up to a maximum of 20% each in selected high yield and emerging market securities. In contrast to traditional bond funds, the Fund seeks to manage interest rate risk using interest rate derivatives. The duration of the bonds held in the Fund provides a measure of the portfolio's sensitivity to interest rate movements. The further the duration is from a neutral stance, the more sensitive the portfolio is to changes in interest rates. The overall duration of the Fund can vary between a maximum of +3 years and a minimum of -3 years. Combined, these strategies may enable the Fund to generate more consistently positive returns over time. Of course, there is no guarantee that the Fund will achieve its investment objective, and it could lose money. A CHALLENGING BOND MARKET The US economy faced a number of challenges during the reporting period, including record-high energy prices, rising short-term interest rates, a mixed job market and geopolitical events. Despite these issues, the economy proved to be surprisingly resilient. Following a solid 3.8% gain in the fourth quarter of 2004, gross domestic product (GDP) growth was again 3.8% in the first quarter of 2005. The preliminary estimate for second quarter GDP growth was 3.4%, a slight decline. As expected, the Fed continued to raise interest rates in an attempt to temper growth, remove an accomodative monetary policy and ward off a potential increase in inflation. After seven rate hikes from June 2004 through March 2005, the Fed again increased its target for the federal funds two additional times during the reporting period. The Fed's nine rate hikes have driven the target for the federal funds rate from 1.00% to 3.25%. Coinciding with its last rate hike in June 2005, the Fed said, "Although energy prices have risen further, the expansion remains firm and labor market conditions continue to improve gradually. Pressures on inflation have stayed elevated, but longer-term inflation expectations remain well contained." The Fed also said it expected to raise rates at a "measured" pace. A STRATEGIC MIX OF DURATION AND SECTOR DECISIONS Throughout the period, the Fund maintained a relatively short duration, closing the period at -1.0 years. From a country-specific standpoint, the Fund had negative duration exposures to the US, the UK and Japan, whereas it had a positive duration in the Eurozone. We remained defensive in our allocations toward the corporate and securitized markets, maintaining a relatively high average credit quality stance. We also selectively held lower-rated securities in the different sectors, including emerging markets debt, corporate and asset-backed securities, as attractive bottom-up opportunities arose. For example, in April, we capitalized on the spread widening in high yield to add attractive issues from the US high yield market (spread is the premium investors are paid to hold securities with higher 99 risks versus US Treasuries). This approach also applied to the Fund's allocation to emerging markets bonds, which was driven by a few select bottom-up opportunities that we identified. Overall, the Fund's currency exposure is largely hedged back into the US dollar due to what we perceived to be a lack of clear opportunities in the currency markets available to the Fund. THIS LETTER IS INTENDED TO ASSIST SHAREHOLDERS IN UNDERSTANDING HOW THE FUND PERFORMED DURING THE FISCAL YEAR ENDED JUNE 30, 2005. THE VIEWS AND OPINIONS IN THE LETTER WERE CURRENT AS OF AUGUST 1, 2005. THEY ARE NOT GUARANTEES OF PERFORMANCE OR INVESTMENT RESULTS AND SHOULD NOT BE TAKEN AS INVESTMENT ADVICE. INVESTMENT DECISIONS REFLECT A VARIETY OF FACTORS, AND WE RESERVE THE RIGHT TO CHANGE OUR VIEWS ABOUT INDIVIDUAL SECURITIES, SECTORS AND MARKETS AT ANY TIME. AS A RESULT, THE VIEWS EXPRESSED SHOULD NOT BE RELIED UPON AS A FORECAST OF THE FUND'S FUTURE INVESTMENT INTENT. WE ENCOURAGE YOU TO CONSULT YOUR FINANCIAL ADVISOR REGARDING YOUR PERSONAL INVESTMENT PROGRAM. MUTUAL FUNDS ARE SOLD BY PROSPECTUS ONLY. YOU SHOULD READ IT CAREFULLY AND CONSIDER A FUND'S INVESTMENT OBJECTIVES, RISKS, CHARGES, EXPENSES AND OTHER IMPORTANT INFORMATION CONTAINED IN THE PROSPECTUS BEFORE INVESTING. PROSPECTUSES FOR MOST OF OUR FUNDS CAN BE OBTAINED FROM YOUR FINANCIAL ADVISOR, BY CALLING UBS FUNDS AT 800-647 1568 OR BY VISITING OUR WEB SITE AT www.ubs.com/globalam-us. 100 AVERAGE ANNUAL TOTAL RETURN (UNAUDITED)
INCEPTION* TO 6/30/05 ------------------------------------------------------------------ UBS ABSOLUTE RETURN BOND FUND CLASS A 0.06% UBS ABSOLUTE RETURN BOND FUND CLASS C 0.01 UBS ABSOLUTE RETURN BOND FUND CLASS Y 0.09 UBS ABSOLUTE RETURN BOND FUND CLASS A** -2.47 UBS ABSOLUTE RETURN BOND FUND CLASS C** -0.49 MERRILL LYNCH U.S. TREASURY 1-3 YEAR INDEX 0.57 U.S. LIBOR 3 MONTH INDEX 0.56
* INCEPTION DATE OF UBS ABSOLUTE RETURN BOND SHARES IS 4/27/05. INCEPTION DATE OF THE INDICES, FOR THE PURPOSE OF THIS ILLUSTRATION, IS 4/30/05. ** RETURNS INCLUDE SALES CHARGES. 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. PAST PERFORMANCE DOES NOT PREDICT FUTURE PERFORMANCE, AND THE PERFORMANCE INFORMATION PROVIDED DOES NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PERFORMANCE RESULTS ASSUME REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS AT NET ASSET VALUE ON THE EX-DIVIDEND DATES. TOTALS RETURNS FOR PERIODS OF LESS THAN ONE YEAR HAVE NOT BEEN ANNUALIZED. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE DATA QUOTED. FOR MONTH-END PERFORMANCE FIGURES, PLEASE VISIT http://www.ubs.com. 101 ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000 This chart shows the growth in the value of an investment in UBS Absolute Return Bond Fund Class Y shares, the U.S. Libor 3 Month Index and the Merrill Lynch U.S. Treasury 1-3 Year Index, if you had invested $10,000 on April 27, 2005, and had reinvested all your income dividends and capital gain distributions through June 30, 2005. The performance of Class A and Class C shares will vary based upon the different inception dates, class specific expenses and sales charges. No adjustment has been made for any income taxes payable by shareholders on income dividends and capital gain distributions. Past performance is no guarantee of future results. Share price and returns will vary with market conditions; investors may realize a gain or loss upon redemption. [CHART] UBS ABSOLUTE RETURN BOND CLASS Y VS. U.S. LIBOR 3 MONTH INDEX AND THE MERRILL LYNCH U.S. TREASURY 1-3 YEAR INDEX Wealth Value With Dividends Reinvested
UBS ABSOLUTE RETURN U.S. LIBOR MERRILL LYNCH U.S. BOND CLASS Y 3 MONTH INDEX TREASURY 1-3 YEAR INDEX 4/27/2005 $ 10,000 $ 10,000 $ 10,000 4/30/2005 $ 10,000 $ 10,000 $ 10,000 5/31/2005 $ 10,000 $ 10,028 $ 10,038 6/30/2005 $ 10,009 $ 10,056 $ 10,057
4/27/05 = $10,000 PAST PERFORMANCE DOES NOT PREDICT FUTURE PERFORMANCE, AND THE PERFORMANCE INFORMATION PROVIDED DOES NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PERFORMANCE RESULTS ASSUME REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS AT NET ASSET VALUE ON THE EX-DIVIDEND DATES. TOTALS RETURNS FOR PERIODS OF LESS THAN ONE YEAR HAVE NOT BEEN ANNUALIZED. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE DATA QUOTED. FOR MONTH-END PERFORMANCE FIGURES, PLEASE VISIT http://www.ubs.com. 102 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, January 1, 2005 to June 30, 2005. 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. Please note that Fund commenced operations on April 27, 2005, therefore, "Actual Expenses Paid During the Period" reflect activity from April 27, 2005 through June 30, 2005. 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. Please note that while the Fund commenced investment operations on April 27, 2005, the "Hypothetical Expenses Paid During the Period" reflect projected activity for the full six month period for purposes of comparability. This projection assumes that the annualized expense ratios for all share classes were in effect during the period from January 1, 2005 to April 27, 2005.
ENDING EXPENSES PAID BEGINNING ACCOUNT VALUE DURING PERIOD** ACCOUNT VALUE* JUNE 30, 2005 1/1/05 - 6/30/05 ---------------------------------------------------------------------------------------------------- CLASS A ACTUAL $ 1,000.00 $ 1,000.60 $ 1.79 HYPOTHETICAL (5% RETURN BEFORE EXPENSES) 1,000.00 1,019.84 5.01 CLASS C ACTUAL 1,000.00 1,000.10 2.41 HYPOTHETICAL (5% RETURN BEFORE EXPENSES) 1,000.00 1,018.10 6.76 CLASS Y ACTUAL 1,000.00 1,000.90 1.52 HYPOTHETICAL (5% RETURN BEFORE EXPENSES) 1,000.00 1,020.58 4.26
* THE FUND COMMENCED INVESTMENT OPERATIONS ON APRIL 27, 2005. ** EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO: CLASS A: 1.00%, CLASS C: 1.35%, CLASS Y: 0.85%, MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 65 DIVIDED BY 365 (TO REFLECT THE ONE-HALF YEAR PERIOD). 103 TOP TEN FIXED INCOME HOLDINGS AS OF JUNE 30, 2005 (UNAUDITED)
PERCENTAGE OF NET ASSETS ---------------------------------------------------------- Kreditanstalt fuer Wiederaufbau 4.750%, due 08/17/07 3.3% Federal National Mortgage Association 6.000%, due 05/15/08 2.8 Compagnie de Financement Foncier 3.625%, due 01/28/08 2.3 Federal Home Loan Mortgage Corp. 2.875%, due 12/15/06 1.9 Federal National Mortgage Association 3.625%, due 03/15/07 1.9 DEPFA Deutsche Pfandbriefbank AG 4.750%, due 07/16/07 1.7% Japan Bank for International Cooperation 0.350%, due 03/19/08 1.5 Hypothekenbank in Essen AG 5.500%, due 02/20/07 1.4 Federal Home Loan Mortgage Corp. 5.125%, due 07/15/12 1.3 Wal-Mart Stores, Inc. 6.875%, due 08/10/09 1.1 ---------------------------------------------------------- Total 19.2%
INDUSTRY DIVERSIFICATION AS A PERCENT OF NET ASSETS AS OF JUNE 30, 2005 (UNAUDITED) BONDS U.S. BONDS U.S. CORPORATE BONDS Automobiles 0.33% Chemicals 1.05 Commercial Banks 0.48 Commercial Services & Supplies 0.49 Consumer Finance 2.59 Containers & Packaging 0.29 Diversified Financial Services 4.30 Diversified Telecommunication Services 1.89 Electric Utilities 2.33 Food & Staples Retailing 1.49 Food Products 0.50 Insurance 1.01 Media 1.84 Metals & Mining 0.32 Multi-Utilities & Unregulated Power 0.30 Multiline Retail 0.58 Oil & Gas 0.40 Pharmaceuticals 0.20 Thrifts & Mortgage Finance 1.21 Tobacco 0.92 ------ Total U.S. Corporate Bonds 22.52 Asset-Backed Securities 1.54 Mortgage and Agency Debt Securities 11.07 Municipal Notes and Bonds 0.51 ------ Total U.S. Bonds 35.64* INTERNATIONAL BONDS INTERNATIONAL CORPORATE BONDS Beverages 0.33 Chemicals 0.14 Commercial Banks 14.34% Communications Equipment 0.22 Containers & Packaging 0.75 Diversified Financial Services 2.77 Diversified Telecommunication Services 2.66 Electric Utilities 0.88 Food & Staples Retailing 0.67 Industrial Conglomerates 0.82 Insurance 0.23 Machinery 0.09 Media 0.56 Multi-Utilities & Unregulated Power 0.49 Oil & Gas 0.98 Paper & Forest Products 0.36 Real Estate 0.17 Road & Rail 0.22 Water Utilities 0.54 Wireless Telecommunication Services 0.19 ------ Total International Corporate Bonds 27.41 International Asset-Backed Securities 0.32 Foreign Government Bonds 4.14 Sovereign/Supranational Bonds 0.80 ------ Total International Bonds 32.67* TOTAL BONDS 68.31 INVESTMENT COMPANIES 24.41 SHORT-TERM INVESTMENT 0.42* ------ TOTAL INVESTMENTS 93.14 CASH AND OTHER ASSETS, LESS LIABILITIES 6.86 ------ NET ASSETS 100.00% ======
* THE FUND HELD LONG POSITIONS IN U.S. TREASURY NOTE FUTURES AND A SHORT POSITION IN U.S. INDEX FUTURES WHICH RESULTED IN A NET DECREASE TO THE U.S. BOND EXPOSURE FROM 35.64% TO 35.48%. THE FUND ALSO HELD SHORT POSITIONS IN INTERNATIONAL INDEX FUTURES AND INTERNATIONAL INTEREST RATE FUTURES WHICH RESULTED IN A NET DECREASE TO THE INTERNATIONAL BOND EXPOSURE FROM 32.67% TO 32.48%. THESE ADJUSTMENTS RESULTED IN A NET DECREASE TO THE FUND'S EXPOSURE TO SHORT-TERM INVESTMENTS FROM 0.42% TO 0.07%. 104 UBS ABSOLUTE RETURN BOND FUND -- SCHEDULE OF INVESTMENTS JUNE 30, 2005
FACE AMOUNT VALUE --------------- -------------- BONDS -- 68.31% U.S. BONDS -- 35.64% U.S. CORPORATE BONDS -- 22.52% AES Corp. 8.750%, due 06/15/08 $ 500,000 $ 538,750 AK Steel Corp. 7.875%, due 02/15/09 500,000 455,000 Albertson's, Inc. 7.500%, due 02/15/11 275,000 309,742 Altria Group, Inc. 7.650%, due 07/01/08 300,000 326,631 American Express Credit Corp. 5.500%, due 09/24/07 GBP 715,000 1,306,579 Berkshire Hathaway Finance Corp. 4.125%, due 01/15/10 $ 1,150,000 1,143,111 Block Communications, Inc. 9.250%, due 04/15/09 550,000 585,750 Boeing Capital Corp. 7.375%, due 09/27/10 900,000 1,029,494 Bombardier Capital, Inc., 144A 6.125%, due 06/29/06 575,000 577,875 Cendant Corp. 6.875%, due 08/15/06 675,000 693,946 Citigroup, Inc. 4.625%, due 11/14/07 EUR 1,080,000 1,377,368 5.500%, due 11/18/15 GBP 125,000 236,057 Citizens Communications Co. 7.625%, due 08/15/08 $ 175,000 185,062 CMS Energy Corp. 9.875%, due 10/15/07 1,000,000 1,090,000 Comcast Cable Communications, Inc. 6.750%, due 01/30/11 550,000 606,790 Countrywide Home Loans, Inc. 2.750%, due 06/12/06 EUR 225,000 273,354 3.250%, due 05/21/08 $ 725,000 703,948 CSC Holdings, Inc., Series B 8.125%, due 08/15/09 200,000 202,500 Dow Chemical Co. 6.125%, due 02/01/11 950,000 1,031,421 Edison Mission Energy 10.000%, due 08/15/08 400,000 449,000 FirstEnergy Corp. 5.500%, due 11/15/06 675,000 686,564 Ford Motor Credit Co. 5.800%, due 01/12/09 350,000 332,254 General Electric Capital Corp. 4.375%, due 01/20/10 EUR 520,000 675,235 5.375%, due 03/15/07 $ 675,000 689,629 General Motors Acceptance Corp. 6.125%, due 02/01/07 475,000 471,743 Giant Industries, Inc. 11.000%, due 05/15/12 500,000 566,250 Houghton Mifflin Co. 8.250%, due 02/01/11 500,000 518,750 HSBC Finance Corp. 4.625%, due 12/28/06 GBP 130,000 233,263 7.000%, due 03/27/12 150,000 301,831 7.875%, due 03/01/07 $ 975,000 1,032,408 International Lease Finance Corp. 3.300%, due 01/23/08 1,075,000 1,050,145 JPMorgan Chase & Co. 3.625%, due 05/01/08 $ 700,000 $ 689,189 Kraft Foods, Inc. 5.250%, due 06/01/07 700,000 713,617 Marsh & McLennan Cos., Inc. 6.250%, due 03/15/12 275,000 290,252 MCI, Inc. 6.908%, due 05/01/07 600,000 608,250 Millennium America, Inc. 7.000%, due 11/15/06 450,000 460,125 Nevada Power Co. 10.875%, due 10/15/09 500,000 558,750 Owens-Illinois, Inc. 7.350%, due 05/15/08 400,000 415,000 Qwest Services Corp. 13.500%, due 12/15/10 100,000 115,500 Reliant Energy, Inc. 9.250%, due 07/15/10 400,000 436,000 Safeway, Inc. 4.800%, due 07/16/07 300,000 302,241 SBC Communications, Inc. 5.875%, due 02/01/12 350,000 374,141 Time Warner, Inc. 6.150%, due 05/01/07 675,000 698,436 UST, Inc. 6.625%, due 07/15/12 875,000 977,777 Verizon Wireless Capital LLC 5.375%, due 12/15/06 1,375,000 1,401,290 Wal-Mart Stores, Inc. 4.750%, due 01/29/13 GBP 455,000 821,167 6.875%, due 08/10/09 $ 1,375,000 1,515,304 Washington Mutual, Inc. 5.625%, due 01/15/07 1,000,000 1,022,052 Wells Fargo & Co. 5.125%, due 02/15/07 675,000 686,160 Wyeth 5.500%, due 03/15/13 275,000 289,424 -------------- 32,055,125 -------------- ASSET-BACKED SECURITIES -- 1.54% Green Tree Financial Corp., 99-3, Class A6 6.500%, due 02/01/31 1,150,000 1,192,212 Hyundai Auto Receivables Trust, 05-A, Class D 4.450%, due 02/15/12 1,000,000 999,850 -------------- 2,192,062 -------------- MORTGAGE AND AGENCY DEBT SECURITIES -- 11.07% Federal Home Loan Mortgage Corp. 2.875%, due 12/15/06 2,760,000 2,724,211 3.875%, due 01/12/09 1,275,000 1,263,955 5.125%, due 07/15/12 1,775,000 1,881,523 Federal National Mortgage Association 3.625%, due 03/15/07 2,700,000 2,692,859 5.250%, due 01/15/09 575,000 599,996 5.500%, due 03/15/11 1,250,000 1,340,811 6.000%, due 05/15/08 3,825,000 4,043,197 6.000%, due 05/15/11 550,000 604,887 6.250%, due 02/01/11 550,000 602,671 -------------- 15,754,110 --------------
105
FACE AMOUNT VALUE --------------- -------------- MUNICIPAL NOTES AND BONDS -- 0.51% Puerto Rico Electric Power Authority Revenue Bonds 5.000%, due 07/01/35 $ 675,000 $ 728,467 -------------- Total U.S. Bonds 50,729,764 -------------- INTERNATIONAL BONDS -- 32.67% INTERNATIONAL CORPORATE BONDS -- 27.41% AUSTRALIA -- 0.60% National Australia Bank Ltd.+ 4.500%, due 06/23/16 EUR 655,000 852,746 -------------- BELGIUM -- 0.22% Societe Nationale de Chemins de Fer Belge 5.000%, due 04/24/18 GBP 170,000 319,077 -------------- CANADA -- 0.57% Abitibi-Consolidated Co. of Canada 6.950%, due 12/15/06 $ 500,000 506,250 Nortel Networks Ltd. 6.125%, due 02/15/06 300,000 301,875 -------------- 808,125 -------------- FRANCE -- 6.54% Alstom 6.250%, due 03/03/10 EUR 100,000 123,184 BNP Paribas 5.250%, due 12/17/12 330,000 454,114 Compagnie de Financement Foncier 3.625%, due 01/28/08 2,560,000 3,207,704 Credit Lyonnais S.A.+ 5.000%, due 11/15/12 765,000 980,807 Crown European Holdings S.A. 9.500%, due 03/01/11 $ 400,000 442,000 France Telecom S.A. 7.000%, due 03/14/08 EUR 555,000 746,113 7.250%, due 01/28/13 335,000 508,501 GIE Suez Alliance 5.750%, due 06/24/23 200,000 287,190 Groupe Auchan S.A. 4.125%, due 05/04/11 195,000 249,323 Societe Generale 5.625%, due 02/13/12 805,000 1,123,484 Societe Television Francaise 1 4.375%, due 11/12/10 180,000 232,689 Total Capital S.A. 3.750%, due 02/11/10 370,000 470,868 Veolia Environnement 5.375%, due 05/28/18 350,000 484,690 -------------- 9,310,667 -------------- GERMANY -- 7.97% DEPFA Deutsche Pfandbriefbank AG 4.750%, due 07/16/07 EUR 1,880,000 2,393,827 Gerresheimer Holdings GmBH 7.875%, due 03/01/15 400,000 480,628 Hypothekenbank in Essen AG 5.500%, due 02/20/07 1,595,000 2,035,262 Kreditanstalt fuer Wiederaufbau 4.750%, due 08/17/07 3,660,000 4,672,299 5.375%, due 12/07/07 GBP 740,000 1,358,858 5.550%, due 06/07/21 200,000 400,603 -------------- 11,341,477 -------------- IRELAND -- 0.73% Anglo Irish Bank Corp. PLC 5.000%, due 12/12/07 GBP 575,000 $ 1,041,444 -------------- ITALY -- 0.66% ENI SpA 6.125%, due 06/09/10 EUR 670,000 936,917 -------------- JAPAN -- 1.54% Japan Bank for International Cooperation 0.350%, due 03/19/08 JPY 241,000,000 2,192,315 -------------- LUXEMBOURG -- 0.24% Cablecom Luxembourg SCA 9.375%, due 04/15/14 EUR 100,000 136,803 Ciba Speciality Chemicals Finance Luxembourg S.A. 4.875%, due 06/20/18 55,000 70,715 SGL Carbon Luxembourg S.A. 8.500%, due 02/01/12 100,000 132,566 -------------- 340,084 -------------- NETHERLANDS -- 4.04% Bank Nederlandse Gemeenten NV 2.875%, due 05/15/07 EUR 420,000 515,782 Cimpor Financial Operations BV 4.500%, due 05/27/11 110,000 139,704 Clondalkin Industries BV 8.000%, due 03/15/14 100,000 127,724 Deutsche Telekom International Finance BV 7.500%, due 05/29/07 345,000 457,289 8.125%, due 05/29/12 300,000 470,779 Essent NV 4.500%, due 06/25/13 195,000 253,472 RWE Finance BV 5.375%, due 04/18/08 770,000 1,006,570 Siemens Financieringsmaatschappij NV 5.500%, due 03/12/07 920,000 1,173,964 Telecom Italia Finance NV 5.875%, due 01/24/08 730,000 952,629 Telecom Italia Finance S.A. 7.250%, due 04/20/11 450,000 651,425 -------------- 5,749,338 -------------- SWEDEN -- 0.26% Svenska Handelsbanken AB+ 6.125%, due 12/31/49 GBP 195,000 365,676 -------------- UNITED KINGDOM -- 4.04% Allied Domecq Financial Services PLC 6.625%, due 06/12/14 GBP 250,000 466,933 Anglian Water Services Financing PLC 4.625%, due 10/07/13 EUR 225,000 295,986 Aviva PLC+ 5.250%, due 10/02/23 250,000 334,708 BAA PLC 7.875%, due 02/10/07 GBP 125,000 235,337 Bank of Scotland 6.375%, due 08/16/19 645,000 1,319,338 National Grid Co. PLC 4.750%, due 12/10/10 90,000 162,375
106
FACE AMOUNT VALUE --------------- -------------- NGG Finance PLC 5.250%, due 08/23/06 EUR 215,000 $ 268,828 Ono Finance PLC+ 10.626%, due 05/15/14 100,000 125,908 Pearson PLC 6.125%, due 02/01/07 235,000 300,724 Royal Bank of Scotland PLC 5.000%, due 12/20/07 GBP 545,000 991,372 Tesco PLC 4.750%, due 04/13/10 EUR 195,000 256,492 6.625%, due 10/12/10 GBP 230,000 453,058 United Utilities Water PLC 6.625%, due 11/08/07 EUR 205,000 272,029 Vodafone Group PLC 5.750%, due 10/27/06 215,000 272,343 -------------- 5,755,431 -------------- Total International Corporate Bonds 39,013,297 -------------- INTERNATIONAL ASSET-BACKED SECURITIES -- 0.32% CAYMAN ISLANDS -- 0.07% Gresham Street CDO Funding, 03-1X, Class D+ 4.729%, due 11/07/33 $ 100,000 105,000 -------------- UNITED KINGDOM -- 0.25% Granite Master Issuer PLC, 05-7, Class A5+ 2.206%, due 12/20/54 EUR 290,000 350,740 -------------- Total International Asset-Backed Securities 455,740 -------------- FOREIGN GOVERNMENT BONDS -- 4.14% ARGENTINA -- 0.76% Republic of Argentina+ (a) 3.010%, due 08/03/12 $ 1,200,000 1,084,800 -------------- BRAZIL -- 0.73% Federal Republic of Brazil, C 8.000%, due 04/15/14 $ 1,023,825 1,048,141 -------------- COLOMBIA -- 0.34% Republic of Colombia 9.750%, due 04/09/11 $ 425,207 485,587 -------------- RUSSIA -- 0.79% Russian Federation 5.000%, due 03/31/30 (b) $ 470,000 526,400 8.250%, due 03/31/10 550,000 599,500 -------------- 1,125,900 -------------- SPAIN -- 0.76% Government of Spain 3.100%, due 09/20/06 JPY 115,000,000 1,076,401 -------------- SWEDEN -- 0.76% Government of Sweden 6.500%, due 05/05/08 SEK 7,500,000 1,079,242 -------------- Total Foreign Government Bonds 5,900,071 -------------- SOVEREIGN/SUPRANATIONAL BONDS -- 0.80% European Investment Bank 5.500%, due 12/07/11 GBP 340,000 $ 647,077 6.250%, due 04/15/14 240,000 487,423 -------------- 1,134,500 -------------- Total International Bonds 46,503,608 -------------- Total Bonds (Cost $98,467,414) 97,233,372 -------------- SHARES --------------- INVESTMENT COMPANIES -- 24.41% UBS U.S. Cash Management Prime Relationship Fund 11,684,896 11,684,896 UBS U.S. Securitized Mortgage Relationship Fund 1,941,916 23,069,766 -------------- Total Investment Companies (Cost $34,684,896) 34,754,662 -------------- FACE AMOUNT --------------- SHORT-TERM INVESTMENT -- 0.42% U.S. GOVERNMENT OBLIGATIONS -- 0.42% U.S. Treasury Bills, yield of 2.72%, due 07/21/05 (c) (Cost $599,083) $ 600,000 599,087 -------------- Total Investments (Cost $133,751,393) -- 93.14% 132,587,121 Cash and other assets, less liabilities -- 6.86% 9,762,528 -------------- Net Assets -- 100.00% $ 142,349,649 ==============
107 NOTES TO SCHEDULE OF INVESTMENTS Aggregate cost for federal income tax purposes was $133,752,686; and net unrealized depreciation consisted of: Gross unrealized appreciation $ 392,910 Gross unrealized depreciation (1,558,475) ------------ Net unrealized depreciation $ (1,165,565) ============
+ Variable rate security - The rate disclosed is that in effect at June 30, 2005. (a) Security is in default. (b) Step Bonds - Coupon rate increases in increments to maturity. Rate disclosed is as of June 30, 2005. Maturity date disclosed is the ultimate maturity date. (c) The security was pledged to cover margin requirements for future contracts. 144A Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities are considered liquid and may be resold in transactions exempt from registration, normally to qualified institutional buyers. At June 30, 2005, the value of these securities amounted to $577,875 or 0.41% of net assets. CDO Collateralized Debt Obligations EUR Euro GBP British Pound JPY Japanese Yen SEK Swedish Krona FORWARD FOREIGN CURRENCY CONTRACTS UBS Absolute Return Bond Fund had the following open forward foreign currency contracts as of June 30, 2005:
UNREALIZED CONTRACTS IN EXCHANGE MATURITY APPRECIATION/ TO DELIVER FOR DATES (DEPRECIATION) ----------- --------------- -------- -------------- British Pound 4,895,000 USD 9,016,021 9/12/05 $ 100,896 British Pound 820,000 USD 1,480,592 9/12/05 14,112 British Pound 610,601 USD 1,110,000 9/12/05 18,007 British Pound 392,998 USD 715,000 9/12/05 12,167 Euro 22,705,000 USD 27,926,469 9/12/05 367,140 Euro 1,120,000 USD 1,361,293 9/12/05 1,837 Euro 2,146,751 USD 2,615,000 9/12/05 9,274 Euro 1,417,536 USD 1,725,000 9/12/05 4,394 Euro 2,051,515 USD 2,485,000 9/12/05 (5,129) Japanese Yen 359,000,000 USD 3,345,354 9/12/05 83,345 Japanese Yen 68,984,320 USD 640,000 9/12/05 13,182 Total net unrealized appreciation on forward --------- foreign currency contracts $ 619,225 Currency Type Abbreviations ========= USD United States Dollar
FUTURES CONTRACTS UBS Absolute Return Bond Fund had the following open futures contracts as of June 30, 2005:
UNREALIZED EXPIRATION CURRENT APPRECIATION/ DATE PROCEEDS VALUE (DEPRECIATION) -------------- ------------ ------------ -------------- U.S. TREASURY NOTES FUTURES SALE CONTRACTS: 2 Year U.S. Treasury Notes, 84 contracts September 2005 $ 17,447,288 $ 17,445,750 $ 1,538 5 Year U.S. Treasury Notes, 236 contracts September 2005 25,643,675 25,698,187 (54,512) 10 Year U.S. Treasury Notes, 118 contracts September 2005 13,306,359 13,389,313 (82,954) INDEX FUTURE SALE CONTRACTS: Japanese 10 Year Bond, 3 contracts (JPY) September 2005 3,804,329 3,822,760 (18,431) Long Gilt, 50 contracts (GBP) September 2005 10,080,928 10,232,200 (151,272) U.S. Long Bond, 57 contracts September 2005 6,683,308 6,768,750 (85,442) INTEREST RATE FUTURES SALE CONTRACTS: EURO BUND, 24 contracts (EUR) September 2005 3,557,533 3,588,367 (30,834) EURO-BOBL, 59 contracts (EUR) September 2005 8,216,525 8,259,975 (43,450) EURO-SCHATZ, 77 contracts (EUR) September 2005 9,947,027 9,968,952 (21,925) ---------- Total net unrealized depreciation on futures contracts $ (487,282) ==========
The segregated aggregate market value of investments and cash collateral pledged to cover margin requirements for the open futures positions at June 30, 2005 was $1,120,529. Currency Type Abbreviations EUR Euro GBP British Pound JPY Japanese Yen See accompanying notes to financial statements 108 UBS HIGH YIELD FUND For the fiscal year ended June 30, 2005, Class A shares of UBS High Yield Fund (the "Fund") returned 9.66% and Class Y shares returned 9.82% versus the 10.47% return of the Fund's benchmark, the Merrill Lynch U.S. High Yield Cash Pay Constrained Index (the "Index"). Since inception on December 31, 1998, through period end, the Fund's A shares returned 5.40% while the Index returned 6.01%, and since inception on September 30, 1997, through period end, the Fund's Y shares returned 6.08% on an annualized basis, compared with the 5.85% 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 110; 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 solid absolute performance for the reporting period, but trailed its benchmark Index. The fiscal year performance was primarily attributable to the Fund's overweight positions to B-rated securities and some cyclical industry sectors. The Fund's benchmark Index changed from the Merrill Lynch U.S. High Yield Cash Pay Index to the Merrill Lynch U.S. High Yield Cash Pay Constrained Index on June 1, 2005. This change was made due to the downgrading of General Motors (GM) discussed in this report, and its impact on high yield indices. Because GM constitutes a large percentage of the Merrill Lynch U.S. High Yield Cash Pay Index, the move to the constrained index was a better fit for our diversified strategy. CONSISTENT STRATEGY IN MIXED MARKET The US high yield market generated solid returns during the first half of the fiscal year as the economy expanded at a strong pace. This was beneficial for high yield bonds as default rates declined and demand was strong as investors searched for incremental yield. However, investors became increasingly risk averse in early 2005, when fears over inflation, rising oil prices and downgrades in the automotive sector dominated the press. The market ultimately picked up again in mid-May, rallying sharply to end the fiscal year. All told, the overall high yield market, as measured by the Index, posted double-digit gains during the reporting period. Market fundamentals remained strong for much of the fiscal year. Default rates were below long-term averages, corporate profits were largely in line or exceeded expectations and merger and acquisition activity increased. The technicals in the market were not quite as good. While investors favored high yields in 2004, they took profits in 2005, leading to a record 15 weeks of net outflows from high yield mutual funds. In addition, new issuances slowed over the period, with several high-profile deals pulled due to market uncertainties. The Fund maintained a consistent strategy throughout this changing market environment. In our opinion, the US economy remained strong and high yield market fundamentals were attractive. As a result, we sought to invest in cyclical industries and the B-rated sector. A FOCUS ON CYCLICALS AND B-RATED BONDS To obtain the maximum benefit from a growing economy, the Fund held an overweight position in cyclical industries relative to the Index, including chemicals. In addition, over the fiscal year, we increased our exposure to consumer products and restaurants. In the second quarter of 2005, the Standard & Poor's rating agency reduced its rating for GM's and Ford's bonds to noninvestment grade. Our analysis concluded that these bonds had solid liquidity and excellent relative value. We added both to the portfolio, and also selectively added to our holdings in the automotive supplier sector. These additions began to be beneficial at the end of the fiscal year, as this sector of the market rebounded. Finally, the Fund maintained an overweight to B-rated bonds over the reporting period, as these bonds tend to benefit from an improving economy. This strategy helped the Fund's relative performance for most of the reporting period, but proved a detriment toward the end of the period, when BB-rated bonds outperformed. THIS LETTER IS INTENDED TO ASSIST SHAREHOLDERS IN UNDERSTANDING HOW THE FUND PERFORMED DURING THE FISCAL YEAR ENDED JUNE 30, 2005. THE VIEWS AND OPINIONS IN THE LETTER WERE CURRENT AS OF AUGUST 1, 2005. THEY ARE NOT GUARANTEES OF PERFORMANCE OR INVESTMENT RESULTS AND SHOULD NOT BE TAKEN AS INVESTMENT ADVICE. INVESTMENT DECISIONS REFLECT A VARIETY OF FACTORS, AND WE RESERVE THE RIGHT TO CHANGE OUR VIEWS ABOUT INDIVIDUAL SECURITIES, SECTORS AND MARKETS AT ANY TIME. AS A RESULT, THE VIEWS EXPRESSED SHOULD NOT BE RELIED UPON AS A FORECAST OF THE FUND'S FUTURE INVESTMENT INTENT. WE ENCOURAGE YOU TO CONSULT YOUR FINANCIAL ADVISOR REGARDING YOUR PERSONAL INVESTMENT PROGRAM. MUTUAL FUNDS ARE SOLD BY PROSPECTUS ONLY. YOU SHOULD READ IT CAREFULLY AND CONSIDER A FUND'S INVESTMENT OBJECTIVES, RISKS, CHARGES, EXPENSES AND OTHER IMPORTANT INFORMATION CONTAINED IN THE PROSPECTUS BEFORE INVESTING. PROSPECTUSES FOR MOST OF OUR FUNDS CAN BE OBTAINED FROM YOUR FINANCIAL ADVISOR, BY CALLING UBS FUNDS AT 800-647 1568 OR BY VISITING OUR WEB SITE AT www.ubs.com/globalam-us. 109 AVERAGE ANNUAL TOTAL RETURN (UNAUDITED)
1 YEAR 3 YEARS 5 YEARS INCEPTION* ENDED ENDED ENDED TO 6/30/05 6/30/05 6/30/05 6/30/05 ---------------------------------------------------------------------------------------------- UBS HIGH YIELD FUND CLASS A 9.66% 13.12% 6.53% 5.40% UBS HIGH YIELD FUND CLASS B 8.79 12.31 N/A 9.21 UBS HIGH YIELD FUND CLASS C 9.09 12.61 N/A 9.49 UBS HIGH YIELD FUND CLASS Y 9.82 13.47 6.83 6.08 UBS HIGH YIELD FUND CLASS A** 4.76 11.40 5.56 4.65 UBS HIGH YIELD FUND CLASS B** 3.79 11.52 N/A 8.77 UBS HIGH YIELD FUND CLASS C** 8.34 12.61 N/A 9.49 MERRILL LYNCH U.S. HIGH YIELD CASH PAY INDEX 10.64 13.79 7.83 5.87 MERRILL LYNCH U.S. HIGH YIELD CASH PAY CONSTRAINED INDEX 10.47 13.74 7.80 5.85
* 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 INDICES IS 9/30/97. ** RETURNS INCLUDE SALES CHARGES. THE FUND'S BENCHMARK INDEX CHANGED FROM THE MERRILL LYNCH U.S. HIGH YIELD CASH PAY INDEX TO THE MERRILL LYNCH U.S. HIGH YIELD CASH PAY CONSTRAINED INDEX ON JUNE 01, 2005. THIS CHANGE WAS MADE DUE TO THE DOWNGRADE OF GENERAL MOTORS (GM) DISCUSSED IN THIS REPORT, AND ITS IMPACT ON HIGH YIELD INDICES. THE Y SHARE CLASS IS OUR LOWEST FEE SHARE CLASS. OUR OTHER SHARE CLASSES INCLUDE HIGHER FEES AND LOADS, WHICH IF DEDUCTED WOULD RESULT IN LOWER PERFORMANCE. PAST PERFORMANCE DOES NOT PREDICT FUTURE PERFORMANCE, AND THE PERFORMANCE INFORMATION PROVIDED DOES NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PERFORMANCE RESULTS ASSUME REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS AT NET ASSET VALUE ON THE EX-DIVIDEND DATES. TOTALS RETURNS FOR PERIODS OF LESS THAN ONE YEAR HAVE NOT BEEN ANNUALIZED. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE DATA QUOTED. FOR MONTH-END PERFORMANCE FIGURES, PLEASE VISIT http://www.ubs.com. 110 ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000 This chart shows the growth in the value of an investment in UBS High Yield Fund Class Y shares, the Merrill Lynch U.S. High Yield Cash Pay Index and the Merrill Lynch U.S. High Yield Cash Pay Constrained Index, if you had invested $10,000 on September 30, 1997, and had reinvested all your income dividends and capital gain distributions through June 30, 2005. The performance of Class A, Class B and Class C shares will vary based upon the different inception dates, class specific expenses and sales charges. No adjustment has been made for any income taxes payable by shareholders on income dividends and capital gain distributions. Past performance is no guarantee of future results. Share price and returns will vary with market conditions; investors may realize a gain or loss upon redemption. [CHART] UBS HIGH YIELD FUND CLASS Y VS. MERRILL LYNCH U.S. HIGH YIELD CASH PAY INDEX AND MERRILL LYNCH U.S. HIGH YIELD CASH PAY CONSTRAINED INDEX Wealth Value With Dividends Reinvested
UBS HIGH YIELD MERRILL LYNCH U.S. HIGH YIELD MERRILL LYNCH U.S. HIGH YIELD CASH FUND CLASS Y CASH PAY INDEX PAY CONSTRAINED INDEX 9/1/1997 $ 10,000 $ 10,000 $ 10,000 10/1/1997 $ 9,952 $ 10,066 $ 10,066 11/1/1997 $ 10,052 $ 10,162 $ 10,162 12/1/1997 $ 10,239 $ 10,258 $ 10,258 1/1/1998 $ 10,470 $ 10,411 $ 10,411 2/1/1998 $ 10,542 $ 10,454 $ 10,454 3/1/1998 $ 10,673 $ 10,544 $ 10,544 4/1/1998 $ 10,680 $ 10,594 $ 10,593 5/1/1998 $ 10,710 $ 10,668 $ 10,667 6/1/1998 $ 10,822 $ 10,721 $ 10,721 7/1/1998 $ 10,979 $ 10,782 $ 10,782 8/1/1998 $ 10,424 $ 10,317 $ 10,316 9/1/1998 $ 10,571 $ 10,337 $ 10,337 10/1/1998 $ 10,504 $ 10,167 $ 10,167 11/1/1998 $ 11,101 $ 10,630 $ 10,630 12/1/1998 $ 11,028 $ 10,634 $ 10,633 1/1/1999 $ 11,293 $ 10,739 $ 10,738 2/1/1999 $ 11,349 $ 10,657 $ 10,657 3/1/1999 $ 11,470 $ 10,749 $ 10,748 4/1/1999 $ 11,636 $ 10,917 $ 10,916 5/1/1999 $ 11,404 $ 10,841 $ 10,841 6/1/1999 $ 11,349 $ 10,821 $ 10,820 7/1/1999 $ 11,337 $ 10,837 $ 10,836 8/1/1999 $ 11,280 $ 10,727 $ 10,726 9/1/1999 $ 11,246 $ 10,686 $ 10,685 10/1/1999 $ 11,246 $ 10,623 $ 10,623 11/1/1999 $ 11,474 $ 10,745 $ 10,744 12/1/1999 $ 11,564 $ 10,801 $ 10,801 1/1/2000 $ 11,419 $ 10,748 $ 10,747 2/1/2000 $ 11,383 $ 10,757 $ 10,757 3/1/2000 $ 11,118 $ 10,606 $ 10,606 4/1/2000 $ 11,191 $ 10,610 $ 10,609 5/1/2000 $ 11,154 $ 10,493 $ 10,493 6/1/2000 $ 11,351 $ 10,673 $ 10,672 7/1/2000 $ 11,474 $ 10,750 $ 10,749 8/1/2000 $ 11,610 $ 10,881 $ 10,880 9/1/2000 $ 11,462 $ 10,818 $ 10,817 10/1/2000 $ 11,104 $ 10,500 $ 10,500 11/1/2000 $ 10,597 $ 10,171 $ 10,171 12/1/2000 $ 10,965 $ 10,392 $ 10,392 1/1/2001 $ 11,535 $ 11,011 $ 11,011 2/1/2001 $ 11,657 $ 11,185 $ 11,185 3/1/2001 $ 11,454 $ 11,037 $ 11,038 4/1/2001 $ 11,440 $ 10,917 $ 10,917 5/1/2001 $ 11,535 $ 11,127 $ 11,127 6/1/2001 $ 11,144 $ 10,897 $ 10,898 7/1/2001 $ 11,270 $ 11,067 $ 11,067 8/1/2001 $ 11,369 $ 11,174 $ 11,174 9/1/2001 $ 10,636 $ 10,457 $ 10,457 10/1/2001 $ 10,976 $ 10,765 $ 10,764 11/1/2001 $ 11,471 $ 11,115 $ 11,114 12/1/2001 $ 11,419 $ 11,036 $ 11,035 1/1/2002 $ 11,414 $ 11,098 $ 11,097 2/1/2002 $ 11,161 $ 10,991 $ 10,990 3/1/2002 $ 11,388 $ 11,253 $ 11,252 4/1/2002 $ 11,502 $ 11,431 $ 11,431 5/1/2002 $ 11,370 $ 11,370 $ 11,369 6/1/2002 $ 10,810 $ 10,561 $ 10,561 7/1/2002 $ 10,624 $ 10,141 $ 10,140 8/1/2002 $ 10,888 $ 10,395 $ 10,394 9/1/2002 $ 10,731 $ 10,228 $ 10,228 10/1/2002 $ 10,744 $ 10,142 $ 10,142 11/1/2002 $ 11,249 $ 10,750 $ 10,749 12/1/2002 $ 11,330 $ 10,911 $ 10,910 1/1/2003 $ 11,501 $ 11,225 $ 11,225 2/1/2003 $ 11,611 $ 11,370 $ 11,369 3/1/2003 $ 11,968 $ 11,665 $ 11,664 4/1/2003 $ 12,478 $ 12,320 $ 12,319 5/1/2003 $ 12,496 $ 12,453 $ 12,452 6/1/2003 $ 12,765 $ 12,793 $ 12,792 7/1/2003 $ 12,669 $ 12,611 $ 12,609 8/1/2003 $ 12,898 $ 12,776 $ 12,775 9/1/2003 $ 13,164 $ 13,117 $ 13,116 10/1/2003 $ 13,443 $ 13,385 $ 13,383 11/1/2003 $ 13,572 $ 13,569 $ 13,568 12/1/2003 $ 13,954 $ 13,883 $ 13,883 1/1/2004 $ 14,284 $ 14,099 $ 14,099 2/1/2004 $ 14,271 $ 14,094 $ 14,094 3/1/2004 $ 14,349 $ 14,193 $ 14,192 4/1/2004 $ 14,387 $ 14,091 $ 14,090 5/1/2004 $ 14,161 $ 13,866 $ 13,865 6/1/2004 $ 14,381 $ 14,068 $ 14,067 7/1/2004 $ 14,555 $ 14,260 $ 14,260 8/1/2004 $ 14,744 $ 14,518 $ 14,518 9/1/2004 $ 14,977 $ 14,721 $ 14,720 10/1/2004 $ 15,271 $ 15,000 $ 14,999 11/1/2004 $ 15,612 $ 15,152 $ 15,151 12/1/2004 $ 15,816 $ 15,377 $ 15,377 1/1/2005 $ 15,823 $ 15,365 $ 15,364 2/1/2005 $ 16,097 $ 15,581 $ 15,581 3/1/2005 $ 15,640 $ 15,157 $ 15,157 4/1/2005 $ 15,294 $ 15,000 $ 14,999 5/1/2005 $ 15,530 $ 15,275 $ 15,275 6/1/2005 $ 15,794 $ 15,565 $ 15,541
9/30/97 = $10,000 PAST PERFORMANCE DOES NOT PREDICT FUTURE PERFORMANCE, AND THE PERFORMANCE INFORMATION PROVIDED DOES NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PERFORMANCE RESULTS ASSUME REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS AT NET ASSET VALUE ON THE EX-DIVIDEND DATES. TOTALS RETURNS FOR PERIODS OF LESS THAN ONE YEAR HAVE NOT BEEN ANNUALIZED. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE DATA QUOTED. FOR MONTH-END PERFORMANCE FIGURES, PLEASE VISIT http://www.ubs.com. 111 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, January 1, 2005 to June 30, 2005. 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* JANUARY 1, 2005 JUNE 30, 2005 1/1/05 - 6/30/05 ------------------------------------------------------------------------------------------------------ CLASS A ACTUAL $ 1,000.00 $ 998.30 $ 5.96 HYPOTHETICAL (5% RETURN BEFORE EXPENSES) 1,000.00 1,018.83 6.02 CLASS B ACTUAL 1,000.00 994.20 9.65 HYPOTHETICAL (5% RETURN BEFORE EXPENSES) 1,000.00 1,015.11 9.75 CLASS C ACTUAL 1,000.00 994.40 8.42 HYPOTHETICAL (5% RETURN BEFORE EXPENSES) 1,000.00 1,016.35 8.51 CLASS Y ACTUAL 1,000.00 998.60 4.71 HYPOTHETICAL (5% RETURN BEFORE EXPENSES) 1,000.00 1,020.08 4.76
* EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO: CLASS A: 1.20%, CLASS B: 1.95%, CLASS C: 1.70%, CLASS Y: 0.95%, MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 181 DIVIDED BY 365 (TO REFLECT THE ONE-HALF YEAR PERIOD). 112 TOP TEN FIXED INCOME HOLDINGS AS OF JUNE 30, 2005 (UNAUDITED)
PERCENTAGE OF NET ASSETS --------------------------------------------------- Dynegy Holdings, Inc. 7.125%, due 05/15/18 1.8% Le-Natures, Inc. 10.000%, due 06/15/13 1.6 General Motors Acceptance Corp. 6.125%, due 08/28/07 1.5 Gulfmark Offshore, Inc. 7.750%, due 07/15/14 1.4 Petroleum Geo-Services ASA 10.000%, due 11/05/10 1.3 Omnova Solutions, Inc. 11.250%, due 06/01/10 1.3 Insight Communications Co., Inc. 0.000%, due 02/15/11 1.2 Wheeling Island Gaming, Inc. 10.125%, due 12/15/09 1.2 Cellu Tissue Holdings, Inc. 9.750%, due 03/15/10 1.1 American Airlines, Inc. 8.608%, due 04/01/11 1.1 --------------------------------------------------- Total 13.5%
INDUSTRY DIVERSIFICATION AS A PERCENT OF NET ASSETS AS OF JUNE 30, 2005 (UNAUDITED) BONDS U.S. BONDS U.S. CORPORATE BONDS Aerospace & Defense 2.66% Airlines 1.54 Auto Components 2.63 Automobiles 1.89 Beverages 1.56 Chemicals 5.60 Commercial Services & Supplies 0.44 Computers & Peripherals 0.22 Consumer Finance 0.68 Containers & Packaging 6.37 Distributors 0.47 Diversified Financial Services 4.13 Diversified Telecommunication Services 3.97 Electric Utilities 1.65 Energy Equipment & Services 2.57 Food & Staples Retailing 2.02 Food Products 2.48 Health Care Equipment & Supplies 0.43 Health Care Providers & Services 1.82 Hotels, Restaurants & Leisure 9.59 Household Durables 1.70 Household Products 1.86 Industrial Conglomerates 0.93 Leisure Equipment & Products 1.06 Machinery 1.40 Media 12.87 Metals & Mining 1.19 Multi-Utilities & Unregulated Power 1.24 Office Electronics 0.66 Oil & Gas 4.36% Paper & Forest Products 1.58 Road & Rail 0.48 Software 1.82 Textiles, Apparel & Luxury Goods 2.03 Transportation Infrastructure 1.34 Wireless Telecommunication Services 2.45 ------ Total U.S. Corporate Bonds 89.69 INTERNATIONAL BONDS INTERNATIONAL CORPORATE BONDS Chemicals 1.51 Diversified Financial Services 0.53 Energy Equipment & Services 1.31 Food & Staples Retailing 0.92 Food Products 0.25 Industrial Conglomerates 0.58 Marine 0.42 Multi-Utilities & Unregulated Power 0.99 Oil & Gas 0.28 Paper & Forest Products 0.80 Wireless Telecommunication Services 0.69 ------ Total International Corporate Bonds 8.28 TOTAL BONDS 97.97 SHORT-TERM INVESTMENT 0.23 ------ TOTAL INVESTMENTS 98.20 CASH AND OTHER ASSETS, LESS LIABILITIES 1.80 ------ NET ASSETS 100.00% ======
113 UBS HIGH YIELD FUND -- SCHEDULE OF INVESTMENTS JUNE 30, 2005
FACE AMOUNT VALUE ------------- --------------- BONDS -- 97.97% U.S. BONDS -- 89.69% U.S. CORPORATE BONDS -- 89.69% AAC Group Holding Corp., 144A (a) 0.000%, due 10/01/12 $ 1,000,000 $ 675,000 Activant Solutions, Inc. 10.500%, due 06/15/11 1,000,000 1,085,000 Advanced Accessory Systems LLC 10.750%, due 06/15/11 500,000 402,500 Advanstar Communications, Inc. 10.750%, due 08/15/10 750,000 819,375 Aearo Co. I 8.250%, due 04/15/12 1,100,000 1,100,000 AK Steel Corp. 7.750%, due 06/15/12 1,250,000 1,056,250 American Airlines, Inc. 6.977%, due 05/23/21 560,368 522,764 8.608%, due 04/01/11 1,375,000 1,289,234 American Cellular Corp. 10.000%, due 08/01/11 1,000,000 1,015,000 American Rock Salt Co. LLC 9.500%, due 03/15/14 1,150,000 1,167,250 Ameripath, Inc. 10.500%, due 04/01/13 675,000 683,438 AmeriQual Group LLC, 144A 9.000%, due 04/01/12 750,000 765,000 Amscan Holdings, Inc. 8.750%, due 05/01/14 750,000 686,250 Anchor Glass Container Corp. 11.000%, due 02/15/13 1,350,000 1,053,000 Armor Holdings, Inc. 8.250%, due 08/15/13 875,000 946,094 AT&T Corp. 9.750%, due 11/15/31 725,000 943,406 BE Aerospace, Inc., Series B 8.875%, due 05/01/11 300,000 313,500 Berry Plastics Corp. 10.750%, due 07/15/12 1,000,000 1,091,250 Block Communications, Inc. 9.250%, due 04/15/09 500,000 532,500 Buckeye Technologies, Inc. 8.000%, due 10/15/10 750,000 720,000 Buffets, Inc. 11.250%, due 07/15/10 1,000,000 1,007,500 Cadmus Communications Corp. 8.375%, due 06/15/14 500,000 514,375 Carriage Services, Inc., 144A 7.875%, due 01/15/15 400,000 422,000 Cellu Tissue Holdings, Inc. 9.750%, due 03/15/10 1,300,000 1,319,500 Century Aluminum Co. 7.500%, due 08/15/14 350,000 345,625 Charter Communications Holdings LLC 10.000%, due 04/01/09 750,000 579,375 Charter Communications Operating LLC, 144A 8.000%, due 04/30/12 1,250,000 1,243,750 Chukchansi Economic Development Authority, 144A 14.500%, due 06/15/09 500,000 611,250 Cincinnati Bell, Inc. 8.375%, due 01/15/14 $ 850,000 $ 871,250 Circus & Eldorado Joint Venture Corp. 10.125%, due 03/01/12 650,000 680,063 CMS Energy Corp. 9.875%, due 10/15/07 500,000 545,000 Comstock Resources, Inc. 6.875%, due 03/01/12 1,000,000 1,010,000 Constar International, Inc. 11.000%, due 12/01/12 1,000,000 795,000 Cooper Standard Automotive, Inc. 8.375%, due 12/15/14 500,000 395,000 Crown Cork & Seal Co., Inc. 8.000%, due 04/15/23 1,250,000 1,218,750 CSC Holdings, Inc., Series B 7.625%, due 04/01/11 1,050,000 1,036,875 8.125%, due 08/15/09 1,175,000 1,189,687 Da-Lite Screen Co., Inc. 9.500%, due 05/15/11 1,150,000 1,224,750 Delta Petroleum Corp., 144A 7.000%, due 04/01/15 250,000 235,000 Dobson Cellular Sytems, 144A 9.875%, due 11/01/12 350,000 369,250 Dobson Communications Corp. 10.875%, due 07/01/10 900,000 893,250 DRS Technologies, Inc. 6.875%, due 11/01/13 900,000 931,500 Dura Operating Corp., Series B 8.625%, due 04/15/12 550,000 495,000 Dura Operating Corp., Series D 9.000%, due 05/01/09 530,000 368,350 Dynegy Holdings, Inc. 7.125%, due 05/15/18 2,175,000 2,071,687 Edison Mission Energy 10.000%, due 08/15/08 500,000 561,250 El Pollo Loco, Inc. 9.250%, due 12/15/09 350,000 365,750 Energy Partners Ltd. 8.750%, due 08/01/10 750,000 787,500 FastenTech, Inc. 11.500%, due 05/01/11 1,000,000 1,085,000 Ford Motor Credit Co. 7.375%, due 10/28/09 500,000 488,594 General Motors Acceptance Corp. 6.125%, due 08/28/07 1,750,000 1,732,006 7.250%, due 03/02/11 850,000 797,021 Georgia-Pacific Corp. 8.875%, due 05/15/31 925,000 1,144,687 Giant Industries, Inc. 11.000%, due 05/15/12 845,000 956,962 Goodyear Tire & Rubber Co., 144A 9.000%, due 07/01/15 500,000 491,250 Granite Broadcasting Corp. 9.750%, due 12/01/10 650,000 604,500 Great Atlantic & Pacific Tea Co. 7.750%, due 04/15/07 1,000,000 1,022,500 Gregg Appliances, Inc., 144A 9.000%, due 02/01/13 775,000 726,563
114
FACE AMOUNT VALUE ------------- --------------- Gulfmark Offshore, Inc. 7.750%, due 07/15/14 $ 1,500,000 $ 1,578,750 Herbst Gaming, Inc. 8.125%, due 06/01/12 925,000 980,500 Hercules, Inc. 6.500%, due 06/30/29 825,000 635,250 Houghton Mifflin Co. 0.000%, due 10/15/13 (a) 1,000,000 730,000 8.250%, due 02/01/11 550,000 570,625 Insight Communications Co., Inc. (a) 0.000%, due 02/15/11 1,375,000 1,378,437 Interface, Inc. 10.375%, due 02/01/10 1,000,000 1,100,000 IPC Acquisition Corp. 11.500%, due 12/15/09 975,000 1,057,875 Jacobs Entertainment Co. 11.875%, due 02/01/09 505,000 544,769 Jafra Cosmetics International, Inc. 10.750%, due 05/15/11 489,000 547,680 Kansas City Southern Railway Co. 7.500%, due 06/15/09 550,000 567,875 Land O' Lakes, Inc. 8.750%, due 11/15/11 725,000 730,438 Landry's Restaurants, Inc. 7.500%, due 12/15/14 675,000 653,063 Las Vegas Sands Corp., 144A 6.375%, due 02/15/15 500,000 488,750 Le-Natures, Inc., 144A 10.000%, due 06/15/13 1,750,000 1,837,500 Levi Strauss & Co. 12.250%, due 12/15/12 800,000 874,000 MCI, Inc. 8.735%, due 05/01/14 369,000 413,741 Mediacom LLC 9.500%, due 01/15/13 1,015,000 1,012,462 Merisant Co., 144A 10.500%, due 07/15/13 500,000 355,000 Midwest Generation LLC 8.750%, due 05/01/34 750,000 840,000 Mirant Americas Generation LLC (c) 7.625%, due 05/01/06 700,000 810,250 MTR Gaming Group, Inc. 9.750%, due 04/01/10 750,000 813,750 Nexstar Finance Holdings LLC (a) 0.000%, due 04/01/13 1,325,000 995,406 Nexstar Finance, Inc. 7.000%, due 01/15/14 250,000 231,563 Omnova Solutions, Inc. 11.250%, due 06/01/10 1,400,000 1,470,000 Owens-Illinois, Inc. 7.800%, due 05/15/18 1,200,000 1,260,000 Pantry, Inc. 7.750%, due 02/15/14 850,000 867,000 Parker Drilling Co. 9.625%, due 10/01/13 850,000 958,375 Pathmark Stores, Inc. 8.750%, due 02/01/12 500,000 490,625 Perry Ellis International, Inc., Series B 9.500%, due 03/15/09 1,000,000 1,017,500 Pinnacle Foods Holding Corp. 8.250%, due 12/01/13 $ 750,000 $ 671,250 Pliant Corp. 11.125%, due 09/01/09 1,000,000 975,000 Port Townsend Paper Corp., 144A 12.000%, due 04/15/11 1,000,000 895,000 Premier Graphics, Inc. (b) (c) (d) 11.500%, due 12/01/05 4,250,000 0 Prestige Brands, Inc. 9.250%, due 04/15/12 750,000 778,125 Qwest Communications International, Inc. 7.250%, due 02/15/11 1,000,000 967,500 Qwest Corp. 7.875%, due 09/01/11 850,000 886,125 8.875%, due 03/15/12 550,000 598,125 Rafaella Apparel Group, Inc., 144A 11.250%, due 06/15/11 275,000 264,688 Reliant Energy, Inc. 9.250%, due 07/15/10 600,000 654,000 Resolution Performance Products, Inc. 13.500%, due 11/15/10 750,000 806,250 Riddell Bell Holdings, Inc. 8.375%, due 10/01/12 1,250,000 1,253,125 River Rock Entertainment Authority 9.750%, due 11/01/11 1,150,000 1,262,125 Rockwood Specialties Group, Inc. 10.625%, due 05/15/11 800,000 882,000 Sbarro, Inc. 11.000%, due 09/15/09 805,000 809,025 Select Medical Corp., 144A 7.625%, due 02/01/15 575,000 569,250 Seneca Gaming Corp. 7.250%, due 05/01/12 750,000 775,312 Sequa Corp. 9.000%, due 08/01/09 850,000 937,125 Sheridan Group, Inc. 10.250%, due 08/15/11 500,000 519,375 Solo Cup Co. 8.500%, due 02/15/14 500,000 467,500 Stanadyne Corp. 10.000%, due 08/15/14 1,000,000 945,000 Stone Energy Corp. 6.750%, due 12/15/14 1,000,000 972,500 Suncom Wireless, Inc. 9.375%, due 02/01/11 850,000 609,875 Technical Olympic USA, Inc. 7.500%, due 01/15/15 1,000,000 900,000 Tenet Healthcare Corp., 144A 9.250%, due 02/01/15 450,000 466,875 Terra Capital, Inc. 11.500%, due 06/01/10 487,000 555,180 12.875%, due 10/15/08 1,075,000 1,268,500 Tommy Hilfiger USA, Inc. 6.850%, due 06/01/08 500,000 502,500 Universal Hospital Services, Inc. 10.125%, due 11/01/11 500,000 505,000 Valor Telecommunications Enterprises LLC, 144A 7.750%, due 02/15/15 1,150,000 1,129,875
115
FACE AMOUNT VALUE ------------- --------------- Vertis, Inc., Series B 10.875%, due 06/15/09 $ 1,300,000 $ 1,241,500 Warner Music Group 7.375%, due 04/15/14 750,000 757,500 Wheeling Island Gaming, Inc. 10.125%, due 12/15/09 1,275,000 1,351,500 Whiting Petroleum Corp. 7.250%, due 05/01/12 1,150,000 1,178,750 Wolverine Tube, Inc., 144A 7.375%, due 08/01/08 650,000 565,500 WRC Media, Inc. 12.750%, due 11/15/09 1,000,000 1,058,750 Wynn Las Vegas Capital Corp. 6.625%, due 12/01/14 750,000 729,375 Xerox Capital Trust I 8.000%, due 02/01/27 750,000 776,250 --------------- Total U.S. Bonds 104,300,695 --------------- INTERNATIONAL BONDS -- 8.28% INTERNATIONAL CORPORATE BONDS -- 8.28% CANADA -- 5.22% Ainsworth Lumber Co., Ltd. 7.250%, due 10/01/12 500,000 476,250 Calpine Canada Energy Finance ULC 8.500%, due 05/01/08 1,600,000 1,152,000 Jean Coutu Group, Inc. 8.500%, due 08/01/14 1,100,000 1,086,250 MAAX Corp. 9.750%, due 06/15/12 500,000 441,250 Maax Holdings, Inc., 144A (a) 0.000%, due 12/15/12 500,000 217,500 Methanex Corp. 8.750%, due 08/15/12 1,000,000 1,143,750 Millar Western Forest Products Ltd. 7.750%, due 11/15/13 500,000 468,750 Rogers Wireless Communications, Inc. 7.250%, due 12/15/12 300,000 324,000 7.500%, due 03/15/15 300,000 326,250 8.000%, due 12/15/12 150,000 161,625 Tembec Industries, Inc. 7.750%, due 03/15/12 100,000 73,500 8.500%, due 02/01/11 250,000 193,125 --------------- 6,064,250 --------------- CAYMAN ISLANDS -- 0.46% Bluewater Finance Ltd. 10.250%, due 02/15/12 500,000 535,000 --------------- FRANCE -- 0.78% Compagnie Generale de Geophysique S.A., 144A 7.500%, due 05/15/15 300,000 312,750 Rhodia S.A. 10.250%, due 06/01/10 550,000 589,875 --------------- 902,625 --------------- NORWAY -- 1.32% Petroleum Geo-Services ASA 10.000%, due 11/05/10 $ 1,375,000 $ 1,540,000 --------------- SWEDEN -- 0.50% Stena AB 7.000%, due 12/01/16 100,000 92,750 7.500%, due 11/01/13 500,000 492,500 --------------- 585,250 --------------- Total International Bonds 9,627,125 --------------- Total Bonds (Cost $117,667,807) 113,927,820 --------------- SHARES ------------- EQUITIES -- 0.00% U.S. EQUITIES -- 0.00% AEROSPACE & DEFENSE -- 0.00% Sabreliner Corp. (b) (d) (e) 8,400 0 --------------- HOTELS, RESTAURANTS & LEISURE -- 0.00% American Restaurant Group, Inc. (b) (d) (e) 972 0 --------------- WARRANTS -- 0.00% (b)(e) Dayton Superior Corp., 144A (f) 225 2 InterAct Electronic Marketing, Inc., expires 12/31/09 (d) 19,500 0 Knology, Inc., 144A, expires 10/15/07 (d) (f) 16,995 0 Pathnet, Inc., expiring 04/15/08 (d) 6,275 0 Pliant Corp., 144A, expires 06/01/10 (d) (f) 160 2 --------------- 4 --------------- Total Equities (Cost $153,010) 4 --------------- SHORT-TERM INVESTMENT -- 0.23% UBS Supplementary Trust -- U.S. Cash Management Prime Fund, yield of 3.28% (Cost $262,310) 262,310 262,310 --------------- Total Investments -- 98.20% (Cost $118,083,127) 114,190,134 Cash and other assets, less liabilities -- 1.80% 2,097,914 --------------- Net Assets -- 100.00% $ 116,288,048 ===============
116 NOTES TO SCHEDULE OF INVESTMENTS Aggregate cost for federal income tax purposes was $118,149,553; and net unrealized depreciation consisted of:
Gross unrealized appreciation $ 3,482,148 Gross unrealized depreciation (7,441,567) -------------- Net unrealized depreciation $ (3,959,419) ==============
(a) Step Bonds - Coupon rate increases in increments to maturity. Rate disclosed is as of June 30, 2005. Maturity date disclosed is the ultimate maturity date. (b) Security is illiquid. These securities amounted to $4 or 0.00% 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 June 30, 2005, the value of these securities amounted to $2 or 0.00% of net assets. (e) Non-income producing security. (f) Represents a restricted security. 144A Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities are considered liquid and may be resold in transactions exempt from registration, normally to qualified institutional buyers. At June 30, 2005, the value of these securities amounted to $12,641,755 or 10.87% of net assets. RESTRICTED SECURITIES
ACQUISITION COST MARKET VALUE ACQUISITION ACQUISITION PERCENTAGE OF MARKET PERCENTAGE OF SECURITY DATE COST 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
117 THE UBS FUNDS -- FINANCIAL STATEMENTS STATEMENTS OF ASSETS AND LIABILITIES JUNE 30, 2005
UBS GLOBAL UBS ALLOCATION GLOBAL EQUITY FUND* FUND ------------------------------------------------------------------------------------------------------------ ASSETS: Investments, at cost: Unaffiliated issuers $ 2,325,787,632 $ 358,822,844 Affiliated issuers 546,433,853 1,055,690 Investments of cash collateral received in affiliated issuers for securities loaned, at cost 172,863,161 -- Foreign currency, at cost 8,075,041 2,703,317 ---------------- ---------------- $ 3,053,159,687 $ 362,581,851 ================ ================ Investments, at value: Unaffiliated issuers $ 2,442,601,190 $ 443,709,819 Affiliated issuers 606,837,540 1,055,690 Investments of cash collateral in affiliated issuers received for securities loaned, at value 172,863,161 -- Foreign currency, at value 7,887,641 2,678,643 Cash -- -- Receivables: Investment securities sold 7,424,497 871,871 Due from Advisor -- -- Dividends 2,774,759 1,130,734 Interest 8,132,271 5,501 Fund shares sold 14,711,212 295,944 Variation margin 480,549 -- Cash collateral due from broker 6,266,236 -- Unrealized appreciation on forward foreign currency contracts 10,190,490 2,281,680 Other assets 506,579 23,465 ---------------- ---------------- TOTAL ASSETS 3,280,676,125 452,053,347 ---------------- ---------------- LIABILITIES: Payables: Cash collateral from securities loaned 172,863,161 -- Investment securities purchased 37,712,247 1,048,263 Investment advisory and administration fees 1,929,200 216,031 Fund shares redeemed 10,156,353 1,237,333 Distribution and service fees 1,209,920 170,455 Trustees' fees 6,685 2,835 Due to custodian bank 304,144 102,721 Variation margin -- -- Cash collateral due to broker -- -- Interest for swaps -- -- Accrued expenses 1,341,978 307,435 Unrealized depreciation on forward foreign currency contracts 17,247,078 2,090,101 Unrealized depreciation on swap agreements -- -- ---------------- ---------------- TOTAL LIABILITIES 242,770,766 5,175,174 ---------------- ---------------- NET ASSETS $ 3,037,905,359 $ 446,878,173 ================ ================ NET ASSETS CONSIST OF: Beneficial interest $ 2,732,999,867 $ 1,195,170,257 Accumulated undistributed net investment income 18,997,445 1,751,873 Accumulated undistributed net realized gain (loss) 114,908,534 (835,086,117) Net unrealized appreciation (depreciation) 170,999,513 85,042,160 ---------------- ---------------- NET ASSETS $ 3,037,905,359 $ 446,878,173 ================ ================ UBS UBS GLOBAL BOND INTERNATIONAL FUND EQUITY FUND** ------------------------------------------------------------------------------------------------------------ ASSETS: Investments, at cost: Unaffiliated issuers $ 58,100,496 $ 106,919,269 Affiliated issuers 14,272,155 1,067,148 Investments of cash collateral received in affiliated issuers for securities loaned, at cost -- 17,300,724 Foreign currency, at cost 124,101 796,143 ---------------- ---------------- $ 72,496,752 $ 126,083,284 ================ ================ Investments, at value: Unaffiliated issuers $ 57,817,335 $ 129,633,747 Affiliated issuers 14,717,256 1,067,148 Investments of cash collateral in affiliated issuers received for securities loaned, at value -- 17,300,724 Foreign currency, at value 123,467 787,905 Cash 582 -- Receivables: Investment securities sold 1,631,132 162,023 Due from Advisor -- -- Dividends -- 398,233 Interest 930,471 1,579 Fund shares sold 430,907 190,082 Variation margin -- -- Cash collateral due from broker -- -- Unrealized appreciation on forward foreign currency contracts 232,644 634,444 Other assets 3,617 64,177 ---------------- ---------------- TOTAL ASSETS 75,887,411 150,240,062 ---------------- ---------------- LIABILITIES: Payables: Cash collateral from securities loaned -- 17,300,724 Investment securities purchased 1,605,584 94,330 Investment advisory and administration fees 37,900 46,486 Fund shares redeemed 526,170 800,238 Distribution and service fees 6,573 5,288 Trustees' fees 2,237 3,675 Due to custodian bank -- -- Variation margin -- -- Cash collateral due to broker -- -- Interest for swaps -- -- Accrued expenses 110,023 187,535 Unrealized depreciation on forward foreign currency contracts 317,464 676,799 Unrealized depreciation on swap agreements -- -- ---------------- ---------------- TOTAL LIABILITIES 2,605,951 19,115,075 ---------------- ---------------- NET ASSETS $ 73,281,460 $ 131,124,987 ================ ================ NET ASSETS CONSIST OF: Beneficial interest $ 72,186,776 $ 105,937,874 Accumulated undistributed net investment income 1,468,248 1,282,519 Accumulated undistributed net realized gain (loss) (414,208) 1,232,670 Net unrealized appreciation (depreciation) 40,644 22,671,924 ---------------- ---------------- NET ASSETS $ 73,281,460 $ 131,124,987 ================ ================
* The market value of securities loaned for the UBS Global Allocation Fund as of June 30, 2005 is $214,248,684. ** The market value of securities loaned for the UBS International Equity Fund as of June 30, 2005 is $16,517,523. 118
UBS UBS UBS U.S. LARGE CAP U.S. LARGE CAP U.S. LARGE CAP VALUE EQUITY EQUITY FUND GROWTH FUND FUND -------------------------------------------------------------------------------------------------------------------------------- ASSETS: Investments, at cost: Unaffiliated issuers $ 342,379,599 $ 6,408,313 $ 113,895,237 Affiliated issuers 13,297,146 139,146 944,120 Investments of cash collateral received in affiliated issuers for securities loaned, at cost -- -- -- Foreign currency, at cost -- -- -- ---------------- ---------------- ---------------- $ 355,676,745 $ 6,547,459 $ 114,839,357 ================ ================ ================ Investments, at value: Unaffiliated issuers $ 384,269,317 $ 7,023,748 $ 133,025,896 Affiliated issuers 13,297,146 139,146 944,120 Investments of cash collateral in affiliated issuers received for securities loaned, at value -- -- -- Foreign currency, at value -- -- -- Cash -- -- -- Receivables: Investment securities sold 388,963 1,227,272 1,061,434 Due from Advisor -- 16,572 -- Dividends 295,727 3,511 135,539 Interest 81,258 330 4,477 Fund shares sold 1,375,851 -- 17,157 Variation margin -- -- -- Cash collateral due from broker -- -- -- Unrealized appreciation on forward foreign currency contracts -- -- -- Other assets 9,960 334 9,604 ---------------- ---------------- ---------------- TOTAL ASSETS 399,718,222 8,410,913 135,198,227 ---------------- ---------------- ---------------- LIABILITIES: Payables: Cash collateral from securities loaned -- -- -- Investment securities purchased 696,659 1,044,864 341,197 Investment advisory and administration fees 236,945 -- 53,173 Fund shares redeemed 2,148,020 35,478 536,963 Distribution and service fees 6,920 1,421 40,481 Trustees' fees 2,344 1,980 2,231 Due to custodian bank 76,302 41,332 39,548 Variation margin 46,250 -- -- Cash collateral due to broker -- -- -- Interest for swaps -- -- -- Accrued expenses 126,511 61,064 217,334 Unrealized depreciation on forward foreign currency contracts -- -- -- Unrealized depreciation on swap agreements -- -- -- ---------------- ---------------- ---------------- TOTAL LIABILITIES 3,339,951 1,186,139 1,230,927 ---------------- ---------------- ---------------- NET ASSETS $ 396,378,271 $ 7,224,774 $ 133,967,300 ================ ================ ================ NET ASSETS CONSIST OF: Beneficial interest $ 350,828,795 $ 9,999,562 $ 106,944,643 Accumulated undistributed net investment income 1,116,277 5,080 674,285 Accumulated undistributed net realized gain (loss) 2,653,156 (3,395,303) 7,217,713 Net unrealized appreciation (depreciation) 41,780,043 615,435 19,130,659 ---------------- ---------------- ---------------- NET ASSETS $ 396,378,271 $ 7,224,774 $ 133,967,300 ================ ================ ================ UBS UBS UBS U.S. SMALL CAP DYNAMIC U.S. BOND GROWTH FUND ALPHA FUND FUND -------------------------------------------------------------------------------------------------------------------------------- ASSETS: Investments, at cost: Unaffiliated issuers $ 221,569,337 $ -- $ 143,287,162 Affiliated issuers 8,103,287 755,487,572 11,323,178 Investments of cash collateral received in affiliated issuers for securities loaned, at cost -- -- -- Foreign currency, at cost -- -- -- ---------------- ---------------- ---------------- $ 229,672,624 $ 755,487,572 $ 154,610,340 ================ ================ ================ Investments, at value: Unaffiliated issuers $ 253,482,272 $ -- $ 144,468,445 Affiliated issuers 8,103,287 770,392,309 11,323,178 Investments of cash collateral in affiliated issuers received for securities loaned, at value -- -- -- Foreign currency, at value -- -- -- Cash -- 2,630 21,051 Receivables: Investment securities sold 3,908,496 -- 3,741,555 Due from Advisor -- -- -- Dividends 44,294 -- -- Interest 24,135 88,229 1,306,158 Fund shares sold 16,407,611 14,005,584 325,273 Variation margin -- 1,533,112 -- Cash collateral due from broker -- 36,000,000 -- Unrealized appreciation on forward foreign currency contracts -- 4,413,973 -- Other assets 11,185 -- 6,590 ---------------- ---------------- ---------------- TOTAL ASSETS 281,981,280 826,435,837 161,192,250 ---------------- ---------------- ---------------- LIABILITIES: Payables: Cash collateral from securities loaned -- -- -- Investment securities purchased 4,883,051 10,200,000 13,036,601 Investment advisory and administration fees 158,683 760,653 53,657 Fund shares redeemed 381,974 1,560,163 470,364 Distribution and service fees 37,318 273,588 9,860 Trustees' fees 2,397 3,057 3,683 Due to custodian bank 605,340 -- -- Variation margin -- -- -- Cash collateral due to broker -- 6,024,857 -- Interest for swaps -- 121,263 -- Accrued expenses 139,787 271,230 80,710 Unrealized depreciation on forward foreign currency contracts -- 4,180,254 -- Unrealized depreciation on swap agreements -- 1,027,379 -- ---------------- ---------------- ---------------- TOTAL LIABILITIES 6,208,550 24,422,444 13,654,875 ---------------- ---------------- ---------------- NET ASSETS $ 275,772,730 $ 802,013,393 $ 147,537,375 ================ ================ ================ NET ASSETS CONSIST OF: Beneficial interest $ 234,365,108 $ 790,913,980 $ 147,601,235 Accumulated undistributed net investment income -- 1,564,731 104,674 Accumulated undistributed net realized gain (loss) 9,494,687 (3,003,661) (1,349,817) Net unrealized appreciation (depreciation) 31,912,935 12,538,343 1,181,283 ---------------- ---------------- ---------------- NET ASSETS $ 275,772,730 $ 802,013,393 $ 147,537,375 ================ ================ ================ UBS ABSOLUTE UBS RETURN BOND HIGH YIELD FUND FUND ------------------------------------------------------------------------------------------------------------ ASSETS: Investments, at cost: Unaffiliated issuers $ 99,066,497 $ 117,820,817 Affiliated issuers 34,684,896 262,310 Investments of cash collateral received in affiliated issuers for securities loaned, at cost -- -- Foreign currency, at cost 5,934,075 -- ---------------- ---------------- $ 139,685,468 $ 118,083,127 ================ ================ Investments, at value: Unaffiliated issuers $ 97,832,459 $ 113,927,824 Affiliated issuers 34,754,662 262,310 Investments of cash collateral in affiliated issuers received for securities loaned, at value -- -- Foreign currency, at value 5,921,647 -- Cash -- -- Receivables: Investment securities sold 750,519 1,057,274 Due from Advisor -- -- Dividends -- -- Interest 1,823,802 2,284,237 Fund shares sold 3,077,164 46,223 Variation margin -- -- Cash collateral due from broker 521,442 -- Unrealized appreciation on forward foreign currency contracts 624,354 -- Other assets -- 8,088 ---------------- ---------------- TOTAL ASSETS 145,306,049 117,585,956 ---------------- ---------------- LIABILITIES: Payables: Cash collateral from securities loaned -- -- Investment securities purchased 2,192,769 -- Investment advisory and administration fees 31,346 72,949 Fund shares redeemed 59,723 856,113 Distribution and service fees 17,648 26,674 Trustees' fees 2,000 2,417 Due to custodian bank 2,338 169,356 Variation margin 165,987 -- Cash collateral due to broker 399,615 -- Interest for swaps -- -- Accrued expenses 79,845 170,399 Unrealized depreciation on forward foreign currency contracts 5,129 -- Unrealized depreciation on swap agreements -- -- ---------------- ---------------- TOTAL LIABILITIES 2,956,400 1,297,908 ---------------- ---------------- NET ASSETS $ 142,349,649 $ 116,288,048 ================ ================ NET ASSETS CONSIST OF: Beneficial interest $ 142,610,647 $ 364,189,710 Accumulated undistributed net investment income 1,042,688 69,088 Accumulated undistributed net realized gain (loss) (228,855) (244,077,756) Net unrealized appreciation (depreciation) (1,074,831) (3,892,994) ---------------- ---------------- NET ASSETS $ 142,349,649 $ 116,288,048 ================ ================
See accompanying notes to financial statements 119 STATEMENTS OF ASSETS AND LIABILITIES NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE: JUNE 30, 2005
UBS GLOBAL UBS ALLOCATION GLOBAL EQUITY FUND FUND -------------------------------------------------------------------------------------------------------------- CLASS A: Net assets $ 1,594,112,924 $ 109,998,307 Shares outstanding 119,544,537 9,457,455 Net asset value per share (NAV per share / shares outstanding) $ 13.33 $ 11.63 Offering price per share (NAV per share plus maximum sales charge)(a) $ 14.11 $ 12.31 Redemption proceeds per share $ 13.33 $ 11.63 CLASS B: Net assets $ 184,358,754 $ 108,893,533 Shares outstanding 14,093,136 9,563,864 Net asset value per share (NAV per share / shares outstanding) $ 13.08 $ 11.39 Offering price per share $ 13.08 $ 11.39 Redemption proceeds per share (NAV per share less maximum redemption charge)(a) $ 12.43 $ 10.82 CLASS C: Net assets $ 903,279,909 $ 68,734,548 Shares outstanding 69,023,594 6,055,088 Net asset value per share (NAV per share / shares outstanding) $ 13.09 $ 11.35 Offering price per share $ 13.09 $ 11.35 Redemption proceeds per share (NAV per share less maximum redemption charge)(a) $ 12.96 $ 11.24 CLASS Y: Net assets $ 356,153,772 $ 159,251,785 Shares outstanding 26,363,405 13,457,150 Net asset value per share (NAV per share / shares outstanding) $ 13.51 $ 11.83 Offering price per share $ 13.51 $ 11.83 Redemption proceeds per share $ 13.51 $ 11.83 UBS UBS GLOBAL BOND INTERNATIONAL FUND EQUITY FUND -------------------------------------------------------------------------------------------------------------- CLASS A: Net assets $ 16,701,261 $ 15,168,499 Shares outstanding 1,698,857 1,599,660 Net asset value per share (NAV per share / shares outstanding) $ 9.83 $ 9.48 Offering price per share (NAV per share plus maximum sales charge)(a) $ 10.29 $ 10.03 Redemption proceeds per share $ 9.83 $ 9.48 CLASS B: Net assets $ 1,153,388 $ 876,079 Shares outstanding 117,090 93,843 Net asset value per share (NAV per share / shares outstanding) $ 9.85 $ 9.34 Offering price per share $ 9.85 $ 9.34 Redemption proceeds per share (NAV per share less maximum redemption charge)(a) $ 9.36 $ 8.87 CLASS C: Net assets $ 3,081,375 $ 1,816,010 Shares outstanding 314,159 195,374 Net asset value per share (NAV per share / shares outstanding) $ 9.81 $ 9.30 Offering price per share $ 9.81 $ 9.30 Redemption proceeds per share (NAV per share less maximum redemption charge)(a) $ 9.74 $ 9.21 CLASS Y: Net assets $ 52,345,436 $ 113,264,399 Shares outstanding 4,829,976 11,858,354 Net asset value per share (NAV per share / shares outstanding) $ 10.84 $ 9.55 Offering price per share $ 10.84 $ 9.55 Redemption proceeds per share $ 10.84 $ 9.55
(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%, and UBS Absolute Return Bond Fund which is 2.50%. Classes B, C and Y have no sales charges. For Class B, the maximum contingent deferred sales charge is 5.00%, Class C maximum contingent deferred sales charge is 1.00%, except for UBS Global Bond Fund, UBS U.S. Bond and UBS High Yield Fund which is 0.75%, and UBS Absolute Return Bond Fund which is 0.50%. Classes A and Y have no contingent deferred sales charges. (b) UBS Absolute Return Bond Fund currently does not offer Class B shares. 120
UBS UBS UBS U.S. LARGE CAP U.S. LARGE CAP U.S. LARGE CAP VALUE EQUITY EQUITY FUND GROWTH FUND FUND ---------------------------------------------------------------------------------------------------------------------------------- CLASS A: Net assets $ 25,668,684 $ 3,175,319 $ 105,975,251 Shares outstanding 1,486,306 386,927 10,108,333 Net asset value per share (NAV per share / shares outstanding) $ 17.27 $ 8.21 $ 10.48 Offering price per share (NAV per share plus maximum sales charge)(a) $ 18.28 $ 8.69 $ 11.09 Redemption proceeds per share $ 17.27 $ 8.21 $ 10.48 CLASS B: Net assets $ 1,017,818 $ 564,055 $ 4,996,664 Shares outstanding 60,094 70,521 484,815 Net asset value per share (NAV per share / shares outstanding) $ 16.94 $ 8.00 $ 10.31 Offering price per share $ 16.94 $ 8.00 $ 10.31 Redemption proceeds per share (NAV per share less maximum redemption charge)(a) $ 16.09 $ 7.60 $ 9.79 CLASS C: Net assets $ 2,423,386 $ 407,060 $ 17,235,383 Shares outstanding 143,111 50,910 1,673,581 Net asset value per share (NAV per share / shares outstanding) $ 16.93 $ 8.00 $ 10.30 Offering price per share $ 16.93 $ 8.00 $ 10.30 Redemption proceeds per share (NAV per share less maximum redemption charge)(a) $ 16.76 $ 7.92 $ 10.20 CLASS Y: Net assets $ 367,268,383 $ 3,078,340 $ 5,760,002 Shares outstanding 21,079,520 367,151 547,336 Net asset value per share (NAV per share / shares outstanding) $ 17.42 $ 8.38 $ 10.52 Offering price per share $ 17.42 $ 8.38 $ 10.52 Redemption proceeds per share $ 17.42 $ 8.38 $ 10.52 UBS UBS UBS U.S. SMALL CAP DYNAMIC U.S. BOND GROWTH FUND ALPHA FUND FUND ---------------------------------------------------------------------------------------------------------------------------------- CLASS A: Net assets $ 110,794,582 $ 528,087,505 $ 34,281,969 Shares outstanding 8,114,828 51,667,612 3,194,974 Net asset value per share (NAV per share / shares outstanding) $ 13.65 $ 10.22 $ 10.73 Offering price per share (NAV per share plus maximum sales charge)(a) $ 14.44 $ 10.81 $ 11.24 Redemption proceeds per share $ 13.65 $ 10.22 $ 10.73 CLASS B: Net assets $ 9,591,821 $ 14,814,603 $ 1,619,611 Shares outstanding 721,647 1,454,204 150,860 Net asset value per share (NAV per share / shares outstanding) $ 13.29 $ 10.19 $ 10.74 Offering price per share $ 13.29 $ 10.19 $ 10.74 Redemption proceeds per share (NAV per share less maximum redemption charge)(a) $ 12.63 $ 9.68 $ 10.20 CLASS C: Net assets $ 8,660,986 $ 202,891,256 $ 2,068,068 Shares outstanding 652,360 19,915,710 192,981 Net asset value per share (NAV per share / shares outstanding) $ 13.28 $ 10.19 $ 10.72 Offering price per share $ 13.28 $ 10.19 $ 10.72 Redemption proceeds per share (NAV per share less maximum redemption charge)(a) $ 13.15 $ 10.09 $ 10.64 CLASS Y: Net assets $ 146,725,341 $ 56,220,029 $ 109,567,727 Shares outstanding 10,531,063 5,493,829 10,218,291 Net asset value per share (NAV per share / shares outstanding) $ 13.93 $ 10.23 $ 10.72 Offering price per share $ 13.93 $ 10.23 $ 10.72 Redemption proceeds per share $ 13.93 $ 10.23 $ 10.72 UBS ABSOLUTE UBS RETURN BOND HIGH YIELD FUND(b) FUND -------------------------------------------------------------------------------------------------------------- CLASS A: Net assets $ 105,372,782 $ 66,677,249 Shares outstanding 10,558,748 9,336,811 Net asset value per share (NAV per share / shares outstanding) $ 9.98 $ 7.14 Offering price per share (NAV per share plus maximum sales charge)(a) $ 10.24 $ 7.48 Redemption proceeds per share $ 9.98 $ 7.14 CLASS B: Net assets -- $ 3,944,890 Shares outstanding -- 552,285 Net asset value per share (NAV per share / shares outstanding) -- $ 7.14 Offering price per share -- $ 7.14 Redemption proceeds per share (NAV per share less maximum redemption charge)(a) -- $ 6.78 CLASS C: Net assets $ 16,972,728 $ 15,388,542 Shares outstanding 1,700,918 2,154,400 Net asset value per share (NAV per share / shares outstanding) $ 9.98 $ 7.14 Offering price per share $ 9.98 $ 7.14 Redemption proceeds per share (NAV per share less maximum redemption charge)(a) $ 9.93 $ 7.09 CLASS Y: Net assets $ 20,004,139 $ 30,277,367 Shares outstanding 2,004,485 4,220,877 Net asset value per share (NAV per share / shares outstanding) $ 9.98 $ 7.17 Offering price per share $ 9.98 $ 7.17 Redemption proceeds per share $ 9.98 $ 7.17
See accompanying notes to financial statements 121 STATEMENT OF OPERATIONS FOR THE YEAR ENDED JUNE 30, 2005
UBS GLOBAL UBS ALLOCATION GLOBAL EQUITY FUND FUND ------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME: Dividends $ 37,653,479 $ 11,922,962 Interest 23,876,079 2,489 Affiliated interest 1,540,558 33,913 Securities lending-net 531,636 -- Foreign tax withheld (1,369,885) (305,091) ---------------- ---------------- TOTAL INCOME $ 62,231,867 $ 11,654,273 ---------------- ---------------- EXPENSES: Advisory and Administration fees $ 19,391,309 $ 3,601,904 Distribution and service fees: Class A 3,078,792 284,755 Class B 1,804,823 1,227,134 Class C 7,210,987 761,649 Transfer agency fees: Class A 673,793 161,473 Class B 148,094 279,638 Class C 465,189 159,837 Class Y 146,035 42,943 Custodian 1,506,574 398,911 Shareholder reports 390,022 242,517 Federal and state registration 281,292 76,316 Professional services 120,693 93,791 Trustees 35,856 9,743 Other 69,235 54,946 ---------------- ---------------- TOTAL OPERATING EXPENSES 35,322,694 7,395,557 Expenses waived by Advisor -- (633,476) ---------------- ---------------- NET OPERATING EXPENSES 35,322,694 6,762,081 Interest expense 9,082 514 ---------------- ---------------- NET INVESTMENT INCOME 26,900,091 4,891,678 ---------------- ---------------- Net realized gain (loss) on: Investments 159,561,158 38,331,697 Futures contracts (1,034,041) -- Forward foreign currency contracts 7,297,050 237,698 ---------------- ---------------- Net realized gain (loss) 165,824,167 38,569,395 ---------------- ---------------- Change in net unrealized appreciation (depreciation) on: Investments 67,696,265 806,143 Futures contracts 1,190,907 -- Forward foreign currency contracts (8,767,122) (131,497) Swap agreements -- -- Translation of other assets and liabilities denominated in foreign currency (380,630) (47,290) ---------------- ---------------- Change in net unrealized appreciation (depreciation) 59,739,420 627,356 ---------------- ---------------- Net realized and unrealized gain (loss) 225,563,587 39,196,751 ---------------- ---------------- Net increase in net assets resulting from operations $ 252,463,678 $ 44,088,429 ================ ================ UBS UBS GLOBAL BOND INTERNATIONAL FUND EQUITY FUND ------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME: Dividends $ -- $ 3,606,250 Interest 1,898,913 10,823 Affiliated interest 44,927 18,746 Securities lending-net -- 79,050 Foreign tax withheld (1,041) (246,875) ---------------- ---------------- TOTAL INCOME $ 1,942,799 $ 3,467,994 ---------------- ---------------- EXPENSES: Advisory and Administration fees $ 573,145 $ 1,059,623 Distribution and service fees: Class A 41,544 28,432 Class B 13,150 9,292 Class C 27,130 15,707 Transfer agency fees: Class A 21,016 41,281 Class B 2,559 1,624 Class C 2,525 1,314 Class Y 27,453 111,862 Custodian 58,512 99,826 Shareholder reports 11,250 6,059 Federal and state registration 51,321 47,074 Professional services 57,224 71,247 Trustees 5,849 6,547 Other 8,220 18,802 ---------------- ---------------- TOTAL OPERATING EXPENSES 900,898 1,518,690 Expenses waived by Advisor (193,619) (251,755) ---------------- ---------------- NET OPERATING EXPENSES 707,279 1,266,935 Interest expense 353 331 ---------------- ---------------- NET INVESTMENT INCOME 1,235,167 2,200,728 ---------------- ---------------- Net realized gain (loss) on: Investments 827,334 13,101,399 Futures contracts -- -- Forward foreign currency contracts 1,605,264 215,456 ---------------- ---------------- Net realized gain (loss) 2,432,598 13,316,855 ---------------- ---------------- Change in net unrealized appreciation (depreciation) on: Investments (389,746) (2,627,354) Futures contracts -- -- Forward foreign currency contracts (167,339) (194,409) Swap agreements -- -- Translation of other assets and liabilities denominated in foreign currency (42,690) (24,566) ---------------- ---------------- Change in net unrealized appreciation (depreciation) (599,775) (2,846,329) ---------------- ---------------- Net realized and unrealized gain (loss) 1,832,823 10,470,526 ---------------- ---------------- Net increase in net assets resulting from operations $ 3,067,990 $ 12,671,254 ================ ================
* For the period January 27, 2005 (commencement of investment operations) to June 30, 2005. ** For the period April 27, 2005 (commencement of investment operations) to June 30, 2005. 122
UBS UBS UBS U.S. LARGE CAP U.S. LARGE CAP U.S. LARGE CAP VALUE EQUITY EQUITY FUND GROWTH FUND FUND --------------------------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME: Dividends $ 3,986,525 $ 65,105 $ 3,006,161 Interest 14,444 1,764 48,754 Affiliated interest 224,602 3,024 44,161 Securities lending-net -- -- -- Foreign tax withheld -- -- -- ---------------- ---------------- ---------------- TOTAL INCOME $ 4,225,571 $ 69,893 $ 3,099,076 ---------------- ---------------- ---------------- EXPENSES: Advisory and Administration fees $ 1,613,086 $ 49,607 $ 1,094,595 Distribution and service fees: Class A 28,403 5,960 271,854 Class B 11,189 3,717 85,812 Class C 19,582 3,891 182,778 Transfer agency fees: Class A 2,117 5,848 119,792 Class B 1,386 922 28,750 Class C 1,291 938 30,414 Class Y 37,596 9,776 5,487 Custodian 82,480 3,135 105,195 Shareholder reports 11,649 3,501 80,077 Federal and state registration 33,926 49,031 80,633 Professional services 68,964 56,842 69,096 Trustees 8,149 5,094 8,340 Other 12,218 5,742 11,604 ---------------- ---------------- ---------------- TOTAL OPERATING EXPENSES 1,932,036 204,004 2,174,427 Expenses waived by Advisor -- (139,191) (432,880) ---------------- ---------------- ---------------- NET OPERATING EXPENSES 1,932,036 64,813 1,741,547 Interest expense -- -- -- ---------------- ---------------- ---------------- NET INVESTMENT INCOME 2,293,535 5,080 1,357,529 ---------------- ---------------- ---------------- Net realized gain (loss) on: Investments 6,225,905 501,612 10,589,384 Futures contracts 492,772 -- 432,769 Forward foreign currency contracts -- -- -- ---------------- ---------------- ---------------- Net realized gain (loss) 6,718,677 501,612 11,022,153 ---------------- ---------------- ---------------- Change in net unrealized appreciation (depreciation) on: Investments 14,495,937 (161,400) 4,099,654 Futures contracts (145,642) -- (39,753) Forward foreign currency contracts -- -- -- Swap agreements -- -- -- Translation of other assets and liabilities denominated in foreign currency -- -- -- ---------------- ---------------- ---------------- Change in net unrealized appreciation (depreciation) 14,350,295 (161,400) 4,059,901 ---------------- ---------------- ---------------- Net realized and unrealized gain (loss) 21,068,972 340,212 15,082,054 ---------------- ---------------- ---------------- Net increase in net assets resulting from operations $ 23,362,507 $ 345,292 $ 16,439,583 ================ ================ ================ UBS UBS UBS U.S. SMALL CAP DYNAMIC U.S. BOND GROWTH FUND ALPHA FUND* FUND --------------------------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME: Dividends $ 678,772 $ -- $ -- Interest 248 -- 5,779,552 Affiliated interest 159,602 675,385 153,342 Securities lending-net -- -- -- Foreign tax withheld -- -- -- ---------------- ---------------- ---------------- TOTAL INCOME $ 838,622 $ 675,385 $ 5,932,894 ---------------- ---------------- ---------------- EXPENSES: Advisory and Administration fees $ 1,945,883 $ 2,205,942 $ 764,521 Distribution and service fees: Class A 220,022 384,667 81,554 Class B 102,026 44,741 19,175 Class C 90,849 647,947 16,313 Transfer agency fees: Class A 237,456 82,690 61,973 Class B 45,740 5,012 4,924 Class C 33,502 41,602 3,045 Class Y 69,746 627 31,580 Custodian 100,994 4,669 65,244 Shareholder reports 11,064 30,858 10,721 Federal and state registration 52,719 113,459 39,588 Professional services 78,679 60,910 81,544 Trustees 7,604 5,848 15,618 Other 57,252 11,859 11,114 ---------------- ---------------- ---------------- TOTAL OPERATING EXPENSES 3,053,536 3,640,831 1,206,914 Expenses waived by Advisor (472,293) (657) (291,755) ---------------- ---------------- ---------------- NET OPERATING EXPENSES 2,581,243 3,640,174 915,159 Interest expense -- -- 3,176 ---------------- ---------------- ---------------- NET INVESTMENT INCOME (1,742,621) (2,964,789) 5,014,559 ---------------- ---------------- ---------------- Net realized gain (loss) on: Investments 12,901,585 474,437 1,287,087 Futures contracts -- (3,281,780) -- Forward foreign currency contracts -- 4,763,697 -- ---------------- ---------------- ---------------- Net realized gain (loss) 12,901,585 1,956,354 1,287,087 ---------------- ---------------- ---------------- Change in net unrealized appreciation (depreciation) on: Investments 13,918,272 14,904,737 1,231,336 Futures contracts -- (1,420,482) -- Forward foreign currency contracts -- 233,719 -- Swap agreements -- (1,151,496) -- Translation of other assets and liabilities denominated in foreign currency -- (28,135) -- ---------------- ---------------- ---------------- Change in net unrealized appreciation (depreciation) 13,918,272 12,538,343 1,231,336 ---------------- ---------------- ---------------- Net realized and unrealized gain (loss) 26,819,857 14,494,697 2,518,423 ---------------- ---------------- ---------------- Net increase in net assets resulting from operations $ 25,077,236 $ 11,529,908 $ 7,532,982 ================ ================ ================ UBS ABSOLUTE UBS RETURN BOND HIGH YIELD FUND** FUND ------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME: Dividends $ -- $ 5,036 Interest 427,810 12,787,144 Affiliated interest 83,583 46,171 Securities lending-net -- -- Foreign tax withheld (244) -- ---------------- ---------------- TOTAL INCOME $ 511,149 $ 12,838,351 ---------------- ---------------- EXPENSES: Advisory and Administration fees $ 116,035 $ 959,603 Distribution and service fees: Class A 20,804 188,387 Class B -- 58,565 Class C 11,835 129,150 Transfer agency fees: Class A 5,400 109,511 Class B -- 6,459 Class C 1,440 27,765 Class Y 14 37,751 Custodian 10,000 78,665 Shareholder reports 5,000 53,247 Federal and state registration 37,128 53,564 Professional services 36,400 81,096 Trustees 2,000 7,202 Other 750 13,125 ---------------- ---------------- TOTAL OPERATING EXPENSES 246,806 1,804,090 Expenses waived by Advisor (56,360) (76,966) ---------------- ---------------- NET OPERATING EXPENSES 190,446 1,727,124 Interest expense -- 3,680 ---------------- ---------------- NET INVESTMENT INCOME 320,703 11,107,547 ---------------- ---------------- Net realized gain (loss) on: Investments 1,614 (22,068,924) Futures contracts (447,204) -- Forward foreign currency contracts 1,293,633 -- ---------------- ---------------- Net realized gain (loss) 848,043 (22,068,924) ---------------- ---------------- Change in net unrealized appreciation (depreciation) on: Investments (1,164,272) 24,901,055 Futures contracts (487,282) -- Forward foreign currency contracts 619,226 -- Swap agreements -- -- Translation of other assets and liabilities denominated in foreign currency (42,503) -- ---------------- ---------------- Change in net unrealized appreciation (depreciation) (1,074,831) 24,901,055 ---------------- ---------------- Net realized and unrealized gain (loss) (226,788) 2,832,131 ---------------- ---------------- Net increase in net assets resulting from operations $ 93,915 $ 13,939,678 ================ ================
See accompanying notes to financial statements 123 STATEMENT OF CHANGES IN NET ASSETS
UBS UBS GLOBAL ALLOCATION FUND GLOBAL EQUITY FUND ---------------------------------- ---------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED JUNE 30, 2005 JUNE 30, 2004 JUNE 30, 2005 JUNE 30, 2004 ---------------------------------------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income (loss) $ 26,900,091 $ 8,905,148 $ 4,891,678 $ 3,274,811 Net realized gain 165,824,167 56,431,780 38,569,395 41,492,000 Change in net unrealized appreciation (depreciation) 59,739,420 80,621,457 627,356 38,104,909 --------------- --------------- --------------- --------------- Net increase in net assets from operations 252,463,678 145,958,385 44,088,429 82,871,720 --------------- --------------- --------------- --------------- DISTRIBUTIONS TO SHAREHOLDERS BY CLASS: Class A: Distributions from net investment income and net foreign currency gains (17,320,841) (5,970,967) -- (1,327,685) Distributions from net realized gain (28,236,813) -- -- -- --------------- --------------- --------------- --------------- Total Class A distributions (45,557,654) (5,970,967) -- (1,327,685) --------------- --------------- --------------- --------------- Class B: Distributions from net investment income and net foreign currency gains (1,509,441) (915,014) -- (1,295,502) Distributions from net realized gain (4,518,318) -- -- -- --------------- --------------- --------------- --------------- Total Class B distributions (6,027,759) (915,014) -- (1,295,502) --------------- --------------- --------------- --------------- Class C: Distributions from net investment income and net foreign currency gains (6,340,465) (3,309,142) -- (806,282) Distributions from net realized gain (17,233,197) -- -- -- --------------- --------------- --------------- --------------- Total Class C distributions (23,573,662) (3,309,142) -- (806,282) --------------- --------------- --------------- --------------- Class Y: Distributions from net investment income and net foreign currency gains (5,058,001) (3,074,862) -- (1,461,737) Distributions from net realized gain (7,357,727) -- -- -- --------------- --------------- --------------- --------------- Total Class Y distributions (12,415,728) (3,074,862) -- (1,461,737) --------------- --------------- --------------- --------------- Decrease in net assets from distributions (87,574,803) (13,269,985) -- (4,891,206) --------------- --------------- --------------- --------------- BENEFICIAL INTEREST TRANSACTIONS: Shares sold 1,501,931,840 1,382,201,088 70,369,734 116,314,648 Shares issued on reinvestment of distributions 81,526,461 11,948,056 -- 4,433,752 Shares redeemed (543,707,577) (249,662,649) (116,614,089) (174,248,790) Redemption fees 74,995 191,450 12,932 75,284 --------------- --------------- --------------- --------------- Net increase (decrease) in net assets resulting from beneficial interest transactions 1,039,825,719 1,144,677,945 (46,231,423) (53,425,106) --------------- --------------- --------------- --------------- INCREASE (DECREASE) IN NET ASSETS 1,204,714,594 1,277,366,345 (2,142,994) 24,555,408 NET ASSETS, BEGINNING OF PERIOD 1,833,190,765 555,824,420 449,021,167 424,465,759 --------------- --------------- --------------- --------------- NET ASSETS, END OF PERIOD $ 3,037,905,359 $ 1,833,190,765 $ 446,878,173 $ 449,021,167 =============== =============== =============== =============== Net assets include accumulated undistributed net investment income (loss) $ 18,997,445 $ 6,892,140 $ 1,751,873 $ (3,562,832) =============== =============== =============== ===============
124
UBS UBS GLOBAL BOND FUND INTERNATIONAL EQUITY FUND ---------------------------------- ---------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED JUNE 30, 2005 JUNE 30, 2004 JUNE 30, 2005 JUNE 30, 2004 ---------------------------------------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income (loss) $ 1,235,167 $ 1,126,514 $ 2,200,728 $ 1,592,291 Net realized gain 2,432,598 3,680,002 13,316,855 6,628,337 Change in net unrealized appreciation (depreciation) (599,775) (2,233,599) (2,846,329) 12,205,966 --------------- --------------- --------------- --------------- Net increase in net assets from operations 3,067,990 2,572,917 12,671,254 20,426,594 --------------- --------------- --------------- --------------- DISTRIBUTIONS TO SHAREHOLDERS BY CLASS: Class A: Distributions from net investment income and net foreign currency gains (886,593) (1,172,161) (125,017) (115,181) Distributions from net realized gain -- -- -- -- --------------- --------------- --------------- --------------- Total Class A distributions (886,593) (1,172,161) (125,017) (115,181) --------------- --------------- --------------- --------------- Class B: Distributions from net investment income and net foreign currency gains (59,846) (130,281) (7,169) (11,686) Distributions from net realized gain -- -- -- -- --------------- --------------- --------------- --------------- Total Class B distributions (59,846) (130,281) (7,169) (11,686) --------------- --------------- --------------- --------------- Class C: Distributions from net investment income and net foreign currency gains (186,345) (306,676) (13,122) (19,918) Distributions from net realized gain -- -- -- -- --------------- --------------- --------------- --------------- Total Class C distributions (186,345) (306,676) (13,122) (19,918) --------------- --------------- --------------- --------------- Class Y: Distributions from net investment income and net foreign currency gains (2,498,108) (3,219,023) (1,289,824) (2,568,936) Distributions from net realized gain -- -- -- -- --------------- --------------- --------------- --------------- Total Class Y distributions (2,498,108) (3,219,023) (1,289,824) (2,568,936) --------------- --------------- --------------- --------------- Decrease in net assets from distributions (3,630,892) (4,828,141) (1,435,132) (2,715,721) --------------- --------------- --------------- --------------- BENEFICIAL INTEREST TRANSACTIONS: Shares sold 30,560,920 48,362,086 44,131,261 107,694,146 Shares issued on reinvestment of distributions 3,331,005 3,996,331 1,397,667 2,645,051 Shares redeemed (20,660,253) (41,586,879) (36,444,656) (111,714,668) Redemption fees -- -- 3,297 54,418 --------------- --------------- --------------- --------------- Net increase (decrease) in net assets resulting from beneficial interest transactions 13,231,672 10,771,538 9,087,569 (1,321,053) --------------- --------------- --------------- --------------- INCREASE (DECREASE) IN NET ASSETS 12,668,770 8,516,314 20,323,691 16,389,820 NET ASSETS, BEGINNING OF PERIOD 60,612,690 52,096,376 110,801,296 94,411,476 --------------- --------------- --------------- --------------- NET ASSETS, END OF PERIOD $ 73,281,460 $ 60,612,690 $ 131,124,987 $ 110,801,296 =============== =============== =============== =============== Net assets include accumulated undistributed net investment income (loss) $ 1,468,248 $ 2,241,307 $ 1,282,519 $ 184,526 =============== =============== =============== =============== UBS UBS U.S. LARGE CAP EQUITY FUND U.S. LARGE CAP GROWTH FUND ---------------------------------- ---------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED JUNE 30, 2005 JUNE 30, 2004 JUNE 30, 2005 JUNE 30, 2004 ---------------------------------------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income (loss) $ 2,293,535 $ 1,004,894 $ 5,080 $ (15,404) Net realized gain 6,718,677 11,716,372 501,612 155,984 Change in net unrealized appreciation (depreciation) 14,350,295 9,752,484 (161,400) 797,408 --------------- --------------- --------------- --------------- Net increase in net assets from operations 23,362,507 22,473,750 345,292 937,988 --------------- --------------- --------------- --------------- 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 258,405,407 65,683,138 3,376,905 3,845,141 Shares issued on reinvestment of distributions 6,546,536 1,386,399 -- -- Shares redeemed (49,083,452) (29,424,284) (3,048,897) (1,925,501) Redemption fees -- -- -- -- --------------- --------------- --------------- --------------- Net increase (decrease) in net assets resulting from beneficial interest transactions 215,868,491 37,645,253 328,008 1,919,640 --------------- --------------- --------------- --------------- INCREASE (DECREASE) IN NET ASSETS 232,038,765 58,583,467 673,300 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 $ 396,378,271 $ 164,339,506 $ 7,224,774 $ 6,551,474 =============== =============== =============== =============== Net assets include accumulated undistributed net investment income (loss) $ 1,116,277 $ 479,438 $ 5,080 $ -- =============== =============== =============== ===============
See accompanying notes to financial statements 125
UBS UBS U.S. LARGE CAP VALUE EQUITY FUND U.S. SMALL CAP GROWTH FUND ---------------------------------- ---------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED JUNE 30, 2005 JUNE 30, 2004 JUNE 30, 2005 JUNE 30, 2004 ---------------------------------------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income (loss) $ 1,357,529 $ 660,154 $ (1,742,621) $ (1,168,635) Net realized gain (loss) 11,022,153 25,653,640 12,901,585 4,874,967 Change in net unrealized appreciation (depreciation) 4,059,901 (8,776,046) 13,918,272 12,575,169 --------------- --------------- --------------- --------------- Net increase (decrease) in net assets from operations 16,439,583 17,537,748 25,077,236 16,281,501 --------------- --------------- --------------- --------------- DISTRIBUTIONS TO SHAREHOLDERS BY CLASS: Class A: Distributions from net investment income and net foreign currency gains (1,124,510) (157,601) -- -- Distributions from net realized gain (18,062,835) -- (1,360,386) (117,997) --------------- --------------- --------------- --------------- Total Class A distributions (19,187,345) (157,601) (1,360,386) (117,997) --------------- --------------- --------------- --------------- Class B: Distributions from net investment income and net foreign currency gains -- (12,230) -- -- Distributions from net realized gain (1,432,842) -- (164,894) (38,599) --------------- --------------- --------------- --------------- Total Class B distributions (1,432,842) (12,230) (164,894) (38,599) --------------- --------------- --------------- --------------- Class C: Distributions from net investment income and net foreign currency gains (40,144) (6,159) -- -- Distributions from net realized gain (3,064,856) -- (148,667) (28,117) --------------- --------------- --------------- --------------- Total Class C distributions (3,105,000) (6,159) (148,667) (28,117) --------------- --------------- --------------- --------------- Class Y: Distributions from net investment income and net foreign currency gains (76,787) (8,428) -- -- Distributions from net realized gain (908,317) -- (1,487,236) (213,659) --------------- --------------- --------------- --------------- Total Class Y distributions (985,104) (8,428) (1,487,236) (213,659) --------------- --------------- --------------- --------------- Decrease in net assets from distributions (24,710,291) (184,418) (3,161,183) (398,372) --------------- --------------- --------------- --------------- BENEFICIAL INTEREST TRANSACTIONS: Shares sold 14,884,181 149,339,416* 127,326,999 178,681,621* Shares issued on reinvestment of distributions 21,982,744 160,923 2,732,747 360,591 Shares redeemed (41,599,951) (27,479,979) (62,705,608) (59,938,280) Redemption fees -- -- -- -- --------------- --------------- --------------- --------------- Net increase (decrease) in net assets resulting from beneficial interest transactions (4,733,026) 122,020,360 67,354,138 119,103,932 --------------- --------------- --------------- --------------- INCREASE (DECREASE) IN NET ASSETS (13,003,734) 139,373,690 89,270,191 134,987,061 NET ASSETS, BEGINNING OF PERIOD 146,971,034 7,597,344 186,502,539 51,515,478 --------------- --------------- --------------- --------------- NET ASSETS, END OF PERIOD $ 133,967,300 $ 146,971,034 $ 275,772,730 $ 186,502,539 =============== =============== =============== =============== Net assets include accumulated undistributed net investment income $ 674,285 $ 558,197 $ -- $ -- =============== =============== =============== ===============
* The beneficial interest transactions include amounts from a tax-free reorganization in which the UBS U.S. Large Cap Value Equity Fund acquired net 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. ** 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. + For the period January 27, 2005 (commencement of investment operations) to June 30, 2005. ++ For the period April 27, 2005 (commencement of investment operations) to June 30, 2005. 126
UBS UBS DYNAMIC ALPHA FUND U.S. BOND FUND ------------------ ---------------------------------- PERIOD ENDED YEAR ENDED YEAR ENDED JUNE 30, 2005+ JUNE 30, 2005 JUNE 30, 2004 ------------------------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income (loss) $ (2,964,789) $ 5,014,559 $ 4,448,117 Net realized gain (loss) 1,956,354 1,287,087 (825,059) Change in net unrealized appreciation (depreciation) 12,538,343 1,231,336 (3,614,761) ------------------ --------------- --------------- Net increase (decrease) in net assets from operations 11,529,908 7,532,982 8,297 ------------------ --------------- --------------- DISTRIBUTIONS TO SHAREHOLDERS BY CLASS: Class A: Distributions from net investment income and net foreign currency gains -- (1,293,670) (1,363,453) Distributions from net realized gain -- -- -- ------------------ --------------- --------------- Total Class A distributions -- (1,293,670) (1,363,453) ------------------ --------------- --------------- Class B: Distributions from net investment income and net foreign currency gains -- (60,703) (87,991) Distributions from net realized gain -- -- -- ------------------ --------------- --------------- Total Class B distributions -- (60,703) (87,991) ------------------ --------------- --------------- Class C: Distributions from net investment income and net foreign currency gains -- (76,641) (91,612) Distributions from net realized gain -- -- -- ------------------ --------------- --------------- Total Class C distributions -- (76,641) (91,612) ------------------ --------------- --------------- Class Y: Distributions from net investment income and net foreign currency gains -- (4,244,383) (3,637,869) Distributions from net realized gain -- -- -- ------------------ --------------- --------------- Total Class Y distributions -- (4,244,383) (3,637,869) ------------------ --------------- --------------- Decrease in net assets from distributions -- (5,675,397) (5,180,925) ------------------ --------------- --------------- BENEFICIAL INTEREST TRANSACTIONS: Shares sold 864,403,313 54,766,655 66,628,147 Shares issued on reinvestment of distributions -- 5,228,066 4,606,256 Shares redeemed (73,961,641) (39,253,738) (58,076,635) Redemption fees 41,813 -- -- ------------------ --------------- --------------- Net increase (decrease) in net assets resulting from beneficial interest transactions 790,483,485 20,740,983 13,157,768 ------------------ --------------- --------------- INCREASE (DECREASE) IN NET ASSETS 802,013,393 22,598,568 7,985,140 NET ASSETS, BEGINNING OF PERIOD -- 124,938,807 116,953,667 ------------------ --------------- --------------- NET ASSETS, END OF PERIOD $ 802,013,393 $ 147,537,375 $ 124,938,807 ================== =============== =============== Net assets include accumulated undistributed net investment income $ 1,564,731 $ 104,674 $ 108,438 ================== =============== =============== UBS UBS ABSOLUTE RETURN BOND FUND HIGH YIELD FUND ------------------------- ---------------------------------- PERIOD ENDED YEAR ENDED YEAR ENDED JUNE 30, 2005++ JUNE 30, 2005 JUNE 30, 2004 -------------------------------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income (loss) $ 320,703 $ 11,107,547 $ 14,239,052 Net realized gain (loss) 848,043 (22,068,924) (20,836,259) Change in net unrealized appreciation (depreciation) (1,074,831) 24,901,055 27,195,494 --------------- --------------- --------------- Net increase (decrease) in net assets from operations 93,915 13,939,678 20,598,287 --------------- --------------- --------------- DISTRIBUTIONS TO SHAREHOLDERS BY CLASS: Class A: Distributions from net investment income and net foreign currency gains (262,518) (6,086,599) (6,142,642) Distributions from net realized gain -- -- -- --------------- --------------- --------------- Total Class A distributions (262,518) (6,086,599) (6,142,642) --------------- --------------- --------------- Class B: Distributions from net investment income and net foreign currency gains -- (425,557) (783,588) Distributions from net realized gain -- -- -- --------------- --------------- --------------- Total Class B distributions -- (425,557) (783,588) --------------- --------------- --------------- Class C: Distributions from net investment income and net foreign currency gains (34,595) (1,300,982) (1,491,309) Distributions from net realized gain -- -- -- --------------- --------------- --------------- Total Class C distributions (34,595) (1,300,982) (1,491,309) --------------- --------------- --------------- Class Y: Distributions from net investment income and net foreign currency gains (57,800) (3,636,624) (5,825,885) Distributions from net realized gain -- -- -- --------------- --------------- --------------- Total Class Y distributions (57,800) (3,636,624) (5,825,885) --------------- --------------- --------------- Decrease in net assets from distributions (354,913) (11,449,762) (14,243,424) --------------- --------------- --------------- BENEFICIAL INTEREST TRANSACTIONS: Shares sold 148,957,872 46,013,811 74,832,468 Shares issued on reinvestment of distributions 311,813 7,680,605 8,997,313 Shares redeemed (6,659,038) (85,891,281) (124,416,292) Redemption fees -- -- -- --------------- --------------- --------------- Net increase (decrease) in net assets resulting from beneficial interest transactions 142,610,647 (32,196,865) (40,586,511) --------------- --------------- --------------- INCREASE (DECREASE) IN NET ASSETS 142,349,649 (29,706,949) (34,231,648) NET ASSETS, BEGINNING OF PERIOD -- 145,994,997 180,226,645 --------------- --------------- --------------- NET ASSETS, END OF PERIOD $ 142,349,649 $ 116,288,048 $ 145,994,997 =============== =============== =============== Net assets include accumulated undistributed net investment income $ 1,042,688 $ 69,088 $ 306,444 =============== =============== ===============
See accompanying notes to financial statements 127 UBS GLOBAL ALLOCATION FUND -- FINANCIAL HIGHLIGHTS THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH PERIOD PRESENTED.
YEAR ENDED JUNE 30, --------------------------------------------------------------- CLASS A 2005 2004 2003 2002 2001 ---------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of year $ 12.35 $ 10.69 $ 10.60 $ 11.10 $ 11.20 ----------- ---------- ---------- ---------- ---------- Income from investment operations: Net investment income 0.17** 0.12** 0.10** 0.10** 0.22** Net realized and unrealized gain 1.32 1.69 0.41 0.40 0.31 ----------- ---------- ---------- ---------- ---------- Total income from investment operations 1.49 1.81 0.51 0.50 0.53 ----------- ---------- ---------- ---------- ---------- Less dividends/distributions: From net investment income and net foreign currency gains (0.19) (0.15) (0.42) (0.19) -- From net realized gains (0.32) -- -- (0.81) (0.63) ----------- ---------- ---------- ---------- ---------- Total distributions (0.51) (0.15) (0.42) (1.00) (0.63) ----------- ---------- ---------- ---------- ---------- Net asset value, end of year $ 13.33 $ 12.35 $ 10.69 $ 10.60 $ 11.10 =========== ========== ========== ========== ========== Total return+ 12.11% 17.02% 5.35% 4.84% 4.95% Ratios/Supplemental data: Net assets, end of year (in 000s) $ 1,594,113 $ 876,636 $ 175,415 $ 6,914 $ 237 Ratio of expenses to average net assets 1.20% 1.28% 1.35% 1.35% 1.30% Ratio of net investment income to average net assets 1.34% 1.00% 0.98% 0.98% 1.52% Portfolio turnover rate 84% 78% 66% 116% 115% YEAR ENDED JUNE 30, FOR THE ------------------------------------------ PERIOD ENDED CLASS B 2005 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 0.08** 0.02** 0.02** 0.12** Net realized and unrealized gain 1.29 1.68 0.41 0.19 ---------- ---------- ---------- -------------- Total income from investment operations 1.37 1.70 0.43 0.31 ---------- ---------- ---------- -------------- Less dividends/distributions: From net investment income and net foreign currency gains (0.11) (0.11) (0.40) (0.19) From net realized gains (0.32) -- -- (0.81) ---------- ---------- ---------- -------------- Total distributions (0.43) (0.11) (0.40) (1.00) ---------- ---------- ---------- -------------- Net asset value, end of period $ 13.08 $ 12.14 $ 10.55 $ 10.52 ========== ========== ========== ============== Total return+ 11.24% 16.14% 4.60% 3.00% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 184,359 $ 153,481 $ 49,573 $ 1,570 Ratio of expenses to average net assets 1.96% 2.09% 2.10% 2.10%*** Ratio of net investment income to average net assets 0.58% 0.19% 0.23% 2.17%*** Portfolio turnover rate 84% 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 128 THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH PERIOD PRESENTED.
YEAR ENDED JUNE 30, FOR THE ---------------------------------------- PERIOD ENDED CLASS C 2005 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 0.09** 0.03** 0.02** 0.11** Net realized and unrealized gain 1.29 1.68 0.41 0.33 ---------- ---------- ---------- -------------- Total income from investment operations 1.38 1.71 0.43 0.44 ---------- ---------- ---------- -------------- Less dividends/distributions: From net investment income and net foreign currency gains (0.12) (0.12) (0.41) (0.19) From net realized gains (0.32) -- -- (0.81) ---------- ---------- ---------- -------------- Total distributions (0.44) (0.12) (0.41) (1.00) ---------- ---------- ---------- -------------- Net asset value, end of period $ 13.09 $ 12.15 $ 10.56 $ 10.54 ========== ========== ========== ============== Total return+ 11.32% 16.19% 4.55% 4.23% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 903,280 $ 539,399 $ 137,078 $ 1,525 Ratio of expenses to average net assets 1.95% 2.06% 2.10% 2.10%*** Ratio of net investment income to average net assets 0.59% 0.23% 0.23% 1.77%*** Portfolio turnover rate 84% 78% 66% 116% YEAR ENDED JUNE 30, -------------------------------------------------------------- CLASS Y 2005 2004 2003 2002 2001 ---------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of year $ 12.50 $ 10.79 $ 10.69 $ 11.18 $ 11.25 ---------- ---------- ---------- ---------- ---------- Income from investment operations: Net investment income 0.22** 0.15** 0.12** 0.13** 0.25 Net realized and unrealized gain 1.33 1.73 0.41 0.38 0.31 ---------- ---------- ---------- ---------- ---------- Total income from investment operations 1.55 1.88 0.53 0.51 0.56 ---------- ---------- ---------- ---------- ---------- Less dividends/distributions: From net investment income and net foreign currency gains (0.22) (0.17) (0.43) (0.19) -- From net realized gains (0.32) -- -- (0.81) (0.63) ---------- ---------- ---------- ---------- ---------- Total distributions (0.54) (0.17) (0.43) (1.00) (0.63) ---------- ---------- ---------- ---------- ---------- Net asset value, end of year $ 13.51 $ 12.50 $ 10.79 $ 10.69 $ 11.18 ========== ========== ========== ========== ========== Total return+ 12.40% 17.44% 5.50% 4.91% 5.20% Ratios/Supplemental data: Net assets, end of year (in 000s) $ 356,154 $ 263,675 $ 193,758 $ 165,630 $ 156,130 Ratio of expenses to average net assets 0.93% 1.02% 1.10% 1.10% 1.05% Ratio of net investment income to average net assets 1.61% 1.26% 1.23% 1.24% 1.77% Portfolio turnover rate 84% 78% 66% 116% 115%
* 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 129 UBS GLOBAL EQUITY FUND -- FINANCIAL HIGHLIGHTS THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH PERIOD PRESENTED.
YEAR ENDED JUNE 30, -------------------------------------------------------------- CLASS A 2005 2004 2003 2002 2001 ---------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of year $ 10.51 $ 8.89 $ 9.37 $ 10.61 $ 12.44 ---------- ---------- ---------- ---------- ---------- Income (loss) from investment operations: Net investment income 0.15** 0.10** 0.16** 0.04** 0.07 Net realized and unrealized gain (loss) 0.97 1.63 (0.39) (0.88) (0.56) ---------- ---------- ---------- ---------- ---------- Total income (loss) from investment operations 1.12 1.73 (0.23) (0.84) (0.49) ---------- ---------- ---------- ---------- ---------- Less dividends/distributions: From net investment income and net foreign currency gains -- (0.11) (0.25) (0.06) (0.02) From net realized gains -- -- -- (0.34) (1.32) ---------- ---------- ---------- ---------- ---------- Total distributions -- (0.11) (0.25) (0.40) (1.34) ---------- ---------- ---------- ---------- ---------- Net asset value, end of year $ 11.63 $ 10.51 $ 8.89 $ 9.37 $ 10.61 ========== ========== ========== ========== ========== Total return+ 10.66% 19.49% (2.23)% (8.05)% (4.45)% Ratios/Supplemental data: Net assets, end of year (in 000s) $ 109,998 $ 117,084 $ 123,756 $ 15,173 $ 302 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.39% 1.44% 1.44% 1.47% 1.37% After expense reimbursement and earnings credits 1.25% 1.25% 1.25% 1.25% 1.25% Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 1.21% 0.80% 1.73% 0.17% 0.65% After expense reimbursement and earnings credits 1.35% 0.99% 1.92% 0.39% 0.77% Portfolio turnover rate 37% 50% 206% 117% 81% YEAR ENDED JUNE 30, FOR THE ---------------------------------------- PERIOD ENDED CLASS B 2005 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 0.07** 0.02** 0.10** 0.05** Net realized and unrealized gain (loss) 0.95 1.62 (0.39) (0.48) ---------- ---------- ---------- -------------- Total income (loss) from investment operations 1.02 1.64 (0.29) (0.43) ---------- ---------- ---------- -------------- Less dividends/distributions: From net investment income and net foreign currency gains -- (0.09) (0.23) (0.06) From net realized gains -- -- -- (0.34) ---------- ---------- ---------- -------------- Total distributions -- (0.09) (0.23) (0.40) ---------- ---------- ---------- -------------- Net asset value, end of period $ 11.39 $ 10.37 $ 8.82 $ 9.34 ========== ========== ========== ============== Total return+ 9.84% 18.61% (2.91)% (4.38)% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 108,894 $ 134,419 $ 144,232 $ 418 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 2.22% 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 to average net assets: Before expense reimbursement and earnings credits 0.38% (0.03)% 0.97% 0.72%*** After expense reimbursement and earnings credits 0.60% 0.24% 1.17% 0.97%*** Portfolio turnover rate 37% 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 130 THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH PERIOD PRESENTED.
YEAR ENDED JUNE 30, FOR THE ---------------------------------------- PERIOD ENDED CLASS C 2005 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 0.06** 0.02** 0.10** 0.04** Net realized and unrealized gain (loss) 0.96 1.61 (0.40) (0.49) ---------- ---------- ---------- -------------- Total income (loss) from investment operations 1.02 1.63 (0.30) (0.45) ---------- ---------- ---------- -------------- Less dividends/distributions: From net investment income and net foreign currency gains -- (0.09) (0.24) (0.06) From net realized gains -- -- -- (0.34) ---------- ---------- ---------- -------------- Total distributions -- (0.09) (0.24) (0.40) ---------- ---------- ---------- -------------- Net asset value, end of period $ 11.35 $ 10.33 $ 8.79 $ 9.33 ========== ========== ========== ============== Total return+ 9.87% 18.54% (2.93)% (4.57)% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 68,735 $ 82,684 $ 93,605 $ 351 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 2.20% 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 to average net assets: Before expense reimbursement and earnings credits 0.40% (0.03)% 0.93% 0.55%*** After expense reimbursement and earnings credits 0.60% 0.25% 1.17% 0.78%*** Portfolio turnover rate 37% 50% 206% 117% YEAR ENDED JUNE 30, -------------------------------------------------------------- CLASS Y 2005 2004 2003 2002 2001 ---------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of year $ 10.67 $ 8.99 $ 9.47 $ 10.68 $ 12.47 ---------- ---------- ---------- ---------- ---------- Income (loss) from investment operations: Net investment income 0.18** 0.13** 0.18** 0.06** 0.09 Net realized and unrealized gain (loss) 0.98 1.67 (0.39) (0.87) (0.54) ---------- ---------- ---------- ---------- ---------- Total income (loss) from investment operations 1.16 1.80 (0.21) (0.81) (0.45) ---------- ---------- ---------- ---------- ---------- Less dividends/distributions: From net investment income and net foreign currency gains -- (0.12) (0.27) (0.06) (0.02) From net realized gains -- -- -- (0.34) (1.32) ---------- ---------- ---------- ---------- ---------- Total distributions -- (0.12) (0.27) (0.40) (1.34) ---------- ---------- ---------- ---------- ---------- Net asset value, end of year $ 11.83 $ 10.67 $ 8.99 $ 9.47 $ 10.68 ========== ========== ========== ========== ========== Total return+ 10.87% 20.09% (1.93)% (7.71)% (4.07)% Ratios/Supplemental data: Net assets, end of year (in 000s) $ 159,252 $ 114,835 $ 62,873 $ 40,714 $ 49,306 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.04% 1.03% 1.16% 1.19% 1.12% After expense reimbursement and earnings credits 1.00% 1.00% 1.00% 1.00% 1.00% Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 1.56% 1.21% 2.01% 0.45% 0.90% After expense reimbursement and earnings credits 1.60% 1.24% 2.17% 0.64% 1.02% Portfolio turnover rate 37% 50% 206% 117% 81%
* 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 131 UBS GLOBAL BOND FUND -- FINANCIAL HIGHLIGHTS THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH PERIOD PRESENTED.
YEAR ENDED JUNE 30, -------------------------------------------------------------- CLASS A 2005 2004 2003 2002* 2001 ---------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of year $ 9.87 $ 10.24 $ 9.01 $ 8.58 $ 9.09 ---------- ---------- ---------- ---------- ---------- Income (loss) from investment operations: Net investment income 0.17** 0.19** 0.24** 0.17** 0.33** Net realized and unrealized gain (loss) 0.34 0.35 1.21 0.43 (0.72) ---------- ---------- ---------- ---------- ---------- Total income (loss) from investment operations 0.51 0.54 1.45 0.60 (0.39) ---------- ---------- ---------- ---------- ---------- Less dividends/distributions: From net investment income and net foreign currency gains (0.55) (0.91) (0.22) -- (0.06) From return of capital -- -- -- (0.17) -- ---------- ---------- ---------- ---------- ---------- Total distributions (0.55) (0.91) (0.22) (0.17) (0.06) ---------- ---------- ---------- ---------- ---------- Net asset value, end of year $ 9.83 $ 9.87 $ 10.24 $ 9.01 $ 8.64 ========== ========== ========== ========== ========== Total return+ 5.05% 5.21% 16.34% 7.18% (4.27)% Ratios/Supplemental data: Net assets, end of year (in 000s) $ 16,701 $ 14,610 $ 11,659 $ 1,925 $ 3 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.48% 1.55% 1.53% 1.49% 1.37% After expense reimbursement and earnings credits 1.15% 1.15% 1.15% 1.15% 1.15% Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 1.32% 1.44% 2.06% 2.72% 3.60% After expense reimbursement and earnings credits 1.65% 1.84% 2.44% 3.06% 3.82% Portfolio turnover rate 112% 186% 145% 157% 165% YEAR ENDED JUNE 30, FOR THE ---------------------------------------- PERIOD ENDED CLASS B 2005 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 0.09** 0.11** 0.16** 0.11** Net realized and unrealized gain 0.35 0.35 1.23 0.69 ---------- ---------- ---------- -------------- Total income from investment operations 0.44 0.46 1.39 0.80 ---------- ---------- ---------- -------------- Less dividends/distributions: From net investment income and net foreign currency gains (0.47) (0.83) (0.15) -- From return of capital -- -- -- (0.14) ---------- ---------- ---------- -------------- Total distributions (0.47) (0.83) (0.15) (0.14) ---------- ---------- ---------- -------------- Net asset value, end of period $ 9.85 $ 9.88 $ 10.25 $ 9.01 ========== ========== ========== ============== Total return+ 4.29% 4.38% 15.61% 9.67% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 1,153 $ 1,536 $ 1,755 $ 392 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 2.30% 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 0.50% 0.66% 1.29% 1.94%*** After expense reimbursement and earnings credits 0.90% 1.09% 1.69% 2.29%*** Portfolio turnover rate 112% 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. See accompanying notes to financial statements 132 THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH PERIOD PRESENTED.
YEAR ENDED JUNE 30, FOR THE PERIOD ------------------------ ENDED JUNE 30, CLASS C 2005 2004 2003* ---------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 9.85 $ 10.23 $ 9.00 --------- --------- -------------- Income from investment operations: Net investment income 0.12** 0.14** 0.19** Net realized and unrealized gain 0.35 0.34 1.22 --------- --------- -------------- Total income from investment operations 0.47 0.48 1.41 --------- --------- -------------- Less dividends/distributions: From net investment income and net foreign currency gains (0.51) (0.86) (0.18) --------- --------- -------------- Net asset value, end of period $ 9.81 $ 9.85 $ 10.23 ========= ========= ============== Total return+ 4.60% 4.64% 15.84% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 3,081 $ 3,451 $ 3,198 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.92% 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 0.88% 1.00% 1.58%*** After expense reimbursement and earnings credits 1.15% 1.34% 1.94%*** Portfolio turnover rate 112% 186% 145% YEAR ENDED JUNE 30, ----------------------------------------------------------------- CLASS Y 2005 2004 2003 2002 2001 ------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of year $ 10.83 $ 11.16 $ 9.79 $ 8.57 $ 9.01 --------- --------- --------- --------- --------- Income (loss) from investment operations: Net investment income 0.21** 0.23** 0.28** 0.31** 0.36** Net realized and unrealized gain (loss) 0.38 0.38 1.33 1.09 (0.72) --------- --------- --------- --------- --------- Total income (loss) from investment operations 0.59 0.61 1.61 1.40 (0.36) --------- --------- --------- --------- --------- Less dividends/distributions: From net investment income and net foreign currency gains (0.58) (0.94) (0.24) -- (0.08) From return of capital -- -- -- (0.18) -- --------- --------- --------- --------- --------- Total distributions (0.58) (0.94) (0.24) (0.18) (0.08) --------- --------- --------- --------- --------- Net asset value, end of year $ 10.84 $ 10.83 $ 11.16 $ 9.79 $ 8.57 ========= ========= ========= ========= ========= Total return+ 5.36% 5.43% 16.72% 16.57% (4.02)% Ratios/Supplemental data: Net assets, end of year (in 000s) $ 52,345 $ 41,016 $ 35,484 $ 34,421 $ 37,822 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.16% 1.24% 1.32% 1.17% 1.12% After expense reimbursement and earnings credits 0.90% 0.90% 0.90% 0.90% 0.90% Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 1.64% 1.75% 2.27% 3.14% 3.85% After expense reimbursement and earnings credits 1.90% 2.09% 2.69% 3.41% 4.07% Portfolio turnover rate 112% 186% 145% 157% 165%
* 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. See accompanying notes to financial statements 133 UBS INTERNATIONAL EQUITY FUND -- FINANCIAL HIGHLIGHTS THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH PERIOD PRESENTED.
YEAR ENDED JUNE 30, ----------------------------------------------------------------- CLASS A 2005 2004 2003 2002 2001 ------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of year $ 8.58 $ 6.99 $ 8.08 $ 10.61 $ 13.57 --------- --------- --------- --------- --------- Income (loss) from investment operations: Net investment income 0.15** 0.12** 0.10** 0.13** 0.00^** Net realized and unrealized gain (loss) 0.86 1.69 (0.87) (0.79) (2.15) --------- --------- --------- --------- --------- Total income (loss) from investment operations 1.01 1.81 (0.77) (0.66) (2.15) --------- --------- --------- --------- --------- Less dividends/distributions: From net investment income and net foreign currency gains (0.11) (0.22) (0.31) (0.27) (0.04) From net realized gains -- -- (0.01) (1.60) (0.77) --------- --------- --------- --------- --------- Total distributions (0.11) (0.22) (0.32) (1.87) (0.81) --------- --------- --------- --------- --------- Net asset value, end of year $ 9.48 $ 8.58 $ 6.99 $ 8.08 $ 10.61 ========= ========= ========= ========= ========= Total return+ 11.73% 26.00% (9.24)% (5.91)% (16.37)% Ratios/Supplemental data: Net assets, end of year (in 000s) $ 15,168 $ 7,866 $ 3,146 $ 2,599 $ 301 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.68% 1.55% 1.47% 1.41% 1.31% After expense reimbursement and earnings credits 1.25% 1.25% 1.25% 1.25% 1.28%# Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 1.18% 1.13% 1.21% 1.38% 0.77% After expense reimbursement and earnings credits 1.61% 1.43% 1.43% 1.54% 0.80% Portfolio turnover rate 71% 108% 120% 82% 62% YEAR ENDED JUNE 30, FOR THE ---------------------------------------- PERIOD ENDED CLASS B 2005 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 0.08** 0.06** 0.04** 0.05** Net realized and unrealized gain (loss) 0.85 1.67 (0.86) 0.25 ---------- ---------- ---------- -------------- Total income (loss) from investment operations 0.93 1.73 (0.82) 0.30 ---------- ---------- ---------- -------------- Less dividends/distributions: From net investment income and net foreign currency gains (0.07) (0.17) (0.30) -- From net realized gains -- -- (0.01) -- ---------- ---------- ---------- -------------- Total distributions (0.07) (0.17) (0.31) -- ---------- ---------- ---------- -------------- Net asset value, end of period $ 9.34 $ 8.48 $ 6.92 $ 8.05 ========== ========== ========== ============== Total return+ 10.92% 25.17% (9.94)% 3.87% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 876 $ 815 $ 352 $ 120 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 2.25% 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 to average net assets: Before expense reimbursement and earnings credits 0.61% 0.09% 0.50% 1.45%*** After expense reimbursement and earnings credits 0.86% 0.69% 0.68% 1.50%*** Portfolio turnover rate 71% 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 1.25%. ^ Amount is less than $0.01 per share. See accompanying notes to financial statements 134 THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH PERIOD PRESENTED.
YEAR ENDED JUNE 30, FOR THE ---------------------------------------- PERIOD ENDED CLASS C 2005 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 0.08** 0.06** 0.04** 0.04** Net realized and unrealized gain (loss) 0.85 1.68 (0.89) 0.26 ---------- ---------- ---------- -------------- Total income (loss) from investment operations 0.93 1.74 (0.85) 0.30 ---------- ---------- ---------- -------------- Less dividends/distributions: From net investment income and net foreign currency gains (0.08) (0.19) (0.29) -- From net realized gains -- -- (0.01) -- ---------- ---------- ---------- -------------- Total distributions (0.08) (0.19) (0.30) -- ---------- ---------- ---------- -------------- Net asset value, end of period $ 9.30 $ 8.45 $ 6.90 $ 8.05 ========== ========== ========== ============== Total return+ 10.97% 25.26% (10.29)% 3.87% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 1,816 $ 1,338 $ 399 $ 183 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 2.16% 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 to average net assets: Before expense reimbursement and earnings credits 0.70% 0.34% 0.47% 0.91%*** After expense reimbursement and earnings credits 0.86% 0.69% 0.68% 1.10%*** Portfolio turnover rate 71% 108% 120% 82% YEAR ENDED JUNE 30, ----------------------------------------------------------------- CLASS Y 2005 2004 2003 2002 2001 ------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of year $ 8.63 $ 7.01 $ 8.12 $ 10.64 $ 13.57 --------- --------- --------- --------- --------- Income (loss) from investment operations: Net investment income 0.17** 0.14** 0.11** 0.09** 0.13** Net realized and unrealized gain (loss) 0.86 1.71 (0.88) (0.74) (2.25) --------- --------- --------- --------- --------- Total income (loss) from investment operations 1.03 1.85 (0.77) (0.65) (2.12) --------- --------- --------- --------- --------- Less dividends/distributions: From net investment income and net foreign currency gains (0.11) (0.23) (0.33) (0.27) (0.04) From net realized gains -- -- (0.01) (1.60) (0.77) --------- --------- --------- --------- --------- Total distributions (0.11) (0.23) (0.34) (1.87) (0.81) --------- --------- --------- --------- --------- Net asset value, end of year $ 9.55 $ 8.63 $ 7.01 $ 8.12 $ 10.64 ========= ========= ========= ========= ========= Total return+ 11.97% 26.56% (9.21)% (5.78)% (16.15)% Ratios/Supplemental data: Net assets, end of year (in 000s) $ 113,264 $ 100,782 $ 90,514 $ 97,851 $ 192,408 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.18% 1.26% 1.21% 1.13% 1.06% After expense reimbursement and earnings credits 1.00% 1.00% 1.00% 1.00% 1.03%# Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 1.68% 1.43% 1.47% 0.92% 1.02% After expense reimbursement and earnings credits 1.86% 1.69% 1.68% 1.05% 1.05% Portfolio turnover rate 71% 108% 120% 82% 62%
* 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. + 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 1.00%. See accompanying notes to financial statements 135 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.
YEAR ENDED JUNE 30, ----------------------------------------------------------------- CLASS A 2005 2004 2003 2002 2001 ------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of year $ 16.08 $ 13.63 $ 13.94 $ 15.97 $ 15.97 --------- --------- --------- --------- --------- Income (loss) from investment operations: Net investment income 0.15** 0.06** 0.11** 0.08** 0.08** Net realized and unrealized gain (loss) 1.63 2.54 0.04 (1.38) 1.56 --------- --------- --------- --------- --------- Total income (loss) from investment operations 1.78 2.60 0.15 (1.30) 1.64 --------- --------- --------- --------- --------- Less dividends/distributions: From net investment income (0.11) (0.15) (0.08) (0.04) (0.29) From net realized gains (0.48) -- (0.38) (0.69) (1.35) --------- --------- --------- --------- --------- Total distributions (0.59) (0.15) (0.46) (0.73) (1.64) --------- --------- --------- --------- --------- Net asset value, end of year $ 17.27 $ 16.08 $ 13.63 $ 13.94 $ 15.97 ========= ========= ========= ========= ========= Total return+ 11.10% 19.10% 1.37% (8.41)% 10.63% Ratios/Supplemental data: Net assets, end of year (in 000s) $ 25,669 $ 7,886 $ 4,702 $ 13,698 $ 7,067 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.14% 1.36% 1.30% 1.19% 1.17% After expense reimbursement and earnings credits 1.14% 1.30% 1.05% 1.05% 1.05% Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 0.89% 0.37% 0.64% 0.40% 0.37% After expense reimbursement and earnings credits 0.89% 0.43% 0.89% 0.54% 0.49% Portfolio turnover rate 32% 43% 33% 60% 54% YEAR ENDED JUNE 30, FOR THE ---------------------------------------- PERIOD ENDED CLASS B 2005 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) 0.00#** (0.05)** 0.02** 0.06** Net realized and unrealized gain (loss) 1.61 2.50 0.02 (0.22) ---------- ---------- ---------- -------------- Total income (loss) from investment operations 1.61 2.45 0.04 (0.16) ---------- ---------- ---------- -------------- Less dividends/distributions: From net investment income -- (0.09) (0.08) (0.04) 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 $ 16.94 $ 15.81 $ 13.45 $ 13.87 ========== ========== ========== ============== Total return+ 10.19% 18.25% 0.63% (1.39)% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 1,018 $ 1,217 $ 635 $ 223 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 2.02% 2.04% 2.04% 1.99%*** After expense reimbursement and earnings credits 2.02% 2.04% 1.80% 1.80%*** Ratio of net investment income (loss) to average net assets: Before expense reimbursement and earnings credits 0.01% (0.31)% (0.10)% 0.46%*** After expense reimbursement and earnings credits 0.01% (0.31)% 0.14% 0.65%*** Portfolio turnover rate 32% 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. # Amount is less than $0.01 per share. See accompanying notes to financial statements 136 THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH PERIOD PRESENTED.
YEAR ENDED JUNE 30, FOR THE ---------------------------------------- PERIOD ENDED CLASS C 2005 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) 0.01** (0.04)** 0.02** 0.07** Net realized and unrealized gain (loss) 1.60 2.49 0.03 (0.66) ---------- ---------- ---------- -------------- Total income (loss) from investment operations 1.61 2.45 0.05 (0.59) ---------- ---------- ---------- -------------- Less dividends/distributions: From net investment income -- (0.09) (0.11) (0.04) 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 $ 16.93 $ 15.80 $ 13.44 $ 13.88 ========== ========== ========== ============== Total return+ 10.20% 18.26% 0.68% (4.18)% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 2,423 $ 1,629 $ 1,020 $ 70 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.95% 2.00% 2.04% 1.97%*** After expense reimbursement and earnings credits 1.95% 2.00% 1.80% 1.80%*** Ratio of net investment income (loss) to average net assets: Before expense reimbursement and earnings credits 0.08% (0.27)% (0.10)% 0.56%*** After expense reimbursement and earnings credits 0.08% (0.27)% 0.14% 0.73%*** Portfolio turnover rate 32% 43% 33% 60% YEAR ENDED JUNE 30, ----------------------------------------------------------------- CLASS Y 2005 2004 2003 2002 2001 ------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of year $ 16.21 $ 13.73 $ 14.07 $ 16.07 $ 16.07 --------- --------- --------- --------- --------- Income (loss) from investment operations: Net investment income 0.19** 0.12** 0.14** 0.12** 0.12** Net realized and unrealized gain (loss) 1.65 2.55 0.04 (1.39) 1.57 --------- --------- --------- --------- --------- Total income (loss) from investment operations 1.84 2.67 0.18 (1.27) 1.69 --------- --------- --------- --------- --------- Less dividends/distributions: From net investment income (0.15) (0.19) (0.14) (0.04) (0.34) From net realized gains (0.48) -- (0.38) (0.69) (1.35) --------- --------- --------- --------- --------- Total distributions (0.63) (0.19) (0.52) (0.73) (1.69) --------- --------- --------- --------- --------- Net asset value, end of year $ 17.42 $ 16.21 $ 13.73 $ 14.07 $ 16.07 ========= ========= ========= ========= ========= Total return+ 11.37% 19.50% 1.69% (8.17)% 10.88% Ratios/Supplemental data: Net assets, end of year (in 000s) $ 367,268 $ 153,608 $ 99,398 $ 87,710 $ 125,997 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 0.90% 0.96% 1.04% 0.93% 0.92% After expense reimbursement and earnings credits 0.90% 0.96% 0.80% 0.80% 0.80% Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 1.13% 0.76% 0.90% 0.66% 0.62% After expense reimbursement and earnings credits 1.13% 0.76% 1.14% 0.79% 0.74% Portfolio turnover rate 32% 43% 33% 60% 54%
* 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 137 UBS U.S. LARGE CAP GROWTH FUND -- FINANCIAL HIGHLIGHTS THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH PERIOD PRESENTED.
YEAR ENDED JUNE 30, ----------------------------------------------------------------- CLASS A 2005 2004 2003 2002 2001 ------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of year $ 7.71 $ 6.39 $ 6.38 $ 8.90 $ 15.20 --------- --------- --------- --------- --------- Income (loss) from investment operations: Net investment income (loss) 0.00#** (0.02)** 0.00#** (0.02)** (0.07) Net realized and unrealized gain (loss) 0.50 1.34 0.01 (2.45) (4.32) --------- --------- --------- --------- --------- Total income (loss) from investment operations 0.50 1.32 0.01 (2.47) (4.39) --------- --------- --------- --------- --------- Less dividends/distributions: From net realized gains -- -- -- (0.05) (1.91) --------- --------- --------- --------- --------- Net asset value, end of year $ 8.21 $ 7.71 $ 6.39 $ 6.38 $ 8.90 ========= ========= ========= ========= ========= Total return+ 6.49% 20.66% 0.16% (27.89)% (31.59)% Ratios/Supplemental data: Net assets, end of year (in 000s) $ 3,175 $ 2,275 $ 1,163 $ 1,155 $ 1 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 3.19% 2.76% 3.91% 2.51% 1.59% After expense reimbursement and earnings credits 1.05% 1.05% 1.05% 1.05% 1.05% Ratio of net investment income (loss) to average net assets: Before expense reimbursement and earnings credits (2.10)% (2.03)% (2.82)% (1.71)% (0.91)% After expense reimbursement and earnings credits 0.04% (0.32)% 0.04% (0.25)% (0.37)% Portfolio turnover rate 145% 102% 86% 93% 56% YEAR ENDED JUNE 30, FOR THE ---------------------------------------- PERIOD ENDED CLASS B 2005 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 (0.05)** (0.08)** (0.04)** (0.05)** Net realized and unrealized gain (loss) 0.48 1.33 -- (1.40) ---------- ---------- ---------- -------------- Total income (loss) from investment operations 0.43 1.25 (0.04) (1.45) ---------- ---------- ---------- -------------- Less dividends/distributions: From net realized gains -- -- -- (0.05) ---------- ---------- ---------- -------------- Net asset value, end of period $ 8.00 $ 7.57 $ 6.32 $ 6.36 ========== ========== ========== ============== Total return+ 5.68% 19.78% (0.63)% (18.61)% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 564 $ 342 $ 321 $ 115 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 3.93% 3.48% 4.54% 3.06%*** After expense reimbursement and earnings credits 1.80% 1.80% 1.80% 1.80%*** Ratio of net investment income (loss) to average net assets: Before expense reimbursement and earnings credits (2.84)% (2.75)% (3.45)% (2.28)%*** After expense reimbursement and earnings credits (0.71)% (1.07)% (0.71)% (1.02)%*** Portfolio turnover rate 145% 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 138 THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH PERIOD PRESENTED.
YEAR ENDED JUNE 30, FOR THE ---------------------------------------- PERIOD ENDED CLASS C 2005 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 (0.05)** (0.08)** (0.04)** (0.05)** Net realized and unrealized gain (loss) 0.49 1.32 0.01 (1.73) ---------- ---------- ---------- -------------- Total income (loss) from investment operations 0.44 1.24 (0.03) (1.78) ---------- ---------- ---------- -------------- Less dividends/distributions: From net realized gains -- -- -- (0.05) ---------- ---------- ---------- -------------- Net asset value, end of period $ 8.00 $ 7.56 $ 6.32 $ 6.35 ========== ========== ========== ============== Total return+ 5.82% 19.62% (0.47)% (21.91)% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 407 $ 432 $ 267 $ 572 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 3.96% 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 (2.87)% (2.81)% (3.62)% (2.44)%*** After expense reimbursement and earnings credits (0.71)% (1.08)% (0.71)% (1.02)%*** Portfolio turnover rate 145% 102% 86% 93% YEAR ENDED JUNE 30, ----------------------------------------------------------------- CLASS Y 2005 2004 2003 2002 2001 ------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of year $ 7.85 $ 6.49 $ 6.47 $ 8.99 $ 15.28 --------- --------- --------- --------- --------- Income (loss) from investment operations: Net investment income (loss) 0.02** (0.01)** 0.02** 0.00#** (0.01) Net realized and unrealized gain (loss) 0.51 1.37 0.00# (2.47) (4.37) --------- --------- --------- --------- --------- Total income (loss) from investment operations 0.53 1.36 0.02 (2.47) (4.38) --------- --------- --------- --------- --------- Less dividends/distributions: From net investment income -- -- -- (0.05) -- From net realized gains -- -- -- -- (1.91) --------- --------- --------- --------- --------- Total distributions -- -- -- (0.05) (1.91) --------- --------- --------- --------- --------- Net asset value, end of year $ 8.38 $ 7.85 $ 6.49 $ 6.47 $ 8.99 ========= ========= ========= ========= ========= Total return+ 6.75% 20.96% 0.31% (27.61)% (31.33)% Ratios/Supplemental data: Net assets, end of year (in 000s) $ 3,078 $ 3,502 $ 1,943 $ 2,291 $ 3,299 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 3.01% 2.51% 3.72% 2.14% 1.34% After expense reimbursement and earnings credits 0.80% 0.80% 0.80% 0.80% 0.80% Ratio of net investment income (loss) to average net assets: Before expense reimbursement and earnings credits (1.92)% (1.78)% (2.62)% (1.39)% (0.66)% After expense reimbursement and earnings credits 0.29% (0.07)% 0.29% (0.05)% (0.12)% Portfolio turnover rate 145% 102% 86% 93% 56%
* 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 139 UBS U.S. LARGE CAP VALUE EQUITY FUND -- FINANCIAL HIGHLIGHTS THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH PERIOD PRESENTED.
YEAR ENDED JUNE 30, FOR THE ---------------------------------------- PERIOD ENDED CLASS A 2005 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 0.12** 0.09** 0.11** 0.05** Net realized and unrealized gain (loss) 1.22 1.80 (0.06) (0.64) ---------- ---------- ---------- -------------- Total income (loss) from investment operations 1.34 1.89 0.05 (0.59) ---------- ---------- ---------- -------------- Less dividends/distributions: From net investment income (0.12) (0.02) (0.05) -- From net realized gains (1.92) -- (0.06) -- ---------- ---------- ---------- -------------- Total distributions (2.04) (0.02) (0.11) -- ---------- ---------- ---------- -------------- Net asset value, end of period $ 10.48 $ 11.18 $ 9.31 $ 9.37 ========== ========== ========== ============== Total return+ 12.35% 20.28% 0.61% (5.92)% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 105,975 $ 108,369 $ 1,073 $ 751 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.39% 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 0.80% 0.54% (0.42)% (1.85)%*** After expense reimbursement and earnings credits 1.09% 0.86% 1.33% 0.87%*** Portfolio turnover rate 49% 170% 59% 39% YEAR ENDED JUNE 30, FOR THE ---------------------------------------- PERIOD ENDED CLASS B 2005 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 0.04** 0.01** 0.05** 0.01** Net realized and unrealized gain (loss) 1.20 1.77 (0.07) (0.31) ---------- ---------- ---------- -------------- Total income (loss) from investment operations 1.24 1.78 (0.02) (0.30) ---------- ---------- ---------- -------------- Less dividends/distributions: From net investment income -- (0.00)# (0.03) -- From net realized gains (1.92) -- (0.06) -- ---------- ---------- ---------- -------------- Total distributions (1.92) 0.00 (0.09) -- ---------- ---------- ---------- -------------- Net asset value, end of period $ 10.31 $ 10.99 $ 9.21 $ 9.32 ========== ========== ========== ============== Total return+ 11.59% 19.38% (0.17)% (3.12)% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 4,997 $ 14,556 $ 709 $ 301 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 2.35% 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 (0.16)% (0.35)% (0.99)% (2.72)%*** After expense reimbursement and earnings credits 0.34% 0.11% 0.58% 0.09%*** Portfolio turnover rate 49% 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 140 THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH PERIOD PRESENTED.
YEAR ENDED JUNE 30, FOR THE ---------------------------------------- PERIOD ENDED CLASS C 2005 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 0.04** 0.01** 0.05** 0.00#** Net realized and unrealized gain (loss) 1.20 1.77 (0.07) (0.40) ---------- ---------- ---------- -------------- Total income (loss) from investment operations 1.24 1.78 (0.02) (0.40) ---------- ---------- ---------- -------------- Less dividends/distributions: From net investment income (0.02) (0.00)# (0.03) -- From net realized gains (1.92) -- (0.06) -- ---------- ---------- ---------- -------------- Total distributions (1.94) 0.00 (0.09) -- ---------- ---------- ---------- -------------- Net asset value, end of period $ 10.30 $ 11.00 $ 9.22 $ 9.33 ========== ========== ========== ============== Total return+ 11.62% 19.34% (0.13)% (4.11)% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 17,235 $ 19,530 $ 1,025 $ 234 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 2.19% 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 0.00%++ (0.21)% (0.61)% (2.68)%*** After expense reimbursement and earnings credits 0.34% 0.11% 0.58% 0.05%*** Portfolio turnover rate 49% 170% 59% 39% YEAR ENDED JUNE 30, FOR THE ---------------------------------------- PERIOD ENDED CLASS Y 2005 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 0.14** 0.11** 0.13** 0.11** Net realized and unrealized gain (loss) 1.24 1.80 (0.06) (0.73) ---------- ---------- ---------- -------------- Total income (loss) from investment operations 1.38 1.91 0.07 (0.62) ---------- ---------- ---------- -------------- Less dividends/distributions: From net investment income (0.16) (0.02) (0.06) -- From net realized gains (1.92) -- (0.06) -- ---------- ---------- ---------- -------------- Total distributions (2.08) (0.02) (0.12) -- ---------- ---------- ---------- -------------- Net asset value, end of period $ 10.52 $ 11.22 $ 9.33 $ 9.38 ========== ========== ========== ============== Total return+ 12.74% 20.49% 0.89% (6.20)% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 5,760 $ 4,516 $ 4,790 $ 2,819 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.13% 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 1.06% 0.68% (0.19)% (1.17)%*** After expense reimbursement and earnings credits 1.34% 1.10% 1.58% 1.13%*** Portfolio turnover rate 49% 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 represents less than 0.005%. # Amount is less than $0.01 per share. See accompanying notes to financial statements 141 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.
YEAR ENDED JUNE 30, ----------------------------------------------------------------- CLASS A 2005 2004 2003 2002 2001 ------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of year $ 12.41 $ 10.00 $ 9.79 $ 11.76 $ 16.20 --------- --------- --------- --------- --------- Income (loss) from investment operations: Net investment loss (0.11)** (0.11)** (0.08)** (0.11)** (0.09) Net realized and unrealized gain (loss) 1.55 2.55 0.29 (1.42) (1.52) --------- --------- --------- --------- --------- Total income (loss) from investment operations 1.44 2.44 0.21 (1.53) (1.61) --------- --------- --------- --------- --------- Less dividends/distributions: From net realized gains (0.20) (0.03) -- (0.44) (2.83) --------- --------- --------- --------- --------- Net asset value, end of year $ 13.65 $ 12.41 $ 10.00 $ 9.79 $ 11.76 ========= ========= ========= ========= ========= Total return+ 11.63% 24.45% 2.14% (13.18)% (11.00)% Ratios/Supplemental data: Net assets, end of year (in 000s) $ 110,795 $ 73,833 $ 9,841 $ 1,789 $ 2 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.59% 1.56% 1.71% 1.69% 1.48% After expense reimbursement and earnings credits 1.28% 1.28% 1.40% 1.40% 1.40% Ratio of net investment loss to average net assets: Before expense reimbursement and earnings credits (1.19)% (1.16)% (1.21)% (1.35)% (0.87)% After expense reimbursement and earnings credits (0.88)% (0.90)% (0.90)% (1.06)% (0.79)% Portfolio turnover rate 50% 75% 69% 71% 93% YEAR ENDED JUNE 30, FOR THE ---------------------------------------- PERIOD ENDED CLASS B 2005 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 (0.20)** (0.20)** (0.14)** (0.11)** Net realized and unrealized gain 1.52 2.51 0.28 0.12 ---------- ---------- ---------- -------------- Total income from investment operations 1.32 2.31 0.14 0.01 ---------- ---------- ---------- -------------- Less dividends/distributions: From net realized gains (0.20) (0.03) -- (0.44) ---------- ---------- ---------- -------------- Net asset value, end of period $ 13.29 $ 12.17 $ 9.89 $ 9.75 ========== ========== ========== ============== Total return+ 10.86% 23.40% 1.44% (0.11)% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 9,592 $ 11,683 $ 1,132 $ 656 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 2.53% 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 2.13% (2.14)% (1.97)% (1.93)%*** After expense reimbursement and earnings credits 1.63% (1.62)% (1.65)% (1.62)%*** Portfolio turnover rate 50% 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 142 THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH PERIOD PRESENTED.
YEAR ENDED JUNE 30, FOR THE ---------------------------------------- PERIOD ENDED CLASS C 2005 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 (0.20)** (0.20)** (0.14)** (0.10)** Net realized and unrealized gain (loss) 1.52 2.51 0.28 (0.09) ---------- ---------- ---------- -------------- Total income (loss) from investment operations 1.32 2.31 0.14 (0.19) ---------- ---------- ---------- -------------- Less dividends/distributions: From net realized gains (0.20) (0.03) -- (0.44) ---------- ---------- ---------- -------------- Net asset value, end of period $ 13.28 $ 12.16 $ 9.88 $ 9.74 ========== ========== ========== ============== Total return+ 10.87% 23.43% 1.44% (2.04)% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 8,661 $ 9,580 $ 757 $ 410 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 2.45% 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 (2.05)% (2.13)% (1.97)% (1.90)%*** After expense reimbursement and earnings credits (1.63)% (1.63)% (1.65)% (1.59)%*** Portfolio turnover rate 50% 75% 69% 71% YEAR ENDED JUNE 30, ----------------------------------------------------------------- CLASS Y 2005 2004 2003 2002 2001 ------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of year $ 12.63 $ 10.15 $ 9.92 $ 11.86 $ 16.27 --------- --------- --------- --------- --------- Income (loss) from investment operations: Net investment loss (0.08)** (0.08)** (0.06)** (0.09)** (0.07) Net realized and unrealized gain (loss) 1.58 2.59 0.29 (1.41) (1.51) --------- --------- --------- --------- --------- Total income (loss) from investment operations 1.50 2.51 0.23 (1.50) (1.58) --------- --------- --------- --------- --------- Less dividends/distributions: From net realized gains (0.20) (0.03) -- (0.44) (2.83) --------- --------- --------- --------- --------- Net asset value, end of year $ 13.93 $ 12.63 $ 10.15 $ 9.92 $ 11.86 ========= ========= ========= ========= ========= Total return+ 11.90% 24.78% 2.32% (12.90)% (10.74)% Ratios/Supplemental data: Net assets, end of year (in 000s) $ 146,725 $ 91,406 $ 39,785 $ 36,318 $ 44,057 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.14% 1.21% 1.49% 1.41% 1.23% After expense reimbursement and earnings credits 1.03% 1.03% 1.15% 1.15% 1.15% Ratio of net investment loss to average net assets: Before expense reimbursement and earnings credits (0.74)% (0.81)% (1.00)% (1.07)% (0.62)% After expense reimbursement and earnings credits (0.63)% (0.66)% (0.66)% (0.81)% (0.54)% Portfolio turnover rate 50% 75% 69% 71% 93%
* 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 143 UBS U.S. DYNAMIC ALPHA FUND -- FINANCIAL HIGHLIGHTS THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH PERIOD PRESENTED.
FOR THE PERIOD ENDED CLASS A JUNE 30, 2005* ----------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 10.00 -------------- Income (loss) from investment operations: Net investment loss (0.04)** Net realized and unrealized gain 0.26 -------------- Total income from investment operations 0.22 -------------- Net asset value, end of period $ 10.22 ============== Total return+ 2.20% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 528,088 Ratio of expenses to average net assets 1.32%*** Ratio of net investment loss to average net assets (1.04)%*** Portfolio turnover rate 6% FOR THE PERIOD ENDED CLASS B JUNE 30, 2005* ----------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 10.00 -------------- Income (loss) from investment operations: Net investment loss (0.08)** Net realized and unrealized gain 0.27 -------------- Total income from investment operations 0.19 -------------- Net asset value, end of period $ 10.19 ============== Total return+ 1.90% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 14,815 Ratio of expenses to average net assets: Before expense reimbursement 2.11%*** After expense reimbursement 2.10%*** Ratio of net investment loss to average net assets: Before expense reimbursement (1.83)%*** After expense reimbursement (1.82)%*** Portfolio turnover rate 6%
* For the period January 27, 2005 (commencement of issuance) through June 30, 2005. ** 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 144 THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH PERIOD PRESENTED.
FOR THE PERIOD ENDED CLASS C JUNE 30, 2005* ----------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 10.00 -------------- Income (loss) from investment operations: Net investment loss (0.08)** Net realized and unrealized gain 0.27 -------------- Total income from investment operations 0.19 -------------- Net asset value, end of period $ 10.19 ============== Total return+ 1.90% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 202,891 Ratio of expenses to average net assets 2.09%*** Ratio of net investment loss to average net assets (1.81)%*** Portfolio turnover rate 6% FOR THE PERIOD ENDED CLASS Y JUNE 30, 2005* ----------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 10.00 -------------- Income (loss) from investment operations: Net investment loss (0.03)** Net realized and unrealized gain 0.26 -------------- Total income from investment operations 0.23 -------------- Net asset value, end of period $ 10.23 ============== Total return+ 2.30% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 56,220 Ratio of expenses to average net assets 1.00%*** Ratio of net investment loss to average net assets (0.72)%*** Portfolio turnover rate 6%
* For the period January 27, 2005 (commencement of issuance) through June 30, 2005. ** 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 145 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.
YEAR ENDED JUNE 30, ------------------------------------------------------------------- CLASS A 2005 2004 2003 2002 2001 ---------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of year $ 10.56 $ 10.99 $ 10.51 $ 10.33 $ 9.99 -------- -------- -------- -------- -------- Income (loss) from investment operations: Net investment income 0.39** 0.39** 0.42** 0.53** 0.62** Net realized and unrealized gain (loss) 0.20 (0.37) 0.52 0.32 0.41 -------- -------- -------- -------- -------- Total income from investment operations 0.59 0.02 0.94 0.85 1.03 -------- -------- -------- -------- -------- Less dividends/distributions: From net investment income (0.42) (0.45) (0.46) (0.67) (0.69) -------- -------- -------- -------- -------- Net asset value, end of year $ 10.73 $ 10.56 $ 10.99 $ 10.51 $ 10.33 ======== ======== ======== ======== ======== Total return+ 5.72% 0.18% 9.17% 8.41% 10.56% Ratios/Supplemental data: Net assets, end of year (in 000s) $ 34,282 $ 31,420 $ 31,337 $ 18,558 $ 123 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.19% 1.11% 1.04% 1.21% 0.98% After expense reimbursement and earnings credits 0.85% 0.85% 0.85% 0.86%++ 0.85% Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 3.27% 3.32% 3.70% 4.68% 5.86% After expense reimbursement and earnings credits 3.61% 3.58% 3.89% 5.03% 5.99% Portfolio turnover rate 174% 137% 180% 452% 314% YEAR ENDED JUNE 30, FOR THE ------------------------------------ PERIOD ENDED CLASS B 2005 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 0.31** 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 0.52 (0.06) 0.86 0.07 -------- -------- -------- -------- Less dividends/distributions: From net investment income (0.34) (0.35) (0.39) (0.33) -------- -------- -------- -------- Net asset value, end of period $ 10.74 $ 10.56 $ 10.97 $ 10.50 ======== ======== ======== ======== Total return+ 4.96% (0.55)% 8.30% 0.70% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 1,620 $ 2,043 $ 3,646 $ 1,405 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 2.00% 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 2.46% 2.42% 2.95% 3.93%*** After expense reimbursement and earnings credits 2.86% 2.82% 3.14% 4.29%*** Portfolio turnover rate 174% 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 146 THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH PERIOD PRESENTED.
YEAR ENDED JUNE 30, FOR THE ------------------------------------- PERIOD ENDED CLASS C 2005 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 0.33** 0.33** 0.37** 0.31** Net realized and unrealized gain (loss) 0.22 (0.37) 0.52 (0.24) --------- -------- -------- -------- Total income (loss) from investment operations 0.55 (0.04) 0.89 0.07 --------- -------- -------- -------- Less dividends/distributions: From net investment income (0.38) (0.39) (0.41) (0.34) --------- -------- -------- -------- Net asset value, end of period $ 10.72 $ 10.55 $ 10.98 $ 10.50 ========= ======== ======== ======== Total return+ 5.25% (0.37)% 8.65% 0.72% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 2,068 $ 2,195 $ 3,164 $ 1,143 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.64% 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 2.82% 2.78% 3.20% 4.32%*** After expense reimbursement and earnings credits 3.11% 3.08% 3.39% 4.58%*** Portfolio turnover rate 174% 137% 180% 452% YEAR ENDED JUNE 30, ----------------------------------------------------------------- CLASS Y 2005 2004 2003 2002 2001 ------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of year $ 10.57 $ 11.01 $ 10.53 $ 10.35 $ 10.00 --------- -------- -------- -------- -------- Income (loss) from investment operations: Net investment income 0.41** 0.41** 0.45** 0.56** 0.64** Net realized and unrealized gain (loss) 0.21 (0.37) 0.52 0.31 0.42 --------- -------- -------- -------- -------- Total income from investment operations 0.62 0.04 0.97 0.87 1.06 --------- -------- -------- -------- -------- Less dividends/distributions: From net investment income (0.47) (0.48) (0.49) (0.69) (0.71) --------- -------- -------- -------- -------- Net asset value, end of year $ 10.72 $ 10.57 $ 11.01 $ 10.53 $ 10.35 ========= ======== ======== ======== ======== Total return+ 5.95% 0.40% 9.42% 8.59% 10.86% Ratios/Supplemental data: Net assets, end of year (in 000s) $ 109,568 $ 89,281 $ 78,807 $ 59,740 $ 62,514 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 0.78% 0.80% 0.79% 0.80% 0.73% After expense reimbursement and earnings credits 0.60% 0.60% 0.60% 0.64%# 0.60% Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 3.68% 3.63% 3.95% 5.10% 6.11% After expense reimbursement and earnings credits 3.86% 3.83% 4.14% 5.26% 6.24% Portfolio turnover rate 174% 137% 180% 452% 314%
* 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 147 UBS ABSOLUTE RETURN BOND FUND -- FINANCIAL HIGHLIGHTS THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH PERIOD PRESENTED.
FOR THE PERIOD ENDED CLASS A JUNE 30, 2005* -------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 10.00 -------------- Income (loss) from investment operations: Net investment income 0.03** Net realized and unrealized loss (0.02) -------------- Total income from investment operations 0.01 -------------- Less dividends/distributions: From net investment income and net foreign currency gains (0.03) -------------- Net asset value, end of period $ 9.98 ============== Total return+ 0.06% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 105,373 Ratio of expenses to average net assets: Before expense reimbursement 1.31%*** After expense reimbursement 1.00%*** Ratio of net investment income to average net assets: Before expense reimbursement 1.44%*** After expense reimbursement 1.75%*** Portfolio turnover rate 22% FOR THE PERIOD ENDED CLASS C JUNE 30, 2005* -------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 10.00 -------------- Income (loss) from investment operations: Net investment income 0.02** Net realized and unrealized loss (0.02) -------------- Total income from investment operations 0.00 -------------- Less distributions: Distributions from net investment income and net foreign currency gains (0.02) -------------- Net asset value, end of period $ 9.98 ============== Total return+ 0.01% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 16,973 Ratio of expenses to average net assets: Before expense reimbursement 1.68%*** After expense reimbursement 1.35%*** Ratio of net investment income to average net assets: Before expense reimbursement 1.07%*** After expense reimbursement 1.40%*** Portfolio turnover rate 22%
* For the period April 27, 2005 (commencement of issuance) through June 30, 2005. ** 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 148 THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH PERIOD PRESENTED.
FOR THE PERIOD ENDED CLASS Y JUNE 30, 2005* -------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 10.00 -------------- Income (loss) from investment operations: Net investment income 0.03** Net realized and unrealized loss (0.02) -------------- Total income from investment operations 0.01 -------------- Less dividends/distributions: From net investment income and net foreign currency gains (0.03) -------------- Net asset value, end of period $ 9.98 ============== Total return+ 0.09% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 20,004 Ratio of expenses to average net assets: Before expense reimbursement 1.11%*** After expense reimbursement 0.85%*** Ratio of net investment income to average net assets: Before expense reimbursement 1.64%*** After expense reimbursement 1.90%*** Portfolio turnover rate 22%
* For the period April 27, 2005 (commencement of issuance) through June 30, 2005. ** 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 149 UBS HIGH YIELD FUND -- FINANCIAL HIGHLIGHTS THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH PERIOD PRESENTED.
YEAR ENDED JUNE 30, ---------------------------------------------------------------- CLASS A 2005 2004 2003 2002 2001 ------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of year $ 7.06 $ 6.84 $ 6.36 $ 7.87 $ 9.18 -------- -------- -------- -------- -------- Income (loss) from investment operations: Net investment income 0.57** 0.58** 0.56** 0.76** 0.85** Net realized and unrealized gain (loss) 0.10 0.22 0.50 (0.96) (1.08) -------- -------- -------- -------- -------- Total income (loss) from investment operations 0.67 0.80 1.06 (0.20) (0.23) -------- -------- -------- -------- -------- Less dividends/distributions: From net investment income (0.59) (0.58) (0.58) (1.31) (1.08) -------- -------- -------- -------- -------- Net asset value, end of year $ 7.14 $ 7.06 $ 6.84 $ 6.36 $ 7.87 ======== ======== ======== ======== ======== Total return+ 9.66% 12.15% 17.70% (3.01)% (2.28)% Ratios/Supplemental data: Net assets, end of year (in 000s) $ 66,677 $ 72,614 $ 76,309 $ 65,832 $ 1 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.28% 1.31% 1.29% 1.26% 1.14% After expense reimbursement and earnings credits 1.20% 1.20% 0.95% 0.95% 0.97%++ Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 7.75% 8.16% 8.38% 10.71% 9.65% After expense reimbursement and earnings credits 7.83% 8.27% 8.72% 11.02% 9.82% Portfolio turnover rate 61% 80% 71% 120% 87% YEAR ENDED JUNE 30, FOR THE ------------------------------------ PERIOD ENDED CLASS B 2005 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 0.51** 0.53** 0.51** 0.45** Net realized and unrealized gain (loss) 0.10 0.23 0.50 (0.61) -------- -------- -------- -------- Total income (loss) from investment operations 0.61 0.76 1.01 (0.16) -------- -------- -------- -------- Less dividends/distributions: From net investment income (0.53) (0.53) (0.53) (0.51) -------- -------- -------- -------- Net asset value, end of period $ 7.14 $ 7.06 $ 6.83 $ 6.35 ======== ======== ======== ======== Total return+ 8.79% 11.48% 16.83% (2.70)% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 3,945 $ 7,844 $ 13,130 $ 15,692 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.99% 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 7.04% 7.43% 7.62% 9.88%*** After expense reimbursement and earnings credits 7.08% 7.53% 7.97% 10.23%*** Portfolio turnover rate 61% 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 150 THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH PERIOD PRESENTED.
YEAR ENDED JUNE 30, FOR THE ------------------------------------ PERIOD ENDED CLASS C 2005 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 0.53** 0.55** 0.53** 0.46** Net realized and unrealized gain (loss) 0.10 0.22 0.51 (0.61) --------- -------- -------- -------- Total income (loss) from investment operations 0.63 0.77 1.04 (0.15) --------- -------- -------- -------- Less dividends/distributions: From net investment income (0.55) (0.55) (0.55) (0.52) --------- -------- -------- -------- Net asset value, end of period $ 7.14 $ 7.06 $ 6.84 $ 6.35 ========= ======== ======== ======== Total return+ 9.09% 11.59% 17.29% (2.54)% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 15,389 $ 17,499 $ 18,969 $ 17,947 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.79% 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 7.33% 7.78% 8.22% 10.49%*** Portfolio turnover rate 61% 80% 71% 120% YEAR ENDED JUNE 30, ----------------------------------------------------------------- CLASS Y 2005 2004 2003 2002 2001 -------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of year $ 7.10 $ 6.87 $ 6.38 $ 7.90 $ 9.19 -------- -------- -------- -------- -------- Income (loss) from investment operations: Net investment income 0.59** 0.61** 0.58** 0.81** 0.88** Net realized and unrealized gain (loss) 0.09 0.23 0.50 (1.01) (1.08) -------- -------- -------- -------- -------- Total income (loss) from investment operations 0.68 0.84 1.08 (0.20) (0.20) -------- -------- -------- -------- -------- Less dividends/distributions: From net investment income (0.61) (0.61) (0.59) (1.32) (1.09) -------- -------- -------- -------- -------- Total distributions (0.61) (0.61) (0.59) (1.32) (1.09) -------- -------- -------- -------- -------- Net asset value, end of year $ 7.17 $ 7.10 $ 6.87 $ 6.38 $ 7.90 ======== ======== ======== ======== ======== Total return++ 9.82% 12.66% 18.08% (2.98)% (1.83)% Ratios/Supplemental data: Net assets, end of year (in 000s) $ 30,277 $ 48,038 $ 71,819 $ 40,120 $ 54,560 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 0.96% 0.92% 1.05% 1.02% 0.89% After expense reimbursement and earnings credits 0.95% 0.92% 0.70% 0.70%++ 0.72%++ Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 8.07% 8.55% 8.62% 10.77% 9.90% After expense reimbursement and earnings credits 8.08% 8.55% 8.97% 11.09% 10.07% Portfolio turnover rate 61% 80% 71% 120% 87%
* 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 151 THE UBS FUNDS -- NOTES TO FINANCIAL STATEMENTS 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES The UBS Funds (the "Trust") is registered with the Securities and Exchange Commission under the Investment Company Act of 1940, as amended, as an open-end management investment company currently offering multiple series representing separate investment 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 twelve 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 International Equity Fund, UBS U.S. Large Cap Equity Fund, UBS U.S. Large Cap Growth Fund, UBS U.S. Large Cap Value Equity Fund, UBS U.S. Small Cap Growth Fund, UBS Dynamic Alpha Fund, UBS U.S. Bond Fund, UBS Absolute Return Bond Fund, and UBS High Yield Fund (each a "Fund", and collectively, the "Funds"). Each Fund currently offers Class A, Class B, Class C and Class Y shares, except for UBS Absolute Return Bond Fund that offers Class A, Class C, and Class Y. 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. In the normal course of business the Funds enter into contracts that contain a variety of representations or 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 any 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. Securities listed on foreign stock exchanges may be fair valued based on significant events that have occurred subsequent to the close of the foreign markets. 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. UBS Global AM is an indirect wholly owned asset management subsidiary of UBS AG, an international diversified organization with headquarters in Zurich, Switzerland and operations in many areas of the financial services industry. If a market value is not 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. Investments in affiliated investment companies are valued at the daily closing net asset value of the respective investment company. Certain 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, the 152 Funds may adjust the previous closing prices to reflect what the Board 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 daily 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. Certain foreign exchange gains and losses included in realized and unrealized gains and losses are included in or are a reduction of ordinary income in accordance with U.S. federal income tax regulations. 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: 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 potential inability of the counterparty to meet the terms of their contract. The Funds may purchase or sell currencies and/or engage in forward foreign currency transactions in order to expedite settlement of portfolio transactions and to manage currency risk. A Fund will only enter into forward contracts to sell, for a fixed amount of U.S. dollars or other appropriate currency, an amount of foreign currency, to the extent that the value of the short forward contract is covered by the underlying value of securities denominated in the currency being sold. Alternatively, when a Fund enters into a forward contract to sell an amount of foreign currency, the Fund's custodian or sub-custodian will place segregated assets in a segregated account of the Fund in an amount not less than the value of the Fund's total assets committed to the consumption of such forwards contracts. If the additional segregated assets placed in the segregated account decline, additional cash or securities will be placed in the account on a daily basis so that the value of the account will equal the amount of the Fund's commitments with respect to such contracts. The unrealized gain, if any, represents the credit risk to each Fund on a forward foreign currency contract. Fluctuations in the value of the open forward foreign currency contracts are recorded daily for book purposes as net unrealized gains or losses on foreign forward currency contracts by the Funds. Realized gains and losses include net gains and losses recognized by the Funds on contracts which have been sold or matured. 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 may 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 with a broker either cash and/or liquid securities (initial margin). Subsequent payments (variation margin) are made or 153 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. SECURITIES TRADED ON TO-BE-ANNOUNCED BASIS: The Funds may from time to time purchase securities on to-be-announced ("TBA") basis. In a TBA transaction, the Fund commits to purchasing or selling securities for which all specific information is not yet known at the time of the trade, particularly the face amount and maturity date of the underlying security transactions. Securities purchased on a TBA basis are not settled until they are delivered to the Fund, normally 15 to 45 days later. Beginning on the date the Fund enters into a TBA transaction, cash, U.S. government securities or other liquid high grade debt obligations are segregated in an amount in value to the purchase price of the TBA security. These transactions are subject to market fluctuations and their current value is determined in the same manner as for other securities. At June 30, 2005 UBS U.S. Bond Fund was the only fund that held TBA securities with a total cost of $5,426,489. G. INTEREST RATE SWAP AGREEMENTS: The Funds may enter into interest rate swap agreements to protect it from interest rate fluctuations. This type of swap is an agreement that obligates two parties to exchange a series of cash flows at specified intervals based upon or calculated by reference to a specified interest rate(s) for a specified amount. The payment flows are usually netted against each other, with the difference being paid by one party to the other. Risks may arise as a result of the failure of the counterparty to the swap agreements to comply with the terms of the agreements. The loss incurred by the failure of a counterparty is generally limited to the net interest payment to be received by the Funds. Therefore, the Funds would consider the creditworthiness of the counterparty to a swap agreements in evaluating potential credit risk. The Funds accrues for interim payments on swap agreements on a daily basis, with the net amount recorded within unrealized appreciation/depreciation on swap agreements on the Statements of Assets and Liabilities. Once interim payments are settled in cash, and/or the swap agreements are terminated, the net amount is recorded as realized gain/loss on swaps on the Statement of Operations. Fluctuations in the value of swap agreements are recorded for financial statement purposes as unrealized appreciation or depreciation of swaps on the Statements of Assets and Liabilities. At June 30, 2005, UBS Dynamic Alpha Fund had outstanding interest rate swap agreements with the following terms:
UBS DYNAMIC ALPHA FUND ------------------------------------------------------------------------------------ RATE TYPE ---------------------------------- NOTIONAL TERMINATION PAYMENTS MADE PAYMENTS RECEIVED UNREALIZED AMOUNT DATE BY THE FUND BY THE FUND DEPRECIATION ------------- ----------- ------------- ----------------- -------------- CHF 45,000,000 05/09/15 2.3725% 0.8000%+ $ (456,680) GBP 10,000,000 06/02/35 4.5150 4.8400++ (386,558) JPY 1,600,000,000 05/09/35 2.2513 0.0656+++ (308,258) -------------- $ (1,151,496) ==============
+ Rate based on 6 month LIBOR (Swiss BBA) ++ Rate based on 6 month LIBOR (GBP BBA) +++ Rate based on 6 month LIBOR ( JPY BBA) CHF Swiss Franc GBP British Pound JPY Japanese Yen BBA British Banking Association H. DIVIDENDS AND 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, which distribute their respective net income, if any, monthly. Dividends and distributions to shareholders are recorded on the 154 ex-dividend date. The amounts of dividends from net investment income and distributions of net capital gains are determined in accordance with income tax regulations which may differ from U.S. generally accepted accounting principles. These "book/tax" differences are either considered temporary or permanent in nature. To the extent they are permanent in nature, such amounts are reclassified within the capital accounts based on their federal tax-basis treatment; temporary differences do not require reclassification. Differences in dividends from net investment income per share between the classes are due to service and distribution related expenses. I. CONCENTRATION OF RISK: Investing in securities of foreign issuers and currency transactions may involve certain considerations and risks not typically associated with investments in the United States. These risks include revaluation of currencies, adverse fluctuations in foreign currency values and possible adverse political, social and economic developments, including those particular to a specific industry, country or region, which could cause the securities and their markets to be less liquid and prices more volatile than those of comparable U.S. companies and U.S. government securities. Small capitalization ("small cap") companies may be more vulnerable than larger capitalization companies to adverse business or economic developments. Small cap companies may also have limited product lines, markets or financial resources, and may be dependent on a relatively small management group. Securities of such companies may be less liquid and more volatile than 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. J. 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 as a reduction of total operating expenses. 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 International Equity Fund 0.800 0.750 0.700 0.675 0.650 UBS U.S. Large Cap Equity Fund 0.700 0.650 0.600 0.575 0.550 UBS U.S. Large Cap Growth Fund 0.700 0.650 0.600 0.575 0.550 UBS U.S. Large Cap Value Equity Fund 0.700 0.650 0.600 0.575 0.550 UBS U.S. Small Cap Growth Fund 0.850 0.850 0.825 0.825 0.825 UBS Dynamic Alpha Fund 0.850 0.800 0.750 0.725 0.700 UBS U.S. Bond Fund 0.500 0.475 0.450 0.425 0.400 UBS Absolute Return Bond Fund 0.550 0.500 0.475 0.450 0.425 UBS High Yield Fund 0.600 0.550 0.525 0.525 0.525 $0 TO $250 MM TO $500 MM TO $1.0 BILLION $250 MM $500 MM $1 BILLION AND OVER ------- ---------- ------------- --------------- UBS Global Equity Fund 0.750% 0.700% 0.680% 0.650%
155 On May 26, 2005, the Board approved the change in investment advisory fees for the UBS Global Allocation Fund to the following breakpoint schedule effective July 1, 2005:
AVERAGE DAILY NET ASSETS ADVISORY FEE ------------------------ ------------ $0-$500 million 0.800% On the next $500-$1 billion 0.750% On the next $1 billion - $1.5 billion 0.700% On the next $1.5 billion - $2 billion 0.675% On the next $2 billion - $3 billion 0.650% On amounts above $3 billion 0.630%
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. Expense caps, investment advisory fees and other transactions for the year ended June 30, 2005, were as follows:
CLASS A CLASS B CLASS C CLASS Y ADVISORY FEES FUND EXPENSE CAP EXPENSE CAP EXPENSE CAP EXPENSE CAP FEES WAIVED ---- ------------ ------------ ------------ ------------ ------------ ------------ UBS Global Allocation Fund N/A N/A N/A N/A $ 17,557,547 -- UBS Global Equity Fund 1.25% 2.00% 2.00% 1.00% 3,265,839 $ 633,476 UBS Global Bond Fund 1.15 1.90 1.65 0.90 521,125 193,619 UBS International Equity Fund 1.25 2.00 2.00 1.00 968,941 251,755 UBS U.S. Large Cap Equity Fund 1.30 2.05 2.05 1.05 1,457,582 -- UBS U.S. Large Cap Growth Fund 1.05 1.80 1.80 0.80 44,814 139,191 UBS U.S. Large Cap Value Equity Fund 1.10 1.85 1.85 0.85 988,789 432,880 UBS U.S. Small Cap Growth Fund 1.28 2.03 2.03 1.03 1,788,428 472,293 UBS Dynamic Alpha Fund 1.35 2.10 2.10 1.10 2,027,422 657 UBS U.S. Bond Fund 0.85 1.60 1.35 0.60 664,956 291,755 UBS Absolute Return Bond Fund 1.00 N/A 1.35 0.85 102,110 56,360 UBS High Yield Fund 1.20 1.95 1.70 0.95 853,068 76,966
Each Fund will reimburse UBS Global Asset Management (Americas) Inc. for any fee it waives or expenses it reimburses for a period of three years following such fee waivers and expense reimbursements, to the extent such reimbursements will not cause a Fund to exceed any applicable expense limit for the Fund. The expenses waived for the year ended June 30, 2005 are subject to repayment through June 30, 2008. 156 At June 30, 2005, the following Funds had remaining fee waivers and expense reimbursements subject to repayment to UBS Global AM and respective dates of expiration as follows:
FEE WAIVERS/ EXPENSE REIMBURSEMENTS SUBJECT TO EXPIRES EXPIRES EXPIRES FUND REPAYMENT JUNE 30, 2006 JUNE 30, 2007 JUNE 30, 2008 ---- -------------- -------------- -------------- -------------- UBS Global Allocation Fund--Class A $ 5,042 $ 5,042 -- -- UBS Global Allocation Fund--Class B 1,169 1,169 -- -- UBS Global Allocation Fund--Class C 4,092 4,092 -- -- UBS Global Allocation Fund--Class Y -- -- -- -- UBS Global Equity Fund--Class A 477,580 81,111 $ 238,725 $ 157,744 UBS Global Equity Fund--Class B 740,769 78,479 390,500 271,790 UBS Global Equity Fund--Class C 470,518 60,776 254,518 155,224 UBS Global Equity Fund--Class Y 158,745 72,146 37,881 48,718 UBS Global Bond Fund--Class A 125,103 17,106 53,343 54,654 UBS Global Bond Fund--Class B 16,578 4,461 6,816 5,301 UBS Global Bond Fund--Class C 24,559 2,581 12,045 9,933 UBS Global Bond Fund--Class Y 404,988 150,324 130,933 123,731 UBS International Equity Fund--Class A 69,628 5,634 14,581 49,413 UBS International Equity Fund--Class B 6,259 470 3,430 2,359 UBS International Equity Fund--Class C 6,192 629 3,052 2,511 UBS International Equity Fund--Class Y 604,115 176,654 229,989 197,472 UBS U.S. Large Cap Equity Fund--Class A 23,949 20,521 3,428 -- UBS U.S. Large Cap Equity Fund--Class B 849 849 -- -- UBS U.S. Large Cap Equity Fund--Class C 875 875 -- -- UBS U.S. Large Cap Equity Fund--Class Y 200,387 200,387 -- -- UBS U.S. Large Cap Growth Fund--Class A 110,170 29,557 29,595 51,018 UBS U.S. Large Cap Growth Fund--Class B 18,752 4,725 6,094 7,933 UBS U.S. Large Cap Growth Fund--Class C 25,725 11,451 5,873 8,401 UBS U.S. Large Cap Growth Fund--Class Y 178,139 55,574 50,726 71,839 UBS U.S. Large Cap Value Equity Fund--Class A 543,128 19,145 211,954 312,029 UBS U.S. Large Cap Value Equity Fund--Class B 120,462 8,403 69,108 42,951 UBS U.S. Large Cap Value Equity Fund--Class C 114,673 8,031 44,157 62,485 UBS U.S. Large Cap Value Equity Fund--Class Y 104,551 69,577 19,559 15,415 UBS U.S. Small Cap Growth Fund--Class A 406,266 12,327 121,354 272,585 UBS U.S. Small Cap Growth Fund--Class B 97,962 2,351 44,503 51,108 UBS U.S. Small Cap Growth Fund--Class C 73,446 1,751 33,446 38,249 UBS U.S. Small Cap Growth Fund--Class Y 334,423 109,444 114,628 110,351 UBS Dynamic Alpha Fund--Class A -- -- -- -- UBS Dynamic Alpha Fund--Class B 657 -- -- 657 UBS Dynamic Alpha Fund--Class C -- -- -- -- UBS Dynamic Alpha Fund--Class Y -- -- -- -- UBS U.S. Bond Fund--Class A 238,912 46,010 83,977 108,925 UBS U.S. Bond Fund--Class B 25,027 6,276 11,048 7,703 UBS U.S. Bond Fund--Class C 17,403 3,644 7,557 6,202 UBS U.S. Bond Fund--Class Y 456,879 129,523 158,431 168,925 UBS Absolute Return Bond Fund--Class A 42,582 -- -- 42,582 UBS Absolute Return Bond Fund--Class C 7,790 -- -- 7,790 UBS Absolute Return Bond Fund--Class Y 5,988 -- -- 5,988 UBS High Yield Fund--Class A 374,631 234,773 84,599 55,259 UBS High Yield Fund--Class B 60,412 48,149 10,229 2,034 UBS High Yield Fund--Class C 99,494 61,780 22,340 15,374 UBS High Yield Fund--Class Y 214,464 210,165 -- 4,299
157 Each Fund pays UBS Global Asset Management (US), Inc. a monthly administration fee that is accrued daily and paid monthly at an annual rate of 0.075% of the average daily net assets of such Fund. Pursuant to a Multiple Services Agreement executed between the Funds and JPMorgan Investor Services, JPMorgan provides certain sub-administration services to the Funds. For the year ended June 30, 2005, the Funds owed and incurred administrative fees as follows:
ADMINISTRATIVE ADMINISTRATIVE FUND FEES OWED FEES INCURRED ---- -------------- -------------- UBS Global Allocation Fund $ 185,756 $ 1,833,762 UBS Global Equity Fund 27,611 336,065 UBS Global Bond Fund 4,610 52,020 UBS International Equity Fund 8,097 90,682 UBS U.S. Large Cap Equity Fund 22,930 155,504 UBS U.S. Large Cap Growth Fund -- 4,793 UBS U.S. Large Cap Value Equity Fund 8,343 105,806 UBS U.S. Small Cap Growth Fund 15,832 157,455 UBS Dynamic Alpha Fund 46,401 178,520 UBS U.S. Bond Fund 9,061 99,565 UBS Absolute Return Bond Fund 7,844 13,925 UBS High Yield Fund 7,263 106,535
The Funds may invest in shares of certain affiliated investment companies also sponsored by the Advisor. Investments in affiliated investment companies for the year ended June 30, 2005 were as follows:
UBS GLOBAL ALLOCATION FUND -------------------------------------------- NET CHANGE IN SALES REALIZED NET UNREALIZED AFFILIATES PURCHASES PROCEEDS GAIN/(LOSS) GAIN VALUE ---------- ------------ ------------ ------------ -------------- -------------- UBS Emerging Markets Equity Relationship Fund $ 40,000,000 $ 73,000,000 $ 34,520,340 $ 23,068,408 $ 174,159,129 UBS High Yield Relationship Fund 40,000,000 -- -- 2,648,556 59,464,074 UBS Small Cap Equity Relationship Fund 15,000,000 -- -- 6,855,378 83,940,992 UBS GLOBAL BOND FUND -------------------------------------------- NET CHANGE IN SALES REALIZED NET UNREALIZED AFFILIATES PURCHASES PROCEEDS GAIN/(LOSS) GAIN VALUE ---------- ------------ ------------ ------------ -------------- -------------- UBS U.S. Securitized Mortgage Relationship Fund $ 2,775,000 $ 750,000 $ 28,185 $ 426,413 $ 12,554,053 UBS DYNAMIC ALPHA FUND -------------------------------------------- NET CHANGE IN SALES REALIZED NET UNREALIZED AFFILIATES PURCHASES PROCEEDS GAIN/(LOSS) GAIN/(LOSS) VALUE ---------- ------------- ------------ ------------ -------------- -------------- UBS Emerging Markets Equity Relationship Fund $ 83,614,000 $ 10,000,000 $ 430,495 $ 4,437,193 $ 78,481,689 UBS International Equity Relationship Fund 205,350,000 -- -- (1,631,548) 203,718,452 UBS U.S. Large Cap Equity Relationship Fund 354,850,000 -- -- 10,326,961 365,176,960 UBS Small Cap Equity Relationship Fund 66,750,000 -- -- 1,382,739 68,132,739 UBS High Yield Relationship Fund 15,400,000 -- -- 389,392 15,789,392 UBS ABSOLUTE RETURN BOND FUND -------------------------------------------- NET CHANGE IN SALES REALIZED NET UNREALIZED AFFILIATES PURCHASES PROCEEDS GAIN/(LOSS) GAIN VALUE ---------- ------------ ------------ ------------ -------------- -------------- UBS U.S. Securitized Mortgage Relationship Fund $ 23,000,000 -- -- $ 69,766 $ 23,069,766
158 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 June 30, 2005 and for the year then ended were as follows:
% OF SALES INTEREST NET FUND PURCHASES PROCEEDS INCOME VALUE ASSETS ---- --------------- --------------- ----------- --------------- --------- UBS Global Allocation Fund $ 1,933,925,170 $ 1,632,988,778 $ 1,540,558 $ 462,136,506 15.21% UBS Global Equity Fund 72,939,829 72,734,078 33,913 1,055,690 0.24 UBS Global Bond Fund 23,801,549 22,218,570 44,927 2,163,203 2.95 UBS International Equity Fund 126,888,085 115,923,810 18,746 18,367,872 14.01 UBS U.S. Large Cap Equity Fund 173,101,544 166,560,934 224,602 13,297,146 3.35 UBS U.S. Large Cap Growth Fund 3,916,367 3,931,776 3,024 139,146 1.93 UBS U.S. Large Cap Value Equity Fund 30,555,560 37,221,569 44,161 944,120 0.70 UBS U.S. Small Cap Growth Fund 84,095,356 80,587,158 159,602 8,103,287 2.94 UBS U.S. Bond Fund 83,190,677 74,333,899 153,342 11,323,178 7.67 UBS High Yield Fund 81,700,721 84,577,288 46,171 262,310 0.23
The Funds may invest in shares of the UBS U.S. Cash Management Prime Relationship Fund ("Cash Prime"). Cash Prime is offered as a cash management option only to mutual funds and certain other accounts. Distributions received from the Cash Prime are reflected as affiliated interest income in the Statement of Operations. Amounts relating to those investments at June 30, 2005 and for the year ended, were as follows:
% OF SALES INTEREST NET FUND PURCHASES PROCEEDS INCOME VALUE ASSETS ---- --------------- --------------- ----------- --------------- --------- UBS Dynamic Alpha Fund $ 473,311,405 $ 434,218,329 $ 551,268 $ 39,093,077 4.87% UBS Absolute Return Bond Fund 119,529,704 107,844,808 153,342 11,684,896 8.21
The following Funds have incurred brokerage commissions with an affiliated broker-dealer. Amounts relating to those transactions for the year ended June 30, 2005, were as follows:
FUND UBS SECURITIES LLC ---- ------------------ UBS Global Allocation Fund $ 141,550 UBS Global Equity Fund 30,116 UBS International Equity Fund 2,713 UBS U.S. Large Cap Equity Fund 37,362 UBS U.S. Large Cap Growth Fund 570 UBS U.S. Large Cap Value Equity Fund 19,974 UBS U.S. Small Cap Growth Fund 15,818
159 3. SERVICE AND DISTRIBUTION PLANS The Trust has adopted service and/or distribution 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. The Plans govern payments made for the expenses incurred in the service and/or distribution of Class A, Class B and Class C. Annual fees under the Plans as a percentage of the average daily net assets of each respective class of each of the Funds are as follows:
FUND CLASS A CLASS B 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 International Equity Fund 0.25 1.00 1.00 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. Large Cap Value Equity Fund 0.25 1.00 1.00 UBS U.S. Small Cap Growth Fund 0.25 1.00 1.00 UBS Dynamic Alpha Fund 0.25 1.00 1.00 UBS U.S. Bond Fund 0.25 1.00 0.75 UBS Absolute Return Bond Fund 0.15 N/A 0.50 UBS High Yield Fund 0.25 1.00 0.75
UBS Global AM also receives the proceeds of the initial sales charges paid upon the purchase of Class A and the contingent deferred sales charges paid by shareholders upon certain redemptions of Class A, Class B and Class C shares. 160 At June 30, 2005, certain Funds owed UBS Global AM service and distribution fees, and for the year ended June 30, 2005, certain Funds were informed by UBS Global AM that it had earned sales charges as follows:
SERVICE AND DISTRIBUTION FEES SALES CHARGES FUND OWED EARNED ---- ----------------- -------------- UBS Global Allocation Fund - A $ 323,293 $ 9,351,020 UBS Global Allocation Fund - B 151,003 271,984 UBS Global Allocation Fund - C 735,624 180,113 UBS Global Equity Fund - A 22,675 60,521 UBS Global Equity Fund - B 90,727 412,199 UBS Global Equity Fund - C 57,053 4,827 UBS Global Bond Fund - A 3,649 41,990 UBS Global Bond Fund - B 961 12,585 UBS Global Bond Fund - C 1,963 1,494 UBS International Equity Fund - A 3,070 30,023 UBS International Equity Fund - B 697 2,041 UBS International Equity Fund - C 1,521 880 UBS U.S. Large Cap Equity Fund - A 4,167 35,876 UBS U.S. Large Cap Equity Fund - B 825 2,529 UBS U.S. Large Cap Equity Fund - C 1,928 157 UBS U.S. Large Cap Growth Fund - A 647 7,863 UBS U.S. Large Cap Growth Fund - B 437 314 UBS U.S. Large Cap Growth Fund - C 337 -- UBS U.S. Large Cap Value Equity Fund - A 21,934 23,895 UBS U.S. Large Cap Value Equity Fund - B 4,156 29,399 UBS U.S. Large Cap Value Equity Fund - C 14,391 1,234 UBS U.S. Small Cap Growth Fund - A 22,378 33,961 UBS U.S. Small Cap Growth Fund - B 7,857 49,928 UBS U.S. Small Cap Growth Fund - C 7,083 2,153 UBS Dynamic Alpha Fund - A 101,443 6,675,685 UBS Dynamic Alpha Fund - B 11,959 4,505 UBS Dynamic Alpha Fund - C 160,186 24,560 UBS U.S. Bond Fund - A 7,092 3,464 UBS U.S. Bond Fund - B 1,495 7,089 UBS U.S. Bond Fund - C 1,273 106 UBS Absolute Return Bond Fund - A 11,322 282,758 UBS Absolute Return Bond Fund - C 6,326 505 UBS High Yield Bond Fund - A 13,864 61,408 UBS High Yield Bond Fund - B 3,240 32,369 UBS High Yield Bond Fund - C 9,570 1,706
4. REDEMPTION FEES UBS Global Allocation Fund, UBS Global Equity Fund and UBS International Equity Fund charge 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 Funds, not UBS Global AM. The redemption fees are disclosed by each applicable Fund in the Statements of Changes in Net Assets. 5. TRANSFER AGENCY AND RELATED SERVICES FEES UBS Financial Services, Inc. provided transfer agency and 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. 161 For the year ended June 30, 2005, UBS Financial Services, Inc. received total transfer agency and related services fees paid by the Funds to PFPC as follows:
FUND AMOUNT PAID ---- ----------- UBS Global Allocation Fund $ 694,346 UBS Global Equity Fund 308,429 UBS Global Bond Fund 14,803 UBS International Equity Fund 6,053 UBS U.S. Large Cap Equity Fund 3,427 UBS U.S. Large Cap Growth Fund 1,944 UBS U.S. Large Cap Value Equity Fund 78,415 UBS U.S. Small Cap Growth Fund 50,131 UBS Dynamic Alpha Fund 30,471 UBS U.S. Bond Fund 4,939 UBS Absolute Return Bond Fund 542 UBS High Yield Fund 73,299
6. SECURITIES LENDING The Funds may lend securities up to 33 1/3% of its total assets to qualified broker-dealers or institutional investors. The loans are secured at all times by cash, U.S. government securities or irrevocable letters of credit in an amount at least equal to the market value of the securities loaned, plus accrued interest and dividends, determined on a daily basis and adjusted accordingly. Each Fund will regain ownership of loaned securities to exercise certain beneficial rights; however, each Fund may bear the risk of delay in recovery of, or even loss of rights in, the securities loaned should the borrower fail financially. Each Fund receives compensation for lending its securities from interest or dividends earned on the cash, U.S. government securities or irrevocable letters of credit held as collateral, net of fee rebates paid to the borrower plus reasonable administrative and custody fees. 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. UBS Global Allocation Fund and UBS International Equity Fund loaned securities to certain brokers, with the Funds' custodian acting as the Funds' lending agent. Cash collateral received is invested in interest bearing securities, which are included in the Schedule of Investments. In addition, the UBS Global Allocation Fund received U.S. Government Agency securities as collateral amounting to $48,614,528, which cannot be resold. The value of loaned securities and related collateral outstanding at June 30, 2005, 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 $ 214,248,684 $ 221,477,689 $ 172,863,161 UBS International Equity Fund 16,517,523 17,300,724 17,300,724
7. 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") to be utilized for temporary financing until the settlement of shares or purchases of portfolio securities, the repurchase or redemption of shares and other temporary or emergency purposes. 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 162 0.09% per annum on the average daily balance of the line of credit not utilized. The average borrowings under the agreement for the year ended June 30, 2005, were as follows:
AVERAGE NUMBER OF DAYS INTEREST FUND BORROWINGS OUTSTANDING PAID ---- -------------- -------------- ---------- UBS Global Allocation Fund $ 14,737,114 7 $ 9,082 UBS Global Equity Fund 1,683,270 4 514 UBS Global Bond Fund 1,155,500 4 353 UBS International Equity Fund 3,595,000 1 331 UBS U.S. Bond Fund 8,279,485 5 3,176 UBS High Yield Fund 5,641,780 10 3,680
8. PURCHASES AND SALES OF SECURITIES For the year ended June 30, 2005, aggregate purchases and sales of portfolio securities, excluding short-term investments and U.S. government securities, were as follows:
SALES FUND PURCHASES PROCEEDS ---- --------------- --------------- UBS Global Allocation Fund $ 2,138,816,243 $ 1,432,357,116 UBS Global Equity Fund 164,004,940 206,492,086 UBS Global Bond Fund 52,765,906 46,621,745 UBS International Equity Fund 95,216,470 84,821,557 UBS U.S. Large Cap Equity Fund 268,885,295 63,725,220 UBS U.S. Large Cap Growth Fund 9,341,766 9,177,767 UBS U.S. Large Cap Value Equity Fund 67,130,952 88,002,928 UBS U.S. Small Cap Growth Fund 145,257,491 102,177,914 UBS Dynamic Alpha Fund 725,964,000 10,000,000 UBS U.S. Bond Fund 90,697,261 86,104,939 UBS Absolute Return Bond Fund 136,323,410 14,834,952 UBS High Yield Fund 83,331,544 112,502,830
For the year ended June 30, 2005, aggregate purchases and sales of long-term U.S. government securities were as follows:
SALES FUND PURCHASES PROCEEDS ---- --------------- --------------- UBS Global Allocation Fund $ 625,502,442 $ 579,208,157 UBS Global Bond Fund 26,096,762 26,139,740 UBS Dynamic Alpha Fund 20,216,652 20,214,366 UBS U.S. Bond Fund 157,069,506 140,837,619
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 ------------
163 UBS U.S. Small Cap Growth Fund's net assets immediately before the reorganization were $112,531,458. 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 FINANCIAL UBS U.S. 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 Fund's 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 intend to meet the requirements of the Code applicable to regulated investment companies, therefore, no federal income tax provision was required. At June 30, 2005, the following Funds had net capital loss carryforwards for federal income tax purposes available to offset future net capital gains through the indicated expiration dates:
EXPIRATION EXPIRATION EXPIRATION EXPIRATION EXPIRATION EXPIRATION DATE DATE DATE DATE DATE DATE FUND JUNE 30, 2008 JUNE 30, 2009 JUNE 30, 2010 JUNE 30, 2011 JUNE 30, 2012 JUNE 30, 2013 ---- ------------- ------------- ------------- ------------- ------------- ------------- UBS Global Bond Fund -- $ 414,186 -- -- -- -- UBS U.S. Large Cap Growth Fund -- -- $ 1,009,544 $ 1,745,070 $ 603,775 -- UBS U.S. Large Cap Value Equity Fund $ 355,937+ 83,503+ 273,335+ -- -- -- UBS U.S. Bond Fund -- 404,247 -- -- $ 614,333 140,847
At June 30, 2005, 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 --------------- --------------- --------------- --------------- --------------- $ 43,655,508++ $ 143,090,067++ $ 389,124,210++ $ 253,636,661++ $ 4,283,846
At June 30, 2005, the UBS High Yield Fund had the following capital loss carryforwards for federal income tax purposes available to offset future capital gains through the indicated expiration dates:
EXPIRATION DATE EXPIRATION DATE EXPIRATION DATE EXPIRATION DATE EXPIRATION DATE EXPIRATION DATE EXPIRATION DATE EXPIRATION DATE JUNE 30, 2006 JUNE 30, 2007 JUNE 30, 2008 JUNE 30, 2009 JUNE 30, 2010 JUNE 30, 2011 JUNE 30, 2012 JUNE 30, 2013 --------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- $ 11,387,957+++ $ 18,661,457+++ $ 98,009,332+++ $ 23,205,714+++ $ 6,612,767 $ 37,425,637 $ 15,791,570 $ 11,067,780
+ Due to merger with UBS U.S. Large Cap Equity Fund, utilization of capital loss carryforwards in susequent years may be limited. ++ Due to merger with UBS Strategy Fund, utilization of capital loss carryforwards in subsequent years may be limited. +++ Due to merger with Paine Webber High Income Fund, utilization of capital loss carryforwards in subsequent years may be limited. 164 For the fiscal year ended June 30, 2005, The following Funds utilized capital loss carryforwards to offset current year realized gains: UBS Global Equity Fund $ 37,823,282 UBS Global Bond Fund 794,355 UBS International Equity Fund 10,745,480 UBS U.S. Large Cap Growth Fund 255,849 UBS U.S. Large Cap Value Equity Fund 433,552
Post-October losses are deemed to arise on the first business day of a Fund's next taxable year. For the year ended June 30, 2005, the following Funds incurred, and elected to defer, losses of the following:
NET NET CAPITAL CURRENCY FUND LOSSES LOSSES ---- ----------- ----------- UBS Global Allocation Fund -- $ 3,858,607 UBS International Equity Fund -- 172,484 UBS Dynamic Alpha Fund $ 3,920,974 -- UBS U.S. Bond Fund 187,197 -- UBS Absolute Return Bond Fund 448,931 -- UBS High Yield Fund 21,849,116 --
The tax character of distributions paid during the fiscal years ended June 30, 2005, and 2004, were as follows:
2005 2004 ------------------------------------------- ------------------------------------------- DISTRIBUTIONS DISTRIBUTIONS DISTRIBUTIONS DISTRIBUTIONS PAID FROM PAID FROM NET TOTAL PAID FROM PAID FROM NET TOTAL ORDINARY LONG-TERM DISTRIBUTIONS ORDINARY LONG-TERM DISTRIBUTIONS FUND INCOME CAPITAL GAINS PAID INCOME CAPITAL GAINS PAID ---- ------------- ------------- ------------- ------------- ------------- ------------- UBS Global Allocation Fund $ 61,142,280 $ 26,432,523 $ 87,574,803 $ 13,269,985 -- $ 13,269,985 UBS Global Equity Fund -- -- -- 4,891,206 -- 4,891,206 UBS Global Bond Fund 3,630,892 -- 3,630,892 4,828,141 -- 4,828,141 UBS International Equity Fund 1,435,132 -- 1,435,132 2,715,721 -- 2,715,721 UBS U.S. Large Cap Equity Fund 1,656,696 5,535,537 7,192,233 1,535,536 -- 1,535,536 UBS U.S. Large Cap Value Equity Fund 3,247,492 21,462,799 24,710,291 184,418 -- 184,418 UBS U.S. Large Cap Growth Fund -- -- -- -- -- -- UBS U.S. Small Cap Growth Fund -- 3,161,183 3,161,183 -- $ 398,372 398,372 UBS Dynamic Alpha Fund -- -- -- N/A N/A N/A UBS U.S. Bond Fund 5,675,397 -- 5,675,397 5,180,925 -- 5,180,925 UBS Absolute Return Bond Fund 354,913 -- 354,913 N/A N/A N/A UBS High Yield Fund 11,449,763 -- 11,449,763 14,243,424 -- 14,243,424
At June 30, 2005, the components of accumulated earnings (deficit) on a tax basis were as follows:
UNDISTRIBUTED UNDISTRIBUTED ACCUMULATED UNREALIZED LONG-TERM ORDINARY CAPITAL AND APPRECIATION/ FUND CAPITAL GAIN INCOME OTHER LOSSES (DEPRECIATION) ---- ------------- ------------- -------------- -------------- UBS Global Allocation Fund $ 92,009,680 $ 45,702,439 $ (3,858,607) $ (11,959,655) UBS Global Equity Fund -- 2,158,106 (833,790,292) (4,119,500) UBS Global Bond Fund -- 1,511,793 (414,186) (210,049) UBS International Equity Fund 1,781,678 1,513,135 (172,484) (767,987) UBS U.S. Large Cap Equity Fund 1,758,506 3,861,079 -- (2,105,462) UBS U.S. Large Cap Growth Fund -- 5,078 (3,358,389) (36,916) UBS U.S. Large Cap Value Equity Fund 7,211,571 2,027,200 (712,775) (1,203,323) UBS U.S. Small Cap Growth Fund 10,916,228 92,395 -- (1,462,005) UBS Dynamic Alpha Fund -- 2,505,585 (3,920,974) (2,214,142) UBS U.S. Bond Fund -- 104,673 (1,346,624) (3,191) UBS Absolute Return Bond Fund -- 1,665,767 (448,931) 130,651 UBS High Yield Fund -- 202,420 (244,011,330) (66,426)
165 Due to inherent differences in the recognition of income, expenses and realized gains/losses under U.S. generally accepted accounting principles and federal income tax purposes, permanent differences between book and tax basis reporting for current fiscal year have been identified and appropriately reclassified. Reclassifications for the year ended June 30, 2005, were as follows:
ACCUMULATED UNDISTRIBUTED ACCUMULATED NET INVESTMENT NET REALIZED BENEFICIAL FUND INCOME (LOSS) GAIN (LOSS) INTEREST ---- -------------- -------------- ---------------- UBS Global Allocation Fund $ 15,433,962 $ (29,915,118) $ 14,481,156 UBS Global Equity Fund 423,027 (534,440) 111,413 UBS Global Bond Fund 1,622,666 (1,622,666) -- UBS International Equity Fund 332,397 (332,397) -- UBS U.S. Large Cap Equity Fund -- -- -- UBS U.S. Large Cap Growth Fund -- -- -- UBS U.S. Large Cap Value Equity Fund -- (182,769) 182,769 UBS U.S. Small Cap Growth Fund 1,742,620 (1,771,784) 29,164 UBS Dynamic Alpha Fund 4,529,520 (4,960,015) 430,495 UBS U.S. Bond Fund 657,074 (657,074) -- UBS Absolute Return Bond Fund 1,076,898 (1,076,898) -- UBS High Yield Fund 104,859 9,984,164 (10,089,023)
These differences are primarily due to tax treatment of foreign currency transactions, net operating losses, paydown gains and losses, distributions in excess of net investment income and adjustments for certain debt obligations. 11. SHARES OF BENEFICIAL INTEREST For the year ended June 30, 2005, transactions in shares of beneficial interest for each of the Funds were as follows: UBS GLOBAL ALLOCATION FUND
CLASS A CLASS B CLASS C CLASS Y -------------------------- ------------------------- ------------------------- ------------------------- SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT ----------- ------------- ---------- ------------- ---------- ------------- ---------- ------------- Shares Sold 69,033,054 $ 901,176,727 4,887,986 $ 62,268,212 30,536,574 $ 391,636,475 9,025,992 $ 120,041,312 Shares Repurchased (25,752,268) (336,025,571) (1,775,385) (22,618,913) (7,634,229) (97,678,242) (4,549,745) (60,500,742) Shares Converted from Class B to Class A 2,058,238 26,884,109 (2,096,843) (26,884,109) -- -- -- -- Dividends Reinvested 3,245,207 42,774,132 435,192 5,648,829 1,736,469 22,554,243 790,799 10,549,257 ---------- ------------- --------- ------------- ---------- ------------- --------- ------------- Net Increase(Decrease) 48,584,231 $ 634,809,397 1,450,950 $ 18,414,019 24,638,814 $ 316,512,476 5,267,046 $ 70,089,827 ========== ============= ========= ============= ========== ============= ========= =============
UBS GLOBAL EQUITY FUND
CLASS A CLASS B CLASS C CLASS Y -------------------------- ------------------------- ------------------------- ------------------------- SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT ----------- ------------- ---------- ------------- ---------- ------------- ---------- ------------- Shares Sold 894,976 $ 9,923,996 128,544 $ 1,408,467 244,264 $ 2,689,476 4,834,174 $ 55,242,625 Shares Repurchased (2,676,088) (29,650,038) (3,431,230) (37,526,341) (2,189,686) (23,935,439) (2,142,827) (24,384,169) Shares Converted from Class B to Class A 98,506 1,118,102 (100,459) (1,118,102) -- -- -- -- ---------- ------------- ---------- ------------- ---------- ------------- --------- ------------- Net Increase(Decrease) (1,682,606) $ (18,607,940) (3,403,145) $ (37,235,976) (1,945,422) $ (21,245,963) 2,691,347 $ 30,858,456 ========== ============= ========== ============= ========== ============= ========= =============
166 UBS GLOBAL BOND FUND
CLASS A CLASS B CLASS C CLASS Y -------------------------- ------------------------- ------------------------- ------------------------- SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT ---------- ------------- ---------- ------------- ---------- ------------- ---------- ------------- Shares Sold 779,454 $ 7,873,101 26,285 $ 266,491 67,803 $ 708,589 1,912,428 $ 21,397,026 Shares Repurchased (663,537) (6,662,877) (37,800) (382,415) (114,205) (1,158,206) (1,089,043) (12,141,042) Shares Converted from Class B to Class A 31,671 315,713 (31,632) (315,713) -- -- -- -- Dividends Reinvested 70,787 720,661 4,801 49,041 10,279 104,558 219,180 2,456,745 ---------- ------------- ---------- ------------- ---------- ------------- ---------- ------------- Net Increase(Decrease) 218,375 $ 2,246,598 (38,346) $ (382,596) (36,123) $ (345,059) 1,042,565 $ 11,712,729 ========== ============= ========== ============= ========== ============= ========== =============
UBS INTERNATIONAL EQUITY FUND
CLASS A CLASS B CLASS C CLASS Y -------------------------- ------------------------- ------------------------- ------------------------- SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT ---------- ------------- ---------- ------------- ---------- ------------- ---------- ------------- Shares Sold 971,771 $ 9,123,414 47,847 $ 442,038 60,935 $ 554,593 3,579,796 $ 33,764,818 Shares Repurchased (327,691) (3,095,147) (23,780) (222,508) (25,220) (220,443) (3,533,605) (32,656,863) Shares Converted from Class B to Class A 26,666 249,695 (27,040) (249,695) -- -- -- -- Dividends Reinvested 12,425 118,283 681 6,407 1,315 12,319 131,730 1,260,658 ---------- ------------- ---------- ------------- ---------- ------------- ---------- ------------- Net Increase(Decrease) 683,171 $ 6,396,245 (2,292) $ (23,758) 37,030 $ 346,469 177,921 $ 2,368,613 ========== ============= ========== ============= ========== ============= ========== =============
UBS U.S. LARGE CAP EQUITY FUND
CLASS A CLASS B CLASS C CLASS Y -------------------------- ------------------------- ------------------------- ------------------------- SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT ---------- ------------- ---------- ------------- ---------- ------------- ---------- ------------- Shares Sold 1,141,152 $ 19,359,581 24,505 $ 396,959 51,504 $ 833,269 13,930,423 $ 237,587,472 Shares Repurchased (179,593) (2,974,111) (29,181) (474,059) (14,719) (241,240) (2,686,007) (45,165,916) Shares Converted from Class B to Class A 13,887 228,126 (14,138) (228,126) -- -- -- -- Dividends Reinvested 20,364 345,579 1,917 32,050 3,177 53,085 357,650 6,115,822 ---------- ------------- ---------- ------------- ---------- ------------- ---------- ------------- Net Increase(Decrease) 995,810 $ 16,959,175 (16,897) $ (273,176) 39,962 $ 645,114 11,602,066 $ 198,537,378 ========== ============= ========== ============= ========== ============= ========== =============
UBS U.S. LARGE CAP GROWTH FUND
CLASS A CLASS B CLASS C CLASS Y -------------------------- ------------------------- ------------------------- ------------------------- SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT ---------- ------------- ---------- ------------- ---------- ------------- ---------- ------------- Shares Sold 175,753 $ 1,392,107 50,709 $ 394,989 24,218 $ 186,891 164,709 $ 1,324,735 Shares Repurchased (93,780) (717,925) (15,315) (117,501) (30,467) (236,018) (243,604) (1,899,270) Shares Converted from Class B to Class A 9,816 78,183 (10,038) (78,183) -- -- -- -- ---------- ------------- ---------- ------------- ---------- ------------- ---------- ------------- Net Increase(Decrease) 91,789 $ 752,365 25,356 $ 199,305 (6,249) $ (49,127) (78,895) $ (574,535) ========== ============= ========== ============= ========== ============= ========== =============
UBS U.S. LARGE CAP VALUE EQUITY FUND
CLASS A CLASS B CLASS C CLASS Y -------------------------- ------------------------- ------------------------- ------------------------- SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT ---------- ------------- ---------- ------------- ---------- ------------- ---------- ------------- Shares Sold 366,374 $ 4,029,657 55,554 $ 603,214 41,749 $ 447,686 285,132 $ 3,076,338 Shares Repurchased (2,237,107) (23,806,916) (384,823) (4,197,986) (428,096) (4,522,736) (221,110) (2,345,027) Shares Converted from Class B to Class A 624,918 6,727,286 (635,303) (6,727,286) -- -- -- -- Dividends Reinvested 1,659,438 17,009,142 124,814 1,261,871 284,859 2,879,919 80,994 831,812 ---------- ------------- ---------- ------------- ---------- ------------- ---------- ------------- Net Increase(Decrease) 413,622 $ 3,959,169 (839,758) $ (9,060,187) (101,488) $ (1,195,131) 145,016 $ 1,563,123 ========== ============= ========== ============= ========== ============= ========== =============
167 UBS U.S. SMALL CAP GROWTH FUND
CLASS A CLASS B CLASS C CLASS Y -------------------------- ------------------------- ------------------------- ------------------------- SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT ---------- ------------- ---------- ------------- ---------- ------------- ---------- ------------- Shares Sold 4,308,097 $ 54,568,362 35,832 $ 441,849 47,561 $ 578,491 5,363,965 $ 71,157,347 Shares Repurchased (2,262,684) (28,745,706) (238,254) (2,944,023) (193,865) (2,399,019) (2,178,148) (28,035,910) Shares Converted from Class B to Class A 46,741 580,950 (47,761) (580,950) -- -- -- -- Dividends Reinvested 71,937 967,560 12,117 159,219 10,789 141,660 106,806 1,464,308 ---------- ------------- ---------- ------------- ---------- ------------- ---------- ------------- Net Increase(Decrease) 2,164,091 $ 27,371,166 (270,316) $ (2,923,905) (135,515) $ (1,678,868) 3,292,623 $ 44,585,745 ========== ============= ========== ============= ========== ============= ========== =============
UBS DYNAMIC ALPHA FUND
CLASS A CLASS B CLASS C CLASS Y -------------------------- ------------------------- ------------------------- ------------------------- SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT ---------- ------------- ---------- ------------- ---------- ------------- ---------- ------------- Shares Sold 57,910,258 $ 583,108,170 1,569,610 $ 15,948,744 20,860,891 $ 209,686,120 5,508,507 $ 55,539,965 Shares Repurchased (6,258,676) (62,973,914) (131,467) (1,160,653) (945,181) (9,516,375) (14,678) (148,572) Shares Converted from Class B to Class A 16,030 162,127 (16,061) (162,127) -- -- -- -- ---------- ------------- ---------- ------------- ---------- ------------- ---------- ------------- Net Increase 51,667,612 $ 520,296,383 1,422,082 $ 14,625,964 19,915,710 $ 200,169,745 5,493,829 $ 55,391,393 ========== ============= ========== ============= ========== ============= ========== =============
UBS U.S. BOND FUND
CLASS A CLASS B CLASS C CLASS Y -------------------------- ------------------------- ------------------------- ------------------------- SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT ---------- ------------- ---------- ------------- ---------- ------------- ---------- ------------- Shares Sold 894,623 $ 9,585,427 31,772 $ 341,139 18,559 $ 199,401 4,147,305 $ 44,475,902 Shares Repurchased (773,845) (8,288,955) (62,690) (673,669) (39,043) (418,111) (2,769,582) (29,708,217) Shares Converted from Class B to Class A 15,385 164,785 (15,379) (164,785) -- -- -- -- Dividends Reinvested 83,877 897,890 3,740 40,085 5,464 58,494 395,026 4,231,597 ---------- ------------- ---------- ------------- ---------- ------------- ---------- ------------- Net Increase(Decrease) 220,040 $ 2,359,147 (42,557) $ (457,230) (15,020) $ (160,216) 1,772,749 $ 18,999,282 ========== ============= ========== ============= ========== ============= ========== =============
UBS ABSOLUTE RETURN BOND FUND
CLASS A CLASS C CLASS Y -------------------------- ------------------------- ------------------------- SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT ---------- ------------- ---------- ------------- ---------- ------------- Shares Sold 11,110,087 $ 111,075,747 1,788,810 $ 17,882,149 1,999,998 $ 19,999,975 Shares Repurchased (575,116) (5,750,561) (90,869) (908,477) -- -- Dividends Reinvested 23,777 237,297 2,978 29,722 4,488 44,795 ---------- ------------- ---------- ------------- --------- ------------- Net Increase 10,558,748 $ 105,562,483 1,700,919 $ 17,003,394 2,004,486 $ 20,044,770 ========== ============= ========== ============= ========= =============
UBS HIGH YIELD FUND
CLASS A CLASS B CLASS C CLASS Y -------------------------- ------------------------- ------------------------- ------------------------- SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT ---------- ------------- ---------- ------------- ---------- ------------- ---------- ------------- Shares Sold 1,902,920 $ 13,792,311 51,129 $ 372,922 217,672 $ 1,570,720 3,798,542 $ 27,460,685 Shares Repurchased (3,697,510) (26,810,731) (267,704) (1,775,628) (631,495) (4,603,207) (6,824,874) (49,884,542) Shares Converted from Class B to Class A 387,287 2,817,173 (364,987) (2,817,173) -- -- -- -- Dividends Reinvested 464,062 3,364,084 23,303 168,577 91,108 659,270 479,895 3,488,674 ---------- ------------- ---------- ------------- ---------- ------------- ---------- ------------- Net Increase(Decrease) (943,241) $ (6,837,163) (558,259) $ (4,051,302) (322,715) $ (2,373,217) (2,546,437) $ (18,935,183) ========== ============= ========== ============= ========== ============= ========== =============
168 For the year ended June 30, 2004, transactions in shares of beneficial interest for each of the Funds were as follows: UBS GLOBAL ALLOCATION FUND
CLASS A CLASS B CLASS C CLASS Y -------------------------- ------------------------- ------------------------- ------------------------- SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT ---------- ------------- ---------- ------------- ---------- ------------- ---------- ------------- Shares Sold 64,841,376 $ 771,649,248 9,368,229 $ 109,114,997 34,837,342 $ 405,152,193 8,013,540 $ 96,284,650 Shares Repurchased (10,778,674) (129,489,601) (1,478,822) (17,242,894) (3,697,764) (43,352,522) (5,072,682) (59,577,632) Shares Converted from Class B to Class A 17,053 212,390 (17,304) (212,390) -- -- -- -- Dividends Reinvested 464,731 5,548,907 70,439 829,767 264,867 3,122,784 202,869 2,446,598 ---------- ------------- ---------- ------------- ---------- ------------- ----------- ------------- Net Increase 54,544,486 $ 647,920,944 7,942,542 $ 92,489,480 31,404,445 $ 364,922,455 3,143,727 $ 39,153,616 ========== ============= ========== ============= ========== ============= =========== =============
UBS GLOBAL EQUITY FUND
CLASS A CLASS B CLASS C CLASS Y -------------------------- ------------------------- ------------------------- -------------------------- SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT ---------- ------------- ---------- ------------- ---------- ------------- ----------- ------------- Shares Sold 2,422,308 $ 23,475,971 263,939 $ 2,617,886 216,713 $ 2,167,175 9,113,553 $ 88,053,616 Shares Repurchased (5,339,601) (52,291,281) (3,754,027) (36,891,178) (2,939,249) (28,846,302) (5,457,481) (56,220,029) Shares Converted from Class B to Class A 16,558 172,521 (16,742) (172,521) -- -- -- -- Dividends Reinvested 124,613 1,259,846 121,113 1,212,343 76,616 764,619 116,889 1,196,944 ---------- ------------- ---------- ------------- ---------- ------------- ----------- ------------- Net Increase(Decrease) (2,776,122) $ (27,382,943) (3,385,717) $ (33,233,470) (2,645,920) $ (25,914,508) 3,772,961 $ 33,030,531 ========== ============= ========== ============= ========== ============= =========== =============
UBS GLOBAL BOND FUND
CLASS A CLASS B CLASS C CLASS Y -------------------------- ------------------------- ------------------------- -------------------------- SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT ---------- ------------- ---------- ------------- ---------- ------------- ----------- ------------- Shares Sold 1,046,908 $ 10,737,328 79,135 $ 804,290 91,510 $ 918,969 3,216,552 $ 35,901,499 Shares Repurchased (810,687) (8,238,128) (85,358) (867,095) (69,151) (696,421) (2,867,578) (31,785,235) Shares Converted from Class B to Class A 20,105 205,268 (20,085) (205,268) -- -- -- -- Dividends Reinvested 85,913 868,518 10,533 106,625 15,372 155,154 258,759 2,866,034 ---------- ------------- ---------- ------------- ---------- ------------- ----------- ------------- Net Increase(Decrease) 342,239 $ 3,572,986 (15,775) $ (161,448) 37,731 $ 377,702 607,733 $ 6,982,298 ========== ============= ========== ============= ========== ============= =========== =============
UBS INTERNATIONAL EQUITY FUND
CLASS A CLASS B CLASS C CLASS Y -------------------------- ------------------------- ------------------------- -------------------------- SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT ---------- ------------- ---------- ------------- ---------- ------------- ----------- ------------- Shares Sold 1,333,420 $ 10,535,620 59,858 $ 486,242 197,097 $ 1,605,427 12,031,210 $ 95,066,857 Shares Repurchased (882,205) (6,742,523) (13,934) (109,390) (99,010) (821,150) (13,559,941) (104,041,605) Shares Converted from Class B to Class A 2,067 17,341 (2,092) (17,341) -- -- -- -- Dividends Reinvested 13,040 106,895 1,406 11,433 2,438 19,771 304,251 2,506,952 ---------- ------------- ---------- ------------- ---------- ------------- ----------- ------------- Net Increase(Decrease) 466,322 $ 3,917,333 45,238 $ 370,944 100,525 $ 804,048 (1,224,480) $ (6,467,796) ========== ============= ========== ============= ========== ============= =========== =============
UBS U.S. LARGE CAP EQUITY FUND
CLASS A CLASS B CLASS C CLASS Y -------------------------- ------------------------- ------------------------- -------------------------- SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT ---------- ------------- ---------- ------------- ---------- ------------- ----------- ------------- Shares Sold 163,425 $ 2,527,329 51,141 $ 757,699 50,769 $ 729,594 4,012,064 $ 61,668,516 Shares Repurchased (34,801) (522,243) (7,798) (120,732) (24,118) (344,284) (1,861,109) (28,437,025) Shares Converted from Class B to Class A 13,747 209,919 (13,945) (209,919) -- -- -- -- Dividends Reinvested 3,038 46,600 396 5,998 553 8,372 85,844 1,325,429 ---------- ------------- ---------- ------------- ---------- ------------- ----------- ------------- Net Increase 145,409 $ 2,261,605 29,794 $ 433,046 27,204 $ 393,682 2,236,799 $ 34,556,920 ========== ============= ========== ============= ========== ============= =========== =============
169 UBS U.S. LARGE CAP GROWTH FUND
CLASS A CLASS B CLASS C CLASS Y -------------------------- ------------------------- ------------------------- ------------------------- SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT ---------- ------------- ---------- ------------- ---------- ------------- ---------- ------------- Shares Sold 183,341 $ 1,320,185 19,285 $ 130,574 34,172 $ 249,647 294,474 $ 2,144,735 Shares Repurchased (71,381) (508,947) (23,619) (166,741) (19,221) (142,483) (147,622) (1,107,330) Shares Converted from Class B to Class A 1,196 9,322 (1,215) (9,322) -- -- -- -- ---------- ------------- ---------- ------------- ---------- ------------- ---------- ------------- Net Increase(Decrease) 113,156 $ 820,560 (5,549) $ (45,489) 14,951 $ 107,164 146,852 $ 1,037,405 ========== ============= ========== ============= ========== ============= ========== =============
UBS U.S. LARGE CAP VALUE EQUITY FUND
CLASS A CLASS B CLASS C CLASS Y -------------------------- ------------------------- ------------------------- ------------------------- SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT ---------- ------------- ---------- ------------- ---------- ------------- ---------- ------------- Shares Sold 9,471,490 $ 94,872,481 3,166,443 $ 31,303,438 1,978,857 $ 19,640,767 345,284 $ 3,522,730 Shares Repurchased (1,327,756) (14,305,692) (476,389) (5,037,643) (315,498) (3,347,983) (457,039) (4,788,661) Shares Converted from Class B to Class A 1,422,789 15,504,956 (1,443,512) (15,504,956) -- -- -- -- Dividends Reinvested 12,989 137,814 1,051 11,007 526 5,513 619 6,589 ---------- ------------- ---------- ------------- ---------- ------------- ---------- ------------- Net Increase(Decrease) 9,579,512 $ 96,209,559 1,247,593 $ 10,771,846 1,663,885 $ 16,298,297 (111,136) $ (1,259,342) ========== ============= ========== ============= ========== ============= ========== =============
UBS U.S. SMALL CAP GROWTH FUND
CLASS A CLASS B CLASS C CLASS Y -------------------------- ------------------------- ------------------------- ------------------------- SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT ---------- ------------- ---------- ------------- ---------- ------------- ---------- ------------- Shares Sold 6,574,820 $ 79,682,848 1,093,902 $ 13,388,030 898,082 $ 11,020,360 6,106,167 $ 74,590,383 Shares Repurchased (1,656,216) (20,308,345) (210,033) (2,540,767) (189,100) (2,320,081) (2,803,075) (34,769,087) Shares Converted from Class B to Class A 41,015 506,429 (41,690) (506,429) -- -- -- -- Dividends Reinvested 7,174 88,533 3,034 36,899 2,225 27,032 16,584 208,127 ---------- ------------- ---------- ------------- ---------- ------------- ---------- ------------- Net Increase 4,966,793 $ 59,969,465 845,213 $ 10,377,733 711,207 $ 8,727,311 3,319,676 $ 40,029,423 ========== ============= ========== ============= ========== ============= ========== =============
UBS U.S. BOND FUND
CLASS A CLASS B CLASS C CLASS Y -------------------------- ------------------------- ------------------------- ------------------------- SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT ---------- ------------- ---------- ------------- ---------- ------------- ---------- ------------- Shares Sold 1,225,634 $ 13,169,422 142,697 $ 1,557,618 66,970 $ 715,096 4,730,090 $ 51,186,011 Shares Repurchased (1,232,450) (13,259,217) (242,536) (2,620,051) (152,513) (1,638,269) (3,776,541) (40,559,098) Shares Converted from Class B to Class A 44,765 484,515 (44,819) (484,515) -- -- -- -- Dividends Reinvested 85,689 919,891 5,701 61,132 5,292 56,695 332,413 3,568,538 ---------- ------------- ---------- ------------- ---------- ------------- ---------- ------------- Net Increase(Decrease) 123,638 $ 1,314,611 (138,957) $ (1,485,816) (80,251) $ (866,478) 1,285,962 $ 14,195,451 ========== ============= ========== ============= ========== ============= ========== =============
UBS HIGH YIELD FUND
CLASS A CLASS B CLASS C CLASS Y -------------------------- ------------------------- ------------------------- ------------------------- SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT ---------- ------------- ---------- ------------- ---------- ------------- ---------- ------------- Shares Sold 5,535,038 $ 38,224,758 174,686 $ 1,224,503 391,859 $ 2,746,770 4,653,189 $ 32,636,437 Shares Repurchased (7,379,532) (51,323,858) (477,082) (3,360,363) (798,716) (5,644,297) (9,049,563) (64,087,774) Shares Converted from Class B to Class A 556,500 3,895,932 (556,713) (3,895,932) -- -- -- -- Dividends Reinvested 404,716 2,837,990 48,387 339,097 108,789 764,102 715,996 5,056,124 ---------- ------------- ---------- ------------- ---------- ------------- ---------- ------------- Net (Decrease) (883,278) $ (6,365,178) (810,722) $ (5,692,695) (298,068) $ (2,133,425) (3,680,378) $ (26,395,213) ========== ============= ========== ============= ========== ============= ========== =============
170 THE UBS FUNDS -- REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Trustees and Shareholders of The UBS Funds We have audited the accompanying statements of assets and liabilities of The UBS Funds (comprising UBS Global Allocation Fund, UBS Global Equity Fund, UBS Global Bond Fund, UBS International Equity Fund, UBS U.S. Large Cap Equity Fund, UBS U.S. Large Cap Growth Fund, UBS U.S. Large Cap Value Equity Fund, UBS U.S. Small Cap Growth Fund, UBS Dynamic Alpha Fund, UBS U.S. Bond Fund, UBS Absolute Return Bond Fund, and UBS High Yield Fund) (collectively the "Funds"), including the schedules of investments, as of June 30, 2005, and the related statements of operations for the year then ended, and the statements of changes in net assets and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Funds' management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Funds' internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Funds' internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of June 30, 2005, by correspondence with the custodian and others. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of The UBS Funds at June 30, 2005, the results of their operations for the year then ended, and the changes in their net assets and the financial highlights for each of the indicated periods, in conformity with U.S. generally accepted accounting principles. /s/ Ernst & Young LLP New York, New York August 16, 2005 171 THE UBS FUNDS -- GENERAL INFORMATION (UNAUDITED) QUARTERLY FORM N-Q PORTFOLIO SCHEDULE The Funds will file their complete schedule 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 Fund upon request by calling 1-800-647-1568. PROXY VOTING POLICIES, PROCEDURES AND RECORD You may obtain a description of the Fund's (1) proxy voting policies, (2) proxy voting procedures and (3) information regarding how the Funds voted any proxies related to portfolio securities during the 12-month period ended June 30, 2005, without charge, upon request by contacting the Fund 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 Web site (http://www.sec.gov). 172 THE UBS FUNDS -- BOARD APPROVAL OF INVESTMENT ADVISORY AGREEMENTS At the meeting of the Board of Trustees (the "Board") of The UBS Funds (the "Trust"), held on May 26, 2005 (the "Meeting"), the Board, consisting entirely of Trustees who are not "interested persons" (as defined in the 1940 Act) of the Trust or UBS Global Asset Management (Americas) Inc. (the "Advisor") and its affiliates (together, the "Independent Trustees"), considered the continuation of the investment advisory agreements (the "Advisory Agreements") between the Trust and the Advisor for the UBS U.S. Bond Fund, UBS High Yield Fund, UBS U.S. Large Cap Equity Fund, UBS U.S. Large Cap Value Equity Fund, UBS U.S. Large Cap Growth Fund, UBS U.S. Small Cap Growth Fund, UBS Global Allocation Fund, UBS Global Equity Fund, UBS Global Bond Fund and UBS International Equity Fund (each a "Fund," and together, the "Funds"). Prior to the Meeting, the Independent Trustees' counsel had sent to the Advisor a request detailing the information that the Independent Trustees wished to receive in connection with their consideration of the continuation of the Advisory Agreements. The Independent Trustees met with their independent counsel on May 25, 2005 to discuss the materials provided to them in response to the information request, including materials prepared by the Advisor, as well as reports prepared by Lipper Analytical Services, Inc. ("Lipper Reports"), an independent statistical compilation company, providing comparative expense information on an actual and contractual basis and comparative performance for the Funds. The Board also made reference to information and material that had been provided to the Independent Trustees throughout the year at quarterly Board meetings and other issues related to the continuation of the Advisory Agreements. At the Meeting, the Board considered a number of factors in connection with their deliberations concerning the continuation of the Advisory Agreement for each Fund, including: (i) the nature, extent and quality of the services provided by the Advisor to the Fund; (ii) the performance of the Fund and the Advisor; (iii) the Fund's expenses, costs of the services to be provided and profits to be realized by the Advisor and its affiliates from the relationship with the Fund; and (iv) whether economies of scale are realized by the Advisor with respect to the Fund, as it grows larger, and the extent to which the economies of scale are reflected in the level of the management fees charged. NATURE, EXTENT AND QUALITY OF SERVICES In considering the nature, extent and quality of the services provided by the Advisor to a Fund, the Board reviewed the material presented by the Advisor describing the various services provided to the Fund. The Board noted that in addition to investment management services, the Advisor provides the Fund with operational, legal and compliance support. The Board also considered the scope and depth of the Advisor's organization and the experience and expertise of the professionals currently providing investment management and other services to the Fund. The Board considered that the Advisor was a well-established investment management organization employing investment personnel with significant experience in the investment management industry. The Board also considered the Advisor's in-house research capabilities, as well as other research services available to it, including research services available to the Advisor as a result of securities transactions effected for the Funds and the Advisor's other investment management clients. The Board also evaluated the Advisor's portfolio management process and reviewed the information concerning the process that had been provided by the Advisor in advance of the Meeting. The Board noted that various presentations had been made by investment personnel at Board meetings throughout the year concerning the Funds' investment performance and investment strategies. The Board also noted and discussed the services that the Advisor's affiliates provide to the Funds under other agreements with the Trust including underwriting services and administration services provided by UBS Global Asset Management (US) Inc. ("UBS Global AM (US)") and sub-transfer agency services provided by UBS Financial Services Inc. ("UBS Financial Services"). In connection with the non-investment management services, the Board also considered the quarterly reports that the Advisor provides to the Board throughout the year pertaining to brokerage commissions, soft dollars, portfolio valuations and Rule 12b-1 fees, among others. The Board also discussed the compliance program for the Advisor and its affiliates, including the Advisor's compliance with its code of ethics, trade allocation procedures and best execution procedures. After analyzing the services provided by the Advisor to each Fund, both quantitatively and qualitatively, including the impact of these services on investment performance, the Board concluded that the nature, extent and quality of services provided to each Fund were consistent with the operational requirements of each Fund, and met the needs of the Fund's shareholders. PERFORMANCE In evaluating the performance of each Fund, the Board analyzed the Lipper Reports, which compared the performance of each Fund with other funds in its respective peer universe over various time periods. In reviewing the Lipper Reports, the Board noted that most of the Funds had appeared in one of the top two performance quintiles for most performance periods. In the case of UBS Global Bond Fund, which had appeared in the fourth performance quintile for the 173 one-year period, in response to the Board's inquiry, the Advisor explained that the UBS Global Bond Fund utilized different duration strategies than many of the funds in its peer universe, which affected its relative performance for the one-year period. The Board did note that the UBS Global Bond Fund appeared in one of the top two performance quintiles for the three-, five-, and ten-year performance periods. After analyzing the performance for each Fund, the Board determined that the performance of each Fund was acceptable as compared with relevant performance standards, given the investment strategies and risk profile of each Fund and the expectations of the shareholder base. COSTS AND EXPENSES When considering the fees and expenses borne by each Fund, and the reasonableness of the management fees paid to the Advisor in light of the services provided to the Fund, the Board compared the fees charged by the Advisor to the Fund to the fees charged to the funds in its peer group for comparable services, as provided in the Lipper Reports, on both an actual (taking into account expense limitation arrangements) and a contractual basis. In examining the Lipper Reports, and in reviewing comparative costs, it was noted that the results of such expense comparisons showed that the actual management fee rate and total expenses for most Funds were comparable to the funds in their respective Lipper expense groups. The Board did note that the management fee for the UBS Global Allocation Fund was higher than many funds in its Lipper expense group on both an actual and contractual basis, which led the Board to discuss this Fund's management fee at some length with the Advisor. The Advisor explained that due to the recent significant asset growth of the UBS Global Allocation Fund, the effective management fee, taking into consideration breakpoints, was, in fact, several basis points lower at the time of the Meeting than the management fee as it appeared in the Lipper Report, which was based on the Fund's most recently completed fiscal year. The Board noted that, nonetheless, due to the UBS Global Allocation Fund's significant asset growth in the past year, the Fund had reached the final breakpoint level in its management fee breakpoint schedule. At the request of the Board, the Advisor agreed to revise the UBS Global Allocation Fund's management fee breakpoint schedule to include an additional breakpoint for assets over $3 billion, which the Board believed should result in the Fund's management fee being more comparable with its peers. The Board also noted that the management fee for the UBS U.S. Large Cap Equity Fund, on both an actual and contractual basis, was higher than the management fee of several of the funds in its Lipper expense group. The Board, however, determined that the UBS U.S. Large Cap Equity Fund's management fee was reasonable considering that it was not appreciably higher than the Lipper expense group median and the Fund's performance was in the first quintile in its Lipper performance universe for all performance periods. With respect to each Fund subject to a one-year contractual expense limit, the Board also considered that the Advisor had agreed to renew the expense limit arrangement at the current rate for an additional one-year period. The Board also received and considered information about the fee rates charged to other funds and accounts that are managed by the Advisor. After discussing the information about the other funds and accounts with the Advisor, the Board determined that the fees charged by the Advisor to the Funds were within a reasonable range, giving effect to differences in services performed for such other funds and accounts as compared to such fee rates. The Board, after reviewing all pertinent material, concluded that the management fee payable under each Fund's Advisory Agreement was fair and reasonable, both on an absolute basis and in comparison with the fees of other funds identified in its peer group. PROFITABILITY The Board considered the profitability of the Funds to the Advisor and its affiliates by reviewing the profitability analysis provided by the Advisor, including information about its fee revenues and income. The Board reviewed the profitability of each Fund to the Advisor and its affiliates, and the compensation that was received for providing services to each Fund. The profitability analysis, which provided information for the last two calendar years, included schedules relating to the revenue and expenses attributable to: (i) the investment advisory and administration services provided by the Advisor and UBS Global AM (US); (ii) the distribution and shareholder services provided by UBS Global AM (US) and UBS Financial Services; (iii) the sub-transfer agency services provided by UBS Financial Services; and (iv) all services provided by the Advisor, UBS Global AM (US) and UBS Financial Services shown on a consolidated basis. The Board paid specific attention to the cost allocation methodology used in the profitability analysis and determined that the methodology used was reasonable. A considerable amount of time was spent discussing the profitability to the Advisor of the UBS Global Allocation Fund and the increase in profitability since the previous year. In reviewing the Advisor's profitability for the UBS Global Allocation Fund, the Board considered that the Advisor had agreed to include an additional breakpoint level in the management fee of the Fund, which could decrease the profitability of this Fund to the Advisor in the future. The Board also considered "fall-out" or ancillary benefits to the Advisor or its affiliates as the result 174 of their relationship with the Funds; for example, the ability to attract other clients due to the Advisor's role as investment advisor to the Funds and the research services available to the Advisor through soft dollar brokerage commissions. The Independent Trustees also considered the ancillary benefits received by the Advisor's affiliates, UBS Securities LLC and UBS AG, in the form of commissions for executing securities transactions for the Funds. Upon closely examining the information provided concerning the Advisor's profitability, the Board concluded that the level of profits realized by the Advisor and its affiliates with respect to each Fund, if any, was reasonable in relation to the nature and quality of the services that were provided. ECONOMIES OF SCALE The Board also discussed whether economies of scale are realized by the Advisor with respect to each Fund as it grows larger, and the extent to which this is reflected in the level of advisory fees charged. The Board noted that with respect to each Fund, any actual or potential economies of scale are, or will be, shared with the Fund and its shareholders through existing management fee breakpoints so that as the Fund grows in size, its effective management fee declines. The Board noted that with the inclusion of the additional breakpoint level for the UBS Global Allocation Fund agreed to at the Meeting, each Fund had a breakpoint schedule that provided for continuing breakpoints past the current asset level for the Fund. Based on each Fund's fees and expenses and the Advisor's profitability analysis, the Board concluded that any actual or potential economies of scale would be reasonably shared with a Fund and its shareholders. After full consideration of the factors discussed above, with no single factor identified as being of paramount importance, the Board, with the assistance of independent counsel, concluded that the continuation of the Advisory Agreement for each Fund was in the best interests of the Fund and its shareholders. 175 TRUSTEE & OFFICER INFORMATION (UNAUDITED) The Trust is a Delaware business trust. Under Delaware law, the Board has overall responsibility for managing the business and affairs of the Trust, including general supervision and review of its investment activities. The Trustees elect the officers of the Trust, who are responsible for administering the day-to-day operations of the Trust and the Funds. The table below shows, for each Trustee and Officer, his or her name, address and age, the position held with the Trust, the length of time served as a Trustee or Officer of the Trust, the Trustee's or Officer's principal occupations during the last five years, the number of funds in the UBS Family of Funds overseen by the Trustee or Officer and other directorships held by such Trustee. The Trust's Statement of Additional Information contains additional information about the Trustees and is available, without charge, upon request, by calling 1-800-647-1568. NON-INTERESTED TRUSTEES:
TERM OF OFFICE + AND POSITION(S) LENGTH OF NUMBER OF PORTFOLIOS HELD WITH TIME PRINCIPAL OCCUPATION(S) IN FUND COMPLEX OTHER DIRECTORSHIPS NAME, ADDRESS, AND AGE TRUST SERVED DURING PAST 5 YEARS OVERSEEN BY TRUSTEE HELD BY TRUSTEE ---------------------- ----------- ----------- ----------------------- ------------------------- ------------------------- Walter E. Auch; 84 Trustee Since 1994 Mr. Auch is retired Mr. Auch is a trustee of Mr. Auch is a Trustee of 6001 N. 62nd Place (since 1986). three investment Advisors Series Trust (16 Paradise Valley, AZ companies (consisting of portfolios); Smith Barney 85253 41 portfolios) for which Fund Complex (27 UBS Global AM or one of portfolios); Nicholas its affiliates serves as Applegate Institutional investment advisor, Funds (19 portfolios). sub-advisor or manager. Frank K. Reilly; 69 Chairman Since 1994 Mr. Reilly is a Mr. Reilly is a director Mr. Reilly is a Director Mendoza College of and Professor at the or trustee of four of Discover Bank; Morgan Business Trustee University of Notre investment companies Stanley Trust and FSB. University of Notre Dame since 1982. (consisting of 42 Dame portfolios) for which UBS Notre Dame, IN Global AM or one of its 46556-5649 affiliates serves as investment advisor, subadvisor or manager. Edward M. Roob; 70 Trustee Since 1994 Mr. Roob is retired Mr. Roob is a director or Mr. Roob is a Trustee of 841 Woodbine Lane (since 1993). trustee of four the AHA Investment Funds Northbrook, IL investment companies (4 portfolios). 60002 (consisting of 42 portfolios) for which UBS Global AM or one of its affiliates serves as investment advisor, subadvisor or manager.
176
TERM OF OFFICE + AND POSITION(S) LENGTH OF NUMBER OF PORTFOLIOS HELD WITH TIME PRINCIPAL OCCUPATION(S) IN FUND COMPLEX OTHER DIRECTORSHIPS NAME, ADDRESS, AND AGE TRUST SERVED DURING PAST 5 YEARS OVERSEEN BY TRUSTEE HELD BY TRUSTEE ---------------------- ----------- ----------- ----------------------- ------------------------- ------------------------- Adela Cepeda; 47 Director/ Since 2004 Ms. Cepeda is founder Ms. Cepeda is a director Ms. Cepeda is a director A.C. Advisory, Inc. Trustee and president of A.C. or trustee of four of Lincoln National 161 No. Clark Street, Advisory, Inc. (since investment companies Income Fund, Inc. and Suite 4975 1995). (consisting of 42 Lincoln National Chicago, Illinois portfolios) for which UBS Convertible Securities 60601 Global AM or one of its Fund (since 1992). She is affiliates serves as also a Director of investment advisor, Amalgamated Bank of sub-advisor or manager. Chicago (since 2003), Wyndham International, Inc. (since 2004), and the MGI Funds (since 2005). J. Mikesell Thomas; 54 Director/ Since 2004 Mr. Thomas is President Mr. Thomas is a director Mr. Thomas is a director Federal Home Loan Trustee and CEO of Federal Home or trustee of four and chairman of the Bank of Chicago Loan Bank of Chicago investment companies Finance Committee for 111 East Wacker Drive (since 2004). Mr. (consisting of 42 Evanston Northwestern Chicago, Illinois Thomas was an portfolios) for which UBS Healthcare. He is also a 60601 independent financial Global AM or one of its vice president of the advisor (2001-2004). He affiliates serves as Board of Trustees for was a managing director investment advisor, Mid-Day Club. of Lazard Freres & Co. subadvisor or manager. (1995 to 2001).
177 OFFICERS:
TERM OF OFFICE + AND POSITION(S) LENGTH OF HELD WITH TIME PRINCIPAL OCCUPATION(S) NAME, ADDRESS, AND AGE THE FUND SERVED DURING PAST 5 YEARS ---------------------- -------------- ----------- -------------------------------------------------- Joseph Allessie*; Vice President Since 2005 Mr. Allessie is a director and associate general 40 and Assistant counsel at UBS GAM (USA) Inc and UBS Global Asset Secretary Management (Americas) Inc. (collectively, "UBS Global AM - Americas region") (since 2005). Prior to joining UBS Global AM - Americas region, he was senior vice president and general counsel of Kenmar Advisory Corp. (from 2004 to 2005). Prior to that Mr. Allessie was general counsel and secretary of GAM USA Inc., GAM Investments, GAM Services, GAM Funds, Inc. and the GAM Avalon Funds (from 1999 to 2004). Such entities are affiliates of UBS Global AM. Prior to joining GAM, Mr. Allessie was Regulatory Officer to the State of New Jersey, Department of Law and Public Safety, Bureau of Securities (from 1993 to 1999). Mr. Allessie is a vice president and assistant secretary of 20 investment companies (consisting of 75 portfolios) for which UBS Global AM - Americas region or one of its affiliates serves as investment advisor, sub-advisor or manager. W. Douglas Beck*; President Since 2005 Mr. Beck is an executive director and head of 38 product development and management for UBS Global AM - Americas region (since 2002). From March 1998 to November 2002, he held various positions at Merrill Lynch, the most recent being first vice president and co-manager of the managed solutions group. Mr. Beck is president of 20 investment companies (consisting of 75 portfolios) for which UBS Global AM - Americas region or one of its affiliates serves as investment advisor, subadvisor or manager, an was vice president of such investment companies from 2003 to 2005.
178
TERM OF OFFICE + AND POSITION(S) LENGTH OF HELD WITH TIME PRINCIPAL OCCUPATION(S) NAME, ADDRESS, AND AGE THE FUND SERVED DURING PAST 5 YEARS ---------------------- -------------- ----------- -------------------------------------------------- Rose Ann Bubloski*; Vice President Since 2004 Ms. Bubloski is an associate director and a senior 37 and Assistant manager of the mutual fund finance department of Treasurer UBS Global AM - Americas region. Ms. Bubloski is vice president and assistant treasurer of four investment companies (consisting of 42 portfolios) for which UBS Global AM - Americas region or one of its affiliates serves as investment advisor, subadvisor or manager. James Capezzuto*; Vice President Since 2004 Mr. Capezzuto is a director and associate general 41 and Assistant counsel at UBS Global AM - Americas region (since Secretary 2004). Prior to joining UBS Global AM - Americas region, he was senior vice president, senior compliance manager at Bank of America (from 2003 to 2004). Prior to that he was general counsel at Steinberg Priest & Sloane and prior to that he was director and senior counsel at Deutsche Asset Management (from 1996 to 2002.). Mr. Capezzuto is a vice president and assistant secretary of 20 investment companies (consisting of 75 portfolios) for which UBS Global AM - Americas region or one of its affiliates serves as investment advisor, subadvisor or manager. Thomas Disbrow*; Vice President Since 2000 Mr. Disbrow is a director, head of retail mutual 39 and Assistant (Vice fund operations and co-head of the mutual fund Treasurer President); finance department of UBS Global AM - Americas since 2004 region. Prior to November 1999, he was a vice (Assistant president of Zweig/Glaser Advisers. Mr. Disbrow is Treasurer) a vice president and treasurer of 16 investment companies (consisting of 33 portfolios) and vice president and assistant treasurer of four investment companies (consisting of 42 portfolios) for which UBS Global AM - Americas region or one of its affiliates serves as investment advisor, sub-advisor or manager.
179
TERM OF OFFICE + AND POSITION(S) LENGTH OF HELD WITH TIME PRINCIPAL OCCUPATION(S) NAME, ADDRESS, AND AGE THE FUND SERVED DURING PAST 5 YEARS ---------------------- -------------- ----------- -------------------------------------------------- Mark F. Kemper**, Vice President Since 2004 Mr. Kemper is general counsel of UBS Global AM - 47 and Secretary Americas region (since July 2004). Mr. Kemper also is an executive director of UBS Global AM - Americas region. He was deputy general counsel of UBS Global Asset Management (Americas) Inc. ("UBS Global AM - Americas") from July 2001 to July 2004. He has been secretary of UBS Global AM - Americas since 1999 and assistant secretary of UBS Global Asset Management Trust Company since 1993. Mr. Kemper is secretary of UBS Global AM - Americas region (since 2004). Mr. Kemper is vice president and secretary of 20 investment companies (consisting of 75 portfolios) for which UBS Global AM - Americas region or one of its affiliates serves as investment advisor, sub-advisor or manager. Joseph T. Malone*; Vice President, Since 2001 Mr. Malone is a director and co-head of the mutual 37 Treasurer and (Assistant fund finance department of UBS Global AM - Principal Treasurer) Americas region. From August 2000 through June Accounting 2001, he was the controller at AEA Investors Inc. Officer From March 1998 to August 2000, Mr. Malone was a Since 2004 manager within the investment management services (Vice practice of PricewaterhouseCoopers LLC. Mr. Malone President, is vice president and assistant treasurer of 16 Treasurer investment companies (consisting of 33 portfolios) and and vice president, treasurer and principal Principal accounting officer of four investment companies Accounting (consisting of 42 portfolios) for which UBS Global Officer) AM - Americas region or one of its affiliates serves as investment advisor, sub-advisor or manager. Joseph McGill*; Vice President Since 2004 Mr. McGill is an executive director and chief 43 and Chief compliance officer at UBS Global AM - Americas Compliance region (since 2003). Prior to joining UBS Global Officer AM - Americas region he was Assistant General Counsel at J. P. Morgan Investment Management (from 1999 to 2003). Mr. McGill is a vice president and chief compliance officer of 20 investment companies (consisting of 75 portfolios) for which UBS Global AM - Americas region or one of its affiliates serves as investment advisor, sub-advisor or manager.
180
TERM OF OFFICE + AND POSITION(S) LENGTH OF HELD WITH TIME PRINCIPAL OCCUPATION(S) NAME, ADDRESS, AND AGE THE FUND SERVED DURING PAST 5 YEARS ---------------------- -------------- ----------- -------------------------------------------------- Keith A. Weller*; Vice President Since 2004 Mr. Weller is an executive director and associate 43 and Assistant general counsel of UBS Global AM - Americas Secretary region. Mr. Weller is a vice president and assistant secretary of 20 investment companies (consisting of 75 portfolios) for which UBS Global AM - Americas region or one of its affiliates serves as investment advisor, sub-advisor or manager.
+ Each Trustee holds office for an indefinite term. Officers of the Trust are appointed by Trustees and serve at the pleasure of the Board. * This person's business address is UBS Global Asset Management (US) Inc., 51 West 52nd Street, New York, NY 10019-6114. ** This person's business address is UBS Global Asset Management (Americas) Inc., One North Wacker Drive, Chicago, IL 60606. 181 THE UBS FUNDS -- FEDERAL TAX INFORMATION (UNAUDITED) For the year ended June 30, 2005, the percentage of dividends paid that qualify for the 70% dividends received deduction for corporate shareholders, the designation of long-term capital gain and the amounts expected to be passed through to the shareholders as foreign tax credits are approximated as follows:
DIVIDENDS 20% RECEIVED LONG-TERM FOREIGN TAX FUND DEDUCTION CAPITAL GAIN CREDIT ---- ------------ ------------ ------------ UBS Global Allocation Fund 21.03% $ 26,432,523 -- UBS Global Equity Fund -- -- $ 305,091 UBS International Equity Fund -- -- 246,875 UBS U.S. Large Cap Equity Fund 84.07 5,535,537 -- UBS U.S. Large Cap Value Equity Fund 93.09 21,462,799 -- UBS U.S. Small Cap Growth Fund -- 3,161,183 --
In addition, for the year ended June 30, 2005, gross income derived from sources within foreign countries amounted to $6,904,658 for UBS Global Equity Fund and $3,527,940 for UBS International Equity Fund. For the year ended June 30, 2005, the percentage of income earned from direct treasury obligations approximately amounted to the following:
DIRECT TREASURY FUND OBLIGATIONS ---- ----------- UBS Global Allocation Fund 16.25% UBS Global Bond Fund 20.33 UBS U.S. Bond Fund 28.79 UBS Absolute Return Bond Fund 5.00
For the year ended June 30, 2005, the percentage of qualified interest income totaled 59.23% for UBS Absolute Return Bond Portfolio. 182 [UBS LOGO] Presorted Standard UBS GLOBAL ASSET MANAGEMENT U.S. Postage One North Wacker Drive PAID Chicago, Illinois 60606 Smithtown, NY Permit 700 ITEM 2. CODE OF ETHICS. The registrant has adopted a code of ethics that applies to its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions pursuant to Section 406 of the Sarbanes-Oxley Act of 2002. (The registrant has designated the code of ethics adopted pursuant to Sarbanes-Oxley as a "Code of Conduct" to lessen the risk of confusion with its separate code of ethics adopted pursuant to Rule 17j-1 under the Investment Company Act of 1940, as amended.) ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. The registrant's Board has determined that the following person serving on the registrant's Audit Committee is an "audit committee financial expert" as defined in item 3 of Form N-CSR: J. Mikesell Thomas. Mr. Thomas is independent as defined in item 3 of Form N-CSR. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. (a) AUDIT FEES: For the fiscal years ended June 30, 2005 and June 30, 2004, the aggregate Ernst & Young LLP (E&Y) audit fees for professional services rendered to the registrant were approximately $432,000 and $356,700, respectively. Fees included in the audit fees category are those associated with the annual audits of financial statements and services that are normally provided in connection with statutory and regulatory filings. (b) AUDIT-RELATED FEES: In each of the fiscal years ended June 30, 2005 and June 30, 2004, the aggregate audit-related fees billed by E&Y for services rendered to the registrant that are reasonably related to the performance of the audits of the financial statements, but not reported as audit fees, were approximately $17,500 and $16,500, respectively. Fees included in the audit-related category are those associated with (1) the reading and providing of comments on the 2004 and 2003 semiannual financial statements. There were no audit-related fees required to be approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X during the fiscal years indicated above. (c) TAX FEES: In each of the fiscal years ended June 30, 2005 and June 30, 2004, the aggregate tax fees billed by E&Y for professional services rendered to the registrant were approximately $33,000 and $33,000, respectively. Fees included in the tax fees category comprise all services performed by professional staff in the independent accountant's tax division except those services related to the audits. This category comprises fees for review of tax returns. There were no tax fees required to be approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X during the fiscal years indicated above. (d) ALL OTHER FEES: In each of the fiscal years ended June 30, 2005 and June 30, 2004, there were no fees billed by E&Y for products and services, other than the services reported in Item 4(a)-(c) above, rendered to the registrant. Fees included in the all other fees category would consist of services related to internal control reviews, strategy and other consulting, financial information systems design and implementation, consulting on other information systems, and other tax services unrelated to the registrant. There were no "all other fees" required to be approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X during the fiscal years indicated above. (e) (1) AUDIT COMMITTEE PRE-APPROVAL POLICIES AND PROCEDURES: The registrant's Audit Committee must pre-approve all audit and non-audit services provided by the auditors relating to any series of the registrant's operations or financial reporting. Prior to the commencement of any audit or non-audit services, the Audit Committee reviews the services to determine whether they are appropriate and permissible under applicable law. The registrant's Audit Committee has adopted a charter that, among other things, provides a framework for the Audit Committee's consideration of non-audit services by the registrant's auditors. The charter requires pre-approval of any non-audit services to be provided by the auditors to a series of the registrant when, without such pre-approval, the auditors would not be independent of the registrant under the applicable federal securities laws, rules or auditing standards. The charter also requires pre-approval of all non-audit services to be provided by the registrant's auditors to the registrant's investment adviser or any entity that it controls, is controlled by or is under common control with the registrant's investment adviser and that provides ongoing services to the registrant when, without such pre-approval, the auditors would not be independent of the registrant under applicable federal securities laws, rules or auditing standards. All non-audit services must be approved in advance of provision of the service either: (i) by resolution of the Audit Committee; (ii) by oral or written approval of the Chairman of the Audit Committee and one other Audit Committee member; or (iii) if the Chairman is unavailable, by oral or written approval of two other members of the Audit Committee. (e) (2) Services approved pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X: AUDIT-RELATED FEES: There were no amounts that were approved by the audit committee pursuant to the de minimis exception for the fiscal years ended June 30, 2005 and June 30, 2004 on behalf of the registrant. There were no amounts that were required to be approved by the audit committee pursuant to the de minimis exception for the fiscal years ended June 30, 2005 and June 30, 2004 on behalf of the registrant's service providers that relate directly to the operations and financial reporting of the registrant. TAX FEES: There were no amounts that were approved by the audit committee pursuant to the de minimis exception for the fiscal years ended June 30, 2005 and June 30, 2004 on behalf of the registrant. There were no amounts that were required to be approved by the audit committee pursuant to the de minimis exception for the fiscal years ended June 30, 2005 and June 30, 2004 on behalf of the registrant's service providers that relate directly to the operations and financial reporting of the registrant. ALL OTHER FEES: There were no amounts that were approved by the audit committee pursuant to the de minimis exception for the fiscal years ended June 30, 2005 and June 30, 2004 on behalf of the registrant. There were no amounts that were required to be approved by the audit committee pursuant to the de minimis exception for the fiscal years ended June 30, 2005 and June 30, 2004 on behalf of the registrant's service providers that relate directly to the operations and financial reporting of the registrant. (f) According to E&Y, for the fiscal year ended June 30, 2005, the percentage of hours spent on the audit of the registrant's financial statements for the most recent fiscal year that were attributed to work performed by persons who are not full-time, permanent employees of E&Y was less than 50%. (g) For the fiscal years ended June 30, 2005 and June 30, 2004, the aggregate fees billed by E&Y of $1,729,821 and $1,770,429, respectively, for non-audit services rendered on behalf of the registrant ("covered"), its investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser) and any entity controlling, controlled by, or under common control with the adviser ("non-covered") that provides ongoing services to the registrant for each of the last two fiscal years of the registrant is shown in the table below:
2005 2004 ---- ---- Covered Services $ 25,000 $ 49,500 Non-Covered Services $ 1,704,821 $ 1,720,929
(h) The registrant's audit committee was not required to consider whether the provision of non-audit services that were rendered to the registrant's investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining the principal accountant's independence. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. Not applicable to the registrant. ITEM 6. SCHEDULE OF INVESTMENTS. 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 and Corporate Governance Committee. The Nominating and Corporate Governance 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 and Corporate Governance Committee, Mr. Walter E. Auch, care of the Secretary of the registrant at UBS Global Asset Management (US) Inc., One North Wacker Drive, Chicago, Illinois 60606, and indicate on the envelope "Nominating and Corporate Governance 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 as required pursuant to Section 406 of the Sarbanes-Oxley Act of 2002 (and designated by registrant as a "Code of Conduct") is incorporated by reference herein from Exhibit EX-99.CODE ETH to the registrant's Report on Form N-CSR filed September 9, 2004 (Accession Number: 0001047469-04-028138)(SEC File No. 811-06638). (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/ W. Douglas Beck ------------------- W. Douglas Beck President Date: September 7, 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/ W. Douglas Beck -------------------- W. Douglas Beck President Date: September 7, 2005 ----------------- By: /s/ Joseph T. Malone -------------------- Joseph T. Malone Treasurer & Principal Accounting Officer Date: September 7, 2005 -----------------