-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, L3+KAMsCfyniziZpXfHq6yT+2LjaNRb53oJIlUtNhDe78EKuVxn2HNmJn2Mzin4x GeHkWbI42xiWsosWQRRZzg== 0001047469-06-003198.txt : 20060310 0001047469-06-003198.hdr.sgml : 20060310 20060310162135 ACCESSION NUMBER: 0001047469-06-003198 CONFORMED SUBMISSION TYPE: N-CSRS PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20051231 FILED AS OF DATE: 20060310 DATE AS OF CHANGE: 20060310 EFFECTIVENESS DATE: 20060310 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UBS FUNDS CENTRAL INDEX KEY: 0000886244 IRS NUMBER: 367056204 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: N-CSRS SEC ACT: 1940 Act SEC FILE NUMBER: 811-06637 FILM NUMBER: 06679614 BUSINESS ADDRESS: STREET 1: 209 S LASALLE ST CITY: CHICAGO STATE: IL ZIP: 60604-1795 BUSINESS PHONE: 8001482430 MAIL ADDRESS: STREET 1: 209 S LASALLE ST CITY: CHICAGO STATE: IL ZIP: 60604-1795 FORMER COMPANY: FORMER CONFORMED NAME: BRINSON FUNDS INC DATE OF NAME CHANGE: 19920929 0000886244 S000002977 UBS High Yield Fund C000008174 CLASS A BNHYX C000008175 CLASS B BNHBX C000008176 CLASS C BNHCX C000008177 CLASS Y BIHYX 0000886244 S000002978 UBS U.S. Large Cap Equity Fund C000008178 Class A BNEQX C000008179 CLASS B BNQBX C000008180 CLASS C BNQCX C000008181 CLASS Y BPEQX 0000886244 S000002979 UBS GLOBAL ALLOCATION FUND C000008182 CLASS A BNGLX C000008183 CLASS B BNPBX C000008184 CLASS C BNPCX C000008185 CLASS Y BPGLX 0000886244 S000002980 UBS INTERNATIONAL EQUITY FUND C000008186 CLASS A BNIEX C000008187 CLASS B N/A C000008188 CLASS C BNICX C000008189 CLASS Y BNUEX 0000886244 S000002981 UBS U.S. BOND FUND C000008190 CLASS A BNBDX C000008191 CLASS B BNOBX C000008192 CLASS C BNOCX C000008193 CLASS Y BPBDX 0000886244 S000002982 UBS U.S. LARGE CAP VALUE EQUITY FUND C000008194 CLASS A BNVAX C000008195 CLASS B BNVBX C000008196 CLASS C BNVCX C000008197 CLASS Y BUSVX 0000886244 S000002983 UBS U.S. LARGE CAP GROWTH FUND C000008198 CLASS A BNLGX C000008199 CLASS B BNWBX C000008200 CLASS C BNWCX C000008201 CLASS Y BLGIX 0000886244 S000002984 UBS GLOBAL BOND FUND C000008202 CLASS A BNGBX C000008203 CLASS B BNDBX C000008204 CLASS C N / A C000008205 CLASS Y BPGBX 0000886244 S000002985 UBS U.S. SMALL CAP GROWTH FUND C000008206 CLASS A BNSCX C000008207 CLASS B BNMBX C000008208 CLASS C BNMCX C000008209 CLASS Y BISCX 0000886244 S000003132 UBS GLOBAL EQUITY FUND C000008491 CLASS A BNGEX C000008492 CLASS B BNEBX C000008493 CLASS C BNECX C000008494 CLASS Y BPGEX 0000886244 S000003135 UBS DYNAMIC ALPHA FUND C000008503 CLASS A BNAAX C000008504 CLASS B BNABX C000008505 CLASS C BNACX C000008506 CLASS Y BNAYX 0000886244 S000003136 UBS ABSOLUTE RETURN BOND FUND C000008507 CLASS A BNRAX C000008508 CLASS C BNRCX C000008509 CLASS Y BNRYX N-CSRS 1 a2167685zn-csrs.txt N-CSRS UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number: 811-06637 ______________________________________________ The UBS Funds ______________________________________________________________________________ (Exact name of registrant as specified in charter) 51 West 52nd Street, New York, New York 10019-6114 ______________________________________________________________________________ (Address of principal executive offices) (Zip code) Mark F. Kemper, Esq. UBS Global Asset Management (US) Inc. 51 West 52nd Street New York, NY 10019-6114 (Name and address of agent for service) Copy to: Bruce Leto, Esq. Stradley Ronon Stevens & Young, LLP 2600 One Commerce Square Philadelphia, PA 215-564 Registrant's telephone number, including area code: 212-882 5000 Date of fiscal year end: June 30 Date of reporting period: December 31, 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 SEMI-ANNUAL REPORT DECEMBER 31, 2005 TABLE OF CONTENTS Portfolio Managers' Commentary and Schedules of Investments UBS Global Allocation Fund 2 UBS Global Equity Fund 19 UBS Global Bond Fund 28 UBS International Equity Fund 38 UBS U.S. Large Cap Equity Fund 46 UBS U.S. Large Cap Growth Fund 53 UBS U.S. Large Cap Value Equity Fund 59 UBS U.S. Small Cap Growth Fund 66 UBS Dynamic Alpha Fund 73 UBS U.S. Bond Fund 81 UBS Absolute Return Bond Fund 90 UBS High Yield Fund 100 Statements of Assets and Liabilities 110 Statements of Operations 114 Statements of Changes in Net Assets 116 Financial Highlights 120 Notes to Financial Statements 144 General Information 163
1 UBS GLOBAL ALLOCATION FUND For the six-month period ended December 31, 2005, Class A shares of UBS Global Allocation Fund (the "Fund") returned 6.08% (0.22% after the deduction of the maximum sales charge) and Class Y shares returned 6.23%, versus the 6.32% return of the Fund's benchmark, the GSMI Mutual Fund Index (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 performance during the semiannual period was solid in absolute terms, although the Fund slightly lagged the benchmark. While market allocation generally helped Fund performance, stock selection in a number of foreign equity markets, particularly Japan, detracted from returns. On the fixed-income side, our positions in the UK, Canada and emerging markets all detracted somewhat from performance. Throughout the reporting period, we maintained a fairly neutral stance toward equities, both in the US and internationally. We did, however, dramatically reduce our exposure to fixed-income markets in the second half of the year by taking an overweight position in cash equivalents, which we maintained throughout the reporting period. US EQUITIES RALLIED IN THE SECOND HALF OF 2005, INTERNATIONAL STOCKS CONTINUED TO OUTPERFORM Within the United States, a devastating hurricane season captured headlines for much of the period. On August 29, Hurricane Katrina made landfall near New Orleans, forcing the city's evacuation and causing an estimated $75 billion worth of damage. The storm--along with Hurricane Rita, which struck southeastern Texas a month later--significantly impaired the Gulf Coast's oil-refining capacity, and sent oil prices soaring to a high of more than $70 a barrel. On Labor Day weekend, the average price of regular unleaded gasoline broke $3.07 a gallon nationwide. Many investors feared the shock of high energy prices along with the extensive damage caused by the hurricane season would serve a blow to the nation's economy. However, after an initial spike in jobless claims caused primarily by displaced New Orleans residents, subsequent data proved the economy to be much more resilient than many had anticipated. Overall unemployment and core inflation both remained low, while consumer confidence, after dropping in October, surged in November and continued to rise in December. After trading in a fairly narrow range for much of the period and then bottoming out in October, stocks finished the period by rallying on the heels of this strong economic data. The Fund's US stock selection was solid during the period, and we were able to capitalize on the year-end rally. On the international stage, China's continued expansion, albeit at a reduced pace, continued to fuel a number of Asian and other neighboring economies. Japan continued to reform its economy and stocks in that country posted strong returns. Our security selection in Japan, however, was one of the Fund's biggest detractors from relative performance. European economies remained stable, with some notable improvements from the larger players. Stocks throughout the continent generally posted low double-digit returns for the period, and while our market exposure generally helped returns, again, our stock selection was a detractor. The US dollar continued to strengthen in the second half of 2005, particularly against the Japanese yen. Against that backdrop, international equities continued to outperform their US counterparts, and by a relatively wide margin. CHALLENGING PERIOD FOR FIXED-INCOME MARKETS The past six months marked a challenging period for fixed-income investors. Yields on short-term Treasuries rose throughout the reporting period, while yields on the Treasuries with maturities longer than three years fell in the final two months of the year, most dramatically in the 10- to 20-year part of the curve. This produced an exceptionally flat yield curve for much of the period, and at the end of December, the curve actually inverted by some measures. Despite our move toward a more bulleted position with regard to the curve (in which the Fund held more securities in the middle of the maturity spectrum than at either extreme), this still impacted performance 2 negatively. We believe the current shape of the curve is likely to be short lived, as we feel the 10-year Treasury to be particularly undervalued. An inverted yield curve is typically the harbinger of a recession, but given the strength of the economy, we believe rates of longer-term bonds may rise in the coming months. The Fund's short duration stance throughout the period, as well as its overweight positions in asset-backed securities (ABS) and commercial mortgage-backed securities (CMBS), contributed positively to performance on both an absolute basis and relative to the Index. On an international level, a number of other challenges existed. While our yield-curve positioning and duration exposure helped performance, issue selection and market weightings were negatives. Emerging market debt, which appeared substantially overvalued during the period, continued to perform well, and our underweight position detracted from returns. Our underweight position in Japanese bonds was a benefit, as bonds tended to decline as the economy improved. European bonds, on the other hand, turned in a modestly positive performance, but had a limited impact on returns. Germany and France showed signs of improving economies late in the year, while UK bonds posted the highest returns in the region, and our position there generally helped absolute returns. CURRENCY POSITIONS PRODUCED MIXED RESULTS AS US DOLLAR RALLIED From a currency standpoint, our allocations detracted slightly from performance--specifically, our underweight positions in the British pound and dollar bloc currencies outside the US. We are currently underweight the British pound, Canadian dollar, New Zealand dollar and US dollar in favor of Asian currencies. Within Europe we are overweight Swedish krona and Swiss franc versus the euro. THIS LETTER IS INTENDED TO ASSIST SHAREHOLDERS IN UNDERSTANDING HOW THE FUND PERFORMED DURING THE SEMIANNUAL PERIOD ENDED DECEMBER 31, 2005. THE VIEWS AND OPINIONS IN THE LETTER WERE CURRENT AS OF FEBRUARY 15, 2006. 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)
6 MONTHS 1 YEAR 5 YEARS 10 YEARS INCEPTION* ENDED ENDED ENDED ENDED TO 12/31/05 12/31/05 12/31/05 12/31/05 12/31/05 - ------------------------------------------------------------------------------------------------ UBS GLOBAL ALLOCATION FUND CLASS A 6.08% 6.16% 8.84% N/A 7.18% UBS GLOBAL ALLOCATION FUND CLASS B 5.61 5.28 N/A N/A 9.98 UBS GLOBAL ALLOCATION FUND CLASS C 5.61 5.37 N/A N/A 10.17 UBS GLOBAL ALLOCATION FUND CLASS Y 6.23 6.46 9.07 8.64% 9.12 UBS GLOBAL ALLOCATION FUND CLASS A** 0.22 0.29 7.62 N/A 6.48 UBS GLOBAL ALLOCATION FUND CLASS B** 0.61 0.28 N/A N/A 9.61 UBS GLOBAL ALLOCATION FUND CLASS C** 4.61 4.37 N/A N/A 10.17 GSMI MUTUAL FUND INDEX*** 6.32 6.58 5.20 7.79 9.06 MSCI WORLD EQUITY (FREE) INDEX 10.39 9.82 2.48 7.30 8.98 CITIGROUP WORLD GOVERNMENT BOND INDEX -3.02 -6.88 6.92 4.99 6.04
* INCEPTION DATE OF UBS GLOBAL ALLOCATION FUND CLASS A SHARES IS 6/30/97. INCEPTION DATES OF CLASS B AND CLASS C SHARES ARE 12/13/01 AND 11/22/01, RESPECTIVELY. INCEPTION DATE OF CLASS Y SHARES AND, FOR PURPOSES OF THIS ILLUSTRATION, THE INDICES, IS 8/31/92. ** RETURNS INCLUDE SALES CHARGES. *** AN UNMANAGED INDEX COMPILED BY THE ADVISOR, CONSTRUCTED CURRENTLY AS FOLLOWS: 40% RUSSELL 3000 INDEX; 22% MSCI WORLD EX-USA (FREE) INDEX; 21% CITIGROUP BIG INDEX; 9% CITIGROUP WGBI NON-US INDEX (IN USD); 2% J.P. MORGAN EMBI GLOBAL INDEX; 3% MSCI EMERGING MARKETS FREE INDEX; AND 3% MERRILL LYNCH U.S. HIGH YIELD CASH PAY CONSTRAINED INDEX. ON DECEMBER 1, 2003, THE 40% RUSSELL 3000 INDEX REPLACED THE 40% WILSHIRE 5000 INDEX, AND ON JUNE 1, 2005 THE 3% MERRILL LYNCH U.S. HIGH YIELD CASH PAY CONSTRAINED INDEX REPLACED THE 3% MERRILL LYNCH U.S. HIGH YIELD CASH PAY 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. TOTAL 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 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); and (2) ongoing costs, including management fees; service and/or distribution (12b-1) fees (if applicable); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example below is based on an investment of $1,000 invested at the beginning of the period and held for the entire period, July 1, 2005 to December 31, 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 for each class of shares 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 Fund's actual return for each class of shares. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs (as applicable), such as sales charges (loads). Therefore, the second line in the table for each class of shares is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
BEGINNING ENDING EXPENSES PAID ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD* JULY 1, 2005 DECEMBER 31, 2005 7/1/05 - 12/31/05 - ------------------------------------------------------------------------------------------------------- CLASS A ACTUAL $ 1,000.00 $ 1,060.80 $ 6.08 HYPOTHETICAL (5% ANNUAL RETURN BEFORE EXPENSES) 1,000.00 1,019.31 5.96 CLASS B ACTUAL 1,000.00 1,056.10 10.26 HYPOTHETICAL (5% ANNUAL RETURN BEFORE EXPENSES) 1,000.00 1,015.22 10.06 CLASS C ACTUAL 1,000.00 1,056.10 10.05 HYPOTHETICAL (5% ANNUAL RETURN BEFORE EXPENSES) 1,000.00 1,015.43 9.86 CLASS Y ACTUAL 1,000.00 1,062.30 4.63 HYPOTHETICAL (5% ANNUAL RETURN BEFORE EXPENSES) 1,000.00 1,020.72 4.53
* EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIOS: CLASS A: 1.17%, CLASS B: 1.98%, CLASS C: 1.94%, CLASS Y: 0.89%, MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 184 DIVIDED BY 365 (TO REFLECT THE ONE-HALF YEAR PERIOD). 5 TOP TEN EQUITY HOLDINGS AS OF DECEMBER 31, 2005 (UNAUDITED)
PERCENTAGE OF NET ASSETS - --------------------------------------------------------------- Citigroup, Inc. 1.8% Microsoft Corp. 1.4 Morgan Stanley 1.2 Wells Fargo & Co. 1.1 Wyeth 1.1 Sprint Nextel Corp. 1.1 UnitedHealth Group, Inc. 1.0 American International Group, Inc. 1.0 Exelon Corp. 1.0 JPMorgan Chase & Co. 0.9 - --------------------------------------------------------------- Total 11.6%
TOP TEN FIXED INCOME HOLDINGS AS OF DECEMBER 31, 2005 (UNAUDITED)
PERCENTAGE OF NET ASSETS - --------------------------------------------------------------- Federal National Mortgage Association 5.000%, TBA 1.5% U.S. Treasury Notes 3.625%, due 06/15/10 0.9 U.S. Treasury Notes 4.000%, due 08/31/07 0.8 U.S. Treasury Notes 3.875%, due 05/15/09 0.8 U.S. Treasury Bonds 8.750%, due 05/15/17 0.8 U.S. Treasury Inflation Indexed Bond (TIPS) 2.000%, due 01/15/14 0.5 Deutsche Bundesrepublik 4.500%, due 07/04/09 0.4 Federal National Mortgage Association 4.945%, due 02/01/35 0.3 Ford Motor Credit Co. 5.800%, due 01/12/09 0.3 U.S. Treasury Notes 4.125%, due 05/15/15 0.3 - --------------------------------------------------------------- Total 6.6%
6 INDUSTRY DIVERSIFICATION AS A PERCENT OF NET ASSETS AS OF DECEMBER 31, 2005 (UNAUDITED) EQUITIES U.S. EQUITIES Aerospace & Defense 1.00% Air Freight & Logistics 0.60 Auto Components 0.90 Automobiles 0.34 Beverages 0.28 Biotechnology 1.04 Building Products 0.75 Capital Markets 2.03 Commercial Banks 2.34 Commercial Services & Supplies 0.30 Computers & Peripherals 0.46 Diversified Financial Services 2.30 Diversified Telecommunication Services 1.56 Electric Utilities 1.60 Electronic Equipment & Instruments 0.34 Energy Equipment & Services 0.22 Food & Staples Retailing 1.34 Gas Utilities 0.33 Health Care Equipment & Supplies 0.87 Health Care Providers & Services 2.58 Insurance 1.43 Internet & Catalog Retail 0.41 Machinery 0.76 Media 2.85 Multi-Utilities & Unregulated Power 0.39 Multiline Retail 0.47 Oil & Gas 0.92 Pharmaceuticals 3.52 Road & Rail 0.69 Semiconductors & Semiconductor Equipment 0.56 Software 2.45 Thrifts & Mortgage Finance 0.81 ------ Total U.S. Equities 36.44* INTERNATIONAL EQUITIES Air Freight & Logistics 0.21 Airlines 0.17 Auto Components 0.37 Automobiles 0.51 Beverages 0.51 Biotechnology 0.09 Capital Markets 0.80 Chemicals 0.56 Commercial Banks 3.49 Commercial Services & Supplies 0.19 Communications Equipment 0.24 Construction & Engineering 0.05 Construction Materials 0.27 Consumer Finance 0.24 Distributors 0.03 Diversified Financial Services 0.53 Diversified Telecommunication Services 0.85 Electric Utilities 0.45 Electronic Equipment & Instruments 0.27 Energy Equipment & Services 0.38 Food & Staples Retailing 0.63 Food Products 0.21 Health Care Equipment & Supplies 0.11 Health Care Providers & Services 0.16 Hotels, Restaurants & Leisure 0.53 Household Durables 0.54 Household Products 0.16 Industrial Conglomerates 0.11% Insurance 1.90 Internet & Catalog Retail 0.11 IT Services 0.50 Machinery 0.37 Marine 0.07 Media 0.45 Metals & Mining 0.22 Multiline Retail 0.11 Office Electronics 0.26 Oil & Gas 1.91 Paper & Forest Products 0.27 Pharmaceuticals 1.22 Real Estate 0.34 Road & Rail 0.36 Semiconductors & Semiconductor Equipment 0.44 Specialty Retail 0.35 Textiles, Apparel & Luxury Goods 0.08 Tobacco 0.31 Trading Companies & Distributors 0.42 Wireless Telecommunication Services 1.02 ------ Total International Equities 23.37* TOTAL EQUITIES 59.81 BONDS U.S. BONDS U.S. CORPORATE BONDS Aerospace & Defense 0.01 Automobiles 0.09 Beverages 0.06 Capital Markets 0.27 Chemicals 0.02 Commercial Banks 0.25 Commercial Services & Supplies 0.06 Consumer Finance 0.26 Diversified Financial Services 0.69 Diversified Telecommunication Services 0.14 Electric Utilities 0.12 Food & Staples Retailing 0.05 Food Products 0.07 Gas Utilities 0.01 Hotels, Restaurants & Leisure 0.01 Household Durables 0.03 Insurance 0.06 IT Services 0.01 Machinery 0.01 Media 0.12 Multi-Utilities & Unregulated Power 0.07 Oil & Gas 0.09 Personal Products 0.01 Pharmaceuticals 0.04 Real Estate 0.04 Road & Rail 0.06 Thrifts & Mortgage Finance 0.12 Tobacco 0.04 Wireless Telecommunication Services 0.01 ------ Total U.S. Corporate Bonds 2.82 Asset-Backed Securities 0.43 Commercial Mortgage-Backed Securities 1.38 Mortgage & Agency Debt Securities 8.66 Stripped Mortgage-Backed Securities 0.13 U.S. Government Obligations 4.72 ------ Total U.S. Bonds 18.14*
7 INDUSTRY DIVERSIFICATION AS A PERCENT OF NET ASSETS AS OF DECEMBER 31, 2005 (UNAUDITED) INTERNATIONAL CORPORATE BONDS Aerospace & Defense 0.02% Commercial Banks 0.30 Diversified Telecommunication Services 0.04 Oil & Gas 0.02 ------ Total International Corporate Bonds 0.38 International Asset-Backed Securities 0.27 Foreign Government Bonds 3.76 Sovereign/SupraNational Bond 0.41 ------ Total International Bonds 4.82 TOTAL BONDS 22.96 INVESTMENT COMPANIES 6.90 SHORT-TERM INVESTMENTS 11.37* INVESTMENT OF CASH COLLATERAL FOR SECURITIES LOANED 2.32 ------ TOTAL INVESTMENTS 103.36 LIABILITIES, IN EXCESS OF CASH AND OTHER ASSETS (3.36) ------ NET ASSETS 100.00% ======
* THE FUND HELD A SHORT POSITION IN U.S. STOCK INDEX FUTURES WHICH INCREASED U.S. EQUITY EXPOSURE FROM 36.44% TO 36.45%. THE FUND ALSO HELD A SHORT POSITION IN INTERNATIONAL STOCK INDEX FUTURES WHICH REDUCED THE INTERNATIONAL EQUITY EXPOSURE FROM 23.37% TO 23.33%. THE FUND ALSO HELD A LONG POSITION IN INTERNATIONAL STOCK INDEX FUTURES WHICH INCREASED THE INTERNATIONAL EQUITY EXPOSURE FROM 23.37% TO 23.40%. THESE ADJUSTMENTS NET TO HAVE NO IMPACT ON EXPOSURE FOR SHORT-TERM INVESTMENTS. 8 UBS GLOBAL ALLOCATION FUND -- SCHEDULE OF INVESTMENTS DECEMBER 31, 2005 (UNAUDITED)
SHARES VALUE ------------- --------------- EQUITIES -- 59.81% U.S. EQUITIES -- 36.44% Allergan, Inc. 281,200 $ 30,358,352 American Electric Power Co., Inc. 325,600 12,076,504 American International Group, Inc. 515,000 35,138,450 Anheuser-Busch Cos., Inc. 228,400 9,812,064 Applied Materials, Inc. 668,100 11,985,714 AT&T, Inc. 647,700 15,862,173 Baker Hughes, Inc. 126,300 7,676,514 Borg-Warner, Inc. 144,400 8,754,972 Bristol-Myers Squibb Co. 409,400 9,408,012 Burlington Northern Santa Fe Corp. 342,400 24,248,768 Caremark Rx, Inc. (a) 249,900 12,942,321 Carnival Corp. 352,100 18,826,787 CCE Spinco, Inc. (a) 51,975 680,872 Cendant Corp. 581,800 10,036,050 Cephalon, Inc. (a) 227,500 14,728,350 Citigroup, Inc. (b) 1,278,207 62,031,386 Clear Channel Communications, Inc. 415,800 13,076,910 Costco Wholesale Corp. 601,200 29,741,364 Dell, Inc. (a) 534,800 16,038,652 Dex Media, Inc. 297,800 8,067,402 DIRECTV Group, Inc. (a) 570,200 8,051,224 Exelon Corp. 660,200 35,083,028 Expedia, Inc. (a) 603,500 14,459,860 ExxonMobil Corp. 211,500 11,879,955 FedEx Corp. 204,800 21,174,272 Fifth Third Bancorp (c) 651,700 24,582,124 Freddie Mac 439,200 28,701,720 Genzyme Corp. (a)(c) 309,800 21,927,644 Harley-Davidson, Inc. 235,300 12,115,597 Hartford Financial Services Group, Inc. 176,000 15,116,640 Healthsouth Corp. (a) 867,800 4,252,220 Illinois Tool Works, Inc. (c) 304,800 26,819,352 Johnson & Johnson 507,138 30,478,994 Johnson Controls, Inc. 313,400 22,849,994 JPMorgan Chase & Co. 818,300 32,478,327 Kohl's Corp. (a) 339,500 16,499,700 Kroger Co. (a) 924,300 17,450,784 Lockheed Martin Corp. 299,100 19,031,733 Marathon Oil Corp. 335,300 20,443,241 Masco Corp. (c) 874,300 26,395,117 Medco Health Solutions, Inc. (a) 313,600 17,498,880 Medtronic, Inc. 167,200 9,625,704 Mellon Financial Corp. 816,100 27,951,425 Mercury Interactive Corp. (a) 302,000 8,392,580 Mettler Toledo International, Inc. (a) 219,900 12,138,480 Microsoft Corp. 1,925,700 50,357,055 Morgan Stanley (d) 769,150 43,641,571 Mylan Laboratories, Inc. 671,950 13,412,122 NiSource, Inc. 389,500 8,124,970 Northeast Utilities 172,900 3,404,401 Northrop Grumman Corp. 270,100 16,235,711 Omnicom Group, Inc. 343,900 29,276,207 Oracle Corp. (a) 1,358,000 16,581,180 Pepco Holdings, Inc. 254,500 5,693,165 PNC Financial Services Group, Inc. 283,400 17,522,622 Sempra Energy 308,900 13,851,076 Sprint Nextel Corp. 1,671,052 39,035,775 Symantec Corp. (a) 624,872 $ 10,935,260 UnitedHealth Group, Inc. 569,600 35,394,944 Univision Communications, Inc. (a) 464,300 13,645,777 Waters Corp. (a)(d) 290,500 10,980,900 WellPoint, Inc. (a) 260,800 20,809,232 Wells Fargo & Co. (d) 642,300 40,355,709 Wyeth (d) 872,300 40,186,861 Xilinx, Inc. 308,100 7,767,201 Zimmer Holdings, Inc. (a) 131,400 8,861,616 --------------- Total U.S. Equities 1,282,963,567 --------------- INTERNATIONAL EQUITIES -- 23.37% AUSTRALIA -- 0.60% National Australia Bank Ltd. 246,667 5,858,945 Qantas Airways Ltd. 2,027,347 6,004,444 QBE Insurance Group Ltd. 651,871 9,366,580 --------------- 21,229,969 --------------- AUSTRIA -- 0.23% Telekom Austria AG 365,350 8,218,220 --------------- BELGIUM -- 0.48% Fortis 161,282 5,145,880 KBC Groep NV 92,321 8,596,353 Solvay S.A. 27,392 3,019,176 --------------- 16,761,409 --------------- BERMUDA -- 0.50% Accenture Ltd., Class A 611,000 17,639,570 --------------- CANADA-- 1.09% Alcan, Inc. 94,920 3,899,849 Bank of Nova Scotia 134,800 5,350,486 Canadian National Railway Co. 65,400 5,240,101 Canadian Tire Corp. Ltd. 62,400 3,732,888 Cott Corp. (a) 160,500 2,378,954 Falconbridge Ltd. 63,200 1,875,694 Inco Ltd. 46,000 1,998,365 Magna International, Inc., Class A 42,500 3,071,100 Manulife Financial Corp. 69,000 4,052,329 Petro-Canada 169,800 6,814,203 --------------- 38,413,969 --------------- CAYMAN ISLANDS -- 0.38% GlobalSantaFe Corp. 279,800 13,472,370 --------------- DENMARK -- 0.07% A.P. Moller - Maersk A/S 244 2,524,405 --------------- FINLAND -- 0.33% Nokia Oyj 260,957 4,773,231 UPM-Kymmene Oyj 342,940 6,723,470 --------------- 11,496,701 --------------- FRANCE -- 1.65% AXA S.A. 248,670 8,025,355 France Telecom S.A. 421,244 10,467,938 Sanofi-Aventis 168,228 14,738,218 Total S.A. 85,854 21,568,548 Unibail REIT 23,625 3,143,787 --------------- 57,943,846 ---------------
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SHARES VALUE ------------- --------------- GERMANY -- 1.92% Allianz AG 88,679 $ 13,432,044 Bayerische Motoren Werke AG 80,207 3,518,159 Deutsche Postbank AG 122,233 7,090,871 Deutsche Telekom AG 364,665 6,078,714 E.ON AG 108,359 11,210,932 Fresenius Medical Care AG 53,886 5,677,811 Hannover Rueckversicherung AG 55,520 1,967,303 MAN AG 105,817 5,647,475 Metro AG 78,526 3,793,051 Premiere AG (a) 66,439 1,164,126 Schering AG 60,565 4,058,384 Siemens AG 47,362 4,059,603 --------------- 67,698,473 --------------- HONG KONG -- 0.36% Esprit Holdings Ltd. 504,500 3,585,144 Hutchison Telecommunications International Ltd. (a) 2,262,000 3,267,416 Sun Hung Kai Properties Ltd. 371,000 3,612,556 Yue Yuen Industrial Holdings 766,500 2,140,247 --------------- 12,605,363 --------------- IRELAND -- 0.50% Bank of Ireland 788,803 12,429,728 CRH PLC 170,160 5,006,093 --------------- 17,435,821 --------------- ITALY -- 0.49% ENI SpA 222,235 6,164,526 UniCredito Italiano SpA 1,602,135 11,039,188 --------------- 17,203,714 --------------- JAPAN -- 5.12% Aeon Co., Ltd. 219,300 5,578,497 Aiful Corp. 39,050 3,261,479 Asahi Breweries Ltd. 394,800 4,817,206 Astellas Pharma, Inc. 43,700 1,704,498 Bank of Yokohama Ltd. 641,000 5,244,965 Bridgestone Corp. 296,000 6,161,699 Canon, Inc. 156,400 9,150,464 East Japan Railway Co. 1,087 7,474,940 Funai Electric Co., Ltd. 32,300 3,574,130 Honda Motor Co., Ltd. 119,800 6,836,427 Japan Tobacco, Inc. 214 3,121,041 Kao Corp. 208,000 5,573,239 KDDI Corp. 513 2,957,901 Mitsubishi Corp. 379,800 8,405,291 Mitsui Fudosan Co., Ltd. 248,000 5,036,334 Mitsui Sumitomo Insurance Co., Ltd. 399,000 4,881,986 Murata Manufacturing Co., Ltd. 66,600 4,269,267 NEC Electronics Corp. 30,500 1,000,848 Nippon Paper Group, Inc. 713 2,853,572 Nissan Motor Co., Ltd. 738,800 7,486,039 Nitto Denko Corp. 116,300 9,062,594 NOK Corp. 137,500 3,730,869 Nomura Holdings, Inc. 230,400 4,415,178 NTN Corp. 389,000 3,074,134 NTT DoCoMo, Inc. 4,637 7,077,288 Rohm Co., Ltd. 76,500 8,322,339 Sekisui House Ltd. 432,000 $ 5,435,943 Shin-Etsu Chemical Co., Ltd. 146,400 7,783,338 Sompo Japan Insurance, Inc. 319,000 4,314,283 Sumitomo Mitsui Financial Group, Inc. 562 5,956,671 Sumitomo Trust & Banking Co., Ltd. 530,000 5,415,271 Takefuji Corp. 78,480 5,330,265 Tokyo Gas Co., Ltd. 1,285,000 5,709,416 Yokogawa Electric Corp. 303,400 5,170,933 --------------- 180,188,345 --------------- NETHERLANDS -- 1.62% ABN AMRO Holding NV 981,171 25,659,926 ASML Holding NV (a) 302,387 6,050,131 Koninklijke (Royal) Philips Electronics NV 158,697 4,931,886 Reed Elsevier NV 311,839 4,356,397 Royal KPN NV 530,395 5,318,606 TNT NV 236,364 7,387,547 VNU NV 105,650 3,503,464 --------------- 57,207,957 --------------- NORWAY -- 0.20% Telenor ASA 700,400 6,875,009 --------------- SINGAPORE -- 0.03% Jardine Cycle & Carriage Ltd. 145,000 968,033 MCL Land Ltd. 104,400 108,001 --------------- 1,076,034 --------------- SPAIN -- 0.62% Banco Santander Central Hispano S.A. 1,219,010 16,091,522 Repsol YPF S.A. 200,177 5,846,532 --------------- 21,938,054 --------------- SWEDEN -- 0.38% Electrolux AB, B Shares 200,900 5,221,959 Sandvik AB 94,000 4,377,871 Telefonaktiebolaget LM Ericsson, B Shares 1,087,000 3,735,301 --------------- 13,335,131 --------------- SWITZERLAND -- 2.21% Actelion Ltd. (a) 38,711 3,202,227 Adecco S.A. 101,841 4,696,598 Credit Suisse Group 410,308 20,920,540 Holcim Ltd. 66,477 4,527,751 Nestle S.A. 24,966 7,466,716 Novartis AG 180,023 9,459,753 Roche Holding AG 87,313 13,109,741 Straumann Holding AG 16,028 3,714,110 Swiss Reinsurance Co. 148,051 10,838,633 --------------- 77,936,069 --------------- UNITED KINGDOM -- 4.59% Balfour Beatty PLC 301,198 1,844,832 Barclays PLC 1,671,763 17,573,999 BP PLC 1,973,192 21,014,287 Burberry Group PLC 75,318 556,890 Centrica PLC 199,002 872,221 Collins Stewart Tullett PLC 260,772 2,669,516 Diageo PLC 739,263 10,715,774 Gallaher Group PLC 518,578 7,829,173 GUS PLC 212,372 3,770,781
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SHARES VALUE ------------- --------------- ITV PLC 949,748 $ 1,838,297 Kesa Electricals PLC 647,943 2,898,445 Kingfisher PLC 1,440,623 5,880,463 Prudential PLC 1,290,228 12,209,105 Rentokil Initial PLC 681,978 1,918,416 Royal Bank of Scotland Group PLC 589,783 17,808,365 Scottish & Southern Energy PLC 210,625 3,674,536 Taylor Nelson Sofres PLC 837,405 3,238,098 Tesco PLC 2,247,228 12,816,969 Vodafone Group PLC 10,466,437 22,599,418 Wolseley PLC 306,977 6,469,886 WPP Group PLC 315,742 3,416,943 --------------- 161,616,414 --------------- Total International Equities 822,816,843 --------------- Total Equities (Cost $1,871,599,125) 2,105,780,410 --------------- FACE AMOUNT ------------- BONDS -- 22.96% U.S. BONDS -- 18.14% U.S. CORPORATE BONDS -- 2.82% Albertson's, Inc. 8.000%, due 05/01/31 $ 200,000 196,769 Allstate Corp. 7.200%, due 12/01/09 525,000 565,314 Altria Group, Inc. 7.750%, due 01/15/27 525,000 623,264 American Electric Power Co., Inc. 6.125%, due 05/15/06 373,000 374,687 American General Finance Corp. 5.375%, due 10/01/12 630,000 633,203 Anheuser-Busch Cos., Inc. 9.000%, due 12/01/09 125,000 143,367 AT&T, Inc. 6.450%, due 06/15/34 540,000 561,910 AT&T, Corp 9.750%, due 11/15/31 450,000 565,256 AvalonBay Communities, Inc. REIT 7.500%, due 08/01/09 275,000 296,096 Avon Products, Inc. 7.150%, due 11/15/09 195,000 209,417 Bank of America Corp. 7.400%, due 01/15/11 2,000,000 2,203,048 BellSouth Corp. 6.550%, due 06/15/34 675,000 718,984 Boeing Capital Corp. 7.375%, due 09/27/10 700,000 770,253 Bombardier Capital, Inc., 144A 6.125%, due 06/29/06 425,000 425,000 Bristol-Myers Squibb Co. 5.750%, due 10/01/11 600,000 619,667 Burlington Northern Santa Fe Corp. 7.082%, due 05/13/29 660,000 784,576 C.S. First Boston USA, Inc. 3.875%, due 01/15/09 575,000 558,182 6.500%, due 01/15/12 450,000 481,401 Capital One Financial Corp. 5.500%, due 06/01/15 685,000 680,992 Caterpillar, Inc. 6.550%, due 05/01/11 $ 275,000 $ 296,720 CBS Corp. 6.625%, due 05/15/11 400,000 416,598 Cendant Corp. 6.250%, due 01/15/08 1,050,000 1,068,936 Centex Corp. 7.875%, due 02/01/11 700,000 768,491 Citigroup, Inc. 5.000%, due 09/15/14 1,275,000 1,255,053 5.625%, due 08/27/12 3,775,000 3,890,938 Comcast Cable Communications, Inc. 6.750%, due 01/30/11 2,250,000 2,382,313 Computer Sciences Corp. 3.500%, due 04/15/08 325,000 311,750 ConAgra Foods, Inc. 6.750%, due 09/15/11 1,355,000 1,443,311 Coors Brewing Co. 6.375%, due 05/15/12 925,000 980,204 Countrywide Home Loans, Inc. 3.250%, due 05/21/08 850,000 816,232 DaimlerChrysler N.A. Holding Corp. 4.050%, due 06/04/08 3,325,000 3,236,871 Devon Financing Corp. ULC 6.875%, due 09/30/11 1,050,000 1,148,527 Dominion Resources, Inc. 5.950%, due 06/15/35 520,000 507,565 Duke Energy Field Services LLC 7.875%, due 08/16/10 1,000,000 1,105,942 EOP Operating LP 7.250%, due 06/15/28 1,000,000 1,105,554 Erac U.S.A. Finance Co., 144A 8.000%, due 01/15/11 700,000 782,066 Exelon Generation Co. LLC 5.350%, due 01/15/14 1,000,000 997,016 FirstEnergy Corp., Series B 6.450%, due 11/15/11 700,000 741,998 Ford Motor Credit Co. 5.800%, due 01/12/09 12,750,000 11,122,322 FPL Group Capital, Inc. 7.625%, due 09/15/06 300,000 305,462 General Electric Capital Corp. 6.000%, due 06/15/12 5,325,000 5,608,242 6.750%, due 03/15/32 1,250,000 1,467,314 General Motors Acceptance Corp. 6.875%, due 09/15/11 2,170,000 1,978,921 Goldman Sachs Group, Inc. 6.875%, due 01/15/11 3,425,000 3,689,657 Harrah's Operating Co., Inc. 7.500%, due 01/15/09 275,000 291,271 HSBC Bank USA N.A 5.625%, due 08/15/35 1,355,000 1,325,296 HSBC Finance Corp. 6.750%, due 05/15/11 1,925,000 2,065,854 ICI Wilmington, Inc. 4.375%, due 12/01/08 600,000 584,671 International Lease Finance Corp. 3.500%, due 04/01/09 1,775,000 1,689,555
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FACE AMOUNT VALUE ------------- --------------- John Deere Capital Corp. 7.000%, due 03/15/12 $ 700,000 $ 773,155 JPMorgan Chase & Co. 6.750%, due 02/01/11 2,000,000 2,142,154 Kinder Morgan Energy Partners LP 5.800%, due 03/15/35 890,000 851,378 Kraft Foods, Inc. 5.625%, due 11/01/11 975,000 1,000,347 Kroger Co. 7.500%, due 04/01/31 545,000 608,424 Lincoln National Corp. 6.200%, due 12/15/11 275,000 291,916 Lockheed Martin Corp. 8.500%, due 12/01/29 250,000 340,742 Marathon Oil Corp. 6.125%, due 03/15/12 400,000 424,151 Marsh & McLennan Cos., Inc. 6.250%, due 03/15/12 470,000 489,671 MBNA Corp. 7.500%, due 03/15/12 550,000 619,483 McKesson Corp. 7.750%, due 02/01/12 450,000 506,536 Metlife, Inc. 5.000%, due 11/24/13 700,000 692,560 Miller Brewing Co., 144A 5.500%, due 08/15/13 1,000,000 1,019,306 Morgan Stanley 6.750%, due 04/15/11 3,475,000 3,740,931 New Cingular Wireless Services, Inc. 8.750%, due 03/01/31 375,000 496,807 Newell Rubbermaid, Inc. 4.000%, due 05/01/10 140,000 132,473 News America, Inc. 6.200%, due 12/15/34 550,000 546,315 Pacific Gas & Electric Co. 6.050%, due 03/01/34 725,000 750,345 PPL Energy Supply LLC 6.400%, due 11/01/11 825,000 869,581 Progress Energy, Inc. 7.000%, due 10/30/31 300,000 332,915 Qwest Capital Funding, Inc. 7.900%, due 08/15/10 95,000 98,325 Safeway, Inc. 7.250%, due 02/01/31 755,000 814,704 Sempra Energy 7.950%, due 03/01/10 275,000 302,080 Sprint Capital Corp. 8.750%, due 03/15/32 1,375,000 1,824,735 Time Warner, Inc. 7.625%, due 04/15/31 820,000 913,192 TXU Energy Co. LLC 7.000%, due 03/15/13 700,000 745,965 U.S. Bank N.A. 6.375%, due 08/01/11 625,000 667,394 Union Pacific Corp. 6.700%, due 12/01/06 475,000 482,030 UST, Inc. 6.625%, due 07/15/12 650,000 675,895 Valero Energy Corp. 7.500%, due 04/15/32 $ 745,000 $ 905,392 Verizon New York, Inc., Series B 7.375%, due 04/01/32 975,000 1,025,027 Wachovia Bank N.A. 7.800%, due 08/18/10 1,550,000 1,739,768 Washington Mutual Bank F.A. 5.500%, due 01/15/13 1,350,000 1,371,076 Washington Mutual, Inc. 5.625%, due 01/15/07 2,000,000 2,011,016 Waste Management, Inc. 7.375%, due 08/01/10 650,000 707,390 Wells Fargo Bank N.A. 6.450%, due 02/01/11 2,625,000 2,797,552 Wyeth 5.500%, due 03/15/13 750,000 760,326 --------------- 99,267,093 --------------- ASSET-BACKED SECURITIES -- 0.43% Associates Manufactured Housing Pass Thru CTFS 96-2, Class A5 6.900%, due 06/15/27 78,252 78,497 Capital One Multi-Asset Execution Trust, 03-A1, Class A1+ 4.759%, due 01/15/09 280,000 280,232 CenterPoint Energy Transition Bond Co., LLC 01-1, Class A4 5.630%, due 09/15/15 310,000 320,906 Conseco Finance Corp., 01-D, Class M2+ 6.119%, due 11/15/32 1,835,367 1,800,150 Conseco Finance Securitizations Corp., 00-1, Class A4 7.620%, due 05/01/31 776,311 779,675 Conseco Finance Securitizations Corp., 00-2, Class A4 8.480%, due 12/01/30 1,025,674 1,038,516 Conseco Finance Securitizations Corp., 00-5, Class A4 7.470%, due 02/01/32 228,876 230,351 Countrywide Asset-Backed Certificates, 03-SD3, Class A1, 144A+ 4.799%, due 12/25/32 61,119 61,388 Countrywide Asset-Backed Certificates, 04-SD1, Class A1, 144A+ 4.719%, due 06/25/33 364,756 365,385 First Franklin Mortgage Loan Asset Backed Certificates, 04-FFB, Class A1 (e) 4.167%, due 06/25/24 525,355 521,423 Green Tree Financial Corp., 96-4, Class A6 7.400%, due 06/15/27 320,377 334,062 Metris Master Trust, 04-2, Class B+ 5.040%, due 10/20/10 1,500,000 1,503,760 Metris Master Trust, 04-2, Class C, 144A+ 5.720%, due 10/20/10 2,500,000 2,516,406
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FACE AMOUNT VALUE ------------- --------------- Peco Energy Transition Trust, 99-A, Class A7 6.130%, due 03/01/09 $ 230,000 $ 235,708 Providian Gateway Master Trust, 04-AA, Class C, 144A+ 5.269%, due 03/15/11 400,000 402,572 Providian Gateway Master Trust, 04-BA, Class D, 144A+ 5.769%, due 07/15/10 840,000 843,318 Providian Gateway Master Trust, 04-AA, Class D, 144A+ 6.219%, due 03/15/11 460,000 466,983 Providian Gateway Master Trust, 04-EA, Class C, 144A+ 4.949%, due 11/15/11 3,000,000 3,021,680 RAFC Asset-Backed Trust, 01-1, Class A3 (e) 5.115%, due 11/25/29 71,367 71,112 Structured Asset Securities Corp., 03-AL2, Class A, 144A 3.357%, due 01/25/31 231,426 210,603 --------------- 15,082,727 --------------- COMMERCIAL MORTGAGE-BACKED SECURITIES -- 1.38% Asset Securitization Corp., 95-MD4, Class A3+ 7.384%, due 08/13/29 3,250,000 3,371,262 Asset Securitization Corp., 97-D4, Class B1 7.525%, due 04/14/29 5,000,000 5,569,094 Bear Stearns Commercial Mortgage Securities, 05-LXR1, Class H, 144A+ 5.569%, due 09/15/18 3,500,000 3,551,406 Commercial Mortgage Pass-Through Certificates, 01-FL5A, Class E, 144A+ 5.869%, due 11/15/13 257,846 257,825 Commercial Mortgage Pass-Through Certificates, 01-FL5A, Class F, 144A+ 4.905%, due 11/15/13 515,000 511,517 DLJ Commercial Mortgage Corp., 00-CKP1, Class A1B 7.180%, due 11/10/33 1,275,000 1,376,978 First Union Commercial Mortgage Securities, Inc., 97-C2, Class A3 6.650%, due 11/18/29 816,943 835,388 Four Times Square Trust, 00-4TS, Class C, 144A 7.860%, due 04/15/15 6,000,000 6,599,575 GS Mortgage Securities Corp., II, 98-GLII, Class A1 6.312%, due 04/13/31 1,299,287 1,313,665 Heller Financial Commercial Mortgage Assets, 99-PH1, Class A1 6.500%, due 05/15/31 145,068 145,776 Host Marriott Pool Trust, 99-HMTA, Class A, 144A 6.980%, due 08/03/15 238,893 247,230 Host Marriott Pool Trust, 99-HMTA, Class C, 144A 7.730%, due 08/03/15 750,000 804,995 Host Marriott Pool Trust, 99-HMTA, Class D, 144A 7.970%, due 08/03/15 $ 5,300,000 $ 5,649,344 Host Marriott Pool Trust, 99-HMTA, Class E, 144A 8.070%, due 08/03/15 460,000 479,633 JPMorgan Commercial Mortgage Finance Corp., 99-C8, Class A1 7.325%, due 07/15/31 117,576 117,976 JPMorgan Commercial Mortgage Finance Corp., 99-C8, Class A2 7.400%, due 07/15/31 1,000,000 1,062,776 LB Commercial Conduit Mortgage Trust, 99-C1, Class A1 6.410%, due 06/15/31 264,734 265,828 Mach One Trust Commercial Mortgage- Backed, 04-1A, Class A1, 144A 3.890%, due 05/28/40 2,580,473 2,520,699 Merrill Lynch Mortgage Investors, Inc., 97-C1, Class A3 7.120%, due 06/18/29 67,173 67,605 Merrill Lynch Mortgage Investors, Inc., 98-C1, Class A1+ 6.310%, due 11/15/26 553,032 553,722 Morgan Stanley Capital I, 03-T11, Class A4 5.150%, due 06/13/41 5,065,000 5,051,705 Morgan Stanley Dean Witter Capital I, 00-LIFE, Class A1 7.420%, due 11/15/36 161,360 165,591 Morgan Stanley Dean Witter Capital I, 00-LIFE, Class A2 7.570%, due 11/15/36 150,000 162,357 Nomura Asset Securities Corp., 96-MD5, Class A4+ 7.986%, due 04/13/39 3,500,000 3,543,280 Nomura Asset Securities Corp., 98-D6, Class A1A 6.280%, due 03/15/30 616,641 620,866 PNC Mortgage Acceptance Corp., 00-C1, Class A2 7.610%, due 02/15/10 2,000,000 2,153,737 Prudential Mortgage Capital Funding LLC, 01-ROCK, Class A2 6.605%, due 05/10/34 1,055,000 1,125,068 Salomon Brothers Mortgage Securities VII, 00-C3, Class A2 6.592%, due 12/18/33 540,000 569,847 --------------- 48,694,745 --------------- MORTGAGE & AGENCY DEBT SECURITIES-- 8.66% Adjustable Rate Mortgage Trust, 05-2, Class CB1+ 4.881%, due 06/25/35 5,734,751 5,571,786 Bear Stearns Alt-A Trust, 05-3, Class B1+ 5.379%, due 04/25/35 7,391,258 7,269,995 C.S. First Boston Mortgage Securities Corp., 01-26, Class 5A1+ 7.380%, due 11/25/31 110,705 110,325
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FACE AMOUNT VALUE ------------- --------------- C.S. First Boston Mortgage Securities Corp., 02-10, Class 2A1 7.500%, due 05/25/32 $ 24,384 $ 24,687 C.S. First Boston Mortgage Securities Corp., 03-27, Class 9A1 7.000%, due 11/25/33 299,826 304,379 C.S. First Boston Mortgage Securities Corp., 03-8, Class 5A1 6.500%, due 04/25/33 754,075 756,716 C.S. First Boston Mortgage Securities Corp., 05-9, Class 3A1 6.000%, due 10/25/35 5,529,246 5,552,765 C.S. First Boston Mortgage Securities Corp., 05-11, Class 4A1 7.000%, due 12/25/35 5,955,349 6,134,010 C.S. First Boston Mortgage Securities Corp., 05-12, Class 1A1 6.500%, due 01/25/36 7,500,000 7,642,973 Countrywide Alternative Loan Trust, 05-J2, Class 2A1 7.500%, due 04/25/35 2,491,523 2,528,005 Countrywide Home Loan Mortgage Pass Thru Trust, 03-20, Class 3A2 4.750%, due 07/25/18 573,281 567,803 Federal Home Loan Mortgage Corp. 3.875%, due 01/12/09 7,085,000 6,905,764 Federal Home Loan Mortgage Corp. REMIC, 2148, Class ZA 6.000%, due 04/15/29 912,409 915,121 Federal Home Loan Mortgage Corp. REMIC, 2426, Class GH 6.000%, due 08/15/30 639,635 647,061 Federal Home Loan Mortgage Corp., Gold 5.500%, due 09/01/17 62,236 62,646 5.500%, due 01/01/18 121,122 121,921 5.500%, due 04/01/18 397,608 400,126 5.500%, due 01/01/19 1,988,425 2,001,020 5.500%, due 09/01/23 2,720,187 2,722,369 5.500%, due 02/01/24 5,428,842 5,425,084 6.000%, due 12/01/17 318,333 324,964 6.000%, due 10/01/29 32,787 33,222 6.000%, due 12/01/30 398,511 403,578 6.000%, due 03/01/31 536,517 543,486 6.000%, due 07/01/34 1,708,615 1,725,838 6.500%, due 02/01/17 133,061 136,743 6.500%, due 10/01/17 659,132 677,202 6.500%, due 01/01/29 2,174,317 2,237,408 6.500%, due 04/01/29 71,367 73,411 6.500%, due 11/01/29 1,399,511 1,440,681 7.000%, due 06/01/28 221,516 231,061 7.000%, due 04/01/32 2,031,044 2,115,924 Federal National Mortgage Association 5.000%, TBA 53,565,000 51,891,094 3.294%, due 09/01/33+ 124,154 123,607 3.760%, due 08/01/33+ 3,703,694 3,631,223 3.875%, due 07/15/08 8,100,000 7,936,817 3.959%, due 05/01/33+ 390,295 399,217 4.277%, due 03/01/34+ 472,652 464,992 4.340%, due 06/01/33+ 312,526 308,692 4.374%, due 01/01/35+ 3,908,985 3,850,278 4.625%, due 06/01/10 2,970,000 2,922,878 4.657%, due 01/01/35+ 5,468,577 5,418,728 4.945%, due 02/01/35+ $ 11,830,296 $ 11,839,169 5.500%, due 03/15/11 5,670,000 5,860,779 5.500%, due 12/01/17 9,608,962 9,675,378 5.500%, due 02/01/18 8,675,457 8,735,421 5.500%, due 11/01/23 178,575 176,887 5.500%, due 04/01/24 6,352,224 6,343,793 5.500%, due 09/01/24 3,972,946 3,973,732 5.500%, due 05/01/33 6,305,330 6,259,090 5.500%, due 06/01/33 7,686,215 7,635,390 5.500%, due 07/01/33 6,023,125 5,978,955 6.000%, due 09/01/08 1,536,125 1,559,602 6.000%, due 06/01/14 1,268,237 1,296,420 6.000%, due 07/01/17 3,311,649 3,385,241 6.000%, due 08/01/17 794,016 811,652 6.000%, due 04/01/18 350,006 357,763 6.000%, due 03/01/20 6,288,274 6,425,599 6.000%, due 11/01/28 150,050 152,010 6.000%, due 03/01/29 936,898 948,807 6.000%, due 07/01/29 755,115 764,711 6.000%, due 06/01/31 12,781 12,939 6.000%, due 01/01/33 2,515,105 2,543,300 6.250%, due 02/01/11 5,535,000 5,845,569 6.500%, due 12/01/10 1,772,299 1,808,540 6.500%, due 03/01/17 594,831 611,148 6.500%, due 06/01/17 640,524 658,407 6.500%, due 03/01/28 165,084 170,105 6.500%, due 05/01/28 1,837,239 1,892,575 6.500%, due 07/01/28 4,083,600 4,206,594 6.500%, due 10/01/28 957,764 986,611 6.500%, due 12/01/28 166,358 171,369 6.500%, due 04/01/29 626,641 645,409 6.500%, due 06/01/29 703,797 724,784 6.500%, due 08/01/29 223,441 230,104 6.500%, due 10/01/29 1,728,858 1,780,929 6.500%, due 12/01/29 2,028,110 2,089,789 6.500%, due 05/01/30 153,197 157,812 6.500%, due 11/01/31 9,691 9,962 6.500%, due 07/01/32 4,239,332 4,356,891 6.625%, due 09/15/09 5,230,000 5,561,273 7.000%, due 08/01/32 1,026,195 1,070,898 7.000%, due 01/01/34 725,154 757,408 7.500%, due 05/01/31 24,282 25,438 7.500%, due 02/01/33 384,191 402,915 Federal National Mortgage Association Grantor Trust, 00-T6, Class A1 7.500%, due 06/25/30 408,048 422,215 Federal National Mortgage Association Grantor Trust, 01-T4, Class A1 7.500%, due 07/25/41 1,792,309 1,873,919 Federal National Mortgage Association Grantor Trust, 01-T5, Class A3+ 7.500%, due 06/19/30 88,535 92,244 Federal National Mortgage Association Grantor Trust, 02-T19, Class A1 6.500%, due 07/25/42 2,203,782 2,264,130 Federal National Mortgage Association Whole Loan, 01-W3, Class A 7.000%, due 09/25/41 94,930 97,804 Federal National Mortgage Association Whole Loan, REMIC 03-W6, Class 6A+ 4.861%, due 08/25/42 315,637 319,698
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FACE AMOUNT VALUE --------------- --------------- Federal National Mortgage Association Whole Loan, 04-W11, Class 1A3 7.000%, due 05/25/44 $ 2,563,131 $ 2,660,971 Federal National Mortgage Association Whole Loan, 95-W3, Class A 9.000%, due 04/25/25 1,222 1,327 First Horizon Alternative Mortgage Securities, 04-AA3, Class A1+ 5.335%, due 09/25/34 1,435,963 1,430,565 First Horizon Asset Securities, Inc., 04-FL1, Class 1A1+ 4.649%, due 02/25/35 1,182,835 1,182,179 Government National Mortgage Association 4.125%, due 10/20/29+ 244,272 245,974 6.000%, due 11/20/28 43,568 44,588 6.000%, due 01/15/29 51,931 53,247 6.000%, due 02/20/29 38,415 39,305 6.000%, due 05/20/29 98,038 100,309 6.000%, due 07/15/29 918,227 941,499 6.500%, due 03/15/26 434,296 454,776 6.500%, due 04/15/31 1,442,804 1,508,018 6.500%, due 01/20/34 943,841 977,576 8.000%, due 12/15/22 10,545 11,289 Government National Mortgage Association REMIC, 01-35, Class AZ 6.500%, due 08/20/31 4,237,856 4,295,225 Residential Asset Securitization Trust, 04-IP2, Class B1+ 5.443%, due 12/25/34 5,642,387 5,575,384 Structured Adjustable Rate Mortgage Loan Trust, 04-3AC, Class A1+ 4.940%, due 03/25/34 802,013 796,987 Structured Asset Securities Corp., 02-23XS, Class A7 (e) 6.080%, due 11/25/32 5,170,000 5,142,194 Washington Mutual, Inc., 04-AR7, Class A6+ 3.946%, due 07/25/34 10,000,000 9,673,757 Wells Fargo Mortgage Backed Securities Trust, 03-18, Class A2 5.250%, due 12/25/33 3,669,801 3,548,698 --------------- 305,210,646 --------------- STRIPPED MORTGAGE-BACKED SECURITIES (f) -- 0.13% Federal National Mortgage Association 0.000%, due 07/01/34++ 2,989,524 2,289,233 Federal National Mortgage Association 5.500%, due 12/01/35+++ 3,000,000 697,031 MLCC Mortgage Investors, Inc., 03-D, Class XA1+++ 1.000%, due 08/25/28 8,284,650 88,995 Sequoia Mortgage Trust, 04-11, Class XAI+++ 0.632%, due 12/20/34 53,040,749 760,389 Structured Adjustable Rate Mortgage Loan Trust, 05-17, Class 4AX+++ 5.500%, due 08/25/35 4,021,946 603,292 --------------- Total Stripped Mortgage-Backed Securities 4,438,940 --------------- U.S. GOVERNMENT OBLIGATIONS -- 4.72% U.S. Treasury Bonds 6.250%, due 05/15/30 $ 6,620,000 $ 8,221,729 8.000%, due 11/15/21 5,710,000 7,866,638 8.750%, due 05/15/17 19,395,000 26,633,272 U.S. Treasury Inflation Indexed Bond (TIPS) 2.000%, due 01/15/14 16,443,822 16,350,684 U.S. Treasury Notes 3.625%, due 04/30/07 2,445,000 2,419,403 3.625%, due 06/15/10 33,335,000 32,351,884 3.875%, due 05/15/09 28,010,000 27,570,159 3.875%, due 02/15/13 6,630,000 6,426,181 4.000%, due 08/31/07 27,765,000 27,580,613 4.125%, due 05/15/15 10,980,000 10,739,384 --------------- 166,159,947 --------------- Total U.S. Bonds 638,854,098 --------------- INTERNATIONAL BONDS -- 4.82% INTERNATIONAL CORPORATE BONDS -- 0.38% CANADA -- 0.04% Anadarko Finance Co., Series B 7.500%, due 05/01/31 $ 300,000 367,684 Bombardier, Inc., 144A 6.300%, due 05/01/14 900,000 787,500 Burlington Resources Finance Co. 6.680%, due 02/15/11 250,000 269,552 --------------- 1,424,736 --------------- GERMANY -- 0.25% Kreditanstalt fuer Wiederaufbau 4.750%, due 12/07/10 GBP 2,070,000 3,610,617 Landwirtschaftliche Rentenbank 5.750%, due 01/21/15 AUD 7,310,000 5,366,260 --------------- 8,976,877 --------------- LUXEMBOURG -- 0.04% Telecom Italia Capital S.A. 5.250%, due 11/15/13 $ 325,000 318,914 6.375%, due 11/15/33 925,000 935,671 --------------- 1,254,585 --------------- UNITED KINGDOM -- 0.05% Abbey National PLC 7.950%, due 10/26/29 $ 295,000 382,434 Lloyds TSB Bank PLC 6.625%, due 03/30/15 GBP 130,000 255,324 Royal Bank of Scotland Group PLC 9.118%, due 03/31/10 $ 675,000 773,280 Royal Bank of Scotland PLC 9.625%, due 06/22/15 GBP 110,000 258,986 --------------- 1,670,024 --------------- Total International Corporate Bonds 13,326,222 --------------- INTERNATIONAL ASSET-BACKED SECURITIES -- 0.27% UNITED KINGDOM -- 0.27% Granite Mortgages PLC, 04-1, Class 1C+ 5.400%, due 03/20/44 $ 5,125,000 5,171,807
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FACE AMOUNT VALUE --------------- --------------- Granite Mortgages PLC, 04-1, Class 3A+ 4.806%, due 03/20/44 GBP 430,000 $ 740,697 Paragon Mortgages PLC, 7A, Class B1A, 144A+ 5.090%, due 05/15/43 $ 1,040,000 1,042,042 Permanent Financing PLC, 04, Class 2C+ 5.200%, due 06/10/42 2,700,000 2,713,242 --------------- Total International Asset-Backed Securities 9,667,788 --------------- FOREIGN GOVERNMENT BONDS -- 3.76% AUSTRIA -- 0.35% Republic of Austria 3.800%, due 10/20/13, 144A EUR 3,570,000 4,393,174 5.875%, due 07/15/06 6,655,000 8,011,920 --------------- 12,405,094 --------------- BELGIUM -- 0.13% Government of Belgium 5.750%, due 03/28/08 EUR 3,520,000 4,415,726 --------------- CANADA -- 0.18% Government of Canada 3.000%, due 06/01/06 CAD 5,870,000 5,037,409 5.750%, due 09/01/06 1,400,000 1,219,865 --------------- 6,257,274 --------------- FINLAND -- 0.24% Government of Finland 5.000%, due 07/04/07 EUR 2,110,000 2,579,025 5.750%, due 02/23/11 4,420,000 5,887,921 --------------- 8,466,946 --------------- FRANCE -- 0.80% French Treasury Note 3.500%, due 07/12/09 EUR 3,885,000 4,677,435 Government of France 4.750%, due 04/25/35 470,000 669,894 5.000%, due 10/25/16 4,315,000 5,869,290 5.500%, due 04/25/07 2,025,000 2,478,861 5.500%, due 04/25/10 5,670,000 7,374,405 5.500%, due 04/25/29 4,655,000 7,170,449 --------------- 28,240,334 --------------- GERMANY -- 1.56% Bundesobligation 3.500%, due 10/10/08 EUR 3,715,000 4,462,912 Bundesschatzanweisungen 2.500%, due 09/22/06 4,300,000 5,084,987 Deutsche Bundesrepublik 3.750%, due 01/04/09 770,000 932,225 3.750%, due 01/04/15 155,000 190,123 4.500%, due 07/04/09 11,955,000 14,857,576 4.750%, due 07/04/34 4,600,000 6,560,408 5.000%, due 07/04/12 150,000 196,357 5.250%, due 07/04/10 3,920,000 5,063,816 6.000%, due 01/04/07 7,625,000 9,313,509 6.500%, due 07/04/27 4,785,000 8,130,630 --------------- 54,792,543 --------------- ITALY -- 0.13% Buoni Poliennali Del Tesoro 8.750%, due 07/01/06 EUR 3,830,000 $ 4,669,705 --------------- NETHERLANDS -- 0.22% Government of Netherlands 4.000%, due 01/15/37 EUR 3,070,000 3,910,691 5.000%, due 07/15/11 2,930,000 3,799,635 --------------- 7,710,326 --------------- SWEDEN -- 0.06% Government of Sweden 6.750%, due 05/05/14 SEK 12,750,000 2,006,265 8.000%, due 08/15/07 2,000,000 273,120 --------------- 2,279,385 --------------- UNITED KINGDOM -- 0.09% U.K. Gilts 5.000%, due 03/07/12 GBP 1,700,000 3,060,856 --------------- Total Foreign Government Bonds 132,298,189 --------------- SOVEREIGN/SUPRANATIONAL BONDS -- 0.41% Eurofima 6.000%, due 01/28/14 AUD 4,190,000 3,144,412 European Investment Bank 4.250%, due 12/07/10 GBP 4,200,000 7,169,214 6.000%, due 08/14/13 AUD 780,000 586,285 International Bank for Reconstruction & Development 6.125%, due 12/07/09 GBP 1,514,000 2,762,804 Pemex Project Funding Master Trust 8.000%, due 11/15/11 $ 670,000 750,130 --------------- 14,412,845 --------------- Total International Bonds 169,705,044 --------------- Total Bonds (Cost $824,565,186) 808,559,142 --------------- SHARES --------------- INVESTMENT COMPANIES* -- 6.90% UBS Corporate Bond Relationship Fund 948,646 10,537,465 UBS Emerging Markets Equity Relationship Fund 5,177,204 112,787,460 UBS High Yield Relationship Fund 1,595,260 30,423,203 UBS Small Cap Equity Relationship Fund 2,175,127 89,312,890 --------------- Total Investment Companies (Cost $178,980,960) 243,061,018 --------------- SHORT-TERM INVESTMENTS* -- 11.37% OTHER -- 11.16% UBS Supplementary Trust -- U.S. Cash Management Prime Fund, yield of 4.36% 393,085,929 393,085,929 --------------- FACE AMOUNT --------------- U.K. GOVERNMENT OBLIGATIONS -- 0.18% U.K. Treasury Bills, due 02/06/06 yield of 4.33% GBP 3,730,000 6,389,946 ---------------
16
FACE AMOUNT VALUE --------------- --------------- U.S. GOVERNMENT OBLIGATIONS -- 0.03% U.S. Treasury Bills, yield of 3.35% (g) due 01/05/06 $ 1,000,000 $ 999,505 --------------- Total Short-Term Investments (Cost $400,469,566) 400,475,380 --------------- SHARES --------------- INVESTMENT OF CASH COLLATERAL FOR SECURITIES LOANED* -- 2.32% UBS Supplementary Trust -- U.S. Cash Management Prime Fund, yield of 4.36% (Cost $81,507,916) 81,507,916 81,507,916 --------------- Total Investments -- 103.36% (Cost $3,357,122,753) 3,639,383,866 Liabilities, in excess of cash and other assets -- (3.36%) (118,294,138) --------------- Net Assets -- 100.00% $ 3,521,089,728 ===============
NOTES TO SCHEDULE OF INVESTMENTS Aggregate cost for federal income tax purposes, which was substantially the same for book purposes, was $3,357,122,753; and net unrealized appreciation consisted of: Gross unrealized appreciation $ 331,555,741 Gross unrealized depreciation (49,294,628) --------------- Net unrealized appreciation $ 282,261,113 ===============
+ Floating rate securities. The interest rates shown are the current rates as of December 31, 2005. ++ Principal Only Security - This security entitles the holder to receive principal payments from an underlying pool of assets. High prepayments return principal faster than expected and cause the yield to increase. Low prepayments return principal slower than expected and cause the yield to decrease. +++ Interest Only Security - This security entitles the holder to receive interest payments from an underlying pool of mortgages. The risk associated with this security is related to the speed of the principal paydowns. High prepayments would result in a smaller amount of interest being received and cause the yield to decrease. Low prepayments would result in a greater amount of interest being received and cause the yield to increase. * Investments in affiliated mutual funds. (a) Non-income producing security. (b) All or a portion of this security is segregated for "to be announced" ("TBA") securities. (c) Securities, or portion thereof, were on loan at December 31, 2005. (d) All or portion of these securities have been pledged to cover forward foreign currency contracts. (e) Step Bonds - Coupon rate increases in increments to maturity. Rate disclosed is as of December 31, 2005. Maturity date disclosed is the ultimate maturity date. (f) Security is illiquid. These securities amounted to $4,438,940 or 0.13% of net assets. (g) 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 December 31, 2005, the value of these securities amounted to $36,959,647 or 1.05% of net assets. REIT Real Estate Investment Trust REMIC Real Estate Mortgage Investment Conduit TBA (To Be Announced) Security is purchased 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. TIPS Treasury Inflation Protected Securities AUD Australian Dollar CAD Canadian Dollar EUR Euro GBP British Pound SEK Swedish Krona 17 FORWARD FOREIGN CURRENCY CONTRACTS UBS Global Allocation Fund had the following open forward foreign currency contracts as of December 31, 2005:
UNREALIZED CONTRACTS IN EXCHANGE MATURITY APPRECIATION/ TO DELIVER FOR DATE (DEPRECIATION) ----------- --------------------- ---------- -------------- Australian Dollar 31,330,000 USD 22,964,733 05/18/06 $ 79,213 British Pound 63,425,000 USD 108,504,002 05/18/06 (671,424) Canadian Dollar 41,155,000 USD 35,323,148 05/18/06 (205,058) Euro 145,645,000 USD 172,071,557 05/18/06 (1,658,330) Euro 16,660,000 USD 19,929,025 05/18/06 56,459 United States Dollar 111,700,390 CHF 145,325,000 05/18/06 350,706 United States Dollar 223,571,677 JPY 26,206,700,000 05/18/06 2,449,579 United States Dollar 180,300,058 SEK 1,437,450,000 05/18/06 2,646,656 United States Dollar 109,878,002 SGD 184,995,000 05/18/06 1,964,337 United States Dollar 93,711,557 THB 3,875,910,000 05/18/06 508,028 -------------- Total net unrealized appreciation on forward foreign currency contracts $ 5,520,166 ==============
Currency Type Abbreviations CHF Swiss Franc JPY Japanese Yen SEK Swedish Krona SGD Singapore Dollar THB Thailand Baht USD United States Dollar FUTURES CONTRACTS UBS Global Allocation Fund had the following open futures contracts as of December 31, 2005:
UNREALIZED EXPIRATION COST/ CURRENT APPRECIATION/ DATES PROCEEDS VALUE (DEPRECIATION) ------------ ------------- ------------ -------------- U.S. TREASURY NOTES FUTURES BUY CONTRACTS: 5 Year U.S. Treasury Notes, 190 contracts March 2006 $ 20,119,980 $ 20,205,313 $ 85,333 10 Year U.S. Treasury Notes, 70 contracts March 2006 7,593,639 7,658,437 64,798 INDEX FUTURES BUY CONTRACTS: Amsterdam Exchanges Index, 334 contracts (EUR) January 2006 34,302,760 34,563,889 261,129 FTSE 100 Index, 359 contracts (GBP) March 2006 34,086,523 34,687,757 601,234 INDEX FUTURE SALE CONTRACTS: S&P Toronto Stock Exchange, 317 contracts (CAD) March 2006 34,357,494 34,747,421 (389,927) S&P 500 Index, 68 contracts March 2006 21,793,660 21,331,600 462,060 SPI 200 Index, 398 contracts (AUD) March 2006 33,496,381 34,480,369 (983,988) -------------- Total net unrealized appreciation on futures contracts $ 100,639 ==============
The segregated aggregate market value of investments and cash collateral pledged to cover margin requirements for the open futures positions at December 31, 2005 was $9,716,294. Currency Type Abbreviations AUD Australian Dollar CAD Canadian Dollar EUR Euro GBP British Pound See accompanying notes to financial statements. 18 UBS GLOBAL EQUITY FUND For the six-month period ended December 31, 2005, Class A shares of UBS Global Equity Fund (the "Fund") returned 7.94% (1.98% after the deduction of the maximum sales charge) and Class Y shares returned 8.15%, versus the 10.39% return of the Fund's benchmark, the MSCI World Equity (Free) Index (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 21; 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.) STOCK SELECTION GUIDED PORTFOLIO CONSTRUCTION The Fund performed solidly in absolute terms over the reporting period, primarily due to the general strength of international equity markets and strong stock selection within the United States. However, certain sector and country allocations ultimately caused the Fund to lag the Index for the reporting period. As always, management's research-based stock selection determines the Fund's sector and country weightings. Over the reporting period, this process led us to overweight telecommunications services and underweight materials. Telecommunication services proved to be one of the largest detractors from the Fund's relative performance. In our opinion, many stocks in this sector are trading at attractive valuations and have strong and stable cash flows. We believe the market remained apprehensive, however, worried about the industry's ability to invest cash wisely and increased competition. While the Fund benefited from not owning weak performing Verizon Communications, it experienced disappointing results from its holdings in France Telecom, Sprint Nextel and Vodafone (all of which remain in the portfolio). Relative performance was also hurt by the Fund's underweight exposure to the materials sector. Materials stocks have seen significant price increases as the market extrapolated record high metal prices into the future. The Fund's underweight reflects our view that stocks prices will eventually fall as metal prices normalize. Stock selection within the software, diversified financials, and capital goods industries also detracted notably from relative returns. In particular, Fifth Third Bancorp and Bank of Ireland (two large financial institutions) and Masco (a home improvement supply company) all posted disappointing returns over the period. We believe all three companies continue to offer potential, and we continue to hold them in the portfolio. On the other hand, the Fund's stock selection in specialty pharmaceuticals and biotechnology had a positive impact on returns over the reporting period. Our research revealed attractive investment opportunities despite the prospect of healthcare reform, with US specialty pharmaceuticals appearing particularly strong. Cephalon and Allergan (both specialty pharmaceutical companies) were two of the Fund's top-performing stocks in this space, and contributed both to absolute and relative returns. Not owning Pfizer, which declined in value significantly during the period, also enhanced returns. GLOBAL ECONOMIC GROWTH SUPPORTS THE EQUITY MARKETS Throughout reporting period, we continued to focus the portfolio on high-quality companies with solid balance sheets and strong growth prospects. Stock selection, in turn, directed our country weightings. In our opinion, this remains the best approach to meeting the Fund's long-term investment objectives. Our research suggests that variances between countries offered opportunities to add value and some of the Fund's overweights relative to 19 the Index include the Netherands and UK. While our exposure to equities in the Netherlands was positive from both a stock-selection and a market exposure perspective, neither was true of our holdings in the UK. In the UK consumer stocks such as Diageo and Gallaher detracted from performance. The Fund continues to hold theses stocks as we believe they are attractively valued. One of the Fund's largest underweights was in Canada. This also detracted from performance due to the high concentration of energy and material stocks which we are underweight. Japan, one of the Fund's largest allocations in absolute terms, was the single best performing developed country over the reporting period. While the Fund's Japanese holdings performed quite well, holding an underweight position detracted somewhat from relative returns. While we are optimistic regarding economic reform in Japan, we are cautious on overall equity valuations given the dramatic rise in recent months. GLOBAL MARKETS REMAIN ATTRACTIVE Overall, the global economy appears to be on solid footing, and we expect to see continued economic improvements in the US, the eurozone and Japan over the coming months. We believe many companies will continue to experience high levels of free cash flow, as they did in 2005. We currently favor companies that are able to return some of that cash to their shareholders through dividend payments and share buyback programs, and are making what we feel are sensible investments in their businesses. We believe the Fund is well positioned to benefit from such an environment, and that our research-intensive stock selection process combined with the Fund's global scope will prove prudent in the months ahead. THIS LETTER IS INTENDED TO ASSIST SHAREHOLDERS IN UNDERSTANDING HOW THE FUND PERFORMED DURING THE SEMIANNUAL PERIOD ENDED DECEMBER 31, 2005. THE VIEWS AND OPINIONS IN THE LETTER WERE CURRENT AS OF FEBRUARY 15, 2006. 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. 20 AVERAGE ANNUAL TOTAL RETURN (UNAUDITED)
6 MONTHS 1 YEAR 5 YEARS 10 YEARS INCEPTION* ENDED ENDED ENDED ENDED TO 12/31/05 12/31/05 12/31/05 12/31/05 12/31/05 - ------------------------------------------------------------------------------------------------------ UBS GLOBAL EQUITY FUND CLASS A 7.94% 6.84% 3.66% N/A 4.87% UBS GLOBAL EQUITY FUND CLASS B 7.55 6.06 N/A N/A 6.70 UBS GLOBAL EQUITY FUND CLASS C 7.58 6.08 N/A N/A 6.58 UBS GLOBAL EQUITY FUND CLASS Y 8.15 7.15 4.04 7.37% 7.52 UBS GLOBAL EQUITY FUND CLASS A** 1.98 0.99 2.50 N/A 4.17 UBS GLOBAL EQUITY FUND CLASS B** 2.55 1.06 N/A N/A 6.29 UBS GLOBAL EQUITY FUND CLASS C** 6.58 5.08 N/A N/A 6.58 MSCI WORLD EQUITY (FREE) INDEX 10.39 9.82 2.48 7.30 7.73
* INCEPTION DATE OF UBS GLOBAL EQUITY FUND CLASS A SHARES IS 06/30/97. 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 01/28/94. THE INCEPTION RETURN OF THE INDEX IS CALCULATED AS OF 01/31/94, 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. TOTAL 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. 21 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); and (2) ongoing costs, including management fees; service and/or distribution (12b-1) fees (if applicable); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example below is based on an investment of $1,000 invested at the beginning of the period and held for the entire period, July 1, 2005 to December 31, 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 for each class of shares 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 Fund's actual return for each class of shares. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs (as applicable), such as sales charges (loads). Therefore, the second line in the table for each class of shares is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
BEGINNING ENDING EXPENSES PAID ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD* JULY 1, 2005 DECEMBER 31, 2005 7/1/05 - 12/31/05 - -------------------------------------------------------------------------------------------------------- CLASS A ACTUAL $ 1,000.00 $ 1,079.40 $ 6.55 HYPOTHETICAL (5% ANNUAL RETURN BEFORE EXPENSES) 1,000.00 1,018.90 6.36 CLASS B ACTUAL 1,000.00 1,075.50 10.46 HYPOTHETICAL (5% ANNUAL RETURN BEFORE EXPENSES) 1,000.00 1,015.12 10.16 CLASS C ACTUAL 1,000.00 1,075.80 10.46 HYPOTHETICAL (5% ANNUAL RETURN BEFORE EXPENSES) 1,000.00 1,015.12 10.16 CLASS Y ACTUAL 1,000.00 1,081.50 5.25 HYPOTHETICAL (5% ANNUAL RETURN BEFORE EXPENSES) 1,000.00 1,020.16 5.09
* EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED NET EXPENSE RATIOS: CLASS A: 1.25%, CLASS B: 2.00%, CLASS C: 2.00%, CLASS Y: 1.00%, MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 184 DIVIDED BY 365 (TO REFLECT THE ONE-HALF YEAR PERIOD). 22 TOP TEN U.S. EQUITY HOLDINGS AS OF DECEMBER 31, 2005 (UNAUDITED)
PERCENTAGE OF NET ASSETS - ---------------------------------------------------- Citigroup, Inc. 3.0% Microsoft Corp. 2.0 Wyeth 1.7 Morgan Stanley 1.7 Sprint Nextel Corp. 1.6 Mellon Financial Corp. 1.6 American International Group, Inc. 1.6 Costco Wholesale Corp. 1.5 Freddie Mac 1.3 Masco Corp. 1.3 - ---------------------------------------------------- Total 17.3%
TOP TEN INTERNATIONAL EQUITY HOLDINGS AS OF DECEMBER 31, 2005 (UNAUDITED)
PERCENTAGE OF NET ASSETS - ---------------------------------------------------- BP PLC 2.6% Total S.A. 2.0 Vodafone Group PLC 1.9 Diageo PLC 1.4 ABN AMRO Holding NV 1.4 Barclays PLC 1.3 Gallaher Group PLC 1.3 Bank of Ireland 1.3 Royal Bank of Scotland Group PLC 1.2 UniCredito Italiano SpA 1.1 - ---------------------------------------------------- Total 15.5%
COUNTRY EXPOSURE, TOP FIVE AS OF DECEMBER 31, 2005 (UNAUDITED)
PERCENTAGE OF NET ASSETS - ---------------------------------------------------- United States 49.6% United Kingdom 12.5 Japan 10.5 France 4.8 Netherlands 3.7 - ---------------------------------------------------- Total 81.1%
23 INDUSTRY DIVERSIFICATION AS A PERCENT OF NET ASSETS AS OF DECEMBER 31, 2005 (UNAUDITED) EQUITIES U.S. EQUITIES Aerospace & Defense 1.53% Air Freight & Logistics 1.04 Auto Components 0.58 Automobiles 0.39 Beverages 0.71 Biotechnology 1.66 Building Products 1.27 Capital Markets 3.27 Commercial Banks 2.66 Commercial Services & Supplies 0.40 Computers & Peripherals 0.62 Diversified Financial Services 4.13 Diversified Telecommunication Services 2.31 Electric Utilities 1.66 Energy Equipment & Services 0.50 Food & Staples Retailing 2.01 Gas Utilities 0.31 Health Care Equipment & Supplies 0.88 Health Care Providers & Services 2.97 Industrial Conglomerates 0.51 Insurance 2.06 Internet & Catalog Retail 0.63 Machinery 1.05 Media 2.58 Multi-Utilities & Unregulated Power 0.66 Multiline Retail 1.17 Pharmaceuticals 4.38 Road & Rail 0.90 Semiconductors & Semiconductor Equipment 1.21 Software 3.75 Thrifts & Mortgage Finance 1.35 ------ Total U.S. Equities 49.15 INTERNATIONAL EQUITIES Air Freight & Logistics 0.84 Airlines 0.52 Auto Components 0.51 Automobiles 2.32 Beverages 1.45 Chemicals 1.08% Commercial Banks 9.66 Commercial Services & Supplies 1.17 Construction Materials 0.78 Consumer Finance 0.47 Diversified Telecommunication Services 2.79 Electronic Equipment & Instruments 0.06 Energy Equipment & Services 0.33 Food & Staples Retailing 1.68 Food Products 0.32 Hotels, Restaurants & Leisure 1.01 Household Durables 0.95 Household Products 0.70 Industrial Conglomerates 0.43 Insurance 4.04 Internet & Catalog Retail 0.20 IT Services 1.07 Machinery 0.38 Media 1.29 Office Electronics 0.69 Oil & Gas 5.26 Paper & Forest Products 0.37 Pharmaceuticals 2.15 Real Estate 0.78 Road & Rail 0.19 Semiconductors & Semiconductor Equipment 0.89 Specialty Retail 1.17 Textiles, Apparel & Luxury Goods 0.03 Tobacco 1.93 Wireless Telecommunication Services 2.68 ------ Total International Equities 50.19 TOTAL EQUITIES 99.34 WARRANTS 0.00+ SHORT-TERM INVESTMENT 0.49 ------ TOTAL INVESTMENTS 99.83 CASH AND OTHER ASSETS, LESS LIABILITIES 0.17 ------ NET ASSETS 100.00% ======
+ AMOUNT REPRESENTS LESS THAN 0.005% 24 UBS GLOBAL EQUITY FUND -- SCHEDULE OF INVESTMENTS DECEMBER 31, 2005 (UNAUDITED)
SHARES VALUE ------------- --------------- EQUITIES -- 99.34% U.S. EQUITIES -- 49.15% Allergan, Inc. 35,500 $ 3,832,580 American Electric Power Co., Inc. 55,500 2,058,495 American International Group, Inc. 104,400 7,123,212 Anheuser-Busch Cos., Inc. 76,200 3,273,552 Applied Materials, Inc. 201,600 3,616,704 AT&T, Inc. 128,000 3,134,720 Baker Hughes, Inc. 37,600 2,285,328 Bristol-Myers Squibb Co. 86,400 1,985,472 Burlington Northern Santa Fe Corp. 58,100 4,114,642 Caremark Rx, Inc. (a) 46,900 2,428,951 CCE Spinco, Inc. (a) 11,612 152,117 Cendant Corp. 98,200 1,693,950 Cephalon, Inc. (a) 53,200 3,444,168 Citigroup, Inc. 286,300 13,894,139 Clear Channel Communications, Inc. 92,900 2,921,705 Costco Wholesale Corp. 142,000 7,024,740 Dell, Inc. (a) 93,800 2,813,062 DIRECTV Group, Inc. (a) 85,300 1,204,436 Exelon Corp. 48,700 2,587,918 Expedia, Inc. (a) 120,000 2,875,200 FedEx Corp. 46,200 4,776,618 Fifth Third Bancorp 115,300 4,349,116 Freddie Mac 94,400 6,169,040 General Electric Co. 66,600 2,334,330 Genzyme Corp. (a) 58,700 4,154,786 Harley-Davidson, Inc. 34,600 1,781,554 Hartford Financial Services Group, Inc. 26,800 2,301,852 Healthsouth Corp. (a) 228,400 1,119,160 Illinois Tool Works, Inc. 54,500 4,795,455 Johnson & Johnson 73,202 4,399,440 Johnson Controls, Inc. 36,200 2,639,342 JPMorgan Chase & Co. 126,100 5,004,909 Kohl's Corp. (a) 109,600 5,326,560 Kroger Co. (a) 113,800 2,148,544 Lockheed Martin Corp. 58,400 3,715,992 Masco Corp. 192,900 5,823,651 Medco Health Solutions, Inc. (a) 87,300 4,871,340 Medtronic, Inc. 25,600 1,473,792 Mellon Financial Corp. 208,600 7,144,550 Mercury Interactive Corp. (a) 57,000 1,584,030 Microsoft Corp. 345,800 9,042,670 Morgan Stanley 137,900 7,824,446 Mylan Laboratories, Inc. 97,700 1,950,092 NiSource, Inc. 68,100 1,420,566 Northeast Utilities 60,300 1,187,307 Northrop Grumman Corp. 54,300 3,263,973 Omnicom Group, Inc. 62,400 5,312,112 Oracle Corp. (a) 261,000 3,186,810 Pepco Holdings, Inc. 78,900 1,764,993 PNC Financial Services Group, Inc. 34,600 2,139,318 Sempra Energy 67,100 3,008,764 Sprint Nextel Corp. 317,453 7,415,702 Symantec Corp. (a) 189,865 3,322,638 UnitedHealth Group, Inc. 82,700 5,138,978 Univision Communications, Inc. (a) 79,500 2,336,505 Waters Corp. (a) 32,300 1,220,940 Wells Fargo & Co. 90,100 $ 5,660,983 Wyeth 170,700 7,864,149 Xilinx, Inc. 75,800 1,910,918 Zimmer Holdings, Inc. (a) 19,400 1,308,336 --------------- Total U.S. Equities 224,659,352 --------------- INTERNATIONAL EQUITIES -- 50.19% AUSTRALIA -- 2.01% National Australia Bank Ltd. 95,180 2,260,758 Qantas Airways Ltd. 795,378 2,355,691 QBE Insurance Group Ltd. 318,152 4,571,451 --------------- 9,187,900 --------------- AUSTRIA -- 0.68% Telekom Austria AG 137,335 3,089,227 --------------- BERMUDA -- 1.07% Accenture Ltd., Class A 168,700 4,870,369 --------------- CANADA -- 1.14% Cott Corp. (a) 16,700 247,530 Jean Coutu Group, Inc. 134,800 1,623,467 Magna International, Inc., Class A 32,400 2,341,262 Suncor Energy, Inc. 15,500 977,642 --------------- 5,189,901 --------------- CAYMAN ISLANDS -- 0.33% GlobalSantaFe Corp. 31,500 1,516,725 --------------- FRANCE -- 4.78% AXA S.A. 11,943 385,438 BNP Paribas 39,295 3,179,734 France Telecom S.A. 192,227 4,776,852 Sanofi-Aventis S.A. 34,780 3,047,027 Total S.A. 36,074 9,062,639 Unibail REIT 10,647 1,416,800 --------------- 21,868,490 --------------- GERMANY -- 3.04% Allianz AG 33,652 5,097,206 Bayerische Motoren Werke AG 16,259 713,177 Deutsche Post AG 29,486 714,926 Deutsche Postbank AG 25,516 1,480,211 Metro AG 51,406 2,483,070 Schering AG 21,073 1,412,075 Siemens AG 23,062 1,976,744 --------------- 13,877,409 --------------- HONG KONG -- 0.76% Esprit Holdings Ltd. 186,000 1,321,777 Sun Hung Kai Properties Ltd. 219,000 2,132,480 --------------- 3,454,257 --------------- IRELAND -- 1.30% Bank of Ireland 378,254 5,960,416 --------------- ITALY -- 1.59% ENI SpA 77,617 2,153,001 UniCredito Italiano SpA 745,550 5,137,061 --------------- 7,290,062 --------------- JAPAN -- 10.54% Bank of Yokohama Ltd. 301,000 2,462,925
25
SHARES VALUE ------------- --------------- Canon, Inc. 53,600 $ 3,135,965 Fast Retailing Co., Ltd. 20,300 1,984,644 Funai Electric Co., Ltd. 8,800 973,757 Honda Motor Co., Ltd. 41,300 2,356,798 Japan Tobacco, Inc. 195 2,843,939 Kao Corp. 120,000 3,215,330 Meitec Corp. 20,900 676,966 Mitsui Sumitomo Insurance Co., Ltd. 140,000 1,712,977 Nissan Motor Co., Ltd. 250,000 2,533,175 Nitto Denko Corp. 63,200 4,924,815 NTN Corp. 220,000 1,738,585 NTT DoCoMo, Inc. 2,289 3,493,619 Rohm Co., Ltd. 22,100 2,404,231 Sekisui House Ltd. 166,000 2,088,812 Sompo Japan Insurance, Inc. 68,000 919,659 Sumitomo Mitsui Financial Group, Inc. 224 2,374,189 Takefuji Corp. 31,950 2,170,005 Toyota Motor Corp. 96,500 5,007,674 West Japan Railway Co. 209 871,904 Yokogawa Electric Corp. 18,000 306,779 --------------- 48,196,748 --------------- NETHERLANDS -- 3.73% ABN AMRO Holding NV 237,665 6,215,498 Aegon NV 9,629 156,747 ASML Holding NV (a) 83,418 1,669,020 Reed Elsevier NV 151,587 2,117,673 TNT NV 99,767 3,118,213 VNU NV 113,769 3,772,698 --------------- 17,049,849 --------------- NORWAY -- 0.64% Telenor ASA 298,800 2,932,971 --------------- PANAMA -- 1.01% Carnival Corp. 86,100 4,603,767 --------------- PORTUGAL -- 0.43% Portugal Telecom, SGPS, S.A. 193,006 1,953,673 --------------- SPAIN -- 0.81% Banco Bilbao Vizcaya Argentaria S.A. 74,399 1,328,261 Banco Santander Central Hispano S.A. 179,516 2,369,698 --------------- 3,697,959 --------------- SWEDEN -- 0.65% Electrolux AB, B Shares 49,800 1,294,443 Svenska Cellulosa AB, B Shares 45,200 1,689,773 --------------- 2,984,216 --------------- SWITZERLAND -- 3.13% Adecco S.A. 57,888 2,669,619 Holcim Ltd. 52,319 3,563,449 Novartis AG 34,221 1,798,227 Roche Holding AG 23,737 3,564,028 Swiss Reinsurance Co. 37,245 2,726,661 --------------- 14,321,984 --------------- UNITED KINGDOM -- 12.55% Barclays PLC 582,633 $ 6,124,787 Bp PLC 1,112,476 11,847,753 Burberry Group PLC 18,097 133,808 Cadbury Schweppes PLC 157,490 1,488,933 Diageo PLC 440,060 6,378,763 Gallaher Group PLC 395,507 5,971,126 GUS PLC 51,028 906,032 Kingfisher PLC 502,748 2,052,160 Prudential PLC 304,636 2,882,694 Rentokil Initial PLC 704,165 1,980,829 Royal Bank of Scotland Group PLC 174,963 5,282,968 Tesco PLC 624,618 3,562,482 Vodafone Group PLC 4,046,018 8,736,273 --------------- 57,348,608 --------------- Total International Equities 229,394,531 --------------- Total Equities (Cost $361,207,051) 454,053,883 --------------- NUMBER OF WARRANTS ------------- WARRANTS -- 0.00% Lucent Technologies, Inc. (a) expires 12/10/07 (cost $0) 1,067 603 --------------- SHARES ------------- SHORT-TERM INVESTMENT* -- 0.49% UBS Supplementary Trust -- U.S. Cash Management Prime Fund, yield of 4.36% (Cost $2,250,128) 2,250,128 2,250,128 --------------- Total Investments -- 99.83% (Cost $363,457,179) 456,304,614 Cash and other assets, less liabilities -- 0.17% 793,831 --------------- Net Assets -- 100.00% $ 457,098,445 ===============
26 NOTES TO SCHEDULE OF INVESTMENTS Aggregate cost for federal income tax purposes, which was substantially the same for book purposes, was $363,457,179; and net unrealized appreciation consisted of:
Gross unrealized appreciation $ 97,517,357 Gross unrealized depreciation (4,669,922) --------------- Net unrealized appreciation $ 92,847,435 ===============
(a) Non-income producing security. REIT Real Estate Investment Trust * Investment in affiliated mutual fund. FORWARD FOREIGN CURRENCY CONTRACTS UBS Global Equity Fund had the following open forward foreign currency contracts as of December 31, 2005:
UNREALIZED CONTRACTS IN EXCHANGE MATURITY APPRECIATION/ TO DELIVER FOR DATES (DEPRECIATION) ----------- ------------------ -------- -------------- Australian Dollar 13,450,000 USD 9,858,783 05/18/06 $ 34,006 British Pound 16,135,000 USD 27,602,871 05/18/06 (170,807) Euro 1,920,000 USD 2,411,251 03/01/06 131,162 Euro 28,590,000 USD 33,819,553 05/18/06 (283,489) Japanese Yen 669,100,000 USD 5,850,566 05/18/06 79,873 United States Dollar 2,179,856 AUD 2,985,000 05/18/06 587 United States Dollar 18,304,798 CHF 23,815,000 05/18/06 57,472 United States Dollar 2,258,736 EUR 1,920,000 03/01/06 21,354 United States Dollar 26,394,958 JPY 3,090,900,000 05/18/06 262,694 United States Dollar 24,972,134 SEK 199,390,000 05/18/06 367,120 United States Dollar 11,106,848 SGD 18,700,000 05/18/06 198,602 -------------- Total net unrealized appreciation on forward foreign currency contracts $ 698,574 ==============
Currency Type Abbreviations AUD Australian Dollar CHF Swiss Franc EUR Euro JPY Japanese Yen SEK Swedish Krona SGD Singapore Dollar USD United States Dollar See accompanying notes to financial statements. 27 UBS GLOBAL BOND FUND For the six-month period ended December 31, 2005, Class A shares of UBS Global Bond Fund (the "Fund") declined 1.98% (a decline of 6.36% after the deduction of the maximum sales charge) and Class Y shares declined 1.90%, versus the 1.99% decline of the Fund's benchmark, the Lehman Brothers Global Aggregate Index (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 30; 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 negative returns were primarily the result of a strengthening US dollar over the past six months, which was not offset by currency management. FIXED-INCOME MARKETS REMAINED STABLE, GLOBAL ECONOMIES APPEARED STRONG Developed global fixed income markets were understandably volatile in the immediate aftermath of Hurricanes Katrina and Rita, but by the time the Federal Reserve Board (the "Fed") decided to again raise rates after its September meeting, the markets returned to relative equanimity. For its part, the Fed raised rates four times during the period, bringing the federal funds rate to 4.25%, the highest it has been since May 2001. (The Fed raised rates another 25 basis points after the period ended to bring the federal funds rate to 4.50%.) Ultimately, the consistency of the economic outlook came as a surprise to many investors. US data releases in October showed a much smaller impact on business activity from the devastating hurricane season than was originally feared and analysts quickly reinstated their forecasts for GDP growth at 3% to 4% into 2006. Indicators in other economic blocs painted a similar picture of stable or accelerating activity. Throughout the period, there were limited signs of any upturn in inflationary pressures, despite the surge in energy prices and the renewed momentum in economic growth. Short-term bond yields in most markets rose in anticipation of monetary tightening, while yields on longer-dated bonds, after rising somewhat in the third quarter, remained relatively unchanged and fell in some cases toward the end of the year. This produced an exceptionally flat yield curve for much of the period, and at the end of December, the curve actually inverted in some areas. An inverted yield curve is typically the harbinger of a recession, but given the strength of the economy, we believe rates of longer-term bonds may rise in the coming months and that the current shape of the curve is likely to be short lived, with the 10-year Treasury appearing to be particularly overvalued. On a monetary front, some of the more significant developments included the appointment of the first new chairman of the US Federal Reserve in almost 20 years, the first increase in the official euro repo rate--the interest rate charged on main refinancing operations, which provide the bulk of the banking system's liquidity--in over five years and a public dispute between the Japanese government and the Bank of Japan over the future course of policy. The most significant political event was the formation of a "Grand Coalition" government in Germany headed by the new Chancellor Angela Merkel, but the potential instability of this alliance had surprisingly little impact on capital markets. OPPORTUNITIES FOR CAPTURING RETURNS WERE BOTTOM-UP IN NATURE Several non-US markets performed well during the period. The start of rate tightening by the Bank of Canada pushed up short-duration bond yields, but the long end of the Canadian curve remained well supported by domestic institutional demand--a phenomenon also seen in several other markets. Australian bonds performed well with yields falling along the curve. We continue to favor Australia as the cycle of monetary tightening there is more advanced than in other markets. Euro-denominated bonds underperformed dollar bloc markets (with the exception of the US) during the period. A clear improvement in business and consumer sentiment led to more hawkish comments from the European Central Bank that, in turn, heralded a renewed tightening in rates. The bulk of the recent weakness occurred at the short end of the curve as long-dated bonds were supported by real and anticipated demand from life 28 insurance and pension funds seeking to reduce the duration mismatch between their assets and liabilities. Regulatory and legal developments are expected to maintain these conditions and the Fund is positioned to benefit from this segment of the euro curve, despite the limited backing from fundamental value. The UK gilt market was the outstanding performer in Europe after a fairly flat third quarter. Economic data were mixed but investors were encouraged by the Bank of England's inflation report in November as it appeared to limit prospects for renewed rate tightening. Long-dated bonds were the strongest performers. In contrast to the UK, we believe that inflation-linked government bonds in Japan ("JGBi") offer attractive value and we moved part of our Japanese exposure into this sector. The level of real yields on 10-year JGBi implies a path of inflation that we see as unrealistically low. Japanese economic growth appears to be on a strong upward trajectory and the clear intent of the government to delay any normalization of monetary policy by the Bank of Japan--initially through the removal of its quantitative easing policy--heightens our future inflation expectations. In this environment, our defensive stance toward duration and our yield-curve positioning were the largest positive contributors to performance over the period, particularly in the US and in Japan. These gains were offset in part by the continued flattening of the yield curve late in the year. Meanwhile, the Fund's country allocations produced mixed results over the period. Switzerland and Poland turned in fairly strong returns, countries to which the Fund had no exposure. On the other hand, positions in Australia, Canada and Japan generally benefited performance. In the non-government markets, securitized credit was a strong performer during the reporting period and the Fund's exposure to both asset-backed securities (ABS) and commercial mortgage-backed securities (CMBS) was beneficial to performance. Corporate bonds, on the other hand, appeared to have very tight spreads relative to their government counterparts throughout the period, especially in the US, and we tended to avoid this sector of the market where possible. From a currency standpoint, overweight positions in the Japanese yen and Swedish krona along with underweight exposure to the British pound and Canadian dollar detracted from returns. Global bond markets have surprised investors with their resilience but we believe they reflect a relatively benign outlook for the world economy in 2006 that does not fully discount potential risks, including the threat of a spike in inflation. Consequently, our global bond strategy maintains an overall underweight to interest rate exposure. THIS LETTER IS INTENDED TO ASSIST SHAREHOLDERS IN UNDERSTANDING HOW THE FUND PERFORMED DURING THE SEMIANNUAL PERIOD ENDED DECEMBER 31, 2005. THE VIEWS AND OPINIONS IN THE LETTER WERE CURRENT AS OF FEBRUARY 15, 2006. 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. 29 AVERAGE ANNUAL TOTAL RETURN (UNAUDITED)
6 MONTHS 1 YEAR 5 YEARS 10 YEARS INCEPTION* ENDED ENDED ENDED ENDED TO 12/31/05 12/31/05 12/31/05 12/31/05 12/31/05 - ------------------------------------------------------------------------------------------------------ UBS GLOBAL BOND FUND CLASS A -1.98% -5.72% N/A N/A 7.51% UBS GLOBAL BOND FUND CLASS B -2.35 -6.46 N/A N/A 7.56 UBS GLOBAL BOND FUND CLASS C -2.33 -6.29 N/A N/A 6.30 UBS GLOBAL BOND FUND CLASS Y -1.90 -5.50 6.93% 5.15% 5.71 UBS GLOBAL BOND FUND CLASS A** -6.36 -10.01 N/A N/A 6.34 UBS GLOBAL BOND FUND CLASS B** -7.14 -11.03 N/A N/A 7.17 UBS GLOBAL BOND FUND CLASS C** -3.05 -6.97 N/A N/A 6.30 LEHMAN BROTHERS GLOBAL AGGREGATE INDEX -1.99 -4.49 6.81 5.35 6.12
* 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 07/02/02, RESPECTIVELY. INCEPTION DATE OF CLASS Y SHARES AND THE INDEX IS 07/31/93. ** 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. TOTAL 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. 30 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); and (2) ongoing costs, including management fees; service and/or distribution (12b-1) fees (if applicable); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example below is based on an investment of $1,000 invested at the beginning of the period and held for the entire period, July 1, 2005 to December 31, 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 for each class of shares 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 Fund's actual return for each class of shares. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs (as applicable), such as sales charges (loads). Therefore, the second line in the table for each class of shares is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
BEGINNING ENDING EXPENSES PAID ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD* JULY 1, 2005 DECEMBER 31, 2005 7/1/05 - 12/31/05 - -------------------------------------------------------------------------------------------------------- CLASS A ACTUAL $ 1,000.00 $ 980.20 $ 5.74 HYPOTHETICAL (5% ANNUAL RETURN BEFORE EXPENSES) 1,000.00 1,019.41 5.85 CLASS B ACTUAL 1,000.00 976.50 9.47 HYPOTHETICAL (5% ANNUAL RETURN BEFORE EXPENSES) 1,000.00 1,015.63 9.65 CLASS C ACTUAL 1,000.00 976.70 8.22 HYPOTHETICAL (5% ANNUAL RETURN BEFORE EXPENSES) 1,000.00 1,016.89 8.39 CLASS Y ACTUAL 1,000.00 981.00 4.49 HYPOTHETICAL (5% ANNUAL RETURN BEFORE EXPENSES) 1,000.00 1,020.67 4.58
* EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED NET EXPENSE RATIOS: CLASS A: 1.15%, CLASS B: 1.90%, CLASS C: 1.65%, CLASS Y: 0.90%, MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 184 DIVIDED BY 365 (TO REFLECT THE ONE-HALF YEAR PERIOD). 31 COUNTRY EXPOSURE, TOP FIVE AS OF DECEMBER 31, 2005 (UNAUDITED)
PERCENTAGE OF NET ASSETS - ---------------------------------------------------- United States 46.6% Germany 12.9 France 11.4 United Kingdom 6.8 Japan 5.9 - ---------------------------------------------------- Total 83.6%
CURRENCY EXPOSURE, TOP FIVE AS OF DECEMBER 31, 2005 (UNAUDITED)
PERCENTAGE OF NET ASSETS - ---------------------------------------------------- United States Dollar 46.2% Euro 34.3 Japanese Yen 5.9 British Pound 5.8 Australian Dollar 4.0 - ---------------------------------------------------- Total 96.2%
TOP TEN FIXED INCOME HOLDINGS AS OF DECEMBER 31, 2005 (UNAUDITED)
PERCENTAGE OF NET ASSETS - ---------------------------------------------------- French Treasury Note 3.500%, due 07/12/09 4.8% Deutsche Bundesrepublik 6.000%, due 02/16/06 4.6 Government of Japan, CPI 0.500%, due 12/10/14 4.4 Deutsche Bundesrepublik 6.250%, due 01/04/24 3.1 Government of Sweden 6.500%, due 05/05/08 2.9 Government of France 5.500%, due 04/25/29 2.8% Government of France 7.250%, due 04/25/06 2.8 Deutsche Bundesrepublik 4.250%, due 01/04/14 2.1 U.S. Treasury Notes 4.750%, due 05/15/14 2.1 Republic of Austria 5.875%, due 07/15/06 2.0 - ---------------------------------------------------- Total 31.6%
32 INDUSTRY DIVERSIFICATION AS A PERCENT OF NET ASSETS AS OF DECEMBER 31, 2005 (UNAUDITED) BONDS U.S. BONDS U.S. CORPORATE BONDS Automobiles 0.21% Beverages 0.29 Capital Markets 0.49 Chemicals 0.04 Commercial Banks 0.56 Consumer Finance 1.21 Diversified Financial Services 0.92 Diversified Telecommunication Services 0.55 Food & Staples Retailing 1.75 Food Products 0.30 Insurance 0.30 IT Services 0.28 Media 0.23 Road & Rail 0.24 Thrifts & Mortgage Finance 0.77 ------ Total U.S. Corporate Bonds 8.14 Asset-Backed Securities 1.00 Collateralized Debt Obligations 0.14 Commercial Mortgage-Backed Securities 5.29 Mortgage & Agency Debt Securities 3.89 U.S. Government Obligations 4.67 ------ Total U.S. Bonds 23.13 INTERNATIONAL BONDS INTERNATIONAL CORPORATE BONDS Capital Markets 0.18% Commercial Banks 6.19 Diversified Financial Services 0.31 Diversified Telecommunication Services 1.81 Electric Utilities 0.74 Insurance 0.09 Media 0.64 Non-Agency 0.31 ------ Total International Corporate Bonds 10.27 International Asset-Backed Securities 0.51 International Commercial Mortgage-Backed Securities 0.31 International Mortgage-Backed Securities 0.38 Foreign Government Bonds 38.49 Sovereign/SupraNational Bonds 3.48 ------ Total International Bonds 53.44 TOTAL BONDS 76.57 INVESTMENT COMPANY 16.75 SHORT-TERM INVESTMENTS 4.86 ------ TOTAL INVESTMENTS 98.18 CASH AND OTHER ASSETS, LESS LIABILITIES 1.82 ------ NET ASSETS 100.00% ======
33 UBS GLOBAL BOND FUND -- SCHEDULE OF INVESTMENTS DECEMBER 31, 2005 (UNAUDITED)
FACE AMOUNT VALUE --------------- --------------- BONDS -- 76.57% U.S. BONDS -- 23.13% U.S. CORPORATE BONDS -- 8.14% Altria Group, Inc. 7.750%, due 01/15/27 $ 230,000 $ 273,049 Bank One Corp. 7.875%, due 08/01/10 350,000 388,545 Bombardier Capital, Inc., 144A 6.125%, due 06/29/06 120,000 120,000 Citigroup, Inc. 5.000%, due 09/15/14 400,000 393,742 Comcast Cable Communications, Inc. 6.750%, due 01/30/11 150,000 158,821 Computer Sciences Corp. 3.500%, due 04/15/08 200,000 191,846 Countrywide Home Loans, Inc. 3.250%, due 05/21/08 185,000 177,651 DaimlerChrysler N.A. Holding Corp. 4.050%, due 06/04/08 150,000 146,024 Erac U.S.A. Finance Co., 144A 8.000%, due 01/15/11 150,000 167,586 Ford Motor Credit Co. 5.800%, due 01/12/09 80,000 69,787 General Electric Capital Corp. 4.375%, due 01/20/10 EUR 35,000 43,209 6.750%, due 03/15/32 $ 110,000 129,124 HSBC Finance Corp. 6.750%, due 05/15/11 350,000 375,610 ICI Wilmington, Inc. 4.375%, due 12/01/08 25,000 24,361 Kraft Foods, Inc. 5.625%, due 11/01/11 200,000 205,199 Kroger Co. 8.050%, due 02/01/10 350,000 380,023 Marsh & McLennan Cos., Inc. 6.250%, due 03/15/12 200,000 208,371 Miller Brewing Co., 144A 5.500%, due 08/15/13 200,000 203,861 Morgan Stanley 5.300%, due 03/01/13 335,000 335,672 Qwest Capital Funding, Inc. 7.900%, due 08/15/10 30,000 31,050 Sprint Capital Corp. 8.375%, due 03/15/12 300,000 347,689 Toyota Motor Credit Corp. 4.500%, due 12/15/06 GBP 200,000 344,506 Travelers Insurance Co. Institutional Funding Ltd. 5.750%, due 12/06/11 100,000 181,175 UST, Inc. 6.625%, due 07/15/12 $ 10,000 10,398 Wal-Mart Stores, Inc. 6.875%, due 08/10/09 350,000 372,497 Washington Mutual, Inc. 5.625%, due 01/15/07 350,000 351,928 --------------- 5,631,724 --------------- ASSET-BACKED SECURITIES -- 1.00% Capital One Multi-Asset Execution Trust, 03-A1, Class A1+ 4.759%, due 01/15/09 $ 75,000 $ 75,062 CenterPoint Energy Transition Bond Co., LLC 01-1, Class A4 5.630%, due 09/15/15 30,000 31,055 Countrywide Asset-Backed Certificates, 04-SD1, Class A1, 144A+ 4.719%, due 06/25/33 11,519 11,539 Metris Master Trust, 05-2, Class C, 144A+ 4.920%, due 09/20/11 500,000 500,000 Peco Energy Transition Trust, 99-A, Class A7 6.130%, due 03/01/09 55,000 56,365 RAFC Asset-Backed Trust, 01-1, Class A3 (a) 5.115%, due 11/25/29 4,392 4,376 Structured Asset Securities Corp., 03-AL2, Class A, 144A 3.357%, due 01/25/31 18,271 16,627 --------------- 695,024 --------------- COLLATERALIZED DEBT OBLIGATIONS -- 0.14% Tricadia CDO Ltd, 05-4A, Class B1L, 144A+ 7.741%, due 12/11/40 100,000 99,500 --------------- COMMERCIAL MORTGAGE-BACKED SECURITIES -- 5.29% Asset Securitization Corp., 95-MD4, Class A3+ 7.384%, due 08/13/29 350,000 363,059 Asset Securitization Corp., 96-MD6, Class A4+ 7.448%, due 11/13/29 375,000 388,097 Bear Stearns Commercial Mortgage Securities, 00-WF2, Class A2 7.320%, due 10/15/32 80,000 86,714 Bear Stearns Commercial Mortgage Securities, 05-LXR1, Class G, 144A+ 5.319%, due 09/15/18 500,000 506,328 DLJ Commercial Mortgage Corp., 00-CKP1, Class A1B 7.180%, due 11/10/33 290,000 313,195 First Union Commercial Mortgage Securities, Inc., 97-C2, Class A3 6.650%, due 11/18/29 97,781 99,989 Four Times Square Trust, 00-4TS, Class C, 144A 7.860%, due 04/15/15 500,000 549,964 Hilton Hotel Pool Trust, 00-HLTA, Class A1, 144A 7.055%, due 10/03/15 302,741 318,234 JPMorgan Commercial Mortgage Finance Corp., 99-C8, Class A1 7.325%, due 07/15/31 8,280 8,308 JPMorgan Commercial Mortgage Finance Corp., 99-C8, Class A2 7.400%, due 07/15/31 85,000 90,336
34
FACE AMOUNT VALUE --------------- --------------- LB Commercial Conduit Mortgage Trust, 99-C1, Class A1 $ 35,064 $ 35,209 6.410%, due 06/15/31 Mach One Trust Commercial Mortgage- Backed, 04-1A, Class A1, 144A 3.890%, due 05/28/40 173,595 169,574 Merrill Lynch Mortgage Investors, Inc., 96-C2, Class A3 6.960%, due 11/21/28 8,537 8,586 Morgan Stanley Capital I, 03-T11, Class A4 5.150%, due 06/13/41 155,000 154,593 Morgan Stanley Dean Witter Capital I, 00-LIF2, Class A1 6.960%, due 10/15/33 14,159 14,562 PNC Mortgage Acceptance Corp., 00-C1, Class A2 7.610%, due 02/15/10 375,000 403,826 TIAA Retail Commercial Trust, 01-C1A, Class A2, 144A 6.300%, due 06/19/21 144,308 147,537 --------------- 3,658,111 --------------- MORTGAGE & AGENCY DEBT SECURITIES -- 3.89% Federal Home Loan Mortgage Corp. 3.750%, due 04/15/07 665,000 656,629 3.875%, due 01/12/09 105,000 102,344 5.000%, due 01/30/14 85,000 83,777 Federal National Mortgage Association 5.000%, TBA 800,000 775,000 6.000%, due 05/15/08 320,000 328,959 6.625%, due 09/15/09 550,000 584,837 Government National Mortgage Association 6.500%, due 04/15/31 149,824 156,596 --------------- 2,688,142 --------------- U.S. GOVERNMENT OBLIGATIONS -- 4.67% U.S. Treasury Bonds 6.250%, due 05/15/30 475,000 589,928 8.750%, due 05/15/17 280,000 384,497 U.S. Treasury Notes 3.625%, due 06/15/10 455,000 441,581 4.750%, due 05/15/14 1,415,000 1,449,436 5.000%, due 02/15/11 (c) 355,000 365,636 --------------- 3,231,078 --------------- Total U.S. Bonds 16,003,579 --------------- INTERNATIONAL BONDS -- 53.44% INTERNATIONAL CORPORATE BONDS -- 10.27% AUSTRALIA -- 0.06% Telstra Corp., Ltd. 6.375%, due 06/29/11 EUR 30,000 40,418 --------------- FRANCE -- 1.04% BNP Paribas 5.250%, due 12/17/12 EUR 140,000 183,931 5.625%, due 08/07/08 100,000 125,486 5.750%, due 01/24/22 GBP 80,000 152,899 Credit Lyonnais S.A.+ 5.000%, due 11/15/12 EUR 210,000 $ 257,165 --------------- 719,481 --------------- GERMANY -- 3.09% Kreditanstalt fuer Wiederaufbau 4.750%, due 08/17/07 EUR 710,000 866,075 Landwirtschaftliche Rentenbank 5.750%, due 01/21/15 AUD 1,730,000 1,269,991 --------------- 2,136,066 --------------- IRELAND -- 0.29% Bank of Ireland 6.450%, due 02/10/10 EUR 150,000 198,916 --------------- LUXEMBOURG -- 1.52% Telecom Italia Finance S.A 6.575%, due 07/30/09 EUR 600,000 778,891 7.750%, due 01/24/33 170,000 273,034 --------------- 1,051,925 --------------- NETHERLANDS -- 0.97% Deutsche Telekom International Finance BV 8.125%, due 05/29/12 EUR 65,000 95,904 E.ON International Finance BV 6.375%, due 05/29/12 GBP 100,000 188,187 Prudential Finance BV 9.375%, due 06/04/07 35,000 64,083 RWE Finance BV 5.500%, due 10/26/07 EUR 265,000 327,174 --------------- 675,348 --------------- SINGAPORE -- 0.10% Singapore Telecommunications Ltd. 6.000%, due 11/21/11 EUR 50,000 66,802 --------------- UNITED KINGDOM -- 3.20% Anglian Water Services Financing PLC 4.625%, due 10/07/13 EUR 25,000 31,521 Barclays Bank PLC 4.500%, due 03/04/19 + 190,000 238,846 5.750%, due 09/14/26 GBP 80,000 155,876 HBOS Treasury Services PLC 4.750%, due 02/06/07 EUR 195,000 235,575 Lloyds TSB Bank PLC 5.875%, due 06/20/14 GBP 210,000 390,244 7.750%, due 06/18/07 35,000 62,874 National Westminster Bank PLC 6.000%, due 01/21/10 EUR 335,000 437,895 6.500%, due 09/07/21 GBP 110,000 225,190 Pearson PLC 6.125%, due 02/01/07 EUR 360,000 440,094 --------------- 2,218,115 --------------- Total International Corporate Bonds 7,107,071 ---------------
35
FACE AMOUNT VALUE --------------- --------------- INTERNATIONAL ASSET-BACKED SECURITIES -- 0.51% UNITED KINGDOM -- 0.51% Paragon Mortgages PLC, 7A, Class B1A, 144A+ 5.090%, due 05/15/43 $ 100,000 $ 100,196 Permanent Financing PLC, 04, Class 2C+ 5.200%, due 06/10/42 250,000 251,226 --------------- 351,422 --------------- INTERNATIONAL COMMERCIAL MORTGAGE-BACKED SECURITIES -- 0.31% UNITED KINGDOM -- 0.31% Granite Master Issuer PLC, 05-4, Class C4+ 2.711%, due 12/20/54 EUR 180,000 213,358 --------------- INTERNATIONAL MORTGAGE-BACKED SECURITIES -- 0.38% UNITED KINGDOM -- 0.38% Whinstone Capital Management Ltd., 1X, Class B2+ 3.196%, due 10/25/44 EUR 220,000 260,849 --------------- FOREIGN GOVERNMENT BONDS -- 38.49% AUSTRALIA -- 0.69% Government of Australia 8.750%, due 08/15/08 AUD 600,000 477,344 --------------- AUSTRIA -- 1.98% Republic of Austria 5.875%, due 07/15/06 (b) EUR 1,135,000 1,366,421 --------------- BELGIUM -- 1.65% Government of Belgium 5.750%, due 03/28/08 EUR 910,000 1,141,565 --------------- CANADA -- 0.51% Government of Canada 6.000%, due 06/01/08 CAD 390,000 351,740 --------------- FINLAND -- 0.52% Government of Finland 5.000%, due 07/04/07 EUR 295,000 360,575 --------------- FRANCE -- 10.34% French Treasury Note 3.500%, due 07/12/09 EUR 2,735,000 3,292,866 Government of France 5.500%, due 04/25/29 1,260,000 1,940,874 7.250%, due 04/25/06 1,600,000 1,920,212 --------------- 7,153,952 --------------- GERMANY -- 9.85% Deutsche Bundesrepublik 4.250%, due 01/04/14 (c) EUR 1,150,000 1,456,975 6.000%, due 02/16/06 (c) 2,700,000 3,209,707 6.250%, due 01/04/24 (c) 1,335,000 2,151,193 --------------- 6,817,875 --------------- ITALY -- 1.08% Buoni Poliennali Del Tesoro 5.000%, due 02/01/12 EUR 575,000 748,444 --------------- JAPAN -- 5.86% Government of Japan 1.900%, due 06/20/25 JPY 120,000,000 $ 1,005,381 Government of Japan Consumer Price Index Bond (CPI) 0.500%, due 12/10/14 370,000,000 3,050,123 --------------- 4,055,504 --------------- NETHERLANDS -- 0.68% Government of Netherlands 5.000%, due 07/15/11 EUR 365,000 473,333 --------------- SWEDEN -- 2.91% Government of Sweden 6.500%, due 05/05/08 SEK 14,800,000 2,016,056 --------------- UNITED KINGDOM -- 2.42% U.K. Gilts 4.750%, due 09/07/15 GBP 125,000 226,070 5.000%, due 03/07/12 170,000 306,085 5.750%, due 12/07/09 630,000 1,144,614 --------------- 1,676,769 --------------- Total Foreign Government Bonds 26,639,578 --------------- SOVEREIGN/SUPRANATIONAL BONDS -- 3.48% Eurofima 6.000%, due 01/28/14 AUD 1,400,000 1,050,639 European Investment Bank 4.000%, due 01/15/07 EUR 660,000 791,047 6.250%, due 04/15/14 GBP 290,000 563,018 --------------- 2,404,704 --------------- Total International Bonds 36,976,982 --------------- Total Bonds (Cost $54,566,304) 52,980,561 --------------- SHARES --------------- INVESTMENT COMPANY* -- 16.75% UBS U.S. Securitized Mortgage Relationship Fund (Cost $11,134,101) 968,775 11,588,095 --------------- SHORT-TERM INVESTMENTS -- 4.86% OTHER -- 2.62*% UBS Supplementary Trust -- U.S. Cash Management Prime Fund, yield of 4.36% 1,810,120 1,810,120 --------------- FACE AMOUNT --------------- U.S. GOVERNMENT OBLIGATION -- 2.24% U.S. Treasury Notes, yield of 3.77% due 09/30/06 $ 1,575,000 1,552,789 --------------- Total Short-Term Investments (Cost $3,368,348) 3,362,909 --------------- Total Investments -- 98.18% (Cost $69,068,753) 67,931,565 Cash and other assets, less liabilities -- 1.82% 1,258,992 --------------- Net Assets -- 100.00% $ 69,190,557 ===============
36 NOTES TO SCHEDULE OF INVESTMENTS Aggregate cost for federal income tax purposes, which was substantially the same for book purposes, was $69,068,753; and net unrealized depreciation consisted of: Gross unrealized appreciation $ 661,712 Gross unrealized depreciation (1,798,900) --------------- Net unrealized depreciation $ (1,137,188) ===============
+ Floating rate securities - The interest rates shown are the current rates as of December 31, 2005. (a) Step Bonds - Coupon rate increases in increments to maturity. Rate disclosed is as of December 31, 2005. Maturity date disclosed is the ultimate maturity date. (b) All or portion of these securities is segregated for "to be announced" ("TBA") securities. (c) All or portion of these securities have been pledged to cover 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 December 31, 2005, the value of these securities amounted to $2,910,946 or 4.21% of net assets. TBA (To Be Announced) Security is purchased 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. * Investments in affiliated mutual funds. 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 December 31, 2005:
UNREALIZED CONTRACTS IN EXCHANGE MATURITY APPRECIATION/ TO DELIVER FOR DATE (DEPRECIATION) ----------- ------------------- -------- -------------- Australian Dollar 3,295,000 USD 2,406,240 05/18/06 $ (648) British Pound 1,150,000 USD 1,967,357 05/18/06 (12,174) Euro 5,205,000 USD 6,149,421 05/18/06 (59,265) Japanese Yen 86,600,000 USD 733,569 05/18/06 (13,318) United States Dollar 476,354 CAD 555,000 05/18/06 2,765 United States Dollar 2,079,130 CHF 2,705,000 05/18/06 6,528 United States Dollar 394,424 DKK 2,490,000 05/18/06 3,638 United States Dollar 9,152,438 JPY 1,073,700,000 05/18/06 107,752 United States Dollar 371,971 SEK 2,970,000 05/18/06 5,468 United States Dollar 855,290 SGD 1,440,000 05/18/06 15,291 United States Dollar 805,609 THB 33,320,000 05/18/06 4,367 -------------- Total net unrealized appreciation on forward foreign currency contracts $ 60,404 ==============
Currency Type Abbreviations CAD Canadian Dollar CHF Swiss Franc DKK Danish Krone JPY Japanese Yen SEK Swedish Krona SGD Singapore Dollar THB Thailand Baht USD United States Dollar See accompanying notes to financial statements. 37 UBS INTERNATIONAL EQUITY FUND For the six-month period ended December 31, 2005, Class A shares of UBS International Equity Fund (the "Fund") returned 12.21% (6.06% after the deduction of the maximum sales charge) and Class Y shares returned 12.34%, versus the 15.23% return of the Fund's benchmark, the MSCI World Ex USA (Free) Index (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 40; 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.) STOCK SELECTION KEY TO RELATIVE PERFORMANCE While country allocations and sector weightings influence performance, these strategic decisions are an outgrowth of our research-driven stock selection. As such, the success or failure of our strategy can usually be traced back to the specific holdings. During the reporting period, some of the Fund's largest overweight positions were in insurance and telecomm services. Strong stock selection within Telecom services, particularly owing the UK's o2 which was taken over by Spain's Telefonica, offset the negative contribution from overweighting the sector. On the positive side, utilities and transportation had a significant and positive impact on performance. East Japan Railway and TNT are transportation stocks that added to returns on both an absolute and relative basis. Our underweight to the utilities sector on the whole also contributed positively to performance during the period. We view the utilities sector with a certain degree of caution as valuations appear stretched in many cases. The Fund was underweight materials during the period which detracted from performance as many metals and mining stocks continued to perform well. Specifically, not owning Rio Tinto detracted notably from relative returns. We also remain cautious of the valuations of many stocks in the energy sector. We believe that both supply and demand forces in the energy market will ultimately result in lower energy prices which be detrimental to stocks in this sector. MAXIMIZING REGIONAL OPPORTUNITIES Our research suggested that variances among countries offered some opportunities to add value during the period. As a result, we made some changes to the Fund's country allocations over the reporting period. Perhaps most significant was our increased allocation to Germany. While the German market has been unsettled by electoral uncertainty, corporate reform appears to be well underway and we are seeing a number of attractive stock-specific opportunities. Our holdings in Germany lagged those of the Index during the period, but we remain optimistic on the opportunities we have identified. Other significant overweight positions were in the Netherlands and Switzerland, although, in aggregate, those holdings had a marginal impact on returns. Holdings in Japan and the UK, meanwhile, detracted from relative returns, and both represented underweight positions at the end of the period. Our holdings in Japan performed exceptionally well on an absolute basis, however, including Mitsui Fudosan and Mitsubishi (a real estate company and a global trading company, respectively). After the UK, the Fund's second-largest underweight position was in Canada. Holdings in both countries posted positive absolute returns, but detracted somewhat from the Fund's relative performance. 38 GLOBAL MARKETS REMAIN ATTRACTIVE Overall, the global economy appears to be on solid footing, and we expect to see continued economic improvements in the eurozone, particularly in Germany, and in Japan over the coming months. We believe many companies will continue to experience high levels of free cash flow, as they did in 2005. We currently favor companies that are able to return some of that cash to their shareholders through dividend payments and share buyback programs, and are making what we feel are sensible investments in their businesses. We believe the Fund is well positioned to benefit from such an environment, and that our research-intensive stock selection process combined with the Fund's global scope will prove prudent in the months ahead. THIS LETTER IS INTENDED TO ASSIST SHAREHOLDERS IN UNDERSTANDING HOW THE FUND PERFORMED DURING THE SEMIANNUAL PERIOD ENDED DECEMBER 31, 2005. THE VIEWS AND OPINIONS IN THE LETTER WERE CURRENT AS OF FEBRUARY 15, 2006. 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. 39 AVERAGE ANNUAL TOTAL RETURN (UNAUDITED)
6 MONTHS 1 YEAR 5 YEARS 10 YEARS INCEPTION* ENDED ENDED ENDED ENDED TO 12/31/05 12/31/05 12/31/05 12/31/05 12/31/05 - ------------------------------------------------------------------------------------------------------ UBS INTERNATIONAL EQUITY FUND CLASS A 12.21% 9.33% 3.62% N/A 3.67% UBS INTERNATIONAL EQUITY FUND CLASS B 11.76 8.62 N/A N/A 10.07 UBS INTERNATIONAL EQUITY FUND CLASS C 11.78 8.63 N/A N/A 9.87 UBS INTERNATIONAL EQUITY FUND CLASS Y 12.34 9.69 3.84 5.96% 5.82 UBS INTERNATIONAL EQUITY FUND CLASS A** 6.06 3.28 2.45 N/A 2.98 UBS INTERNATIONAL EQUITY FUND CLASS B** 6.76 3.62 N/A N/A 9.68 UBS INTERNATIONAL EQUITY FUND CLASS C** 10.78 7.63 N/A N/A 9.87 MSCI WORLD EX USA (FREE) INDEX 15.23 14.48 4.94 6.20 6.48
* INCEPTION DATE OF UBS INTERNATIONAL EQUITY FUND CLASS A SHARES IS 06/30/97. INCEPTION DATES OF CLASS B AND CLASS C SHARES ARE 02/12/02 AND 01/25/02, RESPECTIVELY. INCEPTION DATE OF CLASS Y SHARES AND THE INDEX IS 08/31/93. ** 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. TOTAL 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. 40 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); and (2) ongoing costs, including management fees; service and/or distribution (12b-1) fees (if applicable); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example below is based on an investment of $1,000 invested at the beginning of the period and held for the entire period, July 1, 2005 to December 31, 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 for each class of shares 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 Fund's actual return for each class of shares. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs (as applicable), such as sales charges (loads). Therefore, the second line in the table for each class of shares is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
BEGINNING ENDING EXPENSES PAID ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD* JULY 1, 2005 DECEMBER 31, 2005 7/1/05 - 12/31/05 - ------------------------------------------------------------------------------------------------------- CLASS A ACTUAL $ 1,000.00 $ 1,122.10 $ 6.69 HYPOTHETICAL (5% ANNUAL RETURN BEFORE EXPENSES) 1,000.00 1,018.90 6.36 CLASS B ACTUAL 1,000.00 1,117.60 10.68 HYPOTHETICAL (5% ANNUAL RETURN BEFORE EXPENSES) 1,000.00 1,015.12 10.16 CLASS C ACTUAL 1,000.00 1,117.80 10.68 HYPOTHETICAL (5% ANNUAL RETURN BEFORE EXPENSES) 1,000.00 1,015.12 10.16 CLASS Y ACTUAL 1,000.00 1,123.40 5.35 HYPOTHETICAL (5% ANNUAL RETURN BEFORE EXPENSES) 1,000.00 1,020.16 5.09
* EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED NET EXPENSE RATIOS: CLASS A: 1.25%, CLASS B: 2.00%, CLASS C: 2.00%, CLASS Y: 1.00%, MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 184 DIVIDED BY 365 (TO REFLECT THE ONE-HALF YEAR PERIOD). 41 TOP TEN INTERNATIONAL EQUITY HOLDINGS AS OF DECEMBER 31, 2005 (UNAUDITED)
PERCENTAGE OF NET ASSETS - -------------------------------------------------------------------------------- ABN AMRO Holding NV 3.2% Vodafone Group PLC 2.8 Total S.A. 2.7 BP PLC 2.6 Credit Suisse Group 2.6 Royal Bank of Scotland Group PLC 2.2 Barclays PLC 2.2 Banco Santander Central Hispano S.A. 2.0 Sanofi-Aventis S.A. 1.8 Allianz AG 1.7 - ------------------------------------------------------------------------------- Total 23.8%
INDUSTRY DIVERSIFICATION AS A PERCENT OF NET ASSETS AS OF DECEMBER 31, 2005 (UNAUDITED) INTERNATIONAL EQUITIES Air Freight & Logistics 0.93% Airlines 0.74 Auto Components 1.60 Automobiles 2.20 Beverages 2.21 Biotechnology 0.39 Capital Markets 3.47 Chemicals 2.44 Commercial Banks 17.74 Commercial Services & Supplies 0.81 Communications Equipment 1.06 Construction & Engineering 0.23 Construction Materials 1.18 Consumer Finance 1.06 Distributors 0.13 Diversified Financial Services 0.63 Diversified Telecommunication Services 4.55 Electric Utilities 1.94 Electronic Equipment & Instruments 1.16 Food & Staples Retailing 2.73 Food Products 0.92 Health Care Equipment & Supplies 0.46 Health Care Providers & Services 0.70 Household Durables 2.36 Household Products 0.68 Industrial Conglomerates 0.51 Insurance 8.50 Internet & Catalog Retail 0.46 Machinery 1.61% Marine 0.31 Media 1.94 Metals & Mining 0.95 Multiline Retail 0.45 Office Electronics 1.13 Oil & Gas 8.26 Paper & Forest Products 1.18 Pharmaceuticals 5.32 Real Estate 1.48 Road & Rail 1.57 Semiconductors & Semiconductor Equipment 1.89 Specialty Retail 1.53 Textiles, Apparel & Luxury Goods 0.33 Tobacco 1.34 Trading Companies & Distributors 1.83 Wireless Telecommunication Services 4.43 ------ Total International Equities 97.34 INVESTMENT COMPANY 1.67 SHORT-TERM INVESTMENT 0.60 INVESTMENT OF CASH COLLATERAL FOR SECURITIES LOANED 6.17 ------ TOTAL INVESTMENTS 105.78 LIABILITIES, IN EXCESS OF CASH AND OTHER ASSETS (5.78) ------ NET ASSETS 100.00% ======
42 UBS INTERNATIONAL EQUITY FUND -- SCHEDULE OF INVESTMENTS DECEMBER 31, 2005 (UNAUDITED)
SHARES VALUE ------------- ------------- INTERNATIONAL EQUITIES -- 97.34% AUSTRALIA -- 2.61% National Australia Bank Ltd. 46,534 $ 1,105,296 Qantas Airways Ltd. 382,418 1,132,617 QBE Insurance Group Ltd. 123,000 1,767,358 ------------- 4,005,271 ------------- AUSTRIA -- 1.01% Telekom Austria AG 68,932 1,550,563 ------------- BELGIUM -- 2.06% Fortis 30,420 970,583 KBC Groep NV S.A. 17,418 1,621,855 Solvay S.A. 5,165 569,292 ------------- 3,161,730 ------------- CANADA -- 4.72% Alcan, Inc. 18,240 749,402 Bank of Nova Scotia 25,400 1,008,178 Canadian National Railway Co. 12,300 985,524 Canadian Tire Corp. Ltd. 11,400 681,970 Cott Corp. (a) 30,900 458,004 Falconbridge Ltd. 11,900 353,177 Inco Ltd. 8,200 356,230 Magna International, Inc., Class A 8,000 578,089 Manulife Financial Corp. 13,300 781,101 Petro-Canada 32,000 1,284,184 ------------- 7,235,859 ------------- DENMARK -- 0.31% A.P. Moller - Maersk A/S 46 475,912 ------------- FINLAND -- 1.42% Nokia Oyj 49,192 899,783 UPM-Kymmene Oyj 64,678 1,268,037 ------------- 2,167,820 ------------- FRANCE -- 7.15% AXA S.A. 46,923 1,514,351 France Telecom S.A. 79,488 1,975,282 Sanofi-Aventis S.A. 31,747 2,781,310 Total S.A. 16,203 4,070,575 Unibail REIT 4,547 605,071 ------------- 10,946,589 ------------- GERMANY -- 8.36% Allianz AG 16,734 2,534,668 Bayerische Motoren Werke AG 15,123 663,348 Deutsche Postbank AG 23,060 1,337,736 Deutsche Telekom AG 68,794 1,146,748 E.ON AG 20,446 2,115,364 Fresenius Medical Care AG 10,164 1,070,951 Hannover Rueckversicherung AG 10,354 366,885 MAN AG 19,959 1,065,216 Metro AG 14,806 715,176 Premiere AG (a) 12,872 225,540 Schering AG 11,612 778,105 Siemens AG 9,121 781,801 ------------- 12,801,538 ------------- HONG KONG -- 1.55% Esprit Holdings Ltd. 95,000 $ 675,101 Hutchison Telecommunications International Ltd. (a) 426,000 615,349 Sun Hung Kai Properties Ltd. 70,000 681,614 Yue Yuen Industrial Holdings 144,500 403,478 ------------- 2,375,542 ------------- IRELAND -- 2.15% Bank of Ireland 148,808 2,344,873 CRH PLC 32,161 946,174 ------------- 3,291,047 ------------- ITALY -- 2.12% ENI SpA 41,923 1,162,892 UniCredito Italiano SpA 302,311 2,083,013 ------------- 3,245,905 ------------- JAPAN -- 22.18% Aeon Co., Ltd. 41,400 1,053,123 Aiful Corp. 7,350 613,876 Asahi Breweries Ltd. 74,500 909,022 Astellas Pharma, Inc. 8,500 331,539 Bank of Yokohama Ltd. 121,000 990,079 Bridgestone Corp. 56,000 1,165,727 Canon, Inc. 29,500 1,725,951 East Japan Railway Co. 207 1,423,471 Funai Electric Co., Ltd. 6,100 674,990 Honda Motor Co., Ltd. 22,600 1,289,677 Japan Tobacco, Inc. 39 568,788 Kao Corp. 39,000 1,044,982 KDDI Corp. 97 559,291 Mitsubishi Corp. 71,700 1,586,781 Mitsui Fudosan Co., Ltd. 47,000 954,466 Mitsui Sumitomo Insurance Co., Ltd. 75,000 917,667 Murata Manufacturing Co., Ltd. 12,500 801,289 NEC Electronics Corp. 5,600 183,762 Nippon Paper Group, Inc. 134 536,295 Nissan Motor Co., Ltd. 139,400 1,412,498 Nitto Denko Corp. 21,900 1,706,542 NOK Corp. 25,900 702,760 Nomura Holdings, Inc. 44,100 845,093 NTN Corp. 73,000 576,894 NTT DoCoMo, Inc. 875 1,335,481 Rohm Co., Ltd. 14,400 1,566,558 Sekisui House Ltd. 81,000 1,019,239 Shin-Etsu Chemical Co., Ltd. 27,600 1,467,351 Sompo Japan Insurance, Inc. 60,000 811,464 Sumitomo Mitsui Financial Group, Inc. 106 1,123,500 Sumitomo Trust & Banking Co. Ltd. 100,000 1,021,749 Taiheiyo Cement Corp. 600 2,437 Takefuji Corp. 14,750 1,001,802 Tokyo Gas Co., Ltd. 242,000 1,075,236 Yokogawa Electric Corp. 57,200 974,876 ------------- 33,974,256 ------------- NETHERLANDS -- 7.06% ABN AMRO Holding NV 184,785 4,832,547 ASML Holding NV (a) 57,038 1,141,211
43
SHARES VALUE ------------- ------------- Koninklijke (Royal) Philips Electronics NV 29,928 $ 930,083 Reed Elsevier NV 58,810 821,577 Royal KPN NV 100,037 1,003,134 TNT NV 45,720 1,428,977 VNU NV 19,920 660,568 ------------- 10,818,097 ------------- NORWAY -- 0.85% Telenor ASA 132,200 1,297,653 ------------- SINGAPORE -- 0.15% Jardine Cycle & Carriage Ltd. 30,000 200,283 MCL Land Ltd. 21,600 22,345 ------------- 222,628 ------------- SPAIN -- 2.70% Banco Santander Central Hispano S.A. 229,581 3,030,580 Repsol YPF S.A. 37,761 1,102,879 ------------- 4,133,459 ------------- SWEDEN -- 1.65% Electrolux AB, B Shares 37,900 985,128 Sandvik AB 17,700 824,344 Telefonaktiebolaget LM Ericsson, B Shares 209,000 718,195 ------------- 2,527,667 ------------- SWITZERLAND -- 9.60% Actelion Ltd. (a) 7,301 603,949 Adecco S.A. 19,206 885,722 Credit Suisse Group (b) 77,436 3,948,261 Holcim Ltd. 12,537 853,896 Nestle S.A. 4,710 1,408,645 Novartis AG 33,969 1,784,985 Roche Holding AG 16,477 2,473,964 Straumann Holding AG 3,022 700,277 Swiss Reinsurance Co. 27,936 2,045,160 ------------- 14,704,859 ------------- UNITED KINGDOM -- 19.69% Balfour Beatty PLC 56,776 347,752 Barclays PLC (b) 314,760 3,308,840 BP PLC (b) 372,407 3,966,098 Burberry Group PLC 14,202 105,007 Centrica PLC 37,479 164,270 Collins Stewart Tullett PLC 50,534 517,316 Diageo PLC 139,498 2,022,054 Gallaher Group PLC 97,843 1,477,175 GUS PLC 40,046 711,040 Kesa Electricals PLC 125,541 $ 561,583 Kingfisher PLC 271,739 1,109,208 Prudential PLC 243,468 2,303,878 Rentokil Initial PLC 127,374 358,306 Royal Bank of Scotland Group PLC 111,307 3,360,892 Scottish & Southern Energy PLC 39,718 692,915 Taylor Nelson Sofres PLC 157,870 610,456 Tesco PLC 424,067 2,418,650 Vodafone Group PLC 1,975,402 4,265,345 Wolseley PLC 57,909 1,220,498 WPP Group PLC 59,524 644,166 ------------- 30,165,449 ------------- Total International Equities (Cost $115,577,579) 149,101,844 ------------- INVESTMENT COMPANY -- 1.67% iShares MSCI EAFE Index Fund (Cost $2,573,711) 43,000 2,556,780 ------------- SHORT-TERM INVESTMENT* -- 0.60% UBS Supplementary Trust -- U.S. Cash Management Prime Fund, yield of 4.36% (Cost $917,338) 917,338 917,338 ------------- INVESTMENT OF CASH COLLATERAL FOR SECURITIES LOANED* -- 6.17% UBS Supplementary Trust -- U.S. Cash Management Prime Fund, yield of 4.36% (Cost $9,457,870) 9,457,870 9,457,870 ------------- Total Investments -- 105.78% (Cost $128,526,498) 162,033,832 Liabilities, in excess of cash and other assets -- (5.78%) (8,851,682) ------------- Net Assets -- 100.00% $ 153,182,150 =============
NOTES TO SCHEDULE OF INVESTMENTS Aggregate cost for federal income tax purposes, which was substantially the same for book purposes, was $128,526,498; and net unrealized appreciation consisted of: Gross unrealized appreciation $ 35,418,320 Gross unrealized depreciation (1,910,986) ------------- Net unrealized appreciation $ 33,507,334 =============
(a) Non-income producing security. (b) Security, or portion thereof, was on loan at December 31, 2005. REIT Real Estate Investment Trust * Investment in affiliated mutual fund. 44 FORWARD FOREIGN CURRENCY CONTRACTS UBS International Equity Fund had the following open forward foreign currency contracts as of December 31, 2005:
UNREALIZED CONTRACTS TO IN EXCHANGE MATURITY APPRECIATION/ DELIVER FOR DATE (DEPRECIATION) ------------ ------------------ -------- -------------- Australian Dollar 3,240,000 USD 2,374,904 05/18/06 $ 8,192 British Pound 1,085,000 USD 1,881,195 05/18/06 13,550 British Pound 1,600,000 USD 2,737,192 05/18/06 (16,938) Canadian Dollar 1,215,000 USD 1,042,829 05/18/06 (6,054) Euro 11,800,000 USD 13,944,133 05/18/06 (131,275) Euro 1,905,000 USD 2,276,315 05/18/06 3,972 Japanese Yen 168,300,000 USD 1,466,705 05/18/06 15,192 United States Dollar 714,821 CHF 930,000 05/18/06 2,244 United States Dollar 928,243 DKK 5,860,000 05/18/06 8,561 United States Dollar 1,797,625 GBP 1,035,000 05/18/06 (16,047) United States Dollar 8,630,060 JPY 1,010,700,000 05/18/06 86,783 United States Dollar 8,053,103 SEK 64,300,000 05/18/06 118,390 United States Dollar 3,825,046 SGD 6,440,000 05/18/06 68,382 -------------- Total net unrealized appreciation on forward foreign currency contracts $ 154,952 ==============
Currency Type Abbreviations CHF Swiss Franc DKK Danish Krone GBP British Pound JPY Japanese Yen SEK Swedish Krona SGD Singapore Dollar USD United States Dollar See accompanying notes to financial statements. 45 UBS U.S. LARGE CAP EQUITY FUND For the six-month period ended December 31, 2005, Class A shares of UBS U.S. Large Cap Equity Fund (the "Fund") returned 7.31% (1.38% after the deduction of the maximum sales charge) and Class Y shares returned 7.49%, versus the 6.16% return of the Fund's benchmark, the Russell 1000 Index (the "Index"). (Class Y shares have lower expenses than other share classes in the series. Returns for all share classes over various time periods are shown on page 48; please note that these returns do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.) The Fund delivered strong returns relative to its benchmark for the reporting period. This performance was primarily due to stock selection. In our opinion, the most effective way to add value in this market environment was to be highly selective at the security level. Through bottom-up research we sought to identify high quality, low volatility stocks with strong cash flow and the ability to pay or increase dividends and/or repurchase shares. LARGE CAPS POST SOLID RETURNS High oil prices, natural disasters and increasing concern over a real estate correction left many investors hesitant about stocks in early 2005. The investment environment improved, however, as the year progressed. A resilient economy, a dip in oil prices and improving consumer confidence encouraged a renewed interest in stocks during the final six months of the year. The overall market (as measured by the Russell 3000 Index) gained 6.13% during this period. Investors slightly favored large caps over small caps, with the Russell 1000 Index (representing large cap stocks) up 6.16%, versus 5.88% for the Russell 2000 Index (small cap stocks). Within large caps, growth stocks outperformed their value-stock counterparts. STRONG STOCK SELECTION SUPPORTS PERFORMANCE The Fund relies on a bottom-up investment process, with stock selection guiding sector weightings. Over the reporting period, this approach led us to overweight healthcare, which contributed to relative performance. Our research continued to uncover attractive opportunities in this sector, including several of the Fund's best performing stocks for the six-month period. These included UnitedHealth Group, Inc., the second largest health insurer in the US, Allergan, Inc., a pharmaceutical company, and Cephalon, Inc., a biopharmaceutical group. Relative performance was also helped by stocks the Fund avoided in the sector. Our overweight exposure to grocery stores also supported the Fund's relative performance. In particular, the Fund benefited from its position in Albertson's, which we sold on strength before the end of the period. Albertson's operates more than 2,400 retail stores in 37 states. Its shares rose over the reporting period, due in large part to an announcement that the company might be for sale. In contrast, the Fund's holding in grocery store operator Kroger Company delivered disappointing results and detracted from results. One of the Fund's largest overweight positions during the reporting period was in the utilities sector. Investors tend to shy away from utilities during a rising interest rate environment, as these companies offer a fixed dividend yield. Our research found, however, that many utility companies were still offering attractive relative yields. In addition, we believed that many of these out-of-favor stocks were selling at discounted prices. In particular, we focused our attentions on nuclear and coal generation stocks, as we expect profitability in these areas to improve. 46 One of the Fund's largest underweight positions during the reporting period was in energy, one of the top performing sectors over the six months. It is our opinion, however, that many stocks in this sector are overvalued, driven up by sharply higher crude oil prices. We believe that the underlying supply and demand fundamentals will eventually drive oil prices down to more normal levels. THIS LETTER IS INTENDED TO ASSIST SHAREHOLDERS IN UNDERSTANDING HOW THE FUND PERFORMED DURING THE SEMIANNUAL PERIOD ENDED DECEMBER 31, 2005. THE VIEWS AND OPINIONS IN THE LETTER WERE CURRENT AS OF FEBRUARY 15, 2006. 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. 47 AVERAGE ANNUAL TOTAL RETURN (UNAUDITED)
6 MONTHS 1 YEAR 5 YEARS 10 YEARS INCEPTION* ENDED ENDED ENDED ENDED TO 12/31/05 12/31/05 12/31/05 12/31/05 12/31/05 - ------------------------------------------------------------------------------------------------ UBS U.S. LARGE CAP EQUITY FUND CLASS A 7.31% 8.76% 6.20% N/A 6.27% UBS U.S. LARGE CAP EQUITY FUND CLASS B 6.89 7.84 N/A N/A 8.10 UBS U.S. LARGE CAP EQUITY FUND CLASS C 6.95 7.90 N/A N/A 7.43 UBS U.S. LARGE CAP EQUITY FUND CLASS Y 7.49 9.06 6.51 9.70% 11.11 UBS U.S. LARGE CAP EQUITY FUND CLASS A** 1.38 2.78 5.00 N/A 5.56 UBS U.S. LARGE CAP EQUITY FUND CLASS B** 1.89 2.84 N/A N/A 7.72 UBS U.S. LARGE CAP EQUITY FUND CLASS C** 5.95 6.90 N/A N/A 7.43 RUSSELL 1000 INDEX*** 6.16 6.27 1.07 9.29 10.66
* INCEPTION DATE OF UBS U.S. LARGE CAP EQUITY FUND CLASS A SHARES IS 06/30/97. 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 02/22/94. ** 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. TOTAL 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. 48 EXPLANATION OF EXPENSE DISCLOSURE (UNAUDITED) As a shareholder of the Fund, you incur two types of costs: (1) transactional costs (as applicable); including sales charges (loads); and (2) ongoing costs, including management fees; service and/or distribution (12b-1) fees (if applicable); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example below is based on an investment of $1,000 invested at the beginning of the period and held for the entire period, July 1, 2005 to December 31, 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 for each class of shares 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 Fund's actual return for each class of shares. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs (as applicable), such as sales charges (loads). Therefore, the second line in the table for each class of shares is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
BEGINNING ENDING EXPENSES PAID ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD* JULY 1, 2005 DECEMBER 31, 2005 7/1/05 - 12/31/05 - ----------------------------------------------------------------------------------------------------- CLASS A ACTUAL $ 1,000.00 $ 1,073.10 $ 6.01 HYPOTHETICAL (5% ANNUAL RETURN BEFORE EXPENSES) 1,000.00 1,019.41 5.85 CLASS B ACTUAL 1,000.00 1,068.90 10.22 HYPOTHETICAL (5% ANNUAL RETURN BEFORE EXPENSES) 1,000.00 1,015.32 9.96 CLASS C ACTUAL 1,000.00 1,069.50 9.86 HYPOTHETICAL (5% ANNUAL RETURN BEFORE EXPENSES) 1,000.00 1,015.68 9.60 CLASS Y ACTUAL 1,000.00 1,074.90 4.55 HYPOTHETICAL (5% ANNUAL RETURN BEFORE EXPENSES) 1,000.00 1,020.82 4.43
* EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIOS: CLASS A: 1.15%, CLASS B: 1.96%, CLASS C: 1.89%, CLASS Y: 0.87%, MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 184 DIVIDED BY 365 (TO REFLECT THE ONE-HALF YEAR PERIOD). 49 TOP TEN EQUITY HOLDINGS AS OF DECEMBER 31, 2005 (UNAUDITED)
PERCENTAGE OF NET ASSETS - ---------------------------------------------------------------------------- Citigroup, Inc. 4.6% Microsoft Corp. 3.8 Morgan Stanley 3.3 Wells Fargo & Co. 3.0 Wyeth 3.0 Sprint Nextel Corp. 2.9 UnitedHealth Group, Inc. 2.6 American International Group, Inc. 2.6 Exelon Corp. 2.6 JPMorgan Chase & Co. 2.4 - ---------------------------------------------------------------------------- Total 30.8%
INDUSTRY DIVERSIFICATION AS A PERCENT OF NET ASSETS AS OF DECEMBER 31, 2005 (UNAUDITED) EQUITIES U.S. EQUITIES Aerospace & Defense 2.64% Air Freight & Logistics 1.58 Auto Components 2.36 Automobiles 0.90 Beverages 0.73 Biotechnology 3.12 Building Products 1.97 Capital Markets 5.35 Commercial Banks 6.16 Commercial Services & Supplies 0.79 Computers & Peripherals 1.19 Diversified Financial Services 7.07 Diversified Telecommunication Services 4.10 Electric Utilities 4.20 Electronic Equipment & Instruments 0.91 Energy Equipment & Services 0.62 Food & Staples Retailing 3.53 Gas Utilities 0.61 Health Care Equipment & Supplies 2.19 Health Care Providers & Services 6.78 Insurance 3.75 Internet & Catalog Retail 1.08 Machinery 2.00 Media 5.39% Multiline Retail 1.23 Multi-Utilities & Unregulated Power 1.03 Oil & Gas 2.43 Pharmaceuticals 8.77 Road & Rail 1.81 Semiconductors & Semiconductor Equipment 1.48 Software 6.49 Thrifts & Mortgage Finance 2.14 ------ Total U.S. Equities 94.40 INTERNATIONAL EQUITIES Energy Equipment & Services 1.01 Hotel, Restaurant & Leisure 1.40 IT Services 1.32 ------ Total International Equities 3.73 TOTAL EQUITIES 98.13 SHORT TERM INVESTMENTS 1.74 ------ TOTAL INVESTMENTS 99.87 CASH AND OTHER ASSETS, LESS LIABILITIES 0.13 ------ NET ASSETS 100.00% ======
50 UBS U.S. LARGE CAP EQUITY FUND -- SCHEDULE OF INVESTMENTS DECEMBER 31, 2005 (UNAUDITED)
SHARES VALUE ------------- ------------- EQUITIES -- 98.13% U.S. EQUITIES -- 94.40% AEROSPACE & DEFENSE -- 2.64% Lockheed Martin Corp. 102,000 $ 6,490,260 Northrop Grumman Corp. 92,100 5,536,131 ------------- 12,026,391 ------------- AIR FREIGHT & LOGISTICS -- 1.58% FedEx Corp. 69,800 7,216,622 ------------- AUTO COMPONENTS -- 2.36% Borg-Warner, Inc. 49,200 2,982,996 Johnson Controls, Inc. 106,800 7,786,788 ------------- 10,769,784 ------------- AUTOMOBILES -- 0.90% Harley-Davidson, Inc. 80,200 4,129,498 ------------- BEVERAGES -- 0.73% Anheuser-Busch Cos., Inc. 77,800 3,342,288 ------------- BIOTECHNOLOGY -- 3.12% Cephalon, Inc., (a) 77,500 5,017,350 Genzyme Corp. (a) 130,400 9,229,712 ------------- 14,247,062 ------------- BUILDING PRODUCTS -- 1.97% Masco Corp. 298,100 8,999,639 ------------- CAPITAL MARKETS -- 5.35% Mellon Financial Corp. 278,200 9,528,350 Morgan Stanley 262,300 14,882,902 ------------- 24,411,252 ------------- COMMERCIAL BANKS -- 6.16% Fifth Third Bancorp 221,600 8,358,752 PNC Financial Services Group, Inc. 96,600 5,972,778 Wells Fargo & Co. 219,000 13,759,770 ------------- 28,091,300 ------------- COMMERCIAL SERVICES & SUPPLIES -- 0.79% CCE Spinco, Inc. (a) 17,600 230,560 Cendant Corp. 195,700 3,375,825 ------------- 3,606,385 ------------- COMPUTERS & PERIPHERALS -- 1.19% Dell, Inc. (a) 181,700 5,449,183 ------------- DIVERSIFIED FINANCIAL SERVICES -- 7.07% Citigroup, Inc. 436,561 21,186,305 JPMorgan Chase & Co. 279,000 11,073,510 ------------- 32,259,815 ------------- DIVERSIFIED TELECOMMUNICATION SERVICES -- 4.10% AT&T, Inc. 220,800 5,407,392 Sprint Nextel Corp. 569,720 13,308,659 ------------- 18,716,051 ------------- ELECTRIC UTILITIES -- 4.20% American Electric Power Co., Inc. 111,000 4,116,990 Exelon Corp. 225,100 $ 11,961,814 Northeast Utilities 57,700 1,136,113 Pepco Holdings, Inc. 86,800 1,941,716 ------------- 19,156,633 ------------- ELECTRONIC EQUIPMENT & INSTRUMENTS -- 0.91% Mettler Toledo International, Inc. (a) 74,900 4,134,480 ------------- ENERGY EQUIPMENT & SERVICES -- 0.62% Baker Hughes, Inc. 46,700 2,838,426 ------------- FOOD & STAPLES RETAILING -- 3.53% Costco Wholesale Corp. 205,000 10,141,350 Kroger Co. (a) 315,100 5,949,088 ------------- 16,090,438 ------------- GAS UTILITIES -- 0.61% NiSource, Inc. 132,400 2,761,864 ------------- HEALTH CARE EQUIPMENT & SUPPLIES -- 2.19% Medtronic, Inc. 57,000 3,281,490 Waters Corp. (a) 99,000 3,742,200 Zimmer Holdings, Inc. (a) 44,200 2,980,848 ------------- 10,004,538 ------------- HEALTH CARE PROVIDERS & SERVICES -- 6.78% Caremark Rx, Inc. (a) 85,200 4,412,508 Healthsouth Corp. (a) 282,600 1,384,740 Medco Health Solutions, Inc. (a) 106,900 5,965,020 UnitedHealth Group, Inc. 194,600 12,092,444 WellPoint, Inc. (a) 88,900 7,093,331 ------------- 30,948,043 ------------- INSURANCE -- 3.75% American International Group, Inc. 175,600 11,981,188 Hartford Financial Services Group, Inc. 60,000 5,153,400 ------------- 17,134,588 ------------- INTERNET & CATALOG RETAIL -- 1.08% Expedia, Inc. (a) 205,750 4,929,770 ------------- MACHINERY -- 2.00% Illinois Tool Works, Inc. 103,900 9,142,161 ------------- MEDIA -- 5.39% Clear Channel Communications, Inc. 141,800 4,459,610 Dex Media, Inc. 101,500 2,749,635 DIRECTV Group, Inc. (a) 195,500 2,760,460 Omnicom Group, Inc. 117,000 9,960,210 Univision Communications, Inc. (a) 158,300 4,652,437 ------------- 24,582,352 ------------- MULTILINE RETAIL -- 1.23% Kohl's Corp. (a) 115,700 5,623,020 ------------- MULTI-UTILITIES & UNREGULATED POWER -- 1.03% Sempra Energy 105,300 4,721,652 ------------- OIL & GAS -- 2.43% ExxonMobil Corp. 73,100 4,106,027 Marathon Oil Corp. 114,300 6,968,871 ------------- 11,074,898 -------------
51
SHARES VALUE ------------- ------------- PHARMACEUTICALS -- 8.77% Allergan, Inc. 95,300 $ 10,288,588 Bristol-Myers Squibb Co. 139,600 3,208,008 Johnson & Johnson 172,344 10,357,875 Mylan Laboratories, Inc. 123,250 2,460,070 Wyeth 297,800 13,719,646 ------------- 40,034,187 ------------- ROAD & RAIL -- 1.81% Burlington Northern Santa Fe Corp. 116,700 8,264,694 ------------- SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 1.48% Applied Materials, Inc. 227,800 4,086,732 Xilinx, Inc. 105,000 2,647,050 ------------- 6,733,782 ------------- SOFTWARE -- 6.49% Mercury Interactive Corp. (a) 103,700 2,881,823 Microsoft Corp. 663,700 17,355,755 Oracle Corp. (a) 462,600 5,648,346 Symantec Corp. (a) 214,202 3,748,535 ------------- 29,634,459 ------------- THRIFTS & MORTGAGE FINANCE -- 2.14% Freddie Mac 149,700 9,782,895 ------------- Total U.S. Equities 430,858,150 ------------- INTERNATIONAL EQUITIES -- 3.73% BERMUDA -- 1.32% IT SERVICES -- 1.32% Accenture Ltd., Class A 208,300 $ 6,013,621 ------------- CAYMAN ISLANDS -- 1.01% ENERGY EQUIPMENT & SERVICES -- 1.01% GlobalSantaFe Corp. 95,600 4,603,140 ------------- PANAMA -- 1.40% HOTELS, RESTAURANTS & LEISURE -- 1.40% Carnival Corp. 120,000 6,416,401 ------------- Total International Equities 17,033,162 ------------- Total Equities (Cost $382,228,609) 447,891,312 ------------- SHORT-TERM INVESTMENTS -- 1.74% OTHER -- 1.55% UBS Supplementary Trust* -- U.S. Cash Management Prime Fund, yield of 4.36% 7,066,227 7,066,227 ------------- FACE AMOUNT ------------- U.S. GOVERNMENT OBLIGATION -- 0.19% U.S. Treasury Bills, yield of 3.35%, due 01/05/06 (b) $ 850,000 849,579 ------------- Total Short-Term Investments (Cost $7,915,911) 7,915,806 ------------- Total Investments -- 99.87% (Cost $390,144,520) 455,807,118 Cash and other assets, less liabilities -- 0.13% 607,745 ------------- Net Assets -- 100.00% $ 456,414,863 =============
NOTES TO SCHEDULE OF INVESTMENTS Aggregate cost for federal income tax purposes, which was substantially the same for book purposes, was $390,144,520; and net unrealized appreciation consisted of: Gross unrealized appreciation $ 69,933,376 Gross unrealized depreciation (4,270,778) ------------- Net unrealized appreciation $ 65,662,598 =============
(a) Non-income producing security. (b) This security was pledged to cover margin requirements for futures contracts. * Investment in affiliated mutual fund. FUTURES CONTRACTS UBS U.S. Large Cap Equity Fund had the following open futures contracts as of December 31, 2005:
EXPIRATION CURRENT UNREALIZED DATE COST VALUE APPRECIATION ---------- ----------- ----------- ------------ INDEX FUTURE BUY CONTRACTS: S&P 500 Index, 8 contracts March 2006 $ 2,506,040 $ 2,509,600 $ 3,560 ============
The segregated aggregate market value of investments pledged to cover margin requirements for the open futures positions at December 31, 2005 was $849,579. See accompanying notes to financial statements. 52 UBS U.S. LARGE CAP GROWTH FUND For the six-month period ended December 31, 2005, Class A shares of UBS U.S. Large Cap Growth Fund (the "Fund") returned 14.52% (8.19% after the deduction of the maximum sales charge) and Class Y shares returned 14.77%, versus the 7.11% return of the Fund's benchmark, the Russell 1000 Growth Index (the "Index"). (Class Y shares have lower expenses than other share classes in the series. Returns for all share classes over various time periods are shown on page 54; please note that these returns do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.) The Fund delivered solid absolute and relative performance during the six-month reporting period. These positive results were due to both stock selection and sector weightings. FOCUS ON STOCK SELECTION IN A CHANGING MARKET ENVIRONMENT Surging oil prices, a potential slowdown in consumer spending, rising real estate prices and inflation fears weighed on the stock market in early 2005. These concerns eased as the year progressed, however. Oil prices pulled back from the $70 a barrel high, real estate largely held its ground and corporate profits remained strong. By November, investors had returned to stocks in force, driving the overall market (as measured by the Russell 3000 Index) up 6.13% over the six months covered by this report. Large caps continued to outperform small caps during the period. Within large caps, growth outperformed value. Specifically, large-cap growth stocks (as measured by the Russell 1000 Growth Index) returned 7.11% while large cap value stocks (Russell 1000 Value Index) returned 5.22%. Despite these changing market conditions, we maintained our focus on long-term, fundamental research. In accordance with our long-standing philosophy, we sought to invest in successful growth companies, as evidenced by increasing profitability, pricing power and high or improving return on invested capital. THEMATIC INVESTING DELIVERED STRONG PERFORMANCE Our investment process led us to significantly overweight energy stocks. This position benefited the Fund's relative performance as energy continued to deliver strong results. The Fund's energy exposure was largely focused on North American natural gas and oil services companies. In natural gas, we favored companies with positive organic growth prospects such as EOG Resources and XTO Energy. In oil services, we were attracted to companies that we thought would participate in the increased demand for equipment and services. Higher oil prices have generated large profits that the major exploration and production companies reinvested into increasing their production capacity. This increase in investment created an extended cycle in which oil service companies have had significant pricing power. Two Fund holdings that performed particularly well in the energy sector were Weatherford International and GlobalSantaFe. Google contributed strongly to performance over the period. We believe that the migration from traditional media to on-line advertising is still in the early phases of development. Google continues to take a significant share in paid searches in both the domestic and international markets. Since advertisers' return on their paid search ad spending remains in the high double digits, we expect significant growth for many years to come. In the technology space, we overweighted companies that we believed disproportionately benefited from consumer adoption of advanced technologies. Apple, Broadcom and Qualcomm had a significant impact on performance. We believe that consumer uptake of next-generation wireless technologies, voice over IP, digital media, HDTV, and new digital media is still in the early stages of adoption. We anticipate continued strong growth in this sub-sector. Relative performance was hindered by the Fund's stock selection and overweight exposure to telecommunications. In particular, the Fund saw disappointing results from select holdings in wireless communications. Absolute and relative performance was also hindered by isolated names in healthcare equipment and supplies. THIS LETTER IS INTENDED TO ASSIST SHAREHOLDERS IN UNDERSTANDING HOW THE FUND PERFORMED DURING THE SEMIANNUAL PERIOD ENDED DECEMBER 31, 2005. THE VIEWS AND OPINIONS IN THE LETTER WERE CURRENT AS OF FEBRUARY 15, 2006. 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. 53 UBS U.S. LARGE CAP GROWTH FUND AVERAGE ANNUAL TOTAL RETURN (UNAUDITED)
6 MONTHS 1 YEAR 5 YEARS INCEPTION* ENDED ENDED ENDED TO 12/31/05 12/31/05 12/31/05 12/31/05 - ------------------------------------------------------------------------------------------------- UBS U.S. LARGE CAP GROWTH FUND CLASS A 14.52% 14.10% -2.03% -0.02% UBS U.S. LARGE CAP GROWTH FUND CLASS B 14.13 13.27 N/A 3.82 UBS U.S. LARGE CAP GROWTH FUND CLASS C 14.00 13.29 N/A 2.83 UBS U.S. LARGE CAP GROWTH FUND CLASS Y 14.77 14.36 -1.74 2.93 UBS U.S. LARGE CAP GROWTH FUND CLASS A** 8.19 7.82 -3.13 -0.83 UBS U.S. LARGE CAP GROWTH FUND CLASS B** 9.13 8.28 N/A 3.39 UBS U.S. LARGE CAP GROWTH FUND CLASS C** 13.00 12.29 N/A 2.83 RUSSELL 1000 GROWTH INDEX 7.11 5.27 -3.58 2.05
* 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. TOTAL 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. 54 EXPLANATION OF EXPENSE DISCLOSURE (UNAUDITED) As a shareholder of the Fund, you incur two types of costs: (1) transactional costs (as applicable); including sales charges (loads); and (2) ongoing costs, including management fees; service and/or distribution (12b-1) fees (if applicable); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example below is based on an investment of $1,000 invested at the beginning of the period and held for the entire period, July 1, 2005 to December 31, 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 for each class of shares 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 Fund's actual return for each class of shares. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs (as applicable), such as sales charges (loads). Therefore, the second line in the table for each class of shares is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
BEGINNING ENDING EXPENSES PAID ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD* JULY 1, 2005 DECEMBER 31, 2005 7/1/05 - 12/31/05 - ------------------------------------------------------------------------------------------------------ CLASS A ACTUAL $ 1,000.00 $ 1,145.20 $ 5.68 HYPOTHETICAL (5% ANNUAL RETURN BEFORE EXPENSES) 1,000.00 1,019.91 5.35 CLASS B ACTUAL 1,000.00 1,141.30 9.72 HYPOTHETICAL (5% ANNUAL RETURN BEFORE EXPENSES) 1,000.00 1,016.13 9.15 CLASS C ACTUAL 1,000.00 1,140.00 9.71 HYPOTHETICAL (5% ANNUAL RETURN BEFORE EXPENSES) 1,000.00 1,016.13 9.15 CLASS Y ACTUAL 1,000.00 1,147.70 4.33 HYPOTHETICAL (5% ANNUAL RETURN BEFORE EXPENSES) 1,000.00 1,021.17 4.08
* EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED NET EXPENSE RATIOS: CLASS A: 1.05%, CLASS B: 1.80%, CLASS C: 1.80%, CLASS Y: 0.80%, MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 184 DIVIDED BY 365 (TO REFLECT THE ONE-HALF YEAR PERIOD). 55 TOP TEN EQUITY HOLDINGS AS OF DECEMBER 31, 2005 (UNAUDITED)
PERCENTAGE OF NET ASSETS - ------------------------------------------------------------------- Google, Inc. 5.4% eBay, Inc. 3.7 Medimmune, Inc. 3.3 WellPoint, Inc. 3.2 UnitedHealth Group, Inc. 3.1 Apple Computer, Inc. 3.1 Microsoft Corp. 3.0 Allergan, Inc. 3.0 General Electric Co. 3.0 Zimmer Holdings, Inc. 2.9 - ------------------------------------------------------------------- Total 33.7%
INDUSTRY DIVERSIFICATION AS A PERCENTAGE OF NET ASSETS AS OF DECEMBER 31, 2005 (UNAUDITED) EQUITIES U.S. EQUITIES Aerospace & Defense 2.71% Biotechnology 5.45 Capital Markets 2.47 Chemicals 1.52 Communications Equipment 2.46 Computers & Peripherals 6.81 Consumer Finance 1.62 Diversified Financial Services 2.87 Health Care Equipment & Supplies 8.57 Health Care Providers & Services 8.26 Household Durables 2.33 Industrial Conglomerates 2.98 Insurance 1.77 Internet & Catalog Retail 3.71 Internet Software & Services 7.06 Machinery 3.18 Media 1.83 Oil & Gas 3.99 Pharmaceuticals 2.99% Semiconductors & Semiconductor Equipment 4.63 Software 5.61 Specialty Retail 5.90 Textiles, Apparel & Luxury Goods 1.88 ------ Total U.S. Equities 90.60 INTERNATIONAL EQUITIES Energy Equipment & Services 4.17 Machinery 1.85 ------ Total International Equities 6.02 ------ TOTAL EQUITIES 96.62 INVESTMENT COMPANY 1.28 SHORT-TERM INVESTMENT 3.39 ------ TOTAL INVESTMENTS 101.29 LIABILITIES, IN EXCESS OF CASH AND OTHER ASSETS (1.29) ------ NET ASSETS 100.00% ======
56 UBS U.S. LARGE CAP GROWTH FUND -- SCHEDULE OF INVESTMENTS DECEMBER 31, 2005 (UNAUDITED)
SHARES VALUE ------------- ------------- EQUITIES -- 96.62% U.S. EQUITIES -- 90.60% AEROSPACE & DEFENSE -- 2.71% United Technologies Corp. 5,600 $ 313,096 ------------- BIOTECHNOLOGY -- 5.45% Genzyme Corp. (a) 3,500 247,730 Medimmune, Inc. (a) 10,900 381,718 ------------- 629,448 ------------- CAPITAL MARKETS -- 2.47% Merrill Lynch & Co., Inc. 4,200 284,466 ------------- CHEMICALS -- 1.52% Praxair, Inc. 3,300 174,768 ------------- COMMUNICATIONS EQUIPMENT -- 2.46% QUALCOMM, Inc. 6,600 284,328 ------------- COMPUTERS & PERIPHERALS -- 6.81% Apple Computer, Inc. (a) 5,000 359,450 Dell, Inc. (a) 6,000 179,940 EMC Corp. (a) 18,100 246,522 ------------- 785,912 ------------- CONSUMER FINANCE -- 1.62% SLM Corp. 3,400 187,306 ------------- DIVERSIFIED FINANCIAL SERVICES -- 2.87% Moody's Corp. 5,400 331,668 ------------- HEALTH CARE EQUIPMENT & SUPPLIES -- 8.57% Medtronic, Inc. 3,900 224,523 St. Jude Medical, Inc. (a) 3,500 175,700 Varian Medical Systems, Inc. (a) 5,000 251,700 Zimmer Holdings, Inc. (a) 5,000 337,200 ------------- 989,123 ------------- HEALTH CARE PROVIDERS & SERVICES -- 8.26% Express Scripts, Inc. (a) 2,600 217,880 UnitedHealth Group, Inc. 5,800 360,412 WellPoint, Inc. (a) 4,700 375,013 ------------- 953,305 ------------- HOUSEHOLD DURABLES -- 2.33% Lennar Corp., Class A 4,400 268,488 ------------- INDUSTRIAL CONGLOMERATES -- 2.98% General Electric Co. 9,800 343,490 ------------- INSURANCE -- 1.77% American International Group, Inc. 3,000 204,690 ------------- INTERNET & CATALOG RETAIL -- 3.71% eBay, Inc. (a) 9,900 428,175 ------------- INTERNET SOFTWARE & SERVICES -- 7.06% Google, Inc. (a) 1,500 622,290 Yahoo!, Inc. (a) 4,900 191,982 ------------- 814,272 ------------- MACHINERY -- 3.18% Illinois Tool Works, Inc. 2,300 202,377 ITT Industries, Inc. 1,600 164,512 ------------- 366,889 ------------- MEDIA -- 1.83% McGraw-Hill Cos., Inc. 4,100 $ 211,683 ------------- OIL & GAS -- 3.99% EOG Resources, Inc. 3,100 227,447 XTO Energy, Inc. 5,299 232,839 ------------- 460,286 ------------- PHARMACEUTICALS -- 2.99% Allergan, Inc. 3,200 345,472 ------------- SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 4.63% Analog Devices, Inc. 5,500 197,285 Broadcom Corp. (a) 4,500 212,175 Intel Corp. 5,000 124,800 ------------- 534,260 ------------- SOFTWARE -- 5.61% Adobe Systems, Inc. 8,100 299,376 Microsoft Corp. 13,300 347,795 ------------- 647,171 ------------- SPECIALTY RETAIL -- 5.90% Abercrombie & Fitch Co. 4,100 267,238 Best Buy Co., Inc. 4,450 193,486 Lowe's Cos., Inc. 3,300 219,978 ------------- 680,702 ------------- TEXTILES, APPAREL & LUXURY GOODS -- 1.88% Nike, Inc. 2,500 216,975 ------------- Total U.S. Equities 10,455,973 ------------- INTERNATIONAL EQUITIES -- 6.02% BERMUDA -- 4.52% ENERGY EQUIPMENT & SERVICES -- 2.67% Weatherford International Ltd. (a) 8,500 307,700 ------------- MACHINERY -- 1.85% Ingersoll-Rand Co., Ltd., Class A 5,300 213,961 ------------- 521,661 ------------- CAYMAN ISLANDS -- 1.50% ENERGY EQUIPMENT & SERVICES -- 1.50% GlobalSantaFe Corp. 3,600 173,340 ------------- Total International Equities 695,001 ------------- Total Equities (Cost $9,687,611) 11,150,974 ------------- INVESTMENT COMPANY -- 1.28% iShares Russell 1000 Growth Index Fund (Cost $149,698) 2,900 147,929 ------------- SHORT-TERM INVESTMENT* -- 3.39% UBS Supplementary Trust -- U.S. Cash Management Prime Fund, yield of 4.36% (Cost $391,690) 391,690 391,690 ------------- Total Investments -- 101.29% (Cost $10,228,999) 11,690,593 Liabilities, in excess of cash and other assets -- (1.29%) (149,009) ------------- Net Assets -- 100.00% $ 11,541,584 =============
57 NOTES TO SCHEDULE OF INVESTMENTS Aggregate cost for federal income tax purposes, which was substantially the same for book purposes, was $10,228,999; and net unrealized appreciation consisted of: Gross unrealized appreciation $ 1,536,625 Gross unrealized depreciation (75,031) ------------- Net unrealized appreciation $ 1,461,594 =============
(a) Non-income producing security. * Investment in affiliated mutual fund. See accompanying notes to financial statements. 58 UBS U.S. LARGE CAP VALUE EQUITY FUND For the six-month period ended December 31, 2005, Class A shares of UBS U.S. Large Cap Value Equity Fund (the "Fund") returned 7.66% (1.74% after the deduction of the maximum sales charge) and Class Y shares returned 7.70%, versus the 5.22% return of the Fund's benchmark, the Russell 1000 Value Index (the "Index"). (Class Y shares have lower expenses than other share classes in the series. Returns for all share classes over various time periods are shown on page 61; please note that these returns do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.) The Fund outperformed its benchmark for the six-month period, due primarily to strong stock selection. While stock selection guides portfolio construction, the Fund's sector weightings were a slight drag on relative performance. IN-DEPTH RESEARCH MAINTAINS FOCUS ON QUALITY The stock market as a whole (as measured by the Russell 3000 Index) was relatively flat during the first half of 2005, with investors distracted by external factors. However, stock prices rose in the second half of the year and the overall market, as measured by the Russell 3000 Index, returned 6.13% during the six months covered by this report. Large-cap stocks outperformed small caps over this period. Within large caps, increasingly risk tolerant investors favored growth stocks over value stocks. Specifically, large cap growth stocks (as measured by the Russell 1000 Growth Index) returned 7.11% while large cap value stocks (Russell 1000 Value Index) returned 5.22%. In our analysis, this market environment presented few "big picture" opportunities. To add value, we maintained our focus on bottom-up stock selection, seeking to invest in high quality companies with strong cash flow and the ability to pay or increase dividends and/or repurchase shares. STOCK SELECTION DRIVES PORTFOLIO CONSTRUCTION Our investment-driven investment process requires that stock selection guide sector allocations. Over the reporting period, this process led us to overweight healthcare and Internet-related companies, while underweighting energy. Several of the Fund's top performing stocks for the reporting period were in the healthcare industry. Our research and analysis within the sector showed that large cap pharmaceuticals were at some risk, losing pricing power as demand for generic drugs increases. Instead, we found attractive opportunities in medical services. A good example is UnitedHealth Group, the Fund's top performing stock for the period. UnitedHealth Group is the second largest health insurer in the US. Its shares rose during the period on news that it would acquire PacifiCare Health Systems, a major Medicare provider. We believe this acquisition will give UnitedHealth Group a national network and a closer connection to government-related business. Relative performance was also helped by the Fund's holdings in the Internet industry. Elsewhere, the Fund was overweight information technology. This position was the result of our overweight exposure to software. Within software, we favored information services and Internet companies, such as Accenture and Expedia. Overall, the Fund held less-than-Index exposure to energy, a position that hindered relative performance. In our opinion, many energy stocks were trading above their intrinsic value, driven up by high crude oil prices. However, our research identified several names in the oil services sub-sector that met our requirements. For example, the Fund saw strong results from its investments in Baker Hughes and GlobalSantaFe. The Fund also benefited from 59 its position in oil refinery Marathon Oil. Marathon's stock rose on the news that, despite the gulf storms, it would complete a planned expansion on schedule. Several of the Fund's worst performing stocks were in the financial services industry. Within the financial sector, our research showed that companies with diversified exposure to markets and positive merger and acquisition opportunities offer the greatest potential. In contrast, we avoided regional US banks, which we believe were overpriced. THIS LETTER IS INTENDED TO ASSIST SHAREHOLDERS IN UNDERSTANDING HOW THE FUND PERFORMED DURING THE SEMIANNUAL PERIOD ENDED DECEMBER 31, 2005. THE VIEWS AND OPINIONS IN THE LETTER WERE CURRENT AS OF FEBRUARY 15, 2006. 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. 60 AVERAGE ANNUAL TOTAL RETURN (UNAUDITED)
6 MONTHS 1 YEAR INCEPTION* ENDED ENDED TO 12/31/05 12/31/05 12/31/05 - ---------------------------------------------------------------------------------------------- UBS U.S. LARGE CAP VALUE EQUITY FUND CLASS A 7.66% 9.76% 8.19% UBS U.S. LARGE CAP VALUE EQUITY FUND CLASS B 7.07 8.87 8.07 UBS U.S. LARGE CAP VALUE EQUITY FUND CLASS C 7.17 8.86 8.02 UBS U.S. LARGE CAP VALUE EQUITY FUND CLASS Y 7.70 10.00 7.48 UBS U.S. LARGE CAP VALUE EQUITY FUND CLASS A** 1.74 3.71 6.69 UBS U.S. LARGE CAP VALUE EQUITY FUND CLASS B** 2.22 3.94 7.69 UBS U.S. LARGE CAP VALUE EQUITY FUND CLASS C** 6.20 7.88 8.02 RUSSELL 1000 VALUE INDEX 5.22 7.07 6.18
* INCEPTION DATES OF UBS U.S. LARGE CAP VALUE EQUITY FUND CLASS A SHARES IS 12/07/01. INCEPTION DATE 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 06/29/01. ** 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. TOTAL 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. 61 EXPLANATION OF EXPENSE DISCLOSURE (UNAUDITED) As a shareholder of the Fund, you incur two types of costs: (1) transactional costs (as applicable); including sales charges (loads); and (2) ongoing costs, including management fees; service and/or distribution (12b-1) fees (if applicable); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example below is based on an investment of $1,000 invested at the beginning of the period and held for the entire period, July 1, 2005 to December 31, 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 for each class of shares 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 Fund's actual return for each class of shares. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs (as applicable), such as sales charges (loads). Therefore, the second line in the table for each class of shares is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
BEGINNING ENDING EXPENSES PAID ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD* JULY 1, 2005 DECEMBER 31, 2005 7/1/05 - 12/31/05 - --------------------------------------------------------------------------------------------------- CLASS A ACTUAL $ 1,000.00 $ 1,076.60 $ 5.76 HYPOTHETICAL (5% ANNUAL RETURN BEFORE EXPENSES) 1,000.00 1,019.66 5.60 CLASS B ACTUAL 1,000.00 1,070.70 9.66 HYPOTHETICAL (5% ANNUAL RETURN BEFORE EXPENSES) 1,000.00 1,015.88 9.40 CLASS C ACTUAL 1,000.00 1,071.70 9.66 HYPOTHETICAL (5% ANNUAL RETURN BEFORE EXPENSES) 1,000.00 1,015.88 9.40 CLASS Y ACTUAL 1,000.00 1,077.00 4.45 HYPOTHETICAL (5% ANNUAL RETURN BEFORE EXPENSES) 1,000.00 1,020.92 4.33
* EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED NET EXPENSE RATIOS: CLASS A: 1.10%, CLASS B: 1.85%, CLASS C: 1.85%, CLASS Y: 0.85%, MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 184 DIVIDED BY 365 (TO REFLECT THE ONE-HALF YEAR PERIOD). 62 TOP TEN EQUITY HOLDINGS AS OF DECEMBER 31, 2005 (UNAUDITED)
PERCENTAGE OF NET ASSETS - ------------------------------------------------------ Citigroup, Inc. 5.6% Wells Fargo & Co. 4.4 Morgan Stanley 4.3 JPMorgan Chase & Co. 4.3 ExxonMobil Corp. 3.7 American International Group, Inc. 3.5 Marathon Oil Corp. 3.4 Sprint Nextel Corp. 3.0 Freddie Mac 2.8 Exelon Corp. 2.5 - ------------------------------------------------------ Total 37.5%
INDUSTRY DIVERSIFICATION AS A PERCENTAGE OF NET ASSETS AS OF DECEMBER 31, 2005 (UNAUDITED) EQUITIES U.S. EQUITIES Aerospace & Defense 3.21% Air Freight & Logistics 1.81 Auto Components 2.85 Automobiles 0.82 Beverages 1.23 Biotechnology 1.34 Building Products 1.66 Capital Markets 8.07 Commercial Banks 10.53 Commercial Services & Supplies 1.02 Diversified Financial Services 9.90 Diversified Telecommunication Services 4.92 Electric Utilities 6.72 Energy Equipment & Services 0.71 Food & Staples Retailing 3.62 Gas Utilities 0.57 Health Care Providers & Services 4.12 Insurance 5.38 Internet & Catalog Retail 1.42 Machinery 2.22% Media 5.23 Multi-Utilities & Unregulated Power 1.02 Oil & Gas 7.03 Pharmaceuticals 4.37 Road & Rail 2.16 Software 2.23 Thrifts & Mortgage Finance 2.76 ------ Total U.S. Equities 96.92 INTERNATIONAL EQUITIES Energy Equipment & Services 1.27 IT Services 1.17 ------ Total International Equities 2.44 TOTAL EQUITIES 99.36 SHORT-TERM INVESTMENT 0.97 ------ TOTAL INVESTMENTS 100.33 LIABILITIES, IN EXCESS OF CASH AND OTHER ASSETS (0.33) ------ NET ASSETS 100.00% ======
63 UBS U.S. LARGE CAP VALUE EQUITY FUND -- SCHEDULE OF INVESTMENTS DECEMBER 31, 2005 (UNAUDITED)
SHARES VALUE ------------ ------------ EQUITIES -- 99.36% U.S. EQUITIES -- 96.92% AEROSPACE & DEFENSE -- 3.21% Lockheed Martin Corp. 39,900 $ 2,538,837 Northrop Grumman Corp. 28,600 1,719,146 ------------ 4,257,983 ------------ AIR FREIGHT & LOGISTICS -- 1.81% FedEx Corp. 23,200 2,398,648 ------------ AUTO COMPONENTS -- 2.85% Borg-Warner, Inc. 21,000 1,273,230 Johnson Controls, Inc. 34,400 2,508,104 ------------ 3,781,334 ------------ AUTOMOBILES -- 0.82% Harley-Davidson, Inc. 21,200 1,091,588 ------------ BEVERAGES -- 1.23% Anheuser-Busch Cos., Inc., Series B 38,000 1,632,480 ------------ BIOTECHNOLOGY -- 1.34% Cephalon, Inc. (a) 27,400 1,773,876 ------------ BUILDING PRODUCTS -- 1.66% Masco Corp. 73,050 2,205,380 ------------ CAPITAL MARKETS -- 8.07% Mellon Financial Corp. 93,700 3,209,225 Morgan Stanley 101,400 5,753,436 Northern Trust Corp. 33,700 1,746,334 ------------ 10,708,995 ------------ COMMERCIAL BANKS -- 10.53% Bank of America Corp. 51,822 2,391,585 Fifth Third Bancorp 84,400 3,183,568 PNC Financial Services Group, Inc. 42,300 2,615,409 Wells Fargo & Co. 92,250 5,796,068 ------------ 13,986,630 ------------ COMMERCIAL SERVICES & SUPPLIES -- 1.02% CCE Spinco, Inc. (a) 5,350 70,085 Cendant Corp. 74,700 1,288,575 ------------ 1,358,660 ------------ DIVERSIFIED FINANCIAL SERVICES -- 9.90% Citigroup, Inc. 153,176 7,433,631 JPMorgan Chase & Co. 143,970 5,714,170 ------------ 13,147,801 ------------ DIVERSIFIED TELECOMMUNICATION SERVICES -- 4.92% AT&T, Inc. 102,350 2,506,551 Sprint Nextel Corp. 172,557 4,030,932 ------------ 6,537,483 ------------ ELECTRIC UTILITIES -- 6.72% American Electric Power Co., Inc. 70,000 2,596,300 Exelon Corp. 63,600 3,379,704 FirstEnergy Corp. 34,500 1,690,155 Pepco Holdings, Inc. 56,100 1,254,957 ------------ 8,921,116 ------------ ENERGY EQUIPMENT & SERVICES -- 0.71% Baker Hughes, Inc. 15,600 948,168 ------------ FOOD & STAPLES RETAILING -- 3.62% Costco Wholesale Corp. 61,000 $ 3,017,670 Kroger Co. (a) 94,500 1,784,160 ------------ 4,801,830 ------------ GAS UTILITIES -- 0.57% NiSource, Inc. 36,300 757,218 ------------ HEALTH CARE PROVIDERS & SERVICES -- 4.12% Caremark Rx, Inc. (a) 13,300 688,807 Medco Health Solutions, Inc. (a) 35,900 2,003,220 UnitedHealth Group, Inc. 44,600 2,771,444 ------------ 5,463,471 ------------ INSURANCE -- 5.38% American International Group, Inc. 68,000 4,639,640 Hartford Financial Services Group, Inc. 29,150 2,503,693 ------------ 7,143,333 ------------ INTERNET & CATALOG RETAIL -- 1.42% Expedia, Inc. (a) 78,700 1,885,652 ------------ MACHINERY -- 2.22% Illinois Tool Works, Inc. 33,450 2,943,265 ------------ MEDIA -- 5.23% Clear Channel Communications, Inc. 42,800 1,346,060 DIRECTV Group, Inc. (a) 83,200 1,174,784 Omnicom Group, Inc. 33,600 2,860,368 Univision Communications, Inc. (a) 53,200 1,563,548 ------------ 6,944,760 ------------ MULTI-UTILITIES & UNREGULATED POWER -- 1.02% Sempra Energy 30,200 1,354,168 ------------ OIL & GAS -- 7.03% ExxonMobil Corp. 86,550 4,861,513 Marathon Oil Corp. 73,300 4,469,101 ------------ 9,330,614 ------------ PHARMACEUTICALS -- 4.37% Bristol-Myers Squibb Co. 52,900 1,215,642 Johnson & Johnson 21,400 1,286,140 Wyeth 71,600 3,298,612 ------------ 5,800,394 ------------ ROAD & RAIL -- 2.16% Burlington Northern Santa Fe Corp. 40,500 2,868,210 ------------ SOFTWARE -- 2.23% Microsoft Corp. 113,400 2,965,410 ------------ THRIFTS & MORTGAGE FINANCE -- 2.76% Freddie Mac 56,050 3,662,867 ------------ Total U.S. Equities 128,671,334 ------------ INTERNATIONAL EQUITIES -- 2.44% BERMUDA -- 1.27% ENERGY EQUIPMENT & SERVICES -- 1.27% Accenture Ltd., Class A 58,400 1,686,008 ------------ CAYMAN ISLANDS -- 1.17% IT SERVICES -- 1.17% GlobalSantaFe Corp. 32,300 1,555,245 ------------ Total International Equities 3,241,253 ------------ Total Equities (Cost $109,960,390) 131,912,587 ------------
64
SHARES VALUE ------------ ------------- SHORT-TERM INVESTMENT* -- 0.97% UBS Supplementary Trust -- U.S. Cash Management Prime Fund, yield of 4.36% (Cost $1,290,960) 1,290,960 $ 1,290,960 ------------- Total Investments -- 100.33% (Cost $111,251,350) 133,203,547 Liabilities, in excess of cash and other assets -- (0.33%) (433,260) ------------- Net Assets -- 100.00% $ 132,770,287 =============
NOTES TO SCHEDULE OF INVESTMENTS Aggregate cost for federal income tax purposes, which was substantially the same for book purposes, was $111,251,350; and net unrealized appreciation consisted of: Gross unrealized appreciation $ 22,988,632 Gross unrealized depreciation (1,036,435) ------------ Net unrealized appreciation $ 21,952,197 ============
(a) Non-income producing security. * Investment in affiliated mutual fund. See accompanying notes to financial statements. 65 UBS U.S. SMALL CAP GROWTH FUND For the six-month period ended December 31, 2005, Class A shares of UBS U.S. Small Cap Growth Fund (the "Fund") returned 5.84% (0.05% after the deduction of the maximum sales charge) and Class Y shares returned 5.94%, versus the 8.02% return of the Fund's benchmark, the Russell 2000 Growth Index (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 68; please note that these returns do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.) While the Fund generated positive results during the reporting period, it trailed its benchmark on a relative basis. Stock selection and sector allocation contributed negatively to relative performance. PORTFOLIO MAINTAINS EMPHASIS ON QUALITY After disappointing returns early in 2005, the small cap market rallied as the year progressed. Investors appeared more risk tolerant as oil prices fell back from their $70 a barrel high, inflation remained under control and the much discussed drop in real estate never materialized. Small caps, as measured by the Russell 2000 Index, reaped some of the benefits, gaining 5.88% in the last six months of the year. Within small caps, growth significantly outperformed value, as the Russell 2000 Growth Index rose 8.02% and the Russell 2000 Value Index gained 3.78% over the six-month reporting period. Our strategy is to maintain our focus on high quality companies with the ability to grow sales and earnings. While this approach may cause us to miss some short-term gains, we believe it will position the Fund to benefit in the longer term. SECTOR WEIGHTINGS AND STOCK SELECTION IMPACT RELATIVE PERFORMANCE Based on our research, no single sector offered superior opportunities. As a result, the Fund remained well diversified with no sector overweight or underweight of more than 3%. Nonetheless, these variances impacted the Fund's relative performance during the six-month reporting period. Our overweight in the consumer discretionary sector and underweight in the materials sector had the greatest negative impact on relative performance. Investors were slow to return to the consumer discretionary sector in the face of difficult holiday sales expectations. The drag on performance due to the underweight in the materials sector was largely mitigated by strong stock selection. The Fund saw particularly solid gains from its investment in Steel Dynamics. Steel companies in general were up over the reporting period, due to strong prices and speculation about industry consolidation. Steel Dynamics did especially well given its improved earnings forecast and the announcement that it was expanding its steel bar operations to accommodate growing customer demand. The Fund's relative performance was helped by positive stock selection in healthcare and industrials, offset by negative stock selection in the consumer discretionary and financials sectors. Within healthcare, the Fund benefited from holdings such as Pediatrix Medical Group, Psychiatric Solutions and VCA Antech. Industrials benefited from our exposure to transportation companies such as Landstar Systems, Hub Group and UTI Worldwide. Performance was negatively impacted in the consumer discretionary space due to what we believe are temporary manufacturing issues 66 that caused Nautilus to miss earnings expectations. Within financials, Mills Corp. was the Fund's primary detractor from performance, as the company reported lower-than-expected earnings and reduced its full-year earnings estimates due to project write-off costs and lower fees. THIS LETTER IS INTENDED TO ASSIST SHAREHOLDERS IN UNDERSTANDING HOW THE FUND PERFORMED DURING THE SEMIANNUAL PERIOD ENDED DECEMBER 31, 2005. THE VIEWS AND OPINIONS IN THE LETTER WERE CURRENT AS OF FEBRUARY 15, 2006. 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. 67 AVERAGE ANNUAL TOTAL RETURN (UNAUDITED)
6 MONTHS 1 YEAR 5 YEARS INCEPTION* ENDED ENDED ENDED TO 12/31/05 12/31/05 12/31/05 12/31/05 - ------------------------------------------------------------------------------------------------------ UBS U.S. SMALL CAP GROWTH FUND CLASS A 5.84% 6.39% 4.35% 11.44% UBS U.S. SMALL CAP GROWTH FUND CLASS B 5.40 5.56 N/A 9.54 UBS U.S. SMALL CAP GROWTH FUND CLASS C 5.33 5.57 N/A 9.09 UBS U.S. SMALL CAP GROWTH FUND CLASS Y 5.94 6.63 4.63 8.20 UBS U.S. SMALL CAP GROWTH FUND CLASS A** 0.05 0.54 3.18 10.55 UBS U.S. SMALL CAP GROWTH FUND CLASS B** 0.40 0.56 N/A 9.18 UBS U.S. SMALL CAP GROWTH FUND CLASS C** 4.33 4.57 N/A 9.09 RUSSELL 2000 GROWTH INDEX 8.02 4.15 2.28 1.76
* 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 09/30/97. ** 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. TOTAL 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. 68 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); and (2) ongoing costs, including management fees; service and/or distribution (12b-1) fees (if applicable); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example below is based on an investment of $1,000 invested at the beginning of the period and held for the entire period, July 1, 2005 to December 31, 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 for each class of shares 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 Fund's actual return for each class of shares. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs (as applicable), such as sales charges (loads). Therefore, the second line in the table for each class of shares is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
BEGINNING ENDING EXPENSES PAID ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD* JULY 1, 2005 DECEMBER 31, 2005 7/1/05 - 12/31/05 - --------------------------------------------------------------------------------------------------- CLASS A ACTUAL $ 1,000.00 $ 1,058.40 $ 6.64 HYPOTHETICAL (5% ANNUAL RETURN BEFORE EXPENSES) 1,000.00 1,018.75 6.51 CLASS B ACTUAL 1,000.00 1,054.00 10.51 HYPOTHETICAL (5% ANNUAL RETURN BEFORE EXPENSES) 1,000.00 1,014.97 10.31 CLASS C ACTUAL 1,000.00 1,053.30 10.51 HYPOTHETICAL (5% ANNUAL RETURN BEFORE EXPENSES) 1,000.00 1,014.97 10.31 CLASS Y ACTUAL 1,000.00 1,059.40 5.35 HYPOTHETICAL (5% ANNUAL RETURN BEFORE EXPENSES) 1,000.00 1,020.01 5.24
* EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED NET EXPENSE RATIOS: CLASS A: 1.28%, CLASS B: 2.03%, CLASS C: 2.03%, CLASS Y: 1.03%, MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 184 DIVIDED BY 365 (TO REFLECT THE ONE-HALF YEAR PERIOD). 69 TOP TEN EQUITY HOLDINGS AS OF DECEMBER 31, 2005 (UNAUDITED)
PERCENTAGE OF NET ASSETS - ------------------------------------------------------------ Pediatrix Medical Group, Inc. 2.9% Inamed Corp. 2.6 VCA Antech, Inc. 2.5 Microsemi Corp. 2.3 Tetra Technologies, Inc. 2.3 Landstar System, Inc. 1.9 Psychiatric Solutions, Inc. 1.9 UCBH Holdings, Inc. 1.9 KCS Energy, Inc. 1.8 Cognizant Technology Solutions Corp., Class A 1.8 - ------------------------------------------------------------ Total 21.9%
INDUSTRY DIVERSIFICATION AS A PERCENT OF NET ASSETS AS OF DECEMBER 31, 2005 (UNAUDITED) U.S. EQUITIES Aerospace & Defense 1.86% Air Freight & Logistics 1.58 Auto Components 0.59 Biotechnology 4.07 Capital Markets 1.54 Commercial Banks 1.90 Commercial Services & Supplies 3.27 Communications Equipment 1.12 Construction & Engineering 0.72 Distributors 1.37 Diversified Financial Services 0.15 Diversified Telecommunication Services 0.71 Electrical Equipment 1.12 Electronic Equipment & Instruments 3.76 Energy Equipment & Services 3.75 Health Care Equipment & Supplies 7.91 Health Care Providers & Services 9.36 Hotels, Restaurants & Leisure 3.39 Household Durables 2.25 Household Products 1.32 IT Services 3.58 Leisure Equipment & Products 0.87 Machinery 2.71 Metals & Mining 0.93 Oil & Gas 3.90% Pharmaceuticals 2.11 Real Estate 3.26 Road & Rail 1.94 Semiconductors & Semiconductor Equipment 7.03 Software 6.54 Specialty Retail 4.45 Textiles, Apparel & Luxury Goods 1.70 Thrifts & Mortgage Finance 1.21 ------ Total U.S. Equities 91.97 INTERNATIONAL EQUITIES Air Freight & Logistics 1.41 Beverages 0.55 Communications Equipment 1.26 Hotels, Restaurants & Leisure 1.48 Pharmaceuticals 0.24 ------ Total International Equities 4.94 TOTAL EQUITIES 96.91 SHORT-TERM INVESTMENT 4.04 ------ TOTAL INVESTMENTS 100.95 LIABILITIES, IN EXCESS OF CASH AND OTHER ASSETS (0.95) ------ NET ASSETS 100.00% ======
70 UBS U.S. SMALL CAP GROWTH FUND -- SCHEDULE OF INVESTMENTS DECEMBER 31, 2005 (UNAUDITED)
SHARES VALUE ------------ ------------- EQUITIES -- 96.91% U.S. EQUITIES -- 91.97% AEROSPACE & DEFENSE -- 1.86% AAR Corp. (a) 32,600 $ 780,770 Engineered Support Systems, Inc. 138,512 5,767,640 ------------- 6,548,410 ------------- AIR FREIGHT & LOGISTICS -- 1.58% HUB Group, Inc. (a) 157,400 5,564,090 ------------- AUTO COMPONENTS -- 0.59% American Axle & Manufacturing Holdings, Inc. 114,000 2,089,620 ------------- BIOTECHNOLOGY -- 4.07% Affymetrix, Inc. (a) 46,800 2,234,700 Alexion Pharmaceuticals, Inc. (a) 91,100 1,844,775 Charles River Laboratories International, Inc. (a) 39,280 1,664,293 Incyte Corp. (a) 216,000 1,153,440 Isis Pharmaceuticals, Inc. (a) 173,200 907,568 Keryx Biopharmaceuticals, Inc. (a) 106,700 1,562,088 Neurocrine Biosciences, Inc. (a) 51,100 3,205,503 Telik, Inc. (a) 105,600 1,794,144 ------------- 14,366,511 ------------- CAPITAL MARKETS -- 1.54% Investors Financial Services Corp. 147,100 5,417,693 ------------- COMMERCIAL BANKS -- 1.90% UCBH Holdings, Inc. 375,600 6,715,728 ------------- COMMERCIAL SERVICES & SUPPLIES -- 3.27% CRA International, Inc. (a) 99,000 4,721,310 Korn/Ferry International Corp. (a) 83,400 1,558,746 Labor Ready, Inc. (a) 252,300 5,252,886 ------------- 11,532,942 ------------- COMMUNICATIONS EQUIPMENT -- 1.12% Avocent Corp. (a) 49,100 1,335,029 C-COR, Inc. (a) 25,600 124,416 Foundry Networks, Inc. (a) 179,200 2,474,752 ------------- 3,934,197 ------------- CONSTRUCTION & ENGINEERING -- 0.72% EMCOR Group, Inc. (a) 37,400 2,525,622 ------------- DISTRIBUTORS -- 1.37% Beacon Roofing Supply, Inc. (a) 62,500 1,795,625 LKQ Corp. (a) 53,000 1,834,860 Prestige Brands Holdings, Inc. (a) 95,400 1,192,500 ------------- 4,822,985 ------------- DIVERSIFIED FINANCIAL SERVICES -- 0.15% Intercontinental Exchange, Inc. (a) 14,900 541,615 ------------- DIVERSIFIED TELECOMMUNICATION SERVICES -- 0.71% NeuStar, Inc. (a) 82,400 2,512,376 ------------- ELECTRICAL EQUIPMENT -- 1.12% Genlyte Group, Inc. (a) 73,600 3,942,752 ------------- ELECTRONIC EQUIPMENT & INSTRUMENTS -- 3.76% Benchmark Electronics, Inc. (a) 177,500 5,969,325 Cognex Corp. 167,000 5,025,030 Radisys Corp. (a) 131,800 $ 2,285,412 ------------- 13,279,767 ------------- ENERGY EQUIPMENT & SERVICES -- 3.75% Patterson-UTI Energy, Inc. 159,200 5,245,640 Tetra Technologies, Inc. (a) 261,175 7,971,061 ------------- 13,216,701 ------------- HEALTH CARE EQUIPMENT & SUPPLIES -- 7.91% Arthrocare Corp. (a) 116,400 4,905,096 Aspect Medical Systems, Inc. (a) 100,200 3,441,870 Immucor, Inc. (a) 118,600 2,770,496 Inamed Corp. (a) 104,200 9,136,256 Resmed, Inc. (a) 60,400 2,313,924 Viasys Healthcare, Inc. (a) 208,500 5,358,450 ------------- 27,926,092 ------------- HEALTH CARE PROVIDERS & SERVICES -- 9.36% Merge Technologies, Inc. (a) 96,100 2,406,344 Pediatrix Medical Group, Inc. (a) 113,800 10,079,266 Psychiatric Solutions, Inc. (a) 115,600 6,790,344 United Surgical Partners International, Inc. (a) 152,800 4,912,520 VCA Antech, Inc. (a) 313,400 8,837,880 ------------- 33,026,354 ------------- HOTELS, RESTAURANTS & LEISURE -- 3.39% California Pizza Kitchen, Inc. (a) 171,300 5,476,461 CKE Restaurants, Inc. 303,400 4,098,934 Panera Bread Co., Class A (a) 36,100 2,371,048 ------------- 11,946,443 ------------- HOUSEHOLD DURABLES -- 2.25% Hovnanian Enterprises, Inc. (a) 81,100 4,025,804 Technical Olympic USA, Inc. 185,100 3,903,759 ------------- 7,929,563 ------------- HOUSEHOLD PRODUCTS -- 1.32% Central Garden & Pet Co. (a) 101,700 4,672,098 ------------- IT SERVICES -- 3.58% CACI International, Inc., Class A (a) 109,100 6,260,158 Cognizant Technology Solutions Corp., Class A (a) 126,800 6,384,380 ------------- 12,644,538 ------------- LEISURE EQUIPMENT & PRODUCTS -- 0.87% Nautilus, Inc. 163,700 3,054,642 ------------- MACHINERY -- 2.71% ESCO Technologies, Inc. (a) 124,000 5,516,760 Middleby Corp. (a) 47,000 4,065,500 ------------- 9,582,260 ------------- METALS & MINING -- 0.93% Steel Dynamics, Inc. 92,400 3,281,124 ------------- OIL & GAS -- 3.90% Dresser-Rand Group, Inc. (a) 81,000 1,958,580 KCS Energy, Inc. (a) 266,800 6,461,896 Quicksilver Resources, Inc. (a) 127,200 5,343,672 ------------- 13,764,148 -------------
71
SHARES VALUE ------------ ------------- PHARMACEUTICALS -- 2.11% First Horizon Pharmaceutical Corp. (a) 193,200 $ 3,332,700 Medicines Co. (a) 84,600 1,476,270 Penwest Pharmaceuticals Co. (a) 134,800 2,631,296 ------------- 7,440,266 ------------- REAL ESTATE -- 3.26% BioMed Realty Trust, Inc. REIT 97,800 2,386,320 Mills Corp. REIT 79,700 3,342,618 Ventas, Inc. REIT 180,100 5,766,802 ------------- 11,495,740 ------------- ROAD & RAIL -- 1.94% Landstar System, Inc. 164,100 6,849,534 ------------- SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 7.03% August Technology Corp. (a) 89,300 981,407 Cree, Inc. (a) 49,400 1,246,856 Exar Corp. (a) 154,900 1,939,348 Ikanos Communications, Inc. (a) 29,200 430,408 Microsemi Corp. (a) 293,800 8,126,508 Photronics, Inc. (a) 153,000 2,304,180 Power Integrations, Inc. (a) 120,900 2,878,629 Rudolph Technologies, Inc. (a) 97,200 1,251,936 Silicon Image, Inc. (a) 326,200 2,952,110 Standard Microsystems Corp. (a) 94,100 2,699,729 ------------- 24,811,111 ------------- SOFTWARE -- 6.54% Factset Research Systems, Inc. 83,800 3,449,208 Fair Isaac Corp. 78,350 3,460,720 Progress Software Corp. (a) 185,400 5,261,652 RSA Security, Inc. (a) 183,600 2,061,828 Secure Computing Corp. (a) 230,600 2,827,156 THQ, Inc. (a) 81,025 1,932,446 Verint Systems, Inc. (a) 119,000 4,101,930 ------------- 23,094,940 ------------- SPECIALTY RETAIL -- 4.45% Aeropostale, Inc. (a) 164,000 4,313,200 Chico's FAS, Inc. (a) 58,100 2,552,333 DSW, Inc. (a) 49,600 1,300,512 Guitar Center, Inc. (a) 78,600 3,930,786 Petco Animal Supplies, Inc. (a) 144,700 3,176,165 Under Armour, Inc. (a) 11,100 425,241 ------------- 15,698,237 ------------- TEXTILES, APPAREL & LUXURY GOODS -- 1.70% Maidenform Brands, Inc. (a) 28,900 $ 365,874 Phillips-Van Heusen Corp. 173,900 5,634,360 ------------- 6,000,234 ------------- THRIFTS & MORTGAGE FINANCE -- 1.21% BankUnited Financial Corp., Class A 97,000 2,577,290 Harbor Florida Bancshares, Inc. 45,400 1,682,070 ------------- 4,259,360 ------------- Total U.S. Equities 324,487,693 ------------- INTERNATIONAL EQUITIES -- 4.94% BERMUDA -- 1.48% HOTEL, RESTAURANTS & LEISURE -- 1.48% Orient-Express Hotels Ltd. 165,700 5,222,864 ------------- BRITISH VIRGIN ISLANDS -- 1.41% AIR FREIGHT & LOGISTICS -- 1.41% UTI Worldwide, Inc. 53,400 4,957,656 ------------- CANADA -- 0.55% BEVERAGES -- 0.55% Cott Corp. (a) 132,500 1,947,750 ------------- ISRAEL -- 1.50% COMMUNICATIONS EQUIPMENT -- 1.26% Nice Systems Ltd. ADR (a) 92,300 4,445,168 PHARMACEUTICALS -- 0.24% Taro Pharmaceutical Industries Ltd. (a) 61,700 861,949 ------------- 5,307,117 ------------- Total International Equities 17,435,387 ------------- Total Equities (Cost $302,264,048) 341,923,080 ------------- SHORT-TERM INVESTMENT* -- 4.04% UBS Supplementary Trust -- U.S. Cash Management Prime Fund, yield of 4.36% (Cost $14,251,658) 14,251,658 14,251,658 ------------- Total Investments -- 100.95% (Cost $316,515,706) 356,174,738 Liabilities, in excess of cash and other assets -- (0.95%) (3,339,259) ------------- Net Assets -- 100.00% $ 352,835,479 =============
NOTES TO SCHEDULE OF INVESTMENTS Aggregate cost for federal income tax purposes, which was substantially the same for book purposes, was $316,515,706; and net unrealized appreciation consisted of: Gross unrealized appreciation $ 56,271,565 Gross unrealized depreciation (16,612,533) ------------- Net unrealized appreciation $ 39,659,032 =============
(a) Non-income producing security. ADR American Depositary Receipts REIT Real Estate Investment Trust * Investment in affiliated mutual fund. See accompanying notes to financial statements. 72 UBS DYNAMIC ALPHA FUND For the semiannual period ended December 31, 2005, Class A shares of UBS Dynamic Alpha Fund (the "Fund") returned 6.55% (0.73% after the deduction of the maximum sales charge) and Class Y shares returned 6.71%, compared with the 0.41% return of the Merrill Lynch U.S. Treasury 1-5 Year index (the "Index") over the same period. (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 75; please note that these returns do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.) The Fund's performance was primarily attributable to its exposures to developed and emerging equity markets, as well as individual security selection within the US equity market and currency management. US ECONOMY PROVED SURPRISINGLY RESILIENT The past six months saw external shocks affecting the economy. Hurricanes Katrina and Rita ravaged the southern US, driving crude oil over $70 a barrel and refined products even higher, and events in Iraq continued to support energy prices. However, the price spike proved to be relatively short-lived, and the energy complex was back to pre-hurricane levels within a month. Following strong gains during the first half of the year, US third-quarter gross domestic product grew 4.1% in real, annualized terms, with the consensus estimate for growth into 2006 continuing above 3%. The Federal Reserve continued its pace of interest rate increases throughout the period, although the minutes released at the end of the year indicate that the end of this tightening cycle may be coming soon. The Fed has raised rates at each of its last thirteen meetings, dating back to mid-2004, as strong growth in the US has worried the central bank. The Federal Funds target rate over the period moved from 3.25% to 4.25% as of December 31, 2005. Also, Ben Bernanke was announced as the replacement for Alan Greenspan, who stepped down as Chairman of the Federal Reserve in February 2006. AN ABSOLUTE RETURN STRATEGY 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 are 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, bonds, 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 ability 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 SECURITY 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 large-capitalization and small-capitalization markets, developed markets outside the US, and emerging markets. 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. During the reporting period, our analysis indicated that most equity markets were priced in a range from slightly undervalued to slightly above 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, the Netherlands, and emerging markets, we had greater exposure to these markets. Because most of the Fund's capital, however, 73 was invested in equities to take advantage of the 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 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. We also chose to diversify our sources of security selection return during the period by reallocating some of the risk capital from the US large-cap equity core component portfolio. First, we allocated some of this capital to the US large-cap growth capability. This diversifies our selection return considerably, as the growth portfolio tends to hold different names than the core portfolio and exposed to somewhat different factors. Also, we committed some of this capital to the US Equity Alpha portfolio, which looks to increase selection return through holding long and short positions in US large-cap stocks, while maintaining levels of market exposure similar to the core fund. Our valuation work indicated dispersion among the intrinsic values of the various countries and regions in the developed world. With that in mind, we sought to increase the granularity of our country positioning during the period by taking long and short positions in a number of different individual country equity index futures, in response to these valuation signals and other analysis. The Fund maintained very limited fixed income 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 may benefit from negative fixed income market returns. Our UK bond position is noteworthy, as it is a position in UK real rates rather than nominal rates. Our valuation work indicates that UK inflation-linked bonds are exceptionally overvalued, and so we used swaps to gain exposure to the real interest rate in the UK. 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, the Euro, and the New Zealand dollar. 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 markets with low interest rates 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 New Zealand dollar and the British pound. THIS LETTER IS INTENDED TO ASSIST SHAREHOLDERS IN UNDERSTANDING HOW THE FUND PERFORMED DURING THE SEMIANNUAL PERIOD ENDED DECEMBER 31, 2005. THE VIEWS AND OPINIONS IN THE LETTER WERE CURRENT AS OF FEBRUARY 15, 2006. 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. 74 AVERAGE ANNUAL TOTAL RETURN (UNAUDITED)
6 MONTHS INCEPTION* ENDED TO 12/31/05 12/31/05 - ---------------------------------------------------------------------- UBS DYNAMIC ALPHA FUND CLASS A 6.55% 8.89% UBS DYNAMIC ALPHA FUND CLASS B 6.12 8.14 UBS DYNAMIC ALPHA FUND CLASS C 6.08 8.09 UBS DYNAMIC ALPHA FUND CLASS Y 6.71 9.16 UBS DYNAMIC ALPHA FUND CLASS A** 0.73 2.92 UBS DYNAMIC ALPHA FUND CLASS B** 1.12 3.14 UBS DYNAMIC ALPHA FUND CLASS C** 5.08 7.09 MERRILL LYNCH U.S. TREASURY 1-5 YEAR INDEX 0.41 1.44 CONSUMER PRICE INDEX 1.18 3.20
* INCEPTION DATE OF UBS DYNAMIC ALPHA FUND SHARES IS 01/27/05. INCEPTION DATE OF THE INDICES, FOR THE PURPOSE OF THIS ILLUSTRATION, IS 01/31/05. ** 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. TOTAL 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. 75 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); and (2) ongoing costs, including management fees; service and/or distribution (12b-1) fees (if applicable); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example below is based on an investment of $1,000 invested at the beginning of the period and held for the entire period, July 1, 2005 to December 31, 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 for each class of shares 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 Fund's actual return for each class of shares. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs (as applicable), such as sales charges (loads). Therefore, the second line in the table for each class of shares is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
BEGINNING ENDING EXPENSES PAID ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD* JULY 1, 2005 DECEMBER 31, 2005 7/1/05 - 12/31/05 - --------------------------------------------------------------------------------------------------- CLASS A ACTUAL $ 1,000.00 $ 1,065.50 $ 6.35 HYPOTHETICAL (5% ANNUAL RETURN BEFORE EXPENSES) 1,000.00 1,019.06 6.21 CLASS B ACTUAL 1,000.00 1,061.20 10.29 HYPOTHETICAL (5% ANNUAL RETURN BEFORE EXPENSES) 1,000.00 1,015.22 10.06 CLASS C ACTUAL 1,000.00 1,060.80 10.28 HYPOTHETICAL (5% ANNUAL RETURN BEFORE EXPENSES) 1,000.00 1,015.22 10.06 CLASS Y ACTUAL 1,000.00 1,067.10 4.90 HYPOTHETICAL (5% ANNUAL RETURN BEFORE EXPENSES) 1,000.00 1,020.47 4.79
* EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIOS: CLASS A: 1.22%, CLASS B: 1.98%, CLASS C: 1.98%, CLASS Y: 0.94%, MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 184 DIVIDED BY 365 (TO REFLECT THE ONE-HALF YEAR PERIOD). 76 INDUSTRY DIVERSIFICATION AS A PERCENT OF NET ASSETS AS OF DECEMBER 31, 2005 (UNAUDITED) INVESTMENT COMPANIES 94.84%* SHORT-TERM INVESTMENTS 1.52 OPTIONS PURCHASED 0.07 ------ TOTAL INVESTMENTS 96.43 CASH AND OTHER ASSETS, LESS LIABILITIES 3.57 ------ 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 INCREASE TO THE FUND'S INVESTMENTS IN INVESTMENT COMPANIES OF 0.14%. 77 UBS DYNAMIC ALPHA FUND -- SCHEDULE OF INVESTMENTS DECEMBER 31, 2005 (UNAUDITED)
SHARES VALUE -------------- --------------- INVESTMENT COMPANIES* -- 94.84% UBS Emerging Markets Equity Relationship Fund 7,036,514 $ 153,283,429 UBS International Equity Relationship Fund 23,697,014 367,362,955 UBS Small Cap Equity Relationship Fund 1,765,495 72,492,098 UBS U.S. Cash Management Prime Relationship Fund 111,414,722 111,414,722 UBS U.S. Equity Alpha Relationship Fund 13,491,998 142,181,371 UBS U.S. Large Cap Equity Relationship Fund 30,545,030 548,298,567 UBS U.S. Large Cap Growth Equity Relationship Fund 7,425,996 76,895,448 --------------- Total Investment Companies (Cost $1,350,550,017) 1,471,928,590 --------------- FACE AMOUNT -------------- SHORT-TERM INVESTMENTS -- 1.52% U.S. GOVERNMENT OBLIGATIONS -- 1.52% U.S. Treasury Bills, yield of 3.33%, due 01/05/06 (a) $ 22,400,000 22,388,895 U.S. Treasury Bills, yield of 3.88%, due 03/09/06 (a) 1,200,000 1,191,563 --------------- Total Short-Term Investments (Cost $23,583,132) 23,580,458 --------------- NUMBER OF CONTRACTS VALUE -------------- --------------- OPTIONS -- 0.07% CALL OPTIONS PURCHASED -- 0.07% Nikkei Index, strike @ 15,000 JPY expiration March 2006 (b) (Cost $176,636) 214 $ 1,125,027 --------------- Total Investments -- 96.43% (Cost $1,374,309,785) 1,496,634,075 --------------- Cash and other assets, less liabilities -- 3.57% 55,411,401 --------------- Net Assets -- 100.00% $ 1,552,045,476 ===============
NOTES TO SCHEDULE OF INVESTMENTS Aggregate cost for federal income tax purposes, which was substantially the same for book purposes, was $1,374,309,785; and net unrealized appreciation consisted of: Gross unrealized appreciation $ 122,327,121 Gross unrealized depreciation (2,831) -------------- Net unrealized appreciation $ 122,324,290 ==============
(a) All or a portion of the security was pledged to cover margin requirements for futures contracts. (b) Non-income producing security. * Investments in affiliated mutual funds. 78 FORWARD FOREIGN CURRENCY CONTRACTS UBS Dynamic Alpha Fund had the following open forward foreign currency contracts as of December 31, 2005:
UNREALIZED CONTRACTS TO IN EXCHANGE MATURITY APPRECIATION/ DELIVER FOR DATES (DEPRECIATION) -------------- ------------------ -------- -------------- Brazilian Real 43,660,000 USD 19,195,428 02/23/06 $ 832,140 British Pound 91,680,000 USD 157,734,742 05/26/06 (90,749) British Pound 10,945,000 USD 19,084,245 05/26/06 242,621 Canadian Dollar 73,925,000 USD 62,426,110 05/26/06 (1,403,468) Canadian Dollar 10,760,000 USD 9,287,872 05/26/06 (2,710) Euro 199,840,000 USD 236,017,294 05/26/06 (2,468,210) Euro 19,610,000 USD 23,638,727 05/26/06 236,501 Japanese Yen 3,007,900,000 USD 25,923,468 05/26/06 (45,670) Korean Won 23,271,000,000 USD 22,505,803 02/23/06 (528,322) Mexican Peso 66,920,000 USD 6,136,635 05/26/06 (68,121) New Zealand Dollar 105,580,000 USD 72,291,102 05/26/06 1,008,765 New Zealand Dollar 121,670,000 USD 82,115,477 05/26/06 (30,023) South African Rand 70,180,000 USD 10,298,628 05/26/06 (687,385) United States Dollar 37,548,833 AUD 51,445,000 05/26/06 23,165 United States Dollar 76,436,150 CHF 98,595,000 05/26/06 (355,210) United States Dollar 11,376,936 EUR 9,700,000 05/26/06 198,872 United States Dollar 46,930,629 JPY 5,478,400,000 05/26/06 367,927 United States Dollar 91,492,408 SEK 741,180,000 05/26/06 2,751,868 United States Dollar 16,796,052 SEK 130,650,000 05/26/06 (183,333) United States Dollar 49,861,133 SGD 83,885,000 05/26/06 871,988 United States Dollar 46,067,361 THB 1,901,200,000 05/26/06 144,461 United States Dollar 7,382,460 THB 303,050,000 05/26/06 (16,327) United States Dollar 32,150,602 TWD 1,067,400,000 02/23/06 538,461 -------------- Total net unrealized appreciation on forward foreign currency contracts $ 1,337,241 ==============
Currency Type Abbreviations AUD Australian Dollar CHF Swiss Franc EUR Euro JPY Japanese Yen SEK Swedish Krona SGD Singapore Dollar THB Thailand Baht TWD New Taiwan Dollar USD United States Dollar 79 FUTURES CONTRACTS UBS Dynamic Alpha Fund had the following open futures contracts as of December 31, 2005:
UNREALIZED EXPIRATION COST/ CURRENT APPRECIATION/ DATE PROCEEDS VALUE (DEPRECIATION) ------------ ------------- ------------- -------------- U.S. TREASURY FUTURES SALE CONTRACTS: 10 Year U.S. Treasury Notes,250 contracts March 2006 $ 27,225,563 $ 27,351,563 $ (126,000) 30 Year U.S. Treasury Bond,61 contracts March 2006 6,873,694 6,965,438 (91,744) INDEX FUTURES BUY CONTRACTS: Amsterdam Exchanges Index,677 contracts (EUR) January 2006 69,529,846 70,059,141 529,295 Australian 10 Year Bond, 1,056 contracts (AUD) March 2006 563,635,072 565,041,550 1,406,478 Canadian 10 Year Bond, 208 contracts (CAD) March 2006 20,447,376 20,466,291 18,915 IBEX 35 Index, 5 contracts (EUR) January 2006 621,745 633,209 11,464 FTSE 100 Index, 1,210 contracts (GBP) March 2006 115,177,214 116,914,168 1,736,954 INDEX FUTURES SALE CONTRACTS: CAC 40 Euro Index, 659 contracts (EUR) March 2006 36,826,017 36,949,803 (123,786) DAX Index, 188 contracts (EUR) March 2006 29,670,215 30,258,827 (588,612) DJ Euro STOXX 50 Index, 3,271 contracts (EUR) March 2006 136,926,186 138,946,625 (2,020,439) Hang Seng Index, 164 contracts (HKD) January 2006 16,196,660 15,692,171 504,489 Japanese 10 Year Bond, 30 contracts (JPY) March 2006 34,841,548 34,938,737 (97,189) Nikkei 225 Index, 769 contracts (JPY) March 2006 101,042,673 104,654,682 (3,612,009) OMXS 30 Index, 1,308 contracts (SEK) January 2006 15,553,452 15,838,580 (285,128) Russell 2000 Index, 194 contracts March 2006 67,273,380 65,795,100 1,478,280 S&P MIB Index, 65 contracts (EUR) March 2006 13,504,363 13,782,372 (278,009) S&P Toronto Stock Exchange 60 Index, 562 contracts (CAD) March 2006 60,929,428 61,602,684 (673,256) S&P 500 Index, 1,166 contracts March 2006 371,941,220 365,774,200 6,167,020 SPI 200 Index, 489 contracts (AUD) March 2006 40,887,863 42,364,071 (1,476,208) INTEREST RATE FUTURES SALE CONTRACTS: Euro-Bund, 291 contracts(EUR) March 2006 41,687,355 41,975,696 (288,341) -------------- Total net unrealized appreciation on futures contracts $ 2,192,174 ==============
The segregated aggregate market value of investments and cash collateral pledged to cover margin requirements for the open futures positions at December 31, 2005 was $95,370,158. UBS Dynamic Alpha Fund had the following open written options as of December 31, 2005: WRITTEN OPTIONS PUT OPTIONS WRITTEN
NUMBER OF CONTRACTS VALUE - -------------------------------------------------------------------------------------------------------------------------- 535 Nikkei Index, strike @ 12,500 JPY, expires March 2006 (premiums received $176,861) $ 13,609 ==============
Currency Type Abbreviations AUD Australian Dollar CAD Canadian Dollar EUR Euro GBP British Pound JPY Japanese Yen SEK Swedish Krona HKD Hong Kong Dollar See accompanying notes to financial statements. 80 UBS U.S. BOND FUND For the six-month period ended December 31, 2005, Class A shares of UBS U.S. Bond Fund (the "Fund") returned 0.06% (a decline of 4.48% after the deduction of the maximum sales charge) and Class Y shares returned 0.25%, versus the 0.08% decline of the Fund's benchmark, the Lehman U.S. Aggregate Bond Index (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 82; 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.) Returns for the period were lower in part due to rising rates across the yield curve, particularly during the third quarter of 2005, although relative performance during that time was solid. ECONOMY PROVED SURPRISINGLY RESILIENT One of the big stories in the United States during the reporting period was the devastating hurricane season, which captured headlines for much of the summer and early fall. On August 29, Hurricane Katrina made landfall near New Orleans, forcing the city's evacuation and causing an estimated $75 billion worth of damage. The storm--along with Hurricane Rita, which struck southeastern Texas a month later--significantly impaired the Gulf Coast's oil-refining capacity and ushered in more big news as oil prices soared to a high of more than $70 a barrel. Over Labor Day weekend, the average price of regular unleaded gasoline broke $3.04 a gallon nationwide, a record high. Many investors feared the shock of high energy prices along with the extensive damage caused by the hurricane season would serve a blow to the nation's economy. However, after an initial spike in jobless claims caused primarily by displaced New Orleans residents, subsequent data proved the economy to be much more resilient than many had anticipated. Overall unemployment and core inflation both remained low, while consumer confidence, after dropping in October, surged in November and continued to rise in December. The Federal Reserve Board (the "Fed"), meanwhile, hiked interest rates four times during the reporting period to bring the federal funds rate to 4.25%, the highest it has been since May 2001. This proved to be a challenging period for fixed-income investors. Yields on short-term Treasuries rose throughout the period, while yields on Treasuries with maturities longer than three years fell in the final two months of the year, most dramatically in the 10- to 20-year part of the curve. This produced an exceptionally flat yield curve for much of the period, and at the end of December, the curve actually inverted in some areas. An inverted yield curve is typically the harbinger of a recession, but given the strength of the economy, we believe rates of longer-term bonds may rise in the coming months and that the current shape of the curve is likely to be short lived, with the 10-year Treasury appearing to be particularly overvalued. DEFENSIVE POSTURE WAS BENEFICIAL, WHILE SECURITY SELECTION PRODUCED MIXED RESULTS The Fund maintained a short duration stance throughout the period in an attempt to limit the effects of rising interest rates. This was a successful strategy, particularly during the first half of the reporting period, when rates rose the most dramatically. From a sector strategy standpoint, the Fund held overweight positions in asset-backed securities (ABS) and commercial mortgage-backed securities (CMBS), both of which contributed positively to performance. THIS LETTER IS INTENDED TO ASSIST SHAREHOLDERS IN UNDERSTANDING HOW THE FUND PERFORMED DURING THE SEMIANNUAL PERIOD ENDED DECEMBER 31, 2005. THE VIEWS AND OPINIONS IN THE LETTER WERE CURRENT AS OF FEBRUARY 15, 2006. 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. 81 AVERAGE ANNUAL TOTAL RETURN (UNAUDITED)
6 MONTHS 1 YEAR 5 YEARS 10 YEARS INCEPTION* ENDED ENDED ENDED ENDED TO 12/31/05 12/31/05 12/31/05 12/31/05 12/31/05 - ------------------------------------------------------------------------------------------------- UBS U.S. BOND FUND CLASS A 0.06% 1.86% 5.29% N/A 5.88% UBS U.S. BOND FUND CLASS B -0.33 1.16 N/A N/A 3.09 UBS U.S. BOND FUND CLASS C -0.20 1.39 N/A N/A 3.32 UBS U.S. BOND FUND CLASS Y 0.25 2.19 5.56 5.86% 6.22 UBS U.S. BOND FUND CLASS A** -4.48 -2.76 4.32 N/A 5.31 UBS U.S. BOND FUND CLASS B** -5.23 -3.73 N/A N/A 2.66 UBS U.S. BOND FUND CLASS C** -0.93 0.66 N/A N/A 3.32 LEHMAN BROTHERS U.S.AGGREGATE BOND INDEX -0.08 2.43 5.87 6.16 6.49
* INCEPTION DATE OF UBS U.S. BOND FUND CLASS A SHARES IS 06/30/97. 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 08/31/95. ** 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. TOTAL 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); and (2) ongoing costs, including management fees; service and/or distribution (12b-1) fees (if applicable); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example below is based on an investment of $1,000 invested at the beginning of the period and held for the entire period, July 1, 2005 to December 31, 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 for each class of shares 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 Fund's actual return for each class of shares. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs (as applicable), such as sales charges (loads). Therefore, the second line in the table for each class of shares is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
BEGINNING ENDING EXPENSES PAID ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD* JULY 1, 2005 DECEMBER 31, 2005 7/1/05 - 12/31/05 - --------------------------------------------------------------------------------------------------- CLASS A ACTUAL $ 1,000.00 $ 1,000.60 $ 4.29 HYPOTHETICAL (5% ANNUAL RETURN BEFORE EXPENSES) 1,000.00 1,020.92 4.33 CLASS B ACTUAL 1,000.00 996.70 8.05 HYPOTHETICAL (5% ANNUAL RETURN BEFORE EXPENSES) 1,000.00 1,017.14 8.13 CLASS C ACTUAL 1,000.00 998.00 6.80 HYPOTHETICAL (5% ANNUAL RETURN BEFORE EXPENSES) 1,000.00 1,018.40 6.87 CLASS Y ACTUAL 1,000.00 1,002.50 3.03 HYPOTHETICAL (5% ANNUAL RETURN BEFORE EXPENSES) 1,000.00 1,022.18 3.06
* EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED NET EXPENSE RATIOS: CLASS A: 0.85%, CLASS B: 1.60%, CLASS C: 1.35%, CLASS Y: 0.60%, MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 184 DIVIDED BY 365 (TO REFLECT THE ONE-HALF YEAR PERIOD). 83 TOP TEN FIXED INCOME HOLDINGS AS OF DECEMBER 31, 2005 (UNAUDITED)
PERCENTAGE OF NET ASSETS - ------------------------------------------------------------ Federal National Mortgage Association 5.000%, TBA 7.7% U.S. Treasury Bonds 8.750%, due 05/15/17 3.7 U.S. Treasury Notes 3.875%, due 05/15/09 3.2 U.S. Treasury Inflation Indexed Bond (TIPS) 2.000%, due 01/15/14 2.9 Federal National Mortgage Association 5.500%, due 03/15/11 2.2 U.S. Treasury Notes 4.125%, due 05/15/15 2.2 Federal National Mortgage Association 4.945%, due 02/01/35 2.0 U.S. Treasury Notes 3.875%, due 02/15/13 1.9 U.S. Treasury Bonds 6.250%, due 05/15/30 1.9 Ford Motor Credit Co. 5.800%, due 01/12/09 1.8 - ------------------------------------------------------------ Total 29.5%
INDUSTRY DIVERSIFICATION AS A PERCENT OF NET ASSETS AS OF DECEMBER 31, 2005 (UNAUDITED) BONDS U.S. BONDS U.S. CORPORATE BONDS Aerospace & Defense 0.10% Automobiles 0.40 Beverages 0.53 Capital Markets 1.16 Chemicals 0.16 Commercial Banks 1.75 Commercial Services & Supplies 0.31 Consumer Finance 1.57 Diversified Financial Services 3.96 Diversified Telecommunication Services 0.82 Electric Utilities 0.72 Food & Staples Retailing 0.14 Food Products 0.33 Gas Utilities 0.08 Hotels, Restaurants & Leisure 0.13 Household Durables 0.09 Insurance 0.39 IT Services 0.12 Machinery 0.05 Media 0.62 Multi-Utilities & Unregulated Power 0.23 Oil & Gas 0.60 Personal Products 0.12 Pharmaceuticals 0.22 Real Estate 0.22 Road & Rail 0.54 Thrifts & Mortgage Finance 0.60% Tobacco 0.21 Wireless Telecommunication Services 0.13 ------ Total U.S. Corporate Bonds 16.30 Asset-Backed Securities 3.76 Commercial Mortgage-Backed Securities 7.49 Mortgage & Agency Debt Securities 48.22 U.S. Government Obligations 19.43 ------ Total U.S. Bonds 95.20 INTERNATIONAL BONDS INTERNATIONAL CORPORATE BONDS Aerospace & Defense 0.08 Commercial Banks 0.22 Diversified Telecommunication Services 0.16 Oil & Gas 0.05 ------ Total International Corporate Bonds 0.51 Sovereign/SupraNational Bonds 0.09 ------ Total International Bonds 0.60 TOTAL BONDS 95.80 SHORT-TERM INVESTMENT 11.27 ------ TOTAL INVESTMENTS 107.07 LIABILITIES, IN EXCESS OF CASH AND OTHER ASSETS (7.07) ------ NET ASSETS 100.00% ======
84 UBS U.S. BOND FUND -- SCHEDULE OF INVESTMENTS DECEMBER 31, 2005 (UNAUDITED)
FACE AMOUNT VALUE ------------ ------------ BONDS -- 95.80% U.S. BONDS -- 95.20% U.S. CORPORATE BONDS -- 16.30% Albertson's, Inc. 8.000%, due 05/01/31 $ 45,000 $ 44,273 Allstate Corp. 7.200%, due 12/01/09 100,000 107,679 Altria Group, Inc. 7.750%, due 01/15/27 110,000 130,589 American Electric Power Co., Inc. 6.125%, due 05/15/06 72,000 72,326 American General Finance Corp. 5.375%, due 10/01/12 180,000 180,915 Anheuser-Busch Cos., Inc. 9.000%, due 12/01/09 280,000 321,142 AT&T Corp. 9.750%, due 11/15/31 175,000 219,822 AvalonBay Communities, Inc. REIT 7.500%, due 08/01/09 95,000 102,288 Avon Products, Inc. 7.150%, due 11/15/09 150,000 161,090 Bank of America Corp. 7.400%, due 01/15/11 440,000 484,671 Bank One Corp. 7.875%, due 08/01/10 345,000 382,995 BellSouth Corp. 6.550%, due 06/15/34 125,000 133,145 Boeing Capital Corp. 7.375%, due 09/27/10 150,000 165,054 Bombardier Capital, Inc., 144A 6.125%, due 06/29/06 300,000 300,000 Bristol-Myers Squibb Co. 5.750%, due 10/01/11 110,000 113,606 Burlington Northern Santa Fe Corp. 7.082%, due 05/13/29 200,000 237,750 C.S. First Boston USA, Inc. 3.875%, due 01/15/09 105,000 101,929 6.500%, due 01/15/12 180,000 192,560 Capital One Financial Corp. 5.500%, due 06/01/15 170,000 169,005 Caterpillar, Inc. 6.550%, due 05/01/11 55,000 59,344 CBS Corp. 6.625%, due 05/15/11 120,000 124,979 Cendant Corp. 6.250%, due 01/15/08 180,000 183,246 Citigroup, Inc. 5.625%, due 08/27/12 975,000 1,004,944 Comcast Cable Communications, Inc. 6.750%, due 01/30/11 425,000 449,993 Computer Sciences Corp. 3.500%, due 04/15/08 165,000 158,273 ConAgra Foods, Inc. 6.750%, due 09/15/11 100,000 106,517 Coors Brewing Co. 6.375%, due 05/15/12 135,000 143,057 Countrywide Home Loans, Inc. 3.250%, due 05/21/08 215,000 206,459 DaimlerChrysler N.A. Holding Corp. 4.050%, due 06/04/08 $ 530,000 $ 515,952 Devon Financing Corp. ULC 6.875%, due 09/30/11 260,000 284,397 Dominion Resources, Inc. 5.950%, due 06/15/35 130,000 126,891 Duke Energy Field Services LLC 7.875%, due 08/16/10 155,000 171,421 EOP Operating LP REIT 7.250%, due 06/15/28 165,000 182,416 Erac U.S.A. Finance Co., 144A 8.000%, due 01/15/11 200,000 223,447 FirstEnergy Corp., Series B 6.450%, due 11/15/11 105,000 111,300 Ford Motor Credit Co. 5.800%, due 01/12/09 2,695,000 2,350,954 General Electric Capital Corp. 6.000%, due 06/15/12 1,145,000 1,205,904 6.750%, due 03/15/32 140,000 164,339 General Motors Acceptance Corp. 6.875%, due 09/15/11 510,000 465,092 Goldman Sachs Group, Inc. 6.875%, due 01/15/11 500,000 538,636 Harrah's Operating Co., Inc. 7.500%, due 01/15/09 155,000 164,171 HSBC Bank USA N.A. 5.625%, due 08/15/35 265,000 259,191 HSBC Finance Corp. 6.750%, due 05/15/11 295,000 316,585 ICI Wilmington, Inc. 4.375%, due 12/01/08 220,000 214,379 International Lease Finance Corp. 3.500%, due 04/01/09 300,000 285,559 John Deere Capital Corp. 7.000%, due 03/15/12 145,000 160,154 JPMorgan Chase & Co. 6.750%, due 02/01/11 225,000 240,992 Kinder Morgan Energy Partners LP 5.800%, due 03/15/35 145,000 138,708 Kraft Foods, Inc. 5.625%, due 11/01/11 320,000 328,319 Lincoln National Corp. 6.200%, due 12/15/11 80,000 84,921 Lockheed Martin Corp. 8.500%, due 12/01/29 100,000 136,297 Marathon Oil Corp. 6.125%, due 03/15/12 120,000 127,245 Marsh & McLennan Cos., Inc. 6.250%, due 03/15/12 170,000 177,115 MBNA Corp. 7.500%, due 03/15/12 125,000 140,792 McKesson Corp. 7.750%, due 02/01/12 95,000 106,935 Metlife, Inc. 5.000%, due 11/24/13 145,000 143,459 Miller Brewing Co., 144A 5.500%, due 08/15/13 225,000 229,344 Morgan Stanley 6.750%, due 04/15/11 680,000 732,038
85
FACE AMOUNT VALUE ------------ ------------ New Cingular Wireless Services, Inc. $ 130,000 $ 172,226 8.750%, due 03/01/31 Newell Rubbermaid, Inc. 4.000%, due 05/01/10 120,000 113,549 News America, Inc. 6.200%, due 12/15/34 65,000 64,565 Pacific Gas & Electric Co. 6.050%, due 03/01/34 130,000 134,545 PPL Energy Supply LLC 6.400%, due 11/01/11 200,000 210,808 Progress Energy, Inc. 7.000%, due 10/30/31 145,000 160,909 Qwest Capital Funding, Inc. 7.900%, due 08/15/10 360,000 372,600 Safeway, Inc. 7.250%, due 02/01/31 130,000 140,280 Sempra Energy 7.950%, due 03/01/10 100,000 109,847 Sprint Capital Corp. 8.750%, due 03/15/32 200,000 265,416 Time Warner, Inc. 7.625%, due 04/15/31 150,000 167,047 TXU Energy Co. LLC 7.000%, due 03/15/13 130,000 138,536 U.S. Bank N.A. 6.375%, due 08/01/11 240,000 256,279 Union Pacific Corp. 6.700%, due 12/01/06 235,000 238,478 UST, Inc. 6.625%, due 07/15/12 135,000 140,378 Valero Energy Corp. 7.500%, due 04/15/32 185,000 224,829 Verizon New York, Inc., Series B 7.375%, due 04/01/32 70,000 73,592 Wachovia Bank N.A. 7.800%, due 08/18/10 345,000 387,239 Washington Mutual, Inc. 5.625%, due 01/15/07 575,000 578,167 Waste Management, Inc. 7.375%, due 08/01/10 100,000 108,829 Wells Fargo Bank N.A. 6.450%, due 02/01/11 480,000 511,552 Wyeth 5.500%, due 03/15/13 170,000 172,341 Xcel Energy, Inc. 7.000%, due 12/01/10 100,000 107,623 ------------ 21,234,239 ------------ ASSET-BACKED SECURITIES -- 3.76% Capital One Multi-Asset Execution Trust, 03-A1, Class A1+ 4.759%, due 01/15/09 970,000 970,804 CenterPoint Energy Transition Bond Co., LLC 01-1, Class A4 5.630%, due 09/15/15 310,000 320,906 Conseco Finance Corp., 01-D, Class M2+ 6.119%, due 11/15/32 734,147 720,060 Conseco Finance Securitizations Corp., 00-1, Class A4 7.620%, due 05/01/31 $ 364,529 $ 366,108 Conseco Finance Securitizations Corp., 00-2, Class A4 8.480%, due 12/01/30 205,135 207,703 Conseco Finance Securitizations Corp., 00-5, Class A4 7.470%, due 02/01/32 128,743 129,572 Countrywide Asset-Backed Certificates, 03-SD3, Class A1, 144A+ 4.799%, due 12/25/32 45,403 45,603 Countrywide Asset-Backed Certificates, 04-SD1, Class A1, 144A+ 4.719%, due 06/25/33 167,660 167,949 Green Tree Financial Corp., 94-5, Class A5 8.300%, due 11/15/19 132,795 137,901 Green Tree Financial Corp., 99-3, Class A5 6.160%, due 02/01/31 324,896 326,533 Providian Gateway Master Trust, 04-AA, Class C, 144A+ 5.269%, due 03/15/11 190,000 191,222 Providian Gateway Master Trust, 04-AA, Class D, 144A+ 6.219%, due 03/15/11 220,000 223,339 RAFC Asset-Backed Trust, 01-1, Class A3++ 5.115%, due 11/25/29 64,152 63,923 Structured Asset Securities Corp., 03-AL2, Class A, 144A 3.357%, due 01/25/31 225,336 205,061 WFS Financial Owner Trust, 03-2, Class B 2.480%, due 12/20/10 832,807 822,989 ------------ 4,899,673 ------------ COMMERCIAL MORTGAGE-BACKED SECURITIES -- 7.49% Banc of America Commercial Mortgage, Inc., 02-PB2, Class C 6.349%, due 06/11/35 745,000 789,898 Bear Stearns Commercial Mortgage Securities, 00-WF1, Class A2 7.780%, due 02/15/32 1,215,000 1,322,769 Bear Stearns Commercial Mortgage Securities, 00-WF2, Class A2 7.320%, due 10/15/32 200,000 216,784 Commercial Mortgage Pass-Through Certificates, 01-FL5A, Class E, 144A+ 5.869%, due 11/15/13 120,133 120,123 Commercial Mortgage Pass-Through Certificates, 01-FL5A, Class F, 144A+ 4.905%, due 11/15/13 240,000 238,377 Commercial Mortgage Pass-Through Certificates, 04-HTL1, Class A2, 144A+ 4.689%, due 07/15/16 97,725 97,761
86
FACE AMOUNT VALUE ------------ ------------ DLJ Commercial Mortgage Corp., $ 850,000 $ 917,985 00-CKP1, Class A1B 7.180%, due 11/10/33 First Union Commercial Mortgage Securities, Inc., 97-C2, Class A3 6.650%, due 11/18/29 312,268 319,318 Heller Financial Commercial Mortgage Assets, 99-PH1, Class A1 6.500%, due 05/15/31 120,890 121,480 Host Marriott Pool Trust, 99-HMTA, Class A, 144A 6.980%, due 08/03/15 204,766 211,912 Host Marriott Pool Trust, 99-HMTA, Class C, 144A 7.730%, due 08/03/15 360,000 386,397 Host Marriott Pool Trust, 99-HMTA, Class D, 144A 7.970%, due 08/03/15 220,000 234,501 Host Marriott Pool Trust, 99-HMTA, Class E, 144A 8.070%, due 08/03/15 220,000 229,390 JPMorgan Commercial Mortgage Finance Corp., 99-C8, Class A1 7.325%, due 07/15/31 42,228 42,372 LB Commercial Conduit Mortgage Trust, 99-C1, Class A1 6.410%, due 06/15/31 247,202 248,223 Mach One Trust Commercial Mortgage-Backed, 04-1A, Class A1, 144A 3.890%, due 05/28/40 835,113 815,768 Merrill Lynch Mortgage Investors, Inc., 96-C2, Class A3 6.960%, due 11/21/28 91,350 91,867 Morgan Stanley Dean Witter Capital I, 00-LIF2, Class A1 6.960%, due 10/15/33 132,742 136,518 PNC Mortgage Acceptance Corp., 00-C1, Class A2 7.610%, due 02/15/10 1,000,000 1,076,869 Prudential Mortgage Capital Funding LLC, 01-ROCK, Class A2 6.605%, due 05/10/34 115,000 122,638 Salomon Brothers Mortgage Securities VII, 00-C1, Class A2 7.520%, due 12/18/09 1,250,000 1,349,179 TIAA Retail Commercial Trust, 01-C1A, Class A2, 144A 6.300%, due 06/19/21 655,947 670,622 ------------ 9,760,751 ------------ MORTGAGE & AGENCY DEBT SECURITIES -- 48.22% C.S. First Boston Mortgage Securities Corp., 02-10, Class 2A1 7.500%, due 05/25/32 195,066 197,496 C.S. First Boston Mortgage Securities Corp., 03-8, Class 5A1 6.500%, due 04/25/33 279,008 279,985 C.S. First Boston Mortgage Securities Corp., 05-11, Class 1A1 6.500%, due 12/25/35 $ 1,390,196 $ 1,411,433 C.S. First Boston Mortgage Securities Corp., 05-12, Class 1A1 6.500%, due 01/25/36 1,500,000 1,528,595 C.S. First Boston Mortgage Securities Corp., 05-9, Class 3A1 6.000%, due 10/25/35 1,315,327 1,320,922 Countrywide Alternative Loan Trust, 04-J8, Class 2A1 7.000%, due 08/25/34 408,587 411,075 Federal Home Loan Mortgage Corp. 3.875%, due 01/12/09 1,710,000 1,666,740 Federal Home Loan Mortgage Corp., 2532, Class PD 5.500%, due 06/15/26 562,150 563,815 Federal Home Loan Mortgage Corp., 1595, Class D 7.000%, due 10/15/13 185,956 189,839 Federal Home Loan Mortgage Corp. REMIC, 2148, Class ZA 6.000%, due 04/15/29 684,307 686,341 Federal Home Loan Mortgage Corp., 2297, Class NB 6.000%, due 03/15/16 460,000 472,145 Federal Home Loan Mortgage Corp. REMIC, 2426, Class GH 6.000%, due 08/15/30 375,986 380,351 Federal Home Loan Mortgage Corp., Gold 5.500%, due 09/01/17 271,169 272,957 5.500%, due 01/01/18 484,489 487,684 5.500%, due 04/01/18 424,413 427,101 6.000%, due 12/01/17 385,672 393,706 6.000%, due 10/01/29 346,400 350,994 6.000%, due 01/01/32 1,224,720 1,239,986 6.500%, due 06/01/29 69,322 71,307 6.500%, due 09/01/29 182,194 187,480 6.500%, due 11/01/29 447,025 460,176 6.500%, due 03/01/32 66,247 68,027 6.500%, due 11/01/32 63,917 65,619 7.000%, due 07/01/32 1,062,955 1,107,377 Federal National Mortgage Association 5.000%, TBA 10,300,000 9,978,125 3.294%, due 09/01/33+ 50,032 49,812 3.875%, due 07/15/08 785,000 769,185 4.277%, due 03/01/34+ 443,112 435,930 4.340%, due 06/01/33+ 120,322 118,847 4.367%, due 04/01/34+ 769,103 757,615 4.625%, due 06/01/10 1,335,000 1,313,819 4.945%, due 02/01/35+ 2,635,788 2,637,765 5.120%, due 05/01/35+ (a) 1,550,847 1,559,712 5.500%, due 03/15/11 (a) 2,770,000 2,863,202 5.500%, due 12/01/17 1,272,727 1,281,524 5.500%, due 01/01/24 1,444,876 1,445,162 5.500%, due 02/01/24 1,248,256 1,246,599 5.500%, due 09/01/24 344,009 340,808 5.500%, due 03/01/33 1,372,832 1,362,948 5.500%, due 11/01/34 1,054,706 1,045,389
87
FACE AMOUNT VALUE ------------ ------------ 6.000%, due 06/01/16 $ 1,141,992 $ 1,167,368 6.000%, due 07/01/17 151,390 154,754 6.000%, due 06/01/23 241,094 245,138 6.000%, due 03/01/28 74,185 75,128 6.000%, due 03/01/29 87,924 89,042 6.000%, due 05/01/29 77,812 78,801 6.000%, due 07/01/29 296,181 299,945 6.000%, due 06/01/31 56,218 56,911 6.000%, due 01/01/33 551,605 557,789 6.000%, due 06/01/33 101,774 102,836 6.250%, due 02/01/11 1,370,000 1,446,871 6.500%, due 05/01/28 1,146,661 1,181,197 6.500%, due 08/01/29 512,914 528,209 6.500%, due 12/01/29 751,152 773,996 6.625%, due 09/15/09 1,260,000 1,339,810 7.000%, due 03/01/31 22,942 24,005 7.000%, due 11/01/31 122,773 128,162 7.000%, due 04/01/32 298,201 311,191 Federal National Mortgage Association Grantor Trust, 00-T6, Class A1 7.500%, due 06/25/30 564,278 583,869 Federal National Mortgage Association Grantor Trust, REMIC, 01-T10, Class A2 7.500%, due 12/25/41 61,106 63,942 Federal National Mortgage Association Grantor Trust, 01-T5, Class A3+ 7.500%, due 06/19/30 72,911 75,966 Federal National Mortgage Association Whole Loan, REMIC, 03-W6, Class 6A+ 4.861%, due 08/25/42 239,802 242,888 Federal National Mortgage Association Whole Loan, REMIC, 04-W12, Class 1A3 7.000%, due 07/25/44 689,035 716,707 Federal National Mortgage Association Whole Loan, 04-W15, Class 1A3 7.000%, due 08/25/44 693,380 710,455 Federal National Mortgage Association Whole Loan, 95-W3, Class A 9.000%, due 04/25/25 7,525 8,168 First Horizon Alternative Mortgage Securities, 04-AA3, Class A1+ 5.335%, due 09/25/34 747,287 744,477 First Horizon Asset Securities, Inc., 04-FL1, Class 1A1+ 4.649%, due 02/25/35 394,278 394,060 Government National Mortgage Association 4.125%, due 10/20/29+ 197,050 198,423 6.000%, due 12/20/28 98,844 101,158 6.000%, due 05/20/29 468,789 479,648 6.000%, due 07/15/29 301,149 308,781 6.000%, due 08/20/29 342,641 350,579 6.500%, due 10/15/24 362,748 379,769 6.500%, due 08/15/27 1,568 1,643 7.000%, due 07/15/25 8,374 8,815 7.000%, due 07/15/31 85,220 89,472 8.500%, due 12/15/17 197,791 213,813 GSMPS Mortgage Loan Trust, 01-2, Class A, 144A 7.500%, due 06/19/32 157,225 163,952 GSR Mortgage Loan Trust, 05-4F, Class 3A1 6.500%, due 04/25/20 $ 1,052,651 $ 1,080,763 Indymac Index Mortgage Loan Trust, 05-AR3, Class B1+ 5.455%, due 04/25/35 1,423,676 1,408,549 Indymac Index Mortgage Loan Trust, 05-AR7, Class 7A1+ 5.418%, due 06/25/35 1,551,154 1,551,635 MLCC Mortgage Investors, Inc., 03-D, Class XA1 (b) (c) 1.000%, due 08/25/28 6,629,405 71,214 Morgan Stanley Mortgage Loan Trust, 04-4, Class 2A+ 6.481%, due 09/25/34 630,622 643,234 Residential Asset Securitization Trust, 04-IP2, Class B1+ 5.443%, due 12/25/34 1,226,606 1,212,040 Structured Adjustable Rate Mortgage Loan Trust, 04-3AC, Class A1+ 4.940%, due 03/25/34 454,474 451,626 Structured Asset Securities Corp., 04-20, Class 4A1 6.000%, due 11/25/34 548,135 550,515 ------------ 62,814,907 ------------ U.S. GOVERNMENT OBLIGATIONS -- 19.43% U.S. Treasury Bonds 6.250%, due 05/15/30 1,945,000 2,415,599 8.000%, due 11/15/21 1,400,000 1,928,773 8.750%, due 05/15/17 3,555,000 4,881,737 U.S. Treasury Inflation Indexed Bond (TIPS) 2.000%, due 01/15/14 3,815,872 3,794,259 U.S. Treasury Notes 3.625%, due 04/30/07 1,935,000 1,914,742 3.625%, due 06/15/10 915,000 888,015 3.875%, due 05/15/09 4,180,000 4,114,361 3.875%, due 02/15/13 2,525,000 2,447,376 4.000%, due 08/31/07 105,000 104,303 4.125%, due 05/15/15 2,890,000 2,826,669 ------------ 25,315,834 ------------ Total U.S. Bonds 124,025,404 ------------ INTERNATIONAL BONDS -- 0.60% INTERNATIONAL CORPORATE BONDS -- 0.51% CANADA -- 0.14% Bombardier, Inc., 144A 6.300%, due 05/01/14 125,000 109,375 Burlington Resources Finance Co. 6.680%, due 02/15/11 65,000 70,084 ------------ 179,459 ------------ LUXEMBOURG -- 0.16% Telecom Italia Capital S.A. 5.250%, due 11/15/13 120,000 117,753 6.375%, due 11/15/33 85,000 85,980 ------------ 203,733 ------------
88
FACE AMOUNT VALUE ------------ ------------- UNITED KINGDOM -- 0.21% Abbey National PLC 7.950%, due 10/26/29 $ 105,000 $ 136,121 HSBC Holdings PLC 5.250%, due 12/12/12 65,000 65,224 Royal Bank of Scotland Group PLC 9.118%, due 03/31/10 70,000 80,192 ------------- 281,537 ------------- Total International Corporate Bonds 664,729 ------------- SOVEREIGN/SUPRANATIONAL BONDS -- 0.09% Pemex Project Funding Master Trust 8.000%, due 11/15/11 100,000 111,900 ------------- Total International Bonds 776,629 ------------- Total Bonds (Cost $125,575,668) 124,802,033 ------------- SHARES VALUE ------------ ------------- SHORT-TERM INVESTMENT* -- 11.27% UBS Supplementary Trust -- U.S. Cash Management Prime Fund, yield of 4.36% (Cost $14,685,949) 14,685,949 $ 14,685,949 ------------- Total Investments -- 107.07% (Cost $140,261,617) 139,487,982 Liabilities, in excess of cash and other assets -- (7.07%) (9,205,561) ------------- Net Assets -- 100.00% $ 130,282,421 =============
NOTES TO SCHEDULE OF INVESTMENTS Aggregate cost for federal income tax purposes, which was substantially the same for book purposes, was $140,261,617; and net unrealized depreciation consisted of: Gross unrealized appreciation $ 968,499 Gross unrealized depreciation (1,742,134) ------------ Net unrealized depreciation $ (773,635) ============
+ Floating rate securities -- The interest rates shown are the current rates as of December 31, 2005. ++ Step Bonds -- Coupon rate increases in increments to maturity. Rate disclosed is as of December 31, 2005. Maturity date disclosed is the ultimate maturity date. (a) All or a portion of this security is segregated for "to be announced" ("TBA") securities. (b) Interest Only Security. -- This security entitles the holder to receive interest payments from an underlying pool of mortgages. The risk associated with this security is related to the speed of the principal paydowns. High prepayments would result in a smaller amount of interest being received and cause the yield to decrease. Low prepayments would result in a greater amount of interest being received and cause the yield to increase. (c) Security is illiquid. This security amounted to $71,214 or 0.05% of net assets. 144A Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities are considered liquid and may be resold in transactions exempt from registration, normally to qualified institutional buyers. At December 31, 2005, the value of these securities amounted to $4,864,143 or 3.73% of net assets. GSMPS Goldman Sachs Mortgage Passthrough Securities REIT Real Estate Investment Trust REMIC Real Estate Mortgage Investment Conduit TBA (To Be Announced) Security is purchased 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. TIPS Treasury Inflation Protected Securities * Investment in affiliated mutual funds. See accompanying notes to financial statements. 89 UBS ABSOLUTE RETURN BOND FUND For the six-month period ended December 31, 2005, Class A shares of UBS Absolute Return Bond Fund (the "Fund") returned 1.63% (a decline of 0.95% after the deduction of the maximum sales charge) and Class Y shares returned 1.72%. For purposes of comparison, the Merrill Lynch U.S. Treasury 1-3 Year Index (the "Index") returned 0.78% over the same period. (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 92; 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.) NEW FUND A COMBINATION OF FIRM CAPABILITIES As discussed in our last report, this new Fund leverages many of the same 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 with additional exposure to selected high yield and emerging market securities. The Fund also uses interest rate derivatives to manage interest rate risk, and can have a duration (a measure of the Fund's interest rate sensitivity) of anywhere between -3 and +3 years. Using this combination of a diversified fixed-income portfolio and active interest rate management, we seek to provide investors with a total rate of return that meets or exceeds the return on LIBOR by 0.70% to 0.80% per year, net of fees over full fixed income market cycles. Of course, there is no guarantee that the Fund will achieve its investment objective, and it could lose money. FIXED-INCOME MARKETS REMAINED STABLE, GLOBAL ECONOMIES APPEARED STRONG Developed global fixed income markets were understandably volatile in the immediate aftermath of Hurricanes Katrina and Rita, but by the time the Federal Reserve Board (the "Fed") decided to again raise rates after its September meeting, the markets returned to relative equanimity. For its part, the Fed raised rates four times during the period, bringing the federal funds rate to 4.25%, the highest it has been since May 2001. Ultimately, the consistency of the economic outlook came as a surprise to many investors. US data releases in October showed a much smaller impact on business activity from the devastating hurricane season than was originally feared and analysts quickly reinstated their forecasts for GDP growth at 3% to 4% into 2006. Indicators in other economic blocs painted a similar picture of stable or accelerating activity. Throughout the period, there were limited signs of any upturn in inflationary pressures, despite the surge in energy prices and the renewed momentum in economic growth. Short-term bond yields in most markets rose in anticipation of monetary tightening, while yields on longer-dated bonds, after rising somewhat in the third quarter, remained relatively unchanged and fell in some cases toward the end of the year. This produced an exceptionally flat yield curve for much of the period, and at the end of December, the curve actually inverted in some areas. An inverted yield curve is typically the harbinger of a recession, but given the strength of the economy, we believe rates of longer-term bonds may rise in the coming months and that the current shape of the curve is likely to be short lived. On a monetary front, some of the more significant developments included the appointment of the first new chairman of the US Federal Reserve in almost 20 years, the first increase in the official euro repo rate--the interest rate charged on main refinancing operations, which provide the bulk of the banking system's liquidity--in over five years and a public dispute between the Japanese government and the Bank of Japan over the future course of policy. The most significant political event was the formation of a "Grand Coalition" government in Germany headed by the new Chancellor Angela Merkel, but the potential instability of this alliance had surprisingly little impact on capital markets. * THIS FUND IS A NON-DIVERSIFIED FUND. 90 CHALLENGING PERIOD FOR THE MARKETS, BUT ONE OF SOLID RESULTS FOR THE FUND During the reporting period, the Fund was able to capture some solid returns, due in large part to strong performance in July and September, with additional positive returns in December. The bulk of the Fund's performance for the period is attributable to our yield-curve and spread management, and in particular, our negative stance in terms of duration. On a currency note, in December, the New Zealand dollar--what we believed was one of the highest-yielding and most overvalued currencies--fell roughly 8% from its peak level versus the Japanese yen. SEARCHING FOR BOTTOM-UP OPPORTUNITIES IN 2006 At the end of the reporting period we held an overall negative duration exposure in the UK, US and Japan, while in the European Union, we had a positive duration. This allocation reflects our expectation of increasing global interest rates. With regard to yield-curve opportunities, we consider the long end of the US interest rate curve to be increasingly overbought. Therefore we believe the US curve may steepen again in the coming year, and intend to closely monitor the situation to take exposure as we find it appropriate. In the investment-grade corporate bond sector we continue to focus on European utilities and global banks, becoming more cautious on telecoms. Although we believe fundamentals will deteriorate within the telecom industry, we do not think this deterioration will spur a significant credit-quality downgrade, at least not for the big incumbents. Issue supply, especially in the telecom sector, could play a role in pushing spreads wider in 2006. We stand ready to step in should we perceive attractive valuations. We believe high-yield markets remain firm, as default rates, despite some high profile cases, are well below the long-term average. From a currency perspective, we feel it is possible that the market's focus will shift once again to current account balances, which would be bearish for the USD as well as the currencies of other high deficit nations, such as New Zealand and Australia. Our strategy is well positioned for this scenario. Within Europe, we believe the Swedish krona remains the most attractive currency, while the British pound is the most overvalued according to our research. THIS LETTER IS INTENDED TO ASSIST SHAREHOLDERS IN UNDERSTANDING HOW THE FUND PERFORMED DURING THE SEMIANNUAL PERIOD ENDED DECEMBER 31, 2005. THE VIEWS AND OPINIONS IN THE LETTER WERE CURRENT AS OF FEBRUARY 15, 2006. 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. 91 AVERAGE ANNUAL TOTAL RETURN (UNAUDITED)
6 MONTHS INCEPTION* ENDED TO 12/31/05 12/31/05 - ------------------------------------------------------------------------------- UBS ABSOLUTE RETURN BOND FUND CLASS A 1.63% 1.69% UBS ABSOLUTE RETURN BOND FUND CLASS C 1.35 1.36 UBS ABSOLUTE RETURN BOND FUND CLASS Y 1.72 1.81 UBS ABSOLUTE RETURN BOND FUND CLASS A** -0.95 -0.88 UBS ABSOLUTE RETURN BOND CLASS FUND C** 0.86 0.87 MERRILL LYNCH U.S. TREASURY 1-3 YEAR INDEX 0.78 1.36 U.S. LIBOR 3 MONTH INDEX 2.05 2.61
* INCEPTION DATE OF UBS ABSOLUTE RETURN BOND SHARES IS 04/27/05. INCEPTION DATE OF THE INDICES, FOR THE PURPOSE OF THIS ILLUSTRATION, IS 04/30/05. ** 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. TOTAL 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. 92 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); and (2) ongoing costs, including management fees; service and/or distribution (12b-1) fees (if applicable); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example below is based on an investment of $1,000 invested at the beginning of the period and held for the entire period, July 1, 2005 to December 31, 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 for each class of shares 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 Fund's actual return for each class of shares. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs (as applicable), such as sales charges (loads). Therefore, the second line in the table for each class of shares is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
BEGINNING ENDING EXPENSES PAID ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD* JULY 1, 2005 DECEMBER 31, 2005 7/1/05 - 12/31/05 - -------------------------------------------------------------------------------------------------------- CLASS A ACTUAL $ 1,000.00 $ 1,016.30 $ 5.08 HYPOTHETICAL (5% ANNUAL RETURN BEFORE EXPENSES) 1,000.00 1,020.16 5.09 CLASS C ACTUAL 1,000.00 1,013.50 6.85 HYPOTHETICAL (5% ANNUAL RETURN BEFORE EXPENSES) 1,000.00 1,018.40 6.87 CLASS Y ACTUAL 1,000.00 1,017.20 3.81 HYPOTHETICAL (5% ANNUAL RETURN BEFORE EXPENSES) 1,000.00 1,021.44 3.82
* EXPENSES ARE EQUAL TO THE FUND'S NET ANNUALIZED EXPENSE RATIOS: CLASS A: 1.00%, CLASS C: 1.35%, CLASS Y: 0.75%, MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 184 DIVIDED BY 365 (TO REFLECT THE ONE-HALF YEAR PERIOD). 93 TOP TEN FIXED INCOME HOLDINGS AS OF DECEMBER 31, 2005 (UNAUDITED)
PERCENTAGE OF NET ASSETS - ------------------------------------------------------------- Kreditanstalt fuer Wiederaufbau 3.250%, due 04/25/08 4.1% Compagnie de Financement Foncier 3.625%, due 01/28/08 3.7 Federal National Mortgage Association 6.000%, due 05/15/08 2.7 Federal Home Loan Mortgage Corp. 3.750%, due 04/15/07 2.0 Federal National Mortgage Association 4.250%, due 07/15/07 2.0 Bank of Scotland 6.375%, due 08/16/19 1.3% General Electric Capital Corp. 4.375%, due 01/20/10 1.3 National Australia Bank Ltd. 4.250%, due 12/30/08 1.2 Citigroup, Inc. 4.625%, due 11/14/07 1.1 Deutsche Telekom International Finance BV 8.125%, due 05/29/12 1.1 - ------------------------------------------------------------- Total 20.5%
INDUSTRY DIVERSIFICATION AS A PERCENT OF NET ASSETS AS OF DECEMBER 31, 2005 (UNAUDITED) U.S. BONDS U.S. CORPORATE BONDS Automobiles 0.45% Capital Markets 0.54 Commercial Banks 0.49 Commercial Services & Supplies 0.47 Communications Equipment 0.29 Consumer Finance 1.75 Containers & Packaging 0.52 Diversified Financial Services 4.45 Diversified Telecommunication Services 1.25 Electric Utilities 1.10 Electronic Equipment & Instruments 0.30 Food & Staples Retailing 1.14 Food Products 0.48 Independent Power Producers & Energy Traders 0.38 Insurance 0.87 Media 1.49 Metals & Mining 0.26 Multiline Retail 0.33 Oil & Gas 0.55 Real Estate 0.50 Thrifts & Mortgage Finance 0.49 Tobacco 0.82 Wireless Telecommunication Services 0.51 US Treasuries 0.33 ------ Total U.S. Corporate Bonds 19.76 Asset-Backed Securities 3.84 Collateralized Debt Obligations 0.98 Commercial Mortgage-Backed Securities 3.14 Mortgage & Agency Debt Securities 11.30 ------ Total U.S. Bonds 39.02* INTERNATIONAL BONDS INTERNATIONAL CORPORATE BONDS Chemicals 0.03% Collateralized Mortgage Obligations 0.27 Commercial Banks 17.66 Communications Equipment 0.08 Construction & Engineering 0.06 Containers & Packaging 0.16 Diversified Financial Services 1.93 Diversified Telecommunication Services 3.06 Electric Utilities 1.28 Food & Staples Retailing 0.39 Food Products 0.17 Industrial Conglomerates 0.76 Insurance 0.09 Machinery 0.03 Media 0.93 Multi-Utilities & Unregulated Power 0.73 Oil & Gas 0.36 Road & Rail 0.08 Water Utilities 0.24 Wireless Telecommunication Services 0.07 ------ Total International Corporate Bonds 28.38 International Asset-Backed Securities 0.14 International Collateralized Debt Obligations 0.68 International Mortgage Backed-Securities 0.21 Foreign Government Bonds 3.75 Sovereign/SupraNational Bonds 0.29 ------ Total International Bonds 33.45* TOTAL BONDS 72.47 INVESTMENT COMPANIES 24.04 WARRANTS 0.04 SHORT-TERM INVESTMENT 0.33* ------ TOTAL INVESTMENTS 96.88 CASH AND OTHER ASSETS, LESS LIABILITIES 3.12 ------ NET ASSETS 100.00% ======
* THE FUND HELD SHORT POSITIONS IN U.S. TREASURY NOTE AND BOND FUTURES WHICH DECREASED U.S. BOND EXPOSURE FROM 39.02% TO 38.85%. THE FUND ALSO HELD SHORT INTERNATIONAL STOCK INDEX FUTURES, WHICH RESULTED IN A NET DECREASE TO THE INTERNATIONAL BOND EXPOSURE, FROM 33.45% TO 33.35%. THESE ADJUSTMENTS RESULTED IN A NET DECREASE TO THE FUND'S EXPOSURE TO SHORT-TERM INVESTMENTS FROM 0.33% TO 0.06%. 94 UBS ABSOLUTE RETURN BOND FUND -- SCHEDULE OF INVESTMENTS DECEMBER 31, 2005 (UNAUDITED)
FACE AMOUNT VALUE ----------------- --------------- BONDS -- 72.47% U.S. BONDS -- 39.02% U.S. CORPORATE BONDS -- 19.76% AES Corp. 8.750%, due 06/15/08 $ 1,750,000 $ 1,837,500 AK Steel Corp. 7.875%, due 02/15/09 1,000,000 950,000 Albertson's, Inc. 7.500%, due 02/15/11 625,000 637,932 Altria Group, Inc. 7.000%, due 11/04/13 1,475,000 1,614,008 American Cellular Corp., Series B 10.000%, due 08/01/11 1,750,000 1,898,750 American Express Credit Corp. 5.500%, due 09/24/07 GBP 1,945,000 3,388,363 American General Finance Corp. 5.375%, due 10/01/12 $ 900,000 904,576 AT&T, Inc. 5.875%, due 02/01/12 875,000 899,604 Berkshire Hathaway Finance Corp. 4.125%, due 01/15/10 2,400,000 2,332,164 Boeing Capital Corp. 7.375%, due 09/27/10 825,000 907,799 Bombardier Capital, Inc., 144A 6.125%, due 06/29/06 1,975,000 1,975,000 Cendant Corp. 6.875%, due 08/15/06 1,725,000 1,742,705 Cincinnati Bell, Inc. 7.250%, due 07/15/13 1,250,000 1,300,000 Citigroup, Inc. 4.250%, due 02/25/30+ EUR 300,000 352,627 4.625%, due 11/14/07 3,380,000 4,115,031 5.625%, due 08/27/12 $ 1,750,000 1,803,746 Citizens Communications Co. 7.625%, due 08/15/08 875,000 912,188 CMS Energy Corp. 9.875%, due 10/15/07 750,000 802,500 Comcast Cable Communications, Inc. 6.750%, due 01/30/11 850,000 899,985 Countrywide Home Loans, Inc. 2.750%, due 06/12/06 EUR 225,000 266,153 3.250%, due 05/21/08 $ 1,900,000 1,824,519 CSC Holdings, Inc., Series B 8.125%, due 08/15/09 700,000 707,000 Dynegy Holdings, Inc., 144A 10.125%, due 07/15/13 1,250,000 1,412,500 Edison Mission Energy 10.000%, due 08/15/08 1,000,000 1,095,000 EOP Operating LP 7.000%, due 07/15/11 850,000 909,792 Ford Motor Credit Co. 5.800%, due 01/12/09 2,150,000 1,875,529 General Electric Capital Corp. 3.600%, due 10/15/08 1,875,000 1,814,981 4.375%, due 01/20/10 EUR 3,895,000 4,808,589 General Motors Acceptance Corp. 6.125%, due 02/01/07 $ 1,750,000 1,670,632 Giant Industries, Inc. 11.000%, due 05/15/12 600,000 667,500 Goldman Sachs Group, Inc. 6.125%, due 02/14/17 GBP 400,000 $ 757,291 Houghton Mifflin Co. 8.250%, due 02/01/11 $ 1,250,000 1,290,625 HSBC Finance Corp. 4.625%, due 12/28/06 GBP 130,000 223,457 7.875%, due 03/01/07 $ 875,000 903,214 International Lease Finance Corp. 3.300%, due 01/23/08 1,875,000 1,820,049 Kinder Morgan Energy Partners LP 5.800%, due 03/15/35 1,450,000 1,387,077 Kraft Foods, Inc. 5.250%, due 06/01/07 1,775,000 1,782,207 Marsh & McLennan Cos., Inc. 6.250%, due 03/15/12 875,000 911,621 MCI, Inc. 6.908%, due 05/01/07 600,000 604,500 Mediacom Broadband LLC 11.000%, due 07/15/13 950,000 1,021,250 Morgan Stanley 5.300%, due 03/01/13 900,000 901,805 Nevada Power Co., Series E 10.875%, due 10/15/09 325,000 355,063 Owens-Illinois, Inc. 7.350%, due 05/15/08 1,900,000 1,923,750 Safeway, Inc. 4.800%, due 07/16/07 900,000 896,090 Sanmina-SCI Corp. 10.375%, due 01/15/10 1,000,000 1,105,000 Sheridan Group, Inc. 10.250%, due 08/15/11 500,000 514,375 Simon Property Group LP, 144A 5.375%, due 06/01/11 925,000 927,211 Sinclair Broadcast Group, Inc. 8.750%, due 12/15/11 1,525,000 1,605,063 Sprint Capital Corp. 8.750%, due 03/15/32 700,000 928,956 UST, Inc. 6.625%, due 07/15/12 1,375,000 1,429,777 Wal-Mart Stores, Inc. 4.750%, due 01/29/13 GBP 695,000 1,210,028 6.875%, due 08/10/09 $ 2,525,000 2,687,299 Wells Fargo & Co. 5.125%, due 02/15/07 1,800,000 1,803,744 --------------- 73,316,125 --------------- ASSET-BACKED SECURITIES -- 3.84% Ajax One Ltd., 2A, Class C, 144A+ 6.839%, due 09/08/32 500,000 475,000 First Franklin Mortgage Loan Asset Backed Certificates, 05-FFA, Class B4, 144A (a) 6.000%, due 03/25/25 1,000,000 830,000 First Franklin Mortgage Loan Asset Backed Certificates, 05-FFA, Class B5, 144A (a) 6.000%, due 03/25/25 1,000,000 790,631 Green Tree Financial Corp., 99-3, Class A6 6.500%, due 02/01/31 1,150,000 1,165,963
95
FACE AMOUNT VALUE ----------------- --------------- GSAMP Trust, 05-S1, Class B1 (a) 6.208%, due 12/25/34 $ 1,750,000 $ 1,724,395 Hyundai Auto Receivables Trust, 05-A, Class D 4.450%, due 02/15/12 1,000,000 977,658 Merrill Lynch Mortgage Investors, Inc., 05-SL3, Class B3+ 6.529%, due 07/25/36 2,450,000 2,427,318 Metris Master Trust, 01-2, Class C, 144A+ 6.270%, due 11/20/09 2,500,000 2,512,012 MMCA Automobile Trust, 02-1, Class C 6.200%, due 01/15/10 1,579,331 1,566,193 Wells Fargo Home Equity Trust, 05-3, Class M7+ 5.529%, due 11/25/35 1,775,000 1,766,125 --------------- 14,235,295 --------------- COLLATERALIZED DEBT OBLIGATIONS -- 0.98% Ares X CLO Ltd., 05-1A, Class D2, 144A+ 6.109%, due 09/18/17 500,000 497,500 Hereford Street ABS CDO Ltd., 05-1A, Class D, 144A+ 7.360%, due 01/03/45 700,000 696,500 MARC CDO PLC, 1A, Class E, 144A+ 11.480%, due 03/13/53 350,000 350,000 PSION Synthetic CDO PLC, I-A, Class E, 144A+ 9.750%, due 12/21/15 330,000 330,000 Spirit CBO, 04-2A, Class D, 144A+ 5.141%, due 10/27/10 800,000 760,000 Tricadia CDO Ltd, 05-4A, Class B1L, 144A+ 7.741%, due 12/11/40 540,000 537,300 Tricadia CDO Ltd., 05-3A, Class B1L, 144A+ 8.021%, due 06/25/41 497,321 487,374 --------------- 3,658,674 --------------- COMMERCIAL MORTGAGE-BACKED SECURITIES -- 3.14% Asset Securitization Corp., 97-D4, Class B1 7.525%, due 04/14/29 1,700,000 1,893,492 Banc of America Large Loan, 05-ESHA, Class J, 144A+ 6.017%, due 07/14/20 1,250,000 1,249,831 Bear Stearns Commercial Mortgage Securities, 05-LXR1, Class J, 144A+ 6.019%, due 09/15/18 2,050,000 2,090,359 GS Mortgage Securities Corp., II, 98-GLII, Class F, 144A+ 6.970%, due 04/13/31 1,650,000 1,725,922 Hilton Hotel Pool Trust, 00-HLTA, Class C, 144A 7.458%, due 10/03/15 1,000,000 1,065,801 Nomura Asset Securities Corp., 98-D6, Class B1, 144A 6.000%, due 03/15/30 $ 1,472,000 $ 1,516,263 TW Hotel Funding 2005 LLC, 05-LUX, Class L 5.939%, due 01/15/21 2,100,000 2,099,998 --------------- 11,641,666 --------------- MORTGAGE & AGENCY DEBT SECURITIES -- 11.30% C.S. First Boston Mortgage Securities Corp., 05-8, Class 8A1 7.000%, due 09/25/35 917,743 944,048 Federal Home Loan Mortgage Corp. 3.750%, due 04/15/07 7,355,000 7,262,415 3.875%, due 01/12/09 3,675,000 3,582,030 4.750%, due 11/17/15 3,635,000 3,607,672 Federal National Mortgage Association 5.000%, TBA 3,740,000 3,623,125 4.250%, due 07/15/07 7,290,000 7,235,697 5.250%, due 01/15/09 1,775,000 1,802,090 6.000%, due 05/15/08 9,725,000 9,997,271 6.000%, due 05/15/11 1,750,000 1,850,865 6.250%, due 02/01/11 1,750,000 1,848,192 Structured Adjustable Rate Mortgage Loan Trust, 05-21, Class 6AX++ 5.500%, due 11/25/35 977,296 158,352 --------------- 41,911,757 --------------- Total U.S. Bonds 144,763,517 --------------- INTERNATIONAL BONDS -- 33.45% INTERNATIONAL CORPORATE BONDS -- 28.38% AUSTRALIA --1.58% National Australia Bank Ltd. 4.250%, due 12/30/08 GBP 2,600,000 4,432,901 4.500%, due 06/23/16+ EUR 1,155,000 1,435,250 --------------- 5,868,151 --------------- BELGIUM -- 0.08% Societe Nationale de Chemins de Fer Belge Holding 5.000%, due 04/24/18 GBP 170,000 307,917 --------------- CANADA -- 0.08% Nortel Networks Ltd. 6.125%, due 02/15/06 $ 300,000 300,000 --------------- FINLAND -- 0.48% Fortum Oyj, Series BR (a) 6.100%, due 02/19/08 EUR 1,420,000 1,781,497 --------------- FRANCE -- 6.53% Alstom 6.250%, due 03/03/10 EUR 100,000 124,700 BNP Paribas 5.250%, due 12/17/12 330,000 433,552 Compagnie de Financement Foncier (b) 3.625%, due 01/28/08 11,360,000 13,626,162 Credit Lyonnais S.A.+ 5.000%, due 11/15/12 2,765,000 3,386,010
96
FACE AMOUNT VALUE ----------------- --------------- France Telecom S.A 7.000%, due 03/14/08 EUR 1,275,000 $ 1,621,121 7.250%, due 01/28/13 485,000 694,687 Groupe Auchan S.A 4.125%, due 05/04/11 195,000 237,762 Societe Generale 5.625%, due 02/13/12 1,570,000 2,085,489 Societe Television Francaise 1 4.375%, due 11/12/10 560,000 689,110 Total Capital S.A 3.750%, due 02/11/10 370,000 447,535 Veolia Environnement 5.375%, due 05/28/18 675,000 887,143 --------------- 24,233,271 --------------- GERMANY -- 7.83% DEPFA Deutsche Pfandbriefbank AG 4.750%, due 07/16/07 EUR 3,180,000 3,866,489 Gerresheimer Holdings GmBH 7.875%, due 03/01/15 400,000 471,192 Hypothekenbank in Essen AG 5.500%, due 02/20/07 1,595,000 1,943,133 Kreditanstalt fuer Wiederaufbau 3.250%, due 04/25/08 12,650,000 15,080,571 5.375%, due 12/07/07 GBP 1,440,000 2,524,704 5.550%, due 06/07/21 600,000 1,167,288 Landwirtschaftliche Rentenbank 0.650%, due 09/30/08 JPY 466,000,000 3,979,518 --------------- 29,032,895 --------------- IRELAND -- 2.08% Anglo Irish Bank Corp. PLC 5.000%, due 12/12/07 GBP 1,895,000 3,283,626 Depfa ACS Bank 0.750%, due 09/22/08 JPY 460,000,000 3,939,045 Eircom Funding 8.250%, due 08/15/13 EUR 380,000 498,244 --------------- 7,720,915 --------------- ITALY -- 0.24% ENI SpA 6.125%, due 06/09/10 EUR 670,000 887,723 --------------- LUXEMBOURG -- 1.37% SGL Carbon Luxembourg S.A 8.500%, due 02/01/12 EUR 100,000 129,637 Telecom Italia Finance S.A 5.875%, due 01/24/08 2,680,000 3,335,565 7.250%, due 04/20/11 450,000 618,571 7.750%, due 01/24/33 630,000 1,011,830 --------------- 5,095,603 --------------- NETHERLANDS -- 2.95% Bank Nederlandse Gemeenten NV 2.875%, due 05/15/07 EUR 420,000 497,524 Cimpor Financial Operations BV 4.500%, due 05/27/11 110,000 133,276 Clondalkin Industries BV 8.000%, due 03/15/14 100,000 126,233 Deutsche Telekom International Finance BV EUR 2,770,000 $ 4,087,002 8.125%, due 05/29/12 Fixed-Link Finance BV, Series G2-X+ 5.750%, due 02/02/09 800,000 995,423 RWE Finance BV 4.625%, due 08/17/10 GBP 600,000 1,031,258 4.625%, due 07/23/14 EUR 225,000 287,048 5.375%, due 04/18/08 770,000 956,860 Siemens Financieringsmaatschappij NV 5.500%, due 03/12/07 2,320,000 2,828,539 --------------- 10,943,163 --------------- SWEDEN -- 0.46% Svenska Handelsbanken AB+ 6.125%, due 12/31/49 GBP 945,000 1,687,330 --------------- UNITED KINGDOM -- 4.70% Alliance & Leicester PLC 4.250%, due 12/30/08 GBP 600,000 1,021,855 Anglian Water Services Financing PLC 4.625%, due 10/07/13 EUR 225,000 283,692 Aviva PLC+ 5.250%, due 10/02/23 250,000 323,699 BAA PLC 7.875%, due 02/10/07 GBP 125,000 222,585 Bank of Scotland 6.375%, due 08/16/19 2,495,000 4,957,677 Barclays Bank PLC+ 4.750%, due 3/15/49 EUR 1,250,000 1,413,725 Fleet Street Finance One PLC+ 4.891%, due 07/20/14 GBP 575,427 990,022 National Grid Electricity Transmission PLC 4.125%, due 09/18/08 EUR 800,000 971,579 4.750%, due 12/10/10 GBP 590,000 1,021,660 Ono Finance PLC+ 10.821%, due 05/15/14 EUR 450,000 564,720 Pearson PLC 6.125%, due 02/01/07 1,785,000 2,182,135 Tesco PLC 4.750%, due 04/13/10 615,000 768,951 6.625%, due 10/12/10 GBP 230,000 430,780 United Biscuits Finance PLC 10.750%, due 04/15/11 340,000 622,993 United Utilities Water PLC 6.625%, due 11/08/07 EUR 1,105,000 1,390,785 Vodafone Group PLC 5.750%, due 10/27/06 215,000 260,328 --------------- 17,427,186 --------------- Total International Corporate Bonds 105,285,651 --------------- INTERNATIONAL ASSET-BACKED SECURITIES -- 0.14% CAYMAN ISLANDS -- 0.08% Herald Ltd.+ 7.991%, due 09/16/45 $ 300,000 300,000 ---------------
97
FACE AMOUNT VALUE ----------------- --------------- UNITED KINGDOM -- 0.06% Granite Master Issuer PLC, 05-1, Class A5+ 2.571%, due 12/20/54 EUR 190,000 $ 225,021 --------------- Total International Asset-Backed Securities 525,021 --------------- INTERNATIONAL COLLATERALIZED DEBT OBLIGATIONS -- 0.68% Black Diamond CLO Ltd., 05-2A, Class D, 144A+ 6.131%, due 01/07/18 $ 300,000 300,000 Black Diamond CLO Ltd., 05-2A, Class E1, 144A+ 8.831%, due 01/07/18 250,000 250,000 Black Diamond CLO Ltd., 05-1A, Class E+ 9.500%, due 06/20/17 350,000 353,664 Four Corners CLO, 06-1A, Series E, 144A+ 9.300%, due 01/26/20 285,000 285,000 Gresham Street CDO Funding, 03-1X, Class D+ 7.541%, due 11/07/33 100,000 105,000 Lenox CDO Ltd., 05-1A, Class E1, 144A+ 8.097%, due 05/14/43 250,000 241,875 Madison Avenue CDO Ltd., 2X, Class A+ 4.570%, due 03/24/14 756,821 742,441 Menton CDO PLC, IIA, Class E, 144A+ 11.194%, due 10/24/53 250,000 250,000 --------------- Total International Collateralized Debt Obligations 2,527,980 --------------- INTERNATIONAL MORTGAGE-BACKED SECURITIES -- 0.21% NETHERLANDS -- 0.21% Delphinus BV, 00-1, Class B+ 6.250%, due 06/26/32 EUR 500,000 658,337 Whinstone Capital Management Ltd., 1X, Class B2+ 3.196%, due 10/25/44 100,000 118,568 --------------- Total International Mortgage-Backed Securities 776,905 --------------- FOREIGN GOVERNMENT BONDS -- 3.75% ARGENTINA -- 1.51% Republic of Argentina 0.000%, due 12/31/33 @ ARS 7,400,000 2,856,012 4.005%, due 08/03/12+ $ 3,500,000 2,740,500 --------------- 5,596,512 --------------- INDONESIA -- 0.56% Republic of Indonesia 7.500%, due 01/15/16 $ 1,200,000 $ 1,245,000 Republic of Indonesia, 144A 7.500%, due 01/15/16 800,000 830,000 --------------- 2,075,000 --------------- PHILIPPINES -- 0.53% National Power Corp. 9.875%, due 03/16/10 $ 1,800,000 1,971,000 --------------- RUSSIA -- 0.65% Russian Federation (a) 5.000%, due 03/31/30 $ 2,150,000 2,424,125 --------------- SWEDEN -- 0.50% Government of Sweden 6.500%, due 05/05/08 SEK 13,500,000 1,838,971 --------------- Total Foreign Government Bonds 13,905,608 --------------- SOVEREIGN/SUPRANATIONAL BONDS -- 0.29% European Investment Bank 6.250%, due 04/15/14 GBP 550,000 1,067,794 --------------- Total International Bonds 124,088,959 --------------- Total Bonds (Cost $273,175,847) 268,852,476 --------------- SHARES ----------------- INVESTMENT COMPANIES* -- 24.04% UBS U.S. Cash Management Prime Relationship Fund 34,765,653 34,765,653 UBS U.S. Securitized Mortgage Relationship Fund 4,550,562 54,432,001 --------------- Total Investment Companies (Cost $88,765,653) 89,197,654 --------------- NUMBER OF WARRANTS ----------------- WARRANTS -- 0.04% ARGENTINA -- 0.04% Republic of Argentina (c) expires 12/15/35 (Cost $44,185) 8,208,456 132,678 --------------- FACE AMOUNT ----------------- SHORT-TERM INVESTMENT -- 0.33% U.S. GOVERNMENT OBLIGATIONS -- 0.33% U.S. Treasury Bills, yield of 3.35%, due 01/05/06 (d) (Cost $1,219,532) $ 1,220,000 1,219,391 --------------- Total Investments -- 96.88% (Cost $363,205,217) 359,402,199 Cash and other assets, less liabilities -- 3.12% 11,576,108 --------------- Net Assets -- 100.00% $ 370,978,307 ===============
98 NOTES TO SCHEDULE OF INVESTMENTS Aggregate cost for federal income tax purposes which was substantially the same for book purposes, was $363,205,217; and net unrealized depreciation consisted of: Gross unrealized appreciation $ 1,045,132 Gross unrealized depreciation (4,848,150) --------------- Net unrealized depreciation $ (3,803,018) ===============
+ Floating rate securities -- The interest rates shown are the current rates as of December 31, 2005. ++ Interest Only Security -- This security entitles the holder to receive interest payments from an underlying pool of mortgages. The risk associated with this security is related to the speed of the principal paydowns. High prepayments would result in a smaller amount of interest being received and cause the yield to decrease. Low prepayments would result in a greater amount being received and cause the yield to increase. @ Reflects annualized yield at December 31, 2005 on zero coupon bond. (a) Step Bonds -- coupon rate increases in increments to maturity. Rate disclosed is as of December 31, 2005. Maturity date disclosed is the ultimate maturity date. (b) All or a portion of this security is segregated for "to be announced" ("TBA") securities. (c) Non-income producing security. (d) The 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 December 31, 2005, the value of these securities amounted to $22,386,079 or 6.03% of net assets. TBA (To be Announced) Security is purchased on a forward commitment 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 specified mortgage pools are assigned. * Investments in affiliated mutual funds. ARS Argentine Peso CBO Collateralized Bond Obligations CDO Collateralized Debt Obligations CLO Collateralized Loan 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 December 31, 2005:
UNREALIZED CONTRACTS TO IN EXCHANGE MATURITY APPRECIATION/ DELIVER FOR DATE (DEPRECIATION) ------------ ----------------- -------- -------------- British Pounds 17,970,000 USD 31,183,700 03/10/06 $ 269,311 Euro 79,600,000 USD 94,096,354 03/10/06 (479,060) Japanese Yen 1,221,400,00 USD 10,205,548 03/10/06 (234,332) -------------- Total net unrealized depreciation on forward foreign currency contracts $ (444,081) ==============
Currency Type Abbreviation USD United States Dollar FUTURES CONTRACTS UBS Absolute Return Bond Fund had the following open futures contracts as of December 31, 2005:
UNREALIZED EXPIRATION APPRECIATION/ DATE PROCEEDS VALUE (DEPRECIATION) ---------- ------------- ------------- -------------- U.S. TREASURY FUTURES SALE CONTRACTS: 2 Year U.S. Treasury Notes, 200 contracts Mar 2006 $ 41,042,950 $ 41,037,500 $ 5,450 5 Year U.S. Treasury Notes, 688 contracts Mar 2006 72,954,126 73,164,500 (210,374) 10 Year U.S. Treasury Notes, 171 contracts Mar 2006 18,597,301 18,708,469 (111,168) 30 Year U.S. Treasury Bonds, 183 contracts Mar 2006 20,594,190 20,896,313 (302,123) INDEX FUTURES SALE CONTRACTS: Japanese 10 Year Bond, 9 contracts (JPY) Mar 2006 10,449,666 10,481,621 (31,955 Long Gilt, 225 contracts (GBP) Mar 2006 43,983,592 44,305,026 (321,434) INTEREST RATE FUTURES SALE CONTRACTS: Euro-Bund,68 contracts (EUR) Mar 2006 9,741,375 9,808,754 (67,379) Euro-Bobl, 191 contracts (EUR) Mar 2006 25,564,260 25,531,762 32,498 Euro-Schatz, 76 contracts (EUR) Mar 2006 9,493,298 9,473,165 20,133 -------------- Total net unrealized depreciation on futures contracts $ (986,352) ==============
The segregated aggregate market value of investments and cash collateral pledged to cover margin requirements for the open futures positions at December 31, 2005 was $2,301,278. Currency Type Abbreviations EUR Euro GBP British Pound JPY Japanese Yen See accompanying notes to financial statements. 99 UBS HIGH YIELD FUND For the six-month period ended December 31, 2005, Class A shares of UBS High Yield Fund (the "Fund") returned 0.69% (a decline of 3.88% after the deduction of the maximum sales charge) and Class Y shares returned 0.82%, versus the 1.77% return of the Fund's benchmark, the Merrill Lynch U.S. High Yield Cash Pay Constrained Index (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 102; 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.) September and October were particularly challenging months for the high-yield market, and negatively impacted the Fund's absolute returns for the period. Throughout the past six months, sector and security selection detracted from the Fund's returns relative to the benchmark. Option-adjusted high-yield spreads tightened significantly during the period as the yield curve continued to flatten. The yield on the high-yield market at the end of December was 7.98%. SECURITY SELECTION AND SECTOR WEIGHTINGS PRODUCED DISAPPOINTING RESULTS During the period, the US high-yield market moved higher, driven mostly by gains in the B-rated sector. Delta Airlines and Northwest Airlines both filed for bankruptcy during the third quarter and put significant pressure on the entire airline industry, but, on the whole, it recovered as the period progressed. Autos, meanwhile, declined sharply in the fourth quarter after Delphi (which is not held in the portfolio) filed for bankruptcy in early October. At the same time, the recent downgrade of Ford and Ford Motor Credit Co. put these issuers firmly in high yield territory. Despite the fact that the Fund held an underweight position in the sector during the fourth quarter in anticipation of these challenges, our security selection detracted from returns. Two industries that posted disappointing returns were paper and electric utilities. The Fund held a underweight position in electric utilities throughout the period, but despite our limited exposure, our holdings in the sector still had a significant negative impact on returns. The Fund's exposure to paper companies, on the other hand, represented a modest overweight. The sector failed to appreciate during the period, and security selection again detracted further from relative returns. During the period, we repositioned the portfolio by de-emphasizing CCC-rated securities and by adding to bonds in the gaming and broadcasting sectors. We expect CCC-rated bonds to continue to underperform as the credit cycle ages. We believe that gaming and broadcasting companies have solid cash flows and substantial asset coverage. Both sectors provided good relative value, especially near the end of 2005. We have also increased our exposure to the printing and publishing sector, also due to good relative value. We continue to overweight B-rated bonds relative to BB-rated bonds due to the expectation that the economy remains stable. We also continue to add to bonds that we believe could experience positive events, such as tenders or mergers and acquisitions. Several bonds in the portfolio were tendered during the period. MARKET FUNDAMENTALS APPEAR SOLID HEADING INTO 2006 Going into 2006, fundamentals for the US high-yield market remain firm. Default rates, despite some high profile cases, remain well below the long-term average and, although we expect them to rise in the second half of 2006, are expected to remain below long-term averages throughout the coming year. Credit improvement, although slowing, should 100 provide a solid backdrop for the market. However, we believe many of these positive fundamentals are priced into the market given the current spreads. With the outlook for the economy stable, default rates low, the continuing opportunity for positive events, and fairly tight high-yield spreads, we believe that the market should be positioned positively over the coming months. THIS LETTER IS INTENDED TO ASSIST SHAREHOLDERS IN UNDERSTANDING HOW THE FUND PERFORMED DURING THE SEMIANNUAL PERIOD ENDED DECEMBER 31, 2005. THE VIEWS AND OPINIONS IN THE LETTER WERE CURRENT AS OF FEBRUARY 15, 2006. 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. 101 AVERAGE ANNUAL TOTAL RETURN (UNAUDITED)
6 MONTHS 1 YEAR 5 YEARS INCEPTION* ENDED ENDED ENDED TO 12/31/05 12/31/05 12/31/05 12/31/05 - -------------------------------------------------------------------------------------- UBS HIGH YIELD FUND CLASS A 0.69% 0.52% 7.46% 5.10% UBS HIGH YIELD FUND CLASS B 0.30 -0.28 N/A 8.12 UBS HIGH YIELD FUND CLASS C 0.44 -0.13 N/A 8.40 UBS HIGH YIELD FUND CLASS Y 0.82 0.68 7.75 5.80 UBS HIGH YIELD FUND CLASS A** -3.88 -3.99 6.48 4.42 UBS HIGH YIELD FUND CLASS B** -4.54 -4.92 N/A 7.75 UBS HIGH YIELD FUND CLASS C** -0.29 -0.83 N/A 8.40 MERRILL LYNCH U.S. HIGH YIELD CASH PAY INDEX 1.59 2.83 8.76 5.71 MERRILL LYNCH U.S. HIGH YIELD CASH PAY CONSTRAINED INDEX 1.77 2.85 13.11 5.83
* 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 09/30/97. INCEPTION DATE FOR THE MERRILL LYNCH U.S. HIGH YIELD CASH PAY CONSTRAINED INDEX IS DECEMBER 31, 1996. ** 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. TOTAL 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); and (2) ongoing costs, including management fees; service and/or distribution (12b-1) fees (if applicable); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example below is based on an investment of $1,000 invested at the beginning of the period and held for the entire period, July 1, 2005 to December 31, 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 for each class of shares 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 Fund's actual return for each class of shares. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs (as applicable), such as sales charges (loads). Therefore, the second line in the table for each class of shares is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
BEGINNING ENDING EXPENSES PAID ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD* JULY 1, 2005 DECEMBER 31, 2005 7/1/05 - 12/31/05 - --------------------------------------------------------------------------------------------------------- CLASS A ACTUAL $ 1,000.00 $ 1,006.90 $ 6.07 HYPOTHETICAL (5% ANNUAL RETURN BEFORE EXPENSES) 1,000.00 1,019.16 6.11 CLASS B ACTUAL 1,000.00 1,003.00 9.84 HYPOTHETICAL (5% ANNUAL RETURN BEFORE EXPENSES) 1,000.00 1,015.38 9.91 CLASS C ACTUAL 1,000.00 1,004.40 8.59 HYPOTHETICAL (5% ANNUAL RETURN BEFORE EXPENSES) 1,000.00 1,016.64 8.64 CLASS Y ACTUAL 1,000.00 1,008.20 4.81 HYPOTHETICAL (5% ANNUAL RETURN BEFORE EXPENSES) 1,000.00 1,020.42 4.84
* EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED NET EXPENSE RATIOS: 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 184 DIVIDED BY 365 (TO REFLECT THE ONE-HALF YEAR PERIOD). 103 TOP TEN FIXED INCOME HOLDINGS AS OF DECEMBER 31, 2005 (UNAUDITED)
PERCENTAGE OF NET ASSETS - ------------------------------------------------------------------------ Le-Natures, Inc., 144A 10.000%, due 06/15/13 1.7% General Motors Acceptance Corp. 7.250%, due 03/02/11 1.4 AK Steel Corp. 7.750%, due 06/15/12 1.3 Ford Motor Credit Co. 7.375%, due 10/28/09 1.3 Rhodia S.A 10.250%, due 06/01/10 1.2 American Airlines, Inc. 8.608%, due 04/01/11 1.2 American Cellular Corp. 10.000%, due 08/01/11 1.2 Wheeling Island Gaming, Inc. 10.125%, due 12/15/09 1.2 Gulfmark Offshore, Inc. 7.750%, due 07/15/14 1.2 General Motors Nova Scotia Finance Co. 6.850%, due 10/15/08 1.1 - ------------------------------------------------------------------------ Total 12.8%
INDUSTRY DIVERSIFICATION AS A PERCENT OF NET ASSETS AS OF DECEMBER 31, 2005 (UNAUDITED) BONDS U.S. BONDS U.S. CORPORATE BONDS Aerospace & Defense 1.96% Airlines 1.24 Auto Components 1.42 Automobiles 1.25 Beverages 1.67 Chemicals 3.56 Commercial Services & Supplies 3.60 Construction & Engineering 1.27 Consumer Finance 1.44 Containers & Packaging 4.57 Distributors 0.49 Diversified Telecommunication Services 3.06 Electric Utilities 0.75 Energy Equipment & Services 0.73 Food & Staples Retailing 1.63 Food Products 2.23 Health Care Equipment & Supplies 0.57 Health Care Providers & Services 2.96 Hotels, Restaurants & Leisure 11.27 Household Durables 2.80 Household Products 1.97 Internet & Catalog Retail 0.47 IT Services 0.55 Leisure Equipment & Products 2.01 Machinery 1.30 Media 9.73 Metals & Mining 2.46 Multi-Utilities & Unregulated Power 0.46 Office Electronics 0.70 Oil & Gas 5.39% Paper & Forest Products 2.16 Personal Products 0.92 Road & Rail 0.71 Software 1.00 Specialty Retail 0.68 Textiles, Apparel & Luxury Goods 3.16 Transportation Infrastructure 1.18 Wireless Telecommunication Services 2.28 ------ Total U.S. Corporate Bonds 85.60 INTERNATIONAL BONDS INTERNATIONAL CORPORATE BONDS Automobiles 1.09 Chemicals 2.46 Diversified Telecommunication Services 0.85 Energy Equipment and Services 0.82 Food & Staples Retailing 1.04 Household Durables 0.68 Transportation Infrastructure 0.52 Paper & Forest Products 1.13 Wireless Telecommunications Services 0.23 ------ Total International Corporate Bonds 8.82 TOTAL BONDS 94.42 SHORT-TERM INVESTMENT 4.73 ------ TOTAL INVESTMENTS 99.15 CASH AND OTHER ASSETS, LESS LIABILITIES 0.85 ------ NET ASSETS 100.00% ======
104 UBS HIGH YIELD FUND -- SCHEDULE OF INVESTMENTS DECEMBER 31, 2005 (UNAUDITED)
FACE AMOUNT VALUE ------------- --------------- BONDS -- 94.42% U.S. BONDS -- 85.60% U.S. CORPORATE BONDS -- 85.60% AAC Group Holding Corp. (a) 0.000%, due 10/01/12 $ 1,450,000 $ 1,047,625 Activant Solutions, Inc. 10.500%, due 06/15/11 1,000,000 1,095,000 Advanced Accessory Systems LLC 10.750%, due 06/15/11 250,000 201,250 Advanstar Communications, Inc. 10.750%, due 08/15/10 750,000 822,187 Aearo Co. I 8.250%, due 04/15/12 1,000,000 1,015,000 Affinion Group, Inc., 144A 10.125%, due 10/15/13 500,000 487,500 Ahern Rentals, Inc., 144A 9.250%, due 08/15/13 750,000 789,375 AK Steel Corp. 7.750%, due 06/15/12 1,600,000 1,444,000 American Airlines, Inc. 8.608%, due 04/01/11 1,375,000 1,366,215 American Cellular Corp. 10.000%, due 08/01/11 1,250,000 1,356,250 American Rock Salt Co. LLC 9.500%, due 03/15/14 900,000 909,000 Ameripath, Inc. 10.500%, due 04/01/13 675,000 715,500 AmeriQual Group LLC, 144A 9.000%, due 04/01/12 1,000,000 1,037,500 Amscan Holdings, Inc. 8.750%, due 05/01/14 750,000 631,875 Atlas Pipeline Partners LP, 144A 8.125%, due 12/15/15 800,000 807,000 BE Aerospace, Inc., Series B 8.875%, due 05/01/11 375,000 393,750 Berry Plastics Corp. 10.750%, due 07/15/12 1,000,000 1,075,000 Brookstone Co., Inc., 144A 12.000%, due 10/15/12 550,000 514,250 Buckeye Technologies, Inc. 8.000%, due 10/15/10 750,000 712,500 Buffets, Inc. 11.250%, due 07/15/10 725,000 739,500 Cadmus Communications Corp. 8.375%, due 06/15/14 550,000 565,125 Carriage Services, Inc. 7.875%, due 01/15/15 615,000 625,763 CCH I LLC, 144A 11.000%, due 10/01/15 644,000 540,960 Cellu Tissue Holdings, Inc. 9.750%, due 03/15/10 1,050,000 1,039,500 Century Aluminum Co. 7.500%, due 08/15/14 350,000 344,750 Cenveo Corp. 9.625%, due 03/15/12 800,000 864,000 Chaparral Energy, Inc., 144A 8.500%, due 12/01/15 525,000 543,375 Charter Communications Operating LLC, 144A 8.000%, due 04/30/12 650,000 646,750 Cincinnati Bell, Inc. 8.375%, due 01/15/14 $ 1,000,000 $ 983,750 Circus & Eldorado Joint Venture Corp. 10.125%, due 03/01/12 650,000 687,375 Clarke American Corp.,144A 11.750%, due 12/15/13 500,000 500,000 Clayton Williams Energy, Inc. 7.750%, due 08/01/13 750,000 720,000 Collins & Aikman Floor Cover, Series B 9.750%, due 02/15/10 400,000 352,000 Comstock Resources, Inc. 6.875%, due 03/01/12 500,000 489,375 Cooper Standard Automotive, Inc. 8.375%, due 12/15/14 750,000 570,000 Crown Cork & Seal Co., Inc. 8.000%, due 04/15/23 1,225,000 1,176,000 CSC Holdings, Inc., Series B 7.625%, due 04/01/11 300,000 298,500 8.125%, due 08/15/09 1,175,000 1,186,750 Da-Lite Screen Co., Inc. 9.500%, due 05/15/11 900,000 945,000 Dole Food Co., Inc. 8.875%, due 03/15/11 500,000 512,500 DRS Technologies, Inc. 6.875%, due 11/01/13 900,000 860,625 Dycom Industries, Inc., 144A 8.125%, due 10/15/15 600,000 600,000 Energy Partners Ltd. 8.750%, due 08/01/10 750,000 768,750 Equinox Holdings, Inc. 9.000%, due 12/15/09 750,000 801,562 FastenTech, Inc. 11.500%, due 05/01/11 1,000,000 980,000 Ford Motor Credit Co. 7.375%, due 10/28/09 1,550,000 1,374,673 General Motors Acceptance Corp. 7.250%, due 03/02/11 1,725,000 1,585,513 Georgia-Pacific Corp. 8.875%, due 05/15/31 615,000 616,538 Giant Industries, Inc. 11.000%, due 05/15/12 845,000 940,062 Gregg Appliances, Inc. 9.000%, due 02/01/13 875,000 791,875 GSC Holdings Corp., 144A 8.000%, due 10/01/12 800,000 752,000 Gulfmark Offshore, Inc. 7.750%, due 07/15/14 1,250,000 1,300,000 Herbst Gaming, Inc., 144A 8.125%, due 06/01/12 75,000 78,000 Hercules, Inc. 6.500%, due 06/30/29 825,000 612,563 Hertz Corp., 144A 8.875%, due 01/01/14 325,000 331,094 Houghton Mifflin Co. (a) 0.000%, due 10/15/13 1,450,000 1,138,250 Hydrochem Industrial Services, 144A 9.250%, due 02/15/13 450,000 432,000 Ingles Markets, Inc. 8.875%, due 12/01/11 325,000 336,375
105
FACE AMOUNT VALUE ------------- --------------- Insight Communications Co., Inc. (a) 0.000%, due 02/15/11 $ 1,000,000 $ 1,045,000 Interface, Inc. 10.375%, due 02/01/10 1,000,000 1,082,500 Isle of Capri Casinos, Inc. 7.000%, due 03/01/14 900,000 877,500 Jacobs Entertainment Co. 11.875%, due 02/01/09 505,000 535,931 Jafra Cosmetics International, Inc. 10.750%, due 05/15/11 489,000 535,455 Kansas City Southern Railway Co. 7.500%, due 06/15/09 750,000 774,375 Land O' Lakes, Inc. 8.750%, due 11/15/11 825,000 866,250 Landry's Restaurants, Inc. 7.500%, due 12/15/14 850,000 794,750 Le-Natures, Inc., 144A 10.000%, due 06/15/13 1,750,000 1,837,500 Levi Strauss & Co. 12.250%, due 12/15/12 925,000 1,031,375 LIN Television Corp. 6.500%, due 05/15/13 750,000 719,063 Mandalay Resort Group 6.500%, due 07/31/09 1,000,000 1,011,250 Mediacom LLC 9.500%, due 01/15/13 1,015,000 990,894 Midwest Generation LLC 8.750%, due 05/01/34 750,000 825,937 Mirant North America LLC, 144A 7.375%, due 12/31/13 500,000 505,625 MTR Gaming Group, Inc. 9.750%, due 04/01/10 850,000 907,375 Nexstar Finance Holdings LLC (a) 0.000%, due 04/01/13 675,000 508,781 Nexstar Finance, Inc. 7.000%, due 01/15/14 500,000 458,125 Omnova Solutions, Inc. 11.250%, due 06/01/10 750,000 781,875 Owens-Illinois, Inc. 7.800%, due 05/15/18 1,200,000 1,194,000 Pantry, Inc. 7.750%, due 02/15/14 750,000 750,000 Pathmark Stores, Inc. 8.750%, due 02/01/12 750,000 700,313 Perry Ellis International, Inc., Series B 9.500%, due 03/15/09 1,000,000 1,030,000 Pinnacle Foods Holding Corp. 8.250%, due 12/01/13 750,000 714,375 Pliant Corp. 11.125%, due 09/01/09 575,000 511,750 Pogo Producing Co., 144A 6.875%, due 10/01/17 350,000 341,250 Port Townsend Paper Corp., 144A 12.000%, due 04/15/11 1,000,000 640,000 Prestige Brands, Inc. 9.250%, due 04/15/12 750,000 738,750 Psychiatric Solutions, Inc. 7.750%, due 07/15/15 750,000 774,375 Qwest Corp. 7.875%, due 09/01/11 $ 850,000 $ 915,875 8.875%, due 03/15/12 550,000 620,125 Rafaella Apparel Group, Inc., 144A 11.250%, due 06/15/11 550,000 539,000 Resolution Performance Products, Inc. 13.500%, due 11/15/10 750,000 793,125 Restaurant Co., 144A 10.000%, due 10/01/13 525,000 485,625 Riddell Bell Holdings, Inc. 8.375%, due 10/01/12 1,250,000 1,159,375 River Rock Entertainment Authority 9.750%, due 11/01/11 750,000 808,125 Rockwood Specialties Group, Inc. 10.625%, due 05/15/11 583,000 639,114 San Pasqual Casino, 144A 8.000%, due 09/15/13 600,000 609,000 Sbarro, Inc. 11.000%, due 09/15/09 545,000 542,275 Select Medical Corp. 7.625%, due 02/01/15 1,175,000 1,130,937 Seneca Gaming Corp. 7.250%, due 05/01/12 750,000 754,688 Sequa Corp. 9.000%, due 08/01/09 850,000 903,125 Sheridan Group, Inc. 10.250%, due 08/15/11 750,000 771,562 Sinclair Broadcast Group, Inc. 8.000%, due 03/15/12 800,000 824,000 Sirius Satellite Radio, Inc., 144A 9.625%, due 08/01/13 475,000 467,875 Solo Cup Co. 8.500%, due 02/15/14 500,000 437,500 Stanadyne Corp. 10.000%, due 08/15/14 825,000 792,000 Stone Energy Corp. 6.750%, due 12/15/14 1,000,000 947,500 Suncom Wireless, Inc. 9.375%, due 02/01/11 400,000 292,000 Technical Olympic USA, Inc. 7.500%, due 01/15/15 1,250,000 1,050,000 Terra Capital, Inc. 12.875%, due 10/15/08 925,000 1,077,625 Tommy Hilfiger USA, Inc. 6.850%, due 06/01/08 500,000 515,000 Unisys Corp. 8.000%, due 10/15/12 650,000 601,250 Universal Hospital Services, Inc. 10.125%, due 11/01/11 600,000 621,000 Valor Telecommunications Enterprises LLC 7.750%, due 02/15/15 800,000 836,000 Vertis, Inc., Series B 10.875%, due 06/15/09 1,050,000 1,034,250 Wheeling Island Gaming, Inc. 10.125%, due 12/15/09 1,275,000 1,337,156 Whiting Petroleum Corp. 7.250%, due 05/01/12 1,150,000 1,164,375
106
FACE AMOUNT VALUE ------------- --------------- Wolverine Tube, Inc., 144A 7.375%, due 08/01/08 $ 600,000 $ 448,500 Wornick Co. 10.875%, due 07/15/11 350,000 358,750 Wynn Las Vegas Capital Corp. 6.625%, due 12/01/14 375,000 364,688 Xerox Capital Trust I 8.000%, due 02/01/27 750,000 772,500 Zeus Special Subsidiary Ltd., 144A (a) 0.000%, due 02/01/15 1,300,000 854,750 --------------- Total U.S. Bonds 94,004,674 --------------- INTERNATIONAL BONDS -- 8.82% INTERNATIONAL CORPORATE BONDS -- 8.82% BERMUDA -- 0.23% Intelsat Bermuda Ltd., 144A 8.625%, due 01/15/15 $ 250,000 252,500 --------------- CANADA -- 4.70% Ainsworth Lumber Co., Ltd. 7.250%, due 10/01/12 $ 500,000 450,000 General Motors Nova Scotia Finance Co. 6.850%, due 10/15/08 1,600,000 1,200,000 Jean Coutu Group, Inc. 8.500%, due 08/01/14 1,250,000 1,143,750 MAAX Corp. 9.750%, due 06/15/12 750,000 592,500 Maax Holdings, Inc. (a) 0.000%, due 12/15/12 500,000 155,625 Methanex Corp. 8.750%, due 08/15/12 750,000 834,375 Millar Western Forest Products Ltd. 7.750%, due 11/15/13 800,000 596,000 Tembec Industries, Inc. 7.750%, due 03/15/12 100,000 53,500 8.500%, due 02/01/11 250,000 138,750 --------------- 5,164,500 --------------- CAYMAN ISLANDS -- 0.64% Bluewater Finance Ltd. 10.250%, due 02/15/12 $ 650,000 698,750 --------------- FRANCE -- 1.43% Compagnie Generale de Geophysique S.A 7.500%, due 05/15/15 $ 200,000 207,000 Rhodia S.A 10.250%, due 06/01/10 1,250,000 1,368,750 --------------- 1,575,750 --------------- LUXEMBOURG -- 0.92% Nell AF SARL, 144A 8.375%, due 08/15/15 $ 500,000 495,000 Wind Acquisition Finance S.A., 144A 10.750%, due 12/01/15 500,000 516,250 --------------- 1,011,250 --------------- SWEDEN -- 0.52% Stena AB 7.000%, due 12/01/16 $ 100,000 $ 91,500 7.500%, due 11/01/13 500,000 480,000 --------------- 571,500 --------------- UNITED KINGDOM -- 0.38% Inmarsat Finance PLC 7.625%, due 06/30/12 $ 400,000 412,500 --------------- Total International Bonds 9,686,750 --------------- Total Bonds (Cost $105,888,594) 103,691,424 --------------- SHARES ------------- EQUITIES -- 0.00% U.S. EQUITIES -- 0.00% (b) (c) (d) AEROSPACE & DEFENSE -- 0.00% Sabreliner Corp. 8,400 0 --------------- HOTELS, RESTAURANTS & LEISURE -- 0.00% American Restaurant Group, Inc. 972 0 --------------- Total Equities (Cost $153,000) 0 --------------- NUMBER OF WARRANTS ------------- WARRANTS -- 0.00% (b) (c) (d) Dayton Superior Corp., expires 06/15/09 (e) (f) 225 0 Knology, Inc., expires 10/15/07 (e) (f) 16,995 0 Pathnet, Inc., expires 04/15/08 6,275 0 Pliant Corp., expires 06/01/10 (e) (f) 160 2 --------------- Total Warrants (Cost $10) 2 --------------- SHARES ------------- SHORT-TERM INVESTMENT* -- 4.73% UBS Supplementary Trust -- U.S. Cash Management Prime Fund, yield of 4.36% (Cost $5,198,454) 5,198,454 5,198,454 --------------- Total Investments -- 99.15% (Cost $111,240,058) 108,889,880 Cash and other assets, less liabilities -- 0.85% 931,425 --------------- Net Assets -- 100.00% $ 109,821,305 ===============
107 NOTES TO SCHEDULE OF INVESTMENTS Aggregate cost for federal income tax purposes, which was substantially the same for book purposes, was $111,240,058; and net unrealized depreciation consisted of: Gross unrealized appreciation $ 1,970,225 Gross unrealized depreciation (4,320,403) --------------- Net unrealized depreciation $ (2,350,178) ===============
(a) Step Bonds - coupon rate increases in increments to maturity. Rate disclosed is as of December 31, 2005. Maturity date disclosed is the ultimate maturity date. (b) Security is illiquid. These securities amounted to $2 or 0.00% of net assets. (c) Security is being fair valued by a valuation committee under the direction of the Board of Trustees. At December 31, 2005, the value of these securities amounted to $2 or 0.00% of net assets. (d) Non-income producing security. (e) Represents a restricted security. (f) Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities, which represent 0.00% of net assets as of December 31, 2005, are considered illiquid and restricted. 144A Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities are considered liquid and may be resold in transactions exempt from registration, normally to qualified institutional buyers. At December 31, 2005, the value of these securities amounted to $16,052,681 or 14.62% of net assets. * Investment in affiliated mutual fund. RESTRICTED SECURITIES
ACQUISITION COST AS A MARKET VALUE ACQUISITION ACQUISITION PERCENTAGE OF MARKET AS A PERCENTAGE OF SECURITY DATES COST NET ASSETS VALUE NET ASSETS - -------- ----------- ----------- ------------- ------ ------------------ Dayton Superior Corp., expires 06/15/09 08/07/00 $ 0 0.00% $ 0 0.00% Knology, Inc., expires 10/15/07 06/08/98 0 0.00 0 0.00 Pliant Corp., expires 06/01/10 10/20/00 0 0.00 2 0.00
See accompanying notes to financial statements. 108 This page intentionally left blank. THE UBS FUNDS -- FINANCIAL STATEMENTS STATEMENTS OF ASSETS AND LIABILITIES DECEMBER 31, 2005 (UNAUDITED)
UBS GLOBAL UBS UBS UBS ALLOCATION GLOBAL EQUITY GLOBAL BOND INTERNATIONAL FUND* FUND FUND EQUITY FUND** - --------------------------------------------------------------------------------------------------------------------------------- ASSETS: Investments, at cost: Unaffiliated issuers $ 2,703,547,948 $ 361,207,051 $ 56,124,532 $ 118,151,290 Affiliated issuers 572,066,889 2,250,128 12,944,221 917,338 Investments of cash collateral received in affiliated issuers received for securities loaned, at cost 81,507,916 -- -- 9,457,870 Foreign currency, at cost 5,524,135 2,425,109 863,458 1,210,867 ---------------- ----------------- --------------- ---------------- $ 3,362,646,888 $ 365,882,288 $ 69,932,211 $ 129,737,365 ================ ================= =============== ================ Investments, at value: Unaffiliated issuers $ 2,921,729,003 $ 454,054,486 $ 54,533,350 $ 151,658,624 Affiliated issuers 636,146,947 2,250,128 13,398,215 917,338 Investments of cash collateral in affiliated issuers received for securities loaned, at value 81,507,916 -- -- 9,457,870 Foreign currency, at value 5,464,712 2,425,028 859,756 1,209,781 Cash -- -- 569 -- Receivables: Investment securities sold 5,738,147 1,266,158 1,968 -- Due from Advisor -- -- -- -- Dividends 1,846,204 632,809 -- 219,344 Interest 10,264,370 3,808 1,232,868 3,645 Fund shares sold 12,606,731 421,505 162,664 856,357 Variation margin -- -- -- -- Cash collateral for futures 8,716,789 -- -- -- Unrealized appreciation on forward foreign currency contracts 8,054,978 1,152,870 145,809 325,266 Unrealized appreciation on swap agreements -- -- -- -- Other assets 526,471 15,597 2,767 34,770 ---------------- ----------------- --------------- ---------------- TOTAL ASSETS 3,692,602,268 462,222,389 70,337,966 164,682,995 ---------------- ----------------- --------------- ---------------- LIABILITIES: Payables: Cash collateral from securities loaned 81,507,916 -- -- 9,457,870 Investment securities purchased 65,946,575 1,705,827 770,410 1,254,931 Fund shares redeemed 8,238,347 1,626,602 166,520 176,790 Due to custodian bank 7,769,586 505,549 -- 168,547 Investment advisory and administration fees 2,275,830 252,440 29,637 90,687 Distribution and service fees 1,394,645 117,381 5,788 6,588 Variation margin 28,449 -- -- -- Trustees' fees 5,385 2,240 1,867 2,956 Cash collateral due to broker -- -- -- -- Options written, at value (premiums received $176,861) -- -- -- -- Accrued expenses 1,810,995 459,609 87,782 172,162 Unrealized depreciation on forward foreign currency contracts 2,534,812 454,296 85,405 170,314 Unrealized depreciation on swap agreements -- -- -- -- ---------------- ----------------- --------------- ---------------- TOTAL LIABILITIES 171,512,540 5,123,944 1,147,409 11,500,845 ---------------- ----------------- --------------- ---------------- NET ASSETS $ 3,521,089,728 $ 457,098,445 $ 69,190,557 $ 153,182,150 ================ ================= =============== ================ NET ASSETS CONSIST OF: Beneficial Interest $ 3,203,065,509 $ 1,173,356,794 $ 71,051,848 $ 118,877,509 Accumulated undistributed net investment income (loss) 8,329,907 156,140 615,527 141,065 Accumulated undistributed net realized gain (loss) 21,953,641 (809,954,399) (1,365,416) 492,824 Net unrealized appreciation (depreciation) 287,740,671 93,539,910 (1,111,402) 33,670,752 ---------------- ----------------- --------------- ---------------- NET ASSETS $ 3,521,089,728 $ 457,098,445 $ 69,190,557 $ 153,182,150 ================ ================= =============== ================
* The market value of securities loaned for the UBS Global Allocation Fund as of December 31, 2005 is $164,969,790. ** The market value of securities loaned for the UBS International Equity Fund as of December 31, 2005 is $8,961,661. 110
UBS UBS UBS U.S. LARGE CAP UBS U.S. LARGE CAP U.S. LARGE CAP VALUE EQUITY U.S. SMALL CAP EQUITY FUND GROWTH FUND FUND GROWTH FUND - --------------------------------------------------------------------------------------------------------------------------------- ASSETS: Investments, at cost: Unaffiliated issuers $ 383,078,293 $ 9,837,309 $ 109,960,390 $ 302,264,048 Affiliated issuers 7,066,227 391,690 1,290,960 14,251,658 Investments of cash collateral received in affiliated issuers received for securities loaned, at cost -- -- -- -- Foreign currency, at cost -- -- -- -- ---------------- ----------------- --------------- ---------------- $ 390,144,520 $ 10,228,999 $ 111,251,350 $ 316,515,706 ================ ================= =============== ================ Investments, at value: Unaffiliated issuers $ 448,740,891 $ 11,298,903 $ 131,912,587 $ 341,923,080 Affiliated issuers 7,066,227 391,690 1,290,960 14,251,658 Investments of cash collateral in affiliated issuers received for securities loaned, at value -- -- -- -- Foreign currency, at value -- -- -- -- Cash -- -- -- -- Receivables: Investment securities sold -- -- -- 12,323,008 Due from Advisor -- 6,467 -- -- Dividends 328,287 6,161 119,331 106,196 Interest 48,287 1,429 5,918 51,294 Fund shares sold 1,302,929 84,907 61,511 607,655 Variation margin 3,560 -- -- -- Cash collateral for futures -- -- -- -- Unrealized appreciation on forward foreign currency contracts -- -- -- -- Unrealized appreciation on swap agreements -- -- -- -- Other assets 120,561 260 9,551 9,842 ---------------- ----------------- --------------- ---------------- TOTAL ASSETS 457,610,742 11,789,817 133,399,858 369,272,733 ---------------- ----------------- --------------- ---------------- LIABILITIES: Payables: Cash collateral from securities loaned -- -- -- -- Investment securities purchased -- 149,698 -- 14,204,054 Fund shares redeemed 762,718 58,430 313,265 1,905,253 Due to custodian bank -- 4,321 753 259 Investment advisory and administration fees 297,501 709 58,764 244,895 Distribution and service fees 15,682 1,971 40,380 43,113 Variation margin -- -- -- -- Trustees'fees 3,761 1,280 1,796 1,524 Cash collateral due to broker -- -- -- -- Options written, at value (premiums received $176,861) -- -- -- -- Accrued expenses 116,217 31,824 214,613 38,156 Unrealized depreciation on forward foreign currency contracts -- -- -- -- Unrealized depreciation on swap agreements -- -- -- -- ---------------- ----------------- --------------- ---------------- TOTAL LIABILITIES 1,195,879 248,233 629,571 16,437,254 ---------------- ----------------- --------------- ---------------- NET ASSETS $ 456,414,863 $ 11,541,584 $ 132,770,287 $ 352,835,479 ================ ================= =============== ================ NET ASSETS CONSIST OF: Beneficial Interest $ 393,988,756 $ 13,140,410 $ 109,916,002 $ 307,965,189 Accumulated undistributed net investment income (loss) (4,631) (14,461) 2,173 (1,149,865) Accumulated undistributed net realized gain (loss) (3,235,420) (3,045,959) 899,915 6,361,123 Net unrealized appreciation (depreciation) 65,666,158 1,461,594 21,952,197 39,659,032 ---------------- ----------------- --------------- ---------------- NET ASSETS $ 456,414,863 $ 11,541,584 $ 132,770,287 $ 352,835,479 ================ ================= =============== ================ UBS UBS UBS ABSOLUTE UBS DYNAMIC U.S. BOND RETURN BOND HIGH YIELD ALPHA FUND FUND FUND FUND - --------------------------------------------------------------------------------------------------------------------------------- ASSETS: Investments, at cost: Unaffiliated issuers $ 23,759,768 $ 125,575,668 $ 274,439,564 $ 106,041,604 Affiliated issuers 1,350,550,017 14,685,949 88,765,653 5,198,454 Investments of cash collateral received in affiliated issuers received for securities loaned, at cost -- -- -- -- Foreign currency, at cost -- -- 11,873,881 -- ---------------- ----------------- --------------- ---------------- $ 1,374,309,785 $ 140,261,617 $ 375,079,098 $ 111,240,058 ================ ================= =============== ================ Investments, at value: Unaffiliated issuers $ 24,705,485 $ 124,802,033 $ 270,204,545 $ 103,691,426 Affiliated issuers 1,471,928,590 14,685,949 89,197,654 5,198,454 Investments of cash collateral in affiliated issuers received for securities loaned, at value -- -- -- -- Foreign currency, at value -- -- 11,851,765 -- Cash 43,986 -- -- -- Receivables: Investment securities sold 178,053 1,624,155 -- -- Due from Advisor 24,866 -- -- -- Dividends -- -- 5,184 -- Interest 296,070 1,095,419 5,131,519 2,162,635 Fund shares sold 18,634,344 119,530 2,255,516 157,635 Variation margin 5,863,064 -- -- -- Cash collateral for futures 71,789,700 -- 1,081,887 -- Unrealized appreciation on forward foreign currency contracts 7,216,769 -- 269,311 -- Unrealized appreciation on swap agreements 1,177,586 9,781 -- -- Other assets -- 4,757 -- 5,363 ---------------- ----------------- --------------- ---------------- TOTAL ASSETS 1,601,858,513 142,341,624 379,997,381 111,215,513 ---------------- ----------------- --------------- ---------------- LIABILITIES: Payables: Cash collateral from securities loaned -- -- -- -- Investment securities purchased 177,827 11,651,204 3,601,665 661,436 Fund shares redeemed 926,571 211,408 1,621,413 484,525 Due to custodian bank -- 76,296 2,770,437 -- Investment advisory and administration fees 1,084,141 37,962 198,733 45,744 Distribution and service fees 509,778 9,415 30,980 23,324 Variation margin -- -- 16,665 -- Trustees' fees 2,353 2,976 1,098 1,846 Cash collateral due to broker 37,269,791 -- -- -- Options written, at value (premiums received $176,861) 13,609 -- -- -- Accrued expenses 191,166 61,728 64,691 177,333 Unrealized depreciation on forward foreign currency contracts 5,879,528 -- 713,392 -- Unrealized depreciation on swap agreements 3,758,273 8,214 -- -- ---------------- ----------------- --------------- ---------------- TOTAL LIABILITIES 49,813,037 12,059,203 9,019,074 1,394,208 ---------------- ----------------- --------------- ---------------- NET ASSETS $ 1,552,045,476 $ 130,282,421 $ 370,978,307 $ 109,821,305 ================ ================= =============== ================ NET ASSETS CONSIST OF: Beneficial Interest $ 1,484,747,722 $ 133,238,312 $ 374,509,904 $ 361,477,767 Accumulated undistributed net investment income (loss) (16,442,621) (365,371) (2,308,239) (60,483) Accumulated undistributed net realized gain (loss) (40,348,753) (1,818,452) 4,081,287 (249,245,800) Net unrealized appreciation (depreciation) 124,089,128 (772,068) (5,304,645) (2,350,179) ---------------- ----------------- --------------- ---------------- NET ASSETS $ 1,552,045,476 $ 130,282,421 $ 370,978,307 $ 109,821,305 ================ ================= =============== ================
See accompanying notes to financial statements. 111 NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE: DECEMBER 31, 2005 (UNAUDITED)
UBS GLOBAL UBS UBS UBS ALLOCATION GLOBAL EQUITY GLOBAL BOND INTERNATIONAL FUND FUND FUND EQUITY FUND - ------------------------------------------------------------------------------------------------- CLASS A: Net assets $ 1,933,747,234 $ 185,710,203 $ 16,672,033 $ 20,963,746 Shares outstanding 144,272,792 14,875,760 1,770,177 2,061,273 Net asset value per share (NAV per share / shares outstanding) $ 13.40 $ 12.48 $ 9.42 $ 10.17 Offering price per share (NAV per share plus maximum sales charge)(a) $ 14.18 $ 13.21 $ 9.86 $ 10.76 Redemption proceeds per share $ 13.40 $ 12.48 $ 9.42 $ 10.17 CLASS B: Net assets $ 172,387,598 $ 26,650,099 $ 594,916 $ 707,119 Shares outstanding 13,055,157 2,176,148 63,035 70,249 Net asset value per share (NAV per share / shares outstanding) $ 13.20 $ 12.25 $ 9.44 $ 10.07 Offering price per share $ 13.20 $ 12.25 $ 9.44 $ 10.07 Redemption proceeds per share (NAV per share less maximum contingent deferred sales charge)(a) $ 12.54 $ 11.64 $ 8.97 $ 9.57 CLASS C: Net assets $ 996,105,769 $ 62,395,039 $ 2,517,966 $ 2,010,178 Shares outstanding 75,564,564 5,109,944 268,063 200,895 Net asset value per share (NAV per share / shares outstanding) $ 13.18 $ 12.21 $ 9.39 $ 10.01 Offering price per share $ 13.18 $ 12.21 $ 9.39 $ 10.01 Redemption proceeds per share (NAV per share less maximum contingent deferred sales charge)(a) $ 13.05 $ 12.09 $ 9.32 $ 9.91 CLASS Y: Net assets $ 418,849,127 $ 182,343,104 $ 49,405,642 $ 129,501,107 Shares outstanding 30,848,097 14,358,224 4,746,106 12,644,643 Net asset value per share (NAV per share / shares outstanding) $ 13.58 $ 12.70 $ 10.41 $ 10.24 Offering price per share $ 13.58 $ 12.70 $ 10.41 $ 10.24 Redemption proceeds per share $ 13.58 $ 12.70 $ 10.41 $ 10.24
(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 A, the maximum contingent deferred sales charge of 1.00% of the shares' offering price or the net asset value at the time of sale by the shareholder, whichever is less, is charged on sales of shares on original purchases of $1 million or more that were not subject to a front-end sales charge made within one year of the purchase date. 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% Class Y has no contingent deferred sales charges. (b) UBS Absolute Return Bond Fund currently does not offer Class B shares. 112
UBS UBS UBS U.S. LARGE CAP UBS U.S. LARGE CAP U.S. LARGE CAP VALUE EQUITY U.S. SMALL CAP EQUITY FUND GROWTH FUND FUND GROWTH FUND - ----------------------------------------------------------------------------------------------- CLASS A: Net assets $ 54,751,035 $ 5,461,930 $ 105,998,215 $ 133,326,213 Shares outstanding 3,038,412 581,221 10,478,687 9,608,949 Net asset value per share (NAV per share / shares outstanding) $ 18.02 $ 9.40 $ 10.12 $ 13.88 Offering price per share (NAV per share plus maximum sales charge)(a) $ 19.07 $ 9.95 $ 10.71 $ 14.69 Redemption proceeds per share $ 18.02 $ 9.40 $ 10.12 $ 13.88 CLASS B: Net assets $ 865,689 $ 375,199 $ 3,124,647 $ 8,111,232 Shares outstanding 48,922 41,109 312,314 603,603 Net asset value per share (NAV per share / shares outstanding) $ 17.70 $ 9.13 $ 10.00 $ 13.44 Offering price per share $ 17.70 $ 9.13 $ 10.00 $ 13.44 Redemption proceeds per share (NAV per share less maximum contingent deferred sales charge)(a) $ 16.82 $ 8.67 $ 9.50 $ 12.77 CLASS C: Net assets $ 4,420,349 $ 657,971 $ 17,183,449 $ 8,575,684 Shares outstanding 249,925 72,118 1,725,537 638,941 Net asset value per share (NAV per share / shares outstanding) $ 17.69 $ 9.12 $ 9.96 $ 13.42 Offering price per share $ 17.69 $ 9.12 $ 9.96 $ 13.42 Redemption proceeds per share (NAV per share less maximum contingent deferred sales charge)(a) $ 17.51 $ 9.03 $ 9.86 $ 13.29 CLASS Y: Net assets $ 396,377,790 $ 5,046,484 $ 6,463,976 $ 202,822,350 Shares outstanding 21,794,493 525,263 637,197 14,295,548 Net asset value per share (NAV per share / shares outstanding) $ 18.19 $ 9.61 $ 10.14 $ 14.19 Offering price per share $ 18.19 $ 9.61 $ 10.14 $ 14.19 Redemption proceeds per share $ 18.19 $ 9.61 $ 10.14 $ 14.19 UBS UBS UBS ABSOLUTE UBS DYNAMIC U.S. BOND RETURN BOND HIGH YIELD ALPHA FUND FUND FUND(b) FUND - --------------------------------------------------------------------------------------------- CLASS A: Net assets $ 1,036,057,386 $ 35,318,356 $ 162,742,645 $ 58,161,962 Shares outstanding 96,032,028 3,362,593 16,394,189 8,422,357 Net asset value per share (NAV per share / shares outstanding) $ 10.79 $ 10.50 $ 9.93 $ 6.91 Offering price per share (NAV per share plus maximum sales charge)(a) $ 11.42 $ 10.99 $ 10.18 $ 7.24 Redemption proceeds per share $ 10.79 $ 10.50 $ 9.93 $ 6.91 CLASS B: Net assets $ 22,083,284 $ 1,052,859 N/A $ 2,705,234 Shares outstanding 2,051,207 100,167 N/A 391,582 Net asset value per share (NAV per share / shares outstanding) $ 10.77 $ 10.51 N/A $ 6.91 Offering price per share $ 10.77 $ 10.51 N/A $ 6.91 Redemption proceeds per share (NAV per share less maximum contingent deferred sales charge)(a) $ 10.23 $ 9.98 N/A $ 6.56 CLASS C: Net assets $ 350,135,633 $ 1,585,140 $ 24,072,719 $ 13,456,546 Shares outstanding 32,536,831 151,130 2,425,489 1,948,158 Net asset value per share (NAV per share / shares outstanding) $ 10.76 $ 10.49 $ 9.92 $ 6.91 Offering price per share $ 10.76 $ 10.49 $ 9.92 $ 6.91 Redemption proceeds per share (NAV per share less maximum contingent deferred sales charge)(a) $ 10.65 $ 10.41 $ 9.87 $ 6.86 CLASS Y: Net assets $ 143,769,173 $ 92,326,066 $ 184,162,943 $ 35,497,563 Shares outstanding 13,311,369 8,793,368 18,543,992 5,116,709 Net asset value per share (NAV per share / shares outstanding) $ 10.80 $ 10.50 $ 9.93 $ 6.94 Offering price per share $ 10.80 $ 10.50 $ 9.93 $ 6.94 Redemption proceeds per share $ 10.80 $ 10.50 $ 9.93 $ 6.94
See accompanying notes to financial statements. 113 STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED DECEMBER 31, 2005
UBS GLOBAL UBS UBS UBS ALLOCATION GLOBAL EQUITY GLOBAL BOND INTERNATIONAL FUND FUND FUND EQUITY FUND - ------------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME: Dividends $ 16,362,657 $ 4,014,995 $ -- $ 1,077,300 Interest 16,610,686 50,464 975,069 142,265 Affiliated interest 7,415,098 26,551 49,716 18,194 Securities 210,024 -- -- 18,513 lending-net Foreign tax withheld (132,794) (37,500) -- (23,934) -------------- -------------- -------------- -------------- TOTAL INCOME $ 40,465,671 $ 4,054,510 $ 1,024,785 $ 1,232,338 -------------- -------------- -------------- -------------- EXPENSES: Advisory and Administration fees $ 12,822,613 $ 1,839,283 $ 301,253 $ 607,049 Distribution and Service Fees: Class A 2,221,238 169,723 21,413 22,596 Class B 912,291 414,980 4,304 4,183 Class C 4,802,719 332,589 10,579 9,404 Transfer agency fees: Class A 543,814 107,244 12,388 11,345 Class B 113,912 138,072 694 517 Class C 387,263 82,845 603 466 Class Y 71,456 23,341 18,653 48,687 Custodian 904,494 192,709 24,733 74,474 Federal and State registration 106,132 33,775 23,952 26,826 Professional services 47,261 37,117 29,514 32,307 Shareholder reports 249,215 110,429 9,419 6,285 Trustees 14,728 5,946 4,858 4,718 Other 71,083 25,396 3,915 11,778 -------------- -------------- -------------- -------------- TOTAL OPERATING EXPENSES 23,268,219 3,513,449 466,278 860,635 Expenses waived/reimbursed by Advisor -- (306,015) (101,467) (127,506) -------------- -------------- -------------- -------------- NET OPERATING EXPENSES 23,268,219 3,207,434 364,811 733,129 Interest expense -- 218 673 4,463 -------------- -------------- -------------- -------------- NET INVESTMENT INCOME 17,197,452 846,858 659,301 494,746 -------------- -------------- -------------- -------------- Net realized gain (loss) on: Investments 84,392,247 25,551,843 208,007 4,611,745 Futures contracts (660,592) -- -- -- Forward foreign currency contracts (27,674,196) (420,125) (1,159,215) (122,268) Swap agreements -- -- -- -- Options written -- -- -- -- -------------- -------------- -------------- -------------- Net realized gain (loss) 56,057,459 25,131,718 (951,208) 4,489,477 Change in net unrealized appreciation depreciation) on: Investments 105,043,868 7,960,460 (1,299,128) 10,792,856 Futures contracts (1,110,646) -- -- -- Forward foreign currency contracts 12,576,754 506,954 145,224 197,307 Swap agreements -- -- -- -- Options written -- -- -- -- Translation of other assets and liabilities denominated in foreign currency 231,182 30,336 1,858 8,665 -------------- -------------- -------------- -------------- Change in net unrealized appreciation (depreciation) 116,741,158 8,497,750 (1,152,046) 10,998,828 -------------- -------------- -------------- -------------- Net realized and unrealized gain (loss) 172,798,617 33,629,468 (2,103,254) 15,488,305 -------------- -------------- -------------- -------------- Net increase from payment by Advisor -- -- -- -- -------------- -------------- -------------- -------------- Net increase (decrease) in net assets resulting from operations $ 189,996,069 $ 34,476,326 $ (1,443,953) $ 15,983,051 ============== ============== ============== ==============
114
UBS UBS U.S. UBS U.S. LARGE CAP UBS LARGE CAP U.S. LARGE CAP VALUE EQUITY U.S. SMALL CAP EQUITY FUND GROWTH FUND FUND GROWTH FUND - ------------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME: Dividends $ 3,589,983 $ 26,727 $ 1,441,871 $ 525,588 Interest 14,197 -- -- 285 Affiliated interest 297,801 5,135 27,000 258,199 Securities -- -- -- -- lending-net Foreign tax withheld -- -- -- -- -------------- -------------- -------------- -------------- TOTAL INCOME $ 3,901,981 $ 31,862 $ 1,468,871 $ 784,072 -------------- -------------- -------------- -------------- EXPENSES: Advisory and Administration fees $ 1,705,041 $ 35,078 $ 521,822 $ 1,513,224 Distribution and Service Fees: Class A 50,394 5,398 133,711 156,430 Class B 5,183 2,210 20,703 46,421 Class C 17,121 2,323 87,056 43,759 Transfer agency fees: Class A 8,427 2,569 66,467 69,046 Class B 552 710 4,207 14,425 Class C 609 339 12,528 11,521 Class Y 36,912 1,060 1,608 40,717 Custodian 92,103 1,888 35,856 70,726 Federal and State registration 29,979 26,621 27,210 33,058 Professional services 30,017 21,333 32,559 27,373 Shareholder reports 6,291 1,649 32,654 23,990 Trustees 7,874 4,297 4,996 5,174 Other 7,628 1,352 5,341 8,574 -------------- -------------- -------------- -------------- TOTAL OPERATING EXPENSES 1,998,131 106,827 986,718 2,064,438 Expenses waived/reimbursed by Advisor -- (60,575) (173,008) (130,501) -------------- -------------- -------------- -------------- NET OPERATING EXPENSES 1,998,131 46,252 813,710 1,933,937 Interest expense 444 -- -- -- -------------- -------------- -------------- -------------- NET INVESTMENT INCOME 1,903,406 (14,390) 655,161 (1,149,865) -------------- -------------- -------------- -------------- Net realized gain (loss) on: Investments 3,870,772 349,344 6,204,750 10,678,052 Futures contracts 135,705 -- -- -- Forward foreign currency contracts -- -- -- -- Swap agreements -- -- -- -- Options written -- -- -- -- -------------- -------------- -------------- -------------- Net realized gain (loss) 4,006,477 349,344 6,204,750 10,678,052 Change in net unrealized appreciation depreciation) on: Investments 23,772,880 846,159 2,821,538 7,746,097 Futures contracts 113,235 -- -- -- Forward foreign currency contracts -- -- -- -- Swap agreements -- -- -- -- Options written -- -- -- -- Translation of other assets and liabilities denominated in foreign currency -- -- -- -- -------------- -------------- -------------- -------------- Change in net unrealized appreciation (depreciation) 23,886,115 846,159 2,821,538 7,746,097 -------------- -------------- -------------- -------------- Net realized and unrealized gain (loss) 27,892,592 1,195,503 9,026,288 18,424,149 -------------- -------------- -------------- -------------- Net increase from payment by Advisor -- -- -- -- -------------- -------------- -------------- -------------- Net increase (decrease) in net assets resulting from operations $ 29,795,998 $ 1,181,113 $ 9,681,449 $ 17,274,284 ============== ============== ============== ============== UBS UBS UBS ABSOLUTE UBS DYNAMIC U.S. BOND RETURN BOND HIGH YIELD ALPHA FUND FUND FUND FUND - ------------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME: Dividends $ 13,724 $ -- $ -- $ -- Interest 658,238 2,875,039 4,296,867 4,987,899 Affiliated interest 1,296,058 139,690 470,242 51,089 Securities -- -- -- -- lending-net Foreign tax withheld -- -- (4,962) -- -------------- -------------- -------------- -------------- TOTAL INCOME $ 1,968,020 $ 3,014,729 $ 4,762,147 $ 5,038,988 -------------- -------------- -------------- -------------- EXPENSES: Advisory and Administration fees $ 5,048,413 $ 388,823 $ 935,860 $ 386,706 Distribution and Service Fees: Class A 944,799 43,903 110,663 78,337 Class B 90,623 7,010 -- 15,839 Class C 1,357,536 6,554 54,434 55,207 Transfer agency fees: Class A 136,999 10,583 30,424 66,867 Class B 5,358 906 -- 3,158 Class C 73,140 643 6,305 15,529 Class Y 1,502 19,558 231 21,177 Custodian 30,134 33,663 45,969 34,565 Federal and State registration 83,535 27,622 76,989 28,893 Professional services 30,610 30,017 31,162 37,196 Shareholder reports 54,022 6,083 9,928 33,355 Trustees 7,678 4,747 4,776 4,794 Other 19,591 6,621 4,360 6,603 -------------- -------------- -------------- -------------- TOTAL OPERATING EXPENSES 7,883,940 586,733 1,311,101 788,226 Expenses waived/reimbursed by Advisor -- (123,839) -- (94,891) -------------- -------------- -------------- -------------- NET OPERATING EXPENSES 7,883,940 462,894 1,311,101 693,335 Interest expense -- 853 -- -- -------------- -------------- -------------- -------------- NET INVESTMENT INCOME (5,915,920) 2,550,982 3,451,046 4,345,653 -------------- -------------- -------------- -------------- Net realized gain (loss) on: Investments 4,211,955 (468,635) (693,677) (5,168,044) Futures contracts (48,175,924) -- 2,062,014 -- Forward foreign currency contracts 6,970,371 -- 3,286,064 -- Swap agreements (663,548) -- -- -- Options written 287,188 -- -- -- -------------- -------------- -------------- -------------- Net realized gain (loss) (37,369,958) (468,635) 4,654,401 (5,168,044) Change in net unrealized appreciation depreciation) on: Investments 107,419,553 (1,954,918) (2,638,746) 1,542,815 Futures contracts 3,612,656 -- (499,070) -- Forward foreign currency contracts 1,103,522 -- (1,063,306) -- Swap agreements (796,446) 1,567 -- -- Options written 163,252 -- -- -- Translation of other assets and liabilities denominated in foreign currency 48,248 -- (28,692) -- -------------- -------------- -------------- -------------- Change in net unrealized appreciation (depreciation) 111,550,785 (1,953,351) (4,229,814) 1,542,815 -------------- -------------- -------------- -------------- Net realized and unrealized gain (loss) 74,180,827 (2,421,986) 424,587 (3,625,229) -------------- -------------- -------------- -------------- Net increase from payment by Advisor 24,866 -- -- -- -------------- -------------- -------------- -------------- Net increase (decrease) in net assets resulting from operations $ 68,289,773 $ 128,996 $ 3,875,633 $ 720,424 ============== ============== ============== ==============
See accompanying notes to financial statements. 115 STATEMENT OF CHANGES IN NET ASSETS
UBS GLOBAL ALLOCATION FUND UBS GLOBAL EQUITY FUND ---------------------------------------- ---------------------------------------- SIX MONTHS SIX MONTHS ENDED ENDED DECEMBER 31, 2005 YEAR ENDED DECEMBER 31, 2005 YEAR ENDED (UNAUDITED) JUNE 30, 2005 (UNAUDITED) JUNE 30, 2005 - ---------------------------------------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income (loss) $ 17,197,452 $ 26,900,091 $ 846,858 $ 4,891,678 Net realized gain (loss) 56,057,459 165,824,167 25,131,718 38,569,395 Change in net unrealized appreciation (depreciation) 116,741,158 59,739,420 8,497,750 627,356 ------------------ ------------------ ------------------ ------------------ Net increase (decrease) in net assets from operations 189,996,069 252,463,678 34,476,326 44,088,429 ------------------ ------------------ ------------------ ------------------ DISTRIBUTIONS TO SHAREHOLDERS BY CLASS: Class A: Distributions from net investment income and net foreign currency gains (19,342,594) (17,320,841) (1,096,767) -- Distributions from net realized gain (81,236,181) (28,236,813) -- -- ------------------ ------------------ ------------------ ------------------ Total Class A distributions (100,578,775) (45,557,654) (1,096,767) -- ------------------ ------------------ ------------------ ------------------ Class B: Distributions from net investment income and net foreign currency gains (194,937) (1,509,441) -- -- Distributions from net realized gain (7,483,823) (4,518,318) -- -- ------------------ ------------------ ------------------ ------------------ Total Class B distributions (7,678,760) (6,027,759) -- -- ------------------ ------------------ ------------------ ------------------ Class C: Distributions from net investment income and net foreign currency gains (3,358,146) (6,340,465) -- -- Distributions from net realized gain (43,158,661) (17,233,197) -- -- ------------------ ------------------ ------------------ ------------------ Total Class C distributions (46,516,807) (23,573,662) -- -- ------------------ ------------------ ------------------ ------------------ Class Y: Distributions from net investment income and net foreign currency gains (4,969,313) (5,058,001) (1,345,824) -- Distributions from net realized gain (17,133,687) (7,357,727) -- -- ------------------ ------------------ ------------------ ------------------ Total Class Y distributions (22,103,000) (12,415,728) (1,345,824) -- ------------------ ------------------ ------------------ ------------------ Decrease in net assets from distributions (176,877,342) (87,574,803) (2,442,591) -- ------------------ ------------------ ------------------ ------------------ BENEFICIAL INTEREST TRANSACTIONS: Shares sold 621,214,750 1,501,931,840 113,451,933 70,369,734 Shares issued on reinvestment of distributions 168,601,856 81,526,461 2,360,467 -- Shares redeemed (319,774,586) (543,707,577) (137,626,646) (116,614,089) Redemption fees 23,622 74,995 783 12,932 ------------------ ------------------ ------------------ ------------------ Net increase (decrease) in net assets resulting from beneficial interest transactions 470,065,642 1,039,825,719 (21,813,463) (46,231,423) ------------------ ------------------ ------------------ ------------------ NET INCREASE (DECREASE) IN NET ASSETS 483,184,369 1,204,714,594 10,220,272 (2,142,994) NET ASSETS, BEGINNING OF PERIOD 3,037,905,359 1,833,190,765 446,878,173 449,021,167 ------------------ ------------------ ------------------ ------------------ NET ASSETS, END OF PERIOD $ 3,521,089,728 $ 3,037,905,359 $ 457,098,445 $ 446,878,173 ================== ================== ================== ================== Net assets include accumulated undistributed net investment income (loss) $ 8,329,907 $ 18,997,445 $ 156,140 $ 1,751,873 ================== ================== ================== ==================
116
UBS GLOBAL BOND FUND UBS INTERNATIONAL EQUITY FUND ---------------------------------------- ---------------------------------------- SIX MONTHS SIX MONTHS ENDED ENDED DECEMBER 31, 2005 YEAR ENDED DECEMBER 31, 2005 YEAR ENDED (UNAUDITED) JUNE 30, 2005 (UNAUDITED) JUNE 30, 2005 - ----------------------------------------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income (loss) $ 659,301 $ 1,235,167 $ 494,746 $ 2,200,728 Net realized gain (loss) (951,208) 2,432,598 4,489,477 13,316,855 Change in net unrealized appreciation (depreciation) (1,152,046) (599,775) 10,998,828 (2,846,329) ------------------ ------------------ ------------------ ------------------ Net increase (decrease) in net assets from operations (1,443,953) 3,067,990 15,983,051 12,671,254 ------------------ ------------------ ------------------ ------------------ DISTRIBUTIONS TO SHAREHOLDERS BY CLASS: Class A: Distributions from net investment income and net foreign currency gains (383,414) (886,593) (195,160) (125,017) Distributions from net realized gain -- -- (721,446) -- ------------------ ------------------ ------------------ ------------------ Total Class A distributions (383,414) (886,593) (916,606) (125,017) ------------------ ------------------ ------------------ ------------------ Class B: Distributions from net investment income and net foreign currency gains (12,159) (59,846) -- (7,169) Distributions from net realized gain -- -- (25,067) -- ------------------ ------------------ ------------------ ------------------ Total Class B distributions (12,159) (59,846) (25,067) (7,169) ------------------ ------------------ ------------------ ------------------ Class C: Distributions from net investment income and net foreign currency gains (52,026) (186,345) (3,051) (13,122) Distributions from net realized gain -- -- (64,762) -- ------------------ ------------------ ------------------ ------------------ Total Class C distributions (52,026) (186,345) (67,813) (13,122) ------------------ ------------------ ------------------ ------------------ Class Y: Distributions from net investment income and net foreign currency gains (1,064,423) (2,498,108) (1,437,989) (1,289,824) Distributions from net realized gain -- -- (4,418,048) -- ------------------ ------------------ ------------------ ------------------ Total Class Y distributions (1,064,423) (2,498,108) (5,856,037) (1,289,824) ------------------ ------------------ ------------------ ------------------ Decrease in net assets from distributions (1,512,022) (3,630,892) (6,865,523) (1,435,132) ------------------ ------------------ ------------------ ------------------ BENEFICIAL INTEREST TRANSACTIONS: Shares sold 17,036,145 30,560,920 26,056,256 44,131,261 Shares issued on reinvestment of distributions 1,431,262 3,331,005 6,761,683 1,397,667 Shares redeemed (19,602,335) (20,660,253) (19,879,523) (36,444,656) Redemption fees -- -- 1,219 3,297 ------------------ ------------------ ------------------ ------------------ Net increase (decrease) in net assets resulting from beneficial interest transactions (1,134,928) 13,231,672 12,939,635 9,087,569 ------------------ ------------------ ------------------ ------------------ NET INCREASE (DECREASE) IN NET ASSETS (4,090,903) 12,668,770 22,057,163 20,323,691 NET ASSETS, BEGINNING OF PERIOD 73,281,460 60,612,690 131,124,987 110,801,296 ------------------ ------------------ ------------------ ------------------ NET ASSETS, END OF PERIOD $ 69,190,557 $ 73,281,460 $ 153,182,150 $ 131,124,987 ================== ================== ================== ================== Net assets include accumulated undistributed net investment income (loss) $ 615,527 $ 1,468,248 $ 141,065 $ 1,282,519 ================== ================== ================== ================== UBS U.S. LARGE CAP EQUITY FUND UBS U.S. LARGE CAP GROWTH FUND ---------------------------------------- ---------------------------------------- SIX MONTHS SIX MONTHS ENDED ENDED DECEMBER 31, 2005 YEAR ENDED DECEMBER 31, 2005 YEAR ENDED (UNAUDITED) JUNE 30, 2005 (UNAUDITED) JUNE 30, 2005 - --------------------------------------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income (loss) $ 1,903,406 $ 2,293,535 $ (14,390) $ 5,080 Net realized gain (loss) 4,006,477 6,718,677 349,344 501,612 Change in net unrealized appreciation (depreciation) 23,886,115 14,350,295 846,159 (161,400) ------------------ ------------------ ------------------ ------------------ Net increase (decrease) in net assets from operations 29,795,998 23,362,507 1,181,113 345,292 ------------------ ------------------ ------------------ ------------------ DISTRIBUTIONS TO SHAREHOLDERS BY CLASS: Class A: Distributions from net investment income and net foreign currency gains (303,204) (70,530) (1,122) -- Distributions from net realized gain (1,172,120) (307,072) -- -- ------------------ ------------------ ------------------ ------------------ Total Class A distributions (1,475,324) (377,602) (1,122) -- ------------------ ------------------ ------------------ ------------------ Class B: Distributions from net investment income and net foreign currency gains -- -- -- -- Distributions from net realized gain (19,225) (33,274) -- -- ------------------ ------------------ ------------------ ------------------ Total Class B distributions (19,225) (33,274) -- -- ------------------ ------------------ ------------------ ------------------ Class C: Distributions from net investment income and net foreign currency gains (2,197) -- -- -- Distributions from net realized gain (96,623) (55,839) -- -- ------------------ ------------------ ------------------ ------------------ Total Class C distributions (98,820) (55,839) -- -- ------------------ ------------------ ------------------ ------------------ Class Y: Distributions from net investment income and net foreign currency gains (2,718,913) (1,586,166) (4,029) -- Distributions from net realized gain (8,607,085) (5,139,352) -- -- ------------------ ------------------ ------------------ ------------------ Total Class Y distributions (11,325,998) (6,725,518) (4,029) -- ------------------ ------------------ ------------------ ------------------ Decrease in net assets from distributions (12,919,367) (7,192,233) (5,151) -- ------------------ ------------------ ------------------ ------------------ BENEFICIAL INTEREST TRANSACTIONS: Shares sold 139,261,443 258,405,407 4,412,927 3,376,905 Shares issued on reinvestment of distributions 11,907,614 6,546,536 5,096 -- Shares redeemed (108,009,096) (49,083,452) (1,277,175) (3,048,897) Redemption fees -- -- -- -- ------------------ ------------------ ------------------ ------------------ Net increase (decrease) in net assets resulting from beneficial interest transactions 43,159,961 215,868,491 3,140,848 328,008 ------------------ ------------------ ------------------ ------------------ NET INCREASE (DECREASE) IN NET ASSETS 60,036,592 232,038,765 4,316,810 673,300 NET ASSETS, BEGINNING OF PERIOD 396,378,271 164,339,506 7,224,774 6,551,474 ------------------ ------------------ ------------------ ------------------ NET ASSETS, END OF PERIOD $ 456,414,863 $ 396,378,271 $ 11,541,584 $ 7,224,774 ================== ================== ================== ================== Net assets include accumulated undistributed net investment income (loss) $ (4,631) $ 1,116,277 $ (14,461) $ 5,080 ================== ================== ================== ==================
See accompanying notes to financial statements. 117
UBS U.S. LARGE CAP VALUE EQUITY FUND UBS U.S. SMALL CAP GROWTH FUND ---------------------------------------- ---------------------------------------- SIX MONTHS SIX MONTHS ENDED ENDED DECEMBER 31, 2005 YEAR ENDED DECEMBER 31, 2005 YEAR ENDED (UNAUDITED) JUNE 30, 2005 (UNAUDITED) JUNE 30, 2005 - ---------------------------------------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income (loss) $ 655,161 $ 1,357,529 $ (1,149,865) $ (1,742,621) Net realized gain (loss) 6,204,750 11,022,153 10,678,052 12,901,585 Change in net unrealized appreciation (depreciation) 2,821,538 4,059,901 7,746,097 13,918,272 Net increase from payment by Advisor -- -- -- -- ------------------ ------------------ ------------------ ------------------ Net increase in net assets from operations 9,681,449 16,439,583 17,274,284 25,077,236 ------------------ ------------------ ------------------ ------------------ DISTRIBUTIONS TO SHAREHOLDERS BY CLASS: Class A: Distributions from net investment income and net foreign currency gains (1,180,726) (1,124,510) -- -- Distributions from net realized gain (9,995,542) (18,062,835) (5,311,677) (1,360,386) ------------------ ------------------ ------------------ ------------------ Total Class A distributions (11,176,268) (19,187,345) (5,311,677) (1,360,386) ------------------ ------------------ ------------------ ------------------ Class B: Distributions from net investment income and net foreign currency gains -- -- -- -- Distributions from net realized gain (300,968) (1,432,842) (331,063) (164,894) ------------------ ------------------ ------------------ ------------------ Total Class B distributions (300,968) (1,432,842) (331,063) (164,894) ------------------ ------------------ ------------------ ------------------ Class C: Distributions from net investment income and net foreign currency gains (62,311) (40,144) -- -- Distributions from net realized gain (1,645,112) (3,064,856) (350,676) (148,667) ------------------ ------------------ ------------------ ------------------ Total Class C distributions (1,707,423) (3,105,000) (350,676) (148,667) ------------------ ------------------ ------------------ ------------------ Class Y: Distributions from net investment income and net foreign currency gains (84,236) (76,787) -- -- Distributions from net realized gain (580,926) (908,317) (7,818,200) (1,487,236) ------------------ ------------------ ------------------ ------------------ Total Class Y distributions (665,162) (985,104) (7,818,200) (1,487,236) ------------------ ------------------ ------------------ ------------------ Decrease in net assets from distributions (13,849,821) (24,710,291) (13,811,616) (3,161,183) ------------------ ------------------ ------------------ ------------------ BENEFICIAL INTEREST TRANSACTIONS: Shares sold 4,535,614 14,884,181 102,866,242 127,326,999 Shares issued on reinvestment of distributions 12,463,343 21,982,744 12,644,090 2,732,747 Shares redeemed (14,027,598) (41,599,951) (41,910,251) (62,705,608) Redemption fees -- -- -- -- ------------------ ------------------ ------------------ ------------------ Net increase (decrease) in net assets resulting from beneficial interest transactions 2,971,359 (4,733,026) 73,600,081 67,354,138 ------------------ ------------------ ------------------ ------------------ NET INCREASE (DECREASE) IN NET ASSETS (1,197,013) (13,003,734) 77,062,749 89,270,191 NET ASSETS, BEGINNING OF PERIOD 133,967,300 146,971,034 275,772,730 186,502,539 ------------------ ------------------ ------------------ ------------------ NET ASSETS, END OF PERIOD $ 132,770,287 $ 133,967,300 $ 352,835,479 $ 275,772,730 ================== ================== ================== ================== Net assets include accumulated undistributed net investment income (loss) $ 2,173 $ 674,285 $ (1,149,865) $ -- ================== ================== ================== ==================
118
UBS DYNAMIC ALPHA FUND UBS U.S. BOND FUND ---------------------------------------- ---------------------------------------- SIX MONTHS SIX MONTHS ENDED ENDED DECEMBER 31, 2005 YEAR ENDED DECEMBER 31, 2005 YEAR ENDED (UNAUDITED) JUNE 30, 2005+ (UNAUDITED) JUNE 30, 2005 - ---------------------------------------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income (loss) $ (5,915,920) $ (2,964,789) $ 2,550,982 $ 5,014,559 Net realized gain (loss) (37,369,958) 1,956,354 (468,635) 1,287,087 Change in net unrealized appreciation (depreciation) 111,550,785 12,538,343 (1,953,351) 1,231,336 Net increase from payment by Advisor 24,866 -- -- -- ------------------ ------------------ ------------------ ------------------ Net increase in net assets from operations 68,289,773 11,529,908 128,996 7,532,982 ------------------ ------------------ ------------------ ------------------ DISTRIBUTIONS TO SHAREHOLDERS BY CLASS: Class A: Distributions from net investment income and net foreign currency gains (9,085,869) -- (773,598) (1,293,670) Distributions from net realized gain -- -- -- -- ------------------ ------------------ ------------------ ------------------ Total Class A distributions (9,085,869) -- (773,598) (1,293,670) ------------------ ------------------ ------------------ ------------------ Class B: Distributions from net investment income and net foreign currency gains (88,826) -- (24,921) (60,703) Distributions from net realized gain -- -- -- -- ------------------ ------------------ ------------------ ------------------ Total Class B distributions (88,826) -- (24,921) (60,703) ------------------ ------------------ ------------------ ------------------ Class C: Distributions from net investment income and net foreign currency gains (1,567,093) -- (33,698) (76,641) Distributions from net realized gain -- -- -- -- ------------------ ------------------ ------------------ ------------------ Total Class C distributions (1,567,093) -- (33,698) (76,641) ------------------ ------------------ ------------------ ------------------ Class Y: Distributions from net investment income and net foreign currency gains (1,349,644) -- (2,188,810) (4,244,383) Distributions from net realized gain -- -- -- -- ------------------ ------------------ ------------------ ------------------ Total Class Y distributions (1,349,644) -- (2,188,810) (4,244,383) ------------------ ------------------ ------------------ ------------------ Decrease in net assets from distributions (12,091,432) -- (3,021,027) (5,675,397) ------------------ ------------------ ------------------ ------------------ BENEFICIAL INTEREST TRANSACTIONS: Shares sold 770,659,469 864,403,313 22,519,011 54,766,655 Shares issued on reinvestment of distributions 11,407,765 -- 2,756,301 5,228,066 Shares redeemed (88,262,478) (73,961,641) (39,638,235) (39,253,738) Redemption fees 28,986 41,813 -- -- ------------------ ------------------ ------------------ ------------------ Net increase (decrease) in net assets resulting from beneficial interest transactions 693,833,742 790,483,485 (14,362,923) 20,740,983 ------------------ ------------------ ------------------ ------------------ NET INCREASE (DECREASE) IN NET ASSETS 750,032,083 802,013,393 (17,254,954) 22,598,568 NET ASSETS, BEGINNING OF PERIOD 802,013,393 -- 147,537,375 124,938,807 ------------------ ------------------ ------------------ ------------------ NET ASSETS, END OF PERIOD 1,552,045,476 $ 802,013,393 $ 130,282,421 $ 147,537,375 ================== ================== ================== ================== Net assets include accumulated undistributed net investment income (loss) $ (16,442,621) $ 1,564,731 $ (365,371) $ 104,674 ================== ================== ================== ================== UBS ABSOLUTE RETURN BOND FUND UBS HIGH YIELD FUND ---------------------------------------- ---------------------------------------- SIX MONTHS SIX MONTHS ENDED ENDED DECEMBER 31, 2005 YEAR ENDED DECEMBER 31, 2005 YEAR ENDED (UNAUDITED) JUNE 30, 2005++ (UNAUDITED) JUNE 30, 2005 - ---------------------------------------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income (loss) $ 3,451,046 $ 320,703 $ 4,345,653 $ 11,107,547 Net realized gain (loss) 4,654,401 848,043 (5,168,044) (22,068,924) Change in net unrealized appreciation (depreciation) (4,229,814) (1,074,831) 1,542,815 24,901,055 Net increase from payment by Advisor -- -- -- -- ------------------ ------------------ ------------------ ------------------ Net increase in net assets from operations 3,875,633 93,915 720,424 13,939,678 ------------------ ------------------ ------------------ ------------------ DISTRIBUTIONS TO SHAREHOLDERS BY CLASS: Class A: Distributions from net investment income and net foreign currency gains (3,198,293) (262,518) (2,441,757) (6,086,599) Distributions from net realized gain (150,694) -- -- -- ------------------ ------------------ ------------------ ------------------ Total Class A distributions (3,348,987) (262,518) (2,441,757) (6,086,599) ------------------ ------------------ ------------------ ------------------ Class B: Distributions from net investment income and net foreign currency gains -- -- (110,556) (425,557) Distributions from net realized gain -- -- -- -- ------------------ ------------------ ------------------ ------------------ Total Class B distributions -- -- (110,556) (425,557) ------------------ ------------------ ------------------ ------------------ Class C: Distributions from net investment income and net foreign currency gains (433,831) (34,595) (536,973) (1,300,982) Distributions from net realized gain (22,526) -- -- -- ------------------ ------------------ ------------------ ------------------ Total Class C distributions (456,357) (34,595) (536,973) (1,300,982) ------------------ ------------------ ------------------ ------------------ Class Y: Distributions from net investment income and net foreign currency gains (3,169,849) (57,800) (1,385,938) (3,636,624) Distributions from net realized gain (171,039) -- -- -- ------------------ ------------------ ------------------ ------------------ Total Class Y distributions (3,340,888) (57,800) (1,385,938) (3,636,624) ------------------ ------------------ ------------------ ------------------ Decrease in net assets from distributions (7,146,232) (354,913) (4,475,224) (11,449,762) ------------------ ------------------ ------------------ ------------------ BENEFICIAL INTEREST TRANSACTIONS: Shares sold 266,582,850 148,957,872 19,084,153 46,013,811 Shares issued on reinvestment of distributions 5,815,780 311,813 2,813,656 7,680,605 Shares redeemed (40,499,373) (6,659,038) (24,609,752) (85,891,281) Redemption fees -- -- -- -- ------------------ ------------------ ------------------ ------------------ Net increase (decrease) in net assets resulting from beneficial interest transactions 231,899,257 142,610,647 (2,711,943) (32,196,865) ------------------ ------------------ ------------------ ------------------ NET INCREASE (DECREASE) IN NET ASSETS 228,628,658 142,349,649 (6,466,743) (29,706,949) NET ASSETS, BEGINNING OF PERIOD 142,349,649 -- 116,288,048 145,994,997 ------------------ ------------------ ------------------ ------------------ NET ASSETS, END OF PERIOD $ 370,978,307 $ 142,349,649 $ 109,821,305 $ 116,288,048 ================== ================== ================== ================== Net assets include accumulated undistributed net investment income (loss) $ (2,308,239) $ 1,042,688 $ (60,483) $ 69,088 ================== ================== ================== ==================
+ For the period January 27, 2005 (commencement of operations) to June 30, 2005. ++ For the period April 27, 2005 (commencement of operations) to June 30, 2005. See accompanying notes to financial statements. 119 UBS GLOBAL ALLOCATION FUND -- FINANCIAL HIGHLIGHTS THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH PERIOD PRESENTED
SIX MONTHS ENDED DECEMBER 31, YEAR ENDED JUNE 30, 2005 ------------------------------------------------------------------ CLASS A (UNAUDITED) 2005 2004 2003 2002 2001 - ----------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 13.33 $ 12.35 $ 10.69 $ 10.60 $ 11.10 $ 11.20 ------------- ------------- ---------- ---------- ----------- ---------- Income from investment operations: Net investment income** 0.09 0.17 0.12 0.10 0.10 0.22 Net realized and unrealized gain from investment activities 0.72 1.32 1.69 0.41 0.40 0.31 ------------- ------------- ---------- ---------- ----------- ---------- Total income from investment operations 0.81 1.49 1.81 0.51 0.50 0.53 ------------- ------------- ---------- ---------- ----------- ---------- Less dividends/distributions: From net investment income and net foreign currency gains (0.14) (0.19) (0.15) (0.42) (0.19) -- From net realized gains (0.60) (0.32) -- -- (0.81) (0.63) ------------- ------------- ---------- ---------- ----------- ---------- Total dividends/distributions (0.74) (0.51) (0.15) (0.42) (1.00) (0.63) ------------- ------------- ---------- ---------- ----------- ---------- Net asset value, end of period $ 13.40 $ 13.33 $ 12.35 $ 10.69 $ 10.60 $ 11.10 ============= ============= ========== ========== =========== ========== Total investment return+ 6.08% 12.11% 17.02% 5.35% 4.84% 4.95% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 1,933,747 $ 1,594,113 $ 876,636 $ 175,415 $ 6,914 $ 237 Ratio of expenses to average net assets 1.17%*** 1.20% 1.28% 1.35% 1.35% 1.30% Ratio of net investment income to average net assets 1.27%*** 1.34% 1.00% 0.98% 0.98% 1.52% Portfolio turnover rate 39% 84% 78% 66% 116% 115% SIX MONTHS ENDED DECEMBER 31, YEAR ENDED JUNE 30, FOR THE 2005 --------------------------------------- PERIOD ENDED CLASS B (UNAUDITED) 2005 2004 2003 JUNE 30, 2002* - ------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 13.08 $ 12.14 $ 10.55 $ 10.52 $ 11.21 ------------- ----------- ----------- ----------- -------------- Income from investment operations: Net investment income** 0.03 0.08 0.02 0.02 0.12 Net realized and unrealized gain from investment activities 0.71 1.29 1.68 0.41 0.19 ------------- ----------- ----------- ----------- -------------- Total income from investment operations 0.74 1.37 1.70 0.43 0.31 ------------- ----------- ----------- ----------- -------------- Less dividends/distributions: From net investment income and net foreign currency gains (0.02) (0.11) (0.11) (0.40) (0.19) From net realized gains (0.60) (0.32) -- -- (0.81) ------------- ----------- ----------- ----------- -------------- Total dividends/distributions (0.62) (0.43) (0.11) (0.40) (1.00) ------------- ----------- ----------- ----------- -------------- Net asset value, end of period $ 13.20 $ 13.08 $ 12.14 $ 10.55 $ 10.52 ============= =========== =========== =========== ============== Total investment return+ 5.61% 11.24% 16.14% 4.60% 3.00% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 172,388 $ 184,359 $ 153,481 $ 49,573 $ 1,570 Ratio of expenses to average net assets 1.98%*** 1.96% 2.09% 2.10% 2.10%*** Ratio of net investment income to average net assets 0.46%*** 0.58% 0.19% 0.23% 2.17%*** Portfolio turnover rate 39% 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. 120
SIX MONTHS ENDED DECEMBER 31, YEAR ENDED JUNE 30, FOR THE 2005 --------------------------------------- PERIOD ENDED CLASS C (UNAUDITED) 2005 2004 2003 JUNE 30, 2002* - ------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 13.09 $ 12.15 $ 10.56 $ 10.54 $ 11.10 ------------- ----------- ----------- ----------- -------------- Income from investment operations: Net investment income** 0.03 0.09 0.03 0.02 0.11 Net realized and unrealized gain from investment activities 0.71 1.29 1.68 0.41 0.33 ------------- ----------- ----------- ----------- -------------- Total income from investment operations 0.74 1.38 1.71 0.43 0.44 ------------- ----------- ----------- ----------- -------------- Less dividends/distributions: From net investment income and net foreign currency gains (0.05) (0.12) (0.12) (0.41) (0.19) From net realized gains (0.60) (0.32) -- -- (0.81) ------------- ----------- ----------- ----------- -------------- Total dividends/distributions (0.65) (0.44) (0.12) (0.41) (1.00) ------------- ----------- ----------- ----------- -------------- Net asset value, end of period $ 13.18 $ 13.09 $ 12.15 $ 10.56 $ 10.54 ============= =========== =========== =========== ============== Total investment return+ 5.61% 11.32% 16.19% 4.55% 4.23% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 996,106 $ 903,280 $ 539,399 $ 137,078 $ 1,525 Ratio of expenses to average net assets 1.94%*** 1.95% 2.06% 2.10% 2.10%*** Ratio of net investment income to average net assets 0.50%*** 0.59% 0.23% 0.23% 1.77%*** Portfolio turnover rate 39% 84% 78% 66% 116% SIX MONTHS ENDED DECEMBER 31, YEAR ENDED JUNE 30, 2005 ---------------------------------------------------------------- CLASS Y (UNAUDITED) 2005 2004 2003 2002 2001 - --------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 13.51 $ 12.50 $ 10.79 $ 10.69 $ 11.18 $ 11.25 ------------- ----------- ---------- ---------- ----------- ---------- Income from investment operations: Net investment income 0.11** 0.22** 0.15** 0.12** 0.13** 0.25 Net realized and unrealized gain from investment activities 0.73 1.33 1.73 0.41 0.38 0.31 ------------- ----------- ---------- ---------- ----------- ---------- Total income from investment operations 0.84 1.55 1.88 0.53 0.51 0.56 ------------- ----------- ---------- ---------- ----------- ---------- Less dividends/distributions: From net investment income and net foreign currency gains (0.17) (0.22) (0.17) (0.43) (0.19) -- From net realized gains (0.60) (0.32) -- -- (0.81) (0.63) ------------- ----------- ---------- ---------- ----------- ---------- Total dividends/distributions (0.77) (0.54) (0.17) (0.43) (1.00) (0.63) ------------- ----------- ---------- ---------- ----------- ---------- Net asset value, end of period $ 13.58 $ 13.51 $ 12.50 $ 10.79 $ 10.69 $ 11.18 ============= =========== ========== ========== =========== ========== Total investment return+ 6.23% 12.40% 17.44% 5.50% 4.91% 5.20% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 418,849 $ 356,154 $ 263,675 $ 193,758 $ 165,630 $ 156,130 Ratio of expenses to average net assets 0.89%*** 0.93% 1.02% 1.10% 1.10% 1.05% Ratio of net investment income to average net assets 1.55%*** 1.61% 1.26% 1.23% 1.24% 1.77% Portfolio turnover rate 39% 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. 121 UBS GLOBAL EQUITY FUND -- FINANCIAL HIGHLIGHTS THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH PERIOD PRESENTED
SIX MONTHS ENDED DECEMBER 31, YEAR ENDED JUNE 30, 2005 --------------------------------------------------------------- CLASS A (UNAUDITED) 2005 2004 2003 2002 2001 - --------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 11.63 $ 10.51 $ 8.89 $ 9.37 $ 10.61 $ 12.44 ----------- ---------- ---------- ---------- ----------- ---------- Income (loss) from investment operations: Net investment income 0.03** 0.15** 0.10** 0.16** 0.04** 0.07 Net realized and unrealized gain (loss) from investment activities 0.89 0.97 1.63 (0.39) (0.88) (0.56) ----------- ---------- ---------- ---------- ----------- ---------- Total income (loss) from investment operations 0.92 1.12 1.73 (0.23) (0.84) (0.49) ----------- ---------- ---------- ---------- ----------- ---------- Less dividends/distributions: From net investment income and net foreign currency gains (0.07) -- (0.11) (0.25) (0.06) (0.02) From net realized gains -- -- -- -- (0.34) (1.32) ----------- ---------- ---------- ---------- ----------- ---------- Total dividends/distributions (0.07) -- (0.11) (0.25) (0.40) (1.34) ----------- ---------- ---------- ---------- ----------- ---------- Net asset value, end of period $ 12.48 $ 11.63 $ 10.51 $ 8.89 $ 9.37 $ 10.61 =========== ========== ========== ========== =========== ========== Total investmentreturn+ 7.94% 10.66% 19.49% (2.23)% (8.05)% (4.45)% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 185,710 $ 109,998 $ 117,084 $ 123,756 $ 15,173 $ 302 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.39%*** 1.39% 1.44% 1.44% 1.47% 1.37% After expense reimbursement and earnings credits 1.25%*** 1.25% 1.25% 1.25% 1.25% 1.25% Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 0.38%*** 1.21% 0.80% 1.73% 0.17% 0.65% After expense reimbursement and earnings credits 0.52%*** 1.35% 0.99% 1.92% 0.39% 0.77% Portfolio turnover rate 23% 37% 50% 206% 117% 81% SIX MONTHS ENDED DECEMBER 31, YEAR ENDED JUNE 30, FOR THE 2005 ---------------------------------- PERIOD ENDED CLASS B (UNAUDITED) 2005 2004 2003 JUNE 30, 2002* - ----------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 11.39 $ 10.37 $ 8.82 $ 9.34 $ 10.17 ------------ --------- --------- --------- ------------- Income (loss) from investment operations: Net investment income (loss)** (0.01) 0.07 0.02 0.10 0.05 Net realized and unrealized gain (loss) from investmentactivities 0.87 0.95 1.62 (0.39) (0.48) ------------ --------- --------- --------- ------------- Total income (loss) from investment operations 0.86 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 dividends/distributions -- -- (0.09) (0.23) (0.40) ------------ --------- --------- --------- ------------- Net asset value, end of period $ 12.25 $ 11.39 $ 10.37 $ 8.82 $ 9.34 ============ ========= ========= ========= ============= Total investmentreturn+ 7.55% 9.84% 18.61% (2.91)% (4.38)% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 26,650 $ 108,894 $ 134,419 $ 144,232 $ 418 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 2.32%*** 2.22% 2.27% 2.20% 2.25%*** After expense reimbursement and earnings credits 2.00%*** 2.00% 2.00% 2.00% 2.00%*** Ratio of net investment income(loss) to average net assets: Before expense reimbursement and earnings credits (0.55)%*** 0.38% (0.03)% 0.97% 0.72%*** After expense reimbursement and earnings credits (0.23)%*** 0.60% 0.24% 1.17% 0.97%*** Portfolio turnover rate 23% 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. 122
SIX MONTHS ENDED DECEMBER 31, YEAR ENDED JUNE 30, FOR THE 2005 ------------------------------ PERIOD ENDED CLASS C (UNAUDITED) 2005 2004 2003 JUNE 30, 2002* - ------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 11.35 $ 10.33 $ 8.79 $ 9.33 $ 10.18 ------------ -------- -------- -------- -------------- Income (loss) from investment operations: Net investment income (loss)** (0.01) 0.06 0.02 0.10 0.04 Net realized and unrealized gain (loss) from investment activities 0.87 0.96 1.61 (0.40) (0.49) ------------ -------- -------- -------- -------------- Total income (loss) from investment operations 0.86 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 dividends/distributions -- -- (0.09) (0.24) (0.40) ------------ -------- -------- -------- --------------- Net asset value, end of period $ 12.21 $ 11.35 $ 10.33 $ 8.79 $ 9.33 ============ ======== ======== ======== =============== Total investment return+ 7.58% 9.87% 18.54% (2.93)% (4.57)% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 62,395 $ 68,735 $ 82,684 $ 93,605 $ 351 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 2.23%*** 2.20% 2.28% 2.24% 2.23%*** After expense reimbursement and earnings credits 2.00%*** 2.00% 2.00% 2.00% 2.00%*** Ratio of net investment income (loss) to average net assets: Before expense reimbursement and earnings credits (0.46)%*** 0.40% (0.03) 0.93% 0.55%*** After expense reimbursement and earnings credits (0.23)%*** 0.60% 0.25% 1.17% 0.78%*** Portfolio turnover rate 23% 37% 50% 206% 117% SIX MONTHS ENDED DECEMBER 31, YEAR ENDED JUNE 30, 2005 --------------------------------------------------------------- CLASS Y (UNAUDITED) 2005 2004 2003 2002 2001 - --------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 11.83 $ 10.67 $ 8.99 $ 9.47 $ 10.68 $ 12.47 ----------- --------- --------- --------- --------- --------- Income (loss) from investment operations: Net investment income 0.05** 0.18** 0.13** 0.18** 0.06** 0.09 Net realized and unrealized gain (loss) from investment activities 0.91 0.98 1.67 (0.39) (0.87) (0.54) ----------- --------- --------- --------- --------- --------- Total income (loss) from investment operations 0.96 1.16 1.80 (0.21) (0.81) (0.45) ----------- --------- --------- --------- --------- --------- Less dividends/distributions: From net investment income and net foreign currency gains (0.09) -- (0.12) (0.27) (0.06) (0.02) From net realized gains -- -- -- -- (0.34) (1.32) ----------- --------- --------- --------- --------- --------- Total dividends/distributions (0.09) -- (0.12) (0.27) (0.40) (1.34) ----------- --------- --------- --------- --------- --------- Net asset value, end of period. $ 12.70 $ 11.83 $ 10.67 $ 8.99 $ 9.47 $ 10.68 =========== ========= ========= ========= ========= ========= Total investment return+ 8.15% 10.87% 20.09% (1.93)% (7.71)% (4.07)% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 182,343 $ 159,252 $ 114,835 $ 62,873 $ 40,714 $ 49,306 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.01%*** 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% 1.00% Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 0.76%*** 1.56% 1.21% 2.01% 0.45% 0.90% After expense reimbursement and earnings credits 0.77%*** 1.60% 1.24% 2.17% 0.64% 1.02% Portfolio turnover rate 23% 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. 123 UBS GLOBAL BOND FUND -- FINANCIAL HIGHLIGHTS THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH PERIOD PRESENTED
SIX MONTHS ENDED DECEMBER 31, YEAR ENDED JUNE 30, 2005 --------------------------------------------------------- CLASS A (UNAUDITED) 2005 2004 2003 2002* 2001 - ------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $ 9.83 $ 9.87 $ 10.24 $ 9.01 $ 8.58 $ 9.09 ------------ -------- -------- -------- ------- ------- Income (loss) from investment operations: Net investment income** 0.08 0.17 0.19 0.24 0.17 0.33 Net realized and unrealized gain (loss) from investment activities (0.27) 0.34 0.35 1.21 0.43 (0.72) ------------ -------- -------- -------- ------- ------- Total income (loss) from investment operations (0.19) 0.51 0.54 1.45 0.60 (0.39) ------------ -------- -------- -------- ------- ------- Less dividends/distributions: From net investment income and net foreign currency gains (0.22) (0.55) (0.91) (0.22) -- (0.06) Distributions from return of capital -- -- -- -- (0.17) -- ------------ -------- -------- -------- ------- ------- Total dividends/distributions (0.22) (0.55) (0.91) (0.22) (0.17) (0.06) ------------ -------- -------- -------- ------- ------- Net asset value, end of period $ 9.42 $ 9.83 $ 9.87 $ 10.24 $ 9.01 $ 8.64 ============ ======== ======== ======== ======= ======= Total investmentreturn+ (1.98)% 5.05% 5.21% 16.34% 7.18% (4.27)% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 16,672 $ 16,701 $ 14,610 $ 11,659 $ 1,925 $ 3 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.48%*** 1.48% 1.55% 1.53% 1.49%*** 1.37% After expense reimbursement and earnings credits 1.15%*** 1.15% 1.15% 1.15% 1.15%*** 1.15% Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 1.32%*** 1.32% 1.44% 2.06% 2.72%*** 3.60% After expense reimbursement and earnings credits 1.65%*** 1.65% 1.84% 2.44% 3.06%*** 3.82% Portfolio turnover rate 66% 112% 186% 145% 157% 165% SIX MONTHS ENDED DECEMBER 31, YEAR ENDED JUNE 30, FOR THE 2005 --------------------------------------- PERIOD ENDED CLASS B (UNAUDITED) 2005 2004 2003 JUNE 30, 2002* - -------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 9.85 $ 9.88 $ 10.25 $ 9.01 $ 8.35 ------------ ----------- ----------- ----------- -------------- Income (loss) from investment operations: Net investment income** 0.04 0.09 0.11 0.16 0.11 Net realized and unrealized gain (loss) from investment activities (0.27) 0.35 0.35 1.23 0.69 ------------ ----------- ----------- ----------- -------------- Total income (loss) from investment operations (0.23) 0.44 0.46 1.39 0.80 ------------ ----------- ----------- ----------- -------------- Less dividends/distributions: From net investment income and net foreign currency gains (0.18) (0.47) (0.83) (0.15) -- Distributions from return of capital -- -- -- -- (0.14) ------------ ----------- ----------- ----------- -------------- Total dividends/distributions (0.18) (0.47) (0.83) (0.15) (0.14) ------------ ----------- ----------- ----------- -------------- Net asset value, end of period $ 9.44 $ 9.85 $ 9.88 $ 10.25 $ 9.01 ============ =========== =========== =========== ============== Total investment return+ (2.35)% 4.29% 4.38% 15.61% 9.67% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 595 $ 1,153 $ 1,536 $ 1,755 $ 392 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 2.25%*** 2.30% 2.33% 2.30% 2.25%*** After expense reimbursement and earnings credits 1.90%*** 1.90% 1.90% 1.90% 1.90%*** Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 0.56%*** 0.50% 0.66% 1.29% 1.94%*** After expense reimbursement and earnings credits 0.91%*** 0.90% 1.09% 1.69% 2.29%*** Portfolio turnover rate 66% 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. 124
SIX MONTHS ENDED DECEMBER 31, YEAR ENDED JUNE 30, FOR THE 2005 ------------------------ PERIOD ENDED CLASS C (UNAUDITED) 2005 2004 JUNE 30, 2003* - ---------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 9.81 $ 9.85 $ 10.23 $ 9.00 ------------- ---------- ---------- -------------- Income (loss) from investment operations: Net investment income** 0.06 0.12 0.14 0.19 Net realized and unrealized gain (loss) from investment activities (0.29) 0.35 0.34 1.22 ------------- ---------- ---------- -------------- Total income (loss) from investment operations (0.23) 0.47 0.48 1.41 ------------- ---------- ---------- -------------- Less dividends/distributions: From net investment income and net foreign currency gains (0.19) (0.51) (0.86) (0.18) ------------- ---------- ---------- -------------- Net asset value, end of period $ 9.39 $ 9.81 $ 9.85 $ 10.23 ============= ========== ========== ============== Total investment return+ (2.33)% 4.60% 4.64% 15.84% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 2,518 $ 3,081 $ 3,451 $ 3,198 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.88%*** 1.92% 1.99% 2.01%*** After expense reimbursement and earnings credits 1.65%*** 1.65% 1.65% 1.65%*** Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 0.93%*** 0.88% 1.00% 1.58%*** After expense reimbursement and earnings credits 1.16%*** 1.15% 1.34% 1.94%*** Portfolio turnover rate 66% 112% 186% 145% SIX MONTHS ENDED DECEMBER 31, YEAR ENDED JUNE 30, 2005 -------------------------------------------------------------- CLASS Y (UNAUDITED) 2005 2004 2003 2002 2001 - ------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 10.84 $ 10.83 $ 11.16 $ 9.79 $ 8.57 $ 9.01 ------------ ---------- ---------- ---------- ---------- ---------- Income (loss) from investment operations: Net investment income** 0.10 0.21 0.23 0.28 0.31 0.36 Net realized and unrealized gain (loss) from investment activities (0.31) 0.38 0.38 1.33 1.09 (0.72) ------------ ---------- ---------- ---------- ---------- ---------- Total income (loss) from investment operations (0.21) 0.59 0.61 1.61 1.40 (0.36) ------------ ---------- ---------- ---------- ---------- ---------- Less dividends/distributions: From net investment income and net foreign currency gains (0.22) (0.58) (0.94) (0.24) -- (0.08) Distributions from return of capital -- -- -- -- (0.18) -- ------------ ---------- ---------- ---------- ---------- ---------- Total dividends/distributions (0.22) (0.58) (0.94) (0.24) (0.18) (0.08) ------------ ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 10.41 $ 10.84 $ 10.83 $ 11.16 $ 9.79 $ 8.57 ============ ========== ========== ========== ========== ========== Total investment return+ (1.90)% 5.36% 5.43% 16.72% 16.57% (4.02)% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 49,406 $ 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%*** 1.16% 1.24% 1.32% 1.17% 1.12% After expense reimbursement and earnings credits 0.90%*** 0.90% 0.90% 0.90% 0.90% 0.90% Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 1.65%*** 1.64% 1.75% 2.27% 3.14% 3.85% After expense reimbursement and earnings credits 1.91%*** 1.90% 2.09% 2.69% 3.41% 4.07% Portfolio turnover rate 66% 112% 186% 145% 157% 165%
* For the 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. 125 UBS INTERNATIONAL EQUITY FUND -- FINANCIAL HIGHLIGHTS THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH PERIOD PRESENTED
SIX MONTHS ENDED DECEMBER 31, YEAR ENDED JUNE 30, 2005 -------------------------------------------------------------- CLASS A (UNAUDITED) 2005 2004 2003 2002 2001 - ------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 9.48 $ 8.58 $ 6.99 $ 8.08 $ 10.61 $ 13.57 ------------ ---------- ---------- ---------- ---------- ---------- Income (loss) from investment operations: Net investment income** 0.03 0.15 0.12 0.10 0.13 0.00^ Net realized and unrealized gain (loss) from investment activities 1.13 0.86 1.69 (0.87) (0.79) (2.15) ------------ ---------- ---------- ---------- ---------- ---------- Total income (loss) from investment operations 1.16 1.01 1.81 (0.77) (0.66) (2.15) ------------ ---------- ---------- ---------- ---------- ---------- Less dividends/distributions: From net investment income and net foreign currency gains (0.10) (0.11) (0.22) (0.31) (0.27) (0.04) From net realized gains (0.37) -- -- (0.01) (1.60) (0.77) ------------ ---------- ---------- ---------- ---------- ---------- Total dividends/distributions (0.47) (0.11) (0.22) (0.32) (1.87) (0.81) ------------ ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 10.17 $ 9.48 $ 8.58 $ 6.99 $ 8.08 $ 10.61 ============ ========== ========== ========== ========== ========== Total investment return+ 12.21% 11.73% 26.00% (9.24)% (5.91)% (16.37)% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 20,964 $ 15,168 $ 7,866 $ 3,146 $ 2,599 $ 301 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.48%*** 1.68% 1.55% 1.47% 1.41% 1.31% After expense reimbursement and earnings credits 1.25%*** 1.25% 1.25% 1.25% 1.25% 1.28%# Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 0.29%*** 1.18% 1.13% 1.21% 1.38% 0.77% After expense reimbursement and earnings credits 0.52%*** 1.61% 1.43% 1.43% 1.54% 0.80% Portfolio turnover rate 24% 71% 108% 120% 82% 62% SIX MONTHS ENDED DECEMBER 31, YEAR ENDED JUNE 30, FOR THE 2005 ----------------------------------- PERIOD ENDED CLASS B (UNAUDITED) 2005 2004 2003 JUNE 30, 2002* - ---------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 9.34 $ 8.48 $ 6.92 $ 8.05 $ 7.75 ------------ ---------- ---------- ---------- ------------- Income (loss) from investment operations: Net investment income (loss)** (0.01) 0.08 0.06 0.04 0.05 Net realized and unrealized gain (loss) from investment activities 1.11 0.85 1.67 (0.86) 0.25 ------------ ---------- ---------- ---------- ------------- Total income (loss) from investment operations 1.10 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 (0.37) -- -- (0.01) -- ------------ ---------- ---------- ---------- ------------- (0.37) (0.07) (0.17) (0.31) -- ------------ ---------- ---------- ---------- ------------- Net asset value, end of period $ 10.07 $ 9.34 $ 8.48 $ 6.92 $ 8.05 ============ ========== ========== ========== ============= Total investment return+ 11.76% 10.92% 25.17% (9.94)% 3.87% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 707 $ 876 $ 815 $ 352 $ 120 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 2.23%*** 2.25% 2.60% 2.18% 2.05%*** After expense reimbursement and earnings credits 2.00%*** 2.00% 2.00% 2.00% 2.00%*** Ratio of net investment income (loss) to average net assets: Before expense reimbursement and earnings credits (0.46)%*** 0.61% 0.09% 0.50% 1.45%*** After expense reimbursement and earnings credits (0.23)%*** 0.86% 0.69% 0.68% 1.50%*** Portfolio turnover rate 24% 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. 126
SIX MONTHS ENDED DECEMBER 31, YEAR ENDED JUNE 30, FOR THE 2005 ----------------------------------- PERIOD ENDED CLASS C (UNAUDITED) 2005 2004 2003 JUNE 30, 2002* - ------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 9.30 $ 8.45 $ 6.90 $ 8.05 $ 7.75 ------------ ---------- ---------- ---------- -------------- Income (loss) from investment operations: Net investment income (loss)** (0.01) 0.08 0.06 0.04 0.04 Net realized and unrealized gain (loss) from investment activities 1.11 0.85 1.68 (0.89) 0.26 ------------ ---------- ---------- ---------- -------------- Total income (loss) from investment operations 1.10 0.93 1.74 (0.85) 0.30 ------------ ---------- ---------- ---------- -------------- Less dividends/distributions: From net investment income and net foreign currency gains (0.02) (0.08) (0.19) (0.29) -- From net realized gains (0.37) -- -- (0.01) -- ------------ ---------- ---------- ---------- -------------- Total dividends/distributions (0.39) (0.08) (0.19) (0.30) -- ------------ ---------- ---------- ---------- -------------- Net asset value, end of period $ 10.01 $ 9.30 $ 8.45 $ 6.90 $ 8.05 ============ ========== ========== ========== ============== Total investment return+ 11.78% 10.97% 25.26% (10.29)% 3.87% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 2,010 $ 1,816 $ 1,338 $ 399 $ 183 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 2.15%*** 2.16% 2.35% 2.21% 2.19%*** After expense reimbursement and earnings credits 2.00%*** 2.00% 2.00% 2.00% 2.00%*** Ratio of net investment income (loss) to average net assets: Before expense reimbursement and earnings credits (0.37)%*** 0.70% 0.34% 0.47% 0.91%*** After expense reimbursement and earnings credits (0.22)%*** 0.86% 0.69% 0.68% 1.10%*** Portfolio turnover rate 24% 71% 108% 120% 82% SIX MONTHS ENDED DECEMBER 31, YEAR ENDED JUNE 30, 2005 -------------------------------------------------------------- CLASS Y (UNAUDITED) 2005 2004 2003 2002 2001 - ------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 9.55 $ 8.63 $ 7.01 $ 8.12 $ 10.64 $ 13.57 ------------ ---------- ---------- ---------- ---------- ---------- Income (loss) from investment operations: Net investment income** 0.04 0.17 0.14 0.11 0.09 0.13 Net realized and unrealized gain (loss) from investment activities 1.14 0.86 1.71 (0.88) (0.74) (2.25) ------------ ---------- ---------- ---------- ---------- ---------- Total income (loss) from investment operations 1.18 1.03 1.85 (0.77) (0.65) (2.12) ------------ ---------- ---------- ---------- ---------- ---------- Less dividends/distributions: From net investment income and net foreign currency gains (0.12) (0.11) (0.23) (0.33) (0.27) (0.04) From net realized gains (0.37) -- -- (0.01) (1.60) (0.77) ------------ ---------- ---------- ---------- ---------- ---------- Total dividends/distributions (0.49) (0.11) (0.23) (0.34) (1.87) (0.81) ------------ ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 10.24 $ 9.55 $ 8.63 $ 7.01 $ 8.12 $ 10.64 ============ ========== ========== ========== ========== ========== Total investment return+ 12.34% 11.97% 26.56% (9.21)% (5.78)% (16.15)% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 129,501 $ 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%*** 1.18% 1.26% 1.21% 1.13% 1.06% After expense reimbursement and earnings credits 1.00%*** 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 0.59%*** 1.68% 1.43% 1.47% 0.92% 1.02% After expense reimbursement and earnings credits 0.77%*** 1.86% 1.69% 1.68% 1.05% 1.05% Portfolio turnover rate 24% 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. 127 UBS U.S. LARGE CAP EQUITY FUND -- FINANCIAL HIGHLIGHTS THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH PERIOD PRESENTED
SIX MONTHS ENDED DECEMBER 31, YEAR ENDED JUNE 30, 2005 -------------------------------------------------------------- CLASS A (UNAUDITED) 2005 2004 2003 2002 2001 - ------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 17.27 $ 16.08 $ 13.63 $ 13.94 $ 15.97 $ 15.97 ------------ ---------- ---------- ---------- ---------- ---------- Income (loss) from investment operations: Net investment income** 0.06 0.15 0.06 0.11 0.08 0.08 Net realized and unrealized gain (loss) from investment activities 1.21 1.63 2.54 0.04 (1.38) 1.56 ------------ ---------- ---------- ---------- ---------- ---------- Total income (loss) from investment operations 1.27 1.78 2.60 0.15 (1.30) 1.64 ------------ ---------- ---------- ---------- ---------- ---------- Less dividends/distributions: From net investment income (0.11) (0.11) (0.15) (0.08) (0.04) (0.29) From net realized gains (0.41) (0.48) -- (0.38) (0.69) (1.35) ------------ ---------- ---------- ---------- ---------- ---------- Total dividends/distributions (0.52) (0.59) (0.15) (0.46) (0.73) (1.64) ------------ ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 18.02 $ 17.27 $ 16.08 $ 13.63 $ 13.94 $ 15.97 ============ ========== ========== ========== ========== ========== Total investment return+ . 7.31% 11.10% 19.10% 1.37% (8.41)% 10.63% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 54,751 $ 25,669 $ 7,886 $ 4,702 $ 13,698 $ 7,067 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.15%*** 1.14% 1.36% 1.30% 1.19% 1.17% After expense reimbursement and earnings credits 1.15%*** 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 0.62%*** 0.89% 0.37% 0.64% 0.40% 0.37% After expense reimbursement and earnings credits 0.62%*** 0.89% 0.43% 0.89% 0.54% 0.49% Portfolio turnover rate 41% 32% 43% 33% 60% 54% SIX MONTHS ENDED DECEMBER 31, YEAR ENDED JUNE 30, FOR THE 2005 ----------------------------------- PERIOD ENDED CLASS B (UNAUDITED) 2005 2004 2003 JUNE 30, 2002* - ------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 16.94 $ 15.81 $ 13.45 $ 13.87 $ 14.76 ------------ ---------- ---------- ---------- -------------- Income (loss) from investment operations: Net investment income (loss)** (0.02) 0.00# (0.05) 0.02 0.06 Net realized and unrealized gain (loss) from investment activities 1.19 1.61 2.50 0.02 (0.22) ------------ ---------- ---------- ---------- -------------- Total income (loss) from investment operations 1.17 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 (0.41) (0.48) -- (0.38) (0.69) ------------ ---------- ---------- ---------- -------------- Total dividends/distributions (0.41) (0.48) (0.09) (0.46) (0.73) ------------ ---------- ---------- ---------- -------------- Net asset value, end of period $ 17.70 $ 16.94 $ 15.81 $ 13.45 $ 13.87 ============ ========== ========== ========== ============== Total investment return+ . 6.89% 10.19% 18.25% 0.63% (1.39)% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 866 $ 1,018 $ 1,217 $ 635 $ 223 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.96%*** 2.02% 2.04% 2.04% 1.99%*** After expense reimbursement and earnings credits 1.96%*** 2.02% 2.04% 1.80% 1.80%*** Ratio of net investment income (loss) to average net assets: Before expense reimbursement and earnings credits (0.19)%*** 0.01% (0.31)% (0.10)% 0.46%*** After expense reimbursement and earnings credits (0.19)%*** 0.01% (0.31)% 0.14% 0.65%*** Portfolio turnover rate 41% 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. 128
SIX MONTHS ENDED DECEMBER 31, YEAR ENDED JUNE 30, FOR THE 2005 ----------------------------------- PERIOD ENDED CLASS C (UNAUDITED) 2005 2004 2003 JUNE 30, 2002* - ------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 16.93 $ 15.80 $ 13.44 $ 13.88 $ 15.20 ------------ ---------- ---------- ---------- -------------- Income (loss) from investment operations: Net investment income (loss)** (0.01) 0.01 (0.04) 0.02 0.07 Net realized and unrealized gain (loss) from investment activities 1.19 1.60 2.49 0.03 (0.66) ------------ ---------- ---------- ---------- -------------- Total income (loss) from investment operations 1.18 1.61 2.45 0.05 (0.59) ------------ ---------- ---------- ---------- -------------- Less dividends/distributions: From net investment income (0.01) -- (0.09) (0.11) (0.04) From net realized gains (0.41) (0.48) -- (0.38) (0.69) ------------ ---------- ---------- ---------- -------------- Total dividends/distributions (0.42) (0.48) (0.09) (0.49) (0.73) ------------ ---------- ---------- ---------- -------------- Net asset value, end of period $ 17.69 $ 16.93 $ 15.80 $ 13.44 $ 13.88 ============ ========== ========== ========== ============== Total investment return+ . 6.95% 10.20% 18.26% 0.68% (4.18)% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 4,420 $ 2,423 $ 1,629 $ 1,020 $ 70 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.89%*** 1.95% 2.00% 2.04% 1.97%*** After expense reimbursement and earnings credits 1.89%*** 1.95% 2.00% 1.80% 1.80%*** Ratio of net investment income (loss) to average net assets: Before expense reimbursement and earnings credits (0.12)%*** 0.08% (0.27)% (0.10)% 0.56%*** After expense reimbursement and earnings credits (0.12)%*** 0.08% (0.27)% 0.14% 0.73%*** Portfolio turnover rate 41% 32% 43% 33% 60% SIX MONTHS ENDED DECEMBER 31, YEAR ENDED JUNE 30, 2005 -------------------------------------------------------------- CLASS Y (UNAUDITED) 2005 2004 2003 2002 2001 - ------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 17.42 $ 16.21 $ 13.73 $ 14.07 $ 16.07 $ 16.07 ------------ ---------- ---------- ---------- ---------- ---------- Income (loss) from investment operations: Net investment income** 0.08 0.19 0.12 0.14 0.12 0.12 Net realized and unrealized gain (loss) from investment activities 1.23 1.65 2.55 0.04 (1.39) 1.57 ------------ ---------- ---------- ---------- ---------- ---------- Total income (loss) from investment operations 1.31 1.84 2.67 0.18 (1.27) 1.69 ------------ ---------- ---------- ---------- ---------- ---------- Less dividends/distributions: From net investment income (0.13) (0.15) (0.19) (0.14) (0.04) (0.34) From net realized gains (0.41) (0.48) -- (0.38) (0.69) (1.35) ------------ ---------- ---------- ---------- ---------- ---------- Total dividends/distributions (0.54) (0.63) (0.19) (0.52) (0.73) (1.69) ------------ ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 18.19 $ 17.42 $ 16.21 $ 13.73 $ 14.07 $ 16.07 ============ ========== ========== ========== ========== ========== Total investment return+ 7.49% 11.37% 19.50% 1.69% (8.17)% 10.88% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 396,378 $ 367,268 $ 153,608 $ 99,398 $ 87,710 $ 125,997 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 0.87%*** 0.90% 0.96% 1.04% 0.93% 0.92% After expense reimbursement and earnings credits 0.87%*** 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 0.90%*** 1.13% 0.76% 0.90% 0.66% 0.62% After expense reimbursement and earnings credits 0.90%*** 1.13% 0.76% 1.14% 0.79% 0.74% Portfolio turnover rate 41% 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. 129 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
SIX MONTHS ENDED DECEMBER 31, YEAR ENDED JUNE 30, 2005 ----------------------------------------------------------- CLASS A (UNAUDITED) 2005 2004 2003 2002 2001 - ----------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 8.21 $ 7.71 $ 6.39 $ 6.38 $ 8.90 $ 15.20 ------------ ------- ---------- --------- ---------- ------- Income (loss) from investment operations: Net investment income (loss) (0.02)** 0.00#** (0.02)** 0.00#** (0.02)** (0.07) Net realized and unrealized gain (loss) from investment activities 1.21 0.50 1.34 0.01 (2.45) (4.32) ------------ ------- ---------- --------- ---------- ------- Total income (loss) from investment operations 1.19 0.50 1.32 0.01 (2.47) (4.39) ------------ ------- ---------- --------- ---------- ------- Less dividends/distributions: From net investment income (0.00)# -- -- -- -- -- From net realized gains -- -- -- -- (0.05) (1.91) ------------ ------- ---------- --------- ---------- ------- Total dividends/distributions (0.00)# -- -- -- (0.05) (1.91) ------------ ------- ---------- --------- ---------- ------- Net asset value, end of period $ 9.40 $ 8.21 $ 7.71 $ 6.39 $ 6.38 $ 8.90 ============ ======= ========== ========= ========== ======= Total investment return+ 14.52% 6.49% 20.66% 0.16% (27.89) (31.59)% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 5,462 $ 3,175 $ 2,275 $ 1,163 $ 1,155 $ 1 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 2.40%*** 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% 1.05% Ratio of net investment income (loss) to average net assets: Before expense reimbursement and earnings credits (1.70)%*** (2.10)% (2.03)% (2.82)% (1.71)% (0.91)% After expense reimbursement and earnings credits (0.35)%*** 0.04% (0.32)% 0.04% (0.25)% (0.37)% Portfolio turnover rate 53% 145% 102% 86% 93% 56% SIX MONTHS ENDED DECEMBER 31, YEAR ENDED JUNE 30, FOR THE 2005 ----------------------------------- PERIOD ENDED CLASS B (UNAUDITED) 2005 2004 2003 JUNE 30, 2002* - ----------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 8.00 $ 7.57 $ 6.32 $ 6.36 $ 7.86 ------------ ---------- ---------- ---------- -------------- Income (loss) from investment operations: Net investment loss** (0.05) (0.05) (0.08) (0.04) (0.05) Net realized and unrealized gain (loss) from investment activities 1.18 0.48 1.33 -- (1.40) ------------ ---------- ---------- ---------- -------------- Total income (loss) from investment operations 1.13 0.43 1.25 (0.04) (1.45) ------------ ---------- ---------- ---------- -------------- Less dividends/distributions: From net realized gains -- -- -- -- (0.05) ------------ ---------- ---------- ---------- -------------- Net asset value, end of period $ 9.13 $ 8.00 $ 7.57 $ 6.32 $ 6.36 ============ ========== ========== ========== ============== Total investment return+ 14.13% 5.68% 19.78% (0.63)% (18.61)% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 375 $ 564 $ 342 $ 321 $ 115 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 3.36%*** 3.93% 3.48% 4.54% 3.06%*** After expense reimbursement and earnings credits 1.80%*** 1.80% 1.80% 1.80% 1.80%*** Ratio of net investment loss to average net assets: Before expense reimbursement and earnings credits (2.66)%*** (2.84)% (2.75)% (3.45)% (2.28)%*** After expense reimbursement and earnings credits (1.10)%*** (0.71)% (1.07)% (0.71)% (1.02)%*** Portfolio turnover rate 53% 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. 130
SIX MONTHS ENDED DECEMBER 31, YEAR ENDED JUNE 30, FOR THE 2005 ------------------------------- PERIOD ENDED CLASS C (UNAUDITED) 2005 2004 2003 JUNE 30, 2002* - ---------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 8.00 $ 7.56 $ 6.32 $ 6.35 $ 8.18 ------------- ------- ------- ------- ------------- Income (loss) from investment operations: Net investment loss** (0.05) (0.05) (0.08) (0.04) (0.05) Net realized and unrealized gain (loss) from investment activities 1.17 0.49 1.32 0.01 (1.73) ------------- ------- ------- ------- ------------- Total income (loss) from investment operations 1.12 0.44 1.24 (0.03) (1.78) ------------- ------- ------- ------- ------------- Less dividends/distributions: From net realized gains -- -- -- -- (0.05) ============= ======= ======= ======= ============= Net asset value, end of period $ 9.12 $ 8.00 $ 7.56 $ 6.32 $ 6.35 ============= ======= ======= ======= ============= Total investment return+ 14.00% 5.82% 19.62% (0.47)% (21.91)% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 658 $ 407 $ 432 $ 267 $ 572 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 3.18%*** 3.96% 3.54% 4.71% 3.22%*** After expense reimbursement and earnings credits 1.80%*** 1.80% 1.80% 1.80% 1.80%*** Ratio of net investment loss to average net assets: Before expense reimbursement and earnings credits (2.48)%*** (2.87)% (2.81)% (3.62)% (2.44)%*** After expense reimbursement and earnings credits (1.10)%*** (0.71)% (1.08)% (0.71)% (1.02)%*** Portfolio turnover rate 53% 145% 102% 86% 93% SIX MONTHS ENDED DECEMBER 31, YEAR ENDED JUNE 30, 2005 ---------------------------------------------------------- CLASS Y (UNAUDITED) 2005 2004 2003 2002 2001 - -------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 8.38 $ 7.85 $ 6.49 $ 6.47 $ 8.99 $ 15.28 ------------- ------- ------- ------- ------- ------- Income (loss) from investment operations: Net investment income (loss) 0.00#** 0.02** (0.01)** 0.02** 0.00#** (0.01) Net realized and unrealized gain (loss) from investment activities 1.24 0.51 1.37 0.00# (2.47) (4.37) ------------- ------- ------- ------- ------- ------- Total income (loss) from investment operations 1.24 0.53 1.36 0.02 (2.47) (4.38) ------------- ------- ------- ------- ------- ------- Less dividends/distributions: From net investment income (0.01) -- -- -- (0.05) -- From net realized gains -- -- -- -- -- (1.91) ------------- ------- ------- ------- ------- ------- Total dividends/distributions (0.01) -- -- -- (0.05) (1.91) ------------- ------- ------- ------- ------- ------- Net asset value, end of period $ 9.61 $ 8.38 $ 7.85 $ 6.49 $ 6.47 $ 8.99 ============= ======= ======= ======= ======= ======= Total investment return+ 14.77% 6.75% 20.96% 0.31% (27.61)% (31.33)% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 5,046 $ 3,078 $ 3,502 $ 1,943 $ 2,291 $ 3,299 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 2.09%*** 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% 0.80% Ratio of net investment income (loss) to average net assets: Before expense reimbursement and earnings credits (1.39)%*** (1.92)% (1.78)% (2.62)% (1.39)% (0.66)% After expense reimbursement and earnings credits (0.10)%*** 0.29% (0.07)% 0.29% (0.05)% (0.12)% Portfolio turnover rate 53% 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. 131 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
SIX MONTHS ENDED DECEMBER 31, YEAR ENDED JUNE 30, FOR THE 2005 -------------------------------- PERIOD ENDED CLASS A (UNAUDITED) 2005 2004 2003 JUNE 30, 2002* - ----------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 10.48 $ 11.18 $ 9.31 $ 9.37 $ 9.96 ------------- --------- --------- ------- ------------- Income (loss) from investment operations: Net investment income** 0.06 0.12 0.09 0.11 0.05 Net realized and unrealized gain (loss) from investment activities 0.75 1.22 1.80 (0.06) (0.64) ------------- --------- --------- ------- ------------- Total income (loss) from investment operations 0.81 1.34 1.89 0.05 (0.59) ------------- --------- --------- ------- ------------- Less dividends/distributions: From net investment income (0.12) (0.12) (0.02) (0.05) -- From net realized gains (1.05) (1.92) -- (0.06) -- ------------- --------- --------- ------- ------------- Total dividends/distributions (1.17) (2.04) (0.02) (0.11) -- ------------- --------- --------- ------- ------------- Net asset value, end of period $ 10.12 $ 10.48 $ 11.18 $ 9.31 $ 9.37 ============= ========= ========= ======= ============= Total investment return+ 7.66% 12.35% 20.28% 0.61% (5.92)% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 105,998 $ 105,975 $ 108,369 $ 1,073 $ 751 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.36%*** 1.39% 1.42% 2.85% 3.82%*** After expense reimbursement and earnings credits 1.10%*** 1.10% 1.10% 1.10% 1.10%*** Ratio of net investment income (loss) to average net assets: Before expense reimbursement and earnings credits 0.82%*** 0.80% 0.54% (0.42)% (1.85)%*** After expense reimbursement and earnings credits 1.08%*** 1.09% 0.86% 1.33% 0.87%*** Portfolio turnover rate 23% 49% 170% 59% 39% SIX MONTHS ENDED DECEMBER 31, YEAR ENDED JUNE 30, FOR THE 2005 -------------------------------- PERIOD ENDED CLASS B (UNAUDITED) 2005 2004 2003 JUNE 30, 2002* - ----------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 10.31 $ 10.99 $ 9.21 $ 9.32 $ 9.62 ------------- --------- --------- ------- ------------- Income (loss) from investment operations: Net investment income** 0.02 0.04 0.01 0.05 0.01 Net realized and unrealized gain (loss) from investment activities 0.72 1.20 1.77 (0.07) (0.31) ------------- --------- --------- ------- ------------- Total income (loss) from investment operations 0.74 1.24 1.78 (0.02) (0.30) ------------- --------- --------- ------- ------------- Less dividends/distributions: From net investment income -- -- (0.00)# (0.03) -- From net realized gains (1.05) (1.92) -- (0.06) -- ------------- --------- --------- ------- ------------- Total dividends/distributions (1.05) (1.92) (0.00) (0.09) -- ------------- --------- --------- ------- ------------- Net asset value, end of period $ 10.00 $ 10.31 $ 10.99 $ 9.21 $ 9.32 ============= ========= ========= ======= ============= Total investment return+ 7.07% 11.59% 19.38% (0.17)% (3.12)% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 3,125 $ 4,997 $ 14,556 $ 709 $ 301 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 2.19%*** 2.35% 2.31% 3.42% 4.66%*** After expense reimbursement and earnings credits 1.85%*** 1.85% 1.85% 1.85% 1.85%*** Ratio of net investment income (loss) to average net assets: Before expense reimbursement and earnings credits (0.01)%*** (0.16)% (0.35)% (0.99)% (2.72)%*** After expense reimbursement and earnings credits 0.33%*** 0.34% 0.11% 0.58% 0.09%*** Portfolio turnover rate 23% 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. 132
SIX MONTHS ENDED DECEMBER 31, YEAR ENDED JUNE 30, FOR THE 2005 --------------------------------- PERIOD ENDED CLASS C (UNAUDITED) 2005 2004 2003 JUNE 30, 2002* - ----------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 10.30 $ 11.00 $ 9.22 $ 9.33 $ 9.73 ------------- --------- --------- ------- ------------- Income (loss) from investment operations: Net investment income** 0.02 0.04 0.01 0.05 0.00# Net realized and unrealized gain (loss) from investment activities 0.73 1.20 1.77 (0.07) (0.40) ------------- --------- --------- ------- ------------- Total income (loss) from investment operations 0.75 1.24 1.78 (0.02) (0.40) ------------- --------- --------- ------- ------------- Less dividends/distributions: From net investment income (0.04) (0.02) (0.00)# (0.03) -- From net realized gains (1.05) (1.92) -- (0.06) -- ------------- --------- --------- ------- ------------- Total dividends/distributions (1.09) (1.94) (0.00) (0.09) -- ------------- --------- --------- ------- ------------- Net asset value, end of period $ 9.96 $ 10.30 $ 11.00 $ 9.22 $ 9.33 ============= ========= ========= ======= ============= Total investment return+ 7.17% 11.62% 19.34% (0.13)% (4.11)% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 17,183 $ 17,235 $ 19,530 $ 1,025 $ 234 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 2.12%*** 2.19% 2.17% 3.04% 4.58%*** After expense reimbursement and earnings credits 1.85%*** 1.85% 1.85% 1.85% 1.85%*** Ratio of net investment income (loss) to average net assets: Before expense reimbursement and earnings credits 0.06%*** 0.00%++ (0.21)% (0.61)% (2.68)%*** After expense reimbursement and earnings credits 0.33%*** 0.34% 0.11% 0.58% 0.05%*** Portfolio turnover rate 23% 49% 170% 59% 39% SIX MONTHS ENDED DECEMBER 31, YEAR ENDED JUNE 30, FOR THE 2005 --------------------------------- PERIOD ENDED CLASS Y (UNAUDITED) 2005 2004 2003 JUNE 30, 2002* - ----------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 10.52 $ 11.22 $ 9.33 $ 9.38 $ 10.00 ------------- --------- --------- ------- ------------- Income (loss) from investment operations: Net investment income** 0.07 0.14 0.11 0.13 0.11 Net realized and unrealized gain (loss) from investment activities 0.75 1.24 1.80 (0.06) (0.73) ------------- --------- --------- ------- ------------- Total income (loss) from investment operations 0.82 1.38 1.91 0.07 (0.62) ------------- --------- --------- ------- ------------- Less dividends/distributions: From net investment income (0.15) (0.16) (0.02) (0.06) -- From net realized gains (1.05) (1.92) -- (0.06) -- ------------- --------- --------- ------- ------------- Total dividends/distributions (1.20) (2.08) (0.02) (0.12) -- ------------- --------- --------- ------- ------------- Net asset value, end of period $ 10.14 $ 10.52 $ 11.22 $ 9.33 $ 9.38 ============= ========= ========= ======= ============= Total investment return+ 7.70% 12.74% 20.49% 0.89% (6.20)% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 6,464 $ 5,760 $ 4,516 $ 4,790 $ 2,819 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.03%*** 1.13% 1.27% 2.62% 3.15%*** After expense reimbursement and earnings credits 0.85%*** 0.85% 0.85% 0.85% 0.85%*** Ratio of net investment income (loss) to average net assets: Before expense reimbursement and earnings credits 1.15%*** 1.06% 0.68% (0.19)% (1.17)%*** After expense reimbursement and earnings credits 1.33%*** 1.34% 1.10% 1.58% 1.13%*** Portfolio turnover rate 23% 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 is less than $0.01 per share. ++ Amount represents less than 0.005%. See accompanying notes to financial statements. 133 UBS U.S. SMALL CAP GROWTH FUND -- FINANCIAL HIGHLIGHTS THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH PERIOD PRESENTED
SIX MONTHS ENDED DECEMBER 31, YEAR ENDED JUNE 30, 2005 ------------------------------------------------------------ CLASS A (UNAUDITED) 2005 2004 2003 2002 2001 - ----------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 13.65 $ 12.41 $ 10.00 $ 9.79 $ 11.76 $ 16.20 ------------- --------- -------- ------- -------- -------- Income (loss) from investment operations: Net investment loss (0.06)** (0.11)** (0.11)** (0.08)** (0.11)** (0.09) Net realized and unrealized gain (loss) from investment activities 0.86 1.55 2.55 0.29 (1.42) (1.52) ------------- --------- -------- ------- -------- -------- Total income (loss) from investment operations 0.80 1.44 2.44 0.21 (1.53) (1.61) ------------- --------- -------- ------- -------- -------- Less dividends/distributions: From net realized gains (0.57) (0.20) (0.03) -- (0.44) (2.83) ------------- --------- -------- ------- -------- -------- Net asset value, end of period $ 13.88 $ 13.65 $ 12.41 $ 10.00 $ 9.79 $ 11.76 ============= ========= ======== ======= ======== ======== Total investment return+ 5.84% 11.63% 24.45% 2.14% (13.18)% (11.00)% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 133,326 $ 110,795 $ 73,833 $ 9,841 $ 1,789 $ 2 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.39%*** 1.59% 1.56% 1.71% 1.69% 1.48% After expense reimbursement and earnings credits 1.28%*** 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 (0.91)%*** (1.19)% (1.16)% (1.21)% (1.35)% (0.87)% After expense reimbursement and earnings credits (0.80)%*** (0.88)% (0.90)% (0.90)% (1.06)% (0.79)% Portfolio turnover rate 25% 50% 75% 69% 71% 93% SIX MONTHS ENDED DECEMBER 31, YEAR ENDED JUNE 30, FOR THE 2005 ------------------------------- PERIOD ENDED CLASS B (UNAUDITED) 2005 2004 2003 JUNE 30, 2002* - ----------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 13.29 $ 12.17 $ 9.89 $ 9.75 $ 10.18 ------------- ------- -------- ------- -------------- Income (loss) from investment operations: Net investment loss** (0.11) (0.20) (0.20) (0.14) (0.11) Net realized and unrealized gain from investment activities 0.83 1.52 2.51 0.28 0.12 ------------- ------- -------- ------- -------------- Total income from investment operations 0.72 1.32 2.31 0.14 0.01 ------------- ------- -------- ------- -------------- Less dividends/distributions: From net realized gains (0.57) (0.20) (0.03) -- (0.44) ------------- ------- -------- ------- -------------- Net asset value, end of period $ 13.44 $ 13.29 $ 12.17 $ 9.89 $ 9.75 ============= ======= ======== ======= ============== Total investment return+ 5.40% 10.86% 23.40% 1.44% (0.11)% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 8,111 $ 9,592 $ 11,683 $ 1,132 $ 656 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 2.34%*** 2.53% 2.55% 2.47% 2.46%*** After expense reimbursement and earnings credits 2.03%*** 2.03% 2.03% 2.15% 2.15%*** Ratio of net investment income (loss) to average net assets: Before expense reimbursement and earnings credits (1.86)%*** 2.13% (2.14)% (1.97)% (1.93)%*** After expense reimbursement and earnings credits (1.55)%*** 1.63% (1.62)% (1.65)% (1.62)%*** Portfolio turnover rate 25% 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. 134
SIX MONTHS ENDED DECEMBER 31, YEAR ENDED JUNE 30, FOR THE 2005 ------------------------------- PERIOD ENDED CLASS C (UNAUDITED) 2005 2004 2003 JUNE 30, 2002* - ----------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 13.28 $ 12.16 $ 9.88 $ 9.74 $ 10.37 ------------- ------- ------- ------- -------------- Income (loss) from investment operations: Net investment loss** (0.11) (0.20) (0.20) (0.14) (0.10) Net realized and unrealized gain (loss) from investment activities 0.82 1.52 2.51 0.28 (0.09) ------------- ------- ------- ------- -------------- Total income (loss) from investment operations 0.71 1.32 2.31 0.14 (0.19) ------------- ------- ------- ------- -------------- Less dividends/distributions: From net realized gains (0.57) (0.20) (0.03) -- (0.44) ------------- ------- ------- ------- -------------- Net asset value, end of period $ 13.42 $ 13.28 $ 12.16 $ 9.88 $ 9.74 ============= ======= ======= ======= ============== Total investment return+ 5.33% 10.87% 23.43% 1.44% (2.04)% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 8,576 $ 8,661 $ 9,580 $ 757 $ 410 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 2.29%*** 2.45% 2.54% 2.47% 2.46%*** After expense reimbursement and earnings credits 2.03%*** 2.03% 2.03% 2.15% 2.15%*** Ratio of net investment loss to average net assets: Before expense reimbursement and earnings credits (1.81)%*** (2.05)% (2.13)% (1.97)% (1.90)%*** After expense reimbursement and earnings credits (1.55)%*** (1.63)% (1.63)% (1.65)% (1.59)%*** Portfolio turnover rate 25% 50% 75% 69% 71% SIX MONTHS ENDED DECEMBER 31, YEAR ENDED JUNE 30, 2005 ---------------------------------------------------------- CLASS Y (UNAUDITED) 2005 2004 2003 2002 2001 - ---------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 13.93 $ 12.63 $ 10.15 $ 9.92 $ 11.86 $ 16.27 ------------- --------- -------- -------- -------- -------- Income (loss) from investment operations: Net investment loss (0.04)** (0.08)** (0.08)** (0.06)** (0.09)** (0.07) Net realized and unrealized gain (loss) from investment activities 0.87 1.58 2.59 0.29 (1.41) (1.51) ------------- --------- -------- -------- -------- -------- Total income (loss) from investment operations 0.83 1.50 2.51 0.23 (1.50) (1.58) ------------- --------- -------- -------- -------- -------- Less dividends/distributions: From net realized gains (0.57) (0.20) (0.03) -- (0.44) (2.83) ------------- --------- -------- -------- -------- -------- Net asset value, end of period $ 14.19 $ 13.93 $ 12.63 $ 10.15 $ 9.92 $ 11.86 ============= ========= ======== ======== ======== ======== Total investment return+ 5.94% 11.90% 24.78% 2.32% (12.90)% (10.74)% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 202,822 $ 146,725 $ 91,406 $ 39,785 $ 36,318 $ 44,057 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.07%*** 1.14% 1.21% 1.49% 1.41% 1.23% After expense reimbursement and earnings credits 1.03%*** 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 (0.59)%*** (0.74)% (0.81)% (1.00)% (1.07)% (0.62)% After expense reimbursement and earnings credits (0.55)%*** (0.63)% (0.66)% (0.66)% (0.81)% (0.54)% Portfolio turnover rate 25% 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. 135 UBS DYNAMIC ALPHA FUND -- FINANCIAL HIGHLIGHTS THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH PERIOD PRESENTED
SIX MONTHS ENDED DECEMBER 31, FOR THE 2005 PERIOD ENDED CLASS A (UNAUDITED) JUNE 30, 2005* - ----------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 10.22 $ 10.00 ---------------- ---------------- Income (loss) from investment operations: Net investment loss** (0.05) (0.04) Net realized and unrealized gain from investment activities 0.72 0.26 ---------------- ---------------- Total income from investment operations 0.67 0.22 ---------------- ---------------- Less dividends/distributions: From net investment income and net foreign currency gains (0.10) -- ---------------- ---------------- Net increase from payments by affiliates 0.00++ -- ---------------- ---------------- Net asset value, end of period $ 10.79 $ 10.22 ================ ================ Total investment return+ 6.55% 2.20% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 1,036,057 $ 528,088 Ratio of expenses to average net assets 1.22%*** 1.32%*** Ratio of net investment loss to average net assets (0.87)%*** (1.04)%*** Portfolio turnover rate 18% 6% SIX MONTHS ENDED DECEMBER 31, FOR THE 2005 PERIOD ENDED CLASS B (UNAUDITED) JUNE 30, 2005* - ----------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 10.19 $ 10.00 ---------------- ---------------- Income (loss) from investment operations: Net investment loss** (0.09) (0.08) Net realized and unrealized gain from investment activities 0.71 0.27 ---------------- ---------------- Total income from investment operations 0.62 0.19 ---------------- ---------------- Less dividends/distributions: From net investment income and net foreign currency gains (0.04) -- ---------------- ---------------- Net increase from payments by affiliates 0.00++ -- ---------------- ---------------- Net asset value, end of period $ 10.77 $ 10.19 ================ ================ Total investment return+ 6.12% 1.90% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 22,083 $ 14,815 Ratio of expenses to average net assets: Before expense reimbursement 1.98%*** 2.11%*** After expense reimbursement 1.98%*** 2.10%*** Ratio of net investment loss to average net assets: Before expense reimbursement (1.63)%*** (1.83)%*** After expense reimbursement (1.63)%*** (1.82)%*** Portfolio turnover rate 18% 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. ++ Amount represents less than $0.01 per share. # During the six months ended December 31, 2005, the Fund's total return included a reimbursement by the investment manager for amounts relating to a trading error that had no impact on the total return. See accompanying notes to financial statements. 136
SIX MONTHS ENDED DECEMBER 31, FOR THE 2005 PERIOD ENDED CLASS C (UNAUDITED) JUNE 30, 2005* - ----------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 10.19 $ 10.00 ---------------- ---------------- Income (loss) from investment operations: Net investment loss** (0.09) (0.08) Net realized and unrealized gain from investment activities 0.71 0.27 ---------------- ---------------- Total income from investment operations 0.62 0.19 ---------------- ---------------- Less dividends/distributions: From net investment income and net foreign currency gains (0.05) -- ---------------- ---------------- Net increase from payments by affiliates 0.00++ -- ---------------- ---------------- Net asset value, end of period $ 10.76 $ 10.19 ================ ================ Total investment return+ 6.08% 1.90% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 350,136 $ 202,891 Ratio of expenses to average net assets 1.98%*** 2.09%*** Ratio of net investment loss to average net assets (1.63)%*** (1.81)%*** Portfolio turnover rate 18% 6% SIX MONTHS ENDED DECEMBER 31, FOR THE 2005 PERIOD ENDED CLASS Y (UNAUDITED) JUNE 30, 2005* - ----------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 10.23 $ 10.00 ---------------- ---------------- Income (loss) from investment operations: Net investment loss** (0.03) (0.03) Net realized and unrealized gain (loss) from investment activities 0.72 0.26 ---------------- ---------------- Total income from investment operations 0.69 0.23 ---------------- ---------------- Less dividends/distributions: From net investment income and net foreign currency gains (0.12) -- ---------------- ---------------- Net increase from payments by affiliates 0.00++ -- ---------------- ---------------- Net asset value, end of period $ 10.80 $ 10.23 ================ ================ Total investment return+ 6.71% 2.30% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 143,769 $ 56,220 Ratio of expenses to average net assets 0.94%*** 1.00%*** Ratio of net investment loss to average net assets (0.59)%*** (0.72)%*** Portfolio turnover rate 18% 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. ++ Amount represents less than $0.01 per share. # During the six months ended December 31, 2005, the Fund's total return included a reimbursement by the investment manager for amounts relating to a trading error that had no impact on the total return. See accompanying notes to financial statements. 137 UBS U.S. BOND FUND -- FINANCIAL HIGHLIGHTS THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH PERIOD PRESENTED
SIX MONTHS ENDED DECEMBER 31, YEAR ENDED JUNE 30, 2005 ----------------------------------------------------------------- CLASS A (UNAUDITED) 2005 2004 2003 2002 2001 - ----------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 10.73 $ 10.56 $ 10.99 $ 10.51 $ 10.33 $ 9.99 ------------ --------- ---------- ---------- ---------- ---------- Income (loss) from investment operations: Net investment income** 0.19 0.39 0.39 0.42 0.53 0.62 Net realized and unrealized gain (loss) from investment activities (0.18) 0.20 (0.37) 0.52 0.32 0.41 ------------ --------- ---------- ---------- ---------- ---------- Total income from investment operations 0.01 0.59 0.02 0.94 0.85 1.03 ------------ --------- ---------- ---------- ---------- ---------- Less dividends/distributions: From net investment income (0.24) (0.42) (0.45) (0.46) (0.67) (0.69) ------------ --------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 10.50 $ 10.73 $ 10.56 $ 10.99 $ 10.51 $ 10.33 ============ ========= ========== ========== ========== ========== Total investment return+ 0.06% 5.72% 0.18% 9.17% 8.41% 10.56% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 35,318 $ 34,282 $ 31,420 $ 31,337 $ 18,558 $ 123 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.05%*** 1.19% 1.11% 1.04% 1.21% 0.98% After expense reimbursement and earnings credits 0.85%*** 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 3.41%*** 3.27% 3.32% 3.70% 4.68% 5.86% After expense reimbursement and earnings credits 3.61%*** 3.61% 3.58% 3.89% 5.03% 5.99% Portfolio turnover rate 91% 174% 137% 180% 452% 314% SIX MONTHS ENDED DECEMBER 31, YEAR ENDED JUNE 30, FOR THE 2005 -------------------------------------- PERIOD ENDED CLASS B (UNAUDITED) 2005 2004 2003 JUNE 30, 2002* - -------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 10.74 $ 10.56 $ 10.97 $ 10.50 $ 10.76 ------------ ---------- ---------- ---------- -------------- Income (loss) from investment operations: Net investment income** 0.15 0.31 0.30 0.34 0.29 Net realized and unrealized gain (loss) from investment activities (0.19) 0.21 (0.36) 0.52 (0.22) ------------ ---------- ---------- ---------- -------------- Total income (loss) from investment operations (0.04) 0.52 (0.06) 0.86 0.07 ------------ ---------- ---------- ---------- -------------- Less dividends/distributions: From net investment income (0.19) (0.34) (0.35) (0.39) (0.33) ------------ ---------- ---------- ---------- -------------- Net asset value, end of period $ 10.51 $ 10.74 $ 10.56 $ 10.97 $ 10.50 ============ ========== ========== ========== ============== Total investment return+ (0.33)% 4.96% (0.55) 8.30% 0.70% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 1,053 $ 1,620 $ 2,043 $ 3,646 $ 1,405 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.87%*** 2.00% 2.00% 1.79% 1.96%*** After expense reimbursement and earnings credits 1.60%*** 1.60% 1.60% 1.60% 1.60%*** Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 2.59%*** 2.46% 2.42% 2.95% 3.93%*** After expense reimbursement and earnings credits 2.86%*** 2.86% 2.82% 3.14% 4.29%*** Portfolio turnover rate 91% 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. 138
SIX MONTHS ENDED DECEMBER 31, YEAR ENDED JUNE 30, FOR THE 2005 -------------------------------------- PERIOD ENDED CLASS C (UNAUDITED) 2005 2004 2003 JUNE 30, 2002* - -------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 10.72 $ 10.55 $ 10.98 $ 10.50 $ 10.77 ------------ ---------- ---------- ---------- -------------- Income (loss) from investment operations: Net investment income** 0.17 0.33 0.33 0.37 0.31 Net realized and unrealized gain (loss) from investment activities (0.19) 0.22 (0.37) 0.52 (0.24) ------------ ---------- ---------- ---------- -------------- Total income (loss) from investment operations (0.02) 0.55 (0.04) 0.89 0.07 ------------ ---------- ---------- ---------- -------------- Less dividends/distributions: From net investment income (0.21) (0.38) (0.39) (0.41) (0.34) ------------ ---------- ---------- ---------- -------------- Net asset value, end of period $ 10.49 $ 10.72 $ 10.55 $ 10.98 $ 10.50 ============ ========== ========== ========== ============== Total investment return+ (0.20)% 5.25% (0.37)% 8.65% 0.72% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 1,585 $ 2,068 $ 2,195 $ 3,164 $ 1,143 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.56%*** 1.64% 1.65% 1.54% 1.61%*** After expense reimbursement and earnings credits 1.35%*** 1.35% 1.35% 1.35% 1.35%*** Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 2.90%*** 2.82% 2.78% 3.20% 4.32%*** After expense reimbursement and earnings credits 3.11%*** 3.11% 3.08% 3.39% 4.58%*** Portfolio turnover rate 91% 174% 137% 180% 452% SIX MONTHS ENDED DECEMBER 31, YEAR ENDED JUNE 30, 2005 ----------------------------------------------------------------- CLASS Y (UNAUDITED) 2005 2004 2003 2002 2001 - ----------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 10.72 $ 10.57 $ 11.01 $ 10.53 $ 10.35 $ 10.00 ------------ --------- ---------- ---------- ---------- ---------- Income (loss) from investment operations: Net investment income** 0.21 0.41 0.41 0.45 0.56 0.64 Net realized and unrealized gain (loss) from investment activities (0.18) 0.21 (0.37) 0.52 0.31 0.42 ------------ --------- ---------- ---------- ---------- ---------- Total income from investment operations 0.03 0.62 0.04 0.97 0.87 1.06 ------------ --------- ---------- ---------- ---------- ---------- Less dividends/distributions: From net investment income (0.25) (0.47) (0.48) (0.49) (0.69) (0.71) ------------ --------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 10.50 $ 10.72 $ 10.57 $ 11.01 $ 10.53 $ 10.35 ============ ========= ========== ========== ========== ========== Total investment return+ 0.25% 5.95% 0.40% 9.42% 8.59% 10.86% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 92,326 $ 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%*** 0.78% 0.80% 0.79% 0.80% 0.73% After expense reimbursement and earnings credits 0.60%*** 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%*** 3.68% 3.63% 3.95% 5.10% 6.11% After expense reimbursement and earnings credits 3.86%*** 3.86% 3.83% 4.14% 5.26% 6.24% Portfolio turnover rate 91% 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. 139 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
SIX MONTHS ENDED DECEMBER 31, FOR THE 2005 PERIOD ENDED CLASS A (UNAUDITED) JUNE 30, 2005* - -------------------------------------------------------------------------------------- Net asset value, beginning of period $ 9.98 $ 10.00 ------------ -------------- Income (loss) from investment operations: Net investment income** 0.12 0.03 Net realized and unrealized gain (loss) from investment activities 0.04 (0.02) ------------ -------------- Total income from investment operations 0.16 0.01 ------------ -------------- Less dividends/distributions: From net investment income and net foreign currency gains (0.20) (0.03) From net realized gains (0.01) -- ------------ -------------- Total dividends/distributions (0.21) (0.03) ------------ -------------- Net asset value, end of period $ 9.93 $ 9.98 ============ ============== Total investment return+ 1.63% 0.06% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 162,743 $ 105,373 Ratio of expenses to average net assets: Before expense reimbursement 1.00%*** 1.31%*** After expense reimbursement 1.00%*** 1.00%*** Ratio of net investment income to average net assets: Before expense reimbursement 2.37%*** 1.44%*** After expense reimbursement 2.37%*** 1.75%*** Portfolio turnover rate 46% 22% SIX MONTHS ENDED DECEMBER 31, FOR THE 2005 PERIOD ENDED CLASS C (UNAUDITED) JUNE 30, 2005* - -------------------------------------------------------------------------------------- Net asset value, beginning of period $ 9.98 $ 10.00 ------------ -------------- Income (loss) from investment operations: Net investment income** 0.10 0.02 Net realized and unrealized gain (loss) from investment activities 0.04 (0.02) ------------ -------------- Total income from investment operations 0.14 0.00 ------------ -------------- Less dividends/distributions: From net investment income and net foreign currency gains (0.19) (0.02) From net realized gains (0.01) -- ------------ -------------- Total dividends/distributions (0.20) (0.02) ------------ -------------- Net asset value, end of period $ 9.92 $ 9.98 ============ ============== Total investment return+ 1.35% 0.01% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 24,073 $ 16,973 Ratio of expenses to average net assets: Before expense reimbursement 1.35%*** 1.68%*** After expense reimbursement 1.35%*** 1.35%*** Ratio of net investment income to average net assets: Before expense reimbursement 2.02%*** 1.07%*** After expense reimbursement 2.02%*** 1.40%*** Portfolio turnover rate 46% 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. 140
SIX MONTHS ENDED DECEMBER 31, FOR THE 2005 PERIOD ENDED CLASS Y (UNAUDITED) JUNE 30, 2005* - -------------------------------------------------------------------------------------- Net asset value, beginning of period $ 9.98 $ 10.00 ------------ -------------- Income (loss) from investment operations: Net investment income** 0.13 0.03 Net realized and unrealized gain (loss) from investment activities 0.04 (0.02) ------------ -------------- Total income from investment operations 0.17 0.01 ------------ -------------- Less dividends/distributions: From net investment income and net foreign currency gains (0.21) (0.03) From net realized gains (0.01) -- ------------ -------------- Total dividends/distributions (0.22) (0.03) ------------ -------------- Net asset value, end of period $ 9.93 $ 9.98 ============ ============== Total investment return+ 1.72% 0.09% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 184,163 $ 20,004 Ratio of expenses to average net assets: Before expense reimbursement 0.75%*** 1.11%*** After expense reimbursement 0.75%*** 0.85%*** Ratio of net investment income to average net assets: Before expense reimbursement 2.62%*** 1.64%*** After expense reimbursement 2.62%*** 1.90%*** Portfolio turnover rate 46% 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. 141 UBS HIGH YIELD FUND -- FINANCIAL HIGHLIGHTS THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH PERIOD PRESENTED
SIX MONTHS ENDED DECEMBER 31, YEAR ENDED JUNE 30, 2005 ---------------------------------------------------------------------- CLASS A (UNAUDITED) 2005 2004 2003 2002 2001 - ------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 7.14 $ 7.06 $ 6.84 $ 6.36 $ 7.87 $ 9.18 ------------ ---------- ---------- ---------- ---------- ---------- Income (loss) from investment operations: Net investment income** 0.27 0.57 0.58 0.56 0.76 0.85 Net realized and unrealized gain (loss) from investment activities (0.22) 0.10 0.22 0.50 (0.96) (1.08) ------------ ---------- ---------- ---------- ---------- ---------- Total income (loss) from investment operations 0.05 0.67 0.80 1.06 (0.20) (0.23) ------------ ---------- ---------- ---------- ---------- ---------- Less dividends/distributions: From net investment income (0.28) (0.59) (0.58) (0.58) (1.31) (1.08) ------------ ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 6.91 $ 7.14 $ 7.06 $ 6.84 $ 6.36 $ 7.87 ============ ========== ========== ========== ========== ========== Total investment return+ 0.69% 9.66% 12.15% 17.70% (3.01)% (2.28)% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 58,162 $ 66,677 $ 72,614 $ 76,309 $ 65,832 $ 1 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.39%*** 1.28% 1.31% 1.29% 1.26% 1.14% After expense reimbursement and earnings credits 1.20%*** 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 7.41%*** 7.75% 8.16% 8.38% 10.71% 9.65% After expense reimbursement and earnings credits 7.60%*** 7.83% 8.27% 8.72% 11.02% 9.82% Portfolio turnover rate 31% 61% 80% 71% 120% 87% SIX MONTHS ENDED DECEMBER 31, YEAR ENDED JUNE 30, FOR THE 2005 -------------------------------------- PERIOD ENDED CLASS B (UNAUDITED) 2005 2004 2003 JUNE 30, 2002* - ------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 7.14 $ 7.06 $ 6.83 $ 6.35 $ 7.02 ------------ ---------- ---------- ---------- -------------- Income (loss) from investment operations: Net investment income** 0.24 0.51 0.53 0.51 0.45 Net realized and unrealized gain (loss) from investment activities (0.22) 0.10 0.23 0.50 (0.61) ------------ ---------- ---------- ---------- -------------- Total income (loss) from investment operations 0.02 0.61 0.76 1.01 (0.16) ------------ ---------- ---------- ---------- -------------- Less dividends/distributions: From net investment income (0.25) (0.53) (0.53) (0.53) (0.51) ------------ ---------- ---------- ---------- -------------- Net asset value, end of period $ 6.91 $ 7.14 $ 7.06 $ 6.83 $ 6.35 ============ ========== ========== ========== ============== Total investment return+ 0.30% 8.79% 11.48% 16.83% (2.70)% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 2,705 $ 3,945 $ 7,844 $ 13,130 $ 15,692 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 2.13%*** 1.99% 2.05% 2.05% 2.05%*** After expense reimbursement and earnings credits 1.95%*** 1.95% 1.95% 1.70% 1.70%*** Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 6.67%*** 7.04% 7.43% 7.62% 9.88%*** After expense reimbursement and earnings credits 6.85%*** 7.08% 7.53% 7.97% 10.23%*** Portfolio turnover rate 31% 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. 142
SIX MONTHS ENDED DECEMBER 31, YEAR ENDED JUNE 30, FOR THE 2005 ------------------------------------------ PERIOD ENDED CLASS C (UNAUDITED) 2005 2004 2003 JUNE 30,2002* - -------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 7.14 $ 7.06 $ 6.84 $ 6.35 $ 7.02 ------------ ------------ ------------ ------------ ------------ Income (loss) from investment operations: Net investment income** 0.25 0.53 0.55 0.53 0.46 Net realized and unrealized gain (loss) from investment activities (0.22) 0.10 0.22 0.51 (0.61) ------------ ------------ ------------ ------------ ------------ Total income (loss) from investment operations 0.03 0.63 0.77 1.04 (0.15) ------------ ------------ ------------ ------------ ------------ Less dividends/distributions: From net investment income (0.26) (0.55) (0.55) (0.55) (0.52) ------------ ------------ ------------ ------------ ------------ Net asset value, end of period $ 6.91 $ 7.14 $ 7.06 $ 6.84 $ 6.35 ============ ============ ============ ============ ============ Total investment return+ 0.44% 9.09% 11.59% 17.29% (2.54)% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 13,457 $ 15,389 $ 17,499 $ 18,969 $ 17,947 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.89%*** 1.79% 1.82% 1.79% 1.79%*** After expense reimbursement and earnings credits 1.70%*** 1.70% 1.70% 1.45% 1.45%*** Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 6.91%*** 7.24% 7.66% 7.88% 10.15%*** After expense reimbursement and earnings credits 7.10%*** 7.33% 7.78% 8.22% 10.49%*** Portfolio turnover rate 31% 61% 80% 71% 120% SIX MONTHS ENDED DECEMBER 31, YEAR ENDED JUNE 30, 2005 ---------------------------------------------------- CLASS Y (UNAUDITED) 2005 2004 2003 2002 2001 - ---------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 7.17 $ 7.10 $ 6.87 $ 6.38 $ 7.90 $ 9.19 ------------ -------- -------- -------- -------- -------- Income (loss) from investment operations: Net investment income** 0.28 0.59 0.61 0.58 0.81 0.88 Net realized and unrealized gain (loss) from investment activities (0.22) 0.09 0.23 0.50 (1.01) (1.08) ------------ -------- -------- -------- -------- -------- Total income (loss) from investment operations 0.06 0.68 0.84 1.08 (0.20) (0.20) ------------ -------- -------- -------- -------- -------- Less dividends/distributions: From net investment income (0.29) (0.61) (0.61) (0.59) (1.32) (1.09) ------------ -------- -------- -------- -------- -------- Net asset value, end of period $ 6.94 $ 7.17 $ 7.10 $ 6.87 $ 6.38 $ 7.90 ============ ======== ======== ======== ======== ======== Total investment return+ 0.82% 9.82% 12.66% 18.08% (2.98)% (1.83)% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 35,498 $ 30,277 $ 48,038 $ 71,819 $ 40,120 $ 54,560 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.05%*** 0.96% 0.92% 1.05% 1.02% 0.89% After expense reimbursement and earnings credits 0.95%*** 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 7.75%*** 8.07% 8.55% 8.62% 10.77% 9.90% After expense reimbursement and earnings credits 7.85%*** 8.08% 8.55% 8.97% 11.09% 10.07% Portfolio turnover rate 31% 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. 143 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 a Delaware statutory trust organized on August 9, 1993. 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, 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 may enter into contracts that contain a variety of representations or that provide general indemnification for certain liabilities. 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 expect 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. Certain funds may use a systematic fair valuation model provided by an independent third party to value securities principally traded in foreign markets in order to adjust for possible stale pricing that may occur between the close of the foreign exchanges and the time for valuation. If a security is valued at a "fair value," that value is likely to be different from the last quoted market price for the security. 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 of the Funds. UBS Global AM is an indirect wholly owned asset management subsidiary of UBS AG, an internationally diversified organization with headquarters in Zurich and Basel, 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"). Various factors may be reviewed in order to make a good faith determination of a 144 security's fair value. These factors 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 open-end 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 Fund 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: Prior to November 1, 2005, investment securities and other assets and liabilities denominated in foreign currencies were translated daily into U.S. dollars using the WM/Reuters closing spot rates as of 4:00 p.m. London time. Effective November 1, 2005, the Trust began using foreign currency exchange rates determined as of the close of regular trading on New York Stock Exchange. 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 145 currency, the Fund's custodian or sub-custodian will place 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 assets placed in the 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 to equitize cash. Risks of entering into futures contracts include the possibility that there may be an illiquid market or that a change in the value of the contract may not correlate with changes in the value of the underlying securities. Upon entering into a futures contract, the Funds are required to deposit with a broker either cash and/or liquid securities (initial margin). Subsequent payments (variation margin) are made or received by the Funds, generally on a daily basis. The variation margin payments are equal to the daily changes in the contract value and are recorded as unrealized gains or losses. The Funds recognize a realized gain or loss when the contract is closed or expires. The Statements of Operations reflect net realized and net unrealized gains and losses on these contracts. F. SECURITIES TRADED ON TO-BE-ANNOUNCED BASIS: The Funds may from time to time purchase securities on a 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 equal 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 December 31, 2005 the UBS Global Allocation Fund, UBS Global Bond Fund, UBS U.S. Bond Fund and UBS Absolute Return Bond Fund held TBA securities with a total cost of $51,510,729, $769,188, $9,904,635 and $3,595,952, respectively. G. INTEREST RATE SWAP AGREEMENTS: Certain Funds may enter into interest rate swap agreements to protect themselves 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 contract to comply with the terms of the contract. The loss incurred by the failure of the counterparty is generally limited to the net interest payment to be received by UBS Dynamic Alpha Fund and UBS U.S. Bond Fund. Therefore, UBS Dynamic Alpha Fund and UBS U.S. Bond Fund consider the creditworthiness of the counterparty to a swap contract in evaluating potential credit risk. UBS Dynamic Alpha Fund and UBS U.S. Bond Fund accrues for interim payments on swap contracts on a daily basis, with the net amount recorded within unrealized appreciation/depreciation of swap contracts on the Statement of Assets and Liabilities. Once interim payments are settled in cash, the net amount is recorded as realized gain/loss on swaps, in addition to realized gain/loss recorded upon the termination of swap contracts on the Statement of Operations. Fluctuations in the value of swap contracts are recorded for financial statement purposes as unrealized appreciation or depreciation of swaps. 146 At December 31, 2005, UBS Dynamic Alpha Fund and UBS U.S. Bond Fund had outstanding interest rate swap contracts with the following terms:
UBS DYNAMIC ALPHA FUND -------------------------------------------------------------------------------------------------- RATE TYPE ------------------------------------ UNREALIZED NOTIONAL PAYMENTS MADE PAYMENTS RECEIVED APPRECIATION/ AMOUNT TERMINATION DATES BY THE FUND BY THE FUND (DEPRECIATION) -------------------- ----------------- --------------- ----------------- --------------- CHF 45,000,000 05/09/15 2.3725% 1.1033%+ $ (449,040) CHF 25,000,000 10/27/15 2.2675 0.9600+ 174,023 CHF 20,000,000 12/19/15 2.5600 1.1850+ 110,606 CHF 20,000,000 07/12/15 2.2250 0.0033+ (209,654) GBP 62,300,000 12/09/35 (1) (1) 374,798 GBP 80,000,000 12/09/35 4.3175 0.0128++ (2,890,877) JPY 1,600,000,000 05/09/35 2.2513 0.0812+++ 393,133 JPY 1,200,000,000 10/27/35 2.4400 0.0812+++ (121,504) JPY 675,000,000 07/12/35 2.2250 0.0657+++ 125,026 JPY 700,000,000 12/19/35 2.4700 0.0806+++ (87,198) --------------- $ (2,580,687) ===============
(1) Represents a zero-coupon interest rate swap with net payments at maturity, the Floating payment made by the Fund is based on the Retail Price Index for October 2035 and the Fixed payment to be received by the Fund is GBP 95,436,955 + Rate based on 6 month LIBOR (Swiss BBA) ++ Rate based on 6 month LIBOR (GBP BBA) +++ Rate based on 6 month LIBOR (JPY BBA) BBA British Banking Association CURRENCY TYPE ABBREVIATIONS: USD United States Dollar CHF Swiss Franc GBP British Pound JPY Japanese Yen
UBS U.S. BOND FUND ---------------------------------------------------------------------------------------------------- RATE TYPE ------------------------------------ UNREALIZED NOTIONAL PAYMENTS MADE PAYMENTS RECEIVED APPRECIATION/ AMOUNT TERMINATION DATES BY THE FUND BY THE FUND (DEPRECIATION) -------------------- ----------------- --------------- ----------------- --------------- USD 36,000,000 01/03/09 4.7460%@ 4.8075% $ (8,214) USD 9,000,000 01/03/17 4.9500 4.7460@ 9,781 --------------- $ 1,567 ===============
@ Rate based on 3 month LIBOR CURRENCY TYPE ABBREVIATIONS: USD United States Dollar 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 Global Bond Fund, UBS U.S. Bond Fund and UBS High Yield Fund, which will distribute their respective net income, if any, monthly. UBS Absolute Return Bond Fund will distribute its respective net income, if any, quarterly. Dividends and distributions to shareholders are recorded on the 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. 147 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. K. OPTION WRITING: Certain Funds may write (sell) put and call options on securities or derivative instruments in order to gain exposure to or protect against changes in the markets. When a Fund writes a call or a put option, an amount equal to the premium received by the Fund is included in the Fund's Statement of Assets and Liabilities as an asset and as an equivalent liability. The amount of the liability is subsequently marked-to-market to reflect the current market value of the option written. If an option which the Fund has written either expires on its stipulated expiration date or the Fund enters into a closing purchase transaction, the Fund realizes a gain (or loss if the cost of a closing purchase transaction exceeds the premium received when the option was written) without regard to any unrealized gain or loss on the underlying security or derivative instrument, and the liability related to such option is extinguished. If a call option which the Fund has written is exercised, the Fund recognizes a realized capital gain or loss (long-term or short-term, depending on the holding period of the underlying security) from the sale of the underlying security or derivative instrument and the proceeds from the sale are increased by the premium originally received. If a put option which the Fund has written is exercised, the amount of the premium originally received reduces the cost of the security or derivative instrument which the Fund purchases upon exercise of the option. In writing an option, the Funds bear the market risk of an unfavorable change in the price of the derivative instrument, security or currency underlying the written option. Exercise of an option written by a Fund could result in the Fund selling or buying a derivative instrument, security or currency at a price different from current market value. Written option activity for the six months ended December 31, 2005 for UBS Dynamic Alpha Fund was as follows:
NUMBER OF AMOUNT OF CONTRACTS PREMIUMS (000) RECEIVED --------- ------------ Options outstanding at June 30, 2005 -- -- Options written 535 $ 176,861 Options terminated in closing purchase transactions -- -- Options expired prior to exercise -- -- Options exercised -- -- --------- ------------ Options outstanding at December 31, 2005 535 $ 176,861 ========= ============
PURCHASED OPTIONS: Certain Funds may also purchase put and call options. Purchasing call options tends to increase exposure to the underlying instrument. Purchasing put options tends to decrease exposure to the underlying instrument. The Fund pays a premium which is included in the Statement of Assets and Liabilities as an investment and subsequently marked-to-market to reflect the current value of the option. Premiums paid for purchasing options which expire are treated as realized losses. The risk associated with purchasing put and call options is limited to the premium paid. Premiums paid for purchasing options which are exercised or closed are added to the amounts paid or offset against the proceeds on the underlying future, security or currency transaction to determine the realized gain or loss. 148 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 TO $3.0 BILLION FUND $500 MM $1 BILLION $1.5 BILLION $2.0 BILLION $3.0 BILLION AND OVER - ---- -------- ------------- ------------- --------------- --------------- ------------- UBS Global Allocation Fund 0.800% 0.750% 0.700% 0.675% 0.650% 0.630% UBS Global Bond Fund 0.750 0.700 0.650 0.600 0.550 0.550 UBS International Equity Fund 0.800 0.750 0.700 0.675 0.650 0.650 UBS U.S. Large Cap Equity Fund 0.700 0.650 0.600 0.575 0.550 0.550 UBS U.S. Large Cap Growth Fund 0.700 0.650 0.600 0.575 0.550 0.550 UBS U.S. Large Cap Value Equity Fund 0.700 0.650 0.600 0.575 0.550 0.550 UBS U.S. Small Cap Growth Fund 0.850 0.850 0.825 0.825 0.825 0.825 UBS Dynamic Alpha Fund 0.850 0.800 0.750 0.725 0.700 0.700 UBS U.S. Bond Fund 0.500 0.475 0.450 0.425 0.400 0.400 UBS Absolute Return Bond Fund 0.550 0.500 0.475 0.450 0.425 0.425 UBS High Yield Fund 0.600 0.550 0.525 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%
The Advisor has agreed to waive its fees and reimburse the expenses of each Fund to the extent that total annualized operating expenses exceed a specified percentage of each Fund's respective average daily net assets. Investment advisory fees, including the dollar amount waived or reimbursed for the six months ended December 31, 2005, were as follows:
FEES/ UBS CLASS A UBS CLASS B UBS CLASS C UBS CLASS Y ADVISORY REIMBURSED FUND EXPENSE CAP EXPENSE CAP EXPENSE CAP EXPENSE CAP FEES WAIVED - ---- ------------ ------------ ------------ ------------ --------------- --------------- UBS Global Allocation Fund N/A N/A N/A N/A $ 11,578,713 -- UBS Global Equity Fund 1.25% 2.00% 2.00% 1.00% 1,667,386 $ 306,015 UBS Global Bond Fund 1.15 1.90 1.65 0.90 273,866 101,467 UBS International Equity Fund 1.25 2.00 2.00 1.00 555,016 127,506 UBS U.S. Large Cap Equity Fund 1.30 2.05 2.05 1.05 1,540,036 -- UBS U.S. Large Cap Growth Fund 1.05 1.80 1.80 0.80 31,684 60,575 UBS U.S. Large Cap Value Equity Fund 1.10 1.85 1.85 0.85 471,323 173,008 UBS U.S. Small Cap Growth Fund 1.28 2.03 2.03 1.03 1,390,530 130,501 UBS Dynamic Alpha Fund 1.35 2.10 2.10 1.10 4,623,044 -- UBS U.S. Bond Fund 0.85 1.60 1.35 0.60 338,107 123,839 UBS Absolute Return Bond Fund 1.00 N/A* 1.35 0.85 830,024 -- UBS High Yield Fund 1.20 1.95 1.70 0.95 343,738 94,891
* UBS Absolute Return Bond Fund does not offer Class B shares. Each Fund will reimburse UBS Global AM expenses it reimburses for a period three years following such expense reimbursements, to the extent such reimbursements will not cause a Fund to exceed any applicable expense limit for the Fund. The expenses waived for the six months ended December 31, 2005 are subject to repayment through June 30, 2009. 149 At December 31, 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 EXPIRES FUND REPAYMENT JUNE 30, 2006 JUNE 30, 2007 JUNE 30, 2008 JUNE 30, 2009 - ---- --------------- ------------- ------------- ------------- ------------- 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 570,139 81,111 $ 238,725 $ 157,744 $ 92,559 UBS Global Equity Fund--Class B 872,650 78,479 390,500 271,790 131,881 UBS Global Equity Fund--Class C 546,658 60,776 254,518 155,224 76,140 UBS Global Equity Fund--Class Y 164,180 72,146 37,881 48,718 5,435 UBS Global Bond Fund--Class A 153,771 17,106 53,343 54,654 28,668 UBS Global Bond Fund--Class B 18,088 4,461 6,816 5,301 1,510 UBS Global Bond Fund--Class C 27,839 2,581 12,045 9,933 3,280 UBS Global Bond Fund--Class Y 472,997 150,324 130,933 123,731 68,009 UBS International Equity Fund--Class A 89,575 5,634 14,581 49,413 19,947 UBS International Equity Fund--Class B 7,185 470 3,430 2,359 926 UBS International Equity Fund--Class C 7,557 629 3,052 2,511 1,365 UBS International Equity Fund--Class Y 709,383 176,654 229,989 197,472 105,268 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 139,362 29,557 29,595 51,018 29,192 UBS U.S. Large Cap Growth Fund--Class B 22,197 4,725 6,094 7,933 3,445 UBS U.S. Large Cap Growth Fund--Class C 28,944 11,451 5,873 8,401 3,219 UBS U.S. Large Cap Growth Fund--Class Y 202,858 55,574 50,726 71,839 24,719 UBS U.S. Large Cap Value Equity Fund--Class A 679,624 19,145 211,954 312,029 136,496 UBS U.S. Large Cap Value Equity Fund--Class B 127,420 8,403 69,108 42,951 6,958 UBS U.S. Large Cap Value Equity Fund--Class C 138,599 8,031 44,157 62,485 23,926 UBS U.S. Large Cap Value Equity Fund--Class Y 110,179 69,577 19,559 15,415 5,628 UBS U.S. Small Cap Growth Fund--Class A 473,233 12,327 121,354 272,585 66,967 UBS U.S. Small Cap Growth Fund--Class B 112,234 2,351 44,503 51,108 14,272 UBS U.S. Small Cap Growth Fund--Class C 84,800 1,751 33,446 38,249 11,354 UBS U.S. Small Cap Growth Fund--Class Y 372,331 109,444 114,628 110,351 37,908 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 273,531 46,010 83,977 108,925 34,619 UBS U.S. Bond Fund--Class B 26,890 6,276 11,048 7,703 1,863 UBS U.S. Bond Fund--Class C 19,241 3,644 7,557 6,202 1,838 UBS U.S. Bond Fund--Class Y 542,398 129,523 158,431 168,925 85,519 UBS Absolute Return Bond Fund--Class A -- -- -- -- -- UBS Absolute Return Bond Fund--Class C 3,515 -- -- 3,515 -- UBS Absolute Return Bond Fund--Class Y -- -- -- -- -- UBS High Yield Fund--Class A 435,004 234,773 84,599 55,259 60,373 UBS High Yield Fund--Class B 63,272 48,149 10,229 2,034 2,860 UBS High Yield Fund--Class C 113,522 61,780 22,340 15,374 14,028 UBS High Yield Fund--Class Y 232,094 210,165 -- 4,299 17,630
150 Each Fund pays UBS Global Asset Management (US) Inc. ("UBS Global AM (US)"), an affiliate of the Advisor, 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. For the six months ended December 31, 2005, the Funds owed and incurred administrative fees as follows:
ADMINISTRATIVE ADMINISTRATIVE FUND FEES OWED FEES INCURRED - ---- -------------- -------------- UBS Global Allocation Fund $ 222,006 $ 1,243,900 UBS Global Equity Fund 29,319 171,897 UBS Global Bond Fund 4,407 27,387 UBS International Equity Fund 9,518 52,033 UBS U.S. Large Cap Equity Fund 28,790 165,005 UBS U.S. Large Cap Growth Fund 709 3,394 UBS U.S. Large Cap Value Equity Fund 8,589 50,499 UBS U.S. Small Cap Growth Fund 22,683 122,694 UBS Dynamic Alpha Fund 92,768 425,369 UBS U.S. Bond Fund 8,284 50,716 UBS Absolute Return Bond Fund 23,520 105,836 UBS High Yield Fund 6,910 42,968
The Funds may invest in shares of certain affiliated investment companies also sponsored by the Advisor. Investments in affiliated investment companies for the six months ended December 31, 2005 were as follows:
UBS GLOBAL ALLOCATION FUND ------------------------------------------------ CHANGE IN NET NET UNREALIZED SALES REALIZED APPRECIATION/ AFFILIATES PURCHASES PROCEEDS GAIN (DEPRECIATION) VALUE - ---------- -------------- -------------- -------------- -------------- -------------- UBS Corporate Bond Relationship Fund $ 10,537,465 -- -- $ -- $ 10,537,465 UBS Emerging Markets Equity Relationship Fund -- $ 90,000,000 $ 28,886,951 (258,620) 112,787,460 UBS High Yield Relationship Fund -- 30,000,000 2,433,501 (1,474,372) 30,423,203 UBS Small Cap Equity Relationship Fund -- -- -- 5,371,898 89,312,890 UBS GLOBAL BOND FUND ------------------------------------------------ CHANGE IN NET NET UNREALIZED SALES REALIZED APPRECIATION/ AFFILIATES PURCHASES PROCEEDS GAIN (DEPRECIATION) VALUE - ---------- -------------- -------------- -------------- -------------- -------------- UBS U.S. Securitized Mortgage Relationship Fund $ 750,000 $ 1,800,000 $ 75,149 $ 8,893 $ 11,588,095 UBS DYNAMIC ALPHA FUND ------------------------------------------------ CHANGE IN NET NET UNREALIZED SALES REALIZED APPRECIATION/ AFFILIATES PURCHASES PROCEEDS GAIN/(LOSS (DEPRECIATION) VALUE - ---------- -------------- -------------- -------------- -------------- -------------- UBS Emerging Markets Equity Relationship Fund $ 46,510,000 -- -- $ 28,291,740 $ 153,283,429 UBS International Equity Relationship Fund 130,850,000 -- -- 32,794,503 367,362,955 UBS Small Cap Equity Relationship Fund -- -- -- 4,359,359 72,492,098 UBS U.S. Equity Alpha Relationship Fund 135,900,000 -- -- 6,281,371 142,181,371 UBS U.S. Large Cap Equity Relationship Fund 249,850,000 $ 100,000,000 $ 403,532 32,868,075 548,298,567 UBS Large Cap Growth Equity Relationship Fund 74,627,267 -- -- 2,268,181 76,895,448 UBS ABSOLUTE RETURN BOND FUND ------------------------------------------------ CHANGE IN NET NET UNREALIZED SALES REALIZED APPRECIATION/ AFFILIATES PURCHASES PROCEEDS GAIN/(LOSS) (DEPRECIATION) VALUE - ---------- -------------- -------------- -------------- -------------- -------------- UBS U.S. Securitized Mortgage Relationship Fund $ 31,000,000 -- -- $ 362,235 $ 54,432,001
151 The Funds may invest in shares of the UBS Supplementary Trust -- U.S. Cash Management Prime Fund ("Supplementary Trust"). Supplementary Trust is managed by the Advisor and is offered as a cash management option only to mutual funds and certain other accounts managed by the Advisor. Supplementary Trust pays no management fees to the Advisor. Distributions received from Supplementary Trust are reflected as affiliated interest income in the Statements of Operations. Amounts relating to those investments at December 31, 2005 and for the six months then ended were as follows:
% OF SALES INTEREST NET FUND PURCHASES PROCEEDS INCOME VALUE ASSETS - ---- --------------- --------------- --------------- --------------- -------- UBS Global Allocation Fund $ 482,495,829 $ 378,683,245 $ 7,415,098 $ 474,593,845 13.48% UBS Global Equity Fund 39,449,770 38,255,332 26,551 2,250,128 0.49 UBS Global Bond Fund 15,798,150 16,151,233 49,716 1,810,120 2.62 UBS International Equity Fund 21,903,636 22,053,446 18,194 10,375,208 6.77 UBS U.S. Large Cap Equity Fund 118,308,629 124,539,548 297,801 7,066,227 1.55 UBS U.S. Large Cap Growth Fund 3,284,545 3,032,000 5,135 391,690 3.39 UBS U.S. Large Cap Value Equity Fund 16,559,887 16,213,047 27,000 1,290,960 0.97 UBS U.S. Small Cap Growth Fund 100,070,609 93,922,237 258,199 14,251,658 4.04 UBS U.S. Bond Fund 44,749,525 41,386,754 139,690 14,685,949 11.27 UBS High Yield Fund 33,583,266 28,647,123 51,089 5,198,454 4.73
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 Cash Prime are reflected as affiliated interest income in the Statement of Operations. Amounts relating to those investments at December 31, 2005 and for the six months then ended were as follows:
% OF SALES INTEREST NET FUND PURCHASES PROCEEDS INCOME VALUE ASSETS - ---- --------------- --------------- --------------- --------------- -------- UBS Dynamic Alpha Fund $ 527,860,724 $ 455,539,079 $ 1,296,058 $ 111,414,722 7.18% UBS Absolute Return Bond Fund 251,522,628 228,441,871 470,242 34,765,653 9.37
The following Funds have incurred brokerage commissions with an affiliated broker-dealer. Amounts relating to those transactions for the six months ended December 31, 2005, were as follows:
FUND UBS SECURITIES LLC - ---- ------------------ UBS Global Allocation Fund $ 8,587 UBS U.S. Large Cap Equity Fund 282,750 UBS U.S. Large Cap Value Equity Fund 61,021 UBS U.S. Small Cap Growth Fund 203,309
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 representative 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
152 UBS Global AM (US) also receives the proceeds of the inital sales charges paid upon purchase of Class A and the contingent deferred sales charges paid by shareholders upon certain redemptions of Class A, Class B, and Class C. At December 31, 2005, certain Funds owed UBS Global AM (US) service and distribution fees, and for the six months ended December 31, 2005, certain Funds were informed by UBS Global AM (US) that it had earned sales charges as follows:
SERVICE AND DISTRIBUTION FEES SALES CHARGES FUND OWED EARNED - ---- ----------------- ---------------- UBS Global Allocation Fund--A $ 405,368 $ 3,157,491 UBS Global Allocation Fund--B 146,208 233,664 UBS Global Allocation Fund--C 843,069 142,950 UBS Global Equity Fund--A 39,824 45,636 UBS Global Equity Fund--B 23,479 175,784 UBS Global Equity Fund--C 54,078 1,354 UBS Global Bond Fund--A 3,627 2,667 UBS Global Bond Fund--B 507 3,457 UBS Global Bond Fund--C 1,654 1,368 UBS International Equity Fund--A 4,360 12,746 UBS International Equity Fund--B 604 1,387 UBS International Equity Fund--C 1,624 797 UBS U.S. Large Cap Equity Fund--A 11,375 95,233 UBS U.S. Large Cap Equity Fund--B 719 2,780 UBS U.S. Large Cap Equity Fund--C 3,588 293 UBS U.S. Large Cap Growth Fund--A 1,122 13,999 UBS U.S. Large Cap Growth Fund--B 316 3 UBS U.S. Large Cap Growth Fund--C 533 0 UBS U.S. Large Cap Value Equity Fund--A 22,915 23,810 UBS U.S. Large Cap Value Equity Fund--B 2,700 10,453 UBS U.S. Large Cap Value Equity Fund--C 14,765 63 UBS U.S. Small Cap Growth Fund--A 28,712 27,935 UBS U.S. Small Cap Growth Fund--B 7,014 20,757 UBS U.S. Small Cap Growth Fund--C 7,387 413 UBS Dynamic Alpha Fund--A 206,841 3,549,383 UBS Dynamic Alpha Fund--B 18,111 12,368 UBS Dynamic Alpha Fund--C 284,826 77,662 UBS U.S. Bond Fund--A 7,504 5,490 UBS U.S. Bond Fund--B 904 1,499 UBS U.S. Bond Fund--C 1,007 153 UBS Absolute Return Bond Fund--A 20,719 158,510 UBS Absolute Return Bond Fund--C 10,261 9,063 UBS High Yield Fund--A 12,273 60,843 UBS High Yield Fund--B 2,335 8,104 UBS High Yield Fund--C 8,716 1,106
4. REDEMPTION FEES UBS Global Allocation Fund, UBS Global Equity Fund, UBS Dynamic Alpha 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 Fund, not the Advisor or UBS Global AM (US). The redemption fees earned by the Fund are disclosed in the Statements of Changes in Net Assets. 153 5. TRANSFER AGENCY AND RELATED SERVICES FEES UBS Financial Services, Inc. provides 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. For the six months ended December 31, 2005, UBS Financial Services, Inc. received from total transfer agency and related services fees paid by the Funds to PFPC as follows:
FUND AMOUNT PAID - ---- ------------ UBS Global Allocation Fund $ 454,329 UBS Global Equity Fund 125,572 UBS Global Bond Fund 7,579 UBS International Equity Fund 3,967 UBS U.S. Large Cap Equity Fund 5,054 UBS U.S. Large Cap Growth Fund 1,226 UBS U.S. Large Cap Value Equity Fund 31,600 UBS U.S. Small Cap Growth Fund 21,794 UBS Dynamic Alpha Fund 163,059 UBS U.S. Bond Fund 2,137 UBS Absolute Return Bond Fund 18,843 UBS High Yield Fund 31,070
6. SECURITIES LENDING Each 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 broker-dealers, 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 $88,908,069, which cannot be resold. The value of loaned securities and related collateral outstanding at December 31, 2005, were as follows:
MARKET VALUE MARKET VALUE OF COLLATERAL OF INVESTMENTS SECURITIES RECEIVED FOR OF CASH COLLATERAL FUND LOANED SECURITIES LOANED RECEIVED - ---- --------------- ----------------- ------------------ UBS Global Allocation Fund $ 164,969,790 $ 170,415,985 $ 81,507,916 UBS International Equity Fund 8,961,661 9,457,870 9,457,870
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 154 portfolio securities, the repurchase or redemption of shares of each Fund at the request of shareholders 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%. Under the Committed Credit Facility arrangement, each Fund has agreed to pay commitment fees, pro rata, based on the relative asset size of the Funds in the Committed Credit Facility in the amount of 0.09% per annum on the average daily balance of the line of credit not utilized. The average daily borrowings under the agreement for the six months ended December 31, 2005, were as follows:
AVERAGE WEIGHTED DAILY NUMBER OF DAYS INTEREST AVERAGE ANNUALIZED FUND BORROWINGS OUTSTANDING EXPENSE INTEREST RATES - ---- --------------- --------------- --------------- ------------------ UBS Global Equity Fund $ 1,700,000 1 $ 218 4.62% UBS Global Bond Fund 1,900,000 3 673 4.25% UBS International Equity Fund 36,130,000 9 4,463 4.45% UBS U.S. Large Cap Equity Fund 4,000,000 1 444 4.00% UBS U.S. Bond Fund 4,135,000 2 853 3.72%
8. PURCHASES AND SALES OF SECURITIES For the six months ended December 31, 2005, aggregate purchases and sales of portfolio securities, excluding short-term investments and U.S. Government and agency securities, were as follows:
SALES FUND PURCHASES PROCEEDS - ---- --------------- --------------- UBS Global Allocation Fund $ 910,306,925 $ 747,421,296 UBS Global Equity Fund 102,919,575 126,073,052 UBS Global Bond Fund 33,723,679 32,682,717 UBS International Equity Fund 39,101,091 32,475,593 UBS U.S. Large Cap Equity Fund 206,400,142 169,598,121 UBS U.S. Large Cap Growth Fund 7,804,782 4,725,130 UBS U.S. Large Cap Value Equity Fund 30,288,042 40,427,638 UBS U.S. Small Cap Growth Fund 146,112,298 76,095,639 UBS Dynamic Alpha Fund 702,090,770 183,561,927 UBS U.S. Bond Fund 43,432,948 48,412,836 UBS Absolute Return Bond Fund 314,685,566 108,739,398 UBS High Yield Fund 34,078,228 40,899,999
For the six months ended December 31, 2005, aggregate purchases and sales of U.S. Government securities, excluding short-term investments were as follows:
SALES FUND PURCHASES PROCEEDS - ---- --------------- --------------- UBS Global Allocation Fund $ 435,433,218 $ 398,004,500 UBS Global Bond Fund 11,673,256 13,530,300 UBS U.S. Bond Fund 74,191,093 85,908,439
9. FEDERAL INCOME TAXES It is each 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. In addition, by distributing during each calendar year substantially all of its net investment income, net realized capital gains and certain other amounts, if 155 any, each Fund intends not to be subject to a federal excise tax. Accordingly, no federal income tax provision was required. In addition, by distributing during each calendar year substantially all of its net investment income, net realized capital gains and certain other amounts, if any, each Fund intends not to be subject to a federal income tax. The tax character of distributions paid during the fiscal year ended June 30, 2005 were as follows:
2005 --------------------------------------------------- DISTRIBUTIONS DISTRIBUTIONS PAID FROM PAID FROM NET TOTAL ORDINARY LONG-TERM DISTRIBUTIONS FUND INCOME CAPITAL GAINS PAID - ---- --------------- --------------- --------------- UBS Global Allocation Fund $ 61,142,280 $ 26,432,523 $ 87,574,803 UBS Global Equity Fund -- -- -- UBS Global Bond Fund 3,630,892 -- 3,630,892 UBS International Equity Fund 1,435,132 -- 1,435,132 UBS U.S. Large Cap Equity Fund 1,656,696 5,535,537 7,192,233 UBS U.S. Large Cap Growth Fund -- -- -- UBS U.S. Large Cap Value Equity Fund 3,247,492 21,462,799 24,710,291 UBS U.S. Small Cap Growth Fund -- 3,161,183 3,161,183 UBS Dynamic Alpha Fund -- -- -- UBS U.S. Bond Fund 5,675,397 -- 5,675,397 UBS Absolute Return Bond Fund 354,913 -- 354,913 UBS High Yield Fund 11,449,762 -- 11,449,762
The tax character of distributions paid and the components of accumulated earnings (deficit) on a tax basis for the current fiscal year will be determined after the Trust's fiscal year ending June 30, 2006. At June 30, 2005, the following Funds had net capital loss carryforwards for federal income tax purposes available to offset future 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. 156 During 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 --
10. COMMISSION RECAPTURE PROGRAM Effective November 1, 2005, the Board approved a brokerage commission recapture program for the following Funds: UBS Global Allocation Fund, UBS Global Equity 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 and UBS U.S. Small Cap Growth Fund. These Portfolios have established commission recapture arrangements with certain participating brokers or dealers. If a Fund's investment manager chooses to execute a transaction through a participating broker, the broker will rebate a portion of the commission back to the Fund. Any collateral benefit received through participation in the commission recapture program is directed exclusively to the Fund. The recaptured commissions are reflected on the Statement of Operations within the net realized and unrealized gains (losses) on investment activities. 11. CAPITAL CONTRIBUTIONS FROM ADVISOR Subsequent to December 31, 2005, UBS Global AM reimbursed the UBS Dynamic Alpha Fund for a trading error in the amount of $24,866 or $0.0002 per share based upon the Fund's shares outstanding at December 31, 2005. 12. SHARES OF BENEFICIAL INTEREST For the six months ended December 31, 2005, transactions in shares of beneficial interest for each of the Funds were as follows: UBS GLOBAL ALLOCATION FUND
CLASS A CLASS B -------------------------------- -------------------------------- SHARES AMOUNT SHARES AMOUNT -------------- -------------- -------------- -------------- Shares Sold 28,602,226 $ 391,225,364 791,934 $ 10,628,403 Shares Repurchased (12,705,342) (173,995,218) (624,297) (8,437,782) Shares Converted from Class B to Class A 1,717,510 23,396,481 (1,754,088) (23,396,481) Dividends Reinvested 7,113,861 95,467,597 548,472 7,256,282 -------------- -------------- -------------- -------------- Net Increase (Decrease) 24,728,255 $ 336,094,224 (1,037,979) $ (13,949,578) ============== ============== ============== ============== CLASS C CLASS Y -------------------------------- -------------------------------- SHARES AMOUNT SHARES AMOUNT -------------- -------------- -------------- -------------- Shares Sold 8,834,283 $ 118,456,028 5,646,476 $ 77,532,096 Shares Repurchased (5,698,191) (76,482,896) (2,701,019) (37,462,209) Shares Converted from Class B to Class A -- -- -- -- Dividends Reinvested 3,404,878 44,944,379 1,539,235 20,933,598 -------------- -------------- -------------- -------------- Net Increase (Decrease) 6,540,970 $ 86,917,511 4,484,692 $ 61,003,485 ============== ============== ============== ==============
UBS GLOBAL EQUITY FUND
CLASS A CLASS B -------------------------------- -------------------------------- SHARES AMOUNT SHARES AMOUNT -------------- -------------- -------------- -------------- Shares Sold 561,961 $ 6,804,691 19,980 $ 234,706 Shares Repurchased (1,513,585) (18,421,760) (968,060) (11,410,489) Shares Converted from Class B to Class A 6,288,761 75,512,438 (6,439,636) (75,512,438) Dividends Reinvested 81,168 1,015,414 -- -- -------------- -------------- -------------- -------------- Net Increase (Decrease) 5,418,305 $ 64,910,783 (7,387,716) $ (86,688,221) ============== ============== ============== ============== CLASS C CLASS Y -------------------------------- -------------------------------- SHARES AMOUNT SHARES AMOUNT -------------- -------------- -------------- -------------- Shares Sold 84,913 $ 982,665 2,432,878 $ 29,918,216 Shares Repurchased (1,030,057) (12,166,267) (1,637,464) (20,115,692) Shares Converted from Class B to Class A -- -- -- -- Dividends Reinvested -- -- 105,660 1,345,053 -------------- -------------- -------------- -------------- Net Increase (Decrease) (945,144) $ (11,183,602) 901,074 $ 11,147,577 ============== ============== ============== ==============
157 UBS GLOBAL BOND FUND
CLASS A CLASS B -------------------------------- -------------------------------- SHARES AMOUNT SHARES AMOUNT -------------- -------------- -------------- -------------- Shares Sold 340,365 $ 3,302,674 97 $ 945 Shares Repurchased (353,389) (3,412,416) (6,980) (67,654) Shares Converted from Class B to Class A 48,250 466,680 (48,150) (466,680) Dividends Reinvested 36,094 342,433 978 9,299 -------------- -------------- -------------- -------------- Net Increase (Decrease) 71,320 $ 699,371 (54,055) $ (524,090) ============== ============== ============== ============== CLASS C CLASS Y -------------------------------- -------------------------------- SHARES AMOUNT SHARES AMOUNT -------------- -------------- -------------- -------------- Shares Sold 5,761 $ 56,129 1,239,280 $ 13,209,717 Shares Repurchased (55,402) (534,740) (1,422,814) (15,120,845) Shares Converted from Class B to Class A -- -- -- -- Dividends Reinvested 3,545 33,530 99,664 1,046,000 -------------- -------------- -------------- -------------- Net Increase (Decrease) (46,096) $ (445,081) (83,870) $ (865,128) ============== ============== ============== ==============
UBS INTERNATIONAL EQUITY FUND
CLASS A CLASS B -------------------------------- -------------------------------- SHARES AMOUNT SHARES AMOUNT -------------- -------------- -------------- -------------- Shares Sold 547,580 $ 5,514,056 3,284 $ 32,729 Shares Repurchased (199,942) (1,999,978) (633) (10,506) Shares Converted from Class B to Class A 28,135 278,864 (28,617) (278,864) Dividends Reinvested 85,840 875,565 2,372 23,936 -------------- -------------- -------------- -------------- Net Increase (Decrease) 461,613 $ 4,668,507 (23,594) $ (232,705) ============== ============== ============== ============== CLASS C CLASS Y -------------------------------- -------------------------------- SHARES AMOUNT SHARES AMOUNT -------------- -------------- -------------- -------------- Shares Sold 38,184 $ 380,572 1,945,518 $ 19,851,254 Shares Repurchased (39,228) (390,718) (1,723,623) (17,199,457) Shares Converted from Class B to Class A -- -- -- -- Dividends Reinvested 6,565 65,849 564,394 5,796,333 -------------- -------------- -------------- -------------- Net Increase (Decrease) 5,521 $ 55,703 786,289 $ 8,448,130 ============== ============== ============== ==============
UBS U.S. LARGE CAP EQUITY FUND
CLASS A CLASS B -------------------------------- -------------------------------- SHARES AMOUNT SHARES AMOUNT -------------- -------------- -------------- -------------- Shares Sold 1,680,853 $ 29,988,469 28,730 $ 439,685 Shares Repurchased (242,172) (4,359,787) (4,293) (75,279) Shares Converted from Class B to Class A 35,767 635,759 (36,552) (635,759) Dividends Reinvested 77,658 1,407,165 943 79,484 -------------- -------------- -------------- -------------- Net Increase (Decrease) 1,552,106 $ 27,671,606 (11,172) $ (191,869) ============== ============== ============== ============== CLASS C CLASS Y -------------------------------- -------------------------------- SHARES AMOUNT SHARES AMOUNT -------------- -------------- -------------- -------------- Shares Sold 119,377 $ 2,096,315 5,882,200 $ 106,101,215 Shares Repurchased (12,563) (224,038) (5,736,990) (102,714,233) Shares Converted from Class B to Class A -- -- -- -- Dividends Reinvested -- -- 569,763 10,420,965 -------------- -------------- -------------- -------------- Net Increase (Decrease) 106,814 $ 1,872,277 714,973 $ 13,807,947 ============== ============== ============== ==============
UBS U.S. LARGE CAP GROWTH FUND
CLASS A CLASS B -------------------------------- -------------------------------- SHARES AMOUNT SHARES AMOUNT -------------- -------------- -------------- -------------- Shares Sold 217,633 $ 1,925,408 15,717 $ 135,177 Shares Repurchased (62,466) (546,844) (5,059) (41,824) Shares Converted from Class B to Class A 39,014 334,223 (40,070) (334,223) Dividends Reinvested 113 1,082 -- -- -------------- -------------- -------------- -------------- Net Increase (Decrease) 194,294 $ 1,713,869 (29,412) $ (240,870) ============== ============== ============== ============== CLASS C CLASS Y -------------------------------- -------------------------------- SHARES AMOUNT SHARES AMOUNT -------------- -------------- -------------- -------------- Shares Sold 32,399 $ 284,942 185,855 $ 1,733,177 Shares Repurchased (11,191) (95,432) (28,155) (258,852) Shares Converted from Class B to Class A -- -- -- -- Dividends Reinvested -- -- 412 4,014 -------------- -------------- -------------- -------------- Net Increase (Decrease) 21,208 $ 189,510 158,112 $ 1,478,339 ============== ============== ============== ==============
UBS U.S. LARGE CAP VALUE EQUITY FUND
CLASS A CLASS B -------------------------------- -------------------------------- SHARES AMOUNT SHARES AMOUNT -------------- -------------- -------------- -------------- Shares Sold 143,446 $ 1,555,571 10,699 $ 113,124 Shares Repurchased (912,706) (9,810,428) (44,368) (474,198) Shares Converted from Class B to Class A 160,218 1,720,715 (163,257) (1,720,715) Dividends Reinvested 979,396 9,962,755 24,425 245,715 -------------- -------------- -------------- -------------- Net Increase (Decrease) 370,354 $ 3,428,613 (172,501) $ (1,836,074) ============== ============== ============== ============== CLASS C CLASS Y -------------------------------- -------------------------------- SHARES AMOUNT SHARES AMOUNT -------------- -------------- -------------- -------------- Shares Sold 12,656 $ 137,064 93,586 $ 1,009,140 Shares Repurchased (119,556) (1,266,984) (68,738) (755,273) Shares Converted from Class B to Class A -- -- -- -- Dividends Reinvested 158,856 1,591,737 65,013 663,136 -------------- -------------- -------------- -------------- Net Increase (Decrease) 51,956 $ 461,817 89,861 $ 917,003 ============== ============== ============== ==============
158 UBS U.S. SMALL CAP GROWTH FUND
CLASS A CLASS B -------------------------------- -------------------------------- SHARES AMOUNT SHARES AMOUNT -------------- -------------- -------------- -------------- Shares Sold 2,148,745 $ 30,395,965 14,950 $ 207,878 Shares Repurchased (1,060,180) (14,984,353) (60,448) (834,708) Shares Converted from Class B to Class A 93,523 1,305,866 (96,296) (1,305,866) Dividends Reinvested 312,033 4,352,865 23,750 320,860 -------------- -------------- -------------- -------------- Net Increase (Decrease) 1,494,121 $ 21,070,343 (118,044) $ (1,611,836) ============== ============== ============== ============== CLASS C CLASS Y -------------------------------- -------------------------------- SHARES AMOUNT SHARES AMOUNT -------------- -------------- -------------- -------------- Shares Sold 13,957 $ 190,211 4,898,157 $ 70,766,322 Shares Repurchased (52,041) (715,381) (1,669,271) (24,069,943) Shares Converted from Class B to Class A -- -- -- -- Dividends Reinvested 24,665 332,733 535,599 7,637,632 -------------- -------------- -------------- -------------- Net Increase (Decrease) (13,419) $ (192,437) 3,764,485 $ 54,334,011 ============== ============== ============== ==============
UBS DYNAMIC ALPHA FUND
CLASS A CLASS B -------------------------------- -------------------------------- SHARES AMOUNT SHARES AMOUNT -------------- -------------- -------------- -------------- Shares Sold 49,929,198 $ 529,536,244 905,814 $ 9,544,989 Shares Repurchased (6,517,227) (69,041,006) (157,553) (1,647,403) Shares Converted from Class B to Class A 158,330 1,673,618 (159,170) (1,673,618) Dividends Reinvested 794,115 8,560,557 7,912 85,128 -------------- -------------- -------------- -------------- Net Increase (Decrease) 44,364,416 $ 470,729,413 597,003 $ 6,309,096 ============== ============== ============== ============== CLASS C CLASS Y -------------------------------- -------------------------------- SHARES AMOUNT SHARES AMOUNT -------------- -------------- -------------- -------------- Shares Sold 13,766,282 $ 145,174,186 7,920,935 $ 84,759,417 Shares Repurchased (1,283,225) (13,517,271) (221,827) (2,383,180) Shares Converted from Class B to Class A -- -- -- -- Dividends Reinvested 138,064 1,484,196 118,432 1,277,884 -------------- -------------- -------------- -------------- Net Increase (Decrease) 12,621,121 $ 133,141,111 7,817,540 $ 83,654,121 ============== ============== ============== ==============
UBS U.S. BOND FUND
CLASS A CLASS B -------------------------------- -------------------------------- SHARES AMOUNT SHARES AMOUNT -------------- -------------- -------------- -------------- Shares Sold 440,504 $ 4,661,304 340 $ 3,593 Shares Repurchased (362,492) (3,830,206) (13,426) (142,056) Shares Converted from Class B to Class A 39,104 409,910 (39,069) (409,910) Dividends Reinvested 50,503 532,797 1,462 15,451 -------------- -------------- -------------- -------------- Net Increase (Decrease) 167,619 $ 1,773,805 (50,693) $ (532,922) ============== ============== ============== ============== CLASS C CLASS Y -------------------------------- -------------------------------- SHARES AMOUNT SHARES AMOUNT -------------- -------------- -------------- -------------- Shares Sold 8,904 $ 94,954 1,640,714 $ 17,349,250 Shares Repurchased (52,978) (560,688) (3,272,752) (34,695,375) Shares Converted from Class B to Class A -- -- -- -- Dividends Reinvested 2,223 23,428 207,115 2,184,625 -------------- -------------- -------------- -------------- Net Increase (Decrease) (41,851) $ (442,306) (1,424,923) $ (15,161,500) ============== ============== ============== ==============
UBS ABSOLUTE RETURN BOND FUND
CLASS A CLASS C -------------------------------- -------------------------------- SHARES AMOUNT SHARES AMOUNT -------------- -------------- -------------- -------------- Shares Sold 8,963,857 $ 90,028,846 964,518 $ 9,686,131 Shares Repurchased (3,425,850) (34,428,392) (278,601) (2,797,369) Dividends Reinvested 297,434 2,960,732 38,654 384,687 -------------- -------------- -------------- -------------- Net Increase (Decrease) 5,835,441 $ 58,561,186 724,571 $ 7,273,449 ============== ============== ============== ============== CLASS Y -------------------------------- SHARES AMOUNT -------------- -------------- Shares Sold 16,617,236 $ 166,867,873 Shares Repurchased (325,972) (3,273,612) Dividends Reinvested 248,243 2,470,361 -------------- -------------- Net Increase (Decrease) 16,539,507 $ 166,064,622 ============== ==============
UBS HIGH YIELD FUND
CLASS A CLASS B -------------------------------- -------------------------------- SHARES AMOUNT SHARES AMOUNT -------------- -------------- -------------- -------------- Shares Sold 820,620 $ 5,773,239 32,185 $ 228,656 Shares Repurchased (2,050,616) (14,520,598) (50,196) (359,721) Shares Converted from Class B to Class A 147,943 1,047,060 (147,943) (1,047,060) Dividends Reinvested 167,599 1,178,941 5,251 37,007 -------------- -------------- -------------- -------------- Net Increase (Decrease) (914,454) $ (6,521,358) (160,703) $ (1,141,118) ============== ============== ============== ============== CLASS C CLASS Y -------------------------------- -------------------------------- SHARES AMOUNT SHARES AMOUNT -------------- -------------- -------------- -------------- Shares Sold 26,423 $ 188,195 1,662,315 $ 11,847,003 Shares Repurchased (270,519) (1,907,440) (955,053) (6,774,933) Shares Converted from Class B to Class A -- -- -- -- Dividends Reinvested 37,854 266,383 188,570 1,331,325 -------------- -------------- -------------- -------------- Net Increase (Decrease) (206,242) $ (1,452,862) 895,832 $ 6,403,395 ============== ============== ============== ==============
159 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 -------------------------------- -------------------------------- SHARES AMOUNT SHARES AMOUNT -------------- -------------- -------------- -------------- Shares Sold 69,033,054 $ 901,176,727 4,887,986 $ 62,268,212 Shares Repurchased (25,752,268) (336,025,571) (1,775,385) (22,618,913) 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 -------------- -------------- -------------- -------------- Net Increase (Decrease) 48,584,231 $ 634,809,397 1,450,950 $ 18,414,019 ============== ============== ============== ============== CLASS C CLASS Y -------------------------------- -------------------------------- SHARES AMOUNT SHARES AMOUNT -------------- -------------- -------------- -------------- Shares Sold 30,536,574 $ 391,636,475 9,025,992 $ 120,041,312 Shares Repurchased (7,634,229) (97,678,242) (4,549,745) (60,500,742) Shares Converted from Class B to Class A -- -- -- -- Dividends Reinvested 1,736,469 22,554,243 790,799 10,549,257 -------------- -------------- -------------- -------------- Net Increase (Decrease) 24,638,814 $ 316,512,476 5,267,046 $ 70,089,827 ============== ============== ============== ==============
UBS GLOBAL EQUITY FUND
CLASS A CLASS B -------------------------------- -------------------------------- SHARES AMOUNT SHARES AMOUNT -------------- -------------- -------------- -------------- Shares Sold 894,976 $ 9,923,996 128,544 $ 1,408,467 Shares Repurchased (2,676,088) (29,650,038) (3,431,230) (37,526,341) 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) ============== ============== ============== ============== CLASS C CLASS Y -------------------------------- -------------------------------- SHARES AMOUNT SHARES AMOUNT -------------- -------------- -------------- -------------- Shares Sold 244,264 $ 2,689,476 4,834,174 $ 55,242,625 Shares Repurchased (2,189,686) (23,935,439) (2,142,827) (24,384,169) Shares Converted from Class B to Class A -- -- -- -- -------------- -------------- -------------- -------------- Net Increase (Decrease) (1,945,422) $ (21,245,963) 2,691,347 $ 30,858,456 ============== ============== ============== ==============
UBS GLOBAL BOND FUND
CLASS A CLASS B -------------------------------- -------------------------------- SHARES AMOUNT SHARES AMOUNT -------------- -------------- -------------- -------------- Shares Sold 779,454 $ 7,873,101 26,285 $ 266,491 Shares Repurchased (663,537) (6,662,877) (37,800) (382,415) 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 -------------- -------------- -------------- -------------- Net Increase (Decrease) 218,375 $ 2,246,598 (38,346) $ (382,596) ============== ============== ============== ============== CLASS C CLASS Y -------------------------------- -------------------------------- SHARES AMOUNT SHARES AMOUNT -------------- -------------- -------------- -------------- Shares Sold 67,803 $ 708,589 1,912,428 $ 21,397,026 Shares Repurchased (114,205) (1,158,206) (1,089,043) (12,141,042) Shares Converted from Class B to Class A -- -- -- -- Dividends Reinvested 10,279 104,558 219,180 2,456,745 -------------- -------------- -------------- -------------- Net Increase (Decrease) (36,123) $ (345,059) 1,042,565 $ 11,712,729 ============== ============== ============== ==============
UBS INTERNATIONAL EQUITY FUND
CLASS A CLASS B -------------------------------- -------------------------------- SHARES AMOUNT SHARES AMOUNT -------------- -------------- -------------- -------------- Shares Sold 971,771 $ 9,123,414 47,847 $ 442,038 Shares Repurchased (327,691) (3,095,147) (23,780) (222,508) 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 -------------- -------------- -------------- -------------- Net Increase (Decrease) 683,171 $ 6,396,245 (2,292) $ (23,758) ============== ============== ============== ============== CLASS C CLASS Y -------------------------------- -------------------------------- SHARES AMOUNT SHARES AMOUNT -------------- -------------- -------------- -------------- Shares Sold 60,935 $ 554,593 3,579,796 $ 33,764,818 Shares Repurchased (25,220) (220,443) (3,533,605) (32,656,863) Shares Converted from Class B to Class A -- -- -- -- Dividends Reinvested 1,315 12,319 131,730 1,260,658 -------------- -------------- -------------- -------------- Net Increase (Decrease) 37,030 $ 346,469 177,921 $ 2,368,613 ============== ============== ============== ==============
UBS U.S. LARGE CAP EQUITY FUND
CLASS A CLASS B -------------------------------- -------------------------------- SHARES AMOUNT SHARES AMOUNT -------------- -------------- -------------- -------------- Shares Sold 1,141,152 $ 19,359,581 24,505 $ 396,959 Shares Repurchased (179,593) (2,974,111) (29,181) (474,059) 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 -------------- -------------- -------------- -------------- Net Increase (Decrease) 995,810 $ 16,959,175 (16,897) $ (273,176) ============== ============== ============== ============== CLASS C CLASS Y -------------------------------- -------------------------------- SHARES AMOUNT SHARES AMOUNT -------------- -------------- -------------- -------------- Shares Sold 51,504 $ 833,269 13,930,423 $ 237,587,472 Shares Repurchased (14,719) (241,240) (2,686,007) (45,165,916) Shares Converted from Class B to Class A -- -- -- -- Dividends Reinvested 3,177 53,085 357,650 6,115,822 -------------- -------------- -------------- -------------- Net Increase (Decrease) 39,962 $ 645,114 11,602,066 $ 198,537,378 ============== ============== ============== ==============
160 UBS U.S. LARGE CAP GROWTH FUND
CLASS A CLASS B -------------------------------- -------------------------------- SHARES AMOUNT SHARES AMOUNT -------------- -------------- -------------- -------------- Shares Sold 175,753 $ 1,392,107 50,709 $ 394,989 Shares Repurchased (93,780) (717,925) (15,315) (117,501) 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 ============== ============== ============== ============== CLASS C CLASS Y -------------------------------- -------------------------------- SHARES AMOUNT SHARES AMOUNT -------------- -------------- -------------- -------------- Shares Sold 24,218 $ 186,891 164,709 $ 1,324,735 Shares Repurchased (30,467) (236,018) (243,604) (1,899,270) Shares Converted from Class B to Class A -- -- -- -- -------------- -------------- -------------- -------------- Net Increase (Decrease) (6,249) $ (49,127) (78,895) $ (574,535) ============== ============== ============== ==============
UBS U.S. LARGE CAP VALUE EQUITY FUND
CLASS A CLASS B -------------------------------- -------------------------------- SHARES AMOUNT SHARES AMOUNT -------------- -------------- -------------- -------------- Shares Sold 366,374 $ 4,029,657 55,554 $ 603,214 Shares Repurchased (2,237,107) (23,806,916) (384,823) (4,197,986) 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 -------------- -------------- -------------- -------------- Net Increase (Decrease) 413,622 $ 3,959,169 (839,758) $ (9,060,187) ============== ============== ============== ============== CLASS C CLASS Y -------------------------------- -------------------------------- SHARES AMOUNT SHARES AMOUNT -------------- -------------- -------------- -------------- Shares Sold 41,749 $ 447,686 285,132 $ 3,076,338 Shares Repurchased (428,096) (4,522,736) (221,110) (2,345,027) Shares Converted from Class B to Class A -- -- -- -- Dividends Reinvested 284,859 2,879,919 80,994 831,812 -------------- -------------- -------------- -------------- Net Increase (Decrease) (101,488) $ (1,195,131) 145,016 $ 1,563,123 ============== ============== ============== ==============
UBS U.S. SMALL CAP GROWTH FUND
CLASS A CLASS B -------------------------------- -------------------------------- SHARES AMOUNT SHARES AMOUNT -------------- -------------- -------------- -------------- Shares Sold 4,308,097 $ 54,568,362 35,832 $ 441,849 Shares Repurchased (2,262,684) (28,745,706) (238,254) (2,944,023) 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 -------------- -------------- -------------- -------------- Net Increase (Decrease) 2,164,091 $ 27,371,166 (270,316) $ (2,923,905) ============== ============== ============== ============== CLASS C CLASS Y -------------------------------- -------------------------------- SHARES AMOUNT SHARES AMOUNT -------------- -------------- -------------- -------------- Shares Sold 47,561 $ 578,491 5,363,965 $ 71,157,347 Shares Repurchased (193,865) (2,399,019) (2,178,148) (28,035,910) Shares Converted from Class B to Class A -- -- -- -- Dividends Reinvested 10,789 141,660 106,806 1,464,308 -------------- -------------- -------------- -------------- Net Increase (Decrease) (135,515) $ (1,678,868) 3,292,623 $ 44,585,745 ============== ============== ============== ==============
UBS DYNAMIC ALPHA FUND
CLASS A CLASS B -------------------------------- -------------------------------- SHARES AMOUNT SHARES AMOUNT -------------- -------------- -------------- -------------- Shares Sold 57,910,258 $ 583,108,170 1,569,610 $ 15,948,744 Shares Repurchased (6,258,676) (62,973,914) (131,467) (1,160,653) 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 ============== ============== ============== ============== CLASS C CLASS Y -------------------------------- -------------------------------- SHARES AMOUNT SHARES AMOUNT -------------- -------------- -------------- -------------- Shares Sold 20,860,891 $ 209,686,120 5,508,507 $ 55,539,965 Shares Repurchased (945,181) (9,516,375) (14,678) (148,572) Shares Converted from Class B to Class A -- -- -- -- -------------- -------------- -------------- -------------- Net Increase 19,915,710 $ 200,169,745 5,493,829 $ 55,391,393 ============== ============== ============== ==============
UBS U.S. BOND FUND
CLASS A CLASS B -------------------------------- -------------------------------- SHARES AMOUNT SHARES AMOUNT -------------- -------------- -------------- -------------- Shares Sold 894,623 $ 9,585,427 31,772 $ 341,139 Shares Repurchased (773,845) (8,288,955) (62,690) (673,669) 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 -------------- -------------- -------------- -------------- Net Increase (Decrease) 220,040 $ 2,359,147 (42,557) $ (457,230) ============== ============== ============== ============== CLASS C CLASS Y -------------------------------- -------------------------------- SHARES AMOUNT SHARES AMOUNT -------------- -------------- -------------- -------------- Shares Sold 18,559 $ 199,401 4,147,305 $ 44,475,902 Shares Repurchased (39,043) (418,111) (2,769,582) (29,708,217) Shares Converted from Class B to Class A -- -- -- -- Dividends Reinvested 5,464 58,494 395,026 4,231,597 -------------- -------------- -------------- -------------- Net Increase (Decrease) (15,020) $ (160,216) 1,772,749 $ 18,999,282 ============== ============== ============== ==============
161 UBS ABSOLUTE RETURN BOND FUND
CLASS A CLASS C -------------------------------- -------------------------------- SHARES AMOUNT SHARES AMOUNT -------------- -------------- -------------- -------------- Shares Sold 11,110,087 $ 111,075,747 1,788,810 $ 17,882,149 Shares Repurchased (575,116) (5,750,561) (90,869) (908,477) Dividends Reinvested 23,777 237,297 2,978 29,722 -------------- -------------- -------------- -------------- Net Increase 10,558,748 $ 105,562,483 1,700,919 $ 17,003,394 ============== ============== ============== ============== CLASS Y -------------------------------- SHARES AMOUNT -------------- -------------- Shares Sold 1,999,998 $ 19,999,975 Shares Repurchased -- -- Dividends Reinvested 4,488 44,795 -------------- -------------- Net Increase 2,004,486 $ 20,044,770 ============== ==============
UBS HIGH YIELD FUND
CLASS A CLASS B -------------------------------- -------------------------------- SHARES AMOUNT SHARES AMOUNT -------------- -------------- -------------- -------------- Shares Sold 1,902,920 $ 13,792,311 51,129 $ 372,922 Shares Repurchased (3,697,510) (26,810,731) (267,704) (1,775,628) 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 -------------- -------------- -------------- -------------- Net Increase (Decrease) (943,241) $ (6,837,163) (558,259) $ (4,051,302) ============== ============== ============== ============== CLASS C CLASS Y -------------------------------- -------------------------------- SHARES AMOUNT SHARES AMOUNT -------------- -------------- -------------- -------------- Shares Sold 217,672 $ 1,570,720 3,798,542 $ 27,460,685 Shares Repurchased (631,495) (4,603,207) (6,824,874) (49,884,542) Shares Converted from Class B to Class A -- -- -- -- Dividends Reinvested 91,108 659,270 479,895 3,488,674 -------------- -------------- -------------- -------------- Net Increase (Decrease) (322,715) $ (2,373,217) (2,546,437) $ (18,935,183) ============== ============== ============== ==============
162 THE UBS FUNDS -- GENERAL INFORMATION (UNAUDITED) QUARTERLY FORM N-Q PORTFOLIO SCHEDULE Each Fund will file its 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). 163 This page intentionally left blank. [UBS LOGO] PRESORTED STANDARD U.S. POSTAGE UBS GLOBAL ASSET MANAGEMENT PAID One North Wacker Drive COMPUTERSHARE Chicago, Illinois 60606 ITEM 2. CODE OF ETHICS. Form N-CSR disclosure requirement not applicable to this filing of a semi-annual report. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. Form N-CSR disclosure requirement not applicable to this filing of a semi-annual report. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. Form N-CSR disclosure requirement not applicable to this filing of a semi-annual report. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. Not applicable to the registrant. ITEM 6. SCHEDULE OF INVESTMENTS. Included as part of the report to shareholders filed under Item 1 of this form. ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable to the registrant. ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable to the registrant. ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. Not applicable to the registrant. ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. The registrant's Board has established a Nominating Committee. The Nominating Committee will consider nominees recommended by shareholders if a vacancy occurs among those board members who are not "interested persons" as defined in Section 2(a)(19) of the Investment Company Act of 1940, as amended. In order to recommend a nominee, a shareholder should send a letter to the chairperson of the Nominating Committee, Mr. Walter E. Auch, care of the Secretary of the registrant at UBS Global Asset Management (Americas) Inc., One North Wacker Drive, Chicago, Illinois 60606, and indicate on the envelope "Nominating Committee." The shareholder's letter should state the nominee's name and should include the nominee's resume or curriculum vitae, and must be accompanied by a written consent of the individual to stand for election if nominated for the Board and to serve if elected by shareholders. ITEM 11. CONTROLS AND PROCEDURES. (a) The registrant's principal executive officer and principal financial officer have concluded that the registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended) are effective based on their evaluation of these controls and procedures as of a date within 90 days of the filing date of this document. (b) The registrant's principal executive officer and principal financial officer are aware of no changes in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. ITEM 12. EXHIBITS. (a)(1) Code of Ethics - Form N-CSR disclosure requirement not applicable to this filing of a semi-annual report. (a)(2) Certifications of principal executive officer and principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 is attached hereto as Exhibit EX-99.CERT. (a)(3) Written solicitation to purchase securities under Rule 23c-1 under the Investment Company Act of 1940 sent or given during the period covered by the report by or on behalf of the registrant to 10 or more persons - not applicable to the registrant. (b) Certifications of principal executive officer and principal financial officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 is attached hereto as Exhibit EX-99.906CERT. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. The UBS Funds By: /s/ W. Douglas Beck -------------------- W. Douglas Beck President Date: March 10, 2006 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: March 10, 2006 ---------------- By: /s/ Joseph T. Malone --------------------- Joseph T. Malone Treasurer & Principal Accounting Officer Date: March 10, 2006 -------------- EX-99.CERT 2 a2167685zex-99_cert.txt EX-99.CERT Exhibit EX-99.CERT CERTIFICATIONS I, W. Douglas Beck, President of The UBS Funds, certify that: 1. I have reviewed this report on Form N-CSR of The UBS Funds; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements, for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. By: /s/ W. Douglas Beck --------------------- W. Douglas Beck President Date: March 10, 2006 -------------- I, Joseph T. Malone, Treasurer & Principal Accounting Officer of The UBS Funds, certify that: 1. I have reviewed this report on Form N-CSR of The UBS Funds; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements, for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. By: /s/ Joseph T. Malone ---------------------- Joseph T. Malone Treasurer & Principal Accounting Officer Date: March 10, 2006 EX-99.906CERT 3 a2167685zex-99_906cert.txt EX-99.906CERT Exhibit EX-99.906CERT Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) In connection with the attached report of The UBS Funds (the "Registrant") on Form N-CSR (the "Report"), each of the undersigned officers of the Registrant does hereby certify that, to the best of such officer's knowledge: 1) the Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; 2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant as of, and for, the periods presented in the Report. Dated: March 10, 2006 By: /s/ W. Douglas Beck -------------------- W. Douglas Beck President Dated: March 10, 2006 By: /s/ Joseph T. Malone --------------------- Joseph T. Malone Treasurer & Principal Accounting Officer This certification is being furnished solely pursuant to 18 U.S.C. SECTION 1350 and is not being filed as part of the Report or as a separate disclosure document. -----END PRIVACY-ENHANCED MESSAGE-----