N-CSR 1 a2172851zn-csr.txt N-CSR UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number: 811-06637 ---------- The UBS Funds (Exact name of registrant as specified in charter) 51 West 52nd Street, New York, New York 10019-6114 (Address of principal executive offices) (Zip code) Mark F. Kemper, Esq. UBS Global Asset Management 51 West 52nd Street New York, NY 10019-6114 (Name and address of agent for service) Copy to: Bruce Leto, Esq. Stradley Ronon Stevens & Young, LLP 2600 One Commerce Square Philadelphia, PA 215-564 Registrant's telephone number, including area code: 212-882 5000 Date of fiscal year end: June 30 Date of reporting period: June 30, 2006 ITEM 1. REPORTS TO STOCKHOLDERS. [UBS Global Asset Management LOGO] THE UBS FUNDS ANNUAL REPORT June 30, 2006 TABLE OF CONTENTS PORTFOLIO MANAGERS' COMMENTARY AND SCHEDULES OF INVESTMENTS UBS Dynamic Alpha Fund 1 UBS Global Allocation Fund 10 UBS Global Equity Fund 29 UBS International Equity Fund 39 UBS U.S. Large Cap Equity Fund 49 UBS U.S. Large Cap Growth Fund 57 UBS U.S. Large Cap Value Equity Fund 65 UBS U.S. Mid Cap Growth Equity Fund 73 UBS U.S. Small Cap Growth Fund 81 UBS Absolute Return Bond Fund 89 UBS Global Bond Fund 104 UBS High Yield Fund 116 UBS U.S. Bond Fund 127 STATEMENTS OF ASSETS AND LIABILITIES 140 STATEMENTS OF OPERATIONS 144 STATEMENTS OF CHANGES IN NET ASSETS 146 FINANCIAL HIGHLIGHTS 150 NOTES TO FINANCIAL STATEMENTS 176 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 206 GENERAL INFORMATION 207 BOARD APPROVAL OF INVESTMENT ADVISORY AGREEMENTS 208 TRUSTEE AND OFFICER INFORMATION 213 FEDERAL TAX INFORMATION 218 -------------------------------------------------------------------------------- This page intentionally left blank. UBS DYNAMIC ALPHA FUND -------------------------------------------------------------------------------- For the fiscal year ended June 30, 2006, Class A shares of UBS Dynamic Alpha Fund (the "Fund") returned 9.02% (3.07% after the deduction of the maximum sales charge) and Class Y shares returned 9.28%. For purposes of comparison, the Merrill Lynch US Treasury 1-5 Year Index returned 1.02% over the same time period, the MSCI World Free Index (net US) returned 17.27% and the Consumer Price Index (CPI) rose 4.32%. (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 3; 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 key driver of Fund performance over the reporting period was its exposure to equity markets, particularly overseas. This positioning helped the Fund to perform in line with its CPI + 5% goal during its fiscal year. EQUITY MARKET EXPOSURE AIDED THE FUND'S PERFORMANCE One of the Fund's unique characteristics is the separation of market exposures from security exposures. This trait allows the Fund to have greater flexibility in seeking sources of return, consistent with the degree of risk desired. In this manner, capital can be deployed so as to seek the best opportunities from individual securities purchased; meanwhile, derivatives are used to modify the market exposures so as to create the desired positions according to our top-down analyses. Throughout the reporting period, the majority of security exposures were held in equities, consistent with the greater perceived opportunity available in equities. At the start of the period, 92% of assets were held in various types of equities, primarily larger cap equities of the US and other developed markets, but also including 10% in US small capitalization equities and 10% in emerging markets equities. A substantial portion of the equity market exposure risk, however, was hedged away using derivatives. Thus, at the outset of the period, equity market exposures totaled a net 46%, with key long positions held in the UK, the US, and a basket of emerging markets. This strategy was generally a positive contributor to performance. While the Fund's individual security selection detracted somewhat from total returns for the fiscal year, it was more than offset by the overall market exposure positioning. The healthiest contributors were the emerging markets, UK and US equity positions, respectively, as most equity markets globally posted solid performance over the past 12 months, aided by improving corporate profitability and robust economic conditions. As the fiscal year progressed and equity markets rose, our analyses indicated that valuations supporting several equity markets were becoming somewhat stretched. As a result, we whittled back our equity market exposures, such that by the end of the period, our net long position stood at 40%. We still held key long positions in the US, UK and emerging markets, along with short positions in selected markets, including Japan and Canada. FUND POSITIONING IN FIXED INCOME AND CURRENCY MARKETS ENHANCED RESULTS We began the reporting period with a bearish outlook for global fixed income markets. Our analysis indicated that bond yields were too low, particularly on longer-dated sovereigns, real return bonds and emerging market debt. Consequently, we entered the period with a net short fixed income position of 27.5%, reflecting our belief that bond prices were overvalued. As the period progressed, yields did in fact rise, sending bond prices down, and thus improving valuations. Against this backdrop, we gradually reduced the size of our short positions in global bonds. At period end, the net short fixed income position was a modest 1.5%, reflecting long positions in a variety of sovereign bond markets offset by short positions in two remaining overpriced markets, emerging markets debt and UK index-linked gilts. Fixed income positioning added to the performance of the Fund during the fiscal year. Similarly, currency management added incrementally to the Fund's total return. Results were aided most by our long positions in the Swedish krona, the Thai baht, the Singapore dollar and the Swiss franc, and our short position in the New Zealand dollar. At period end, our largest positions were in the Swedish krona, Swiss franc and Taiwan dollar (all long), and the Canadian dollar, euro, and UK pound sterling (all short). The Fund also held smaller positions in six other currencies at period end. -------------------------------------------------------------------------------- 1 UBS DYNAMIC ALPHA FUND -------------------------------------------------------------------------------- MANAGEMENT REMAINS CAUTIOUSLY OPTIMISTIC ON THE ECONOMY IN THE MONTHS AHEAD Looking ahead, we believe a number of factors could determine the strength of global economies over the remainder of 2006. In the US, as the Federal Reserve Board continues to fight inflation, it may be forced to strike a difficult balance between maintaining price stability and avoiding raising short term interest rates too high, to the point of putting the brakes on what has been a period of economic expansion. We generally believe that the system for implementing monetary policy in the US is dynamic enough to make that balance possible. Meanwhile, although a cooling housing market is an issue of some potential concern, other economic indicators remain solid--job growth and corporate profitability are both stable, and we anticipate they should remain so over the months ahead. Globally, we believe economic expansion may continue to grow at a trend-like pace. The main determinant for positioning the Fund within particular international equity markets will be valuations, which, as we have seen over the past 12 months, can change quickly. Ultimately, we believe the Fund remains well-positioned to take advantage of those changing conditions, and should continue to benefit from its ability to separately manage market- and security-driven sources of risk. -------------------------------------------------------------------------------- THIS LETTER IS INTENDED TO ASSIST SHAREHOLDERS IN UNDERSTANDING HOW THE FUND PERFORMED DURING THE FISCAL YEAR ENDED JUNE 30, 2006. THE VIEWS AND OPINIONS IN THE LETTER WERE CURRENT AS OF AUGUST 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. -------------------------------------------------------------------------------- 2 UBS DYNAMIC ALPHA FUND -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURN (UNAUDITED) 1 YEAR INCEPTION* ENDED TO 06/30/06 06/30/06 -------------------------------------------------------------------------------- UBS Dynamic Alpha Fund Class A 9.02% 7.90% UBS Dynamic Alpha Fund Class B 8.09 7.03 UBS Dynamic Alpha Fund Class C 8.15 7.07 UBS Dynamic Alpha Fund Class Y 9.28 8.15 UBS Dynamic Alpha Fund Class A** 3.07 3.70 UBS Dynamic Alpha Fund Class B** 3.09 4.29 UBS Dynamic Alpha Fund Class C** 7.15 7.07 Merrill Lynch US Treasury 1-5 Year Index*** 1.02 1.45 MSCI World Free Index (net US)**** 17.27 13.29 Consumer Price Index***** 4.32 4.47 * INCEPTION DATE OF ALL SHARE CLASSES OF UBS DYNAMIC ALPHA FUND IS 01/27/05. INCEPTION DATE OF THE INDICES, FOR THE PURPOSE OF THIS ILLUSTRATION, IS 01/31/05. ** RETURNS INCLUDE SALES CHARGES. *** THE MERRILL LYNCH US TREASURY 1-5 YEAR INDEX: AN UNMANAGED INDEX TRACKING US TREASURY SECURITIES WITH MATURITIES BETWEEN 1 AND 5 YEARS. **** THE MSCI WORLD FREE INDEX (NET US) IS A BROAD-BASED SECURITIES INDEX THAT REPRESENTS THE US AND DEVELOPED INTERNATIONAL EQUITY MARKETS IN TERMS OF CAPITALIZATION AND PERFORMANCE. IT IS DESIGNED TO PROVIDE A REPRESENTATIVE TOTAL RETURN FOR ALL MAJOR STOCK EXCHANGES LOCATED INSIDE AND OUTSIDE THE UNITED STATES. THIS BENCHMARK HAS BEEN CALCULATED NET OF WITHHOLDING TAX FROM A US PERSPECTIVE. ***** CONSUMER PRICE INDEX (CPI) - PRODUCES MONTHLY DATA ON CHANGES IN THE PRICES PAID BY URBAN CONSUMERS FOR A REPRESENTATIVE BASKET OF GOODS AND SERVICES. THE INDEX IS CALCULATED BY THE BUREAU OF LABOR STATISTICS. THE Y SHARE CLASS IS OUR LOWEST FEE SHARE CLASS. OUR OTHER SHARE CLASSES INCLUDE HIGHER FEES AND LOADS, WHICH MAY RESULT IN LOWER PERFORMANCE THAN CLASS Y. 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. -------------------------------------------------------------------------------- 3 UBS DYNAMIC ALPHA FUND -------------------------------------------------------------------------------- ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000 IN CLASS A SHARES (ADJUSTED FOR MAXIMUM SALES CHARGE) AND $5,000,000 IN CLASS Y SHARES (UNAUDITED) The following two charts show the growth in the value of an investment in UBS Dynamic Alpha Fund Class A shares (adjusted for 5.50% maximum sales charge), Class Y shares, the Merrill Lynch US Treasury 1-5 Year Index, MSCI World Free Index (net US) and the Consumer Price Index, if you had invested $10,000 in Class A shares on January 27, 2005 or $5,000,000 in Class Y shares on January 27, 2005, and had reinvested all your income dividends and capital gain distributions through June 30, 2006. The performance of Class B and Class C shares will vary based upon class specific expenses and sales charges. No adjustment has been made for any income taxes payable by shareholders on income dividends and capital gain distributions. Past performance is no guarantee of future results. Share price and returns will vary with market conditions; investors may realize a gain or loss upon redemption. UBS DYNAMIC ALPHA FUND CLASS A VS. MERRILL LYNCH US TREASURY 1-5 YEAR INDEX, MSCI WORLD FREE INDEX (NET US), AND CONSUMER PRICE INDEX Wealth value with dividends reinvested [CHART]
UBS DYNAMIC MERRILL LYNCH MSCI WORLD ALPHA FUND US TREASURY FREE INDEX CONSUMER CLASS A 1-5 YEAR INDEX (NET US) PRICE INDEX ----------- -------------- ---------- ----------- 1/27/2005 $ 9,450 $10,000 $10,000 $10,000 1/31/2005 $ 9,471 $10,000 $10,000 $10,000 2/28/2005 $ 9,594 $ 9,956 $10,320 $10,058 3/31/2005 $ 9,509 $ 9,946 $10,122 $10,136 4/30/2005 $ 9,442 $10,027 $ 9,905 $10,205 5/31/2005 $ 9,537 $10,079 $10,085 $10,194 6/30/2005 $ 9,660 $10,103 $10,176 $10,199 7/31/2005 $ 9,896 $10,044 $10,532 $10,246 8/31/2005 $ 9,887 $10,131 $10,614 $10,299 9/30/2005 $10,019 $10,080 $10,892 $10,425 10/31/2005 $10,038 $10,061 $10,629 $10,446 11/30/2005 $10,123 $10,099 $10,987 $10,362 12/31/2005 $10,292 $10,144 $11,233 $10,320 1/31/2006 $10,378 $10,152 $11,737 $10,399 2/28/2006 $10,407 $10,152 $11,723 $10,420 3/31/2006 $10,531 $10,153 $11,982 $10,477 4/30/2006 $10,655 $10,178 $12,350 $10,566 5/31/2006 $10,512 $10,189 $11,934 $10,619 6/30/2006 $10,531 $10,206 $11,933 $10,640
1/27/05 = $9,450 THE FUND'S GROWTH OF AN ASSUMED $10,000 INVESTMENT IS ADJUSTED FOR THE MAXIMUM SALES CHARGE OF 5.50%. UBS DYNAMIC ALPHA FUND CLASS Y VS. MERRILL LYNCH US TREASURY 1-5 YEAR INDEX, MSCI WORLD FREE INDEX (NET US), AND CONSUMER PRICE INDEX Wealth value with dividends reinvested [CHART]
UBS DYNAMIC MERRILL LYNCH MSCI WORLD ALPHA FUND US TREASURY FREE INDEX CONSUMER CLASS Y 1-5 YEAR INDEX (NET US) PRICE INDEX ----------- -------------- ---------- ----------- 1/27/2005 $5,000,000 $5,000,000 $5,000,000 $5,000,000 1/31/2005 $5,010,000 $5,000,000 $5,000,000 $5,000,000 2/28/2005 $5,075,000 $4,978,074 $5,159,967 $5,028,841 3/31/2005 $5,035,000 $4,972,812 $5,060,807 $5,068,170 4/30/2005 $4,995,000 $5,013,622 $4,952,494 $5,102,255 5/31/2005 $5,045,000 $5,039,501 $5,042,592 $5,097,011 6/30/2005 $5,115,000 $5,051,299 $5,087,940 $5,099,633 7/31/2005 $5,240,000 $5,022,047 $5,265,960 $5,123,230 8/31/2005 $5,235,000 $5,065,470 $5,307,039 $5,149,449 9/30/2005 $5,310,000 $5,040,153 $5,445,762 $5,212,375 10/31/2005 $5,320,000 $5,030,677 $5,314,523 $5,222,863 11/30/2005 $5,365,000 $5,049,459 $5,493,713 $5,180,912 12/31/2005 $5,458,004 $5,071,952 $5,616,665 $5,159,937 1/31/2006 $5,508,541 $5,075,875 $5,868,365 $5,199,266 2/28/2006 $5,523,702 $5,076,249 $5,861,466 $5,209,754 3/31/2006 $5,589,400 $5,076,394 $5,991,044 $5,238,595 4/30/2006 $5,660,152 $5,089,194 $6,174,773 $5,283,167 5/31/2006 $5,579,293 $5,094,336 $5,966,995 $5,309,386 6/30/2006 $5,589,400 $5,102,804 $5,966,606 $5,319,874
1/27/05 = $5,000,000 INDICES ARE STARTED ON 1/31/05. 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 UBS DYNAMIC ALPHA FUND -------------------------------------------------------------------------------- EXPLANATION OF EXPENSE DISCLOSURE (UNAUDITED) As a shareholder of the Fund, you incur two types of costs: (1) transactional costs (as applicable); including sales charges (loads); 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, January 1, 2006 to June 30, 2006. 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 EXPENSE ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD* RATIO JANUARY 1, 2006 JUNE 30, 2006 01/01/06 TO 06/30/06 DURING PERIOD --------------------------------------------------------------------------------------------------------------------- CLASS A Actual $1,000.00 $1,023.20 $6.02 1.20% Hypothetical (5% annual return before expenses) 1,000.00 1,018.84 6.01 1.20% CLASS B Actual 1,000.00 1,018.60 9.96 1.99% Hypothetical (5% annual return before expenses) 1,000.00 1,014.93 9.94 1.99% CLASS C Actual 1,000.00 1,019.50 9.86 1.97% Hypothetical (5% annual return before expenses) 1,000.00 1,015.03 9.84 1.97% CLASS Y Actual 1,000.00 1,024.10 4.62 0.92% Hypothetical (5% annual return before expenses) 1,000.00 1,020.23 4.61 0.92%
* EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIOS, MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 181 DIVIDED BY 365 (TO REFLECT THE ONE-HALF YEAR PERIOD). -------------------------------------------------------------------------------- 5 UBS DYNAMIC ALPHA FUND -------------------------------------------------------------------------------- TOP TEN EQUITY HOLDINGS AS OF JUNE 30, 2006 (UNAUDITED) PERCENTAGE OF NET ASSETS ------------------------------------------------ BP PLC 0.9% Vodafone Group PLC 0.8 Royal Bank of Scotland Group PLC 0.6 HBOS PLC 0.6 Barclays PLC 0.5 Prudential PLC 0.4 GlaxoSmithKline PLC 0.4 Diageo PLC 0.3 BT Group PLC 0.3 Royal Dutch Shell PLC 0.3 ------------------------------------------------ Total 5.1% COUNTRY EXPOSURE, TOP FIVE (a) AS OF JUNE 30, 2006 (UNAUDITED) PERCENTAGE OF NET ASSETS ------------------------------------------------ United States 87.6% United Kingdom 8.6 Netherlands 0.3 Bermuda 0.0+ Ireland 0.0+ ------------------------------------------------ Total 96.5% (a) FIGURES REPRESENT THE COUNTRY BREAKDOWN OF DIRECT INVESTMENTS OF THE UBS DYNAMIC ALPHA FUND. FIGURES WOULD BE DIFFERENT IF A BREAKDOWN OF THE UNDERLYING INVESTMENT COMPANIES' COUNTRY EXPOSURE WERE INCLUDED. + AMOUNT REPRESENTS LESS THAN 0.005%. INDUSTRY DIVERSIFICATION (b) AS A PERCENT OF NET ASSETS AS OF JUNE 30, 2006 (UNAUDITED) -------------------------------------------------------------------------------- International Equities Aerospace & Defense 0.06% Beverages 0.32 Building Products 0.02 Capital Markets 0.09 Chemicals 0.05 Commercial Banks 1.88 Commercial Services & Supplies 0.20 Computers & Peripherals 0.02 Construction & Engineering 0.05 Construction Materials 0.14 Containers & Packaging 0.04 Diversified Commercial Services 0.02 Diversified Financial Services 0.08 Diversified Telecommunication Services 0.30 Electric Utilities 0.13 Electronic Equipment & Instruments 0.06 Food & Staples Retailing 0.19 Food Products 0.03 Health Care Equipment & Supplies 0.05 Hotels, Restaurants & Leisure 0.11 Insurance 0.57 Internet & Catalog Retail 0.15 IT Services 0.15 Machinery 0.05 Media 0.35% Multi-Utilities & Unregulated Power 0.23 Oil & Gas 1.15 Pharmaceuticals 0.63 Real Estate 0.02 Real Estate Management & Development 0.07 Software 0.04 Specialty Retail 0.18 Telecommunications Services 0.01 Textiles, Apparel & Luxury Goods 0.02 Tobacco 0.28 Trading Companies & Distributors 0.19 Water Utilities 0.06 Wireless Telecommunication Services 0.81 ------ Total International Equities 8.80* Investment Companies 83.58* Short-Term Investments 4.06 Options Purchased 0.17 ------ Total Investments 96.61 Cash and other assets, less liabilities 3.39 ------ Net Assets 100.00% ====== (b) FIGURES REPRESENT THE INDUSTRY BREAKDOWN OF DIRECT INVESTMENTS OF THE UBS DYNAMIC ALPHA FUND. FIGURES WOULD BE DIFFERENT IF A BREAKDOWN OF THE UNDERLYING INVESTMENT COMPANIES' INDUSTRY DIVERSIFICATION WERE INCLUDED. -------------------------------------------------------------------------------- * THE FUND HELD LONG POSITIONS IN US TREASURY FUTURES AS WELL AS SHORT POSITIONS IN US STOCK INDEX FUTURES WHICH RESULTED IN A NET DECREASE TO THE FUND'S INVESTMENTS IN INVESTMENT COMPANIES OF 3.52%. FINALLY, THE FUND HELD NET SHORT POSITIONS IN INTERNATIONAL STOCK INDEX FUTURES AND INTERNATIONAL INTEREST RATE FUTURES WHICH DECREASED THE FUND'S INTERNATIONAL EQUITY EXPOSURE BY 7.32%. -------------------------------------------------------------------------------- 6 UBS DYNAMIC ALPHA FUND--SCHEDULE OF INVESTMENTS June 30, 2006 -------------------------------------------------------------------------------- SHARES VALUE --------- -------------- INTERNATIONAL EQUITIES -- 8.80% BERMUDA -- 0.04% Catlin Group Ltd. 85,521 $ 680,026 Lancashire Holdings Ltd. (a) 48,660 274,670 -------------- 954,696 -------------- IRELAND -- 0.01% EcoSecurities Group PLC (a) 130,580 367,032 -------------- NETHERLANDS -- 0.28% Royal Dutch Shell PLC 208,722 7,298,669 -------------- UNITED KINGDOM -- 8.47% Aberdeen Asset Management PLC 491,709 1,386,634 ACP Capital Ltd. (a) 244,193 471,882 Anite Group PLC (a) 336,873 406,472 AstraZeneca PLC 107,883 6,511,590 Aviva PLC 143,005 2,024,325 AWG PLC 66,125 1,464,895 Barclays PLC 1,229,238 13,968,242 BP PLC 1,916,131 22,340,566 BPP Holdings PLC 61,268 447,239 British American Tobacco PLC 120,206 3,027,521 British Polythene Industries 43,639 483,780 BT Group PLC 1,770,680 7,833,862 Burberry Group PLC 76,346 607,070 Cadbury Schweppes PLC 86,763 836,706 Carillion PLC 140,051 813,205 Cattles PLC 269,051 1,638,116 Centaur Media PLC 229,206 442,921 Centrica PLC 402,763 2,124,512 Chemring Group PLC 24,074 520,634 Chesnara PLC 153,492 508,069 Compass Group PLC 504,441 2,446,300 Computacenter PLC 46,496 203,559 Daily Mail & General Trust 134,264 1,524,445 Davis Service Group PLC 38,491 335,780 Diageo PLC 499,833 8,406,428 Dignity PLC 51,475 454,045 Dimension Data Holdings PLC (a) 871,122 571,862 DSG International PLC 401,109 1,416,706 Electrocomponents PLC 246,188 1,055,044 Elementis PLC 316,013 460,192 Enodis PLC 200,206 799,677 Evolution Group PLC 132,531 357,811 Fenner PLC 129,205 474,865 Foseco PLC 147,290 450,089 Future PLC 515,518 376,552 Gallaher Group PLC 270,767 4,230,935 Galliford Try PLC 225,824 480,233 Georgica PLC (a) 209,165 560,843 GlaxoSmithKline PLC 344,866 9,636,043 GUS PLC 222,587 3,976,132 Gyrus Group PLC (a) 31,707 201,550 Hanson PLC 303,830 3,688,496 HBOS PLC 928,672 16,142,623 Helphire Group PLC 49,425 350,963 Highway Insurance Holdings PLC 249,497 343,721 HSBC Holdings PLC 165,571 $ 2,913,245 ICAP PLC 63,643 586,089 Innovata PLC (a) 704,234 276,732 Invensys PLC (a) 3,674,819 1,308,129 ITV PLC 1,190,888 2,378,365 Kesa Electricals PLC 175,932 940,214 Kingfisher PLC 418,365 1,845,133 Land Securities Group PLC 54,523 1,808,781 LogicaCMG PLC 905,703 2,922,571 Lookers PLC 38,245 558,709 Majestic Wine PLC 85,274 455,720 Meggitt PLC 194,929 1,150,777 Misys PLC 226,291 899,683 National Grid PLC 363,987 3,937,546 Northgate Information Solutions PLC (a) 178,612 255,974 Old Mutual PLC 67,660 204,253 Phoenix IT Group Ltd. 62,494 328,779 Prudential PLC 959,014 10,835,527 Quintain Estates & Development PLC 45,265 540,728 Reed Elsevier PLC 373,233 3,768,396 Rentokil Initial PLC 664,261 1,916,228 Rexam PLC 59,660 582,507 Royal Bank of Scotland Group PLC 499,585 16,425,743 Scottish & Southern Energy PLC 163,395 3,477,747 Speedy Hire PLC 30,233 489,185 SSL International PLC 217,323 1,194,570 Sterling Energy PLC (a) 1,148,050 530,741 Taylor Nelson Sofres PLC 140,648 606,001 Tesco PLC 741,878 4,582,082 Travis Perkins PLC 17,995 503,471 Ultra Electronics Holdings 23,548 421,515 Vanco PLC (a) 44,769 397,377 Vodafone Group PLC 9,813,814 20,915,230 Wolseley PLC 221,494 4,886,369 Yule Catto & Co. PLC 107,881 453,349 -------------- 222,100,601 -------------- Total International Equities (Cost $223,918,994) 230,720,998 -------------- INVESTMENT COMPANIES* -- 83.58% UBS Emerging Markets Equity Relationship Fund 8,429,413 195,498,312 UBS International Equity Relationship Fund 44,996,321 752,513,966 UBS Small Cap Equity Relationship Fund 4,024,500 169,249,160 UBS U.S. Equity Alpha Relationship Fund 24,777,122 264,889,737 UBS U.S. Large Cap Equity Relationship Fund 35,162,842 642,474,353 UBS U.S. Large Cap Growth Equity Relationship Fund 16,957,231 166,243,607 -------------- Total Investment Companies (Cost $2,059,227,436) 2,190,869,135 -------------- -------------------------------------------------------------------------------- 7 UBS DYNAMIC ALPHA FUND--SCHEDULE OF INVESTMENTS June 30, 2006 -------------------------------------------------------------------------------- SHARES VALUE ----------- ------------ SHORT-TERM INVESTMENTS -- 4.06% INVESTMENT COMPANY* -- 1.04% UBS U.S. Cash Management Prime Relationship Fund, yield of 5.20% 27,133,225 $ 27,133,225 ------------ FACE AMOUNT ----------- US GOVERNMENT OBLIGATION -- 3.02% US Treasury Bills, yield of 4.06%, due 07/06/06 (b) $79,255,000 79,195,965 ------------ Total Short-Term Investments (Cost $106,339,608) 106,329,190 ------------ NUMBER OF CONTRACTS VALUE --------- -------------- OPTIONS PURCHASED -- 0.17% CALL OPTIONS (a) -- 0.17% FTSE-100 Index, strike @ GBP 5,925, expires September 2006 (Cost $3,479,606) 2,352 $ 4,458,051 -------------- Total Investments -- 96.61% (Cost $2,392,965,644) 2,532,377,374 Cash and other assets, less liabilities -- 3.39% 88,760,542 -------------- Net Assets -- 100.00% $2,621,137,916 ============== NOTES TO SCHEDULE OF INVESTMENTS Aggregate cost for federal income tax purposes was $2,394,192,731; and net unrealized appreciation consisted of: Gross unrealized appreciation $145,850,777 Gross unrealized depreciation (7,666,134) ------------ Net unrealized appreciation $138,184,643 ============ (a) Non-income producing security. (b) All or portion of this security was pledged to cover margin requirements for futures contracts and written options. * Investment in affiliated mutual fund. FORWARD FOREIGN CURRENCY CONTRACTS UBS Dynamic Alpha Fund had the following open forward foreign currency contracts as of June 30, 2006:
UNREALIZED CONTRACTS IN EXCHANGE MATURITY APPRECIATION/ TO DELIVER FOR DATES (DEPRECIATION) -------------- ------------------ -------- -------------- Australian Dollar 21,975,000 USD 16,777,913 11/27/06 $ 477,956 Brazilian Real 43,660,000 USD 19,908,801 08/23/06 (123,262) British Pound 157,580,000 USD 297,991,659 11/27/06 5,604,596 British Pound 138,842,894 USD 253,230,000 11/27/06 (4,390,675) Canadian Dollar 238,060,000 USD 213,840,433 11/27/06 (329,271) Czech Koruna 2,285,290,000 EUR 80,533,185 11/27/06 98,551 Euro 84,526,335 JPY12,193,600,000 11/27/06 (347,469) Euro 339,840,000 USD 438,961,133 11/27/06 163,502 Euro 23,075,000 USD 29,758,212 11/27/06 (35,971) Japanese Yen 15,531,700,000 USD 143,703,594 11/27/06 5,128,881 Mexican Peso 66,920,000 USD 5,915,690 11/27/06 63,456 South Korean Won 97,784,000,000 USD 101,701,015 08/23/06 (1,529,849) South Korean Won 26,066,000,000 USD 27,585,988 08/23/06 68,034 South African Rand 70,180,000 USD 10,848,160 11/27/06 1,160,487 United States Dollar 127,942,267 CHF 151,760,000 11/27/06 (1,822,027) United States Dollar 170,305,562 SEK 1,227,290,000 11/27/06 2,281,541 United States Dollar 76,356,366 SGD 119,345,000 11/27/06 (410,978) United States Dollar 91,910,639 THB 3,507,310,000 11/27/06 (62,847) United States Dollar 181,603,686 TWD 5,791,000,000 08/23/06 (1,657,442) ----------- Net unrealized appreciation on forward foreign currency contracts $ 4,337,213 ===========
Currency Type Abbreviations 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 -------------------------------------------------------------------------------- 8 UBS DYNAMIC ALPHA FUND--SCHEDULE OF INVESTMENTS June 30, 2006 -------------------------------------------------------------------------------- FUTURES CONTRACTS UBS Dynamic Alpha Fund had the following open futures contracts as of June 30, 2006:
UNREALIZED EXPIRATION COST/ CURRENT APPRECIATION/ DATES PROCEEDS VALUE (DEPRECIATION) -------------- ------------ ------------ -------------- US TREASURY FUTURES BUY CONTRACTS: 10 Year US Treasury Notes, 1,860 contracts (USD) September 2006 $196,045,133 $195,038,438 $ (1,006,695) INDEX FUTURES BUY CONTRACTS: Amsterdam Exchanges Index, 964 contracts (EUR) July 2006 104,882,885 108,676,991 3,794,105 MSCI Taiwan Index, 702 contracts (USD) July 2006 18,724,530 19,494,540 770,010 INTEREST RATE FUTURES BUY CONTRACTS: Australian 10 Year Bond, 1,400 contracts (AUD) September 2006 755,789,625 754,720,376 (1,069,249) Euro-Bund, 1,060 contracts (EUR) September 2006 157,161,152 156,350,050 (811,102) Japanese 10 Year Bond, 20 contracts (JPY) September 2006 23,061,127 23,007,690 (53,437) Long Gilt, 525 contracts (GBP) September 2006 106,891,809 105,723,387 (1,168,423) INDEX FUTURES SALE CONTRACTS: CAC 40 Euro Index, 1,143 contracts (EUR) September 2006 68,036,226 73,002,681 (4,966,455) DAX Index, 620 contracts (EUR) September 2006 105,815,114 113,529,438 (7,714,324) DJ Euro STOXX 50 Index, 3,329 contracts (EUR) September 2006 148,600,461 155,926,403 (7,325,942) FTSE-100 Index, 1,844 contracts (GBP) September 2006 195,753,820 198,628,119 (2,874,299) Hang Seng Index, 282 contracts (HKD) July 2006 28,389,631 29,624,107 (1,234,476) IBEX 35 Index, 198 contracts (EUR) July 2006 27,299,354 29,170,820 (1,871,466) NIKKEI 225 Index, 1,929 contracts (JPY) September 2006 262,778,576 261,436,473 1,342,103 OMXS 30 Index, 3,923 contracts (SEK) July 2006 50,752,966 52,207,639 (1,454,673) Russell 2000 Index, 432 contracts (USD) September 2006 148,957,417 158,004,000 (9,046,583) S&P MIB Index, 116 contracts (EUR) September 2006 26,278,809 27,204,345 (925,536) S&P Toronto Stock Exchange 60 Index, 1,401 contracts (CAD) September 2006 158,678,769 164,912,120 (6,233,351) S&P 500 Index, 892 contracts (USD) September 2006 277,666,515 285,306,200 (7,639,685) SPI 200 Index, 828 contracts (AUD) September 2006 73,518,352 78,141,424 (4,623,072) INTEREST RATE FUTURES SALE CONTRACT: Canadian 10 Year Bond, 116 contracts (CAD) September 2006 11,661,460 11,464,911 196,549 ------------ Net unrealized depreciation on futures contracts $(53,916,001) ============
The segregated aggregate market value of investments and cash collateral pledged to cover margin requirements for the open futures contracts at June 30, 2006 was $136,541,350. WRITTEN OPTIONS PUT OPTIONS WRITTEN
NUMBER OF CONTRACTS VALUE ------------------------------------------------------------------------------------------------------------------------- 2,627 FTSE-100 Index, strike @ GBP 5,475, expires September 2006 (premiums received $3,766,496) $2,914,709 ==========
Currency Type Abbreviations: AUD Australian Dollar CAD Canadian Dollar EUR Euro GBP British Pound HKD Hong Kong Dollar JPY Japanese Yen SEK Swedish Krona USD United States Dollar -------------------------------------------------------------------------------- See accompanying notes to financial statements. 9 UBS GLOBAL ALLOCATION FUND -------------------------------------------------------------------------------- For the fiscal year ended June 30, 2006, Class A shares of UBS Global Allocation Fund (the "Fund") returned 9.72% (3.66% after the deduction of the maximum sales charge) and Class Y shares returned 9.98%. During the same time period, the GSMI Mutual Fund Index (the "Index") returned 10.58%, while the MSCI World Free Index (net US) returned 17.27% and the Citigroup World Government Bond Index declined 0.36%. (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 12; 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 past year represented a rather mixed period for global markets. International equities continued to post solid returns, as economies around the globe benefited from a broad-based period of economic expansion. That economic growth, however, led a number of central banks to raise short-term interest rates during the reporting period, particularly in the United States. This put significant downward pressure on bond prices, as both short- and long-term interest rates climbed higher throughout the reporting period. During this time, the Fund's increased exposure to equities and reduced allocation to fixed income securities benefited performance. GLOBAL STOCK PERFORMANCE REMAINED STRONG Over the course of the Fund's fiscal year, returns were solid on an absolute basis within its equity holdings, although the Fund did lag the Index on a relative basis. International equities continued to capture investors' attention, as new money flowed into global stock funds at a booming rate. At the same time, investors seemed to have an insatiable appetite for risk--high volatility stocks, both globally and in the United States, were the best performers over the period. The Fund typically avoids those types of stocks, as we believe the risk they entail to be disproportionate to their potential returns over the long term. The equity portion of the Fund's portfolio is constructed through a combination of top-down and bottom-up processes. After identifying those countries and regions that represent attractive valuations, we analyze sectors and industries on a company-by-company basis. Over the reporting period, our stock selection detracted from total returns, particularly in Europe, as those higher volatility stocks rallied. Although collectively only accounting for around 2% of the Fund's invested assets, holdings in Austria, France, Finland and Denmark all trailed the Index's positions in those countries by significant margins. Stock selection was better in other parts of the Continent, including Norway, Sweden and Belgium. At the beginning of the Fund's fiscal year, the portfolio's tactical allocation to equities was neutral versus the Index, with 22% of net assets invested in international equities and 40% in US stocks. As the period progressed, we increased that weighting, partly because equities appeared more attractive, but also because we found bonds to be overvalued. At period end our exposure to equities represented a moderate 2% overweight, composed of an underweight to international equities (18% of net assets), and an overweight to US stocks (46% of net assets). We generally believed that on a top-down basis, markets overseas had become overvalued relative to their domestic counterparts, and consequentially, we concentrated the Fund's equity exposure in the US. This helped Fund performance over the short term, as international equities have struggled since the beginning of May, and we believe there are currently more attractive opportunities and valuations in the US market than on the international stage. GLOBAL BOND MARKETS STRUGGLED AS INTEREST RATES CLIMBED HIGHER As discussed above, steadily climbing interest rates created a challenging environment for fixed income investors, not only in the United States, but also in Europe. After two and a half years of leaving short-term interest rates unchanged, the European Central Bank hiked rates three times during the reporting period. The Bank of Japan, meanwhile, signaled that the zero-rate policy that has been in effect for years may be coming to an end. Bank lending increased notably during the period, as businesses and consumers moved to take advantage of the current lending environment before rates increase. We maintained a defensive posture throughout the reporting period in anticipation of this kind of a rising rate environment. From a duration perspective, we remained short versus the Index throughout the year, although we increased the Fund's duration -------------------------------------------------------------------------------- 10 UBS GLOBAL ALLOCATION FUND -------------------------------------------------------------------------------- recently. We believed that yields had risen enough in a number of bond markets to warrant reducing the size of our underweight positions. The Fund's shorter duration contributed positively to relative performance during the period. In terms of exposure, we maintained an underweight allocation to bonds in the aggregate during the reporting period. The total underweight to fixed income was 6%. Two percent of the underweight was in Japanese government bonds, reflecting our valuation analysis, which showed Japanese government bonds among the most expensive of bond markets despite recent poor performance. The other 4% of the underweight is evenly divided between high yield bonds and emerging market debt, both of which remain significantly overvalued. We continue to view currencies in emerging Asia as undervalued. This is reflected by our 3% overweight positions in the Singapore dollar and the Thai baht. In aggregate, the portfolio is underweighted 3% to the UK pound sterling, 7% to the US dollar, 7% to the euro and 2% to the Canadian dollar. The portfolio's overweights also include 4% to the Japanese yen, 5% to the Swedish krona and 4% to the Swiss franc. On the whole, the Fund's active currency management contributed positively to performance during the period. OUTLOOK FOR GLOBAL ECONOMIES REMAINS POSITIVE Our analysis calls for trend-like growth in most of the world's developed economies over the coming months. In the US, inflation, a cooling housing market and high energy prices are areas we will continue to monitor closely, as they may impact economic stability over the next several quarters. While we currently find equities more attractive than bonds, the Fund is closer to a "neutral" weighting now than at the beginning of the reporting period, and should yields continue to rise, particularly among longer-dated securities, we may increase our fixed income weighting further. With limited top-down investment opportunities available, we believe the active asset allocation, currency management and bottom-up stock selection that the Fund utilizes should position it well over the months ahead. -------------------------------------------------------------------------------- THIS LETTER IS INTENDED TO ASSIST SHAREHOLDERS IN UNDERSTANDING HOW THE FUND PERFORMED DURING THE FISCAL YEAR ENDED JUNE 30, 2006. THE VIEWS AND OPINIONS IN THE LETTER WERE CURRENT AS OF AUGUST 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. -------------------------------------------------------------------------------- 11 UBS GLOBAL ALLOCATION FUND -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURN (UNAUDITED)
1 YEAR 5 YEARS 10 YEARS INCEPTION* ENDED ENDED ENDED TO 06/30/06 06/30/06 06/30/06 06/30/06 ----------------------------------------------------------------------------------------- UBS Global Allocation Fund Class A 9.72% 9.72% N/A 7.18% UBS Global Allocation Fund Class B 8.81 N/A N/A 9.56 UBS Global Allocation Fund Class C 8.82 N/A N/A 9.74 UBS Global Allocation Fund Class Y 9.98 9.95 8.53% 9.05 UBS Global Allocation Fund Class A** 3.66 8.48 N/A 6.51 UBS Global Allocation Fund Class B** 3.81 N/A N/A 9.24 UBS Global Allocation Fund Class C** 7.82 N/A N/A 9.74 Russell 3000 Index*** 9.57 3.53 8.52 10.74 GSMI Mutual Fund Index**** 10.58 7.15 7.63 9.02 MSCI World Free Index (net US)***** 17.27 6.03 7.19 9.12 Citigroup World Government Bond Index****** -0.36 8.51 5.43 6.02
* INCEPTION DATE OF UBS GLOBAL ALLOCATION FUND CLASS A SHARES IS 06/30/97. 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 08/31/92. ** RETURNS INCLUDE SALES CHARGES. *** THE RUSSELL 3000 INDEX REPRESENTS A BROAD US EQUITIES UNIVERSE REPRESENTING APPROXIMATELY 98% OF THE MARKET. IT IS DESIGNED TO PROVIDE A REPRESENTATIVE INDICATION OF THE CAPITALIZATION AND RETURN FOR THE US EQUITY MARKET. **** THE GSMI MUTUAL FUND INDEX IS 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 US 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 US HIGH YIELD CASH PAY CONSTRAINED INDEX REPLACED THE 3% MERRILL LYNCH US HIGH YIELD CASH PAY INDEX. ***** THE MSCI WORLD FREE INDEX (NET US) IS A BROAD-BASED SECURITIES INDEX THAT REPRESENTS THE US AND DEVELOPED INTERNATIONAL EQUITY MARKETS IN TERMS OF CAPITALIZATION AND PERFORMANCE. IT IS DESIGNED TO PROVIDE A REPRESENTATIVE TOTAL RETURN FOR ALL MAJOR STOCK EXCHANGES LOCATED INSIDE AND OUTSIDE THE UNITED STATES. THIS BENCHMARK HAS BEEN CALCULATED NET OF WITHHOLDING TAX FROM A US PERSPECTIVE. ****** THE CITIGROUP WORLD GOVERNMENT BOND INDEX (WGBI) REPRESENTS THE BROAD GLOBAL FIXED INCOME MARKETS AND INCLUDES DEBT ISSUES OF US AND MOST DEVELOPED INTERNATIONAL GOVERNMENTS, GOVERNMENTAL ENTITIES AND SUPRANATIONALS. THE Y SHARE CLASS IS OUR LOWEST FEE SHARE CLASS. OUR OTHER SHARE CLASSES INCLUDE HIGHER FEES AND LOADS, WHICH MAY RESULT IN LOWER PERFORMANCE THAN CLASS Y. 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. -------------------------------------------------------------------------------- 12 UBS GLOBAL ALLOCATION FUND -------------------------------------------------------------------------------- ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000 IN CLASS A SHARES (ADJUSTED FOR MAXIMUM SALES CHARGE) AND $10,000,000 IN CLASS Y SHARES (UNAUDITED) The following two charts show the growth in the value of an investment in UBS Global Allocation Fund Class A shares (adjusted for 5.50% maximum sales charge), Class Y shares, the Russell 3000 Index, GSMI Mutual Fund Index, the MSCI World Free Index (net US) and the Citigroup World Government Bond Index, if you had invested $10,000 in Class A shares on June 30, 1997 or $10,000,000 in Class Y shares on August 31, 1992, and had reinvested all your income dividends and capital gain distributions through June 30, 2006. The performance of Class B and Class C shares will vary based upon the different inception dates, class specific expenses and sales charges. No adjustment has been made for any income taxes payable by shareholders on income dividends and capital gain distributions. Past performance is no guarantee of future results. Share price and returns will vary with market conditions; investors may realize a gain or loss upon redemption. UBS GLOBAL ALLOCATION FUND CLASS A VS. RUSSELL 3000 INDEX, GSMI MUTUAL FUND INDEX, MSCI WORLD FREE INDEX (NET US) AND CITIGROUP WORLD GOVERNMENT BOND INDEX Wealth value with dividends reinvested [CHART]
UBS GLOBAL RUSSELL GSMI MSCI WORLD CITIGROUP WORLD ALLOCATION 3000 MUTUAL FREE INDEX GOVERNMENT FUND CLASS A INDEX FUND INDEX (NET US) BOND INDEX ------------ ------- ---------- ---------- --------------- 6/30/1997 $ 9,453 $10,000 $10,000 $10,000 $10,000 7/31/1997 $ 9,748 $10,784 $10,398 $10,462 $ 9,922 8/31/1997 $ 9,489 $10,347 $10,017 $ 9,754 $ 9,916 9/30/1997 $ 9,791 $10,933 $10,451 $10,284 $10,127 10/31/1997 $ 9,496 $10,566 $10,114 $ 9,744 $10,338 11/30/1997 $ 9,510 $10,971 $10,204 $ 9,914 $10,180 12/31/1997 $ 9,622 $11,190 $10,327 $10,036 $10,149 1/31/1998 $ 9,725 $11,248 $10,466 $10,317 $10,248 2/28/1998 $10,082 $12,053 $10,972 $11,015 $10,331 3/31/1998 $10,312 $12,650 $11,283 $11,479 $10,228 4/30/1998 $10,320 $12,775 $11,394 $11,591 $10,392 5/31/1998 $10,264 $12,459 $11,233 $11,450 $10,416 6/30/1998 $10,200 $12,881 $11,376 $11,718 $10,432 7/31/1998 $10,176 $12,647 $11,317 $11,700 $10,445 8/31/1998 $ 9,360 $10,710 $10,172 $10,141 $10,729 9/30/1998 $ 9,656 $11,440 $10,523 $10,321 $11,300 10/31/1998 $10,000 $12,308 $11,151 $11,256 $11,634 11/30/1998 $10,272 $13,061 $11,607 $11,926 $11,470 12/31/1998 $10,391 $13,891 $12,026 $12,506 $11,701 1/31/1999 $10,409 $14,363 $12,193 $12,781 $11,593 2/28/1999 $10,144 $13,855 $11,869 $12,441 $11,221 3/31/1999 $10,303 $14,363 $12,244 $12,957 $11,249 4/30/1999 $10,726 $15,011 $12,670 $13,470 $11,245 5/31/1999 $10,532 $14,726 $12,350 $12,974 $11,056 6/30/1999 $10,656 $15,470 $12,727 $13,577 $10,862 7/31/1999 $10,629 $15,001 $12,659 $13,537 $11,129 8/31/1999 $10,452 $14,830 $12,624 $13,512 $11,180 9/30/1999 $10,300 $14,451 $12,570 $13,385 $11,354 10/31/1999 $10,283 $15,358 $13,019 $14,080 $11,348 11/30/1999 $10,327 $15,788 $13,324 $14,475 $11,229 12/31/1999 $10,514 $16,795 $14,052 $15,648 $11,202 1/31/2000 $10,193 $16,137 $13,579 $14,753 $10,964 2/29/2000 $10,051 $16,286 $13,822 $14,791 $10,885 3/31/2000 $10,391 $17,562 $14,362 $15,815 $11,222 4/30/2000 $10,382 $16,943 $13,786 $15,145 $10,855 5/31/2000 $10,410 $16,467 $13,501 $14,762 $10,940 6/30/2000 $10,570 $16,955 $13,994 $15,259 $11,206 7/31/2000 $10,523 $16,655 $13,745 $14,829 $11,016 8/31/2000 $10,646 $17,890 $14,221 $15,312 $10,934 9/30/2000 $10,467 $17,080 $13,767 $14,498 $10,912 10/31/2000 $10,448 $16,837 $13,512 $14,256 $10,773 11/30/2000 $10,552 $15,285 $12,875 $13,389 $10,987 12/31/2000 $11,164 $15,542 $13,193 $13,601 $11,381 1/31/2001 $11,464 $16,074 $13,532 $13,865 $11,366 2/28/2001 $11,254 $14,605 $12,773 $12,695 $11,362 3/31/2001 $10,854 $13,653 $12,161 $11,860 $11,034 4/30/2001 $11,154 $14,748 $12,748 $12,738 $10,995 5/31/2001 $11,174 $14,866 $12,737 $12,577 $10,962 6/30/2001 $11,094 $14,592 $12,518 $12,182 $10,861 7/31/2001 $11,114 $14,352 $12,445 $12,022 $11,135 8/31/2001 $11,134 $13,505 $12,162 $11,446 $11,554 9/30/2001 $10,494 $12,313 $11,403 $10,437 $11,639 10/31/2001 $10,754 $12,600 $11,662 $10,638 $11,731 11/30/2001 $11,234 $13,570 $12,120 $11,268 $11,566 12/31/2001 $11,379 $13,761 $12,204 $11,340 $11,268 1/31/2002 $11,313 $13,589 $12,017 $10,997 $11,060 2/28/2002 $11,401 $13,311 $11,973 $10,902 $11,117 3/31/2002 $11,741 $13,894 $12,316 $11,384 $11,086 4/30/2002 $11,840 $13,166 $12,196 $11,000 $11,483 5/31/2002 $11,950 $13,013 $12,226 $11,023 $11,808 6/30/2002 $11,632 $12,076 $11,791 $10,355 $12,378 7/31/2002 $11,017 $11,116 $11,136 $ 9,483 $12,500 8/31/2002 $11,160 $11,169 $11,245 $ 9,501 $12,718 9/30/2002 $10,194 $ 9,995 $10,527 $ 8,457 $12,857 10/31/2002 $10,743 $10,791 $10,990 $ 9,083 $12,804 11/30/2002 $11,257 $11,444 $11,419 $ 9,573 $12,820 12/31/2002 $11,039 $10,797 $11,194 $ 9,111 $13,465 1/31/2003 $10,810 $10,533 $11,020 $ 8,835 $13,649 2/28/2003 $10,707 $10,360 $10,946 $ 8,683 $13,840 3/31/2003 $10,741 $10,469 $10,954 $ 8,657 $13,883 4/30/2003 $11,521 $11,323 $11,640 $ 9,427 $14,049 5/31/2003 $12,082 $12,007 $12,217 $ 9,968 $14,658 6/30/2003 $12,254 $12,169 $12,361 $10,143 $14,422 7/31/2003 $12,346 $12,448 $12,435 $10,350 $13,993 8/31/2003 $12,529 $12,724 $12,668 $10,574 $13,917 9/30/2003 $12,713 $12,586 $12,860 $10,640 $14,706 10/31/2003 $13,206 $13,347 $13,365 $11,273 $14,632 11/30/2003 $13,401 $13,531 $13,554 $11,446 $14,879 12/31/2003 $14,072 $14,150 $14,164 $12,167 $15,472 1/31/2004 $14,189 $14,445 $14,375 $12,364 $15,513 2/29/2004 $14,421 $14,640 $14,576 $12,574 $15,537 3/31/2004 $14,398 $14,466 $14,582 $12,492 $15,760 4/30/2004 $14,084 $14,167 $14,183 $12,239 $15,085 5/31/2004 $14,130 $14,373 $14,263 $12,355 $15,203 6/30/2004 $14,339 $14,659 $14,481 $12,612 $15,236 7/31/2004 $14,049 $14,104 $14,190 $12,203 $15,158 8/31/2004 $14,316 $14,162 $14,353 $12,259 $15,517 9/30/2004 $14,595 $14,380 $14,599 $12,494 $15,736 10/31/2004 $14,955 $14,616 $14,906 $12,802 $16,201 11/30/2004 $15,535 $15,296 $15,489 $13,478 $16,785 12/31/2004 $16,064 $15,841 $15,948 $13,996 $17,073 1/31/2005 $15,823 $15,419 $15,706 $13,683 $16,834 2/28/2005 $16,173 $15,758 $16,034 $14,121 $16,858 3/31/2005 $15,895 $15,492 $15,750 $13,849 $16,633 4/30/2005 $15,726 $15,155 $15,580 $13,553 $16,880 5/31/2005 $15,907 $15,729 $15,855 $13,799 $16,539 6/30/2005 $16,076 $15,839 $15,987 $13,924 $16,395 7/31/2005 $16,426 $16,489 $16,360 $14,411 $16,235 8/31/2005 $16,510 $16,332 $16,480 $14,523 $16,527 9/30/2005 $16,655 $16,475 $16,683 $14,903 $16,211 10/31/2005 $16,450 $16,166 $16,338 $14,544 $15,916 11/30/2005 $16,727 $16,796 $16,728 $15,034 $15,722 12/31/2005 $17,054 $16,811 $16,997 $15,370 $15,900 1/31/2006 $17,537 $17,373 $17,554 $16,059 $16,105 2/28/2006 $17,537 $17,404 $17,568 $16,040 $16,022 3/31/2006 $17,703 $17,705 $17,755 $16,395 $15,835 4/30/2006 $18,059 $17,897 $18,103 $16,898 $16,213 5/31/2006 $17,626 $17,324 $17,689 $16,329 $16,510 6/30/2006 $17,639 $17,355 $17,678 $16,328 $16,337
6/30/97 = $9,450 THE FUND'S GROWTH OF AN ASSUMED $10,000 INVESTMENT IS ADJUSTED FOR THE MAXIMUM SALES CHARGE OF 5.50%. UBS GLOBAL ALLOCATION FUND CLASS Y VS. RUSSELL 3000 INDEX, GSMI MUTUAL FUND INDEX, MSCI WORLD FREE INDEX (NET US) AND CITIGROUP WORLD GOVERNMENT BOND INDEX Wealth value with dividends reinvested [CHART]
UBS GLOBAL RUSSELL GSMI MSCI WORLD CITIGROUP WORLD ALLOCATION 3000 MUTUAL FREE INDEX GOVERNMENT FUND CLASS Y INDEX FUND INDEX (NET US) BOND INDEX ------------ ----------- ----------- ----------- --------------- 8/31/1992 $10,000,000 $10,000,000 $10,000,000 $10,000,000 $10,000,000 9/30/1992 $10,130,000 $10,134,001 $10,053,141 $ 9,914,235 $10,100,000 10/31/1992 $10,070,000 $10,234,327 $ 9,975,142 $ 9,646,793 $ 9,825,280 11/30/1992 $10,220,000 $10,655,981 $10,174,282 $ 9,818,841 $ 9,669,058 12/31/1992 $10,329,253 $10,846,298 $10,307,902 $ 9,902,175 $ 9,727,459 1/31/1993 $10,481,154 $10,952,266 $10,423,872 $ 9,935,544 $ 9,897,690 2/28/1993 $10,683,689 $11,023,565 $10,554,580 $10,171,106 $10,092,674 3/31/1993 $10,811,423 $11,298,713 $10,873,288 $10,759,903 $10,248,101 4/30/1993 $10,862,228 $10,999,636 $10,939,188 $11,257,867 $10,464,336 5/31/1993 $10,974,001 $11,315,545 $11,168,718 $11,516,071 $10,568,980 6/30/1993 $11,075,668 $11,389,436 $11,193,156 $11,419,938 $10,546,362 7/31/1993 $11,106,236 $11,369,960 $11,271,259 $11,653,686 $10,575,892 8/31/1993 $11,340,587 $11,812,137 $11,663,283 $12,197,696 $10,894,226 9/30/1993 $11,340,837 $11,810,721 $11,652,776 $11,974,517 $11,023,868 10/31/1993 $11,433,290 $11,979,614 $11,821,546 $12,306,669 $11,005,127 11/30/1993 $11,310,020 $11,794,529 $11,530,453 $11,606,117 $10,926,990 12/31/1993 $11,480,543 $12,025,701 $11,798,011 $12,169,705 $11,019,323 1/31/1994 $11,735,903 $12,393,687 $12,187,622 $12,972,518 $11,107,478 2/28/1994 $11,523,103 $12,093,636 $12,003,858 $12,802,124 $11,035,279 3/31/1994 $11,182,624 $11,565,145 $11,599,043 $12,250,579 $11,019,830 4/30/1994 $11,225,184 $11,697,450 $11,726,135 $12,636,243 $11,031,952 5/31/1994 $11,246,463 $11,826,005 $11,763,362 $12,673,670 $10,934,871 6/30/1994 $11,161,405 $11,502,445 $11,648,185 $12,636,541 $11,092,334 7/31/1994 $11,321,924 $11,859,136 $11,890,412 $12,878,454 $11,181,072 8/31/1994 $11,568,052 $12,375,838 $12,203,865 $13,267,649 $11,141,938 9/30/1994 $11,396,832 $12,112,482 $12,011,540 $12,917,359 $11,222,160 10/31/1994 $11,375,430 $12,312,579 $12,199,461 $13,288,992 $11,401,715 11/30/1994 $11,225,612 $11,863,170 $11,852,319 $12,716,242 $11,244,370 12/31/1994 $11,263,719 $12,047,049 $11,965,816 $12,836,968 $11,275,855 1/31/1995 $11,394,819 $12,311,121 $12,087,076 $12,648,527 $11,512,648 2/28/1995 $11,678,870 $12,814,030 $12,412,519 $12,836,295 $11,807,371 3/31/1995 $11,831,821 $13,132,715 $12,812,238 $13,455,568 $12,508,730 4/30/1995 $12,061,247 $13,475,872 $13,111,579 $13,926,271 $12,740,141 5/31/1995 $12,443,623 $13,965,047 $13,440,502 $14,051,936 $13,099,413 6/30/1995 $12,564,233 $14,368,916 $13,645,479 $14,047,301 $13,176,699 7/31/1995 $12,840,978 $14,945,972 $14,070,511 $14,750,610 $13,208,323 8/31/1995 $13,007,025 $15,078,692 $14,021,307 $14,421,395 $12,753,958 9/30/1995 $13,228,421 $15,662,991 $14,396,480 $14,847,378 $13,038,370 10/31/1995 $13,328,050 $15,527,662 $14,305,945 $14,616,727 $13,134,854 11/30/1995 $13,715,493 $16,216,315 $14,734,096 $15,126,183 $13,283,279 12/31/1995 $13,982,394 $16,481,127 $15,006,155 $15,570,077 $13,422,753 1/31/1996 $14,242,642 $16,959,574 $15,251,151 $15,861,185 $13,257,653 2/29/1996 $14,183,494 $17,209,728 $15,294,694 $15,957,652 $13,190,039 3/31/1996 $14,289,959 $17,382,685 $15,425,315 $16,222,575 $13,171,573 4/30/1996 $14,479,230 $17,712,262 $15,690,984 $16,603,712 $13,118,886 5/31/1996 $14,526,548 $18,165,519 $15,807,463 $16,616,997 $13,121,510 6/30/1996 $14,622,688 $18,106,859 $15,839,639 $16,705,557 $13,225,171 7/31/1996 $14,407,296 $17,158,965 $15,423,367 $16,115,171 $13,479,094 8/31/1996 $14,634,654 $17,679,568 $15,672,347 $16,305,745 $13,531,662 9/30/1996 $15,113,302 $18,641,336 $16,188,278 $16,945,108 $13,587,142 10/31/1996 $15,364,592 $18,982,099 $16,349,984 $17,061,756 $13,841,221 11/30/1996 $15,962,901 $20,321,039 $17,037,596 $18,023,604 $14,023,926 12/31/1996 $15,954,243 $20,076,293 $16,885,795 $17,737,146 $13,910,332 1/31/1997 $16,152,679 $21,187,275 $17,133,000 $17,954,575 $13,538,926 2/28/1997 $16,298,199 $21,210,432 $17,213,653 $18,159,217 $13,437,384 3/31/1997 $16,046,846 $20,250,661 $16,835,183 $17,795,786 $13,335,260 4/30/1997 $16,218,824 $21,248,161 $17,175,980 $18,379,564 $13,217,909 5/31/1997 $16,893,506 $22,699,381 $18,044,329 $19,516,874 $13,577,437 6/30/1997 $17,369,752 $23,643,048 $18,690,356 $20,487,775 $13,739,009 7/31/1997 $17,925,373 $25,496,546 $19,434,054 $21,433,396 $13,631,844 8/31/1997 $17,462,356 $24,462,429 $18,721,607 $19,982,810 $13,623,665 9/30/1997 $18,004,747 $25,849,536 $19,532,767 $21,069,236 $13,913,849 10/31/1997 $17,475,585 $24,981,273 $18,902,845 $19,963,263 $14,203,257 11/30/1997 $17,515,272 $25,937,751 $19,071,528 $20,312,410 $13,985,947 12/31/1997 $17,708,679 $26,457,305 $19,300,734 $20,560,621 $13,943,989 1/31/1998 $17,913,066 $26,594,421 $19,560,718 $21,137,439 $14,079,246 2/28/1998 $18,570,024 $28,496,856 $20,507,467 $22,567,143 $14,193,288 3/31/1998 $18,993,397 $29,909,186 $21,088,718 $23,516,941 $14,052,774 4/30/1998 $19,022,596 $30,203,258 $21,296,168 $23,746,880 $14,277,618 5/31/1998 $18,920,402 $29,457,927 $20,995,717 $23,458,746 $14,310,457 6/30/1998 $18,807,910 $30,453,986 $21,262,338 $24,007,423 $14,331,923 7/31/1998 $18,763,725 $29,901,032 $21,151,367 $23,971,196 $14,350,554 8/31/1998 $17,261,449 $25,320,595 $19,011,382 $20,776,010 $14,740,890 9/30/1998 $17,806,393 $27,047,832 $19,668,449 $21,145,733 $15,525,105 10/31/1998 $18,454,433 $29,100,930 $20,842,113 $23,060,405 $15,984,648 11/30/1998 $18,969,920 $30,880,792 $21,694,071 $24,433,827 $15,759,265 12/31/1998 $19,182,637 $32,843,517 $22,476,174 $25,621,622 $16,076,025 1/31/1999 $19,215,150 $33,959,284 $22,788,253 $26,184,594 $15,928,126 2/28/1999 $18,743,712 $32,756,413 $22,183,964 $25,488,800 $15,416,833 3/31/1999 $19,052,585 $33,958,337 $22,884,800 $26,546,115 $15,455,376 4/30/1999 $19,832,896 $35,491,150 $23,680,778 $27,597,018 $15,449,194 5/31/1999 $19,475,254 $34,816,617 $23,081,670 $26,580,372 $15,189,647 6/30/1999 $19,703,387 $36,576,097 $23,786,913 $27,816,807 $14,923,828 7/31/1999 $19,654,211 $35,467,040 $23,659,927 $27,734,161 $15,289,462 8/31/1999 $19,342,759 $35,063,757 $23,594,323 $27,682,753 $15,359,793 9/30/1999 $19,064,092 $34,167,562 $23,494,541 $27,422,520 $15,599,406 10/31/1999 $19,031,308 $36,310,764 $24,333,562 $28,846,763 $15,591,606 11/30/1999 $19,113,269 $37,326,972 $24,903,099 $29,657,046 $15,427,895 12/31/1999 $19,468,751 $39,708,720 $26,263,324 $32,059,053 $15,390,868 1/31/2000 $18,893,578 $38,152,089 $25,379,833 $30,224,759 $15,063,042 2/29/2000 $18,614,706 $38,505,711 $25,833,957 $30,303,594 $14,954,588 3/31/2000 $19,259,597 $41,522,196 $26,842,379 $32,400,895 $15,418,180 4/30/2000 $19,259,597 $40,058,945 $25,767,012 $31,029,490 $14,914,006 5/31/2000 $19,311,886 $38,933,818 $25,234,720 $30,243,933 $15,030,335 6/30/2000 $19,608,187 $40,086,555 $26,155,836 $31,262,110 $15,395,572 7/31/2000 $19,521,040 $39,377,968 $25,689,176 $30,380,718 $15,135,387 8/31/2000 $19,765,053 $42,298,238 $26,579,221 $31,370,289 $15,021,872 9/30/2000 $19,433,892 $40,383,016 $25,730,800 $29,703,788 $14,991,828 10/31/2000 $19,399,033 $39,808,043 $25,254,888 $29,206,779 $14,801,432 11/30/2000 $19,590,758 $36,138,936 $24,064,490 $27,431,477 $15,095,324 12/31/2000 $20,739,069 $36,746,251 $24,659,058 $27,865,639 $15,636,296 1/31/2001 $21,311,054 $38,003,303 $25,291,965 $28,406,463 $15,616,359 2/28/2001 $20,923,580 $34,530,979 $23,873,709 $26,008,868 $15,610,113 3/31/2001 $20,167,084 $32,280,003 $22,728,890 $24,299,054 $15,159,830 4/30/2001 $20,739,069 $34,868,774 $23,827,203 $26,097,403 $15,105,988 5/31/2001 $20,775,971 $35,148,828 $23,806,156 $25,767,328 $15,060,305 6/30/2001 $20,628,362 $34,500,688 $23,396,514 $24,958,579 $14,922,483 7/31/2001 $20,683,716 $33,932,061 $23,260,752 $24,629,724 $15,298,898 8/31/2001 $20,720,618 $31,928,820 $22,731,654 $23,449,429 $15,874,169 9/30/2001 $19,521,295 $29,111,921 $21,313,354 $21,382,549 $15,990,307 10/31/2001 $20,019,475 $29,789,269 $21,797,054 $21,793,975 $16,116,731 11/30/2001 $20,923,580 $32,083,788 $22,652,037 $23,085,567 $15,890,293 12/31/2001 $21,196,119 $32,535,985 $22,809,954 $23,232,421 $15,481,086 1/31/2002 $21,074,651 $32,128,007 $22,459,648 $22,530,155 $15,194,734 2/28/2002 $21,236,608 $31,471,079 $22,378,508 $22,336,585 $15,273,457 3/31/2002 $21,843,947 $32,850,792 $23,019,900 $23,324,185 $15,231,423 4/30/2002 $22,026,149 $31,127,333 $22,794,633 $22,537,019 $15,776,549 5/31/2002 $22,228,595 $30,766,685 $22,850,794 $22,583,395 $16,222,748 6/30/2002 $21,641,501 $28,551,948 $22,037,427 $21,215,038 $17,005,914 7/31/2002 $20,487,557 $26,282,040 $20,813,026 $19,427,910 $17,173,099 8/31/2002 $20,770,982 $26,406,178 $21,016,900 $19,465,151 $17,472,798 9/30/2002 $18,989,455 $23,631,605 $19,674,839 $17,326,827 $17,663,625 10/31/2002 $20,001,686 $25,513,414 $20,540,161 $18,608,119 $17,591,202 11/30/2002 $20,970,498 $27,057,157 $21,341,836 $19,613,921 $17,613,274 12/31/2002 $20,547,279 $25,527,477 $20,922,645 $18,666,125 $18,498,927 1/31/2003 $20,145,221 $24,902,867 $20,597,131 $18,101,533 $18,752,237 2/28/2003 $19,954,772 $24,493,132 $20,457,608 $17,789,751 $19,015,202 3/31/2003 $20,018,255 $24,750,738 $20,474,014 $17,735,830 $19,073,426 4/30/2003 $21,478,360 $26,771,829 $21,755,669 $19,314,606 $19,302,153 5/31/2003 $22,515,247 $28,387,920 $22,834,055 $20,422,647 $20,139,202 6/30/2003 $22,832,661 $28,771,016 $23,102,220 $20,780,133 $19,813,811 7/31/2003 $23,023,109 $29,431,054 $23,240,527 $21,204,686 $19,224,868 8/31/2003 $23,382,845 $30,083,251 $23,677,405 $21,664,061 $19,120,739 9/30/2003 $23,721,421 $29,756,545 $24,035,567 $21,798,840 $20,204,804 10/31/2003 $24,631,341 $31,557,488 $24,980,461 $23,095,820 $20,103,386 11/30/2003 $25,012,238 $31,992,105 $25,332,631 $23,450,724 $20,442,408 12/31/2003 $26,256,654 $33,455,389 $26,472,689 $24,926,807 $21,257,255 1/31/2004 $26,492,620 $34,153,292 $26,866,755 $25,331,384 $21,313,910 2/29/2004 $26,943,102 $34,613,467 $27,243,739 $25,762,126 $21,346,651 3/31/2004 $26,900,199 $34,202,514 $27,254,026 $25,593,344 $21,653,354 4/30/2004 $26,321,008 $33,495,416 $26,508,803 $25,073,987 $20,725,694 5/31/2004 $26,406,814 $33,982,231 $26,657,198 $25,312,905 $20,887,763 6/30/2004 $26,814,393 $34,657,551 $27,064,925 $25,839,559 $20,933,037 7/31/2004 $26,256,654 $33,346,938 $26,521,175 $25,001,207 $20,826,250 8/31/2004 $26,771,490 $33,484,327 $26,825,901 $25,116,392 $21,319,036 9/30/2004 $27,286,326 $33,998,999 $27,285,300 $25,597,306 $21,619,485 10/31/2004 $27,994,226 $34,557,484 $27,860,689 $26,228,730 $22,258,233 11/30/2004 $29,066,802 $36,163,836 $28,949,310 $27,613,535 $23,061,265 12/31/2004 $30,072,873 $37,452,407 $29,807,764 $28,674,470 $23,457,182 1/31/2005 $29,626,688 $36,454,979 $29,355,544 $28,033,279 $23,127,843 2/28/2005 $30,295,966 $37,257,411 $29,967,538 $28,930,160 $23,161,818 3/31/2005 $29,760,544 $36,627,257 $29,437,404 $28,374,206 $22,852,167 4/30/2005 $29,470,524 $35,831,451 $29,120,145 $27,766,928 $23,192,025 5/31/2005 $29,805,162 $37,189,122 $29,633,084 $28,272,077 $22,723,337 6/30/2005 $30,139,801 $37,448,892 $29,880,833 $28,526,328 $22,525,735 7/31/2005 $30,786,770 $38,985,333 $30,576,884 $29,524,427 $22,305,681 8/31/2005 $30,942,934 $38,613,596 $30,801,583 $29,754,739 $22,707,050 9/30/2005 $31,232,955 $38,951,526 $31,180,434 $30,532,515 $22,272,686 10/31/2005 $30,853,697 $38,221,979 $30,537,108 $29,796,704 $21,867,397 11/30/2005 $31,366,810 $39,711,767 $31,264,900 $30,801,358 $21,600,571 12/31/2005 $32,017,044 $39,747,498 $31,768,727 $31,490,709 $21,844,355 1/31/2006 $32,912,956 $41,075,459 $32,809,766 $32,901,905 $22,126,431 2/28/2006 $32,936,532 $41,148,488 $32,835,050 $32,863,223 $22,011,993 3/31/2006 $33,243,028 $41,859,760 $33,184,431 $33,589,719 $21,755,730 4/30/2006 $33,903,173 $42,313,896 $33,835,396 $34,619,825 $22,275,244 5/31/2006 $33,101,568 $40,959,163 $33,061,449 $33,454,887 $22,683,460 6/30/2006 $33,148,722 $41,031,641 $33,041,683 $33,452,706 $22,445,125
8/31/92 = $10,000,000 PAST PERFORMANCE DOES NOT PREDICT FUTURE PERFORMANCE, AND THE PERFORMANCE INFORMATION PROVIDED DOES NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PERFORMANCE RESULTS ASSUME REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS AT NET ASSET VALUE ON THE EX-DIVIDEND DATES. 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. -------------------------------------------------------------------------------- 13 UBS GLOBAL ALLOCATION FUND -------------------------------------------------------------------------------- EXPLANATION OF EXPENSE DISCLOSURE (UNAUDITED) As a shareholder of the Fund, you incur two types of costs: (1) transactional costs (as applicable); including sales charges (loads); 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, January 1, 2006 to June 30, 2006. 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 EXPENSE ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD* RATIO JANUARY 1, 2006 JUNE 30, 2006 01/01/06 TO 06/30/06 DURING PERIOD --------------------------------------------------------------------------------------------------------------------- CLASS A Actual $1,000.00 $1,034.30 $5.65 1.12% Hypothetical (5% annual return before expenses) 1,000.00 1,019.24 5.61 1.12% CLASS B Actual 1,000.00 1,030.30 9.62 1.91% Hypothetical (5% annual return before expenses) 1,000.00 1,015.32 9.54 1.91% CLASS C Actual 1,000.00 1,030.40 9.57 1.90% Hypothetical (5% annual return before expenses) 1,000.00 1,015.37 9.49 1.90% CLASS Y Actual 1,000.00 1,035.40 4.44 0.88% Hypothetical (5% annual return before expenses) 1,000.00 1,020.43 4.41 0.88%
* EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIOS, MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 181 DIVIDED BY 365 (TO REFLECT THE ONE-HALF YEAR PERIOD). -------------------------------------------------------------------------------- 14 UBS GLOBAL ALLOCATION FUND -------------------------------------------------------------------------------- TOP TEN EQUITY HOLDINGS AS OF JUNE 30, 2006 (UNAUDITED) PERCENTAGE OF NET ASSETS -------------------------------------------------------------------------------- Citigroup, Inc. 2.0% Morgan Stanley 1.6 Microsoft Corp. 1.6 Wells Fargo & Co. 1.4 Wyeth 1.4 Exelon Corp. 1.2 Sprint Nextel Corp. 1.1 Allergan, Inc. 1.1 Masco Corp. 1.0 Omnicom Group, Inc. 1.0 -------------------------------------------------------------------------------- Total 13.4% TOP TEN FIXED INCOME HOLDINGS AS OF JUNE 30, 2006 (UNAUDITED) PERCENTAGE OF NET ASSETS -------------------------------------------------------------------------------- US Treasury Notes 4.750%, due 03/31/11 1.8% Deutsche Bundesrepublik 4.500%, due 07/04/09 0.6 Government of Japan 0.500%, due 06/20/07 0.6 Federal National Mortgage Association 5.000%, TBA 0.6 US Treasury Notes 4.875%, due 05/15/09 0.5 US Treasury Notes 4.500%, due 11/15/15 0.5 US Treasury Bonds 8.500%, due 02/15/20 0.5 US Treasury Bonds 8.875%, due 02/15/19 0.5 UK Gilts 5.000%, due 03/07/12 0.4 US Treasury Bonds 8.750%, due 05/15/17 0.4 -------------------------------------------------------------------------------- Total 6.4% -------------------------------------------------------------------------------- 15 UBS GLOBAL ALLOCATION FUND -------------------------------------------------------------------------------- INDUSTRY DIVERSIFICATION AS A PERCENT OF NET ASSETS AS OF JUNE 30, 2006 (UNAUDITED) -------------------------------------------------------------------------------- Equities US Equities Aerospace & Defense 0.51% Air Freight & Logistics 0.78 Auto Components 1.14 Automobiles 0.42 Beverages 0.34 Biotechnology 0.99 Building Products 1.01 Capital Markets 2.42 Commercial Banks 2.94 Commercial Services & Supplies 0.30 Computers & Peripherals 0.50 Diversified Consumer Services 0.24 Diversified Financial Services 2.86 Diversified Telecommunication Services 0.70 Electric Utilities 1.89 Energy Equipment & Services 0.53 Food & Staples Retailing 1.92 Health Care Equipment & Supplies 0.58 Health Care Providers & Services 2.25 Insurance 1.92 Internet & Catalog Retail 0.15 Life Sciences Tools & Services 0.42 Machinery 0.94 Media 2.44 Multi-Utilities & Unregulated Power 0.73 Multiline Retail 0.65 Oil & Gas 1.23 Pharmaceuticals 4.04 Road & Rail 0.88 Semiconductors & Semiconductor Equipment 1.22 Software 3.47 Thrifts & Mortgage Finance 0.62 Wireless Telecommunication Services 1.08 ----- Total US Equities 42.11* International Equities Air Freight & Logistics 0.12 Airlines 0.12 Auto Components 0.31 Automobiles 0.61 Beverages 0.44 Capital Markets 0.59 Chemicals 0.41 Commercial Banks 3.67 Commercial Services & Supplies 0.04 Communications Equipment 0.19 Construction & Engineering 0.04 Construction Materials 0.28 Consumer Finance 0.21 Distributors 0.02 Diversified Financial Services 0.12 Diversified Telecommunication Services 0.60 Electric Utilities 0.37 Electronic Equipment & Instruments 0.09 Energy Equipment & Services 0.53 Food & Staples Retailing 0.50 Food Products 0.17 Gas Utilities 0.08 Health Care Equipment & Supplies 0.09 Hotels, Restaurants & Leisure 0.72 Household Durables 0.29 Household Products 0.05% Industrial Conglomerates 0.09 Insurance 1.99 Internet & Catalog Retail 0.08 IT Services 0.34 Machinery 0.43 Media 0.40 Metals & Mining 0.24 Office Electronics 0.18 Oil & Gas 1.32 Paper & Forest Products 0.16 Pharmaceuticals 1.26 Real Estate 0.22 Road & Rail 0.28 Semiconductors & Semiconductor Equipment 0.28 Specialty Retail 0.30 Textiles, Apparel & Luxury Goods 0.05 Tobacco 0.31 Trading Companies & Distributors 0.35 Wireless Telecommunication Services 0.78 ----- Total International Equities 19.72* Total Equities 61.83 Bonds US Bonds US Corporate Bonds Aerospace & Defense 0.01 Automobiles 0.08 Beverages 0.05 Capital Markets 0.18 Chemicals 0.01 Commercial Banks 0.21 Commercial Services & Supplies 0.04 Consumer Finance 0.22 Diversified Financial Services 0.71 Diversified Telecommunication Services 0.11 Electric Utilities 0.08 Food & Staples Retailing 0.03 Food Products 0.06 Gas Utilities 0.01 Insurance 0.04 IT Services 0.01 Media 0.07 Multi-Utilities & Unregulated Power 0.04 Oil & Gas 0.08 Personal Products 0.01 Pharmaceuticals 0.03 Real Estate 0.04 Road & Rail 0.04 Thrifts & Mortgage Finance 0.07 Wireless Telecommunication Services 0.01 ----- Total US Corporate Bonds 2.24 Asset-Backed Securities 0.45 Commercial Mortgage-Backed Securities 1.22 Mortgage & Agency Debt Securities 6.02 Stripped Mortgage-Backed Securities 0.10 US Government Obligations 5.35 ----- Total US Bonds 15.38 International Corporate Bonds Aerospace & Defense 0.02 Commercial Banks 0.25 Diversified Telecommunication Services 0.03 ----- Total International Corporate Bonds 0.30 -------------------------------------------------------------------------------- 16 UBS GLOBAL ALLOCATION FUND -------------------------------------------------------------------------------- INDUSTRY DIVERSIFICATION AS A PERCENT OF NET ASSETS AS OF JUNE 30, 2006 (UNAUDITED) -------------------------------------------------------------------------------- International Asset-Backed Securities 0.13% Foreign Government Bonds 6.57 Sovereign/SupraNational Bonds 0.18 ------ Total International Bonds 7.18 Total Bonds 22.56 Investment Companies 12.30 Short-Term Investments 3.05* Investment of Cash Collateral for Securities Loaned 2.28 ------ Total Investments 102.02 Liabilities, in excess of cash and other assets (2.02) ------ Net Assets 100.00% ====== -------------------------------------------------------------------------------- * THE FUND HELD A SHORT POSITION IN US STOCK INDEX FUTURES WHICH DECREASED US EQUITY EXPOSURE FROM 42.11% TO 42.10%. THE FUND ALSO HELD SHORT POSITIONS IN INTERNATIONAL STOCK INDEX FUTURES WHICH REDUCED THE INTERNATIONAL EQUITY EXPOSURE FROM 19.72% TO 19.57%. THE FUND ALSO HELD LONG POSITIONS IN INTERNATIONAL STOCK INDEX FUTURES WHICH INCREASED THE INTERNATIONAL EQUITY EXPOSURE BY 0.10%. -------------------------------------------------------------------------------- 17 UBS GLOBAL ALLOCATION FUND--SCHEDULE OF INVESTMENTS June 30, 2006 -------------------------------------------------------------------------------- SHARES VALUE --------- -------------- EQUITIES -- 61.83% US EQUITIES -- 42.11% Allergan, Inc. 386,900 $ 41,498,894 Allstate Corp. 324,400 17,754,412 American Electric Power Co., Inc. 414,000 14,179,500 American International Group, Inc. 654,800 38,665,940 Analog Devices, Inc. 451,900 14,524,066 Anheuser-Busch Cos., Inc. 290,300 13,234,777 AT&T, Inc. 823,500 22,967,415 Baker Hughes, Inc. 160,500 13,136,925 Borg-Warner, Inc. 183,600 11,952,360 Boston Scientific Corp. (a) 355,200 5,981,568 Bristol-Myers Squibb Co. 923,800 23,889,468 Burlington Northern Santa Fe Corp. 435,400 34,505,450 Caremark Rx, Inc. 317,800 15,848,686 Cendant Corp. 729,900 11,890,071 Cephalon, Inc. (a)(b) 167,400 10,060,740 Citigroup, Inc. 1,628,207 78,544,706 Costco Wholesale Corp. 576,100 32,912,593 Dell, Inc. (a) 806,300 19,681,783 DIRECTV Group, Inc. (a) 1,338,800 22,090,200 Embarq Corp. (a) 106,202 4,353,220 ENSCO International, Inc. 167,000 7,685,340 EOG Resources, Inc. 50,500 3,501,670 Exelon Corp. 839,400 47,703,102 Expedia, Inc. (a) 393,000 5,883,210 ExxonMobil Corp. 272,600 16,724,010 FedEx Corp. 260,500 30,442,030 Fifth Third Bancorp 903,600 33,388,020 Freddie Mac 429,100 24,462,991 Genzyme Corp. (a) 467,600 28,546,980 H & R Block, Inc. 386,200 9,214,732 Harley-Davidson, Inc. 299,100 16,417,599 Hartford Financial Services Group, Inc. 223,800 18,933,480 Healthsouth Corp. (a) 210,900 811,965 Illinois Tool Works, Inc. 775,200 36,822,000 Intel Corp. 1,286,300 24,375,385 Johnson & Johnson 642,738 38,512,861 Johnson Controls, Inc. 398,400 32,756,448 JPMorgan Chase & Co. 792,100 33,268,200 Kohl's Corp. (a) 431,700 25,522,104 Kroger Co. 1,175,200 25,689,872 Lockheed Martin Corp. 65,200 4,677,448 Marathon Oil Corp. 335,500 27,947,150 Masco Corp. 1,340,600 39,735,384 Medco Health Solutions, Inc. (a) 398,800 22,843,264 Medtronic, Inc. 355,500 16,680,060 Mellon Financial Corp. 956,100 32,918,523 Mercury Interactive Corp. (a) 386,600 13,519,402 Microsoft Corp. 2,625,400 61,171,820 Morgan Stanley 978,150 61,828,862 News Corp., Inc., Class A 714,000 13,694,520 NiSource, Inc. 493,800 10,784,592 Northeast Utilities 215,200 $ 4,448,184 Northrop Grumman Corp. 240,100 15,380,806 Omnicom Group, Inc. 436,200 38,861,058 Oracle Corp. (a) 2,426,700 35,162,883 Pepco Holdings, Inc. 323,600 7,630,488 PNC Financial Services Group, Inc. 360,400 25,289,268 R.H. Donnelley Corp. (a) 272,092 14,712,014 Salesforce.com, Inc. (a) 182,800 4,873,448 Sempra Energy 392,700 17,859,996 Sprint Nextel Corp. 2,124,752 42,473,792 Symantec Corp. (a) 1,350,672 20,989,443 Sysco Corp. 542,800 16,587,968 UnitedHealth Group, Inc. 851,000 38,107,780 Univision Communications, Inc. (a) 179,800 6,023,300 Waters Corp. (a) 369,300 16,396,920 WellPoint, Inc. (a) 144,700 10,529,819 Wells Fargo & Co. 843,000 56,548,440 Wyeth (c) 1,218,800 54,126,908 Xilinx, Inc. 391,600 8,869,740 -------------- Total US Equities 1,649,008,053 -------------- INTERNATIONAL EQUITIES -- 19.72% AUSTRALIA -- 0.42% National Australia Bank Ltd. 208,804 5,455,505 Qantas Airways Ltd. 2,161,012 4,753,310 QBE Insurance Group Ltd. 408,916 6,229,242 -------------- 16,438,057 -------------- AUSTRIA -- 0.10% Telekom Austria AG 166,841 3,715,259 -------------- BELGIUM -- 0.40% Fortis (b) 136,484 4,647,049 KBC Groep NV 78,169 8,388,495 Solvay S.A. 23,165 2,665,146 -------------- 15,700,690 -------------- BERMUDA -- 0.34% Accenture Ltd., Class A 473,400 13,406,688 -------------- CANADA -- 0.80% Alcan, Inc. 82,020 3,842,001 Canadian Pacific Railway Ltd. (b) 113,300 5,776,138 Cott Corp. (a) 165,600 2,165,870 Falconbridge Ltd. (b) 53,400 2,812,792 Inco Ltd. 39,000 2,567,858 Magna International, Inc., Class A (b) 35,900 2,561,208 Manulife Financial Corp. (b) 119,100 3,773,687 Toronto-Dominion Bank (b) 157,000 7,971,656 -------------- 31,471,210 -------------- CAYMAN ISLANDS -- 0.53% GlobalSantaFe Corp. 356,600 20,593,650 -------------- FINLAND -- 0.28% Nokia Oyj 220,807 4,507,474 -------------------------------------------------------------------------------- 18 UBS GLOBAL ALLOCATION FUND--SCHEDULE OF INVESTMENTS June 30, 2006 -------------------------------------------------------------------------------- SHARES VALUE --------- ------------ UPM-Kymmene Oyj 290,340 $ 6,257,406 ------------ 10,764,880 ------------ FRANCE -- 1.51% AXA S.A. 359,225 11,789,916 France Telecom S.A. 535,391 11,511,351 Sanofi-Aventis (b) 142,491 13,905,913 Total S.A. (b) 290,931 19,145,332 Unibail REIT 14,816 2,582,941 ------------ 58,935,453 ------------ GERMANY -- 1.34% Allianz AG 88,540 13,988,280 Bayerische Motoren Werke AG 67,841 3,389,316 Deutsche Postbank AG (b) 103,482 7,446,498 E.ON AG 91,764 10,565,715 Hannover Rueckversicherung AG (a)(b) 48,255 1,688,057 IKB Deutsche Industriebank AG 23,820 871,355 MAN AG 89,555 6,485,556 Metro AG 66,414 3,764,843 Premiere AG (a)(b) 66,439 644,139 Siemens AG 40,915 3,560,169 ------------ 52,403,928 ------------ HONG KONG -- 0.30% Esprit Holdings Ltd. 427,000 3,485,804 Hutchison Telecommunications International Ltd. (a) 1,913,000 3,079,008 Sun Hung Kai Properties Ltd. 314,000 3,202,143 Yue Yuen Industrial Holdings 666,500 1,832,246 ------------ 11,599,201 ------------ IRELAND -- 0.49% Bank of Ireland 570,051 10,171,276 CRH PLC 144,295 4,691,529 Depfa Bank PLC 260,467 4,330,954 ------------ 19,193,759 ------------ ITALY -- 0.41% ENI SpA 188,120 5,541,361 UniCredito Italiano SpA 1,356,774 10,620,536 ------------ 16,161,897 ------------ JAPAN -- 3.70% Aeon Co., Ltd. 185,600 4,070,745 Aiful Corp. 80,550 4,300,599 Asahi Breweries Ltd. 334,000 4,690,126 Bank of Yokohama Ltd. 542,000 4,191,454 Bridgestone Corp. (b) 320,900 6,183,017 Canon, Inc. 141,600 6,941,419 East Japan Railway Co. 703 5,221,513 Funai Electric Co. Ltd. (b) 27,300 2,647,938 Honda Motor Co. Ltd. 202,800 6,432,751 Japan Tobacco, Inc. 827 3,013,448 KDDI Corp. 434 2,666,043 Mitsubishi Corp. 321,600 6,421,321 Mitsui Fudosan Co. Ltd. 126,000 2,736,019 Mitsui Sumitomo Insurance Co. Ltd. 509,000 $ 6,391,410 Nissan Motor Co. Ltd. 625,500 6,832,183 Nitto Denko Corp. 98,400 7,007,690 NOK Corp. (b) 116,300 3,373,960 Nomura Holdings, Inc. 197,800 3,707,454 NTN Corp. (b) 325,000 2,570,124 NTT DoCoMo, Inc. 3,926 5,763,439 Rohm Co. Ltd. 64,800 5,792,590 Shin-Etsu Chemical Co. Ltd. 74,600 4,054,631 SMC Corp. 23,000 3,253,845 Sompo Japan Insurance, Inc. 270,000 3,774,904 Sumitomo Mitsui Financial Group, Inc. 847 8,955,523 Sumitomo Trust & Banking Co. Ltd. 377,000 4,117,878 Takefuji Corp. 66,190 3,944,563 Tanabe Seiyaku Co., Ltd. (b) 167,000 2,054,666 Tokyo Gas Co., Ltd. (b) 659,000 3,103,819 Toyota Motor Corp. 136,200 7,128,958 Yokogawa Electric Corp. (b) 256,700 3,658,491 ------------ 145,002,521 ------------ NETHERLANDS -- 1.55% ABN AMRO Holding NV 862,253 23,590,276 Aegon NV 534,718 9,144,158 ASML Holding NV (a) 255,938 5,185,343 Koninklijke (Royal) Philips Electronics NV 205,188 6,411,549 Reed Elsevier NV 459,014 6,904,318 Royal KPN NV 448,853 5,046,387 TNT NV 127,776 4,572,824 ------------ 60,854,855 ------------ NORWAY -- 0.08% Telenor ASA 275,000 3,324,351 ------------ PANAMA -- 0.72% Carnival Corp. 677,000 28,257,980 ------------ SINGAPORE -- 0.02% Jardine Cycle & Carriage Ltd. 126,000 796,032 ------------ SPAIN -- 0.52% Banco Santander Central Hispano S.A. 1,039,071 15,177,452 Repsol YPF S.A. (b) 186,261 5,334,129 ------------ 20,511,581 ------------ SWEDEN -- 0.31% Electrolux AB, B Shares 170,000 2,456,665 Husqvarna AB, B Shares (a) 149,000 1,796,054 Sandvik AB 397,800 4,629,277 Telefonaktiebolaget LM Ericsson, B Shares 936,000 3,095,397 ------------ 11,977,393 ------------ SWITZERLAND -- 1.84% Clariant AG 160,732 2,281,052 -------------------------------------------------------------------------------- 19 UBS GLOBAL ALLOCATION FUND--SCHEDULE OF INVESTMENTS June 30, 2006 -------------------------------------------------------------------------------- SHARES VALUE ----------- -------------- Credit Suisse Group 347,588 $ 19,447,073 Holcim Ltd. 83,811 6,423,534 Nestle S.A. 21,139 6,639,709 Novartis AG 192,393 10,417,911 Roche Holding AG 88,002 14,547,629 Straumann Holding AG 13,556 3,456,777 Swiss Reinsurance Co. 125,384 8,763,701 -------------- 71,977,386 -------------- UNITED KINGDOM -- 4.06% AstraZeneca PLC 50,343 3,038,597 Balfour Beatty PLC 261,800 1,662,954 Barclays PLC 1,412,818 16,054,323 BP PLC 1,851,750 21,589,935 Diageo PLC 626,088 10,529,845 Gallaher Group PLC 579,103 9,048,913 GlaxoSmithKline PLC 196,964 5,503,452 GUS PLC 179,634 3,208,851 ITV PLC 825,463 1,648,562 Kesa Electricals PLC 563,039 3,008,986 Kingfisher PLC 1,219,293 5,377,499 Prudential PLC 1,092,738 12,346,423 Rentokil Initial PLC 592,762 1,709,971 Royal Bank of Scotland Group PLC 499,605 16,426,401 Scottish & Southern Energy PLC 178,164 3,792,094 Taylor Nelson Sofres PLC 708,125 3,051,053 Tesco PLC 1,903,301 11,755,411 Vodafone Group PLC 8,867,054 18,897,492 Wolseley PLC 325,983 7,191,497 WPP Group PLC 266,982 3,231,287 -------------- 159,073,546 -------------- Total International Equities 772,160,317 -------------- Total Equities (Cost $2,219,488,686) 2,421,168,370 -------------- FACE AMOUNT ----------- BONDS -- 22.56% US BONDS -- 15.38% US CORPORATE BONDS -- 2.24% Allstate Corp. 7.200%, due 12/01/09 $ 525,000 549,415 American General Finance Corp. 5.375%, due 10/01/12 630,000 612,955 AT&T Corp. 8.000%, due 11/15/31 450,000 516,646 AT&T, Inc. 6.450%, due 06/15/34 540,000 513,303 AvalonBay Communities, Inc. REIT 7.500%, due 08/01/09 275,000 288,192 Avon Products, Inc. 7.150%, due 11/15/09 195,000 203,632 Bank of America Corp. 7.400%, due 01/15/11 2,000,000 2,128,034 BellSouth Corp. 6.550%, due 06/15/34 $ 675,000 $ 642,746 Boeing Capital Corp. 7.375%, due 09/27/10 700,000 743,738 Bristol-Myers Squibb Co. 5.750%, due 10/01/11 600,000 598,401 Burlington Northern Santa Fe Corp. 7.082%, due 05/13/29 660,000 716,094 C.S. First Boston USA, Inc. 3.875%, due 01/15/09 575,000 551,570 6.500%, due 01/15/12 450,000 464,332 Capital One Financial Corp. 5.500%, due 06/01/15 685,000 647,848 Cendant Corp. 6.250%, due 01/15/08 1,050,000 1,059,433 Citigroup, Inc. 5.000%, due 09/15/14 1,275,000 1,193,358 5.500%, due 11/18/15 GBP 270,000 505,614 5.625%, due 08/27/12 $ 3,775,000 3,729,783 Comcast Cable Communications Holdings, Inc. 6.750%, due 01/30/11 2,250,000 2,321,840 Computer Sciences Corp. 3.500%, due 04/15/08 325,000 312,170 ConAgra Foods, Inc. (b) 6.750%, due 09/15/11 1,355,000 1,396,691 Coors Brewing Co. 6.375%, due 05/15/12 925,000 941,322 Countrywide Home Loans, Inc. (b) 3.250%, due 05/21/08 850,000 813,269 DaimlerChrysler N.A. Holding Corp. 4.050%, due 06/04/08 3,325,000 3,214,800 Devon Financing Corp. ULC 6.875%, due 09/30/11 1,050,000 1,091,687 Dominion Resources, Inc. 5.950%, due 06/15/35 520,000 466,220 EOP Operating LP 7.250%, due 06/15/28 1,000,000 1,022,101 Erac U.S.A. Finance Co., 144A 8.000%, due 01/15/11 700,000 756,289 Exelon Generation Co. LLC 5.350%, due 01/15/14 1,000,000 955,315 FirstEnergy Corp., Series B 6.450%, due 11/15/11 700,000 712,265 Ford Motor Credit Co. 5.800%, due 01/12/09 12,750,000 11,647,992 General Electric Capital Corp. 6.000%, due 06/15/12 5,325,000 5,386,168 6.750%, due 03/15/32 1,250,000 1,334,280 General Motors Acceptance Corp. 6.875%, due 09/15/11 2,170,000 2,070,527 Goldman Sachs Group, Inc. 6.875%, due 01/15/11 3,425,000 3,558,863 HSBC Bank USA N.A. 5.625%, due 08/15/35 1,355,000 1,196,037 -------------------------------------------------------------------------------- 20 UBS GLOBAL ALLOCATION FUND--SCHEDULE OF INVESTMENTS June 30, 2006 -------------------------------------------------------------------------------- FACE AMOUNT VALUE ---------- ----------- HSBC Finance Corp. 6.750%, due 05/15/11 $1,925,000 $ 1,996,885 ICI Wilmington, Inc. 4.375%, due 12/01/08 600,000 579,040 International Lease Finance Corp. 3.500%, due 04/01/09 1,775,000 1,674,894 John Deere Capital Corp. 7.000%, due 03/15/12 700,000 739,020 JPMorgan Chase & Co. 6.750%, due 02/01/11 2,000,000 2,078,780 Kinder Morgan Energy Partners LP 5.800%, due 03/15/35 890,000 759,482 Kraft Foods, Inc. 5.625%, due 11/01/11 975,000 960,351 Kroger Co. 7.500%, due 04/01/31 545,000 572,115 Lockheed Martin Corp. 8.500%, due 12/01/29 250,000 314,660 Marathon Oil Corp. 6.125%, due 03/15/12 400,000 403,624 Marsh & McLennan Cos., Inc. 6.250%, due 03/15/12 470,000 469,437 MBNA Corp. 7.500%, due 03/15/12 550,000 594,941 Metlife, Inc. 5.000%, due 11/24/13 700,000 658,536 Miller Brewing Co., 144A 5.500%, due 08/15/13 1,000,000 959,481 Morgan Stanley 6.750%, due 04/15/11 3,475,000 3,607,835 New Cingular Wireless Services, Inc. 8.750%, due 03/01/31 375,000 459,759 News America, Inc. 6.200%, due 12/15/34 550,000 499,120 Pacific Gas & Electric Co. 6.050%, due 03/01/34 725,000 684,266 PPL Energy Supply LLC 6.400%, due 11/01/11 825,000 835,636 Progress Energy, Inc. 7.000%, due 10/30/31 300,000 308,669 Qwest Capital Funding, Inc.(b) 7.900%, due 08/15/10 95,000 94,525 Safeway, Inc. 7.250%, due 02/01/31 755,000 766,256 Sempra Energy 7.950%, due 03/01/10 275,000 292,879 Sprint Capital Corp. 8.750%, due 03/15/32 1,375,000 1,658,115 TXU Energy Co. LLC 7.000%, due 03/15/13 700,000 714,517 US Bank N.A. 6.375%, due 08/01/11 625,000 643,220 Valero Energy Corp. 7.500%, due 04/15/32 745,000 808,852 Verizon New York, Inc., Series B 7.375%, due 04/01/32 $ 975,000 $ 961,137 Wachovia Bank N.A. 7.800%, due 08/18/10 1,550,000 1,658,895 Washington Mutual, Inc. 5.625%, due 01/15/07 2,000,000 1,998,272 Waste Management, Inc. 7.375%, due 08/01/10 650,000 685,638 Wells Fargo Bank N.A. 6.450%, due 02/01/11 2,625,000 2,702,926 Wyeth 5.500%, due 03/15/13 750,000 730,145 ----------- 87,734,838 ----------- ASSET-BACKED SECURITIES -- 0.45% Associates Manufactured Housing Pass-Through Certificates 96-2, Class A5 6.900%, due 06/15/27 3,104 3,105 CenterPoint Energy Transition Bond Co., LLC 01-1, Class A4 5.630%, due 09/15/15 310,000 309,237 Conseco Finance Corp., 01-D, Class M2+ 6.949%, due 11/15/32 1,521,576 1,490,318 Conseco Finance Securitizations Corp., 00-2, Class A4 8.480%, due 12/01/30 515,416 517,615 Countrywide Asset-Backed Certificates, 03-SD3, Class A1, 144A (d) 5.743%, due 12/25/32 32,092 32,204 Countrywide Asset-Backed Certificates, 04-SD1, Class A1, 144A (d) 5.663%, due 06/25/33 265,203 266,137 Ford Credit Auto Owner Trust, 03-A, Class C 4.290%, due 11/15/07 2,000,000 1,999,436 Green Tree Financial Corp., 96-4, Class A6 7.400%, due 06/15/27 289,379 295,898 Home Equity Mortgage Trust, 06-3, Class A2 (d) 5.594%, due 09/25/36 1,250,000 1,249,993 Metris Master Trust, 04-2, Class C, 144A+ 6.617%, due 10/20/10 2,500,000 2,508,202 Peco Energy Transition Trust, 99-A, Class A7 6.130%, due 03/01/09 230,000 231,567 Providian Gateway Master Trust, 04-AA, Class C, 144A+ 6.099%, due 03/15/11 400,000 402,375 Providian Gateway Master Trust, 04-AA, Class D, 144A+ 7.049%, due 03/15/11 460,000 465,247 -------------------------------------------------------------------------------- 21 UBS GLOBAL ALLOCATION FUND--SCHEDULE OF INVESTMENTS June 30, 2006 -------------------------------------------------------------------------------- FACE AMOUNT VALUE ---------- ----------- Providian Gateway Master Trust, 04-BA, Class D, 144A+ 6.599%, due 07/15/10 $ 840,000 $ 840,263 Providian Gateway Master Trust, 04-EA, Class C, 144A+ 5.779%, due 11/15/11 3,000,000 3,019,218 Rutland Rated Investments, DRYD-1A, Class A6F1, 144A (h) 6.966%, due 06/20/13 1,645,000 1,611,936 Structured Asset Securities Corp., 03-AL2, Class A, 144A 3.357%, due 01/25/31 213,685 190,852 Terwin Mortgage Trust, 06-1, Class 2M2, 144A (d) 4.250%, due 01/25/37 2,500,000 2,321,875 ----------- 17,755,478 ----------- COMMERCIAL MORTGAGE-BACKED SECURITIES -- 1.22% Asset Securitization Corp., 95-MD4, Class A3 7.384%, due 08/13/29 3,250,000 3,309,022 Asset Securitization Corp., 95-MD4, Class A5+ 7.384%, due 08/13/29 5,000,000 5,075,551 Asset Securitization Corp., 97-D4, Class B1 7.525%, due 04/14/29 5,000,000 5,397,184 Bear Stearns Commercial Mortgage Securities, 05-LXR1, Class H, 144A+ 6.399%, due 09/15/18 3,500,000 3,503,486 Commercial Mortgage Pass-Through Certificates, 01-FL5A, Class E, 144A+ 6.699%, due 11/15/13 209,091 209,091 Commercial Mortgage Pass-Through Certificates, 01-FL5A, Class F, 144A+ 5.862%, due 11/15/13 515,000 515,000 DLJ Commercial Mortgage Corp., 00-CKP1, Class A1B 7.180%, due 11/10/33 1,272,560 1,330,372 First Union Commercial Mortgage Securities, Inc., 97-C2, Class A3 6.650%, due 11/18/29 700,982 705,708 Four Times Square Trust, 00-4TS, Class C, 144A 7.860%, due 04/15/15 6,000,000 6,430,691 GS Mortgage Securities Corp., II, 98-GLII, Class A1 6.312%, due 04/13/31 955,846 958,255 Heller Financial Commercial Mortgage Assets, 99-PH1, Class A1 6.500%, due 05/15/31 18,141 18,113 Host Marriott Pool Trust, 99-HMTA, Class A, 144A 6.980%, due 08/03/15 $ 210,028 $ 214,198 Host Marriott Pool Trust, 99-HMTA, Class C, 144A 7.730%, due 08/03/15 750,000 791,181 Host Marriott Pool Trust, 99-HMTA, Class D, 144A 7.970%, due 08/03/15 5,300,000 5,618,676 Host Marriott Pool Trust, 99-HMTA, Class E, 144A 8.070%, due 08/03/15 460,000 488,374 JP Morgan Commercial Mortgage Finance Corp., 99-C8, Class A2 7. 400%, due 07/15/31 918,500 950,293 LB Commercial Conduit Mortgage Trust, 99-C1, Class A1 6.410%, due 06/15/31 46,627 46,631 Mach One Trust Commercial Mortgage-Backed Securities, 04-1A, Class A1, 144A 3.890%, due 05/28/40 2,539,231 2,475,254 Merrill Lynch Mortgage Investors, Inc., 98-C1, Class A1+ 6.310%, due 11/15/26 128,034 127,800 Morgan Stanley Capital I, 03-T11, Class A4 5.150%, due 06/13/41 5,065,000 4,858,780 Nomura Asset Securities Corp., 96-MD5, Class A4+ 8.190%, due 04/13/39 803,526 813,932 Nomura Asset Securities Corp., 98-D6, Class A1A 6.280%, due 03/15/30 148,814 148,933 PNC Mortgage Acceptance Corp., 00-C1, Class A2 7.610%, due 02/15/10 1,845,842 1,935,286 Prudential Mortgage Capital Funding LLC, 01-ROCK, Class A2 6.605%, due 05/10/34 1,055,000 1,090,728 Salomon Brothers Mortgage Securities VII, 00-C3, Class A2 6.592%, due 12/18/33 540,000 554,501 ----------- 47,567,040 ----------- MORTGAGE & AGENCY DEBT SECURITIES -- 6.02% Bear Stearns Alt-A Trust, 05-3, Class B1+ 5.334%, due 04/25/35 7,385,084 7,165,840 -------------------------------------------------------------------------------- 22 UBS GLOBAL ALLOCATION FUND--SCHEDULE OF INVESTMENTS June 30, 2006 -------------------------------------------------------------------------------- FACE AMOUNT VALUE ---------- ----------- C.S. First Boston Mortgage Securities Corp., 01-26, Class 5A1+ 7.380%, due 11/25/31 $ 83,338 $ 82,122 C.S. First Boston Mortgage Securities Corp., 02-10, Class 2A1 7.500%, due 05/25/32 19,447 19,677 C.S. First Boston Mortgage Securities Corp., 03-27, Class 9A1 7.000%, due 11/25/33 244,562 246,299 C.S. First Boston Mortgage Securities Corp., 03-8, Class 5A1 6.500%, due 04/25/33 548,787 548,223 C.S. First Boston Mortgage Securities Corp., 05-10, Class 10A3 6.000%, due 11/25/35 1,295,850 1,295,215 C.S. First Boston Mortgage Securities Corp., 05-11, Class 4A1 7.000%, due 12/25/35 5,284,405 5,325,690 C.S. First Boston Mortgage Securities Corp., 05-12, Class 1A1 6.500%, due 01/25/36 6,750,424 6,740,325 C.S. First Boston Mortgage Securities Corp., 05-9, Class 3A1 6.000%, due 10/25/35 4,863,022 4,801,289 Countrywide Alternative Loan Trust, 05-J2, Class 2A1 7.500%, due 12/25/34 1,692,880 1,686,700 Countrywide Home Loan Mortgage Pass Through Trust, 06-HYB1, Class 1A1+ 5.410%, due 03/20/36 6,569,684 6,468,984 Countrywide Home Loan Mortgage Pass Through Trust, 03-20, Class 3A2 4.750%, due 07/25/18 455,565 449,570 Federal Home Loan Bank of Chicago 5.625%, due 06/13/16 3,300,000 3,259,360 Federal Home Loan Mortgage Corp. 5.750%, due 06/27/16 3,300,000 3,300,043 Federal Home Loan Mortgage Corp., REMIC, 2148, Class ZA 6.000%, due 04/15/29 824,734 806,651 Federal Home Loan Mortgage Corp., REMIC, 2426, Class GH 6.000%, due 08/15/30 495,979 496,873 Federal Home Loan Mortgage Corp., Gold 5.500%, due 09/01/17 $ 57,283 $ 56,303 5.500%, due 01/01/18 107,951 106,103 5.500%, due 04/01/18 358,604 352,300 5.500%, due 01/01/19 1,802,390 1,770,703 5.500%, due 09/01/23 2,606,285 2,537,575 5.500%, due 02/01/24 4,996,695 4,856,915 6.000%, due 12/01/17 281,051 281,520 6.000%, due 10/01/29 29,561 29,244 6.000%, due 12/01/30 361,747 357,808 6.000%, due 03/01/31 495,781 490,524 6.000%, due 07/01/34 1,560,239 1,539,301 6.500%, due 02/01/17 118,076 119,505 6.500%, due 10/01/17 592,835 600,083 6.500%, due 01/01/29 1,914,509 1,935,231 6.500%, due 04/01/29 63,777 64,475 6.500%, due 11/01/29 1,234,170 1,247,371 7.000%, due 06/01/28 197,750 202,716 7.000%, due 04/01/32 1,719,315 1,761,916 Federal National Mortgage Association 5.000%, TBA 24,700,000 23,086,794 3.272%, due 09/01/33+ 109,490 108,570 3.875%, due 07/15/08 (c) 8,100,000 7,854,667 4.125%, due 05/15/10 (c) 6,900,000 6,580,675 4.228%, due 03/01/34+ 401,867 389,582 4.297%, due 01/01/35+ (c) 3,461,186 3,343,006 4.625%, due 06/01/10 (c) 2,970,000 2,868,554 4.654%, due 01/01/35+ (c) 5,043,744 4,948,757 5.200%, due 11/08/10 6,450,000 6,341,388 5.500%, due 03/15/11 5,670,000 5,673,181 5.500%, due 02/01/18 8,080,758 7,947,017 5.500%, due 11/01/23 164,045 158,609 5.500%, due 04/01/24 5,690,515 5,531,432 5.500%, due 09/01/24 3,675,832 3,578,758 5.500%, due 05/01/33 5,619,934 5,421,553 5.500%, due 06/01/33 7,112,754 6,864,392 5.500%, due 07/01/33 5,789,054 5,584,702 5.935%, due 05/01/33+ 301,656 305,111 6.000%, due 09/01/08 1,112,565 1,110,671 6.000%, due 06/01/14 1,100,808 1,104,314 6.000%, due 07/01/17 2,971,956 2,981,422 6.000%, due 08/01/17 704,145 706,836 6.000%, due 04/01/18 307,051 308,101 6.000%, due 03/01/20 5,723,571 5,746,986 6.000%, due 11/01/28 137,493 135,992 6.000%, due 03/01/29 840,421 831,285 6.000%, due 07/01/29 640,080 633,060 6.000%, due 06/01/31 11,897 11,767 6.000%, due 01/01/33 2,286,317 2,258,767 6.220%, due 04/01/36+ 1,489,124 1,495,858 6.250%, due 02/01/11 5,535,000 5,668,842 6.500%, due 12/01/10 1,323,772 1,328,112 6.500%, due 03/01/17 538,537 546,346 6.500%, due 06/01/17 596,032 604,664 6.500%, due 03/01/28 140,379 141,855 -------------------------------------------------------------------------------- 23 UBS GLOBAL ALLOCATION FUND--SCHEDULE OF INVESTMENTS June 30, 2006 -------------------------------------------------------------------------------- FACE AMOUNT VALUE ----------- ------------ 6.500%, due 05/01/28 $ 1,637,714 $ 1,654,513 6.500%, due 07/01/28 3,631,672 3,668,924 6.500%, due 10/01/28 898,430 907,646 6.500%, due 12/01/28 148,413 149,935 6.500%, due 04/01/29 567,614 573,411 6.500%, due 06/01/29 622,432 628,768 6.500%, due 08/01/29 205,022 207,109 6.500%, due 10/01/29 1,502,573 1,517,985 6.500%, due 12/01/29 1,819,902 1,839,036 6.500%, due 05/01/30 134,862 136,246 6.500%, due 11/01/31 8,704 8,784 6.500%, due 07/01/32 3,767,446 3,800,698 6.625%, due 09/15/09 5,230,000 5,407,025 7.000%, due 08/01/32 904,939 927,064 7.000%, due 01/01/34 498,174 509,912 7.500%, due 05/01/31 18,219 18,845 7.500%, due 02/01/33 322,517 334,371 Federal National Mortgage Association Grantor Trust, 00-T6, Class A1 7.500%, due 06/25/30 357,747 363,735 Federal National Mortgage Association Grantor Trust, 01-T4, Class A1 7.500%, due 07/25/41 1,551,283 1,592,368 Federal National Mortgage Association Grantor Trust, 01-T5, Class A3+ 7.500%, due 06/19/30 77,179 79,240 Federal National Mortgage Association Grantor Trust, 02-T19, Class A1 6.500%, due 07/25/42 1,919,331 1,934,355 Federal National Mortgage Association Whole Loan, 01-W3, Class A 7.000%, due 09/25/41 81,195 82,458 Federal National Mortgage Association Whole Loan, 03-W6, Class 6A+ 5.358%, due 08/25/42 275,926 281,542 Federal National Mortgage Association Whole Loan, 04-W11, Class 1A3 7.000%, due 05/25/44 2,229,587 2,268,333 Federal National Mortgage Association Whole Loan, 95-W3, Class A 9.000%, due 04/25/25 1,049 1,128 First Horizon Alternative Mortgage Securities, 04-AA3, Class A1+ 5.318%, due 09/25/34 1,228,237 1,209,332 First Horizon Asset Securities, Inc., 04-FL1, Class 1 A1+ 5.593%, due 02/25/35 700,742 701,333 Government National Mortgage Association 5.125%, due 10/20/29+ $ 200,996 $ 202,204 6.000%, due 11/20/28 38,584 38,294 6.000%, due 01/15/29 47,308 47,045 6.000%, due 02/20/29 34,564 34,286 6.000%, due 05/20/29 84,849 84,166 6.000%, due 07/15/29 821,715 817,147 6.500%, due 03/15/26 378,380 384,082 6.500%, due 04/15/31 1,255,384 1,272,784 6.500%, due 01/20/34 662,805 668,142 8.000%, due 12/15/22 10,374 10,985 Government National Mortgage Association, REMIC, 01-35, Class AZ 6.500%, due 08/20/31 3,663,461 3,707,450 Residential Asset Securitization Trust, 04-IP2, Class B1+ 5.439%, due 12/25/34 5,517,209 5,399,968 Structured Adjustable Rate Mortgage Loan Trust, 04-3AC, Class A1+ 4.940%, due 03/25/34 699,194 687,844 Structured Asset Securities Corp., 02-23XS, Class A7 (d) 6.080%, due 11/25/32 5,170,000 5,076,413 Wells Fargo Mortgage Backed Securities Trust, 03-18, Class A2 5.250%, due 12/25/33 3,523,581 3,302,698 ------------ 235,741,684 ------------ STRIPPED MORTGAGE-BACKED SECURITIES (E) -- 0.10% Federal National Mortgage Association ++ 0.000%, due 08/01/34 2,765,515 1,926,677 Federal National Mortgage Association +++ 5.500%, due 02/01/36 2,856,991 748,724 MLCC Mortgage Investors, Inc., 03-D, Class XA1 +++ 1.000%, due 08/25/28 6,617,303 51,181 Sequoia Mortgage Trust, 04-11, Class XAI +++ 0.606%, due 12/20/34 37,445,157 525,110 Structured Adjustable Rate Mortgage Loan Trust, 05-17, Class 4AX +++ 5.500%, due 08/25/35 3,700,200 629,612 ------------ 3,881,304 ------------ US GOVERNMENT OBLIGATIONS -- 5.35% US Treasury Bonds 6.250%, due 08/15/23 11,755,000 12,964,484 6.250%, due 05/15/30 4,215,000 4,774,145 -------------------------------------------------------------------------------- 24 UBS GLOBAL ALLOCATION FUND--SCHEDULE OF INVESTMENTS June 30, 2006 -------------------------------------------------------------------------------- FACE AMOUNT VALUE -------------- ------------ 8.500%, due 02/15/20 (b) $ 14,485,000 $ 18,943,657 8.750%, due 05/15/17 12,415,000 16,018,255 8.875%, due 02/15/19 14,240,000 18,921,400 US Treasury Inflation Indexed Bonds (TIPS) 2.000%, due 07/15/14 13,021,866 12,540,161 US Treasury Notes 3.875%, due 05/15/09 2,455,000 2,373,199 3.875%, due 02/15/13 5,200,000 4,840,467 4.500%, due 11/15/15 21,995,000 20,950,238 4.625%, due 02/29/08 3,940,000 3,904,138 4.750%, due 03/31/11 72,815,000 71,719,935 4.875%, due 05/15/09 (b) 21,675,000 21,527,675 ------------ 209,477,754 ------------ Total US Bonds 602,158,098 ------------ INTERNATIONAL BONDS -- 7.18% INTERNATIONAL CORPORATE BONDS -- 0.30% CANADA -- 0.02% Bombardier, Inc., 144A 6.300%, due 05/01/14 $ 900,000 783,000 ------------ GERMANY -- 0.18% Kreditanstalt fuer Wiederaufbau 4.750%, due 12/07/10 GBP 1,245,000 2,271,372 Landwirtschaftliche Rentenbank 5.750%, due 01/21/15 AUD 6,785,000 4,889,757 ------------ 7,161,129 ------------ LUXEMBOURG -- 0.03% Telecom Italia Capital S.A. 5.250%, due 11/15/13 $ 325,000 300,452 6.375%, due 11/15/33 925,000 836,343 ------------ 1,136,795 ------------ UNITED KINGDOM -- 0.07% Abbey National PLC 7.950%, due 10/26/29 $ 295,000 351,199 Lloyds TSB Bank PLC 6.625%, due 03/30/15 GBP 330,000 662,232 Royal Bank of Scotland Group PLC (f) 9.118%, due 03/31/10 $ 675,000 741,285 Royal Bank of Scotland PLC 9.625%, due 06/22/15 GBP 370,000 886,488 ------------ 2,641,204 ------------ Total International Corporate Bonds 11,722,128 ------------ INTERNATIONAL ASSET-BACKED SECURITIES -- 0.13% UNITED KINGDOM -- 0.13% Mound Financing PLC, 5A, Class 2C, 144A(h)+ 5.662%, due 02/08/42 $ 1,200,000 1,200,000 Paragon Mortgages PLC, 7A, Class B1A, 144A+ 5.920%, due 05/15/43 1,040,000 1,041,366 Permanent Financing PLC, 04, Class 2C (d) 6.020%, due 06/10/42 $ 2,700,000 $ 2,711,349 ------------ Total International Asset-Backed Securities 4,952,715 ------------ FOREIGN GOVERNMENT BONDS -- 6.57% AUSTRIA -- 0.22% Republic of Austria 5.875%, due 07/15/06 EUR 6,655,000 8,521,325 ------------ BELGIUM -- 0.18% Government of Belgium 5.750%, due 03/28/08 EUR 5,480,000 7,261,308 ------------ CANADA -- 0.22% Government of Canada 3.000%, due 06/01/07 CAD 6,000,000 5,305,294 4.500%, due 09/01/07 2,150,000 1,926,372 5.750%, due 09/01/06 1,485,000 1,333,001 ------------ 8,564,667 ------------ FINLAND --0.23% Government of Finland 5.000%, due 07/04/07 EUR 2,110,000 2,741,180 5.750%, due 02/23/11 4,420,000 6,108,969 ------------ 8,850,149 ------------ FRANCE -- 0.95% French Treasury Note 3.500%, due 07/12/09 EUR 3,885,000 4,937,993 Government of France 3.750%, due 04/25/21 3,920,000 4,749,996 4.750%, due 04/25/35 470,000 640,124 5.500%, due 04/25/07 5,820,000 7,573,724 5.500%, due 04/25/10 7,090,000 9,618,421 5.500%, due 04/25/29 6,525,000 9,744,082 ------------ 37,264,340 ------------ GERMANY -- 2.39% Bundesobligation 3.500%, due 10/10/08 EUR 4,400,000 5,610,858 Bundesschatzanweisungen 2.500%, due 09/22/06 9,875,000 12,615,576 Deutsche Bundesrepublik 3.750%, due 01/04/09 1,230,000 1,576,425 4.500%, due 07/04/09 18,160,000 23,751,399 4.750%, due 07/04/34 6,805,000 9,290,502 5.000%, due 07/04/12 2,650,000 3,579,860 5.250%, due 07/04/10 8,015,000 10,793,044 6.000%, due 01/04/07 10,290,000 13,340,617 6.250%, due 01/04/24 1,430,000 2,273,659 6.500%, due 07/04/27 6,445,000 10,705,029 ------------ 93,536,969 ------------ JAPAN -- 1.30% Government of Japan 0.500%, due 06/20/07 JPY 2,700,000,000 23,579,465 0.900%, due 12/22/08 785,000,000 6,859,572 -------------------------------------------------------------------------------- 25 UBS GLOBAL ALLOCATION FUND--SCHEDULE OF INVESTMENTS June 30, 2006 -------------------------------------------------------------------------------- FACE AMOUNT VALUE ------------ --------------- 1.300%, due 06/20/11 JPY 700,000,000 $ 6,082,324 1.500%, due 09/20/15 240,000,000 2,031,593 1.900%, due 06/20/25 305,000,000 2,514,944 2.300%, due 06/20/35 350,000,000 2,922,304 2.600%, due 03/20/19 220,000,000 2,038,070 Government of Japan CPI Linked Bond 0.500%, due 12/10/14 570,000,000 4,793,100 -------------- 50,821,372 -------------- NETHERLANDS -- 0.26% Government of Netherlands 4.000%, due 01/15/37 EUR 3,070,000 3,714,957 5.000%, due 07/15/11 4,945,000 6,650,824 -------------- 10,365,781 -------------- SWEDEN -- 0.08% Government of Sweden 6.750%, due 05/05/14 SEK 17,625,000 2,900,377 8.000%, due 08/15/07 2,000,000 293,049 -------------- 3,193,426 -------------- UNITED KINGDOM -- 0.74% UK Gilts 4.750%, due 09/07/15 GBP 5,260,000 9,741,869 4.750%, due 03/07/20 1,250,000 2,331,654 5.000%, due 03/07/12 9,100,000 17,026,287 -------------- 29,099,810 -------------- Total Foreign Government Bonds 257,479,147 -------------- SOVEREIGN/SUPRANATIONAL BONDS -- 0.18% Eurofima 6.250%, due 12/28/18 AUD 8,250,000 6,201,971 Pemex Project Funding Master Trust 8.000%, due 11/15/11 $ 670,000 708,425 -------------- 6,910,396 -------------- Total International Bonds 281,064,386 -------------- Total Bonds (Cost $899,010,034) 883,222,484 -------------- SHARES ------------ INVESTMENT COMPANIES* -- 12.30% UBS Corporate Bond Relationship Fund 3,680,809 40,646,810 UBS Emerging Markets Equity Relationship Fund 7,238,101 167,868,945 UBS High Yield Relationship Fund 1,595,260 31,640,230 UBS Small Cap Equity Relationship Fund 2,816,127 118,431,390 UBS U.S. Securitized Mortgage Relationship Fund 10,169,785 122,928,299 -------------- Total Investment Companies (Cost $403,910,638) 481,515,674 -------------- SHARES VALUE ------------ -------------- SHORT-TERM INVESTMENTS -- 3.05% OTHER* -- 3.03% UBS Supplementary Trust -- U.S. Cash Management Prime Fund, yield of 5.21% 118,654,158 $ 118,654,158 -------------- FACE AMOUNT ------------ US GOVERNMENT OBLIGATIONS -- 0.02% US Treasury Bills, yield of 4.06%(g) due 07/06/06 $ 1,000,000 999,260 -------------- Total Short-Term Investments (Cost $119,653,568) 119,653,418 -------------- SHARES ------------ INVESTMENT OF CASH COLLATERAL FOR SECURITIES LOANED* -- 2.28% UBS Supplementary Trust -- U.S. Cash Management Prime Fund, yield of 5.21% (Cost $89,260,136) 89,260,136 89,260,136 -------------- Total Investments -- 102.02% (Cost $3,731,323,062) 3,994,820,082 Liabilities, in excess of cash and other assets -- (2.02%) (79,187,442) -------------- Net Assets -- 100.00% $3,915,632,640 ============== -------------------------------------------------------------------------------- 26 UBS GLOBAL ALLOCATION FUND--SCHEDULE OF INVESTMENTS June 30, 2006 -------------------------------------------------------------------------------- NOTES TO SCHEDULE OF INVESTMENTS Aggregate cost for federal income tax purposes was $3,759,615,056; and net unrealized appreciation consisted of: Gross unrealized appreciation $322,726,030 Gross unrealized depreciation (87,521,004) ------------ Net unrealized appreciation $235,205,026 ============ + Floating rate securities -- The interest rates shown are the current rates as of June 30, 2006. ++ 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. * Investment in affiliated mutual fund. (a) Non-income producing security. (b) Securities, or portion thereof, were on loan at June 30, 2006. (c) All or a portion of this security is segregated for "To Be Announced" ("TBA") securities. (d) Step Bonds -- Coupon rate increases in increments to maturity. Rate disclosed is as of June 30, 2006. Maturity date disclosed is the ultimate maturity date. (e) Security is illiquid. These securities amounted to $3,881,304 or 0.10% of net assets as of June 30, 2006. (f) Perpetual bond security. The maturity date reflects the next call date. (g) This security was pledged to cover margin requirements for futures contracts. (h) Security is being fair valued by a valuation committee under the direction of the Board of Trustees. At June 30, 2006, the value of these securities amounted to $2,811,936 or 0.07% of net assets. 144A Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities are considered liquid and may be resold in transactions exempt from registration, normally to qualified institutional buyers. At June 30, 2006, the value of these securities amounted to $36,644,396 or 0.94% of net assets. CPI Consumer Price Index 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 ("TIPS") are debt securities issued by the US Treasury whose principal and/or interest payments are adjusted for inflation, unlike debt securities that make fixed principal and interest payments. The interest rate paid by the TIPS is fixed, while the principal value rises or falls based on a changes in a published Consumer Price Index ("CPI"). Thus, if inflation occurs, the principal and interest payments on the TIPS are adjusted accordingly to protect investors from inflationary loss. During a deflationary period, the principal and interest payments decrease, although the TIPS principal amounts will not drop below their face amounts at maturity. In exchange for the inflation protection, the TIPS generally pay lower interest rates than typical US Treasury securities. Only if inflation occurs will TIPS offer a higher real yield than a conventional Treasury bond of the same maturity. AUD Australian Dollar CAD Canadian Dollar EUR Euro GBP British Pound JPY Japanese Yen SEK Swedish Krona -------------------------------------------------------------------------------- 27 UBS GLOBAL ALLOCATION FUND--SCHEDULE OF INVESTMENTS June 30, 2006 -------------------------------------------------------------------------------- FORWARD FOREIGN CURRENCY CONTRACTS UBS Global Allocation Fund had the following open forward foreign currency contracts as of June 30, 2006:
UNREALIZED CONTRACTS IN EXCHANGE MATURITY APPRECIATION/ TO DELIVER FOR DATES (DEPRECIATION) ------------- ------------------ -------- -------------- British Pound 44,440,000 USD 83,420,546 11/20/06 $ 976,347 Canadian Dollar 29,075,000 USD 26,505,310 11/20/06 353,045 Euro 68,283,885 JPY 9,843,600,000 11/20/06 (391,454) Euro 141,270,000 USD 182,450,250 11/20/06 121,964 Japanese Yen 2,310,300,000 USD 21,526,807 11/20/06 934,581 Swiss Franc 24,960,000 USD 20,584,294 11/20/06 (143,343) United States Dollar 22,487,332 AUD 29,075,000 11/20/06 (918,915) United States Dollar 163,924,627 CHF 196,085,000 11/20/06 (1,088,940) United States Dollar 226,618,499 JPY 24,496,100,000 11/20/06 (8,279,223) United States Dollar 199,634,743 SEK 1,437,450,000 11/20/06 2,396,085 United States Dollar 119,136,399 SGD 184,995,000 11/20/06 (1,458,179) United States Dollar 118,592,396 THB 4,476,270,000 11/20/06 (1,367,547) ----------- Net unrealized depreciation on forward foreign currency contracts $(8,865,579) ===========
Currency Type Abbreviations: AUD Australian Dollar 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 June 30, 2006:
UNREALIZED EXPIRATION COST/ CURRENT APPRECIATION/ DATES PROCEEDS VALUE (DEPRECIATION) -------------- ----------- ----------- -------------- US TREASURY FUTURES BUY CONTRACTS: 5 Year US Treasury Notes, 203 contracts September 2006 $21,081,093 $20,991,469 $ (89,624) 10 Year US Treasury Notes, 90 contracts September 2006 9,473,563 9,437,344 (36,219) INDEX FUTURES BUY CONTRACTS: Amsterdam Exchanges Index, 527 contracts (EUR) July 2006 57,294,328 59,411,591 2,117,263 FTSE-100 Index, 920 contracts (GBP) September 2006 97,291,129 99,098,628 1,807,499 INDEX FUTURE SALE CONTRACTS: DAX Index, 218 contracts (EUR) September 2006 37,208,992 39,918,415 (2,709,423) Nikkei 225 Index, 291 contracts (JPY) September 2006 39,970,089 39,439,095 530,994 S&P Toronto Stock Exchange, 331 contracts (CAD) September 2006 37,550,844 38,962,107 (1,411,263) S&P 500 Index, 68 contracts (USD) September 2006 21,196,110 21,749,800 (553,690) SPI 200 Index, 417 contracts (AUD) September 2006 37,046,417 39,353,833 (2,307,416) ----------- Net unrealized depreciation on futures contracts $(2,651,879) ===========
The segregated aggregate market value of investments and cash collateral pledged to cover margin requirements for the open futures positions at June 30, 2006 was $20,798,622. Currency Type Abbreviations: AUD Australian Dollar CAD Canadian Dollar EUR Euro GBP British Pound JPY Japanese Yen USD United States Dollar See accompanying notes to financial statements. -------------------------------------------------------------------------------- 28 UBS GLOBAL EQUITY FUND -------------------------------------------------------------------------------- For the fiscal year ended June 30, 2006, Class A shares of UBS Global Equity Fund (the "Fund") returned 12.35% (6.15% after the deduction of the maximum sales charge) and Class Y shares returned 12.67%. The Fund's benchmark, the MSCI World Free Index (net US) (the "Index"), returned 17.27% over the same time 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 31; please note that these returns do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.) Over the course of the Fund's fiscal year, returns were solid on an absolute basis, although the Fund did lag the Index on a relative basis. International equities continued to capture investors' attention, as new money flowed into global stock funds at a booming rate. At the same time, investors seemed also to have an insatiable appetite for risk--emerging markets and small cap stocks were among the best performers over the period. Because the Fund is managed on a bottom-up basis in accordance with our fundamental research, we tended to avoid areas of the market that we felt were overvalued. While our limited exposure to these sectors hampered the Fund's relative performance, we believe that over the longer term, the Fund is well positioned to take advantage of mispricings and undervalued opportunities. LIMITED EXPOSURE TO BOOMING MATERIALS SECTORS DETRACTED FROM RETURNS Throughout the past year, materials and commodities--and particularly metals--experienced an extraordinary run-up in prices. Gold, silver and copper all hit highs during the reporting period not seen in years, if not decades. We believe a number of factors led to this spike in prices. China was no doubt one influence; as the country continues to industrialize, it will remain one of the world's largest consumers of metal and other materials as it builds its infrastructure--everything from bridges to office towers to dams. As a result, demand for materials was high during the reporting period, but we believe the market has tended to overlook the accompanying increasing supply, as major metal companies work to accommodate a new, larger marketplace. Our research indicates that current prices are unsustainable over the longer term, making the sector unattractive from a valuation perspective. As a result, we maintained an underweight position throughout the period. The Fund did not own shares of any mining companies, and as materials prices soared, our lack of exposure detracted from returns. FUND'S POSITIONS IN PHARMACEUTICAL AND BANKING SECTORS BOOSTED RETURNS The pharmaceutical sector and the banking sector were two of the Fund's biggest overweights during the year, and both had a positive impact on performance. Within pharmaceuticals, stock selection was crucial to performance. Not owning Pfizer, one of the leading drug makers in the US, played a significant role in the Fund's relative returns. Shares of Pfizer were highly volatile during the past year, and ended on a down note. In general, we avoid drug companies with pressure from generic labels and expiring patents. Cephalon, on the other hand, is another prescription drug maker whose share price more than doubled during the period, despite giving back some of those gains during the second quarter of 2006. The company's drug pipeline is comparatively strong in our analysis. Over the year, the stock was one of the Fund's top contributors to performance. Within the banking sector, Unicredito Italiano was one of the top contributors to Fund performance. The Fund has maintained an overweight position in banks for some time now. We believe that in valuing the banking industry, the market is overly concerned about the impact of higher interest rates and the risk of a housing slowdown. The banks we own have conservatively managed balance sheets and have taken proactive steps to hedge business risk from rising interest rates. Also, if long interest rates increase in the US, as we believe they may, it could benefit banks as the spread between their costs of lending and the revenue generated by loans increases. Our valuation work suggests that banks are particularly undervalued and we maintain conviction in our overweight position. TELECOMMUNICATIONS COMPANIES CONTINUED TO LAG THE MARKET Telecom service companies have generally struggled for the past several quarters. The sector faces a -------------------------------------------------------------------------------- 29 UBS GLOBAL EQUITY FUND -------------------------------------------------------------------------------- number of challenges, which have given some investors pause, including concern over how management invests capital, increased competition from new technologies, the possibility of further consolidation and the prospect of unfavorable government regulation. We, however, are finding a number of positive signals within the industry. Telecoms are generating high levels of free cash flow, which we believe may likely be returned to shareholders via share buybacks and increased dividends. We found attractive valuations in a number of telecom stocks, including France Telecom, Sprint Nextel and Vodafone. Although all three declined during the reporting period, we believe their fundamentals remain sound and are optimistic about their future growth. OUTLOOK FOR INTERNATIONAL MARKETS REMAINS HEALTHY We continue to believe that over the coming months and quarters, it is unlikely that international markets will be as fueled by commodity and oil prices and massive inflows of investor capital as they have been over the past year. Rather, we believe that markets will eventually reward those companies with solid fundamentals and industry leadership positions, such as those we seek to identify. With that in mind, we will continue to focus on those very factors, building from the bottom up a risk-conscious portfolio of those investment opportunities we believe are most likely to be rewarded. -------------------------------------------------------------------------------- THIS LETTER IS INTENDED TO ASSIST SHAREHOLDERS IN UNDERSTANDING HOW THE FUND PERFORMED DURING THE FISCAL YEAR ENDED JUNE 30, 2006. THE VIEWS AND OPINIONS IN THE LETTER WERE CURRENT AS OF AUGUST 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. -------------------------------------------------------------------------------- 30 UBS GLOBAL EQUITY FUND -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURN (UNAUDITED) 1 YEAR 5 YEARS 10 YEARS ENDED ENDED ENDED INCEPTION* 06/30/06 06/30/06 06/30/06 TO 06/30/06 -------------------------------------------------------------------------------- UBS Global Equity Fund Class A 12.35% 5.96% N/A 5.06% UBS Global Equity Fund Class B 11.41 N/A N/A 6.77 UBS Global Equity Fund Class C 11.45 N/A N/A 6.67 UBS Global Equity Fund Class Y 12.67 6.31 6.89% 7.56 UBS Global Equity Fund Class A** 6.15 4.76 N/A 4.40 UBS Global Equity Fund Class B** 6.41 N/A N/A 6.42 UBS Global Equity Fund Class C** 10.45 N/A N/A 6.67 MSCI World Free Index (net US)*** 17.27 6.03 7.19 7.93 * 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 MSCI WORLD FREE INDEX (NET US) IS A BROAD-BASED INDEX THAT REPRESENTS THE US AND DEVELOPED NON-US EQUITY MARKETS IN TERMS OF CAPITALIZATION AND PERFORMANCE. IT IS DESIGNED TO PROVIDE A REPRESENTATIVE TOTAL RETURN FOR ALL MAJOR STOCK EXCHANGES LOCATED INSIDE AND OUTSIDE THE UNITED STATES. THIS BENCHMARK HAS BEEN CALCULATED NET OF WITHHOLDING TAX FROM A US PERSPECTIVE. THE Y SHARE CLASS IS OUR LOWEST FEE SHARE CLASS. OUR OTHER SHARE CLASSES INCLUDE HIGHER FEES AND LOADS, WHICH MAY RESULT IN LOWER PERFORMANCE THAN CLASS Y. 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. -------------------------------------------------------------------------------- 31 UBS GLOBAL EQUITY FUND -------------------------------------------------------------------------------- ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000 IN CLASS A SHARES (ADJUSTED FOR MAXIMUM SALES CHARGE) AND $10,000,000 IN CLASS Y SHARES (UNAUDITED) The following two charts show the growth in the value of an investment in UBS Global Equity Fund Class A shares (adjusted for 5.50% maximum sales charge), Class Y shares and the MSCI World Free Index (net US), if you had invested $10,000 in Class A shares on June 30, 1997 or $10,000,000 in Class Y shares on January 28, 1994, and had reinvested all your income dividends and capital gain distributions through June 30, 2006. The performance of Class B and Class C shares will vary based upon the different inception dates, class specific expenses and sales charges. No adjustment has been made for any income taxes payable by shareholders on income dividends and capital gain distributions. Past performance is no guarantee of future results. Share price and returns will vary with market conditions; investors may realize a gain or loss upon redemption. UBS GLOBAL EQUITY FUND CLASS A VS. MSCI WORLD FREE INDEX (NET US) Wealth Value With Dividends Reinvested [CHART]
UBS GLOBAL EQUITY MSCI WORLD FREE FUND CLASS A INDEX (NET US) 6/30/1997 $ 9,452 $10,000 7/31/1997 $ 9,763 $10,462 8/31/1997 $ 9,304 $ 9,754 9/30/1997 $ 9,704 $10,284 10/31/1997 $ 9,170 $ 9,744 11/30/1997 $ 9,163 $ 9,914 12/31/1997 $ 9,275 $10,036 1/31/1998 $ 9,422 $10,317 2/28/1998 $10,002 $11,015 3/31/1998 $10,410 $11,479 4/30/1998 $10,386 $11,591 5/31/1998 $10,361 $11,450 6/30/1998 $10,265 $11,718 7/31/1998 $10,215 $11,700 8/31/1998 $ 9,093 $10,141 9/30/1998 $ 9,232 $10,321 10/31/1998 $ 9,839 $11,256 11/30/1998 $10,215 $11,926 12/31/1998 $10,539 $12,506 1/31/1999 $10,539 $12,781 2/28/1999 $10,220 $12,441 3/31/1999 $10,539 $12,957 4/30/1999 $11,262 $13,470 5/31/1999 $10,859 $12,974 6/30/1999 $11,270 $13,577 7/31/1999 $11,220 $13,537 8/31/1999 $11,043 $13,512 9/30/1999 $10,732 $13,385 10/31/1999 $10,875 $14,080 11/30/1999 $11,152 $14,475 12/31/1999 $11,866 $15,648 1/31/2000 $11,049 $14,753 2/29/2000 $10,835 $14,791 3/31/2000 $11,207 $15,815 4/30/2000 $11,086 $15,145 5/31/2000 $11,170 $14,762 6/30/2000 $11,550 $15,259 7/31/2000 $11,281 $14,829 8/31/2000 $11,485 $15,312 9/30/2000 $11,142 $14,498 10/31/2000 $11,262 $14,256 11/30/2000 $11,170 $13,389 12/31/2000 $11,830 $13,601 1/31/2001 $12,079 $13,865 2/28/2001 $11,373 $12,695 3/31/2001 $10,708 $11,860 4/30/2001 $11,352 $12,738 5/31/2001 $11,258 $12,577 6/30/2001 $11,036 $12,182 7/31/2001 $10,911 $12,022 8/31/2001 $10,641 $11,446 9/30/2001 $ 9,808 $10,437 10/31/2001 $ 9,954 $10,638 11/30/2001 $10,578 $11,268 12/31/2001 $10,700 $11,340 1/31/2002 $10,462 $10,997 2/28/2002 $10,462 $10,902 3/31/2002 $10,873 $11,384 4/30/2002 $10,678 $11,000 5/31/2002 $10,765 $11,023 6/30/2002 $10,148 $10,355 7/31/2002 $ 9,249 $ 9,483 8/31/2002 $ 9,335 $ 9,501 9/30/2002 $ 8,155 $ 8,457 10/31/2002 $ 8,870 $ 9,083 11/30/2002 $ 9,422 $ 9,573 12/31/2002 $ 9,017 $ 9,111 1/31/2003 $ 8,682 $ 8,835 2/28/2003 $ 8,493 $ 8,683 3/31/2003 $ 8,392 $ 8,657 4/30/2003 $ 9,218 $ 9,427 5/31/2003 $ 9,742 $ 9,968 6/30/2003 $ 9,921 $10,143 7/31/2003 $10,066 $10,350 8/31/2003 $10,178 $10,574 9/30/2003 $10,245 $10,640 10/31/2003 $10,713 $11,273 11/30/2003 $10,903 $11,446 12/31/2003 $11,629 $12,167 1/31/2004 $11,674 $12,364 2/29/2004 $11,832 $12,574 3/31/2004 $11,719 $12,492 4/30/2004 $11,550 $12,239 5/31/2004 $11,561 $12,355 6/30/2004 $11,854 $12,612 7/31/2004 $11,460 $12,203 8/31/2004 $11,595 $12,259 9/30/2004 $11,798 $12,494 10/31/2004 $12,181 $12,802 11/30/2004 $12,700 $13,478 12/31/2004 $13,253 $13,996 1/31/2005 $12,960 $13,683 2/28/2005 $13,230 $14,121 3/31/2005 $13,050 $13,849 4/30/2005 $12,791 $13,553 5/31/2005 $12,937 $13,799 6/30/2005 $13,118 $13,924 7/31/2005 $13,479 $14,411 8/31/2005 $13,557 $14,523 9/30/2005 $13,783 $14,903 10/31/2005 $13,524 $14,544 11/30/2005 $13,783 $15,034 12/31/2005 $14,159 $15,370 1/31/2006 $14,613 $16,059 2/28/2006 $14,624 $16,040 3/31/2006 $14,897 $16,395 4/30/2006 $15,316 $16,898 5/31/2006 $14,760 $16,329 6/30/2006 $14,738 $16,328
6/30/97 = $9,450 THE FUND'S GROWTH OF AN ASSUMED $10,000 INVESTMENT IS ADJUSTED FOR THE MAXIMUM SALES CHARGE OF 5.50%. UBS GLOBAL EQUITY FUND CLASS Y VS. MSCI WORLD FREE INDEX (NET US) Wealth Value With Dividends Reinvested [CHART]
UBS GLOBAL EQUITY MSCI WORLD FREE FUND CLASS Y INDEX (NET US) 1/28/1994 $10,000,000 $10,000,000 2/28/1994 $ 9,780,000 $ 9,868,650 3/31/1994 $ 9,350,000 $ 9,443,486 4/30/1994 $ 9,570,000 $ 9,740,779 5/31/1994 $ 9,640,000 $ 9,769,630 6/30/1994 $ 9,530,255 $ 9,741,009 7/31/1994 $ 9,670,848 $ 9,927,490 8/31/1994 $10,082,587 $10,227,505 9/30/1994 $ 9,811,442 $ 9,957,480 10/31/1994 $ 9,831,527 $10,243,957 11/30/1994 $ 9,570,424 $ 9,802,447 12/31/1994 $ 9,565,205 $ 9,895,510 1/31/1995 $ 9,423,198 $ 9,750,248 2/28/1995 $ 9,575,348 $ 9,894,991 3/31/1995 $ 9,656,495 $10,372,364 4/30/1995 $ 9,910,080 $10,735,211 5/31/1995 $10,041,944 $10,832,081 6/30/1995 $10,108,019 $10,828,508 7/31/1995 $10,576,384 $11,370,661 8/31/1995 $10,750,102 $11,116,882 9/30/1995 $10,944,258 $11,445,256 10/31/1995 $10,923,821 $11,267,456 11/30/1995 $11,312,132 $11,660,176 12/31/1995 $11,663,238 $12,002,355 1/31/1996 $12,012,698 $12,226,759 2/29/1996 $12,067,301 $12,301,122 3/31/1996 $12,274,793 $12,505,341 4/30/1996 $12,613,333 $12,799,144 5/31/1996 $12,646,095 $12,809,385 6/30/1996 $12,702,021 $12,877,652 7/31/1996 $12,295,820 $12,422,547 8/31/1996 $12,515,388 $12,569,453 9/30/1996 $12,932,568 $13,062,312 10/31/1996 $12,976,482 $13,152,232 11/30/1996 $13,635,186 $13,893,682 12/31/1996 $13,676,880 $13,672,863 1/31/1997 $13,796,958 $13,840,471 2/28/1997 $13,989,082 $13,998,221 3/31/1997 $13,929,043 $13,718,066 4/30/1997 $14,013,098 $14,168,078 5/31/1997 $14,841,636 $15,044,785 6/30/1997 $15,402,526 $15,793,214 7/31/1997 $15,909,506 $16,522,156 8/31/1997 $15,173,178 $15,403,957 9/30/1997 $15,825,009 $16,241,440 10/31/1997 $14,967,972 $15,388,889 11/30/1997 $14,955,901 $15,658,032 12/31/1997 $15,143,042 $15,849,368 1/31/1998 $15,396,314 $16,294,015 2/28/1998 $16,342,755 $17,396,117 3/31/1998 $17,009,262 $18,128,278 4/30/1998 $16,982,601 $18,305,529 5/31/1998 $16,929,281 $18,083,418 6/30/1998 $16,787,717 $18,506,372 7/31/1998 $16,707,393 $18,478,446 8/31/1998 $14,873,328 $16,015,403 9/30/1998 $15,114,301 $16,300,408 10/31/1998 $16,118,351 $17,776,353 11/30/1998 $16,734,168 $18,835,070 12/31/1998 $17,268,278 $19,750,694 1/31/1999 $17,268,278 $20,184,666 2/28/1999 $16,760,387 $19,648,306 3/31/1999 $17,282,005 $20,463,349 4/30/1999 $18,476,234 $21,273,448 5/31/1999 $17,803,622 $20,489,756 6/30/1999 $18,490,217 $21,442,874 7/31/1999 $18,421,327 $21,379,166 8/31/1999 $18,131,986 $21,339,538 9/30/1999 $17,622,197 $21,138,935 10/31/1999 $17,870,202 $22,236,827 11/30/1999 $18,311,102 $22,861,442 12/31/1999 $19,490,564 $24,713,054 1/31/2000 $18,165,815 $23,299,070 2/29/2000 $17,800,367 $23,359,840 3/31/2000 $18,424,674 $24,976,567 4/30/2000 $18,226,723 $23,919,404 5/31/2000 $18,378,993 $23,313,850 6/30/2000 $18,988,073 $24,098,722 7/31/2000 $18,561,717 $23,419,292 8/31/2000 $18,896,711 $24,182,114 9/30/2000 $18,333,312 $22,897,473 10/31/2000 $18,546,490 $22,514,349 11/30/2000 $18,394,220 $21,145,839 12/31/2000 $19,474,780 $21,480,517 1/31/2001 $19,900,365 $21,897,417 2/28/2001 $18,742,773 $20,049,206 3/31/2001 $17,653,275 $18,731,178 4/30/2001 $18,708,727 $20,117,454 5/31/2001 $18,555,516 $19,863,013 6/30/2001 $18,215,305 $19,239,580 7/31/2001 $17,993,583 $18,986,079 8/31/2001 $17,550,139 $18,076,236 9/30/2001 $16,185,697 $16,482,960 10/31/2001 $16,458,585 $16,800,112 11/30/2001 $17,481,917 $17,795,749 12/31/2001 $17,716,430 $17,908,953 1/31/2002 $17,325,888 $17,367,604 2/28/2002 $17,308,136 $17,218,389 3/31/2002 $18,000,461 $17,979,690 4/30/2002 $17,680,926 $17,372,895 5/31/2002 $17,822,942 $17,408,645 6/30/2002 $16,811,082 $16,353,833 7/31/2002 $15,319,919 $14,976,206 8/31/2002 $15,479,686 $15,004,914 9/30/2002 $13,526,974 $13,356,565 10/31/2002 $14,698,601 $14,344,262 11/30/2002 $15,621,702 $15,119,594 12/31/2002 $14,964,132 $14,388,976 1/31/2003 $14,413,980 $13,953,754 2/28/2003 $14,102,228 $13,713,415 3/31/2003 $13,918,844 $13,671,849 4/30/2003 $15,312,562 $14,888,864 5/31/2003 $16,174,466 $15,743,010 6/30/2003 $16,486,219 $16,018,582 7/31/2003 $16,724,618 $16,345,853 8/31/2003 $16,926,341 $16,699,966 9/30/2003 $17,073,048 $16,803,862 10/31/2003 $17,861,599 $17,803,653 11/30/2003 $18,173,352 $18,077,234 12/31/2003 $19,389,322 $19,215,088 1/31/2004 $19,463,539 $19,526,961 2/29/2004 $19,723,301 $19,859,003 3/31/2004 $19,556,311 $19,728,895 4/30/2004 $19,259,441 $19,328,543 5/31/2004 $19,296,550 $19,512,716 6/30/2004 $19,797,518 $19,918,693 7/31/2004 $19,129,561 $19,272,440 8/31/2004 $19,370,767 $19,361,232 9/30/2004 $19,704,746 $19,731,950 10/31/2004 $20,354,149 $20,218,689 11/30/2004 $21,226,205 $21,286,180 12/31/2004 $22,153,924 $22,104,013 1/31/2005 $21,671,510 $21,609,744 2/28/2005 $22,116,815 $22,301,115 3/31/2005 $21,838,499 $21,872,551 4/30/2005 $21,411,749 $21,404,425 5/31/2005 $21,652,956 $21,793,824 6/30/2005 $21,949,826 $21,989,816 7/31/2005 $22,562,120 $22,759,211 8/31/2005 $22,692,000 $22,936,750 9/30/2005 $23,081,642 $23,536,307 10/31/2005 $22,654,892 $22,969,099 11/30/2005 $23,081,642 $23,743,547 12/31/2005 $23,738,982 $24,274,940 1/31/2006 $24,486,666 $25,362,775 2/28/2006 $24,505,358 $25,332,957 3/31/2006 $24,972,661 $25,892,984 4/30/2006 $25,682,961 $26,687,051 5/31/2006 $24,767,048 $25,789,047 6/30/2006 $24,729,664 $25,787,366
1/28/94 = $10,000,000 INDEX IS STARTED ON 1/31/94. 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. -------------------------------------------------------------------------------- 32 UBS GLOBAL EQUITY FUND -------------------------------------------------------------------------------- EXPLANATION OF EXPENSE DISCLOSURE (UNAUDITED) As a shareholder of the Fund, you incur two types of costs: (1) transactional costs (as applicable); including sales charges (loads); 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, January 1, 2006 to June 30, 2006. 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.
EXPENSES PAID BEGINNING ENDING DURING PERIOD* EXPENSE ACCOUNT VALUE ACCOUNT VALUE 01/01/06 TO RATIO JANUARY 1, 2006 JUNE 30, 2006 06/30/06 DURING PERIOD --------------------------------------------------------------------------------------------------------------- CLASS A Actual $1,000.00 $1,040.90 $ 6.33 1.25% Hypothetical (5% annual return before expenses) 1,000.00 1,018.60 6.26 1.25% CLASS B Actual 1,000.00 1,035.90 10.10 2.00% Hypothetical (5% annual return before expenses) 1,000.00 1,014.88 9.99 2.00% CLASS C Actual 1,000.00 1,036.00 10.10 2.00% Hypothetical (5% annual return before expenses) 1,000.00 1,014.88 9.99 2.00% CLASS Y Actual 1,000.00 1,041.70 4.96 0.98% Hypothetical (5% annual return before expenses) 1,000.00 1,019.93 4.91 0.98%
* EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED NET EXPENSE RATIOS, MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 181 DIVIDED BY 365 (TO REFLECT THE ONE-HALF YEAR PERIOD). -------------------------------------------------------------------------------- 33 UBS GLOBAL EQUITY FUND -------------------------------------------------------------------------------- TOP TEN US EQUITY HOLDINGS AS OF JUNE 30, 2006 (UNAUDITED) PERCENTAGE OF NET ASSETS ----------------------------------------- Citigroup, Inc. 3.0% Microsoft Corp. 2.0 Costco Wholesale Corp. 1.9 Illinois Tool Works, Inc. 1.8 Morgan Stanley 1.7 Wyeth 1.7 Wells Fargo & Co. 1.7 Intel Corp. 1.6 Allergan, Inc. 1.5 Mellon Financial Corp. 1.4 ----------------------------------------- Total 18.3% COUNTRY EXPOSURE, TOP FIVE AS OF JUNE 30, 2006 (UNAUDITED) PERCENTAGE OF NET ASSETS ----------------------------------------- United States 52.7% United Kingdom 10.4 Japan 9.0 France 5.9 Netherlands 3.3 ----------------------------------------- Total 81.3% TOP TEN INTERNATIONAL EQUITY HOLDINGS AS OF JUNE 30, 2006 (UNAUDITED) PERCENTAGE OF NET ASSETS ----------------------------------------- BP PLC 2.6% Vodafone Group PLC 1.9 Total S.A. 1.9 France Telecom S.A. 1.5 Roche Holding AG 1.4 Bank of Ireland 1.4 ABN AMRO Holding NV 1.3 Barclays PLC 1.3 NTT DoCoMo, Inc. 1.3 Toyota Motor Corp. 1.3 ----------------------------------------- Total 15.9% -------------------------------------------------------------------------------- 34 UBS GLOBAL EQUITY FUND -------------------------------------------------------------------------------- INDUSTRY DIVERSIFICATION AS A PERCENT OF NET ASSETS AS OF JUNE 30, 2006 (UNAUDITED) -------------------------------------------------------------------------------- Equities US Equities Aerospace & Defense 0.73% Air Freight & Logistics 1.08 Auto Components 1.00 Automobiles 0.39 Beverages 0.98 Biotechnology 1.43 Building Products 1.14 Capital Markets 3.18 Commercial Banks 3.33 Commercial Services & Supplies 0.32 Computers & Peripherals 1.19 Diversified Consumer Services 0.28 Diversified Financial Services 3.78 Diversified Telecommunication Services 0.85 Electric Utilities 1.56 Energy Equipment & Services 0.47 Food & Staples Retailing 3.33 Health Care Equipment & Supplies 0.94 Health Care Providers & Services 2.33 Insurance 1.69 Internet & Catalog Retail 0.22 Machinery 1.77 Media 2.93 Multi-Utilities & Unregulated Power 0.90 Multiline Retail 1.30 Pharmaceuticals 5.18 Road & Rail 0.92 Semiconductors & Semiconductor Equipment 2.59 Software 4.87 Thrifts & Mortgage Finance 0.78 Wireless Telecommunication Services 1.28 ------ Total US Equities 52.74 International Equities Airlines 0.32 Auto Components 0.46 Automobiles 2.33 Beverages 0.30% Capital Markets 0.46 Chemicals 0.46 Commercial Banks 8.57 Commercial Services & Supplies 0.41 Construction Materials 0.79 Consumer Finance 0.64 Diversified Financial Services 0.43 Diversified Telecommunication Services 2.58 Energy Equipment & Services 0.37 Food & Staples Retailing 0.28 Health Care Providers & Services 0.14 Hotels, Restaurants & Leisure 1.22 Household Durables 0.18 Insurance 5.20 Internet & Catalog Retail 0.32 Internet Software & Services 0.20 IT Services 0.44 Machinery 0.35 Media 0.46 Office Electronics 0.78 Oil & Gas 4.95 Paper & Forest Products 0.38 Pharmaceuticals 2.42 Real Estate 0.28 Road & Rail 0.78 Semiconductors & Semiconductor Equipment 0.74 Specialty Retail 0.75 Tobacco 1.92 Wireless Telecommunication Services 3.20 ------ Total International Equities 43.11 Total Equities 95.85 Investment Company 3.94 Warrants 0.00+ ------ Total Investments 99.79 Cash and other assets, less liabilities 0.21 ------ Net Assets 100.00% ====== -------------------------------------------------------------------------------- + AMOUNT REPRESENTS LESS THAN 0.005%. -------------------------------------------------------------------------------- 35 UBS GLOBAL EQUITY FUND--SCHEDULE OF INVESTMENTS June 30, 2006 -------------------------------------------------------------------------------- SHARES VALUE ------- ------------ EQUITIES -- 95.85% US EQUITIES -- 52.74% Allergan, Inc. 58,100 $ 6,231,806 American Electric Power Co., Inc. 48,000 1,644,000 American International Group, Inc. 88,600 5,231,830 Analog Devices, Inc. 89,000 2,860,460 Anheuser-Busch Cos., Inc. 91,600 4,176,044 AT&T, Inc. 107,600 3,000,964 Baker Hughes, Inc. 12,700 1,039,495 Boston Scientific Corp. (a) 65,100 1,096,284 Bristol-Myers Squibb Co. 131,600 3,403,176 Burlington Northern Santa Fe Corp. 49,300 3,907,025 Caremark Rx, Inc. 39,800 1,984,826 Cendant Corp. 84,400 1,374,876 Cephalon, Inc. (a) 26,100 1,568,610 Citigroup, Inc. 260,700 12,576,168 Costco Wholesale Corp. 143,700 8,209,581 Dell, Inc. (a) 207,600 5,067,516 DIRECTV Group, Inc. (a) 137,900 2,275,350 Embarq Corp. (a) 14,542 596,077 ENSCO International, Inc. 21,000 966,420 Exelon Corp. 41,400 2,352,762 Expedia, Inc. (a) 62,100 929,637 FedEx Corp. 39,200 4,580,912 Fifth Third Bancorp 97,900 3,617,405 Freddie Mac 58,100 3,312,281 Genzyme Corp. (a) 74,000 4,517,700 H&R Block, Inc. 49,300 1,176,298 Harley-Davidson, Inc. 30,000 1,646,700 Hartford Financial Services Group, Inc. 22,800 1,928,880 Illinois Tool Works, Inc. 158,500 7,528,750 Intel Corp. 352,700 6,683,665 Johnson & Johnson 83,102 4,979,472 Johnson Controls, Inc. 51,700 4,250,774 JPMorgan Chase & Co. 82,500 3,465,000 Kohl's Corp. (a) 93,100 5,504,072 Kroger Co. 97,500 2,131,350 Lockheed Martin Corp. 12,900 925,446 Masco Corp. 163,800 4,855,032 Medco Health Solutions, Inc. (a) 74,100 4,244,448 Medtronic, Inc. 34,700 1,628,124 Mellon Financial Corp. 177,200 6,100,996 Mercury Interactive Corp. (a) 49,400 1,727,518 Microsoft Corp. 372,000 8,667,600 Morgan Stanley 117,100 7,401,891 News Corp., Class A 92,400 1,772,232 NiSource, Inc. 57,000 1,244,880 Northeast Utilities 50,700 1,047,969 Northrop Grumman Corp. 34,100 2,184,446 Omnicom Group, Inc. 62,400 5,559,216 Oracle Corp. (a) 381,000 5,520,690 Pepco Holdings, Inc. 66,100 1,558,638 PNC Financial Services Group, Inc. 49,400 3,466,398 R.H. Donnelley Corp. 37,700 2,038,439 Salesforce.com, Inc. (a) 22,400 597,184 Sempra Energy 56,300 $ 2,560,524 Sprint Nextel Corp. 269,453 5,386,365 Symantec Corp. (a) 267,765 4,161,068 Sysco Corp. 124,800 3,813,888 UnitedHealth Group, Inc. 81,800 3,663,004 Univision Communications, Inc. (a) 24,100 807,350 Waters Corp. (a) 28,100 1,247,640 Wells Fargo & Co. 105,400 7,070,232 Wyeth 166,100 7,376,501 Xilinx, Inc. 65,000 1,472,250 ------------ Total US Equities 223,916,135 ------------ INTERNATIONAL EQUITIES -- 43.11% AUSTRALIA -- 1.67% National Australia Bank Ltd. 82,321 2,150,833 Qantas Airways Ltd. 615,665 1,354,202 QBE Insurance Group Ltd. 235,949 3,594,341 ------------ 7,099,376 ------------ AUSTRIA -- 0.61% Telekom Austria AG 115,302 2,567,575 ------------ BERMUDA -- 0.44% Accenture Ltd., Class A 65,700 1,860,624 ------------ CANADA -- 1.35% Canadian Pacific Railway Ltd. 50,800 2,589,830 Jean Coutu Group, Inc., Class A 111,900 1,172,830 Magna International, Inc., Class A 27,500 1,961,928 ------------ 5,724,588 ------------ CAYMAN ISLANDS -- 0.37% GlobalSantaFe Corp. 27,300 1,576,575 ------------ FRANCE -- 5.85% AXA S.A. 133,079 4,367,709 BNP Paribas 19,125 1,830,969 France Telecom S.A. 304,168 6,539,864 Sanofi-Aventis 29,222 2,851,819 Total S.A. 122,522 8,062,820 Unibail REIT 6,746 1,176,061 ------------ 24,829,242 ------------ GERMANY -- 1.52% Allianz AG 28,566 4,513,093 Cash.Life AG 6,516 210,024 QSC AG (a) 50,511 280,390 Rhoen Klinikum AG 13,212 588,585 United Internet AG 58,896 848,980 ------------ 6,441,072 ------------ HONG KONG -- 0.31% Esprit Holdings Ltd. 158,500 1,293,911 ------------ IRELAND -- 1.35% Bank of Ireland 321,252 5,732,018 ------------ ITALY -- 1.63% ENI SpA 66,521 1,959,477 UniCredito Italiano SpA 633,098 4,955,756 ------------ 6,915,233 ------------ -------------------------------------------------------------------------------- 36 UBS GLOBAL EQUITY FUND--SCHEDULE OF INVESTMENTS June 30, 2006 -------------------------------------------------------------------------------- SHARES VALUE --------- ------------ JAPAN -- 9.01% Aiful Corp. 19,800 $ 1,057,130 Canon, Inc. 67,650 3,316,292 Funai Electric Co. Ltd. 7,700 746,854 Honda Motor Co. Ltd. 71,400 2,264,785 Japan Tobacco, Inc. 814 2,966,078 Mitsui Sumitomo Insurance Co. Ltd. 121,000 1,519,373 Nissan Motor Co. Ltd. 208,100 2,273,025 Nitto Denko Corp. 27,200 1,937,085 Nomura Holdings, Inc. 93,800 1,758,135 NTN Corp. 187,000 1,478,810 NTT DoCoMo, Inc. 3,665 5,380,287 Rohm Co. Ltd. 18,800 1,680,566 Sompo Japan Insurance, Inc. 153,000 2,139,112 Sumitomo Mitsui Financial Group, Inc. 189 1,998,340 Takefuji Corp. 27,640 1,647,193 Toyota Motor Corp. 102,500 5,365,039 West Japan Railway Co. 177 734,665 ------------ 38,262,769 ------------ NETHERLANDS -- 3.29% ABN AMRO Holding NV 207,469 5,676,120 Aegon NV 179,218 3,064,789 ASML Holding NV (a) 72,281 1,464,424 ING Groep NV CVA 46,495 1,827,496 Reed Elsevier NV 130,013 1,955,607 ------------ 13,988,436 ------------ NORWAY -- 0.37% Telenor ASA 129,000 1,559,423 ------------ PANAMA -- 1.22% Carnival Corp. 123,700 5,163,238 ------------ SPAIN -- 0.83% Banco Bilbao Vizcaya Argentaria S.A. 64,230 1,321,026 Banco Santander Central Hispano S.A. 150,655 2,200,580 ------------ 3,521,606 ------------ SWEDEN -- 0.38% Svenska Cellulosa AB, B Shares 39,200 1,620,454 ------------ SWITZERLAND -- 2.54% Holcim Ltd. 43,943 3,367,927 Novartis AG 29,394 1,591,659 Roche Holding AG 35,338 5,841,732 ------------ 10,801,318 ------------ UNITED KINGDOM -- 10.38% Barclays PLC 494,745 $ 5,621,953 BP PLC 944,828 11,015,944 Diageo PLC 74,712 1,256,542 Gallaher Group PLC 335,778 5,246,780 GUS PLC 75,826 1,354,501 Kingfisher PLC 427,198 1,884,089 Prudential PLC 256,146 2,894,094 Rentokil Initial PLC 598,215 1,725,702 Royal Bank of Scotland Group PLC 148,558 4,884,405 Vodafone Group PLC 3,849,258 8,203,550 ------------ 44,087,560 ------------ Total International Equities 183,045,018 ------------ Total Equities (Cost $328,622,283) 406,961,153 ------------ INVESTMENT COMPANY* -- 3.94% UBS Emerging Markets Equity Completion Relationship Fund (Cost $16,300,000) 1,728,068 16,731,326 ------------ NUMBER OF WARRANTS --------- WARRANTS -- + 0.00% Lucent Technologies, Inc. (a) expires 12/10/07 (Cost $0) 1,067 288 ------------ Total Investments -- 99.79% (Cost $344,922,283) 423,692,767 Cash and other assets, less liabilities -- 0.21% 856,981 ------------ Net Assets -- 100.00% $424,549,748 ============ -------------------------------------------------------------------------------- 37 UBS GLOBAL EQUITY FUND--SCHEDULE OF INVESTMENTS June 30, 2006 -------------------------------------------------------------------------------- NOTES TO SCHEDULE OF INVESTMENTS Aggregate cost for federal income tax purposes was $348,603,255; and net unrealized appreciation consisted of: Gross unrealized appreciation $ 84,747,597 Gross unrealized depreciation (9,658,085) ------------ Net unrealized appreciation $ 75,089,512 ============ + Amount is less than 0.005%. (a) Non-income producing security. * Investment in affiliated mutual fund. CVA Dutch Certification-Depository Certificate REIT Real Estate Investment Trust FORWARD FOREIGN CURRENCY CONTRACTS UBS Global Equity Fund had the following open forward foreign currency contracts as of June 30, 2006:
UNREALIZED CONTRACTS IN EXCHANGE MATURITY APPRECIATION/ TO DELIVER FOR DATES (DEPRECIATION) ----------- ----------------- -------- -------------- British Pound 10,045,000 USD 18,855,972 11/20/06 $ 220,689 Canadian Dollar 6,210,000 USD 5,670,350 11/20/06 84,604 Euro 26,045,000 USD 33,637,118 11/20/06 22,486 Euro 5,804,782 JPY 836,800,000 11/20/06 (33,277) Japanese Yen 304,600,000 USD 2,774,387 11/20/06 59,419 Swedish Krona 18,760,000 USD 2,616,374 11/20/06 (20,308) Swiss Franc 2,635,000 USD 2,203,546 11/20/06 15,352 United States Dollar 2,153,773 AUD 2,890,000 11/20/06 (9,913) United States Dollar 442,662 CAD 490,000 11/20/06 (1,919) United States Dollar 17,643,518 CHF 21,105,000 11/20/06 (117,204) United States Dollar 4,960,374 CHF 6,035,000 11/20/06 51,296 United States Dollar 2,918,813 EUR 2,250,000 11/20/06 (14,880) United States Dollar 9,784,479 EUR 7,665,000 11/20/06 108,251 United States Dollar 5,917,552 GBP 3,205,000 11/20/06 28,301 United States Dollar 20,134,328 JPY 2,176,400,000 11/20/06 (735,583) United States Dollar 2,798,874 JPY 316,200,000 11/20/06 19,488 United States Dollar 27,691,517 SEK 199,390,000 11/20/06 332,363 United States Dollar 12,042,761 SGD 18,700,000 11/20/06 (147,398) --------- Net unrealized depreciation on forward foreign currency contracts $(138,233) =========
Currency Type Abbreviations: AUD Australian Dollar CAD Canadian Dollar CHF Swiss Franc EUR Euro GBP British Pound JPY Japanese Yen SEK Swedish Krona SGD Singapore Dollar USD United States Dollar See accompanying notes to financial statements. -------------------------------------------------------------------------------- 38 UBS INTERNATIONAL EQUITY FUND -------------------------------------------------------------------------------- For the fiscal year ended June 30, 2006, Class A shares of UBS International Equity Fund (the "Fund") returned 20.93% (14.30% after the deduction of the maximum sales charge) and Class Y shares returned 21.22%. The Fund's benchmark, the MSCI World Free ex USA Index (net US) (the "Index"), returned 26.90% over the same time 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 41; please note that these returns do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.) Over the course of the Fund's fiscal year, returns were strong on an absolute basis, although the Fund lagged the Index on a relative basis. International equities continued to capture investors' attention, as new money flowed into global stock funds at a booming rate. At the same time, investors seemed also to have an insatiable appetite for risk--emerging markets and small cap stocks were among the best performers over the period. Because the Fund is managed on a bottom-up basis in accordance with our fundamental research, we tended to avoid areas of the market that we felt were overvalued. While our limited exposure to these sectors hampered the Fund's relative performance, we believe that over the longer term, the Fund is well positioned to take advantage of mispricings and undervalued opportunities. LIMITED EXPOSURE TO BOOMING MATERIALS AND UTILITIES SECTORS DETRACTED FROM RETURNS Throughout the past year, materials and commodities--and particularly metals--experienced an extraordinary run-up in prices. Gold, silver and copper all hit highs during the reporting period not seen in years, if not decades. We believe a number of factors led to this spike in prices. China was no doubt one influence; as the country continues to industrialize, it will remain one of the world's largest consumers of metal and other materials as it builds its infrastructure--everything from bridges to office towers to dams. As a result, demand for materials was high during the reporting period, but we believe the market has tended to overlook the accompanying increasing supply, as major metal companies work to accommodate a new, larger marketplace. Our research indicates that current prices are unsustainable over the longer term, making the sector fairly unattractive from a valuation perspective. As a result, we maintained an underweight position throughout the period. BHP Billiton was one example of a company we avoided due to what we believed was an excessive valuation. The Fund did not own shares of the Australian diversified mining company, and as materials prices soared, our lack of exposure detracted from returns. Another area we found expensive was utilities, and again the Fund held underweight positions in the sector relative to the Index, as we believed many companies were trading at or above their fair value. Strong stock selection made utilities one of the Fund's top contributors to performance. Utilities, like energy stocks, have benefited from the spike in oil prices, as other energy suppliers, such as coal companies, have been able to increase margins. German-based E.ON was one of the Fund's top performing utility companies. The company enjoys dominant positions in Central and Eastern European gas and electricity markets, has a strong balance sheet and diverse business. PHARMACEUTICALS, TECHNOLOGY HARDWARE AND BANKS OFFER ATTRACTIVE INVESTMENT OPPORTUNITIES The technology hardware and pharmaceuticals sectors were two other top contributors to performance due to strong stock selection. We held a sizable overweight position in pharmaceuticals, as we believed a number of companies in the industry were mispriced relative to their growth prospects. Schering was one of the Fund's better performing holdings in the industry. The shares had risen on the back of takeover bids received from Merck, and then Bayer, the latter of which the company accepted. Stock selection within and our underweight exposure to technology hardware helped returns during the period. The technology hardware sector is traditionally sensitive to fluctuations in the overall economy, as businesses and consumers frequently make cutbacks in new technology spending during time of weakness or uncertainty. Technology performed poorly in the second quarter or 2006, and the Fund's underweight position helped relative returns. Although our overweight in the banking sector ultimately detracted from returns during the period, -------------------------------------------------------------------------------- 39 UBS INTERNATIONAL EQUITY FUND -------------------------------------------------------------------------------- we view banks as particularly attractive at present. We believe the market is overly concerned about the impact of higher interest rates and the risk of a housing slowdown. The banks we own--including ABN Amro, Royal Bank of Scotland and Bank of Ireland--have conservatively managed balance sheets and hedge the risk from higher rates. Also, if long interest rates increase in the US, as we believe they may, it could benefit banks as the spread between their costs of lending and the revenue generated by loans increases. Our valuation work suggests that banks are particularly undervalued and we maintain conviction in our overweight position. OUTLOOK FOR INTERNATIONAL MARKETS REMAINS HEALTHY We continue to believe that over the coming months and quarters, it is unlikely that international markets will be as fueled by commodity and oil prices and massive inflows of investor capital as they have been over the past year. Rather, we believe that markets will eventually reward those companies with solid fundamentals and industry leadership positions, such as those we seek to identify. With that in mind, we will continue to focus on those very factors, building from the bottom up a risk-conscious portfolio of those investment opportunities we believe are most likely to be rewarded. -------------------------------------------------------------------------------- THIS LETTER IS INTENDED TO ASSIST SHAREHOLDERS IN UNDERSTANDING HOW THE FUND PERFORMED DURING THE FISCAL YEAR ENDED JUNE 30, 2006. THE VIEWS AND OPINIONS IN THE LETTER WERE CURRENT AS OF AUGUST 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. -------------------------------------------------------------------------------- 40 UBS INTERNATIONAL EQUITY FUND -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURN (UNAUDITED)
1 YEAR 5 YEARS 10 YEARS ENDED ENDED ENDED INCEPTION* 06/30/06 06/30/06 06/30/06 TO 06/30/06 --------------------------------------------------------------------------------------- UBS International Equity Fund Class A 20.93% 7.77% N/A 4.32% UBS International Equity Fund Class B 19.86 N/A N/A 10.64 UBS International Equity Fund Class C 19.93 N/A N/A 10.46 UBS International Equity Fund Class Y 21.22 8.00 6.05% 6.21 UBS International Equity Fund Class A** 14.30 6.56 N/A 3.67 UBS International Equity Fund Class B** 14.86 N/A N/A 10.31 UBS International Equity Fund Class C** 18.93 N/A N/A 10.46 MSCI World Free ex USA Index (net US)*** 26.90 10.42 6.73 7.02
* 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 MSCI WORLD FREE EX USA INDEX (NET US) IS AN UNMANAGED, MARKET DRIVEN BROAD-BASED SECURITIES INDEX WHICH INCLUDES NON-US EQUITY MARKETS IN TERMS OF CAPITALIZATION AND PERFORMANCE. THIS BENCHMARK HAS BEEN CALCULATED NET OF WITHHOLDING TAX FROM A US PERSPECTIVE. THE Y SHARE CLASS IS OUR LOWEST FEE SHARE CLASS. OUR OTHER SHARE CLASSES INCLUDE HIGHER FEES AND LOADS, WHICH MAY RESULT IN LOWER PERFORMANCE THAN CLASS Y. 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. -------------------------------------------------------------------------------- 41 UBS INTERNATIONAL EQUITY FUND -------------------------------------------------------------------------------- ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000 IN CLASS A SHARES (ADJUSTED FOR MAXIMUM SALES CHARGE) AND $10,000,000 IN CLASS Y SHARES (UNAUDITED) The following two charts show the growth in the value of an investment in UBS International Equity Fund Class A shares (adjusted for 5.50% maximum sales charge), Class Y shares and the MSCI World Free ex USA Index (net US), if you had invested $10,000 in Class A shares on June 30, 1997 or $10,000,000 in Class Y shares on August 31, 1993, and had reinvested all your income dividends and capital gain distributions through June 30, 2006. The performance of Class B and Class C shares will vary based upon the different inception dates, class specific expenses and sales charges. No adjustment has been made for any income taxes payable by shareholders on income dividends and capital gain distributions. Past performance is no guarantee of future results. Share price and returns will vary with market conditions; investors may realize a gain or loss upon redemption. UBS INTERNATIONAL EQUITY FUND CLASS A VS. MSCI WORLD FREE EX USA INDEX (NET US) Wealth Value With Dividends Reinvested [CHART]
UBS INTERNATIONAL MSCI WORLD FREE EX EQUITY FUND CLASS A USA INDEX (NET US) ------------------- ------------------ 6/30/1997 $ 9,452 $10,000 7/31/1997 $ 9,625 $10,186 8/31/1997 $ 8,949 $ 9,420 9/30/1997 $ 9,444 $ 9,949 10/31/1997 $ 8,851 $ 9,200 11/30/1997 $ 8,701 $ 9,092 12/31/1997 $ 8,744 $ 9,178 1/31/1998 $ 9,036 $ 9,572 2/28/1998 $ 9,505 $10,195 3/31/1998 $ 9,870 $10,525 4/30/1998 $ 9,951 $10,607 5/31/1998 $ 9,951 $10,559 6/30/1998 $ 9,878 $10,604 7/31/1998 $ 9,976 $10,674 8/31/1998 $ 8,739 $ 9,311 9/30/1998 $ 8,527 $ 9,045 10/31/1998 $ 9,178 $ 9,988 11/30/1998 $ 9,634 $10,496 12/31/1998 $ 9,965 $10,892 1/31/1999 $ 9,940 $10,890 2/28/1999 $ 9,619 $10,616 3/31/1999 $ 9,891 $11,055 4/30/1999 $10,353 $11,532 5/31/1999 $ 9,808 $10,942 6/30/1999 $10,204 $11,365 7/31/1999 $10,495 $11,693 8/31/1999 $10,437 $11,725 9/30/1999 $10,387 $11,856 10/31/1999 $10,636 $12,314 11/30/1999 $10,885 $12,743 12/31/1999 $11,848 $13,916 1/31/2000 $10,951 $13,071 2/29/2000 $10,985 $13,438 3/31/2000 $11,337 $13,990 4/30/2000 $10,892 $13,262 5/31/2000 $10,783 $12,941 6/30/2000 $11,379 $13,499 7/31/2000 $10,934 $12,983 8/31/2000 $10,976 $13,153 9/30/2000 $10,507 $12,471 10/31/2000 $10,230 $12,131 11/30/2000 $10,171 $11,641 12/31/2000 $10,747 $12,042 1/31/2001 $10,639 $12,064 2/28/2001 $10,023 $11,109 3/31/2001 $ 9,424 $10,356 4/30/2001 $ 9,978 $11,079 5/31/2001 $ 9,692 $10,718 6/30/2001 $ 9,515 $10,281 7/31/2001 $ 9,372 $10,101 8/31/2001 $ 9,291 $ 9,831 9/30/2001 $ 8,511 $ 8,838 10/31/2001 $ 8,610 $ 9,054 11/30/2001 $ 8,798 $ 9,409 12/31/2001 $ 8,909 $ 9,469 1/31/2002 $ 8,521 $ 8,988 2/28/2002 $ 8,587 $ 9,041 3/31/2002 $ 8,964 $ 9,522 4/30/2002 $ 9,086 $ 9,580 5/31/2002 $ 9,263 $ 9,709 6/30/2002 $ 8,953 $ 9,315 7/31/2002 $ 8,022 $ 8,388 8/31/2002 $ 8,000 $ 8,374 9/30/2002 $ 7,047 $ 7,486 10/31/2002 $ 7,524 $ 7,879 11/30/2002 $ 7,878 $ 8,241 12/31/2002 $ 7,638 $ 7,975 1/31/2003 $ 7,219 $ 7,671 2/28/2003 $ 7,045 $ 7,519 3/31/2003 $ 6,940 $ 7,375 4/30/2003 $ 7,580 $ 8,086 5/31/2003 $ 8,010 $ 8,589 6/30/2003 $ 8,126 $ 8,800 7/31/2003 $ 8,266 $ 9,002 8/31/2003 $ 8,428 $ 9,232 9/30/2003 $ 8,626 $ 9,508 10/31/2003 $ 9,091 $10,104 11/30/2003 $ 9,358 $10,332 12/31/2003 $10,024 $11,124 1/31/2004 $10,048 $11,279 2/29/2004 $10,227 $11,538 3/31/2004 $10,239 $11,592 4/30/2004 $ 9,988 $11,289 5/31/2004 $10,036 $11,346 6/30/2004 $10,239 $11,609 7/31/2004 $ 9,977 $11,255 8/31/2004 $10,072 $11,299 9/30/2004 $10,311 $11,628 10/31/2004 $10,716 $12,046 11/30/2004 $11,277 $12,846 12/31/2004 $11,742 $13,389 1/31/2005 $11,452 $13,126 2/28/2005 $11,935 $13,709 3/31/2005 $11,646 $13,395 4/30/2005 $11,356 $13,059 5/31/2005 $11,320 $13,087 6/30/2005 $11,440 $13,301 7/31/2005 $11,742 $13,727 8/31/2005 $12,068 $14,104 9/30/2005 $12,394 $14,747 10/31/2005 $12,068 $14,271 11/30/2005 $12,261 $14,648 12/31/2005 $12,838 $15,328 1/31/2006 $13,494 $16,297 2/28/2006 $13,444 $16,242 3/31/2006 $13,885 $16,753 4/30/2006 $14,542 $17,559 5/31/2006 $13,936 $16,900 6/30/2006 $13,835 $16,879
6/30/97 = $9,450 THE FUND'S GROWTH OF AN ASSUMED $10,000 INVESTMENT IS ADJUSTED FOR THE MAXIMUM SALES CHARGE OF 5.50%. UBS INTERNATIONAL EQUITY FUND CLASS Y VS. MSCI WORLD FREE EX USA INDEX (NET US) Wealth Value With Dividends Reinvested [CHART]
UBS INTERNATIONAL MSCI WORLD FREE EX EQUITY FUND CLASS Y USA INDEX (NET US) ------------------- ------------------ 8/31/1993 $10,000,000 $10,000,000 9/30/1993 $ 9,720,000 $ 9,768,007 10/31/1993 $ 9,970,000 $10,096,081 11/30/1993 $ 9,290,000 $ 9,231,790 12/31/1993 $ 9,655,000 $ 9,887,545 1/31/1994 $10,336,058 $10,709,063 2/28/1994 $10,025,576 $10,656,702 3/31/1994 $ 9,574,876 $10,198,020 4/30/1994 $ 9,845,296 $10,618,988 5/31/1994 $ 9,855,311 $10,568,776 6/30/1994 $ 9,755,468 $10,687,862 7/31/1994 $ 9,906,481 $10,806,756 8/31/1994 $10,198,440 $11,077,664 9/30/1994 $ 9,906,481 $10,751,574 10/31/1994 $10,077,630 $11,095,037 11/30/1994 $ 9,745,400 $10,559,891 12/31/1994 $ 9,745,400 $10,627,740 1/31/1995 $ 9,403,103 $10,213,039 2/28/1995 $ 9,362,833 $10,209,650 3/31/1995 $ 9,523,914 $10,839,562 4/30/1995 $ 9,836,008 $11,240,936 5/31/1995 $ 9,846,076 $11,136,402 6/30/1995 $ 9,745,400 $10,955,247 7/31/1995 $10,329,319 $11,618,511 8/31/1995 $10,490,400 $11,191,302 9/30/1995 $10,661,548 $11,406,327 10/31/1995 $10,560,873 $11,111,312 11/30/1995 $10,822,629 $11,426,553 12/31/1995 $11,261,026 $11,874,560 1/31/1996 $11,486,032 $11,956,381 2/29/1996 $11,443,174 $11,990,701 3/31/1996 $11,593,178 $12,243,091 4/30/1996 $12,021,761 $12,603,875 5/31/1996 $11,968,188 $12,387,599 6/30/1996 $12,048,909 $12,446,681 7/31/1996 $11,714,517 $12,081,249 8/31/1996 $11,768,451 $12,133,442 9/30/1996 $12,124,417 $12,463,087 10/31/1996 $12,092,057 $12,377,965 11/30/1996 $12,706,907 $12,895,393 12/31/1996 $12,696,373 $12,718,867 1/31/1997 $12,627,682 $12,329,985 2/28/1997 $12,833,755 $12,513,302 3/31/1997 $12,913,894 $12,519,103 4/30/1997 $13,005,482 $12,598,702 5/31/1997 $13,852,670 $13,431,588 6/30/1997 $14,491,151 $14,144,217 7/31/1997 $14,755,882 $14,406,822 8/31/1997 $13,719,978 $13,323,717 9/30/1997 $14,491,151 $14,071,650 10/31/1997 $13,581,857 $13,012,623 11/30/1997 $13,351,656 $12,859,719 12/31/1997 $13,425,088 $12,981,991 1/31/1998 $13,872,591 $13,539,330 2/28/1998 $14,605,999 $14,419,837 3/31/1998 $15,165,378 $14,887,465 4/30/1998 $15,289,684 $15,002,246 5/31/1998 $15,289,684 $14,935,038 6/30/1998 $15,183,533 $14,997,910 7/31/1998 $15,333,494 $15,096,931 8/31/1998 $13,433,990 $13,169,411 9/30/1998 $13,109,075 $12,793,056 10/31/1998 $14,121,311 $14,127,677 11/30/1998 $14,846,121 $14,845,646 12/31/1998 $15,357,290 $15,405,398 1/31/1999 $15,319,277 $15,403,100 2/28/1999 $14,825,107 $15,015,638 3/31/1999 $15,255,922 $15,636,408 4/30/1999 $15,965,500 $16,311,685 5/31/1999 $15,129,212 $15,477,144 6/30/1999 $15,737,257 $16,074,439 7/31/1999 $16,196,367 $16,539,404 8/31/1999 $16,107,096 $16,583,791 9/30/1999 $16,030,577 $16,768,974 10/31/1999 $16,413,169 $17,417,122 11/30/1999 $16,808,513 $18,023,945 12/31/1999 $18,300,338 $19,683,258 1/31/2000 $16,913,556 $18,487,553 2/29/2000 $16,965,398 $19,006,481 3/31/2000 $17,522,703 $19,787,093 4/30/2000 $16,835,793 $18,758,112 5/31/2000 $16,667,305 $18,303,740 6/30/2000 $17,587,506 $19,093,854 7/31/2000 $16,913,556 $18,363,758 8/31/2000 $16,978,359 $18,603,394 9/30/2000 $16,252,567 $17,639,420 10/31/2000 $15,824,867 $17,158,639 11/30/2000 $15,747,104 $16,465,813 12/31/2000 $16,636,348 $17,032,130 1/31/2001 $16,470,675 $17,063,909 2/28/2001 $15,518,054 $15,713,040 3/31/2001 $14,593,045 $14,647,209 4/30/2001 $15,462,829 $15,670,678 5/31/2001 $15,034,840 $15,159,850 6/30/2001 $14,747,531 $14,541,424 7/31/2001 $14,525,764 $14,286,485 8/31/2001 $14,401,020 $13,904,652 9/30/2001 $13,195,159 $12,500,272 10/31/2001 $13,361,485 $12,805,621 11/30/2001 $13,638,694 $13,308,592 12/31/2001 $13,809,885 $13,393,365 1/31/2002 $13,210,943 $12,712,116 2/28/2002 $13,313,619 $12,787,745 3/31/2002 $13,912,560 $13,468,004 4/30/2002 $14,083,687 $13,550,581 5/31/2002 $14,374,601 $13,731,968 6/30/2002 $13,895,448 $13,174,695 7/31/2002 $12,457,988 $11,864,136 8/31/2002 $12,406,650 $11,843,986 9/30/2002 $10,934,964 $10,588,068 10/31/2002 $11,670,807 $11,144,296 11/30/2002 $12,235,524 $11,656,709 12/31/2002 $11,860,277 $11,279,946 1/31/2003 $11,230,368 $10,850,432 2/28/2003 $10,942,410 $10,635,223 3/31/2003 $10,762,436 $10,431,228 4/30/2003 $11,770,290 $11,436,391 5/31/2003 $12,436,193 $12,148,986 6/30/2003 $12,616,167 $12,446,401 7/31/2003 $12,832,135 $12,731,979 8/31/2003 $13,084,099 $13,057,458 9/30/2003 $13,408,052 $13,448,904 10/31/2003 $14,127,947 $14,290,700 11/30/2003 $14,559,884 $14,613,631 12/31/2003 $15,615,439 $15,734,234 1/31/2004 $15,652,442 $15,953,399 2/29/2004 $15,929,968 $16,319,811 3/31/2004 $15,948,470 $16,396,678 4/30/2004 $15,559,934 $15,967,894 5/31/2004 $15,633,941 $16,047,720 6/30/2004 $15,966,971 $16,419,319 7/31/2004 $15,559,934 $15,918,823 8/31/2004 $15,689,446 $15,982,220 9/30/2004 $16,077,982 $16,447,529 10/31/2004 $16,707,039 $17,038,043 11/30/2004 $17,595,121 $18,170,290 12/31/2004 $18,308,513 $18,937,656 1/31/2005 $17,877,945 $18,565,041 2/28/2005 $18,645,480 $19,389,993 3/31/2005 $18,178,000 $18,945,538 4/30/2005 $17,746,903 $18,470,813 5/31/2005 $17,672,021 $18,510,322 6/30/2005 $17,877,945 $18,813,737 7/31/2005 $18,364,675 $19,416,191 8/31/2005 $18,870,124 $19,949,454 9/30/2005 $19,375,574 $20,858,864 10/31/2005 $18,870,124 $20,184,744 11/30/2005 $19,169,650 $20,718,695 12/31/2005 $20,084,000 $21,679,760 1/31/2006 $21,103,192 $23,050,921 2/28/2006 $21,024,741 $22,972,439 3/31/2006 $21,730,796 $23,696,198 4/30/2006 $22,770,265 $24,835,837 5/31/2006 $21,828,859 $23,903,220 6/30/2006 $21,671,958 $23,873,982
8/31/93 = $10,000,000 PAST PERFORMANCE DOES NOT PREDICT FUTURE PERFORMANCE, AND THE PERFORMANCE INFORMATION PROVIDED DOES NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PERFORMANCE RESULTS ASSUME REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS AT NET ASSET VALUE ON THE EX-DIVIDEND DATES. 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. -------------------------------------------------------------------------------- 42 UBS INTERNATIONAL EQUITY FUND -------------------------------------------------------------------------------- EXPLANATION OF EXPENSE DISCLOSURE (UNAUDITED) As a shareholder of the Fund, you incur two types of costs: (1) transactional costs (as applicable); including sales charges (loads); 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, January 1, 2006 to June 30, 2006. 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 EXPENSE ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD* RATIO JANUARY 1, 2006 JUNE 30, 2006 01/01/06 TO 06/30/06 DURING PERIOD --------------------------------------------------------------------------------------------------------------------- CLASS A Actual $1,000.00 $1,077.70 $ 6.44 1.25% Hypothetical (5% annual return before expenses) 1,000.00 1,018.60 6.26 1.25% CLASS B Actual 1,000.00 1,072.50 10.28 2.00% Hypothetical (5% annual return before expenses) 1,000.00 1,014.88 9.99 2.00% CLASS C Actual 1,000.00 1,072.90 10.28 2.00% Hypothetical (5% annual return before expenses) 1,000.00 1,014.88 9.99 2.00% CLASS Y Actual 1,000.00 1,079.10 5.16 1.00% Hypothetical (5% annual return before expenses) 1,000.00 1,019.84 5.01 1.00%
* EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED NET EXPENSE RATIOS, MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 181 DIVIDED BY 365 (TO REFLECT THE ONE-HALF YEAR PERIOD). -------------------------------------------------------------------------------- 43 UBS INTERNATIONAL EQUITY FUND -------------------------------------------------------------------------------- TOP TEN INTERNATIONAL EQUITY HOLDINGS AS OF JUNE 30, 2006 (UNAUDITED) PERCENTAGE OF NET ASSETS --------------------------------------------------- ABN AMRO Holding NV 3.4% BP PLC 3.1 Credit Suisse Group 2.8 Total S.A. 2.7 Vodafone Group PLC 2.7 Royal Bank of Scotland Group PLC 2.3 Barclays PLC 2.3 Banco Santander Central Hispano S.A. 2.2 Roche Holding AG 2.1 Allianz AG 2.0 --------------------------------------------------- Total 25.6% COUNTRY EXPOSURE, TOP FIVE AS OF JUNE 30, 2006 (UNAUDITED) PERCENTAGE OF NET ASSETS --------------------------------------------------- United Kingdom 22.6% Japan 21.0 United States 12.1 Switzerland 10.4 Netherlands 8.9 --------------------------------------------------- Total 75.0% -------------------------------------------------------------------------------- 44 UBS INTERNATIONAL EQUITY FUND -------------------------------------------------------------------------------- INDUSTRY DIVERSIFICATION AS A PERCENT OF NET ASSETS AS OF JUNE 30, 2006 (UNAUDITED) -------------------------------------------------------------------------------- International Equities Air Freight & Logistics 0.73% Airlines 0.79 Auto Components 1.77 Automobiles 3.40 Beverages 2.48 Capital Markets 3.31 Chemicals 2.37 Commercial Banks 20.65 Commercial Services & Supplies 0.25 Communications Equipment 1.09 Construction & Engineering 0.25 Construction Materials 1.64 Consumer Finance 1.18 Distributors 0.11 Diversified Financial Services 0.66 Diversified Telecommunication Services 3.50 Electric Utilities 2.05 Electronic Equipment & Instruments 0.52 Food & Staples Retailing 2.80 Food Products 0.95 Gas Utilities 0.44 Health Care Equipment & Supplies 0.49 Household Durables 1.69 Household Products 0.29 Industrial Conglomerates 0.51 Insurance 11.29 Internet & Catalog Retail 0.46 Machinery 2.41 Media 2.01 Metals & Mining 1.32 Office Electronics 1.11 Oil & Gas 7.37 Paper & Forest Products 0.89 Pharmaceuticals 7.10 Real Estate 0.38 Real Estate Management & Development 0.89 Road & Rail 1.57 Semiconductors & Semiconductor Equipment 1.57 Specialty Retail 1.69 Textiles, Apparel & Luxury Goods 0.26 Tobacco 1.79 Trading Companies & Distributors 1.99 Wireless Telecommunication Services 4.33 ------ Total International Equities 102.35 Investment Companies 7.72 Short-Term Investment 0.49 Investment of Cash Collateral for Securities Loaned 11.62 ------ Total Investments 122.18 Liabilities, in excess of cash and other assets (22.18) ------ Net Assets 100.00% ====== -------------------------------------------------------------------------------- 45 UBS INTERNATIONAL EQUITY FUND--SCHEDULE OF INVESTMENTS June 30, 2006 -------------------------------------------------------------------------------- SHARES VALUE ------- ----------- INTERNATIONAL EQUITIES -- 102.35% AUSTRALIA -- 2.57% National Australia Bank Ltd. 51,911 $ 1,356,299 Qantas Airways Ltd. 629,082 1,383,714 QBE Insurance Group Ltd. 113,794 1,733,486 ----------- 4,473,499 ----------- AUSTRIA -- 0.53% Telekom Austria AG 41,489 923,888 ----------- BELGIUM -- 2.24% Fortis (b) 33,935 1,155,429 KBC Groep NV 19,429 2,084,971 Solvay S.A., Class A 5,763 663,036 ----------- 3,903,436 ----------- CANADA -- 4.55% Alcan, Inc. 20,340 952,771 Canadian Pacific Railway Ltd. (b) 28,200 1,437,662 Cott Corp. (a) 40,800 533,620 Falconbridge Ltd. 13,300 700,564 Inco Ltd. 9,700 638,673 Magna International, Inc., Class A (b) 8,900 634,951 Manulife Financial Corp. (b) 29,600 937,877 Toronto-Dominion Bank (b) 41,000 2,081,770 ----------- 7,917,888 ----------- FINLAND -- 1.54% Nokia Oyj 54,892 1,120,545 UPM-Kymmene Oyj 72,178 1,555,580 ----------- 2,676,125 ----------- FRANCE -- 8.49% AXA S.A. 89,278 2,930,142 France Telecom S.A. (b) 138,800 2,984,315 Sanofi-Aventis (b) 35,412 3,455,911 Total S.A. 72,298 4,757,723 Unibail REIT 3,757 654,975 ----------- 14,783,066 ----------- GERMANY -- 7.49% Allianz AG 22,004 3,476,373 Bayerische Motoren Werke AG 16,872 842,920 Deutsche Postbank AG (b) 25,723 1,851,010 E.ON AG 22,807 2,626,000 Hannover Rueckversicherung AG (a)(b) 12,012 420,204 IKB Deutsche Industriebank AG 7,098 259,651 MAN AG 22,262 1,612,210 Metro AG 16,516 936,251 Premiere AG (a)(b) 14,170 137,381 Siemens AG 10,176 885,452 ----------- 13,047,452 ----------- HONG KONG -- 1.66% Esprit Holdings Ltd. 106,000 $ 865,328 Hutchison Telecommunications International Ltd. (a) 476,000 766,131 Sun Hung Kai Properties Ltd. 78,000 795,437 Yue Yuen Industrial Holdings 166,000 456,343 ----------- 2,883,239 ----------- IRELAND -- 2.77% Bank of Ireland 141,679 2,527,942 CRH PLC 35,877 1,166,485 Depfa Bank PLC 68,130 1,132,842 ----------- 4,827,269 ----------- ITALY -- 2.31% ENI SpA 46,768 1,377,623 UniCredito Italiano SpA 337,213 2,639,631 ----------- 4,017,254 ----------- JAPAN -- 20.99% Aeon Co. Ltd. 46,200 1,013,300 Aiful Corp. 20,050 1,070,478 Asahi Breweries Ltd. (b) 83,100 1,166,914 Bank of Yokohama Ltd. 135,000 1,043,997 Bridgestone Corp. (b) 83,800 1,614,636 Canon, Inc. 39,450 1,933,891 East Japan Railway Co. 175 1,299,808 Funai Electric Co. Ltd. (b) 6,800 659,560 Honda Motor Co. Ltd. 50,400 1,598,672 Japan Tobacco, Inc. 206 750,629 KDDI Corp. 108 663,439 Mitsubishi Corp. 79,900 1,595,347 Mitsui Fudosan Co. Ltd. 35,000 760,005 Mitsui Sumitomo Insurance Co. Ltd. 126,000 1,582,157 Nissan Motor Co. Ltd. 155,500 1,698,488 Nitto Denko Corp. 24,500 1,744,801 NOK Corp. (b) 28,900 838,413 Nomura Holdings, Inc. 49,200 922,178 NTN Corp. (b) 79,000 624,738 NTT DoCoMo, Inc. (b) 976 1,432,786 Rohm Co. Ltd. (b) 16,100 1,439,208 Shin-Etsu Chemical Co. Ltd. 20,800 1,130,514 SMC Corp./Japan 5,700 806,388 Sompo Japan Insurance, Inc. 67,000 936,735 Sumitomo Mitsui Financial Group, Inc. 211 2,230,951 Sumitomo Trust & Banking Co. Ltd. (b) 94,000 1,026,739 Taiheiyo Cement Corp. 600 2,212 Takefuji Corp. 16,460 980,926 Tanabe Seiyaku Co., Ltd. 43,000 529,046 Tokyo Gas Co., Ltd. (b) 161,000 758,293 Toyota Motor Corp. 33,900 1,774,388 Yokogawa Electric Corp. (b) 63,800 909,278 ----------- 36,538,915 ----------- -------------------------------------------------------------------------------- 46 UBS INTERNATIONAL EQUITY FUND--SCHEDULE OF INVESTMENTS June 30, 2006 -------------------------------------------------------------------------------- SHARES VALUE ---------- ------------ NETHERLANDS -- 8.93% ABN AMRO Holding NV 214,264 $ 5,862,023 Aegon NV 139,673 2,388,534 ASML Holding NV (a) 63,629 1,289,133 Koninklijke Philips Electronics NV 53,600 1,674,850 Reed Elsevier NV 120,048 1,805,717 Royal KPN NV 111,592 1,254,613 TNT NV 35,598 1,273,975 ------------ 15,548,845 ------------ NORWAY -- 0.53% Telenor ASA 76,600 925,983 ------------ SINGAPORE -- 0.11% Jardine Cycle & Carriage Ltd. 30,000 189,532 ------------ SPAIN -- 2.93% Banco Santander Central Hispano S.A. 258,226 3,771,843 Repsol YPF S.A. (b) 46,308 1,326,165 ------------ 5,098,008 ------------ SWEDEN -- 1.74% Electrolux AB, B Shares 42,300 611,276 Husqvarna AB, B Shares (a) 41,700 502,654 Sandvik AB 98,900 1,150,919 Telefonaktiebolaget LM Ericsson, B Shares 233,000 770,542 ------------ 3,035,391 ------------ SWITZERLAND -- 10.35% Clariant AG 41,631 590,813 Credit Suisse Group 86,377 4,832,675 Holcim Ltd. 21,912 1,679,403 Nestle S.A. (b) 5,255 1,650,583 Novartis AG 47,817 2,589,248 Roche Holding AG 22,094 3,652,364 Straumann Holding AG 3,334 850,169 Swiss Reinsurance Co. 31,165 2,178,274 ------------ 18,023,529 ------------ UNITED KINGDOM -- 22.62% AstraZeneca PLC 12,640 762,924 Balfour Beatty PLC 67,438 428,366 Barclays PLC 351,101 3,989,678 BP PLC 460,159 5,365,089 Diageo PLC 155,605 2,617,039 Gallaher Group PLC 151,265 2,363,627 GlaxoSmithKline PLC 48,967 1,368,207 GUS PLC 44,677 798,077 Kesa Electricals PLC 140,036 748,379 Kingfisher PLC 303,133 1,336,920 Prudential PLC 271,578 3,068,454 Rentokil Initial PLC 152,699 440,499 Royal Bank of Scotland Group PLC 124,157 4,082,130 Scottish & Southern Energy PLC 44,305 943,001 Taylor Nelson Sofres PLC 176,126 $ 758,863 Tesco PLC 473,024 2,921,551 Vodafone Group PLC 2,203,484 4,696,072 Wolseley PLC 85,153 1,878,557 WPP Group PLC 66,401 803,652 ------------ 39,371,085 ------------ Total International Equities (Cost $138,700,424) 178,184,404 ------------ INVESTMENT COMPANIES -- 7.72% iShares MSCI EAFE Index Fund 95,500 6,244,745 UBS Emerging Markets Equity Completion Relationship Fund* 742,115 7,185,232 ------------ Total Investment Companies (Cost $12,960,047) 13,429,977 ------------ SHARES ---------- SHORT-TERM INVESTMENT -- 0.49% OTHER* -- 0.49% UBS Supplementary Trust -- U.S. Cash Management Prime Fund, yield of 5.21% (Cost $846,040) 846,040 846,040 ------------ INVESTMENT OF CASH COLLATERAL FOR SECURITIES LOANED* -- 11.62% UBS Supplementary Trust -- U.S. Cash Management Prime Fund, yield of 5.21% (Cost $20,228,990) 20,228,990 20,228,990 ------------ Total Investments -- 122.18% (Cost $172,735,501) 212,689,411 Liabilities, in excess of cash and other assets -- (22.18%) (38,609,584) ------------ Net Assets -- 100.00% $174,079,827 ============ -------------------------------------------------------------------------------- 47 UBS INTERNATIONAL EQUITY FUND--SCHEDULE OF INVESTMENTS June 30, 2006 -------------------------------------------------------------------------------- NOTES TO SCHEDULE OF INVESTMENTS Aggregate cost for federal income tax purposes was $175,030,953; and net unrealized appreciation consisted of: Gross unrealized appreciation $40,497,919 Gross unrealized depreciation (2,839,461) ----------- Net unrealized appreciation $37,658,458 =========== (a) Non-income producing security. (b) Security, or portion thereof, was on loan at June 30, 2006. REIT Real Estate Investment Trust. * Investment in affiliated mutual fund. FORWARD FOREIGN CURRENCY CONTRACTS UBS International Equity Fund had the following open forward foreign currency contracts as of June 30, 2006:
UNREALIZED CONTRACTS IN EXCHANGE MATURITY APPRECIATION/ TO DELIVER FOR DATES (DEPRECIATION) ---------- ----------------- -------- -------------- British Pound 2,165,000 USD 4,064,030 11/20/06 $ 47,565 British Pound 1,980,000 USD 3,666,012 11/20/06 (7,245) Canadian Dollar 5,995,000 USD 5,465,153 11/20/06 72,795 Euro 16,040,000 USD 20,715,660 11/20/06 13,848 Euro 1,900,000 USD 2,424,210 11/20/06 (28,000) Euro 2,839,959 JPY 409,400,000 11/20/06 (16,281) Swiss Franc 3,305,000 USD 2,732,968 11/20/06 (11,617) Swedish Krona 7,540,000 USD 1,044,538 11/20/06 (15,194) United States Dollar 3,619,625 GBP 1,970,000 11/20/06 35,080 United States Dollar 1,497,474 CAD 1,675,000 11/20/06 9,148 United States Dollar 874,268 CAD 970,000 11/20/06 (1,776) United States Dollar 1,016,197 DKK 5,860,000 11/20/06 (2,493) United States Dollar 2,673,901 EUR 2,060,000 11/20/06 (15,189) United States Dollar 2,126,714 EUR 1,675,000 11/20/06 35,102 United States Dollar 9,586,263 JPY 1,042,900,000 11/20/06 (290,659) United States Dollar 2,929,415 JPY 331,700,000 11/20/06 27,101 United States Dollar 5,164,863 SGD 8,020,000 11/20/06 (63,216) United States Dollar 2,762,939 CHF 3,305,000 11/20/06 (18,353) United States Dollar 1,371,377 CHF 1,675,000 11/20/06 19,600 United States Dollar 11,047,997 SEK 79,550,000 11/20/06 132,602 --------- Net unrealized depreciation on forward foreign currency contracts $ (77,182) =========
Currency Type Abbreviations: CAD Canadian Dollar CHF Swiss Franc DKK Danish Krone EUR Euro GBP British Pound JPY Japanese Yen SEK Swedish Krona SGD Singapore Dollar USD United States Dollar See accompanying notes to financial statements. -------------------------------------------------------------------------------- 48 UBS U.S. LARGE CAP EQUITY FUND -------------------------------------------------------------------------------- For the fiscal year ended June 30, 2006, Class A shares of UBS U.S. Large Cap Equity Fund (the "Fund") returned 8.62% (2.62% after the deduction of the maximum sales charge) and Class Y shares returned 8.91%. The Fund's benchmark, the Russell 1000 Index (the "Index"), returned 9.09% over the same time 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 51; please note that these returns do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.) The Fund's underperformance relative to the benchmark was due primarily to industry weightings in the portfolio, in particular, our underweight positions in oil reserves and metals and mining companies. FUND'S LIMITED EXPOSURE TO OIL RESERVES AND MINING AND METALS COMPANIES DETRACTED FROM TOTAL RETURNS During the past twelve months, in the wake of a devastating hurricane season and continued political turmoil in the Middle East, oil prices skyrocketed, setting record highs on more than one occasion. Gasoline and heating fuel prices rose in turn, and energy companies throughout the supply chain--from exploration and production companies to retail-focused operations--generally benefited from being able to increase their profit margins. Our view was and continues to be that current energy prices are unsustainably high. In our analysis, the market seems to be banking on a major disruption in supply, presumably sparked by continued strife in Iraq or a pending standoff with Iran. While these are legitimate concerns, we believe the risk falling oil prices represents to energy reserves companies far outweighs the potential upside of continuing high energy prices. As a result, we maintained a limited exposure to the oil and gas sector during the Fund's fiscal year. Although this stance detracted from relative returns, we believe it could prove prudent over the longer term. The story in the metals and mining sector was quite similar. Although the Fund's underweight to the sector was not as significant, we were equally concerned over valuations of materials, and particularly of metals. Between the beginning of the reporting period and its peak in May 2006, the price of gold increased by approximately 70%, setting a new 25-year high in the process. Other metals experienced a similar spike in prices, and metal-related companies that were able to pass on these higher materials costs benefited substantially. We believe a number of factors led to this spike in prices. China was no doubt one influence; as the country continues to industrialize, it will remain one of the world's largest consumers of metal and other materials as it builds its infrastructure--everything from bridges to office towers to dams. Demand for materials was high during the reporting period, but we believe the market has tended to overlook the accompanying increasing supply, as major metal companies work to accommodate a new, larger marketplace. Our research indicates that current prices are unsustainable over the longer term, making the sector fairly unattractive from a valuation perspective. As a result, we maintained an underweight position throughout the period. STRONG STOCK SELECTION IN RAILROAD COMPANIES BENEFITED PERFORMANCE As mentioned above, although the Fund did trail the benchmark slightly during its fiscal year, stock selection in the portfolio was generally quite strong. A prime example was in the road and rail industry. Burlington Northern Santa Fe is the nation's second largest railroad company, and the stock represented one of the Fund's largest overweight positions and was also one of the top performers. The Fund's investment team has the freedom to structure the portfolio to reflect the strength of our convictions, and in the case of Burlington Northern, we felt the company's fundamentals represented a particularly attractive investment opportunity. We believed the company had significant pricing power within its industry, and Burlington Northern was in fact able to capitalize on that competitive advantage during the period. MANAGEMENT REMAINS CAUTIOUSLY OPTIMISTIC ON THE ECONOMY IN THE MONTHS AHEAD Looking ahead, a number of factors will determine the strength of the economy over the remainder of 2006. As the Federal Reserve Board continues to fight inflation, it will be forced to strike a difficult balance between maintaining price stability and avoiding raising short term interest rates too high, to the point of putting the brakes on what has been -------------------------------------------------------------------------------- 49 UBS U.S. LARGE CAP EQUITY FUND -------------------------------------------------------------------------------- a period of robust economic expansion. We generally believe that the system for implementing monetary policy in the US is dynamic enough to make that balance possible. Meanwhile, while a cooling housing market is an issue of some potential concern, other economic indicators remain solid--job growth and corporate profitability are both stable, and we anticipate they should remain so over the months ahead. Ultimately, we believe the equity markets will reward those companies that are leaders within their industries and are able to best navigate an ever-changing economic landscape. We continue to seek out those companies through extensive bottom-up research, and to position the portfolio accordingly. -------------------------------------------------------------------------------- THIS LETTER IS INTENDED TO ASSIST SHAREHOLDERS IN UNDERSTANDING HOW THE FUND PERFORMED DURING THE FISCAL YEAR ENDED JUNE 30, 2006. THE VIEWS AND OPINIONS IN THE LETTER WERE CURRENT AS OF AUGUST 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. -------------------------------------------------------------------------------- 50 UBS U.S. LARGE CAP EQUITY FUND -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURN (UNAUDITED)
1 YEAR 5 YEARS 10 YEARS INCEPTION* ENDED ENDED ENDED TO 06/30/06 06/30/06 06/30/06 06/30/06 ------------------------------------------------------------------------------------- UBS U.S. Large Cap Equity Fund Class A 8.62% 5.94% N/A 6.06% UBS U.S. Large Cap Equity Fund Class B 7.73 N/A N/A 7.39 UBS U.S. Large Cap Equity Fund Class C 7.79 N/A N/A 6.79 UBS U.S. Large Cap Equity Fund Class Y 8.91 6.24 8.68% 10.76 UBS U.S. Large Cap Equity Fund Class A** 2.62 4.75 N/A 5.39 UBS U.S. Large Cap Equity Fund Class B** 2.73 N/A N/A 7.06 UBS U.S. Large Cap Equity Fund Class C** 6.79 N/A N/A 6.79 Russell 1000 Index*** 9.09 3.12 8.56 10.46
* 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 MAY RESULT IN LOWER PERFORMANCE THAN CLASS Y. 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. -------------------------------------------------------------------------------- 51 UBS U.S. LARGE CAP EQUITY FUND -------------------------------------------------------------------------------- ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000 IN CLASS A SHARES (ADJUSTED FOR MAXIMUM SALES CHARGE) AND $10,000,000 IN CLASS Y SHARES (UNAUDITED) The following two charts show the growth in the value of an investment in UBS U.S. Large Cap Equity Fund Class A shares (adjusted for 5.50% maximum sales charge), Class Y shares and the Russell 1000 Index, if you had invested $10,000 in Class A shares on June 30, 1997 or $10,000,000 in Class Y shares on February 22, 1994, and had reinvested all your income dividends and capital gain distributions through June 30, 2006. The performance of Class B and Class C shares will vary based upon the different inception dates, class specific expenses and sales charges. No adjustment has been made for any income taxes payable by shareholders on income dividends and capital gain distributions. Past performance is no guarantee of future results. Share price and returns will vary with market conditions; investors may realize a gain or loss upon redemption. UBS U.S. LARGE CAP EQUITY FUND CLASS A VS. RUSSELL 1000 INDEX Wealth value with dividends reinvested [CHART]
UBS U.S. LARGE CAP EQUITY FUND CLASS A RUSSELL 1000 INDEX ------------------- ------------------ 6/30/1997 $ 9,448 $10,000 7/31/1997 $10,171 $10,818 8/31/1997 $ 9,775 $10,308 9/30/1997 $10,209 $10,873 10/31/1997 $ 9,668 $10,521 11/30/1997 $ 9,855 $10,977 12/31/1997 $10,084 $11,200 1/31/1998 $10,153 $11,284 2/28/1998 $11,036 $12,088 3/31/1998 $11,662 $12,698 4/30/1998 $11,547 $12,828 5/31/1998 $11,375 $12,550 6/30/1998 $11,442 $13,015 7/31/1998 $11,148 $12,859 8/31/1998 $ 9,560 $10,937 9/30/1998 $10,233 $11,673 10/31/1998 $11,010 $12,595 11/30/1998 $11,470 $13,375 12/31/1998 $11,899 $14,227 1/31/1999 $11,819 $14,734 2/28/1999 $11,385 $14,267 3/31/1999 $11,752 $14,813 4/30/1999 $12,810 $15,433 5/31/1999 $12,645 $15,099 6/30/1999 $13,129 $15,869 7/31/1999 $12,576 $15,384 8/31/1999 $12,135 $15,240 9/30/1999 $11,251 $14,821 10/31/1999 $11,257 $15,817 11/30/1999 $11,324 $16,224 12/31/1999 $11,396 $17,202 1/31/2000 $10,627 $16,498 2/29/2000 $ 9,756 $16,453 3/31/2000 $10,716 $17,953 4/30/2000 $11,144 $17,354 5/31/2000 $11,233 $16,905 6/30/2000 $10,865 $17,336 7/31/2000 $10,906 $17,048 8/31/2000 $11,600 $18,310 9/30/2000 $11,199 $17,460 10/31/2000 $11,573 $17,250 11/30/2000 $11,287 $15,672 12/31/2000 $11,732 $15,862 1/31/2001 $12,273 $16,384 2/28/2001 $11,807 $14,856 3/31/2001 $11,273 $13,869 4/30/2001 $11,890 $14,983 5/31/2001 $12,221 $15,085 6/30/2001 $12,020 $14,744 7/31/2001 $11,937 $14,543 8/31/2001 $11,501 $13,656 9/30/2001 $10,485 $12,498 10/31/2001 $10,703 $12,758 11/30/2001 $11,636 $13,741 12/31/2001 $11,917 $13,887 1/31/2002 $11,909 $13,711 2/28/2002 $11,823 $13,438 3/31/2002 $12,312 $13,990 4/30/2002 $11,965 $13,188 5/31/2002 $11,823 $13,072 6/30/2002 $11,009 $12,107 7/31/2002 $10,227 $11,211 8/31/2002 $10,354 $11,270 9/30/2002 $ 9,114 $10,060 10/31/2002 $ 9,777 $10,895 11/30/2002 $10,433 $11,533 12/31/2002 $ 9,907 $10,880 1/31/2003 $ 9,629 $10,617 2/28/2003 $ 9,432 $10,452 3/31/2003 $ 9,522 $10,561 4/30/2003 $10,406 $11,413 5/31/2003 $10,971 $12,064 6/30/2003 $11,160 $12,222 7/31/2003 $11,348 $12,466 8/31/2003 $11,463 $12,719 9/30/2003 $11,389 $12,589 10/31/2003 $12,044 $13,327 11/30/2003 $12,175 $13,487 12/31/2003 $12,886 $14,132 1/31/2004 $13,002 $14,401 2/29/2004 $13,250 $14,601 3/31/2004 $13,018 $14,401 4/30/2004 $12,911 $14,141 5/31/2004 $12,993 $14,345 6/30/2004 $13,291 $14,604 7/31/2004 $12,812 $14,091 8/31/2004 $13,010 $14,160 9/30/2004 $13,200 $14,339 10/31/2004 $13,465 $14,570 11/30/2004 $13,985 $15,194 12/31/2004 $14,569 $15,744 1/31/2005 $14,279 $15,348 2/28/2005 $14,467 $15,693 3/31/2005 $14,338 $15,444 4/30/2005 $14,167 $15,159 5/31/2005 $14,501 $15,697 6/30/2005 $14,766 $15,761 7/31/2005 $15,262 $16,374 8/31/2005 $15,117 $16,232 9/30/2005 $15,262 $16,383 10/31/2005 $15,219 $16,096 11/30/2005 $15,706 $16,708 12/31/2005 $15,845 $16,732 1/31/2006 $16,170 $17,201 2/28/2006 $16,249 $17,240 3/31/2006 $16,416 $17,484 4/30/2006 $16,478 $17,694 5/31/2006 $15,950 $17,171 6/30/2006 $16,039 $17,194
6/30/97 = $9,450 THE FUND'S GROWTH OF AN ASSUMED $10,000 INVESTMENT IS ADJUSTED FOR THE MAXIMUM SALES CHARGE OF 5.50%. UBS U.S. LARGE CAP EQUITY FUND CLASS Y VS. RUSSELL 1000 INDEX Wealth value with dividends reinvested [CHART]
UBS U.S. LARGE CAP EQUITY FUND CLASS Y RUSSELL 1000 INDEX ------------------- ------------------ 2/22/1994 $10,000,000 $10,000,000 2/28/1994 $ 9,990,000 $ 9,929,287 3/31/1994 $ 9,420,000 $ 9,504,711 4/30/1994 $ 9,640,000 $ 9,618,862 5/31/1994 $ 9,840,000 $ 9,746,601 6/30/1994 $ 9,690,334 $ 9,486,270 7/31/1994 $ 9,911,254 $ 9,795,996 8/31/1994 $10,543,887 $10,209,583 9/30/1994 $10,182,382 $ 9,971,699 10/31/1994 $10,132,173 $10,159,965 11/30/1994 $ 9,780,711 $ 9,793,597 12/31/1994 $ 9,826,923 $ 9,932,960 1/31/1995 $10,030,168 $10,189,827 2/28/1995 $10,487,471 $10,605,265 3/31/1995 $10,751,690 $10,878,033 4/30/1995 $10,985,423 $11,166,845 5/31/1995 $11,391,914 $11,595,317 6/30/1995 $11,768,452 $11,902,245 7/31/1995 $12,186,932 $12,357,030 8/31/1995 $12,411,481 $12,450,077 9/30/1995 $12,880,995 $12,962,523 10/31/1995 $12,840,167 $12,903,543 11/30/1995 $13,575,058 $13,479,041 12/31/1995 $13,814,939 $13,684,462 1/31/1996 $14,381,383 $14,126,881 2/29/1996 $14,612,156 $14,310,671 3/31/1996 $14,884,888 $14,438,895 4/30/1996 $15,168,110 $14,658,800 5/31/1996 $15,409,373 $15,011,198 6/30/1996 $15,366,621 $15,027,686 7/31/1996 $14,629,360 $14,302,600 8/31/1996 $15,187,572 $14,691,774 9/30/1996 $15,872,172 $15,517,452 10/31/1996 $16,209,205 $15,860,388 11/30/1996 $17,336,161 $17,030,884 12/31/1996 $17,358,566 $16,755,290 1/31/1997 $17,989,162 $17,748,946 2/28/1997 $18,092,350 $17,817,013 3/31/1997 $17,496,151 $17,014,535 4/30/1997 $18,035,023 $17,935,154 5/31/1997 $19,353,540 $19,083,805 6/30/1997 $20,264,587 $19,874,686 7/31/1997 $21,815,448 $21,501,072 8/31/1997 $20,965,347 $20,486,837 9/30/1997 $21,907,351 $21,610,419 10/31/1997 $20,747,077 $20,910,180 11/30/1997 $21,160,640 $21,816,751 12/31/1997 $21,657,104 $22,259,798 1/31/1998 $21,804,934 $22,425,629 2/28/1998 $23,702,087 $24,024,267 3/31/1998 $25,069,515 $25,235,927 4/30/1998 $24,823,131 $25,495,366 5/31/1998 $24,465,875 $24,943,717 6/30/1998 $24,617,222 $25,867,129 7/31/1998 $23,999,009 $25,556,049 8/31/1998 $20,574,112 $21,736,084 9/30/1998 $22,070,186 $23,199,976 10/31/1998 $23,751,724 $25,032,410 11/30/1998 $24,740,864 $26,581,902 12/31/1998 $25,679,735 $28,275,142 1/31/1999 $25,508,800 $29,284,055 2/28/1999 $24,575,231 $28,354,685 3/31/1999 $25,377,311 $29,441,160 4/30/1999 $27,665,214 $30,672,475 5/31/1999 $27,323,344 $30,009,370 6/30/1999 $28,363,498 $31,538,584 7/31/1999 $27,175,083 $30,575,646 8/31/1999 $26,224,351 $30,289,168 9/30/1999 $24,322,888 $29,456,336 10/31/1999 $24,336,092 $31,436,436 11/30/1999 $24,481,343 $32,245,142 12/31/1999 $24,639,919 $34,188,019 1/31/2000 $22,984,562 $32,788,338 2/29/2000 $21,109,467 $32,700,639 3/31/2000 $23,204,300 $35,680,321 4/30/2000 $24,127,198 $34,490,878 5/31/2000 $24,332,287 $33,598,825 6/30/2000 $23,541,231 $34,455,419 7/31/2000 $23,629,126 $33,882,945 8/31/2000 $25,137,991 $36,390,961 9/30/2000 $24,273,690 $34,701,838 10/31/2000 $25,094,044 $34,283,854 11/30/2000 $24,464,129 $31,148,596 12/31/2000 $25,436,888 $31,525,183 1/31/2001 $26,621,130 $32,562,519 2/28/2001 $25,615,335 $29,525,152 3/31/2001 $24,463,537 $27,564,170 4/30/2001 $25,810,005 $29,778,889 5/31/2001 $26,523,795 $29,980,156 6/30/2001 $26,102,523 $29,302,964 7/31/2001 $25,923,850 $28,902,892 8/31/2001 $24,965,512 $27,141,387 9/30/2001 $22,772,705 $24,839,515 10/31/2001 $23,243,753 $25,356,723 11/30/2001 $25,290,372 $27,309,203 12/31/2001 $25,913,381 $27,600,418 1/31/2002 $25,896,344 $27,249,796 2/28/2002 $25,708,936 $26,706,968 3/31/2002 $26,799,308 $27,804,370 4/30/2002 $26,049,677 $26,211,352 5/31/2002 $25,743,010 $25,980,215 6/30/2002 $23,971,155 $24,062,640 7/31/2002 $22,284,485 $22,282,004 8/31/2002 $22,557,078 $22,398,692 9/30/2002 $19,848,184 $19,993,111 10/31/2002 $21,313,372 $21,654,262 11/30/2002 $22,744,486 $22,921,494 12/31/2002 $21,623,804 $21,624,168 1/31/2003 $21,020,184 $21,100,134 2/28/2003 $20,576,346 $20,773,677 3/31/2003 $20,789,388 $20,988,705 4/30/2003 $22,724,523 $22,683,084 5/31/2003 $23,949,517 $23,976,383 6/30/2003 $24,375,602 $24,291,765 7/31/2003 $24,801,687 $24,775,745 8/31/2003 $25,050,236 $25,278,633 9/30/2003 $24,890,455 $25,019,749 10/31/2003 $26,346,244 $26,486,682 11/30/2003 $26,630,301 $26,804,301 12/31/2003 $28,211,713 $28,087,867 1/31/2004 $28,445,313 $28,621,745 2/29/2004 $29,020,329 $29,018,125 3/31/2004 $28,517,190 $28,622,304 4/30/2004 $28,283,590 $28,104,872 5/31/2004 $28,481,252 $28,510,203 6/30/2004 $29,128,145 $29,024,166 7/31/2004 $28,085,928 $28,004,966 8/31/2004 $28,535,159 $28,143,022 9/30/2004 $28,948,452 $28,498,344 10/31/2004 $29,541,437 $28,957,935 11/30/2004 $30,673,500 $30,197,758 12/31/2004 $31,976,000 $31,291,132 1/31/2005 $31,341,570 $30,502,734 2/28/2005 $31,769,886 $31,188,653 3/31/2005 $31,490,549 $30,694,939 4/30/2005 $31,118,100 $30,128,841 5/31/2005 $31,862,998 $31,196,932 6/30/2005 $32,441,000 $31,324,360 7/31/2005 $33,539,018 $32,542,590 8/31/2005 $33,241,059 $32,260,995 9/30/2005 $33,557,640 $32,560,714 10/31/2005 $33,483,150 $31,989,697 11/30/2005 $34,563,252 $33,207,367 12/31/2005 $34,872,000 $33,254,465 1/31/2006 $35,599,478 $34,186,864 2/28/2006 $35,772,012 $34,263,331 3/31/2006 $36,136,250 $34,748,384 4/30/2006 $36,289,613 $35,165,370 5/31/2006 $35,120,217 $34,126,985 6/30/2006 $35,331,092 $34,171,559
2/22/94 = $10,000,000 PAST PERFORMANCE DOES NOT PREDICT FUTURE PERFORMANCE, AND THE PERFORMANCE INFORMATION PROVIDED DOES NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PERFORMANCE RESULTS ASSUME REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS AT NET ASSET VALUE ON THE EX-DIVIDEND DATES. 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. -------------------------------------------------------------------------------- 52 UBS U.S. LARGE CAP EQUITY FUND -------------------------------------------------------------------------------- EXPLANATION OF EXPENSE DISCLOSURE (UNAUDITED) As a shareholder of the Fund, you incur two types of costs: (1) transactional costs (as applicable); including sales charges (loads); 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, January 1, 2006 to June 30, 2006. 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 EXPENSE ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD* RATIO JANUARY 1, 2006 JUNE 30, 2006 01/01/06 TO 06/30/06 DURING PERIOD --------------------------------------------------------------------------------------------------------------------- CLASS A Actual $1,000.00 $1,012.20 $ 6.44 1.29% Hypothetical (5% annual return before expenses) 1,000.00 1,018.40 6.46 1.29% CLASS B Actual 1,000.00 1,007.90 10.26 2.06% Hypothetical (5% annual return before expenses) 1,000.00 1,014.58 10.29 2.06% CLASS C Actual 1,000.00 1,007.90 10.11 2.03% Hypothetical (5% annual return before expenses) 1,000.00 1,014.73 10.14 2.03% CLASS Y Actual 1,000.00 1,013.20 5.29 1.06% Hypothetical (5% annual return before expenses) 1,000.00 1,019.54 5.31 1.06%
* EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED NET EXPENSE RATIOS, MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 181 DIVIDED BY 365 (TO REFLECT THE ONE-HALF YEAR PERIOD). -------------------------------------------------------------------------------- 53 UBS U.S. LARGE CAP EQUITY FUND -------------------------------------------------------------------------------- TOP TEN EQUITY HOLDINGS AS OF JUNE 30, 2006 (UNAUDITED) PERCENTAGE OF NET ASSETS ----------------------------------- Citigroup, Inc. 4.4% Morgan Stanley 3.5 Microsoft Corp. 3.5 Wells Fargo & Co. 3.2 Wyeth 3.1 Exelon Corp. 2.7 Allergan, Inc. 2.4 Sprint Nextel Corp. 2.4 Masco Corp. 2.2 Omnicom Group, Inc. 2.2 ----------------------------------- Total 29.6% INDUSTRY DIVERSIFICATION AS A PERCENT OF NET ASSETS AS OF JUNE 30, 2006 (UNAUDITED) Equities Aerospace & Defense 1.16% Air Freight & Logistics 1.72 Auto Components 2.52 Automobiles 0.93 Beverages 0.75 Biotechnology 2.22 Building Products 2.24 Capital Markets 5.27 Commercial Banks 6.59 Commercial Services & Supplies 0.67 Computers & Peripherals 1.11 Diversified Consumer Services 0.52 Diversified Financial Services 6.31 Diversified Telecommunication Services 1.54 Electric Utilities 4.17 Energy Equipment & Services 2.35 Food & Staples Retailing 4.24 Health Care Equipment & Supplies 1.29 Health Care Providers & Services 4.97 Hotels, Restaurants & Leisure 1.60 Insurance 4.25 Internet & Catalog Retail 0.34% IT Services 0.76 Life Sciences Tools & Services 0.92 Machinery 2.08 Media 5.41 Multi-Utilities & Unregulated Power 1.62 Multiline Retail 1.44 Oil & Gas 2.74 Pharmaceuticals 9.02 Road & Rail 1.95 Semiconductors & Semiconductor Equipment 2.70 Software 7.66 Thrifts & Mortgage Finance 1.38 Wireless Telecommunication Services 2.40 ------ Total Equities 96.84* Short-Term Investments 3.00 ------ Total Investments 99.84 Cash and other assets, less liabilities 0.16 ------ Net assets 100.00% ====== -------------------------------------------------------------------------------- * THE FUND HELD A LONG POSITION IN US STOCK INDEX FUTURES WHICH INCREASED US EQUITY EXPOSURE FROM 96.84% TO 96.89%. -------------------------------------------------------------------------------- 54 UBS U.S. LARGE CAP EQUITY FUND--SCHEDULE OF INVESTMENTS June 30, 2006 -------------------------------------------------------------------------------- SHARES VALUE ------- ----------- EQUITIES -- 96.84% AEROSPACE & DEFENSE -- 1.16% Lockheed Martin Corp. 23,500 $ 1,685,890 Northrop Grumman Corp. 89,500 5,733,370 ----------- 7,419,260 ----------- AIR FREIGHT & LOGISTICS -- 1.72% FedEx Corp. 93,900 10,973,154 ----------- AUTO COMPONENTS -- 2.52% Borg-Warner, Inc. 66,200 4,309,620 Johnson Controls, Inc. 143,700 11,815,014 ----------- 16,124,634 ----------- AUTOMOBILES -- 0.93% Harley-Davidson, Inc. 107,900 5,922,631 ----------- BEVERAGES -- 0.75% Anheuser-Busch Cos., Inc. 104,700 4,773,273 ----------- BIOTECHNOLOGY -- 2.22% Cephalon, Inc. (a) 60,400 3,630,040 Genzyme Corp. (a) 173,100 10,567,755 ----------- 14,197,795 ----------- BUILDING PRODUCTS -- 2.24% Masco Corp. 483,500 14,330,940 ----------- CAPITAL MARKETS -- 5.27% Mellon Financial Corp. 330,800 11,389,444 Morgan Stanley 352,800 22,300,488 ----------- 33,689,932 ----------- COMMERCIAL BANKS -- 6.59% Fifth Third Bancorp 319,200 11,794,440 PNC Financial Services Group, Inc. 141,800 9,950,106 Wells Fargo & Co. 304,000 20,392,320 ----------- 42,136,866 ----------- COMMERCIAL SERVICES & SUPPLIES -- 0.67% Cendant Corp. 263,200 4,287,528 ----------- COMPUTERS & PERIPHERALS -- 1.11% Dell, Inc. (a) 290,800 7,098,428 ----------- DIVERSIFIED CONSUMER SERVICES -- 0.52% H & R Block, Inc. 139,300 3,323,698 ----------- DIVERSIFIED FINANCIAL SERVICES -- 6.31% Citigroup, Inc. 587,261 28,329,471 JPMorgan Chase & Co. 285,700 11,999,400 ----------- 40,328,871 ----------- DIVERSIFIED TELECOMMUNICATION SERVICES -- 1.54% AT&T, Inc. 297,000 8,283,330 Embarq Corp. (a) 38,301 1,569,958 ----------- 9,853,288 ----------- ELECTRIC UTILITIES -- 4.17% American Electric Power Co., Inc. 149,300 5,113,525 Exelon Corp. 302,700 17,202,441 Northeast Utilities 77,600 $ 1,603,992 Pepco Holdings, Inc. 116,700 2,751,786 ----------- 26,671,744 ----------- ENERGY EQUIPMENT & SERVICES -- 2.35% Baker Hughes, Inc. 57,900 4,739,115 ENSCO International, Inc. 61,700 2,839,434 GlobalSantaFe Corp. 128,600 7,426,650 ----------- 15,005,199 ----------- FOOD & STAPLES RETAILING -- 4.24% Costco Wholesale Corp. 207,800 11,871,614 Kroger Co. 423,800 9,264,268 Sysco Corp. 195,700 5,980,592 ----------- 27,116,474 ----------- HEALTH CARE EQUIPMENT & SUPPLIES -- 1.29% Boston Scientific Corp. (a) 132,300 2,227,932 Medtronic, Inc. 128,200 6,015,144 ----------- 8,243,076 ----------- HEALTH CARE PROVIDERS & SERVICES -- 4.97% Caremark Rx, Inc. 114,600 5,715,102 Healthsouth Corp. (a) 70,800 272,580 Medco Health Solutions, Inc. (a) 143,800 8,236,864 UnitedHealth Group, Inc. 306,900 13,742,982 WellPoint, Inc. (a) 52,400 3,813,148 ----------- 31,780,676 ----------- HOTELS, RESTAURANTS & LEISURE -- 1.60% Carnival Corp. 244,200 10,192,908 ----------- INSURANCE -- 4.25% Allstate Corp. 117,000 6,403,410 American International Group, Inc. 236,200 13,947,610 Hartford Financial Services Group, Inc. 80,700 6,827,220 ----------- 27,178,240 ----------- INTERNET & CATALOG RETAIL -- 0.34% Expedia, Inc. (a) 146,150 2,187,865 ----------- IT SERVICES -- 0.76% Accenture Ltd., Class A 170,700 4,834,224 ----------- LIFE SCIENCES TOOLS & SERVICES -- 0.92% Waters Corp. (a) 133,200 5,914,080 ----------- MACHINERY -- 2.08% Illinois Tool Works, Inc. 279,600 13,281,000 ----------- MEDIA -- 5.41% DIRECTV Group, Inc. (a) 482,800 7,966,200 News Corp., Class A 257,400 4,936,932 Omnicom Group, Inc. 157,300 14,013,857 R.H. Donnelley Corp. 99,995 5,406,730 Univision Communications, Inc., Class A (a) 66,300 2,221,050 ----------- 34,544,769 ----------- -------------------------------------------------------------------------------- 55 UBS U.S. LARGE CAP EQUITY FUND--SCHEDULE OF INVESTMENTS June 30, 2006 -------------------------------------------------------------------------------- SHARES VALUE ---------- ------------ MULTI-UTILITIES & UNREGULATED POWER -- 1.62% NiSource, Inc. 178,100 $ 3,889,704 Sempra Energy 141,600 6,439,968 ------------ 10,329,672 ------------ MULTILINE RETAIL -- 1.44% Kohl's Corp. (a) 155,700 9,204,984 ------------ OIL & GAS -- 2.74% EOG Resources, Inc. 18,900 1,310,526 ExxonMobil Corp. 98,300 6,030,705 Marathon Oil Corp. 122,000 10,162,600 ------------ 17,503,831 ------------ PHARMACEUTICALS -- 9.02% Allergan, Inc. 143,200 15,359,632 Bristol-Myers Squibb Co. 342,000 8,844,120 Johnson & Johnson 231,844 13,892,092 Wyeth 439,600 19,522,636 ------------ 57,618,480 ------------ ROAD & RAIL -- 1.95% Burlington Northern Santa Fe Corp. 157,000 12,442,250 ------------ SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 2.70% Analog Devices, Inc. 163,000 5,238,820 Intel Corp. 463,900 8,790,905 Xilinx, Inc. 141,200 3,198,180 ------------ 17,227,905 ------------ SOFTWARE -- 7.66% Mercury Interactive Corp. (a) 139,400 4,874,818 Microsoft Corp. 946,800 22,060,440 Oracle Corp. (a) 875,200 $ 12,681,648 Salesforce.com, Inc. (a) 65,600 1,748,896 Symantec Corp. (a) 487,102 7,569,565 ------------ 48,935,367 ------------ THRIFTS & MORTGAGE FINANCE -- 1.38% Freddie Mac 154,700 8,819,447 ------------ WIRELESS TELECOMMUNICATION SERVICES -- 2.40% Sprint Nextel Corp. 766,320 15,318,737 ------------ Total Equities (Cost $555,463,463) 618,811,226 ------------ SHORT-TERM INVESTMENTS -- 3.00% OTHER* -- 2.84% UBS Supplementary Trust -- U.S. Cash Management Prime Fund, yield of 5.21% 18,145,640 18,145,640 ------------ FACE AMOUNT ---------- US GOVERNMENT OBLIGATION -- 0.16% US Treasury Bills, yield of 4.06%, due 07/06/06 (b) $1,050,000 1,049,223 ------------ Total Short-Term Investments (Cost $19,195,014) 19,194,863 ------------ Total Investments -- 99.84% (Cost $574,658,477) 638,006,089 Cash and other assets, less liabilities -- 0.16% 1,026,116 ------------ Net Assets -- 100.00% $639,032,205 ============ NOTES TO SCHEDULE OF INVESTMENTS Aggregate cost for federal income tax purposes was $577,475,866; and net unrealized appreciation consisted of: Gross unrealized appreciation $ 75,479,132 Gross unrealized depreciation (14,948,909) ------------ Net unrealized appreciation $ 60,530,223 ============ (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 June 30, 2006:
EXPIRATION CURRENT UNREALIZED DATE COST VALUE APPRECIATION -------------- ----------- ----------- ------------ INDEX FUTURES BUY CONTRACTS: S&P 500 Index, 40 contracts September 2006 $12,487,150 $12,794,000 $306,850 ========
The segregated aggregate market value of investments pledged to cover margin requirements for the open futures positions at June 30, 2006 was $1,049,223. -------------------------------------------------------------------------------- See accompanying notes to financial statements. 56 UBS U.S. LARGE CAP GROWTH FUND -------------------------------------------------------------------------------- For the fiscal year ended June 30, 2006, Class A shares of UBS U.S. Large Cap Growth Fund (the "Fund") returned 7.33% (1.40% after the deduction of the maximum sales charge) and Class Y shares returned 7.72%. The Fund's benchmark, the Russell 1000 Growth Index (the "Index"), returned 6.12% over the same time 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 59; please note that these returns do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.) The past 12 months were a positive period for equity investors, and generally favored more volatile asset classes, with smaller capitalization companies outperforming large cap stocks. Value style equities were stronger than growth equities, especially within the large cap space, making large cap growth a particularly challenging space over the Fund's fiscal year. That said, the Fund outperformed the Index over the fiscal year, primarily due to a number of key holdings in certain strong sectors. ENERGY AND TECHNOLOGY SECTOR STOCKS WERE SOME OF THE FUND'S TOP CONTRIBUTORS Energy stocks were by far the leading performers from an industry standpoint over the one-year period. Oil prices rose dramatically over the past 12 months, from below $60 a barrel to well over $70, hitting record highs more than once toward the end of the reporting period. As oil prices rose, many companies throughout the energy supply chain, from production and exploration companies to retail-focused energy distributors, benefited from higher profit margins. Our research suggested this was likely to be the case, and the Fund was significantly overweight to energy sector companies during the period, which helped performance substantially. The Fund's top performers in the industry were Weatherford International and Peabody Energy Corp. Weatherford International's primary focus is designing and manufacturing drilling equipment, services and production systems. Peabody Energy, on the other hand, is one of the world's largest coal companies. Given natural gas prices during much of the period, coal was a much cheaper alternative for electricity production which rekindled coal demand. Peabody is able to arbitrage between the two materials and could continue to grow earnings based on this imbalance. A number of the Fund's largest positions are within the technology sector. Although we construct our portfolio primarily through bottom-up analysis on a company-by-company basis, there were a number of larger themes in play during the reporting period. One involves our belief that the shift from traditional to digital media--whether dealing with advertising spending or the entertainment industry--is just beginning in earnest, and that as this trend continues to evolve, the growth opportunities for industry leaders may make for some attractive investment opportunities. Google, the industry-leading Internet search platform, represented one of the Fund's largest overweight positions and one of its top contributors to performance. A number of factors contributed to Google's solid performance (and our conviction in the attractiveness of the stock). Google's paid search platform has enabled it to grow its share of both consumer searches and advertiser dollars at a rate significantly higher than the industry average. Furthermore, our research indicates that nearly one quarter of media consumption today takes place via the Internet and yet advertisers allocate less than 4% of their ad budgets to online channels. It is our view that we may see a shift in how advertising dollars are spent and that may benefit Google disproportionately. Apple was another large overweight position and top performer during the year. Sales of the company's iPod have continued to be quite strong, and during the year Apple's iTunes music store, which sells songs in digital format directly over the Internet, recorded its one-billionth download. Also worth mentioning in the technology sector is Intel, the semiconductor chip manufacturer. Sales of new chips have been sluggish at Intel for some time, and the Fund's limited exposure to the company, whose shares declined notably over the past 12 months, benefited the Fund's performance relative to the Index. HEALTH CARE HOLDINGS POSTED DISAPPOINTING RETURNS DURING THE PERIOD Two stocks with disappointing returns during the year were Kinetic Concepts and Zimmer Holdings, -------------------------------------------------------------------------------- 57 UBS U.S. LARGE CAP GROWTH FUND -------------------------------------------------------------------------------- both of which are companies in the health care equipment and supplies industry. Kinetic Concepts manufactures and sells advanced wound-care systems primarily to hospitals and extended-care facilities. An unusual move by the FDA removed the competitive position that Kinetic Concepts had enjoyed and led to our sale of the stock. Zimmer Holdings manufactures orthopedic surgery devices which we still believe to be an attractive part of the health care market, despite its disappointing recent performance. MANAGEMENT REMAINS CAUTIOUSLY OPTIMISTIC ON THE ECONOMY IN THE MONTHS AHEAD Looking ahead, a number of factors may determine the strength of the economy over the remainder of 2006. As the Federal Reserve Board continues to fight inflation, it will be forced to strike a difficult balance between maintaining price stability and avoiding raising short term interest rates too high, to the point of putting the brakes on what has been a period of robust economic expansion. We generally believe that the system for implementing monetary policy in the US is dynamic enough to make that balance possible. Meanwhile, while a cooling housing market is an issue of some potential concern, other economic indicators remain solid--job growth and corporate profitability are both stable, and we anticipate they should remain so over the months ahead. Ultimately, we believe the equity markets may reward those companies that are leaders within their industries and are able to best navigate an ever-changing economic landscape. We continue to seek out those companies through extensive bottom-up research, and to position the portfolio accordingly. -------------------------------------------------------------------------------- THIS LETTER IS INTENDED TO ASSIST SHAREHOLDERS IN UNDERSTANDING HOW THE FUND PERFORMED DURING THE FISCAL YEAR ENDED JUNE 30, 2006. THE VIEWS AND OPINIONS IN THE LETTER WERE CURRENT AS OF AUGUST 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. -------------------------------------------------------------------------------- 58 UBS U.S. LARGE CAP GROWTH FUND -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURN (UNAUDITED) 1 YEAR 5 YEARS INCEPTION* ENDED ENDED TO 06/30/06 06/30/06 06/30/06 --------------------------------------------------------------------------- UBS U.S. Large Cap Growth Fund Class A 7.33% -0.08% -0.88% UBS U.S. Large Cap Growth Fund Class B 6.50 N/A 1.88 UBS U.S. Large Cap Growth Fund Class C 6.63 N/A 1.04 UBS U.S. Large Cap Growth Fund Class Y 7.72 0.20 2.01 UBS U.S. Large Cap Growth Fund Class A** 1.40 -1.21 -1.63 UBS U.S. Large Cap Growth Fund Class B** 1.50 N/A 1.48 UBS U.S. Large Cap Growth Fund Class C** 5.63 N/A 1.04 Russell 1000 Growth Index*** 6.12 -0.76 1.82 * 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 RUSSELL 1000 GROWTH INDEX MEASURES THE PERFORMANCE OF THOSE RUSSELL 1000 COMPANIES WITH HIGHER PRICE-TO-BOOK RATIOS AND HIGHER FORECASTED GROWTH VALUES. THE Y SHARE CLASS IS OUR LOWEST FEE SHARE CLASS. OUR OTHER SHARE CLASSES INCLUDE HIGHER FEES AND LOADS, WHICH MAY RESULT IN LOWER PERFORMANCE THAN CLASS Y. 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. -------------------------------------------------------------------------------- 59 UBS U.S. LARGE CAP GROWTH FUND -------------------------------------------------------------------------------- ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000 IN CLASS A SHARES (ADJUSTED FOR MAXIMUM SALES CHARGE) AND $10,000,000 IN CLASS Y SHARES (UNAUDITED) The following two charts show the growth in the value of an investment in UBS U.S. Large Cap Growth Fund Class A shares (adjusted for 5.50% maximum sales charge), Class Y shares and the Russell 1000 Growth Index, if you had invested $10,000 in Class A shares on December 31, 1998 or $10,000,000 in Class Y shares on October 14, 1997, and had reinvested all your income dividends and capital gain distributions through June 30, 2006. The performance of Class B and Class C shares will vary based upon the different inception dates, class specific expenses and sales charges. No adjustment has been made for any income taxes payable by shareholders on income dividends and capital gain distributions. Past performance is no guarantee of future results. Share price and returns will vary with market conditions; investors may realize a gain or loss upon redemption. UBS U.S. LARGE CAP GROWTH FUND CLASS A VS. RUSSELL 1000 GROWTH INDEX Wealth value with dividends reinvested [CHART]
UBS U.S. LARGE CAP RUSSELL 1000 GROWTH FUND CLASS A GROWTH INDEX ------------------- ------------ 12/31/1998 $ 9,449 $10,000 1/31/1999 $10,040 $10,587 2/28/1999 $ 9,601 $10,104 3/31/1999 $10,064 $10,636 4/30/1999 $10,439 $10,649 5/31/1999 $10,311 $10,322 6/30/1999 $11,077 $11,045 7/31/1999 $10,623 $10,694 8/31/1999 $10,615 $10,869 9/30/1999 $10,247 $10,640 10/31/1999 $10,814 $11,444 11/30/1999 $11,365 $12,061 12/31/1999 $12,494 $13,316 1/31/2000 $12,007 $12,691 2/29/2000 $12,562 $13,312 3/31/2000 $13,382 $14,265 4/30/2000 $13,006 $13,586 5/31/2000 $12,503 $12,902 6/30/2000 $12,981 $13,880 7/31/2000 $12,665 $13,301 8/31/2000 $13,391 $14,505 9/30/2000 $12,187 $13,133 10/31/2000 $11,947 $12,512 11/30/2000 $10,641 $10,668 12/31/2000 $10,457 $10,330 1/31/2001 $11,026 $11,044 2/28/2001 $ 9,409 $ 9,169 3/31/2001 $ 8,411 $ 8,171 4/30/2001 $ 9,309 $ 9,204 5/31/2001 $ 9,210 $ 9,069 6/30/2001 $ 8,880 $ 8,859 7/31/2001 $ 8,631 $ 8,637 8/31/2001 $ 7,902 $ 7,931 9/30/2001 $ 7,094 $ 7,139 10/31/2001 $ 7,443 $ 7,514 11/30/2001 $ 8,142 $ 8,236 12/31/2001 $ 8,040 $ 8,220 1/31/2002 $ 7,879 $ 8,075 2/28/2002 $ 7,508 $ 7,740 3/31/2002 $ 7,769 $ 8,008 4/30/2002 $ 7,166 $ 7,354 5/31/2002 $ 7,016 $ 7,176 6/30/2002 $ 6,404 $ 6,512 7/31/2002 $ 5,972 $ 6,154 8/31/2002 $ 6,012 $ 6,173 9/30/2002 $ 5,360 $ 5,532 10/31/2002 $ 5,852 $ 6,040 11/30/2002 $ 6,123 $ 6,368 12/31/2002 $ 5,721 $ 5,928 1/31/2003 $ 5,631 $ 5,784 2/28/2003 $ 5,611 $ 5,758 3/31/2003 $ 5,691 $ 5,865 4/30/2003 $ 6,052 $ 6,299 5/31/2003 $ 6,343 $ 6,613 6/30/2003 $ 6,414 $ 6,704 7/31/2003 $ 6,604 $ 6,871 8/31/2003 $ 6,725 $ 7,042 9/30/2003 $ 6,685 $ 6,966 10/31/2003 $ 7,046 $ 7,358 11/30/2003 $ 7,146 $ 7,434 12/31/2003 $ 7,407 $ 7,692 1/31/2004 $ 7,628 $ 7,849 2/29/2004 $ 7,738 $ 7,899 3/31/2004 $ 7,628 $ 7,752 4/30/2004 $ 7,457 $ 7,662 5/31/2004 $ 7,598 $ 7,805 6/30/2004 $ 7,738 $ 7,902 7/31/2004 $ 7,297 $ 7,456 8/31/2004 $ 7,267 $ 7,419 9/30/2004 $ 7,568 $ 7,489 10/31/2004 $ 7,698 $ 7,606 11/30/2004 $ 7,989 $ 7,868 12/31/2004 $ 8,270 $ 8,176 1/31/2005 $ 7,959 $ 7,903 2/28/2005 $ 8,130 $ 7,988 3/31/2005 $ 7,919 $ 7,842 4/30/2005 $ 7,708 $ 7,693 5/31/2005 $ 8,150 $ 8,065 6/30/2005 $ 8,240 $ 8,035 7/31/2005 $ 8,692 $ 8,428 8/31/2005 $ 8,652 $ 8,319 9/30/2005 $ 8,893 $ 8,358 10/31/2005 $ 8,883 $ 8,277 11/30/2005 $ 9,344 $ 8,634 12/31/2005 $ 9,437 $ 8,607 1/31/2006 $ 9,798 $ 8,758 2/28/2006 $ 9,597 $ 8,744 3/31/2006 $ 9,607 $ 8,873 4/30/2006 $ 9,497 $ 8,861 5/31/2006 $ 8,925 $ 8,560 6/30/2006 $ 8,844 $ 8,527
12/31/98 = $9,450 THE FUND'S GROWTH OF AN ASSUMED $10,000 INVESTMENT IS ADJUSTED FOR THE MAXIMUM SALES CHARGE OF 5.50%. UBS U.S. LARGE CAP GROWTH FUND CLASS Y VS. RUSSELL 1000 GROWTH INDEX Wealth value with dividends reinvested [CHART]
UBS U.S. LARGE CAP RUSSELL 1000 GROWTH FUND CLASS Y GROWTH INDEX ------------------- ------------ 10/14/1997 $10,000,000 $10,000,000 10/31/1997 $ 9,570,000 $ 9,388,821 11/30/1997 $ 9,750,000 $ 9,787,609 12/31/1997 $ 9,942,573 $ 9,897,253 1/31/1998 $ 9,872,414 $10,193,203 2/1/1998 $10,443,711 $10,193,203 3/31/1998 $10,854,644 $11,396,867 4/30/1998 $11,075,144 $11,554,579 5/31/1998 $10,824,576 $11,226,706 6/30/1998 $11,255,554 $11,914,297 7/31/1998 $11,205,440 $11,835,433 8/31/1998 $ 9,321,162 $10,059,219 9/30/1998 $ 9,822,492 $10,831,941 10/31/1998 $10,804,742 $11,702,522 11/30/1998 $11,586,532 $12,592,674 12/31/1998 $12,420,761 $13,728,154 1/31/1999 $13,207,550 $14,534,245 2/28/1999 $12,630,572 $13,870,275 3/31/1999 $13,249,512 $14,600,765 4/30/1999 $13,742,566 $14,619,435 5/31/1999 $13,574,717 $14,170,142 6/30/1999 $14,592,297 $15,162,687 7/31/1999 $13,994,338 $14,680,796 8/31/1999 $13,983,847 $14,920,672 9/30/1999 $13,511,774 $14,607,235 10/31/1999 $14,256,600 $15,710,338 11/30/1999 $14,980,445 $16,557,974 12/31/1999 $16,486,234 $18,280,132 1/31/2000 $15,846,536 $17,423,003 2/29/2000 $16,576,016 $18,274,739 3/31/2000 $17,664,623 $19,582,767 4/30/2000 $17,182,045 $18,650,930 5/31/2000 $16,508,679 $17,711,916 6/30/2000 $17,148,376 $19,054,267 7/31/2000 $16,733,134 $18,259,801 8/31/2000 $17,698,292 $19,913,226 9/30/2000 $16,104,660 $18,029,455 10/31/2000 $15,790,422 $17,176,481 11/30/2000 $14,062,117 $14,644,531 12/31/2000 $13,832,661 $14,181,046 1/31/2001 $14,592,409 $15,160,786 2/28/2001 $12,457,254 $12,586,955 3/31/2001 $11,147,343 $11,217,149 4/30/2001 $12,339,362 $12,635,999 5/31/2001 $12,195,272 $12,449,859 6/30/2001 $11,776,100 $12,161,615 7/31/2001 $11,448,623 $11,857,596 8/31/2001 $10,479,288 $10,888,177 9/30/2001 $ 9,418,260 $ 9,800,880 10/31/2001 $ 9,876,729 $10,315,131 11/30/2001 $10,806,766 $11,306,060 12/31/2001 $10,685,468 $11,284,836 1/31/2002 $10,461,482 $11,085,503 2/28/2002 $ 9,987,158 $10,625,459 3/31/2002 $10,329,725 $10,992,863 4/30/2002 $ 9,526,009 $10,095,721 5/31/2002 $ 9,328,374 $ 9,851,645 6/30/2002 $ 8,524,659 $ 8,940,162 7/31/2002 $ 7,944,929 $ 8,448,856 8/31/2002 $ 7,997,632 $ 8,474,095 9/30/2002 $ 7,141,213 $ 7,595,022 10/31/2002 $ 7,799,997 $ 8,291,684 11/30/2002 $ 8,155,740 $ 8,741,976 12/31/2002 $ 7,628,713 $ 8,138,240 1/31/2003 $ 7,496,956 $ 7,940,628 2/28/2003 $ 7,470,605 $ 7,904,204 3/31/2003 $ 7,589,186 $ 8,051,337 4/30/2003 $ 8,063,510 $ 8,646,755 5/31/2003 $ 8,458,780 $ 9,078,118 6/30/2003 $ 8,551,010 $ 9,203,167 7/31/2003 $ 8,814,523 $ 9,432,328 8/31/2003 $ 8,972,631 $ 9,666,939 9/30/2003 $ 8,919,929 $ 9,563,401 10/31/2003 $ 9,394,253 $10,100,596 11/30/2003 $ 9,552,361 $10,206,143 12/31/2003 $ 9,894,928 $10,559,206 1/31/2004 $10,197,969 $10,774,887 2/29/2004 $10,342,901 $10,843,435 3/31/2004 $10,197,969 $10,642,094 4/30/2004 $ 9,973,982 $10,518,479 5/31/2004 $10,158,442 $10,714,370 6/30/2004 $10,342,901 $10,848,311 7/31/2004 $ 9,763,171 $10,235,110 8/31/2004 $ 9,723,644 $10,184,632 9/30/2004 $10,132,090 $10,281,574 10/31/2004 $10,303,374 $10,441,901 11/30/2004 $10,685,468 $10,800,987 12/31/2004 $11,080,738 $11,224,319 1/31/2005 $10,659,117 $10,850,031 2/28/2005 $10,896,279 $10,965,616 3/31/2005 $10,619,590 $10,765,709 4/30/2005 $10,329,725 $10,560,927 5/31/2005 $10,935,806 $11,071,736 6/30/2005 $11,041,211 $11,031,009 7/31/2005 $11,660,468 $11,570,212 8/31/2005 $11,607,765 $11,421,070 9/30/2005 $11,923,981 $11,473,557 10/31/2005 $11,923,981 $11,362,275 11/30/2005 $12,556,414 $11,852,434 12/31/2005 $12,672,078 $11,815,297 1/31/2006 $13,159,973 $12,022,718 2/28/2006 $12,883,060 $12,003,613 3/31/2006 $12,909,432 $12,180,854 4/30/2006 $12,764,383 $12,164,289 5/31/2006 $11,986,388 $11,751,973 6/30/2006 $11,894,084 $11,705,603
10/14/97 = $10,000,000 PAST PERFORMANCE DOES NOT PREDICT FUTURE PERFORMANCE, AND THE PERFORMANCE INFORMATION PROVIDED DOES NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PERFORMANCE RESULTS ASSUME REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS AT NET ASSET VALUE ON THE EX-DIVIDEND DATES. 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. -------------------------------------------------------------------------------- 60 UBS U.S. LARGE CAP GROWTH FUND -------------------------------------------------------------------------------- EXPLANATION OF EXPENSE DISCLOSURE (UNAUDITED) As a shareholder of the Fund, you incur two types of costs: (1) transactional costs (as applicable); including sales charges (loads); 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, January 1, 2006 to June 30, 2006. 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 EXPENSE ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD* RATIO JANUARY 1, 2006 JUNE 30, 2006 01/01/06 TO 06/30/06 DURING PERIOD --------------------------------------------------------------------------------------------------------------------- CLASS A Actual $1,000.00 $ 937.20 $5.04 1.05% Hypothetical (5% annual return before expenses) 1,000.00 1,019.59 5.26 1.05% CLASS B Actual 1,000.00 933.20 8.63 1.80% Hypothetical (5% annual return before expenses) 1,000.00 1,015.87 9.00 1.80% CLASS C Actual 1,000.00 935.30 8.64 1.80% Hypothetical (5% annual return before expenses) 1,000.00 1,015.87 9.00 1.80% CLASS Y Actual 1,000.00 938.60 3.85 0.80% Hypothetical (5% annual return before expenses) 1,000.00 1,020.83 4.01 0.80%
* EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED NET EXPENSE RATIOS, MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 181 DIVIDED BY 365 (TO REFLECT THE ONE-HALF YEAR PERIOD). -------------------------------------------------------------------------------- 61 UBS U.S. LARGE CAP GROWTH FUND -------------------------------------------------------------------------------- TOP TEN EQUITY HOLDINGS AS OF JUNE 30, 2006 (UNAUDITED) PERCENTAGE OF NET ASSETS ----------------------------------------- Google, Inc., (Class A) 4.9% General Electric Co. 4.8 Allergan, Inc. 3.6 United Technologies Corp. 3.4 Johnson & Johnson 3.3 PepsiCo, Inc. 3.3 Hilton Hotels Corp. 2.8 Merrill Lynch & Co., Inc. 2.7 Medimmune, Inc. 2.4 Lowe's Cos., Inc. 2.4 ----------------------------------------- Total 33.6% INDUSTRY DIVERSIFICATION AS A PERCENT OF NET ASSETS AS OF JUNE 30, 2006 (UNAUDITED) -------------------------------------------------------------------------------- Equities Aerospace & Defense 5.36% Air Freight & Logistics 3.04 Beverages 3.28 Biotechnology 3.82 Capital Markets 4.24 Chemicals 2.32 Communications Equipment 1.35 Computers & Peripherals 2.23 Consumer Finance 1.94 Diversified Financial Services 4.65 Electrical Equipment 2.23 Energy Equipment & Services 4.08 Health Care Equipment & Supplies 4.19 Health Care Providers & Services 4.16 Hotels, Restaurants & Leisure 4.69 Industrial Conglomerates 4.79 Internet Software & Services 8.27 Machinery 2.04% Media 2.24 Metals & Mining 1.54 Multiline Retail 1.72 Oil & Gas 2.29 Pharmaceuticals 6.93 Road & Rail 1.86 Semiconductors & Semiconductor Equipment 3.93 Software 4.65 Specialty Retail 5.87 ------ Total Equities 97.71 Investment Company 2.01 Short-Term Investment 1.09 ------ Total Investments 100.81 Liabilities, in excess of cash and other assets (0.81) ------ Net assets 100.00% ====== -------------------------------------------------------------------------------- 62 UBS U.S. LARGE CAP GROWTH FUND--SCHEDULE OF INVESTMENTS June 30, 2006 -------------------------------------------------------------------------------- SHARES VALUE ------ ----------- EQUITIES -- 97.71% AEROSPACE & DEFENSE -- 5.36% General Dynamics Corp. 3,900 $ 255,294 United Technologies Corp. 6,800 431,256 ----------- 686,550 ----------- AIR FREIGHT & LOGISTICS -- 3.04% United Parcel Service, Inc., Class B 3,200 263,456 UTI Worldwide, Inc. 5,000 126,150 ----------- 389,606 ----------- BEVERAGES -- 3.28% PepsiCo, Inc. 7,000 420,280 ----------- BIOTECHNOLOGY -- 3.82% Genzyme Corp. (a) 2,900 177,045 Medimmune, Inc. (a) 11,500 311,650 ----------- 488,695 ----------- CAPITAL MARKETS -- 4.24% Goldman Sachs Group, Inc. 1,300 195,559 Merrill Lynch & Co., Inc. 5,000 347,800 ----------- 543,359 ----------- CHEMICALS -- 2.32% Praxair, Inc. 5,500 297,000 ----------- COMMUNICATIONS EQUIPMENT -- 1.35% QUALCOMM, Inc. 4,300 172,301 ----------- COMPUTERS & PERIPHERALS -- 2.23% Apple Computer, Inc. (a) 5,000 285,600 ----------- CONSUMER FINANCE -- 1.94% SLM Corp. 4,700 248,724 ----------- DIVERSIFIED FINANCIAL SERVICES -- 4.65% Bank of America Corp. 4,000 192,400 Chicago Mercantile Exchange Holdings, Inc. 300 147,345 Moody's Corp. 4,700 255,962 ----------- 595,707 ----------- ELECTRICAL EQUIPMENT -- 2.23% Emerson Electric Co. 3,400 284,954 ----------- ENERGY EQUIPMENT & SERVICES -- 4.08% Schlumberger Ltd. 4,600 299,506 Weatherford International Ltd. (a) 4,500 223,290 ----------- 522,796 ----------- HEALTH CARE EQUIPMENT & SUPPLIES -- 4.19% C.R. Bard, Inc. 3,100 227,106 St. Jude Medical, Inc. (a) 4,800 155,616 Zimmer Holdings, Inc. (a) 2,700 153,144 ----------- 535,866 ----------- HEALTH CARE PROVIDERS & SERVICES -- 4.16% Express Scripts, Inc. (a) 3,800 272,612 UnitedHealth Group, Inc. 5,800 259,724 ----------- 532,336 ----------- HOTELS, RESTAURANTS & LEISURE -- 4.69% Hilton Hotels Corp. 12,700 $ 359,156 Wynn Resorts Ltd. (a) 3,300 241,890 ----------- 601,046 ----------- INDUSTRIAL CONGLOMERATES -- 4.79% General Electric Co. 18,600 613,056 ----------- INTERNET SOFTWARE & SERVICES -- 8.27% Akamai Technologies, Inc. (a) 5,800 209,902 eBay, Inc. (a) 7,500 219,675 Google, Inc., Class A (a) 1,500 628,995 ----------- 1,058,572 ----------- MACHINERY -- 2.04% Illinois Tool Works, Inc. 5,500 261,250 ----------- MEDIA -- 2.24% McGraw-Hill Cos., Inc. 5,700 286,311 ----------- METALS & MINING -- 1.54% Phelps Dodge Corp. 2,400 197,184 ----------- MULTILINE RETAIL -- 1.72% Target Corp. 4,500 219,915 ----------- OIL & GAS -- 2.29% ExxonMobil Corp. 2,600 159,510 Peabody Energy Corp. 2,400 133,800 ----------- 293,310 ----------- PHARMACEUTICALS -- 6.93% Allergan, Inc. 4,300 461,218 Johnson & Johnson 7,100 425,432 ----------- 886,650 ----------- ROAD & RAIL -- 1.86% Burlington Northern Santa Fe Corp. 3,000 237,750 ----------- SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 3.93% Analog Devices, Inc. 7,800 250,692 Broadcom Corp., Class A (a) 8,400 252,420 ----------- 503,112 ----------- SOFTWARE -- 4.65% Adobe Systems, Inc. (a) 9,800 297,528 Microsoft Corp. 12,800 298,240 ----------- 595,768 ----------- SPECIALTY RETAIL -- 5.87% Bed, Bath & Beyond, Inc. (a) 7,300 242,141 Best Buy Co., Inc. 3,750 205,650 Lowe's Cos., Inc. 5,000 303,350 ----------- 751,141 ----------- Total Equities (Cost $12,533,924) 12,508,839 ----------- INVESTMENT COMPANY -- 2.01% iShares Russell 1000 Growth Index Fund (Cost $253,394) 5,100 257,958 ----------- -------------------------------------------------------------------------------- 63 UBS U.S. LARGE CAP GROWTH FUND--SCHEDULE OF INVESTMENTS June 30, 2006 -------------------------------------------------------------------------------- SHARES VALUE ------- ----------- SHORT-TERM INVESTMENT -- 1.09% OTHER* -- 1.09% UBS Supplementary Trust -- U.S. Cash Management Prime Fund, yield of 5.21% (Cost $139,461) 139,461 $ 139,461 ----------- Total Investments -- 100.81% (Cost $12,926,779) 12,906,258 Liabilities, in excess of cash and other assets -- (0.81%) (103,779) ----------- Net Assets -- 100.00% $12,802,479 =========== NOTES TO SCHEDULE OF INVESTMENTS Aggregate cost for federal income tax purposes was $12,999,690; and net unrealized depreciation consisted of: Gross unrealized appreciation $ 477,763 Gross unrealized depreciation (571,195) --------- Net unrealized depreciation $ (93,432) ========= (a) Non-income producing security. * Investment in affiliated mutual fund. See accompanying notes to financial statements. -------------------------------------------------------------------------------- 64 UBS U.S. LARGE CAP VALUE EQUITY FUND -------------------------------------------------------------------------------- For the fiscal year ended June 30, 2006, Class A shares of UBS U.S. Large Cap Value Equity Fund (the "Fund") returned 12.13% (5.96% after the deduction of the maximum sales charge) and Class Y shares returned 12.37%. The Fund's benchmark, the Russell 1000 Value Index (the "Index"), returned 12.12% over the same time 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 67; please note that these returns do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.) SOARING OIL PRICES LED TO MIXED RESULTS IN ENERGY INDUSTRY During the past twelve months, in the wake of a devastating hurricane season and continued political turmoil in the Middle East, oil prices skyrocketed, setting record highs on more than one occasion. Gasoline and heating fuel prices rose in turn, and energy companies throughout the supply chain--from exploration and production companies to retail-focused operations--generally benefited from being able to increase their profit margins. Our view was and continues to be that current energy prices are unsustainably high. In our analysis, the market seems to be banking on a major disruption in supply, presumably sparked by continued strife in Iraq or a pending standoff with Iran. While we believe crude oil is currently overvalued, we anticipate that prices will remain both high and volatile before returning to their fair value range. Our analysis suggests that oil refining and servicing companies have the most to gain from such an environment, while energy reserves companies--whose values are significantly more dependent on the price of oil--have the most to lose. With that in mind, the Fund took overweight positions relative to the Index in a number of oil service companies, including Baker Hughes, GlobalSantaFe and Marathon Oil, all of which were among the top contributors to performance. Meanwhile, the Fund had limited exposure to energy reserves companies, and by holding only one--an underweight position in ExxonMobil--missed out on the run-up in stock prices in that sector. In the final analysis, our holdings in oil services and our lack of exposure to energy reserves offset each other in terms of their contributions to the Fund's relative returns. STOCK SELECTION IN SHIPPING AND RAILROAD INDUSTRIES HELPED RETURNS In constructing the portfolio, the Fund's investment team seeks to identify the most attractive opportunities within various industries, and to then adjust the Fund's exposure to those companies to reflect what we believe is an appropriate level of risk. An example of this strategy in action was in the air freight and logistics and the road and rail industries. The portfolio held only one company in each industry--FedEx and Burlington Northern Santa Fe--which we believed represented the best investment opportunities available. Both stocks performed exceptionally well during the period, and our overweight exposure benefited the Fund's performance. MANAGEMENT REMAINS CAUTIOUSLY OPTIMISTIC ON THE ECONOMY IN THE MONTHS AHEAD Looking ahead, a number of factors may determine the strength of the economy over the remainder of 2006. As the Federal Reserve Board continues to fight inflation, it will be forced to strike a difficult balance between maintaining price stability and -------------------------------------------------------------------------------- 65 UBS U.S. LARGE CAP VALUE EQUITY FUND -------------------------------------------------------------------------------- avoiding raising short term interest rates too high, to the point of putting the brakes on what has been a period of economic expansion. We generally believe that the system for implementing monetary policy in the US is dynamic enough to make that balance possible. Meanwhile, while a cooling housing market is an issue of some potential concern, other economic indicators remain solid--job growth and corporate profitability are both stable, and we anticipate they should remain so over the months ahead. Ultimately, we believe the equity markets will reward those companies that are leaders within their industries and are able to best navigate an ever-changing economic landscape. We continue to seek out those companies through extensive bottom-up research, and to position the portfolio accordingly. -------------------------------------------------------------------------------- THIS LETTER IS INTENDED TO ASSIST SHAREHOLDERS IN UNDERSTANDING HOW THE FUND PERFORMED DURING THE FISCAL YEAR ENDED JUNE 30, 2006. THE VIEWS AND OPINIONS IN THE LETTER WERE CURRENT AS OF AUGUST 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. -------------------------------------------------------------------------------- 66 UBS U.S. LARGE CAP VALUE EQUITY FUND -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURN (UNAUDITED)
1 YEAR 5 YEARS INCEPTION* ENDED ENDED TO 06/30/06 06/30/06 06/30/06 --------------------------------------------------------------------------------- UBS U.S. Large Cap Value Equity Fund Class A 12.13% N/A 8.23% UBS U.S. Large Cap Value Equity Fund Class B 11.25 N/A 8.07 UBS U.S. Large Cap Value Equity Fund Class C 11.26 N/A 8.00 UBS U.S. Large Cap Value Equity Fund Class Y 12.37 7.63% 7.63 UBS U.S. Large Cap Value Equity Fund Class A** 5.96 N/A 6.89 UBS U.S. Large Cap Value Equity Fund Class B** 6.25 N/A 7.74 UBS U.S. Large Cap Value Equity Fund Class C** 10.26 N/A 8.00 Russell 1000 Value Index*** 12.12 6.90 6.90
* INCEPTION DATES OF UBS U.S. LARGE CAP VALUE EQUITY FUND CLASS A SHARES IS 12/07/01. INCEPTION DATES OF CLASS B AND CLASS C SHARES ARE 11/08/01 AND 12/12/01, RESPECTIVELY. INCEPTION DATE OF CLASS Y SHARES AND THE INDEX IS 06/29/01. ** RETURNS INCLUDE SALES CHARGES. *** THE RUSSELL 1000 VALUE INDEX MEASURES THE PERFORMANCE OF THOSE RUSSELL 1000 COMPANIES WITH LOWER PRICE-TO-BOOK RATIOS AND LOWER FORECASTED GROWTH VALUES. THE Y SHARE CLASS IS OUR LOWEST FEE SHARE CLASS. OUR OTHER SHARE CLASSES INCLUDE HIGHER FEES AND LOADS, WHICH MAY RESULT IN LOWER PERFORMANCE THAN CLASS Y. 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. -------------------------------------------------------------------------------- 67 UBS U.S. LARGE CAP VALUE EQUITY FUND -------------------------------------------------------------------------------- ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000 IN CLASS A SHARES (ADJUSTED FOR MAXIMUM SALES CHARGE) AND $10,000,000 IN CLASS Y SHARES (UNAUDITED) The following two charts show the growth in the value of an investment in UBS U.S. Large Cap Value Equity Fund Class A shares (adjusted for 5.50% maximum sales charge), Class Y shares and the Russell 1000 Value Index, if you had invested $10,000 in Class A shares on December 7, 2001 or $10,000,000 in Class Y shares on June 29, 2001, and had reinvested all your income dividends and capital gain distributions through June 30, 2006. The performance of Class B and Class C shares will vary based upon the different inception dates, class specific expenses and sales charges. No adjustment has been made for any income taxes payable by shareholders on income dividends and capital gain distributions. Past performance is no guarantee of future results. Share price and returns will vary with market conditions; investors may realize a gain or loss upon redemption. UBS U.S. LARGE CAP VALUE EQUITY FUND CLASS A VS. RUSSELL 1000 VALUE INDEX Wealth value with dividends reinvested [CHART]
UBS U.S. LARGE CAP VALUE EQUITY FUND RUSSELL 1000 CLASS A VALUE INDEX ------------------ ------------ 12/7/2001 $ 9,450 $10,000 12/31/2001 $ 9,459 $10,030 1/31/2002 $ 9,364 $ 9,952 2/28/2002 $ 9,383 $ 9,968 3/31/2002 $ 9,791 $10,440 4/30/2002 $ 9,497 $10,082 5/31/2002 $ 9,469 $10,132 6/30/2002 $ 8,890 $ 9,551 7/31/2002 $ 8,188 $ 8,663 8/31/2002 $ 8,340 $ 8,728 9/30/2002 $ 7,258 $ 7,758 10/31/2002 $ 7,818 $ 8,332 11/30/2002 $ 8,283 $ 8,857 12/31/2002 $ 7,974 $ 8,473 1/31/2003 $ 7,801 $ 8,268 2/28/2003 $ 7,609 $ 8,047 3/31/2003 $ 7,647 $ 8,061 4/30/2003 $ 8,387 $ 8,770 5/31/2003 $ 8,838 $ 9,336 6/30/2003 $ 8,944 $ 9,453 7/31/2003 $ 9,050 $ 9,594 8/31/2003 $ 9,079 $ 9,743 9/30/2003 $ 9,069 $ 9,648 10/31/2003 $ 9,626 $10,239 11/30/2003 $ 9,684 $10,377 12/31/2003 $10,402 $11,017 1/31/2004 $10,488 $11,211 2/29/2004 $10,729 $11,451 3/31/2004 $10,584 $11,351 4/30/2004 $10,440 $11,073 5/31/2004 $10,527 $11,186 6/30/2004 $10,758 $11,451 7/31/2004 $10,546 $11,289 8/31/2004 $10,758 $11,450 9/30/2004 $10,844 $11,627 10/31/2004 $11,046 $11,821 11/30/2004 $11,460 $12,418 12/31/2004 $11,856 $12,834 1/31/2005 $11,602 $12,606 2/28/2005 $11,867 $13,024 3/31/2005 $11,764 $12,846 4/30/2005 $11,671 $12,615 5/31/2005 $11,879 $12,919 6/30/2005 $12,087 $13,061 7/31/2005 $12,410 $13,438 8/31/2005 $12,306 $13,380 9/30/2005 $12,502 $13,568 10/31/2005 $12,444 $13,223 11/30/2005 $12,871 $13,658 12/31/2005 $13,013 $13,742 1/31/2006 $13,347 $14,276 2/28/2006 $13,463 $14,363 3/31/2006 $13,617 $14,557 4/30/2006 $13,926 $14,927 5/31/2006 $13,514 $14,550 6/30/2006 $13,553 $14,643
12/7/01 = $9,450 THE FUND'S GROWTH OF AN ASSUMED $10,000 INVESTMENT IS ADJUSTED FOR THE MAXIMUM SALES CHARGE OF 5.50%. UBS U.S. LARGE CAP VALUE EQUITY FUND CLASS Y VS. RUSSELL 1000 VALUE INDEX Wealth value with dividends reinvested [CHART]
UBS U.S. LARGE CAP VALUE EQUITY FUND RUSSELL 1000 CLASS Y VALUE INDEX ------------------ ------------ 6/29/2001 $10,000,000 $10,000,000 7/31/2001 $10,110,000 $ 9,978,714 8/31/2001 $ 9,730,000 $ 9,578,984 9/30/2001 $ 9,180,000 $ 8,904,785 10/31/2001 $ 9,170,000 $ 8,828,237 11/30/2001 $ 9,800,000 $ 9,341,356 12/31/2001 $ 9,970,000 $ 9,561,382 1/31/2002 $ 9,870,000 $ 9,487,699 2/28/2002 $ 9,900,000 $ 9,503,049 3/31/2002 $10,330,000 $ 9,952,515 4/30/2002 $10,020,000 $ 9,611,118 5/31/2002 $ 9,990,000 $ 9,659,421 6/30/2002 $ 9,380,000 $ 9,104,752 7/31/2002 $ 8,640,000 $ 8,258,422 8/31/2002 $ 8,810,000 $ 8,320,848 9/30/2002 $ 7,670,000 $ 7,395,513 10/31/2002 $ 8,260,000 $ 7,943,428 11/30/2002 $ 8,750,000 $ 8,443,858 12/31/2002 $ 8,418,515 $ 8,077,080 1/31/2003 $ 8,246,088 $ 7,881,616 2/28/2003 $ 8,043,232 $ 7,671,415 3/31/2003 $ 8,083,803 $ 7,684,310 4/30/2003 $ 8,864,798 $ 8,360,555 5/31/2003 $ 9,351,652 $ 8,900,282 6/30/2003 $ 9,463,223 $ 9,011,626 7/31/2003 $ 9,574,793 $ 9,145,892 8/31/2003 $ 9,615,365 $ 9,288,346 9/30/2003 $ 9,595,079 $ 9,197,675 10/31/2003 $10,193,504 $ 9,760,530 11/30/2003 $10,254,360 $ 9,892,955 12/31/2003 $11,015,864 $10,502,681 1/31/2004 $11,117,487 $10,687,503 2/29/2004 $11,371,542 $10,916,534 3/31/2004 $11,219,109 $10,820,950 4/30/2004 $11,066,675 $10,556,511 5/31/2004 $11,168,298 $10,664,169 6/30/2004 $11,402,029 $10,916,124 7/31/2004 $11,188,622 $10,762,413 8/31/2004 $11,412,191 $10,915,510 9/30/2004 $11,503,651 $11,084,572 10/31/2004 $11,727,221 $11,268,984 11/30/2004 $12,164,197 $11,838,593 12/31/2004 $12,585,290 $12,235,048 1/31/2005 $12,328,697 $12,017,889 2/28/2005 $12,609,728 $12,416,186 3/31/2005 $12,499,759 $12,245,896 4/30/2005 $12,402,010 $12,026,485 5/31/2005 $12,621,947 $12,316,100 6/30/2005 $12,854,102 $12,450,776 7/31/2005 $13,196,227 $12,811,003 8/31/2005 $13,098,477 $12,755,332 9/30/2005 $13,306,195 $12,934,422 10/31/2005 $13,245,102 $12,605,919 11/30/2005 $13,697,195 $13,020,385 12/31/2005 $13,843,891 $13,100,343 1/31/2006 $14,212,515 $13,609,125 2/28/2006 $14,335,390 $13,692,192 3/31/2006 $14,512,875 $13,877,689 4/30/2006 $14,840,542 $14,230,353 5/31/2006 $14,403,653 $13,870,890 6/30/2006 $14,444,612 $13,959,619
6/29/01 = $10,000,000 PAST PERFORMANCE DOES NOT PREDICT FUTURE PERFORMANCE, AND THE PERFORMANCE INFORMATION PROVIDED DOES NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PERFORMANCE RESULTS ASSUME REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS AT NET ASSET VALUE ON THE EX-DIVIDEND DATES. 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 UBS U.S. LARGE CAP VALUE EQUITY FUND -------------------------------------------------------------------------------- EXPLANATION OF EXPENSE DISCLOSURE (UNAUDITED) As a shareholder of the Fund, you incur two types of costs: (1) transactional costs (as applicable); including sales charges (loads); 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, January 1, 2006 to June 30, 2006. 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 EXPENSE ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD* RATIO JANUARY 1, 2006 JUNE 30, 2006 01/01/06 TO 06/30/06 DURING PERIOD ------------------------------------------------------------------------------------------------------------------- CLASS A Actual $1,000.00 $1,041.50 $5.57 1.10% Hypothetical (5% annual return before expenses) 1,000.00 1,019.34 5.51 1.10% CLASS B Actual 1,000.00 1,039.00 9.35 1.85% Hypothetical (5% annual return before expenses) 1,000.00 1,015.62 9.25 1.85% CLASS C Actual 1,000.00 1,038.20 9.35 1.85% Hypothetical (5% annual return before expenses) 1,000.00 1,015.62 9.25 1.85% CLASS Y Actual 1,000.00 1,043.40 4.31 0.85% Hypothetical (5% annual return before expenses) 1,000.00 1,020.58 4.26 0.85%
* EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED NET EXPENSE RATIOS, MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 181 DIVIDED BY 365 (TO REFLECT THE ONE-HALF YEAR PERIOD). -------------------------------------------------------------------------------- 69 UBS U.S. LARGE CAP VALUE EQUITY FUND -------------------------------------------------------------------------------- TOP TEN EQUITY HOLDINGS AS OF JUNE 30, 2006 (UNAUDITED) PERCENTAGE OF NET ASSETS -------------------------------------------------------------------------------- Citigroup, Inc. 5.7% Wells Fargo & Co. 4.4 Marathon Oil Corp. 4.2 Morgan Stanley 4.1 ExxonMobil Corp. 3.6 JPMorgan Chase & Co. 3.4 Wyeth 2.8 American International Group, Inc. 2.8 Exelon Corp. 2.5 Sprint Nextel Corp. 2.4 -------------------------------------------------------------------------------- Total 35.9% INDUSTRY DIVERSIFICATION AS A PERCENT OF NET ASSETS AS OF JUNE 30, 2006 (UNAUDITED) -------------------------------------------------------------------------------- Equities Aerospace & Defense 2.52% Air Freight & Logistics 1.86 Auto Components 3.22 Automobiles 0.79 Beverages 1.18 Biotechnology 0.68 Building Products 1.87 Capital Markets 7.55 Commercial Banks 8.85 Commercial Services & Supplies 0.83 Diversified Financial Services 10.76 Diversified Telecommunication Services 2.20 Electric Utilities 6.04 Energy Equipment & Services 2.55 Food & Staples Retailing 3.36 Health Care Providers & Services 3.61 Insurance 5.84 Internet & Catalog Retail 0.43% IT Services 1.09 Machinery 2.19 Media 4.89 Multi-Utilities & Unregulated Power 1.74 Oil & Gas 7.81 Pharmaceuticals 4.80 Road & Rail 2.20 Software 3.34 Thrifts & Mortgage Finance 1.76 Wireless Telecommunication Services 2.38 ------ Total Equities 96.34 Investment Company 3.21 Short-Term Investment 0.69 ------ Total Investments 100.24 Liabilities, in excess of cash and other assets (0.24) ------ Net Assets 100.00% ====== -------------------------------------------------------------------------------- 70 UBS U.S. LARGE CAP VALUE EQUITY FUND--SCHEDULE OF INVESTMENTS June 30, 2006 -------------------------------------------------------------------------------- SHARES VALUE ------- ----------- EQUITIES -- 96.34% AEROSPACE & DEFENSE -- 2.52% Lockheed Martin Corp. 23,100 $ 1,657,194 Northrop Grumman Corp. 25,500 1,633,530 ----------- 3,290,724 ----------- AIR FREIGHT & LOGISTICS -- 1.86% FedEx Corp. 20,800 2,430,688 ----------- AUTO COMPONENTS -- 3.22% Borg-Warner, Inc. 18,700 1,217,370 Johnson Controls, Inc. 36,400 2,992,808 ----------- 4,210,178 ----------- AUTOMOBILES -- 0.79% Harley-Davidson, Inc. 18,800 1,031,932 ----------- BEVERAGES -- 1.18% Anheuser-Busch Cos., Inc. 33,800 1,540,942 ----------- BIOTECHNOLOGY -- 0.68% Cephalon, Inc., (a) 14,800 889,480 ----------- BUILDING PRODUCTS -- 1.87% Masco Corp. 82,150 2,434,926 ----------- CAPITAL MARKETS -- 7.55% Mellon Financial Corp. 84,100 2,895,563 Morgan Stanley 83,800 5,296,998 Northern Trust Corp. 30,200 1,670,060 ----------- 9,862,621 ----------- COMMERCIAL BANKS -- 8.85% Fifth Third Bancorp 83,600 3,089,020 PNC Financial Services Group, Inc. 37,900 2,659,443 Wells Fargo & Co. 86,550 5,805,774 ----------- 11,554,237 ----------- COMMERCIAL SERVICES & SUPPLIES -- 0.83% Cendant Corp. 66,200 1,078,398 ----------- DIVERSIFIED FINANCIAL SERVICES -- 10.76% Bank of America Corp. 46,422 2,232,898 Citigroup, Inc. 153,176 7,389,210 JPMorgan Chase & Co. 105,470 4,429,740 ----------- 14,051,848 ----------- DIVERSIFIED TELECOMMUNICATION SERVICES -- 2.20% AT&T, Inc. 91,750 2,558,908 Embarq Corp. (a) 7,692 315,295 ----------- 2,874,203 ----------- ELECTRIC UTILITIES -- 6.04% American Electric Power Co., Inc. 62,800 2,150,900 Exelon Corp. 57,100 3,244,993 Northeast Utilities 63,400 1,310,478 Pepco Holdings, Inc. 50,000 1,179,000 ----------- 7,885,371 ----------- ENERGY EQUIPMENT & SERVICES -- 2.55% Baker Hughes, Inc. 13,000 $ 1,064,050 ENSCO International, Inc. 13,400 616,668 GlobalSantaFe Corp. 28,500 1,645,875 ----------- 3,326,593 ----------- FOOD & STAPLES RETAILING -- 3.36% Costco Wholesale Corp. 44,500 2,542,285 Kroger Co. 84,600 1,849,356 ----------- 4,391,641 ----------- HEALTH CARE PROVIDERS & SERVICES -- 3.61% Caremark Rx, Inc. 11,600 578,492 Medco Health Solutions, Inc. (a) 32,100 1,838,688 UnitedHealth Group, Inc. 51,300 2,297,214 ----------- 4,714,394 ----------- INSURANCE -- 5.84% Allstate Corp. 33,400 1,827,982 American International Group, Inc. 60,800 3,590,240 Hartford Financial Services Group, Inc. 26,150 2,212,290 ----------- 7,630,512 ----------- INTERNET & CATALOG RETAIL -- 0.43% Expedia, Inc. (a) 37,400 559,878 ----------- IT SERVICES -- 1.09% Accenture Ltd., Class A 50,100 1,418,832 ----------- MACHINERY -- 2.19% Illinois Tool Works, Inc. 60,100 2,854,750 ----------- MEDIA -- 4.89% DIRECTV Group, Inc. (a) 110,100 1,816,650 News Corp., Class A 75,400 1,446,172 Omnicom Group, Inc. 29,700 2,645,973 Univision Communications, Inc., Class A (a) 14,000 469,000 ----------- 6,377,795 ----------- MULTI-UTILITIES & UNREGULATED POWER -- 1.74% NiSource, Inc. 47,700 1,041,768 Sempra Energy 26,900 1,223,412 ----------- 2,265,180 ----------- OIL & GAS -- 7.81% ExxonMobil Corp. 76,550 4,696,342 Marathon Oil Corp. 66,000 5,497,800 ----------- 10,194,142 ----------- PHARMACEUTICALS -- 4.80% Bristol-Myers Squibb Co. 57,900 1,497,294 Johnson & Johnson 19,100 1,144,472 Wyeth 81,600 3,623,856 ----------- 6,265,622 ----------- ROAD & RAIL -- 2.20% Burlington Northern Santa Fe Corp. 36,300 2,876,775 ----------- -------------------------------------------------------------------------------- 71 UBS U.S. LARGE CAP VALUE EQUITY FUND--SCHEDULE OF INVESTMENTS June 30, 2006 -------------------------------------------------------------------------------- SHARES VALUE ----------- ------------ SOFTWARE -- 3.34% Microsoft Corp. 111,800 $ 2,604,940 Symantec Corp. (a) 112,600 1,749,804 ------------ 4,354,744 ------------ THRIFTS & MORTGAGE FINANCE -- 1.76% Freddie Mac 40,350 2,300,354 ------------ WIRELESS TELECOMMUNICATION SERVICES -- 2.38% Sprint Nextel Corp. 155,157 3,101,588 ------------ Total Equities (Cost $103,159,053) 125,768,348 ------------ INVESTMENT COMPANY -- 3.21% SPDR Trust, Series 1 (Cost $4,123,683) 32,900 4,187,512 ------------ SHORT-TERM INVESTMENT -- 0.69% OTHER* -- 0.69% UBS Supplementary Trust -- U.S. Cash Management Prime Fund, yield of 5.21%, (Cost $903,587) 903,587 $ 903,587 ------------ Total Investments -- 100.24% (Cost $108,186,323) 130,859,447 Liabilities, in excess of cash and other assets -- (0.24%) (318,202) ------------ Net Assets -- 100.00% $130,541,245 ============ NOTES TO SCHEDULE OF INVESTMENTS Aggregate cost for federal income tax purposes was $109,062,439; and net unrealized appreciation consisted of: Gross unrealized appreciation $23,452,237 Gross unrealized depreciation (1,655,229) ----------- Net unrealized appreciation $21,797,008 =========== (a) Non-income producing security. * Investment in affiliated mutual fund. See accompanying notes to financial statements. -------------------------------------------------------------------------------- 72 UBS U.S. MID CAP GROWTH EQUITY FUND -------------------------------------------------------------------------------- Since the Fund's inception, Class A shares of UBS U.S. Mid Cap Growth Equity Fund (the "Fund") declined 5.42% (the shares declined 10.61% after the deduction of the maximum sales charge), while Class Y shares declined 3.90%. The Fund's benchmark, the Russell Midcap Growth Index (the "Index"), declined 3.95% over the same time period.* (Class Y shares have lower expenses than other share classes in the series. Returns for all share classes 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 past three months were a challenging period for equity investors, and for growth investors in particular. After relatively flat returns for equities during the month of April, investors seemingly lost their appetite for risk, sending domestic and international equity markets down sharply. Growth stocks were hardest hit during this downturn, with small- and mid-cap equities declining more than their large-cap counterparts. During this time, the Fund's returns were primarily a reflection of disappointing stock-specific performance. Among the largest detractors were Station Casinos (a hotel and casino operator), UTI Worldwide (a shipping company) and PDL Biopharma (a biotech firm). All three stocks detracted from total returns after a difficult second quarter of 2006. Although we sold our position in PDL Biopharma, we remain optimistic on the longer-term prospects for Station Casinos and UTI Worldwide, both of which remained in the portfolio as of period end. However, as long-term investors, we believe that it can be misleading to attempt to judge a company's intrinsic growth potential based on its short-term performance, and we encourage investors to maintain a long-term perspective. MID CAP GROWTH TEAM SEEKS TO IDENTIFY COMPANIES THAT EMBODY THE "EXECUTION EFFECT" Our sector positioning is foremost a function of individual stock selection, with every position in the portfolio having its own unique investment thesis. The consistent theme in our portfolio will always be identifying sustainable growth opportunities that are in the hands of proven management teams. We seek to build a portfolio of franchise companies, defined as companies that have identifiable and sustainable growth trends, as well as the ability to execute upon those opportunities. What we term the "execution effect" is a consistent and repeatable research process that we use to scrutinize those companies that pass our initial screening. The execution effect includes a detailed analysis of cash flow, balance sheet, and valuation metrics, as well as a competitive analysis. Ultimately, only companies that meet the criteria identified by the execution effect may become candidates for the portfolio. FUND'S SECTOR WEIGHTINGS REFLECT THE INVESTMENT TEAM'S ANALYSIS OF EVOLVING BUSINESS TRENDS We remain underweight areas of the market where we believe it is more difficult to identify sustainable growth trends--particularly materials and financials, where the general level of commodity prices or the benefits of the interest rate cycle are unsustainable and difficult to predict. We continue to like the health care space as both the government and corporations search for innovative ways to manage health care costs in the context of an aging population. Our exposure includes opportunities in managed care, disease management, and hospice care. Our overweight in industrials reflects an eclectic mix of investments. A few of the more attractive areas are in radio frequency identification (RFID) technology, the industrial supply and electrical distribution industries and business services delivered via the Internet. FUND IS WELL-POSITIONED FOR CONTINUED ECONOMIC GROWTH On a macroeconomic level, a number of factors may determine the strength of the economy over the remainder of 2006. As the Federal Reserve Board -------------------------------------------------------------------------------- * THE INCEPTION DATE OF UBS U.S. MID CAP GROWTH EQUITY FUND CLASS A SHARES IS 3/31/06; THE INCEPTION DATE OF CLASS Y SHARES AND THE INDEX ARE AS OF 3/27/06. -------------------------------------------------------------------------------- 73 UBS U.S. MID CAP GROWTH EQUITY FUND -------------------------------------------------------------------------------- continues to fight inflation, it will be forced to strike a difficult balance between maintaining price stability and avoiding raising short term interest rates too high, to the point of putting the brakes on what has been a period of economic expansion. We generally believe that the system for implementing monetary policy in the US is dynamic enough to make that balance possible. Meanwhile, while a cooling housing market is an issue of some potential concern, other economic indicators remain solid--job growth and corporate profitability are both stable, and we anticipate they should remain so over the months ahead. Ultimately, we believe the equity markets may reward those companies that are leaders within their industries and are able to navigate an ever-changing economic landscape. We continue to seek out those companies through extensive bottom-up research, and to position the portfolio accordingly. -------------------------------------------------------------------------------- THIS LETTER IS INTENDED TO ASSIST SHAREHOLDERS IN UNDERSTANDING HOW THE FUND PERFORMED DURING THE FISCAL YEAR ENDED JUNE 30, 2006. THE VIEWS AND OPINIONS IN THE LETTER WERE CURRENT AS OF AUGUST 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 UBS U.S. MID CAP GROWTH EQUITY FUND -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURN (UNAUDITED) INCEPTION* TO 06/30/06 ---------------------------------------------------------- UBS U.S. Mid Cap Growth Equity Fund Class A -5.42% UBS U.S. Mid Cap Growth Equity Fund Class C -7.97 UBS U.S. Mid Cap Growth Equity Fund Class Y -3.90 UBS U.S. Mid Cap Growth Equity Fund Class A** -10.61 UBS U.S. Mid Cap Growth Equity Fund Class C** -8.89 Russell Midcap Growth Index*** -3.95 * INCEPTION DATE OF UBS U.S. MID CAP GROWTH EQUITY FUND CLASS A SHARES IS 03/31/06. INCEPTION DATE OF CLASS C SHARES IS 04/21/06. INCEPTION DATE OF CLASS Y SHARES AND INDEX IS 03/27/06. ** RETURNS INCLUDE SALES CHARGES. *** THE RUSSELL MIDCAP GROWTH INDEX IS AN UNMANAGED INDEX THAT MEASURES THE PERFORMANCE OF THOSE RUSSELL MID CAP COMPANIES WITH HIGHER PRICE-TO-BOOK RATIOS AND HIGHER FORECASTED GROWTH VALUES. 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 UBS U.S. MID CAP GROWTH EQUITY FUND -------------------------------------------------------------------------------- ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000 IN CLASS A SHARES (ADJUSTED FOR MAXIMUM SALES CHARGE) AND $5,000,000 IN CLASS Y SHARES (UNAUDITED) The following two charts show the growth in the value of an investment in UBS U.S. Mid Cap Growth Equity Fund Class A shares (adjusted for 5.50% maximum sales charge), Class Y shares and the Russell Midcap Growth Index, if you had invested $10,000 in Class A shares on March 31, 2006 or $5,000,000 in Class Y shares on March 27, 2006, and had reinvested all your income dividends and capital gain distributions, if any, through June 30, 2006. The performance of Class C shares will vary based upon the different inception dates, class specific expenses and sales charges. No adjustment has been made for any income taxes payable by shareholders on income dividends and capital gain distributions. Past performance is no guarantee of future results. Share price and returns will vary with market conditions; investors may realize a gain or loss upon redemption. UBS U.S. MID CAP GROWTH EQUITY FUND CLASS A VS. RUSSELL MIDCAP GROWTH INDEX Wealth value with dividends reinvested [CHART]
UBS U.S. MID CAP GROWTH RUSSELL MIDCAP EQUITY FUND CLASS A GROWTH INDEX ----------------------- -------------- 3/31/2006 $9,449 $10,000 4/30/2006 $9,599 $10,057 5/31/2006 $8,992 $ 9,584 6/30/2006 $8,939 $ 9,531
3/31/06 = $9,450 THE FUND'S GROWTH OF AN ASSUMED $10,000 INVESTMENT IS ADJUSTED FOR THE MAXIMUM SALES CHARGE OF 5.50%. UBS U.S. MID CAP GROWTH EQUITY FUND CLASS Y VS. RUSSELL MIDCAP GROWTH INDEX Wealth value with dividends reinvested [CHART]
UBS U.S. MID CAP GROWTH RUSSELL MIDCAP EQUITY FUND CLASS Y GROWTH INDEX ----------------------- -------------- 3/27/2006 $5,000,000 $5,000,000 3/31/2006 $5,075,000 $5,038,856 4/30/2006 $5,140,000 $5,060,213 5/31/2006 $4,815,000 $4,822,033 6/30/2006 $4,805,000 $4,802,347
3/27/06 = $5,000,000 PAST PERFORMANCE DOES NOT PREDICT FUTURE PERFORMANCE, AND THE PERFORMANCE INFORMATION PROVIDED DOES NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PERFORMANCE RESULTS ASSUME REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS AT NET ASSET VALUE ON THE EX-DIVIDEND DATES. 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. -------------------------------------------------------------------------------- 76 UBS U.S. MID CAP GROWTH EQUITY FUND -------------------------------------------------------------------------------- EXPLANATION OF EXPENSE DISCLOSURE (UNAUDITED) As a shareholder of the Fund, you incur two types of costs: (1) transactional costs (as applicable); including sales charges (loads); 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 ended June 30, 2006. ACTUAL EXPENSES The first line of each class of shares in the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over a period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled "Expenses paid during period" to estimate the expenses you paid on your account during this period. Please note that Class A, Class C and Class Y commenced operations on March 31, April 21 and March 27, 2006, respectively, therefore "Actual" expenses paid during the period reflect activity from the respective class' commencement dates through June 30, 2006. 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. Please note that while Class A, Class C and Class Y commenced operations on March 31, April 21 and March 27, 2006, respectively, the "Hypothetical" expenses paid during the period reflect projected activity for the full six month period for purposes of comparability. This projection assumes that annualized expense ratios for all share classes were in effect during the period from January 1, 2006 to each class' respective commencement.
ENDING EXPENSE BEGINNING ACCOUNT VALUE EXPENSES PAID RATIO ACCOUNT VALUE JUNE 30, 2006 DURING PERIOD DURING PERIOD --------------------------------------------------------------------------------------------------------------- CLASS A* Actual $1,000.00 $ 948.60 $ 3.56 1.45% Hypothetical (5% annual return before expenses) 1,000.00 1,017.60 7.25 1.45% CLASS C** Actual 1,000.00 920.30 4.11 2.20% Hypothetical (5% annual return before expenses) 1,000.00 1,013.88 10.99 2.20% CLASS Y*** Actual 1,000.00 961.00 3.09 1.20% Hypothetical (5% annual return before expenses) 1,000.00 1,018.84 6.01 1.20%
* THE FUND'S CLASS A SHARES COMMENCED ON MARCH 31, 2006. EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED NET EXPENSE RATIO, MULTIPLIED BY 92 DIVIDED BY 365 (TO REFLECT ACTUAL DAYS IN THE PERIOD FOR THE ACTUAL EXAMPLE) AND MULTIPLIED BY 181 DIVIDED BY 365 (TO REFLECT THE ONE-HALF YEAR PERIOD FOR THE HYPOTHETICAL EXAMPLE). ** THE FUND'S CLASS C SHARES COMMENCED ON APRIL 21, 2006. EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED NET EXPENSE RATIO, MULTIPLIED BY 71 DIVIDED BY 365 (TO REFLECT ACTUAL DAYS IN THE PERIOD FOR THE ACTUAL EXAMPLE) AND MULTIPLIED BY 181 DIVIDED BY 365 (TO REFLECT THE ONE-HALF YEAR PERIOD FOR THE HYPOTHETICAL EXAMPLE). *** THE FUND'S CLASS Y SHARES COMMENCED ON MARCH 27, 2006. EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED NET EXPENSE RATIO, MULTIPLIED BY 96 DIVIDED BY 365 (TO REFLECT ACTUAL DAYS IN THE PERIOD FOR THE ACTUAL EXAMPLE) AND MULTIPLIED BY 181 DIVIDED BY 365 (TO REFLECT THE ONE-HALF YEAR PERIOD FOR THE HYPOTHETICAL EXAMPLE). -------------------------------------------------------------------------------- 77 UBS U.S. MID CAP GROWTH EQUITY FUND -------------------------------------------------------------------------------- TOP TEN EQUITY HOLDINGS AS OF JUNE 30, 2006 (UNAUDITED) PERCENTAGE OF NET ASSETS ---------------------------------------------------------- WESCO International, Inc. 3.2% Thermo Electron Corp. 3.1 Scientific Games Corp. 3.0 Station Casinos, Inc. 2.8 Adobe Systems, Inc. 2.8 Cognizant Technology Solutions Corp., Class A 2.8 Coldwater Creek, Inc. 2.7 MSC Industrial Direct Co. 2.6 Republic Services, Inc. 2.6 Healthways, Inc. 2.6 ---------------------------------------------------------- Total 28.2% INDUSTRY DIVERSIFICATION AS A PERCENT OF NET ASSETS AS OF JUNE 30, 2006 (UNAUDITED) -------------------------------------------------------- Equities Air Freight & Logistics 1.40% Capital Markets 1.19 Commercial Services & Supplies 9.68 Computers & Peripherals 1.75 Diversified Financial Services 2.73 Electrical Equipment 2.04 Electronic Equipment & Instruments 2.11 Energy Equipment & Services 6.87 Food Products 2.98 Health Care Equipment & Supplies 9.00 Health Care Providers & Services 8.22 Hotels, Restaurants & Leisure 11.26 Household Durables 2.43 Internet & Catalog Retail 4.39 IT Services 2.81% Machinery 4.18 Marine 2.27 Metals & Mining 0.66 Oil & Gas 4.51 Semiconductors & Semiconductor Equipment 5.01 Software 5.97 Specialty Retail 1.90 Trading Companies & Distributors 5.80 ------ Total Equities 99.16 Short-Term Investment 1.21 ------ Total Investments 100.37 Liabilities, in excess of cash and other assets (0.37) ------ Net Assets 100.00% ====== -------------------------------------------------------------------------------- 78 UBS U.S. MID CAP GROWTH EQUITY FUND--SCHEDULE OF INVESTMENTS June 30, 2006 -------------------------------------------------------------------------------- SHARES VALUE ------- -------- EQUITIES -- 99.16% AIR FREIGHT & LOGISTICS -- 1.40% UTI Worldwide, Inc. 2,800 $ 70,644 -------- CAPITAL MARKETS -- 1.19% Legg Mason, Inc. 600 59,712 -------- COMMERCIAL SERVICES & SUPPLIES -- 9.68% Chemed Corp. 2,100 114,513 Dun & Bradstreet Corp. (a) 1,100 76,648 Monster Worldwide, Inc. (a) 2,600 110,916 Republic Services, Inc. 3,300 133,122 Stericycle, Inc. (a) 800 52,080 -------- 487,279 -------- COMPUTERS & PERIPHERALS -- 1.75% NCR Corp. (a) 2,400 87,936 -------- DIVERSIFIED FINANCIAL SERVICES -- 2.73% Chicago Mercantile Exchange Holdings, Inc. 100 49,115 Moody's Corp. 1,000 54,460 TD Ameritrade Holding Corp. (a) 2,300 34,063 -------- 137,638 -------- ELECTRICAL EQUIPMENT -- 2.04% Roper Industries, Inc. 2,200 102,850 -------- ELECTRONIC EQUIPMENT & INSTRUMENTS -- 2.11% Amphenol Corp. 1,900 106,324 -------- ENERGY EQUIPMENT & SERVICES -- 6.87% Cameron International Corp. (a) 1,200 57,324 ENSCO International, Inc. 800 36,816 National Oilwell Varco, Inc. (a) 1,000 63,320 Smith International, Inc. 2,000 88,940 Weatherford International Ltd. (a) 2,000 99,240 -------- 345,640 -------- FOOD PRODUCTS -- 2.98% Corn Products International, Inc. 1,300 39,780 Hershey Co. 2,000 110,140 -------- 149,920 -------- HEALTH CARE EQUIPMENT & SUPPLIES -- 9.00% C.R. Bard, Inc. 800 58,608 Cytyc Corp. (a) 2,100 53,256 Fisher Scientific International, Inc. (a) 500 36,525 Millipore Corp. (a) 1,100 69,289 PerkinElmer, Inc. 3,800 79,420 Thermo Electron Corp. (a) 4,300 155,832 -------- 452,930 -------- HEALTH CARE PROVIDERS & SERVICES -- 8.22% Aetna, Inc. 2,200 87,846 Caremark Rx, Inc. 1,600 79,792 Healthways, Inc. (a) 2,500 131,600 Psychiatric Solutions, Inc. (a) 4,000 114,640 -------- 413,878 -------- HOTELS, RESTAURANTS & LEISURE -- 11.26% Gaylord Entertainment Co. (a) 1,700 $ 74,188 Scientific Games Corp. (a) 4,200 149,604 Starwood Hotels & Resorts Worldwide, Inc. 1,700 102,578 Station Casinos, Inc. 2,100 142,968 Texas Roadhouse, Inc. (a) 7,200 97,344 -------- 566,682 -------- HOUSEHOLD DURABLES -- 2.43% Fortune Brands, Inc. 1,000 71,010 Harman International Industries, Inc. 600 51,222 -------- 122,232 -------- INTERNET & CATALOG RETAIL -- 4.39% Coldwater Creek, Inc. (a) 5,000 133,800 NutriSystem, Inc. (a) 1,400 86,982 -------- 220,782 -------- IT SERVICES -- 2.81% Cognizant Technology Solutions Corp., Class A (a) 2,100 141,477 -------- MACHINERY -- 4.18% Graco, Inc. 2,200 101,156 Harsco Corp. 1,400 109,144 -------- 210,300 -------- MARINE -- 2.27% American Commercial Lines, Inc. (a) 1,900 114,475 -------- METALS & MINING -- 0.66% Freeport-McMoRan Copper & Gold, Inc. 600 33,246 -------- OIL & GAS -- 4.51% Apache Corp. 800 54,600 Frontier Oil Corp. 1,600 51,840 Newfield Exploration Co. (a) 1,700 83,198 Tesoro Corp. 500 37,180 -------- 226,818 -------- SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 5.01% Broadcom Corp., Class A (a) 1,100 33,055 Freescale Semiconductor, Inc. (a) 3,000 88,200 Marvell Technology Group, Ltd. (a) 700 31,031 Microchip Technology, Inc. 3,000 100,650 -------- 252,936 -------- SOFTWARE -- 5.97% Adobe Systems, Inc. (a) 4,700 142,692 Autodesk, Inc. (a) 1,000 34,460 Micros Systems, Inc. (a) 1,900 82,992 Nuance Communications, Inc. (a) 4,000 40,240 -------- 300,384 -------- SPECIALTY RETAIL -- 1.90% Chico's FAS, Inc. (a) 1,900 51,262 Tractor Supply Co. (a) 800 44,216 -------- 95,478 -------- -------------------------------------------------------------------------------- 79 UBS U.S. MID CAP GROWTH EQUITY FUND--SCHEDULE OF INVESTMENTS June 30, 2006 -------------------------------------------------------------------------------- SHARES VALUE ------ ---------- TRADING COMPANIES & DISTRIBUTORS -- 5.80% MSC Industrial Direct Co. 2,800 $ 133,196 WESCO International, Inc. (a) 2,300 158,700 ---------- 291,896 ---------- Total Equities (Cost $5,163,982) 4,991,457 ---------- INVESTMENT COMPANY* -- 1.21% UBS U.S. Cash Management Prime Relationship Fund, yield of 5.20% (Cost $60,872) 60,872 60,872 ---------- Total Investments -- 100.37% (Cost $5,224,854) 5,052,329 Liabilities, in excess of cash and other assets -- (0.37%) (18,828) ---------- Net Assets -- 100.00% $5,033,501 ========== NOTES TO SCHEDULE OF INVESTMENTS Aggregate cost for federal income tax purposes was $5,226,854; and net unrealized depreciation consisted of: Gross unrealized appreciation $ 170,858 Gross unrealized depreciation (345,383) --------- Net unrealized depreciation $(174,525) ========= (a) Non-income producing security. * Investment in affiliated mutual fund. -------------------------------------------------------------------------------- See accompanying notes to financial statements. 80 UBS U.S. SMALL CAP GROWTH FUND -------------------------------------------------------------------------------- For the fiscal year ended June 30, 2006, Class A shares of UBS U.S. Small Cap Growth Fund (the "Fund") returned 9.88% (3.87% after the deduction of the maximum sales charge) and Class Y shares returned 10.12%. The Fund's benchmark, the Russell 2000 Growth Index (the "Index"), returned 14.58% over the same time 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 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.) The past year was a solid period for equity markets, and especially for small cap stocks. For much of the reporting period, investors had a sizable appetite for risk and the more volatile small cap segment of the market benefited. This trend reversed direction in the final two months of the reporting period, as investors unloaded riskier assets in favor of more stable investments. During this time, the Fund's returns were solid on an absolute basis, although it did lag the benchmark. FUND'S LIMITED EXPOSURE TO BOOMING MATERIALS INDUSTRY DETRACTED FROM RELATIVE RETURNS Throughout the past year, materials and commodities--and particularly metals--experienced an extraordinary run-up in prices. During the reporting period, gold, silver and copper rose to levels not seen in years. We believe a number of factors led to this spike in prices. China was no doubt one influence, as the country continues to industrialize. As a result, demand for materials was high during the reporting period, but we believe there are limited company-specific opportunities for long-term growth. Our research indicates that current metal and materials prices are unsustainable over the longer term, and we were reluctant to invest in companies whose profitability we found to be so closely linked to underlying asset prices. As a result, we maintained an underweight position throughout the period, which detracted from relative returns. However, the one company the Fund did hold in the metals industry, Steel Dynamics, was one of the Fund's best-performing holdings. FREIGHT SHIPPING INDUSTRY BENEFITED PERFORMANCE, WHILE MEDICAL SERVICES DETRACTED Two of the industries the investment team found most attractive during the reporting period were air freight and logistics and health care providers and services, and the Fund held overweight positions in both. Within the freight shipping industry, Hub Group, Landstar System and EGL Inc. all made positive contributions to performance. In this space we prefer "asset light" business models which limit asset ownership, providing a variable-cost model that scales more flexibly with market demand. Within medical services, we remain bullish on the industry despite the fact that our holdings lagged those of the Index over the period. However, VCA Antech, the largest operator of animal hospitals and veterinary clinics, was one of the Fund's top performing holdings during the period. MANAGEMENT REMAINS CAUTIOUSLY OPTIMISTIC ON THE ECONOMY IN THE MONTHS AHEAD Looking ahead, a number of factors may determine the strength of the economy over the remainder of 2006. As the Federal Reserve Board continues to fight inflation, it will be forced to strike a difficult balance between maintaining price stability and avoiding raising short term interest rates too high, to the point of putting the brakes on what has been a period of robust economic expansion. We generally believe that the system for implementing monetary policy in the US is dynamic enough to make that balance possible. Meanwhile, while a cooling housing market is an issue of some potential concern, other economic indicators remain solid--job growth and corporate profitability are both stable, and we anticipate they should remain so over the months ahead. Ultimately, we believe the equity markets will reward those companies that are leaders within their industries and are able to best navigate an ever-changing economic landscape. We continue to seek out those companies through extensive bottom-up research, and to position the portfolio accordingly. -------------------------------------------------------------------------------- 81 UBS U.S. SMALL CAP GROWTH FUND -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURN (UNAUDITED)
1 YEAR ENDED 5 YEARS ENDED INCEPTION* 06/30/06 06/30/06 TO 06/30/06 ------------------------------------------------------------------------------------- UBS U.S. Small Cap Growth Fund Class A 9.88% 6.22% 11.20% UBS U.S. Small Cap Growth Fund Class B 9.09 N/A 9.29 UBS U.S. Small Cap Growth Fund Class C 9.02 N/A 8.89 UBS U.S. Small Cap Growth Fund Class Y 10.12 6.50 8.19 UBS U.S. Small Cap Growth Fund Class A** 3.87 5.04 10.37 UBS U.S. Small Cap Growth Fund Class B** 4.08 N/A 8.98 UBS U.S. Small Cap Growth Fund Class C** 8.02 N/A 8.89 Russell 2000 Growth Index*** 14.58 3.49 2.35
* 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 RUSSELL 2000 GROWTH INDEX IS AN UNMANAGED INDEX COMPOSED OF THOSE COMPANIES IN THE RUSSELL 2000 INDEX WITH HIGHER PRICE-TO-BOOK RATIOS AND HIGHER FORECASTED GROWTH VALUES. THE RUSSELL 2000 INDEX IS AN INDEX COMPOSED OF THE 2,000 SMALLEST COMPANIES IN THE RUSSELL 3000 INDEX, WHICH REPRESENTS APPROXIMATELY 8% 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 MAY RESULT IN LOWER PERFORMANCE THAN CLASS Y. 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. -------------------------------------------------------------------------------- 82 UBS U.S. SMALL CAP GROWTH FUND -------------------------------------------------------------------------------- ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000 IN CLASS A SHARES (ADJUSTED FOR MAXIMUM SALES CHARGE) AND $5,000,000 IN CLASS Y SHARES (UNAUDITED) The following two charts show the growth in the value of an investment in UBS U.S. Small Cap Growth Fund Class A shares (adjusted for 5.50% maximum sales charge), Class Y shares and the Russell 2000 Growth Index, if you had invested $10,000 in Class A shares on December 31, 1998 or $5,000,000 in Class Y shares on September 30, 1997, and had reinvested all your income dividends and capital gain distributions through June 30, 2006. The performance of Class B and Class C shares will vary based upon the different inception dates, class specific expenses and sales charges. No adjustment has been made for any income taxes payable by shareholders on income dividends and capital gain distributions. Past performance is no guarantee of future results. Share price and returns will vary with market conditions; investors may realize a gain or loss upon redemption. UBS U.S. SMALL CAP GROWTH FUND CLASS A VS. RUSSELL 2000 GROWTH INDEX Wealth value with dividends reinvested [CHART]
UBS U.S. SMALL CAP RUSSELL 2000 GROWTH FUND CLASS A GROWTH INDEX ------------------- ------------ 12/31/1998 $ 9,452 $10,000 1/31/1999 $ 9,452 $10,450 2/28/1999 $ 8,657 $ 9,494 3/31/1999 $ 8,840 $ 9,832 4/30/1999 $ 8,818 $10,700 5/31/1999 $ 9,205 $10,717 6/30/1999 $ 9,839 $11,282 7/31/1999 $ 9,925 $10,933 8/31/1999 $ 9,710 $10,524 9/30/1999 $10,043 $10,727 10/31/1999 $10,419 $11,002 11/30/1999 $12,062 $12,165 12/31/1999 $13,340 $14,309 1/31/2000 $12,965 $14,176 2/29/2000 $15,027 $17,474 3/31/2000 $16,316 $15,638 4/30/2000 $15,736 $14,059 5/31/2000 $14,715 $12,828 6/30/2000 $17,401 $14,485 7/31/2000 $16,488 $13,243 8/31/2000 $18,765 $14,636 9/30/2000 $18,410 $13,909 10/31/2000 $17,830 $12,780 11/30/2000 $14,726 $10,460 12/31/2000 $16,304 $11,100 1/31/2001 $16,672 $11,998 2/28/2001 $14,697 $10,354 3/31/2001 $13,327 $ 9,412 4/30/2001 $15,092 $10,565 5/31/2001 $15,132 $10,809 6/30/2001 $15,487 $11,104 7/31/2001 $14,684 $10,157 8/31/2001 $13,959 $ 9,522 9/30/2001 $12,261 $ 7,986 10/31/2001 $12,972 $ 8,754 11/30/2001 $13,854 $ 9,485 12/31/2001 $14,571 $10,075 1/31/2002 $14,311 $ 9,717 2/28/2002 $13,899 $ 9,088 3/31/2002 $15,010 $ 9,878 4/30/2002 $14,791 $ 9,664 5/31/2002 $14,160 $ 9,099 6/30/2002 $13,432 $ 8,328 7/31/2002 $12,211 $ 7,048 8/31/2002 $12,198 $ 7,044 9/30/2002 $11,457 $ 6,536 10/31/2002 $12,211 $ 6,866 11/30/2002 $12,692 $ 7,547 12/31/2002 $11,868 $ 7,026 1/31/2003 $11,512 $ 6,836 2/28/2003 $11,319 $ 6,653 3/31/2003 $11,361 $ 6,754 4/30/2003 $12,294 $ 7,393 5/31/2003 $13,295 $ 8,226 6/30/2003 $13,721 $ 8,385 7/31/2003 $14,708 $ 9,019 8/31/2003 $15,696 $ 9,503 9/30/2003 $15,367 $ 9,263 10/31/2003 $16,629 $10,063 11/30/2003 $17,219 $10,391 12/31/2003 $17,130 $10,437 1/31/2004 $17,667 $10,986 2/29/2004 $17,460 $10,969 3/31/2004 $17,130 $11,020 4/30/2004 $16,236 $10,467 5/31/2004 $16,291 $10,675 6/30/2004 $17,075 $11,030 7/31/2004 $16,043 $10,040 8/31/2004 $15,823 $ 9,824 9/30/2004 $16,538 $10,367 10/31/2004 $17,103 $10,619 11/30/2004 $18,079 $11,517 12/31/2004 $18,963 $11,931 1/31/2005 $18,139 $11,393 2/28/2005 $18,627 $11,549 3/31/2005 $18,125 $11,116 4/30/2005 $17,259 $10,409 5/31/2005 $18,544 $11,143 6/30/2005 $19,060 $11,503 7/31/2005 $20,247 $12,307 8/31/2005 $19,842 $12,134 9/30/2005 $20,024 $12,230 10/31/2005 $19,172 $11,778 11/30/2005 $20,108 $12,445 12/31/2005 $20,174 $12,426 1/31/2006 $21,787 $13,625 2/28/2006 $21,656 $13,552 3/31/2006 $22,543 $14,211 4/30/2006 $22,383 $14,170 5/31/2006 $20,872 $13,172 6/30/2006 $20,944 $13,180
12/31/98 = $9,450 THE FUND'S GROWTH OF AN ASSUMED $10,000 INVESTMENT IS ADJUSTED FOR THE MAXIMUM SALES CHARGE OF 5.50%. UBS U.S. SMALL CAP GROWTH FUND CLASS Y VS. RUSSELL 2000 GROWTH INDEX Wealth value with dividends reinvested [CHART]
UBS U.S. SMALL CAP RUSSELL 2000 GROWTH FUND CLASS Y GROWTH INDEX ------------------- ------------ 9/30/1997 $ 5,000,000 $5,000,000 10/31/1997 $ 4,770,000 $4,699,683 11/30/1997 $ 4,685,000 $4,587,623 12/31/1997 $ 4,720,000 $4,590,208 1/31/1998 $ 4,665,000 $4,528,977 2/28/1998 $ 5,040,000 $4,928,830 3/31/1998 $ 5,250,000 $5,135,575 4/30/1998 $ 5,235,000 $5,167,070 5/31/1998 $ 4,955,000 $4,791,668 6/30/1998 $ 4,855,000 $4,840,628 7/31/1998 $ 4,440,000 $4,436,413 8/31/1998 $ 3,500,000 $3,412,299 9/30/1998 $ 3,697,359 $3,758,271 10/31/1998 $ 3,942,515 $3,954,291 11/30/1998 $ 4,037,576 $4,261,043 12/31/1998 $ 4,402,809 $4,646,638 1/31/1999 $ 4,407,812 $4,855,649 2/28/1999 $ 4,037,576 $4,411,472 3/31/1999 $ 4,127,634 $4,568,592 4/30/1999 $ 4,117,627 $4,972,050 5/31/1999 $ 4,297,742 $4,979,927 6/30/1999 $ 4,592,930 $5,242,246 7/31/1999 $ 4,632,956 $5,080,141 8/31/1999 $ 4,532,892 $4,890,151 9/30/1999 $ 4,692,994 $4,984,475 10/31/1999 $ 4,873,109 $5,112,148 11/30/1999 $ 5,638,598 $5,652,688 12/31/1999 $ 6,238,981 $6,648,985 1/31/2000 $ 6,063,869 $6,587,107 2/29/2000 $ 7,029,485 $8,119,693 3/31/2000 $ 7,634,871 $7,266,183 4/30/2000 $ 7,364,699 $6,532,549 5/31/2000 $ 6,889,396 $5,960,537 6/30/2000 $ 8,140,194 $6,730,524 7/31/2000 $ 7,719,926 $6,153,712 8/31/2000 $ 8,785,605 $6,801,020 9/30/2000 $ 8,625,503 $6,463,153 10/31/2000 $ 8,355,331 $5,938,506 11/30/2000 $ 6,899,402 $4,860,287 12/31/2000 $ 7,639,313 $5,157,674 1/31/2001 $ 7,816,971 $5,575,141 2/28/2001 $ 6,891,922 $4,810,939 3/31/2001 $ 6,248,676 $4,373,535 4/30/2001 $ 7,081,833 $4,908,950 5/31/2001 $ 7,106,337 $5,022,657 6/30/2001 $ 7,265,617 $5,159,629 7/31/2001 $ 6,891,922 $4,719,456 8/31/2001 $ 6,554,984 $4,424,738 9/30/2001 $ 5,758,584 $3,710,775 10/31/2001 $ 6,095,522 $4,067,769 11/30/2001 $ 6,518,227 $4,407,315 12/31/2001 $ 6,858,180 $4,681,715 1/31/2002 $ 6,730,586 $4,515,154 2/28/2002 $ 6,539,195 $4,222,925 3/31/2002 $ 7,062,331 $4,589,977 4/30/2002 $ 6,966,635 $4,490,671 5/31/2002 $ 6,666,789 $4,228,106 6/30/2002 $ 6,328,665 $3,869,563 7/31/2002 $ 5,748,112 $3,274,843 8/31/2002 $ 5,748,112 $3,273,319 9/30/2002 $ 5,403,608 $3,036,889 10/31/2002 $ 5,754,492 $3,190,496 11/30/2002 $ 5,984,161 $3,506,778 12/31/2002 $ 5,594,999 $3,264,938 1/31/2003 $ 5,429,127 $3,176,248 2/28/2003 $ 5,339,811 $3,091,546 3/31/2003 $ 5,358,950 $3,138,355 4/30/2003 $ 5,799,150 $3,435,359 5/31/2003 $ 6,271,248 $3,822,501 6/30/2003 $ 6,475,398 $3,896,155 7/31/2003 $ 6,947,496 $4,190,695 8/31/2003 $ 7,413,215 $4,415,797 9/30/2003 $ 7,260,102 $4,303,995 10/31/2003 $ 7,859,794 $4,675,822 11/30/2003 $ 8,140,501 $4,828,261 12/31/2003 $ 8,098,971 $4,849,849 1/31/2004 $ 8,348,465 $5,104,642 2/29/2004 $ 8,252,506 $5,096,743 3/31/2004 $ 8,105,368 $5,120,567 4/30/2004 $ 7,676,750 $4,863,513 5/31/2004 $ 7,702,339 $4,960,254 6/30/2004 $ 8,079,779 $5,125,316 7/31/2004 $ 7,593,585 $4,665,257 8/31/2004 $ 7,491,228 $4,564,833 9/30/2004 $ 7,830,285 $4,817,238 10/31/2004 $ 8,098,971 $4,934,298 11/30/2004 $ 8,565,973 $5,351,358 12/31/2004 $ 8,982,946 $5,543,698 1/31/2005 $ 8,593,512 $5,293,959 2/28/2005 $ 8,827,172 $5,366,622 3/31/2005 $ 8,593,512 $5,165,318 4/30/2005 $ 8,184,606 $4,836,592 5/31/2005 $ 8,794,719 $5,177,585 6/30/2005 $ 9,041,361 $5,344,983 7/31/2005 $ 9,606,040 $5,718,613 8/31/2005 $ 9,417,814 $5,638,025 9/30/2005 $ 9,502,191 $5,682,700 10/31/2005 $ 9,106,267 $5,472,685 11/30/2005 $ 9,547,625 $5,782,541 12/31/2005 $ 9,578,520 $5,773,916 1/31/2006 $10,354,792 $6,330,859 2/28/2006 $10,294,040 $6,297,121 3/31/2006 $10,712,552 $6,603,175 4/30/2006 $10,638,300 $6,584,113 5/31/2006 $ 9,922,780 $6,120,756 6/30/2006 $ 9,956,531 $6,124,447
9/30/97 = $5,000,000 PAST PERFORMANCE DOES NOT PREDICT FUTURE PERFORMANCE, AND THE PERFORMANCE INFORMATION PROVIDED DOES NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PERFORMANCE RESULTS ASSUME REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS AT NET ASSET VALUE ON THE EX-DIVIDEND DATES. 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. -------------------------------------------------------------------------------- 83 UBS U.S. SMALL CAP GROWTH FUND -------------------------------------------------------------------------------- EXPLANATION OF EXPENSE DISCLOSURE (UNAUDITED) As a shareholder of the Fund, you incur two types of costs: (1) transactional costs (as applicable); including sales charges (loads); 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, January 1, 2006 to June 30, 2006. 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.
EXPENSES PAID BEGINNING ENDING DURING PERIOD* ACCOUNT VALUE ACCOUNT VALUE 01/01/06 TO EXPENSE RATIO JANUARY 1, 2006 JUNE 30, 2006 06/30/06 DURING PERIOD --------------------------------------------------------------------------------------------------------------- CLASS A Actual $1,000.00 $1,038.20 $ 6.47 1.28% Hypothetical (5% annual return before expenses) 1,000.00 1,018.45 6.41 1.28% CLASS B Actual 1,000.00 1,035.00 10.24 2.03% Hypothetical (5% annual return before expenses) 1,000.00 1,014.73 10.14 2.03% CLASS C Actual 1,000.00 1,035.00 10.24 2.03% Hypothetical (5% annual return before expenses) 1,000.00 1,014.73 10.14 2.03% CLASS Y Actual 1,000.00 1,039.50 5.21 1.03% Hypothetical (5% annual return before expenses) 1,000.00 1,019.69 5.16 1.03%
* EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED NET EXPENSE RATIOS, MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 181 DIVIDED BY 365 (TO REFLECT THE ONE-HALF YEAR PERIOD). -------------------------------------------------------------------------------- 84 UBS U.S. SMALL CAP GROWTH FUND -------------------------------------------------------------------------------- TOP TEN EQUITY HOLDINGS AS OF JUNE 30, 2006 (UNAUDITED) PERCENTAGE OF NET ASSETS --------------------------------------------------- Tetra Technologies, Inc. 3.1% Pediatrix Medical Group, Inc. 2.8 VCA Antech, Inc. 2.7 KCS Energy, Inc. 2.1 Landstar System, Inc. 2.1 Microsemi Corp. 1.9 Childrens Place Retail Stores, Inc. 1.9 Nice Systems Ltd. ADR 1.8 Phillips-Van Heusen Corp. 1.8 ESCO Technologies, Inc. 1.8 --------------------------------------------------- Total 22.0% INDUSTRY DIVERSIFICATION AS A PERCENT OF NET ASSETS AS OF JUNE 30, 2006 (UNAUDITED) -------------------------------------------------------------------------------- Equities US Equities Aerospace & Defense 1.58% Air Freight & Logistics 2.56 Auto Components 1.00 Biotechnology 3.03 Capital Markets 1.77 Commercial Banks 1.66 Commercial Services & Supplies 3.17 Communications Equipment 2.32 Computers & Peripherals 0.51 Construction & Engineering 1.25 Diversified Telecommunication Services 0.75 Electrical Equipment 1.92 Electronic Equipment & Instruments 3.37 Energy Equipment & Services 4.78 Health Care Equipment & Supplies 5.31 Health Care Providers & Services 8.50 Health Care Technology 0.32 Hotels, Restaurants & Leisure 5.11 Household Durables 1.15 Household Products 1.30 IT Services 1.50 Leisure Equipment & Products 0.69% Life Sciences Tools & Services 0.71 Machinery 2.87 Metals & Mining 1.63 Oil & Gas 4.05 Pharmaceuticals 1.99 Real Estate 2.42 Road & Rail 2.08 Semiconductors & Semiconductor Equipment 8.04 Software 7.50 Specialty Retail 6.94 Textiles, Apparel & Luxury Goods 1.78 Thrifts & Mortgage Finance 1.09 Trading Companies & Distributors 0.55 ------ Total US Equities 95.20 International Equities Energy Equipment & Services 0.77 Investment Company 1.15 Short-Term Investment 2.48 ------ Total Investments 99.60 Cash and other assets, less liabilities 0.40 ------ Net Assets 100.00% ====== -------------------------------------------------------------------------------- 85 UBS U.S. SMALL CAP GROWTH FUND--SCHEDULE OF INVESTMENTS June 30, 2006 -------------------------------------------------------------------------------- SHARES VALUE ------- ----------- EQUITIES -- 95.97% US EQUITIES -- 95.20% AEROSPACE & DEFENSE -- 1.58% AAR Corp. (a) 215,700 $ 4,795,011 DRS Technologies, Inc. 42,500 2,071,875 ----------- 6,866,886 ----------- AIR FREIGHT & LOGISTICS -- 2.56% HUB Group, Inc., Class A (a) 261,900 6,424,407 UTI Worldwide, Inc. 162,300 4,718,010 ----------- 11,142,417 ----------- AUTO COMPONENTS -- 1.00% American Axle & Manufacturing Holdings, Inc. 33,000 564,630 LKQ Corp. (a) 199,100 3,782,900 ----------- 4,347,530 ----------- BIOTECHNOLOGY -- 3.03% Alexion Pharmaceuticals, Inc. (a) 73,300 2,647,596 Isis Pharmaceuticals, Inc. (a) 314,400 1,902,120 Keryx Biopharmaceuticals, Inc. (a) 124,500 1,767,900 Neurocrine Biosciences, Inc. (a) 300 3,180 Nuvelo, Inc. (a) 142,200 2,367,630 Renovis, Inc. (a) 160,100 2,451,131 Telik, Inc. (a) 123,300 2,034,450 ----------- 13,174,007 ----------- CAPITAL MARKETS -- 1.77% Investors Financial Services Corp. 171,700 7,709,330 ----------- COMMERCIAL BANKS -- 1.66% UCBH Holdings, Inc. 438,200 7,247,828 ----------- COMMERCIAL SERVICES & SUPPLIES -- 3.17% CRA International, Inc. (a) 115,600 5,218,184 Korn/Ferry International Corp. (a) 97,300 1,906,107 Labor Ready, Inc. (a) 294,500 6,670,425 ----------- 13,794,716 ----------- COMMUNICATIONS EQUIPMENT -- 2.32% Foundry Networks, Inc. (a) 209,100 2,229,006 Nice Systems Ltd. ADR (a) 279,600 7,867,944 ----------- 10,096,950 ----------- COMPUTERS & PERIPHERALS -- 0.51% Neoware, Inc. (a) 180,300 2,215,887 ----------- CONSTRUCTION & ENGINEERING -- 1.25% EMCOR Group, Inc. (a) 111,800 5,441,306 ----------- DIVERSIFIED TELECOMMUNICATION SERVICES -- 0.75% NeuStar, Inc., Class A (a) 96,100 3,243,375 ----------- ELECTRICAL EQUIPMENT -- 1.92% Energy Conversion Devices, Inc. (a) 59,300 2,160,299 Genlyte Group, Inc. (a) 85,800 6,214,494 ----------- 8,374,793 ----------- ELECTRONIC EQUIPMENT & INSTRUMENTS -- 3.37% Benchmark Electronics, Inc. (a) 246,450 $ 5,944,374 Cognex Corp. 206,300 5,369,989 Radisys Corp. (a) 153,800 3,377,448 ----------- 14,691,811 ----------- ENERGY EQUIPMENT & SERVICES -- 4.78% Dresser-Rand Group, Inc. (a) 81,000 1,901,880 Patterson-UTI Energy, Inc. 185,800 5,259,998 Tetra Technologies, Inc. (a) 450,850 13,656,247 ----------- 20,818,125 ----------- HEALTH CARE EQUIPMENT & SUPPLIES -- 5.31% Arthrocare Corp. (a) 153,200 6,435,932 Aspect Medical Systems, Inc. (a) 116,900 2,038,736 DexCom, Inc. (a) 82,400 1,118,992 Immucor, Inc. (a) 207,600 3,992,148 Resmed, Inc. (a) 70,500 3,309,975 Viasys Healthcare, Inc. (a) 243,300 6,228,480 ----------- 23,124,263 ----------- HEALTH CARE PROVIDERS & SERVICES -- 8.50% Pediatrix Medical Group, Inc. (a) 265,500 12,027,150 Psychiatric Solutions, Inc. (a) 270,000 7,738,200 United Surgical Partners International, Inc. (a) 178,400 5,364,488 VCA Antech, Inc. (a) 365,700 11,676,801 Visicu, Inc. (a) 11,900 210,035 ----------- 37,016,674 ----------- HEALTH CARE TECHNOLOGY -- 0.32% Merge Technologies, Inc. (a) 112,200 1,381,182 ----------- HOTELS, RESTAURANTS & LEISURE -- 5.11% California Pizza Kitchen, Inc. (a) 199,900 5,493,252 CKE Restaurants, Inc. 414,300 6,881,523 Orient-Express Hotels Ltd. 193,400 7,511,656 Panera Bread Co., Class A (a) 35,100 2,360,124 ----------- 22,246,555 ----------- HOUSEHOLD DURABLES -- 1.15% Hovnanian Enterprises, Inc. (a) 80,500 2,421,440 Technical Olympic USA, Inc. 179,600 2,579,056 ----------- 5,000,496 ----------- HOUSEHOLD PRODUCTS -- 1.30% Central Garden & Pet Co. (a) 131,700 5,669,685 ----------- IT SERVICES -- 1.50% CACI International, Inc., Class A (a) 111,800 6,521,294 ----------- LEISURE EQUIPMENT & PRODUCTS -- 0.69% Nautilus, Inc. 191,000 3,000,610 ----------- -------------------------------------------------------------------------------- 86 UBS U.S. SMALL CAP GROWTH FUND--SCHEDULE OF INVESTMENTS June 30, 2006 -------------------------------------------------------------------------------- SHARES VALUE ---------- ------------ LIFE SCIENCES TOOLS & SERVICES -- 0.71% Affymetrix, Inc. (a) 54,500 $ 1,395,200 Charles River Laboratories International, Inc. (a) 45,880 1,688,384 ------------ 3,083,584 ------------ MACHINERY -- 2.87% ESCO Technologies, Inc. (a) 144,800 7,739,560 Middleby Corp. (a) 54,900 4,752,144 ------------ 12,491,704 ------------ METALS & MINING -- 1.63% Steel Dynamics, Inc. 107,900 7,093,346 ------------ OIL & GAS -- 4.05% EXCO Resources, Inc. (a) 451,100 5,142,540 KCS Energy, Inc. (a) 311,300 9,245,610 Quicksilver Resources, Inc. (a) 87,800 3,231,918 ------------ 17,620,068 ------------ PHARMACEUTICALS -- 1.99% Penwest Pharmaceuticals Co. (a) 157,400 3,436,042 Sciele Pharma, Inc. (a) 225,500 5,229,345 ------------ 8,665,387 ------------ REAL ESTATE -- 2.42% BioMed Realty Trust, Inc. REIT 114,100 3,416,154 Ventas, Inc. REIT 210,200 7,121,576 ------------ 10,537,730 ------------ ROAD & RAIL -- 2.08% Landstar System, Inc. 191,500 9,044,545 ------------ SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 8.04% Atheros Communications, Inc. (a) 260,800 4,944,768 Cree, Inc. (a) 57,700 1,370,952 Exar Corp. (a) 180,900 2,400,543 Ikanos Communications, Inc. (a) 34,100 517,979 Microsemi Corp. (a) 342,800 8,357,464 Nextest Systems Corp. (a) 75,700 1,227,097 PDF Solutions, Inc. (a) 67,000 831,470 Photronics, Inc. (a) 178,600 2,643,280 Power Integrations, Inc. (a) 141,200 2,468,176 Rudolph Technologies, Inc. (a) 257,313 3,731,038 Silicon Image, Inc. (a) 380,800 4,105,024 Standard Microsystems Corp. (a) 109,900 2,399,117 ------------ 34,996,908 ------------ SOFTWARE -- 7.50% Factset Research Systems, Inc. 97,800 4,625,940 Fair Isaac Corp. 91,550 3,324,180 Nuance Communications, Inc. (a) 520,400 5,235,224 Omniture, Inc. (a) 149,900 1,092,771 Progress Software Corp. (a) 177,400 4,152,934 RSA Security, Inc. (a) 214,100 5,821,379 Secure Computing Corp. (a) 269,000 2,313,400 THQ, Inc. (a) 94,525 $ 2,041,740 Verint Systems, Inc. (a) 138,900 4,054,491 ------------ 32,662,059 ------------ SPECIALTY RETAIL -- 6.94% Aeropostale, Inc. (a) 191,400 5,529,546 Childrens Place Retail Stores, Inc. (a) 136,700 8,208,835 Christopher & Banks Corp. 218,700 6,342,300 DSW, Inc. (a) 57,900 2,108,718 Guitar Center, Inc. (a) 91,700 4,077,899 J. Crew Group, Inc. (a) 17,900 491,355 Petco Animal Supplies, Inc. (a) 168,900 3,450,627 ------------ 30,209,280 ------------ TEXTILES, APPAREL & LUXURY GOODS -- 1.78% Phillips-Van Heusen Corp. 202,900 7,742,664 ------------ THRIFTS & MORTGAGE FINANCE -- 1.09% BankUnited Financial Corp., Class A 91,600 2,795,632 Harbor Florida Bancshares, Inc. 52,900 1,964,706 ------------ 4,760,338 ------------ TRADING COMPANIES & DISTRIBUTORS -- 0.55% Beacon Roofing Supply, Inc. (a) 109,400 2,407,894 ------------ Total US Equities 414,441,227 ------------ INTERNATIONAL EQUITIES -- 0.77% NETHERLANDS -- 0.77% ENERGY EQUIPMENT & SERVICES -- 0.77% Core Laboratories NV (a) 54,900 3,351,096 ------------ Total Equities (Cost $369,805,054) 417,792,323 ------------ INVESTMENT COMPANY -- 1.15% iShares Russell 2000 Index Fund (Cost $4,850,334) 69,700 5,011,430 ------------ SHORT-TERM INVESTMENT -- 2.48% OTHER* -- 2.48% UBS Supplementary Trust -- U.S. Cash Management Prime Fund, yield of 5.21% (Cost $10,786,995) 10,786,995 10,786,995 ------------ Total Investments -- 99.60% (Cost $385,442,383) 433,590,748 Cash and other assets, less liabilities -- 0.40% 1,762,952 ------------ Net Assets -- 100.00% $435,353,700 ============ -------------------------------------------------------------------------------- 87 UBS U.S. SMALL CAP GROWTH FUND--SCHEDULE OF INVESTMENTS June 30, 2006 -------------------------------------------------------------------------------- NOTES TO SCHEDULE OF INVESTMENTS Aggregate cost for federal income tax purposes was $387,003,741; and net unrealized appreciation consisted of: Gross unrealized appreciation $ 72,984,210 Gross unrealized depreciation (26,397,203) ------------ Net unrealized appreciation $ 46,587,007 ============ (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. 88 UBS ABSOLUTE RETURN BOND FUND -------------------------------------------------------------------------------- For the fiscal year ended June 30, 2006, Class A shares of UBS Absolute Return Bond Fund (the "Fund") returned 4.65% (2.00% after the deduction of the maximum sales charge) and Class Y shares returned 4.94%. For purposes of comparison, the Merrill Lynch US Treasury 1-3 Year Index returned 1.83% over the same time period, while the US LIBOR 3-Month Index returned 4.59%. (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 91; 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 past 12 months represented a particularly challenging period for fixed income markets. Nonetheless, the Fund's performance was not far off its LIBOR + 0.75% return goal. The bulk of the Fund's positive performance for the period was attributable to yield curve positioning (including duration) and spread management. A CHALLENGING YEAR FOR FIXED INCOME MARKETS Throughout the past 12 months, interest rates worldwide crept steadily higher. In the United States, the Federal Reserve Board (the "Fed") continued its tightening campaign, raising short-term interest rates eight times during the reporting period before pausing after the period ended. This uninterrupted series of rate increases was the longest on record in more than 50 years. The primary driver for rate increases recently has been inflation. Core inflation data during the second half of the Fund's fiscal year tended to be at the high end of the Fed's implied acceptable range. The result was interest rate hikes above and beyond what many economists had anticipated. During this time, yields in the US Treasury market increased rather dramatically, especially on shorter-dated maturities, which produced what was an unusually flat yield curve for most of the fiscal year. In addition, the spread--or the difference in yield between bonds of similar maturities but varying qualities--tightened notably in both the corporate bond and high yield sectors. Investors were generally willing to accept the higher level of risk those sectors entailed with steadily declining returns over Treasuries for much of the period. In May 2006, however, that trend reversed direction as investors began a "flight to quality" and sold off higher volatility assets in both the fixed income and equity markets. The same pattern generally held true in international bond markets. The European Central Bank increased short-term rates three times during the period, while the Bank of Japan increased short-term interest rates for the first time in six years in a step away from its long-standing zero-rate policy. As a result, yields generally rose in those markets, putting downward pressure on bond prices. NEGATIVE DURATION BENEFITED PERFORMANCE The Fund's negative duration positioning throughout the year was a benefit to performance. (Duration measures a fund's sensitivity to interest rate changes.) We had positioned the Fund to benefit from rising interest rates before the reporting period began. As interest rates and yields rose in fixed income markets, our negative duration--achieved through the use of derivatives contracts--had a positive impact on performance. During the course of the year, we de-emphasized our negative duration stance. As yields rose and bond prices fell, fixed income markets generally moved closer to what our analysis indicates is fair value. This was primarily the case in the US. In Japan, however, we increased the size of our negative duration in anticipation of rising interest rates in the country. SPREAD MANAGEMENT ALSO BENEFITED FUND PERFORMANCE The Fund's spread management generally added value throughout the period. (Spread refers to the difference in yield between bonds of similar maturities but differing credit qualities.) Because the Fund is not managed to a benchmark, any incremental yield above the return on cash equivalents tends to boost performance. Sector weightings and security selection were fairly positive on an absolute basis. We generally favored collateralized securities, particularly within the US asset-backed securities (ABS), mortgage-backed securities (MBS) and commercial mortgage-backed securities (CMBS) all appeared attractive from a valuation perspective. Within the MBS sector, we found particular value in hybrid adjustable rate mortgages, which combine a fixed rate for an initial -------------------------------------------------------------------------------- 89 UBS ABSOLUTE RETURN BOND FUND -------------------------------------------------------------------------------- period with a variable rate thereafter. The Fund held sizable positions in all three sectors, and that positioning was beneficial to performance. On a geographic basis, the Fund held a fairly even exposure to international fixed income securities relative to US bonds. DESPITE MIXED SIGNALS, OUTLOOK FOR ECONOMY REMAINS POSITIVE The current economic backdrop in the US is one of mixed and sometimes contradictory signals. Employment and corporate profitability both remain quite robust, but a softening housing market and moderate levels of inflation are both areas that could pose future problems. We tend to believe that core inflation is generally under control, although it may continue to garner attention over the short term. In terms of overall economic growth, we anticipate that gross domestic product will return to trend-like growth levels into 2007, both for the US economy and for markets abroad. Within the Fund, we have de-emphasized our defensive stance, and will continue to seek out absolute returns, regardless of the economic environment. -------------------------------------------------------------------------------- THIS LETTER IS INTENDED TO ASSIST SHAREHOLDERS IN UNDERSTANDING HOW THE FUND PERFORMED DURING THE FISCAL YEAR ENDED JUNE 30, 2006. THE VIEWS AND OPINIONS IN THE LETTER WERE CURRENT AS OF AUGUST 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. -------------------------------------------------------------------------------- 90 UBS ABSOLUTE RETURN BOND FUND -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURN (UNAUDITED) 1 YEAR INCEPTION* ENDED TO 06/30/06 06/30/06 ------------------------------------------------------------------- UBS Absolute Return Bond Fund Class A 4.65% 4.00% UBS Absolute Return Bond Fund Class C 4.30 3.66 UBS Absolute Return Bond Fund Class Y 4.94 4.27 UBS Absolute Return Bond Fund Class A** 2.00 1.76 UBS Absolute Return Bond Class Fund C** 3.80 3.66 Merrill Lynch US Treasury 1-3 Year Index*** 1.83 2.06 US LIBOR 3-Month Index**** 4.59 4.41 * INCEPTION DATE OF ALL SHARES OF UBS ABSOLUTE RETURN BOND FUND IS 04/27/05. INCEPTION DATE OF THE INDICES, FOR THE PURPOSE OF THIS ILLUSTRATION, IS 04/30/05. ** RETURNS INCLUDE SALES CHARGES. *** THE MERRILL LYNCH US TREASURY 1-3 YEAR INDEX: AN UNMANAGED INDEX TRACKING SHORT-TERM US TREASURY SECURITIES WITH MATURITIES BETWEEN 1 AND 3 YEARS. **** THE US LIBOR 3-MONTH INDEX: LIBOR IS THE LONDON INTERBANK OFFERED RATE, A SHORT-TERM INTEREST RATE THAT BANKS CHARGE ONE ANOTHER GENERALLY REPRESENTATIVE OF THE MOST COMPETITIVE AND CURRENT CASH RATE AVAILABLE. THE US LIBOR 3-MONTH INDEX TRACKS THE INTEREST RATE EARNED ON A THREE-MONTH INTER-BANK DEPOSIT IN US DOLLARS. THE Y SHARE CLASS IS OUR LOWEST FEE SHARE CLASS. OUR OTHER SHARE CLASSES INCLUDE HIGHER FEES AND LOADS, WHICH MAY RESULT IN LOWER PERFORMANCE THAN CLASS Y. 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. -------------------------------------------------------------------------------- 91 UBS ABSOLUTE RETURN BOND FUND -------------------------------------------------------------------------------- ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000 IN CLASS A SHARES (ADJUSTED FOR MAXIMUM SALES CHARGE) AND $5,000,000 IN CLASS Y SHARES (UNAUDITED) The following two charts show the growth in the value of an investment in UBS Absolute Return Bond Fund Class A shares (adjusted for 2.50% maximum sales charge), Class Y shares, the Merrill Lynch US Treasury 1-3 Year Index and the US LIBOR 3-Month Index, if you had invested $10,000 in Class A shares on April 27, 2005 or $5,000,000 in Class Y shares on April 27, 2005, and had reinvested all your income dividends and capital gain distributions through June 30, 2006. The performance of Class C shares will vary based upon the different class specific expenses and sales charges. No adjustment has been made for any income taxes payable by shareholders on income dividends and capital gain distributions. Past performance is no guarantee of future results. Share price and returns will vary with market conditions; investors may realize a gain or loss upon redemption. UBS ABSOLUTE RETURN BOND FUND CLASS A VS. MERRILL LYNCH US TREASURY 1-3 YEAR INDEX AND US LIBOR 3-MONTH INDEX Wealth value with dividends reinvested [CHART]
UBS ABSOLUTE RETURN MERRILL LYNCH US US LIBOR 3-MONTH BOND FUND CLASS A TREASURY 1-3 YEAR INDEX INDEX ------------------- ----------------------- ---------------- 4/27/2005 $ 9,747 $10,000 $10,000 4/30/2005 $ 9,747 $10,000 $10,000 5/31/2005 $ 9,737 $10,038 $10,028 6/30/2005 $ 9,753 $10,057 $10,056 7/31/2005 $ 9,821 $10,029 $10,086 8/31/2005 $ 9,792 $10,091 $10,118 9/30/2005 $ 9,870 $10,066 $10,151 10/31/2005 $ 9,880 $10,065 $10,186 11/30/2005 $ 9,900 $10,097 $10,222 12/31/2005 $ 9,912 $10,136 $10,261 1/31/2006 $ 9,972 $10,153 $10,301 2/28/2006 $10,031 $10,161 $10,339 3/31/2006 $10,093 $10,175 $10,382 4/30/2006 $10,163 $10,207 $10,425 5/31/2006 $10,173 $10,222 $10,471 6/30/2006 $10,207 $10,241 $10,517
4/27/05 = $9,750 THE FUND'S GROWTH OF AN ASSUMED $10,000 INVESTMENT IS ADJUSTED FOR THE MAXIMUM SALES CHARGE OF 2.50%. INDICES ARE STARTED ON 4/30/05. UBS ABSOLUTE RETURN BOND FUND CLASS Y VS. MERRILL LYNCH US TREASURY 1-3 YEAR INDEX AND US LIBOR 3-MONTH INDEX Wealth value with dividends reinvested [CHART]
UBS ABSOLUTE RETURN MERRILL LYNCH US US LIBOR 3-MONTH BOND FUND CLASS Y TREASURY 1-3 YEAR INDEX INDEX ------------------- ----------------------- ---------------- 4/27/2005 $5,000,000 $5,000,000 $5,000,000 4/30/2005 $5,000,000 $5,000,000 $5,000,000 5/31/2005 $5,000,000 $5,018,851 $5,013,821 6/30/2005 $5,004,450 $5,028,660 $5,027,765 7/31/2005 $5,039,551 $5,014,470 $5,042,989 8/31/2005 $5,029,522 $5,045,622 $5,059,056 9/30/2005 $5,066,643 $5,033,092 $5,075,373 10/31/2005 $5,076,736 $5,032,632 $5,093,139 11/30/2005 $5,081,783 $5,048,661 $5,111,219 12/31/2005 $5,090,433 $5,068,035 $5,130,673 1/31/2006 $5,121,191 $5,076,417 $5,150,714 2/28/2006 $5,157,075 $5,080,525 $5,169,462 3/31/2006 $5,185,963 $5,087,505 $5,190,930 4/30/2006 $5,227,081 $5,103,450 $5,212,559 5/31/2006 $5,232,221 $5,111,185 $5,235,585 6/30/2006 $5,251,718 $5,120,546 $5,258,438
4/27/05 = $5,000,000 INDICES ARE STARTED ON 4/30/05. 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 UBS ABSOLUTE RETURN BOND FUND -------------------------------------------------------------------------------- EXPLANATION OF EXPENSE DISCLOSURE (UNAUDITED) As a shareholder of the Fund, you incur two types of costs: (1) transactional costs (as applicable); including sales charges (loads); 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, January 1, 2006 to June 30, 2006. 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 EXPENSE ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD* RATIO JANUARY 1, 2006 JUNE 30, 2006 01/01/06 TO 06/30/06 DURING PERIOD -------------------------------------------------------------------------------------------------------------------- CLASS A Actual $1,000.00 $1,029.80 $4.93 0.98% Hypothetical (5% annual return before expenses) 1,000.00 1,019.93 4.91 0.98% CLASS C Actual 1,000.00 1,029.10 6.79 1.35% Hypothetical (5% annual return before expenses) 1,000.00 1,018.10 6.76 1.35% CLASS Y Actual 1,000.00 1,031.70 3.93 0.78% Hypothetical (5% annual return before expenses) 1,000.00 1,020.93 3.91 0.78%
* EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIOS, MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 181 DIVIDED BY 365 (TO REFLECT THE ONE-HALF YEAR PERIOD). -------------------------------------------------------------------------------- 93 UBS ABSOLUTE RETURN BOND FUND -------------------------------------------------------------------------------- TOP TEN FIXED INCOME HOLDINGS AS OF JUNE 30, 2006 (UNAUDITED) PERCENTAGE OF NET ASSETS ----------------------------------------------------- Compagnie de Financement Foncier 2.375%, due 01/29/09 5.7% Federal National Mortgage Association 6.625%, due 09/15/09 3.8 Kreditanstalt fuer Wiederaufbau 3.500%, due 07/15/09 3.4 Federal Home Loan Mortgage Corp. 5.250%, due 04/18/16 3.3 Federal Home Loan Mortgage Corp. 4.875%, due 02/17/09 2.7 Federal National Mortgage Association 6.000%, due 05/15/11 1.5 Landwirtschaftliche Rentenbank 0.650%, due 09/30/08 1.4 Bank of Scotland 6.375%, due 08/16/19 1.3 Deutsche Bundesrepublik 4.000%, due 01/04/37 1.2 Kreditanstalt fuer Wiederaufbau 5.375%, due 12/07/07 1.2 ----------------------------------------------------- Total 25.5% -------------------------------------------------------------------------------- 94 UBS ABSOLUTE RETURN BOND FUND -------------------------------------------------------------------------------- INDUSTRY DIVERSIFICATION AS A PERCENT OF NET ASSETS AS OF JUNE 30, 2006 (UNAUDITED) US Bonds US Corporate Bonds Automobiles 0.95% Capital Markets 1.34 Chemicals 0.42 Commercial Banks 0.38 Commercial Services & Supplies 0.36 Consumer Finance 0.94 Containers & Packaging 0.40 Diversified Financial Services 4.35 Diversified Telecommunication Services 1.08 Energy Equipment & Services 0.19 Food & Staples Retailing 0.74 Food Products 0.37 Independent Power Producers & Energy Traders 0.16 Insurance 0.66 Media 1.04 Metals & Mining 0.37 Multiline Retail 0.26 Oil & Gas 0.63 Real Estate 0.19 Textiles, Apparel & Luxury Goods 0.52 Thrifts & Mortgage Finance 0.62 Tobacco 0.29 Wireless Telecommunication Services 0.49 ------ Total US Corporate Bonds 16.75 Asset-Backed Securities 3.05 Collateralized Debt Obligations 1.40 Commercial Mortgage-Backed Securities 2.75 Mortgage & Agency Debt Securities 13.34 ------ Total US Bonds 37.29* International Bonds International Corporate Bonds Automobiles 0.69 Chemicals 0.03 Collateralized Mortgage Obligations 0.20% Commercial Banks 18.17 Containers & Packaging 0.11 Diversified Financial Services 2.10 Diversified Telecommunication Services 2.80 Electric Utilities 2.03 Food Products 0.14 Industrial Conglomerates 0.63 Insurance 0.13 Machinery 0.03 Media 0.13 Multi-Utilities & Unregulated Power 1.36 Paper & Forest Products 0.22 Road & Rail 0.07 Software 0.01 Wireless Telecommunication Services 0.06 ------ Total International Corporate Bonds 28.91 International Asset-Backed Securities 0.15 International Collateralized Debt Obligations 1.59 International Commercial Mortgage-Backed Securities 0.05 International Mortgage-Backed Securities 0.17 Foreign Government Bonds 3.58 Sovereign/SupraNational Bond 0.73 ------ Total International Bonds 35.18* Total Bonds 72.47 Investment Company 13.25 Short-Term Investments 8.63 Total Investments 94.35 Investments Sold Short (4.51) Cash and other assets, less liabilities 10.16 ------ Net Assets 100.00% ====== -------------------------------------------------------------------------------- * THE FUND HELD SHORT POSITIONS IN US TREASURY NOTE AND BOND FUTURES WHICH DECREASED US BOND EXPOSURE FROM 37.43% TO 10.07%. THE FUND ALSO HELD NET SHORT INTERNATIONAL BOND INDEX FUTURES AND INTERNATIONAL INTEREST RATE FUTURES, WHICH RESULTED IN A NET DECREASE TO THE INTERNATIONAL BOND EXPOSURE, FROM 35.04% TO 13.23%. -------------------------------------------------------------------------------- 95 UBS ABSOLUTE RETURN BOND FUND--SCHEDULE OF INVESTMENTS June 30, 2006 -------------------------------------------------------------------------------- FACE AMOUNT VALUE ------------ ----------- BONDS -- 72.47% US BONDS -- 37.29% US CORPORATE BONDS -- 16.75% AES Corp. 8.750%, due 06/15/08 $ 750,000 $ 774,375 AK Steel Corp. 7.875%, due 02/15/09 1,750,000 1,741,250 American Cellular Corp., Series B 10.000%, due 08/01/11 2,200,000 2,315,500 American General Finance Corp. 5.375%, due 10/01/12 900,000 875,651 AT&T, Inc. 5.875%, due 02/01/12 875,000 866,992 Berkshire Hathaway Finance Corp. 4.125%, due 01/15/10 2,400,000 2,283,319 Boeing Capital Corp. 7.375%, due 09/27/10 825,000 876,548 Cendant Corp. 6.875%, due 08/15/06 1,725,000 1,726,925 Cincinnati Bell, Inc. 7.250%, due 07/15/13 1,000,000 985,000 Citigroup, Inc. 4.250%, due 02/25/30 + EUR 300,000 343,001 4.625%, due 11/14/07 3,380,000 4,378,975 5.625%, due 08/27/12 $1,750,000 1,729,039 Citizens Communications Co. 7.625%, due 08/15/08 875,000 894,688 Comcast Cable Communications Holdings, Inc. 6.750%, due 01/30/11 850,000 877,140 Countrywide Home Loans, Inc. 3.250%, due 05/21/08 1,900,000 1,817,895 CSC Holdings, Inc., Series B 8.125%, due 08/15/09 700,000 712,250 DaimlerChrysler N.A. Holding Corp. 7.200%, due 09/01/09 1,800,000 1,852,380 EOP Operating LP 7.000%, due 07/15/11 850,000 883,034 Ford Motor Credit Co. 5.800%, due 01/12/09 3,300,000 3,014,774 General Electric Capital Corp. 3.600%, due 10/15/08 1,875,000 1,794,934 4.375%, due 01/20/10 EUR3,895,000 5,042,853 5.125%, due 03/04/09 3,200,000 4,216,125 General Motors Acceptance Corp. 6.125%, due 02/01/07 $2,675,000 2,663,979 Giant Industries, Inc. 11.000%, due 05/15/12 600,000 651,000 Goldman Sachs Group, Inc. 6.125%, due 02/14/17 GBP 400,000 768,355 HSBC Finance Corp. 7.875%, due 03/01/07 $ 875,000 887,259 International Lease Finance Corp. 3.300%, due 01/23/08 1,875,000 1,808,989 JPMorgan Chase & Co. + 3.875%, due 03/31/18 EUR1,800,000 2,213,976 Kinder Morgan Energy Partners LP 5.800%, due 03/15/35 $2,750,000 $ 2,346,712 Kraft Foods, Inc. 5.250%, due 06/01/07 1,775,000 1,764,268 Levi Strauss & Co. 12.250%, due 12/15/12 2,250,000 2,486,250 Marsh & McLennan Cos., Inc. 6.250%, due 03/15/12 875,000 873,953 Mediacom Broadband LLC 11.000%, due 07/15/13 950,000 1,003,438 Morgan Stanley 4.750%, due 04/01/14 330,000 302,551 5.300%, due 03/01/13 2,240,000 2,166,651 5.375%, due 10/15/15 630,000 596,396 Owens-Illinois, Inc. 7.350%, due 05/15/08 1,900,000 1,914,250 PolyOne Corp. 10.625%, due 05/15/10 1,850,000 1,988,750 Residential Capital Corp. 5.125%, due 05/17/12 900,000 1,137,216 Safeway, Inc. 4.800%, due 07/16/07 900,000 889,739 Sheridan Group, Inc. 10.250%, due 08/15/11 500,000 508,125 Simon Property Group LP, REIT 5.375%, due 06/01/11 925,000 901,687 Sinclair Broadcast Group, Inc. 8.750%, due 12/15/11 2,250,000 2,351,250 Sprint Capital Corp. 8.750%, due 03/15/32 1,300,000 1,567,673 8.750%, due 03/15/32 700,000 844,131 UST, Inc. 6.625%, due 07/15/12 1,375,000 1,414,335 Wal-Mart Stores, Inc. 4.750%, due 01/29/13 GBP 695,000 1,251,233 6.875%, due 08/10/09 $2,525,000 2,614,779 Wells Fargo & Co. 5.125%, due 02/15/07 1,800,000 1,794,577 ----------- 79,714,170 ----------- ASSET-BACKED SECURITIES -- 3.05% Abacus Ltd., 05-CB1A, Class F, 144A + 9.841%, due 05/28/41 250,000 248,750 ACE Securities Corp., 06-SL1, Class B1, 144A + 8.323%, due 09/25/35 800,000 712,370 Ajax One Ltd., 2A, Class C, 144A + 7.645%, 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 1,000,000 870,000 First Franklin Mortgage Loan Asset-Backed Certificates, 05-FFA, Class B5, 144A (a) 6.000%, due 03/25/25 1,000,000 839,480 -------------------------------------------------------------------------------- 96 UBS ABSOLUTE RETURN BOND FUND--SCHEDULE OF INVESTMENTS June 30, 2006 -------------------------------------------------------------------------------- FACE AMOUNT VALUE ----------- ----------- GoldenTree Capital Opportunities LP, 06-1A, Class D1, 144A + 7.040%, due 02/22/20 $ 600,000 $ 600,000 Green Tree Financial Corp., 99-3, Class A6 6.500%, due 02/01/31 1,150,000 1,149,043 GSAMP Trust, 05-S1, Class B1 (a) 6.208%, due 12/25/34 1,750,000 1,723,008 Hyundai Auto Receivables Trust, 05-A, Class D 4.450%, due 02/15/12 1,000,000 964,898 Merrill Lynch Mortgage Investors, Inc., 04-SL2, Class B4, 144A + 10.073%, due 06/25/35 1,200,000 1,113,375 Merrill Lynch Mortgage Investors, Inc., 05-SL3, Class B3 + 7.473%, due 07/25/36 2,450,000 2,449,923 MMCA Automobile Trust, 02-1, Class C 6.200%, due 01/15/10 1,579,331 1,562,811 Wells Fargo Home Equity Trust, 05-3, Class M7 + 6.473%, due 11/25/35 1,775,000 1,801,128 ----------- 14,509,786 ----------- COLLATERALIZED DEBT OBLIGATIONS + -- 1.40% Ares VR CLO Ltd., 06-1A, Class D (f) 6.898%, due 02/24/18 1,150,000 1,145,745 Ares X CLO Ltd., 05-1A, Class D2 (f) 7.396%, due 09/18/17 500,000 500,000 Avery Street CLO, 06-1A, Class E (f) 9.640%, due 04/05/18 700,000 728,000 Hereford Street ABS CDO Ltd., 05-1A, Class D (f) 8.408%, due 01/03/45 700,000 696,500 Hewett's Island CDO Ltd., 06-1A, Class C (f) 6.031%, due 05/09/18 250,000 248,750 Hewett's Island CDO Ltd., 06-1A, Class D1 (f) 6.931%, due 05/09/18 250,000 247,500 Hewett's Island CDO Ltd., 06-1A, Class E (f) 9.831%, due 05/09/18 350,000 350,000 Longshore CDO Funding Ltd., 06-1A, Class D (f) 8.030%, due 05/03/46 380,000 368,600 Spirit CBO, 04-2A, Class D (f) 5.973%, due 10/27/10 761,772 732,367 Tricadia CDO Ltd., 05-3A, Class B1L (f) 8.960%, due 06/25/41 491,959 494,419 Tricadia CDO Ltd., 05-4A, Class B1L (f) 8.550%, due 12/11/40 $ 540,000 $ 540,000 Tricadia CDO Ltd., 06-5A, Class F (f) 11.281%, due 06/19/46 600,000 600,000 ----------- 6,651,881 ----------- COMMERCIAL MORTGAGE-BACKED SECURITIES -- 2.75% Asset Securitization Corp., 97-D4, Class B1 7.525%, due 04/14/29 1,700,000 1,835,043 Banc of America Large Loan, 05-ESHA, Class J, 144A + 6.834%, due 07/14/20 1,250,000 1,255,452 Banc of America Large Loan, 06-LAQ, Class L, 144A + 6.700%, due 02/09/21 1,600,000 1,605,345 Bear Stearns Commercial Mortgage Securities, 05-LXR1, Class J, 144A + 6.849%, due 09/15/18 2,050,000 2,053,479 GS Mortgage Securities Corp., II, 98-GLII, Class F, 144A + 7.191%, due 04/13/31 1,650,000 1,699,676 Hilton Hotel Pool Trust, 00-HLTA, Class C, 144A 7.458%, due 10/03/15 1,000,000 1,054,513 Nomura Asset Securities Corp., 98-D6, Class B1, 144A 6.000%, due 03/15/30 1,472,000 1,466,598 TW Hotel Funding 2005 LLC, 05-LUX, Class L, 144A + 6.749%, due 01/15/21 2,100,000 2,102,625 ----------- 13,072,731 ----------- MORTGAGE & AGENCY DEBT SECURITIES -- 13.34% C.S. First Boston Mortgage Securities Corp., 05-10, Class 10A3 6.000%, due 11/25/35 86,390 86,348 C.S. First Boston Mortgage Securities Corp., 05-8, Class 8A1 7.000%, due 09/25/35 801,703 811,248 Countrywide Alternative Loan Trust, 06-5T2, Class A3 6.000%, due 04/25/36 940,059 940,139 Credit Suisse Mortgage Capital Certificates, 06-6, Class 1A12 (h) 6.000%, due 07/25/36 1,250,000 1,242,920 Federal Home Loan Mortgage Corp. 4.875%, due 02/17/09 13,045,000 12,873,393 5.250%, due 04/18/16 16,235,000 15,881,158 5.275%, due 02/01/36 + 1,956,201 1,956,141 Federal National Mortgage Association (d) 6.000%, due 05/15/11 6,920,000 7,069,147 6.250%, due 02/01/11 1,750,000 1,792,317 6.625%, due 09/15/09 17,550,000 18,144,032 -------------------------------------------------------------------------------- 97 UBS ABSOLUTE RETURN BOND FUND--SCHEDULE OF INVESTMENTS June 30, 2006 -------------------------------------------------------------------------------- FACE AMOUNT VALUE ------------ ------------ Indymac Index Mortgage Loan Trust, 06-AR19, Class 1B2 + 6.459%, due 08/25/36 $ 1,000,000 $ 986,914 Morgan Stanley Mortgage Loan Trust, 06-7, Class 4A4 (h) 6.000%, due 06/25/36 149,266 148,409 Residential Accredit Loans, Inc., 06-QS5, Class A6 6.000%, due 05/25/36 1,000,000 1,000,781 Structured Adjustable Rate Mortgage Loan Trust, 05-21, Class 6AX (c) + 5.500%, due 11/25/35 845,931 139,314 Structured Adjustable Rate Mortgage Loan Trust, 06-5, Class 5A3 + 5.599%, due 06/25/36 400,000 392,703 ------------ 63,464,964 ------------ Total US Bonds 177,413,532 ------------ INTERNATIONAL BONDS -- 35.18% INTERNATIONAL CORPORATE BONDS -- 28.91% AUSTRALIA -- 0.99% National Australia Bank Ltd. 4.250%, due 12/30/08 GBP 2,600,000 4,711,718 ------------ BELGIUM -- 0.07% Societe Nationale de Chemins de Fer Belge 5.000%, due 04/24/18 GBP 170,000 312,351 ------------ CANADA -- 0.22% Abitibi-Consolidated, Inc. 6.950%, due 04/01/08 $ 1,100,000 1,065,625 ------------ DENMARK -- 0.31% Nordic Telephone Co. Holding ApS, 144A + 8.352%, due 05/01/16 EUR 1,100,000 1,459,716 ------------ FINLAND -- 0.40% Fortum Oyj, Series BR (a) 6.100%, due 02/19/08 EUR 1,420,000 1,881,554 ------------ FRANCE -- 9.35% Alstom 6.250%, due 03/03/10 EUR 100,000 133,047 BNP Paribas 5.250%, due 12/17/12 EUR 3,065,000 4,136,014 Compagnie de Financement Foncier 2.375%, due 01/29/09 EUR 21,800,000 26,933,808 Credit Lyonnais S.A. + 5.000%, due 11/15/12 2,765,000 3,590,750 France Telecom S.A 6.750%, due 03/14/08 EUR 1,275,000 $ 1,706,050 7.250%, due 01/28/13 1,405,000 2,049,770 8.125%, due 01/28/33 1,350,000 2,250,949 Veolia Environnement 4.875%, due 05/28/13 2,830,000 3,662,594 ------------ 44,462,982 ------------ GERMANY -- 6.82% Gerresheimer Holdings GmBH 7.875%, due 03/01/15 EUR 400,000 503,946 Kreditanstalt fuer Wiederaufbau 3.500%, due 07/15/09 12,620,000 16,008,620 5.375%, due 12/07/07 GBP 3,000,000 5,578,650 5.550%, due 06/07/21 1,800,000 3,538,675 Landwirtschaftliche Rentenbank 0.650%, due 09/30/08 JPY786,000,000 6,835,233 ------------ 32,465,124 ------------ IRELAND -- 2.95% Anglo Irish Bank Corp. PLC 5.000%, due 12/12/07 GBP 1,895,000 3,493,932 Depfa ACS Bank 0.750%, due 09/22/08 JPY460,000,000 4,009,742 Eircom Funding 8.250%, due 08/15/13 EUR 380,000 541,326 Eirles One Ltd. + 6.561%, due 10/07/15 1,200,000 1,454,280 Fleet Street Finance One PLC, 1, Class A + 4.930%, due 07/20/14 GBP 512,412 948,310 JSG Funding PLC 10.125%, due 10/01/12 EUR 155,000 215,104 Porsche International Finance PLC (e) 7.200%, due 02/01/11 $ 3,550,000 3,301,855 Riverdeep Group Ltd. 9.250%, due 04/15/11 EUR 40,000 56,214 ------------ 14,020,763 ------------ ITALY -- 0.38% Sanpaolo IMI SpA 6.375%, due 04/06/10 EUR 1,300,000 1,785,131 ------------ LUXEMBOURG -- 1.57% Hellas Telecommunications Luxembourg V, 144A + 6.264%, due 10/15/12 EUR 1,100,000 1,440,370 SGL Carbon Luxembourg S.A. 8.500%, due 02/01/12 100,000 138,777 Telecom Italia Finance S.A. 6.575%, due 07/30/09 EUR 1,400,000 1,903,577 7.250%, due 04/20/11 450,000 640,087 7.750%, due 01/24/33 2,200,000 3,329,137 ------------ 7,451,948 ------------ -------------------------------------------------------------------------------- 98 UBS ABSOLUTE RETURN BOND FUND--SCHEDULE OF INVESTMENTS June 30, 2006 -------------------------------------------------------------------------------- FACE AMOUNT VALUE ---------- ------------ NETHERLANDS -- 1.74% RWE Finance BV 4.625%, due 08/17/10 GBP2,100,000 $ 3,791,402 4.625%, due 07/23/14 EUR 225,000 290,277 5.375%, due 04/18/08 770,000 1,011,557 Siemens Financieringsmaatschappij NV 5.500%, due 03/12/07 2,320,000 3,007,465 TuranAlem Finance BV 8.500%, due 02/10/15 $ 200,000 194,000 ------------ 8,294,701 ------------ PHILIPPINES -- 0.40% National Power Corp. 9.875%, due 03/16/10 $1,800,000 1,926,000 ------------ SWEDEN -- 0.37% Svenska Handelsbanken AB + (e) 6.125%, due 03/04/09 GBP 945,000 1,775,812 ------------ UNITED KINGDOM -- 3.34% Alliance & Leicester PLC 4.250%, due 12/30/08 GBP 600,000 1,085,450 Anglian Water Services Financing PLC 4.625%, due 10/07/13 EUR 225,000 289,455 Aviva PLC + 5.250%, due 10/02/23 250,000 331,045 Bank of Scotland 6.375%, due 08/16/19 GBP3,145,000 6,310,426 Barclays Bank PLC + (e) 4.750%, due 03/15/20 EUR2,500,000 2,782,254 National Grid Electricity Transmission PLC 4.125%, due 09/18/08 800,000 1,028,391 4.750%, due 12/10/10 GBP 590,000 1,069,437 Ono Finance PLC + 11.379%, due 05/15/14 EUR 450,000 604,351 United Biscuits Finance PLC 10.750%, due 04/15/11 GBP 340,000 661,736 United Utilities Water PLC 6.625%, due 11/08/07 EUR1,105,000 1,468,946 Vodafone Group PLC 5.750%, due 10/27/06 215,000 277,022 ------------ 15,908,513 ------------ Total International Corporate Bonds 137,521,938 ------------ INTERNATIONAL ASSET-BACKED SECURITIES -- 0.15% CAYMAN ISLANDS -- 0.15% Herald Ltd. + 7.991%, due 09/16/45 $ 300,000 300,000 Northwoods Capital Ltd., 06-6A, Class C, 144A + 6.858%, due 03/16/21 400,000 403,000 ------------ Total International Asset-Backed Securities 703,000 ------------ INTERNATIONAL COLLATERALIZED DEBT OBLIGATIONS -- 1.59% CAYMAN ISLANDS -- 1.32% Aladdin CDO I Ltd. 06-2A, Class 10D (f)+ 12.980%, due 10/20/16 $ 250,000 $ 250,000 Atrium CDO Corp. (g)(h) due 07/20/20 180,000 180,000 Avenue CLO Fund Ltd. (f) due 07/20/18 150,000 150,000 Avenue CLO Fund Ltd., 06-3A, Class B2L (f)+ 9.247%, due 07/20/18 220,000 220,000 Black Diamond CLO Ltd., 05-1A, Class E (f)+ 10.414%, due 06/20/17 350,000 368,375 Black Diamond CLO Ltd., 05-2A, Class D (f)+ 6.131%, due 01/07/18 300,000 301,350 Black Diamond CLO Ltd., 05-2A, Class E1 (f)+ 9.514%, due 01/07/18 250,000 257,500 Credit-Based Asset Servicing and Securitization CBO Ltd., 15A, Class D (f)+ 8.070%, due 02/16/41 248,051 248,051 Gresham Street CDO Funding, 03-1X, Class D (g)+ 8.410%, due 11/07/33 100,000 105,000 ING Investment Management CLO II Ltd., due 08/01/20 (f) 300,000 300,000 Ischus CDO Ltd., 06-S1, Class B1L (f)+ 8.870%, due 04/12/41 760,000 760,000 Lenox CDO Ltd., 05-1A, Class E1 (f)+ 8.670%, due 11/14/43 249,672 252,418 Lightpoint CLO Ltd., 06-4A, Class C (f)+ 6.953%, due 04/15/18 550,000 550,000 Logan CDO Ltd., II-A, Class E (f)+ 12.646%, due 05/04/51 400,000 400,000 Madison Avenue CDO Ltd., 2X, Class A (g)+ 5.549%, due 03/24/14 736,576 736,576 Race Point CLO, 06-3, Class E (f) + 9.457%, due 04/15/20 500,000 500,000 Rockwall CDO Ltd., 06-1A, Class B1L, (f) + 7.506%, due 08/01/21 500,000 500,000 Stanfield Veyron CLO Ltd., 06-1A, Class D, (f)(h) + 7.238%, due 07/15/18 200,000 199,300 ------------ 6,278,570 ------------ -------------------------------------------------------------------------------- 99 UBS ABSOLUTE RETURN BOND FUND--SCHEDULE OF INVESTMENTS June 30, 2006 -------------------------------------------------------------------------------- FACE AMOUNT VALUE ------------- ------------- IRELAND -- 0.19% MARC CDO PLC, 1A, Class E, (f) 12.310%, due 03/13/53 $ 350,000 $ 350,000 Menton CDO PLC, IIA, Class E (f)+ 12.090%, due 10/24/53 250,000 250,000 PSION Synthetic CDO PLC, I-A, Class E (f) 10.674%, due 12/21/15 330,000 330,000 ------------ 930,000 ------------ NETHERLANDS -- 0.08% Cadogan Square CLO B.V. (f)(h)+ 7.323%, due 08/12/22 EUR 300,000 383,715 ------------ Total International Collateralized Debt Obligations 7,592,285 ------------ INTERNATIONAL COMMERCIAL MORTGAGE-BACKED SECURITIES -- 0.05% UNITED KINGDOM -- 0.05% Granite Master Issuer PLC, 05-1, Class A5 + 3.056%, due 12/20/54 EUR 190,000 243,092 ------------ INTERNATIONAL MORTGAGE-BACKED SECURITIES -- 0.17% NETHERLANDS -- 0.14% Delphinus BV, 00-1, Class B + 6.250%, due 06/26/32 EUR 500,000 684,699 ------------ UNITED KINGDOM -- 0.03% Whinstone Capital Management Ltd., 1X, Class B2 + 3.679%, due 10/25/45 EUR 100,000 128,672 ------------ Total International Mortgage-Backed Securities 813,371 ------------ FOREIGN GOVERNMENT BONDS -- 3.58% ARGENTINA -- 1.31% Republic of Argentina + 4.889%, due 08/03/12 $ 4,200,000 3,471,300 5.830%, due 12/31/33 DISC ARS 7,400,000 2,771,626 ------------ 6,242,926 ------------ BRAZIL -- 0.23% Federal Republic of Brazil 11.000%, due 01/11/12 $ 920,000 1,097,100 ------------ GERMANY -- 1.19% Deutsche Bundesrepublik 4.000%, due 01/04/37 EUR 4,660,000 5,648,765 ------------ INDONESIA -- 0.43% Republic of Indonesia 7.500%, due 01/15/16 $ 1,200,000 1,222,500 Republic of Indonesia, 144A 7.500%, due 01/15/16 800,000 815,000 ------------ 2,037,500 ------------ RUSSIA -- 0.42% Russian Federation (a) 5.000%, due 03/31/30 $ 1,900,000 $ 2,023,500 ------------ Total Foreign Government Bonds 17,049,791 ------------ SOVEREIGN/SUPRANATIONAL BOND -- 0.73% European Investment Bank 6.250%, due 04/15/14 GBP 1,750,000 3,479,134 ------------ Total International Bonds 167,402,611 ------------ Total Bonds (Cost $343,778,564) 344,816,143 ------------ SHARES ------------- INVESTMENT COMPANY* -- 13.25% UBS U.S. Securitized Mortgage Relationship Fund (Cost $62,000,000) 5,215,467 63,042,475 ------------ SHORT-TERM INVESTMENTS -- 8.63% INVESTMENT COMPANY* -- 8.37% UBS U.S. Cash Management Prime Relationship Fund, yield of 5.20% 39,828,887 39,828,887 ------------ FACE AMOUNT ------------- US GOVERNMENT OBLIGATIONS -- 0.26% US Treasury Bills, yield of 4.06%, due 07/06/06 (b) $ 1,255,000 1,254,071 ------------ Total Short-Term Investments (Cost $41,083,146) 41,082,958 ------------ Total Investments Before Investments Sold Short -- 94.35% (Cost $446,861,710) 448,941,576 ------------ INVESTMENTS SOLD SHORT -- (4.51)% US BONDS -- (4.51)% MORTGAGE & AGENCY DEBT SECURITIES -- (4.51)% Federal National Mortgage Association, TBA (Proceeds $21,673,406) 22,950,000 (21,451,090) ------------ Total Investments, Net of Investments Sold Short -- 89.84% (Cost $425,188,304) 427,490,486 Cash and other assets, less liabilities -- 10.16% 48,318,710 ------------ Net Assets -- 100.00% $475,809,196 ============ -------------------------------------------------------------------------------- 100 UBS ABSOLUTE RETURN BOND FUND--SCHEDULE OF INVESTMENTS June 30, 2006 -------------------------------------------------------------------------------- NOTES TO SCHEDULE OF INVESTMENTS Aggregate cost for federal income tax purposes was $448,428,162; and net unrealized appreciation consisted of: Gross unrealized appreciation $ 4,224,122 Gross unrealized depreciation (3,710,708) ----------- Net unrealized appreciation $ 513,414 =========== + Floating rate securities -- The interest rates shown are the current rates as of June 30, 2006. @ Reflects annualized yield at June 30, 2006 on zero coupon bond. (a) Step Bonds -- coupon rate increases in increments to maturity. Rate disclosed is as of June 30, 2006. Maturity date disclosed is the ultimate maturity date. (b) The security was pledged to cover margin requirements for futures contracts. (c) Interest Only Security -- This security entitles the holder to receive interest payments from an underlying pool of mortgages. The risk associated with the 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. (d) All or a portion of these securities have been pledged to cover open short positions. (e) Perpetual bond security. The maturity date reflects the next call date. (f) Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities, which represent $13,222,590 or 2.78% of the net assets as of June 30, 2006 are considered illiquid and restricted. (g) Security is illiquid. These securities amounted to $1,021,576 or 0.21% of net assets at June 30, 2006. (h) Security is being fair valued by a valuation committee under the direction of the Board of Trustees. At June 30, 2006, the value of these securities amounted to $2,154,344 or 0.45% of net assets. 144A Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities are considered liquid and may be resold in transactions exempt from registration, normally to qualified institutional buyers. At June 30, 2006, the value of these securities amounted to $18,310,158 or 3.85% of net assets. * Investment in affiliated mutual fund. ARS Argentina Peso CBO Collateralized Bond Obligations CDO Collateralized Debt Obligations CLO Collateralized Loan Obligations DISC Discount Bond EUR Euro GBP British Pound GSAMP Goldman Sachs Mortgage Securities Corp. JPY Japanese Yen REIT Real Estate Investment Trust 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. RESTRICTED SECURITIES
ACQUISITION COST MARKET VALUE ACQUISITION ACQUISITION AS A PERCENTAGE MARKET AS A PERCENTAGE SECURITY DATES COST OF NET ASSETS VALUE OF NET ASSETS -------- ----------- ----------- ---------------- ---------- --------------- Ares VR CLO Ltd., 06-1A, Class D, 6.898%, due 02/24/18 02/16/06 $1,144,250 0.24% $1,145,745 0.24% Ares X CLO Ltd., 05-1A, Class D2, 7.396%, due 09/18/17 09/20/05 498,125 0.10% 500,000 0.11% Aladdin CDO I Ltd. 06-2A, Class 10D, 12.980%, due 10/20/16 06/23/06 250,000 0.05% 250,000 0.05% Avenue CLO Fund Ltd., due 07/20/18 04/24/06 146,625 0.03% 150,000 0.03% Avenue CLO Fund Ltd., 06-3A, Class B2L, 9.247%, due 07/20/18 04/24/06 219,216 0.05% 220,000 0.05% Avery Street CLO, 06-1A, Class E, 9.640%, due 04/05/18 01/31/06 688,100 0.14% 728,000 0.15% Black Diamond CLO Ltd., 05-1A,Class E, 10.414%, due 06/20/17 12/20/05 355,964 0.05% 368,375 0.08% Black Diamond CLO Ltd., 05-2A,Class D, 6.131%, due 01/07/18 09/22/05 300,000 0.06% 301,350 0.06% Black Diamond CLO Ltd., 05-2A,Class E1, 9.514%, due 01/07/18 09/22/05 250,000 0.05% 257,500 0.05% Cadogan Square CLO B.V., 7.323%, due 08/12/22 06/08/06 379,635 0.08% 383,715 0.08% Credit-Based Asset Servicing and Securitization CBO Ltd., 15A, Class D, 8.070%, due 02/16/41 01/25/06 248,051 0.05% 248,051 0.05%
-------------------------------------------------------------------------------- 101 UBS ABSOLUTE RETURN BOND FUND--SCHEDULE OF INVESTMENTS June 30, 2006 --------------------------------------------------------------------------------
ACQUISITION COST MARKET VALUE ACQUISITION ACQUISITION AS A PERCENTAGE MARKET AS A PERCENTAGE SECURITY DATES COST OF NET ASSETS VALUE OF NET ASSETS -------- ----------- ----------- ---------------- -------- --------------- Hereford Street ABS CDO Ltd., 05-1A, Class D, 8.408%, due 01/03/45 11/04/05 $696,500 0.15% $696,500 0.15% Hewett's Island CDO Ltd., 06-1A, Class C, 6.031%, due 05/09/18 04/11/06 249,360 0.05% 248,750 0.05% Hewett's Island CDO Ltd., 06-1A, Class D1, 6.931%, due 05/09/18 04/11/06 247,857 0.05% 247,500 0.05% Hewett's Island CDO Ltd., 06-1A, Class E, 9.831%, due 05/09/18 04/11/06 346,364 0.07% 350,000 0.07% Ischus CDO Ltd., 06-S1, Class B1L, 8.870% due 04/12/41 02/21/06 742,309 0.16% 760,000 0.16% ING Investment Management CLO II Ltd., due 08/01/20 06/30/06 288,390 0.06% 300,000 0.06% Lenox CDO Ltd., 05-1A, Class E1, 8.670%, due 11/14/43 11/23/05 241,558 0.05% 252,418 0.05% Lightpoint CLO Ltd., 06-4A, Class C, 6.953%, due 04/15/18 03/03/06 550,000 0.12% 550,000 0.12% Logan CDO Ltd., II-A, Class E, 12.646%, due 05/04/51 04/11/06 398,000 0.08% 400,000 0.08% Longshore CDO Funding Ltd., 06-1A, Class D, 8.030%, due 05/03/46 01/10/06 367,913 0.08% 368,600 0.08% MARC CDO PLC, 1A, Class E, 12.310%, due 03/13/53 11/30/05 349,125 0.07% 350,000 0.07% Menton CDO PLC, IIA, Class E, 12.090%, due 10/24/53 10/10/05 249,375 0.05% 250,000 0.05% PSION Synthetic CDO PLC, I-A, Class E, 10.674%, due 12/21/15 12/15/05 315,759 0.07% 330,000 0.07% Race Point CLO, 06-3, Class E, 9.457%, due 04/15/20 03/10/06 500,000 0.11% 500,000 0.11% Rockwall CDO Ltd., 06-1A, Class B1L, 7.506%, due 08/01/21 04/24/06 496,250 0.10% 500,000 0.11% Spirit CBO, 04-2A, Class D, 5.973%, due 10/27/10 11/16/05 729,908 0.15% 732,367 0.15% Stanfield Veyron CLO Ltd., 06-1A, Class D, 7.238%, due 07/15/18 06/13/06 199,300 0.04% 199,300 0.04% Tricadia CDO Ltd., 05-3A, Class B1L, 8.960%, due 06/25/41 11/01/05 485,809 0.10% 494,419 0.10% Tricadia CDO Ltd., 05-4A, Class B1L, 8.550%, due 12/11/40 12/01/05 537,300 0.11% 540,000 0.11% Tricadia CDO Ltd., 06-5A, Class F, 11.281%, due 06/19/46 05/09/06 594,318 0.12% 600,000 0.13%
-------------------------------------------------------------------------------- 102 UBS ABSOLUTE RETURN BOND FUND--SCHEDULE OF INVESTMENTS June 30, 2006 -------------------------------------------------------------------------------- FORWARD FOREIGN CURRENCY CONTRACTS UBS Absolute Return Bond Fund had the following open forward foreign currency contracts as of June 30, 2006:
UNREALIZED CONTRACTS IN EXCHANGE MATURITY APPRECIATION/ TO DELIVER FOR DATES (DEPRECIATION) ------------- ----------------- -------- -------------- British Pound 32,060,000 USD 60,016,961 09/12/06 $ 637,994 Canadian Dollar 20,245,000 USD 18,190,231 09/12/06 16,489 Czech Krona 206,220,000 EUR 7,254,881 09/12/06 9,710 Euro 6,966,648 JPY 1,011,000,000 09/12/06 (29,268) Euro 102,711,411 USD 132,957,076 09/12/06 962,641 Euro 1,960,000 USD 2,467,542 09/12/06 (51,254) Japanese Yen 1,011,000,000 USD 9,076,341 09/12/06 152,769 United States Dollar 12,619,828 CHF 15,205,000 09/12/06 (86,312) United States Dollar 8,488,741 SEK 60,540,000 09/12/06 (26,213) United States Dollar 8,021,024 SGD 12,590,000 09/12/06 (40,847) United States Dollar 7,989,314 THB 305,040,000 09/12/06 1,674 ---------- Net unrealized appreciation on forward foreign currency contracts $1,547,383 ==========
Currency Type Abbreviations: CHF Swiss Franc EUR Euro JPY Japanese Yen SEK Swedish Krona SGD Singapore Dollar THB Thailand Baht USD United States Dollar FUTURES CONTRACTS UBS Absolute Return Bond Fund had the following open futures contracts as of June 30, 2006:
UNREALIZED EXPIRATION COST/ APPRECIATION/ DATE PROCEEDS VALUE (DEPRECIATION) -------------- ------------ ------------ -------------- US TREASURY FUTURES BUY CONTRACTS: 2 Year US Treasury Notes, 170 contracts September 2006 $ 34,494,388 $ 34,472,813 $ (21,575) INTEREST RATE FUTURES BUY CONTRACTS: Australian 10 Year Bond, 85 contracts September 2006 45,876,997 45,822,309 (54,688) US TREASURY FUTURES SALE CONTRACTS: 5 Year US Treasury Notes, 1,180 contracts September 2006 122,598,258 122,019,375 578,883 10 Year US Treasury Notes, 310 contracts September 2006 32,659,855 32,506,406 153,449 30 Year US Long Bond, 95 contracts September 2006 10,127,310 10,132,344 (5,034) INTEREST RATE FUTURES SALE CONTRACTS: EURO Bond, 205 contracts (EUR) September 2006 30,377,771 30,237,510 140,261 EURO-Bobl, 190 contracts (EUR) September 2006 26,611,193 26,515,858 95,335 EURO-Schatz, 525 contracts (EUR) September 2006 69,915,072 69,829,415 85,657 Japanese 10 Year Bond, 22 contracts (JPY) September 2006 25,365,859 25,308,458 57,401 Long Gilt, 240 contracts (GBP) September 2006 48,805,955 48,330,691 475,264 ---------- Net unrealized appreciation on futures contracts $1,504,953 ==========
The segregated market value of investments and cash collateral pledged to cover margin requirements for the open futures positions at June 30, 2006 was $3,020,225. Currency Type Abbreviations: EUR Euro GBP British Pound JPY Japanese Yen See accompanying notes to financial statements. -------------------------------------------------------------------------------- 103 UBS GLOBAL BOND FUND -------------------------------------------------------------------------------- For the fiscal year ended June 30, 2006, Class A shares of UBS Global Bond Fund (the "Fund") returned 0.51% (shares declined 3.98% after the deduction of the maximum sales charge), while Class Y shares returned 0.65%. The Fund's benchmark, the Lehman Brothers Global Aggregate Index (the "Index"), returned 0.25% over the same time 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 106; 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 past 12 months represented a particularly challenging period for fixed income markets. Nonetheless, the Fund's outperformance of the Index was attributable primarily to yield curve management and solid security selection. A CHALLENGING YEAR FOR FIXED INCOME MARKETS Throughout the past 12 months, interest rates worldwide crept steadily higher. In the United States, the Federal Reserve Board (the "Fed") continued its tightening campaign, raising short-term interest rates eight times during the reporting period before pausing after the period ended. This uninterrupted series of rate increases was the longest on record in more than 50 years. The primary driver for rate increases recently has been inflation. Core inflation data during the second half of the Fund's fiscal year tended to fall at the high end of the Fed's implied acceptable range. The result was interest rate hikes above and beyond what many economists had anticipated. During this time, yields in the US Treasury market increased rather dramatically, especially on shorter-dated maturities, which produced what was an unusually flat yield curve for most of the fiscal year. In addition, the spread--or the difference in yield between bonds of similar maturities but varying qualities--tightened notably in both the corporate bond and high yield sectors. Investors were generally willing to accept the higher level of risk those sectors entailed with steadily declining returns over Treasuries for much of the period. In May 2006, however, that trend reversed direction as investors began a "flight to quality" and sold off higher volatility assets in both the fixed income and equity markets. The same pattern generally held true in international bond markets. The European Central Bank increased short-term rates three times during the period, while the Bank of Japan increased short-term interest rates for the first time in six years in a step away from its long-standing zero-rate policy. As a result, yields generally rose in those markets, putting downward pressure on bond prices. The Fund's short duration position throughout the year was a benefit to performance. (Duration measures a fund's sensitivity to interest rate changes.) We had positioned the Fund defensively with regard to duration before the reporting period began. As interest rates and yields rose in fixed income markets, having a more limited sensitivity to those changes proved prudent. SECURITY SELECTION AND CURRENCY POSITIONING BENEFITED FUND PERFORMANCE The Fund's security selection and sector allocations were quite solid throughout the period. We generally favored collateralized securities, particularly within the US. Asset-backed securities (ABS), mortgage-backed securities (MBS) and commercial mortgage-backed securities (CMBS) all appeared attractive from a valuation perspective. Within the MBS sector, we found particular value in hybrid adjustable rate mortgages, which combine a fixed rate for an initial period with a variable rate thereafter. The Fund held overweight positions in all three sectors relative to the Index, and that positioning was beneficial to performance. Also beneficial to performance were the Fund's underweight positions in corporate bonds and high-quality government sectors. We believe that corporate bonds as a sector are not sufficiently compensating investors for the market risk they entail. In the government sector, we favored Japanese Inflation-linked bonds (JGBis) over other government securities. The Fund's position in JGBis was fairly sizable, and our exposure was beneficial to performance. On a geographic basis, the Fund maintained underweight positions to both US and international bond markets throughout the period, and had increased its strategic cash position considerably by period end. Some of the Fund's largest overweight positions were in Sweden, the UK and Australia--all three of which made positive contributions to the -------------------------------------------------------------------------------- 104 UBS GLOBAL BOND FUND -------------------------------------------------------------------------------- Fund's relative returns. Two of the Fund's largest underweights, meanwhile, were in the US and Japan. Having limited exposure to both country's fixed income markets was also generally beneficial. The Fund's currency positioning also had a positive impact on both absolute and relative returns. During the Fund's fiscal year, the US dollar depreciated against a number of foreign currencies. The Fund benefited from that depreciation, particularly versus the Canadian dollar and a number of European currencies. Although the Fund benefited from this trend, it did maintain an underweight position in the Canadian dollar and the British pound, which we believed to be overvalued. This detracted slightly from relative returns, which remained positive on the whole. ENHANCED INVESTMENT STRATEGY APPROVED Near the end of the Fund's fiscal year, the Board of Trustees approved an enhancement to the Fund's management strategy, which allows the Fund to invest up to 35% of its net assets in noninvestment grade securities. This change in strategy will allow the Fund the flexibility to pursue investment opportunities across a more diverse range of markets and securities, and it aligns the Fund's investment strategy more closely with those of its peers. The Fund's investment team found limited opportunities to fully implement the enhanced strategy during the period, and it therefore had limited impact on performance. DESPITE MIXED SIGNALS, OUTLOOK FOR ECONOMY REMAINS POSITIVE The current economic backdrop in the US is one of mixed and sometimes contradictory signals. Employment and corporate profitability both remain quite strong, but a softening housing market and moderate levels of inflation are both areas that could pose future problems. We tend to believe that core inflation is generally under control, although it may continue to garner attention over the short term. In terms of overall economic growth, we anticipate that gross domestic product will return to trend-like growth levels into 2007, both for the US economy and for markets abroad. Within the Fund, we have de-emphasized our defensive stance, and will continue to seek out attractively valued sectors of the market, with an eye toward controlling risk and maintaining diversification within the portfolio. -------------------------------------------------------------------------------- THIS LETTER IS INTENDED TO ASSIST SHAREHOLDERS IN UNDERSTANDING HOW THE FUND PERFORMED DURING THE FISCAL YEAR ENDED JUNE 30, 2006. THE VIEWS AND OPINIONS IN THE LETTER WERE CURRENT AS OF AUGUST 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. -------------------------------------------------------------------------------- 105 UBS GLOBAL BOND FUND -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURN (UNAUDITED)
1 YEAR 5 YEARS 10 YEARS INCEPTION* ENDED ENDED ENDED TO 06/30/06 06/30/06 06/30/06 06/30/06 --------------------------------------------------------------------------------------- UBS Global Bond Fund Class A 0.51% N/A N/A 7.26% UBS Global Bond Fund Class B -0.26 N/A N/A 7.21 UBS Global Bond Fund Class C -0.09 N/A N/A 6.10 UBS Global Bond Fund Class Y 0.65 8.75% 5.20% 5.69 UBS Global Bond Fund Class A** -3.98 N/A N/A 6.21 UBS Global Bond Fund Class B** -5.09 N/A N/A 6.87 UBS Global Bond Fund Class C** -0.82 N/A N/A 6.10 Lehman Brothers Global Aggregate Index*** 0.25 7.73 5.67 6.06
* 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 LEHMAN BROTHERS GLOBAL AGGREGATE INDEX IS A BROAD-BASED, MARKET CAPITALIZATION WEIGHTED INDEX WHICH MEASURES THE BROAD GLOBAL MARKET FOR US AND NON US CORPORATE, GOVERNMENT, GOVERNMENTAL AGENCY, SUPRANATIONAL, MORTGAGE-BACKED AND ASSET BACKED FIXED INCOME SECURITIES. THE Y SHARE CLASS IS OUR LOWEST FEE SHARE CLASS. OUR OTHER SHARE CLASSES INCLUDE HIGHER FEES AND LOADS, WHICH MAY RESULT IN LOWER PERFORMANCE THAN CLASS Y. 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. -------------------------------------------------------------------------------- 106 UBS GLOBAL BOND FUND -------------------------------------------------------------------------------- ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000 IN CLASS A SHARES (ADJUSTED FOR MAXIMUM SALES CHARGE) AND $10,000,000 IN CLASS Y SHARES (UNAUDITED) The following two charts show the growth in the value of an investment in UBS Global Bond Fund Class A shares (adjusted for 4.50% maximum sales charge), Class Y shares and the Lehman Brothers Global Aggregate Index, if you had invested $10,000 in Class A shares on November 5, 2001 or $10,000,000 in Class Y shares on July 31, 1993, and had reinvested all your income dividends and capital gain distributions through June 30, 2006. The performance of Class B and Class C shares will vary based upon the different inception dates, class specific expenses and sales charges. No adjustment has been made for any income taxes payable by shareholders on income dividends and capital gain distributions. Past performance is no guarantee of future results. Share price and returns will vary with market conditions; investors may realize a gain or loss upon redemption. UBS GLOBAL BOND FUND CLASS A VS. LEHMAN BROTHERS GLOBAL AGGREGATE INDEX Wealth value with dividends reinvested [CHART]
LEHMAN BROTHERS UBS GLOBAL BOND GLOBAL AGGREGATE FUND CLASS A INDEX --------------- ---------------- 11/5/2001 $ 9,555 $10,000 11/30/2001 $ 9,460 $ 9,869 12/31/2001 $ 9,205 $ 9,662 1/31/2002 $ 9,039 $ 9,576 2/28/2002 $ 9,103 $ 9,640 3/31/2002 $ 9,094 $ 9,583 4/30/2002 $ 9,446 $ 9,867 5/31/2002 $ 9,764 $10,088 6/30/2002 $10,240 $10,439 7/31/2002 $10,251 $10,533 8/31/2002 $10,409 $10,705 9/30/2002 $10,490 $10,823 10/31/2002 $10,479 $10,792 11/30/2002 $10,524 $10,821 12/31/2002 $11,063 $11,259 1/31/2003 $11,233 $11,386 2/28/2003 $11,422 $11,533 3/31/2003 $11,445 $11,562 4/30/2003 $11,596 $11,710 5/31/2003 $12,080 $12,126 6/30/2003 $11,913 $11,995 7/31/2003 $11,607 $11,645 8/31/2003 $11,560 $11,619 9/30/2003 $12,191 $12,177 10/31/2003 $12,119 $12,109 11/30/2003 $12,317 $12,267 12/31/2003 $12,805 $12,668 1/31/2004 $12,813 $12,715 2/29/2004 $12,808 $12,781 3/31/2004 $12,980 $12,922 4/30/2004 $12,455 $12,450 5/31/2004 $12,501 $12,511 6/30/2004 $12,534 $12,547 7/31/2004 $12,517 $12,545 8/31/2004 $12,754 $12,819 9/30/2004 $12,889 $12,971 10/31/2004 $13,176 $13,281 11/30/2004 $13,514 $13,633 12/31/2004 $13,690 $13,842 1/31/2005 $13,509 $13,696 2/28/2005 $13,527 $13,722 3/31/2005 $13,371 $13,556 4/30/2005 $13,495 $13,734 5/31/2005 $13,285 $13,550 6/30/2005 $13,167 $13,489 7/31/2005 $13,090 $13,381 8/31/2005 $13,255 $13,601 9/30/2005 $13,072 $13,385 10/31/2005 $12,904 $13,186 11/30/2005 $12,775 $13,092 12/31/2005 $12,907 $13,221 1/31/2006 $13,046 $13,388 2/28/2006 $13,002 $13,340 3/31/2006 $12,939 $13,208 4/30/2006 $13,183 $13,458 5/31/2006 $13,303 $13,632 6/30/2006 $13,235 $13,523
11/5/01 = $9,550 THE FUND'S GROWTH OF AN ASSUMED $10,000 INVESTMENT IS ADJUSTED FOR THE MAXIMUM SALES CHARGE OF 4.50%. UBS GLOBAL BOND FUND CLASS Y VS. LEHMAN BROTHERS GLOBAL AGGREGATE INDEX Wealth value with dividends reinvested [CHART]
LEHMAN BROTHERS UBS GLOBAL BOND GLOBAL AGGREGATE FUND CLASS Y INDEX --------------- ---------------- 7/31/1993 $10,000,000 $10,000,000 8/31/1993 $10,190,000 $10,255,054 9/30/1993 $10,220,099 $10,343,779 10/31/1993 $10,320,591 $10,353,551 11/30/1993 $10,230,148 $10,261,555 12/31/1993 $10,385,911 $10,357,150 1/31/1994 $10,458,179 $10,479,856 2/28/1994 $10,210,404 $10,348,150 3/31/1994 $10,076,192 $10,222,535 4/30/1994 $10,024,572 $10,197,849 5/31/1994 $ 9,941,981 $10,140,918 6/30/1994 $ 9,921,463 $10,209,021 7/31/1994 $ 9,994,186 $10,357,410 8/31/1994 $10,004,575 $10,345,002 9/30/1994 $10,014,963 $10,328,155 10/31/1994 $10,056,519 $10,436,917 11/30/1994 $10,035,741 $10,332,874 12/31/1994 $10,023,960 $10,381,085 1/31/1995 $10,128,268 $10,598,253 2/28/1995 $10,305,591 $10,859,923 3/31/1995 $10,441,190 $11,223,131 4/30/1995 $10,691,529 $11,398,274 5/31/1995 $11,067,036 $11,749,845 6/30/1995 $11,046,376 $11,830,418 7/31/1995 $11,227,115 $11,885,232 8/31/1995 $11,344,064 $11,740,497 9/30/1995 $11,482,277 $11,958,388 10/31/1995 $11,673,648 $12,101,355 11/30/1995 $11,907,546 $12,245,387 12/31/1995 $12,061,187 $12,422,272 1/31/1996 $12,121,493 $12,374,491 2/29/1996 $12,000,881 $12,261,393 3/31/1996 $12,049,126 $12,223,910 4/30/1996 $12,169,738 $12,167,553 5/31/1996 $12,205,921 $12,178,752 6/30/1996 $12,316,535 $12,322,313 7/31/1996 $12,439,210 $12,482,658 8/31/1996 $12,537,349 $12,507,850 9/30/1996 $12,745,896 $12,643,960 10/31/1996 $13,015,780 $12,920,668 11/30/1996 $13,261,130 $13,122,826 12/31/1996 $13,182,992 $13,031,635 1/31/1997 $12,976,577 $12,821,835 2/28/1997 $12,990,338 $12,761,531 3/31/1997 $12,797,685 $12,642,069 4/30/1997 $12,728,880 $12,670,415 5/31/1997 $13,100,426 $12,895,156 6/30/1997 $13,265,557 $13,035,042 7/31/1997 $13,210,514 $13,094,623 8/31/1997 $13,169,231 $13,064,952 9/30/1997 $13,430,689 $13,329,751 10/31/1997 $13,609,581 $13,572,028 11/30/1997 $13,430,689 $13,498,202 12/31/1997 $13,398,351 $13,525,073 1/31/1998 $13,513,112 $13,653,529 2/28/1998 $13,599,182 $13,728,338 3/31/1998 $13,455,731 $13,692,883 4/30/1998 $13,627,873 $13,863,028 5/31/1998 $13,627,873 $13,959,750 6/30/1998 $13,623,059 $13,986,300 7/31/1998 $13,623,059 $14,069,269 8/31/1998 $13,782,309 $14,364,148 9/30/1998 $14,448,260 $15,044,721 10/31/1998 $14,766,759 $15,237,067 11/30/1998 $14,665,419 $15,144,933 12/31/1998 $15,004,120 $15,379,289 1/31/1999 $15,004,120 $15,318,213 2/28/1999 $14,519,139 $14,862,824 3/31/1999 $14,503,983 $14,882,846 4/30/1999 $14,534,294 $14,867,789 5/31/1999 $14,276,648 $14,651,236 6/30/1999 $14,049,016 $14,438,527 7/31/1999 $14,309,183 $14,660,605 8/31/1999 $14,247,967 $14,637,441 9/30/1999 $14,385,703 $14,817,618 10/31/1999 $14,309,183 $14,795,452 11/30/1999 $14,094,928 $14,633,508 12/31/1999 $14,062,714 $14,583,447 1/31/2000 $13,705,319 $14,334,471 2/29/2000 $13,627,624 $14,307,299 3/31/2000 $13,922,864 $14,593,601 4/30/2000 $13,425,619 $14,237,024 5/31/2000 $13,503,313 $14,302,942 6/30/2000 $14,000,558 $14,665,583 7/31/2000 $13,705,319 $14,519,147 8/31/2000 $13,549,930 $14,455,012 9/30/2000 $13,472,235 $14,496,182 10/31/2000 $13,176,996 $14,378,291 11/30/2000 $13,534,391 $14,625,471 12/31/2000 $14,253,617 $15,046,640 1/31/2001 $14,253,617 $15,118,936 2/28/2001 $14,190,895 $15,143,793 3/31/2001 $13,720,478 $14,833,665 4/30/2001 $13,704,798 $14,815,774 5/31/2001 $13,532,312 $14,843,540 6/30/2001 $13,438,229 $14,739,442 7/31/2001 $13,845,923 $15,077,144 8/31/2001 $14,410,422 $15,531,003 9/30/2001 $14,410,422 $15,651,503 10/31/2001 $14,567,228 $15,792,954 11/30/2001 $14,451,504 $15,609,404 12/31/2001 $14,063,528 $15,283,181 1/31/2002 $13,833,055 $15,145,876 2/28/2002 $13,925,697 $15,247,672 3/31/2002 $13,899,387 $15,157,573 4/30/2002 $14,446,021 $15,606,160 5/31/2002 $14,944,139 $15,956,209 6/30/2002 $15,664,908 $16,511,741 7/31/2002 $15,682,644 $16,660,314 8/31/2002 $15,940,705 $16,932,180 9/30/2002 $16,072,921 $17,119,280 10/31/2002 $16,044,913 $17,070,523 11/30/2002 $16,126,879 $17,115,197 12/31/2002 $16,953,214 $17,808,922 1/31/2003 $17,212,193 $18,009,066 2/28/2003 $17,513,338 $18,241,960 3/31/2003 $17,548,835 $18,287,515 4/30/2003 $17,781,844 $18,522,089 5/31/2003 $18,515,624 $19,180,455 6/30/2003 $18,283,777 $18,972,479 7/31/2003 $17,806,404 $18,419,678 8/31/2003 $17,728,856 $18,377,531 9/30/2003 $18,703,946 $19,260,795 10/31/2003 $18,607,721 $19,153,359 11/30/2003 $18,923,616 $19,402,908 12/31/2003 $19,682,999 $20,036,821 1/31/2004 $19,680,937 $20,111,616 2/29/2004 $19,696,029 $20,215,235 3/31/2004 $19,958,048 $20,439,136 4/30/2004 $19,156,446 $19,691,798 5/31/2004 $19,225,377 $19,788,288 6/30/2004 $19,275,873 $19,846,114 7/31/2004 $19,255,283 $19,842,003 8/31/2004 $19,626,093 $20,276,284 9/30/2004 $19,836,698 $20,515,891 10/31/2004 $20,280,032 $21,007,329 11/30/2004 $20,795,466 $21,563,960 12/31/2004 $21,083,762 $21,894,362 1/31/2005 $20,817,169 $21,663,947 2/28/2005 $20,847,336 $21,705,172 3/31/2005 $20,617,000 $21,442,586 4/30/2005 $20,812,966 $21,723,200 5/31/2005 $20,486,654 $21,432,179 6/30/2005 $20,309,638 $21,336,051 7/31/2005 $20,187,964 $21,165,216 8/31/2005 $20,441,517 $21,513,571 9/30/2005 $20,167,624 $21,171,075 10/31/2005 $19,895,236 $20,855,922 11/30/2005 $19,716,201 $20,707,888 12/31/2005 $19,924,000 $20,912,068 1/31/2006 $20,159,976 $21,175,644 2/28/2006 $20,102,165 $21,100,527 3/31/2006 $19,978,951 $20,891,568 4/30/2006 $20,362,544 $21,286,952 5/31/2006 $20,552,886 $21,561,468 6/30/2006 $20,442,497 $21,390,073
7/31/93 = $10,000,000 PAST PERFORMANCE DOES NOT PREDICT FUTURE PERFORMANCE, AND THE PERFORMANCE INFORMATION PROVIDED DOES NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PERFORMANCE RESULTS ASSUME REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS AT NET ASSET VALUE ON THE EX-DIVIDEND DATES. 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. -------------------------------------------------------------------------------- 107 UBS GLOBAL BOND FUND -------------------------------------------------------------------------------- EXPLANATION OF EXPENSE DISCLOSURE (UNAUDITED) As a shareholder of the Fund, you incur two types of costs: (1) transactional costs (as applicable); including sales charges (loads); 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, January 1, 2006 to June 30, 2006. 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 EXPENSE ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD RATIO JANUARY 1, 2006 JUNE 30, 2006 01/01/06 TO 06/30/06 DURING PERIOD --------------------------------------------------------------------------------------------------------------------- Class A Actual $1,000.00 $1,025.40 $5.78 1.15% Hypothetical (5% annual return before expenses) 1,000.00 1,019.09 5.76 1.15% Class B Actual 1,000.00 1,021.40 9.52 1.90% Hypothetical (5% annual return before expenses) 1,000.00 1,015.37 9.49 1.90% Class C Actual 1,000.00 1,022.90 8.28 1.65% Hypothetical (5% annual return before expenses) 1,000.00 1,016.61 8.25 1.65% Class Y Actual 1,000.00 1,026.10 4.52 0.90% Hypothetical (5% annual return before expenses) 1,000.00 1,020.33 4.51 0.90%
* EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED NET EXPENSE RATIOS, MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 181 DIVIDED BY 365 (TO REFLECT THE ONE-HALF YEAR PERIOD). -------------------------------------------------------------------------------- 108 UBS GLOBAL BOND FUND -------------------------------------------------------------------------------- TOP TEN FIXED INCOME HOLDINGS AS OF JUNE 30, 2006 (UNAUDITED) PERCENTAGE OF NET ASSETS -------------------------------------------------------------------------------- French Treasury Note 3.500%, due 07/12/09 6.3% US Treasury Note 5.000%, due 02/15/11 5.3 Deutsche Bundesrepublik 6.000%, due 01/04/07 3.7 Government of Japan 1.500%, due 09/20/15 3.5 Deutsche Bundesrepublik 6.250%, due 01/04/24 3.2 US Treasury Bond 6.250%, due 05/15/30 3.1 US Treasury Note 4.250%, due 10/15/10 3.0 Government of Sweden 5.000%, due 01/28/09 2.6 Bundesschatzanweisungen 2.500%, due 09/22/06 2.6 UK Gilts 4.750%, due 09/07/15 2.4 -------------------------------------------------------------------------------- Total 35.7% COUNTRY EXPOSURE, TOP FIVE AS OF JUNE 30, 2006 (UNAUDITED) PERCENTAGE OF NET ASSETS -------------------------------------------------------------------------------- United States 47.6% Germany 12.2 France 10.6 United Kingdom 7.0 Japan 5.6 -------------------------------------------------------------------------------- Total 83.0% CURRENCY EXPOSURE, TOP FIVE AS OF JUNE 30, 2006 (UNAUDITED) PERCENTAGE OF NET ASSETS -------------------------------------------------------------------------------- Unites States Dollar 50.1% Euro 31.1 British Pound 5.9 Japanese Yen 5.6 Australian Dollar 3.5 -------------------------------------------------------------------------------- Total 96.2% -------------------------------------------------------------------------------- 109 UBS GLOBAL BOND FUND -------------------------------------------------------------------------------- INDUSTRY DIVERSIFICATION AS A PERCENT OF NET ASSETS AS OF JUNE 30, 2006 (UNAUDITED) -------------------------------------------------------------------------------- Bonds US Bonds US Corporate Bonds Automobiles 0.36% Beverages 0.19 Capital Markets 0.76 Commercial Banks 0.38 Consumer Finance 0.74 Diversified Financial Services 1.23 Diversified Telecommunication Services 0.34 Food & Staples Retailing 0.74 Food Products 0.20 Insurance 0.20 Media 0.16 Oil & Gas 0.26 Thrifts & Mortgage Finance 0.53 Tobacco 0.01 ------ Total US Corporate Bonds 6.10 Asset-Backed Securities 2.81 Collateralized Debt Obligations 0.79 Commercial Mortgage-Backed Securities 3.47 Mortgage & Agency Debt Securities 3.53 US Government Obligations 11.74 ------ Total US Bonds 28.44 International Bonds International Corporate Bonds Capital Markets 0.13 Commercial Banks 6.94 Diversified Financial Services 0.22 Diversified Telecommunication Services 1.65 Electric Utilities 0.55 Media 0.47 Multi-Utilities & Unregulated Power 0.25 ------ Total International Corporate Bonds 10.21 International Asset-Backed Securities 0.36 International Commercial Mortgage-Backed Securities 0.23 International Mortgage-Backed Securities 0.29 Foreign Government Bonds 35.90 Sovereign/SupraNational Bonds 3.29 ------ Total International Bonds 50.28 Total Bonds 78.72 Investment Company 11.84 Short-Term Investment 7.28 ------ Total Investments 97.84 Cash and other assets, less liabilities 2.16 ------ Net Assets 100.00% ====== -------------------------------------------------------------------------------- 110 UBS GLOBAL BOND FUND--SCHEDULE OF INVESTMENTS June 30, 2006 -------------------------------------------------------------------------------- FACE AMOUNT VALUE ------------- ---------- BONDS -- 78.72% US BONDS -- 28.44% US CORPORATE BONDS -- 6.10% Bank One Corp. 7.875%, due 08/01/10 $ 350,000 $ 376,613 Citigroup, Inc. 5.000%, due 09/15/14 400,000 374,387 Comcast Cable Communications, Inc. 6.750%, due 01/30/11 150,000 154,789 Countrywide Home Loans, Inc. 3.250%, due 05/21/08 185,000 177,006 DaimlerChrysler N.A. Holding Corp. 7.200%, due 09/01/09 350,000 360,185 Ford Motor Credit Co. 5.800%, due 01/12/09 80,000 73,085 General Electric Capital Corp. 4.375%, due 01/20/10 EUR 505,000 653,823 6.750%, due 03/15/32 $ 110,000 117,417 HSBC Finance Corp. 6.750%, due 05/15/11 350,000 363,070 JPMorgan Chase & Co.+ 3.875%, due 03/31/18 EUR 350,000 430,495 Kinder Morgan Energy Partners LP 5.800%, due 03/15/35 $ 290,000 247,472 Kraft Foods, Inc. 5.625%, due 11/01/11 200,000 196,995 Kroger Co. 8.050%, due 02/01/10 350,000 372,054 Marsh & McLennan Cos., Inc. 6.250%, due 03/15/12 200,000 199,761 Miller Brewing Co., 144A 5.500%, due 08/15/13 200,000 191,896 Morgan Stanley 5.300%, due 03/01/13 235,000 227,305 5.375%, due 10/15/15 100,000 94,666 Sprint Capital Corp. 8.375%, due 03/15/12 300,000 331,469 Toyota Motor Credit Corp. 4.500%, due 12/15/06 GBP 200,000 369,117 UST, Inc. 6.625%, due 07/15/12 $ 10,000 10,286 Wal-Mart Stores, Inc. 6.875%, due 08/10/09 350,000 362,445 Washington Mutual, Inc. 5.625%, due 01/15/07 350,000 349,698 ---------- 6,034,034 ---------- ASSET-BACKED SECURITIES -- 2.81% CenterPoint Energy Transition Bond Co., LLC 01-1, Class A4 5.630%, due 09/15/15 30,000 29,926 Countrywide Asset-Backed Certificates, 04-SD1, Class A1, 144A+ 5.663%, due 06/25/33 8,375 8,405 First Franklin Mortgage Loan Asset Backed Certificates, 05-FFA, Class M3 (a) 5.517%, due 03/25/25 $ 500,000 $ 487,464 GSAMP Trust, 06-S1, Class M6 (a) 7.000%, due 11/25/35 500,000 494,781 GSAMP Trust, 06-S3, Class A2 (a) 5.769%, due 05/25/36 1,000,000 993,190 Metris Master Trust, 05-2, Class C, 144A+ 5.817%, due 09/20/11 500,000 499,995 Peco Energy Transition Trust, 99-A, Class A7 6.130%, due 03/01/09 55,000 55,375 Structured Asset Securities Corp., 03-AL2, Class A, 144A 3.357%, due 01/25/31 16,870 15,067 Taberna Preferred Funding Ltd., 06-5A, Class A3, 144A+ 6.600%, due 08/05/36 200,000 200,000 ---------- 2,784,203 ---------- COLLATERALIZED DEBT OBLIGATIONS -- 0.79% Ares VR CLO Ltd., 06-1A, Class D, (b)+ 6.898%, due 02/24/18 240,000 239,112 Stanfield Veyron CLO Ltd., 06-1A, Class D, (b)(c)+ 7.238%, due 07/15/18 200,000 199,300 Tricadia CDO Ltd., 05-4A, Class B1L, (b)+ 8.550%, due 12/11/40 100,000 100,000 Tricadia CDO Ltd., 06-6A, Class B1L, (b)(c)+ 8.799%, due 11/05/41 250,000 246,250 ---------- 784,662 ---------- COMMERCIAL MORTGAGE-BACKED SECURITIES -- 3.47% Asset Securitization Corp., 95-MD4, Class A3+ 7.384%, due 08/13/29 350,000 356,356 Asset Securitization Corp., 96-MD6, Class A4+ 7.734%, due 11/13/29 375,000 382,860 Bear Stearns Commercial Mortgage Securities, 00-WF2, Class A2 7.320%, due 10/15/32 80,000 84,196 Bear Stearns Commercial Mortgage Securities, 05-LXR1, Class G, 144A+ 6.149%, due 09/15/18 500,000 500,352 DLJ Commercial Mortgage Corp., 00-CKP1, Class A1B 7.180%, due 11/10/33 289,445 302,594 First Union Commercial Mortgage Securities, Inc., 97-C2, Class A3 6.650%, due 11/18/29 83,901 84,467 -------------------------------------------------------------------------------- 111 UBS GLOBAL BOND FUND--SCHEDULE OF INVESTMENTS June 30, 2006 -------------------------------------------------------------------------------- FACE AMOUNT VALUE ------------ ----------- Four Times Square Trust, 00-4TS, Class C, 144A 7.860%, due 04/15/15 $ 500,000 $ 535,891 Hilton Hotel Pool Trust, 00-HLTA, Class A1, 144A 7.055%, due 10/03/15 278,327 286,480 JPMorgan Commercial Mortgage Finance Corp., 99-C8, Class A2 7.400%, due 07/15/31 78,072 80,775 LB Commercial Conduit Mortgage Trust, 99-C1, Class A1 6.410%, due 06/15/31 6,176 6,177 Mach One Trust Commercial Mortgage-Backed, 04-1A, Class A1, 144A 3.890%, due 05/28/40 170,821 166,517 Morgan Stanley Capital I, 03-T11, Class A4 5.150%, due 06/13/41 155,000 148,689 Morgan Stanley Dean Witter Capital I, 00-LIF2, Class A1 6.960%, due 10/15/33 6,774 6,834 PNC Mortgage Acceptance Corp., 00-C1, Class A2 7.610%, due 02/15/10 346,095 362,866 TIAA Retail Commercial Trust, 01- C1A, Class A2, 144A 6.300%, due 06/19/21 128,009 128,897 ----------- 3,433,951 ----------- MORTGAGE & AGENCY DEBT SECURITIES -- 3.53% Federal Home Loan Mortgage Corp. 4.875%, due 02/17/09 105,000 103,619 Federal National Mortgage Association 6.000%, due 05/15/08 320,000 322,904 6.375%, due 08/15/07 AUD1,160,000 863,647 6.625%, due 09/15/09 2,000,000 2,067,696 Government National Mortgage Association 6.500%, due 04/15/31 130,362 132,168 ----------- 3,490,034 ----------- US GOVERNMENT OBLIGATIONS -- 11.74% US Treasury Bonds 6.250%, due 05/15/30 2,665,000 3,018,528 8.750%, due 05/15/17 280,000 361,266 US Treasury Notes 4.250%, due 10/15/10 3,040,000 2,942,149 5.000%, due 02/15/11 5,305,000 5,291,944 ----------- 11,613,887 ----------- Total US Bonds 28,140,771 ----------- INTERNATIONAL BONDS -- 50.28% INTERNATIONAL CORPORATE BONDS -- 10.21% AUSTRALIA -- 0.04% Telstra Corp. Ltd. 6.375%, due 06/29/11 EUR 30,000 $ 41,786 ----------- FRANCE -- 2.15% BNP Paribas 5.250%, due 12/17/12 EUR 140,000 188,921 5.625%, due 08/07/08 100,000 132,392 5.750%, due 01/24/22 GBP 80,000 153,220 Compagnie de Financement Foncier 2.375%, due 01/29/09 EUR 550,000 679,523 Credit Lyonnais S.A.+ 5.000%, due 11/15/12 210,000 272,715 France Telecom S.A. 8.125%, due 01/28/33 270,000 450,190 Veolia Environnement 4.875%, due 05/28/13 190,000 245,898 ----------- 2,122,859 ----------- GERMANY -- 2.52% EuroHypo AG 3.750%, due 11/05/08 EUR 550,000 703,535 Kreditanstalt fuer Wiederaufbau 4.750%, due 08/17/07 710,000 921,433 Landwirtschaftliche Rentenbank 5.750%, due 01/21/15 AUD1,210,000 872,013 ----------- 2,496,981 ----------- IRELAND -- 0.21% Bank of Ireland 6.450%, due 02/10/10 EUR 150,000 206,618 ----------- LUXEMBOURG -- 1.08% Telecom Italia Finance S.A. 6.575%, due 07/30/09 EUR 600,000 815,819 7.750%, due 01/24/33 170,000 257,251 ----------- 1,073,070 ----------- NETHERLANDS -- 1.62% Bank Nederlandse Gemeenten NV 6.250%, due 06/18/07 AUD1,430,000 1,063,969 E.ON International Finance BV 6.375%, due 05/29/12 GBP 100,000 194,296 RWE Finance BV 5.500%, due 10/26/07 EUR 265,000 347,140 ----------- 1,605,405 ----------- SINGAPORE -- 0.07% Singapore Telecommunications Ltd. 6.000%, due 11/21/11 EUR 50,000 69,018 ----------- UNITED KINGDOM -- 2.52% Anglian Water Services Financing PLC 4.625%, due 10/07/13 EUR 25,000 32,162 Barclays Bank PLC 4.500%, due 03/04/19+ 190,000 242,956 5.750%, due 09/14/26 GBP 80,000 155,688 -------------------------------------------------------------------------------- 112 UBS GLOBAL BOND FUND--SCHEDULE OF INVESTMENTS June 30, 2006 -------------------------------------------------------------------------------- FACE AMOUNT VALUE -------------- ----------- HBOS Treasury Services PLC 4.750%, due 02/06/07 EUR 195,000 $ 251,414 Lloyds TSB Bank PLC 5.875%, due 06/20/14 GBP 210,000 400,989 7.750%, due 06/18/07 35,000 66,291 National Westminster Bank PLC 6.000%, due 01/21/10 EUR 335,000 456,453 6.500%, due 09/07/21 GBP 110,000 226,726 Pearson PLC 6.125%, due 02/01/07 EUR 360,000 466,996 Travelers Insurance Co. Institutional Funding Ltd. 5.750%, due 12/06/11 GBP 100,000 188,502 ----------- 2,488,177 ----------- Total International Corporate Bonds 10,103,914 ----------- INTERNATIONAL ASSET-BACKED SECURITIES -- 0.36% UNITED KINGDOM -- 0.36% Paragon Mortgages PLC, 7A, Class B1A, 144A+ 5.920%, due 05/15/43 100,000 100,131 Permanent Financing PLC, 04, Class 2C+ 6.020%, due 06/10/42 250,000 251,051 ----------- 351,182 ----------- INTERNATIONAL COMMERCIAL MORTGAGE-BACKED SECURITIES -- 0.23% UNITED KINGDOM -- 0.23% Granite Master Issuer PLC, 05-4, Class C4+ 3.443%, due 12/20/54 EUR 180,000 230,183 ----------- INTERNATIONAL MORTGAGE-BACKED SECURITIES -- 0.29% UNITED KINGDOM -- 0.29% Whinstone Capital Management Ltd., 1X, Class B2+ 3.679%, due 10/25/45 EUR 220,000 283,079 ----------- FOREIGN GOVERNMENT BONDS -- 35.90% AUSTRIA -- 1.47% Republic of Austria 5.875%, due 07/15/06 EUR 1,135,000 1,453,299 ----------- BELGIUM -- 1.22% Government of Belgium 5.750%, due 03/28/08 EUR 910,000 1,205,801 ----------- CANADA -- 1.16% Government of Canada 6.000%, due 06/01/08 CAD 1,240,000 1,142,971 ----------- FINLAND -- 0.39% Government of Finland 5.000%, due 07/04/07 EUR 295,000 383,246 ----------- FRANCE -- 8.49% French Treasury Note 3.500%, due 07/12/09 EUR 4,935,000 6,272,585 Government of France 5.500%, due 04/25/29 1,425,000 2,128,018 ----------- 8,400,603 ----------- GERMANY -- 9.71% Bundesschatzanweisungen 2.500%, due 09/22/06 EUR 2,000,000 $ 2,555,053 Deutsche Bundesrepublik 4.000%, due 01/04/37 220,000 266,680 6.000%, due 01/04/07 2,800,000 3,630,100 6.250%, due 01/04/24 1,985,000 3,156,094 ----------- 9,607,927 ----------- JAPAN -- 5.60% Government of Japan 1.500%, due 09/20/15 JPY414,000,000 3,504,497 1.900%, due 06/20/25 247,000,000 2,036,692 ----------- 5,541,189 ----------- NETHERLANDS -- 1.58% Government of Netherlands 5.000%, due 07/15/11 EUR 1,165,000 1,566,878 ----------- SWEDEN -- 2.64% Government of Sweden 5.000%, due 01/28/09 SEK 18,100,000 2,605,817 ----------- UNITED KINGDOM -- 3.64% UK Gilts 4.750%, due 09/07/15 GBP 1,275,000 2,361,384 4.750%, due 03/07/20 665,000 1,240,440 ----------- 3,601,824 ----------- Total Foreign Government Bonds 35,509,555 ----------- SOVEREIGN/SUPRANATIONAL BONDS -- 3.29% Eurofima 6.250%, due 12/28/18 AUD 2,040,000 1,533,578 European Investment Bank 4.000%, due 01/15/07 EUR 660,000 846,812 6.250%, due 04/15/14 GBP 440,000 874,754 ----------- 3,255,144 ----------- Total International Bonds 49,733,057 ----------- Total Bonds (Cost $77,584,631) 77,873,828 ----------- SHARES --------- INVESTMENT COMPANY* -- 11.84% UBS U.S. Securitized Mortgage Relationship Fund (Cost $11,134,101) 968,775 11,710,161 ----------- SHORT-TERM INVESTMENT* -- 7.28% OTHER* -- 7.28% UBS Supplementary Trust -- U.S. Cash Management Prime Fund, yield of 5.21% (Cost $7,204,469) 7,204,469 7,204,469 ----------- Total Investments -- 97.84% (Cost $95,923,201) 96,788,458 Cash and other assets, less liabilities -- 2.16% 2,139,242 ----------- Net Assets -- 100.00% $98,927,700 =========== -------------------------------------------------------------------------------- 113 UBS GLOBAL BOND FUND--SCHEDULE OF INVESTMENTS June 30, 2006 -------------------------------------------------------------------------------- NOTES TO SCHEDULE OF INVESTMENTS Aggregate cost for federal income tax purposes was $96,663,104; and net unrealized appreciation consisted of: Gross unrealized appreciation $ 1,363,676 Gross unrealized depreciation (1,238,322) ----------- Net unrealized appreciation $ 125,354 =========== + Floating rate securities -- The interest rates shown are the current rates as of June 30, 2006. (a) Step Bonds -- Coupon rate increases in increments to maturity. Rate disclosed is as of June 30, 2006. Maturity date disclosed is the ultimate maturity date. (b) Security exempt from registration under Rule 144A Securities Act of 1933. These securities, which represent 0.79% of the net assets as of June 30, 2006 are considered illiquid and restricted. (c) Security is being fair valued by a valuation committee under the direction of the Board of Trustees. At June 30, 2006, the value of these securities amounted to $445,550 or 0.45% of net assets. 144A Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities are considered liquid and may be resold in transactions exempt from registration, normally to qualified institutional buyers. At June 30, 2006, the value of these securities amounted to $2,633,631 or 2.66% of net assets. * Investment in affiliated mutual fund. CDO Collateralized Debt Obligation CLO Collateralized Loan Obligation GSAMP Goldman Sachs Mortgage Securities Corp. AUD Australian Dollar CAD Canadian Dollar EUR Euro GBP British Pound JPY Japanese Yen SEK Swedish Krona RESTRICTED SECURITIES
ACQUISITION COST MARKET VALUE ACQUISITION ACQUISITION AS A PERCENTAGE MARKET AS A PERCENTAGE SECURITY DATES COST OF NET ASSETS VALUE OF NET ASSETS --------- ----------- ----------- ---------------- -------- --------------- Ares VR CLO Ltd., 06-1A, Class D, 6.898%, due 02/24/18 02/16/06 $238,800 0.24% $239,112 0.24% Stanfield Veyron CLO Ltd., 06-1A, Class D, 7.238%, due 07/15/18 06/13/06 199,300 0.20 199,300 0.20 Tricadia CDO Ltd., 05-4A, Class B1L, 8.550%, due 12/11/40 12/01/05 99,500 0.10 100,000 0.10 Tricadia CDO Ltd., 06-6A, Class B1L, 8.799%, due 11/05/41 06/15/06 246,250 0.25 246,250 0.24
-------------------------------------------------------------------------------- 114 UBS GLOBAL BOND FUND--SCHEDULE OF INVESTMENTS June 30, 2006 -------------------------------------------------------------------------------- FORWARD FOREIGN CURRENCY CONTRACTS UBS Global Bond Fund had the following open forward foreign currency contracts as of June 30, 2006:
UNREALIZED CONTRACTS IN EXCHANGE MATURITY APPRECIATION/ TO DELIVER FOR DATES (DEPRECIATION) ------------- ----------------- -------- -------------- Australian Dollar 4,955,000 USD 3,832,321 11/20/06 $ 156,603 British Pound 1,385,000 USD 2,599,853 11/20/06 30,429 Canadian Dollar 1,010,000 USD 920,735 11/20/06 12,264 Euro 4,350,000 USD 5,622,071 11/20/06 7,801 Euro 1,743,588 JPY 251,700,000 11/20/06 (6,880) Korean Won 1,137,000,000 USD 1,182,546 08/23/06 (17,789) United States Dollar 2,846,538 CHF 3,405,000 11/20/06 (18,909) United States Dollar 431,797 DKK 2,490,000 11/20/06 (1,059) United States Dollar 657,465 EUR 515,000 11/20/06 7,213 United States Dollar 12,212,320 JPY 1,322,500,000 11/20/06 (424,579) United States Dollar 1,203,302 KRW 1,137,000,000 08/23/06 (2,968) United States Dollar 784,679 SEK 5,650,000 11/20/06 9,418 United States Dollar 927,357 SGD 1,440,000 11/20/06 (11,350) United States Dollar 882,766 THB 33,320,000 11/20/06 (10,180) United States Dollar 1,364,938 TWD 42,900,000 08/23/06 (31,887) United States Dollar 1,074,134 TWD 34,600,000 08/23/06 1,007 --------- Net unrealized depreciation on forward foreign currency contracts $(300,866) =========
Currency Type Abbreviations: CHF Swiss Franc DKK Danish Krone EUR Euro JPY Japanese Yen KRW Korean Won SEK Swedish Krona SGD Singapore Dollar THB Thailand Baht TWD New Taiwan Dollar USD United States Dollar -------------------------------------------------------------------------------- See accompanying notes to financial statements. 115 UBS HIGH YIELD FUND -------------------------------------------------------------------------------- For the fiscal year ended June 30, 2006, Class A shares of UBS High Yield Fund (the "Fund") returned 4.48% (shares declined 0.27% after the deduction of the maximum sales charge), while Class Y shares returned 4.72%. The Fund's benchmark, the Merrill Lynch US High Yield Cash Pay Constrained Index (the "Index"), returned 4.24% over the same time 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 118; 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.) CREDIT SPREADS TIGHTENED FOR MUCH OF PERIOD, WHILE INVESTORS' RISK TOLERANCE REMAINED HIGH The past 12 months were positive for the high yield market despite a downturn during the second quarter of 2006 after a rather significant shift in market sentiment. The yield on noninvestment grade securities, such as those held by the Fund, did not change dramatically during the year, but the spread--the difference in yield between high yield securities and similarly-dated Treasuries--was quite narrow by historical measures, and tightened during the course of the period. Tightening in spreads is often a positive trend for high yield bond investors. As corporate profitability improves, companies that may have previously had to offer higher coupon rates to attract investors are able to lower their interest payments on new bonds, or call or restructure existing debt. As a result, yields usually fall, spreads tighten, and the result is typically higher market prices for existing bonds. While this was the case during most of the reporting period, the tightening in spreads was primarily due to increases in Treasury bond yields, rather than a decrease in yields in the high yield sector. This is significant insomuch as it was an indication of investors' appetite for risk during the reporting period. Yield-hungry investors were willing to invest in noninvestment grade securities, despite the higher degree of risk they entailed and the fact that yields in the comparatively safe Treasury market continued to rise. However, this came to a rather sudden halt beginning in May 2006. Investors' risk tolerance turned sharply downward, and the sector suffered as spreads widened in the final two months of the reporting period. CREDIT-QUALITY RESTRUCTURING AND ISSUE SELECTION ADDED TO FUND'S RELATIVE RETURNS Throughout the year, we made a concerted effort to upgrade and diversify the portfolio's credit quality. Specifically, we have been concentrating on redeploying assets out of CCC-rated securities and into BB-rated issues. We believed that BB-rated bonds in aggregate offered more attractive valuations, and our analysis indicated that in the event of a flight to quality, such as the one that unfolded over May and June, the portfolio would be better positioned in terms of relative risk. The fund benefited, as BB-rated bonds have outperformed lower-rated securities during that time. From an issue selection standpoint, holdings in a number of industries performed quite well versus the Index over the reporting period, particularly the gaming, chemical and food, beverage and tobacco industries. Our analysis indicated that all three industries appeared undervalued relative to other sectors of the high yield market, and we held sizable overweight positions in each. -------------------------------------------------------------------------------- 116 UBS HIGH YIELD FUND -------------------------------------------------------------------------------- HIGH YIELD MARKET STILL OFFERS POSITIVE FUNDAMENTALS Although we expect volatility to continue as the US high yield market reacts to risk-averse activity in the equities and emerging markets, we continue to believe that fundamentals are solid for the market. The market consensus is that below-average default rates will continue into next year, companies may report in-line or better-than-expected operating results, and credit improvement may slow but not stop. This combination may draw investors back into the market and would generally be beneficial. Furthermore, we believe the market will now be focused on second-quarter earnings and, more importantly, on the outlook for the second half of the year. We continue to believe that any significant market sell-off could provide an opportunity to buy companies that continue to perform well at levels that provide good absolute and relative value. CHANGE IN PORTFOLIO MANAGEMENT A portfolio management change occurred after the date of this letter. Marianne Rossi recently announced plans to leave UBS Global AM--Americas in October. UBS Global AM--Americas' high yield investment team is relocating to Chicago, and Ms. Rossi has decided to remain in New York City. Ms. Rossi had served as the portfolio manager of the Fund for many years and we wish her well. Shu-Yang Tan has taken over as the portfolio manager for the Fund. Shu-Yang Tan is an Executive Director in Fixed Income Portfolio Management. Mr. Tan has been an investment professional with UBS Global Asset Management since 1995, a member of the high yield team since 2000, and portfolio manager of the Fund since 2006. -------------------------------------------------------------------------------- THIS LETTER IS INTENDED TO ASSIST SHAREHOLDERS IN UNDERSTANDING HOW THE FUND PERFORMED DURING THE FISCAL YEAR ENDED JUNE 30, 2006. THE VIEWS AND OPINIONS IN THE LETTER WERE CURRENT AS OF AUGUST 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. -------------------------------------------------------------------------------- 117 UBS HIGH YIELD FUND -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURN (UNAUDITED)
1 YEAR 5 YEARS INCEPTION* ENDED ENDED TO 06/30/06 06/30/06 06/30/06 -------------------------------------------------------------------------------------------- UBS High Yield Fund Class A 4.48% 7.96% 5.28% UBS High Yield Fund Class B 3.69 N/A 8.00 UBS High Yield Fund Class C 3.95 N/A 8.27 UBS High Yield Fund Class Y 4.72 8.22 5.92 UBS High Yield Fund Class A** -0.27 6.97 4.63 UBS High Yield Fund Class B** -1.13 N/A 7.68 UBS High Yield Fund Class C** 3.23 N/A 8.27 Merrill Lynch US High Yield Cash Pay Constrained Index*** 4.24 8.50 5.77
* 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, FOR PURPOSES OF THIS ILLUSTRATION, THE MERRILL LYNCH US HIGH YIELD CASH PAY CONSTRAINED INDEX IS 09/30/97. ** RETURNS INCLUDE SALES CHARGES. *** THE MERRILL LYNCH US HIGH YIELD CASH PAY CONSTRAINED INDEX IS THE INDEX OF PUBLICLY PLACED NON-CONVERTIBLE, COUPON-BEARING US DOMESTIC DEBT WITH A TERM TO MATURITY OF AT LEAST ONE YEAR. THE INDEX IS MARKET WEIGHTED, SO THAT LARGER BOND ISSUERS HAVE A GREATER EFFECT ON THE INDEX'S RETURN. HOWEVER, THE REPRESENTATION OF ANY SINGLE BOND ISSUE IS RESTRICTED TO A MAXIMUM OF 2% OF THE TOTAL INDEX. THE Y SHARE CLASS IS OUR LOWEST FEE SHARE CLASS. OUR OTHER SHARE CLASSES INCLUDE HIGHER FEES AND LOADS, WHICH MAY RESULT IN LOWER PERFORMANCE THAN CLASS Y. 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. -------------------------------------------------------------------------------- 118 UBS HIGH YIELD FUND -------------------------------------------------------------------------------- ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000 IN CLASS A SHARES (ADJUSTED FOR MAXIMUM SALES CHARGE) AND $5,000,000 IN CLASS Y SHARES (UNAUDITED) The following two charts show the growth in the value of an investment in UBS High Yield Fund Class A shares (adjusted for 4.50% maximum sales charge), Class Y shares, and the Merrill Lynch US High Yield Cash Pay Constrained Index, if you had invested $10,000 in Class A shares on December 31, 1998 or $5,000,000 in Class Y shares on September 30, 1997, and had reinvested all your income dividends and capital gain distributions through June 30, 2006. The performance of Class B and Class C shares will vary based upon the different inception dates, class specific expenses and sales charges. No adjustment has been made for any income taxes payable by shareholders on income dividends and capital gain distributions. Past performance is no guarantee of future results. Share price and returns will vary with market conditions; investors may realize a gain or loss upon redemption. UBS HIGH YIELD FUND CLASS A VS. MERRILL LYNCH US HIGH YIELD CASH PAY CONSTRAINED INDEX Wealth value with dividends reinvested [CHART]
MERRILL LYNCH US HIGH YIELD UBS HIGH CASH PAY YIELD FUND CONSTRAINED CLASS A INDEX ---------- ------------- 12/31/1998 $ 9,550 $10,000 1/31/1999 $ 9,780 $10,100 2/28/1999 $ 9,818 $10,022 3/31/1999 $ 9,923 $10,107 4/30/1999 $10,067 $10,266 5/31/1999 $ 9,856 $10,197 6/30/1999 $ 9,809 $10,178 7/31/1999 $ 9,799 $10,193 8/31/1999 $ 9,749 $10,088 9/30/1999 $ 9,710 $10,047 10/31/1999 $ 9,710 $ 9,989 11/30/1999 $ 9,907 $10,104 12/31/1999 $ 9,983 $10,157 1/31/2000 $ 9,858 $10,107 2/29/2000 $ 9,827 $10,114 3/31/2000 $ 9,598 $ 9,969 4/30/2000 $ 9,660 $ 9,972 5/31/2000 $ 9,629 $ 9,862 6/30/2000 $ 9,796 $10,030 7/31/2000 $ 9,892 $10,102 8/31/2000 $10,009 $10,224 9/30/2000 $ 9,881 $10,164 10/31/2000 $ 9,572 $ 9,866 11/30/2000 $ 9,134 $ 9,557 12/31/2000 $ 9,442 $ 9,764 1/31/2001 $ 9,934 $10,346 2/28/2001 $10,027 $10,509 3/31/2001 $ 9,852 $10,370 4/30/2001 $ 9,852 $10,257 5/31/2001 $ 9,922 $10,454 6/30/2001 $ 9,572 $10,239 7/31/2001 $ 9,682 $10,398 8/31/2001 $ 9,767 $10,498 9/30/2001 $ 9,134 $ 9,825 10/31/2001 $ 9,427 $10,114 11/30/2001 $ 9,866 $10,445 12/31/2001 $ 9,806 $10,373 1/31/2002 $ 9,799 $10,431 2/28/2002 $ 9,579 $10,331 3/31/2002 $ 9,773 $10,576 4/30/2002 $ 9,869 $10,744 5/31/2002 $ 9,753 $10,686 6/30/2002 $ 9,283 $10,066 7/31/2002 $ 9,106 $ 9,692 8/31/2002 $ 9,331 $ 9,912 9/30/2002 $ 9,194 $ 9,769 10/31/2002 $ 9,204 $ 9,672 11/30/2002 $ 9,637 $10,237 12/31/2002 $ 9,689 $10,388 1/31/2003 $ 9,850 $10,674 2/28/2003 $ 9,942 $10,816 3/31/2003 $10,232 $11,091 4/30/2003 $10,668 $11,712 5/31/2003 $10,682 $11,836 6/30/2003 $10,927 $12,160 7/31/2003 $10,826 $12,000 8/31/2003 $11,019 $12,146 9/30/2003 $11,244 $12,471 10/31/2003 $11,480 $12,725 11/30/2003 $11,588 $12,897 12/31/2003 $11,912 $13,194 1/31/2004 $12,191 $13,400 2/29/2004 $12,176 $13,398 3/31/2004 $12,238 $13,492 4/30/2004 $12,267 $13,396 5/31/2004 $12,086 $13,181 6/30/2004 $12,255 $13,373 7/31/2004 $12,417 $13,555 8/31/2004 $12,576 $13,801 9/30/2004 $12,771 $13,992 10/31/2004 $13,002 $14,257 11/30/2004 $13,290 $14,401 12/31/2004 $13,461 $14,614 1/31/2005 $13,481 $14,601 2/28/2005 $13,694 $14,806 3/31/2005 $13,300 $14,404 4/30/2005 $12,999 $14,255 5/31/2005 $13,197 $14,516 6/30/2005 $13,438 $14,770 7/31/2005 $13,674 $14,978 8/31/2005 $13,742 $15,046 9/30/2005 $13,570 $14,910 10/31/2005 $13,379 $14,779 11/30/2005 $13,419 $14,887 12/31/2005 $13,531 $15,031 1/31/2006 $13,749 $15,208 2/28/2006 $13,895 $15,351 3/31/2006 $14,017 $15,413 4/30/2006 $14,137 $14,627 5/31/2006 $14,118 $14,571 6/30/2006 $14,040 $14,461
12/31/98 = $9,550 THE FUND'S GROWTH OF AN ASSUMED $10,000 INVESTMENT IS ADJUSTED FOR THE MAXIMUM SALES CHARGE OF 4.50%. UBS HIGH YIELD FUND CLASS Y VS. MERRILL LYNCH US HIGH YIELD CASH PAY CONSTRAINED INDEX Wealth value with dividends reinvested [CHART]
MERRILL LYNCH US HIGH YIELD UBS HIGH CASH PAY YIELD FUND CONSTRAINED CLASS Y INDEX ---------- ------------- 9/30/1997 $5,000,000 $5,000,000 10/31/1997 $4,976,025 $5,029,343 11/30/1997 $5,026,168 $5,076,382 12/31/1997 $5,119,747 $5,121,738 1/31/1998 $5,234,798 $5,198,302 2/28/1998 $5,270,800 $5,219,274 3/31/1998 $5,336,505 $5,265,131 4/30/1998 $5,339,885 $5,289,242 5/31/1998 $5,355,201 $5,327,410 6/30/1998 $5,411,039 $5,353,114 7/31/1998 $5,489,624 $5,383,412 8/31/1998 $5,211,943 $5,150,035 9/30/1998 $5,285,372 $5,158,815 10/31/1998 $5,252,237 $5,072,925 11/30/1998 $5,550,346 $5,305,210 12/31/1998 $5,514,142 $5,307,484 1/31/1999 $5,646,747 $5,360,301 2/28/1999 $5,674,372 $5,319,131 3/31/1999 $5,735,150 $5,364,487 4/30/1999 $5,818,027 $5,448,557 5/31/1999 $5,701,998 $5,412,208 6/30/1999 $5,674,372 $5,402,109 7/31/1999 $5,668,675 $5,409,934 8/31/1999 $5,640,190 $5,354,114 9/30/1999 $5,623,098 $5,332,642 10/31/1999 $5,623,098 $5,301,889 11/30/1999 $5,737,041 $5,362,530 12/31/1999 $5,781,798 $5,390,599 1/31/2000 $5,709,601 $5,364,259 2/29/2000 $5,691,552 $5,367,808 3/31/2000 $5,559,190 $5,291,244 4/30/2000 $5,595,289 $5,292,654 5/31/2000 $5,577,239 $5,234,105 6/30/2000 $5,675,467 $5,323,543 7/31/2000 $5,737,224 $5,361,848 8/31/2000 $5,805,156 $5,426,584 9/30/2000 $5,731,048 $5,394,557 10/31/2000 $5,551,953 $5,236,334 11/30/2000 $5,298,749 $5,072,242 12/31/2000 $5,482,566 $5,182,243 1/31/2001 $5,767,551 $5,491,002 2/28/2001 $5,828,619 $5,577,756 3/31/2001 $5,726,839 $5,503,921 4/30/2001 $5,720,054 $5,443,826 5/31/2001 $5,767,551 $5,548,595 6/30/2001 $5,571,770 $5,434,136 7/31/2001 $5,635,246 $5,518,479 8/31/2001 $5,684,616 $5,571,978 9/30/2001 $5,317,867 $5,214,589 10/31/2001 $5,487,771 $5,368,217 11/30/2001 $5,735,281 $5,543,682 12/31/2001 $5,709,518 $5,505,605 1/31/2002 $5,706,818 $5,536,358 2/28/2002 $5,580,618 $5,483,086 3/31/2002 $5,694,207 $5,613,331 4/30/2002 $5,750,831 $5,702,588 5/31/2002 $5,685,009 $5,671,744 6/30/2002 $5,405,189 $5,342,332 7/31/2002 $5,311,911 $5,144,166 8/31/2002 $5,443,822 $5,260,855 9/30/2002 $5,365,261 $5,184,791 10/31/2002 $5,372,076 $5,133,293 11/30/2002 $5,624,617 $5,433,362 12/31/2002 $5,664,894 $5,513,156 1/31/2003 $5,750,743 $5,665,102 2/28/2003 $5,805,429 $5,740,574 3/31/2003 $5,984,048 $5,886,651 4/30/2003 $6,239,045 $6,216,335 5/31/2003 $6,248,067 $6,282,072 6/30/2003 $6,382,473 $6,454,034 7/31/2003 $6,334,613 $6,368,963 8/31/2003 $6,448,914 $6,446,619 9/30/2003 $6,581,803 $6,619,036 10/31/2003 $6,721,422 $6,753,649 11/30/2003 $6,786,054 $6,845,316 12/31/2003 $6,977,068 $7,002,448 1/31/2004 $7,142,156 $7,111,903 2/29/2004 $7,135,503 $7,110,720 3/31/2004 $7,174,321 $7,160,989 4/30/2004 $7,193,608 $7,109,856 5/31/2004 $7,080,286 $6,995,760 6/30/2004 $7,190,655 $7,097,664 7/31/2004 $7,277,521 $7,194,517 8/31/2004 $7,372,232 $7,324,763 9/30/2004 $7,488,258 $7,426,347 10/31/2004 $7,635,750 $7,566,692 11/30/2004 $7,806,070 $7,643,120 12/31/2004 $7,908,000 $7,756,169 1/31/2005 $7,911,712 $7,749,709 2/28/2005 $8,048,643 $7,858,300 3/31/2005 $7,820,000 $7,645,121 4/30/2005 $7,646,931 $7,565,964 5/31/2005 $7,765,027 $7,704,535 6/30/2005 $7,896,969 $7,838,920 7/31/2005 $8,037,209 $7,949,512 8/31/2005 $8,078,670 $7,985,588 9/30/2005 $7,979,392 $7,913,528 10/31/2005 $7,869,255 $7,843,697 11/30/2005 $7,894,030 $7,901,290 12/31/2005 $7,961,709 $7,977,581 1/31/2006 $8,090,935 $8,071,751 2/28/2006 $8,189,372 $8,147,633 3/31/2006 $8,262,902 $8,180,569 4/30/2006 $8,323,379 $7,763,043 5/31/2006 $8,325,467 $7,733,518 6/30/2006 $8,269,882 $7,675,101
9/30/97 = $5,000,000 PAST PERFORMANCE DOES NOT PREDICT FUTURE PERFORMANCE, AND THE PERFORMANCE INFORMATION PROVIDED DOES NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PERFORMANCE RESULTS ASSUME REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS AT NET ASSET VALUE ON THE EX-DIVIDEND DATES. 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. -------------------------------------------------------------------------------- 119 UBS HIGH YIELD FUND -------------------------------------------------------------------------------- EXPLANATION OF EXPENSE DISCLOSURE (UNAUDITED) As a shareholder of the Fund, you incur two types of costs: (1) transactional costs (as applicable); including sales charges (loads); 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, January 1, 2006 to June 30, 2006. 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 EXPENSE ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD* RATIO JANUARY 1, 2006 JUNE 30, 2006 01/01/06 TO 06/30/06 DURING PERIOD ------------------------------------------------------------------------------------------------------------------- Class A Actual $1,000.00 $1,037.60 $6.06 1.20% Hypothetical (5% annual return before expenses) 1,000.00 1,018.84 6.01 1.20% Class B Actual 1,000.00 1,033.80 9.83 1.95% Hypothetical (5% annual return before expenses) 1,000.00 1,015.12 9.74 1.95% Class C Actual 1,000.00 1,035.00 8.58 1.70% Hypothetical (5% annual return before expenses) 1,000.00 1,016.36 8.50 1.70% Class Y Actual 1,000.00 1,038.70 4.80 0.95% Hypothetical (5% annual return before expenses) 1,000.00 1,020.08 4.76 0.95%
* EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED NET EXPENSE RATIOS, MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 181 DIVIDED BY 365 (TO REFLECT THE ONE-HALF YEAR PERIOD). -------------------------------------------------------------------------------- 120 UBS HIGH YIELD FUND -------------------------------------------------------------------------------- TOP TEN FIXED INCOME HOLDINGS AS OF JUNE 30, 2006 (UNAUDITED) PERCENTAGE OF NET ASSETS ------------------------------------------------- Ford Motor Credit Co. 7.375%, due 10/28/09 2.4% AK Steel Corp. 7.750%, due 06/15/12 1.6 General Motors Acceptance Corp. 7.250%, due 03/02/11 1.5 Houghton Mifflin Co. 0.000%, due 10/15/13 1.5 General Motors Corp. 7.200%, due 01/15/11 1.4 Wheeling Island Gaming, Inc. 10.125%, due 12/15/09 1.3 American Cellular Corp., Series B 10.000%, due 08/01/11 1.3 Easton-Bell Sports, Inc. 8.375%, due 10/01/12 1.2 CSC Holdings, Inc., Series B 8.125%, due 08/15/09 1.2 Sinclair Broadcast Group, Inc. 8.000%, due 03/15/12 1.2 ------------------------------------------------- Total 14.6% -------------------------------------------------------------------------------- 121 UBS HIGH YIELD FUND -------------------------------------------------------------------------------- INDUSTRY DIVERSIFICAT`ION AS A PERCENT OF NET ASSETS AS OF JUNE 30, 2006 (UNAUDITED) -------------------------------------------------------------------------------- Bonds US Bonds US Corporate Bonds Aerospace & Defense 1.30% Auto Loans 3.91 Auto Parts & Equipment 2.32 Automotive 1.43 Beverages 1.07 Building & Construction 0.84 Building Materials 3.09 Chemicals 4.47 Computer Hardware 0.20 Consumer Products 4.09 Containers & Packaging 2.31 Diversified Capital Goods 0.24 Electric-Generation 2.09 Electric-Integrated 0.98 Electronics 0.74 Food & Drug Retailers 2.51 Food Wholesale 1.73 Gaming 9.78 Gas Distribution 1.80 Health Care Services 3.19 Integrated Telecommunication Services 4.33 Media-Broadcast 3.96 Media-Cable 2.65 Media-Services 1.32 Metals & Mining Excluding Steel 1.27 Non-Food & Drug Retailers 4.05 Office Equipment 0.76 Oil & Gas Exploration & Production 1.83 Oil & Gas Refining & Marketing 0.69 Paper & Forest Products 2.60 Printing and Publishing 6.51 Restaurants 2.83 Road & Rail 0.76 Software Services 0.61 Steel Producers Products 1.59 Support Services 1.02 Textiles, Apparel & Luxury Goods 1.68 Tobacco 0.57 Transportation Excluding Air & Rail 0.74 Wireless Telecommunication Services 1.33 ------ Total US Corporate Bonds 89.19 Asset-backed securities 0.61 ------ Total US Bonds 89.80 International Bonds International Corporate Bonds Building Products 0.62% Chemicals 2.58 Food & Drug Retailers 0.93 Media-Diversified 0.65 Oil Field Equipment & Services 0.67 Paper & Forest Products 1.60 Printing & Publishing 0.92 Wireless Telecommunication Services 0.54 ------ Total International Corporate Bonds 8.51 Total Bonds 98.31 Equities 0.00+ Warrants 0.00+ Short-Term Investment 0.99 Total Investments 99.30 Cash and other assets, less liabilities 0.70 ------ Net Assets 100.00% ====== -------------------------------------------------------------------------------- + AMOUNT REPRESENTS LESS THAN 0.005%. -------------------------------------------------------------------------------- 122 UBS HIGH YIELD FUND--SCHEDULE OF INVESTMENTS June 30, 2006 -------------------------------------------------------------------------------- FACE AMOUNT VALUE ----------- ---------- BONDS -- 98.31% US BONDS -- 89.80% US CORPORATE BONDS -- 89.19% AAC Group Holding Corp. (a) 0.000%, due 10/01/12 $1,100,000 $ 858,000 Activant Solutions, Inc., 144A 9.500%, due 05/01/16 200,000 193,500 Advanstar Communications, Inc. 10.750%, due 08/15/10 750,000 804,375 Affinion Group, Inc., 144A 10.125%, due 10/15/13 500,000 502,500 Ahern Rentals, Inc. 9.250%, due 08/15/13 600,000 606,000 Ainsworth Lumber Co., Ltd. 7.250%, due 10/01/12 750,000 615,000 AK Steel Corp. 7.750%, due 06/15/12 1,600,000 1,568,000 American Cellular Corp., Series B 10.000%, due 08/01/11 1,250,000 1,315,625 American Rock Salt Co. LLC 9.500%, due 03/15/14 900,000 909,000 Ameripath, Inc. 10.500%, due 04/01/13 800,000 839,000 AmeriQual Group LLC, 144A 9.250%, due 04/01/12 1,000,000 1,015,000 ArvinMeritor, Inc. 8.125%, due 09/15/15 850,000 786,250 Atlas Pipeline Partners LP, 144A 8.125%, due 12/15/15 900,000 896,625 Baker & Taylor, Inc., 144A 11.500%, due 07/01/13 400,000 400,000 BE Aerospace, Inc., Series B 8.875%, due 05/01/11 375,000 388,125 Berry Plastics Corp. 10.750%, due 07/15/12 1,000,000 1,082,500 Brookstone Co., Inc., 144A 12.000%, due 10/15/12 550,000 484,000 Buckeye Technologies, Inc. 8.000%, due 10/15/10 800,000 732,000 Buffets, Inc. 11.250%, due 07/15/10 850,000 878,687 Cadmus Communications Corp. 8.375%, due 06/15/14 750,000 742,500 Carriage Services, Inc. 7.875%, due 01/15/15 715,000 697,125 Cellu Tissue Holdings, Inc. 9.750%, due 03/15/10 1,050,000 1,023,750 Century Aluminum Co. 7.500%, due 08/15/14 350,000 350,000 Cenveo Corp. 7.875%, due 12/01/13 700,000 682,500 Chemtura Corp. 6.875%, due 06/01/16 450,000 434,813 Chukchansi Economic Development Authority, 144A 8.000%, due 11/15/13 550,000 553,438 Cincinnati Bell, Inc. 8.375%, due 01/15/14 $1,000,000 $ 985,000 Circus & Eldorado Joint Venture Corp. 10.125%, due 03/01/12 500,000 528,125 Citizens Communications Co. 9.000%, due 08/15/31 750,000 759,375 Clarke American Corp. 11.750%, due 12/15/13 500,000 515,000 CMP Susquehanna Corp., 144A 9.875%, due 05/15/14 625,000 581,250 Collins & Aikman Floor Cover, Series B 9.750%, due 02/15/10 400,000 393,000 Comstock Resources, Inc. 6.875%, due 03/01/12 500,000 466,875 Cooper-Standard Automotive, Inc. 8.375%, due 12/15/14 925,000 729,594 CSC Holdings, Inc., Series B 8.125%, due 08/15/09 1,175,000 1,195,562 Da-Lite Screen Co., Inc. 9.500%, due 05/15/11 650,000 689,000 Deluxe Corp. 5.000%, due 12/15/12 675,000 559,333 Dole Food Co., Inc. 8.875%, due 03/15/11 500,000 468,750 Dycom Industries, Inc. 8.125%, due 10/15/15 600,000 601,500 Dynegy Holdings, Inc., 144A 8.375%, due 05/01/16 550,000 541,750 Easton-Bell Sports, Inc. 8.375%, due 10/01/12 1,250,000 1,231,250 Energy Partners Ltd. 8.750%, due 08/01/10 250,000 240,625 FastenTech, Inc. 11.500%, due 05/01/11 850,000 867,000 Ford Motor Credit Co. 7.375%, due 10/28/09 2,525,000 2,334,458 General Motors Acceptance Corp. 7.250%, due 03/02/11 1,575,000 1,526,975 General Motors Corp. 7.200%, due 01/15/11 1,600,000 1,416,000 Giant Industries, Inc. 11.000%, due 05/15/12 625,000 678,125 Glatfelter, 144A 7.125%, due 05/01/16 200,000 197,424 Gregg Appliances, Inc. 9.000%, due 02/01/13 875,000 807,187 GSC Holdings Corp. 144A 8.000%, due 10/01/12 1,000,000 1,000,000 Gulfmark Offshore, Inc. 7.750%, due 07/15/14 750,000 731,250 Hercules, Inc. 6.500%, due 06/30/29 825,000 652,781 Houghton Mifflin Co. (a) 0.000%, due 10/15/13 1,750,000 1,443,750 Inergy LP/Inergy Finance Corp. 8.250%, due 03/01/16 875,000 883,750 -------------------------------------------------------------------------------- 123 UBS HIGH YIELD FUND--SCHEDULE OF INVESTMENTS June 30, 2006 -------------------------------------------------------------------------------- FACE AMOUNT VALUE ----------- ---------- Ingles Markets, Inc. 8.875%, due 12/01/11 $ 950,000 $ 993,937 Insight Communications Co., Inc. (a) 12.250%, due 02/15/11 625,000 660,938 Intelsat Subsidiary Holding Co. Ltd. 8.625%, due 01/15/15 250,000 250,625 Interface, Inc. 10.375%, due 02/01/10 900,000 984,375 Jacobs Entertainment Inc., 144A 9.750%, due 06/15/14 1,000,000 1,005,000 Jacuzzi Brands, Inc. 9.625%, due 07/01/10 625,000 660,156 Jafra Cosmetics International, Inc. 10.750%, due 05/15/11 489,000 524,453 Kansas City Southern Railway Co. 7.500%, due 06/15/09 750,000 750,000 Landry's Restaurants, Inc., Series B 7.500%, due 12/15/14 850,000 779,875 Le-Natures, Inc., 144A 10.000%, due 06/15/13 1,000,000 1,053,750 Levi Strauss & Co. 12.250%, due 12/15/12 1,025,000 1,132,625 LIN Television Corp., Series B 6.500%, due 05/15/13 625,000 570,313 Maax Holdings, Inc. (a) 0.000%, due 12/15/12 375,000 146,250 Majestic Star Casino LLC 9.500%, due 10/15/10 175,000 183,313 9.750%, due 01/15/11, 144A 525,000 526,313 Mediacom LLC 9.500%, due 01/15/13 765,000 761,175 Midwest Generation LLC 8.750%, due 05/01/34 750,000 795,000 Mirant Americas Generation LLC 9.125%, due 05/01/31 500,000 485,000 Mirant North America LLC, 144A 7.375%, due 12/31/13 500,000 482,500 MTR Gaming Group, Inc., 9.000%, due 06/01/12 144A 425,000 426,594 9.750%, due 04/01/10, Series B 750,000 792,187 Nexstar Finance Holdings LLC (a) 0.000%, due 04/01/13 675,000 546,750 Nexstar Finance, Inc. 7.000%, due 01/15/14 500,000 455,000 NRG Energy, Inc. 7.375%, due 02/01/16 750,000 731,250 Omnova Solutions, Inc. 11.250%, due 06/01/10 750,000 795,000 Owens-Illinois, Inc. 7.800%, due 05/15/18 700,000 658,000 Pantry, Inc. 7.750%, due 02/15/14 900,000 891,000 Pathmark Stores, Inc. 8.750%, due 02/01/12 500,000 475,000 Petro Stopping Centers LP 9.000%, due 02/15/12 825,000 818,812 Pinnacle Foods Holding Corp. 8.250%, due 12/01/13 $ 750,000 $ 736,875 Pokagon Gaming Authority, 144A 10.375%, due 06/15/14 700,000 723,625 PolyOne Corp. 10.625%, due 05/15/10 800,000 860,000 Poster Financial Group, Inc. 8.750%, due 12/01/11 650,000 676,000 Prestige Brands, Inc. 9.250%, due 04/15/12 750,000 735,000 Psychiatric Solutions, Inc. 144A 7.750%, due 07/15/15 750,000 734,062 Qwest Corp. 7.875%, due 09/01/11 350,000 354,375 R.H. Donnelley Corp., 144A 8.875%, due 01/15/16 1,000,000 1,008,750 Rafaella Apparel Group, Inc., 144A 11.250%, due 06/15/11 550,000 528,000 Restaurant Co. 10.000%, due 10/01/13 525,000 480,375 Reynolds American, Inc., 144A 7.250%, due 06/01/13 575,000 562,063 River Rock Entertainment Authority 9.750%, due 11/01/11 750,000 789,375 Rockwood Specialties Group, Inc. 10.625%, due 05/15/11 583,000 623,081 San Pasqual Casino, 144A 8.000%, due 09/15/13 750,000 748,125 Sanmina-SCI Corp. 8.125%, due 03/01/16 750,000 731,250 Sbarro, Inc. 11.000%, due 09/15/09 645,000 657,094 Seneca Gaming Corp. 7.250%, due 05/01/12 750,000 726,563 Sensata Technologies BV, 144A 8.000%, due 05/01/14 250,000 241,250 Sequa Corp. 9.000%, due 08/01/09 850,000 896,750 Sheridan Group, Inc. 10.250%, due 08/15/11 925,000 940,031 Sinclair Broadcast Group, Inc. 8.000%, due 03/15/12 1,175,000 1,192,625 Sirius Satellite Radio, Inc. 9.625%, due 08/01/13 600,000 562,500 Solo Cup Co. 8.500%, due 02/15/14 625,000 540,625 Stanadyne Corp. 10.000%, due 08/15/14 825,000 771,375 Technical Olympic USA, Inc. 7.500%, due 01/15/15 1,000,000 832,500 Terra Capital, Inc. 12.875%, due 10/15/08 925,000 1,047,562 Tunica-Biloxi Gaming Authority, 144A 9.000%, due 11/15/15 650,000 666,250 Unisys Corp. 8.000%, due 10/15/12 650,000 604,500 -------------------------------------------------------------------------------- 124 UBS HIGH YIELD FUND--SCHEDULE OF INVESTMENTS June 30, 2006 --------------------------------------------------------------------------------
FACE AMOUNT VALUE ----------- ----------- Universal Hospital Services, Inc. 10.125%, due 11/01/11 $ 850,000 $ 884,000 Vertis, Inc., Series B 10.875%, due 06/15/09 550,000 541,750 Wheeling Island Gaming, Inc. 10.125%, due 12/15/09 1,275,000 1,318,031 Whiting Petroleum Corp. 7.250%, due 05/01/12 1,150,000 1,104,000 Windstream Corp., 144A 8.625%, due 08/01/16 425,000 434,563 Wornick Co. 10.875%, due 07/15/11 500,000 503,750 Xerox Capital Trust I 8.000%, due 02/01/27 750,000 752,812 Zeus Special Subsidiary Ltd., 144A (a) 0.000%, due 02/01/15 1,300,000 897,000 ----------- 88,124,680 ----------- ASSET-BACKED SECURITIES -- 0.61% GSAMP Trust, 06-S2, Class B2, 144A (a) 7.000%, due 01/25/36 750,000 603,600 ----------- INTERNATIONAL BONDS -- 8.51% INTERNATIONAL CORPORATE BONDS -- 8.51% CANADA -- 4.72% Abitibi-Consolidated, Inc. 6.950%, due 04/01/08 850,000 823,437 Jean Coutu Group, Inc. 8.500%, due 08/01/14 1,000,000 920,000 MAAX Corp. 9.750%, due 06/15/12 750,000 612,188 Millar Western Forest Products Ltd. 7.750%, due 11/15/13 1,000,000 760,000 Quebecor Media, Inc., 144A 7.750%, due 03/15/16 650,000 637,000 Quebecor World Capital Corp., 144A 8.750%,due 03/15/16 1,000,000 912,500 ----------- 4,665,125 ----------- CAYMAN ISLANDS -- 0.67% Bluewater Finance Ltd. 10.250%, due 02/15/12 650,000 658,125 ----------- FRANCE -- 1.05% Rhodia S.A. 10.250%, due 06/01/10 973,000 1,038,677 ----------- LUXEMBOURG -- 0.54% Wind Acquisition Finance S.A., 144A 10.750%, due 12/01/15 500,000 531,250 ----------- NETHERLANDS -- 0.96% Montell Finance Co. BV, 144A 8.100%, due 03/15/27 1,050,000 950,250 ----------- UNITED KINGDOM -- 0.57% Ineos Group Holdings PLC, 144A 8.500%, due 02/15/16 600,000 561,750 ----------- Total International Bonds 8,405,177 ----------- Total Bonds 97,133,457 (Cost $99,110,710) ----------- SHARES VALUE ----------- ----------- EQUITIES -- 0.00% US EQUITIES (b)(c)(d) -- 0.00% 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 6/15/09 (e) 225 0 Knology, Inc., expires 10/15/07 (e) 16,995 0 Pathnet, Inc., expires 04/15/08 6,275 0 Pliant Corp., expires 06/01/10 (e) 160 2 ----------- Total Warrants (Cost $10) 2 ----------- SHARES ----------- SHORT-TERM INVESTMENT -- 0.99% OTHER* -- 0.99% UBS Supplementary Trust -- U.S. Cash Management Prime Fund, yield of 5.21% (Cost $982,605) 982,605 982,605 ----------- Total Investments -- 99.30% (Cost $100,246,325) 98,116,064 Cash and other assets, less 694,461 liabilities -- 0.70% ----------- Net Assets -- 100.00% $98,810,525 ===========
-------------------------------------------------------------------------------- 125 UBS HIGH YIELD FUND--SCHEDULE OF INVESTMENTS June 30, 2006 -------------------------------------------------------------------------------- NOTES TO SCHEDULE OF INVESTMENTS Aggregate cost for federal income tax purposes was $100,317,713; and net unrealized depreciation consisted of: Gross unrealized appreciation $ 1,030,714 Gross unrealized depreciation (3,232,363) ----------- Net unrealized depreciation $(2,201,649) =========== (a) Step Bonds -- coupon rate increases in increments to maturity. Rate disclosed is as of June 30, 2006. Maturity date disclosed is the ultimate maturity date. (b) Security is being fair valued by a valuation committee under the direction of the Board of Trustees. At June 30, 2006, the value of these securities amounted to $2 or 0.00% of net assets. (c) Security is illiquid. These securities amounted to $2 or 0.00% of net assets at June 30, 2006. (d) Non-income producing security. (e) Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities, which represent 0.00% of net assets as of June 30, 2006, 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 June 30, 2006, the value of these securities amounted to $20,165,119 or 20.41% of net assets. * Investment in affiliated mutual fund. GSAMP Goldman Sachs Mortgage Securities Corp. RESTRICTED SECURITIES
ACQUISITION COST MARKET VALUE AS ACQUISITION ACQUISITION AS A PERCENTAGE MARKET A PERCENTAGE SECURITY DATES COST OF NET ASSETS VALUE OF 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. 126 UBS U.S. BOND FUND -------------------------------------------------------------------------------- For the fiscal year ended June 30, 2006, Class A shares of UBS U.S. Bond Fund (the "Fund") declined 0.07% (shares declined 4.60% after the deduction of the maximum sales charge), while Class Y shares returned 0.14%. The Fund's benchmark, the Lehman Brothers US Aggregate Bond Index (the "Index"), declined 0.81% over the same time 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 129; 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.) Although the Fund's Class A shares recorded a slightly negative return during the reporting period, they did outperform the Index during what was an exceptionally difficult period for fixed income investors. The Fund's outperformance was due to a number of factors, including duration and yield curve positioning, sector allocation and security selection. RISING YIELDS MADE FOR A CHALLENGING FIXED INCOME MARKET ENVIRONMENT Throughout the Fund's reporting period, the Federal Reserve Board (the "Fed") continued its tightening campaign, raising short-term interest rates eight times during the reporting period, before pausing after the period ended. The Fed's 17 consecutive rate hikes were the longest on record in more than 50 years, driven primarily by concerns over inflation. In some of the Fed's more recent comments, the Board has pointed to elevated core inflation and the ongoing perceived risk of inflation as the rationale behind rate increases. This persistent increase in rates put significant upward pressure on yields throughout the reporting period. Treasury yields rose more dramatically on shorter-dated securities than those on the longer-end of the yield curve. The result was an exceptionally flat yield curve for much of the reporting period, with investors generally not being compensated for taking on the additional risk associated with longer-dated bonds. In this environment, the Fund's short duration was particularly beneficial to relative performance. Duration measures a portfolio's sensitivity to interest rate changes, and in a rising rate environment, such as that characterized this fiscal year, maintaining a shorter duration relative to the Index was a key component of our active management strategy, and helped to limit losses. SECTOR ALLOCATION AND SECURITY SELECTION WERE POSITIVE CONTRIBUTORS TO PERFORMANCE Throughout the reporting period, the Fund's sector allocation was beneficial to performance. We found that securitized sectors of the market offered the most attractive valuations, including asset-backed securities (ABS), mortgage-backed securities (MBS) and commercial mortgage-backed securities (CMBS). Within the MBS sector, we found particular value in hybrid adjustable rate mortgages, which combine a fixed rate for an initial period with a variable rate thereafter. The Fund held overweight positions in all three sectors relative to the Index, which was a definite benefit to performance. Also adding to performance were the Fund's underweight positions in corporate bonds and high-quality government sectors. We believe corporate bonds as a sector are not sufficiently compensating investors for the market risk they entail. Regarding Treasuries, we favored Treasury Inflation Protected securities (TIPs) to other government securities. Although TIPs did not appear undervalued on an absolute basis, our analysis showed that they remained attractive relative to nominal Treasuries. ENHANCED MANAGEMENT STRATEGY APPROVED Near the end of the Fund's fiscal year, the Board of Trustees approved an enhancement to the Fund's management strategy, which allows the Fund to invest up to 20% of its net assets in any combination of high yield securities, emerging market fixed income securities and fixed income securities of foreign issuers. This change will enable the Fund to pursue investment opportunities across a more diverse range of markets and securities, and aligns the Fund's investment strategy more closely with those of its peers. We found limited investment opportunities to implement the enhanced strategy, and as a result, it had limited impact during the reporting period. DESPITE MIXED SIGNALS, OUTLOOK FOR ECONOMY REMAINS POSITIVE The current economic backdrop is one of mixed and sometimes contradictory signals. Employment and corporate profitability both remain quite robust, but a softening housing market and moderate levels of inflation are both areas that could pose future problems. We tend to believe that core inflation is generally under control, although it may continue to -------------------------------------------------------------------------------- 127 UBS U.S. BOND FUND -------------------------------------------------------------------------------- garner attention over the short term. In terms of overall economic growth, we anticipate that gross domestic product will return to trend-like growth levels into 2007, and that a "hard landing" for the economy is relatively unlikely. Within the Fund, we have de-emphasized our defensive stance, and will continue to seek out attractively valued sectors of the market, with an eye toward controlling risk and maintaining diversification within the portfolio. -------------------------------------------------------------------------------- THIS LETTER IS INTENDED TO ASSIST SHAREHOLDERS IN UNDERSTANDING HOW THE FUND PERFORMED DURING THE FISCAL YEAR ENDED JUNE 30, 2006. THE VIEWS AND OPINIONS IN THE LETTER WERE CURRENT AS OF AUGUST 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. -------------------------------------------------------------------------------- 128 UBS U.S. BOND FUND -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURN (UNAUDITED)
1 YEAR 5 YEARS 10 YEARS INCEPTION* ENDED ENDED ENDED TO 06/30/06 06/30/06 06/30/06 06/30/06 ---------------------------------------------------------------------------------------- UBS U.S. Bond Fund Class A -0.07% 4.61% N/A 5.53% UBS U.S. Bond Fund Class B -0.93 N/A N/A 2.62 UBS U.S. Bond Fund Class C -0.67 N/A N/A 2.86 UBS U.S. Bond Fund Class Y 0.14 4.83 6.04% 5.91 UBS U.S. Bond Fund Class A** -4.60 3.64 N/A 4.99 UBS U.S. Bond Fund Class B** -5.71 N/A N/A 2.25 UBS U.S. Bond Fund Class C** -1.39 N/A N/A 2.86 Lehman Brothers US Aggregate Bond Index*** -0.81 4.97 6.22 6.11
* 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 LEHMAN BROTHERS US AGGREGATE INDEX IS AN UNMANAGED INDEX OF INVESTMENT GRADE FIXED RATE DEBT ISSUES, INCLUDING CORPORATE, GOVERNMENT, TREASURY, MORTGAGE-BACKED AND ASSET-BACKED SECURITIES WITH MATURITIES OF AT LEAST ONE YEAR. THE Y SHARE CLASS IS OUR LOWEST FEE SHARE CLASS. OUR OTHER SHARE CLASSES INCLUDE HIGHER FEES AND LOADS, WHICH MAY RESULT IN LOWER PERFORMANCE THAN CLASS Y. 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. -------------------------------------------------------------------------------- 129 UBS U.S. BOND FUND -------------------------------------------------------------------------------- ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000 IN CLASS A SHARES (ADJUSTED FOR MAXIMUM SALES CHARGE) AND $10,000,000 IN CLASS Y SHARES (UNAUDITED) The following two charts show the growth in the value of an investment in UBS U.S. Bond Fund Class A shares (adjusted for 4.50% maximum sales charge), Class Y shares and the Lehman Brothers US Aggregate Bond Index, if you had invested $10,000 in Class A shares on June 30, 1997 or $10,000,000 in Class Y shares on August 31, 1995, and had reinvested all your income dividends and capital gain distributions through June 30, 2006. The performance of Class B and Class C shares will vary based upon the different inception dates, class specific expenses and sales charges. No adjustment has been made for any income taxes payable by shareholders on income dividends and capital gain distributions. Past performance is no guarantee of future results. Share price and returns will vary with market conditions; investors may realize a gain or loss upon redemption. UBS U.S. BOND FUND CLASS A VS. LEHMAN BROTHERS US AGGREGATE BOND INDEX Wealth value with dividends reinvested [CHART]
LEHMAN BROTHERS UBS U.S. BOND US AGGREGATE FUND CLASS A BOND INDEX ------------- --------------- 6/30/1997 $ 9,552 $10,000 7/31/1997 $ 9,851 $10,270 8/31/1997 $ 9,757 $10,183 9/30/1997 $ 9,888 $10,333 10/31/1997 $10,028 $10,482 11/30/1997 $10,056 $10,530 12/31/1997 $10,175 $10,636 1/31/1998 $10,293 $10,772 2/28/1998 $10,283 $10,764 3/31/1998 $10,312 $10,800 4/30/1998 $10,361 $10,856 5/31/1998 $10,460 $10,960 6/30/1998 $10,536 $11,053 7/31/1998 $10,546 $11,076 8/31/1998 $10,716 $11,256 9/30/1998 $10,905 $11,520 10/31/1998 $10,895 $11,459 11/30/1998 $10,975 $11,524 12/31/1998 $11,014 $11,559 1/31/1999 $11,107 $11,641 2/28/1999 $10,911 $11,437 3/31/1999 $10,983 $11,500 4/30/1999 $11,014 $11,537 5/31/1999 $10,890 $11,435 6/30/1999 $10,840 $11,399 7/31/1999 $10,777 $11,351 8/31/1999 $10,755 $11,345 9/30/1999 $10,882 $11,477 10/31/1999 $10,882 $11,519 11/30/1999 $10,903 $11,518 12/31/1999 $10,855 $11,463 1/31/2000 $10,810 $11,425 2/29/2000 $10,933 $11,563 3/31/2000 $11,055 $11,716 4/30/2000 $10,988 $11,682 5/31/2000 $10,944 $11,676 6/30/2000 $11,196 $11,919 7/31/2000 $11,297 $12,027 8/31/2000 $11,442 $12,202 9/30/2000 $11,521 $12,278 10/31/2000 $11,566 $12,360 11/30/2000 $11,779 $12,562 12/31/2000 $11,996 $12,795 1/31/2001 $12,174 $13,004 2/28/2001 $12,281 $13,117 3/31/2001 $12,352 $13,183 4/30/2001 $12,257 $13,128 5/31/2001 $12,329 $13,208 6/30/2001 $12,378 $13,258 7/31/2001 $12,702 $13,554 8/31/2001 $12,834 $13,709 9/30/2001 $13,001 $13,869 10/31/2001 $13,247 $14,159 11/30/2001 $13,065 $13,964 12/31/2001 $12,983 $13,875 1/31/2002 $13,078 $13,988 2/28/2002 $13,203 $14,123 3/31/2002 $12,956 $13,888 4/30/2002 $13,231 $14,157 5/31/2002 $13,340 $14,278 6/30/2002 $13,420 $14,401 7/31/2002 $13,526 $14,575 8/31/2002 $13,760 $14,821 9/30/2002 $13,933 $15,061 10/31/2002 $13,884 $14,992 11/30/2002 $13,882 $14,989 12/31/2002 $14,147 $15,298 1/31/2003 $14,156 $15,311 2/28/2003 $14,338 $15,523 3/31/2003 $14,333 $15,511 4/30/2003 $14,447 $15,639 5/31/2003 $14,683 $15,931 6/30/2003 $14,651 $15,899 7/31/2003 $14,175 $15,365 8/31/2003 $14,268 $15,467 9/30/2003 $14,647 $15,876 10/31/2003 $14,509 $15,728 11/30/2003 $14,550 $15,766 12/31/2003 $14,679 $15,926 1/31/2004 $14,799 $16,054 2/29/2004 $14,929 $16,228 3/31/2004 $15,033 $16,350 4/30/2004 $14,682 $15,924 5/31/2004 $14,597 $15,860 6/30/2004 $14,677 $15,950 7/31/2004 $14,810 $16,108 8/31/2004 $15,069 $16,415 9/30/2004 $15,122 $16,460 10/31/2004 $15,231 $16,598 11/30/2004 $15,128 $16,465 12/31/2004 $15,241 $16,617 1/31/2005 $15,303 $16,721 2/28/2005 $15,235 $16,623 3/31/2005 $15,181 $16,537 4/30/2005 $15,328 $16,761 5/31/2005 $15,454 $16,942 6/30/2005 $15,516 $17,035 7/31/2005 $15,422 $16,880 8/31/2005 $15,564 $17,096 9/30/2005 $15,445 $16,920 10/31/2005 $15,360 $16,786 11/30/2005 $15,422 $16,860 12/31/2005 $15,525 $17,021 1/31/2006 $15,532 $17,022 2/28/2006 $15,571 $17,078 3/31/2006 $15,476 $16,910 4/30/2006 $15,473 $16,880 5/31/2006 $15,465 $16,862 6/30/2006 $15,505 $16,898
6/30/97 = $9,550 THE FUND'S GROWTH OF AN ASSUMED $10,000 INVESTMENT IS ADJUSTED FOR THE MAXIMUM SALES CHARGE OF 4.50%. UBS U.S. BOND FUND CLASS Y VS. LEHMAN BROTHERS US AGGREGATE BOND INDEX Wealth value with dividends reinvested [CHART]
LEHMAN BROTHERS UBS U.S. BOND US AGGREGATE FUND CLASS Y BOND INDEX ------------- --------------- 8/31/1995 $10,000,000 $10,000,000 9/30/1995 $10,090,000 $10,097,000 10/31/1995 $10,240,000 $10,228,260 11/30/1995 $10,400,000 $10,381,685 12/31/1995 $10,549,321 $10,527,027 1/31/1996 $10,610,714 $10,596,507 2/29/1996 $10,385,607 $10,412,127 3/31/1996 $10,313,982 $10,339,242 4/30/1996 $10,232,125 $10,281,343 5/31/1996 $10,201,429 $10,260,779 6/30/1996 $10,359,970 $10,398,685 7/31/1996 $10,391,269 $10,426,761 8/31/1996 $10,328,671 $10,409,035 9/30/1996 $10,547,764 $10,590,569 10/31/1996 $10,819,023 $10,826,103 11/30/1996 $11,090,281 $11,011,230 12/31/1996 $10,921,688 $10,908,825 1/31/1997 $10,943,379 $10,942,643 2/28/1997 $10,965,071 $10,969,999 3/31/1997 $10,813,230 $10,848,232 4/30/1997 $10,986,762 $11,010,522 5/31/1997 $11,095,220 $11,114,681 6/30/1997 $11,235,583 $11,246,501 7/31/1997 $11,586,695 $11,550,112 8/31/1997 $11,487,944 $11,451,937 9/30/1997 $11,641,556 $11,620,967 10/31/1997 $11,806,140 $11,789,005 11/30/1997 $11,839,056 $11,842,764 12/31/1997 $11,974,576 $11,961,902 1/31/1998 $12,113,412 $12,115,014 2/28/1998 $12,113,412 $12,105,322 3/31/1998 $12,148,120 $12,146,480 4/30/1998 $12,205,969 $12,209,642 5/31/1998 $12,321,665 $12,325,634 6/30/1998 $12,426,142 $12,430,401 7/31/1998 $12,437,887 $12,456,506 8/31/1998 $12,649,296 $12,659,546 9/30/1998 $12,872,450 $12,955,779 10/31/1998 $12,825,470 $12,887,115 11/30/1998 $12,919,430 $12,960,571 12/31/1998 $12,976,745 $12,999,452 1/31/1999 $13,086,717 $13,091,749 2/28/1999 $12,866,773 $12,862,643 3/31/1999 $12,952,307 $12,933,388 4/30/1999 $12,988,964 $12,974,775 5/31/1999 $12,854,553 $12,860,597 6/30/1999 $12,795,278 $12,819,443 7/31/1999 $12,733,045 $12,765,601 8/31/1999 $12,695,704 $12,759,218 9/30/1999 $12,857,512 $12,907,225 10/31/1999 $12,869,959 $12,954,981 11/30/1999 $12,894,853 $12,953,687 12/31/1999 $12,841,693 $12,891,509 1/31/2000 $12,789,063 $12,848,966 2/29/2000 $12,933,795 $13,004,439 3/31/2000 $13,091,685 $13,176,098 4/30/2000 $13,012,740 $13,137,887 5/31/2000 $12,960,110 $13,131,317 6/30/2000 $13,273,374 $13,404,449 7/31/2000 $13,379,561 $13,526,430 8/31/2000 $13,565,388 $13,722,563 9/30/2000 $13,658,301 $13,809,015 10/31/2000 $13,711,395 $13,900,269 11/30/2000 $13,976,862 $14,127,614 12/31/2000 $14,230,758 $14,389,737 1/31/2001 $14,456,419 $14,624,952 2/28/2001 $14,597,458 $14,752,379 3/31/2001 $14,682,081 $14,826,407 4/30/2001 $14,569,250 $14,764,863 5/31/2001 $14,653,873 $14,854,052 6/30/2001 $14,715,301 $14,910,097 7/31/2001 $15,099,178 $15,243,441 8/31/2001 $15,255,573 $15,418,101 9/30/2001 $15,454,621 $15,597,675 10/31/2001 $15,765,326 $15,924,134 11/30/2001 $15,523,897 $15,704,556 12/31/2001 $15,428,880 $15,604,723 1/31/2002 $15,558,488 $15,731,059 2/28/2002 $15,710,601 $15,883,492 3/31/2002 $15,420,453 $15,619,318 4/30/2002 $15,750,181 $15,922,227 5/31/2002 $15,882,081 $16,057,487 6/30/2002 $15,981,037 $16,196,400 7/31/2002 $16,110,537 $16,391,761 8/31/2002 $16,391,237 $16,668,487 9/30/2002 $16,601,110 $16,938,499 10/31/2002 $16,530,959 $16,861,277 11/30/2002 $16,546,858 $16,856,825 12/31/2002 $16,866,105 $17,204,986 1/31/2003 $16,880,108 $17,219,697 2/28/2003 $17,083,723 $17,458,069 3/31/2003 $17,081,414 $17,444,573 4/30/2003 $17,236,963 $17,588,561 5/31/2003 $17,520,885 $17,916,499 6/30/2003 $17,486,691 $17,880,918 7/31/2003 $16,907,092 $17,279,761 8/31/2003 $17,037,726 $17,394,448 9/30/2003 $17,493,318 $17,854,861 10/31/2003 $17,317,382 $17,688,454 11/30/2003 $17,386,427 $17,730,746 12/31/2003 $17,528,339 $17,911,174 1/31/2004 $17,674,851 $18,055,306 2/29/2004 $17,850,634 $18,250,663 3/31/2004 $17,978,681 $18,387,471 4/30/2004 $17,550,623 $17,908,992 5/31/2004 $17,471,520 $17,837,302 6/30/2004 $17,557,552 $17,938,084 7/31/2004 $17,724,157 $18,115,903 8/31/2004 $18,041,394 $18,461,501 9/30/2004 $18,110,155 $18,511,549 10/31/2004 $18,244,889 $18,666,770 11/30/2004 $18,108,839 $18,517,883 12/31/2004 $18,247,955 $18,688,303 1/31/2005 $18,326,282 $18,805,573 2/28/2005 $18,264,918 $18,694,656 3/31/2005 $18,188,000 $18,598,547 4/30/2005 $18,367,313 $18,850,242 5/31/2005 $18,521,979 $19,054,183 6/30/2005 $18,603,000 $19,158,086 7/31/2005 $18,494,052 $18,983,824 8/31/2005 $18,668,589 $19,227,177 9/30/2005 $18,527,854 $19,028,964 10/31/2005 $18,444,929 $18,878,426 11/30/2005 $18,502,849 $18,961,962 12/31/2005 $18,649,000 $19,142,170 1/31/2006 $18,661,364 $19,143,252 2/28/2006 $18,693,821 $19,206,799 3/31/2006 $18,601,119 $19,018,324 4/30/2006 $18,601,657 $18,983,845 5/31/2006 $18,595,831 $18,963,591 6/30/2006 $18,629,422 $19,003,790
8/31/95 = $10,000,000 PAST PERFORMANCE DOES NOT PREDICT FUTURE PERFORMANCE, AND THE PERFORMANCE INFORMATION PROVIDED DOES NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PERFORMANCE RESULTS ASSUME REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS AT NET ASSET VALUE ON THE EX-DIVIDEND DATES. 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. -------------------------------------------------------------------------------- 130 UBS U.S. BOND FUND -------------------------------------------------------------------------------- EXPLANATION OF EXPENSE DISCLOSURE (UNAUDITED) As a shareholder of the Fund, you incur two types of costs: (1) transactional costs (as applicable); including sales charges (loads); 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, January 1, 2006 to June 30, 2006. 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.
EXPENSES PAID BEGINNING ENDING DURING PERIOD* EXPENSE ACCOUNT VALUE ACCOUNT VALUE 01/01/06 TO RATIO JANUARY 1, 2006 JUNE 30, 2006 06/30/06 DURING PERIOD --------------------------------------------------------------------------------------------------------------- Class A Actual $1,000.00 $ 998.70 $4.21 0.85% Hypothetical (5% annual return before expenses) 1,000.00 1,020.58 4.26 0.85% Class B Actual 1,000.00 994.00 7.91 1.60% Hypothetical (5% annual return before expenses) 1,000.00 1,016.86 8.00 1.60% Class C Actual 1,000.00 995.30 6.68 1.35% Hypothetical (5% annual return before expenses) 1,000.00 1,018.10 6.76 1.35% Class Y Actual 1,000.00 999.00 2.97 0.60% Hypothetical (5% annual return before expenses) 1,000.00 1,021.82 3.01 0.60%
* EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED NET EXPENSE RATIOS, MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 181 DIVIDED BY 365 (TO REFLECT THE ONE-HALF YEAR PERIOD). -------------------------------------------------------------------------------- 131 UBS U.S. BOND FUND -------------------------------------------------------------------------------- TOP TEN FIXED INCOME HOLDINGS AS OF JUNE 30, 2006 (UNAUDITED) PERCENTAGE OF NET ASSETS -------------------------------------------------------------------------------- US Treasury Note 4.500%, due 11/15/15 6.7% US Treasury Bond 8.500%, due 02/15/20 2.4 US Treasury Bond 8.875%, due 02/15/19 2.4 US Treasury Bond 8.750%, due 05/15/17 2.2 US Treasury Note 4.750%, due 03/31/11 2.1 Federal National Mortgage Association 5.500%, due 03/15/11 2.0 US Treasury Bond 6.250%, due 08/15/23 1.9 Ford Motor Credit Co. 5.800%, due 01/12/09 1.8 US Treasury Inflation Indexed Bonds (TIPS) 2.000%, due 07/15/14 1.7 Federal National Mortgage Association 5.000%, TBA 1.6 -------------------------------------------------------------------------------- Total 24.8% INDUSTRY DIVERSIFICATION AS A PERCENT OF NET ASSETS AS OF JUNE 30, 2006 (UNAUDITED) -------------------------------------------------------------------------------- Bonds US Bonds US Corporate Bonds Aerospace & Defense 0.09% Automobiles 0.37 Beverages 0.25 Capital Markets 0.88 Chemicals 0.15 Commercial Banks 1.57 Commercial Services & Supplies 0.21 Consumer Finance 1.24 Diversified Financial Services 3.87 Diversified Telecommunication Services 0.71 Electric Utilities 0.59 Food & Staples Retailing 0.10 Food Products 0.30 Gas Utilities 0.08 Insurance 0.30 IT Services 0.11 Media 0.36 Multi-Utilities & Unregulated Power 0.08 Oil & Gas 0.51 Personal Products 0.11 Pharmaceuticals 0.20 Real Estate 0.20 Road & Rail 0.31 Thrifts & Mortgage Finance 0.56% Wireless Telecommunication Services 0.11 ------ Total US Corporate Bonds 13.26 Asset-Backed Securities 3.67 Commercial Mortgage-Backed Securities 5.69 Mortgage & Agency Debt Securities 37.69 US Government Obligations 20.64 ------ Total US Bonds 80.95* International Bonds International Corporate Bonds Aerospace & Defense 0.08 Commercial Banks 0.14 Diversified Telecommunication Services 0.14 ------ Total International Corporate Bonds 0.36 Sovereign/SupraNational Bond 0.07 ------ Total International Bonds 0.43 Total Bonds 81.38 Investment Companies 15.93 Short-Term Investments 5.78 Options Purchased 0.09 ------ Total Investments 103.18 Liabilities, in excess of cash and other assets (3.18) ------ Net Assets 100.00% ====== -------------------------------------------------------------------------------- * THE FUND HELD A LONG POSITION IN US TREASURY FUTURES WHICH INCREASED THE FUND'S US BOND EXPOSURE FROM 80.95% TO 80.96%. -------------------------------------------------------------------------------- 132 UBS U.S. BOND FUND--SCHEDULE OF INVESTMENTS June 30, 2006 -------------------------------------------------------------------------------- FACE AMOUNT VALUE ---------- ---------- BONDS--81.38% US BONDS--80.95% US CORPORATE BONDS--13.26% Allstate Corp. 7.200%, due 12/01/09 $ 100,000 $ 104,650 American General Finance Corp. 5.375%, due 10/01/12 180,000 175,130 AT&T Corp. 8.000%, due 11/15/31 175,000 200,918 AT&T Wireless 8.750%, due 03/01/31 130,000 159,383 AvalonBay Communities, Inc. REIT 7.500%, due 08/01/09 95,000 99,557 Avon Products, Inc. 7.150%, due 11/15/09 150,000 156,640 Bank of America Corp. 7.400%, due 01/15/11 440,000 468,167 Bank One Corp. 7.875%, due 08/01/10 345,000 371,233 BellSouth Corp. 6.550%, due 06/15/34 125,000 119,027 Boeing Capital Corp. 7.375%, due 09/27/10 150,000 159,372 Bristol-Myers Squibb Co. 5.750%, due 10/01/11 110,000 109,707 Burlington Northern Santa Fe Corp. 7.082%, due 05/13/29 200,000 216,998 C.S. First Boston USA, Inc. 3.875%, due 01/15/09 105,000 100,722 6.500%, due 01/15/12 180,000 185,733 Capital One Financial Corp. 5.500%, due 06/01/15 170,000 160,780 Cendant Corp. 6.250%, due 01/15/08 180,000 181,617 Citigroup, Inc. 5.625%, due 08/27/12 975,000 963,321 Comcast Cable Communications, Inc 6.750%, due 01/30/11 425,000 438,570 Computer Sciences Corp. 3.500%, due 04/15/08 165,000 158,486 ConAgra Foods, Inc. 6.750%, due 09/15/11 100,000 103,077 Coors Brewing Co. 6.375%, due 05/15/12 135,000 137,382 Countrywide Home Loans, Inc. 3.250%, due 05/21/08 215,000 205,709 DaimlerChrysler N.A. Holding Corp. 4.050%, due 06/04/08 530,000 512,434 Devon Financing Corp. ULC 6.875%, due 09/30/11 260,000 270,322 Dominion Resources, Inc. 5.950%, due 06/15/35 130,000 116,555 EOP Operating LP 7.250%, due 06/15/28 165,000 168,647 Erac USA Finance Co., 144A 8.000%, due 01/15/11 200,000 216,083 FirstEnergy Corp., Series B 6.450%, due 11/15/11 $ 105,000 $ 106,840 First Union National 7.800%, due 08/18/10 345,000 369,238 Ford Motor Credit Co. 5.800%, due 01/12/09 2,695,000 2,462,066 General Electric Capital Corp. 6.000%, due 06/15/12 1,145,000 1,158,153 6.750%, due 03/15/32 140,000 149,439 General Motors Acceptance Corp. 6.875%, due 09/15/11 510,000 486,622 Goldman Sachs Group, Inc. 6.875%, due 01/15/11 500,000 519,542 HSBC Bank USA N.A 5.625%, due 08/15/35 265,000 233,911 HSBC Finance Corp. 6.750%, due 05/15/11 295,000 306,016 ICI Wilmington, Inc. 4.375%, due 12/01/08 220,000 212,315 International Lease Finance Corp. 3.500%, due 04/01/09 300,000 283,081 John Deere Capital Corp. 7.000%, due 03/15/12 145,000 153,083 JPMorgan Chase & Co. 6.750%, due 02/01/11 225,000 233,863 Kinder Morgan Energy Partners LP 5.800%, due 03/15/35 145,000 123,736 Kraft Foods, Inc. 5.625%, due 11/01/11 320,000 315,192 Lockheed Martin Corp. 8.500%, due 12/01/29 100,000 125,864 Marathon Oil Corp. 6.125%, due 03/15/12 120,000 121,087 Marsh & McLennan Cos., Inc. 6.250%, due 03/15/12 170,000 169,796 MBNA Corp. 7.500%, due 03/15/12 125,000 135,214 Metlife, Inc. 5.000%, due 11/24/13 145,000 136,411 Miller Brewing Co., 144A 5.500%, due 08/15/13 225,000 215,883 Morgan Stanley 6.750%, due 04/15/11 680,000 705,994 News America, Inc. 6.200%, due 12/15/34 65,000 58,987 Pacific Gas & Electric Co. 6.050%, due 03/01/34 130,000 122,696 PPL Energy Supply LLC, 6.400%, due 11/01/11 200,000 202,578 Progress Energy, Inc. 7.000%, due 10/30/31 145,000 149,190 Qwest Capital Funding, Inc. 7.900%, due 08/15/10 360,000 358,200 Safeway, Inc. 7.250%, due 02/01/31 130,000 131,938 -------------------------------------------------------------------------------- 133 UBS U.S. BOND FUND--SCHEDULE OF INVESTMENTS June 30, 2006 -------------------------------------------------------------------------------- FACE AMOUNT VALUE ---------- ----------- Sempra Energy 7.950%, due 03/01/10 $ 100,000 $ 106,502 Sprint Capital Corp. 8.750%, due 03/15/32 200,000 241,180 TXU Energy Co. LLC 7.000%, due 03/15/13 130,000 132,696 US Bank N.A 6.375%, due 08/01/11 240,000 246,996 Valero Energy Corp. 7.500%, due 04/15/32 185,000 200,856 Verizon New York, Inc., Series B 7.375%, due 04/01/32 70,000 69,005 Washington Mutual, Inc. 5.625%, due 01/15/07 575,000 574,503 Waste Management, Inc. 7.375%, due 08/01/10 100,000 105,483 Wells Fargo Bank N.A 6.450%, due 02/01/11 480,000 494,249 Wyeth 5.500%, due 03/15/13 170,000 165,499 Xcel Energy, Inc. 7.000%, due 12/01/10 100,000 104,164 ----------- 18,448,288 ----------- ASSET-BACKED SECURITIES --3.67% Abacus Ltd., 06-10A, Class H, 144A+ 6.841%, due 10/30/45 1,000,000 1,005,000 CenterPoint Energy Transition Bond Co., LLC 01-1, Class A4 5.630%, due 09/15/15 310,000 309,237 Conseco Finance Corp., 01-D, Class M2+ 6.949%, due 11/15/32 608,630 596,127 Conseco Finance Securitizations Corp., 00-2, Class A4 8.480%, due 12/01/30 103,083 103,523 Countrywide Asset-Backed Certificates, 03-SD3, Class A1, 144A++ 5.743%, due 12/25/32 23,840 23,923 Countrywide Asset-Backed Certificates, 04-SD1, Class A1, 144A++ 5.663%, due 06/25/33 121,900 122,330 Green Tree Financial Corp., 94-5, Class A5 8.300%, due 11/15/19 114,454 118,365 Green Tree Financial Corp., 99-3, Class A5 6.160%, due 02/01/31 211,486 211,442 GSAMP Trust, 06-S3, ClassA2++ 5.769%, due 05/25/36 1,450,000 1,440,126 Providian Gateway Master Trust, 04-AA, Class C, 144A+ 6.099%, due 03/15/11 190,000 191,128 Providian Gateway Master Trust, 04-AA, Class D, 144A+ 7.049%, due 03/15/11 220,000 222,509 Structured Asset Securities Corp., 03-AL2, Class A, 144A 3.357%, due 01/25/31 $ 208,061 $ 185,829 WFS Financial Owner Trust, 03-2, Class B,2.480%, due 12/20/10 584,043 578,640 ----------- 5,108,179 ----------- COMMERCIAL MORTGAGE-BACKED SECURITIES --5.69% Bear Stearns Commercial Mortgage Securities, 00-WF1, Class A2 7.780%, due 02/15/32 1,215,000 1,285,113 Bear Stearns Commercial Mortgage Securities, 00-WF2, Class A2 7.320%, due 10/15/32 200,000 210,491 Commercial Mortgage Pass-Through Certificates, 01-FL5A, Class E, 144A+ 6.699%, due 11/15/13 97,417 97,417 Commercial Mortgage Pass-Through Certificates, 01-FL5A, Class F, 144A+ 5.862%, due 11/15/13 240,000 240,000 DLJ Commercial Mortgage Corp., 00-CKP1, Class A1B 7.180%, due 11/10/33 848,373 886,915 First Union Commercial Mortgage Securities, Inc., 97-C2, Class A3 6.650%, due 11/18/29 267,943 269,749 Heller Financial Commercial Mortgage Assets, 99-PH1, Class A1 6.500%, due 05/15/31 15,117 15,094 Host Marriott Pool Trust, 99-HMTA, Class A, 144A 6.980%, due 08/03/15 180,024 183,598 Host Marriott Pool Trust, 99-HMTA, Class C, 144A 7.730%, due 08/03/15 360,000 379,767 Host Marriott Pool Trust, 99-HMTA, Class D, 144A 7.970%, due 08/03/15 220,000 233,228 Host Marriott Pool Trust, 99-HMTA, Class E, 144A 8.070%, due 08/03/15 220,000 233,570 LB Commercial Conduit Mortgage Trust, 99-C1, Class A1 6.410%, due 06/15/31 43,539 43,543 Mach One Trust Commercial Mortgage-Backed Securities, 04-1A, Class A1, 144A 3.890%, due 05/28/40 812,554 792,081 Morgan Stanley Dean Witter Capital I, 00-LIF2, Class A1 6.960%, due 10/15/33 63,506 64,062 PNC Mortgage Acceptance Corp., 00-C1, Class A2 7.610%, due 02/15/10 922,921 967,643 -------------------------------------------------------------------------------- 134 UBS U.S. BOND FUND--SCHEDULE OF INVESTMENTS June 30, 2006 -------------------------------------------------------------------------------- FACE AMOUNT VALUE ---------- ---------- Prudential Mortgage Capital Funding LLC, 01-ROCK, Class A2 6.605%, due 05/10/34 $ 115,000 $ 118,895 Salomon Brothers Mortgage Securities VII, 00-C1, Class A2 7.520%, due 12/18/09 1,250,000 1,314,185 TIAA Retail Commercial Trust, 01-C1A, Class A2, 144A 6.300%, due 06/19/21 581,861 585,896 ---------- 7,921,247 ---------- MORTGAGE & AGENCY DEBT SECURITIES --37.69% Banc of America Commercial Mortgage, Inc., 02-PB2, Class C 6.349%, due 06/11/35 745,000 763,376 C.S. First Boston Mortgage Securities Corp., 02-10, Class 2A1 7.500%, due 05/25/32 155,579 157,419 C.S. First Boston Mortgage Securities Corp., 03-8, Class 5A1 6.500%, due 04/25/33 203,051 202,843 C.S. First Boston Mortgage Securities Corp., 05-11, Class 1A1 6.500%, due 12/25/35 1,232,935 1,230,623 C.S. First Boston Mortgage Securities Corp., 05-12, Class 1A1 6.500%, due 01/25/36 1,350,085 1,348,065 C.S. First Boston Mortgage Securities Corp., 05-9, Class 3A1 6.000%, due 10/25/35 1,156,842 1,142,157 Countrywide Alternative Loan Trust, 04-J8, Class 2A1 7.000%, due 08/25/34 287,540 289,186 Countrywide Home Loan Mortgage Pass Through Trust, 06-HYB1, Class 1A1+ 5.410%, due 03/20/36 1,220,084 1,201,383 Credit Suisse Mortgage Capital Certificates, 06-2, Class 3A1 6.500%, due 03/25/36 1,355,163 1,351,579 Federal Home Loan Mortgage Corp. 5.625%, due 06/13/16 815,000 804,963 5.750%, due 06/27/16 815,000 815,011 Federal Home Loan Mortgage Corp. 1595, Class D 7.000%, due 10/15/13 162,013 163,714 Federal Home Loan Mortgage Corp., REMIC, 2148, Class ZA 6.000%, due 04/15/29 618,551 604,989 Federal Home Loan Mortgage Corp. 2297, Class NB 6.000%, due 03/15/16 460,000 463,099 Federal Home Loan Mortgage Corp., REMIC, 2426, Class GH 6.000%, due 08/15/30 291,543 292,068 Federal Home Loan Mortgage Corp., 2532, Class PD 5.500%, due 06/15/26 $ 416,141 $ 414,718 Federal Home Loan Mortgage Corp., Gold 5.500%, due 09/01/17 249,592 245,320 5.500%, due 01/01/18 431,803 424,413 5.500%, due 04/01/18 382,780 376,051 6.000%, due 12/01/17 340,504 341,072 6.000%, due 10/01/29 312,321 308,974 6.000%, due 01/01/32 1,110,612 1,098,262 6.500%, due 06/01/29 61,213 61,883 6.500%, due 09/01/29 161,576 163,325 6.500%, due 11/01/29 394,213 398,430 6.500%, due 03/01/32 58,642 59,213 6.500%, due 11/01/32 58,564 59,115 7.000%, due 07/01/32 916,888 939,607 Federal National Mortgage Association 5.000%, TBA 2,310,000 2,159,129 3.272%, due 09/01/33+ 44,123 43,752 3.875%, due 07/15/08 785,000 761,224 4.228%, due 03/01/34+ 376,750 365,233 4.625%, due 06/01/10 1,335,000 1,289,400 5.200%, due 11/08/10 1,555,000 1,528,815 5.500%, due 03/15/11 (a) 2,770,000 2,771,554 5.500%, due 12/01/17 1,153,167 1,134,081 5.500%, due 01/01/24 1,329,182 1,294,080 5.500%, due 02/01/24 1,169,087 1,136,404 5.500%, due 09/01/24 330,892 320,215 5.500%, due 03/01/33 1,269,639 1,224,903 5.500%, due 11/01/34 985,038 948,643 5.671%, due 01/01/36+ 1,396,638 1,387,205 6.000%, due 06/01/16 997,730 1,001,349 6.000%, due 07/01/17 133,821 134,306 6.000%, due 06/01/23 223,036 222,042 6.000%, due 03/01/28 70,348 69,583 6.000%, due 03/01/29 78,870 78,013 6.000%, due 05/01/29 70,518 69,751 6.000%, due 07/01/29 251,061 248,307 6.000%, due 06/01/31 52,327 51,758 6.000%, due 01/01/33 501,428 495,386 6.000%, due 06/01/33 90,926 89,772 6.250%, due 02/01/11 1,370,000 1,403,128 6.500%, due 05/01/28 1,022,133 1,032,617 6.500%, due 08/01/29 456,251 460,895 6.500%, due 12/01/29 674,038 681,125 6.625%, due 09/15/09 1,260,000 1,302,648 7.000%, due 03/01/31 20,488 21,013 7.000%, due 11/01/31 104,477 107,048 7.000%, due 04/01/32 266,010 272,514 Federal National Mortgage Association Grantor Trust, 00-T6, Class A1 7.500%, due 06/25/30 494,718 502,998 -------------------------------------------------------------------------------- 135 UBS U.S. BOND FUND--SCHEDULE OF INVESTMENTS June 30, 2006 -------------------------------------------------------------------------------- FACE AMOUNT VALUE ---------- ------------ Federal National Mortgage Association Grantor Trust, 01-T5, Class A3+ 7.500%, due 06/19/30 $ 63,559 $ 65,257 Federal National Mortgage Association Grantor Trust, REMIC, 01-T10, Class A2 7.500%, due 12/25/41 52,161 53,559 Federal National Mortgage Association Whole Loan, 95-W3, Class A, 9.000%, due 04/25/25 6,456 6,944 Federal National Mortgage Association Whole Loan, REMIC, 03-W6, Class 6A+ 5.358%, due 08/25/42 209,632 213,899 Federal National Mortgage Association Whole Loan, 04-W12, Class 1A3 7.000%, due 07/25/44 589,327 597,207 Federal National Mortgage Association Whole Loan, REMIC, 04-W15, Class 1A3 7.000%, due 08/25/44 583,009 591,980 First Horizon Alternative Mortgage Securities, 04-AA3, Class A1+ 5.318%, due 09/25/34 639,184 629,346 First Horizon Asset Securities, Inc., 04-FL1, Class 1A1+ 5.593%, due 02/25/35 233,581 233,778 Government National Mortgage Association 5.125%, due 10/20/29+ 162,140 163,115 6.000%, due 12/20/28 87,158 86,504 6.000%, due 05/20/29 405,727 402,457 6.000%, due 07/15/29 269,496 267,998 6.000%, due 08/20/29 314,585 312,050 6.500%, due 10/15/24 320,989 325,654 6.500%, due 08/15/27 1,384 1,405 7.000%, due 07/15/25 7,431 7,671 7.000%, due 07/15/31 76,208 78,626 8.500%, due 12/15/17 170,718 182,553 GSMPS Mortgage Loan Trust, 01-2, Class A, 144A 7.500%, due 06/19/32 139,170 142,709 GSR Mortgage Loan Trust, 05-4F, Class 3A1 6.500%, due 04/25/20 921,046 930,632 Indymac Index Mortgage Loan Trust, 05-AR3, Class B1+ 5.446%, due 04/25/35 1,422,832 1,408,674 Indymac Index Mortgage Loan Trust, 05-AR7, Class 7A1+ 5.393%, due 06/25/35 1,339,625 1,321,702 MLCC Mortgage Investors, Inc., 03-D, Class XA1 (b)(c)+ 1.000%, due 08/25/28 5,295,189 40,955 Morgan Stanley Mortgage Loan Trust, 04-4, Class 2A+ 6.445%, due 09/25/34 $ 555,796 $ 555,796 Morgan Stanley Mortgage Loan Trust, 06-1AR, Class 2A+ 6.047%, due 02/25/36 1,441,084 1,441,616 Residential Asset Securitization Trust, 04-IP2, Class B1+ 5.439%, due 12/25/34 1,199,393 1,173,906 Structured Adjustable Rate Mortgage Loan Trust, 04-3AC, Class A1+ 4.940%, due 03/25/34 396,210 389,778 Structured Asset Securities Corp., 04-20, Class 4A1 6.000%, due 11/25/34 509,456 489,073 ------------ 52,444,593 ------------ US GOVERNMENT OBLIGATIONS -- 20.64% US Treasury Bonds 6.250%, due 08/15/23 2,380,000 2,624,881 6.250%, due 05/15/30 960,000 1,087,350 8.500%, due 02/15/20 2,540,000 3,321,842 8.750%, due 05/15/17 2,335,000 3,012,696 8.875%, due 02/15/19 2,495,000 3,315,231 US Treasury Inflation Indexed Bond (TIPS) 2.000%, due 07/15/14 2,457,964 2,367,039 US Treasury Notes 3.875%, due 05/15/09 10,000 9,667 4.500%, due 11/15/15 9,810,000 9,344,025 4.625%, due 02/29/08 785,000 777,855 4.750%, due 03/31/11 2,900,000 2,856,387 ------------ 28,716,973 \ ------------ Total US Bonds 112,639,280 ------------ INTERNATIONAL BONDS -- 0.43% INTERNATIONAL CORPORATE BONDS -- 0.36% CANADA -- 0.08% Bombardier, Inc., 144A 6.300%, due 05/01/14 125,000 108,750 ------------ LUXEMBOURG -- 0.13% Telecom Italia Capital S.A. 5.250%, due 11/15/13 120,000 110,936 6.375%, due 11/15/33 85,000 76,853 ------------ 187,789 ------------ UNITED KINGDOM -- 0.15% Abbey National PLC 7.950%, due 10/26/29 105,000 125,003 Royal Bank of Scotland Group PLC (d) 9.118%, due 03/31/10 70,000 76,874 ------------ 201,877 ------------ Total International Corporate Bonds 498,416 ------------ -------------------------------------------------------------------------------- 136 UBS U.S. BOND FUND--SCHEDULE OF INVESTMENTS June 30, 2006 --------------------------------------------------------------------------------
FACE AMOUNT VALUE ---------- ------------- SOVEREIGN/SUPRANATIONAL BOND -- 0.07% Pemex Project Funding Master Trust 8.000%, due 11/15/11 $ 100,000 $ 105,750 ------------- Total International Bonds 604,166 ------------- Total Bonds (Cost $115,749,361) 113,243,446 ------------- SHARES ---------- INVESTMENT COMPANIES* -- 15.93% UBS Corporate Bond Relationship Fund 244,348 2,698,312 UBS Opportunistic High Yield Relationship Fund 642,302 8,026,848 UBS Opportunistic Emerging Markets Equity Relationship Fund 200,983 2,006,713 UBS U.S. Securitized Mortgage Relationship Fund 780,581 9,435,351 ------------- Total Investment Companies (Cost $22,126,256) 22,167,224 ------------- SHORT-TERM INVESTMENTS -- 5.78% OTHER* -- 5.64% UBS Supplementary Trust -- U.S. Cash Management Prime Fund, yield of 5.21% 7,844,306 7,844,306 ------------- FACE AMOUNT ---------- US GOVERNMENT OBLIGATIONS -- 0.14% US Treasury Bills, yield of 4.06%, due 07/06/06 (e) $ 190,000 189,936 ------------- Total Short-Term Investments (Cost $8,034,186) 8,034,242 ------------- NUMBER OF CONTRACTS ---------- OPTIONS PURCHASED (F) -- 0.09% CALL OPTIONS -- 0.02% 5 Year US Treasury Note Futures, strike @ 104, expiration September 2006 128 28,000 ------------- PUT OPTIONS -- 0.07% 5 Year US Treasury Note Futures, strike @ 104, expiration September 2006 128 100,000 ------------- Total Options Purchased (Cost $136,960) 128,000 ------------- Total Investments -- 103.18% (Cost $146,046,763) 143,572,912 Liabilities, in excess of cash and other assets -- (3.18%) (4,423,337) ------------- Net Assets -- 100.00% $ 139,149,575 =============
-------------------------------------------------------------------------------- 137 UBS U.S. BOND FUND--SCHEDULE OF INVESTMENTS June 30, 2006 -------------------------------------------------------------------------------- NOTES TO SCHEDULE OF INVESTMENTS Aggregate cost for federal income tax purposes was $146,192,226; and net unrealized depreciation consisted of: Gross unrealized appreciation $ 295,742 Gross unrealized depreciation (2,915,056) ----------- Net unrealized depreciation $(2,619,314) =========== + Floating rate securities -- The interest rates shown are the current rates as of June 30, 2006. ++ Step Bonds -- Coupon rate increases in increments to maturity. Rate disclosed is as of June 30, 2006. 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 $40,955 or 0.03% of net assets. (d) Perpetual bond security. The maturity date reflects the next call date. (e) This security was pledged to cover margin requirements for futures contracts. (f) Non-income producing security. 144A Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities are considered liquid and may be resold in transactions exempt from registration, normally to qualified institutional buyers. At June 30, 2006, the value of these securities. amounted to $5,179,701 or 3.72% of net assets. GSAMP Goldman Sachs Mortgage Securities Corp. GSMPS Goldman Sachs Mortgage Passthrough Securities GSR Goldman Sachs Residential MLCC Merrill Lynch Credit Corporation 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 ("TIPS") are debt securities issued by the US Treasury whose principal and/or interest payments are adjusted for inflation, unlike debt securities that make fixed principal and interest payments. The interest rate paid by the TIPS is fixed, while the principal value rises or falls based on changes in a published Consumer Price Index ("CPI"). Thus, if inflation occurs, the principal and interest payments on the TIPS are adjusted accordingly to protect investors from inflationary loss. During a deflationary period, the principal and interest payments decrease, although the TIPS principal amounts will not drop below their face amounts at maturity. In exchange for the inflation protection, the TIPS generally pay lower interest rates than typical US Treasury securities. Only if inflation occurs will TIPS offer a higher real yield than a conventional Treasury bond of the same maturity. * Investment in affiliated mutual fund. FUTURES CONTRACTS UBS U.S. Bond Fund had the following open futures contracts as of June 30, 2006:
EXPIRATION CURRENT UNREALIZED DATE COST VALUE APPRECIATION -------------- ---------- ---------- ------------ US TREASURY FUTURES BUY CONTRACTS: 5 Year US Treasury Notes, 49 contracts September 2006 $5,053,949 $5,066,906 $12,957 =======
The segregated aggregate market value of investments pledged to cover margin requirements for the open futures positions at June 30, 2006 was $189,936. See accompanying notes to financial statements. -------------------------------------------------------------------------------- 138 This page intentionally left blank. -------------------------------------------------------------------------------- 139 THE UBS FUNDS--FINANCIAL STATEMENTS -------------------------------------------------------------------------------- STATEMENTS OF ASSETS AND LIABILITIES JUNE 30, 2006
UBS UBS GLOBAL UBS UBS U.S. LARGE UBS DYNAMIC ALLOCATION GLOBAL EQUITY INTERNATIONAL CAP EQUITY ALPHA FUND FUND* FUND EQUITY FUND** FUND ---------------------------------------------------------------------------------------------------------------------------------- ASSETS: Investments, at cost: Unaffiliated issuers $ 306,604,983 $3,119,498,130 $ 328,622,283 $144,660,471 $556,512,837 Affiliated issuers 2,086,360,661 522,564,796 16,300,000 7,846,040 18,145,640 Investments of cash collateral received in affiliated issuers for securities loaned, at cost -- 89,260,136 -- 20,228,990 -- Foreign currency, at cost -- 9,858,135 332,594 1,785,961 -- -------------- -------------- -------------- ------------ ------------ $2,392,965,644 $3,741,181,197 $ 345,254,877 $174,521,462 $574,658,477 ============== ============== ============== ============ ============ Investments, at value: Unaffiliated issuers $ 314,375,014 $3,305,390,114 $ 406,961,441 $184,429,149 $619,860,449 Affiliated issuers 2,218,002,360 600,169,832 16,731,326 8,031,272 18,145,640 Investments of cash collateral in affiliated issuers received for securities loaned, at value -- 89,260,136 -- 20,228,990 -- Foreign currency, at value -- 10,093,036 337,284 1,807,013 -- Cash -- 10,142 2,224 2,843 -- Receivables: Investment securities sold 3,813,411 41,638,359 5,101,985 1,828,009 3,076,030 Due from Advisor -- -- -- -- -- Dividends 62,617 2,745,685 914,548 474,758 415,905 Interest 141,552 13,261,557 5,313 5,902 87,824 Fund shares sold 19,776,237 9,680,671 471,914 396,930 2,053,767 Due from broker 7,839,082 -- -- -- -- Variation margin -- -- -- -- -- Cash collateral for futures contracts 96,918,061 19,799,362 -- -- -- Unrealized appreciation on forward foreign currency contracts 15,047,004 4,782,022 942,249 392,841 -- Unrealized appreciation on swap agreements 24,316,001 -- -- -- -- Other assets 33,306 505,169 12,145 148,952 12,116 -------------- -------------- -------------- ------------ ------------ TOTAL ASSETS 2,700,324,645 4,097,336,085 431,480,429 217,746,659 643,651,731 -------------- -------------- -------------- ------------ ------------ LIABILITIES: Payables: Due to custodian bank 2,893,615 -- -- -- -- Variation margin 16,277,404 988,085 -- -- 32,000 Fund shares redeemed 6,002,335 7,146,942 867,265 20,981,450 508,450 Service and distribution fees 794,493 1,428,576 92,803 7,167 23,131 Due to broker 32,093,445 -- -- -- -- Investment advisory and administration fees 1,751,492 2,409,025 253,940 87,218 390,689 Investment securities purchased 3,815,916 64,784,221 4,197,376 1,556,803 3,424,084 Options written, at value (premiums received $3,766,496) 2,914,709 -- -- -- -- Trustees' fees 7,149 11,148 4,271 3,817 3,505 Cash collateral from securities loaned -- 89,260,136 -- 20,228,990 -- Payable for securities sold short (proceeds $21,673,406) -- -- -- -- -- Accrued expenses 546,972 2,027,711 434,544 331,364 237,667 Unrealized depreciation on forward foreign currency contracts 10,709,791 13,647,601 1,080,482 470,023 -- Unrealized depreciation on swap agreements 1,379,408 -- -- -- -- -------------- -------------- -------------- ------------ ------------ TOTAL LIABILITIES 79,186,729 181,703,445 6,930,681 43,666,832 4,619,526 -------------- -------------- -------------- ------------ ------------ NET ASSETS $2,621,137,916 $3,915,632,640 $ 424,549,748 $174,079,827 $639,032,205 ============== ============== ============== ============ ============ NET ASSETS CONSIST OF: Beneficial interest $2,513,862,135 $3,443,205,677 $1,122,423,295 $126,946,606 $568,612,972 Accumulated undistributed (distributions in excess of) net investment income (29,023,741) 53,621,431 3,906,219 2,257,631 1,871,207 Accumulated undistributed net realized gain (loss) 22,821,841 166,367,609 (780,421,394) 4,965,930 4,893,564 Net unrealized appreciation (depreciation) 113,477,681 252,437,923 78,641,628 39,909,660 63,654,462 -------------- -------------- -------------- ------------ ------------ NET ASSETS $2,621,137,916 $3,915,632,640 $ 424,549,748 $174,079,827 $639,032,205 ============== ============== ============== ============ ============
* The market value of securities loaned for the UBS Global Allocation Fund as of June 30, 2006 is $231,020,118. ** The market value of securities loaned for the UBS International Equity Fund as of June 30, 2006 is $19,621,534. -------------------------------------------------------------------------------- 140 THE UBS FUNDS--FINANCIAL STATEMENTS --------------------------------------------------------------------------------
UBS UBS UBS UBS UBS U.S. LARGE U.S. LARGE U.S. MID U.S. SMALL ABSOLUTE CAP GROWTH CAP VALUE CAP GROWTH CAP GROWTH RETURN BOND FUND EQUITY FUND EQUITY FUND FUND FUND -------------------------------------------------------------------------------------------------------------------------- ASSETS: Investments, at cost: Unaffiliated issuers $12,787,318 $107,282,736 $5,163,982 $374,655,388 $345,032,823 Affiliated issuers 139,461 903,587 60,872 10,786,995 101,828,887 Investments of cash collateral received in affiliated issuers for securities loaned, at cost -- -- -- -- -- Foreign currency, at cost -- -- -- -- 20,599,046 ----------- ------------ ---------- ------------ ------------ $12,926,779 $108,186,323 $5,224,854 $385,442,383 $467,460,756 =========== ============ ========== ============ ============ Investments, at value: Unaffiliated issuers $12,766,797 $129,955,860 $4,991,457 $422,803,753 $346,070,214 Affiliated issuers 139,461 903,587 60,872 10,786,995 102,871,362 Investments of cash collateral in affiliated issuers received for securities loaned, at value -- -- -- -- -- Foreign currency, at value -- -- -- -- 20,814,101 Cash -- -- -- -- 371 Receivables: Investment securities sold 440,950 102,279 -- 4,579,782 32,224,016 Due from Advisor 16,910 -- -- -- -- Dividends 7,080 106,944 1,117 75,221 5,184 Interest 1,330 6,875 236 70,442 5,700,071 Fund shares sold 5,732 3,038 -- 3,476,488 2,749,886 Due from broker -- -- -- -- -- Variation margin -- -- -- -- -- Cash collateral for futures contracts -- -- -- -- 1,766,154 Unrealized appreciation on forward foreign currency contracts -- -- -- -- 1,781,277 Unrealized appreciation on swap agreements -- -- -- -- -- Other assets 304 3,525 32,211 9,400 9,841 ----------- ------------ ---------- ------------ ------------ TOTAL ASSETS 13,378,564 131,082,108 5,085,893 441,802,081 513,992,477 ----------- ------------ ---------- ------------ ------------ LIABILITIES: Payables: Due to custodian bank -- -- -- -- -- Variation margin -- -- -- -- 408,154 Fund shares redeemed 625 131,923 -- 1,355,845 1,763,421 Service and distribution fees 2,365 37,772 85 41,534 37,245 Due to broker -- -- -- -- -- Investment advisory and administration fees 779 67,752 6,148 199,028 239,670 Investment securities purchased 501,022 120,444 -- 4,717,218 13,828,166 Options written, at value (premiums received $3,766,496) -- -- -- -- -- Trustees' fees 3,474 3,324 1,810 4,005 3,838 Cash collateral from securities loaned -- -- -- -- -- Payable for securities sold short (proceeds $21,673,406) -- -- -- -- 21,451,090 Accrued expenses 67,820 179,648 44,349 130,751 217,803 Unrealized depreciation on forward foreign currency contracts -- -- -- -- 233,894 Unrealized depreciation on swap agreements -- -- -- -- -- ----------- ------------ ---------- ------------ ------------ TOTAL LIABILITIES 576,085 540,863 52,392 6,448,381 38,183,281 ----------- ------------ ---------- ------------ ------------ NET ASSETS $12,802,479 $130,541,245 $5,033,501 $435,353,700 $475,809,196 =========== ============ ========== ============ ============ NET ASSETS CONSIST OF: Beneficial interest $15,222,819 $102,485,477 $5,232,607 $376,852,664 $469,637,789 Accumulated undistributed (distributions in excess of) net investment income (1) 495,766 3,189 -- (2,424,803) Accumulated undistributed net realized gain (loss) (2,399,818) 4,886,878 (29,770) 10,352,671 2,936,733 Net unrealized appreciation (depreciation) (20,521) 22,673,124 (172,525) 48,148,365 5,659,477 ----------- ------------ ---------- ------------ ------------ NET ASSETS $12,802,479 $130,541,245 $5,033,501 $435,353,700 $475,809,196 =========== ============ ========== ============ ============ UBS UBS UBS GLOBAL BOND HIGH YIELD U.S. BOND FUND FUND FUND ----------------------------------------------------------------------------------------------- ASSETS: Investments, at cost: Unaffiliated issuers $77,584,631 $ 99,263,720 $116,076,201 Affiliated issuers 18,338,570 982,605 29,970,562 Investments of cash collateral received in affiliated issuers for securities loaned, at cost -- -- -- Foreign currency, at cost 1,030,089 -- -- ----------- ------------- ------------ $96,953,290 $ 100,246,325 $146,046,763 =========== ============= ============ Investments, at value: Unaffiliated issuers $77,873,828 $ 97,133,459 $113,561,382 Affiliated issuers 18,914,630 982,605 30,011,530 Investments of cash collateral in affiliated issuers received for securities loaned, at value -- -- -- Foreign currency, at value 1,015,729 -- -- Cash 21,067 4,069 7,471 Receivables: Investment securities sold -- -- 17,519,134 Due from Advisor -- -- 2,811 Dividends -- -- -- Interest 1,484,338 2,006,665 1,180,260 Fund shares sold 256,022 45,580 298,556 Due from broker -- -- -- Variation margin -- -- 15,866 Cash collateral for futures contracts -- -- -- Unrealized appreciation on forward foreign currency contracts 224,735 -- -- Unrealized appreciation on swap agreements -- -- 112,501 Other assets 1,838 2,917 647 ----------- ------------- ------------ TOTAL ASSETS 99,792,187 100,175,295 162,710,158 ----------- ------------- ------------ LIABILITIES: Payables: Due to custodian bank -- -- -- Variation margin -- -- -- Fund shares redeemed 176,717 269,220 71,749 Service and distribution fees 5,091 20,770 8,083 Due to broker -- -- -- Investment advisory and administration fees 38,855 46,724 28,290 Investment securities purchased 3,815,916 -- 814,575 23,210,400 Options written, at value (premiums received $3,766,496) -- -- -- Trustees' fees 5,422 3,666 4,071 Cash collateral from securities loaned -- -- -- Payable for securities sold short (proceeds $21,673,406) -- -- -- Accrued expenses 112,801 209,815 130,057 Unrealized depreciation on forward foreign currency contracts 525,601 -- -- Unrealized depreciation on swap agreements -- -- 107,933 ----------- ------------- ------------ TOTAL LIABILITIES 864,487 1,364,770 23,560,583 ----------- ------------- ------------ NET ASSETS $98,927,700 $ 98,810,525 $139,149,575 =========== ============= ============ NET ASSETS CONSIST OF: Beneficial interest $99,399,771 $ 339,265,237 $145,175,309 Accumulated undistributed (distributions in excess of) net investment income (532,682) 169,574 48,987 Accumulated undistributed net realized gain (loss) (526,446) (238,494,024) (3,618,395) Net unrealized appreciation (depreciation) 587,057 (2,130,262) (2,456,326) ----------- ------------- ------------ NET ASSETS $98,927,700 $ 98,810,525 $139,149,575 =========== ============= ============
-------------------------------------------------------------------------------- See accompanying notes to financial statements. 141 THE UBS FUNDS--FINANCIAL STATEMENTS -------------------------------------------------------------------------------- STATEMENTS OF ASSETS AND LIABILITIES (CONT'D) NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE: JUNE 30, 2006
UBS UBS GLOBAL UBS UBS UBS DYNAMIC ALPHA ALLOCATION GLOBAL INTERNATIONAL U.S. LARGE CAP FUND FUND EQUITY FUND EQUITY FUND EQUITY FUND ------------------------------------------------------------------------------------------------------------------- CLASS A: Net assets $1,777,328,877 $2,246,289,198 $173,052,063 $ 23,538,838 $ 88,967,648 Shares outstanding 160,975,013 162,042,031 13,326,449 2,144,654 4,878,669 Net asset value per share $ 11.04 $ 13.86 $ 12.99 $ 10.98 $ 18.24 Offering price per share (NAV per share plus maximum sales charge)(a) $ 11.68 $ 14.67 $ 13.75 $ 11.62 $ 19.30 Redemption proceeds per share (a) $ 11.04 $ 13.86 $ 12.99 $ 10.98 $ 18.24 CLASS B: Net assets $ 30,050,841 $ 161,704,445 $ 13,671,816 $ 732,234 $ 988,983 Shares outstanding 2,737,928 11,886,758 1,077,443 67,659 55,442 Net asset value per share $ 10.98 $ 13.60 $ 12.69 $ 10.82 $ 17.84 Offering price per share $ 10.98 $ 13.60 $ 12.69 $ 10.82 $ 17.84 Redemption proceeds per share (NAV per share less maximum contingent deferred sales charge) (a) $ 10.43 $ 12.92 $ 12.06 $ 10.28 $ 16.95 CLASS C: Net assets $ 520,753,772 $1,044,517,311 $ 56,835,637 $ 2,411,572 $ 5,976,790 Shares outstanding 47,465,646 76,903,959 4,491,733 224,163 335,166 Net asset value per share $ 10.97 $ 13.58 $ 12.65 $ 10.76 $ 17.83 Offering price per share $ 10.97 $ 13.58 $ 12.65 $ 10.76 $ 17.83 Redemption proceeds per share (NAV per share less maximum contingent deferred sales charge) (a) $ 10.86 $ 13.44 $ 12.52 $ 10.65 $ 17.65 CLASS Y: Net assets $ 293,004,425 $ 463,121,686 $180,990,232 $147,397,183 $543,098,784 Shares outstanding 26,469,960 32,936,914 13,684,339 13,345,417 29,474,220 Net asset value per share $ 11.07 $ 14.06 $ 13.23 $ 11.04 $ 18.43 Offering price per share $ 11.07 $ 14.06 $ 13.23 $ 11.04 $ 18.43 Redemption proceeds per share $ 11.07 $ 14.06 $ 13.23 $ 11.04 $ 18.43
-------------------------------------------------------------------------------- 142 THE UBS FUNDS--FINANCIAL STATEMENTS --------------------------------------------------------------------------------
UBS UBS UBS U.S. U.S. LARGE CAP U.S. MID CAP UBS U.S. LARGE CAP VALUE EQUITY GROWTH EQUITY SMALL CAP GROWTH FUND FUND FUND(b) GROWTH FUND ----------------------------------------------------------------------------------------------- CLASS A: Net assets $6,802,583 $105,709,221 $ 161,513 $151,731,171 Shares outstanding 772,325 10,028,104 16,817 10,529,166 Net asset value per share $ 8.81 $ 10.54 $ 9.60 $ 14.41 Offering price per share (NAV per share plus maximum sales charge)(a) $ 9.32 $ 11.15 $ 10.16 $ 15.25 Redemption proceeds per share (a) $ 8.81 $ 10.54 $ 9.60 $ 14.41 CLASS B: Net assets $ 388,764 $ 1,977,802 N/A $ 5,597,681 Shares outstanding 45,619 190,408 N/A 402,542 Net asset value per share $ 8.52 $ 10.39 N/A $ 13.91 Offering price per share $ 8.52 $ 10.39 N/A $ 13.91 Redemption proceeds per share (NAV per share less maximum contingent deferred sales charge) (a) $ 8.09 $ 9.87 N/A $ 13.21 CLASS C: Net assets $ 813,830 $ 15,682,626 $ 66,784 $ 8,328,943 Shares outstanding 95,459 1,516,830 6,969 599,684 Net asset value per share $ 8.53 $ 10.34 $ 9.58 $ 13.89 Offering price per share $ 8.53 $ 10.34 $ 9.58 $ 13.89 Redemption proceeds per share (NAV per share less maximum contingent deferred sales charge) (a) $ 8.44 $ 10.24 $ 9.48 $ 13.75 CLASS Y: Net assets $4,797,302 $ 7,171,596 $4,805,204 $269,695,905 Shares outstanding 532,135 677,537 500,001 18,278,814 Net asset value per share $ 9.02 $ 10.58 $ 9.61 $ 14.75 Offering price per share $ 9.02 $ 10.58 $ 9.61 $ 14.75 Redemption proceeds per share $ 9.02 $ 10.58 $ 9.61 $ 14.75 UBS ABSOLUTE UBS UBS UBS RETURN BOND GLOBAL BOND HIGH YIELD U.S. FUND(b) FUND FUND BOND FUND -------------------------------------------------------------------------------------------- CLASS A: Net assets $212,983,143 $ 15,545,936 $51,121,189 $ 31,285,407 Shares outstanding 20,997,150 1,637,163 7,422,489 3,045,011 Net asset value per share $ 10.14 $ 9.50 $ 6.89 $ 10.27 Offering price per share (NAV per share plus maximum sales charge)(a) $ 10.40 $ 9.95 $ 7.21 $ 10.75 Redemption proceeds per share (a) $ 10.14 $ 9.50 $ 6.89 $ 10.27 CLASS B: Net assets N/A $ 419,712 $ 2,497,393 $ 808,485 Shares outstanding N/A 44,103 362,497 78,625 Net asset value per share N/A $ 9.52 $ 6.89 $ 10.28 Offering price per share N/A $ 9.52 $ 6.89 $ 10.28 Redemption proceeds per share (NAV per share less maximum contingent deferred sales charge) (a) N/A $ 9.04 $ 6.55 $ 9.77 CLASS C: Net assets $ 30,617,742 $ 2,425,598 $12,176,778 $ 1,529,528 Shares outstanding 3,019,547 256,134 1,767,456 149,072 Net asset value per share $ 10.14 $ 9.47 $ 6.89 $ 10.26 Offering price per share $ 10.14 $ 9.47 $ 6.89 $ 10.26 Redemption proceeds per share (NAV per share less maximum contingent deferred sales charge) (a) $ 10.09 $ 9.40 $ 6.84 $ 10.18 CLASS Y: Net assets $232,208,311 $ 80,536,454 $33,015,165 $105,526,155 Shares outstanding 22,880,849 7,660,188 4,770,456 10,273,238 Net asset value per share $ 10.15 $ 10.51 $ 6.92 $ 10.27 Offering price per share $ 10.15 $ 10.51 $ 6.92 $ 10.27 Redemption proceeds per share $ 10.15 $ 10.51 $ 6.92 $ 10.27
(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 front-end 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 Fund 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 U.S. Mid Cap Growth Equity Fund and UBS Absolute Return Bond Fund do not offer Class B shares. -------------------------------------------------------------------------------- See accompanying notes to financial statements. 143 THE UBS FUNDS--FINANCIAL STATEMENTS -------------------------------------------------------------------------------- STATEMENTS OF OPERATIONS FOR THE YEAR ENDED JUNE 30, 2006
UBS UBS UBS GLOBAL INTERNATIONAL UBS U.S. DYNAMIC ALLOCATION UBS GLOBAL EQUITY LARGE CAP ALPHA FUND FUND EQUITY FUND FUND EQUITY FUND --------------------------------------------------------------------------------------------- INVESTMENT INCOME: Dividends $ 82,128 $ 41,662,801 $ 9,923,663 $ 4,386,217 $ 8,016,229 Interest 3,305,884 33,806,312 53,326 150,325 35,119 Affiliated interest 3,069,633 15,206,323 62,844 61,735 734,568 Securities lending-net -- 674,579 -- 115,955 -- Foreign tax withheld (6,840) (1,217,099) (352,905) (322,367) -- ------------ ------------ ----------- ----------- ----------- TOTAL INCOME $ 6,450,805 $ 90,132,916 $ 9,686,928 $ 4,391,865 $ 8,785,916 ------------ ------------ ----------- ----------- ----------- EXPENSES: Advisory and Administration fees $ 14,089,527 $ 27,123,353 $ 3,669,234 $ 1,387,043 $ 4,030,424 Service and Distribution fees: Class A 2,723,893 4,851,478 399,952 51,319 140,697 Class B 221,524 1,748,068 502,166 7,900 9,579 Class C 3,569,806 9,948,831 635,494 20,532 44,062 Transfer agency fees: Class A 408,698 1,040,578 260,632 25,575 40,614 Class B 15,444 187,742 183,753 903 454 Class C 197,232 744,873 147,488 1,253 3,516 Class Y 9,878 181,821 51,899 108,082 218,456 Federal and State registration 402,051 264,264 51,709 54,717 107,360 Custodian 42,253 1,887,587 367,598 176,944 250,400 Professional services 58,584 85,443 67,471 68,785 65,109 Shareholder reports 262,438 636,544 144,952 22,916 43,229 Trustees 24,730 38,977 15,427 12,015 15,179 Offering costs -- -- -- -- -- Other 85,213 326,189 69,487 30,636 37,149 ------------ ------------ ----------- ----------- ----------- TOTAL OPERATING EXPENSES 22,111,271 49,065,748 6,567,262 1,968,620 5,006,228 ------------ ------------ ----------- ----------- ----------- Expenses waived by Advisor -- -- (492,239) (299,965) -- ------------ ------------ ----------- ----------- ----------- NET OPERATING EXPENSES 22,111,271 49,065,748 6,075,023 1,668,655 5,006,228 ------------ ------------ ----------- ----------- ----------- Interest expense -- -- 7,744 6,434 444 ------------ ------------ ----------- ----------- ----------- NET INVESTMENT INCOME GAIN (LOSS) (15,660,466) 41,067,168 3,604,161 2,716,776 3,779,244 ------------ ------------ ----------- ----------- ----------- Net realized gain (loss) on: Investments 45,536,893 173,372,277 54,812,147 8,962,588 7,395,816 Futures contracts 316,407 655,123 -- -- 378,665 Swap agreements (1,820,436) -- -- -- -- Forward foreign currency transactions (20,256,139) 10,207,064 992,776 (105,469) -- Options written (2,334,731) -- -- -- -- ------------ ------------ ----------- ----------- ----------- Net realized gain (loss) 21,441,994 184,234,464 55,804,923 8,857,119 7,774,481 ------------ ------------ ----------- ----------- ----------- Change in net unrealized appreciation (depreciation) on: Investments 124,506,993 86,279,775 (6,116,491) 17,239,432 21,457,894 Futures contracts (52,495,519) (3,863,164) -- -- 416,525 Forward foreign currency contracts 4,103,494 (1,808,991) (329,812) (34,827) -- Swap agreements 24,088,090 -- -- -- -- Securities sold short -- -- -- -- -- Translation of other assets and liabilities denominated in foreign currency (115,507) 830,790 45,771 33,131 -- Options written 851,787 -- -- -- -- ------------ ------------ ----------- ----------- ----------- Change in net unrealized appreciation (depreciation) 100,939,338 81,438,410 (6,400,532) 17,237,736 21,874,419 ------------ ------------ ----------- ----------- ----------- Net realized and unrealized gain (loss) 122,381,332 265,672,874 49,404,391 26,094,855 29,648,900 ------------ ------------ ----------- ----------- ----------- Net increase from payment by Advisor 24,866 -- -- -- -- ------------ ------------ ----------- ----------- ----------- Net increase (decrease) in net assets resulting from operations $106,745,732 $306,740,042 $53,008,552 $28,811,631 $33,428,144 ============ ============ =========== =========== ===========
* UBS U.S. Mid Cap Growth Equity Fund commenced operations on March 27, 2006. -------------------------------------------------------------------------------- 144 THE UBS FUNDS--FINANCIAL STATEMENTS --------------------------------------------------------------------------------
UBS U.S. UBS U.S. UBS U.S. UBS LARGE CAP LARGE CAP MID CAP UBS U.S. ABSOLUTE UBS UBS UBS GROWTH VALUE GROWTH SMALL CAP RETURN BOND GLOBAL BOND HIGH YIELD U.S. BOND FUND EQUITY FUND EQUITY FUND* GROWTH FUND FUND FUND FUND FUND ------------------------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME: Dividends $ 81,122 $ 2,842,148 $ 6,538 $ 1,087,590 $ 71,952 $ -- $ 3,251 $ 164 Interest 327 -- -- 15,770 11,865,513 2,243,210 9,804,292 5,940,850 Affiliated interest 13,979 60,451 1,133 560,575 1,234,760 211,483 117,329 373,219 Securities lending-net -- -- -- -- -- -- -- -- Foreign tax withheld -- -- -- -- (11,430) -- -- -- --------- ----------- --------- ----------- ----------- ----------- ----------- ----------- TOTAL INCOME $ 95,428 $ 2,902,599 $ 7,671 $ 1,663,935 $13,160,795 $ 2,454,693 $ 9,924,872 $ 6,314,233 --------- ----------- --------- ----------- ----------- ----------- ----------- ----------- EXPENSES: Advisory and Administration fees $ 83,042 $ 1,039,058 $ 12,316 $ 3,323,685 $ 2,235,723 $ 649,132 $ 739,378 $ 783,003 Service and Distribution fees: Class A 13,626 267,580 77 342,359 247,401 41,456 148,193 90,257 Class B 4,178 33,056 -- 83,580 -- 6,678 28,608 11,557 Class C 6,251 170,912 109 87,512 116,879 19,779 103,679 12,188 Transfer agency fees: Class A 6,788 122,482 57 285,271 74,527 25,053 119,567 25,457 Class B 1,001 6,226 -- 28,815 -- 1,104 5,074 938 Class C 967 22,301 21 23,695 13,518 1,366 27,292 977 Class Y 5,294 7,996 8 180,820 6,615 51,362 49,624 65,533 Federal and State registration 45,754 44,288 18,430 67,558 133,605 45,513 43,345 49,636 Custodian 5,720 34,320 954 186,654 186,673 41,132 53,569 70,538 Professional services 52,343 71,182 30,392 58,604 77,043 65,729 78,485 65,065 Shareholder reports 3,869 44,781 465 53,866 48,958 20,250 55,197 19,637 Trustees 12,379 12,835 1,815 14,821 14,743 14,518 12,835 12,157 Offering costs -- -- 11,133 -- -- -- -- -- Other 8,025 24,235 2,547 35,596 29,078 11,945 19,138 20,174 --------- ----------- --------- ----------- ----------- ----------- ----------- ----------- TOTAL OPERATING EXPENSES 249,237 1,901,252 78,324 4,772,836 3,184,763 995,017 1,483,984 1,227,117 --------- ----------- --------- ----------- ----------- ----------- ----------- ----------- Expenses waived by Advisor (139,307) (290,288) (62,427) (553,893) -- (218,370) (163,562) (296,244) --------- ----------- --------- ----------- ----------- ----------- ----------- ----------- NET OPERATING EXPENSES 109,930 1,610,964 15,897 4,218,943 3,184,763 776,647 1,320,422 930,873 --------- ----------- --------- ----------- ----------- ----------- ----------- ----------- Interest expense -- -- -- -- -- 673 -- 1,951 --------- ----------- --------- ----------- ----------- ----------- ----------- ----------- NET INVESTMENT INCOME GAIN (LOSS) (14,502) 1,291,635 (8,226) (2,555,008) 9,976,032 1,677,373 8,604,450 5,381,409 --------- ----------- --------- ----------- ----------- ----------- ----------- ----------- Net realized gain (loss) on: Investments 995,485 10,356,646 (29,770) 17,172,677 (2,121,997) 120,096 (5,692,387) (1,917,535) Futures contracts -- -- -- -- 8,771,067 -- -- 155 Swap agreements -- -- -- -- -- -- -- -- Forward foreign currency transactions -- -- -- -- (6,980,186) (1,680,625) -- -- Options written -- -- -- -- -- -- -- 93,051 --------- ----------- --------- ----------- ----------- ----------- ----------- ----------- Net realized gain (loss) 995,485 10,356,646 (29,770) 17,172,677 (331,116) (1,560,529) (5,692,387) (1,824,329) --------- ----------- --------- ----------- ----------- ----------- ----------- ----------- Change in net unrealized appreciation (depreciation) on: Investments (635,956) 3,542,465 (172,525) 16,235,430 3,244,138 703,317 1,762,732 (3,655,134) Futures contracts -- -- -- -- 1,992,235 -- -- 12,957 Forward foreign currency contracts -- -- -- -- 928,158 (216,046) -- -- Swap agreements -- -- -- -- -- -- -- 4,568 Securities sold short -- -- -- -- 222,316 -- -- -- Translation of other assets and liabilities denominated in foreign currency -- -- -- -- 347,461 59,142 -- -- Options written -- -- -- -- -- -- -- -- --------- ----------- --------- ----------- ----------- ----------- ----------- ----------- Change in net unrealized appreciation (depreciation) (635,956) 3,542,465 (172,525) 16,235,430 6,734,308 546,413 1,762,732 (3,637,609) --------- ----------- --------- ----------- ----------- ----------- ----------- ----------- Net realized and unrealized gain (loss) 359,529 13,899,111 (202,295) 33,408,107 6,403,192 (1,014,116) (3,929,653) (5,461,938) --------- ----------- --------- ----------- ----------- ----------- ----------- ----------- Net increase from payment by Advisor -- -- -- -- -- -- -- -- --------- ----------- --------- ----------- ----------- ----------- ----------- ----------- Net increase (decrease) in net assets resulting from operations $ 345,027 $15,190,746 $(210,521) $30,853,099 $16,379,224 $ 663,257 $ 4,674,795 $ (80,529) ========= =========== ========= =========== =========== =========== =========== ===========
-------------------------------------------------------------------------------- See accompanying notes to financial statements. 145 THE UBS FUNDS--FINANCIAL STATEMENTS -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS
UBS DYNAMIC ALPHA FUND UBS GLOBAL ALLOCATION FUND ------------------------------- ------------------------------- YEAR ENDED PERIOD ENDED YEAR ENDED YEAR ENDED JUNE 30, 2006 JUNE 30, 2005+ JUNE 30, 2006 JUNE 30, 2005 -------------------------------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income (loss) $ (15,660,466) $ (2,964,789) $ 41,067,168 $ 26,900,091 Net realized gain (loss) 21,441,994 1,956,354 184,234,464 165,824,167 Change in net unrealized appreciation (depreciation) 100,939,338 12,538,343 81,438,410 59,739,420 Net increase from payment by Advisor 24,866 -- -- -- -------------- ------------ -------------- -------------- Net increase (decrease) in net assets from operations 106,745,732 11,529,908 306,740,042 252,463,678 -------------- ------------ -------------- -------------- DISTRIBUTIONS TO SHAREHOLDERS BY CLASS: Class A: Distributions from net investment income and net foreign currency gains (9,085,869) -- (19,342,594) (17,320,841) Distributions from net realized gain -- -- (81,236,181) (28,236,813) -------------- ------------ -------------- -------------- Total Class A distributions (9,085,869) -- (100,578,775) (45,557,654) -------------- ------------ -------------- -------------- Class B: Distributions from net investment income and net foreign currency gains (88,826) -- (194,937) (1,509,441) Distributions from net realized gain -- -- (7,483,823) (4,518,318) -------------- ------------ -------------- -------------- Total Class B distributions (88,826) -- (7,678,760) (6,027,759) -------------- ------------ -------------- -------------- Class C: Distributions from net investment income and net foreign currency gains (1,567,093) -- (3,358,146) (6,340,465) Distributions from net realized gain -- -- (43,158,661) (17,233,197) -------------- ------------ -------------- -------------- Total Class C distributions (1,567,093) -- (46,516,807) (23,573,662) -------------- ------------ -------------- -------------- Class Y: Distributions from net investment income and net foreign currency gains (1,349,644) -- (4,969,313) (5,058,001) Distributions from net realized gain -- -- (17,133,687) (7,357,727) -------------- ------------ -------------- -------------- Total Class Y distributions (1,349,644) -- (22,103,000) (12,415,728) -------------- ------------ -------------- -------------- Decrease in net assets from distributions (12,091,432) -- (176,877,342) (87,574,803) -------------- ------------ -------------- -------------- BENEFICIAL INTEREST TRANSACTIONS: Shares sold 1,998,280,696 864,403,313 1,296,886,409 1,501,931,840 Shares issued on reinvestment of distributions 11,407,688 -- 168,648,902 81,526,461 Shares redeemed (285,347,554) (73,961,641) (717,756,759) (543,707,577) Redemption fees 129,393 41,813 86,029 74,995 -------------- ------------ -------------- -------------- Net increase (decrease) in net assets resulting from beneficial interest transactions 1,724,470,223 790,483,485 747,864,581 1,039,825,719 -------------- ------------ -------------- -------------- INCREASE (DECREASE) IN NET ASSETS 1,819,124,523 802,013,393 877,727,281 1,204,714,594 NET ASSETS, BEGINNING OF PERIOD 802,013,393 -- 3,037,905,359 1,833,190,765 -------------- ------------ -------------- -------------- NET ASSETS, END OF PERIOD $2,621,137,916 $802,013,393 $3,915,632,640 $3,037,905,359 ============== ============ ============== ============== Net assets include accumulated undistributed (distributions in excess of) net investment income $ (40,182,024) $ 1,564,731 $ 53,621,431 $ 18,997,445 ============== ============ ============== ==============
+ For the period January 27, 2005 (commencement of operations) to June 30, 2005. -------------------------------------------------------------------------------- 146 THE UBS FUNDS--FINANCIAL STATEMENTS --------------------------------------------------------------------------------
UBS GLOBAL EQUITY FUND UBS INTERNATIONAL EQUITY FUND ----------------------------- ----------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED JUNE 30, 2006 JUNE 30, 2005 JUNE 30, 2006 JUNE 30, 2005 ---------------------------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income (loss) $ 3,604,161 $ 4,891,678 $ 2,716,776 $ 2,200,728 Net realized gain (loss) 55,804,923 38,569,395 8,857,119 13,316,855 Change in net unrealized appreciation (depreciation) (6,400,532) 627,356 17,237,736 (2,846,329) Net increase from payment by Advisor -- -- -- -- ------------- ------------- ------------ ------------ Net increase (decrease) in net assets from operations 53,008,552 44,088,429 28,811,631 12,671,254 ------------- ------------- ------------ ------------ DISTRIBUTIONS TO SHAREHOLDERS BY CLASS: Class A: Distributions from net investment income and net foreign currency gains (1,096,767) -- (195,160) (125,017) Distributions from net realized gain -- -- (721,446) -- ------------- ------------- ------------ ------------ Total Class A distributions (1,096,767) -- (916,606) (125,017) ------------- ------------- ------------ ------------ Class B: Distributions from net investment income and net foreign currency gains -- -- -- (7,169) Distributions from net realized gain -- -- (25,067) -- ------------- ------------- ------------ ------------ Total Class B distributions -- -- (25,067) (7,169) ------------- ------------- ------------ ------------ Class C: Distributions from net investment income and net foreign currency gains -- -- (3,051) (13,122) Distributions from net realized gain -- -- (64,762) -- ------------- ------------- ------------ ------------ Total Class C distributions -- -- (67,813) (13,122) ------------- ------------- ------------ ------------ Class Y: Distributions from net investment income and net foreign currency gains (1,345,824) -- (1,437,989) (1,289,824) Distributions from net realized gain -- -- (4,418,048) -- ------------- ------------- ------------ ------------ Total Class Y distributions (1,345,824) -- (5,856,037) (1,289,824) ------------- ------------- ------------ ------------ Decrease in net assets from distributions (2,442,591) -- (6,865,523) (1,435,132) ------------- ------------- ------------ ------------ BENEFICIAL INTEREST TRANSACTIONS: Shares sold 170,054,722 70,369,734 90,851,632 44,131,261 Shares issued on reinvestment of distributions 2,360,467 -- 6,761,683 1,397,667 Shares redeemed (245,313,514) (116,614,089) (76,610,266) (36,444,656) Redemption fees 3,939 12,932 5,683 3,297 ------------- ------------- ------------ ------------ Net increase (decrease) in net assets resulting from beneficial interest transactions (72,894,386) (46,231,423) 21,008,732 9,087,569 ------------- ------------- ------------ ------------ INCREASE (DECREASE) IN NET ASSETS (22,328,425) (2,142,994) 42,954,840 20,323,691 NET ASSETS, BEGINNING OF PERIOD 446,878,173 449,021,167 131,124,987 110,801,296 ------------- ------------- ------------ ------------ NET ASSETS, END OF PERIOD $ 424,549,748 $ 446,878,173 $174,079,827 $131,124,987 ============= ============= ============ ============ Net assets include accumulated undistributed (distributions in excess of) net investment income $ 3,906,219 $ 1,751,873 $ 2,257,631 $ 1,282,519 ============= ============= ============ ============ UBS U.S. LARGE CAP EQUITY FUND UBS U.S. LARGE CAP GROWTH FUND ------------------------------ ------------------------------ YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED JUNE 30, 2006 JUNE 30, 2005 JUNE 30, 2006 JUNE 30, 2005 ------------------------------------------------------------------------------------------------------------------------ OPERATIONS: Net investment income (loss) $ 3,779,244 $ 2,293,535 $ (14,502) $ 5,080 Net realized gain (loss) 7,774,481 6,718,677 995,485 501,612 Change in net unrealized appreciation (depreciation) 21,874,419 14,350,295 (635,956) (161,400) Net increase from payment by Advisor -- -- -- -- ------------- ------------ ----------- ----------- Net increase (decrease) in net assets from operations 33,428,144 23,362,507 345,027 345,292 ------------- ------------ ----------- ----------- 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 376,538,429 258,405,407 9,809,159 3,376,905 Shares issued on reinvestment of distributions 11,937,737 6,546,536 5,096 -- Shares redeemed (166,331,009) (49,083,452) (4,576,426) (3,048,897) Redemption fees -- -- -- -- ------------- ------------ ----------- ----------- Net increase (decrease) in net assets resulting from beneficial interest transactions 222,145,157 215,868,491 5,237,829 328,008 ------------- ------------ ----------- ----------- INCREASE (DECREASE) IN NET ASSETS 242,653,934 232,038,765 5,577,705 673,300 NET ASSETS, BEGINNING OF PERIOD 396,378,271 164,339,506 7,224,774 6,551,474 ------------- ------------ ----------- ----------- NET ASSETS, END OF PERIOD $ 639,032,205 $396,378,271 $12,802,479 $ 7,224,774 ============= ============ =========== =========== Net assets include accumulated undistributed (distributions in excess of) net investment income $ 1,871,207 $ 1,116,277 $ (1) $ 5,080 ============= ============ =========== ===========
-------------------------------------------------------------------------------- See accompanying notes to financial statements. 147 THE UBS FUNDS--FINANCIAL STATEMENTS -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS
UBS U.S. MID CAP UBS U.S. LARGE CAP GROWTH UBS U.S. SMALL CAP VALUE EQUITY FUND EQUITY FUND GROWTH FUND ----------------------------- -------------- ----------------------------- YEAR ENDED YEAR ENDED PERIOD ENDED YEAR ENDED YEAR ENDED JUNE 30, 2006 JUNE 30, 2005 JUNE 30, 2006+ JUNE 30, 2006 JUNE 30, 2005 ------------- ------------- -------------- ------------- ------------- OPERATIONS: Net investment income (loss) $ 1,291,635 $ 1,357,529 $ (8,226) $ (2,555,008) $ (1,742,621) Net realized gain (loss) 10,356,646 11,022,153 (29,770) 17,172,677 12,901,585 Change in net unrealized appreciation (depreciation) 3,542,465 4,059,901 (172,525) 16,235,430 13,918,272 ------------ ------------ ---------- ------------- ------------ Net increase (decrease) in net assets from operations 15,190,746 16,439,583 (210,521) 30,853,099 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 9,482,763 14,884,181 5,456,508 237,309,281 127,326,999 Shares issued on reinvestment of distributions 12,467,214 21,982,744 -- 12,644,348 2,732,747 Shares redeemed (26,716,957) (41,599,951) (212,486) (107,414,142) (62,705,608) ------------ ------------ ---------- ------------- ------------ Net increase (decrease) in net assets resulting from beneficial interest transactions (4,766,980) (4,733,026) 5,244,022 142,539,487 67,354,138 ------------ ------------ ---------- ------------- ------------ INCREASE (DECREASE) IN NET ASSETS (3,426,055) (13,003,734) 5,033,501 159,580,970 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 $130,541,245 $133,967,300 $5,033,501 $ 435,353,700 $275,772,730 ============ ============ ========== ============= ============ Net assets include accumulated undistributed (distributions in excess of) net investment income $ 495,766 $ 674,285 $ 3,189 $ -- $ -- ============ ============ ========== =========== ============
+ For the period March 27, 2006 (commencement of operations) to June 30, 2006. ++ For the period April 27, 2005 (commencement of operations) to June 30, 2005. -------------------------------------------------------------------------------- 148 THE UBS FUNDS--FINANCIAL STATEMENTS --------------------------------------------------------------------------------
UBS ABSOLUTE RETURN BOND FUND UBS GLOBAL BOND FUND ------------------------------- ----------------------------- YEAR ENDED PERIOD ENDED YEAR ENDED YEAR ENDED JUNE 30, 2006 JUNE 30, 2005++ JUNE 30, 2006 JUNE 30, 2005 ------------- --------------- ------------- ------------- OPERATIONS: Net investment income (loss) $ 9,976,032 $ 320,703 $ 1,677,373 $ 1,235,167 Net realized gain (loss) (331,116) 848,043 (1,560,529) 2,432,598 Change in net unrealized appreciation (depreciation) 6,734,308 (1,074,831) 546,413 (599,775) ------------- ------------ ------------ ------------ Net increase (decrease) in net assets from operations 16,379,224 93,915 663,257 3,067,990 ------------- ------------ ------------ ------------ DISTRIBUTIONS TO SHAREHOLDERS BY CLASS: Class A: Distributions from net investment income and net foreign currency gains (4,903,230) (262,518) (649,130) (886,593) Distributions from net realized gain (150,694) -- -- -- ------------- ------------ ------------ ------------ Total Class A distributions (5,053,924) (262,518) (649,130) (886,593) ------------- ------------ ------------ ------------ Class B: Distributions from net investment income and net foreign currency gains -- -- (17,832) (59,846) Distributions from net realized gain -- -- -- -- ------------- ------------ ------------ ------------ Total Class B distributions -- -- (17,832) (59,846) ------------- ------------ ------------ ------------ Class C: Distributions from net investment income and net foreign currency gains (625,870) (34,595) (86,788) (186,345) Distributions from net realized gain (22,526) -- -- -- ------------- ------------ ------------ ------------ Total Class C distributions (648,396) (34,595) (86,788) (186,345) ------------- ------------ ------------ ------------ Class Y: Distributions from net investment income and net foreign currency gains (5,273,291) (57,800) (2,208,907) (2,498,108) Distributions from net realized gain (171,039) -- -- -- ------------- ------------ ------------ ------------ Total Class Y distributions (5,444,330) (57,800) (2,208,907) (2,498,108) ------------- ------------ ------------ ------------ Decrease in net assets from distributions (11,146,650) (354,913) (2,962,657) (3,630,892) ------------- ------------ ------------ ------------ BENEFICIAL INTEREST TRANSACTIONS: Shares sold 431,394,854 148,957,872 58,131,940 30,560,920 Shares issued on reinvestment of distributions 9,518,443 311,813 2,730,438 3,331,005 Shares redeemed (112,686,324) (6,659,038) (32,916,738) (20,660,253) ------------- ------------ ------------ ------------ Net increase (decrease) in net assets resulting from beneficial interest transactions 328,226,973 142,610,647 27,945,640 13,231,672 ------------- ------------ ------------ ------------ INCREASE (DECREASE) IN NET ASSETS 333,459,547 142,349,649 25,646,240 12,668,770 NET ASSETS, BEGINNING OF PERIOD 142,349,649 -- 73,281,460 60,612,690 ------------- ------------ ------------ ------------ NET ASSETS, END OF PERIOD $ 475,809,196 $142,349,649 $ 98,927,700 $ 73,281,460 ============= ============ ============ ============ Net assets include accumulated undistributed (distributions in excess of) net investment income $ (2,424,802) $ 1,042,688 $ (914,689) $ 1,468,248 ============= ============ ============ ============ UBS HIGH YIELD FUND UBS U.S. BOND FUND ----------------------------- ----------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED JUNE 30, 2006 JUNE 30, 2005 JUNE 30, 2006 JUNE 30, 2005 ------------- ------------- ------------- ------------- OPERATIONS: Net investment income (loss) $ 8,604,450 $ 11,107,547 $ 5,381,409 $ 5,014,559 Net realized gain (loss) (5,692,387) (22,068,924) (1,824,329) 1,287,087 Change in net unrealized appreciation (depreciation) 1,762,732 24,901,055 (3,637,609) 1,231,336 ------------ ------------ ------------ ------------ Net increase (decrease) in net assets from operations 4,674,795 13,939,678 (80,529) 7,532,982 ------------ ------------ ------------ ------------ DISTRIBUTIONS TO SHAREHOLDERS BY CLASS: Class A: Distributions from net investment income and net foreign currency gains (4,659,800) (6,086,599) (1,516,248) (1,293,670) Distributions from net realized gain -- -- -- -- ------------ ------------ ------------ ------------ Total Class A distributions (4,659,800) (6,086,599) (1,516,248) (1,293,670) ------------ ------------ ------------ ------------ Class B: Distributions from net investment income and net foreign currency gains (204,232) (425,557) (39,737) (60,703) Distributions from net realized gain -- -- -- -- ------------ ------------ ------------ ------------ Total Class B distributions (204,232) (425,557) (39,737) (60,703) ------------ ------------ ------------ ------------ Class C: Distributions from net investment income and net foreign currency gains (1,018,907) (1,300,982) (60,177) (76,641) Distributions from net realized gain -- -- -- -- ------------ ------------ ------------ ------------ Total Class C distributions (1,018,907) (1,300,982) (60,177) (76,641) ------------ ------------ ------------ ------------ Class Y: Distributions from net investment income and net foreign currency gains (2,732,863) (3,636,624) (4,288,926) (4,244,383) Distributions from net realized gain -- -- -- -- ------------ ------------ ------------ ------------ Total Class Y distributions (2,732,863) (3,636,624) (4,288,926) (4,244,383) ------------ ------------ ------------ ------------ Decrease in net assets from distributions (8,615,802) (11,449,762) (5,905,088) (5,675,397) ------------ ------------ ------------ ------------ BENEFICIAL INTEREST TRANSACTIONS: Shares sold 29,236,468 46,013,811 69,892,399 54,766,655 Shares issued on reinvestment of distributions 5,497,236 7,680,605 5,248,275 5,228,066 Shares redeemed (48,270,220) (85,891,281) (77,542,857) (39,253,738) ------------ ------------ ------------ ------------ Net increase (decrease) in net assets resulting from beneficial interest transactions (13,536,516) (32,196,865) (2,402,183) 20,740,983 ------------ ------------ ------------ ------------ INCREASE (DECREASE) IN NET ASSETS (17,477,523) (29,706,949) (8,387,800) 22,598,568 NET ASSETS, BEGINNING OF PERIOD 116,288,048 145,994,997 147,537,375 124,938,807 ------------ ------------ ------------ ------------ NET ASSETS, END OF PERIOD $ 98,810,525 $116,288,048 $139,149,575 $147,537,375 ============ ============ ============ ============ Net assets include accumulated undistributed (distributions in excess of) net investment income $ 169,574 $ 69,088 $ 48,987 $ 104,674 ============ ============ ============ ============
+ For the period March 27, 2006 (commencement of operations) to June 30, 2006. ++ For the period April 27, 2005 (commencement of operations) to June 30, 2005. -------------------------------------------------------------------------------- See accompanying notes to financial statements. 149 UBS DYNAMIC ALPHA FUND--FINANCIAL HIGHLIGHTS -------------------------------------------------------------------------------- THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH PERIOD PRESENTED.
FOR THE FOR THE YEAR ENDED PERIOD ENDED CLASS A JUNE 30, 2006 JUNE 30, 2005* --------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 10.22 $ 10.00 ---------- -------- Income (loss) from investment operations: Net investment loss** (0.09) (0.04) Net realized and unrealized gain from investment activities 1.01 0.26 ---------- -------- Total income from investment operations 0.92 0.22 ---------- -------- Less dividends/distributions: From net investment income and net foreign currency gains (0.10) -- From net realized gains -- -- ---------- -------- Total dividends/distributions (0.10) -- ---------- -------- Net increase from payment by Advisor 0.00# -- ---------- -------- Net asset value, end of period $ 11.04 $ 10.22 ========== ======== Total investment return+ 9.02%~ 2.20% Ratios/Supplemental data: Net assets, end of period (in 000s) $1,777,329 $528,088 Ratio of expenses to average net assets 1.20% 1.32%*** Ratio of net investment loss to average net assets (0.80)% (1.04)%*** Portfolio turnover rate 38% 6%
FOR THE FOR THE YEAR ENDED PERIOD ENDED CLASS B JUNE 30, 2006 JUNE 30, 2005* -------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 10.19 $ 10.00 ------- -------- Income (loss) from investment operations: Net investment loss** (0.17) (0.08) Net realized and unrealized gain from investment activities 1.00 0.27 ------- -------- Total income from investment operations 0.83 0.19 ------- -------- Less dividends/distributions: From net investment income and net foreign currency gains (0.04) -- From net realized gains -- -- ------- -------- Total dividends/distributions (0.04) -- ------- -------- Net increase from payment by Advisor 0.00# -- ------- -------- Net asset value, end of period $ 10.98 $ 10.19 ======= ======== Total investment return+ 8.09%~ 1.90% Ratios/Supplemental data: Net assets, end of period (in 000s) $30,051 $14,815 Ratio of expenses to average net assets: Before expense reimbursement/recoupment 1.98% 2.11%*** After expense reimbursement/recoupment 1.99% 2.10%*** Ratio of net investment loss to average net assets: Before expense reimbursement/recoupment (1.58)% (1.83)%*** After expense reimbursement/recoupment (1.59)% (1.82)%*** Portfolio turnover rate 38% 6%
* For the period January 27, 2005 (commencement of issuance) through June 30, 2005. ** The net investment loss per share data was determined by using average shares outstanding throughout the period. *** Annualized. # Amount represents less than $0.005 per share. + Total investment return is calculated assuming a $10,000 investment on the first day of each period reported, reinvestment of all dividends and distributions, if any, at net asset value on the ex-dividend dates, and a sale at net asset value on the last day of each period reported. The figures do not include any applicable sales charges; results would be lower if they were included. Total investment return for periods of less than one year has not been annualized. Returns do not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of Fund shares. ~ During the fiscal year ended June 30, 2006, the Fund's total investment return included a reimbursement by the Investment Advisor for amounts relating to a trading error that had no impact on the total return. -------------------------------------------------------------------------------- See accompanying notes to financial statements. 150 UBS DYNAMIC ALPHA FUND--FINANCIAL HIGHLIGHTS -------------------------------------------------------------------------------- THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH PERIOD PRESENTED.
FOR THE FOR THE YEAR ENDED PERIOD ENDED CLASS C JUNE 30, 2006 JUNE 30, 2005* -------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 10.19 $ 10.00 --------- -------- Income from investment operations: Net investment loss** (0.17) (0.08) Net realized and unrealized gain from investment activities 1.00 0.27 --------- -------- Total income from investment operations 0.83 0.19 --------- -------- Less dividends/distributions: From net investment income and net foreign currency gains (0.05) -- From net realized gains -- -- --------- -------- Total dividends/distributions (0.05) -- --------- -------- Net increase from payment by Advisor 0.00# -- --------- -------- Net asset value, end of period $ 10.97 $ 10.19 ========= ======== Total investment return+ 8.15%~ 1.90% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 520,754 $202,891 Ratio of expenses to average net assets 1.97% 2.09%*** Ratio of net investment loss to average net assets (1.57)% (1.81)%*** Portfolio turnover rate 38% 6%
FOR THE FOR THE YEAR ENDED PERIOD ENDED CLASS Y JUNE 30, 2006 JUNE 30, 2005* ------------------------------------------------------------------------------------------ Net asset value, beginning of period $ 10.23 $ 10.00 -------- ------- Income (loss) from investment operations: Net investment loss** (0.06) (0.03) Net realized and unrealized gain (loss) from investment activities 1.02 0.26 -------- ------- Total income from investment operations 0.96 0.23 -------- ------- Less dividends/distributions: From net investment income and net foreign currency gains (0.12) -- From net realized gains -- -- -------- ------- Total dividends/distributions (0.12) -- -------- ------- Net increase from payment by Advisor 0.00# -- -------- ------- Net asset value, end of period $ 11.07 $ 10.23 ======== ======= Total investment return+ 9.28%~ 2.30% Ratios/Supplemental data: Net assets, end of period (in 000s) $293,004 $56,220 Ratio of expenses to average net assets 0.92% 1.00%*** Ratio of net investment loss to average net assets (0.52)% (0.72)%*** Portfolio turnover rate 38% 6%
* For the period January 27, 2005 (commencement of issuance) through June 30, 2005. ** The net investment loss per share data was determined by using average shares outstanding throughout the period. *** Annualized. # Amount represents less than $0.005 per share. + Total investment return is calculated assuming a $10,000 investment on the first day of each period reported, reinvestment of all dividends and distributions, if any, at net asset value on the ex-dividend dates, and a sale at net asset value on the last day of each period reported. The figures do not include any applicable sales charges; results would be lower if they were included. Total investment return for periods of less than one year has not been annualized. Returns do not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of Fund shares. ~ During the fiscal year ended June 30, 2006, the Fund's total investment return included a reimbursement by the Investment Advisor for amounts relating to a trading error that had no impact on the total return. -------------------------------------------------------------------------------- See accompanying notes to financial statements. 151 UBS GLOBAL ALLOCATION FUND--FINANCIAL HIGHLIGHTS -------------------------------------------------------------------------------- THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH PERIOD PRESENTED.
YEAR ENDED JUNE 30, ------------------------------------------------------ CLASS A 2006 2005 2004 2003 2002 -------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of year $ 13.33 $ 12.35 $ 10.69 $ 10.60 $11.10 ---------- ---------- -------- -------- ------ Income from investment operations: Net investment income** 0.19 0.17 0.12 0.10 0.10 Net realized and unrealized gain from investment activities 1.08 1.32 1.69 0.41 0.40 ---------- ---------- -------- -------- ------ Total income from investment operations 1.27 1.49 1.81 0.51 0.50 ---------- ---------- -------- -------- ------ 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) ---------- ---------- -------- -------- ------ Total dividends/distributions (0.74) (0.51) (0.15) (0.42) (1.00) ---------- ---------- -------- -------- ------ Net asset value, end of year $ 13.86 $ 13.33 $ 12.35 $ 10.69 $10.60 ========== ========== ======== ======== ====== Total investment return+ 9.72% 12.11% 17.02% 5.35% 4.84% Ratios/Supplemental data: Net assets, end of year (in 000s) $2,246,289 $1,594,113 $876,636 $175,415 $6,914 Ratio of expenses to average net assets 1.14% 1.20% 1.28% 1.35% 1.35% Ratio of net investment income to average net assets 1.41% 1.34% 1.00% 0.98% 0.98% Portfolio turnover rate 83% 84% 78% 66% 116%
YEAR ENDED JUNE 30, FOR THE ---------------------------------------- PERIOD ENDED CLASS B 2006 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** 0.08 0.08 0.02 0.02 0.12 Net realized and unrealized gain from investment activities 1.06 1.29 1.68 0.41 0.19 -------- -------- -------- ------- ------ Total income from investment operations 1.14 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 $ 13.60 $ 13.08 $ 12.14 $ 10.55 $10.52 ======== ======== ======== ======= ====== Total investment return+ 8.81% 11.24% 16.14% 4.60% 3.00% Ratios/Supplemental data: Net assets, end of period (in 000s) $161,704 $184,359 $153,481 $49,573 $1,570 Ratio of expenses to average net assets 1.95% 1.96% 2.09% 2.10% 2.10%*** Ratio of net investment income to average net assets 0.60% 0.58% 0.19% 0.23% 2.17%*** Portfolio turnover rate 83% 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 has not been annualized. Returns do not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of Fund shares. -------------------------------------------------------------------------------- See accompanying notes to financial statements. 152 UBS GLOBAL ALLOCATION FUND--FINANCIAL HIGHLIGHTS -------------------------------------------------------------------------------- THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH PERIOD PRESENTED.
YEAR ENDED JUNE 30, FOR THE ------------------------------------------- PERIOD ENDED CLASS C 2006 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** 0.09 0.09 0.03 0.02 0.11 Net realized and unrealized gain from investment activities 1.05 1.29 1.68 0.41 0.33 ---------- -------- -------- -------- ------ Total income from investment operations 1.14 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 $ 13.58 $ 13.09 $ 12.15 $ 10.56 $10.54 ========== ======== ======== ======== ====== Total investment return+ 8.82% 11.32% 16.19% 4.55% 4.23% Ratios/Supplemental data: Net assets, end of period (in 000s) $1,044,517 $903,280 $539,399 $137,078 $1,525 Ratio of expenses to average net assets 1.91% 1.95% 2.06% 2.10% 2.10%*** Ratio of net investment income to average net assets 0.64% 0.59% 0.23% 0.23% 1.77%*** Portfolio turnover rate 83% 84% 78% 66% 116%
YEAR ENDED JUNE 30, ---------------------------------------------------- CLASS Y 2006 2005 2004 2003 2002 ------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of year $ 13.51 $ 12.50 $ 10.79 $ 10.69 $ 11.18 -------- -------- -------- -------- -------- Income from investment operations: Net investment income** 0.23 0.22 0.15 0.12 0.13 Net realized and unrealized gain from investment activities 1.09 1.33 1.73 0.41 0.38 -------- -------- -------- -------- -------- Total income from investment operations 1.32 1.55 1.88 0.53 0.51 -------- -------- -------- -------- -------- 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) -------- -------- -------- -------- -------- Total dividends/distributions (0.77) (0.54) (0.17) (0.43) (1.00) -------- -------- -------- -------- -------- Net asset value, end of year $ 14.06 $ 13.51 $ 12.50 $ 10.79 $ 10.69 ======== ======== ======== ======== ======== Total investment return+ 9.98% 12.40% 17.44% 5.50% 4.91% Ratios/Supplemental data: Net assets, end of year (in 000s) $463,122 $356,154 $263,675 $193,758 $165,630 Ratio of expenses to average net assets 0.88% 0.93% 1.02% 1.10% 1.10% Ratio of net investment income to average net assets 1.67% 1.61% 1.26% 1.23% 1.24% Portfolio turnover rate 83% 84% 78% 66% 116%
* 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 has not been annualized. Returns do not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of Fund shares. -------------------------------------------------------------------------------- See accompanying notes to financial statements. 153 UBS GLOBAL EQUITY FUND--FINANCIAL HIGHLIGHTS -------------------------------------------------------------------------------- THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH PERIOD PRESENTED.
YEAR ENDED JUNE 30, ---------------------------------------------------- CLASS A 2006 2005 2004 2003 2002 ------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of year $ 11.63 $ 10.51 $ 8.89 $ 9.37 $ 10.61 -------- -------- -------- -------- ------- Income (loss) from investment operations: Net investment income** 0.11 0.15 0.10 0.16 0.04 Net realized and unrealized gain (loss) from investment activities 1.32 0.97 1.63 (0.39) (0.88) -------- -------- -------- -------- ------- Total income (loss) from investment operations 1.43 1.12 1.73 (0.23) (0.84) -------- -------- -------- -------- ------- Less dividends/distributions: From net investment income and net foreign currency gains (0.07) -- (0.11) (0.25) (0.06) From net realized gains -- -- -- -- (0.34) -------- -------- -------- -------- ------- Total dividends/distributions (0.07) -- (0.11) (0.25) (0.40) -------- -------- -------- -------- ------- Net asset value, end of year $ 12.99 $ 11.63 $ 10.51 $ 8.89 $ 9.37 ======== ======== ======== ======== ======= Total investment return+ 12.35% 10.66% 19.49% (2.23)% (8.05)% Ratios/Supplemental data: Net assets, end of year (in 000s) $173,052 $109,998 $117,084 $123,756 $15,173 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.37% 1.39% 1.44% 1.44% 1.47% After expense reimbursement and earnings credits 1.25% 1.25% 1.25% 1.25% 1.25% Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 0.76% 1.21% 0.80% 1.73% 0.17% After expense reimbursement and earnings credits 0.88% 1.35% 0.99% 1.92% 0.39% Portfolio turnover rate 48% 37% 50% 206% 117%
YEAR ENDED JUNE 30, FOR THE ------------------------------------------ PERIOD ENDED CLASS B 2006 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** 0.02 0.07 0.02 0.10 0.05 Net realized and unrealized gain (loss) from investment activities 1.28 0.95 1.62 (0.39) (0.48) ------- -------- -------- -------- ------ Total income (loss) from investment operations 1.30 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 $ 12.69 $ 11.39 $ 10.37 $ 8.82 $ 9.34 ======= ======== ======== ======== ====== Total investment return+ 11.41% 9.84% 18.61% (2.91)% (4.38)% Ratios/Supplemental data: Net assets, end of period (in 000s) $13,672 $108,894 $134,419 $144,232 $ 418 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 2.35% 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 (0.22)% 0.38% (0.03)% 0.97% 0.72%*** After expense reimbursement and earnings credits 0.13% 0.60% 0.24% 1.17% 0.97%*** Portfolio turnover rate 48% 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 has not been annualized. Returns do not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of Fund shares. -------------------------------------------------------------------------------- See accompanying notes to financial statements. 154 UBS GLOBAL EQUITY FUND--FINANCIAL HIGHLIGHTS -------------------------------------------------------------------------------- THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH PERIOD PRESENTED.
YEAR ENDED JUNE 30, FOR THE ------------------------------------- PERIOD ENDED CLASS C 2006 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** 0.02 0.06 0.02 0.10 0.04 Net realized and unrealized gain (loss) from investment activities 1.28 0.96 1.61 (0.40) (0.49) ------- ------- ------- ------- ------ Total income (loss) from investment operations 1.30 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 $ 12.65 $ 11.35 $ 10.33 $ 8.79 $ 9.33 ======= ======= ======= ======= ====== Total investment return+ 11.45% 9.87% 18.54% (2.93)% (4.57)% Ratios/Supplemental data: Net assets, end of period (in 000s) $56,836 $68,735 $82,684 $93,605 $ 351 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 2.20% 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 (0.07)% 0.40% (0.03)% 0.93% 0.55%*** After expense reimbursement and earnings credits 0.13% 0.60% 0.25% 1.17% 0.78%*** Portfolio turnover rate 48% 37% 50% 206% 117%
YEAR ENDED JUNE 30, --------------------------------------------------- CLASS Y 2006 2005 2004 2003 2002 ------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of year $ 11.83 $ 10.67 $ 8.99 $ 9.47 $ 10.68 -------- -------- -------- ------- ------- Income (loss) from investment operations: Net investment income** 0.15 0.18 0.13 0.18 0.06 Net realized and unrealized gain (loss) from investment activities 1.34 0.98 1.67 (0.39) (0.87) -------- -------- -------- ------- ------- Total income (loss) from investment operations 1.49 1.16 1.80 (0.21) (0.81) -------- -------- -------- ------- ------- Less dividends/distributions: From net investment income and net foreign currency gains (0.09) -- (0.12) (0.27) (0.06) From net realized gains -- -- -- -- (0.34) -------- -------- -------- ------- ------- Total dividends/distributions (0.09) -- (0.12) (0.27) (0.40) -------- -------- -------- ------- ------- Net asset value, end of year $ 13.23 $ 11.83 $ 10.67 $ 8.99 $ 9.47 ======== ======== ======== ======= ======= Total investment return+ 12.67% 10.87% 20.09% (1.93)% (7.71)% Ratios/Supplemental data: Net assets, end of year (in 000s) $180,990 $159,252 $114,835 $62,873 $40,714 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 0.99% 1.04% 1.03% 1.16% 1.19% After expense reimbursement and earnings credits 0.99% 1.00% 1.00% 1.00% 1.00% Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 1.14% 1.56% 1.21% 2.01% 0.45% After expense reimbursement and earnings credits 1.14% 1.60% 1.24% 2.17% 0.64% Portfolio turnover rate 48% 37% 50% 206% 117%
* 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 has not been annualized. Returns do not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of Fund shares. -------------------------------------------------------------------------------- See accompanying notes to financial statements. 155 UBS INTERNATIONAL EQUITY FUND--FINANCIAL HIGHLIGHTS -------------------------------------------------------------------------------- THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH PERIOD PRESENTED.
YEAR ENDED JUNE 30, --------------------------------------------- CLASS A 2006 2005 2004 2003 2002 ------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of year $ 9.48 $ 8.58 $ 6.99 $ 8.08 $10.61 ------- ------- ------ ------ ------ Income (loss) from investment operations: Net investment income** 0.16 0.15 0.12 0.10 0.13 Net realized and unrealized gain (loss) from investment activities 1.81 0.86 1.69 (0.87) (0.79) ------- ------- ------ ------ ------ Total income (loss) from investment operations 1.97 1.01 1.81 (0.77) (0.66) ------- ------- ------ ------ ------ Less dividends/distributions: From net investment income and net foreign currency gains (0.10) (0.11) (0.22) (0.31) (0.27) From net realized gains (0.37) -- -- (0.01) (1.60) ------- ------- ------ ------ ------ Total dividends/distributions (0.47) (0.11) (0.22) (0.32) (1.87) ------- ------- ------ ------ ------ Net asset value, end of year $ 10.98 $ 9.48 $ 8.58 $ 6.99 $ 8.08 ======= ======= ====== ====== ====== Total investment return+ 20.93% 11.73% 26.00% (9.24)% (5.91)% Ratios/Supplemental data: Net assets, end of year (in 000s) $23,539 $15,168 $7,866 $3,146 $2,599 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.48% 1.68% 1.55% 1.47% 1.41% After expense reimbursement and earnings credits 1.25% 1.25% 1.25% 1.25% 1.25% Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 1.29% 1.18% 1.13% 1.21% 1.38% After expense reimbursement and earnings credits 1.52% 1.61% 1.43% 1.43% 1.54% Portfolio turnover rate 69% 71% 108% 120% 82%
YEAR ENDED JUNE 30, FOR THE --------------------------------- PERIOD ENDED CLASS B 2006 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** 0.08 0.08 0.06 0.04 0.05 Net realized and unrealized gain (loss) from investment activities 1.77 0.85 1.67 (0.86) 0.25 ------ ------ ------ ------ ----- Total income (loss) from investment operations 1.85 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) -- ------ ------ ------ ------ ----- Total dividends/distributions (0.37) (0.07) (0.17) (0.31) -- ------ ------ ------ ------ ----- Net asset value, end of period $10.82 $ 9.34 $ 8.48 $ 6.92 $8.05 ====== ====== ====== ====== ===== Total investment return+ 19.86% 10.92% 25.17% (9.94)% 3.87% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 732 $ 876 $ 815 $ 352 $ 120 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 2.22% 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 to average net assets: Before expense reimbursement and earnings credits 0.55% 0.61% 0.09% 0.50% 1.45%*** After expense reimbursement and earnings credits 0.77% 0.86% 0.69% 0.68% 1.50%*** Portfolio turnover rate 69% 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 has not been annualized. Returns do not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of Fund shares. -------------------------------------------------------------------------------- See accompanying notes to financial statements. 156 UBS INTERNATIONAL EQUITY FUND--FINANCIAL HIGHLIGHTS -------------------------------------------------------------------------------- THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH PERIOD PRESENTED.
YEAR ENDED JUNE 30, FOR THE ---------------------------------- PERIOD ENDED CLASS C 2006 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 ** 0.08 0.08 0.06 0.04 0.04 Net realized and unrealized gain (loss) from investment activities 1.77 0.85 1.68 (0.89) 0.26 ------ ------ ------ ------- ----- Total income (loss) from investment operations 1.85 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 distributions (0.39) (0.08) (0.19) (0.30) -- ------ ------ ------ ------- ----- Net asset value, end of period $10.76 $ 9.30 $ 8.45 $ 6.90 $8.05 ====== ====== ====== ======= ===== Total return+ 19.93% 10.97% 25.26% (10.29)% 3.87% Ratios/Supplemental data: Net assets, end of period (in 000s) $2,412 $1,816 $1,338 $ 399 $ 183 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 2.17% 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 to average net assets: Before expense reimbursement and earnings credits 0.60% 0.70% 0.34% 0.47% 0.91%*** After expense reimbursement and earnings credits 0.77% 0.86% 0.69% 0.68% 1.10%*** Portfolio turnover rate 69% 71% 108% 120% 82%
YEAR ENDED JUNE 30, --------------------------------------------------- CLASS Y 2006 2005 2004 2003 2002 ------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of year $ 9.55 $ 8.63 $ 7.01 $ 8.12 $ 10.64 -------- -------- -------- ------- ------- Income (loss) from investment operations: Net investment income** 0.19 0.17 0.14 0.11 0.09 Net realized and unrealized gain (loss) from investment activities 1.79 0.86 1.71 (0.88) (0.74) -------- -------- -------- ------- ------- Total income (loss) from investment operations 1.98 1.03 1.85 (0.77) (0.65) -------- -------- -------- ------- ------- Less dividends/distributions: From net investment income and net foreign currency gains (0.12) (0.11) (0.23) (0.33) (0.27) From net realized gains (0.37) -- -- (0.01) (1.60) -------- -------- -------- ------- ------- Total distributions (0.49) (0.11) (0.23) (0.34) (1.87) -------- -------- -------- ------- ------- Net asset value, end of year $ 11.04 $ 9.55 $ 8.63 $ 7.01 $ 8.12 ======== ======== ======== ======= ======= Total return+ 21.22% 11.97% 26.56% (9.21)% (5.78)% Ratios/Supplemental data: Net assets, end of year (in 000s) $147,397 $113,264 $100,782 $90,514 $97,851 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.19% 1.18% 1.26% 1.21% 1.13% After expense reimbursement and earnings credits 1.00% 1.00% 1.00% 1.00% 1.00% Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 1.58% 1.68% 1.43% 1.47% 0.92% After expense reimbursement and earnings credits 1.77% 1.86% 1.69% 1.68% 1.05% Portfolio turnover rate 69% 71% 108% 120% 82%
* 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 has not been annualized. Returns do not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of Fund shares. -------------------------------------------------------------------------------- See accompanying notes to financial statements. 157 UBS U.S. LARGE CAP EQUITY FUND--FINANCIAL HIGHLIGHTS -------------------------------------------------------------------------------- THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH PERIOD PRESENTED.
YEAR ENDED JUNE 30, --------------------------------------------- CLASS A 2006 2005 2004 2003 2002 ---------------------------------------------------------------------------------------- Net asset value, beginning of year $ 17.27 $ 16.08 $13.63 $13.94 $ 15.97 ------- ------- ------ ------ ------- Income (loss) from investment operations: Net investment income** 0.10 0.15 0.06 0.11 0.08 Net realized and unrealized gain (loss) from investment activities 1.39 1.63 2.54 0.04 (1.38) ------- ------- ------ ------ ------- Total income (loss) from investment operations 1.49 1.78 2.60 0.15 (1.30) ------- ------- ------ ------ ------- Less dividends/distributions: From net investment income (0.11) (0.11) (0.15) (0.08) (0.04) From net realized gains (0.41) (0.48) -- (0.38) (0.69) ------- ------- ------ ------ ------- Total dividends/distributions (0.52) (0.59) (0.15) (0.46) (0.73) ------- ------- ------ ------ ------- Net asset value, end of year $ 18.24 $ 17.27 $16.08 $13.63 $ 13.94 ======= ======= ====== ====== ======= Total investment return+ 8.62% 11.10% 19.10% 1.37% (8.41)% Ratios/Supplemental data: Net assets, end of year (in 000s) $88,968 $25,669 $7,886 $4,702 $13,698 Ratio of expenses to average net assets: Before expense reimbursement/recoupment and earnings credits 1.24% 1.14% 1.36% 1.30% 1.19% After expense reimbursement/recoupment and earnings credits 1.24% 1.14% 1.30% 1.05% 1.05% Ratio of net investment income to average net assets: Before expense reimbursement/recoupment and earnings credits 0.54% 0.89% 0.37% 0.64% 0.40% After expense reimbursement/recoupment and earnings credits 0.54% 0.89% 0.43% 0.89% 0.54% Portfolio turnover rate 50% 32% 43% 33% 60%
YEAR ENDED JUNE 30, FOR THE ----------------------------------- PERIOD ENDED CLASS B 2006 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)** (0.04) 0.00# (0.05) 0.02 0.06 Net realized and unrealized gain (loss) from investment activities 1.35 1.61 2.50 0.02 (0.22) ------ ------ ------ ------ ------ Total income (loss) from investment operations 1.31 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 $17.84 $16.94 $15.81 $13.45 $13.87 ====== ====== ====== ====== ====== Total investment return+ 7.73% 10.19% 18.25% 0.63% (1.39)% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 989 $1,018 $1,217 $ 635 $ 223 Ratio of expenses to average net assets: Before expense reimbursement/recoupment and earnings credits 2.01% 2.02% 2.04% 2.04% 1.99%*** After expense reimbursement/recoupment and earnings credits 2.01% 2.02% 2.04% 1.80% 1.80%*** Ratio of net investment income (loss) to average net assets: Before expense reimbursement/recoupment and earnings credits (0.23)% 0.01% (0.31)% (0.10)% 0.46%*** After expense reimbursement/recoupment and earnings credits (0.23)% 0.01% (0.31)% 0.14% 0.65%*** Portfolio turnover rate 50% 32% 43% 33% 60%
* For the period November 5, 2001 (commencement of issuance) through June 30, 2002. ** The net investment income (loss) 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 has not been annualized. Returns do not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of Fund shares. # Amount is less than $0.01 per share. -------------------------------------------------------------------------------- See accompanying notes to financial statements. 158 UBS U.S. LARGE CAP EQUITY FUND--FINANCIAL HIGHLIGHTS -------------------------------------------------------------------------------- THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH PERIOD PRESENTED.
YEAR ENDED JUNE 30, FOR THE ----------------------------------- PERIOD ENDED CLASS C 2006 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)** (0.04) 0.01 (0.04) 0.02 0.07 Net realized and unrealized gain (loss) from investment activities 1.36 1.60 2.49 0.03 (0.66) ------ ------ ------ ------ ------ Total income (loss) from investment operations 1.32 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 $17.83 $16.93 $15.80 $13.44 $13.88 ====== ====== ====== ====== ====== Total investment return+ 7.79% 10.20% 18.26% 0.68% (4.18)% Ratios/Supplemental data: Net assets, end of period (in 000s) $5,977 $2,423 $1,629 $1,020 $ 70 Ratio of expenses to average net assets: Before expense reimbursement/recoupment and earnings credits 1.98% 1.95% 2.00% 2.04% 1.97%*** After expense reimbursement/recoupment and earnings credits 1.98% 1.95% 2.00% 1.80% 1.80%*** Ratio of net investment income (loss) to average net assets: Before expense reimbursement/recoupment and earnings credits (0.20)% 0.08% (0.27)% (0.10)% 0.56%*** After expense reimbursement/recoupment and earnings credits (0.20)% 0.08% (0.27)% 0.14% 0.73%*** Portfolio turnover rate 50% 32% 43% 33% 60%
YEAR ENDED JUNE 30, -------------------------------------------------- CLASS Y 2006 2005 2004 2003 2002 --------------------------------------------------------------------------------------------- Net asset value, beginning of year $ 17.42 $ 16.21 $ 13.73 $ 14.07 $ 16.07 -------- -------- -------- ------- ------- Income (loss) from investment operations: Net investment income** 0.15 0.19 0.12 0.14 0.12 Net realized and unrealized gain (loss) from investment activities 1.40 1.65 2.55 0.04 (1.39) -------- -------- -------- ------- ------- Total income (loss) from investment operations 1.55 1.84 2.67 0.18 (1.27) -------- -------- -------- ------- ------- Less dividends/distributions: From net investment income (0.13) (0.15) (0.19) (0.14) (0.04) From net realized gains (0.41) (0.48) -- (0.38) (0.69) -------- -------- -------- ------- ------- Total dividends/distributions (0.54) (0.63) (0.19) (0.52) (0.73) -------- -------- -------- ------- ------- Net asset value, end of year $ 18.43 $ 17.42 $ 16.21 $ 13.73 $ 14.07 ======== ======== ======== ======= ======= Total investment return+ 8.91% 11.37% 19.50% 1.69% (8.17)% Ratios/Supplemental data: Net assets, end of year (in 000s) $543,099 $367,268 $153,608 $99,398 $87,710 Ratio of expenses to average net assets: Before expense reimbursement/recoupment and earnings credits 0.97% 0.90% 0.96% 1.04% 0.93% After expense reimbursement/recoupment and earnings credits 0.97% 0.90% 0.96% 0.80% 0.80% Ratio of net investment income to average net assets: Before expense reimbursement/recoupment and earnings credits 0.81% 1.13% 0.76% 0.90% 0.66% After expense reimbursement/recoupment and earnings credits 0.81% 1.13% 0.76% 1.14% 0.79% Portfolio turnover rate 50% 32% 43% 33% 60%
* For the period November 13, 2001 (commencement of issuance) through June 30, 2002. ** The net investment income (loss) 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 has not been annualized. Returns do not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of Fund shares. -------------------------------------------------------------------------------- See accompanying notes to financial statements. 159 UBS U.S. LARGE CAP GROWTH FUND--FINANCIAL HIGHLIGHTS -------------------------------------------------------------------------------- THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH PERIOD PRESENTED.
YEAR ENDED JUNE 30, ----------------------------------------------- CLASS A 2006 2005 2004 2003 2002 ------------------------------------------------------------------------------------------ Net asset value, beginning of year $ 8.21 $ 7.71 $ 6.39 $ 6.38 $ 8.90 ------ ------ ------ ------ ------- Income (loss) from investment operations: Net investment income (loss)** (0.01) 0.00# (0.02) 0.00# (0.02) Net realized and unrealized gain (loss) from investment activities 0.61 0.50 1.34 0.01 (2.45) ------ ------ ------ ------ ------- Total income (loss) from investment operations 0.60 0.50 1.32 0.01 (2.47) ------ ------ ------ ------ ------- Less dividends/distributions: From net investment income (0.00)# -- -- -- -- From net realized gains -- -- -- -- (0.05) ------ ------ ------ ------ ------- Total dividends/distributions (0.00) -- -- -- (0.05) ------ ------ ------ ------ ------- Net asset value, end of year $ 8.81 $ 8.21 $ 7.71 $ 6.39 $ 6.38 ====== ====== ====== ====== ======= Total investment return+ 7.33% 6.49% 20.66% 0.16% (27.89)% Ratios/Supplemental data: Net assets, end of year (in 000s) $6,803 $3,175 $2,275 $1,163 $ 1,155 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 2.33% 3.19% 2.76% 3.91% 2.51% After expense reimbursement and earnings credits 1.05% 1.05% 1.05% 1.05% 1.05% Ratio of net investment income (loss) to average net assets: Before expense reimbursement and earnings credits (1.44)% (2.10)% (2.03)% (2.82)% (1.71)% After expense reimbursement and earnings credits (0.16)% 0.04% (0.32)% 0.04% (0.25)% Portfolio turnover rate 137% 145% 102% 86% 93%
YEAR ENDED JUNE 30, FOR THE ------------------------------------ PERIOD ENDED CLASS B 2006 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** (0.08) (0.05) (0.08) (0.04) (0.05) Net realized and unrealized gain (loss) from investment activities 0.60 0.48 1.33 -- (1.40) ------ ------ ------ ------ ------- Total income (loss) from investment operations 0.52 0.43 1.25 (0.04) (1.45) ------ ------ ------ ------ ------- Less dividends/distributions: From net realized gains -- -- -- -- (0.05) ------ ------ ------ ------ ------- Net asset value, end of period $ 8.52 $ 8.00 $ 7.57 $ 6.32 $ 6.36 ====== ====== ====== ====== ======= Total investment return+ 6.50% 5.68% 19.78% (0.63)% (18.61)% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 389 $ 564 $ 342 $ 321 $ 115 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 3.23% 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 (2.34)% (2.84)% (2.75)% (3.45)% (2.28)%*** After expense reimbursement and earnings credits (0.91)% (0.71)% (1.07)% (0.71)% (1.02)%*** Portfolio turnover rate 137% 145% 102% 86% 93%
* For the period November 7, 2001 (commencement of issuance) through June 30, 2002. ** The net investment income (loss) 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 has not been annualized. Returns do not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of Fund shares. # Amount is less than $0.01 per share. See accompanying notes to financial statements. -------------------------------------------------------------------------------- 160 UBS U.S. LARGE CAP GROWTH FUND--FINANCIAL HIGHLIGHTS -------------------------------------------------------------------------------- THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH PERIOD PRESENTED.
YEAR ENDED JUNE 30, FOR THE ------------------------------------ PERIOD ENDED CLASS C 2006 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** (0.08) (0.05) (0.08) (0.04) (0.05) Net realized and unrealized gain (loss) from investment activities 0.61 0.49 1.32 0.01 (1.73) ------ ------ ------ ------ ------- Total income (loss) from investment operations 0.53 0.44 1.24 (0.03) (1.78) ------ ------ ------ ------ ------- Less dividends/distributions: From net realized gains -- -- -- -- (0.05) ------ ------ ------ ------ ------- Net asset value, end of period $ 8.53 $ 8.00 $ 7.56 $ 6.32 $ 6.35 ====== ====== ====== ====== ======= Total investment return+ 6.63% 5.82% 19.62% (0.47)% (21.91)% Ratios/Supplemental data: Net assets, end of year (in 000s) $ 814 $ 407 $ 432 $ 267 $ 572 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 3.12% 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 (2.23)% (2.87)% (2.81)% (3.62)% (2.44)%*** After expense reimbursement and earnings credits (0.91)% (0.71)% (1.08)% (0.71)% (1.02)%*** Portfolio turnover rate 137% 145% 102% 86% 93%
YEAR ENDED JUNE 30, ----------------------------------------------- CLASS Y 2006 2005 2004 2003 2002 ------------------------------------------------------------------------------------------ Net asset value, beginning of year $ 8.38 $ 7.85 $ 6.49 $ 6.47 $ 8.99 ------ ------ ------ ------ ------- Income (loss) from investment operations: Net investment income (loss) from investment activities 0.01 0.02 (0.01) 0.02 0.00# Net realized and unrealized gain (loss) 0.64 0.51 1.37 0.00# (2.47) ------ ------ ------ ------ ------- Total income (loss) from investment operations 0.65 0.53 1.36 0.02 (2.47) ------ ------ ------ ------ ------- Less dividends/distributions: From net investment income (0.01) -- -- -- -- From net realized gains -- -- -- -- (0.05) ------ ------ ------ ------ ------- Total dividends/distributions (0.01) -- -- -- (0.05) ------ ------ ------ ------ ------- Net asset value, end of year $ 9.02 $ 8.38 $ 7.85 $ 6.49 $ 6.47 ====== ====== ====== ====== ======= Total investment return+ 7.72% 6.75% 20.96% 0.31% (27.61)% Ratios/Supplemental data: Net assets, end of year (in 000s) $4,797 $3,078 $3,502 $1,943 $ 2,291 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 2.10% 3.01% 2.51% 3.72% 2.14% After expense reimbursement and earnings credits 0.80% 0.80% 0.80% 0.80% 0.80% Ratio of net investment income (loss) to average net assets: Before expense reimbursement and earnings credits (1.21)% (1.92)% (1.78)% (2.62)% (1.39)% After expense reimbursement and earnings credits 0.09% 0.29% (0.07)% 0.29% (0.05)% Portfolio turnover rate 137% 145% 102% 86% 93%
* For the period November 19, 2001 (commencement of issuance) through June 30, 2002. ** The net investment income (loss) 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 has not been annualized. Returns do not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of Fund shares. # Amount is less than $0.01 per share. See accompanying notes to financial statements. -------------------------------------------------------------------------------- 161 UBS U.S. LARGE CAP VALUE EQUITY FUND--FINANCIAL HIGHLIGHTS -------------------------------------------------------------------------------- THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH PERIOD PRESENTED.
YEAR ENDED JUNE 30, FOR THE --------------------------------------- PERIOD ENDED CLASS A 2006 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** 0.11 0.12 0.09 0.11 0.05 Net realized and unrealized gain (loss) from investment activities 1.12 1.22 1.80 (0.06) (0.64) -------- -------- -------- ------ ------ Total income (loss) from investment operations 1.23 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 $ 10.54 $ 10.48 $ 11.18 $ 9.31 $ 9.37 ======== ======== ======== ====== ====== Total investment return+ 12.13% 12.35% 20.28% 0.61% (5.92)% Ratios/Supplemental data: Net assets, end of period (in 000s) $105,709 $105,975 $108,369 $1,073 $ 751 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.31% 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 0.86% 0.80% 0.54% (0.42)% (1.85)%*** After expense reimbursement and earnings credits 1.07% 1.09% 0.86% 1.33% 0.87%*** Portfolio turnover rate 41% 49% 170% 59% 39%
YEAR ENDED JUNE 30, FOR THE ---------------------------------- PERIOD ENDED CLASS B 2006 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** 0.03 0.04 0.01 0.05 0.01 Net realized and unrealized gain (loss) from investment activities 1.10 1.20 1.77 (0.07) (0.31) ------ ------ ------- ------ ------ Total income (loss) from investment operations 1.13 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 $10.39 $10.31 $ 10.99 $ 9.21 $ 9.32 ====== ====== ======= ====== ====== Total investment return+ 11.25% 11.59% 19.38% (0.17)% (3.12)% Ratios/Supplemental data: Net assets, end of period (in 000s) $1,978 $4,997 $14,556 $ 709 $ 301 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 2.15% 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 0.02% (0.16)% (0.35)% (0.99)% (2.72)%*** After expense reimbursement and earnings credits 0.32% 0.34% 0.11% 0.58% 0.09%*** Portfolio turnover rate 41% 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 has not been annualized. Returns do not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of Fund shares. # Amount is less than $0.01 per share. See accompanying notes to financial statements. -------------------------------------------------------------------------------- 162 UBS U.S. LARGE CAP VALUE EQUITY FUND--FINANCIAL HIGHLIGHTS -------------------------------------------------------------------------------- THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH PERIOD PRESENTED.
YEAR ENDED JUNE 30, FOR THE ---------------------------------------- PERIOD ENDED CLASS C 2006 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** 0.03 0.04 0.01 0.05 0.00# Net realized and unrealized gain (loss) from investment activities 1.10 1.20 1.77 (0.07) (0.40) ------- ------- -------- ------ ------ Total income (loss) from investment operations 1.13 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 $ 10.34 $ 10.30 $ 11.00 $ 9.22 $ 9.33 ======= ======= ======== ====== ====== Total investment return+ 11.26% 11.62% 19.34% (0.13)% (4.11)% Ratios/Supplemental data: Net assets, end of period (in 000s) $15,683 $17,235 $ 19,530 $1,025 $ 234 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 2.08% 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 0.09% 0.00%~ (0.21)% (0.61)% (2.68)%*** After expense reimbursement and earnings credits 0.32% 0.34% 0.11% 0.58% 0.05%*** Portfolio turnover rate 41% 49% 170% 59% 39%
YEAR ENDED JUNE 30, FOR THE --------------------------------- PERIOD ENDED CLASS Y 2006 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** 0.14 0.14 0.11 0.13 0.11 Net realized and unrealized gain (loss) from investment activities 1.12 1.24 1.80 (0.06) (0.73) ------ ------ ------ ------ ------ Total income (loss) from investment operations 1.26 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 $10.58 $10.52 $11.22 $ 9.33 $ 9.38 ====== ====== ====== ====== ====== Total investment return+ 12.37% 12.74% 20.49% 0.89% (6.20)% Ratios/Supplemental data: Net assets, end of period (in 000s) $7,172 $5,760 $4,516 $4,790 $2,819 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.06% 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 1.11% 1.06% 0.68% (0.19) (1.17)%` After expense reimbursement and earnings credits 1.32% 1.34% 1.10% 1.58% 1.13%*** Portfolio turnover rate 41% 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 has not been annualized. Returns do not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of Fund shares. ~ Amount represents less than 0.005%. # Amount is less than $0.01 per share. -------------------------------------------------------------------------------- See accompanying notes to financial statements. 163 UBS U.S. MID CAP GROWTH EQUITY FUND--FINANCIAL HIGHLIGHTS -------------------------------------------------------------------------------- THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH PERIOD PRESENTED. FOR THE PERIOD ENDED CLASS A JUNE 30, 2006* -------------------------------------------------------------------------------- Net asset value, beginning of period $10.15 ------ Loss from investment operations: Net investment loss** (0.02) Net realized and unrealized loss from investment activities (0.53) ------ Total loss from investment operations (0.55) ------ Net asset value, end of period $ 9.60 ====== Total investment return+ (5.42)% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 162 Ratio of expenses to average net assets: Before expense reimbursement 6.59%*** After expense reimbursement 1.45%*** Ratio of net investment loss to average net assets: Before expense reimbursement (6.01)%*** After expense reimbursement (0.87)%*** Portfolio turnover rate 12% * For the period March 31, 2006 (commencement of issuance) through June 30, 2006. ** The net investment loss 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 has not been annualized. Returns do not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of Fund shares. -------------------------------------------------------------------------------- See accompanying notes to financial statements. 164 UBS U.S. MID CAP GROWTH EQUITY FUND--FINANCIAL HIGHLIGHTS -------------------------------------------------------------------------------- THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH PERIOD PRESENTED. FOR THE PERIOD ENDED CLASS C JUNE 30, 2006* -------------------------------------------------------------------------------- Net asset value, beginning of period $10.41 ------ Loss from investment operations: Net investment loss** (0.03) Net realized and unrealized loss from investment activities (0.80) ------ Total loss from investment operations (0.83) ------ Net asset value, end of period $ 9.58 ------ Total investment return+ (7.97)% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 67 Ratio of expenses to average net assets: Before expense reimbursement 7.52%*** After expense reimbursement 2.20%*** Ratio of net investment loss to average net assets: Before expense reimbursement (6.94)%*** After expense reimbursement (1.62)%*** Portfolio turnover rate 12% FOR THE PERIOD ENDED CLASS Y JUNE 30, 2006* -------------------------------------------------------------------------------- Net asset value, beginning of period $10.00 ------ Loss from investment operations: Net investment loss** (0.02) Net realized and unrealized loss from investment activities (0.37) ------ Total loss from investment operations (0.39) ------ Net asset value, end of period $ 9.61 ====== Total investment return+ (3.90)% Ratios/Supplemental data: Net assets, end of period (in 000s) $4,805 Ratio of expenses to average net assets: Before expense reimbursement 5.90%*** After expense reimbursement 1.20%*** Ratio of net investment loss to average net assets: Before expense reimbursement (5.31)%*** After expense reimbursement (0.61)%*** Portfolio turnover rate 12% * For the periods April 21, 2006 and March 27, 2006 (commencement of issuance of Class C and Y, respectively), through June 30, 2006. ** The net investment loss 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 has not been annualized. Returns do not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of Fund shares. -------------------------------------------------------------------------------- See accompanying notes to financial statements. 165 UBS U.S. SMALL CAP GROWTH FUND--FINANCIAL HIGHLIGHTS -------------------------------------------------------------------------------- THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH PERIOD PRESENTED.
YEAR ENDED JUNE 30, ---------------------------------------------------- CLASS A 2006 2005 2004 2003 2002 ---------------------------------------------------------------------------------------------------------- Net asset value, beginning of year $ 13.65 $ 12.41 $ 10.00 $ 9.79 $ 11.76 -------- -------- ------- ------ ------- Income (loss) from investment operations: Net investment loss** (0.12) (0.11) (0.11) (0.08) (0.11) Net realized and unrealized gain (loss) from investment activities 1.45 1.55 2.55 0.29 (1.42) -------- -------- ------- ------ ------- Total income (loss) from investment operations 1.33 1.44 2.44 0.21 (1.53) -------- -------- ------- ------ ------- Less dividends/distributions: From net realized gains (0.57) (0.20) (0.03) -- (0.44) -------- -------- ------- ------ ------- Net asset value, end of year $ 14.41 $ 13.65 $ 12.41 $10.00 $ 9.79 ======== ======== ======= ====== ======= Total investment return+ 9.88% 11.63% 24.45% 2.14% (13.18)% Ratios/Supplemental data: Net assets, end of year (in 000s) $151,731 $110,795 $73,833 $9,841 $ 1,789 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.50% 1.59% 1.56% 1.71% 1.69% After expense reimbursement and earnings credits 1.28% 1.28% 1.28% 1.40% 1.40% Ratio of net investment loss to average net assets: Before expense reimbursement and earnings credits (1.04)% (1.19)% (1.16)% (1.21)% (1.35)% After expense reimbursement and earnings credits (0.82)% (0.88)% (0.90)% (0.90)% (1.06)% Portfolio turnover rate 49% 50% 75% 69% 71%
YEAR ENDED JUNE 30, FOR THE ------------------------------------ PERIOD ENDED CLASS B 2006 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** (0.22) (0.20) (0.20) (0.14) (0.11) Net realized and unrealized gain from investment activities 1.41 1.52 2.51 0.28 0.12 ------ ------ ------- ------ ------ Total income from investment operations 1.19 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 $13.91 $13.29 $ 12.17 $ 9.89 $ 9.75 ====== ====== ======= ====== ====== Total investment return+ 9.09% 10.86% 23.40% 1.44% (0.11)% Ratios/Supplemental data: Net assets, end of period (in 000s) $5,598 $9,592 $11,683 $1,132 $ 656 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 2.39% 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 loss to average net assets: Before expense reimbursement and earnings credits (1.93)% 2.13% (2.14)% (1.97)% (1.93)%*** After expense reimbursement and earnings credits (1.57)% 1.63% (1.62)% (1.65)% (1.62)%*** Portfolio turnover rate 49% 50% 75% 69% 71%
* For the period November 7, 2001 (commencement of issuance) through June 30, 2002. ** The net investment loss 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 has not been annualized. Returns do not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of Fund shares. -------------------------------------------------------------------------------- See accompanying notes to financial statements. 166 UBS U.S. SMALL CAP GROWTH FUND--FINANCIAL HIGHLIGHTS -------------------------------------------------------------------------------- THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH PERIOD PRESENTED.
YEAR ENDED JUNE 30, FOR THE ------------------------------------ PERIOD ENDED CLASS C 2006 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** (0.22) (0.20) (0.20) (0.14) (0.10) Net realized and unrealized gain (loss) from investment activities 1.40 1.52 2.51 0.28 (0.09) ------ ------ ------ ------ ------ Total income (loss) from investment operations 1.18 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 $13.89 $13.28 $12.16 $ 9.88 $ 9.74 ====== ====== ======= ====== ====== Total investment return+ 9.02% 10.87% 23.43% 1.44% (2.04)% Ratios/Supplemental data: Net assets, end of period (in 000s) $8,329 $8,661 $9,580 $ 757 $ 410 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 2.31% 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 (1.85)% (2.05)% (2.13)% (1.97)% (1.90)%*** After expense reimbursement and earnings credits (1.57)% (1.63)% (1.63)% (1.65)% (1.59)%*** Portfolio turnover rate 49% 50% 75% 69% 71%
YEAR ENDED JUNE 30, ------------------------------------------------------- CLASS Y 2006 2005 2004 2003 2002 ------------------------------------------------------------------------------------------------------------- Net asset value, beginning of year $ 13.93 $ 12.63 $ 10.15 $ 9.92 $ 11.86 -------- -------- ------- ------- ------- Income (loss) from investment operations: Net investment loss** (0.08) (0.08) (0.08) (0.06) (0.09) Net realized and unrealized gain (loss) from investment activities 1.47 1.58 2.59 0.29 (1.41) -------- -------- ------- ------- ------- Total income (loss) from investment operations 1.39 1.50 2.51 0.23 (1.50) -------- -------- ------- ------- ------- Less dividends/distributions: From net realized gains (0.57) (0.20) (0.03) -- (0.44) -------- -------- ------- ------- ------- Net asset value, end of year $ 14.75 $ 13.93 $ 12.63 $ 10.15 $ 9.92 ======== ======== ======= ======= ======= Total investment return+ 10.12% 11.90% 24.78% 2.32% (12.90)% Ratios/Supplemental data: Net assets, end of year (in 000s) $269,696 $146,725 $91,406 $39,785 $36,318 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.13% 1.14% 1.21% 1.49% 1.41% After expense reimbursement and earnings credits 1.03% 1.03% 1.03% 1.15% 1.15% Ratio of net investment loss to average net assets: Before expense reimbursement and earnings credits (0.67)% (0.74)% (0.81)% (1.00)% (1.07)% After expense reimbursement and earnings credits (0.57)% (0.63)% (0.66)% (0.66)% (0.81)% Portfolio turnover rate 49% 50% 75% 69% 71%
* For the period November 19, 2001 (commencement of issuance) through June 30, 2002. ** The net investment loss 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 has not been annualized. Returns do not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of Fund shares. -------------------------------------------------------------------------------- See accompanying notes to financial statements. 167 UBS ABSOLUTE RETURN BOND FUND--FINANCIAL HIGHLIGHTS -------------------------------------------------------------------------------- THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH PERIOD PRESENTED.
FOR THE FOR THE YEAR ENDED PERIOD ENDED CLASS A JUNE 30, 2006 JUNE 30, 2005* --------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 9.98 $ 10.00 -------- -------- Income (loss) from investment operations: Net investment income** 0.28 0.03 Net realized and unrealized gain (loss) from investment activities 0.18 (0.02) -------- -------- Total income from investment operations 0.46 0.01 -------- -------- Less dividends/distributions: From net investment income and net foreign currency gains (0.29) (0.03) From net realized gains (0.01) -- -------- -------- Total dividends/distributions (0.30) (0.03) -------- -------- Net asset value, end of period $ 10.14 $ 9.98 ======== ======== Total investment return+ 4.65% 0.06% Ratios/Supplemental data: Net assets, end of period (in 000s) $212,983 $105,373 Ratio of expenses to average net assets: Before expense reimbursement/recoupment 0.96% 1.31%*** After expense reimbursement/recoupment 0.99% 1.00%*** Ratio of net investment income to average net assets: Before expense reimbursement/recoupment 2.81% 1.44%*** After expense reimbursement/recoupment 2.78% 1.75%*** Portfolio turnover rate 96% 22%
FOR THE FOR THE YEAR ENDED PERIOD ENDED CLASS C JUNE 30, 2006 JUNE 30, 2005* --------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 9.98 $ 10.00 ------- ------- Income (loss) from investment operations: Net investment income** 0.24 0.02 Net realized and unrealized gain (loss) from investment activities 0.18 (0.02) ------- ------- Total income from investment operations 0.42 0.00 ------- ------- Less dividends/distributions: From net investment income and net foreign currency gains (0.25) (0.02) From net realized gains (0.01) -- ------- ------- Total dividends/distributions (0.26) (0.02) ------- ------- Net asset value, end of period $ 10.14 $ 9.98 ======= ======= Total investment return+ 4.30% 0.01% Ratios/Supplemental data: Net assets, end of period (in 000s) $30,618 $16,973 Ratio of expenses to average net assets: Before expense reimbursement/recoupment 1.32% 1.68%*** After expense reimbursement/recoupment 1.35% 1.35%*** Ratio of net investment income to average net assets: Before expense reimbursement/recoupment 2.45% 1.07%*** After expense reimbursement/recoupment 2.42% 1.40%*** Portfolio turnover rate 96% 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 has not been annualized. Returns do not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of Fund shares. -------------------------------------------------------------------------------- See accompanying notes to financial statements. 168 UBS ABSOLUTE RETURN BOND FUND--FINANCIAL HIGHLIGHTS -------------------------------------------------------------------------------- THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH PERIOD PRESENTED.
FOR THE FOR THE YEAR ENDED PERIOD ENDED CLASS Y JUNE 30, 2006 JUNE 30, 2005* --------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 9.98 $ 10.00 -------- ------- Income (loss) from investment operations: Net investment income** 0.30 0.03 Net realized and unrealized gain (loss) from investment activities 0.19 (0.02) -------- ------- Total income from investment operations 0.49 0.01 -------- ------- Less dividends/distributions: From net investment income and net foreign currency gains (0.31) (0.03) From net realized gains (0.01) -- -------- ------- Total dividends/distributions (0.32) (0.03) -------- ------- Net asset value, end of period $ 10.15 $ 9.98 ======== ======= Total investment return+ 4.94% 0.09% Ratios/Supplemental data: Net assets, end of period (in 000s) $232,208 $20,004 Ratio of expenses to average net assets: Before expense reimbursement/recoupment 0.77% 1.11%*** After expense reimbursement/recoupment 0.77% 0.85%*** Ratio of net investment income to average net assets: Before expense reimbursement/recoupment 3.00% 1.64%*** After expense reimbursement/recoupment 3.00% 1.90%*** Portfolio turnover rate 96% 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 has not been annualized. Returns do not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of Fund shares. -------------------------------------------------------------------------------- See accompanying notes to financial statements. 169 UBS GLOBAL BOND FUND--FINANCIAL HIGHLIGHTS -------------------------------------------------------------------------------- THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH PERIOD PRESENTED.
YEAR ENDED JUNE 30, ---------------------------------------------- CLASS A 2006 2005 2004 2003 2002* ------------------------------------------------------------------------------------------------------ Net asset value, beginning of year $ 9.83 $ 9.87 $ 10.24 $ 9.01 $ 8.58 ------- ------- ------- ------- ------ Income from investment operations: Net investment income** 0.19 0.17 0.19 0.24 0.17 Net realized and unrealized gain (loss) from investment activities (0.15) 0.34 0.35 1.21 0.43 ------- ------- ------- ------- ------ Total income from investment operations 0.04 0.51 0.54 1.45 0.60 ------- ------- ------- ------- ------ Less dividends/distributions: From net investment income and net foreign currency gains (0.37) (0.55) (0.91) (0.22) -- From return of capital -- -- -- -- (0.17) ------- ------- ------- ------- ------ Total dividends/distributions (0.37) (0.55) (0.91) (0.22) (0.17) ------- ------- ------- ------- ------ Net asset value, end of year $ 9.50 $ 9.83 $ 9.87 $ 10.24 $ 9.01 ======= ======= ======= ======= ====== Total investment return+ 0.51% 5.05% 5.21% 16.34% 7.18% Ratios/Supplemental data: Net assets, end of year (in 000s) $15,546 $16,701 $14,610 $11,659 $1,925 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.48% 1.48% 1.55% 1.53% 1.49% After expense reimbursement and earnings credits 1.15% 1.15% 1.15% 1.15% 1.15% Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 1.64% 1.32% 1.44% 2.06% 2.72% After expense reimbursement and earnings credits 1.97% 1.65% 1.84% 2.44% 3.06% Portfolio turnover rate 114% 112% 186% 145% 157%
YEAR ENDED JUNE 30, FOR THE ------------------------------------- PERIOD ENDED CLASS B 2006 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** 0.12 0.09 0.11 0.16 0.11 Net realized and unrealized gain (loss) from investment activities (0.15) 0.35 0.35 1.23 0.69 ------ ------ ------ ------ ------ Total income (loss) from investment operations (0.03) 0.44 0.46 1.39 0.80 ------ ------ ------ ------ ------ Less dividends/distributions: From net investment income and net foreign currency gains (0.30) (0.47) (0.83) (0.15) -- From return of capital -- -- -- -- (0.14) ------ ------ ------ ------ ------ Total dividends/distributions (0.30) (0.47) (0.83) (0.15) (0.14) ------ ------ ------ ------ ------ Net asset value, end of period $ 9.52 $ 9.85 $ 9.88 $10.25 $ 9.01 ====== ====== ====== ====== ====== Total investment return+ (0.26)% 4.29% 4.38% 15.61% 9.67% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 420 $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 0.87% 0.50% 0.66% 1.29% 1.94%*** After expense reimbursement and earnings credits 1.22% 0.90% 1.09% 1.69% 2.29%*** Portfolio turnover rate 114% 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 has not been annualized. Returns do not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of Fund shares. -------------------------------------------------------------------------------- See accompanying notes to financial statements. 170 UBS GLOBAL BOND FUND--FINANCIAL HIGHLIGHTS -------------------------------------------------------------------------------- THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH PERIOD PRESENTED.
YEAR ENDED JUNE 30, FOR THE --------------------------- PERIOD ENDED CLASS C 2006 2005 2004 JUNE 30, 2003* ---------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 9.81 $ 9.85 $10.23 $ 9.00 ------ ------ ------ ------ Income from investment operations: Net investment income** 0.14 0.12 0.14 0.19 Net realized and unrealized gain (loss) from investment activities (0.15) 0.35 0.34 1.22 ------ ------ ------ ------ Total income (loss) from investment operations (0.01) 0.47 0.48 1.41 ------ ------ ------ ------ Less dividends/distributions: From net investment income and net foreign currency gains (0.33) (0.51) (0.86) (0.18) ------ ------ ------ ------ Net asset value, end of period $ 9.47 $ 9.81 $ 9.85 $10.23 ====== ====== ====== ====== Total investment return+ (0.09)% 4.60% 4.64% 15.84% Ratios/Supplemental data: Net assets, end of period (in 000s) $2,426 $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 1.24% 0.88% 1.00% 1.58%*** After expense reimbursement and earnings credits 1.47% 1.15% 1.34% 1.94%*** Portfolio turnover rate 114% 112% 186% 145%
YEAR ENDED JUNE 30, ----------------------------------------------- CLASS Y 2006 2005 2004 2003 2002 ------------------------------------------------------------------------------------------------------- Net asset value, beginning of year $ 10.84 $ 10.83 $ 11.16 $ 9.79 $ 8.57 ------- ------- ------- ------- ------- Income (loss) from investment operations: Net investment income** 0.23 0.21 0.23 0.28 0.31 Net realized and unrealized gain (loss) from investment activities (0.17) 0.38 0.38 1.33 1.09 ------- ------- ------- ------- ------- Total income from investment operations 0.06 0.59 0.61 1.61 1.40 ------- ------- ------- ------- ------- Less dividends/distributions: From net investment income and net foreign currency gains (0.39) (0.58) (0.94) (0.24) -- From return of capital -- -- -- -- (0.18) ------- ------- ------- ------- ------- Total distributions (0.39) (0.58) (0.94) (0.24) (0.18) ------- ------- ------- ------- ------- Net asset value, end of year $ 10.51 $ 10.84 $ 10.83 $ 11.16 $ 9.79 ======= ======= ======= ======= ======= Total investment return+ 0.65% 5.36% 5.43% 16.72% 16.57% Ratios/Supplemental data: Net assets, end of year (in 000s) $80,536 $52,345 $41,016 $35,484 $34,421 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.16% 1.16% 1.24% 1.32% 1.17% After expense reimbursement and earnings credits 0.90% 0.90% 0.90% 0.90% 0.90% Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 1.96% 1.64% 1.75% 2.27% 3.14% After expense reimbursement and earnings credits 2.22% 1.90% 2.09% 2.69% 3.41% Portfolio turnover rate 114% 112% 186% 145% 157%
* For period July 2, 2002 (commencement of issuance) through June 30, 2003. ** The net investment income per share data was determined by using average shares outstanding throughout the period. *** Annualized. + Total investment return is calculated assuming a $10,000 investment on the first day of each period reported, reinvestment of all dividends and distributions, if any, at net asset value on the ex-dividend dates, and a sale at net asset value on the last day of each period reported. The figures do not include any applicable sales charges; results would be lower if they were included. Total investment return for periods of less than one year has not been annualized. Returns do not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of Fund shares. -------------------------------------------------------------------------------- See accompanying notes to financial statements. 171 UBS HIGH YIELD FUND--FINANCIAL HIGHLIGHTS -------------------------------------------------------------------------------- THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH PERIOD PRESENTED.
YEAR ENDED JUNE 30, ----------------------------------------------- CLASS A 2006 2005 2004 2003 2002 ------------------------------------------------------------------------------------------------------- Net asset value, beginning of year $ 7.14 $ 7.06 $ 6.84 $ 6.36 $ 7.87 ------- ------- ------- ------- ------- Income (loss) from investment operations: Net investment income** 0.55 0.57 0.58 0.56 0.76 Net realized and unrealized gain (loss) from investment activities (0.24) 0.10 0.22 0.50 (0.96) ------- ------- ------- ------- ------- Total income (loss) from investment operations 0.31 0.67 0.80 1.06 (0.20) ------- ------- ------- ------- ------- Less dividends/distributions: From net investment income (0.56) (0.59) (0.58) (0.58) (1.31) ------- ------- ------- ------- ------- Net asset value, end of year $ 6.89 $ 7.14 $ 7.06 $ 6.84 $ 6.36 ======= ======= ======= ======= ======= Total investment return+ 4.48% 9.66% 12.15% 17.70% (3.01)% Ratios/Supplemental data: Net assets, end of year (in 000s) $51,121 $66,677 $72,614 $76,309 $65,832 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.37% 1.28% 1.31% 1.29% 1.26% After expense reimbursement and earnings credits 1.20% 1.20% 1.20% 0.95% 0.95% Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 7.69% 7.75% 8.16% 8.38% 10.71% After expense reimbursement and earnings credits 7.86% 7.83% 8.27% 8.72% 11.02% Portfolio turnover rate 64% 61% 80% 71% 120%
YEAR ENDED JUNE 30, FOR THE ------------------------------------- PERIOD ENDED CLASS B 2006 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** 0.50 0.51 0.53 0.51 0.45 Net realized and unrealized gain (loss) from investment activities (0.25) 0.10 0.23 0.50 (0.61) ------ ------ ------ ------- ------- Total income (loss) from investment operations 0.25 0.61 0.76 1.01 (0.16) ------ ------ ------ ------- ------- Less dividends/distributions: From net investment income (0.50) (0.53) (0.53) (0.53) (0.51) ------ ------ ------ ------- ------- Net asset value, end of period $ 6.89 $ 7.14 $ 7.06 $ 6.83 $ 6.35 ====== ====== ====== ======= ======= Total investment return+ 3.69% 8.79% 11.48% 16.83% (2.70)% Ratios/Supplemental data: Net assets, end of period (in 000s) $2,497 $3,945 $7,844 $13,130 $15,692 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 2.09% 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 6.97% 7.04% 7.43% 7.62% 9.88%*** After expense reimbursement and earnings credits 7.11% 7.08% 7.53% 7.97% 10.23%*** Portfolio turnover rate 64% 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 has not been annualized. Returns do not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of Fund shares. -------------------------------------------------------------------------------- See accompanying notes to financial statements. 172 UBS HIGH YIELD FUND--FINANCIAL HIGHLIGHTS -------------------------------------------------------------------------------- THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH PERIOD PRESENTED.
YEAR ENDED JUNE 30, FOR THE ------------------------------------- PERIOD ENDED CLASS C 2006 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** 0.52 0.53 0.55 0.53 0.46 Net realized and unrealized gain (loss) from investment activities (0.25) 0.10 0.22 0.51 (0.61) ------- ------- ------- ------- ------- Total income (loss) from investment operations 0.27 0.63 0.77 1.04 (0.15) ------- ------- ------- ------- ------- Less dividends/distributions: From net investment income (0.52) (0.55) (0.55) (0.55) (0.52) ------- ------- ------- ------- ------- Net asset value, end of period $ 6.89 $ 7.14 $ 7.06 $ 6.84 $ 6.35 ======= ======= ======= ======= ======= Total investment return 3.95% 9.09% 11.59% 17.29% (2.54)% Ratios/Supplemental data: Net assets, end of period (in 000s) $12,177 $15,389 $17,499 $18,969 $17,947 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.86% 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 7.20% 7.24% 7.66% 7.88% 10.15%*** After expense reimbursement and earnings credits 7.36% 7.33% 7.78% 8.22% 10.49%*** Portfolio turnover rate 64% 61% 80% 71% 120%
YEAR ENDED JUNE 30, ----------------------------------------------- CLASS Y 2006 2005 2004 2003 2002 ------------------------------------------------------------------------------------------------------- Net asset value, beginning of year $ 7.17 $ 7.10 $ 6.87 $ 6.38 $ 7.90 ------- ------- ------- ------- ------- Income (loss) from investment operations: Net investment income** 0.57 0.59 0.61 0.58 0.81 Net realized and unrealized gain (loss) from investment activities (0.24) 0.09 0.23 0.50 (1.01) ------- ------- ------- ------- ------- Total income (loss) from investment operations 0.33 0.68 0.84 1.08 (0.20) ------- ------- ------- ------- ------- Less dividends/distributions: From net investment income (0.58) (0.61) (0.61) (0.59) (1.32) ------- ------- ------- ------- ------- Net asset value, end of year $ 6.92 $ 7.17 $ 7.10 $ 6.87 $ 6.38 ======= ======= ======= ======= ======= Total investment return 4.72% 9.82% 12.66% 18.08% (2.98)% Ratios/Supplemental data: Net assets, end of year (in 000s) $33,015 $30,277 $48,038 $71,819 $40,120 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.06% 0.96% 0.92% 1.05% 1.02% After expense reimbursement and earnings credits 0.95% 0.95% 0.92% 0.70% 0.70% Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 8.00% 8.07% 8.55% 8.62% 10.77% After expense reimbursement and earnings credits 8.11% 8.08% 8.55% 8.97% 11.09% Portfolio turnover rate 64% 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 has not been annualized. Returns do not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of Fund shares. -------------------------------------------------------------------------------- See accompanying notes to financial statements. 173 UBS U.S. BOND FUND--FINANCIAL HIGHLIGHTS -------------------------------------------------------------------------------- THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH PERIOD PRESENTED.
YEAR ENDED JUNE 30, ----------------------------------------------- CLASS A 2006 2005 2004 2003 2002 -------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of year $ 10.73 $ 10.56 $ 10.99 $ 10.51 $ 10.33 ------- ------- ------- ------- ------- Income (loss) from investment operations: Net investment income** 0.40 0.39 0.39 0.42 0.53 Net realized and unrealized gain (loss) from investment activities (0.42) 0.20 (0.37) 0.52 0.32 ------- ------- ------- ------- ------- Total income (loss) from investment operations (0.02) 0.59 0.02 0.94 0.85 ------- ------- ------- ------- ------- Less dividends/distributions: From net investment income (0.44) (0.42) (0.45) (0.46) (0.67) ------- ------- ------- ------- ------- Net asset value, end of year $ 10.27 $ 10.73 $ 10.56 $ 10.99 $ 10.51 ======= ======= ======= ======= ======= Total investment return+ (0.07)% 5.72% 0.18% 9.17% 8.41% Ratios/Supplemental data: Net assets, end of year (in 000s) $31,285 $34,282 $31,420 $31,337 $18,558 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.07% 1.19% 1.11% 1.04% 1.21% After expense reimbursement and earnings credits 0.85% 0.85% 0.85% 0.85% 0.86%++ Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 3.57% 3.27% 3.32% 3.70% 4.68% After expense reimbursement and earnings credits 3.79% 3.61% 3.58% 3.89% 5.03% Portfolio turnover rate 229% 174% 137% 180% 452%
YEAR ENDED JUNE 30, FOR THE --------------------------------- PERIOD ENDED CLASS B 2006 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** 0.32 0.31 0.30 0.34 0.29 Net realized and unrealized gain (loss) from investment activities (0.42) 0.21 (0.36) 0.52 (0.22) ------ ------ ------ ------ ------ Total income (loss) from investment operations (0.10) 0.52 (0.06) 0.86 0.07 ------ ------ ------ ------ ------ Less dividends/distributions: From net investment income (0.36) (0.34) (0.35) (0.39) (0.33) ------ ------ ------ ------ ------ Net asset value, end of period $10.28 $10.74 $10.56 $10.97 $10.50 ====== ====== ====== ====== ====== Total investment return+ (0.93)% 4.96% (0.55)% 8.30% 0.70% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 808 $1,620 $2,043 $3,646 $1,405 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 1.83% 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 2.81% 2.46% 2.42% 2.95% 3.93%*** After expense reimbursement and earnings credits 3.04% 2.86% 2.82% 3.14% 4.29%*** Portfolio turnover rate 229% 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 has not been annualized. Returns do not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of Fund shares. ++ The ratio of net operating expenses to average net assets for Class A was 0.85%. -------------------------------------------------------------------------------- See accompanying notes to financial statements. 174 UBS U.S. BOND FUND--FINANCIAL HIGHLIGHTS -------------------------------------------------------------------------------- THE TABLE BELOW SETS FORTH FINANCIAL DATA FOR ONE SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH PERIOD PRESENTED.
YEAR ENDED JUNE 30, FOR THE --------------------------------- PERIOD ENDED CLASS C 2006 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** 0.34 0.33 0.33 0.37 0.31 Net realized and unrealized gain (loss) from investment activities (0.41) 0.22 (0.37) 0.52 (0.24) ------ ------ ------ ------ ------ Total income (loss) from investment operations (0.07) 0.55 (0.04) 0.89 0.07 ------ ------ ------ ------ ------ Less dividends/distributions: From net investment income (0.39) (0.38) (0.39) (0.41) (0.34) ------ ------ ------ ------ ------ Net asset value, end of period $10.26 $10.72 $10.55 $10.98 $10.50 ====== ====== ====== ====== ====== Total investment return+ (0.67)% 5.25% (0.37)% 8.65% 0.72% Ratios/Supplemental data: Net assets, end of period (in 000s) $1,530 $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 3.08% 2.82% 2.78% 3.20% 4.32%*** After expense reimbursement and earnings credits 3.29% 3.11% 3.08% 3.39% 4.58%*** Portfolio turnover rate 229% 174% 137% 180% 452%
YEAR ENDED JUNE 30, ------------------------------------------------- CLASS Y 2006 2005 2004 2003 2002 ---------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of year $ 10.72 $ 10.57 $ 11.01 $ 10.53 $ 10.35 -------- -------- ------- ------- ------- Income (loss) from investment operations: Net investment income** 0.42 0.41 0.41 0.45 0.56 Net realized and unrealized gain (loss) from investment activities (0.41) 0.21 (0.37) 0.52 0.31 -------- -------- ------- ------- ------- Total income from investment operations 0.01 0.62 0.04 0.97 0.87 -------- -------- ------- ------- ------- Less dividends/distributions: From net investment income (0.46) (0.47) (0.48) (0.49) (0.69) -------- -------- ------- ------- ------- Net asset value, end of year $ 10.27 $ 10.72 $ 10.57 $ 11.01 $ 10.53 ======== ======== ======= ======= ======= Total investment return+ 0.14% 5.95% 0.40% 9.42% 8.59% Ratios/Supplemental data: Net assets, end of year (in 000s) $105,526 $109,568 $89,281 $78,807 $59,740 Ratio of expenses to average net assets: Before expense reimbursement and earnings credits 0.82% 0.78% 0.80% 0.79% 0.80% After expense reimbursement and earnings credits 0.60% 0.60% 0.60% 0.60% 0.64%++ Ratio of net investment income to average net assets: Before expense reimbursement and earnings credits 3.82% 3.68% 3.63% 3.95% 5.10% After expense reimbursement and earnings credits 4.04% 3.86% 3.83% 4.14% 5.26% Portfolio turnover rate 229% 174% 137% 180% 452%
* 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 has not been annualized. Returns do not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of Fund shares. ++ The ratio of net operating expenses to average net assets for Class Y was 0.60%. -------------------------------------------------------------------------------- See accompanying notes to financial statements. 175 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 (the "1940 Act"), 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 thirteen Funds available for investment, each having its own investment objectives and policies: UBS Dynamic Alpha Fund, 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, UBS U.S. Mid Cap Growth Equity Fund, UBS U.S. Small Cap Growth Fund, UBS Absolute Return Bond Fund, UBS Global Bond Fund, UBS High Yield Fund and UBS U.S. Bond Fund (each a "Fund", and collectively, the "Funds"). Each of the Funds is classified as a "diversified" investment company with the exception of UBS Dynamic Alpha Fund, UBS U.S. Large Cap Growth Fund, UBS Absolute Return Bond Fund and UBS Global Bond Fund which are classified as "non-diversified" for purposes of the 1940 Act. Each Fund currently offer Class A, Class B, Class C and Class Y shares, except for UBS Absolute Return Bond Fund and UBS U.S. Mid Cap Growth Equity Fund, which offer 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 US 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 US 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 -------------------------------------------------------------------------------- 176 THE UBS FUNDS--NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- 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 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, if any of the Funds 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 US 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 the 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 US 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 -------------------------------------------------------------------------------- 177 THE UBS FUNDS--NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- 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 US 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 US dollars or other appropriate currency, an amount of foreign currency, to the extent that the value of the short forward contract is covered by the underlying value of securities denominated in the currency being sold. Alternatively, when a Fund enters into a forward contract to sell an amount of foreign currency, the Fund's custodian or sub-custodian will place 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 forward 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 will 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: Certain 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, US 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 June 30, 2006 the UBS Global Allocation Fund, UBS Absolute Return Bond Fund and UBS U.S. Bond Fund held TBA securities with a total cost of $23,337,656, $21,673,406 and $2,182,659, respectively. -------------------------------------------------------------------------------- 178 THE UBS FUNDS--NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- G. SWAP AGREEMENTS: The Funds (except for 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. Small Cap Growth Fund and UBS High Yield Fund) may engage in swaps, including but not limited to interest rate, currency, credit default and equity swaps. A Fund expects to enter into these transactions to preserve a return or spread on a particular investment or portion of the portfolio's duration, to protect against any increase in the price of securities the Fund anticipates purchasing at a later date, or to gain exposure to certain markets in the most economical way possible. Certain Funds may enter into interest rate swap agreements with another party to receive or pay interest (e.g., an exchange of fixed rate payments for floating rate payments) 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. Credit default swap agreements involve commitments to pay interest and principal in the event of a default of a security. As a buyer, the Fund would make periodic payments to the counterparty, and the Fund would receive payments only upon the occurrence of a credit event. If no credit event occurs, the Fund will lose its periodic stream of payments over the term of the contract. However, if a credit event does occur, the Fund typically would receive full notional value for a reference obligation that may have little or no value. Credit default swaps may involve greater risks than if the Fund had invested in the reference obligation directly and are subject to general market risk, liquidity risk and credit risk. The use of swaps involves investment techniques and risks different from those associated with ordinary portfolio security transactions. If UBS Global AM is incorrect in its forecast of market values, interest rates and other applicable factors, the investment performance of the Funds will be less favorable than it would have been if this investment technique was never used. Swaps do not involve the delivery of securities or other underlying assets or principal, and are subject to counterparty risk. If the other party to a swap defaults and fails to consummate the transaction, a Fund's risk of loss will consist of the net amount of interest payments that the Fund is contractually entitled to receive. 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 the Fund. Therefore, the Fund would consider the creditworthiness of the counterparty to a swap contract in evaluating potential credit risk. The Funds will accrue for interim payments on swap contracts on a daily basis, with the net amount recorded within unrealized appreciation/depreciation of swap contracts on the Statements 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 Statements of Operations. Fluctuations in the value of swap contracts are recorded for financial statement purposes as unrealized appreciation or depreciation of swaps. -------------------------------------------------------------------------------- 179 THE UBS FUNDS--NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- At June 30, 2006, 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 TERMINATION PAYMENTS MADE PAYMENTS RECEIVED APPRECIATION/ NOTIONAL AMOUNT DATES BY THE FUND BY THE FUND (DEPRECIATION) ------------------- ----------- ------------- ----------------- -------------- CHF 45,000,000 05/09/15 2.3725% 1.5683%+ $ 2,056,136 CHF 20,000,000 05/19/16 3.1850 1.5500+ (62,446) CHF 25,000,000 10/27/15 2.2675 1.5000+ 1,165,189 CHF 20,000,000 12/19/15 2.5600 1.6200+ 563,270 CHF 45,000,000 03/02/16 2.5625 1.3400+ 1,650,749 GBP 62,300,000 12/09/35 --@ --@ 459,265 GBP 80,000,000 12/09/35 4.3175 4.7863++ 5,474,380 GBP 42,300,000 01/19/36 --@ --@ (1,209,320) GBP 56,400,000 01/19/36 4.0010 4.8456++ 9,283,210 JPY 1,600,000,000 05/09/35 2.2513 0.2313+++ 1,241,456 JPY 675,000,000 07/12/35 2.2550 0.5006+++ 485,283 JPY 1,200,000,000 10/27/35 2.4400 0.0775+++ 531,479 JPY 700,000,000 12/19/35 2.4700 0.4050+++ 297,434 JPY 1,000,000,000 05/19/36 2.7200 0.3150+++ (43,209) JPY 1,500,000,000 03/02/36 2.4625 0.1213+++ 571,467 ----------- $22,464,343 ===========
@ Zero Coupon Inflation Swap. Cash is exchanged at the end of the swap. The dollar amount to be paid/received by the Fund is based on the RPI (Retail Price Index in the U.K.) as published by the Office of National Statistics. + 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: CHF Swiss Franc GBP British Pound JPY Japanese Yen
UBS U.S. BOND FUND ----------------------------------------------------------------------------------- RATE TYPE --------------------------------- UNREALIZED TERMINATION PAYMENTS MADE PAYMENTS RECEIVED APPRECIATION/ NOTIONAL AMOUNT DATES BY THE FUND BY THE FUND (DEPRECIATION) ---------------- ----------- ------------- ----------------- -------------- USD 30,000,000 06/13/09 5.2982%@ 5.3965% $(107,933) USD 8,000,000 06/13/17 5.5575 5.2982@ 112,501 --------- $ 4,568 =========
@ Payments made based on 3 Month LIBOR CURRENCY TYPE ABBREVIATION: USD United States Dollar -------------------------------------------------------------------------------- 180 THE UBS FUNDS--NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- At June 30, 2006 UBS Dynamic Alpha Fund had outstanding credit default swap contracts with the following terms:
RATE TYPE --------------------------------- UNREALIZED TERMINATION PAYMENTS MADE PAYMENTS RECEIVED APPRECIATION/ NOTIONAL AMOUNT DATES BY THE FUND BY THE FUND (DEPRECIATION) ----------------- ----------- ------------- ----------------- -------------- USD 151,000,000 12/20/10 1.800%* 0.000%** $ (64,433) USD 80,000,000 06/20/11 1.350* 0.000** 536,683 --------- $ 472,250 =========
* Payments made by the Fund are based on notional amount. ** Payments made by counterparty will be made upon the occurrence of a negative credit event. CURRENCY TYPE ABBREVIATION: USD United States Dollar H. OPTION WRITING: Certain Funds may write (sell) put and call options on foreign or US securities indices 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 year ended June 30, 2006 for UBS Dynamic Alpha Fund was as follows: AMOUNT OF NUMBER OF PREMIUMS CONTRACTS RECEIVED --------- ----------- Options outstanding at June 30, 2005 -- -- Options written 5,976 $ 6,981,536 Options expired prior to exercise (2,307) (1,336,097) Options exercised (1,042) (1,878,943) ------ ----------- Options outstanding at June 30, 2006 2,627 $ 3,766,496 ====== =========== -------------------------------------------------------------------------------- 181 THE UBS FUNDS--NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- Written option activity for the year ended June 30, 2006 for U.S. Bond Fund was as follows: AMOUNT OF NUMBER OF PREMIUMS CONTRACTS RECEIVED --------- --------- Options outstanding at June 30, 2005 -- -- Options written 541 $ 93,051 Options expired prior to exercise (541) (93,051) ---- -------- Options outstanding at June 30, 2006 -- $ -- ==== ======== I. PURCHASED OPTIONS: Certain Funds may also purchase put and call options on foreign or U.S. securities and indices as well as exchange-listed call options on particular market segment indices to achieve temporary exposure to a specific industry or geographic region. 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. J. SHORT SALES: Certain Funds may enter into short sales whereby the Fund sells a security it generally does not own, in anticipation of a decline in the security's price. The initial amount of a short sale is recorded as a liability which is marked to market daily. Fluctuations in the value of this liability are recorded as unrealized gains or losses on the Statement of Operations. If the Fund shorts a security when also holding a long position in the security (a "short against the box"), as the security price declines, the short position increases in value, offsetting the long position's decrease in value. The opposite effect occurs if the security price rises. The Fund will realize a gain or loss upon closing of the short sale (returning the security to the counterparty by way of purchase or delivery of a long position owned). The Fund is liable to the buyer for any dividends payable on securities while those securities are in a short position. These dividends are booked as an expense of the Fund. The Fund designates collateral consisting of cash, US government securities or other liquid assets sufficient to collateralize the market value of short positions. K. 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 US 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 mainly due to service and distribution related expenses. L. 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 US companies and US government securities. -------------------------------------------------------------------------------- 182 THE UBS FUNDS--NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- 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. 2. INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES UBS Global Asset Management (Americas) Inc. (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 Dynamic Alpha Fund 0.850% 0.800% 0.750% 0.725% 0.700% 0.700% UBS Global Allocation Fund 0.800 0.750 0.700 0.675 0.650 0.630 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. Mid Cap Growth Equity Fund 0.850 0.800 0.775 0.775 0.775 0.775 UBS U.S. Small Cap Growth Fund 0.850 0.850 0.825 0.825 0.825 0.825 UBS Absolute Return Bond Fund 0.550 0.500 0.475 0.450 0.425 0.425 UBS Global Bond Fund 0.750 0.700 0.650 0.600 0.550 0.550 UBS High Yield Fund 0.600 0.550 0.525 0.525 0.525 0.525 UBS U.S. Bond Fund 0.500 0.475 0.450 0.425 0.400 0.400
$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%
On June 2, 2006, the Board approved a change in investment advisory fees for the UBS Global Allocation Fund and the UBS Global Bond Fund to the following breakpoint schedule effective July 1, 2006: AVERAGE DAILY NET ASSETS ADVISORY FEE ------------------------ ------------ UBS GLOBAL ALLOCATION FUND $0 to $500 million 0.800% On the next $500 million to $1.0 billion 0.750 On the next $1.0 billion to $1.5 billion 0.700 On the next $1.5 billion to $2.0 billion 0.675 On the next $2.0 billion to $3.0 billion 0.650 On the next $3.0 billion to $6.0 billion 0.630 On amounts above $6.0 billion 0.610 -------------------------------------------------------------------------------- 183 THE UBS FUNDS--NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- AVERAGE DAILY NET ASSETS ADVISORY FEE ------------------------ ------------ UBS GLOBAL BOND FUND $0 to $1.5 billion 0.650% On the next $1.5 billion to $2.0 billion 0.600 On amounts above $2.0 billion 0.550 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 year ended June 30, 2006, were as follows:
CLASS A CLASS B CLASS C CLASS Y ADVISORY FEES WAIVED/ FUND EXPENSE CAP EXPENSE CAP EXPENSE CAP EXPENSE CAP FEES REIMBURSED ---- ----------- ----------- ----------- ----------- ----------- ------------ UBS Dynamic Alpha Fund 1.35% 2.10% 2.10% 1.10% $12,866,217 -- UBS Global Allocation Fund N/A N/A N/A N/A 24,475,987 -- UBS Global Equity Fund 1.25 2.00 2.00 1.00 3,328,109 $492,239 UBS International Equity Fund 1.25 2.00 2.00 1.00 1,268,153 299,965 UBS U.S. Large Cap Equity Fund 1.30 2.05 2.05 1.05 3,660,532 -- UBS U.S. Large Cap Growth Fund 1.05 1.80 1.80 0.80 75,006 139,307 UBS U.S. Large Cap Value Equity Fund 1.10 1.85 1.85 0.85 938,504 290,288 UBS U.S. Mid Cap Growth Equity Fund 1.45 N/A* 2.20 1.20 11,333 51,294 UBS U.S. Small Cap Growth Fund 1.28 2.03 2.03 1.03 3,054,197 553,893 UBS Absolute Return Bond Fund 1.00 N/A* 1.35 0.85 1,973,974 -- UBS Global Bond Fund 1.15 1.90 1.65 0.90 590,120 218,370 UBS High Yield Fund 1.20 1.95 1.70 0.95 657,225 163,562 UBS U.S. Bond Fund 0.85 1.60 1.35 0.60 680,872 296,244
* UBS U.S. Mid Cap Growth Equity Fund and UBS Absolute Return Bond Fund do not offer Class B shares. Each Fund will reimburse the Advisor for 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 year ended June 30, 2006 are subject to repayment through June 30, 2009. At June 30, 2006, the following Funds had remaining fee waivers and expense reimbursements subject to repayment to the Advisor and respective dates of expiration as follows:
FEE WAIVERS/ EXPENSE REIMBURSEMENTS SUBJECT TO EXPIRES EXPIRES EXPIRES FUND REPAYMENT JUNE 30, 2007 JUNE 30, 2008 JUNE 30, 2009 ---- -------------- ------------- ------------- ------------- UBS Global Equity Fund--Class A $591,196 $238,725 $157,744 $194,727 UBS Global Equity Fund--Class B 835,733 390,500 271,790 173,443 UBS Global Equity Fund--Class C 533,811 254,518 155,224 124,069 UBS Global Equity Fund--Class Y 92,034 37,881 48,718 5,435
-------------------------------------------------------------------------------- 184 THE UBS FUNDS--NOTES TO FINANCIAL STATEMENTS --------------------------------------------------------------------------------
FEE WAIVERS/ EXPENSE REIMBURSEMENTS SUBJECT TO EXPIRES EXPIRES EXPIRES FUND REPAYMENT JUNE 30, 2007 JUNE 30, 2008 JUNE 30, 2009 ---- -------------- ------------- ------------- ------------- UBS International Equity Fund--Class A $110,592 $ 14,581 $ 49,413 $ 46,598 UBS International Equity Fund--Class B 7,500 3,430 2,359 1,711 UBS International Equity Fund--Class C 8,927 3,052 2,511 3,364 UBS International Equity Fund--Class Y 675,753 229,989 197,472 248,292 UBS U.S. Large Cap Equity Fund--Class A 3,428 3,428 -- -- UBS U.S. Large Cap Growth Fund--Class A 150,600 29,595 51,018 69,987 UBS U.S. Large Cap Growth Fund--Class B 19,995 6,094 7,933 5,968 UBS U.S. Large Cap Growth Fund--Class C 22,535 5,873 8,401 8,261 UBS U.S. Large Cap Growth Fund--Class Y 177,656 50,726 71,839 55,091 UBS U.S. Large Cap Value Equity Fund--Class A 750,942 211,954 312,029 226,959 UBS U.S. Large Cap Value Equity Fund--Class B 121,956 69,108 42,951 9,897 UBS U.S. Large Cap Value Equity Fund--Class C 145,832 44,157 62,485 39,190 UBS U.S. Large Cap Value Equity Fund--Class Y 49,216 19,559 15,415 14,242 UBS U.S. Mid Cap Growth Equity Fund--Class A 1,575 -- -- 1,575 UBS U.S. Mid Cap Growth Equity Fund--Class C 590 -- -- 590 UBS U.S. Mid Cap Growth Equity Fund--Class Y 60,262 -- -- 60,262 UBS U.S. Small Cap Growth Fund--Class A 691,987 121,354 272,585 298,048 UBS U.S. Small Cap Growth Fund--Class B 125,253 44,503 51,108 29,642 UBS U.S. Small Cap Growth Fund--Class C 96,155 33,446 38,249 24,460 UBS U.S. Small Cap Growth Fund--Class Y 426,722 114,628 110,351 201,743 UBS Global Bond Fund--Class A 162,974 53,343 54,654 54,977 UBS Global Bond Fund--Class B 14,452 6,816 5,301 2,335 UBS Global Bond Fund--Class C 28,101 12,045 9,933 6,123 UBS Global Bond Fund--Class Y 409,599 130,933 123,731 154,935 UBS High Yield Fund--Class A 238,967 84,599 55,259 99,109 UBS High Yield Fund--Class B 16,397 10,229 2,034 4,134 UBS High Yield Fund--Class C 60,372 22,340 15,374 22,658 UBS High Yield Fund--Class Y 41,960 -- 4,299 37,661 UBS U.S. Bond Fund--Class A 272,054 83,977 108,925 79,152 UBS U.S. Bond Fund--Class B 21,413 11,048 7,703 2,662 UBS U.S. Bond Fund--Class C 17,170 7,557 6,202 3,411 UBS U.S. Bond Fund--Class Y 538,375 158,431 168,925 211,019
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 year ended June 30, 2006, the Funds owed and incurred administrative fees as follows: ADMINISTRATIVE ADMINISTRATIVE FUND FEES OWED FEES INCURRED ---- -------------- -------------- UBS Dynamic Alpha Fund $156,574 $1,223,310 UBS Global Allocation Fund 236,758 2,647,366 UBS Global Equity Fund 25,930 341,125 UBS International Equity Fund 11,316 118,890 UBS U.S. Large Cap Equity Fund 38,290 369,892 UBS U.S. Large Cap Growth Fund 779 8,036 UBS U.S. Large Cap Value Equity Fund 7,985 100,554 UBS U.S. Mid Cap Growth Equity Fund 301 983 UBS U.S. Small Cap Growth Fund 24,689 269,488 -------------------------------------------------------------------------------- 185 THE UBS FUNDS--NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- ADMINISTRATIVE ADMINISTRATIVE FUND FEES OWED FEES INCURRED ---- -------------- -------------- UBS Absolute Return Bond Fund $28,563 $261,749 UBS Global Bond Fund 6,003 59,012 UBS High Yield Fund 6,273 82,153 UBS U.S. Bond Fund 8,527 102,131 The Funds may invest in shares of certain affiliated investment companies also sponsored by the Advisor. Investments in affiliated investment companies for the year ended June 30, 2006 were as follows:
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 $152,810,000 $ 82,000,000 $16,310,428 $29,896,195 $195,498,312 UBS International Equity Relationship Fund 481,650,000 -- -- 67,145,514 752,513,966 UBS Small Cap Equity Relationship Fund 96,156,384 -- -- 4,960,037 169,249,160 UBS U.S. Equity Alpha Relationship Fund 256,400,000 -- -- 8,489,737 264,889,737 UBS U.S. Large Cap Equity Relationship Fund 633,850,000 392,000,000 21,428,862 14,018,531 642,474,353 UBS Large Cap Growth Equity Relationship Fund 173,627,267 -- -- (7,383,660) 166,243,607 UBS High Yield Relationship Fund 1,000,000 17,059,296 659,296 (389,392) --
UBS GLOBAL ALLOCATION FUND ------------------------------------------ CHANGE IN NET NET UNREALIZED SALES REALIZED APPRECIATION/ AFFILIATES PURCHASES PROCEEDS GAIN (LOSS) (DEPRECIATION) VALUE ---------- ------------ ----------- ----------- -------------- ------------ UBS Corporate Bond Relationship Fund $ 40,850,000 -- -- $ (203,190) $ 40,646,810 UBS Emerging Markets Equity Relationship Fund 45,000,000 $90,000,000 $28,886,951 9,822,865 167,868,945 UBS High Yield Relationship Fund -- 30,000,000 2,433,502 (257,346) 31,640,230 UBS Small Cap Equity Relationship Fund 27,284,678 -- -- 7,205,720 118,431,390 UBS U.S. Securitized Mortgage Relationship Fund 122,295,000 -- -- 633,299 122,928,299
UBS GLOBAL EQUITY FUND ------------------------------------------- CHANGE IN NET NET UNREALIZED SALES REALIZED APPRECIATION/ AFFILIATES PURCHASES PROCEEDS GAIN (LOSS) (DEPRECIATION) VALUE ---------- ----------- ------------ ----------- -------------- ------------ UBS Emerging Markets Equity Completion Relationship Fund $16,300,000 -- -- $431,326 $16,731,326
-------------------------------------------------------------------------------- 186 THE UBS FUNDS--NOTES TO FINANCIAL STATEMENTS --------------------------------------------------------------------------------
UBS INTERNATIONAL EQUITY FUND --------------------------------------- CHANGE IN NET NET UNREALIZED SALES REALIZED APPRECIATION/ AFFILIATES PURCHASES PROCEEDS GAIN (LOSS) (DEPRECIATION) VALUE ---------- ---------- -------- ----------- -------------- ---------- UBS Emerging Markets Equity Completion Relationship Fund $7,000,000 -- -- $185,232 $7,185,232
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 $39,000,000 -- -- $972,709 $63,042,475
UBS GLOBAL BOND FUND ----------------------------------------- CHANGE IN NET NET UNREALIZED SALES REALIZED APPRECIATION/ AFFILIATES PURCHASES PROCEEDS GAIN (LOSS) (DEPRECIATION) VALUE ---------- --------- ---------- ----------- -------------- ----------- UBS U.S. Securitized Mortgage Relationship Fund $750,000 $1,800,000 $75,149 $130,959 $11,710,161
UBS U.S. BOND FUND ----------------------------------------- CHANGE IN NET NET UNREALIZED SALES REALIZED APPRECIATION/ AFFILIATES PURCHASES PROCEEDS GAIN (LOSS) (DEPRECIATION) VALUE ---------- ---------- ---------- ----------- -------------- ---------- UBS Corporate Bond Relationship Fund $4,650,000 $1,900,000 $(23,744) $(27,944) $2,698,312 UBS Opportunistic High Yield Relationship Fund 8,000,000 -- -- 26,848 8,026,848 UBS Opportunistic Emerging Markets Debt Relationship Fund 2,000,000 -- -- 6,713 2,006,713 UBS U.S. Securitized Mortgage Relationship Fund 9,400,000 -- -- 35,351 9,435,351
The Funds may invest in shares of the UBS Supplementary Trust -- U.S. Cash Management Prime Fund ("Supplementary Trust"). Supplementary Trust is managed by the Advisor and is offered as a cash management option only to mutual funds and certain other accounts managed by the Advisor. Supplementary Trust pays no management fees to the Advisor. Distributions received from Supplementary Trust are reflected as affiliated interest income in the Statements of Operations. Amounts relating to those investments at June 30, 2006 and for the year then ended were as follows:
% OF SALES INTEREST NET FUND PURCHASES PROCEEDS INCOME VALUE ASSETS ---- ------------ -------------- ----------- ------------ ------ UBS Global Allocation Fund $946,052,915 $1,200,275,127 $15,206,323 $207,914,294 5.33% UBS Global Equity Fund 84,455,083 85,510,773 62,844 -- -- UBS International Equity Fund 87,432,530 84,725,372 61,735 21,075,030 12.11 UBS U.S. Large Cap Equity Fund 298,719,552 293,871,058 734,568 18,145,640 2.84
-------------------------------------------------------------------------------- 187 THE UBS FUNDS--NOTES TO FINANCIAL STATEMENTS --------------------------------------------------------------------------------
% OF SALES INTEREST NET FUND PURCHASES PROCEEDS INCOME VALUE ASSETS ---- ------------ -------------- -------- ----------- ------ UBS U.S. Large Cap Growth Fund $ 8,682,944 $ 8,682,629 $ 13,979 $ 139,461 1.09% UBS U.S. Large Cap Value Equity Fund 29,238,180 29,278,713 60,451 903,587 0.69 UBS U.S. Small Cap Growth Fund 187,559,163 184,875,455 560,575 10,786,995 2.48 UBS Global Bond Fund 44,210,599 39,169,333 207,159 7,204,469 7.28 UBS High Yield Fund 56,629,544 55,909,249 117,329 982,605 0.99 UBS U.S. Bond Fund 109,066,007 112,544,879 373,219 7,844,306 5.64
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 Statements of Operations. Amounts relating to those investments at June 30, 2006 and for the year then ended were as follows:
% OF SALES INTEREST NET FUND PURCHASES PROCEEDS INCOME VALUE ASSETS ---- -------------- -------------- ---------- ----------- ------ UBS Dynamic Alpha Fund $1,327,201,978 $1,339,161,830 $3,069,633 $27,133,225 1.04% UBS U.S. Mid Cap Growth Equity Fund 482,352 421,480 1,133 60,872 1.21 UBS Absolute Return Bond Fund 355,775,384 327,631,393 1,234,760 39,828,887 8.37
The following Funds have incurred brokerage commissions with an affiliated broker-dealer. Amounts relating to those transactions for the year ended June 30, 2006, were as follows: FUND UBS AG ---- ------- UBS Global Allocation Fund $40,852 UBS U.S. Large Cap Equity Fund 6,525 UBS U.S. Large Cap Growth Fund 21 UBS U.S. Large Cap Value Equity Fund 1,000 UBS U.S. Small Cap Growth Fund 125 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 -------------------------------------------------------------------------------- 188 THE UBS FUNDS--NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- FUND CLASS A CLASS B CLASS C ---- ------- ------- ------- UBS U.S. Mid Cap Growth Equity Fund 0.25% N/A* 1.00% UBS Dynamic Alpha Fund 0.25 1.00% 1.00 UBS U.S. Bond Fund 0.25 1.00 0.75 UBS Absolute Return Bond Fund 0.15 N/A* 0.50 UBS High Yield Fund 0.25 1.00 0.75 * UBS U.S. Mid Cap Growth Equity Fund and UBS Absolute Return Bond Fund do not offer Class B shares. UBS Global AM (US) also receives the proceeds of the initial 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 June 30, 2006 certain Funds owed UBS Global AM (US) service and distribution fees, and for the year ended June 30, 2006, certain Funds were informed by UBS Global AM (US) that it had earned sales charges as follows: SERVICE AND DISTRIBUTION SALES CHARGES FUND FEES OWED EARNED --------------------------------------------- ------------ ------------- UBS Dynamic Alpha Fund--Class A $352,070 $9,443,119 UBS Dynamic Alpha Fund--Class B 23,702 26,500 UBS Dynamic Alpha Fund--Class C 418,721 152,480 UBS Global Allocation Fund--Class A 451,812 6,728,098 UBS Global Allocation Fund--Class B 131,185 431,859 UBS Global Allocation Fund--Class C 845,579 238,317 UBS Global Equity Fund--Class A 35,240 108,003 UBS Global Equity Fund--Class B 11,196 201,452 UBS Global Equity Fund--Class C 46,367 2,882 UBS International Equity Fund--Class A 4,679 36,839 UBS International Equity Fund--Class B 584 1,615 UBS International Equity Fund--Class C 1,904 941 UBS U.S. Large Cap Equity Fund--Class A 17,612 195,276 UBS U.S. Large Cap Equity Fund--Class B 790 3,007 UBS U.S. Large Cap Equity Fund--Class C 4,729 1,386 UBS U.S. Large Cap Growth Fund--Class A 1,405 27,537 UBS U.S. Large Cap Growth Fund--Class B 318 8 UBS U.S. Large Cap Growth Fund--Class C 642 527 UBS U.S. Large Cap Value Equity Fund--Class A 23,090 46,062 UBS U.S. Large Cap Value Equity Fund--Class B 1,633 12,523 UBS U.S. Large Cap Value Equity Fund--Class C 13,049 63 UBS U.S. Mid Cap Growth Equity Fund--Class A 32 792 UBS U.S. Mid Cap Growth Equity Fund--Class C 53 -- UBS U.S. Small Cap Growth Fund--Class A 30,362 51,411 UBS U.S. Small Cap Growth Fund--Class B 4,514 25,979 UBS U.S. Small Cap Growth Fund--Class C 6,658 430 UBS Absolute Return Bond Fund--Class A 25,400 289,896 UBS Absolute Return Bond Fund--Class C 11,845 20,167 UBS Global Bond Fund--Class A 3,246 5,541 UBS Global Bond Fund--Class B 339 5,286 UBS Global Bond Fund--Class C 1,506 1,915 UBS High Yield Fund--Class A 11,083 84,838 UBS High Yield Fund--Class B 2,077 14,328 UBS High Yield Fund--Class C 7,610 1,162 -------------------------------------------------------------------------------- 189 THE UBS FUNDS--NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- SERVICE AND SALES DISTRIBUTION CHARGES FUND FEES OWED EARNED ---- ------------ ------- UBS U.S. Bond Fund--Class A $6,486 $17,973 UBS U.S. Bond Fund--Class B 667 2,103 UBS U.S. Bond Fund--Class C 930 156 4. REDEMPTION FEES UBS Dynamic Alpha Fund, UBS Global Allocation Fund, UBS Global Equity Fund and UBS International Equity Fund charge a 1.00% redemption fee if you sell or exchange Class A shares or Class Y shares less than 90 days after the purchase date. This amount is paid to the applicable 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. 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 year ended June 30, 2006, UBS Financial Services Inc. received total transfer agency and related services fees paid by the Funds to PFPC as follows: FUND AMOUNT PAID ---- ----------- UBS Dynamic Alpha Fund $397,654 UBS Global Allocation Fund 944,293 UBS Global Equity Fund 247,275 UBS International Equity Fund 8,268 UBS U.S. Large Cap Equity Fund 14,525 UBS U.S. Large Cap Growth Fund 2,916 UBS U.S. Large Cap Value Equity Fund 60,539 UBS U.S. Mid Cap Growth Equity Fund -- UBS U.S. Small Cap Growth Fund 42,383 UBS Absolute Return Bond Fund 57,737 UBS Global Bond Fund 15,118 UBS High Yield Fund 58,364 UBS U.S. Bond Fund 4,086 6. SECURITIES LENDING Each Fund may lend securities up to 331/3% of its total assets to qualified broker-dealers or institutional investors. The loans are secured at all times by cash, US 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, US 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 qualified broker-dealers, with the Funds' custodian acting as the Funds' lending agent. Cash collateral received is invested in -------------------------------------------------------------------------------- 190 THE UBS FUNDS--NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- interest bearing securities, which are included in the Schedules of Investments. In addition, the UBS Global Allocation Fund received US Government Agency securities as collateral amounting to $145,987,209, which cannot be resold. The value of loaned securities and related collateral outstanding at June 30, 2006, were as follows:
TOTAL COLLATERAL MARKET VALUE OF MARKET VALUE OF RECEIVED FOR INVESTMENTS OF SECURITIES SECURITIES CASH COLLATERAL FUND LOANED LOANED RECEIVED ---- --------------- ---------------- --------------- UBS Global Allocation Fund $231,020,118 $235,247,345 $89,260,136 UBS International Equity Fund 19,621,534 20,228,990 20,228,990
7. LINE OF CREDIT The Trust has entered into an agreement with JPMorgan Chase Bank to provide a 364-day $50 million committed line of credit to the Funds ("Committed Credit Facility") to be utilized for temporary financing until the settlement of shares or purchases of portfolio securities, the repurchase or redemption of shares 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 year ended June 30, 2006, were as follows:
NUMBER WEIGHTED AVERAGE AVERAGE DAILY OF DAYS INTEREST ANNUALIZED FUND BORROWINGS OUTSTANDING EXPENSE INTEREST RATES ---- ------------- ----------- -------- ---------------- UBS Global Equity Fund $7,599,429 7 $7,744 5.24% UBS International Equity Fund 4,512,727 11 6,434 4.67 UBS U.S. Large Cap Equity Fund 4,000,000 1 444 4.00 UBS Global Bond Fund 1,900,000 3 673 4.25 UBS U.S. Bond Fund 3,917,500 4 1,951 4.48
8. PURCHASES AND SALES OF SECURITIES For the year ended June 30, 2006, aggregate purchases and sales of portfolio securities, excluding short-term investments and US Government and agency securities, were as follows: FUND PURCHASES SALES PROCEEDS ---- -------------- -------------- UBS Dynamic Alpha Fund $2,082,587,680 $ 557,561,927 UBS Global Allocation Fund 2,310,093,848 1,648,570,088 UBS Global Equity Fund 215,966,388 284,386,700 UBS International Equity Fund 143,890,434 108,018,895 UBS U.S. Large Cap Equity Fund 444,922,841 238,272,223 UBS U.S. Large Cap Growth Fund 19,759,501 14,375,981 UBS U.S. Large Cap Value Equity Fund 55,007,059 71,970,399 UBS U.S. Mid Cap Growth Equity Fund 5,801,185 606,949 UBS U.S. Small Cap Growth Fund 306,117,868 170,204,494 UBS Absolute Return Bond Fund 578,158,029 290,083,680 UBS Global Bond Fund 81,493,736 67,498,171 UBS High Yield Fund 67,021,086 80,399,644 UBS U.S. Bond Fund 119,120,586 114,801,656 -------------------------------------------------------------------------------- 191 THE UBS FUNDS--NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- For the year ended June 30, 2006, aggregate purchases and sales of US Government securities, excluding short-term investments and US Government and agency securities, were as follows: FUND PURCHASES SALES PROCEEDS ---- -------------- -------------- UBS Global Allocation Fund $1,043,576,387 $955,707,446 UBS Global Bond Fund 22,302,884 16,972,056 UBS U.S. Bond Fund 185,426,970 192,401,541 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 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 years ended June 30, 2006 and June 30, 2005 were as follows:
2006 2005 --------------------------------------------- --------------------------------------------- DISTRIBUTIONS DISTRIBUTIONS DISTRIBUTIONS PAID FROM DISTRIBUTIONS PAID FROM PAID FROM NET LONG-TERM TOTAL PAID FROM NET LONG-TERM TOTAL ORDINARY CAPITAL DISTRIBUTIONS ORDINARY CAPITAL DISTRIBUTIONS FUND INCOME GAINS PAID INCOME GAINS PAID ---- ------------- ------------- ------------- ------------- ------------- ------------- UBS Dynamic Alpha Fund $ 7,212,627 $ 4,878,805 $ 12,091,432 -- -- -- UBS Global Allocation Fund 65,733,883 111,143,459 176,877,342 $61,142,280 $26,432,523 $87,574,803 UBS Global Equity Fund 2,442,591 -- 2,442,591 -- -- -- UBS International Equity Fund 2,158,708 4,706,815 6,865,523 1,435,132 -- 1,435,132 UBS U.S. Large Cap Equity Fund 5,777,509 7,141,858 12,919,367 1,656,696 5,535,537 7,192,233 UBS U.S. Large Cap Growth Fund 5,151 -- 5,151 -- -- -- UBS U.S. Large Cap Value Equity Fund 3,914,428 9,935,393 13,849,821 3,247,492 21,462,799 24,710,291 UBS U.S. Mid Cap Growth Equity Fund -- -- -- -- -- -- UBS U.S. Small Cap Growth Fund 503,650 13,307,966 13,811,616 -- 3,161,183 3,161,183 UBS Absolute Return Bond Fund 10,912,261 234,389 11,146,650 354,913 -- 354,913 UBS Global Bond Fund 2,962,657 -- 2,962,657 3,630,892 -- 3,630,892 UBS High Yield Fund 8,615,802 -- 8,615,802 11,449,762 -- 11,449,762 UBS U.S. Bond Fund 5,905,088 -- 5,905,088 5,675,397 -- 5,675,397
At June 30, 2006, the components of accumulated earnings (deficit) on a tax basis were as follows:
UNDISTRIBUTED UNDISTRIBUTED ACCUMULATED UNREALIZED ORDINARY LONG-TERM CAPITAL AND APPRECIATION/ FUND INCOME CAPITAL GAIN OTHER LOSSES (DEPRECIATION) ---- ------------- ------------- ------------- -------------- UBS Dynamic Alpha Fund -- -- $ (21,137,810) $127,354,929 UBS Global Allocation Fund $80,274,694 $136,831,188 -- 232,276,580 UBS Global Equity Fund 3,963,013 -- (779,285,514) 74,951,492 UBS International Equity Fund 5,444,227 4,145,996 (82,681) 37,625,680 UBS U.S. Large Cap Equity Fund 6,280,951 3,608,064 -- 60,530,223 UBS U.S. Large Cap Growth Fund -- -- (2,326,910) (93,432) UBS U.S. Large Cap Value Equity Fund 495,766 6,111,457 (570,220) 21,797,008 UBS U.S. Mid Cap Growth Equity Fund 3,189 -- (27,770) (174,525) UBS U.S. Small Cap Growth Fund 178,406 11,735,622 -- 46,587,007
-------------------------------------------------------------------------------- 192 THE UBS FUNDS--NOTES TO FINANCIAL STATEMENTS --------------------------------------------------------------------------------
UNDISTRIBUTED UNDISTRIBUTED ACCUMULATED UNREALIZED ORDINARY LONG-TERM CAPITAL AND APPRECIATION/ FUND INCOME CAPITAL GAIN OTHER LOSSES (DEPRECIATION) ---- ------------- ------------- ------------- ------------- UBS Absolute Return Bond Fund $4,222,014 $2,338,532 $ (3,242,558) $ 2,999,274 UBS Global Bond Fund 389,597 -- (1,668,111) 73,794 UBS High Yield Fund 169,576 -- (238,422,636) (2,201,649) UBS U.S. Bond Fund 48,988 -- (3,468,933) (2,605,786)
Due to inherent differences in the recognition of income, expenses and realized gains/losses under US generally accepted accounting principles and federal income tax purposes, permanent differences between book and tax basis reporting for the current fiscal year have been identified and appropriately reclassified. Reclassifications for the year ended June 30, 2006 were as follows:
ACCUMULATED UNDISTRIBUTED ACCUMULATED NET NET INVESTMENT REALIZEDGAIN BENEFICIAL FUND INCOME (LOSS) INTEREST ---- -------------- --------------- ------------ UBS Dynamic Alpha Fund $ (2,836,574) $ 4,383,508 $ (1,546,934) UBS Global Allocation Fund 21,421,808 16,236,963 (37,658,771) UBS Global Equity Fund 992,776 (1,140,200) 147,424 UBS International Equity Fund (105,465) 105,465 -- UBS U.S. Large Cap Equity Fund -- 4,360,980 (4,360,980) UBS U.S. Large Cap Growth Fund 14,572 -- (14,572) UBS U.S. Large Cap Value Equity Fund (142,881) (164,933) 307,814 UBS U.S. Mid Cap Growth Equity Fund 11,415 -- (11,415) UBS U.S. Small Cap Growth Fund 2,555,008 (2,503,077) (51,931) UBS Absolute Return Bond Fund (2,641,132) 3,840,963 (1,199,831) UBS Global Bond Fund (715,646) 1,448,291 (732,645) UBS High Yield Fund 111,838 11,276,119 (11,387,957) UBS U.S. Bond Fund 467,992 (444,249) (23,743)
At June 30, 2006, 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 EXPIRATION DATE 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 JUNE 30, 2014 ---- ------------- ------------- ------------- ------------- ------------- ------------- ------------- UBS Global Equity Fund $132,240,797+ $389,124,210+ $253,636,661+ $4,283,846 -- -- -- UBS U.S. Large Cap Growth Fund -- -- -- 1,723,135 $603,775 -- -- UBS U.S. Large Cap Value Equity Fund 213,382++ 83,503++ 273,335++ -- -- -- -- UBS U.S. Mid Cap Growth Equity Fund -- -- -- -- -- -- $ 27,770 UBS Global Bond Fund -- 269,385 -- -- -- -- -- UBS U.S. Bond Fund -- 404,247 -- -- 614,333 $140,847 630,558
+ Due to merger with UBS Strategy Fund, utilization of capital loss carryforwards in subsequent years may be limited. ++ Due to merger with UBS U.S. Large Cap Equity Fund, utilization of capital loss carryforwards in subsequent years may be limited. -------------------------------------------------------------------------------- 193 THE UBS FUNDS--NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- At June 30, 2006, 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 EXPIRATION EXPIRATION EXPIRATION EXPIRATION EXPIRATION EXPIRATION EXPIRATION DATE DATE DATE DATE DATE DATE DATE DATE JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, 2007 2008 2009 2010 2011 2012 2013 2014 ----------- ------------ ----------- ----------- ----------- ----------- ----------- ----------- $18,661,457+++ $98,009,332+++ $23,205,714+++ $6,612,767 $37,425,637 $15,791,570 $11,067,780 $22,213,870
+++ Due to merger with Paine Webber High Income Fund, utilization of capital loss carryforwards in subsequent years may be limited. The UBS High Yield Fund had capital loss carryforwards in the amount of $11,387,957 expire as of June 30, 2006. During the fiscal year ended June 30, 2006, the following Funds utilized capital loss carryforwards to offset current year realized gains: UBS Global Equity Fund $54,504,778 UBS U.S. Large Cap Growth Fund 1,031,479 UBS U.S. Large Cap Value Equity Fund 142,555 UBS Global Bond Fund 144,802 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, 2006, the following Funds incurred, and elected to defer, losses of the following: NET NET CAPITAL CURRENCY FUND LOSSES LOSSES ---- ---------- ----------- UBS Dynamic Alpha Fund -- $20,435,598 UBS International Equity Fund -- 82,681 UBS Absolute Return Bond Fund -- 3,242,558 UBS Global Bond Fund $ 249,805 862,543 UBS High Yield Fund 5,434,509 -- UBS U.S. Bond Fund 1,678,948 -- On July 13, 2006, the Financial Accounting Standards Board (FASB) released FASB Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" (FIN 48). FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Fund's tax returns to determine whether the tax positions are "more-likely-than-not" of being sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the current year. Adoption of FIN 48 is required for fiscal years beginning after December 15, 2006 and is to be applied to all open tax years as of the effective date. At this time, management is evaluating the implications of FIN 48 and its impact in the financial statements has not yet been determined. 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, UBS U.S. Mid Cap Growth Equity Fund and UBS U.S. Small Cap Growth Fund. These Funds have established commission recapture arrangements with certain participating brokers or dealers. If a Fund's investment -------------------------------------------------------------------------------- 194 THE UBS FUNDS--NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- manager chooses to execute a transaction through a participating broker subject to best price and execution, 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 following Funds recorded recaptured commissions which are reflected on the Statements of Operations within the net realized gains (losses) on investment activities: FUND AMOUNT ---- -------- UBS Global Equity Fund $155,250 UBS International Equity Fund 7,368 UBS U.S. Mid Cap Growth Equity Fund 484 UBS U.S. Large Cap Equity Fund 138,787 UBS U.S. Large Cap Value Equity Fund 5,807 11. CAPITAL CONTRIBUTIONS FROM ADVISOR During the period ended June 30, 2006, the Advisor reimbursed the UBS Dynamic Alpha Fund for a trading error in the amount of $24,866 or $0.0001 per share based upon the Fund's shares outstanding at June 30, 2006. Subsequent to June 30, 2006, the Advisor reimbursed UBS U.S. Bond Fund for amounts relating to a trading error in the amount of $2,811 or $0.0002 per share based on the Fund's shares outstanding at June 30, 2006. 12. SHARES OF BENEFICIAL INTEREST For the year ended June 30, 2006, transactions in shares of beneficial interest for each of the Funds were as follows: UBS DYNAMIC ALPHA FUND
CLASS A CLASS B ---------------------------- ------------------------- SHARES AMOUNT SHARES AMOUNT ----------- -------------- ---------- ------------ Shares sold 128,078,469 $1,389,322,850 1,828,083 $ 19,652,310 Shares repurchased (19,812,434) (215,331,923) (303,794) (3,249,313) Shares converted from Class B to Class A 247,266 2,658,305 (248,477) (2,658,305) Dividends reinvested 794,100 8,560,404 7,912 85,128 ----------- -------------- --------- ------------ Net increase 109,307,401 $1,185,209,636 1,283,724 $ 13,829,820 =========== ============== ========= ============
CLASS C CLASS Y ------------------------- ------------------------- SHARES AMOUNT SHARES AMOUNT ---------- ------------ ---------- ------------ Shares sold 31,040,840 $334,455,043 23,122,252 $252,321,581 Shares repurchased (3,628,976) (39,225,551) (2,264,553) (24,882,462) Dividends reinvested 138,072 1,484,271 118,432 1,277,885 ---------- ------------ ---------- ------------ Net increase 27,549,936 $296,713,763 20,976,131 $228,717,004 ========== ============ ========== ============
-------------------------------------------------------------------------------- 195 THE UBS FUNDS--NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- UBS GLOBAL ALLOCATION FUND
CLASS A CLASS B --------------------------- ------------------------- SHARES AMOUNT SHARES AMOUNT ----------- ------------- ---------- ------------ Shares sold 62,903,880 $ 865,736,142 1,491,471 $ 20,139,283 Shares repurchased (30,065,197) (413,871,317) (1,655,143) (22,377,744) Shares converted from Class B to Class A 2,541,296 34,905,059 (2,591,178) (34,905,059) Dividends reinvested 7,117,515 95,516,626 548,472 7,256,282 ----------- ------------- ---------- ------------ Net increase(decrease) 42,497,494 $ 582,286,510 (2,206,378) $(29,887,238) =========== ============= ========== ============
CLASS C CLASS Y --------------------------- ------------------------- SHARES AMOUNT SHARES AMOUNT ----------- ------------- ---------- ------------ Shares sold 16,719,366 $ 225,655,967 10,854,603 $150,535,987 Shares repurchased (12,243,723) (165,380,957) (5,820,329) (81,221,682) Dividends reinvested 3,404,722 44,942,397 1,539,235 20,933,597 ----------- ------------- ---------- ------------ Net increase 7,880,365 $ 105,217,407 6,573,509 $ 90,247,902 =========== ============= ========== ============
UBS GLOBAL EQUITY FUND
CLASS A CLASS B ------------------------- -------------------------- SHARES AMOUNT SHARES AMOUNT ---------- ------------ ---------- ------------- Shares sold 1,396,975 $ 17,595,879 24,111 $ 287,187 Shares repurchased (4,721,111) (60,109,715) (1,231,208) (14,756,174) Shares converted from Class B to Class A 7,111,962 86,168,577 (7,279,324) (86,168,577) Dividends reinvested 81,168 1,015,414 -- -- ---------- ------------ ---------- ------------- Net increase (decrease) 3,868,994 $ 44,670,155 (8,486,421) $(100,637,564) ========== ============ ========== =============
CLASS C CLASS Y ------------------------- ------------------------- SHARES AMOUNT SHARES AMOUNT ---------- ------------ ---------- ------------ Shares sold 160,698 $ 1,945,401 5,025,750 $ 64,061,617 Shares repurchased (1,724,053) (20,983,395) (4,904,221) (63,295,653) Dividends reinvested -- -- 105,660 1,345,053 ---------- ------------ ---------- ------------ Net increase (decrease) (1,563,355) $(19,037,994) 227,189 $ 2,111,017 ========== ============ ========== ============ -------------------------------------------------------------------------------- 196 THE UBS FUNDS--NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- UBS INTERNATIONAL EQUITY FUND CLASS A CLASS B ---------------------- ------------------- SHARES AMOUNT SHARE AMOUNT -------- ----------- ------- --------- Shares sold 971,667 $10,111,325 15,235 $ 161,759 Shares repurchased (542,890) (5,730,867) (12,924) (138,242) Shares converted from Class B to Class A 30,377 309,728 (30,868) (309,728) Dividends reinvested 85,840 875,565 2,373 23,936 -------- ----------- ------- --------- Net increase (decrease) 544,994 $ 5,565,751 (26,184) $(262,275) ======== =========== ======= ========= CLASS C CLASS Y ------------------- ------------------------- SHARES AMOUNT SHARE AMOUNT ------- --------- ---------- ------------ Shares sold 80,175 $ 837,960 7,425,136 $ 79,436,543 Shares repurchased (57,952) (593,700) (6,502,467) (69,837,729) Dividends reinvested 6,566 65,849 564,394 5,796,333 ------- --------- ---------- ------------ Net increase 28,789 $ 310,109 1,487,063 $ 15,395,147 ======= ========= ========== ============ UBS U.S. LARGE CAP EQUITY FUND CLASS A CLASS B ------------------------ ------------------- SHARES AMOUNT SHARES AMOUNT --------- ------------ ------- --------- Shares sold 4,162,891 $ 75,756,826 50,395 $ 893,374 Shares repurchased (896,850) (16,440,209) (6,298) (110,259) Shares converted from Class B to Class A 48,664 873,574 (49,693) (873,574) Dividends reinvested 77,658 1,407,165 944 16,797 --------- ------------ ------- --------- Net increase (decrease) 3,392,363 $ 61,597,356 (4,652) $ (73,662) ========= ============ ======= ========= CLASS C CLASS Y -------------------- -------------------------- SHARES AMOUNT SHARES AMOUNT ------- ---------- ---------- ------------- Shares sold 225,170 $4,010,894 16,056,543 $ 295,877,335 Shares repurchased (38,503) (692,110) (8,231,439) (149,088,431) Dividends reinvested 5,388 95,856 569,596 10,417,919 ------- ---------- ---------- ------------- Net increase 192,055 $3,414,640 8,394,700 $ 157,206,823 ======= ========== ========== ============= -------------------------------------------------------------------------------- 197 THE UBS FUNDS--NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- UBS U.S. LARGE CAP GROWTH FUND CLASS A CLASS B ---------------------- ------------------- SHARES AMOUNT SHARES AMOUNT -------- ----------- ------- --------- Shares sold 575,000 $ 5,261,963 29,874 $ 267,760 Shares repurchased (237,052) (2,154,474) (6,129) (51,853) Shares converted from Class B to Class A 47,337 414,391 (48,647) (414,391) Dividends reinvested 113 1,082 -- -- -------- ----------- ------- --------- Net increase (decrease) 385,398 $ 3,522,962 (24,902) $(198,484) ======== =========== ======= ========= CLASS C CLASS Y ------------------- ---------------------- SHARES AMOUNT SHARES AMOUNT -------- --------- -------- ----------- Shares sold 76,410 $ 688,459 378,505 $ 3,590,977 Shares repurchased (31,861) (286,655) (213,933) (2,083,444) Dividends reinvested -- -- 412 4,014 ------- --------- -------- ----------- Net increase 44,549 $ 401,804 164,984 $ 1,511,547 ======= ========= ======== =========== UBS U.S. LARGE CAP VALUE EQUITY FUND CLASS A CLASS B ------------------------- ---------------------- SHARES AMOUNT SHARES AMOUNT ------------------------- ---------------------- Shares sold 388,095 $ 4,108,673 16,700 $ 175,261 Shares repurchased (1,693,252) (18,009,583) (86,173) (904,307) Shares converted from Class B to Class A 245,309 2,618,270 (249,359) (2,618,270) Dividends reinvested 979,619 9,962,730 24,425 245,715 ---------- ------------ -------- ----------- Net decrease (80,229) $ (1,319,910) (294,407) $(3,101,601) ========== ============ ======== =========== CLASS C CLASS Y ---------------------- ---------------------- SHARES AMOUNT SHARES AMOUNT -------- ----------- -------- ----------- Shares sold 37,589 $ 393,836 205,542 $ 2,186,723 Shares repurchased (353,585) (3,677,575) (140,354) (1,507,222) Dividends reinvested 159,245 1,595,633 65,013 663,136 -------- ----------- -------- ----------- Net increase (decrease) (156,751) $(1,688,106) 130,201 $ 1,342,637 ======== =========== ======== =========== UBS U.S. MID CAP GROWTH EQUITY FUND CLASS A ------------------- SHARES AMOUNT ------- --------- Shares sold 37,333 $ 385,174 Shares repurchased (20,516) (212,486) ------- --------- Net increase 16,817 $ 172,688 ======= ========= CLASS C CLASS Y ---------------- -------------------- SHARES AMOUNT SHARES AMOUNT ------ ------- ------- ---------- Shares sold 6,969 $71,324 500,001 $5,000,010 ----- ------- ------- ---------- Net increase 6,969 $71,324 500,001 $5,000,010 ===== ======= ======= ========== -------------------------------------------------------------------------------- 198 THE UBS FUNDS--NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- UBS U.S. SMALL CAP GROWTH FUND CLASS A CLASS B ------------------------- ---------------------- SHARES AMOUNT SHARES AMOUNT ---------- ------------ -------- ----------- Shares sold 4,491,291 $ 66,274,814 17,046 $ 237,916 Shares repurchased (2,638,851) (38,341,212) (101,823) (1,423,996) Shares converted from Class B to Class A 249,854 2,687,653 (258,086) (3,687,653) Dividends reinvested 312,044 4,353,008 23,758 320,974 ---------- ------------ -------- ----------- Net increase (decrease) 2,414,338 $ 34,974,263 (319,105) $(4,552,759) ========== ============ ======== =========== CLASS C CLASS Y ---------------------- ------------------------- SHARES AMOUNT SHARES AMOUNT -------- ----------- ---------- ------------ Shares sold 32,009 $ 447,802 11,429,781 $167,661,096 Shares repurchased (109,350) (1,541,864) (4,217,628) (62,419,417) Dividends reinvested 24,665 332,733 535,598 7,637,633 -------- ----------- ---------- ------------ Net increase (decrease) (52,676) $ (761,329) 7,747,751 $112,879,312 ======== =========== ========== ============ UBS ABSOLUTE RETURN BOND FUND CLASS A ------------------------- SHARES AMOUNT ---------- ------------ Shares sold 18,921,598 $190,630,308 Shares repurchased (8,935,032) (90,035,339) Dividends reinvested 451,836 4,522,668 ---------- ------------ Net increase 10,438,402 $105,117,637 ========== ============ CLASS C CLASS Y ----------------------- ------------------------- SHARES AMOUNT SHARES AMOUNT --------- ----------- ---------- ------------ Shares sold 2,101,902 $21,191,655 21,840,716 $219,572,891 Shares repurchased (839,168) (8,434,110) (1,407,032) (14,216,875) Dividends reinvested 55,894 559,167 442,679 4,436,608 --------- ----------- ---------- ------------ Net increase 1,318,628 $13,316,712 20,876,363 $209,792,624 ========= =========== ========== ============ UBS GLOBAL BOND FUND CLASS A CLASS B ---------------------- ------------------- SHARES AMOUNT SHARES AMOUNT -------- ----------- ------- --------- Shares sold 545,080 $ 5,240,870 3,088 $ 29,383 Shares repurchased (725,048) (6,931,243) (20,862) (199,014) Shares converted from Class B to Class A 56,802 547,406 (56,686) (547,406) Dividends reinvested 61,472 582,841 1,473 13,990 -------- ----------- ------- --------- Net decrease (61,694) $ (560,126) (72,987) $(703,047) ======== =========== ======= ========= CLASS C CLASS Y ------------------- ------------------------- SHARES AMOUNT SHARES AMOUNT ------- --------- ---------- ------------ Shares sold 16,285 $ 155,446 4,946,965 $ 52,158,835 Shares repurchased (80,174) (769,544) (2,314,779) (24,469,531) Dividends reinvested 5,864 55,436 198,026 2,078,171 ------- --------- ---------- ------------ Net increase (decrease) (58,025) $(558,662) 2,830,212 $ 29,767,475 ======= ========= ========== ============ -------------------------------------------------------------------------------- 199 THE UBS FUNDS--NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- UBS HIGH YIELD FUND CLASS A CLASS B ------------------------- ---------------------- SHARES AMOUNT SHARES AMOUNT ---------- ------------ -------- ----------- Shares sold 1,045,985 $ 7,353,436 162,614 $ 1,141,616 Shares repurchased (3,492,760) (24,556,100) (163,377) (1,153,500) Shares converted from Class B to Class A 200,458 1,410,267 (200,411) (1,410,267) Dividends reinvested 331,995 2,323,759 11,386 79,749 ---------- ------------ -------- ----------- Net decrease (1,914,322) $(13,468,638) (189,788) $(1,342,402) ========== ============ ======== =========== CLASS C CLASS Y ---------------------- ------------------------- SHARES AMOUNT SHARES AMOUNT -------- ----------- ---------- ------------ Shares sold 74,596 $ 525,427 2,652,297 $ 18,805,721 Shares repurchased (531,985) (3,737,732) (2,472,637) (17,412,621) Dividends reinvested 70,445 493,321 369,919 2,600,408 -------- ----------- ---------- ------------ Net increase (decrease) (386,944) $(2,718,984) 549,579 $ 3,993,508 ======== =========== ========== ============ UBS U.S. BOND FUND CLASS A CLASS B ------------------------- ------------------- SHARES AMOUNT SHARES AMOUNT ---------- ------------ ------- --------- Shares sold 2,092,757 $ 21,892,814 2,714 $ 28,183 Shares repurchased (2,387,338) (24,802,696) (30,768) (322,979) Shares converted from Class B to Class A 46,616 487,276 (46,573) (487,276) Dividends reinvested 98,002 1,026,053 2,392 25,116 ---------- ------------ ------- --------- Net decrease (149,963) $ (1,396,553) (72,235) $(756,956) ========== ============ ======= ========= CLASS C CLASS Y ------------------- ------------------------- SHARES AMOUNT SHARES AMOUNT ------- --------- ---------- ------------ Shares sold 20,643 $ 215,872 4,566,668 $ 47,755,530 Shares repurchased (68,731) (724,302) (4,908,628) (51,692,880) Dividends reinvested 4,179 43,684 396,907 4,153,422 ------- --------- ---------- ------------ Net increase (decrease) (43,909) $(464,746) 54,947 $ 216,072 ======= ========= ========== ============ -------------------------------------------------------------------------------- 200 THE UBS FUNDS--NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- For the year ended June 30, 2005, transactions in shares of beneficial interest for each of the Funds were as follows: 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) ---------- ------------ --------- ----------- Net increase 19,915,710 $200,169,745 5,493,829 $55,391,393 ========== ============ ========= =========== 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 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) Dividends reinvested 1,736,469 22,554,243 790,799 10,549,257 ---------- ------------ ---------- ------------ Net increase 24,638,814 $316,512,476 5,267,046 $ 70,089,827 ========== ============ ========== ============ -------------------------------------------------------------------------------- 201 THE UBS FUNDS--NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- 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 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) ---------- ------------ ---------- ------------ Net Increase (decrease) (1,945,422) $(21,245,963) 2,691,347 $ 30,858,456 ========== ============ ========== ============ 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) Dividends reinvested 1,315 12,319 131,730 1,260,658 ------- --------- ---------- ------------ Net increase 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) Dividends reinvested 3,177 53,085 357,650 6,115,822 ------- --------- ---------- ------------ Net increase 39,962 $ 645,114 11,602,066 $198,537,378 ======= ========= ========== ============ -------------------------------------------------------------------------------- 202 THE UBS FUNDS--NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- 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 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) ------- --------- -------- ----------- Net 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) 413,623 $ 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) 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 (238,066) $(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) 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 ======== =========== ========== ============ -------------------------------------------------------------------------------- 203 THE UBS FUNDS--NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- UBS ABSOLUTE RETURN BOND FUND
CLASS A CLASS C CLASS Y ------------------------- ----------------------- ----------------------- SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT ---------- ------------ --------- ----------- --------- ----------- Shares sold 11,110,087 $111,075,747 1,788,810 $17,882,149 1,999,998 $19,999,975 Shares repurchased (575,116) (5,750,561) (90,869) (908,477) -- -- Dividends reinvested 23,777 237,297 2,978 29,722 4,488 44,795 ---------- ------------ --------- ----------- --------- ----------- Net increase 10,558,748 $105,562,483 1,700,919 $17,003,394 2,004,486 $20,044,770 ========== ============ ========= =========== ========= ===========
UBS 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) 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 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 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) Dividends reinvested 91,108 659,270 479,895 3,488,674 -------- ----------- ---------- ------------ Net decrease (322,715) $(2,373,217) (2,546,437) $(18,935,183) ======== =========== ========== ============ -------------------------------------------------------------------------------- 204 THE UBS FUNDS--NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- 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) Dividends reinvested 5,464 58,494 395,026 4,231,597 ------- --------- ---------- ------------ Net increase (decrease) (15,020) $(160,216) 1,772,749 $ 18,999,282 ======= ========= ========== ============ -------------------------------------------------------------------------------- 205 THE UBS FUNDS--REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM -------------------------------------------------------------------------------- The Board of Trustees and Shareholders of The UBS Funds We have audited the accompanying statements of assets and liabilities of The UBS Funds (comprising, respectively, UBS Dynamic Alpha Fund, 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, UBS U.S. Mid Cap Growth Equity Fund, UBS U.S. Small Cap Growth Fund, UBS Absolute Return Bond Fund, UBS Global Bond Fund, UBS High Yield Fund and UBS U.S. Bond Fund) (collectively the "Funds"), including the schedules of investments, as of June 30, 2006, and the related statements of operations, and changes in net assets and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Funds' management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Funds' internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Funds' internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of June 30, 2006, by correspondence with the custodian and others. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of each of the Funds constituting The UBS Funds at June 30, 2006, and the results of their operations, the changes in their net assets and the financial highlights for each of the indicated periods, in conformity with US generally accepted accounting principles. Ernst & Young LLP New York, New York August 25, 2006 -------------------------------------------------------------------------------- 206 THE UBS FUNDS--GENERAL INFORMATION (UNAUDITED) -------------------------------------------------------------------------------- QUARTERLY FORM N-Q PORTFOLIO SCHEDULE Each Fund will file its complete schedule of portfolio holdings with the Securities and Exchange Commission (`SEC") for the first and third quarters of each fiscal year on Form N-Q. The Funds' Forms N-Q are available on the SEC's Web site at http://www.sec.gov. The Funds' Forms N-Q may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the SEC's Public Reference Room may be obtained by calling 1-800-SEC 0330. Additionally, you may obtain copies of Forms N-Q from the Funds upon request by calling 1-800-647 1568. PROXY VOTING POLICIES, PROCEDURES AND RECORD You may obtain a description of the Funds' (1) proxy voting policies, (2) proxy voting procedures and (3) information regarding how the Funds voted any proxies related to portfolio securities during the most recent 12-month period ended June 30, for which an SEC filing has been made without charge, upon request by contacting the Funds directly at 1-800-647 1568, online on the Funds' Web site: www.ubs.com/ubsglobalam-proxy, or on the EDGAR Database on the SEC's Web site (http://www.sec.gov). -------------------------------------------------------------------------------- 207 THE UBS FUNDS--BOARD APPROVAL OF INVESTMENT ADVISORY AGREEMENTS (UNAUDITED) -------------------------------------------------------------------------------- At the meeting of the Board of Trustees (the "Board") of The UBS Funds (the "Trust"), held on June 2, 2006 (the "Meeting"), the Board, consisting entirely of Trustees who are not "interested persons" (as defined in the 1940 Act) of the Trust or UBS Global Asset Management (Americas) Inc. (the "Advisor") and its affiliates (together, the "Independent Trustees"), considered the continuation of the investment advisory agreements (the "Advisory Agreements") between the Trust and the Advisor for the UBS U.S. Bond Fund, UBS High Yield Fund, UBS U.S. Large Cap Equity Fund, UBS U.S. Large Cap Value Equity Fund, UBS U.S. Large Cap Growth Fund, UBS U.S. Small Cap Growth Fund, UBS Global Allocation Fund, UBS Global Equity Fund, UBS Global Bond Fund, UBS International Equity Fund and UBS Absolute Return Bond Fund (each a "Fund," and together, the "Funds"). Prior to the Meeting, the Independent Trustees' counsel had sent to the Advisor a request detailing the information that the Independent Trustees wished to receive in connection with their consideration of the continuation of the Advisory Agreements. The Independent Trustees met with their independent counsel, as well as independent consultants engaged by the Board to assist in the annual Advisory Agreement review process, on May 17, 2006 and June 1, 2006 to discuss the materials provided to them in response to the information request, including materials prepared by the Advisor, as well as reports prepared by Lipper Inc. ("Lipper Reports"), an independent statistical compilation company, providing comparative expense information on an actual and contractual basis and comparative performance for the Funds. The Board also made reference to information and material that had been provided to the Independent Trustees throughout the year at quarterly Board meetings. At the Meeting, the Board considered a number of factors in connection with their deliberations concerning the continuation of the Advisory Agreement for each Fund, including: (i) the nature, extent and quality of the services provided by the Advisor to the Fund; (ii) the performance of the Fund and the Advisor; (iii) the Fund's expenses, costs of the services to be provided and profits to be realized by the Advisor and its affiliates from the relationship with the Fund; and (iv) whether economies of scale are realized by the Advisor with respect to the Fund, as it grows larger, and the extent to which the economies of scale are reflected in the level of the management fees charged. NATURE, EXTENT AND QUALITY OF SERVICES. In considering the nature, extent and quality of the services provided by the Advisor to a Fund, the Board reviewed the material presented by the Advisor describing the various services provided to the Fund. The Board noted that in addition to investment management services, the Advisor provides the Fund with operational, legal and compliance support. The Board also considered the scope and depth of the Advisor's organization and the experience and expertise of the professionals currently providing investment management and other services to the Funds. The Board considered that the Advisor was a well-established investment management organization employing investment personnel with significant experience in the investment management industry. The Board also considered the Advisor's in-house research capabilities, as well as other research services available to it, including research services available to the Advisor as a result of securities transactions effected for the Funds and the Advisor's other investment management clients, and noted that the Advisor had extensive global research capabilities. The Board also evaluated the Advisor's portfolio management process for each Fund, including the use of risk management techniques and the proprietary technologies utilized to structure the Fund's portfolio. The Board noted that various presentations had been made by investment personnel at Board meetings throughout the year concerning the Funds' investment performance and investment strategies. The Board also noted and discussed the services that the Advisor and its affiliates provide to the Funds under other agreements with the Trust including administration services provided by the Advisor, underwriting services provided by UBS Global Asset Management (US) Inc. ("UBS Global AM (US)") and sub-transfer agency services provided by UBS Financial Services Inc. ("UBS Financial Services"). In connection with the non-investment management services, the Board also considered the quarterly reports that the Advisor provides to the Board throughout the year pertaining to brokerage commissions, soft dollars, portfolio -------------------------------------------------------------------------------- 208 THE UBS FUNDS--BOARD APPROVAL OF INVESTMENT ADVISORY AGREEMENTS (UNAUDITED) -------------------------------------------------------------------------------- valuations and Rule 12b-1 fees, among others. The Board also discussed the annual written compliance report from the Chief Compliance Officer and noted enhancements planned with respect to the compliance program, such as an upgrade to the investment guideline monitoring system. The Board noted the growth of Fund assets across the Fund complex. The Advisor described for the Board the portfolio management and research enhancements that had been undertaken over the previous year as a result of the increase in assets across the complex. The Board also discussed with the Advisor the need to ensure that the operational infrastructure at the Advisor is maintained at a level sufficient to meet the requirements of the Funds. In response to the Board's concerns, the Advisor committed to dedicating additional resources to enhance the operational infrastructure that supports the Funds. After analyzing the services provided by the Advisor to each Fund, both quantitatively and qualitatively, including the impact of these services on investment performance, and the Advisor's commitment to invest in its operational infrastructure, the Board concluded that the nature, extent and quality of services provided to each Fund were consistent with the operational requirements of each Fund, and met the needs of the Fund's shareholders. PERFORMANCE. In evaluating the performance of each Fund, the Board analyzed the Lipper Reports, which compared the performance of each Fund with other funds in its respective peer universe over various time periods. In reviewing the Lipper Reports, the Board noted that the UBS U.S. Bond Fund, UBS U.S. Large Cap Equity Fund, UBS U.S. Large Cap Value Equity Fund, UBS U.S. Large Cap Growth Fund and UBS Absolute Return Bond Fund had appeared in one of the top two performance quintiles for most applicable performance periods. At the Board's request, the Advisor addressed the performance data for the UBS High Yield Fund, UBS U.S. Small Cap Growth Fund, UBS Global Allocation Fund, UBS Global Equity Fund, UBS International Equity Fund and UBS Global Bond Fund, each of which had appeared in one of the lower performance quintiles for the one-year period. In explaining the performance of the UBS High Yield Fund, the Advisor discussed the investments in the sectors and issuers that had a negative impact on the Fund's performance in 2005. The Advisor also noted that unlike some of the funds in its peer universe, the UBS High Yield Fund did not invest in preferred securities, REITs or the international high yield market, which affected its relative performance for the one-year period. The Board did note that the UBS High Yield Fund outperformed its performance universe median for the three-year, five-year and since inception performance periods. The Board also considered that the UBS High Yield Fund's performance was in the top quintile of performance for the first quarter of 2006. The Advisor then discussed the factors that contributed to UBS U.S. Small Cap Growth Fund's performance by explaining that the Fund's investment strategy differs from that of many of its peers in that it concentrates on selecting high quality positions and maintaining low volatility, which affected its relative performance for the one-year performance period. The Board noted that the UBS U.S. Small Cap Growth Fund's comparative performance compared more favorably over the longer performance periods to its peers. The Advisor also addressed the comparative performance for the UBS Global Allocation Fund by explaining that the Fund is managed more conservatively than many funds in its peer universe, which invest a larger proportion of their assets in riskier asset classes and, consequently, have greater volatility. The Advisor stated that due to market conditions, the UBS Global Allocation Fund's allocation to higher quality positions resulted in the Fund lagging the performance of its peers for the one-year performance period. The Board considered that the UBS Global Allocation Fund compared favorably with funds in its peer universe for the longer performance periods. In addressing the performance of the UBS Global Equity Fund and UBS International Equity Fund, the Advisor discussed the long-term investment strategy of each Fund and noted that each Fund invests in issuers that the Advisor believes will have long-term growth potential. The Advisor stated that each of the UBS Global Equity -------------------------------------------------------------------------------- 209 THE UBS FUNDS--BOARD APPROVAL OF INVESTMENT ADVISORY AGREEMENTS (UNAUDITED) -------------------------------------------------------------------------------- Fund and UBS International Equity Fund lagged the performance of the funds in its respective peer universe for the one-year performance period due, in part, to an underweight in momentum-driven sectors. The Advisor directed the Board to each Fund's long-term performance, which compared more favorably to its peers. The Advisor also addressed the comparative performance of the UBS Global Bond Fund, which had performance that lagged the funds in its peer universe during the one-year performance period. The Advisor explained that the one-year performance of many funds in the UBS Global Bond Fund's peer universe benefited from exposure to the high-yield debt and emerging markets debt asset classes in which the UBS Global Bond Fund was not invested. The Advisor noted that the Board approved changes to the UBS Global Bond Fund's strategy at the Board meeting held in March, which would permit the Fund to invest in the high yield debt and emerging markets debt asset classes in the future. The Board reviewed the UBS Global Bond Fund's performance over the longer performance periods and noted that its performance was competitive with its peers. The Board concluded that the Advisor's explanations provided a sound basis for understanding the performance of each Fund that underperformed in comparison to its peer universe. The Board determined, after analyzing the performance data, that the performance of each Fund was acceptable as compared with relevant performance standards, given the investment strategies and risk profile of each Fund and the expectations of the shareholder base. FUND FEES AND EXPENSES. When considering the fees and expenses borne by each Fund, and the reasonableness of the management fees paid to the Advisor in light of the services provided to each Fund, the Board compared the fees charged by the Advisor to each Fund to fees charged to the funds in its peer group for comparable services, as provided in the Lipper Reports, on both an actual (taking into account expense limitation arrangements) and a contractual basis (assuming all funds in the peer expense group were similar in size to the respective Fund). In examining the Lipper Reports, and in reviewing comparative costs, it was noted that the results of such expense comparisons showed that the actual management fee rate for each Fund, except UBS Global Allocation Fund and UBS U.S. Large Cap Equity Fund, was comparable to, or lower than, the Lipper median in its respective Lipper expense group. The Board also noted that each Fund, except UBS Global Allocation Fund and UBS Global Bond Fund, had a contractual fee rate comparable to the funds in its respective expense group. In addition, the Board reviewed the actual total expenses of each Fund and noted that each Fund, except UBS Global Allocation Fund, had total expenses that compared favorably to the funds in its respective expense group and that UBS Global Allocation Fund's total expenses were not appreciably higher than its expense group median. The Board noted that the management fee for the UBS Global Allocation Fund was higher than many funds in its Lipper expense group on both an actual and contractual basis, which led the Board to discuss this Fund's management fee at some length with the Advisor. The Advisor explained that two funds in the UBS Global Allocation Fund's expense group that had been reclassified by Lipper since the Lipper Reports were issued, and one fund that was significantly larger than the other funds in its Lipper expense group, had resulted in expense group comparisons that did not accurately reflect the UBS Global Allocation Fund's expenses in relation to its peers. The Board also considered that the UBS Global Allocation Fund had just reached the breakpoint at $3 billion in its management fee breakpoint schedule and that, as the Fund's assets continue to grow, the effective management fee, taking into account this last breakpoint, should decrease, which may result in the Fund's management fee being more comparable with its peers. The Board noted that, nonetheless, due to the UBS Global Allocation Fund's significant asset growth in the past year, the Fund recently had reached the final breakpoint level in its management fee breakpoint schedule. At the request of the Board, the Advisor agreed to revise the UBS Global Allocation Fund's management fee breakpoint schedule to include an additional breakpoint for assets over $6 billion. -------------------------------------------------------------------------------- 210 THE UBS FUNDS--BOARD APPROVAL OF INVESTMENT ADVISORY AGREEMENTS (UNAUDITED) -------------------------------------------------------------------------------- The Board also noted that the actual management fee for the UBS U.S. Large Cap Equity Fund was higher than the management fee of several of the funds in its Lipper expense group. The Board, however, determined that the UBS U.S. Large Cap Equity Fund's management fee was reasonable considering that it was not appreciably higher than its Lipper expense group median, the Fund was in the first quintile in its expense group with respect to total expenses, and the Fund's performance was in the first quintile in its Lipper performance universe for all performance periods. The Board then discussed the fees and expenses for the UBS Global Bond Fund. The Board noted that, while the Fund was in the fifth quintile of its Lipper expense group with respect to its contractual management fee, the Fund appeared in the first quintile and second quintile of its Lipper expense group with respect to its actual management fee and total expenses, respectively. Due to the fact that the UBS Global Bond Fund's contractual management fee was higher than the contractual management fee for its peers, the Advisor agreed to revise the UBS Global Bond Fund's management fee breakpoint schedule to lower the first breakpoint to 0.65% on the first $1.5 billion of assets. The Board concluded that the revision to UBS Global Bond Fund's management fee breakpoint schedule should result in the Fund's contractual management fee being more comparable to its peers in the future. The Board also received and considered information about the fee rates charged to other funds and accounts that are managed by the Advisor. After discussing the information about the other funds and accounts with the Advisor, the Board determined that the fees charged by the Advisor to the Funds were within a reasonable range, giving effect to differences in services performed for such other funds and accounts as compared to such fee rates. With respect to each Fund subject to a one-year contractual expense limit, the Board also considered that the Advisor had agreed to renew the expense limit arrangement at the current rate for an additional one-year period. The Board, after reviewing all pertinent material, concluded that the management fee payable under each Fund's Advisory Agreement was fair and reasonable, both on an absolute basis and in comparison with the fees of other funds identified in its peer group. COSTS AND PROFITABILITY. The Board considered the costs of providing services to the Funds and the profitability of the Funds to the Advisor and its affiliates by reviewing the profitability analysis provided by the Advisor, including information about its fee revenues and expenses. The Board reviewed the profitability of each Fund to the Advisor and its affiliates, and the compensation that was received for providing services to each Fund. The profitability analysis, which provided information for the last three calendar years, included schedules relating to the revenue and expenses attributable to: (i) the investment advisory and administration services provided by the Advisor and UBS Global AM (US); (ii) the distribution and shareholder services provided by UBS Global AM (US) and UBS Financial Services; (iii) the sub-transfer agency services provided by UBS Financial Services; and (iv) all services provided by the Advisor, UBS Global AM (US) and UBS Financial Services shown on a consolidated basis. In reviewing the cost methodology used in the profitability analysis, the Board recognized that there are a number of reasonable allocation methodologies that may be used in a profitability analysis and determined that the consultant hired by the Board should work with management to enhance the methodology used next year. In discussing the profitability analysis with the Board, the Advisor stated that the level of profits, to a certain extent, reflected operational cost savings and efficiencies initiated by the Advisor and its affiliates. A considerable amount of time was spent discussing the profitability to the Advisor of the UBS Global Allocation Fund and the slight increase in profitability since the previous year as compared to the increase in assets. The Advisor explained that over the past year it had enhanced the portfolio management and research services dedicated to the UBS Global Allocation Fund and that these enhancements had a dampening effect on the increased profitability that might have been expected to result form the Fund's increased assets. -------------------------------------------------------------------------------- 211 THE UBS FUNDS--BOARD APPROVAL OF INVESTMENT ADVISORY AGREEMENTS (UNAUDITED) -------------------------------------------------------------------------------- In reviewing the Advisor's profitability for the UBS Global Allocation Fund, the Board also considered that the Advisor had agreed to include an additional breakpoint level in the management fee of the Fund, which could decrease the profitability of this Fund to the Advisor in the future. Also, in reviewing the profitability of each Fund, the Board considered the fact that the Advisor was prepared in the upcoming year to dedicate additional Advisor resources to improving the infrastructure for mutual fund operations. The Board also considered "fall-out" or ancillary benefits to the Advisor or its affiliates as the result of their relationship with the Funds; for example, the ability to attract other clients due to the Advisor's role as investment advisor to the Funds and the research services available to the Advisor through soft dollar brokerage commissions. The Independent Trustees also considered the ancillary benefits received by the Advisor's affiliates, UBS Securities LLC and UBS AG, in the form of commissions for executing securities transactions for the Funds. Upon closely examining the information provided concerning the Advisor's profitability, the Board concluded that the level of profits realized by the Advisor and its affiliates with respect to each Fund, if any, was reasonable in relation to the nature and quality of the services that were provided. ECONOMIES OF SCALE. The Board also discussed whether economies of scale are realized by the Advisor with respect to each Fund as it grows larger, and the extent to which this is reflected in the level of management fees charged. The Board noted that with respect to each Fund, any actual or potential economies of scale are, or will be, shared with the Fund and its shareholders through existing management fee breakpoints so that as the Fund grows in size, its effective management fee declines. The Board noted that with the inclusion of the additional breakpoint level for the UBS Global Allocation Fund agreed to at the Meeting, each Fund had a breakpoint schedule that provided for continuing breakpoints past the current asset level for the Fund. Based on each Fund's fees and expenses and the Advisor's profitability analysis, the Board concluded that any actual or potential economies of scale would be reasonably shared with a Fund and its shareholders. After full consideration of the factors discussed above, with no single factor identified as being of paramount importance, the Board, with the assistance of independent counsel, concluded that the continuation of the Advisory Agreement for each Fund was in the best interests of the Fund and its shareholders. -------------------------------------------------------------------------------- 212 TRUSTEE & OFFICER INFORMATION (UNAUDITED) -------------------------------------------------------------------------------- The Trust is a Delaware business trust. Under Delaware law, the Board has overall responsibility for managing the business and affairs of the Trust, including general supervision and review of its investment activities. The Trustees elect the officers of the Trust, who are responsible for administering the day-to-day operations of the Trust and the Funds. The table below shows, for each Trustee and Officer, his or her name, address and age, the position held with the Trust, the length of time served as a Trustee or Officer of the Trust, the Trustee's or Officer's principal occupations during the last five years, the number of funds in the UBS Family of Funds overseen by the Trustee or Officer and other directorships held by such Trustee. The Trust's Statement of Additional Information contains additional information about the Trustees and is available, without charge, upon request, by calling 1-800-647 1568. NON-INTERESTED TRUSTEES:
TERM OF OFFICE + AND PRINCIPAL POSITION(S) LENGTH OF OCCUPATION(S) NUMBER OF PORTFOLIOS HELD WITH TIME DURING PAST IN FUND COMPLEX OTHER DIRECTORSHIPS NAME, ADDRESS AND AGE TRUST SERVED 5 YEARS OVERSEEN BY TRUSTEE HELD BY TRUSTEE --------------------- ----------- ---------- --------------- ------------------------ ----------------------------- Walter E. Auch Trustee Since 1994 Mr. Auch is Mr. Auch is a trustee of Mr. Auch is a 6001 N. 62nd Place retired (since three investment Trustee/Director of Advisors Paradise Valley, AZ 1986). companies (consisting of Series Trust (16 portfolios); 85253 55 portfolios) for which Smith Barney Fund Complex (12 Age: 85 UBS Global AM (Americas) portfolios); Nicholas or one of its affiliates Applegate Institutional Funds serves as investment (15 portfolios); and Chairman advisor, sub-advisor or of the Board of Sound manager. Surgical Technologies. Frank K. Reilly Chairman Since 1993 Mr. Reilly is a Mr. Reilly is a director Mr. Reilly is a Director of Mendoza College of and Professor at or trustee of four Discover Bank; Morgan Stanley Business Trustee the University investment companies Trust and FSB. University of Notre of Notre Dame (consisting of 56 Dame since 1982. portfolios) for which Notre Dame, IN UBS Global AM (Americas) 46556-5649 or one of its affiliates Age: 70 serves as investment advisor, sub-advisor or manager.
-------------------------------------------------------------------------------- 213 TRUSTEE & OFFICER INFORMATION (UNAUDITED) --------------------------------------------------------------------------------
TERM OF OFFICE + AND PRINCIPAL POSITION(S) LENGTH OF OCCUPATION(S) NUMBER OF PORTFOLIOS HELD WITH TIME DURING PAST IN FUND COMPLEX OTHER DIRECTORSHIPS NAME, ADDRESS AND AGE TRUST SERVED 5 YEARS OVERSEEN BY TRUSTEE HELD BY TRUSTEE --------------------- ----------- ---------- ------------------ ----------------------- ----------------------- Edward M. Roob Trustee Since 1994 Mr. Roob is Mr. Roob is a director None. 841 Woodbine Lane retired (since or trustee of four Northbrook, IL 60002 1993). investment companies Age: 71 (consisting of 56 portfolios) for which UBS Global AM (Americas) or one of its affiliates serves as investment advisor, sub-advisor or manager. Adela Cepeda Trustee Since 2004 Ms. Cepeda is Ms. Cepeda is a Ms. Cepeda is a A.C. Advisory, Inc. founder and director or trustee of director of Lincoln 161 No. Clark Street, president of A.C. four investment National Income Fund, Suite 4975 Advisory, Inc. companies (consisting Inc. (since 1992) and Chicago, IL 60601 (since 1995). of 56 portfolios) for MGI Funds (7 Age: 48 which UBS Global AM portfolios) (since (Americas) or one of 2005). She is also a its affiliates serves Director of Amalgamated as investment advisor, Bank of Chicago (since sub-advisor or manager. 2003). J. Mikesell Thomas Trustee Since 2004 Mr. Thomas is Mr. Thomas is a Mr. Thomas is a Federal Home Loan President and CEO director or trustee of director and chairman Bank of Chicago of Federal Home four investment of the Audit Committee 111 East Wacker Drive Loan Bank of companies (consisting for Evanston Chicago, IL 60601 Chicago (since of 56 portfolios) for Northwestern Age: 55 2004). Mr. Thomas which UBS Global AM Healthcare. was an independent (Americas) or one of financial advisor its affiliates serves (2001 to 2004). He as investment advisor, was managing sub-advisor or manager. director of Lazard Freres & Co. (1995 to 2001).
-------------------------------------------------------------------------------- 214 TRUSTEE & OFFICER INFORMATION (UNAUDITED) -------------------------------------------------------------------------------- OFFICERS:
TERM OF POSITION(S) OFFICE + HELD WITH AND LENGTH OF NAME, ADDRESS AND AGE THE TRUST TIME SERVED PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS --------------------- ----------- -------------- ---------------------------------------------------------- Joseph J. Allessie* Vice Since 2005 Mr. Allessie is a director and deputy general counsel at Age: 41 President UBS Global AM (US) and UBS Global AM (Americas) and (collectively, "UBS Global AM - Americas region) (since Assistant 2005). Prior to joining UBS Global AM - Americas region, Secretary he was senior vice president and general counsel of Kenmar Advisory Corp. (from 2004 to 2005). Prior to that Mr. Allessie was general counsel and secretary of GAM USA Inc., GAM Investments, GAM Services, GAM Funds, Inc. and the GAM Avalon Funds (from 1999 to 2004). Mr. Allessie is a vice president and assistant secretary of 20 investment companies (consisting of 91 portfolios) for which UBS Global AM - Americas region or one of its affiliates serves as investment advisor, sub-advisor or manager. W. Douglas Beck* President Since 2005 Mr. Beck is an executive director and head of product Age: 39 development and management for UBS Global AM - Americas region (since 2002). From March 1998 to November 2002, he held various positions at Merrill Lynch, the most recent being first vice president and co-manager of the managed solutions group. Mr. Beck is president of 20 investment companies (consisting of 91 portfolios) for which UBS Global AM - Americas region or one of its affiliates serves as investment advisor, sub-advisor or manager, and was vice president of such investment companies from 2003 to 2005. Rose Ann Bubloski*; Vice Since 2004 Ms. Bubloski is an associate director (since 2003) and a Age: 38 President senior manager of the mutual fund finance department of and UBS Global AM - Americas region. Ms. Bubloski is vice Assistant president and assistant treasurer of four investment Treasurer companies (consisting of 56 portfolios) for which UBS Global AM - Americas region or one of its affiliates serves as investment advisor, sub-advisor or manager.
-------------------------------------------------------------------------------- 215 TRUSTEE & OFFICER INFORMATION (UNAUDITED) --------------------------------------------------------------------------------
TERM OF OFFICE + AND POSITION(S) LENGTH OF HELD WITH TIME PRINCIPAL OCCUPATION(S) NAME, ADDRESS AND AGE THE TRUST SERVED DURING PAST 5 YEARS --------------------- ----------- -------------- ---------------------------------------------------------- Thomas Disbrow* Vice Since 2000 Mr. Disbrow is a director (since 2001), head of retail Age: 40 President and 2004, mutual fund operations and co-head of the mutual fund and respectively finance department (since 2004) of UBS Global AM - Assistant Americas region. Mr. Disbrow is vice president and Treasurer treasurer of 16 investment companies (consisting of 35 portfolios) and vice president and assistant treasurer of four investment companies (consisting of 56 portfolios) for which UBS Global AM - Americas region or one of its affiliates serves as investment advisor, sub-advisor or manager. Mark F. Kemper** Vice Since 1999 Mr. Kemper is general counsel of UBS Global AM - Americas Age: 48 President and 2004, region (since 2004). Mr. Kemper is also a managing and respectively director of UBS Global AM - Americas region (since 2006). Secretary He was deputy general counsel of UBS Global AM (Americas) from July 2001 to July 2004. He has been secretary of UBS Global AM - Americas region since 1999 and assistant secretary of UBS Global Asset Management Trust Company since 1993. Mr. Kemper is secretary of UBS Global AM - Americas region (since 2004). Mr. Kemper is vice president and secretary of 20 investment companies (consisting of 91 portfolios) for which UBS Global AM - Americas region or one of its affiliates serves as investment advisor, sub-advisor or manager. Tammie Lee* Vice Since 2005 Ms. Lee is a director and associate general counsel of UBS Age: 35 President Global AM - Americas region (since 2005). Prior to joining and UBS Global AM - Americas region, she was vice president Assistant and counsel at Deutsche Asset Management/Scudder Secretary Investments from 2003 to 2005. Prior to that she was assistant vice president and counsel at Deutsche Asset Management/Scudder Investments from 2000 to 2003. Ms. Lee is a vice president and assistant secretary of 20 investment companies (consisting of 91 portfolios) for which UBS Global AM - Americas region or one of its affiliates serves as investment advisor, sub-advisor or manager.
-------------------------------------------------------------------------------- 216 TRUSTEE & OFFICER INFORMATION (UNAUDITED) --------------------------------------------------------------------------------
TERM OF OFFICE + AND POSITION(S) LENGTH OF HELD WITH TIME PRINCIPAL OCCUPATION(S) NAME, ADDRESS AND AGE THE TRUST SERVED DURING PAST 5 YEARS --------------------- ----------- -------------- ---------------------------------------------------------- Joseph T. Malone* Vice Since 2001 Mr. Malone is a director (since 2001) and co-head of the Age: 38 President, (Vice mutual fund finance department (since 2004) of UBS Global Treasurer President) and AM - Americas region. From August 2000 through June 2001, and since 2004 he was controller at AEA Investors Inc. Mr. Malone is the Principal (Treasurer and vice president and assistant treasurer of 16 investment Accounting Principal companies (consisting of 35 portfolios) and vice Officer Accounting president, treasurer and principal accounting officer of Officer) four investment companies (consisting of 56 portfolios) for which UBS Global AM - Americas region or one of its affiliates serves as investment advisor, sub-advisor or manager. Joseph McGill* Vice Since 2004 Mr. McGill is managing director (since 2006) and chief Age: 44 President compliance officer at UBS Global AM - Americas region and Chief (since 2003). Prior to joining UBS Global AM - Americas Compliance region, he was assistant general counsel at J.P. Morgan Officer Investment Management (from 1999 to 2003). Mr. McGill is a vice president and chief compliance officer of 20 investment companies (consisting of 91 portfolios) for which UBS Global AM - Americas region or one of its affiliates serves as investment advisor, sub- advisor or manager. Eric Sanders* Vice Since 2005 Mr. Sanders is a director and associate general counsel of Age: 40 President UBS Global AM - Americas Region (since 2005). From 1996 and until June 2005, he held various positions at Fred Alger & Assistant Company, Incorporated, the most recent being assistant Secretary vice president and associate general counsel. Mr. Sanders is a vice president and assistant secretary of 20 investment companies (consisting of 91 portfolios) for which UBS Global AM - Americas region or one of its affiliates serves as investment advisor, sub-advisor or manager. Keith A. Weller* Vice Since 2004 Mr. Weller is an executive director and senior associate Age: 45 President general counsel of UBS Global AM - Americas region (since and 2005) and has been an attorney with affiliated entities Assistant since 1995. Mr. Weller is a vice president and assistant Secretary secretary of 20 investment companies (consisting of 91 portfolios) for which UBS Global AM - Americas region or one of its affiliates serves as investment advisor, sub-advisor or manager.
+ Each Trustee holds office for an indefinite term. Officers of the Trust are appointed by the Trustees and serve at the pleasure of the Board. * This person's business address is 51 West 52nd Street, New York, NY 10019-6114. ** This person's business address is One North Wacker Drive, Chicago, IL 60606. -------------------------------------------------------------------------------- 217 THE UBS FUNDS--FEDERAL TAX INFORMATION (UNAUDITED) -------------------------------------------------------------------------------- For the year ended June 30, 2006, the percentage of dividends paid that qualify for the 70% dividends received deduction for corporate shareholders, the designation of long-term capital gain and the amounts expected to be passed through to the shareholders as foreign tax credits are approximated as follows: DIVIDENDS 20% RECEIVED LONG-TERM FOREIGN TAX DEDUCTION CAPITAL GAIN CREDIT --------- ------------ ----------- UBS Dynamic Alpha Fund -- $ 4,878,805 -- UBS Global Allocation Fund 25.96% 111,143,459 -- UBS Global Equity Fund 96.89 -- $242,358 UBS International Equity Fund -- 4,706,815 286,348 UBS U.S. Large Cap Equity Fund 82.87 7,141,858 -- UBS U.S. Large Cap Growth Fund 98.62 -- -- UBS U.S. Large Cap Value Equity Fund 92.17 9,935,393 -- UBS U.S. Small Cap Growth Fund 100.00 13,307,966 -- UBS Absolute Return Bond Fund -- 234,389 -- In addition, for the year ended June 30, 2006, gross income derived from sources within foreign countries amounted to $6,081,631 for UBS Global Equity Fund and $4,366,216 for UBS International Equity Fund. For the year ended June 30, 2006, the percentage of income earned from direct treasury obligations approximately amounted to the following: DIRECT TREASURY OBLIGATIONS --------------- UBS Global Allocation Fund 18.36% UBS Absolute Return Bond Fund 6.27 UBS Global Bond Fund 21.93 UBS U.S. Bond Fund 30.73 -------------------------------------------------------------------------------- 218 [UBS Global Asset Management LOGO] UBS GLOBAL ASSET MANAGEMENT(AMERICAS) INC. One North Wacker Drive Chicago, IL 60606 TUF706.3391C S827 06-0389 8/06 ITEM 2. CODE OF ETHICS. The registrant has adopted a code of ethics that applies to its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions pursuant to Section 406 of the Sarbanes-Oxley Act of 2002. (The registrant has designated the code of ethics adopted pursuant to Sarbanes-Oxley as a "Code of Conduct" to lessen the risk of confusion with its separate code of ethics adopted pursuant to Rule 17j-1 under the Investment Company Act of 1940, as amended.) ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. The registrant's Board has determined that the following person serving on the registrant's Audit Committee is an "audit committee financial expert" as defined in item 3 of Form N-CSR: J. Mikesell Thomas. Mr. Thomas is independent as defined in item 3 of Form N-CSR. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. (a) AUDIT FEES: For the fiscal years ended June 30, 2006 and June 30, 2005, the aggregate Ernst & Young LLP (E&Y) audit fees for professional services rendered to the registrant were approximately $492,350 and $431,000, respectively. Fees included in the audit fees category are those associated with the annual audits of financial statements and services that are normally provided in connection with statutory and regulatory filings. (b) AUDIT-RELATED FEES: In each of the fiscal years ended June 30, 2006 and June 30, 2005, the aggregate audit-related fees billed by E&Y for services rendered to the registrant that are reasonably related to the performance of the audits of the financial statements, but not reported as audit fees, were approximately $19,800 and $17,500, respectively. Fees included in the audit-related category are those associated with (1) the reading and providing of comments on the 2005 and 2004 semiannual financial statements. There were no audit-related fees required to be approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X during the fiscal years indicated above. (c) TAX FEES: In each of the fiscal years ended June 30, 2006 and June 30, 2005, the aggregate tax fees billed by E&Y for professional services rendered to the registrant were approximately $55,698 and $7,500, respectively. Fees included in the tax fees category comprise all services performed by professional staff in the independent accountant's tax division except those services related to the audits. This category comprises fees for review of tax returns. There were no tax fees required to be approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X during the fiscal years indicated above. (d) ALL OTHER FEES: In each of the fiscal years ended June 30, 2006 and June 30, 2005, there were no fees billed by E&Y for products and services, other than the services reported in Item 4(a)-(c) above, rendered to the registrant. Fees included in the all other fees category would consist of services related to internal control reviews, strategy and other consulting, financial information systems design and implementation, consulting on other information systems, and other tax services unrelated to the registrant. There were no "all other fees" required to be approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X during the fiscal years indicated above. (e) (1) AUDIT COMMITTEE PRE-APPROVAL POLICIES AND PROCEDURES: The registrant's Audit Committee must pre-approve all audit and non-audit services provided by the auditors relating to any series of the registrant's operations or financial reporting. Prior to the commencement of any audit or non-audit services, the Audit Committee reviews the services to determine whether they are appropriate and permissible under applicable law. The registrant's Audit Committee has adopted a charter that, among other things, provides a framework for the Audit Committee's consideration of non-audit services by the registrant's auditors. The charter requires pre-approval of any non-audit services to be provided by the auditors to a series of the registrant when, without such pre-approval, the auditors would not be independent of the registrant under the applicable federal securities laws, rules or auditing standards. The charter also requires pre-approval of all non-audit services to be provided by the registrant's auditors to the registrant's investment adviser or any entity that it controls, is controlled by or is under common control with the registrant's investment adviser and that provides ongoing services to the registrant when, without such pre-approval, the auditors would not be independent of the registrant under applicable federal securities laws, rules or auditing standards. All non-audit services must be approved in advance of provision of the service either: (i) by resolution of the Audit Committee; (ii) by oral or written approval of the Chairman of the Audit Committee and one other Audit Committee member; or (iii) if the Chairman is unavailable, by oral or written approval of two other members of the Audit Committee. (e) (2) Services approved pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X: AUDIT-RELATED FEES: There were no amounts that were approved by the audit committee pursuant to the de minimis exception for the fiscal years ended June 30, 2006 and June 30, 2005 on behalf of the registrant. There were no amounts that were required to be approved by the audit committee pursuant to the de minimis exception for the fiscal years ended June 30, 2006 and June 30, 2005 on behalf of the registrant's service providers that relate directly to the operations and financial reporting of the registrant. TAX FEES: There were no amounts that were approved by the audit committee pursuant to the de minimis exception for the fiscal years ended June 30, 2006 and June 30, 2005 on behalf of the registrant. There were no amounts that were required to be approved by the audit committee pursuant to the de minimis exception for the fiscal years ended June 30, 2006 and June 30, 2005 on behalf of the registrant's service providers that relate directly to the operations and financial reporting of the registrant. ALL OTHER FEES: There were no amounts that were approved by the audit committee pursuant to the de minimis exception for the fiscal years ended June 30, 2006 and June 30, 2005 on behalf of the registrant. There were no amounts that were required to be approved by the audit committee pursuant to the de minimis exception for the fiscal years ended June 30, 2006 and June 30, 2005 on behalf of the registrant's service providers that relate directly to the operations and financial reporting of the registrant. (f) According to E&Y, for the fiscal year ended June 30, 2006, the percentage of hours spent on the audit of the registrant's financial statements for the most recent fiscal year that were attributed to work performed by persons who are not full-time, permanent employees of E&Y was less than 50%. (g) For the fiscal years ended June 30, 2006 and June 30, 2005, the aggregate fees billed by E&Y of $2,288,990 and $2,578,479, respectively, for non-audit services rendered on behalf of the registrant ("covered"), its investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser) and any entity controlling, controlled by, or under common control with the adviser ("non-covered") that provides ongoing services to the registrant for each of the last two fiscal years of the registrant is shown in the table below: 2006 2005 ---------- ---------- Covered Services $ 75,498 $ 25,000 Non-Covered Services $2,213,492 $2,553,479 (h) The registrant's audit committee was not required to consider whether the provision of non-audit services that were rendered to the registrant's investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining the principal accountant's independence. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. Not applicable to the registrant. ITEM 6. SCHEDULE OF INVESTMENTS. Included as part of the report to shareholders filed under Item 1 of this form. ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable to the registrant. ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable to the registrant. ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. Not applicable to the registrant. ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. The registrant's Board has established a Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee will consider nominees recommended by shareholders if a vacancy occurs among those board members who are not "interested persons" as defined in Section 2(a)(19) of the Investment Company Act of 1940, as amended. In order to recommend a nominee, a shareholder should send a letter to the chairperson of the Nominating and Corporate Governance Committee, Mr. Walter E. Auch, care of the Secretary of the registrant at UBS Global Asset Management (US) Inc., One North Wacker Drive, Chicago, Illinois 60606, and indicate on the envelope "Nominating and Corporate Governance Committee." The shareholder's letter should state the nominee's name and should include the nominee's resume or curriculum vitae, and must be accompanied by a written consent of the individual to stand for election if nominated for the Board and to serve if elected by shareholders. ITEM 11. CONTROLS AND PROCEDURES. (a) The registrant's principal executive officer and principal financial officer have concluded that the registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended) are effective based on their evaluation of these controls and procedures as of a date within 90 days of the filing date of this document. (b) The registrant's principal executive officer and principal financial officer are aware of no changes in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. ITEM 12. EXHIBITS. (a) (1) Code of Ethics as required pursuant to Section 406 of the Sarbanes-Oxley Act of 2002 (and designated by registrant as a "Code of Conduct") is incorporated by reference herein from Exhibit EX-99.CODE ETH to the registrant's Report on Form N-CSR filed September 7, 2004 (Accession Number: 0001047469-04-028138)(SEC File No. 811-06637). (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-99.906.CERT. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. The UBS Funds By: /s/ W. Douglas Beck -------------------------------- W. Douglas Beck President Date: September 8, 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: September 8, 2006 By: /s/ Joseph T. Malone -------------------------------- Joseph T. Malone Treasurer & Principal Accounting Officer Date: September 8, 2006