<Page>
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: 811-21145
---------------------------------------------
FRESCO INDEX SHARES 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)
David M. Goldenberg, Esq.
UBS Global Asset Management (US) Inc.
51 West 52nd Street
New York, NY 10019-6114
(Name and address of agent for service)
Copy to:
Stuart Strauss, Esq.
Mayer Brown Rowe & Maw
1675 Broadway
New York, New York 10019-5820
Stephanie M. Nichols, Esq.
State Street Bank and Trust Company
One Federal Street, 9th Floor
Boston, MA 02110
Registrant's telephone number, including area code: 212-882-5000
Date of fiscal year end: September 30, 2003
Date of reporting period: September 30, 2003
ITEM 1: REPORTS TO STOCKHOLDERS.
<Page>
[FRESCO INDEX SHARES LOGO]
FRESCO DOW JONES STOXX 50 FUND
FRESCO DOW JONES EURO STOXX 50 FUND
ANNUAL REPORT, SEPTEMBER 30, 2003
<Page>
FRESCO DOW JONES STOXX 50 FUND
November 14, 2003
DEAR SHAREHOLDER,
We present you with the annual report for Fresco Dow Jones STOXX 50 Fund. This
report covers the period since the Fund's inception on October 15, 2002 through
September 30, 2003.
PERFORMANCE REVIEW
Fresco Dow Jones STOXX 50 Fund uses a passive management strategy designed to
track the performance (before expenses) of the Dow Jones STOXX 50 Index. Since
its inception on October 15, 2002, through period end on September 30, 2003, the
Fund's net asset value return was 12.79%, compared to a return of 12.87% for the
Index denominated in US dollars, and a decline of 5.05% for the Index
denominated in euros. (For more on the Fund's performance, refer to "Performance
At A Glance" on page 5. Please note that the returns shown do not reflect your
individual tax circumstances, broker's commission, or other transaction
charges.)
AN INTERVIEW WITH PORTFOLIO MANAGER DAVID HOBBS
Q. HOW DID THE MARKETS PERFORM OVER THE PERIOD?
A. Following a prolonged bear market, the European equity markets generated
positive returns during the reporting period. However, there were periods of
extreme volatility. Early in the review period, European stocks performed
well amid positive economic news and investors' growing expectations for a
sustained recovery in 2003. However, increasing geopolitical concerns,
coupled with conflicting reports about the health of the economy, caused
European equities to falter from December 2002 through mid-March 2003.
The market shifted course following the rapid conclusion of major fighting in
Iraq. Once this major uncertainty, which had been weighing down the markets,
was eliminated, investors once again grew optimistic about the prospects for
a sustainable economic recovery. This triggered an impressive rally that saw
many investors shift out of the more defensive areas of the market, only to
embrace some of the more risky stocks.
FRESCO DOW JONES STOXX 50 FUND
INVESTMENT GOAL:
To replicate as closely as possible, before expenses, the price and yield of the
Dow Jones STOXX 50 Index.
PORTFOLIO MANAGER:
David Hobbs
SUBADVISOR:
UBS Global Asset Management International Ltd.
COMMENCEMENT:
October 15, 2002
NYSE SYMBOL:
FEU
1
<Page>
Q. HOW DID THE SECTORS IN THE INDEX PERFORM OVER THE PERIOD?
A. During the reporting period, stocks in the basic resources, technology,
cyclical goods and services, and banking sectors generated the strongest
results. Conversely, the financial services, utilities, and automobile
sectors turned in the weakest performances.
Q. CAN YOU TELL US ABOUT INDIVIDUAL STOCK PERFORMANCE?
A. In terms of individual holdings, nearly half of the 50 stocks in the Index
posted positive returns. A noteworthy example is Credit Suisse Group, which
offers investment products and financial advisory services to private and
corporate clients. The company saw its stock rise in response to strong
earnings growth. Banco Santander Central Hispano SA, a large bank
headquartered in Spain, also performed well due to an improving business
environment and the rising equity markets. Finally, Siemens AG, Germany's
largest engineering and electronics company and the world's fourth-biggest
mobile phone maker, saw its stock perform well during the period, as its
sales rose sharply. In August 2003, the firm announced that it expects to see
handset sales increase by as much as 20% this fiscal year, once it introduces
new models. This growth figure places it ahead of the market, which analysts
expect will expand by about 10%. In addition, Siemens's shipments to the US
and Canada quadrupled year-over-year in the second quarter of 2003, almost
quadrupling its market share.
Conversely, Lloyds TSB Group PLC, L'Oreal SA and Aegon NV were among the
worst-performing stocks in the Index. Lloyds offers a comprehensive range of
banking and financial services in the UK and overseas. Its stock price fell
due to a number of company-specific issues, including scrutiny that drew
attention to questionable sales practices. L'Oreal, a leading cosmetics firm
headquartered in France, was hurt due to the generally weak global economy
and increased market competition. Aegon, a Netherlands-based firm whose core
business is life insurance, pension and related savings and investment
products, continued to struggle with a weak balance sheet.
2
<Page>
Our ultimate objective in managing your investments is to help you successfully
meet your financial goals. We thank you for your continued support and welcome
any comments or questions you may have. For additional information on Fresco
Index Shares Funds,* please contact your financial advisor, or visit us at
www.frescoshares.com.
/s/ Joseph LaCorte
JOSEPH LACORTE
PRESIDENT
Fresco Dow Jones STOXX 50 Fund
MANAGING DIRECTOR
UBS Global Asset Management (US) Inc.
/s/ David Hobbs
DAVID HOBBS
PORTFOLIO MANAGER
Fresco Dow Jones STOXX 50 Fund
HEAD OF PASSIVE MANAGEMENT
UBS Global Asset Management International Ltd.
This letter is intended to assist shareholders in understanding how the Fund
performed since its inception on October 15, 2002 through September 30, 2003,
and reflects our views at the time of its writing. Of course, these views may
change in response to changing circumstances, and they do not guarantee the
future performance of the markets or the Fund. We encourage you to consult your
financial advisor regarding your personal investment program.
* Please see the prospectus for a more detailed discussion of the risks,
charges and expenses and other matters of interest associated with Fresco
Index Shares Funds. Please read it carefully before investing.
3
<Page>
PERFORMANCE AT A GLANCE
Comparison of the change of a $10,000 investment in Fresco Dow Jones STOXX 50
Fund and the Dow Jones STOXX 50 Index from October 15, 2002 through September
30, 2003.
[CHART]
<Table>
<Caption>
FRESCO DOW JONES STOXX 50 FUND DOW JONES STOXX 50 FUND DOW JONES STOXX 50 INDEX
(DENOMINATED IN U.S. DOLLARS) (DENOMINATED IN EUROS) (DENOMINATED IN U.S. DOLLARS)
Oct-02 $ 10,000 EURO 10,000 $ 10,000
Oct-02 $ 10,008 EURO 9,911 $ 10,014
Nov-02 $ 10,458 EURO 10,310 $ 10,465
Dec-02 $ 10,059 EURO 9,329 $ 9,978
Jan-03 $ 9,511 EURO 8,675 $ 9,518
Feb-03 $ 9,266 EURO 8,424 $ 9,282
Mar-03 $ 9,128 EURO 8,206 $ 9,132
Apr-03 $ 10,378 EURO 9,105 $ 10,384
May-03 $ 10,975 EURO 9,134 $ 10,977
Jun-03 $ 11,098 EURO 9,468 $ 11,096
Jul-03 $ 11,226 EURO 9,792 $ 11,226
Aug-03 $ 11,033 EURO 9,858 $ 11,043
Sep-03 $ 11,279 EURO 9,495 $ 11,287
</Table>
Since inception returns are calculated as of commencement of issuance on
October 15, 2002. For purposes of this comparison, the since inception return
for the Index is shown as of October 15, 2002, which is the inception date of
the Fund. Also, because the first trading day of the Fund followed its
inception date, NAV is used to calculate market price returns prior to the
start of trading.
Performance results for the Fresco Dow Jones STOXX 50 Fund assume
reinvestment of all dividends and capital gains and are shown net of fees and
expenses. The investment return and principal value of an investment will
fluctuate so that the Fund's shares, when redeemed or otherwise sold, may be
worth more or less than their original cost. Broker commissions will reduce
returns.
Performance information for the Dow Jones STOXX 50 Index assumes reinvestment
of all income and excludes management fees, expenses and transaction costs,
including brokerage commissions. The Index is unmanaged and not available for
direct investment. The Index value is determined both on the basis of Euros
and US dollars while the Fund's net asset value is determined on the basis of
US dollars. The US dollar Index value takes into account withholding taxes
while the Euro Index value does not.
Past performance does not guarantee future results.
4
<Page>
TOTAL RETURNS AS OF 9/30/03
<Table>
<Caption>
CUMULATIVE
TOTAL RETURNS
----------------
NET ASSET VALUE RETURNS* SINCE INCEPTION^
- ---------------------------------------------------------------------------------
Fresco Dow Jones STOXX 50 Fund 12.79%
After Tax Held** 11.83%
After Tax Post-Liquidation** 8.29%
- ---------------------------------------------------------------------------------
Dow Jones STOXX 50 Index (denominated in US Dollars) 12.87%
Dow Jones STOXX 50 Index (denominated in Euros) (5.05)%
<Caption>
MARKET PRICE RETURNS* SINCE INCEPTION^
- ---------------------------------------------------------------------------------
Fresco Dow Jones STOXX 50 Fund 13.26%
After Tax Held** N/A
After Tax Post-Liquidation** N/A
- ---------------------------------------------------------------------------------
Dow Jones STOXX 50 Index (denominated in US Dollars) 12.87%
Dow Jones STOXX 50 Index (denominated in Euros) (5.05)%
</Table>
^ Since inception returns are calculated as of commencement of issuance on
October 15, 2002. For purposes of this comparison, the since inception return
for the Index is shown as of October 15, 2002, which is the inception date of
the Fund. Also, because the first trading day of the Fund followed its
inception date, NAV is used to calculate market price returns prior to the
start of trading.
* Net asset value is the value of one share of a fund as calculated in
accordance with the standard formula for valuing mutual fund shares. The NAV
return is based on the NAV per share of the Fund. Market returns are based
upon the midpoint of the bid/ask spread at 4:00 PM Eastern time and do not
represent the returns you would receive if you traded shares at other times.
** After tax held returns represent return after taxes on distributions and
assumes that Fresco Index Shares have not been sold. After tax
post-liquidation returns represent the return after taxes on distributions
and the sale of Fresco Index Shares. After tax returns are calculated using
the current highest individual federal marginal income tax rates and do not
reflect the impact of the state and local taxes. Actual after-tax returns
depend on the investor's tax situation and may differ from those shown. The
after-tax returns shown are not relevant to investors who hold Fresco Index
Shares through tax-deferred arrangements such as 401(k) plans or individual
retirement accounts.
Performance results for the Fresco Dow Jones STOXX 50 Fund assume
reinvestment of all dividends and capital gains and are shown net of fees and
expenses. The investment return and principal value of an investment will
fluctuate so that the Fund's shares, when redeemed or otherwise sold, may be
worth more or less than their original cost. Broker commissions will reduce
returns.
Performance information for the Dow Jones STOXX 50 Index assumes reinvestment
of all income and excludes management fees, expenses and transaction costs,
including brokerage commissions. The Index is unmanaged and not available for
direct investment. The Index value is determined both on the basis of Euros
and US dollars while the Fund's net asset value is determined on the basis of
US dollars. The US dollar Index value takes into account withholding taxes
while the Euro Index value does not.
Past performance does not guarantee future results.
5
<Page>
PORTFOLIO STATISTICS
<Table>
<Caption>
CHARACTERISTICS* 9/30/03 3/31/03
- -----------------------------------------------------------------------------------------
Net Assets (mln) $ 8.4 $ 27.6
<Caption>
TOP FIVE SECTORS* 9/30/03 3/31/03
- -----------------------------------------------------------------------------------------
Banks 25.6% Banks 24.6%
Energy 18.2 Energy 20.6
Healthcare 14.3 Healthcare 15.0
Telecommunications 11.3 Telecommunications 11.7
Insurance 6.8 Food & Beverages 7.4
- -----------------------------------------------------------------------------------------
TOTAL 76.2% 79.3%
- -----------------------------------------------------------------------------------------
<Caption>
TOP 10 HOLDINGS* 9/30/03 3/31/03
- -----------------------------------------------------------------------------------------
BP PLC 6.2% BP PLC 7.2%
HSBC Holdings PLC 5.9 Vodafone Group PLC 6.2
Vodafone Group PLC 5.6 HSBC Holdings PLC 5.6
GlaxoSmithKline PLC 5.1 GlaxoSmithKline PLC 5.4
Total Fina Elf SA 4.2 Novartis AG 4.6
Novartis AG 4.0 Total Fina Elf SA 4.4
Nestle SA 3.8 Royal Dutch Petroleum Co. 4.3
Royal Dutch Petroleum Co. 3.8 Nestle SA 4.0
Nokia Oyj 3.0 Nokia Oyj 3.4
Royal Bank of Scotland Group PLC 2.9 Royal Bank of Scotland Group PLS 3.1
- -----------------------------------------------------------------------------------------
TOTAL 44.5% 48.2%
- -----------------------------------------------------------------------------------------
</Table>
* Weightings represent percentages of net assets as of the dates indicated.
6
<Page>
FRESCO DOW JONES EURO STOXX 50 FUND
November 14, 2003
DEAR SHAREHOLDER,
We present you with the annual report for Fresco Dow Jones EURO STOXX 50 Fund.
This report covers the period since the Fund's inception on October 15, 2002
through September 30, 2003.
PERFORMANCE REVIEW
Fresco Dow Jones EURO STOXX 50 Fund uses a passive management strategy designed
to track (before expenses) the performance of the Dow Jones EURO STOXX 50 Index
(the "Index"). Since its inception on October 15, 2002, through period end on
September 30, 2003, the Fund's net asset value return was 17.46%, compared to a
return of 17.32% for the Index denominated in US Dollars, and a decline of 1.31%
for the Index denominated in euros. (For more on the Fund's performance, refer
to "Performance At A Glance" on page 11. Please note that the returns shown do
not reflect your individual tax circumstances, broker's commission, or other
transaction charges.)
AN INTERVIEW WITH PORTFOLIO MANAGER DAVID HOBBS
Q. HOW DID THE EUROPEAN MARKETS PERFORM OVER THE PERIOD?
A. Following a prolonged bear market, the European equity markets generated
positive returns during the reporting period. However, there were periods of
extreme volatility. Early in the review period, European stocks performed
well amid positive economic news and investors' growing expectations for a
sustained recovery in 2003. However, increasing geopolitical concerns,
coupled with conflicting reports about the health of the economy, caused
European equities to falter from December 2002 through mid-March 2003.
The market shifted course following the rapid conclusion of major fighting in
Iraq. Once this major uncertainty, which had been weighing down the markets,
was eliminated, investors once again grew optimistic about the prospects for
a sustainable economic recovery. This triggered an impressive rally that saw
many investors shift out of the more defensive areas of the market, only to
embrace some of the more risky stocks.
FRESCO DOW JONES EURO STOXX 50 FUND
INVESTMENT GOAL:
To replicate as closely as possible, before expenses, the price and yield of the
Dow Jones EURO STOXX 50 Index.
PORTFOLIO MANAGER:
David Hobbs
SUBADVISOR:
UBS Global Asset Management International Ltd.
COMMENCEMENT:
October 15, 2002
NYSE SYMBOL:
FEZ
7
<Page>
Q. WHAT SECTORS DID WELL OVER THE PERIOD?
A. During the reporting period, stocks in the technology, cyclical goods and
services, banks, and media sectors produced the strongest results.
Conversely, the weakest performances came from the noncyclical goods and
services, healthcare, financial services, and automobile sectors.
Q. WHAT CAN YOU TELL US ABOUT INDIVIDUAL STOCK PERFORMANCE?
A. In terms of individual stocks, more than half of the stocks in the Index
generated positive returns. Among the strongest performers were Alcatel,
France Telecom SA and Sanpaolo IMI SpA. Alcatel headquartered in France,
continues to be Europe's top telecom equipment vendor in terms of sales. Its
stock rose sharply as it secured a number of high profile contacts, including
a multi-million dollar radio satellite deal with US aerospace company Boeing
Co. France Telecom provides telecommunications services in France and
throughout the world; it is also France's largest mobile telecommunications
service provider. The company's stock gained as it continued to successfully
restructure its business and focus its operations on France and the UK.
Sanpaolo IMI SpA is one of the largest banks in Italy, with more than 2,000
retail branches and 35,700 employees. It continues to build on its core
banking services, and has expanded its asset management operations by taking
advantage of new technologies.
Ahold Muenchener Rueckversicherungs - Gesellschaft AG and Aventis SA were
examples of stocks that detracted from results. Ahold is a Netherlands-based
operator of supermarkets and other retail formats, with operations in the US,
Europe, Latin America and Asia. Its stock price fell sharply due to
accounting problems resulting from actions it took to artificially boost
earnings. Muenchener Rueckversicherungs - Gesellschaft AG, a German-based
insurance and financial firm, was hurt by a number of company-specific
issues. Aventis, a France-based pharmaceuticals company, was hurt when,
during the reporting period, sales of its allergy drug Allegra were
diminished after a competing drug was approved for over-the-counter use in
the US. The weakening of the US dollar versus the euro also had a negative
impact on sales.
8
<Page>
Our ultimate objective in managing your investments is to help you successfully
meet your financial goals. We thank you for your continued support and welcome
any comments or questions you may have. For additional information on Fresco
Index Shares Funds,* please contact your financial advisor or visit us at
www.frescoshares.com.
/s/ Joseph LaCorte
JOSEPH LACORTE
PRESIDENT
Fresco Dow Jones EURO STOXX 50 Fund
MANAGING DIRECTOR
UBS Global Asset Management (US) Inc.
/s/ David Hobbs
DAVID HOBBS
PORTFOLIO MANAGER
Fresco Dow Jones EURO STOXX 50 Fund
HEAD OF PASSIVE MANAGEMENT
UBS Global Asset Management International Ltd.
This letter is intended to assist shareholders in understanding how the Fund
performed since its inception on October 15, 2002 through September 30, 2003,
and reflects our views at the time of its writing. Of course, these views may
change in response to changing circumstances, and they do not guarantee the
future performance of the markets or the Fund. We encourage you to consult your
financial advisor regarding your personal investment program.
* Please see the prospectus for a more detailed discussion of the risks,
charges and expenses and other matters of interest associated with Fresco
Index Shares Funds. Please read it carefully before investing.
9
<Page>
PERFORMANCE AT A GLANCE
Comparison of the change of a $10,000 investment in Fresco Dow Jones EURO STOXX
50 Fund and the Dow Jones EURO STOXX 50 Index from October 15, 2002 through
September 30, 2003.
[CHART]
<Table>
<Caption>
FRESCO DOW JONES EURO STOXX 50 FUND DOW JONES EURO STOXX 50 FUND DOW JONES EURO STOXX 50 INDEX
(DENOMINATED IN U.S. DOLLARS) (DENOMINATED IN EUROS) (DENOMINATED IN U.S. DOLLARS)
Oct-02 $ 10,000 EURO 10,000 $ 10,000
Oct-02 $ 10,236 EURO 10,138 $ 10,244
Nov-02 $ 10,848 EURO 10,696 $ 10,856
Dec-02 $ 10,343 EURO 9,613 $ 10,283
Jan-03 $ 9,941 EURO 9,066 $ 9,947
Feb-03 $ 9,497 EURO 8,636 $ 9,515
Mar-03 $ 9,148 EURO 8,227 $ 9,156
Apr-03 $ 10,748 EURO 9,436 $ 10,761
May-03 $ 11,459 EURO 9,529 $ 11,452
Jun-03 $ 11,657 EURO 9,933 $ 11,641
Jul-03 $ 11,899 EURO 10,366 $ 11,884
Aug-03 $ 11,807 EURO 10,532 $ 11,797
Sep-03 $ 11,746 EURO 9,869 $ 11,732
</Table>
Since inception returns are calculated as of commencement of issuance on
October 15, 2002. For purposes of this comparison, the since inception return
for the Index is shown as of October 15, 2002, which is the inception date of
the Fund. Also, because the first trading day of the Fund followed its
inception date, NAV is used to calculate market price returns prior to the
start of trading.
Performance results assume reinvestment of all dividends and capital gains
and are shown net of fees and expenses. The investment return and principal
value of an investment will fluctuate so that the Fund's shares, when
redeemed or otherwise sold, may be worth more or less than their original
cost. Broker commissions will reduce returns.
Performance information for the Dow Jones EURO STOXX 50 Index assumes
reinvestment of all income and excludes management fees, expenses and
transaction costs, including brokerage commissions. The Index is unmanaged
and not available for direct investment. The Index value is determined both
on the basis of Euros and US dollars while the Fund's net asset value is
determined on the basis of US dollars. The US dollar Index value takes into
account withholding taxes while the Euro Index value does not.
Past performance does not guarantee future results.
10
<Page>
TOTAL RETURNS AS OF 9/30/03
<Table>
<Caption>
CUMULATIVE
TOTAL RETURNS
----------------
NET ASSET VALUE RETURNS* SINCE INCEPTION^
- ---------------------------------------------------------------------------------
Fresco Dow Jones EURO STOXX 50 Fund 17.46%
After Tax Held** 16.54%
After Tax Post-Liquidation** 11.35%
- ---------------------------------------------------------------------------------
Dow Jones EURO STOXX 50 Index (denominated in US dollars) 17.32%
Dow Jones EURO STOXX 50 Index (denominated in Euros) (1.31)%
<Caption>
MARKET PRICE RETURNS* SINCE INCEPTION^
- ---------------------------------------------------------------------------------
Fresco Dow Jones EURO STOXX 50 Fund 17.64%
After Tax Held** N/A
After Tax Post-Liquidation** N/A
- ---------------------------------------------------------------------------------
Dow Jones EURO STOXX 50 Index (denominated in US dollars) 17.32%
Dow Jones EURO STOXX 50 Index (denominated in Euros) (1.31)%
</Table>
^ Since inception returns are calculated as of commencement of issuance on
October 15, 2002. For purposes of this comparison, the since inception return
for the Index is shown as of October 15, 2002, which is the inception date of
the Fund. Also, because the first trading day of the Fund followed its
inception date, NAV is used to calculate market price returns prior to the
start of trading.
* Net asset value is the value of one share of a fund as calculated in
accordance with the standard formula for valuing mutual fund shares. The NAV
return is based on the NAV per share of the Fund. Market returns are based
upon the midpoint of the bid/ask spread at 4:00 PM Eastern time and do not
represent the returns you would receive if you traded shares at other times.
** After tax held returns represent return after taxes on distributions and
assumes that Fresco Index Shares have not been sold. After tax
post-liquidation returns represent the return after taxes on distributions
and the sale of Fresco Index Shares. After tax returns are calculated using
the current highest individual federal marginal income tax rates and do not
reflect the impact of the state and local taxes. Actual after-tax returns
depend on the investor's tax situation and may differ from those shown. The
after-tax returns shown are not relevant to investors who hold Fresco Index
Shares through tax-deferred arrangements such as 401(k) plans or individual
retirement accounts.
Performance results assume reinvestment of all dividends and capital gains
and are shown net of fees and expenses. The investment return and principal
value of an investment will fluctuate so that the Fund's shares, when
redeemed or otherwise sold, may be worth more or less than their original
cost. Broker commissions will reduce returns.
Performance information for the Dow Jones EURO STOXX 50 Index assumes
reinvestment of all income and excludes management fees, expenses and
transaction costs, including brokerage commissions. The Index is unmanaged
and not available for direct investment. The Index value is determined both
on the basis of Euros and US dollars while the Fund's net asset value is
determined on the basis of US dollars. The US dollar Index value takes into
account withholding taxes while the Euro Index value does not.
Past performance does not guarantee future results.
11
<Page>
PORTFOLIO STATISTICS
<Table>
<Caption>
CHARACTERISTICS* 9/30/03 3/31/03
- -----------------------------------------------------------------------------------------
Net Assets (mln) $ 85.3 $ 148.0
<Caption>
TOP FIVE SECTORS* 9/30/03 3/31/03
- -----------------------------------------------------------------------------------------
Energy 18.0% Energy 20.4%
Banks 17.5 Banks 17.1
Telecommunications 10.9 Telecommunications 10.7
Insurance 10.0 Technology 10.0
Technology 9.8 Insurance 7.9
- -----------------------------------------------------------------------------------------
TOTAL 66.2% 66.1%
- -----------------------------------------------------------------------------------------
<Caption>
TOP 10 HOLDINGS* 9/30/03 3/31/03
- -----------------------------------------------------------------------------------------
Total Fina Elf SA 7.4% Total Fina Elf SA 8.0%
Royal Dutch Petroleum Co. 6.7 Royal Dutch Petroleum Co. 7.8
Nokia Oyj 5.3 Nokia Oyj 6.1
Telefonica SA 4.0 Telefonica SA 4.1
Siemens AG 3.6 Eni SpA 3.2
BNP Paribas SA 3.0 Siemens AG 3.1
Banco Santander Central Hispano SA 2.9 Unilever NV 3.1
Eni SpA 2.8 BNP Paribas SA 3.1
Aventis SA 2.6 Aventis SA 2.8
Deutsche Bank AG 2.6 Banco Santander Central Hispano SA 2.8
- -----------------------------------------------------------------------------------------
TOTAL 40.9% 44.1%
- -----------------------------------------------------------------------------------------
</Table>
* Weightings represent percentages of net assets as of the dates indicated.
12
<Page>
Portfolio of Investments -- September 30, 2003
COMMON STOCKS--99.92%
<Table>
<Caption>
SECURITY DESCRIPTION SHARES VALUE
- --------------------------------------------------------------------------------
BELGIUM--0.83%
FINANCIAL SERVICES--0.83%
Fortis 4,094 $ 69,584
- --------------------------------------------------------------------------------
FINLAND--3.01%
TECHNOLOGY--3.01%
Nokia Oyj 16,440 253,186
- --------------------------------------------------------------------------------
FRANCE--9.56%
BANKS--1.69%
BNP Paribas SA 2,907 142,572
- --------------------------------------------------------------------------------
ENERGY--4.18%
Total Fina Elf SA 2,332 352,080
- --------------------------------------------------------------------------------
INSURANCE--0.99%
AXA 4,930 83,104
- --------------------------------------------------------------------------------
NON-CYCLICAL GOODS
& SERVICES--0.89%
L'Oreal SA 1,097 74,952
- --------------------------------------------------------------------------------
RETAIL--1.19%
Carrefour SA 1,996 100,450
- --------------------------------------------------------------------------------
UTILITIES--0.62%
Suez SA 3,262 51,795
- --------------------------------------------------------------------------------
804,953
- --------------------------------------------------------------------------------
GERMANY--11.26%
AUTOMOBILES--1.17%
DaimlerChrysler AG 2,814 98,804
- --------------------------------------------------------------------------------
BANKS--1.46%
Deutsche Bank AG 2,022 123,076
- --------------------------------------------------------------------------------
CHEMICALS--1.62%
BASF AG 1,942 85,290
- --------------------------------------------------------------------------------
Bayer AG 2,370 51,215
- --------------------------------------------------------------------------------
136,505
- --------------------------------------------------------------------------------
INSURANCE--1.20%
Allianz AG 1,147 101,284
- --------------------------------------------------------------------------------
SOFTWARE--1.02%
SAP AG 700 85,526
- --------------------------------------------------------------------------------
TECHNOLOGY--2.05%
Siemens AG 2,894 172,412
- --------------------------------------------------------------------------------
TELECOMMUNICATIONS--1.45%
Deutsche Telekom AG 8,454 122,515
- --------------------------------------------------------------------------------
UTILITIES--1.29%
E.ON AG 2,222 $ 108,459
- --------------------------------------------------------------------------------
948,581
- --------------------------------------------------------------------------------
ITALY--3.55%
ENERGY--1.59%
Eni SpA(1) 8,800 134,500
- --------------------------------------------------------------------------------
INSURANCE--1.04%
Assicurazioni Generali SpA 3,878 87,553
- --------------------------------------------------------------------------------
TELECOMMUNICATIONS--0.92%
Telecom Italia SpA 31,371 77,294
- --------------------------------------------------------------------------------
299,347
- --------------------------------------------------------------------------------
NETHERLANDS--9.51%
BANKS--1.16%
ABN AMRO Holding NV 5,286 97,603
- --------------------------------------------------------------------------------
CYCLICAL GOODS
& SERVICES--1.21%
Philips Electronics NV 4,472 101,380
- --------------------------------------------------------------------------------
ENERGY--3.77%
Royal Dutch Petroleum Co. 7,232 317,704
- --------------------------------------------------------------------------------
FOOD & BEVERAGES--1.40%
Unilever NV 2,009 118,189
- --------------------------------------------------------------------------------
INSURANCE--1.97%
Aegon NV 4,467 51,987
- --------------------------------------------------------------------------------
ING Groep NV 6,201 113,631
- --------------------------------------------------------------------------------
165,618
- --------------------------------------------------------------------------------
800,494
- --------------------------------------------------------------------------------
SPAIN--5.26%
BANKS--3.01%
Banco Bilbao Vizcaya
Argentaria SA 10,915 112,659
- --------------------------------------------------------------------------------
Banco Santander
Central Hispano SA 16,566 140,493
- --------------------------------------------------------------------------------
253,152
- --------------------------------------------------------------------------------
TELECOMMUNICATIONS--2.25%
Telefonica SA* 16,052 189,616
- --------------------------------------------------------------------------------
442,768
- --------------------------------------------------------------------------------
</Table>
13
<Page>
<Table>
<Caption>
SECURITY DESCRIPTION SHARES VALUE
- --------------------------------------------------------------------------------
SWITZERLAND--15.11%
BANKS--4.08%
Credit Suisse Group 4,063 $ 129,919
- --------------------------------------------------------------------------------
UBS AG(2) 3,809 213,613
- --------------------------------------------------------------------------------
343,532
- --------------------------------------------------------------------------------
FOOD & BEVERAGES--3.79%
Nestle SA 1,386 319,410
- --------------------------------------------------------------------------------
HEALTHCARE--6.39%
Novartis AG 8,730 337,625
- --------------------------------------------------------------------------------
Roche Holding AG 2,414 200,055
- --------------------------------------------------------------------------------
537,680
- --------------------------------------------------------------------------------
INSURANCE--0.85%
Swiss Reinsurance 1,130 71,753
- --------------------------------------------------------------------------------
1,272,375
- --------------------------------------------------------------------------------
UNITED KINGDOM--41.83%
BANKS--14.24%
Barclays PLC 22,528 172,907
- --------------------------------------------------------------------------------
HBOS PLC 13,286 151,938
- --------------------------------------------------------------------------------
HSBC Holdings PLC 37,564 495,453
- --------------------------------------------------------------------------------
Lloyds TSB Group PLC 19,382 133,297
- --------------------------------------------------------------------------------
Royal Bank of
Scotland Group PLC 9,666 245,822
- --------------------------------------------------------------------------------
1,199,417
- --------------------------------------------------------------------------------
ENERGY--8.65%
BP PLC 76,230 523,311
- --------------------------------------------------------------------------------
Shell Transport &
Trading Co. PLC 33,220 205,136
- --------------------------------------------------------------------------------
728,447
- --------------------------------------------------------------------------------
FOOD & BEVERAGES--1.36%
Diageo PLC 10,602 114,459
- --------------------------------------------------------------------------------
HEALTHCARE--7.91%
AstraZeneca PLC 5,600 236,618
- --------------------------------------------------------------------------------
GlaxoSmithKline PLC 20,698 429,709
- --------------------------------------------------------------------------------
666,327
- --------------------------------------------------------------------------------
INSURANCE--0.72%
Aviva PLC 7,772 60,330
- --------------------------------------------------------------------------------
MINING--1.09%
Anglo American PLC 5,130 $ 92,178
- --------------------------------------------------------------------------------
NON-CYCLICAL GOODS
& SERVICES--1.21%
Tesco PLC 25,474 102,046
- --------------------------------------------------------------------------------
TELECOMMUNICATIONS--6.65%
BT Group PLC 30,740 91,973
- --------------------------------------------------------------------------------
Vodafone Group PLC 234,548 467,839
- --------------------------------------------------------------------------------
559,812
- --------------------------------------------------------------------------------
3,523,016
- --------------------------------------------------------------------------------
Total Common Stocks
(cost--$7,740,813) 8,414,304
- --------------------------------------------------------------------------------
INVESTMENTS OF CASH COLLATERAL
FOR SECURITIES LOANED--0.93%
UBS Private Money
Market Fund, LLC(2)
(cost--$78,645) 78,645 78,645
- --------------------------------------------------------------------------------
Total Investments
(cost--$7,819,458)--100.85% 8,492,949
- --------------------------------------------------------------------------------
Liabilities in excess of
other assets--(0.85)% (71,633)
- --------------------------------------------------------------------------------
Net Assets--100.00% $ 8,421,316
- --------------------------------------------------------------------------------
</Table>
* Non-income producing security.
(1) Security, or portion thereof, was on loan at September 30, 2003.
(2) Security is an affiliate of UBS Global Asset Management (US) Inc., the
Fund's Advisor.
See accompanying notes to financial statements
14
<Page>
Schedule of Investments
ANALYSIS OF INDUSTRY CLASSIFICATIONS
SEPTEMBER 30, 2003
<Table>
<Caption>
PERCENT OF
INDUSTRY TOTAL INVESTMENTS VALUE
- -------- ----------------- -----
Automobiles 1.2% $ 98,804
Banks 25.6 2,159,353
Chemicals 1.6 136,505
Cyclical Goods & Services 1.2 101,380
Energy 18.2 1,532,730
Food & Beverages 6.6 552,059
Financial Services 0.8 69,584
Healthcare 14.3 1,204,006
Insurance 6.8 569,641
Mining 1.1 92,178
Non-Cyclical Goods & Services 2.1 176,998
Retail 1.2 100,451
Software 1.0 85,526
Technology 5.1 425,598
Telecommunications 11.3 949,237
Utilities 1.9 160,254
----- ------------
TOTAL 100.0% $ 8,414,304
===== ============
</Table>
See accompanying notes to financial statements
15
<Page>
Portfolio of Investments -- September 30, 2003
COMMON STOCKS--99.93%
<Table>
<Caption>
SECURITY DESCRIPTION SHARES VALUE
- --------------------------------------------------------------------------------
BELGIUM--1.47%
FINANCIAL SERVICES--1.47%
Fortis(1) 73,896 $ 1,255,982
- --------------------------------------------------------------------------------
FINLAND--5.31%
TECHNOLOGY--5.31%
Nokia Oyj 294,591 4,536,889
- --------------------------------------------------------------------------------
FRANCE--32.16%
BANKS--5.12%
BNP Paribas SA 52,470 2,573,359
- --------------------------------------------------------------------------------
Societe Generale 27,006 1,799,549
- --------------------------------------------------------------------------------
4,372,908
- --------------------------------------------------------------------------------
CHEMICALS--1.03%
L'Air Liquide SA 6,238 881,482
- --------------------------------------------------------------------------------
CONSTRUCTION--1.68%
Compagnie de
Saint-Gobain 21,026 773,283
- --------------------------------------------------------------------------------
Lafarge SA 10,164 658,927
- --------------------------------------------------------------------------------
1,432,210
- --------------------------------------------------------------------------------
CYCLICAL GOODS
& SERVICES--1.05%
LVMH Moet Hennessy
Louis Vuitton SA 14,416 895,956
- --------------------------------------------------------------------------------
ENERGY--7.37%
Total Fina Elf SA 41,691 6,294,403
- --------------------------------------------------------------------------------
FOOD & BEVERAGES--1.39%
Groupe Danone 7,774 1,186,378
- --------------------------------------------------------------------------------
HEALTHCARE--4.21%
Aventis SA 42,866 2,224,682
- --------------------------------------------------------------------------------
Sanofi-Synthelabo SA 22,478 1,366,896
- --------------------------------------------------------------------------------
3,591,578
- --------------------------------------------------------------------------------
INSURANCE--1.71%
AXA 86,374 1,455,991
- --------------------------------------------------------------------------------
MEDIA--1.39%
Vivendi Universal SA(1) 66,825 1,183,286
- --------------------------------------------------------------------------------
NON-CYCLICAL GOODS
& SERVICES--1.53%
L'Oreal SA 19,148 1,308,274
- --------------------------------------------------------------------------------
RETAIL--2.09%
Carrefour SA 35,522 $ 1,787,674
- --------------------------------------------------------------------------------
TECHNOLOGY--0.98%
Alcatel SA 70,251 832,302
- --------------------------------------------------------------------------------
TELECOMMUNICATIONS--1.53%
France Telecom SA 56,818 1,307,255
- --------------------------------------------------------------------------------
UTILITIES--1.08%
Suez SA 58,069 922,035
- --------------------------------------------------------------------------------
27,451,732
- --------------------------------------------------------------------------------
GERMANY--20.37%
AUTOMOBILES--2.79%
DaimlerChrysler AG 50,225 1,763,480
- --------------------------------------------------------------------------------
Volkswagen AG 13,830 621,733
- --------------------------------------------------------------------------------
2,385,213
- --------------------------------------------------------------------------------
BANKS--2.57%
Deutsche Bank AG 36,087 2,196,566
- --------------------------------------------------------------------------------
CHEMICALS--2.87%
BASF AG 34,935 1,534,297
- --------------------------------------------------------------------------------
Bayer AG 42,228 912,539
- --------------------------------------------------------------------------------
2,446,836
- --------------------------------------------------------------------------------
INSURANCE--2.99%
Allianz AG 20,185 1,782,400
- --------------------------------------------------------------------------------
Muenchener
Rueckversicherungs-
Gesellschaft AG 7,739 769,117
- --------------------------------------------------------------------------------
2,551,517
- --------------------------------------------------------------------------------
TECHNOLOGY--3.57%
Siemens AG(1) 51,071 3,042,582
- --------------------------------------------------------------------------------
TELECOMMUNICATIONS--2.53%
Deutsche Telekom AG(1) 149,183 2,161,957
- --------------------------------------------------------------------------------
UTILITIES--3.05%
E.ON AG 39,922 1,948,649
- --------------------------------------------------------------------------------
RWE AG 24,704 657,310
- --------------------------------------------------------------------------------
2,605,959
- --------------------------------------------------------------------------------
17,390,630
- --------------------------------------------------------------------------------
</Table>
16
<Page>
<Table>
<Caption>
SECURITY DESCRIPTION SHARES VALUE
- --------------------------------------------------------------------------------
ITALY--10.87%
BANKS--2.49%
Sanpaolo IMI SpA 73,007 $ 728,024
- --------------------------------------------------------------------------------
UniCredito Italiano SpA 296,421 1,401,981
- --------------------------------------------------------------------------------
2,130,005
- --------------------------------------------------------------------------------
ENERGY--2.82%
Eni SpA(1) 157,604 2,408,842
- --------------------------------------------------------------------------------
INSURANCE--1.79%
Assicurazioni
Generali SpA 67,509 1,524,132
- --------------------------------------------------------------------------------
TELECOMMUNICATIONS--2.90%
Telecom Italia
Mobile SpA (TIM) 233,061 1,083,303
- --------------------------------------------------------------------------------
Telecom Italia SpA 563,767 1,389,048
- --------------------------------------------------------------------------------
2,472,351
- --------------------------------------------------------------------------------
UTILITIES--0.87%
Enel SpA 119,837 745,486
- --------------------------------------------------------------------------------
9,280,816
- --------------------------------------------------------------------------------
NETHERLANDS--17.35%
BANKS--2.01%
ABN AMRO Holding NV 93,126 1,719,521
- --------------------------------------------------------------------------------
CYCLICAL GOODS
& SERVICES--2.11%
Philips Electronics NV 79,362 1,799,131
- --------------------------------------------------------------------------------
ENERGY--6.65%
Royal Dutch
Petroleum Co. 129,221 5,676,712
- --------------------------------------------------------------------------------
FOOD & BEVERAGES--2.41%
Unilever NV 35,033 2,060,990
- --------------------------------------------------------------------------------
INSURANCE--3.51%
Aegon NV 82,896 964,731
- --------------------------------------------------------------------------------
ING Groep NV(1) 110,609 2,026,873
- --------------------------------------------------------------------------------
2,991,604
- --------------------------------------------------------------------------------
NON-CYCLICAL GOODS
& SERVICES--0.66%
Koninklijke Ahold NV(1) 58,614 559,233
- --------------------------------------------------------------------------------
14,807,191
- --------------------------------------------------------------------------------
SPAIN--12.40%
BANKS--5.31%
Banco Bilbao Vizcaya
Argentaria SA(1) 198,540 $ 2,049,222
- --------------------------------------------------------------------------------
Banco Santander
Central Hispano SA 293,006 2,484,936
- --------------------------------------------------------------------------------
4,534,158
- --------------------------------------------------------------------------------
ENERGY--1.11%
Repsol YPF SA 57,713 948,654
- --------------------------------------------------------------------------------
TELECOMMUNICATIONS--3.98%
Telefonica SA* 287,578 3,397,042
- --------------------------------------------------------------------------------
UTILITIES--2.00%
Endesa SA 59,243 915,831
- --------------------------------------------------------------------------------
Iberdrola SA 47,056 792,118
- --------------------------------------------------------------------------------
1,707,949
- --------------------------------------------------------------------------------
10,587,803
- --------------------------------------------------------------------------------
Total Common Stocks
(cost--$77,084,197) 85,311,043
- --------------------------------------------------------------------------------
INVESTMENTS OF CASH COLLATERAL
FOR SECURITIES LOANED--12.05%
UBS Private Money
Market Fund, LLC(2)
(cost--$10,285,592) 10,285,592 10,285,592
- --------------------------------------------------------------------------------
Total Investments
(cost--$87,369,789)--111.98% 95,596,635
- --------------------------------------------------------------------------------
Liabilities in excess of
other assets--(11.98)% (10,230,739)
- --------------------------------------------------------------------------------
Net Assets--100.00% $ 85,365,896
- --------------------------------------------------------------------------------
</Table>
* Non-income producing security.
(1) Security, or portion thereof, was on loan at September 30, 2003
(2) Security is an affiliate of UBS Global Asset Management (US) Inc., the
Fund's Advisor.
See accompanying notes to financial statements
17
<Page>
Schedule of Investments
ANALYSIS OF INDUSTRY CLASSIFICATIONS
SEPTEMBER 30, 2003
<Table>
<Caption>
PERCENT OF
INDUSTRY TOTAL INVESTMENTS VALUE
- -------- ----------------- -----
Automobiles 2.8% $ 2,385,213
Banks 17.5 14,953,158
Chemicals 3.9 3,328,318
Construction 1.7 1,432,210
Cyclical Goods & Services 3.2 2,695,086
Energy 18.0 15,328,612
Food & Beverages 3.8 3,247,369
Financial Services 1.5 1,255,982
Healthcare 4.2 3,591,578
Insurance 10.0 8,523,244
Media 1.4 1,183,286
Non-Cyclical Goods & Services 2.2 1,867,507
Retail 2.1 1,787,674
Technology 9.8 8,411,773
Telecommunications 10.9 9,338,604
Utilities 7.0 5,981,429
----- ------------
TOTAL 100.0% $ 85,311,043
===== ============
</Table>
See accompanying notes to financial statements
18
<Page>
FRESCO INDEX SHARES FUNDS
Statements of Assets and Liabilities -- September 30, 2003
<Table>
<Caption>
FRESCO DOW JONES FRESCO DOW JONES
STOXX 50 EURO STOXX 50
FUND FUND
- ---------------------------------------------------------------------------------------------------
ASSETS:
Investments in securities at value
(cost--$7,578,639 and $77,084,197, respectively)* $ 8,200,691 $ 85,311,043
Investments in affiliates at value
(cost--$162,174 and $0, respectively) 213,613 --
Investments of cash collateral received for securities loaned,
at value (cost--$78,645 and $10,285,592, respectively) 78,645 10,285,592
Cash -- 10,429
Foreign currency, at value
(cost--$11,030 and $450,726, respectively) 11,178 456,972
Receivable for investments sold 228 3,419
Receivable for foreign currency contracts 47,733 390,282
Dividends receivable 52,642 53,107
- ---------------------------------------------------------------------------------------------------
Total assets 8,604,730 96,510,844
- ---------------------------------------------------------------------------------------------------
LIABILITIES:
Payable for cash collateral for securities loaned 78,645 10,285,592
Distributions payable 47,733 390,281
Payable for foreign currency contracts 48,976 400,611
Accrued trustees fees 2,052 16,470
Accrued advisory fee 6,008 51,994
- ---------------------------------------------------------------------------------------------------
Total liabilities 183,414 11,144,948
- ---------------------------------------------------------------------------------------------------
Net assets $ 8,421,316 $ 85,365,896
- ---------------------------------------------------------------------------------------------------
NET ASSETS REPRESENTED BY:
Paid in capital $ 7,600,041 $ 76,184,176
Undistributed net investment income 147,780 971,451
Accumulated net realized loss on investments and
foreign currency transactions (145) (13,561)
Net unrealized appreciation on investments
and foreign currency 673,640 8,223,830
- ---------------------------------------------------------------------------------------------------
Net assets $ 8,421,316 $ 85,365,896
- ---------------------------------------------------------------------------------------------------
NET ASSETS VALUE PER SHARE:
Net asset value per share $ 27.89 $ 27.97
- ---------------------------------------------------------------------------------------------------
Shares outstanding
(unlimited amount authorized, $0.01 par value) 301,971 3,052,046
- ---------------------------------------------------------------------------------------------------
</Table>
* Includes $74,730 and $9,782,296, respectively, of investments in securities
on loan, at value.
See accompanying notes to financial statements.
19
<Page>
STATEMENTS OF OPERATIONS
<Table>
<Caption>
FOR THE PERIOD ENDED
SEPTEMBER 30, 2003 *
----------------------------------
FRESCO DOW JONES FRESCO DOW JONES
STOXX 50 EURO STOXX 50
FUND FUND
- ---------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends (net of foreign withholding taxes, $87,910
and $541,208, respectively) $ 689,521 $ 4,200,223
Securities lending 5,518 132,454
- ---------------------------------------------------------------------------------------------------
Total investment income 695,039 4,332,677
- ---------------------------------------------------------------------------------------------------
EXPENSES:
Advisory fee 60,901 401,958
Trustees fees and expenses 11,688 77,579
Other expenses 1,223 4,468
- ---------------------------------------------------------------------------------------------------
Total expenses 73,812 484,005
- ---------------------------------------------------------------------------------------------------
Net investment income 621,227 3,848,672
- ---------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments and
foreign currency transactions 1,987,826 14,957,077
Net change in unrealized appreciation on investments and
foreign currency 673,640 8,223,830
Net realized and unrealized gain
on investments and foreign currency 2,661,466 23,180,907
- ---------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 3,282,693 $ 27,029,579
- ---------------------------------------------------------------------------------------------------
</Table>
* For the period October 15, 2002 (commencement of operations) through
September 30, 2003.
See accompanying notes to financial statements.
20
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
<Table>
<Caption>
FOR THE PERIOD ENDED
SEPTEMBER 30, 2003 *
----------------------------------
FRESCO DOW JONES FRESCO DOW JONES
STOXX 50 EURO STOXX 50
FUND FUND
- ---------------------------------------------------------------------------------------------------
FROM OPERATIONS:
Net investment income $ 621,227 $ 3,848,672
Net realized gain on investments and
foreign currency transactions 1,987,826 14,957,077
Net change in unrealized appreciation on investments
and foreign currency 673,640 8,223,830
Net increase in net assets resulting from
operations 3,282,693 27,029,579
Undistributed net investment income included in price
of shares issued and redeemed, net (146,907) (905,561)
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (473,377) (2,937,683)
FROM BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from the sale of shares 30,444,056 200,632,489
Cost of shares redeemed (24,735,149) (138,502,928)
Net increase in net assets from beneficial interest
transactions 5,708,907 62,129,561
- ---------------------------------------------------------------------------------------------------
Net increase in net assets during period 8,371,316 85,315,896
Net assets at beginning of period 50,000 50,000
Net assets end of period (1) $ 8,421,316 $ 85,365,896
- ---------------------------------------------------------------------------------------------------
SHARES OF BENEFICIAL INTEREST:
Shares sold 1,200,000 8,150,000
Shares redeemed (900,000) (5,100,000)
Net increase 300,000 3,050,000
- ---------------------------------------------------------------------------------------------------
Including undistributed net investment income (1): $ 147,780 $ 971,451
- ---------------------------------------------------------------------------------------------------
</Table>
* For the period October 15, 2002 (commencement of operations) through
September 30, 2003.
See accompanying notes to financial statements.
21
<Page>
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout the
period is presented below:
<Table>
<Caption>
FOR THE PERIOD ENDED
SEPTEMBER 30, 2003 *
-----------------------------------------
FRESCO DOW JONES FRESCO DOW JONES
STOXX 50 EURO STOXX 50
FUND FUND
- ----------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD(4) $ 25.34 $ 24.35
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 1.20 0.97
Net realized and unrealized gain 2.50 3.59
TOTAL FROM INVESTMENT OPERATIONS 3.70 4.56
Undistributed net investment income included in
price of units issued and redeemed, net (0.49) (0.30)
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (0.66) (0.64)
NET ASSET VALUE, END OF PERIOD $ 27.89 $ 27.97
- ----------------------------------------------------------------------------------------------------------
TOTAL RETURN(1) 12.79% 17.46%
Net assets, end of period (in 000's) $ 8,421 $ 85,366
Ratio of expenses to average net assets 0.35%(2) 0.35%(2)
Ratio of net investment income to
average net assets 2.96%(2) 2.78%(2)
Portfolio turnover rate(3) 6% 6%
- ----------------------------------------------------------------------------------------------------------
</Table>
* For the period October 15, 2002 (commencement of operations) through
September 30, 2003.
(1) Total return is calculated assuming a purchase of shares at net asset value
on the first day and a sale at net asset value on the last day of each
period reported. Distributions are assumed, for the purpose of this
calculation, to be reinvested at net asset value per share on the respective
payment dates of each Fund. Total return for periods of less than one year
is not annualized. Broker commission charges are not included in this
calculation.
(2) Annualized
(3) Portfolio Turnover rate excludes securities received or delivered from
processing of creations or redemptions.
(4) The beginning net asset values shown above have been adjusted to reflect
reverse stock splits which were effective October 15, 2002, in order to
adjust the net asset value per share of each Fund to be approximately
1/100th of the value of its respective Index. The ratio of the reverse stock
split for the Fresco Dow Jones STOXX 50 Fund and the Fresco Dow Jones EURO
STOXX 50 Fund was 1:2.536 and 1:2.444, respectively.
22
<Page>
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
Fresco Index Shares Funds (the "Trust") is registered under the Investment
Company Act of 1940, as amended, and is an open-end investment management
company that was organized as a Massachusetts business trust on February 14,
2002. The Trust currently consists of two separate exchange-traded "index funds"
(each referred to as a "Fund" and, collectively, as the "Funds") Fresco Dow
Jones STOXX 50 Fund and Fresco Dow Jones EURO STOXX 50, each of which represents
a separate series of beneficial interest in the Trust. Each Fund operates as a
non-diversified investment company. The investment objective of each Fund is to
replicate as closely as possible, before expenses, the price and yield of a
specified market index.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by the
Trust in the preparation of its financial statements:
The preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts and disclosures in
the financial statements. Actual results could differ from those estimates.
a) SECURITY VALUATION--Portfolio securities are valued based on the last sale
price on the exchange which is deemed to be the principal market for the
security. Securities regularly traded in an over-the-counter market are valued
at the latest quoted sale price in such market. Other portfolio securities and
assets for which market quotations are not readily available are valued based on
fair value as determined in good faith in accordance with procedures adopted by
the Board of Trustees.
b) INVESTMENT INCOME--Dividend income is recorded on the ex-dividend date.
Interest income is recorded on the accrual basis.
c) INVESTMENT TRANSACTIONS--Investment transactions are recorded on the trade
date. Realized gains and losses from the sale or disposition of securities and
foreign exchange transactions are recorded on the identified cost basis.
Corporate actions (including cash dividends) are recorded net of non-reclaimable
foreign tax withholdings.
d) FOREIGN CURRENCY TRANSLATION AND FOREIGN INVESTMENTS--The accounting records
of the Funds are maintained in U.S. dollars. Portfolio securities and other
assets and liabilities denominated in a foreign currency are translated to U.S.
dollars at the prevailing rates of exchange at period end. Purchases and sales
of securities, income receipts and expense payments are translated into U.S.
dollars at the prevailing exchange rate on the respective dates of transactions.
The effects of changes in foreign currency exchange rates on portfolio
investments are included in the net realized and unrealized gains and losses on
investments. Net gains and losses on foreign currency transactions include
disposition of foreign currencies,
23
<Page>
and currency gains and losses between the accrual and receipt dates of portfolio
investment income and between the trade and settlement dates of portfolio
investment transactions.
Investing in securities of foreign companies and foreign governments involves
special risks and considerations not typically associated with investing in U.S.
companies and securities of the U.S. government. These risks include revaluation
of currencies and the risk of appropriation. Moreover, the markets for
securities of many foreign companies and foreign governments may be less liquid
and the prices of such securities may be more volatile than those of comparable
U.S. companies and the U.S. government.
e) EXPENSES--Advisory fees, which are directly identifiable to a specific Fund,
are applied to that Fund. Certain fees are allocated in such a manner as deemed
equitable, taking into consideration the relative net assets of the Funds.
f) FEDERAL INCOME TAX--The Funds intend to qualify for and elect treatment as a
"regulated investment company" under Subchapter M of the Internal Revenue Code
of 1986, as amended. By so qualifying and electing, each Fund will not be
subject to federal income taxes to the extent it distributes it's taxable
income, including any net realized capital gains, for each fiscal year. In
addition, by distributing during each calendar year substantially all their net
investment income and capital gains, if any, the Funds will not be subject to
federal excise tax. Income and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles. These book-tax differences are primarily due to differing
treatments for income equalization, in-kind transactions and losses deferred due
to wash sales.
At September 30, 2003, the Funds had no capital loss carryforwards.
For the period ended September 30, 2003, the Funds reclassified non-taxable
security gains and losses realized on the in-kind redemption of Creation Units
(Note 4) as an increase or decrease to paid in capital in the Statements of
Assets and Liabilities as follows:
<Table>
<Caption>
NET GAIN
RECLASS AMOUNT
- --------------------------------------------------------------------------------
Fresco Dow Jones STOXX 50 Fund $ 1,996,192
Fresco Dow Jones EURO STOXX 50 Fund 14,577,493
</Table>
The Funds use the accounting practice of equalization. This accounting method
was used to keep the continuing shareholders' per share equity in undistributed
net investment income from being affected by the continuous sales and
redemptions of capital stock. Equalization is calculated on a per share basis
whereby a portion of the proceeds from sales and costs of repurchases of
24
<Page>
capital stock is applied to undistributed net investment income. The amounts of
equalization are disclosed in the Statements of Changes in Net Assets as
undistributed net investment income included in the price of capital shares
issued or redeemed.
The tax character of distributions declared during the year ended September 30,
2003, was as follows:
<Table>
<Caption>
ORDINARY FOREIGN TAX LONG-TERM
INCOME CREDIT CAPITAL GAIN
- --------------------------------------------------------------------------------
Fresco Dow Jones STOXX 50 Fund $ 473,377 $ 87,647 $ --
Fresco Dow Jones EURO STOXX 50 Fund 2,937,683 541,208 --
- --------------------------------------------------------------------------------
</Table>
As of September 30, 2003 the components of distributable earnings (excluding
unrealized appreciation (depreciation)) on a tax basis were as follows:
<Table>
<Caption>
UNDISTRIBUTED
UNDISTRIBUTED LONG-TERM
ORDINARY INCOME CAPITAL GAIN
- --------------------------------------------------------------------------------
Fresco Dow Jones STOXX 50 Fund $ 146,537 $ --
Fresco Dow Jones EURO STOXX 50 Fund 961,122 --
- --------------------------------------------------------------------------------
</Table>
Due to the inherent differences in the recognition of income, expenses and
realized gains/losses under accounting principles generally accepted in the
United States of America 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
September 30, 2003, were as follows:
<Table>
<Caption>
ACCUMULATED
UNDISTRIBUTED ACCUMULATED
NET INVESTMENT NET REALIZED
INCOME (LOSS) GAIN (LOSS) PAID IN CAPITAL
- ---------------------------------------------------------------------------------------
Fresco Dow Jones STOXX 50 Fund $ (70) $ (1,987,971) $ 1,988,041
Fresco Dow Jones EURO STOXX 50 Fund 60,462 (14,970,638) 14,910,176
- ---------------------------------------------------------------------------------------
</Table>
g) DISTRIBUTIONS--The Trust declares and distributes dividends from net
investment income, if any to its shareholders quarterly. The Trust will
distribute net realized capital gains, if any, at least annually. Distributions
are recorded on the ex-dividend date. Income and capital gain distributions are
determined in accordance with income tax regulations, which may differ from
accounting principles generally accepted in the United States.
h) PROXY VOTING POLICIES--You may obtain a description of the Funds' proxy
voting policies and procedures, without charge, upon request by contacting the
Funds directly at 1-866-4FRESCO (1-866 437-3726) or online on the Funds' Web
site www.frescoshares.com.
25
<Page>
3. FEES AND COMPENSATION PAID TO AFFILIATES AND OTHER RELATED PARTIES
TRANSACTIONS
a) ADVISORY FEE
Each Fund has entered into an Investment Advisory Agreement with UBS Global
Asset Management (US) Inc. ("UBS Global AM"). As compensation for the services
rendered, facilities furnished, and expenses borne by UBS Global AM, each
Fund pays the Advisor a fee accrued daily and paid monthly, based on a
percentage of each Funds' average daily net assets as shown in the following
table:
<Table>
<Caption>
ANNUAL RATE
- --------------------------------------------------------------------------------
Fresco Dow Jones STOXX 50 Index Fund 0.29%
Fresco Dow Jones EURO STOXX 50 Fund 0.29%
</Table>
The Advisor pays the operating expenses of each Fund other than the advisory
fee, brokerage, taxes, interest, fees and expenses of the Independent Trustees
(including any Trustee's counsel fees), litigation expenses and other
extraordinary expenses.
b) PRINCIPAL UNDERWRITER
UBS Global AM acts as the principal underwriter of each Fund pursuant to a
principal underwriting contract with the Trust (the "Principal Underwriting
Agreement") which requires UBS Global AM to use its best efforts, consistent
with its other businesses, to sell Fresco Index Shares of the Funds. Fresco
Index Shares of the Fund are offered continuously. UBS Global AM may enter into
dealer agreements with other broker-dealers (affiliated and non-affiliated) and
with other financial institutions to authorize them to sell Fresco Index Shares.
Management has not implemented a 12b-1 fee on any of the Funds.
c) TRANSACTIONS WITH AFFILIATES
The Fresco Dow Jones STOXX 50 Index Fund and the Fresco Dow Jones EURO STOXX 50
Index Fund have invested in affiliated companies. These investments represent
3.47% and 12.05%, respectively, of net assets at September 30, 2003. Amounts
relating to these investments at September 30, 2003 and for the period ended
are:
FRESCO DOW JONES STOXX 50 INDEX FUND:
<Table>
<Caption>
PURCHASES SALES REALIZED DIVIDEND MARKET VALUE
SHARES COST SHARES PROCEEDS GAIN INCOME AT 9/30/03
- ------------------------------------------------------------------------------------------------------------------
UBS AG 17,521 $ 763,166 13,712 $ 733,457 $ 132,465 $ 15,846 $ 213,613
UBS
Private Money
Market
Fund, LLC 8,076,253 $ 8,076,253 8,154,898 $ 8,154,898 $ 0 $ 10,259 $ 78,645
</Table>
26
<Page>
FRESCO DOW JONES EURO STOXX 50 FUND:
<Table>
<Caption>
PURCHASES SALES REALIZED DIVIDEND MARKET VALUE
SHARES COST SHARES PROCEEDS GAIN INCOME AT 9/30/03
- --------------------------------------------------------------------------------------------------------------------
UBS
Private Money
Market
Fund, LLC 118,894,679 $ 118,894,679 108,609,087 $ 108,609,087 $ 0 $ 189,431 $ 10,285,592
</Table>
4. SHAREHOLDER TRANSACTIONS
Except for under the Trust's dividend reinvestment plan, Fresco Index Shares are
issued and redeemed by a Fund only in Creation Unit size aggregations of 50,000
Fresco Index Shares. Such transactions are only permitted on an in-kind basis,
with a separate cash payment, which is a balancing cash component to equate the
transaction to the net asset value per unit of the Fund on the transaction date.
Transaction fees at scheduled amounts ranging from $3,000 to $12,000 per
Creation Unit are charged to those persons creating or redeeming Creation Units.
Transaction fees are received by the custodian and used to offset the expense of
processing orders.
5. AGGREGATE UNREALIZED APPRECIATION AND DEPRECIATION
At September 30, 2003, the cost of investments for federal income tax purposes
was substantially the same as the cost for financial reporting purposes.
<Table>
<Caption>
GROSS GROSS NET UNREALIZED
IDENTIFIED UNREALIZED UNREALIZED APPRECIATION
COST APPRECIATION DEPRECIATION (DEPRECIATION)
- ----------------------------------------------------------------------------------------------
Fresco Dow Jones
STOXX 50 Index Fund $ 7,819,603 $ 841,319 $ 167,973 $ 673,346
Fresco Dow Jones EURO
STOXX 50 Index Fund 87,383,350 9,812,265 1,598,980 8,213,285
</Table>
6. INVESTMENT TRANSACTIONS
For the period ended September 30, 2003, the Trust had in-kind contributions and
in-kind redemptions as follows:
<Table>
<Caption>
SUBSCRIPTIONS REDEMPTIONS
- ----------------------------------------------------------------------------------------------
Fresco Dow Jones STOXX 50 Index Fund $ 30,435,195 $ 24,871,154
Fresco Dow Jones EURO STOXX 50 Fund 200,513,960 139,314,669
- ----------------------------------------------------------------------------------------------
</Table>
For the period ended September 30, 2003, the Trust had purchases and sales of
investment securities as follows:
<Table>
<Caption>
PURCHASES SALES
- ----------------------------------------------------------------------------------------------
Fresco Dow Jones STOXX 50 Index Fund $ 1,180,724 $ 1,147,601
Fresco Dow Jones EURO STOXX 50 Fund 7,603,696 8,494,255
- ----------------------------------------------------------------------------------------------
</Table>
27
<Page>
7. INITIAL CAPITALIZATION AND OFFERING OF SHARES
On the commencement of operations for each Fund, October 15, 2002, the Board of
Trustees declared reverse stock splits, which were effective on the date of
commencement of operations for each Fund. The reverse stock splits were executed
in order to align the net asset value per share of each Fund to an established
proportion of its benchmark index.
The ratio of the reverse stock splits were as follows:
<Table>
<Caption>
RATIO
- --------------------------------------------------------------------------------
Fresco Dow Jones STOXX 50 Index Fund 1: 2.536
Fresco Dow Jones EURO STOXX 50 Index Fund 1: 2.444
- --------------------------------------------------------------------------------
</Table>
8. SECURITIES LENDING
Each Fund may lend securities up to 33 1/3% of its total assets to qualified
broker-dealers or institutional investors. The loans are secured at all times by
cash, cash equivalents or U.S. government securities 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. The Funds will
regain record ownership of loaned securities to exercise certain beneficial
rights; however, the Funds may bear the risk of delay in recovery of, or even
loss of rights in, the securities loaned should the borrower fail financially.
The Funds receive compensation, which is included in interest income, for
lending its securities from interest or dividends earned on the cash, cash
equivalents or U.S. government securities held as collateral, net of fee rebates
paid to the borrower plus reasonable administrative and custody fees. UBS
Financial Services Inc. or UBS Securities LLC, and other affiliated
broker-dealers have been approved as borrowers under the Funds' securities
lending program.
UBS Financial Services Inc. or UBS Securities LLC, which is the Trust's lending
agent, received compensation from the Funds for the period ended September 30,
2003 as follows:
<Table>
<Caption>
COMPENSATION
- --------------------------------------------------------------------------------
Fresco Dow Jones STOXX 50 Fund $ 1,854
Fresco Dow Jones EURO STOXX 50 Fund 44,693
- --------------------------------------------------------------------------------
</Table>
For the period ended September 30, 2003, the Funds received compensation from
securities lending transactions net of fees, rebates and expenses as follows:
<Table>
<Caption>
COMPENSATION
- --------------------------------------------------------------------------------
Fresco Dow Jones STOXX 50 Fund $ 5,518
Fresco Dow Jones EURO STOXX 50 Fund 132,454
- --------------------------------------------------------------------------------
</Table>
28
<Page>
At September 30, 2003, the Funds owed UBS Financial Services Inc. or UBS
Securities LLC for security lending fees as follows:
<Table>
<Caption>
AMOUNTS
OWED
- --------------------------------------------------------------------------------
Fresco Dow Jones STOXX 50 Fund $ 2
Fresco Dow Jones EURO STOXX 50 Fund 282
- --------------------------------------------------------------------------------
</Table>
At September 30, 2003, the Funds held cash as collateral for market values of
securities loaned as follows:
<Table>
<Caption>
MARKET VALUE
OF INVESTMENTS
CASH RECEIVED MARKET VALUE ON CASH
FOR SECURITIES OF SECURITIES COLLATERAL
LOANED LOANED RECEIVED
- --------------------------------------------------------------------------------
Fresco Dow Jones
STOXX 50 Fund $ 78,645 $ 74,730 $ 78,645
Fresco Dow Jones
EURO STOXX 50 Fund 10,285,592 9,782,296 10,285,592
- --------------------------------------------------------------------------------
</Table>
29
<Page>
Report of PricewaterhouseCoopers LLP, Independent Auditors
To the Board of Trustees and Shareholders of
the Fresco Index Shares Funds
In our opinion, the accompanying statements of assets and liabilities, including
the schedules of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of each of the portfolios comprising
the Fresco Index Shares Funds (hereafter referred to as the "Funds") at
September 30, 2003, and the results of each of their operations, the changes in
each of their net assets and the financial highlights for the period October 15,
2002 (commencement of operations) through September 30, 2003, in conformity with
accounting principles generally accepted in the United States of America. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Funds' management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these financial statements in accordance
with auditing standards generally accepted in the United States of America,
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit, which included
confirmation of securities at September 30, 2003 by correspondence with the
custodian, provides a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
New York, New York
November 21, 2003
30
<Page>
(This page intentionally left blank)
31
<Page>
Supplemental Information (unaudited)
The Trust is a Massachusetts business trust governed by a Board of Trustees. 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 and Officer's principal
occupations during the last five years, the number of funds in the UBS Family of
Funds overseen by the Trustee and other directorships held by such Trustee.
NON-INTERESTED TRUSTEES:
<Table>
<Caption>
POSITION HELD/
NAME, ADDRESS, TERM/TIME PRINCIPAL OCCUPATION(S)
AND AGE SERVED(1) DURING PAST 5 YEARS
- --------------------------------------------------------------------------------------
Walter E. Auch Trustee Mr. Auch is retired (since 1986).
6001 N. 62nd Place since
Paradise Valley, AZ 85253 2002
Age 82
Frank K. Reilly Chairman Mr. Reilly is a Professor at the
College of Business and University of Notre Dame since 1982.
Administration Trustee Mr. Reilly was a Director of Battery
University of Notre Dame since Park Funds Inc. (1995-2001).
Notre Dame, IN 46556-0399 2002
Age 67
Edward M. Roob Trustee Mr. Roob is retired (since 1993).
841 Woodbine Lane since Mr. Roob was a Committee Member
Northbrook, IL 60002 2002 of the Chicago Stock Exchange from
Age 68 1993-1999.
</Table>
32
<Page>
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.
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN FUND COMPLEX OTHER DIRECTORSHIPS
OVERSEEN BY TRUSTEE HELD BY TRUSTEE
- --------------------------------------------------------------------------------
Mr. Auch is a trustee of four Mr. Auch is a Trustee of Advisors
investment companies (consisting of 43 Series Trust (16 portfolios); Smith
portfolios) for which UBS Global Asset Barney Fund Complex (27 portfolios);
Management (US) Inc. ("UBS Global Nicholas Applegate Institutional Funds
AM"), UBS Global Asset Management (19 portfolios) and Banyan Strategic
(Americas) Inc. ("UBS Global AM Realty Trust. He is also a Director of
(Americas)") or one of their Express America Holdings Corp. and
affiliates serves as investment Semele Group Inc.
advisor, sub-advisor or manager.
Mr. Reilly is a director or trustee of Mr. Reilly is a Director of Discover
five investment companies (consisting Bank; Morgan Stanley Trust, FSB; and
of 44 portfolios for which UBS Global NIBCO, Inc.
AM, UBS Global AM (Americas) or one of
their affiliates serves as investment
advisor, sub-advisor or manager.
Mr. Roob is a director or trustee of Mr. Roob is a Trustee of the CCM Fund
five investment companies (consisting Complex (9 portfolios).
of 44 portfolios for which UBS Global
AM, UBS Global AM (Americas) or one of
their affiliates serves as investment
advisor, sub-advisor or manager.
</Table>
33
<Page>
INTERESTED TRUSTEES:
<Table>
<Caption>
POSITION HELD/
NAME, ADDRESS, TERM/TIME PRINCIPAL OCCUPATION(S)
AND AGE SERVED(1) DURING PAST 5 YEARS
- --------------------------------------------------------------------------------------
Brian M. Storms+* Trustee Mr. Storms is chief executive
Age 49 since officer of UBS Global Asset
2002 Management -- Americas region (since
July 2002). Mr. Storms was chief
executive officer, president and/or
chief operating officer of UBS
Global AM and certain affiliated
asset management companies from 1999
to July 2002. He was president of
Prudential Investments (1996-1999).
Joseph A. LaCorte+* Trustee Mr. LaCorte is a managing director
Age 44 and and co-head of the Global Index
President Market group of UBS Global AM.
since (since 2000). From 1997 to 2000, he
2002 founded and served as a Managing
Member of S-Network, LLC to provide
consulting services specializing in
the development, secondary market
trading and distribution of Exchange
Traded Funds.
</Table>
34
<Page>
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN FUND COMPLEX OTHER DIRECTORSHIPS
OVERSEEN BY TRUSTEE HELD BY TRUSTEE
- --------------------------------------------------------------------------------
Mr. Storms is a trustee of four None
investment companies (consisting of 43
portfolios) for which UBS Global AM,
UBS Global AM (Americas) or one of
their affiliates serves as investment
advisor, sub-advisor or manager.
Mr. LaCorte is a trustee of one None
investment company (consisting of two
portfolios) for which UBS Global AM or
one of its affiliates serves as
investment advisor, sub-advisor or
manager
</Table>
35
<Page>
OFFICERS
<Table>
<Caption>
POSITION HELD/
NAME, ADDRESS, TERM/TIME PRINCIPAL OCCUPATION(S)
AND AGE SERVED DURING PAST 5 YEARS
- ----------------------------------------------------------------------------------------------------
Amy R. Doberman* Vice Ms. Doberman is a managing director
Age 41 President and general counsel of UBS Global
and AM (since 2000). From December 1997
Assistant through July 2000, she was general
Secretary counsel of Aeltus Investment
since Management, Inc. Ms. Doberman is
2002 vice president and assistant
secretary of five investment
companies (consisting of 44
portfolios) and vice president and
secretary of 19 investment
companies (consisting of 40
portfolios) for which UBS Global
AM, UBS Global AM (Americas) or one
of their affiliates serves as
investment advisor, sub-advisor or
manager.
David M. Goldenberg* Vice Mr. Goldenberg is an executive
Age 37 President director and deputy general counsel
and of UBS Global AM. From 2000 to 2002
Secretary he was director, legal affairs at
Since Lazard Asset Management. Mr.
2002 Goldenberg served in various
capacities, including most recently
as global director of Compliance at
SSB Citi Asset Management Group
from 1996 to 2000. Mr. Goldenberg
is a vice president and secretary
of five investment companies
(consisting of 44 portfolios) and a
vice president and assistant
secretary of 19 investment
companies (consisting of 40
portfolios) for which UBS Global
AM, UBS Global AM (Americas) or one
of their affiliates serves as
investment advisor, sub-advisor or
manager.
</Table>
36
<Page>
<Table>
<Caption>
POSITION HELD/
NAME, ADDRESS, TERM/TIME PRINCIPAL OCCUPATION(S)
AND AGE SERVED DURING PAST 5 YEARS
- ----------------------------------------------------------------------------------------------------
Cynthia Lo Bessette* Vice Ms. Lo Bessette is a director and
Age 34 President associate general counsel of UBS
and Global AM. From August 1998 through
Assistant October 2001, she was a vice
Secretary president and business lawyer of
since Zurich Scudder Investments, Inc.
2002 Ms. Lo Bessette is vice president
and assistant secretary of one
investment company (consisting of
two portfolios) for which UBS
Global AM or one of its affiliates
serves as investment advisor,
sub-advisor or manager.
Joseph T. Malone* Assistant Mr. Malone is a director and a
Age 36 Treasurer senior manager of the mutual fund
since finance department of UBS Global
2002 AM. From August 2000 through June
2001, he was the controller at AEA
Investors Inc. From March 1998 to
August 2000, Mr. Malone was a
manager within investment
management services of
PricewaterhouseCoopers LLC. Mr.
Malone is an assistant treasurer of
four investment companies
(consisting of 43 portfolios) for
which UBS Global AM, UBS Global AM
(Americas) or one of their
affiliates serves as investment
advisor, sub-advisor or manager.
</Table>
37
<Page>
<Table>
<Caption>
POSITION HELD/
NAME, ADDRESS, TERM/TIME PRINCIPAL OCCUPATION(S)
AND AGE SERVED DURING PAST 5 YEARS
- ----------------------------------------------------------------------------------------------------
Paul H. Schubert* Age 40 Vice Mr. Schubert is an executive
President director and head of the mutual
and fund finance department of UBS
Treasurer Global AM. Mr. Schubert is
since treasurer and principal accounting
2002 officer of three investment
companies (consisting of 41
portfolios), a vice president and
treasurer of 20 investment
companies (consisting of 41
portfolios), and treasurer and
chief financial officer of one
investment company (consisting of
two portfolios) for which UBS
Global AM, UBS Global AM
(Americas), or one of their
affiliates serves as investment
advisor, sub-advisor or manager.
</Table>
(1) Each Trustee holds office for an indefinite term.
* This person's business address is UBS Global Asset Management (US) Inc., 51
West 52nd Street, New York, NY 10019-6114.
+ Mr. Storms and Mr. LaCorte are "interested persons" of the Trust, as that
term is defined in the Investment Company Act by virtue of their positions
with UBS Global AM and/or any of its affiliates.
38
<Page>
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
CLOSING PRICE VS. NAV
AS OF SEPTEMBER 30, 2003
The following Frequency Distribution of Discounts and Premiums charts are
provided to show the frequency at which the closing bid/ask midpoint price for
each of the Funds was at a discount or premium to the daily net asset value
(NAV). The following charts are for comparative purposes only and represent the
periods noted.
FRESCO DOW JONES STOXX 50 FUND
<Table>
<Caption>
BID/OFFER MIDPOINT PRICE BID/OFFER MIDPOINT PRICE
ABOVE NAV BELOW NAV
50 - 99 100 - 199 GREATER THAN 200 50 - 99 100 - 199 GREATER THAN 200
BASIS BASIS BASIS BASIS BASIS BASIS
POINTS POINTS POINTS POINTS POINTS POINTS
- -----------------------------------------------------------------------------------------------
2003
QUARTER ENDING:
9/30/03 8 2 0 6 0 0
6/30/03 13 2 0 8 3 0
3/31/03 10 10 1 6 2 0
2002
PERIOD ENDING:
12/31/02* 9 7 0 7 3 0
- -----------------------------------------------------------------------------------------------
</Table>
* Commencement of trading October 21, 2002
FRESCO DOW JONES EURO STOXX 50 FUND
<Table>
<Caption>
BID/OFFER MIDPOINT PRICE BID/OFFER MIDPOINT PRICE
ABOVE NAV BELOW NAV
50 - 99 100 - 199 GREATER THAN 200 50 - 99 100 - 199 GREATER THAN 200
BASIS BASIS BASIS BASIS BASIS BASIS
POINTS POINTS POINTS POINTS POINTS POINTS
- -----------------------------------------------------------------------------------------------
2003
QUARTER ENDING:
9/30/03 8 1 0 6 3 0
6/30/03 6 3 0 11 4 0
3/31/03 12 6 1 11 4 0
2002
PERIOD ENDING:
12/31/02* 5 7 1 9 5 0
- -----------------------------------------------------------------------------------------------
</Table>
* Commencement of trading October 21, 2002
39
<Page>
(This page intentionally left blank)
40
<Page>
[FRESCO INDEX SHARES LOGO]
Presorted
Standard
US Postage
PAID
Smithtown, NY
Permit 700
Fresco Index Shares Funds
51 West 52nd Street, 21st Floor
New York, New York 10019 - 6114
<Page>
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.
(a)(1) The Board of Trustees of the Trust has determined that the Trust has one
Board member serving on the Trust's Audit Committee that possess the attributes
identified in Instructions 2(b) of Item 3 to Form N-CSR to qualify as an "audit
committee financial expert."
(2) Frank Reilly is the Trust's audit committee financial expert. The Board
also determined that Mr. Reilly was "independent" as that term is defined in the
Sarbanes-Oxley Act of 2002.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Form N-CSR disclosure requirement not yet effective with respect to the
registrant.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS
Form N-CSR disclosure requirement not yet effective with respect to the
registrant.
ITEM 6 [RESERVED BY SEC FOR FUTURE USE.]
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable to the registrant.
ITEM 8 [RESERVED BY SEC FOR FUTURE USE.]
ITEM 9. 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-2(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 10. EXHIBITS.
(a) (1) Code of Ethics as required pursuant to Section 406 of the Sarbanes-Oxley
Act of 2002 (and designated by registrant as a "Code of Conduct") is attached
hereto as EX-99.CODE ETH.
(a) (2) Certifications of principal executive officer and principal financial
officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 is attached
hereto as Exhibit EX-99.CERT.
(b) Certifications of principal executive officer and principal financial
officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 is attached
hereto as Exhibit EX-99.906CERT.
<Page>
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.
FRESCO INDEX SHARES FUNDS
By: /s/ Joseph La Corte
-----------------------------
Joseph La Corte
President
Date: December 8, 2003
----------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ Joseph La Corte
-----------------------------
Joseph La Corte
President
Date: December 8, 2003
----------------------------------
By: /s/ Paul H. Schubert
----------------------------------
Paul H. Schubert
Chief Financial Officer
Date: December 8, 2003
----------------------------------