UBS funds 485(a) as filed July 30, 2004

485APOS 1 ubs485a72704.htm UBS funds 485(a) as filed July 30, 2004

As filed with the U.S. Securities and Exchange Commission on July 30, 2004
File No. 033-47287
File No. 811-06637

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 41 [X]

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 42 [X]
--

(Check appropriate box or boxes.)

THE UBS FUNDS
-------------
(Exact Name of Registrant as Specified in Charter)

One North Wacker, Chicago, Illinois 60606
-----------------------------------------
(Address of Principal Executive Office) (Zip Code)

Registrant's Telephone Number, including Area Code 312-525-7100
---------------------------------------------------------------

Amy R. Doberman, Esq.
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)
Please send copies of all communications to:

Bruce G. Leto, Esq.
Stradley, Ronon, Stevens & Young, LLP
2600 One Commerce Square
Philadelphia, PA 19103
(215) 564-8027

It is proposed that this filing will become effective (check appropriate box):

_____ immediately upon filing pursuant to paragraph (b)
_____ on [Date]pursuant to paragraph (b)
_____ 60 days after filing pursuant to paragraph (a)(1)
_____ on [Date] pursuant to paragraph (a)(1)
__X__ 75 days after filing pursuant to paragraph (a)(2)_
_____ on [Date] pursuant to paragraph (a)(2) of Rule 485

If appropriate, check the following box:

_____ This post-effective amendment designates a new effective date for
a previously filed post-effective amendment.

This Post-Effective Amendment relates only to the UBS Dynamic Alpha Strategy
Fund. No other information relating to any other series of the Registrant is
amended or superseded hereby.

[UBS GLOBAL ASSET MANAGEMENT LOGO]

Subject to Completion, July 30, 2004

The UBS Funds

UBS Dynamic Alpha Strategy Fund

Prospectus

_________, 2004

This prospectus offers Class A, Class B, Class C and Class Y shares in the UBS
Dynamic Alpha Strategy Fund (the "Fund"), a series of The UBS Funds (the
"Trust"). Each class has different sales charges and ongoing expenses. You can
choose the class that is best for you based on how much you plan to invest and
how long you plan to hold your Fund shares. Class Y shares are available only to
certain types of investors.

As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved the Fund's shares or determined whether this prospectus
is complete or accurate. To state otherwise is a crime.

The information in this prospectus is not complete and may be changed. These
securities may not be sold until the registration statement filed with the
Securities and Exchange Commission is effective. The prospectus is not an offer
to sell these securities and is not soliciting an offer to buy these securities
in any state where the offer or sale is not permitted.

Not FDIC Insured. May lose value. No bank guarantee.

Contents

The UBS Funds
What every investor should know about the Fund

Page
----

Investment Objective, Strategies, Securities Selection and Risks.............
Performance..................................................................
Expenses and Fee Tables......................................................

Your Investment
Information for managing your Fund account

Managing Your Fund Account..................................................
--Flexible Pricing
--Buying Shares
--Selling Shares
--Exchanging Shares
--Pricing and Valuation

Additional Information
Additional important information about the Fund

Management...................................................................

Dividends and Taxes..........................................................

Financial Highlights.........................................................

Where to learn more about the Fund...........................................

The Fund is not a complete or balanced investment program.

UBS Dynamic Alpha Strategy Fund

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Investment Objective, Strategies, Securities Selection and Risks

Fund Objective

The Fund seeks to maximize total return, consisting of capital appreciation and
current income.

Principal Investment Strategies

The Fund invests in securities and other investments to gain exposure to global
equity, global fixed income and cash equivalent markets, including global
currencies. The Fund invests in equity and fixed income securities of issuers
located within and outside the U.S. The Fund also may invest in open-end
investment companies advised by UBS Global Asset Management (Americas) Inc. (the
"Advisor") to gain exposure to certain global equity and global fixed income
markets. The Fund is a non-diversified fund.

Investments in fixed income securities may include debt securities of
governments throughout the world (including the U.S.), their agencies and
instrumentalities, debt securities of corporations and supranationals, inflation
protected securities, convertible bonds, mortgage-backed securities,
asset-backed securities, equipment trusts and other collateralized debt
securities. Investments in fixed income securities may include issuers in both
developed (including the U.S.) and emerging markets.

Investments in equity securities may include common stock and preferred stock of
issuers in developed nations (including the U.S.) and emerging markets. Equity
investments may include large, intermediate and small capitalization companies.

The Fund may invest in other open-end investment companies advised by the
Advisor to gain exposure to various asset classes, including but not limited to
emerging market, small cap and high yield asset classes. The Fund does not pay
fees in connection with its investment in the investment companies advised by
the Advisor, but may pay expenses associated with such investments.

In addition, the Fund attempts to generate positive returns and manage risk
through asset allocation and sophisticated currency management techniques. These
decisions are integrated with analysis of global market and economic conditions.
The Fund intends to use financial futures, forward agreements, options, swaps
and other derivatives (collectively, "Derivatives") as part of its asset/market
allocation strategies. The Fund may establish net short or net long positions
for individual markets, currencies and securities. The Fund may invest in
Derivatives to the extent permitted by the 1940 Act.

In employing its investment strategies for the Fund, the Advisor attempts to
achieve a total rate of return for the Fund that meets or exceeds 5% per year on
a real (i.e., inflation-adjusted) basis and net of management fees over rolling
five year time horizons. The Advisor does not represent or guarantee that the
Fund will meet this total return goal.

To the extent permitted by the 1940 Act, the Fund may borrow money from banks to
purchase investments for the Fund. The Fund will adhere to the SEC's

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asset coverage requirements for all such borrowings.

Securities Selection

The Fund is a multi-asset fund. The asset classes in which the Fund may invest
include, but are not limited to, the following: U.S. equities, non-U.S.
equities, emerging market equities, U.S. fixed income, non-U.S. fixed income,
emerging market debt, U.S. high yield fixed income and cash equivalents. Asset
Allocation decisions are tactical, based upon the Advisor's assessment of
valuations and prevailing market conditions in the U.S. and abroad. Investments
also may be made in selected sectors of these asset classes.

Within the equity portion of the Fund's portfolio, the Advisor selects
securities whose fundamental values it believes are greater than their market
prices. In this context, the fundamental value of a given security is the
Advisor's assessment of what a security is worth. The Advisor bases its
estimates of value upon economic, industry and company analysis, as well as upon
a company's management team, competitive advantage and core competencies. The
Advisor then compares its assessment of a security's value against the
prevailing market prices, with the aim of constructing a portfolio of stocks
with attractive relative price/value characteristics.

For each security under analysis, the fundamental value estimate is compared to
the company's current market price to ascertain whether a valuation anomaly
exists. A stock with a market price below (above) the estimated intrinsic or
fundamental value would be considered a long (short) candidate for inclusion in
the Fund's portfolio. This comparison between price and intrinsic or fundamental
value allows comparisons across industries and countries.

In selecting fixed income securities, the Advisor uses an internally developed
valuation model that quantifies return expectations for all major bond markets,
domestic and foreign. The model employs a qualitative credit review process that
assesses the ways in which macroeconomic forces (such as inflation, risk
premiums and interest rates) may affect industry trends. Against the output of
this model, the Advisor considers the viability of specific debt securities
compared to certain qualitative factors, such as management strength, market
position, competitive environment and financial flexibility, as well as certain
quantitative factors, such as historical operating results, calculation of
credit ratios, and expected future outlook. The Fund's fixed income investments
may reflect a broad range of investment maturities, qualities and sectors,
including high yield (lower-rated) securities and convertible debt securities.

The Advisor's fixed income strategy combines judgments about the absolute value
of the fixed income universe and the relative value of issuer sectors, maturity
intervals, duration of securities, quality and coupon segments and specific
circumstances facing the issuers of fixed income securities. Duration management
involves adjusting the sensitivity to interest rates of the holdings within a
country. The Advisor manages duration by choosing a maturity mix that provides
opportunity for appreciation while also limiting interest rate risks.

The Fund's risk is carefully monitored with consideration given to the risk
generated by individual positions, sector, country and currency views.

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The Fund may invest in cash or cash equivalent instruments, including shares of
an affiliated investment company. When market conditions warrant, the Fund may
make substantial temporary defensive investments in cash equivalents, which may
affect the Fund's ability to pursue its investment objective. The Advisor
actively manages the Fund. As such, increased portfolio turnover may result in
higher costs for brokerage commissions, transaction costs and taxable gains.

Principal Risks

An investment in the Fund is not guaranteed; you may lose money by investing in
the Fund. The other principal risks presented by an investment in the Fund are:

Interest Rate Risk--The risk that changing interest rates may adversely affect
the value of an investment. An increase in prevailing interest rates typically
causes the value of fixed income securities to fall, while a decline in
prevailing interest rates may cause the market value of fixed income securities
to rise. Changes in interest rates will affect the value of longer-term fixed
income securities more than shorter-term securities and higher quality
securities more than lower quality securities.

Credit Risk--The risk that the issuer of bonds with ratings of BB (S&P) or Ba
(Moody's) or below will default or otherwise be unable to honor a financial
obligation. These securities are considered to be predominately speculative with
respect to an issuer's capacity to pay interest and repay principal in
accordance with the terms of the obligations. Lower-rated bonds are more likely
to be subject to an issuer's default or downgrade than investment grade
(higher-rated) bonds.

Prepayment or Call Risk--The risk that issuers will prepay fixed rate
obligations when interest rates fall, forcing the Fund to reinvest in
obligations with lower interest rates than the original obligations.

Market Risk--The risk that the market value of the Fund's investments will
fluctuate as the stock and bond markets fluctuate. Market risk may affect a
single issuer, industry or section of the economy, or it may affect the market
as a whole.

Small and Intermediate Capitalization Company Risk--The risk that investments in
small and intermediate capitalization size companies may be more volatile than
investments in larger companies, as small and intermediate capitalization size
companies generally experience higher growth and failure rates. The trading
volume of these securities is normally lower than that of larger companies. Such
securities may be less liquid than others and could make it difficult to sell a
security at a time or price desired. Changes in the demand for these securities
generally have a disproportionate effect on their market price, tending to make
prices rise more in response to buying demand and fall more in response to
selling pressure.

Foreign Investing and Emerging Markets Risks--The risk that prices of the

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Fund's investments in foreign securities may go down because of unfavorable
foreign government actions, political instability or the absence of accurate
information about foreign issuers. Also, a decline in the value of foreign
currencies relative to the U.S. dollar will reduce the value of securities
denominated in those currencies. Also, foreign securities are sometimes less
liquid and harder to sell and to value than securities of U.S. issuers. Each of
these risks is more severe for securities of issuers in emerging market
countries.

Asset Allocation Risk--The risk that the Fund may allocate assets to an asset
category that underperforms other asset categories. For example, the Fund may be
overweighted in equity securities when the stock market is falling and the fixed
income market is rising.

Non-Diversification Risk--The risk that the Fund will be more volatile than a
diversified fund because the Fund invests its assets in a smaller number of
issuers. The gains and losses on a single security may, therefore, have a
greater impact on the Fund's net asset value.

Derivatives Risk--The Fund's investments in derivatives may rise or fall more
rapidly than other investments. For some derivatives, it is possible for a Fund
to lose more than the amount it invested in the derivative instrument. The use
of derivatives may not succeed for various reasons, including unexpected changes
in the value of the derivatives or the assets underlying them.

Other Information

Commodity Pool Operator Exemption- The Trust has claimed an exclusion from the
definition of the term "commodity pool operator" under the Commodity Exchange
Act ("CEA"), and, therefore, is not subject to registration or regulation as a
pool operator under the CEA.

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Performance

There is no performance information quoted for the Fund as the Fund had not
commenced investment operations as of the date of this prospectus.

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Expenses and Fee Tables

Fees and Expenses These tables describe the fees and expenses that you may pay
if you buy, sell and hold shares of the Fund.

Shareholder Transaction Expenses (fees paid directly from your investment)

Class A Class B Class C Class Y
------- ------- ------- -------

Maximum Sales Charge (Load) (as a % of offering
price)........................................ 5.50% 5.00% 1.00% None
Maximum Front-End Sales Charge (Load) Imposed on
Purchases (as a % of offering price).......... 5.50% None None None
Maximum Contingent Deferred Sales Charge (Load)
(CDSC) (as a % of offering price)............. None 5.00% 1.00% None
Exchange Fee..................................... None None None None
Redemption Fee (as a percentage of amount
redeemed within 90 days of purchase, if
applicable)*.................................. 1.00% None None 1.00%

Annual Fund Operating Expenses (expenses that are deducted from Fund assets)**

Class A Class B Class C Class Y
------- ------- ------- -------

Management Fees.................................. 0.85% 0.85% 0.85% 0.85%
Distribution and/or Service (12b-1) Fees......... 0.25% 1.00% 1.00% None
Other Expenses***................................ 0.41% 0.41% 0.41% 0.41%
----- ----- ----- -----

Total Annual Fund Operating Expenses............. 1.51% 2.26% 2.26% 1.26%
===== ===== ===== =====

Management Fee Waiver/Expense Reimbursements..... 0.16% 0.16% 0.16% 0.16%
----- ----- ----- -----

Net Expenses****................................. 1.35% 2.10% 2.10% 1.10%
===== ===== ===== =====

* Please see the section entitled "Selling Shares" for additional information
concerning the applicability of the redemption fee.

** The fee and expenses are based on estimates.

*** Includes an administrative fee of 0.075% paid by the Fund to UBS Global
Asset Management (US) Inc. ("UBS Global AM").

**** The Trust, with respect to the Fund, and the Advisor have entered into a
written agreement pursuant to which the Advisor has agreed to waive a
portion of its fees and/or to reimburse expenses to the extent that the
Fund's expenses, for the fiscal year ending June 30, 2005, otherwise would
exceed "Net Expenses" rates shown in the table above for each of the Class
A, Class B, Class C and Class Y shares, as applicable. Pursuant to the
written agreement, the Advisor is entitled to be reimbursed for any fees it
waives and expenses it reimburses for a period of three years following
such fee waivers and expense reimbursements, to the extent that such
reimbursement of the Advisor by the Fund will not cause the Fund to exceed
any applicable expense limit that is in place for the Fund.

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Example

This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.

The example assumes that you invest $10,000 in the fund for the time periods
indicated and then sell all of your shares at the end of those periods unless
otherwise stated. The example also assumes that your investment has a 5% return
each year and that the Fund's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:

1 year 3 years 5 years 10 years
------ ------- ------- --------

Class A................................................. $680 $986 * *
Class B (assuming sale of all shares at end of period).. $713 $991 * *
Class B (assuming no sale of shares).................... $213 $691 * *
Class C (assuming sale of all shares at end of period).. $313 $691 * *
Class C (assuming no sale of shares).................... $213 $691 * *
Class Y (assuming sale of all shares at end of period).. $112 $384 * *

* The Fund has not projected expenses beyond the three-year period shown
because the Fund had not commenced investment operations as of the date of
this prospectus.

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Managing Your Fund Account

Flexible Pricing

The Fund offers four classes of shares--Class A, Class B, Class C and Class Y.
Each class has different sales charges and ongoing expenses. You can choose the
class that is best for you, based on how much you plan to invest and how long
you plan to hold your shares of the Fund. Class Y shares are only available to
certain types of investors.

The Fund has adopted separate plans pertaining to the Class A, Class B and Class
C shares of the Fund under rule 12b-1 that allows the Fund to pay service and
(for Class B and Class C shares) distribution fees for the sale of the Fund's
shares and services provided to shareholders. Because the 12b-1 fees for Class B
and Class C shares are paid out of the Fund's assets on an ongoing basis, over
time they will increase the cost of your investment and may cost you more than
if you paid the front-end sales charge for Class A shares.

You may qualify for a waiver of certain sales charges on Class A, Class B and
Class C shares. See "Sales Charge Waivers for Class A, Class B and Class C
Shares" below. You may also qualify for a reduced sales charge on Class A
shares. See "Sales Charge Reductions for Class A Shares" below.

Class A Shares

Class A shares have a front-end sales charge that is included in the offering
price of the Class A shares. This sales charge is paid at the time of purchase
and is not invested in the Fund. Class A shares pay an annual service fee of
0.25% of average net assets, but they pay no distribution fees. The ongoing
expenses for Class A shares are lower than for Class B and Class C shares.

The Class A sales charges for the Fund are described in the following table:

Class A Sales Charges:

Reallowance to
Sales Charge as a Percentage of: Selected Dealers as
Amount of Investment Offering Price Net Amount Invested Percentage of Offering Price
-------------------- -------------- ------------------- ----------------------------

Less than $50,000........ 5.50% 5.82% 5.00%
$50,000 to $99,999....... 4.50 4.71 4.00
$100,000 to $249,999..... 3.50 3.63 3.00
$250,000 to $499,999..... 2.50 2.56 2.00
$500,000 to $999,999..... 2.00 2.04 1.75
$1,000,000 and over (1).. None None Up to 1.00(2)

(1) A contingent deferred sales charge of 1% 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 made within one year of the purchase
date. Class A shares representing reinvestment of dividends are not subject
to this 1% charge. Withdrawals in the first year after purchase of up to
12% of the value of the fund account under the Fund's Automatic Cash
Withdrawal Plan are not subject to this charge.

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(2) For sales of $1 million or more, UBS Global AM pays to the dealer an amount
based upon the following schedule: 1.00% on the first $3 million, 0.75% on
the next $2 million and 0.50% on the next $5 million.

If you intend to purchase more than $10 million of Class A shares, you should
instead purchase Class Y shares, which have lower on-going expenses.

Class B Shares

Class B shares have a contingent deferred sales charge. When you purchase Class
B shares, we invest 100% of your purchase price in Fund shares. However, you may
have to pay the deferred sales charge when you sell your Fund shares, depending
on how long you own the shares.

Class B shares pay an annual 12b-1 distribution fee of 0.75% of average net
assets, as well as an annual 12b-1 service fee of 0.25% of average net assets.
If you hold your Class B shares for the period specified below, they will
automatically convert to Class A shares, which have lower ongoing expenses.

If you sell Class B shares before the end of the specified period, you will pay
a deferred sales charge. We calculate the deferred sales charge by multiplying
the lesser of the net asset value of the Class B shares at the time of purchase
or the net asset value at the time of sale by the percentage shown in the
following table:

Percentage (based on amount of
investment) by which the shares'
net asset value is multiplied:
------------------------------------------
---------- ---------- --------- ----------
Less $100,000 $250,000 $500,000
than to to to
$100,000 $249,999 $499,999 $999,999
-------- -------- -------- --------
If you
sell
shares
within:
1st year
since
purchase... 5% 3% 3% 2%
2nd year
since
purchase... 4% 2% 2% 1%
3rd year
since
purchase... 3% 2% 1% None
4th year
since
purchase... 2% 1% None None
5th year
since
purchase... 2% None None None
6th year
since
purchase... 1% None None None
7th year
since
purchase... None None None None

If you are eligible for a complete waiver of the sales charge on Class A shares
because you are investing $1 million or more, you should purchase Class A
shares, which have lower ongoing expenses, instead of Class B shares.

Class B shares automatically convert to Class A shares after the end of the
sixth year if you purchase less than $100,000, after the end of the fourth year
if you purchase at least $100,000 but less than $250,000, after the end of the
third year if you purchase at least $250,000 but less than $500,000 and after
the end of the second year if you purchase $500,000 or more but less

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than $1 million. To qualify for the lower deferred sales charge and shorter
conversion schedule, you must make the indicated investment as a single
purchase.

Regardless of the amount of the investment, Class B shares of Family Funds
("Family Funds" include other UBS Funds, UBS PACE Select funds and other funds
for which UBS Global AM serves as principal underwriter) purchased or acquired
prior to November 5, 2001 and exchanged (including exchanges as part of a
reorganization) for shares of the Fund after November 5, 2001 (collectively,
"Prior Class B Shares") are subject to a deferred sales charge at the time of
redemption at the following percentages: (i) 5%, if shares are sold within the
first year since purchase; (ii) 4%, if shares are sold within the second year
since purchase; (iii) 3%, if shares are sold within the third year since
purchase; (iv) 2%, if shares are sold within the fourth or fifth year since
purchase; and (v) 1%, if shares are sold within the sixth year of purchase.
Prior Class B Shares held longer than six years are not subject to a deferred
sales charge and automatically convert to Class A shares, which have lower
ongoing expenses.

We will not impose the deferred sales charge on Class B shares purchased by
reinvesting dividends or on withdrawals in any year of up to 12% of the value of
your Class B shares under the Automatic Cash Withdrawal Plan.

To minimize your deferred sales charge, we will assume that you are selling:

o First, Class B shares representing reinvested dividends, and

o Second, Class B shares that you have owned the longest.

Class C Shares

Class C shares pay an annual 12b-1 distribution fee of 0.75% of average net
assets, as well as an annual 12b-1 service fee of 0.25% of average net assets.
Class C shares do not convert to another class of shares. This means that you
will pay the 12b-1 fees for as long as you own your shares.

Class C shares also have a contingent deferred sales charge of 1.00%, applicable
if you sell your shares within one year of the date you purchased them. We
calculate the deferred sales charge on sales of Class C shares by multiplying
1.00% by the lesser of the net asset value of the Class C shares at the time of
purchase or the net asset value at the time of sale.

Sales Charge Waivers for Class A, Class B and Class C Shares

Class A Front-end Sales Charge Waivers. Front-end sales charges will be waived
if you buy Class A shares with proceeds from the following sources:

1. Redemptions from any registered mutual fund for which UBS Global AM or any
of its affiliates serves as principal underwriter if you:

o Originally paid a front-end sales charge on the shares; and

o Reinvest the money within 60 days of the redemption date.

The Fund's front-end sales charge will also not apply to Class A purchases by or
through:

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2. Employees of UBS AG and its subsidiaries and members of the employees'
immediate families; and members of the Board of Directors/Trustees of any
investment company for which UBS Global AM or any of its affiliates serves
as principal underwriter.

3. Trust companies and bank trust departments investing on behalf of their
clients if clients pay the bank or trust company an asset-based fee for
trust or asset management services.

4. Retirement plans and deferred compensation plans that have assets of at
least $1 million or at least 25 eligible employees.

5. Broker-dealers and other financial institutions (including registered
investment advisers and financial planners) that have entered into a
selling agreement with UBS Global AM (or otherwise have an arrangement with
a broker-dealer or other financial institution with respect to sales of
fund shares), on behalf of clients participating in a fund supermarket,
wrap program, or other program in which clients pay a fee for advisory
services, executing transactions in Fund shares, or for otherwise
participating in the program.

6. Employees of broker-dealers and other financial institutions (including
registered investment advisers and financial planners) that have entered
into a selling agreement with UBS Global AM (or otherwise having an
arrangement with a broker-dealer or other financial institution with
respect to sales of fund shares), and their immediate family members, as
allowed by the internal policies of their employer.

7. Insurance company separate accounts.

8. Shareholders of the Class N shares of any UBS Fund who held such shares at
the time they were redesignated as Class A shares.

9. Reinvestment of capital gains distributions and dividends.

10. College savings plans organized under Section 529 of the Internal Revenue
Code (the "IRC").

11. A UBS Financial Services Inc. Adviser who was formerly employed as an
investment executive with a competing brokerage firm, and

o you were the Financial Advisor's client at the competing brokerage
firm;

o within 90 days of buying shares in the Fund, you sell shares of one or
more mutual funds that were principally underwritten by the competing
brokerage firm or its affiliates, and you either paid a sales charge
to buy those shares, pay a contingent deferred sales charge when
selling them or held those shares until the contingent deferred sales
charge was waived; and

o you purchase an amount that does not exceed the total amount of money
you received from the sale of the other mutual fund.

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Class A, Class B and Class C Shares Contingent Deferred Sales Charge Waivers.
The contingent deferred sales charge will be waived for:

o Redemptions of Class A shares by former holders of Class N shares;

o Exchanges between funds for which UBS Global AM or one of its
affiliates serves as principal underwriter, if purchasing the same
class of shares;

o Redemptions following the death or disability of the shareholder or
beneficial owner;

o Tax-free returns of excess contributions from employee benefit plans;

o Distributions from employee benefit plans, including those due to plan
termination or plan transfer;

o Redemptions made in connection with the Automatic Cash Withdrawal
Plan, provided that such redemptions:

-- are limited annually to no more than 12% of the original account
value;

-- are made in equal monthly amounts, not to exceed 1% per month;
and

-- the minimum account value at the time the Automatic Cash
Withdrawal Plan was initiated was no less than $5,000; and

o Redemptions of shares purchased through retirement plans.

Sales Charge Reductions for Class A Shares

Right of Accumulation

A purchaser of Class A shares may qualify for a reduction of the front-end sales
charge on purchases of Class A shares by combining a current purchase with
certain other Class A, Class B and/or Class C shares of Family Funds (please
note that any Family Fund that is a money market fund will not count for
purposes of the right of accumulation discount or for purposes of satisfying the
terms of a Letter of Intent) already owned. To determine if you qualify for a
reduction of the front-end sales charge, the amount of your current purchase is
added to the current net asset value of your other Class A, Class B and/or Class
C shares, as well as those Class A, Class B and/or Class C shares of your spouse
and children under the age of 21. If you are the sole owner of a company, you
may also add any company accounts, including retirement plan accounts invested
in Class A, Class B and/or Class C shares of the Family Funds. Companies with
one or more retirement plans may add together the total plan assets invested in
Class A, Class B and/or Class C shares of the Family Funds to determine the
front-end sales charge that applies. To qualify for the discount on a purchase
through a financial institution, when each purchase is made the investor or
institution must provide UBS Global AM with sufficient information to verify
that the purchase qualifies for the privilege or discount. The right of
accumulation may be amended or terminated by UBS Global

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AM at any time as to purchases occurring thereafter.

Letter of Intent

Investors may also obtain reduced sales charges for Class A shares for
investments of a particular amount by means of a written Letter of Intent, which
expresses the investor's intention to invest that amount within a period of 13
months in shares of one or more Family Funds. Each purchase of Class A shares
under a Letter of Intent will be made at the public offering price applicable at
the time of such purchase to a single transaction of the total dollar amount
indicated in the Letter of Intent. A Letter of Intent may include purchases of
Class A, Class B and/or Class C shares made not more than three months prior to
the date that investor signs a Letter of Intent and during the 13-month period
in which the Letter of Intent is in effect; however, the 13-month period during
which the Letter of Intent is in effect will begin on the date on which the
Letter of Intent is signed.

Investors do not receive credit for shares purchased by the reinvestment of
distributions. Investors qualifying for a right of accumulation discount
(described above) may purchase shares under a single Letter of Intent.

The Letter of Intent is not a binding obligation upon the investor to purchase
the full amount indicated. The minimum initial investment under a Letter of
Intent is 5% of such amount, and must be invested immediately. Class A shares
purchased with the first 5% of such amount may be held in escrow to secure
payment of the higher sales charge applicable to the shares actually purchased
if the full amount indicated is not purchased. When the full amount indicated
has been purchased, the escrow will be released. If an investor desires to
redeem escrowed shares before the full amount has been purchased, the shares
will be released only if the investor pays the sales charge that, without regard
to the Letter of Intent, would apply to the total investment made to date.

Letter of Intent forms may be obtained from UBS Global AM or from investment
professionals. Investors should read the Letter of Intent carefully.

Note on Sales Charge Waivers for Class A, Class B and Class C Shares

If you think you qualify for any of the sales charge waivers described above,
you will need to provide documentation to UBS Global AM or the Fund. For more
information, you should contact your investment professional or call
1-800-647-1568. If you want information on the Automatic Cash Withdrawal Plan,
see the SAI or contact your investment professional.

Class Y Shares

Shareholders pay no front-end sales charges on Class Y shares. However, as
principal underwriter of the Fund, UBS Global AM makes on-going payments out of
its own resources, in an amount up to 25% of the net management fee, to
affiliated and unaffiliated dealers that sell Class Y shares of the Fund. The
net management fee is the contractual management fee less any management fee
waivers.

The following are eligible to purchase Class Y shares:

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o Shareholders of the Class I shares of any UBS Fund who held such shares as
of the date the shares were redesignated Class Y shares;

o Retirement plans with 5,000 or more eligible employees or $100 million or
more in plan assets;

o Retirement plan platforms/programs that include Fund shares if the
platform/program covers plan assets of at least $100 million;

o Trust companies and bank trust departments purchasing shares on behalf of
their clients in a fiduciary capacity;

o Banks, registered investment advisors and other financial institutions
purchasing fund shares for their clients as part of a discretionary asset
allocation model portfolio;

o College savings plans organized under Section 529 of the IRC, if
shareholder servicing fees are paid exclusively outside of the
participating funds;

o Other investors as approved by the Fund's Board of Trustees;

o Shareholders who invest a minimum initial amount of $10 million in the
Fund. An institutional investor may aggregate its holdings with holdings of
certain related institutional investors to meet the foregoing minimums; and

o Foundations, Endowments and Religious and other charitable organizations
described in Section 501(c)(3) of the IRC.

Class Y shares do not pay ongoing 12b-1 distribution or service fees. The
ongoing expenses for Class Y shares are the lowest of all the classes.

Buying Shares

You can buy Fund shares through your investment professional at a broker-dealer
or other financial institution with which UBS Global AM has a dealer agreement.

If you wish to invest in other Family Funds, you can do so by:

o Contacting your investment professional (if you have an account at a
financial institution that has entered into a dealer agreement with UBS
Global AM);

o Buying shares through the transfer agent as described below; or

o Opening an account by exchanging shares from another Family Fund.

The Fund and UBS Global AM reserve the right to reject a purchase order or
suspend the offering of shares.

Selected securities dealers or other financial institutions, including UBS
Financial Services Inc., may charge a processing fee to confirm a purchase. UBS
Financial Services Inc. currently charges a fee of $5.25.

Through Financial Institutions/Professionals

As mentioned above, the Fund has entered into one or more sales agreements with
brokers, dealers or other financial intermediaries ("Service Providers"), as
well as with financial institutions (banks and bank trust

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departments) (each an "Authorized Dealer"). The Authorized Dealer, or
intermediaries designated by the Authorized Dealer (a "Sub-designee"), may in
some cases be authorized to accept purchase and redemption orders that are in
"good form" on behalf of the Fund. The Fund will be deemed to have received a
purchase or redemption order when the Authorized Dealer or Sub-designee receives
the order in good form. Such orders will be priced at the Fund's net asset value
next computed after such order is received in good form by the Authorized Dealer
or Subdesignee. These Authorized Dealers may charge the investor a transaction
fee or other fee for their services at the time of purchase. These fees would
not be otherwise charged if you purchased shares directly from the Fund. It is
the responsibility of such Authorized Dealers or Sub-designees to promptly
forward purchase orders with payments to the Fund.

UBS Global AM pays its affiliate, UBS Financial Services Inc., the following
additional compensation in connection with the sale of Fund shares:

o 0.05% of the value (at the time of sale) of all shares of the Fund
sold through UBS Financial Services Inc.

o a monthly retention fee at the annual rate of 0.10% of the value of
shares of the Fund that are held in a UBS Financial Services Inc.
account at month-end.

The foregoing payments are made by UBS Global AM out of its own resources.

Minimum Investments:

Class A, Class B and Class C shares:

To open an account...................... $1,000
To add to an account.................... $100

The Fund may waive or reduce these amounts for:

o Employees of UBS Global AM or its affiliates; or

o Participants in certain pension plans, retirement accounts, unaffiliated
investment programs or the Fund's automatic investment plan.

Market Timers. The interests of the Fund's long-term shareholders and the Fund's
ability to manage its investments may be adversely affected when the Fund's
shares are repeatedly bought and sold in response to short-term market
fluctuations--also known as "market timing." Market timing may cause the Fund to
have difficulty implementing long-term investment strategies, because it cannot
predict how much cash it will have to invest. Market timing also may force the
Fund to sell portfolio securities at disadvantageous times to raise the cash
needed to buy a market timer's Fund shares. These factors may hurt the Fund's
performance and its shareholders. UBS Global AM and the Fund will reject
purchase orders and exchanges into the Fund by any person, group or account that
UBS Global AM determines to be a market timer.

Selling Shares

You can sell your Fund shares at any time. If you own more than one class of
shares, you should specify which class you want to sell. If you do not, the Fund
will assume that you want to sell shares

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in the following order: Class A, then Class C, then Class B and last, Class Y.

If you want to sell shares that you purchased recently, the Fund may delay
payment until it verifies that it has received good payment. If you hold your
shares through a financial institution, you can sell shares by contacting your
investment professional, or an Authorized Dealer or Sub-designee, for more
information. Important note: Each institution or professional may have its own
procedures and requirements for selling shares and may charge fees. If you
purchased shares through the Fund's transfer agent, you may sell them as
explained below.

If you sell Class A shares and then repurchase Class A shares of the same Fund
within 365 days of the sale, you can reinstate your account without paying a
sales charge.

The Fund reserves the right to pay redemptions "in kind" (i.e., payment in
securities rather than cash) if the investment you are redeeming is large enough
to affect the Fund's operations (for example, if it represents more than
$250,000 or 1% of the Fund's assets). In these cases, you might incur brokerage
costs converting the securities to cash.

It costs the Fund money to maintain shareholder accounts. Therefore, the Fund
reserves the right to repurchase all shares in any account that has a net asset
value of less than $500. If the Fund elects to do this with your account, it
will notify you that you can increase the amount invested to $500 or more within
60 days. The Fund will not repurchase shares in accounts that fall below $500
solely because of a decrease in the Fund's net asset value.

To help the government fight the funding of terrorism and money laundering
activities, federal law requires all financial institutions to obtain, verify
and record information that identifies each person who opens an account. If you
do not provide the information requested, the Fund may not be able to maintain
your account. If the Fund is unable to verify your identity or that of another
person(s) authorized to act on your behalf, the Fund and UBS Global AM reserve
the right to close your account and/or take such other action they deem
reasonable or required by law. Fund shares will be redeemed and valued in
accordance with the net asset value next calculated after the determination has
been made to close the account.

Securities dealers or other financial institutions, including UBS Financial
Services Inc., may charge a fee to process a redemption of shares. UBS Financial
Services Inc. currently charges a fee of $5.25.

Redemption Fee

If you sell or exchange Class A shares or sell Class Y shares of the Fund less
than 90 days after you purchased them, a redemption fee of 1.00% of the amount
sold or exchanged will be deducted at the time of the transaction, except as
noted below. This amount will be paid to the Fund, not to the Advisor or UBS
Global AM. The redemption fee is designed to offset the costs associated with
fluctuations in Fund asset levels and cash flow caused by short-term shareholder
trading. Shares held the longest will be redeemed first

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for purposes of calculating the redemption fee. The redemption fee will not
apply to Class A or Class Y shares of the Fund that:

o are held through certain omnibus accounts, including retirement plans
qualified under Section 401 (k) of the IRC or plans administered as college
savings programs under Section 529 of the IRC;

o are sold or exchanged under automatic withdrawal plans;

o are held through certain managed account programs with automatic asset
allocation rebalancing features; or

o are sold due to death or disability of the shareholder.

Exchanging Shares

You may exchange Class A, Class B or Class C shares of the Fund for shares of
the same class of most other Family Funds. You may not exchange Class Y shares.

You will not pay either a front-end sales charge or a deferred sales charge when
you exchange shares but shareholders of the Fund may be subject to the
redemption fee as noted above. Also, you may have to pay a deferred sales charge
if you later sell the shares you acquired in the exchange. A fund will use the
date of your original share purchase to determine whether you must pay a
deferred sales charge when you sell the shares of the fund acquired in the
exchange.

Other Family Funds may have different minimum investment amounts. You may not be
able to exchange your shares if the value of shares you exchange is not as large
as the minimum investment amount in that other fund.

You may exchange shares of one fund for shares of another fund only after the
first purchase has settled and the first fund has received your payment.

If you hold your Fund shares through a financial institution, you may exchange
your shares by placing an order with that institution. If you hold Fund shares
through the Fund's transfer agent, you may exchange your shares as explained
below.

The Fund may modify or terminate the exchange privilege at any time.

Transfer Agent

If you wish to invest in this Fund or any other of the Family Funds through the
Fund's transfer agent, PFPC Inc., you can obtain an application by calling
1-800-647-1568. You must complete and sign the application and mail it, along
with a check to the transfer agent.

You may also sell or exchange your shares by writing to the Fund's transfer
agent. Your letter must include:

o Your name and address;

o Your account number;

o The name of the fund whose shares you are selling, and if exchanging
shares, the name of the fund whose shares you want to buy;

o The dollar amount or number of shares you want to sell and/or exchange; and

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o A guarantee of each registered owner's signature. A signature guarantee may
be obtained from a financial institution, broker, dealer or clearing agency
that is a participant in one of the medallion programs recognized by the
Securities Transfer Agents Association. These are: Securities Transfer
Agents Medallion Program (STAMP), Stock Exchanges Medallion Program (SEMP)
and the New York Stock Exchange Medallion Signature Program (MSP). The Fund
will not accept signature guarantees that are not part of these programs.

Applications to purchase shares (along with a check), and letters requesting
redemptions of shares or exchanges of shares through the transfer agent should
be mailed to:

PFPC Inc.
Attention: UBS Mutual Funds
760 Moore Road
King of Prussia, PA 19406

You do not have to complete an application when you make additional investments
in the Fund.

Pricing and Valuation

The price at which you may buy, sell or exchange Fund shares is based on the net
asset value per share. The Fund calculates net asset value on days that the New
York Stock Exchange ("NYSE") is open. The Fund calculates net asset value
separately for each class as of the close of regular trading on the NYSE
(generally, 4:00 p.m., Eastern time). The NYSE normally is not open, and the
Fund does not price its shares, on most national holidays and on Good Friday.

Your price for buying, selling or exchanging shares of the Fund will be based on
the net asset value (adjusted for any applicable sales charges) that is next
calculated after the Fund receives your order in good form. If you place your
order through a financial institution, your investment professional is
responsible for making sure that your order is promptly sent to the Fund.

The Fund calculates its net asset value based on the current market value of its
portfolio securities. The Fund normally obtains market values for its securities
from independent pricing services that use reported last sales prices, current
market quotations or valuations from computerized "matrix" systems that derive
values based on comparable securities. If a market value is not available from
an independent pricing source for a particular security, that security is valued
at a fair value determined by or under the direction of the Fund's Board of
Trustees. The Fund normally uses the amortized cost method to value bonds that
will mature in 60 days or less.

Judgment plays a greater role in valuing thinly traded securities, including
many lower-rated bonds, because there is less reliable, objective data
available.

The Fund calculates the U.S. dollar value of investments that are denominated in
foreign currencies daily, based on current exchange rates. The Fund may own
securities including some securities that trade primarily in foreign markets
that trade on weekends or other days on which the Fund does not calculate net
asset value. As a result, the Fund's net asset value may change on days when you
will not be able to buy and sell your Fund shares.

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If the Fund concludes that a material change in the value of a foreign security
has occurred after the close of trading in its principal foreign market but
before the close of regular trading on the NYSE, the Fund may use fair value
methods to reflect those changes. This policy is intended to assure that the
Fund's net asset value fairly reflects security values as of the time of
pricing.

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Management

Investment Advisor

UBS Global Asset Management (Americas) Inc. (the "Advisor"), a Delaware
corporation located at One North Wacker Drive, Chicago, IL 60606, is an
investment advisor registered with the U.S. Securities and Exchange Commission.
As of December 31, 2003, the Advisor had approximately $39.3 billion in assets
under management. The Advisor is an indirect, wholly owned subsidiary of UBS AG
("UBS") and a member of the UBS Global Asset Management Division, which had
approximately $463 billion in assets under management as of December 31, 2003.
UBS is an internationally diversified organization headquartered in Zurich,
Switzerland, with operations in many areas of the financial services industry.

Portfolio Management

Investment decisions for the Fund are made by an investment management team at
the Advisor. No member of the investment management team is primarily
responsible for making recommendations for portfolio purchases.

Advisory Fees

The investment advisory fee (expressed as a percentage of average net assets)
payable to the Advisor, before fee waivers and/or expense reimbursements by the
Fund is presented in the table below.

The Advisor has contractually agreed to waive its fees and/or reimburse certain
expenses so that the total operating expenses (excluding 12b-1 fees) of the Fund
do not exceed the amounts listed in the table below under "Total Expense Limit."
The contractual fee waiver and/or expense reimbursement agreement will remain in
place for the Fund's fiscal year ending June 30, 2005. Thereafter, the expense
limit for the Fund will be reviewed each year, at which time the continuation of
the expense limit will be discussed by the Advisor and the Board of Trustees.
The contractual fee waiver agreement also provides that the Advisor is entitled
to reimbursement of fees it waived and/or expenses it reimbursed for a period of
three years following such fee waivers and expense reimbursements, provided that
the reimbursement by the Fund of the Advisor will not cause the total operating
expense ratio to exceed the contractual limit as then may be in effect for that
Fund.

Total
Expense
Limit Advisory Fee
----------- ------------
Assets under Management Fee
1.10% $0 - $500 million 0.85%
On the next $ 500 million 0.80%
- $1 billion
On the next $1billion - 0.75%
$1.5 billion
On the next $ 1.5 billion 0.725%
- $ 2 billion
Above $ 2 billion 0.70%

Administrator

UBS Global Asset Management (US) Inc. ("UBS Global AM"), located at 51 West 52nd
Street, New York, NY 10019-6114, is the administrator of the Fund.

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UBS Dynamic Alpha Strategy Fund

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UBS Global AM is an indirect wholly owned asset management subsidiary of UBS.
The Fund pays UBS Global AM at the annual contract rate of 0.075% of its average
daily net assets for administrative services.

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Dividends and Taxes

Dividends and Distributions

Income dividends are normally declared, and paid annually. Capital gains, if
any, are distributed annually. The amount of any distributions will vary, and
there is no guarantee the Fund will pay either income dividends or capital gain
distributions. A portion of income dividends designated by the Fund may be
qualified dividend income eligible for taxation by individual shareholders at
long-term capital gains rates.

Classes with higher expenses are expected to have lower income dividends. For
example, Class B and Class C shares are expected to have the lowest dividends of
the Fund's shares, while Class Y shares are expected to have the highest.

You will receive income dividends and capital gain distributions in additional
shares of the same class of the Fund unless you notify your investment
professional or the Fund in writing that you elect to receive them in cash.
Clients who own Fund shares through certain wrap fee programs may not have the
option of electing to receive dividends in cash. Distribution options may be
changed at any time by requesting a change in writing. Dividends and
distributions are reinvested on the reinvestment date at the net asset value
determined at the close of business on that date.

If you invest in the Fund shortly before it makes a distribution, you may
receive some of your investment back in the form of a taxable distribution.

Taxes

In general, if you are a taxable investor, Fund distributions are taxable to you
as either ordinary income or capital gains. This is true whether you reinvest
your distributions in additional Fund shares or receive them in cash. For
federal income tax purposes, Fund distributions of short-term capital gains are
taxable to you as ordinary income. Fund distributions of long-term capital gains
are taxable to you as long-term capital gains no matter how long you have owned
your shares. Every January, you will receive a statement that shows the tax
status of distributions you received for the previous year.

By law, the Fund must withhold a portion of your taxable distributions and
redemption proceeds unless you:

o provide your correct social security or taxpayer identification number,

o certify that this number is correct,

o certify that you are not subject to backup withholding, and

o certify that you are a U.S. person (including a U.S. resident alien).

A Fund also must withhold if the IRS instructs it to do so.

When you sell your shares in the Fund, you may realize a capital gain or loss.
For tax purposes, an exchange of your Fund shares for shares of a different
Family Fund is the same as a sale.

Fund distributions and gains from the sale of your Fund shares generally are

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subject to state and local taxes. Any foreign taxes the Fund pays on its
investments may be passed through to you as a foreign tax credit. Non-U.S.
investors may be subject to U.S. withholding or estate tax, and are subject to
special U.S. tax certification requirements. You should consult your tax advisor
about the federal, state, local or foreign tax consequences of your investment
in the Fund.

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Financial Highlights

No financial information is presented for the Fund because it had not commenced
operations as of the date of this prospectus.

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If you want more information about [UBS GLOBAL ASSET MANAGEMENT LOGO]
the Fund, the following documents are
available free upon request:

Annual/Semi-Annual Reports
The UBS Funds
Additional information about the Fund's investments will
be available in the Fund's annual and semiannual reports UBS Dynamic Alpha
to shareholders. As of the date of this prospectus, Strategy Fund
annual and semi-annual reports are not yet available
because the Fund has not commenced operations. Prospectus

Statement of Additional Information (SAI)

The SAI provides more detailed information about the Fund
and is incorporated by reference into this prospectus.

You may discuss your questions about the Fund by
contacting your investment professional. You may obtain
free copies of the Fund's annual and semiannual reports
and the SAI by contacting the Fund directly at
1-800-647-1568.

You may review and copy information about the Fund,
including shareholder reports and the SAI, at the Public
Reference Room of the Securities and Exchange Commission
in Washington, D.C. You may obtain information about the
operations of the SEC's Public Reference Room by calling
the SEC at 1-202-942-8090. You may get copies of reports
and other information about the Fund:

o For a fee, by electronic request at publicinfo@sec.gov
or by writing the SEC's Public Reference Section,
Washington, D.C. 20549-0102; or

o Free from the EDGAR Database on the SEC's Internet
website at: http://www.sec.gov.

The UBS Funds
Investment Company Act File No. 811-6637

___________, 2004

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UBS Global Asset Management 27

Subject to Completion, July 30, 2004

The UBS Funds
UBS Dynamic Alpha Strategy Fund

One North Wacker Drive
Chicago, Illinois 60606

STATEMENT OF ADDITIONAL INFORMATION

dated ___________, 2004

The UBS Dynamic Alpha Strategy Fund (the "Fund") is a series of The UBS Funds,
an open-end management investment company (the "Trust").

UBS Global Asset Management (Americas) Inc., an indirect wholly owned subsidiary
of UBS AG ("UBS"), serves as the investment advisor for the Fund. UBS Global
Asset Management (US) Inc. ("UBS Global AM") serves as the administrator and
underwriter for the Fund. UBS Global AM is an indirect wholly owned asset
management subsidiary of UBS.

This SAI is not a prospectus and should be read only in conjunction with the
Fund's current Prospectus, dated _______, 2004. A copy of the Prospectus may be
obtained by calling your investment professional or by calling the Trust toll
free at 1-800-647-1568. The Prospectus contains more complete information about
the Fund. You should read it carefully before investing.

The information in this SAI is not complete and may be changed. These securities
may not be sold until the registration statement filed with the Securities and
Exchange Commission is effective. The SAI is not an offer to sell these
securities and is not soliciting an offer to buy these securities in any state
where the offer or sale is not permitted.

Table of Contents

GENERAL INFORMATION ABOUT THE TRUST............................................1
Diversification Status......................................................1
General Definitions.........................................................1
INVESTMENT STRATEGIES..........................................................2
Cash and Cash Equivalents...................................................2
Repurchase Agreements.......................................................3
Reverse Repurchase Agreements...............................................3
Borrowing...................................................................4
Loans of Portfolio Securities...............................................4
Swaps.......................................................................5
Futures.....................................................................6
Options.....................................................................7
Index Options..............................................................10
Special Risks of Options on Indices........................................11
Rule 144A and Illiquid Securities..........................................11
Investment Company Securities and Investments in Affiliated Investment
Companies................................................................12
Issuer Location............................................................13
Equity Securities..........................................................13
Exchange-Traded Index Securities...........................................14
Eurodollar Securities......................................................14
Foreign Securities.........................................................14
Forward Foreign Currency Contracts.........................................14
Non-Deliverable Forwards...................................................15
Options on Foreign Currencies..............................................16
Short Sales................................................................17
Lower Rated Debt Securities................................................17
Inflation Protected Securities.............................................19
Pay-In-Kind Bonds..........................................................19
Convertible Securities.....................................................19
When-Issued Securities.....................................................20
Mortgage-Backed Securities and Mortgage Pass-Through Securities............20
Collateralized Mortgage Obligations ("CMOs") and Real Estate Mortgage
Investment Conduits ("REMICs")...........................................22
Dollar Rolls...............................................................23
To-Be-Announced Securities.................................................24
Other Mortgage-Backed Securities...........................................24
Asset-Backed Securities....................................................24
Equipment Trust Certificates...............................................26
Zero Coupon and Delayed Interest Securities................................26
Structured Notes...........................................................27
Emerging Markets Investments...............................................28
Risks of Investing in Emerging Markets.....................................30

-i-

Investments in Russian Securities..........................................31
Real Estate Investment Trusts..............................................32
Other Investments..........................................................33
SECONDARY RISKS...............................................................33
INVESTMENT RESTRICTIONS.......................................................33
MANAGEMENT OF THE TRUST.......................................................34
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES...........................40
INVESTMENT ADVISORY, PRINCIPAL UNDERWRITING AND OTHER SERVICE ARRANGEMENTS....40
Advisor....................................................................40
Administrative, Accounting and Custody Services............................42
Principal Underwriting Arrangements........................................42
Transfer Agency Services...................................................44
Independent Auditors.......................................................44
Legal Counsel..............................................................44
Personal Trading Policies..................................................44
Proxy Voting Policies......................................................45
Bank Line of Credit........................................................46
PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS..............................46
Portfolio Turnover.........................................................48
SHARES OF BENEFICIAL INTEREST.................................................48
REDUCED SALES CHARGES, ADDITIONAL PURCHASE, EXCHANGE AND
REDEMPTION INFORMATION AND OTHER SERVICES................................49
Sales Charge Reductions and Waivers........................................49
Additional Information Regarding Purchases Through Letter of Intent........50
Automatic Cash Withdrawal Plan--Class A, Class B, and Class C..............52
Individual Retirement Accounts.............................................53
Transfer of Accounts.......................................................53
Transfer of Securities.....................................................53
CONVERSION OF CLASS B SHARES..................................................54
NET ASSET VALUE...............................................................54
TAXATION......................................................................55
Additional Information on Distributions and Taxes..........................55
Distributions..............................................................55
Investments in Foreign Securities..........................................55
Redemption of Shares.......................................................57
PERFORMANCE CALCULATIONS......................................................59
FINANCIAL STATEMENTS AND REPORTS OF INDEPENDENT AUDITORS......................60

-ii-

GENERAL INFORMATION ABOUT THE TRUST

The Trust currently offers shares of the following fifteen series, representing
separate portfolios of investments: 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 Equity Fund, UBS U.S. Small Cap Growth Fund,
UBS U.S. Real Estate Equity Fund, UBS Global Allocation Fund, UBS Global Equity
Fund, UBS Global Bond Fund, UBS International Equity Fund, UBS Emerging Markets
Debt Fund, UBS Emerging Markets Equity Fund and UBS Dynamic Alpha Strategy Fund.
This SAI relates to the UBS Dynamic Alpha Strategy Fund (the "Fund"). The Fund
currently offers four classes of shares: the Class A shares, the Class B shares,
the Class C shares and the Class Y shares. Class A shares have a front-end sales
charge, a contingent deferred sales charge ("CDSC") in the first year of
ownership, and are subject to annual 12b-1 plan service fees of 0.25% of average
daily net assets of the respective Fund. Class B shares have a CDSC and are
subject to annual 12b-1 distribution fees of 0.75% of average daily net assets,
as well as annual 12b-1 plan service fees of 0.25% of average daily net assets.
Class C shares have a CDSC and are subject to annual 12b-1 distribution fees of
0.75% of average daily net assets, as well as annual 12b-1 plan service fees of
0.25% of average daily net assets. Class Y shares, which are designed primarily
for institutional investors, have no sales charges and are not subject to annual
12b-1 plan expenses. The Trust is a Delaware statutory trust organized on
December 1, 1993.

Diversification Status

The Fund is classified as "non-diversified" for purposes of the Investment
Company Act of 1940, as amended (the "Act"), which means that the Fund is not
limited by the Act with regard to the portion of its assets that may be invested
in the securities of a single issuer. To the extent that the Fund as a
non-diversified fund makes investments in excess of 5% of its total assets in
the securities of a particular issuer, its exposure to the risks associated with
that issuer is increased. Because the Fund as a non-diversified Fund may invest
in a limited number of issuers, the performance of particular securities may
adversely affect the performance of the Fund or subject the Fund to greater
price volatility than that experienced by diversified investment companies.

General Definitions

As used throughout this SAI, the following terms shall have the meanings listed:

"Act" shall mean the Investment Company Act of 1940, as amended.

"Administrator" or "UBS Global AM" shall mean UBS Global Asset Management (US)
Inc., which serves as the Fund's administrator.

"Advisor" shall mean UBS Global Asset Management (Americas) Inc., which serves
as the Fund's investment advisor.

"Board" shall mean the Board of Trustees of the Trust.

"Code" shall mean the Internal Revenue Code of 1986, as amended.

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"Family Funds" shall mean the Fund and other funds for which UBS Global Asset
Management (US) Inc. or any of its affiliates serves as principal underwriter.

"Fund" or "Series" shall mean the UBS Dynamic Alpha Strategy Fund.

"Moody's" shall mean Moody's Investors Service, Inc.

"SEC" shall mean the U.S. Securities and Exchange Commission.

"S&P" shall mean Standard & Poor's Ratings Group.

"Trust" shall mean The UBS Funds, an open-end management investment company
registered under the Act.

"Underwriter" or "UBS Global AM" shall mean UBS Global Asset Management (US)
Inc., which serves as the Fund's underwriter.

"1933 Act" shall mean the Securities Act of 1933, as amended.

INVESTMENT STRATEGIES

The following discussion of investment techniques and instruments supplements
and should be read in conjunction with the investment objective and policies set
forth in the Fund's Prospectus. The investment practices described below, except
for the discussion of percentage limitations with respect to portfolio loan
transactions and borrowing, are not fundamental and may be changed by the Board
without the approval of the shareholders.

Cash and Cash Equivalents

The Series may invest a portion of its assets in short-term debt securities
(including repurchase agreements and reverse repurchase agreements) of
corporations, the U.S. government and its agencies and instrumentalities and
banks and finance companies, which may be denominated in any currency.

The Series may also invest a portion of its assets in shares issued by money
market mutual funds. When unusual market conditions warrant, the Series may make
substantial temporary defensive investments in cash equivalents up to a maximum
of 100% of its net assets. Cash equivalent holdings may be in any currency
(although such holdings may not constitute "cash or cash equivalents" for tax
diversification purposes under the Code). When the Series invests for defensive
purposes, it may affect the attainment of the Series' investment objective.

Under the terms of an exemptive order issued by the SEC, the Series may invest
cash (i) held for temporary defensive purposes; (ii) not invested pending
investment in securities; (iii) that is set aside to cover an obligation or
commitment of the Series to purchase securities or other assets at a later date;
(iv) to be invested on a strategic management basis (i-iv are herein referred to
as "Uninvested Cash"); and (v) collateral that it receives from the borrowers of
its portfolio securities in connection with the Series' securities lending
program, in a series of shares of UBS Supplementary Trust (the "Supplementary
Trust Series"). UBS Supplementary Trust is a private

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investment pool which has retained the Advisor to manage its investments. The
Trustees of the Trust also serve as Trustees of the UBS Supplementary Trust. The
Supplementary Trust Series invests in U.S. dollar denominated money market
instruments having a dollar-weighted average maturity of 90 days or less, and
operates in accordance with Rule 2a-7 under the Act. The Series' investment of
Uninvested Cash in shares of the Supplementary Trust Series will not exceed 25%
of the Series' total assets. In the event that the Advisor waives 100% of its
investment advisory fee with respect to the Series, as calculated monthly, then
the Series will be unable to invest in the Supplementary Trust Series until
additional investment advisory fees are owed by the Series.

Repurchase Agreements

When the Series enters into a repurchase agreement, it purchases securities from
a bank or broker-dealer which simultaneously agrees to repurchase the securities
at a mutually agreed upon time and price, thereby determining the yield during
the term of the agreement. As a result, a repurchase agreement provides a fixed
rate of return insulated from market fluctuations during the term of the
agreement. The term of a repurchase agreement generally is short, possibly
overnight or for a few days, although it may extend over a number of months (up
to one year) from the date of delivery. Repurchase agreements are considered
under the Act to be collateralized loans by the Series to the seller secured by
the securities transferred to the Series. Repurchase agreements will be fully
collateralized and the collateral will be marked-to-market daily. The Series may
not enter into a repurchase agreement having more than seven days remaining to
maturity if, as a result, such agreement, together with any other illiquid
securities held by the Series, would exceed 15% of the value of the net assets
of the Series.

Repurchase agreements are securities for purposes of the tax diversification
requirements that must be met for pass-through treatment under the Code.
Accordingly, the Series will limit the value of its repurchase agreements on
each of the quarterly testing dates to ensure compliance with Subchapter M of
the Code.

Reverse Repurchase Agreements

Reverse repurchase agreements involve sales of portfolio securities of the
Series to member banks of the Federal Reserve System or securities dealers
believed creditworthy, concurrently with an agreement by the Series to
repurchase the same securities at a later date at a fixed price which is
generally equal to the original sales price plus interest. The Series retains
record ownership and the right to receive interest and principal payments on the
portfolio securities involved. In connection with each reverse repurchase
transaction, the Series will direct its custodian bank to place cash, U.S.
government securities, equity securities and/or investment and non-investment
grade debt securities in a segregated account of the Series in an amount equal
to the repurchase price. Any assets designated as segregated by the Series with
respect to any reverse repurchase agreements, when-issued securities, options,
futures, forward contracts or other derivative transactions shall be liquid,
unencumbered and marked-to-market daily (any such assets designated as
segregated are referred to in this SAI as "Segregated Assets"), and such
Segregated Assets shall be maintained in accordance with pertinent positions of
the SEC.

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A reverse repurchase agreement involves the risk that the market value of the
securities retained by a Series may decline below the price of the securities
the Series has sold but is obligated to repurchase under the agreement. In the
event the buyer of securities under a reverse repurchase agreement files for
bankruptcy or becomes insolvent, the Series' use of the proceeds of the
agreement may be restricted pending a determination by the other party, or its
trustee or receiver, whether to enforce the Series' obligation to repurchase the
securities. Reverse repurchase agreements are considered borrowings by the
Series and as such, are subject to the same investment limitations.

Borrowing

The Series may borrow money as a temporary measure for extraordinary purposes or
to facilitate redemptions. The Series may also borrow money for investment
purposes. The Series will not borrow money in excess of 33 1/3% of the value of
its total assets. Any borrowing will be done from a bank with the required asset
coverage of at least 300%. In the event that such asset coverage shall at any
time fall below 300%, the Series shall, within three days thereafter (not
including Sundays or holidays), or such longer period as the SEC may prescribe
by rules and regulations, reduce the amount of its borrowings to such an extent
that the asset coverage of such borrowings shall be at least 300%.

When the Series borrows money for investment purposes, it is engaging in a form
of leverage, which increases investment risk while increasing investment
opportunity. The money borrowed for such leveraging purposes will be subject to
interest costs which may or may not be recovered by appreciation of the
securities purchased and may exceed the income from the securities purchased.

Loans of Portfolio Securities

The Series may lend portfolio securities to qualified broker-dealers and
financial institutions pursuant to agreements provided: (1) the loan is secured
continuously by collateral marked-to-market daily and maintained in an amount at
least equal to the current market value of the securities loaned; (2) the Series
may call the loan at any time and receive the securities loaned; (3) the Series
will receive any interest or dividends paid on the loaned securities; and (4)
the aggregate market value of securities loaned will not at any time exceed 33
1/3% of the total assets of the Series.

Collateral will consist of U.S. and non-U.S. securities, cash equivalents or
irrevocable letters of credit. Loans of securities involve a risk that the
borrower may fail to return the securities or may fail to maintain the proper
amount of collateral. Therefore, the Series will only enter into portfolio loans
after a review of all pertinent factors by the Advisor under the supervision of
the Board, including the creditworthiness of the borrower and then only if the
consideration to be received from such loans would justify the risk.
Creditworthiness will be monitored on an ongoing basis by the Advisor.

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Swaps

The Series may engage in swaps, including but not limited to interest rate,
currency and index swaps and the purchase or sale of related caps, floors,
collars and other derivative instruments. The Series 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 Series anticipates purchasing at a later date, or to
gain exposure to certain markets in the most economical way possible.

Interest rate swaps involve the exchange by the Series with another party of
their respective commitments to receive or pay interest (e.g., an exchange of
fixed rate payments for floating rate payments) with respect to a notional
amount of principal. Currency swaps involve the exchange of cash flows on a
notional amount based on changes in the values of referenced currencies.

The purchase of a cap entitles the purchaser to receive payments on a notional
principal amount from the party selling the cap to the extent that a specified
index exceeds a predetermined interest rate or amount. The purchase of an
interest rate floor entitles the purchaser to receive payments on a notional
principal amount from the party selling the floor to the extent that a specified
index falls below a predetermined interest rate or amount. A collar is a
combination of a cap and a floor that preserves a certain return with a
predetermined range of interest rates or values.

The use of swaps involves investment techniques and risks different from those
associated with ordinary portfolio security transactions. If the Advisor is
incorrect in its forecast of market values, interest rates and other applicable
factors, the investment performance of the Series 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, the Series' risk of loss consists of the
net amount of interest payments that the Series is contractually entitled to
receive. Under Internal Revenue Service rules, any lump sum payment received or
due under the notional principal contract must be amortized over the life of the
contract using the appropriate methodology prescribed by the Internal Revenue
Service.

The equity swaps in which the Series intends to invest involve agreements with a
counterparty. The return to the Series on any equity swap contract will be the
total return on the notional amount of the contract as if it were invested in
the stocks comprising the contract index in exchange for an interest component
based on the notional amount of the agreement. The Series will only enter into
an equity swap contract on a net basis, i.e., the two parties' obligations are
netted out, with the Series paying or receiving, as the case may be, only the
net amount of the payments. Payments under an equity swap contract may be made
at the conclusion of the contract or periodically during its term.

If there is a default by the counterparty to a swap contract, the Series will be
limited to contractual remedies pursuant to the agreements related to the
transaction. There is no assurance that a swap contract counterparty will be
able to meet its obligations pursuant to a swap contract or that, in the event
of a default, the Series will succeed in pursuing contractual remedies. The
Series thus assumes the risk that it may be delayed in or prevented from
obtaining payments

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owed to it pursuant to a swap contract. However, the amount at risk is only the
net unrealized gain, if any, on the swap, not the entire notional amount. The
Advisor will closely monitor, subject to the oversight of the Board, the
creditworthiness of swap counterparties in order to minimize the risk of swaps.

The Advisor and the Trust do not believe that the Series' obligations under swap
contracts are senior securities and, accordingly, the Series will not treat them
as being subject to its borrowing or senior securities restrictions. However,
the net amount of the excess, if any, of the Series' obligations over its
entitlements with respect to each swap contract will be accrued on a daily basis
and an amount of Segregated Assets having an aggregate market value at least
equal to the accrued excess will be segregated in accordance with SEC positions.
To the extent that the Series cannot dispose of a swap in the ordinary course of
business within seven days at approximately the value at which the Series has
valued the swap, the Series will treat the swap as illiquid and subject to its
overall limit on illiquid investments of 15% of the Series' net assets.

Futures

The Series may enter into contracts for the purchase or sale for future delivery
of securities, indices and foreign currencies.

A purchase of a futures contract means the acquisition of a contractual right to
obtain delivery to the Series of the securities or foreign currency called for
by the contract at a specified price during a specified future month. When a
futures contract is sold, the Series incurs a contractual obligation to deliver
the securities or foreign currency underlying the contract at a specified price
on a specified date during a specified future month.

When the Series enters into a futures transaction, it must deliver to the
futures commission merchant selected by the Series an amount referred to as
"initial margin." This amount is maintained by the futures commission merchant
in a segregated account at the custodian bank. Thereafter, a "variation margin"
may be paid by the Series to, or drawn by the Series from, such account in
accordance with controls set for such accounts, depending upon changes in the
price of the underlying securities subject to the futures contract. The Series
may also effect futures transactions through futures commission merchants who
are affiliated with the Advisor or the Series in accordance with procedures
adopted by the Board.

The Series will enter into futures transactions on domestic exchanges and, to
the extent such transactions have been approved by the Commodity Futures Trading
Commission for sale to customers in the United States, on foreign exchanges. In
addition, the Series may sell stock index futures in anticipation of or during a
market decline to attempt to offset the decrease in market value of its common
stocks that might otherwise result; and it may purchase such contracts in order
to offset increases in the cost of common stocks that it intends to purchase.
Unlike other futures contracts, a stock index futures contract specifies that no
delivery of the actual stocks making up the index will take place. Instead,
settlement in cash must occur upon the termination of the contract.

While futures contracts provide for the delivery of securities, deliveries
usually do not occur. Contracts are generally terminated by entering into
offsetting transactions.

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The Series may enter into futures contracts to protect against the adverse
affects of fluctuations in security prices, interest or foreign exchange rates
without actually buying or selling the securities or foreign currency. For
example, if interest rates are expected to increase, the Series might enter into
futures contracts for the sale of debt securities. Such a sale would have much
the same effect as selling an equivalent value of the debt securities owned by
the Series. If interest rates did increase, the value of the debt securities in
the portfolio would decline, but the value of the futures contracts to the
Series would increase at approximately the same rate, thereby keeping the net
asset value of the Series from declining as much as it otherwise would have.
Similarly, when it is expected that interest rates may decline, futures
contracts may be purchased to hedge in anticipation of subsequent purchases of
securities at higher prices. Since the fluctuations in the value of futures
contracts should be similar to those of debt securities, the Series could take
advantage of the anticipated rise in value of debt securities without actually
buying them until the market had stabilized. At that time, the futures contracts
could be liquidated and the Series could then buy debt securities on the cash
market. The Series may also enter into futures contracts as a low cost method
for gaining or reducing exposure to a particular currency or securities market
without directly investing in that currency or those securities.

To the extent that market prices move in an unexpected direction, the Series may
not achieve the anticipated benefits of futures contracts or may realize a loss.
For example, if the Series is hedged against the possibility of an increase in
interest rates which would adversely affect the price of securities held in its
portfolio and interest rates decrease instead, the Series would lose part or all
of the benefit of the increased value which it has because it would have
offsetting losses in its futures position. In addition, in such situations, if
the Series had insufficient cash, it may be required to sell securities from its
portfolio to meet daily variation margin requirements. Such sales of securities
may, but will not necessarily, be at increased prices which reflect the rising
market. The Series may be required to sell securities at a time when it may be
disadvantageous to do so.

Options

The Series may purchase and write call or put options on foreign or U.S.
securities and indices and enter into related closing transactions. The Series
may also purchase exchange-listed call options on particular market segment
indices to achieve temporary exposure to a specific industry.

The Series may invest in options that are either listed on U.S. or recognized
foreign exchanges or traded over-the-counter. Certain over-the-counter options
may be illiquid. Thus, it may not be possible to close options positions and
this may have an adverse impact on the Series' ability to effectively hedge its
securities. The Series has been notified by the SEC that it considers
over-the-counter options to be illiquid. Accordingly, the Series will only
invest in such options to the extent consistent with its 15% limit on
investments in illiquid securities.

Purchasing Call Options--The Series may purchase call options on securities to
the extent that premiums paid by the Series do not aggregate more than 20% of
the Series' total assets. When the Series purchases a call option, in return for
a premium paid by the Series to the writer of the option, the Series obtains the
right to buy the security underlying the option at a specified exercise price at
any time during the term of the option. The writer of the call option, who

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receives the premium upon writing the option, has the obligation, upon exercise
of the option, to deliver the underlying security against payment of the
exercise price. The advantage of purchasing call options is that the Series may
alter portfolio characteristics and modify portfolio maturities without
incurring the cost associated with transactions.

The Series may, following the purchase of a call option, liquidate its position
by effecting a closing sale transaction. This is accomplished by selling an
option of the same series as the option previously purchased. The Series will
realize a profit from a closing sale transaction if the price received on the
transaction is more than the premium paid to purchase the original call option;
the Series will realize a loss from a closing sale transaction if the price
received on the transaction is less than the premium paid to purchase the
original call option.

Although the Series will generally purchase only those call options for which
there appears to be an active secondary market, there is no assurance that a
liquid secondary market on an exchange will exist for any particular option, or
at any particular time, and for some options no secondary market on an exchange
may exist. In such event, it may not be possible to effect closing transactions
in particular options, with the result that the Series would have to exercise
its options in order to realize any profit and would incur brokerage commissions
upon the exercise of such options and upon the subsequent disposition of the
underlying securities acquired through the exercise of such options. Further,
unless the price of the underlying security changes sufficiently, a call option
purchased by the Series may expire without any value to the Series, in which
event the Series would realize a capital loss which will be short-term unless
the option was held for more than one year.

Call Writing--The Series may write call options from time to time on such
portions of its portfolio, without limit, as the Advisor determines is
appropriate in seeking to achieve the Series' investment objective. The
advantage to the Series of writing calls is that the Series receives a premium
which is additional income. However, if the security rises in value, the Series
may not fully participate in the market appreciation.

During the option period for a call option, the writer may be assigned an
exercise notice by the broker-dealer through whom such call option was sold,
requiring the writer to deliver the underlying security against payment of the
exercise price. This obligation is terminated upon the expiration of the option
or upon entering a closing purchase transaction. A closing purchase transaction,
in which the Series, as writer of an option, terminates its obligation by
purchasing an option of the same series as the option previously written, cannot
be effected once the option writer has received an exercise notice for such
option.

Closing purchase transactions will ordinarily be effected to realize a profit on
an outstanding call option, to prevent an underlying security from being called,
to permit the sale of the underlying security or to enable the Series to write
another call option on the underlying security with either a different exercise
price or expiration date or both. The Series may realize a net gain or loss from
a closing purchase transaction depending upon whether the net amount of the
original premium received on the call option is more or less than the cost of
effecting the closing purchase transaction. Any loss incurred in a closing
purchase transaction may be partially or entirely offset by the premium received
from a sale of a different call option on the same underlying security. Such a
loss may also be wholly or partially offset by unrealized

-8-

appreciation in the market value of the underlying security. Conversely, a gain
resulting from a closing purchase transaction could be offset in whole or in
part by a decline in the market value of the underlying security.

If a call option expires unexercised, the Series will realize a short-term
capital gain in the amount of the premium on the option less the commission
paid. Such a gain, however, may be offset by depreciation in the market value of
the underlying security during the option period. If a call option is exercised,
the Series will realize a gain or loss from the sale of the underlying security
equal to the difference between the cost of the underlying security and the
proceeds of the sale of the security plus the amount of the premium on the
option less the commission paid.

The Series will generally write call options on a covered basis. A call option
written by a Series is "covered" if the Series owns the underlying security
covered by the call or has an absolute and immediate right to acquire that
security without additional cash consideration (or for additional cash
consideration held in a segregated account by the Series' custodian) upon
conversion or exchange of other securities held by the Series. A call option is
also deemed to be covered if the Series holds a call on the same security and in
the same principal amount as the call written and the exercise price of the call
held (i) is equal to or less than the exercise price of the call written or (ii)
is greater than the exercise price of the call written if the difference is
maintained by the Series in Segregated Assets in a segregated account with its
custodian.

From time to time, the Series will write a call option that is not covered as
indicated above but where the Series will maintain, with its custodian for the
term of the option, Segregated Assets in a segregated account having a value
equal to the fluctuating market value of the optioned securities or currencies.
While such an option would be "covered" with sufficient collateral to satisfy
SEC prohibitions on issuing senior securities, this type of strategy would
expose the funds to the risks of writing uncovered options. When writing
uncovered call options, the Series is subject to the risk of having to purchase
the security or currency subject to the option at a price higher than the
exercise price of the option. As the price of a security could appreciate
substantially, the Series' loss could be significant.

Purchasing Put Options--The Series may only purchase put options to the extent
that the premiums on all outstanding put options do not exceed 20% of a Series'
total assets. The Series will, at all times during which it holds a put option,
own the security covered by such option. With regard to the writing of put
options, the Series will limit the aggregate value of the obligations underlying
such put options to 50% of its total assets.

A put option purchased by the Series gives it the right to sell one of its
securities for an agreed price up to an agreed date. The Series intends to
purchase put options in order to protect against a decline in the market value
of the underlying security below the exercise price less the premium paid for
the option ("protective puts"). The ability to purchase put options will allow
the Series to protect unrealized gains in an appreciated security in their
portfolios without actually selling the security. If the security does not drop
in value, the Series will lose the value of the premium paid. The Series may
sell a put option which it has previously purchased prior to the sale of the
securities underlying such option. Such sale will result in a net gain or loss
depending on whether the amount received on the sale is more or less than the
premium and other transaction costs paid on the put option which is sold.

-9-

The Series may sell a put option purchased on individual portfolio securities.
Additionally, the Series may enter into closing sale transactions. A closing
sale transaction is one in which the Series, when it is the holder of an
outstanding option, liquidates its position by selling an option of the same
series as the option previously purchased.

Writing Put Options--The Series may also write put options on a secured basis
which means that the Series will maintain in a segregated account with its
custodian Segregated Assets in an amount not less than the exercise price of the
option at all times during the option period. The amount of Segregated Assets
held in the segregated account will be adjusted on a daily basis to reflect
changes in the market value of the securities covered by the put option written
by the Series. Secured put options will generally be written in circumstances
where the Advisor wishes to purchase the underlying security for the Series'
portfolio at a price lower than the current market price of the security. In
such event, the Series would write a secured put option at an exercise price
which, reduced by the premium received on the option, reflects the lower price
it is willing to pay.

Following the writing of a put option, the Series may wish to terminate the
obligation to buy the security underlying the option by effecting a closing
purchase transaction. This is accomplished by buying an option of the same
series as the option previously written. The Series may not, however, effect
such a closing transaction after it has been notified of the exercise of the
option.

Index Options

The Series may purchase exchange-listed call options on stock and fixed income
indices and sell such options in closing sale transactions for hedging purposes.
The Series also may purchase call options on indices primarily as a substitute
for taking positions in certain securities or particular market segment. The
Fund may also purchase call options on an index to protect against increases in
the price of securities underlying that index that the Fund intends to purchase
pending its ability to invest in such securities.

In addition, the Series may purchase put options on stock and fixed income
indices and sell such options in closing sale transactions. The Series may
purchase put options on broad market indices in order to protect its fully
invested portfolio from a general market decline. Put options on market segments
may be bought to protect the Series from a decline in value of heavily weighted
industries in the Series' portfolio. Put options on stock and fixed income
indices may also be used to protect the Series' investments in the case of a
major redemption.

The Series may also write (sell) put and call options on stock and fixed income
indices. While the option is open, the Series will maintain a segregated account
with its custodian in an amount equal to the market value of the option.

Options on indices are similar to regular options except that an option on an
index gives the holder the right, upon exercise, to receive an amount of cash if
the closing level of the index upon which the option is based is greater than
(in the case of a call) or lesser than (in the case of a put) the exercise price
of the option. This amount of cash is equal to the difference between the
closing price of the index and the exercise price of the option expressed in
dollars times a

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specified multiple (the "multiplier"). The indices on which options are traded
include both U.S. and non-U.S. markets.

Special Risks of Options on Indices

The Series' purchases of options on indices will subject it to the risks
described below.

Because the value of an index option depends upon movements in the level of the
index rather than the price of a particular security, whether the Series will
realize gain or loss on the purchase of an option on an index depends upon
movements in the level of prices in the market generally or in an industry or
market segment rather than movements in the price of a particular security.
Accordingly, successful use by the Series of options on indices is subject to
the Advisor's ability to predict correctly the direction of movements in the
market generally or in a particular industry. This requires different skills and
techniques than predicting changes in the prices of individual securities.

Index prices may be distorted if trading of a substantial number of securities
included in the index is interrupted causing the trading of options on that
index to be halted. If a trading halt occurred, the Series would not be able to
close out options which it had purchased and the Series may incur losses if the
underlying index moved adversely before trading resumed. If a trading halt
occurred and restrictions prohibiting the exercise of options were imposed
through the close of trading on the last day before expiration, exercises on
that day would be settled on the basis of a closing index value that may not
reflect current price information for securities representing a substantial
portion of the value of the index.

If a Series holds an index option and exercises it before final determination of
the closing index value for that day, it runs the risk that the level of the
underlying index may change before closing. If such a change causes the
exercised option to fall `out-of-the-money,' the Series will be required to pay
the difference between the closing index value and the exercise price of the
option (times the applicable multiplier) to the assigned writer. Although the
Series may be able to minimize this risk by withholding exercise instructions
until just before the daily cutoff time or by selling rather than exercising the
option when the index level is close to the exercise price, it may not be
possible to eliminate this risk entirely because the cutoff times for index
options may be earlier than those fixed for other types of options and may occur
before definitive closing index values are announced.

Rule 144A and Illiquid Securities

The Series may invest in securities that are exempt under Rule 144A from the
registration requirements of the 1933 Act. Those securities purchased under Rule
144A are traded among qualified institutional investors.

The Board has instructed the Advisor to consider the following factors in
determining the liquidity of a security purchased under Rule 144A: (i) the
security can be sold within seven days at approximately the same amount at which
it is valued by the Series; (ii) there is reasonable assurance that the security
will remain marketable throughout the period it is expected to be held by the
Series, taking into account the actual frequency of trades and quotations for
the security (expected frequency in the case of initial offerings); (iii) at
least two dealers make a market in

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the security; (iv) there are at least three sources from which a price for the
security is readily available; (v) settlement is made in a "regular way" for the
type of security at issue; and (vi) for Rule 144A securities that are also
exempt from registration under Section 3(c)(7) of the Act, there is a sufficient
market of "qualified purchasers" (as defined in the Act) to assure that it will
remain marketable throughout the period it is expected to be held by the Series.
Although having delegated the day-to-day functions, the Board will continue to
monitor and periodically review the Advisor's selection of Rule 144A securities,
as well as the Advisor's determinations as to their liquidity. Investing in
securities under Rule 144A could have the effect of increasing the level of the
Series' illiquidity to the extent that qualified institutional buyers become,
for a time, uninterested in purchasing these securities. After the purchase of a
security under Rule 144A, however, the Board and the Advisor will continue to
monitor the liquidity of that security to ensure that that Series has no more
than 15% of its net assets in illiquid securities.

The Series will limit investments in securities of issuers which the Series is
restricted from selling to the public without registration under the 1933 Act to
no more than 15% of the Series' net assets, excluding restricted securities
eligible for resale pursuant to Rule 144A that have been determined to be liquid
pursuant to a policy and procedures adopted by the Trust's Board which includes
continuing oversight by the Board.

If the Advisor determines that a security purchased in reliance on Rule 144A
which was previously determined to be liquid, is no longer liquid and, as a
result, the Series' holdings of illiquid securities exceed the Series' 15% limit
on investment in such securities, the Advisor will determine what action shall
be taken to ensure that the Series continues to adhere to such limitation,
including disposing of illiquid assets which may include such Rule 144A
securities.

Investment Company Securities and Investments in Affiliated Investment Companies

Subject to the provisions of any exemptive orders issued by the SEC (as
described in the following paragraphs), securities of other investment companies
may be acquired by the Series to the extent that such purchases are consistent
with the Series' investment objectives and restrictions and are permitted under
the Act. The Act requires that, as determined immediately after a purchase is
made, (i) not more than 5% of the value of the Series' total assets will be
invested in the securities of any one investment company, (ii) not more than 10%
of the value of the Series' total assets will be invested in securities of
investment companies as a group and (iii) not more than 3% of the outstanding
voting stock of any one investment company will be owned by the Series. Certain
exceptions to these limitations may apply. As a shareholder of another
investment company, the Series would bear, along with other shareholders, its
pro rata portion of the other investment company's expenses, including advisory
fees. These expenses would be in addition to the expenses that the Series would
bear in connection with its own operations.

The Series may invest in securities issued by other registered investment
companies advised by the Advisor pursuant to exemptive relief granted by the
SEC. The Series will invest in corresponding portfolios of UBS Relationship
Funds to the extent that the Advisor determines that such investments are a more
efficient means for the Series to gain exposure to the asset classes referred to
below than by the Series investing directly in individual securities. For
example, to gain exposure to equity and fixed income securities of issuers
located in emerging market countries, the Series may invest that portion of its
assets allocated to emerging market

-12-

investments in the UBS Emerging Markets Equity Relationship Fund and the UBS
Emerging Markets Debt Relationship Fund. In lieu of investing directly in
certain high yield, higher risk securities, the Series may invest a portion of
its assets in the UBS High Yield Relationship Fund. The Series may also invest a
portion of its assets in the UBS U.S. Small Cap Equity Relationship Fund in lieu
of investing directly in equity securities issued by companies with relatively
small overall market capitalizations. In order to gain exposure to
mortgage-backed securities, the Series may invest in the UBS U.S. Securitized
Mortgage Relationship Fund.

In addition to the portfolios of UBS Relationship Funds described above, the
Series may invest in other portfolios of the UBS Relationship Funds or other
affiliated investment companies to the extent permitted by the exemptive relief
granted by the SEC. Each portfolio of UBS Relationship Funds in which the Series
may invest is permitted to invest in the same securities of a particular asset
class in which the Series is permitted to invest directly, and with similar
risks. Pursuant to undertakings with the SEC, the Series will not be subject to
the imposition of double management or administration fees with respect to its
investments in portfolios of UBS Relationship Funds.

Issuer Location

The Advisor considers a number of factors to determine whether an investment is
tied to a particular country, including whether: the investment is issued or
guaranteed by a particular government or any of its agencies, political
subdivisions, or instrumentalities; the investment has its primary trading
market in a particular country; the issuer is organized under the laws of,
derives at least 50% of its revenues from, or has at least 50% of its assets in
a particular country; the investment is included in an index representative of a
particular country or region; and the investment is exposed to the economic
fortunes and risks of a particular country.

Equity Securities

The Series may invest in a broad range of equity securities of U.S. and non-U.S.
issuers, including common stocks of companies or closed-end investment
companies, preferred stocks, debt securities convertible into or exchangeable
for common stock, securities such as warrants or rights that are convertible
into common stock and sponsored or unsponsored American, European and Global
depositary receipts ("Depositary Receipts"). The issuers of unsponsored
Depositary Receipts are not obligated to disclose material information in the
United States. The Series expects its U.S. equity investments to emphasize large
and intermediate capitalization companies. The Series may also invest in small
capitalization companies. The equity markets in the non-U.S. component of the
Series will typically include available shares of larger capitalization
companies but may also include intermediate and small capitalization companies.
Capitalization levels are measured relative to specific markets, thus large,
intermediate and small capitalization ranges vary country by country. The Series
may invest in equity securities of companies considered by the Advisor to be in
their post-venture capital stage, or "post-venture capital companies." A
post-venture capital company is a company that has received venture capital
financing either: (a) during the early stages of the company's existence or the
early stages of the development of a new product or service, or (b) as part of a
restructuring or recapitalization of the company. The Series may invest in
equity securities of issuers in

-13-

emerging markets and in securities with respect to which the return is derived
from the equity securities of issuers in emerging markets.

Exchange-Traded Index Securities

Subject to the limitations on investment in investment company securities and
its own investment objective, the Series may invest in exchange-traded index
securities that are currently operational and that may be developed in the
future. Exchange-traded index securities generally trade on the American Stock
Exchange or New York Stock Exchange and are subject to the risks of an
investment in a broadly based portfolio of common stocks, including the risk
that the general level of stock prices may decline, thereby adversely affecting
the value of the investment. These securities generally bear certain operational
expenses. To the extent the Series invests in these securities, the Series must
bear these expenses in addition to the expenses of its own operation.

Eurodollar Securities

The Series may invest in Eurodollar securities, which are fixed income
securities of a U.S. issuer or a foreign issuer that are issued outside the
United States. Interest and dividends on Eurodollar securities are payable in
U.S. dollars.

Foreign Securities

Investors should recognize that investing in foreign issuers involves certain
considerations, including those set forth in the Series' Prospectus, which are
not typically associated with investing in U.S. issuers. Since the stocks of
foreign companies are frequently denominated in foreign currencies, and since
the Series may temporarily hold uninvested reserves in bank deposits in foreign
currencies, the Series will be affected favorably or unfavorably by changes in
currency rates and in exchange control regulations and may incur costs in
connection with conversions between various currencies. The investment policies
of the Series permit it to enter into forward foreign currency exchange
contracts, futures, options and interest rate swaps in order to hedge portfolio
holdings and commitments against changes in the level of future currency rates.

Forward Foreign Currency Contracts

The Series 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.

Forward foreign currency contracts are traded in the inter-bank market conducted
directly between currency traders (usually large commercial banks) and their
customers. A forward contract generally has no deposit requirement and no
commissions are charged at any stage for trades. The Series will account for
forward contracts by marking-to-market each day at current forward contract
values.

The Series will only enter into forward contracts to sell, for a fixed amount of
U.S. dollars or other appropriate currency, an amount of foreign currency, to
the extent that the value of the short forward contract is covered by the
underlying value of securities

-14-

denominated in the currency being sold. Alternatively, when the Series enters
into a forward contract to sell an amount of foreign currency, the Series'
custodian or sub-custodian will place Segregated Assets in a segregated account
of the Series in an amount not less than the value of the Series' total assets
committed to the consummation of such forward contracts. If the additional
Segregated Assets placed in the segregated account decline, additional cash or
securities will be placed in the account on a daily basis so that the value of
the account will equal the amount of the Series' commitments with respect to
such contracts.

Non-Deliverable Forwards

The Series may, from time to time, engage in non-deliverable forward
transactions to manage currency risk or to gain exposure to a currency without
purchasing securities denominated in that currency. A non-deliverable forward is
a transaction that represents an agreement between the Series and a counterparty
(usually a commercial bank) to buy or sell a specified (notional) amount of a
particular currency at an agreed upon foreign exchange rate on an agreed upon
future date. Unlike other currency transactions, there is no physical delivery
of the currency on the settlement of a non-deliverable forward transaction.
Rather, the Series and the counterparty agree to net the settlement by making a
payment in U.S. dollars or another fully convertible currency that represents
any differential between the foreign exchange rate agreed upon at the inception
of the non-deliverable forward agreement and the actual exchange rate on the
agreed upon future date. Thus, the actual gain or loss of a given
non-deliverable forward transaction is calculated by multiplying the
transaction's notional amount by the difference between the agreed upon forward
exchange rate and the actual exchange rate when the transaction is completed.

When the Series enters into a non-deliverable forward transaction, the Series'
custodian will place Segregated Assets in a segregated account of the Series in
an amount not less than the value of the Series' total assets committed to the
consummation of such non-deliverable forward transaction. If the additional
Segregated Assets placed in the segregated account decline in value or the
amount of the Series' commitment increases because of changes in currency rates,
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 Series' commitments
under the non-deliverable forward agreement.

Since the Series generally may only close out a non-deliverable forward with the
particular counterparty, there is a risk that the counterparty will default on
its obligation under the agreement. If the counterparty defaults, the Series
will have contractual remedies pursuant to the agreement related to the
transaction, but there is no assurance that contract counterparties will be able
to meet their obligations pursuant to such agreements or that, in the event of a
default, the Series will succeed in pursuing contractual remedies. The Series
thus assumes the risk that it may be delayed or prevented from obtaining
payments owed to it pursuant to non-deliverable forward transactions.

In addition, where the currency exchange rates that are the subject of a given
non-deliverable forward transaction do not move in the direction or to the
extent anticipated, the Series could sustain losses on the non-deliverable
forward transaction. The Series' investment in a particular non-deliverable
forward transaction will be affected favorably or unfavorably by factors that
affect the subject currencies, including economic, political and legal
developments that impact

-15-

the applicable countries, as well as exchange control regulations of the
applicable countries. These risks are heightened when a non-deliverable forward
transaction involves currencies of emerging market countries because such
currencies can be volatile and there is a greater risk that such currencies will
be devalued against the U.S. dollar or other currencies.

Options on Foreign Currencies

The Series also may purchase and write put and call options on foreign
currencies (traded on U.S. and foreign exchanges or over-the-counter markets) to
manage the Series' exposure to changes in currency exchange rates. The Series
may purchase and write options on foreign currencies for hedging purposes in a
manner similar to that in which futures contracts on foreign currencies, or
forward contracts, will be utilized. For example, a decline in the dollar value
of a foreign currency in which portfolio securities are denominated will reduce
the dollar value of such securities, even if their value in the foreign currency
remains constant. In order to protect against such diminutions in the value of
portfolio securities, the Series may purchase put options on the foreign
currency. If the dollar price of the currency does decline, a Series will have
the right to sell such currency for a fixed amount in dollars and will thereby
offset, in whole or in part, the adverse effect on its portfolio which otherwise
would have resulted.

Conversely, where a rise in the dollar value of a currency in which securities
to be acquired are denominated is projected, thereby increasing the dollar price
of such securities, the Series may purchase call options on such currency.

The purchase of such options could offset, at least partially, the effects of
the adverse movement in exchange rates. As in the case of other types of
options, however, the benefit to the Series to be derived from purchases of
foreign currency options will be reduced by the amount of the premium and
related transaction costs. In addition, where currency exchange rates do not
move in the direction or to the extent anticipated, the Series could sustain
losses on transactions in foreign currency options which would require it to
forego a portion or all of the benefits of advantageous changes in such rates.

The Series may write options on foreign currencies for the same types of hedging
purposes. For example, where the Series anticipates a decline in the dollar
value of foreign currency denominated securities due to adverse fluctuations in
exchange rates, it could, instead of purchasing a put option, write a call
option on the relevant currency. If the expected decline occurs, the option will
most likely not be exercised, and the diminution in the value of portfolio
securities will be offset by the amount of the premium received.

Similarly, instead of purchasing a call option to hedge against an anticipated
increase in the dollar cost of securities to be acquired, the Series could write
a put option on the relevant currency which, if rates move in the manner
projected, will expire unexercised and allow the Series to hedge such increased
cost up to the amount of the premium. As in the case of other types of options,
however, the writing of a foreign currency option will constitute only a partial
hedge up to the amount of the premium, and only if rates move in the expected
direction. If this does not occur, the option may be exercised and the Series
would be required to purchase or sell the underlying currency at a loss which
may not be offset by the amount of the premium. Through the writing of options
on foreign currencies, the Series also may be required to forego

-16-

all or a portion of the benefit which might otherwise have been obtained from
favorable movements in exchange rates.

The Series may also engage in options transactions for non-hedging purposes. The
Series may use options transactions to gain exposure to a currency when the
Advisor believes that exposure to the currency is beneficial to the Series but
believes that the securities denominated in that currency are unattractive.

The Series may write covered call options on foreign currencies. A call option
written on a foreign currency by the Series is "covered" if the Series owns the
underlying foreign currency covered by the call or has an absolute and immediate
right to acquire that foreign currency without additional cash consideration (or
for additional cash consideration held in a segregated account by the custodian
bank) upon conversion or exchange of other foreign currency held in its
portfolio. A call option is also covered if the Series has a call on the same
foreign currency and in the same principal amount as the call written where the
exercise price of the call held (a) is equal to or less than the exercise price
of the call written, or (b) is greater than the exercise price of the call
written if the difference is maintained by the Series in Segregated Assets in a
segregated account with its custodian bank.

With respect to writing put options, at the time the put is written, the Series
will establish a segregated account with its custodian bank consisting of
Segregated Assets in an amount equal in value to the amount the Series will be
required to pay upon exercise of the put. The account will be maintained until
the put is exercised, has expired, or the Series has purchased a closing put of
the same series as the one previously written.

Short Sales

The Series may from time to time sell securities short. In the event that the
Advisor anticipates that the price of a security will decline, it may sell the
security short and borrow the same security from a broker or other institution
to complete the sale. The Series will incur a profit or a loss, depending upon
whether the market price of the security decreases or increases between the date
of the short sale and the date on which the Series must replace the borrowed
security. All short sales will be fully collateralized. Short sales represent an
aggressive trading practice with a high risk/return potential, and short sales
involve special considerations. Risks of short sales include that possible
losses from short sales may be unlimited (e.g., if the price of a stock sold
short rises), whereas losses from direct purchases of securities are limited to
the total amount invested, and the Series may be unable to replace a borrowed
security sold short.

Lower Rated Debt Securities

Fixed income securities rated lower than Baa by Moody's or BBB by S&P are below
investment grade and are considered to be of poor standing and predominantly
speculative. Such securities ("lower rated securities") are commonly referred to
as "junk bonds" and are subject to a substantial degree of credit risk. Lower
rated securities may be issued as a consequence of corporate restructurings,
such as leveraged buy-outs, mergers, acquisitions, debt recapitalizations or
similar events. Also, lower rated securities are often issued by smaller, less
creditworthy companies or by highly leveraged (indebted) firms, which are
generally less able than more

-17-

financially stable firms to make scheduled payments of interest and principal.
The risks posed by securities issued under such circumstances are substantial.

In the past, the high yields from lower rated securities have more than
compensated for the higher default rates on such securities. However, there can
be no assurance that diversification will protect the Series from widespread
bond defaults brought about by a sustained economic downturn, or that yields
will continue to offset default rates on lower rated securities in the future.
Issuers of these securities are often highly leveraged, so that their ability to
service their debt obligations during an economic downturn or during sustained
periods of rising interest rates may be impaired. In addition, such issuers may
not have more traditional methods of financing available to them and may be
unable to repay debt at maturity by refinancing. The risk of loss due to default
by the issuer is significantly greater for the holders of lower rated securities
because such securities may be unsecured and may be subordinated to other
creditors of the issuer. Further, an economic recession may result in default
levels with respect to such securities in excess of historic averages.

The value of lower rated securities will be influenced not only by changing
interest rates, but also by the bond market's perception of credit quality and
the outlook for economic growth. When economic conditions appear to be
deteriorating, lower rated securities may decline in market value due to
investors' heightened concern over credit quality, regardless of prevailing
interest rates.

Especially at such times, trading in the secondary market for lower rated
securities may become thin and market liquidity may be significantly reduced.
Even under normal conditions, the market for lower rated securities may be less
liquid than the market for investment grade corporate bonds. There are fewer
securities dealers in the high yield market and purchasers of lower rated
securities are concentrated among a smaller group of securities dealers and
institutional investors. In periods of reduced market liquidity, lower rated
securities prices may become more volatile and the Series' ability to dispose of
particular issues when necessary to meet the Series' liquidity needs or in
response to a specific economic event such as a deterioration in the
creditworthiness of the issuer may be adversely affected.

Lower rated securities frequently have call or redemption features that would
permit an issuer to repurchase the security from the Series. If a call were
exercised by the issuer during a period of declining interest rates, the Series
likely would have to replace such called security with a lower yielding
security, thus decreasing the net investment income to the Series and any
dividends to investors.

Besides credit and liquidity concerns, prices for lower rated securities may be
affected by legislative and regulatory developments. For example, from time to
time, Congress has considered legislation to restrict or eliminate the corporate
tax deduction for interest payments or to regulate corporate restructurings such
as takeovers or mergers. Such legislation may significantly depress the prices
of outstanding lower rated securities. A description of various corporate debt
ratings appears in Appendix A to this SAI.

-18-

Securities issued by foreign issuers rated below investment grade entail greater
risks than higher rated securities, including risk of untimely interest and
principal payment, default, price volatility and may present problems of
liquidity, valuation and currency risk.

Inflation Protected Securities

Inflation protected securities are debt securities whose principal and/or
interest payments are adjusted for inflation, unlike debt securities that make
fixed principal and interest payments. Inflation-protected securities include
Treasury Inflation Protected Securities ("TIPS"), which are securities issued by
the U.S. Treasury. The interest rate paid by TIPS is fixed, while the principal
value rises or falls based on changes in a published Consumer Price Index. 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, TIPS generally pay lower interest rates
than typical U.S. Treasury securities. Only if inflation occurs will TIPS offer
a higher real yield than a conventional Treasury bond of the same maturity.

Other issuers of inflation-protected debt securities include other U.S.
government agencies or instrumentalities, corporations and foreign governments.
There can be no assurance that the CPI or any foreign inflation index will
accurately measure the real rate of inflation in the prices of goods and
services. Moreover, there can be no assurance that the rate of inflation in a
foreign country will be correlated to the rate of inflation in the United
States.

Pay-In-Kind Bonds

The Series may invest in pay-in-kind bonds. Pay-in-kind bonds are securities
that pay interest through the issuance of additional bonds. The Series will be
deemed to receive interest over the life of such bonds and may be treated for
federal income tax purposes as if interest were paid on a current basis,
although no cash interest payments are received by the Series until the cash
payment date or until the bonds mature.

Convertible Securities

The Series may invest in convertible securities which generally offer lower
interest or dividend yields than non-convertible debt securities of similar
quality. The value of convertible securities may reflect changes in the value of
the underlying common stock. Convertible securities entail less credit risk than
the issuer's common stock because they rank senior to common stock. Convertible
securities entitle the holder to exchange the securities for a specified number
of shares of common stock, usually of the same company, at specified prices
within a certain period of time and to receive interest or dividends until the
holder elects to convert. The provisions of any convertible security determine
its ranking in a company's capital structure. In the case of subordinated
convertible debentures, the holder's claims on assets and earnings are
subordinated to the claims of other creditors and are senior to the claims of
preferred and common shareholders. In the case of preferred stock and
convertible preferred stock, the holder's claim on assets and earnings are
subordinated to the claims of all creditors but are senior to the claims of
common shareholders.

-19-

When-Issued Securities

The Series may purchase securities offered on a "when-issued" or "forward
delivery" basis. When so offered, the price, which is generally expressed in
yield terms, is fixed at the time the commitment to purchase is made, but
delivery and payment for the when-issued or forward delivery securities take
place at a later date. During the period between purchase and settlement, no
payment is made by the purchaser to the issuer and no interest on the
when-issued or forward delivery security accrues to the purchaser. While
when-issued or forward delivery securities may be sold prior to the settlement
date, it is intended that the Series will purchase such securities with the
purpose of actually acquiring them unless a sale appears desirable for
investment reasons. At the time the Series makes the commitment to purchase a
security on a when-issued or forward delivery basis, it will record the
transaction and reflect the value of the security in determining its net asset
value. The market value of when-issued or forward delivery securities may be
more or less than the purchase price. The Advisor does not believe that the
Series' net asset value or income will be adversely affected by its purchase of
securities on a when-issued or forward delivery basis. The Series will establish
a segregated account in which it will maintain Segregated Assets equal in value
to commitments for when-issued or forward delivery securities. The Segregated
Assets maintained by the Series with respect to any when-issued or forward
delivery securities shall be liquid, unencumbered and marked-to-market daily,
and such Segregated Assets shall be maintained in accordance with pertinent SEC
positions.

Mortgage-Backed Securities and Mortgage Pass-Through Securities

The Series may also invest in mortgage-backed securities, which are interests in
pools of mortgage loans, including mortgage loans made by savings and loan
institutions, mortgage bankers, commercial banks and others. Pools of mortgage
loans are assembled as securities for sale to investors by various governmental,
government-related and private organizations as further described below. The
Series may also invest in debt securities which are secured with collateral
consisting of mortgage-backed securities (see "Collateralized Mortgage
Obligations") and in other types of mortgage-related securities.

The timely payment of principal and interest on mortgage-backed securities
issued or guaranteed by the Government National Mortgage Association ("GNMA") is
backed by GNMA and the full faith and credit of the U.S. government. These
guarantees, however, do not apply to the market value of Series shares. Also,
securities issued by GNMA and other mortgage-backed securities may be purchased
at a premium over the maturity value of the underlying mortgages. This premium
is not guaranteed and would be lost if prepayment occurs. Mortgage-backed
securities issued by U.S. government agencies or instrumentalities other than
GNMA are not "full faith and credit" obligations. Certain obligations, such as
those issued by the Federal Home Loan Bank are supported by the issuer's right
to borrow from the U.S. Treasury, while others such as those issued by Fannie
Mae, formerly known as the Federal National Mortgage Association, are supported
only by the credit of the issuer. Unscheduled or early payments on the
underlying mortgages may shorten the securities' effective maturities and reduce
returns. The Series may agree to purchase or sell these securities with payment
and delivery taking place at a future date. A decline in interest rates may lead
to a faster rate of repayment of the underlying mortgages and expose the Series
to a lower rate of return upon reinvestment. To the extent that such
mortgage-backed securities are held by the Series, the prepayment right of
mortgagors may limit the

-20-

increase in net asset value of the Series because the value of the
mortgage-backed securities held by the Series may not appreciate as rapidly as
the price of noncallable debt securities.

Interests in pools of mortgage-backed securities differ from other forms of debt
securities, which normally provide for periodic payment of interest in fixed
amounts with principal payments at maturity or specified call dates. Instead,
these securities provide a monthly payment which consists of both interest and
principal payments. In effect, these payments are a "pass-through" of the
monthly payments made by the individual borrowers on their mortgage loans, net
of any fees paid to the issuer or guarantor of such securities. Additional
payments are caused by repayments of principal resulting from the sale of the
underlying property, refinancing or foreclosure, net of fees or costs which may
be incurred. Some mortgage-backed securities (such as securities issued by the
GNMA) are described as "modified pass-through." These securities entitle the
holder to receive all interest and principal payments owed on the mortgage pool,
net of certain fees, at the scheduled payments dates regardless of whether or
not the mortgagor actually makes the payment.

Any discount enjoyed on the purchases of a pass-through type mortgage-backed
security will likely constitute market discount. As the Series receives
principal payments, it will be required to treat as ordinary income an amount
equal to the lesser of the amount of the payment or the "accrued market
discount." Market discount is to be accrued either under a constant rate method
or a proportional method. Pass-through type mortgage-backed securities purchased
at a premium to face will be subject to a similar rule requiring recognition of
an offset to ordinary interest income, an amount of premium attributable to the
receipt of principal. The amount of premium recovered is to be determined using
a method similar to that in place for market discount. The Series may elect to
accrue market discount or amortize premium notwithstanding the amount of
principal received but such election will apply to all bonds held and thereafter
acquired unless permission is granted by the Commissioner of the Internal
Revenue Service to change such method.

The principal governmental guarantor of mortgage-related securities is GNMA,
which is a wholly-owned U.S. government corporation within the Department of
Housing and Urban Development. GNMA is authorized to guarantee, with the full
faith and credit of the U.S. government, the timely payment of principal and
interest on securities issued by institutions approved by GNMA (such as savings
and loan institutions, commercial banks and mortgage bankers) and backed by
pools of mortgages which are insured by the Federal Housing Authority or
guaranteed by the Veterans Administration. These guarantees, however, do not
apply to the market value or yield of mortgage-backed securities or to the value
of Series shares. Also, GNMA securities often are purchased at a premium over
the maturity value of the underlying mortgages. This premium is not guaranteed
and should be viewed as an economic offset to interest to be earned. If
prepayments occur, less interest will be earned and the value of the premium
paid will be lost.

Government-related guarantors (i.e., not backed by the full faith and credit of
the U.S. government) include Fannie Mae and Freddie Mac (formerly known as the
Federal Home Loan Mortgage Corporation). Fannie Mae is a government-sponsored
corporation owned entirely by private stockholders. It is subject to general
regulation of the Secretary of Housing and Urban Development. Fannie Mae
purchases conventional (i.e., not insured or guaranteed by any

-21-

government agency) mortgages from a list of approved seller/servicers which
include state and federally chartered savings and loan associations, mutual
savings banks, commercial banks and credit unions and mortgage bankers.
Pass-through securities issued by Fannie Mae are guaranteed as to timely payment
of principal and interest by Fannie Mae but are not backed by the full faith and
credit of the U.S. government.

Freddie Mac is a corporate instrumentality of the U.S. government and was
created by Congress in 1970 for the purpose of increasing the availability of
mortgage credit for residential housing. Its stock is owned by the twelve
Federal Home Loan Banks. Freddie Mac issues Participation Certificates ("PCs")
which represent interests in conventional mortgages from Freddie Mac's national
portfolio. Freddie Mac guarantees the timely payment of interest and ultimate
collection of principal, but PCs are not backed by the full faith and credit of
the U.S. government.

Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers also create
pass-through pools of conventional mortgage loans. Such issuers may, in
addition, be the originators and/or servicers of the underlying mortgage loans
as well as the guarantors of the mortgage-related securities. Pools created by
such non-governmental issuers generally offer a higher rate of interest than
government and government-related pools because there are no direct or indirect
government or agency guarantees of payments. However, timely payment of interest
and principal of these pools may be supported by various forms of insurance or
guarantees, including individual loan, title, pool and hazard insurance and
letters of credit. The insurance guarantees are issued by governmental entities,
private insurers and the mortgage poolers. Such insurance and guarantees and the
creditworthiness of the issuers thereof will be considered in determining
whether a mortgage-related security meets the Series' investment quality
standards. There can be no assurance that the private insurers or guarantors can
meet their obligations under the insurance policies or guarantee or guarantees,
even if through an examination of the loan experience and practices of the
originators/servicers and poolers, the Advisor determines that the securities
meet the Series' quality standards. Although the market for such securities is
becoming increasingly liquid, securities issued by certain private organizations
may not be readily marketable.

Collateralized Mortgage Obligations ("CMOs") and Real Estate Mortgage Investment
Conduits ("REMICs")

A CMO is a debt security on which interest and prepaid principal are paid, in
most cases, semi-annually. CMOs may be collateralized by whole mortgage loans
but are more typically collateralized by portfolios of mortgage pass-through
securities guaranteed by GNMA, Freddie Mac, or Fannie Mae and their income
streams. Privately-issued CMOs tend to be more sensitive to interest rates than
Government-issued CMOs.

CMOs are structured into multiple classes, each bearing a different stated
maturity. Actual maturity and average life will depend upon the prepayment
experience of the collateral. CMOs provide for a modified form of call
protection through a de facto breakdown of the underlying pool of mortgages
according to how quickly the loans are repaid. Monthly payments of principal
received from the pool of underlying mortgages, including prepayments, is first
returned to investors holding the shortest maturity class. Investors holding the
longer maturity classes

-22-

receive principal only after the first class has been retired. An investor is
partially guarded against a sooner than desired return of principal because of
the sequential payments.

In a typical CMO transaction, a corporation issues multiple series (e.g., A, B,
C, Z) of CMO bonds ("Bonds"). Proceeds of the Bond offering are used to purchase
mortgages or mortgage pass-through certificates ("Collateral"). The Collateral
is pledged to a third party trustee as security for the Bonds. Principal and
interest payments from the Collateral are used to pay principal on the Bonds in
the order A, B, C, Z. The Series A, B and C Bonds all bear current interest.
Interest on the Series Z Bond is accrued and added to principal and a like
amount is paid as principal on the Series A, B, or C Bond currently being paid
off. When the Series A, B and C Bonds are paid in full, interest and principal
on the Series Z Bond begins to be paid currently. With some CMOs, the issuer
serves as a conduit to allow loan originators (primarily builders or savings and
loan associations) to borrow against their loan portfolios. REMICs are private
entities formed for the purpose of holding a fixed pool of mortgages secured by
an interest in real property. REMICs are similar to CMOs in that they issue
multiple classes of securities.

REMICs are entities that own mortgages and elect REMIC status under the Code.
The Series will purchase only regular interests in REMICs. REMIC regular
interests are treated as debt of the REMIC and income/discount thereon must be
accounted for on the "catch-up method," using a reasonable prepayment assumption
under the original issue discount rules of the Code.

CMOs and REMICs issued by private entities are not government securities and are
not directly guaranteed by any government agency. They are secured by the
underlying collateral of the private issuer. Yields on privately-issued CMOs, as
described above, have been historically higher than yields on CMOs issued or
guaranteed by U.S. government agencies. However, the risk of loss due to default
on such instruments is higher since they are not guaranteed by the U.S.
government. Such instruments also tend to be more sensitive to interest rates
than U.S. government-issued CMOs. The Series will not invest in subordinated
privately-issued CMOs. For federal income tax purposes, the Series will be
required to accrue income on CMOs and REMIC regular interests using the
"catch-up" method, with an aggregate prepayment assumption.

Dollar Rolls

The Series may enter into dollar rolls in which the Series sells securities and
simultaneously contracts to repurchase substantially similar securities on a
specified future date. In the case of dollar rolls involving mortgage-backed
securities, the mortgage-backed securities that are purchased typically will be
of the same type and will have the same or similar interest rate and maturity as
those sold, but will be supported by different pools of mortgages. The Series
forgoes principal and interest paid during the roll period on the securities
sold in a dollar roll, but the Series is compensated by the difference between
the current sales price and the price for the future purchase as well as by any
interest earned on the proceeds of the securities sold. The Series could also be
compensated through receipt of fee income. The Series intends to enter into
dollar rolls only with government securities dealers recognized by the Federal
Reserve Board, or with member banks of the Federal Reserve. The Trust does not
believe the Series' obligations under dollar rolls are senior securities and
accordingly, the Series, as a matter of non-

-23-

fundamental policy, will not treat dollar rolls as being subject to its
borrowing or senior securities restrictions. In addition to the general risks
involved in leveraging, dollar rolls are subject to the same risks as repurchase
and reverse repurchase agreements.

To-Be-Announced Securities

A to-be-announced mortgage-backed security ("TBA") is a mortgage-backed
security, such as a GNMA pass-through security, that is purchased or sold with
specific pools that will constitute that GNMA pass-through security to be
announced on a future settlement date. At the time of purchase of a TBA, the
seller does not specify the particular mortgage-backed securities to be
delivered but rather agrees to accept any mortgage-backed security that meets
specified terms. The Series and the seller would agree upon the issuer, interest
rate and terms of the underlying mortgages, but the seller would not identify
the specific underlying mortgages until shortly before it issues the
mortgage-backed security. TBAs increase interest rate risks because the
underlying mortgages maybe less favorable than anticipated by the Series.

Other Mortgage-Backed Securities

The Advisor expects that governmental, government-related or private entities
may create mortgage loan pools and other mortgage-related securities offering
mortgage pass-through and mortgage-collateralized investments in addition to
those described above. The mortgages underlying these securities may include
alternative mortgage instruments, that is, mortgage instruments whose principal
or interest payments may vary or whose terms to maturity may differ from
customary long-term fixed rate mortgages. As new types of mortgage-related
securities are developed and offered to investors, the Advisor will, consistent
with the Series' investment objective, policies and quality standards, consider
making investments in such new types of mortgage-related securities.

Asset-Backed Securities

The Series may invest a portion of its assets in debt obligations known as
"asset-backed securities." Asset-backed securities are securities that represent
a participation in, or are secured by and payable from, a stream of payments
generated by particular assets, most often a pool or pools of similar assets
(e.g., receivables on home equity and credit loans and receivables regarding
automobile, credit card, mobile home and recreational vehicle loans, wholesale
dealer floor plans and leases).

Such receivables are securitized in either a pass-through or a pay-through
structure. Pass-through securities provide investors with an income stream
consisting of both principal and interest payments in respect of the receivables
in the underlying pool. Pay-through asset-backed securities are debt obligations
issued usually by a special purpose entity, which are collateralized by the
various receivables and in which the payments on the underlying receivables
provide that the Series pays the debt service on the debt obligations issued.
The Series may invest in these and other types of asset-backed securities that
may be developed in the future.

The credit quality of these securities depends primarily upon the quality of the
underlying assets and the level of credit support and/or enhancement provided.
Such asset-backed securities are

-24-

subject to the same prepayment risks as mortgage-backed securities. For federal
income tax purposes, the Series will be required to accrue income on pay-through
asset-backed securities using the "catch-up" method, with an aggregate
prepayment assumption.

The credit quality of most asset-backed securities depends primarily on the
credit quality of the assets underlying such securities, how well the entity
issuing the security is insulated from the credit risk of the originator or any
other affiliated entities, and the amount and quality of any credit support
provided to the securities. The rate of principal payment on asset-backed
securities generally depends on the rate of principal payments received on the
underlying assets which in turn may be affected by a variety of economic and
other factors. As a result, the yield on any asset-backed security is difficult
to predict with precision and actual yield to maturity may be more or less than
the anticipated yield to maturity. Asset-backed securities may be classified as
"pass-through certificates" or "collateralized obligations."

Asset-backed securities are often backed by a pool of assets representing the
obligations of a number of different parties. To lessen the effect of failures
by obligors on underlying assets to make payment, such securities may contain
elements of credit support. Such credit support falls into two categories: (i)
liquidity protection; and (ii) protection against losses resulting from ultimate
default by an obligor on the underlying assets. Liquidity protection refers to
the provision of advances, generally by the entity administering the pool of
assets, to ensure that the receipt of payments due on the underlying pool is
timely. Protection against losses resulting from ultimate default enhances the
likelihood of payments of the obligations on at least some of the assets in the
pool. Such protection may be provided through guarantees, insurance policies or
letters of credit obtained by the issuer or sponsor from third parties, through
various means of structuring the transaction or through a combination of such
approaches. The Series will not pay any additional fees for such credit support,
although the existence of credit support may increase the price of a security.

Due to the shorter maturity of the collateral backing such securities, there is
less of a risk of substantial prepayment than with mortgage-backed securities.
Such asset-backed securities do, however, involve certain risks not associated
with mortgage-backed securities, including the risk that security interests
cannot be adequately, or in many cases, ever, established. In addition, with
respect to credit card receivables, a number of state and federal consumer
credit laws give debtors the right to set off certain amounts owed on the credit
cards, thereby reducing the outstanding balance. In the case of automobile
receivables, there is a risk that the holders may not have either a proper or
first security interest in all of the obligations backing such receivables due
to the large number of vehicles involved in a typical issuance and technical
requirements under state laws. Therefore, recoveries on repossessed collateral
may not always be available to support payments on the securities.

Examples of credit support arising out of the structure of the transaction
include "senior-subordinated securities" (multiple class securities with one or
more classes subordinate to other classes as to the payment of principal thereof
and interest thereon, with the result that defaults on the underlying assets are
borne first by the holders of the subordinated class), creation of "reserve
funds" (where cash or investments, sometimes funded from a portion of the
payments on the underlying assets, are held in reserve against future losses)
and "over collateralization" (where the scheduled payments on, or the principal
amount of, the underlying assets exceeds that

-25-

required to make payments of the securities and pay any servicing or other
fees). The degree of credit support provided for each issue is generally based
on historical credit information respecting the level of credit risk associated
with the underlying assets. Delinquencies or losses in excess of those
anticipated could adversely affect the return on an investment in such issue.

Equipment Trust Certificates

The Series may invest in equipment trust certificates. The proceeds of those
certificates are used to purchase equipment, such as railroad cars, airplanes or
other equipment, which in turn serve as collateral for the related issue of
certificates. The equipment subject to a trust generally is leased by a
railroad, airline or other business, and rental payments provide the projected
cash flow for the repayment of equipment trust certificates. Holders of
equipment trust certificates must look to the collateral securing the
certificates, and any guarantee provided by the lessee or any parent corporation
for the payment of lease amounts, in the case of default in the payment of
principal and interest on the certificates.

Zero Coupon and Delayed Interest Securities

The Series may invest in zero coupon or delayed interest securities which pay no
cash income until maturity or a specified date when the securities begin paying
current interest (the "cash payment date") and are sold at substantial discounts
from their value at maturity. When held to maturity or cash payment date, the
entire income of such securities, which consists of accretion of discount, comes
from the difference between the purchase price and their value at maturity or
cash payment date. The discount varies depending on the time remaining until
maturity or cash payment date, prevailing interest rates, liquidity of the
security and the perceived credit quality of the issuer. The discount, in the
absence of financial difficulties of the issuer, decreases as the final maturity
or cash payment date of the security approaches. The market prices of zero
coupon and delayed interest securities are generally more volatile and more
likely to respond to changes in interest rates than the market prices of
securities having similar maturities and credit qualities that pay interest
periodically.

Zero coupon securities are subject to greater market value fluctuations from
changing interest rates than debt obligations of comparable maturities which
make current distributions of interest (cash). Zero coupon convertible
securities offer the opportunity for capital appreciation as increases (or
decreases) in market value of such securities closely follow the movements in
the market value of the underlying common stock. Zero coupon convertible
securities generally are expected to be less volatile than the underlying common
stocks as they usually are issued with short maturities (15 years or less) and
are issued with options and/or redemption features exercisable by the holder of
the obligation entitling the holder to redeem the obligation and receive a
defined cash payment.

Zero coupon securities include securities issued directly by the U.S. Treasury,
and U.S. Treasury bonds or notes and their unmatured interest coupons and
receipts for their underlying principal ("coupons") which have been separated by
their holder, typically a custodian bank or investment brokerage firm. A holder
will separate the interest coupons from the underlying principal (the "corpus")
of the U.S. Treasury security. A number of securities firms and banks have
stripped the interest coupons and receipts and then resold them in custodial
receipt programs with a

-26-

number of different names, including "Treasury Income Growth Receipts" ("TIGRS")
and Certificate of Accrual on Treasuries ("CATS"). The underlying U.S. Treasury
bonds and notes themselves are held in book-entry form at the Federal Reserve
Bank or, in the case of bearer securities (i.e., unregistered securities which
are owned ostensibly by the bearer or holder thereof), in trust on behalf of the
owners thereof. Counsel to the underwriters of these certificates or other
evidences of ownership of the U.S. Treasury securities has stated that for
federal tax and securities purposes, in its opinion, purchasers of such
certificates, such as the Series, most likely will be deemed the beneficial
holder of the underlying U.S. government securities.

The U.S. Treasury has facilitated transfers of ownership of zero coupon
securities by accounting separately for the beneficial ownership of particular
interest coupon and corpus payments on Treasury securities through the Federal
Reserve book-entry record-keeping system. The Federal Reserve program as
established by the U.S. Treasury Department is known as "STRIPS" or "Separate
Trading of Registered Interest and Principal of Securities." Under the STRIPS
program, the Series will be able to have its beneficial ownership of zero coupon
securities recorded directly in the book-entry record-keeping system in lieu of
having to hold certificates or other evidences of ownership of the underlying
U.S. Treasury securities.

When U.S. Treasury obligations have been stripped of their unmatured interest
coupons by the holder, the principal or corpus is sold at a deep discount
because the buyer receives only the right to receive a future fixed payment on
the security and does not receive any rights to periodic interest (cash)
payments. Once stripped or separated, the corpus and coupons may be sold
separately. Typically, the coupons are sold separately or grouped with other
coupons with like maturity dates and sold in such bundled form. Purchasers of
stripped obligations acquire, in effect, discount obligations that are
economically identical to the zero coupon securities that the U.S. Treasury
sells itself. These stripped securities are also treated as zero coupon
securities with original issue discount for tax purposes.

Structured Notes

Structured notes are derivative debt securities, the interest rate and/or
principal of which is determined by an unrelated indicator. The value of the
principal of and/or interest on structured notes is determined by reference to
changes in the return, interest rate or value at maturity of a specific asset,
reference rate, or index (the "reference instrument") or the relative change in
two or more reference instruments. The interest rate or the principal amount
payable upon maturity or redemption may be increased or decreased, depending
upon changes in the applicable reference instruments. Structured notes may be
positively or negatively indexed, so that an increase in value of the reference
instrument may produce an increase or a decrease in the interest rate or value
of the structured note at maturity. In addition, changes in the interest rate or
the value of the structured note at maturity may be calculated as a specified
multiple of the change in the value of the reference; therefore, the value of
such note may be very volatile. Structured notes may entail a greater degree of
market risk than other types of debt securities because the investor bears the
risk of the reference instrument. Structured notes may also be more volatile,
less liquid, and more difficult to accurately price than less complex securities
or more traditional debt securities.

-27-

Emerging Markets Investments

The Series may invest in equity securities of emerging market issuers, or
securities with respect to which the return is derived from the equity
securities of issuers in emerging markets, in debt securities of emerging
markets issuers, or securities with respect to which the return is derived from
debt securities of issuers in emerging markets. The Series also may invest in
debt securities of corporate issuers in developing countries.

The Series' investments in emerging market government and government-related
securities may consist of: (i) debt securities or obligations issued or
guaranteed by governments, governmental agencies or instrumentalities and
political subdivisions located in emerging market countries (including
participation in loans between governments and financial institutions), (ii)
debt securities or obligations issued by government owned, controlled or
sponsored entities located in emerging market countries and (iii) interests in
issuers organized and operated for the purpose of restructuring the investment
characteristics of instruments issued by any of the entities described above.

The Series' investments in the fixed income securities of emerging market
issuers may include investments in Structured Securities, Loan Participation and
Assignments (as such capitalized terms are defined below), Brady Bonds and
certain non-publicly traded securities.

The Series may invest a portion of its assets in entities organized and operated
solely for the purpose of restructuring the investment characteristics of
sovereign debt obligations. This type of restructuring involves the deposit
with, or purchase by, an entity, such as a corporation or trust, of specified
instruments (such as commercial bank loans or Brady Bonds) and the issuance

-28-

by that entity of one or more classes of securities ("Structured Securities")
backed by, or representing interests in, the underlying instruments. The cash
flow of the underlying instruments may be apportioned among the newly issued
Structured Securities to create securities with different investment
characteristics, such as varying maturities, payment priorities and interest
rate provisions, and the extent of the payments made with respect to Structured
Securities is dependent on the extent of the cash flow on the underlying
instruments. Because Structured Securities of the type in which the Series
anticipate investing typically involve no credit enhancement, their credit risk
generally will be equivalent to that of the underlying instruments. The Series
is permitted to invest in a class of Structured Securities that is either
subordinated or unsubordinated to the right of payment of another class.
Subordinated Structured Securities are typically sold in private placement
transactions, and there currently is no active trading market for Structured
Securities. Thus, investments by the Series in Structured Securities will be
limited by the Series' prohibition on investing more than 15% of its net assets
in illiquid securities.

The Series may invest in fixed rate and floating rate loans ("Loans") arranged
through private negotiations between an issuer of sovereign debt obligations and
one or more financial institutions ("Lenders"). The Series' investments in Loans
are expected in most instances to be in the form of a participation in loans
("Participation") and assignments of all or a portion of Loans ("Assignments")
from third parties. The Series will have the right to receive payments of
principal, interest and any fees to which they are entitled only from the Lender
selling the Participation and only upon receipt by the Lender of the payments
from the borrower. In the event of the insolvency of the Lender selling a
Participation, the Series may be treated as a general creditor of the Lender and
may not benefit from any set-off between the Lender and the borrower. Certain
Participations may be structured in a manner designed to avoid purchasers of
Participations being subject to the credit risk of the Lender with respect to
the Participations. Even under such a structure, in the event of the Lender's
insolvency, the Lender's servicing of the Participation may be delayed and the
assignability of the Participation may be impaired. The Series will acquire the
Participations only if the Lender interpositioned between the Series and the
borrower is determined by the Advisor to be creditworthy.

When the Series purchases Assignments from Lenders, it will acquire direct
rights against the borrower on the Loan. However, because Assignments are
arranged through private negotiations between potential assignees and potential
assignors, the rights and obligations acquired by the Series as the purchaser of
an Assignment may differ from, and be more limited than, those held by the
assigning Lender.

The Series may invest in Brady Bonds, which are securities created through the
exchange of existing commercial bank loans to public and private entities in
certain emerging markets for new bonds in connection with debt restructurings
under a debt restructuring plan introduced by former U.S. Secretary of the
Treasury, Nicholas F. Brady (the "Brady Plan"). Brady Plan debt restructurings
have been implemented to date in Argentina, Bulgaria, Brazil, Costa Rica,
Dominican Republic, Ecuador, Jordan, Mexico, Morocco, Nicaragua, Nigeria, the
Philippines, Poland, Russia, Uruguay, Panama, Peru and Venezuela. Brady Bonds
may be collateralized or uncollateralized, are issued in various currencies (but
primarily the U.S. dollar), and are actively traded in over-the-counter
secondary markets. Dollar-denominated, collateralized Brady Bonds, which may be
fixed-rate bonds or floating-rate bonds, are generally collateralized in full as
to principal by U.S. Treasury zero coupon bonds having the same maturity as the
bonds.

Brady Bonds are often viewed as having three or four valuation components: the
collateralized repayment of principal at final maturity; the collateralized
interest payments; the uncollateralized interest payments; and any
uncollateralized repayment of principal at maturity (these uncollateralized
amounts constitute the "residual risk"). In light of the residual risk of Brady
Bonds and the history of defaults of countries issuing Brady Bonds with respect
to commercial bank loans by public and private entities, investments in Brady
Bonds may be viewed as speculative. There can be no assurance that the Brady
Bonds in which the Series invests will not be subject to restructuring
arrangements or to requests for a new credit which may cause the Series to
suffer a loss of interest or principal in any of its holdings.

The Series also may invest in securities that are neither listed on a stock
exchange nor traded over-the-counter, including privately placed securities and
limited partnerships. Investing in such unlisted emerging market equity
securities, including investments in new and early stage companies, may involve
a high degree of business and financial risk that can result in substantial
losses. As a result of the absence of a public trading market for these
securities, they may be less liquid than publicly traded securities.

The Series' investments in emerging market securities will at all times be
limited by the Series' prohibition on investing more than 15% of its net assets
in illiquid securities.

-29-

Risks of Investing in Emerging Markets

There are additional risks inherent in investing in less developed countries
which are applicable to the Series. The Series considers a country to be an
"emerging market" if it is defined as an emerging or developing economy by any
one of the following: the International Bank for Reconstruction and Development
(i.e., the World Bank), the International Finance Corporation, or the United
Nations or its authorities. An emerging market security is a security issued by
a government or other issuer that, in the opinion of the Advisor, has one or
more of the following characteristics: (i) the principal trading market of the
security is an emerging market; (ii) the primary revenue of the issuer (at least
50%) is generated from goods produced or sold, investments made, or services
performed in an emerging market country; or (iii) at least 50% of the assets of
the issuer are situated in emerging market countries.

Compared to the United States and other developed countries, emerging countries
may have relatively unstable governments, economies based on only a few
industries, and securities markets that trade only a small number of securities
and employ settlement procedures different from those used in the United States.
Prices on these exchanges tend to be volatile and, in the past, securities in
these countries have offered greater potential for gain (as well as loss) than
securities of companies located in developed countries. Further, investments by
foreign investors are subject to a variety of restrictions in many emerging
countries. Countries such as those in which the Series may invest have
historically experienced and may continue to experience, high rates of
inflation, high interest rates, exchange rate fluctuations or currency
depreciation, large amounts of external debt, balance of payments and trade
difficulties and extreme poverty and unemployment. Additional factors which may
influence the ability or willingness to service debt include, but are not
limited to, a country's cash flow situation, the availability of sufficient
foreign exchange on the date a payment is due, the relative size of its debt
service burden to the economy as a whole, its government's policy towards the
International Monetary Fund, the World Bank and other international agencies and
the political constraints to which a government debtor may be subject.

The ability of a foreign government or government-related issuer to make timely
and ultimate payments on its external debt obligations will be strongly
influenced by the issuer's balance of payments, including export performance,
its access to international credits and investments, fluctuations in interest
rates and the extent of its foreign reserves. A country whose exports are
concentrated in a few commodities or whose economy depends on certain strategic
imports could be vulnerable to fluctuations in international prices of these
commodities or imports. To the extent that a country receives payment for its
exports in currencies other than dollars, its ability to make debt payments
denominated in dollars could be adversely affected. If a foreign government or
government-related issuer cannot generate sufficient earnings from foreign trade
to service its external debt, it may need to depend on continuing loans and aid
from foreign governments, commercial banks, and multilateral organizations, and
inflows of foreign investment. The commitment on the part of these foreign
governments, multilateral organizations and others to make such disbursements
may be conditioned on the government's implementation of economic reforms and/or
economic performance and the timely service of its obligations. Failure to
implement such reforms, achieve such levels of economic performance or repay
principal or interest when due may curtail the willingness of such third parties
to lend funds, which may further impair the issuer's ability or willingness to
service its debts in a timely

-30-

manner. The cost of servicing external debt will also generally be adversely
affected by rising international interest rates, because many external debt
obligations bear interest at rates which are adjusted based upon international
interest rates. The ability to service external debt will also depend on the
level of the relevant government's international currency reserves and its
access to foreign exchange. Currency devaluations may affect the ability of a
governmental issuer to obtain sufficient foreign exchange to service its
external debt.

As a result of the foregoing, a governmental issuer may default on its
obligations. If such a default occurs, the Series may have limited effective
legal recourse against the issuer and/or guarantor. Remedies must, in some
cases, be pursued in the courts of the defaulting country itself, and the
ability of the holder of foreign government and government-related debt
securities to obtain recourse may be subject to the political climate in the
relevant country. In addition, no assurance can be given that the holders of
commercial bank debt will not contest payments to the holders of other foreign
government and government-related debt obligations in the event of default under
their commercial bank loan agreements.

The issuers of the government and government-related debt securities in which
the Series expects to invest have in the past experienced substantial
difficulties in servicing their external debt obligations, which has led to
defaults on certain obligations and the restructuring of certain indebtedness.
Restructuring arrangements have included, among other things, reducing and
rescheduling interest and principal payments by negotiating new or amended
credit agreements or converting outstanding principal and unpaid interest to
Brady Bonds, and obtaining new credit to finance interest payments. Holders of
certain foreign government and government-related debt securities may be
requested to participate in the restructuring of such obligations and to extend
further loans to their issuers. There can be no assurance that the Brady Bonds
and other foreign government and government-related debt securities in which the
Series may invest will not be subject to similar defaults or restructuring
arrangements which may adversely affect the value of such investments.
Furthermore, certain participants in the secondary market for such debt may be
directly involved in negotiating the terms of these arrangements and may
therefore have access to information not available to other market participants.

Payments to holders of the high yield, high risk, foreign debt securities in
which the Series may invest may be subject to foreign withholding and other
taxes. Although the holders of foreign government and government-related debt
securities may be entitled to tax gross-up payments from the issuers of such
instruments, there is no assurance that such payments will be made.

Investments in Russian Securities

The Series may invest in securities of Russian companies. The registration,
clearing and settlement of securities transactions in Russia are subject to
significant risks not normally associated with securities transactions in the
United States and other more developed markets. Ownership of shares of Russian
companies is evidenced by entries in a company's share register (except where
shares are held through depositories that meet the requirements of the Act) and
the issuance of extracts from the register or, in certain limited cases, by
formal share certificates. However, Russian share registers are frequently
unreliable and the Series could possibly lose its registration through
oversight, negligence or fraud. Moreover, Russia lacks a centralized registry to
record securities transactions and registrars located throughout Russia or the
companies

-31-

themselves maintain share registers. Registrars are under no obligation to
provide extracts to potential purchasers in a timely manner or at all and are
not necessarily subject to state supervision. In addition, while registrars are
liable under law for losses resulting from their errors, it may be difficult for
the Series to enforce any rights it may have against the registrar or issuer of
the securities in the event of loss of share registration. Although Russian
companies with more than 1,000 shareholders are required by law to employ an
independent company to maintain share registers, in practice, such companies
have not always followed this law. Because of this lack of independence of
registrars, management of a Russian company may be able to exert considerable
influence over who can purchase or sell the company's shares by illegally
instructing the registrar to refuse to record transactions on the share
register. Furthermore, these practices may prevent the Series from investing in
the securities of certain Russian companies deemed suitable by the Advisor and
could cause a delay in the sale of Russian securities by the Series if the
company deems a purchaser unsuitable, which may expose the Series to potential
loss on its investment.

In light of the risks described above, the Board has approved certain procedures
concerning the Series' investments in Russian securities. Among these procedures
is a requirement that the Series will not invest in the securities of a Russian
company unless that issuer's registrar has entered into a contract with the
Series' sub-custodian containing certain protective conditions including, among
other things, the sub-custodian's right to conduct regular share confirmations
on behalf of the Series. This requirement will likely have the effect of
precluding investments in certain Russian companies that the Series would
otherwise make.

Real Estate Investment Trusts

Real estate investment trusts ("REITs") pool investors' funds for investment,
primarily in income producing real estate or real estate-related loans or
interests. A REIT is not taxed on income distributed to its shareholders or
unitholders if it complies with regulatory requirements relating to its
organization, ownership, assets and income, and with a regulatory requirement
that it distribute to its shareholders or unitholders at least 90% of its
taxable income for each taxable year. Generally, REITs can be classified as
Equity REITs, Mortgage REITs or Hybrid REITs. Equity REITs invest the majority
of their assets directly in real property and derive their income primarily from
rents and capital gains from appreciation realized through property sales.
Equity REITs are further categorized according to the types of real estate
securities they own, e.g., apartment properties, retail shopping centers, office
and industrial properties, hotels, health-care facilities, manufactured housing
and mixed-property types. Mortgage REITs invest the majority of their assets in
real estate mortgages and derive their income primarily from interest payments.
Hybrid REITs combine the characteristics of both Equity REITs and Mortgage
REITs.

A shareholder in the Series, by investing in REITs indirectly through the
Series, will bear not only the shareholder's proportionate share of the expenses
of the Series, but also, indirectly, the management expenses of the underlying
REITs. REITs may be affected by changes in the value of their underlying
properties and by defaults by borrowers or tenants. Mortgage REITs may be
affected by the quality of the credit extended. Furthermore, REITs are dependent
on specialized management skills. Some REITs may have limited diversification
and may be subject to risks inherent in investments in a limited number of
properties, in a narrow geographic area, or in a single property type. REITs
depend generally on their ability to generate cash flow to make

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distributions to shareholders or unitholders, and may be subject to defaults by
borrowers and to self-liquidations. In addition, the performance of a REIT may
be affected by its failure to qualify for tax-free pass-through of income, or
the REIT's failure to maintain exemption from registration under the Act.

Other Investments

The Board may, in the future, authorize the Series to invest in securities other
than those listed in this SAI and in the Prospectus, provided such investment
would be consistent with the Series' investment objective and that it would not
violate any fundamental investment policies or restrictions applicable to the
Series.

SECONDARY RISKS

The principal risks of investing in the Fund are described in the "Principal
Risks" section of the Prospectus. The secondary risks of investing in the Fund
are described in Appendix B hereto.

INVESTMENT RESTRICTIONS

The investment restrictions set forth below are fundamental policies and may not
be changed as to the Series without the approval of a majority of the
outstanding voting securities (as defined in the Act) of the Series. Unless
otherwise indicated, all percentage limitations listed below apply to the Series
only at the time of the transaction. Accordingly, if a percentage restriction is
adhered to at the time of investment, a later increase or decrease in the
percentage that results from a relative change in values or from a change in the
Series' total assets will not be considered a violation. The Fund may not:

(i) Purchase or sell real estate, except that the Fund may purchase or sell
securities of real estate investment trusts;

(ii) Purchase or sell commodities, except that the Fund may purchase or sell
currencies, may enter into futures contracts on securities, currencies and other
indices or any other financial instruments, and may purchase and sell options on
such futures contracts;

(iii) Issue securities senior to the Fund's presently authorized shares of
beneficial interest, except that this restriction shall not be deemed to
prohibit the Fund from: (a) making any permitted borrowings, loans or pledges;
(b) entering into options, futures contracts, forward contracts, repurchase
transactions, or reverse repurchase transactions; or (c) making short sales of
securities to the extent permitted by the Act and any rule or order thereunder,
or SEC staff interpretations thereof;

(iv) Make loans to other persons, except: (a) through the lending of its
portfolio securities; (b) through the purchase of debt securities, loan
participations and/or engaging in direct corporate loans for investment purposes
in accordance with its investment objectives and policies; and (c) to the extent
the entry into a repurchase agreement is deemed to be a loan;

(v) Borrow money in excess of 33 1/3% of the value of its assets, except as a
temporary measure for extraordinary or emergency purposes to facilitate
redemptions. All borrowings will

-33-

be done from a bank and to the extent that such borrowing exceeds 5% of the
value of the Fund's assets, asset coverage of at least 300% is required;

(vi) Concentrate (invest more than 25% of its net assets) in securities of
issuers in a particular industry (other than securities issued or guaranteed by
the U.S. government or any of its agencies); and

(vii) Act as an underwriter, except to the extent the Fund may be deemed to be
an underwriter when selling its own shares.

MANAGEMENT OF THE TRUST

The Trust is a Delaware statutory trust. Under Delaware law, the Board has
overall responsibility for managing the business and affairs of the Trust. The
Trustees elect the officers of the Trust, who are responsible for administering
the day-to-day operations of the Series.

The Trustees and executive officers of the Trust, along with their principal
occupations over the past five years and their affiliations, if any, with the
Advisor, are listed below.

Term of Number of
Office(1) Portfolios in
Position(s) and Length Fund Complex Other
Name, Address Held with of Time Principal Occupation(s) Overseen by Directorships
and Age Trust Served During Past 5 Years Trustee Held by Trustee

Walter E. Auch Trustee Since 1994 Mr. Auch is retired (since Mr. Auch is a Mr. Auch is a
6001 N. 62nd Place 1986). trustee of Trustee of
Paradise Valley, three Advisors Series
AZ 85253 investment Trust (16
Age: 83 companies portfolios);
(consisting of Smith Barney
41 portfolios) Fund Complex (27
for which UBS portfolios); and
Global Asset Nicholas
Management Applegate
(Americas) Inc. Institutional
("UBS Global AM Funds (19
(Americas)") or portfolios).
one of its
affiliates
serves as
investment
advisor,
sub-advisor or
manager.

-34-

Frank K. Reilly Chairman Since 1993 Mr. Reilly is a Professor at Mr. Reilly is a Mr. Reilly is a
Mendoza College and Trustee the University of Notre Dame director or Director of
of Business since 1982. trustee of four Discover Bank;
University of investment Morgan Stanley
Notre Dame companies Trust and FSB.
Notre Dame, IN (consisting of
46556-5646 42 portfolios)
Age: 68 for which UBS
Global AM
(Americas) or
one of its
affiliates
serves as
investment
advisor,
sub-advisor or
manager.

Edward M. Roob Trustee Since 1995 Mr. Roob is retired (since Mr. Roob is a Mr. Roob is a
841 Woodbine Lane 1993). Mr. Roob was a director or Trustee of the
Northbrook, IL Committee Member of the trustee of four AHA Investment
60002 Chicago Stock Exchange from investment Funds (4
Age: 69 1993-1999. companies portfolios).
(consisting of
42 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 founder and Ms. Cepeda is a Ms. Cepeda is a
A.C. Advisory, president of A.C. Advisory, director or director of
Inc. Inc. (since 1995). trustee of four Lincoln National
161 No. Clark investment Income Fund,
Street companies Inc. and Lincoln
Suite 4975 (consisting of National
Chicago, IL 60601 42 portfolios Convertible
Age: 44 for which UBS Securities Fund.
Global AM She is also a
(Americas) or Director of
one of its Amalgamated Bank
affiliates of Chicago
serves as (2003).
investment
advisor,
sub-advisor or
manager.

-35-

J. Mikesell Thomas Trustee Since 2004 Mr. Thomas is an independent Mr. Thomas is a Mr. Thomas is a
c/o UBS Global financial advisor (since director or director and
Asset Management 2001). He was a managing trustee of four chairman of the
(Americas) Inc. director of Lazard Freres & investment Finance
One N. Wacker Co. (1995 to 2001). companies Committee for
Drive (consisting of Evanston
Chicago, IL 60606 42 portfolios Northwestern
Age: 52 for which UBS Healthcare. He
Global AM is also a vice
(Americas) or president of the
one of its Board of
affiliates Trustees for
serves as Mid-Day Club.
investment
advisor,
sub-advisor or
manager.

(1) Each Trustee holds office for an indefinite term.

Term of
Position(s) Office+ and
Held with the Length of
Name, Address and Age Trust Time Served Principal Occupation(s) During Past 5 Years

W. Douglas Beck* Vice President Since 2003 Mr. Beck is an executive director and head of mutual
Age: 37 fund product management of UBS Global AM (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 vice president of 20 investment
companies (consisting of 78 portfolios) for which UBS
Global AM (Americas) or one of its affiliates serves as
investment advisor, sub-advisor or manager.

Thomas Disbrow* Assistant Since 2004 Mr. Disbrow is a director and co-head of the
Age: 38 Treasurer mutual fund finance department of UBS Global AM. Prior
to November 1999, he was a vice president of
Zweig/Glaser Advisers.

-36-

Mark F. Kemper** Assistant Since 1999 Mr. Kemper is an executive director and deputy general
Age: 46 Secretary counsel of UBS Global AM (Americas) since 2001. He was
Director of UBS Global AM (Americas) 1997-2000;
Secretary of UBS Global AM (Americas) since 1999;
Assistant Secretary of UBS Global AM (Americas)
1993-1999; Assistant Secretary of UBS Global Asset
Management Trust Company since 1993. Mr. Kemper was
Secretary of UBS Global Asset Management (New York) from
1998-2003 and Assistant Secretary, Brinson Holdings,
Inc. from 1993-1998. Mr. Kemper is an Assistant
Secretary of UBS Supplementary Trust and of three
investment companies (consisting of 41 portfolios) for
which UBS Global AM (Americas) or one of its affiliates
serves as investment advisor, sub-advisor or manager.

Joseph T. Malone* Treasurer and Since 2004 Mr. Malone is a director and co-head of the
Age: 36 Principal mutual fund finance department of UBS Global AM. From
Accounting August 2000 through June 2001, he was controller at AEA
Officer Investors Inc. From March 1998 to August 2000, Mr.
Malone was a manager within the investment management
services of PricewaterhouseCoopers LLC. Mr. Malone is
the treasurer and principal accounting officer of four
investment companies (consisting of 42 portfolios) for
which UBS Global AM (Americas) or one of its affiliates
serves as investment advisor, sub-advisor or manager.
Prior to July 2004, Mr. Malone was assistant treasurer
of the Trust.

Joseph Varnas* President Since 2002 Mr. Varnas is a managing director (since March 2003),
Age: 36 global head of information technology and operations
(since March 2004) and head of product
management-Americas (since November 2002) of UBS Global
AM. He was head of technology of UBS Global AM from
November 2002 to March 2004. From 2000 to 2001, he was
manager of product development in Investment Consulting
Services at UBS Financial Services Inc. Mr. Varnas was a
senior analyst in the Global Securities Research and
Economics Group at Merrill Lynch from 1995 to 1999. Mr.
Varnas is president of 21 investment companies
(consisting of 79 portfolios) for which UBS Global AM
(Americas) or one of its affiliates serves as investment
advisor, sub-advisor or manager.
--------------------
* 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.
+ Officers of the Trust are appointed by the Trustees and serve at the
pleasure of the Board.

INFORMATION ABOUT INDEPENDENT TRUSTEE OWNERSHIP OF SECURITIES ISSUED
BY UBS GLOBAL AM OR ANY COMPANY CONTROLLING,
CONTROLLED BY OR UNDER COMMON CONTROL WITH UBS GLOBAL AM

As of December 31, 2003, the Independent Trustees did not own any securities
issued by UBS Global AM or any company controlling, controlled by or under
common control with UBS Global AM.

-37-

INFORMATION ABOUT TRUSTEE OWNERSHIP OF FUND SHARES

Aggregate Dollar Range of Equity Securities in All
Registered Investment Companies Overseen by Trustee for
Dollar Range of Equity which UBS Global AM (Americas) or an Affiliate Serves as
Independent Trustees Securities in Fund+ Investment Advisor, Sub-Advisor or Manager+
-------------------- ------------------- -------------------------------------------

Walter E. Auch None $10,001 - $50,000

Frank K. Reilly None over $100,000

Edward M. Roob None over $100,000

Adela Cepeda None $10,001 - $50,000

J. Mikesell Thomas None None

+ Information regarding ownership is as of December 31, 2003.
+ Information regarding ownership is as of December 31, 2002.

NOTE REGARDING RANGES: In disclosing the dollar range of equity securities
beneficially owned by a trustee in these columns, the following ranges will be
used: (i) none; (ii) $1-$10,000; (iii) $10,001-$50,000; (iv) $50,001-$100,000;
or (v) over $100,000.

-38-

COMPENSATION TABLE

Trustees

Pension or Total
Annual Retirement Compensation
Aggregate Benefits Accrued From the Trust and
Compensation As Part of Fund Fund Complex
Name and Position Held From the Trust/1/ Expenses Paid to Trustees
---------------------- ------------------- ------------------- -----------------

Walter E. Auch, Trustee $54,300 N/A $49,800/2/
Frank K. Reilly, Trustee $66,300 N/A $61,800/2/
Edward M. Roob, Trustee $66,300 N/A $61,800/2/
Adela Cepeda, Trustee $32,700 N/A $12,750/3/
J. Mikesell Thomas, Trustee $32,700 N/A $12,750/3/

/1/ Represents aggregate annual compensation paid by the Trust to each Trustee
indicated for the fiscal year ended June 30, 2004. Ms. Cepeda and Mr.
Thomas were elected to serve on Board of Trustees of the Trust on March 29,
2004.

/2/ This amount represents the aggregate amount of compensation paid to the
Trustees for service on the Board of Directors/Trustees of three (with
regard to Mr. Auch) and four (with regard to Messrs. Reilly and Roob) other
investment companies managed by UBS Global AM (Americas) or an affiliate
for the fiscal year ended June 30, 2004.

/3/ This amount represents the amount of compensation paid to Ms. Cepeda and
Mr. Thomas for service on the Board of Directors of one other investment
company managed by UBS Global AM (Americas) for the fiscal year ended June
30, 2004, and beginning on March 29, 2004, two other investment companies
managed by UBS Global AM (Americas).

No officer or Trustee of the Trust who is also an officer or employee of the
Advisor receives any compensation from the Trust for services to the Trust. The
Trust pays each Trustee who is not affiliated with the Advisor a fee of $6,000
per year, plus $300 per Series per meeting, and reimburses each Trustee and
officer for out-of-pocket expenses in connection with travel and attendance at
Board meetings.

Each Trustee sits on the Trust's Audit Committee, which has the responsibility,
among other things, to: (i) select, oversee and set the compensation of the
Trust's independent auditors; (ii) oversee the Trust's accounting and financial
reporting policies and practices, its internal controls and, as appropriate, the
internal controls of certain service providers; (iii) oversee the quality and
objectivity of the Fund's financial statements and the independent audit(s)
thereof; and (iv) act as a liaison between the Trust's independent auditors and
the full Board. The Audit Committee met three times during the fiscal year ended
June 30, 2004.

-39-

Each Trustee sits on the Trust's Nominating, Compensation and Governance
Committee, which has the responsibility, among other things, to: (i) make
recommendations and to consider shareholder recommendations for nominations for
Board members; (ii) review Board governance procedures and recommend any
appropriate changes to the full Board; (iii) periodically review Non-Interested
Board member compensation and recommend any changes to the Non-Interested
members as a group; and (iv) make recommendations to the full Board for
nominations for membership on all committees, review all committee assignments
annually and periodically review the responsibilities and need for all
committees of the Board. The Nominating, Compensation and Governance Committee
met one time during the fiscal year ended June 30, 2004.

There is not a separate Investment Committees. Items pertaining to this
Committee are submitted to the full Board.

CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES

As of the date of this SAI, UBS Global AM owned 100% of all outstanding shares
of the Fund and thus may be deemed a controlling shareholder of the Fund until
additional shareholders purchase shares. As of the same date, none of the
Trustees or officers of the Fund beneficially owned any of the outstanding
shares of the Fund.

Any person who owns beneficially, either directly or through one or more
controlled companies, more than 25% of the voting securities of the Fund is
presumed to control the Fund under the provisions of the Act. Note that a
controlling person possesses the ability to control the outcome of matters
submitted for shareholder vote of the Fund.

INVESTMENT ADVISORY, PRINCIPAL UNDERWRITING AND OTHER SERVICE ARRANGEMENTS

Advisor

UBS Global Asset Management (Americas) Inc. manages the assets of the Fund
pursuant to its investment advisory agreement with the Fund (the "Agreement").
The Advisor is an investment management firm managing approximately $39.3
billion, as of December 31, 2003, primarily for institutional pension and profit
sharing funds. The Advisor is an indirect, wholly-owned subsidiary of UBS AG
("UBS") and a member of the UBS Global Asset Management Division, which had
approximately $463 billion in assets under management as of December 31, 2003.

The Advisor also serves as the investment advisor or sub-advisor to twenty-five
other investment companies: The UBS Funds, Fort Dearborn Income Securities,
Inc., UBS (US) Group Trust, Allmerica Core Equity Fund-Large Value, AXP Partners
Small Growth Fund, BB&T International Equity Fund, Enterprise Growth & Income
Portfolio (Enterprise Accumulation Trust), Enterprise Growth and Income Fund
(Enterprise Group of Funds), Enterprise Strategic Allocation Fund (Enterprise
Group of Funds), Guardian UBS Large Cap Value Fund, Guardian UBS Small Cap Value
Fund, Guardian UBS VC large Cap Value Fund, Guardian UBS VC Small Cap Value
Fund, ING DSI Enhanced S&P 500 Portfolio, ING UBS Tactical Asset Allocation
Portfolio, ING UBS U.S. Balanced Portfolio, JPMorgan Multi-Manager Small Cap
Growth Fund, Lincoln Variable Insurance Products Trust-Global Asset Allocation
Fund,

-40-

Manulife Global Allocation Trust, MTB (formerly Vision) International Equity
Fund, Ohio National Small Cap Growth, Principal Partners Small Cap Growth Fund
II, Principal Small Cap Growth Fund, Inc., Principal Variable Contracts Fund,
Inc., and Saratoga Health & Biotechnology Portfolio.

Pursuant to its Agreement with the Trust, on behalf of the Fund, the Advisor
will receive from the Fund for providing investment advisory services a monthly
fee at an annual rate according to the following fee schedule: 0.85% on the
first $500 million of assets under management; 0.80% on the next $500 million to
$1 billion of assets under management; 0.75% on the next $1 billion to $ 1.5
billion of assets under management; 0.725% on the next $1.5 billion to $ 2
billion of assets under management; and 0.70% above $2 billion of assets under
management. The Advisor is responsible for paying its expenses. The Fund will
pay the following expenses: (1) the fees and expenses of the Trust's
disinterested Trustees; (2) the salaries and expenses of any of the Trust's
officers or employees who are not affiliated with the Advisor; (3) interest
expenses; (4) taxes and governmental fees; (5) brokerage commissions and other
expenses incurred in acquiring or disposing of portfolio securities; (6) the
expenses of registering and qualifying shares for sale with the SEC and with
various state securities commissions; (7) auditing and legal costs; (8)
insurance premiums; (9) fees and expenses of the Trust's custodian,
administrator and transfer agent and any related services; (10) expenses of
obtaining quotations of the Funds' portfolio securities and of pricing the
Funds' shares; (11) expenses of maintaining the Trust's legal existence and of
shareholders' meetings; (12) expenses of preparation and distribution to
existing shareholders of reports, proxies and prospectuses; and (13) fees and
expenses of membership in industry organizations.

The Fund is subject to a one-year contractual expense limit at the rate of 1.10%
of the Fund's average daily net assets, excluding any 12b-1 Plan fees. The
contractual fee waiver and/or expense reimbursement agreement will remain in
place until June 30, 2005. Thereafter, the expense limit for the Fund will be
reviewed each year, at which time the continuation of the expense limit will be
considered by the Advisor and the Board of Trustees. The contractual fee waiver
agreement also provides that the Advisor is entitled to reimbursement of fees it
waived and/or expenses it reimbursed for a period of three years following such
fee waivers and expense reimbursements, provided that the reimbursement by the
Fund of the Advisor will not cause the total operating expense ratio to exceed
the contractual limit as then may be in effect for the Fund.

General expenses of the Trust (such as costs of maintaining corporate existence,
legal fees, insurance, etc.) will be allocated among the Fund and the other
series of the Trust in proportion to their relative net assets. Expenses which
relate exclusively to the Fund, such as certain registration fees, brokerage
commissions and other portfolio expenses, will be borne directly by the Fund.

[At the September 28, 2004 meeting of the Trust's Board of Trustees, the
Trustees considered and approved for a period of two years the Agreement between
the Trust and the Advisor on behalf of the Fund.]

[Discussion of the factors that the Trustees considered in approving the
Agreement to be included after the Agreement is approved at the September 28,
2004 meeting of the Board of Trustees.]

-41-

Administrative, Accounting and Custody Services

Administrative and Accounting Services. UBS Global AM, with its principal office
located at 51 West 52nd Street, New York, New York 10019-6114, serves as the
Fund's administrator. The Administrator is an indirect wholly-owned asset
management subsidiary of UBS. The Administrator is an affiliate of the Advisor.

As administrator, the Administrator supervises and manages all aspects (other
than investment advisory activities) of the Fund's operations. Under the
Administration Contract, the Administrator will not be liable for any error of
judgment or mistake of law or for any loss suffered by the Fund, the Trust or
any of its shareholders in connection with the performance of the Administration
Contract, except a loss resulting from willful misfeasance, bad faith or gross
negligence on the part of the Administrator in the performance of its duties or
from reckless disregard of its duties and obligations thereunder. The
Administration Contract terminates automatically upon its assignment and is
terminable at any time without penalty by the Board or by vote of the holders of
a majority of the Fund's outstanding voting securities, on 60 days' written
notice to the Administrator, or by the Administrator on 60 days' written notice
to the Trust. The Fund pays a fee to the Administrator that is computed daily
and paid monthly at an annual rate of 0.075% of average daily net assets of the
Fund.

J.P. Morgan Investors Services Co. ("J.P. Morgan") provides accounting,
portfolio valuation and certain administrative services for the Fund under a
Multiple Services Agreement between the Trust and JPMorgan Chase Bank ("JPMorgan
Chase Bank"). J.P. Morgan is located at 73 Tremont Street, Boston, MA 02108-3913
and is a corporate affiliate of JPMorgan Chase.

Custody Services. JPMorgan Chase Bank, located at 270 Park Avenue, New York, New
York 10017, provides custodian services for the securities and cash of the Fund.
The custody fee schedule is based primarily on the net amount of assets held
during the period for which payment is being made plus a per transaction fee for
transactions during the period. JPMorgan Chase Bank utilizes foreign
sub-custodians under procedures approved by the Board in accordance with
applicable legal requirements.

Principal Underwriting Arrangements

UBS Global AM (the "Underwriter") acts as the principal underwriter of each
class of shares of the Fund pursuant to a Principal Underwriting Contract with
the Trust. The Principal Underwriting Contract requires the Underwriter to use
its best efforts, consistent with its other businesses, to sell shares of the
Fund. Shares of the Funds are offered continuously. The Underwriter enters into
dealer agreements with other broker-dealers (affiliated and non-affiliated) and
with other financial institutions to authorize them to sell Fund shares.

Under separate plans pertaining to the Class A, Class B and Class C shares of
the Fund adopted by the Trust in the manner prescribed under Rule 12b-1 under
the Act (each, respectively, a "Class A Plan," "Class B Plan" and "Class C
Plan," and collectively, "Plans"), the Fund pays the Underwriter a service fee,
accrued daily and payable monthly, at the annual rate of 0.25% of the average
daily net assets of each class of shares. Under the Class B Plan, the Fund pays
the Underwriter a distribution fee, accrued daily and payable monthly, at the
annual rate of 0.75% of

-42-

the average daily net assets of the class of shares. Under the Class C Plan, the
Fund pays the Underwriter a distribution fee, accrued daily and payable monthly,
at the annual rate of 0.75% of the average daily net assets of the class of
shares. There is no distribution plan with respect to the Fund's Class Y shares
and the Fund pays no service or distribution fees with respect to its Class Y
shares.

The Underwriter uses the service fees under the Plans for Class A, Class B and
Class C shares primarily to pay dealers for shareholder servicing, currently at
the annual rate of 0.25% of the aggregate investment amounts maintained in the
Fund by each dealer. Each dealer then compensates its investment professionals
for shareholder servicing that they perform and offsets its own expenses in
servicing and maintaining shareholder accounts including related overhead
expenses.

The Underwriter uses the distribution fees under the Class B and Class C Plans
to offset the commissions it pays to dealers for selling the Fund's Class B and
Class C shares, respectively, and to offset the Fund's marketing costs
attributable to such classes, such as the preparation, printing and distribution
of sales literature, advertising and prospectuses and other shareholder
materials to prospective investors. The Underwriter may also use distribution
fees to pay additional compensation to dealers and to offset other costs
allocated to the Underwriter's distribution activities.

The Underwriter receives the proceeds of the initial sales charge paid when
Class A shares are bought and of the contingent deferred sales charge paid upon
sales of shares. These proceeds also may be used to cover distribution expenses.

The Plans and the Principal Underwriting Contract specify that the Fund must pay
service and distribution fees to the Underwriter as compensation for its service
and distribution related activities, not as reimbursement for specific expenses
incurred. Therefore, even if the Underwriter's expenses for the Fund exceeds the
service or distribution fees it receives, the Fund will not be obligated to pay
more than those fees. On the other hand, if the Underwriter's expenses are less
than such fees, it will retain its full fees and realize a profit. Expenses in
excess of service and distribution fees received or accrued through the
termination date of any Plan will be the Underwriter's sole responsibility and
not that of the Funds. Annually, the Board reviews the Plans and the
Underwriter's corresponding expenses for each class of shares of the Fund
separately from the Plans and expenses of the other classes of shares.

Among other things, each Plan provides that (1) the Underwriter will submit to
the Board at least quarterly, and the Board members will review, reports
regarding all amounts expended under the Plan and the purposes for which such
expenditures were made, (2) the Plan will continue in effect only so long as it
is approved at least annually, and any material amendment thereto is approved,
by the Board, including those Board members who are not "interested persons" of
the Trust and who have no direct or indirect financial interest in the operation
of the Plan or any agreement related to the Plan, acting in person at a meeting
called for that purpose, (3) payments by the Fund under the Plan shall not be
materially increased without the approval by a majority of the outstanding
voting securities of the relevant class of the Fund, and (4) while the Plan
remains in effect, the selection and nomination of Board members who are not
"interested

-43-

persons" of the Trust shall be committed to the discretion of the Board members
who are not "interested persons" of the Trust.

In reporting amounts expended under the Plans to the Board members, the
Underwriter allocates expenses attributable to the sale of each class of the
Funds' shares to such class based on the ratio of sales of shares of such class
to the sales of all three classes of shares. The fees paid by one class of the
Fund's shares will not be used to subsidize the sale of any other class of the
Fund's shares.

In approving the Class A Plan, the Class B Plan and the Class C Plan, the Board
considered all the features of the distribution system and the anticipated
benefits to the Funds and their shareholders. With regard to each Plan, the
Board considered (1) the advantages to the shareholders of economies of scale
resulting from growth in the Funds' assets and potential continued growth, (2)
the services provided to the Funds and their shareholders by the Underwriter,
(3) the services provided by dealers pursuant to each dealer agreement with the
Underwriter, and (4) the Underwriter shareholder service-related and, where
applicable, distribution-related expenses and costs. With respect to the Class B
Plan, the Board also recognized that the Underwriters' willingness to compensate
dealers without the concomitant receipt by the Underwriter of initial sales
charges was conditioned upon its expectation of being compensated under the
Class B Plan.

With respect to each Plan, the Board considered all compensation that the
Underwriter would receive under the Plan and the Principal Underwriting
Contract, including service fees and, as applicable, initial sales charges,
distribution fees and contingent deferred sales charges. The Board also
considered the benefits that would accrue to the Underwriter under each Plan in
that the Underwriter would receive service, distribution, advisory and
administrative fees that are calculated based upon a percentage of the average
net assets of the Funds which fees would increase if the Plans were successful
and the Fund attained and maintained significant asset levels.

Transfer Agency Services

PFPC Inc. ("PFPC"), a subsidiary of PNC Bank, N.A., serves as the Trust's
transfer and dividend disbursing agent. It is located at 760 Moore Road, King of
Prussia, PA 19406.

Independent Auditors

Ernst & Young LLP, New York, New York, are the independent auditors of the Fund.

Legal Counsel

Stradley, Ronon, Stevens & Young, LLP, Philadelphia, Pennsylvania, is legal
counsel to the Trust and the Non-Interested Trustees.

Personal Trading Policies

The Trust, the Advisor and the Underwriter have adopted a Code of Ethics. The
Code of Ethics establishes standards by which employees of UBS Global Asset
Management (including all

-44-

employees of the Advisor and Underwriter) (together, "Covered Persons") must
abide when engaging in personal securities trading conduct.

Under the Code of Ethics, Covered Persons are prohibited from: (i) knowingly
buying, selling or transferring any security (subject to narrow exceptions)
within five calendar days before or after that same security, or an equivalent
security, is purchased or sold by the Fund; (ii) entering into a net short
position with respect to any security that is held by the Fund; (iii) purchasing
or selling futures (except currency forwards) that are not traded on an
exchange, as well as options on any type of futures; and (iv) acquiring
securities in an initial public offering (other than a new offering of a
registered open-end investment company).

In addition, Covered Persons must obtain prior written approval before
purchasing, selling or transferring any security subject to certain exceptions
listed in the Code of Ethics. Covered Persons and Trustees are required to file
the following reports: (1) an initial holdings report disclosing all securities
owned by the Covered Person or Interested Trustee and any securities accounts
maintained by the Covered Person or Interested Trustee, which must be filed
within ten days of becoming a Covered Person or Interested Trustee
(Non-Interested Trustees are not required to file this report); and (2)
quarterly reports of security investment transactions and new securities
accounts. Non-Interested Trustees need only report a transaction in a security
if such Trustee, at the time of the transaction, knew or should have known, in
the ordinary course of fulfilling his official duties as a Trustee, that, during
the 15-day period immediately preceding or after the date of the transaction by
the Trustee, such security was purchased or sold by the Fund, or was being
considered for purchase or sale by the Fund.

A copy of the Code of Ethics has been filed with and is available through the
Commission.

Proxy Voting Policies

The Board of Trustees believes that the voting of proxies on securities held by
the Fund is an important element of the overall investment process. As such, the
Board has delegated the responsibility to vote such proxies to UBS Global AM
(Americas). Following is a summary of UBS Global AM (Americas)'s proxy voting
policy.

You may obtain information about the Fund's proxy voting decisions, without
charge, online on the Trust's website (www.ubs.com/ubsglobalam-proxy) or the
EDGAR database on the SEC's website (www.sec.gov).

The proxy voting policy of UBS Global AM (Americas) is based on its belief that
voting rights have economic value and must be treated accordingly. Generally,
UBS Global AM (Americas) expects the boards of directors of companies issuing
securities held by its clients to act as stewards of the financial assets of the
company, to exercise good judgment and practice diligent oversight with the
management of the company. While there is no absolute set of rules that
determine appropriate corporate governance under all circumstances and no set of
rules will guarantee ethical behavior, there are certain benchmarks, which, if
substantial progress is made toward, give evidence of good corporate governance.
UBS Global AM (Americas) may delegate to an independent proxy voting and
research service the authority to exercise the voting rights associated with
certain client holdings. Any such delegation shall be made with the direction

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that the votes be exercised in accordance with UBS Global AM (Americas)'s proxy
voting policy.

When UBS Global AM (Americas)'s view of a company's management is favorable, UBS
Global AM (Americas) generally supports current management initiatives. When UBS
Global AM (Americas)'s view is that changes to the management structure would
probably increase shareholder value, UBS Global AM (Americas) may not support
existing management proposals. In general, UBS Global AM (Americas): (1) opposes
proposals which act to entrench management; (2) believes that boards should be
independent of company management and composed of persons with requisite skills,
knowledge and experience; (3) opposes structures which impose financial
constraints on changes in control; (4) believes remuneration should be
commensurate with responsibilities and performance; and (5) believes that
appropriate steps should be taken to ensure the independence of auditors.

UBS Global AM (Americas) has implemented procedures designed to identify whether
it has a conflict of interest in voting a particular proxy proposal, which may
arise as a result of its or its affiliates' client relationships, marketing
efforts or banking, investment banking and broker/dealer activities. To address
such conflicts, UBS Global AM (Americas) has imposed information barriers
between it and its affiliates who conduct banking, investment banking and
broker/dealer activities and has implemented procedures to prevent business,
sales and marketing issues from influencing its proxy votes. Whenever UBS Global
AM (Americas) is aware of a conflict with respect to a particular proxy, its
appropriate local corporate governance committee is required to review and agree
to the manner in which such proxy is voted.

Bank Line of Credit

The Fund participates with other funds managed by UBS Global AM in a $50 million
committed credit facility with JPMorgan Chase Bank, to be utilized for temporary
financing until the settlement of sales or purchases of portfolio securities,
the repurchase or redemption of shares at the request of shareholders and other
temporary or emergency purposes. Under the credit facility arrangement, the Fund
has agreed to pay a commitment fee, pro rata, based on the relative asset size
of the funds participating in the credit facility. Interest is charged to each
fund at rates based on prevailing market rates at the time of borrowings.

PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS

The Advisor is responsible for decisions to buy and sell securities for the Fund
and for the placement of the Fund's portfolio business and the negotiation of
commissions, if any, paid on such transactions. Fixed income securities in which
the Fund invests are traded in the over-the-counter market. These securities are
generally traded on a net basis with dealers acting as principal for their own
accounts without a stated commission, although the bid/ask spread quoted on
securities includes an implicit profit to the dealers. In over-the-counter
transactions, orders are placed directly with a principal market-maker unless a
better price and execution can be obtained by using a broker. Brokerage
commissions are paid on transactions in listed securities, futures contracts and
options thereon. The Advisor is responsible for effecting portfolio transactions
and will do so in a manner deemed fair and reasonable to the Fund. Under its
advisory agreements with the Fund, the Advisor is authorized to utilize the
trading desk of its

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foreign affiliates to execute foreign securities transactions, but monitors the
selection by such affiliates of brokers and dealers used to execute transactions
for the Fund.

The primary consideration in all portfolio transactions will be prompt execution
of orders in an efficient manner at the most favorable price. However, subject
to policies established by the Board of the Trust, the Fund may pay a
broker-dealer a commission for effecting a portfolio transaction for the Fund in
excess of the amount of commission another broker-dealer would have charged if
the Advisor determines in good faith that the commission paid was reasonable in
relation to the brokerage or research services provided by such broker-dealer,
viewed in terms of that particular transaction or such firm's overall
responsibilities with respect to the clients, including the Fund, as to which
the Advisor exercises investment discretion. In selecting and monitoring
broker-dealers and negotiating commissions, the Advisor considers the firm's
reliability, the quality of its execution services on a continuing basis and its
financial condition. When more than one firm is believed to meet these criteria,
preference may be given to brokers who provide research or statistical material
or other services to the Fund or to the Advisor. Such services include advice,
both directly and in writing, as to the value of the securities; the
advisability of investing in, purchasing or selling securities; and the
availability of securities, or purchasers or sellers of securities, as well as
analyses and reports concerning issues, industries, securities, economic factors
and trends, portfolio strategy and the performance of accounts. This allows the
Advisor to supplement its own investment research activities and obtain the
views and information of others prior to making investment decisions. The
Advisor is of the opinion that, because this material must be analyzed and
reviewed by its staff, the receipt and use of such material does not tend to
reduce expenses but may benefit the Fund by supplementing the Advisor's
research.

The Advisor effects portfolio transactions for other investment companies and
advisory accounts. Research services furnished by dealers through whom the Fund
effects its securities transactions may be used by the Advisor in servicing all
of their accounts; not all such services may be used in connection with the
Fund. In the opinion of the Advisor, it is not possible to measure separately
the benefits from research services to each of the accounts (including the
Fund). The Advisor will attempt to equitably allocate portfolio transactions
among the Fund and others whenever concurrent decisions are made to purchase or
sell securities by the Fund and another. In making such allocations between the
Fund and others, the main factors to be considered are the respective investment
objectives, the relative size of portfolio holdings of the same or comparable
securities, the availability of cash for investment, the size of investment
commitments generally held and the opinions of the persons responsible for
recommending investments to the Fund and the others. In some cases, this
procedure could have an adverse effect on the Fund. In the opinion of the
Advisor, however, the results of such procedures will, on the whole, be in the
best interest of each of the clients.

When buying or selling securities, the Fund may pay commissions to brokers who
are affiliated with the Advisor or the Fund. The Fund may purchase securities in
certain underwritten offerings for which an affiliate of the Fund or the Advisor
may act as an underwriter. The Fund may effect futures transactions through, and
pay commissions to, futures commission merchants who are affiliated with the
Advisor or the Fund in accordance with procedures adopted by the Board.

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Portfolio Turnover

The Fund is free to dispose of its portfolio securities at any time, subject to
complying with the Code and the Act, when changes in circumstances or conditions
make such a move desirable in light of the Fund's investment objective. The Fund
will not attempt to achieve or be limited to a predetermined rate of portfolio
turnover, such a turnover always being incidental to transactions undertaken
with a view to achieving that Fund's investment objective.

The Fund does not intend to use short-term trading as a primary means of
achieving its investment objective. The rate of portfolio turnover shall be
calculated by dividing (a) the lesser of purchases and sales of portfolio
securities for the particular fiscal year by (b) the monthly average of the
value of the portfolio securities owned by the Fund during the particular fiscal
year. Such monthly average shall be calculated by totaling the values of the
portfolio securities as of the beginning and end of the first month of the
particular fiscal year and as of the end of each of the succeeding eleven months
and dividing the sum by 13.

The portfolio turnover rate for the Fund may exceed 100%, and in some years,
200%. A high portfolio turnover rate (over 100%) may involve correspondingly
greater brokerage commissions and other transaction costs, which will be borne
directly by the Fund and ultimately by the Fund's shareholders. In addition,
high portfolio turnover may result in increased short-term capital gains, which,
when distributed to shareholders, are treated as ordinary income.

SHARES OF BENEFICIAL INTEREST

The Trust currently offers four classes of shares for the Fund: the UBS
Fund-Class A (the Class A shares), UBS Fund-Class B (the Class B shares), UBS
Fund-Class C (the Class C shares) and UBS Fund-Class Y (the Class Y shares).
Class B shares include Sub-Class B-1 shares, Sub-Class B-2 shares, Sub-Class B-3
shares, and Sub-Class B-4 shares. The Fund is authorized to issue an unlimited
number of shares of beneficial interest with a $0.001 par value per share. Each
share of beneficial interest represents an equal proportionate interest in the
assets and liabilities of the Fund and has identical voting, dividend,
redemption, liquidation, and other rights and preferences as the other class of
the Fund, except that only the Class A shares may vote on any matter affecting
the Class A Plan. Similarly, only Class B shares and Class C shares may vote on
matters that affect only the Class B Plan and Class C Plan. No class may vote on
matters that affect only another class. Under Delaware law, the Trust does not
normally hold annual meetings of shareholders. Shareholders' meetings may be
held from time to time to consider certain matters, including changes to the
Fund's fundamental investment objective and fundamental investment policies,
changes to the Fund's investment advisory agreement and the election of Trustees
when required by the Act. When matters are submitted to shareholders for a vote,
shareholders are entitled to one vote per share with proportionate voting for
fractional shares. The shares of the Fund do not have cumulative voting rights
or any preemptive or conversion rights, and the Trustees have authority, from
time to time, to divide or combine the shares of the Fund into a greater or
lesser number of shares so affected. In the case of a liquidation of the Fund,
each shareholder of the Fund will be entitled to share, based upon the
shareholder's percentage share ownership, in the distribution out of assets, net
of liabilities, of the Fund. No shareholder is liable for further calls or
assessment by the Fund.

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On any matters affecting only one series or class, only the shareholders of that
series or class are entitled to vote. On matters relating to the Trust but
affecting the series of the Trust differently, separate votes by the affected
series or classes are required. With respect to the submission to shareholder
vote of a matter requiring separate voting by series or class, the matter shall
have been effectively acted upon with respect to any series or class if a
majority of the outstanding voting securities of that series or class votes for
the approval of the matter, notwithstanding that: (1) the matter has not been
approved by a majority of the outstanding voting securities of any other series
or class; and (2) the matter has not been approved by a majority of the
outstanding voting securities of the Trust.

The Trustees of the Trust do not intend to hold annual meetings of shareholders
of the Fund. The SEC, however, requires the Trustees to promptly call a meeting
for the purpose of voting upon the question of removal of any Trustee when
requested to do so by not less than 10% of the outstanding shareholders of the
Fund. In addition, subject to certain conditions, shareholders of the Fund may
apply to the Fund to communicate with other shareholders to request a
shareholders' meeting to vote upon the removal of a Trustee or Trustees.

REDUCED SALES CHARGES, ADDITIONAL PURCHASE, EXCHANGE AND REDEMPTION
INFORMATION AND OTHER SERVICES

Sales Charge Reductions and Waivers

Waivers of Sales Charges--Class A Shares. The following additional sales charge
waivers are available for Class A shares if you:

o Acquire shares in connection with a reorganization pursuant to which the
Fund acquires substantially all of the assets and liabilities of another
fund in exchange solely for shares of the acquiring Fund;

o Acquire shares in connection with the disposition of proceeds from the sale
of shares of Managed High Yield Plus Fund Inc. that were acquired during
that fund's initial public offering of shares and that meet certain other
conditions described in its prospectus; or

o Acquire shares in connection with shares purchased by UBS Global AM or any
affiliate on behalf of a discretionary advisory client.

Reinstatement Privilege--Class A Shares. Shareholders who have redeemed Class A
shares may reinstate their account without a sales charge by notifying the
transfer agent of such desire and forwarding a check for the amount to be
purchased within 365 days after the date of redemption. The reinstatement will
be made at the net asset value per share next computed after the notice of
reinstatement and check are received. T he amount of a purchase under this
reinstatement privilege cannot exceed the amount of the redemption proceeds.
Gain on a redemption will be taxable regardless of whether the reinstatement
privilege is exercised, although a loss arising out of a redemption will not be
deductible to the extent the reinstatement privilege is exercised within 30 days
after redemption, in which event an adjustment will be made to the shareholder's
tax basis for shares acquired pursuant to the reinstatement privilege. Gain or
loss on a redemption also will be readjusted for federal income tax purposes by
the

-49-

amount of any sales charge paid on Class A shares, under the circumstances and
to the extent described in "Taxes--Special Rule for Class A Shareholders,"
below.

Purchases of Class A Shares Through the UBS Financial Services Inc.
InsightOne(SM) Program. Investors who purchase shares through the UBS Financial
Services Inc. InsightOne(SM) Program are eligible to purchase Class A shares of
the funds for which the Underwriter serves as investment advisor or investment
manager without a sales load, and may exchange those shares for Class A shares
of the Fund. The UBS Financial Services Inc. InsightOne(SM) Program offers a
nondiscretionary brokerage account to UBS Financial Services Inc. clients for an
asset-based fee at an annual rate of up to 1.50% of the assets in the account.
Account holders may purchase or sell certain investment products without paying
commissions or other markups/markdowns.

Payments by UBS Global AM--Class B Shares. For purchases of Class B shares in
amounts of less than $100,000, your broker is paid an up-front commission equal
to 4% of the amount sold. For purchases of Class B shares in amounts of $100,000
up to $249,999, your broker is paid an up-front commission of 3.25%, and in
amounts of $250,000 to $499,999, your broker is paid an up-front commission
equal to 2.5% of the amount sold. For purchases of Class B shares in amounts of
$500,000 to $999,999, your broker is paid an up-front commission equal to 1.75%
of the amount sold.

Payments by UBS Global AM--Class Y Shares. Class Y shares are sold without sales
charges and do not pay ongoing 12b-1 distribution or service fees. As
distributor of the Class Y shares, the Underwriter may, from time to time, make
payments out of its own resources to dealers who sell Class Y shares of the
Family Funds to shareholders who buy $10 million or more at any one time.

Purchases of Shares Through the PACE(SM) Multi Advisor Program. An investor who
participates in the PACE(SM) Multi Advisor Program is eligible to purchase Class
A shares. The PACE(SM) Multi Advisor Program is an advisory program sponsored by
UBS Financial Services Inc. that provides comprehensive investment services,
including investor profiling, a personalized asset allocation strategy using an
appropriate combination of funds, and a quarterly investment performance review.
Participation in the PACE(SM) Multi Advisor Program is subject to payment of an
advisory fee at the effective maximum annual rate of 1.5% of assets. Employees
of UBS Financial Services Inc. and its affiliates are entitled to a waiver of
this fee. Please contact your UBS Financial Services Inc. Financial Advisor or
UBS Financial Services Inc. correspondent firms for more information concerning
mutual funds that are available through the PACE(SM) Multi Advisor Program.

Additional Information Regarding Purchases Through Letter of Intent

To the extent that an investor purchases more than the dollar amount indicated
on the Letter of Intent and qualifies for a further reduced sales charge, the
sales charge will be adjusted for the entire amount purchased at the end of the
13-month period, upon recovery from the investor's investment professional of
its portion of the sales charge adjustment. Once received from the investment
professional, the sales charge adjustment will be used to purchase additional
shares at the then current offering price applicable to the actual amount of the
aggregate purchases. These

-50-

additional shares will not be considered as part of the total investment for the
purpose of determining the applicable sales charge pursuant to the Letter of
Intent. No sales charge adjustment will be made unless and until the investor's
investment professional returns any excess commissions previously received.

To the extent that an investor purchases less than the dollar amount indicated
on the Letter of Intent within the 13-month period, the sales charge will be
adjusted upward for the entire amount purchased at the end of the 13-month
period. This adjustment will be made by redeeming shares first from amounts held
in escrow, and then from the account to cover the additional sales charge, the
proceeds of which will be paid to the investor's investment professional and UBS
Global Asset Management, as applicable, in accordance with the prospectus.

Letters of Intent are not available for certain employee benefit plans.

Additional Exchange and Redemption Information. As discussed in the Prospectus,
eligible shares of the Fund may be exchanged for shares of the corresponding
class of other series of the Trust and most other Family Funds. Class Y shares
are not eligible for exchange.

Shareholders will receive at least 60 days' notice of any termination or
material modification of the exchange offer, except no notice need be given if,
under extraordinary circumstances, either redemptions are suspended under the
circumstances described below or the Fund temporarily delays or ceases the sales
of its shares because it is unable to invest amounts effectively in accordance
with the Fund's investment objective, policies and restrictions.

The Trust will satisfy redemption requests in cash to the fullest extent
feasible, so long as such payments would not, in the opinion of the Advisor or
the Board, result in the necessity of the Fund selling assets under
disadvantageous conditions and to the detriment of the remaining shareholders of
the Fund. Pursuant to the Trust's Agreement and Declaration of Trust, payment
for shares redeemed may be made either in cash or in-kind, or partly in cash and
partly in-kind. Under unusual circumstances, when the Board deems it in the best
interest of the Fund's shareholders, the Trust may make payment for shares
repurchased or redeemed in whole or in part in securities of the Fund taken at
current values. With respect to such redemptions in kind, the Trust has made an
election pursuant to Rule 18f-1 under the Act. This will require the Trust to
redeem in cash at a shareholder's election in any case where the redemption
involves less than $250,000 (or 1% of the Fund's net asset value at the
beginning of each 90-day period during which such redemptions are in effect, if
that amount is less than $250,000), during any 90-day period for any one
shareholder. Should payment be made in securities, the redeeming shareholder may
incur brokerage costs in converting such securities to cash. In-kind payments to
non-affiliated shareholders need not constitute a cross-section of the Fund's
portfolio. Where a shareholder has requested redemption of all or a part of the
shareholder's investment and where the Fund computes such redemption in-kind,
the Fund will not recognize gain or loss for federal tax purposes on the
securities used to compute the redemption, but the shareholder will recognize
gain or loss equal to the difference between the fair market value of the
securities received and the shareholder's basis in the Fund shares redeemed.
Pursuant to redemption in-kind procedures adopted by the Board on behalf of the
Fund, the Trust is permitted to pay redemptions in-kind to shareholders that are
affiliated persons of the Fund by nature of a greater than 5% ownership interest
in the Fund.

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The Fund may suspend redemption privileges or postpone the date of payment
during any period (1) when the New York Stock Exchange ("NYSE") is closed or
trading on the NYSE is restricted as determined by the SEC, (2) when an
emergency exists, as defined by the SEC, that makes it not reasonably
practicable for the Fund to dispose of securities owned by it or fairly to
determine the value of its assets, or (3) as the SEC may otherwise permit. The
redemption price may be more or less than the shareholder's cost, depending on
the market value of the Fund's portfolio at the time.

Financial Institutions. The Fund may authorize financial institutions, or their
agents, to accept on the Fund's behalf purchase and redemption orders that are
in "good form" in accordance with the policies of those institutions. The Fund
will be deemed to have received these purchase and redemption orders when such
financial institution or its agent accepts them. Like all customer orders, these
orders will be priced based on the Fund's net asset value next computed after
receipt of the order by the financial institutions or their agents. Financial
institutions may include retirement plan service providers who aggregate
purchase and redemption instructions received from numerous retirement plans or
plan participants.

Automatic Investment Plan--Class A, Class B and Class C Shares. The Underwriter
or your investment professional offers an automatic investment plan with a
minimum initial investment of $1,000 through which the Fund will deduct $50 or
more on a monthly, quarterly, semi-annual or annual basis from the investor's
bank account to invest directly in the Fund's Class A, Class B or Class C
shares. In addition to providing a convenient and disciplined manner of
investing, participation in the automatic investment plan enables an investor to
use the technique of "dollar cost averaging." When a shareholder invests the
same dollar amount each month under the plan, the shareholder will purchase more
shares when the Fund's net asset value per share is low and fewer shares when
the net asset value per share is high. Using this technique, a shareholder's
average purchase price per share over any given period will be lower than if the
shareholder purchased a fixed number of shares on a monthly basis during the
period. Of course, investing through the automatic investment plan does not
assure a profit or protect against loss in declining markets. Additionally,
because the automatic investment plan involves continuous investing regardless
of price levels, an investor should consider his or her financial ability to
continue purchases through periods of both low and high price levels. An
investor should also consider whether a large, single investment would qualify
for sales load reductions.

Automatic Cash Withdrawal Plan--Class A, Class B, and Class C

The Automatic Cash Withdrawal Plan allows investors to set up monthly, quarterly
(March, June, September and December), semi-annual (June and December) or annual
(December) withdrawals from their Family Fund accounts. Minimum balances and
withdrawals vary according to the class of shares:

o Class A and Class C shares. Minimum value of Fund shares is $5,000; minimum
withdrawals of $100.

o Class B shares. Minimum value of Fund shares is $10,000; minimum monthly,
quarterly, and semi-annual and annual withdrawals of $100, $200, $300 and
$400, respectively.

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Withdrawals under the Automatic Cash Withdrawal Plan will not be subject to a
contingent deferred sales charge if the investor withdraws no more than 12% of
the value of the Fund account when the shareholder signed up for the plan (for
Class B shares, annually; for Class A and Class C shares, during the first year
under the plan). Shareholders who elect to receive dividends or other
distributions in cash may not participate in the plan.

An investor's participation in the Automatic Cash Withdrawal Plan will terminate
automatically if the "Initial Account Balance" (a term that means the value of
the Fund account at the time the shareholder elects to participate in the
Automatic Cash Withdrawal Plan), less aggregate redemptions made other than
pursuant to the Automatic Cash Withdrawal Plan, is less than the minimum values
specified above. Purchases of additional shares of the Fund concurrent with
withdrawals are ordinarily disadvantageous to shareholders because of tax
liabilities and, for Class A shares, initial sales charges. On or about the 20th
of a month for monthly, quarterly and semi-annual plans, your investment
professional will arrange for redemption by the Fund of sufficient Fund shares
to provide the withdrawal payments specified by participants in the Automatic
Cash Withdrawal Plan. The payments generally are mailed approximately five
Business Days (defined under "Net Asset Value") after the redemption date.
Withdrawal payments should not be considered dividends, but redemption proceeds.
If periodic withdrawals continually exceed reinvested dividends and other
distributions, a shareholder's investment may be correspondingly reduced. A
shareholder may change the amount of the automatic cash withdrawal or terminate
participation in the Automatic Cash Withdrawal Plan at any time without charge
or penalty by written instructions with signatures guaranteed to your investment
professional or PFPC. Instructions to participate in the plan, change the
withdrawal amount or terminate participation in the plan will not be effective
until five days after written instructions with signatures guaranteed are
received by PFPC. Shareholders may request the forms needed to establish an
Automatic Cash Withdrawal Plan from their investment professionals or PFPC at
1-800-647-1568.

Individual Retirement Accounts

Self-directed IRAs are available in which purchases of shares of Family Funds
and other investments may be made. Investors considering establishing an IRA
should review applicable tax laws and should consult their tax advisors.

Transfer of Accounts

If investors holding Class A, Class B, Class C or Class Y shares of the Fund in
a brokerage account transfer their brokerage accounts to another firm, the Fund
shares will be moved to an account with PFPC. However, if the other firm has
entered into a dealer agreement with the Underwriter relating to the Fund, the
shareholder may be able to hold Fund shares in an account with the other firm.

Transfer of Securities

At the discretion of the Trust, investors may be permitted to purchase Fund
shares by transferring securities to the Fund that meet the Fund's investment
objective and policies. Securities transferred to the Fund will be valued in
accordance with the same procedures used to determine

-53-

the Fund's net asset value at the time of the next determination of net asset
value after such acceptance. Shares issued by the Fund in exchange for
securities will be issued at net asset value per share of the Fund determined as
of the same time. All dividends, interest, subscription, or other rights
pertaining to such securities shall become the property of the Fund and must be
delivered to the Fund by the investor upon receipt from the issuer. Investors
who are permitted to transfer such securities will be required to recognize a
gain or loss on such transfer and pay tax thereon, if applicable, measured by
the difference between the fair market value of the securities and the
investors' basis therein. Securities will not be accepted in exchange for shares
of the Fund unless: (1) such securities are, at the time of the exchange,
eligible to be included in the Fund's portfolio and current market quotations
are readily available for such securities; (2) the investor represents and
warrants that all securities offered to be exchanged are not subject to any
restrictions upon their sale by the Fund under the 1933 Act, or under the laws
of the country in which the principal market for such securities exists, or
otherwise; and (3) the value of any such security (except U.S. government
securities) being exchanged, together with other securities of the same issuer
owned by the Fund, will not exceed 5% of the Fund's net assets immediately after
the transaction.

CONVERSION OF CLASS B SHARES

Class B shares of the Fund will automatically convert to Class A shares of the
Fund, based on the relative net asset values per share of the two classes, as of
the close of business on the first Business Day (as defined under "Net Asset
Value") of the month in which the sixth, fourth, third, or second anniversary
(depending on the amount of shares purchased) of the initial issuance of those
Class B shares occurs. For the purpose of calculating the holding period
required for conversion of Class B shares, the date of initial issuance shall
mean (1) the date on which the Class B shares were issued or (2) for Class B
shares obtained through the exchange, or a series of exchanges the date on which
the original Class B shares were issued. For purposes of conversion to Class A
shares, Class B shares purchased through the reinvestment of dividends and other
distributions paid in respect of Class B shares will be held in a separate
sub-account. Each time any Class B shares in the shareholder's regular account
(other than those in the sub-account) convert to Class A shares, a pro rata
portion of the Class B shares in the sub-account will also convert to Class A
shares. The portion will be determined by the ratio that the shareholder's Class
B shares converting to Class A shares bears to the shareholder's total Class B
shares not acquired through dividends and other distributions.

NET ASSET VALUE

The Fund determines its net asset value per share separately for each class of
shares, normally as of the close of regular trading (usually 4:00 p.m., Eastern
time) on the NYSE on each Business Day when the NYSE is open. Prices will be
calculated earlier when the NYSE closes early because trading has been halted
for the day. Currently the NYSE is open for trading every day (each such day a
"Business Day") except Saturdays, Sundays, and the following holidays: New
Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.

Securities that are listed on exchanges normally are valued at the last sale
price on the day the securities are valued or, lacking any sales on such day, at
the last available bid price. In cases

-54-

where securities are traded on more than one exchange, the securities are
generally valued on the exchange considered by the Advisor as the primary
market. Securities traded in the over-the-counter market and listed on the
Nasdaq Stock Market ("Nasdaq") normally are valued at the Nasdaq Official
Closing Price ("NOCP"); other over-the-counter securities are valued at the last
bid price available prior to valuation (other than short-term investments that
mature in 60 days or less, which are valued as described further below). Where
market quotations are readily available, portfolio securities are valued based
upon market quotations, provided those quotations adequately reflect, in the
judgment of the Advisor, the fair value of the security. Where those market
quotations are not readily available, securities are valued based upon
appraisals received from a pricing service using a computerized matrix system or
based upon appraisals derived from information concerning the security or
similar securities received from recognized dealers in those securities. All
other securities and other assets are valued at fair value as determined in good
faith by or under the direction of the Board. It should be recognized that
judgment often plays a greater role in valuing thinly traded securities,
including many lower rated bonds, than is the case with respect to securities
for which a broader range of dealer quotations and last-sale information is
available. The amortized cost method of valuation generally is used to value
debt obligations with 60 days or less remaining until maturity, unless the Board
determines that this does not represent fair value.

TAXATION

Additional Information on Distributions and Taxes

Distributions

Distributions of Net Investment Income. The Fund receives income generally in
the form of dividends and interest on its investments. This income, less
expenses incurred in the operation of the Fund, constitutes the Fund's net
investment income from which income dividends may be paid to you. If you are a
taxable investor, any income dividends the Fund pays are taxable to you as
ordinary income, except that, a portion of the income dividends designated by
the Fund will be qualified dividend income eligible for taxation by individual
shareholders at long-term capital gain rates.

Capital Gain Distributions. The Fund may realize capital gains and losses on the
sale or other disposition of its portfolio securities. Distributions from net
short-term capital gains are taxable to you as ordinary income. Distributions
from net long-term capital gains are taxable to you as long-term capital gains,
regardless of how long you have owned your shares in the Fund. Any net capital
gains realized by the Fund generally are distributed once each year, and may be
distributed more frequently, if necessary, to reduce or eliminate excise or
income taxes on the Fund.

Investments in Foreign Securities

Pass-Through of Foreign Tax Credits. The Fund may be subject to foreign
withholding taxes on income from certain foreign securities. This, in turn,
could reduce the Fund's income dividends paid to you. If more than 50% of the
Fund's total assets at the end of a fiscal year is invested in foreign
securities, the Fund may elect to pass through to you your pro rata share of

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foreign taxes paid by the Fund. If this election is made, the Fund may report
more taxable income to you than it actually distributes. You will then be
entitled either to deduct your share of these taxes in computing your taxable
income, or to claim a foreign tax credit for these taxes against your U.S.
federal income tax (subject to limitations for certain shareholders). The Fund
will provide you with the information necessary to complete your personal income
tax return if it makes this election.

Effect of Foreign Debt Investments and Hedging on Distributions. Most foreign
exchange gains realized on the sale of debt securities are treated as ordinary
income by the Fund. Similarly, foreign exchange losses realized on the sale of
debt securities generally are treated as ordinary losses. These gains, when
distributed, are taxable to you as ordinary income, and any losses reduce the
Fund's ordinary income otherwise available for distribution to you. This
treatment could increase or decrease the Fund's ordinary income distributions to
you, and may cause some or all of the Fund's previously distributed income to be
classified as a return of capital. A return of capital generally is not taxable
to you, but reduces the tax basis of your shares in the Fund. Any return of
capital in excess of your basis, however, is taxable as a capital gain.

PFIC Securities. The Fund may invest in securities of foreign entities that
could be deemed for tax purposes to be passive foreign investment companies
(PFICs). When investing in PFIC securities, the Fund may mark-to-market these
securities and recognize any gains at the end of its fiscal and excise
(described below) tax years. Deductions for losses are allowable only to the
extent of any current or previously recognized gains. These gains (reduced by
allowable losses) are treated as ordinary income that the Fund is required to
distribute, even though it has not sold the securities. These dividends will not
qualify for the reduced rate of taxation on qualified dividends when distributed
to you by the Fund.

Information on the Amount and Tax Character of Distributions. The Fund will
inform you of the amount of your income dividends and capital gain distributions
at the time they are paid, and will advise you of their tax status for federal
income tax purposes shortly after the close of each calendar year. If you have
not owned your Fund shares for a full year, the Fund may designate and
distribute to you, as ordinary income, qualified dividends or capital gains, a
percentage of income that may not be equal to the actual amount of each type of
income earned during the period of your investment in the Fund. Distributions
declared in December but paid in January are taxable to you as if paid in
December.

Election to be Taxed as a Regulated Investment Company. The Fund intends to
elect and qualify, to be treated as a regulated investment company under
Subchapter M of the Code. As a regulated investment company, the Fund generally
will pay no federal income tax on the income and gains it distributes to you.
The Board reserves the right not to elect or maintain regulated investment
company status for the Fund if the Board determines this course of action to be
beneficial to shareholders. In that case, the Fund would be subject to federal,
and possibly state, corporate taxes on its taxable income and gains, and
distributions to you would be taxed as dividend income to the extent of the
Fund's earnings and profits.

Excise Tax Distribution Requirements. To avoid federal excise taxes, the Code
requires a fund to distribute to you by December 31 of each year, at a minimum,
the following amounts:

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o 98% of its taxable ordinary income earned during the calendar year;

o 98% of its capital gain net income earned during the twelve month period
ending October 31; and

o 100% of any undistributed amounts of these categories of income or gain
from the prior year.

The Fund intends to declare and pay these distributions in December (or to pay
them in January, in which case you must treat them as received in December), but
can give no assurances that its distributions will be sufficient to eliminate
all taxes.

Redemption of Shares

Redemptions. Redemptions (including redemptions in-kind) and exchanges of Fund
shares are taxable transactions for federal and state income tax purposes. If
you redeem your Fund shares, or exchange them for shares of a different Family
Fund, the Internal Revenue Service requires you to report any gain or loss on
your redemption or exchange. If you hold your shares as a capital asset, any
gain or loss that you realize is a capital gain or loss and is long-term or
short-term, generally depending on how long you have owned your shares.

Redemptions at a Loss within Six Months of Purchase. Any loss incurred on the
redemption or exchange of shares held for six months or less is treated as a
long-term capital loss to the extent of any long-term capital gains distributed
to you by the Fund on those shares.

Special Rule for Class A Shareholders. A special tax rule applies when a
shareholder sells or exchanges Class A shares of the Fund within 90 days of
purchase and subsequently acquires Class A shares of the Fund or another Family
Fund without paying a sales charge due to the 365-day reinstatement privilege or
the exchange privilege. In these cases, any gain on the sale or exchange of the
original Class A shares would be increased, or any loss would be decreased, by
the amount of the sales charge paid when those shares were bought, and that
amount would increase the basis in the Fund or Family Fund shares subsequently
acquired.

Wash Sales. All or a portion of any loss that you realize on the redemption of
your Fund shares is disallowed to the extent that you buy other shares in the
Fund (through reinvestment of dividends or otherwise) within 30 days before or
after your share redemption. Any loss disallowed under these rules is added to
your tax basis in the new shares.

U.S. Government Securities. The income earned on certain U.S. government
securities is exempt from state and local personal income taxes if earned
directly by you. States also grant tax-free status to mutual fund dividends paid
to you from interest earned on these securities, subject in some states to
minimum investment or reporting requirements that must be met by the. The income
on Fund investments in certain securities, such as repurchase agreements,
commercial paper and federal agency-backed obligations (e.g., Government
National Mortgage Association (GNMA) or Fannie Mae securities), generally does
not qualify for tax-free treatment. The rules on exclusion of this income are
different for corporations.

Qualified Dividend Income for Individuals. For individual shareholders, it is
anticipated that a portion of the income dividends paid by the Fund will be
qualified dividend income eligible for

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taxation at long-term capital gain rates. This reduced rate of taxation
generally is available for dividends paid by the Fund out of income earned on
its investment in:

o domestic corporations, and

o qualified foreign corporations, including:

- corporations incorporated in a possession of the U.S.,

- corporations eligible for income tax treaty benefits with the U.S.
under treaties determined by the Treasury Department to be qualified,
and

- corporations whose stock is traded on domestic securities exchange.

Treatment of income dividends as qualified dividend income is only available
with respect to income dividends designated by the Fund as qualifying for this
treatment. If 95% or more of the Fund's income is from qualified sources, it
will be allowed to designate 100% of the Fund's distributions as qualified
dividend income.

Dividends-Received Deduction for Corporations. For corporate shareholders, it is
anticipated that a portion of the dividends paid by the Fund will qualify for
the dividends-received deduction. You may be allowed to deduct these qualified
dividends, thereby reducing the tax that you would otherwise be required to pay.
The dividends-received deduction is available only with respect to dividends
designated by the Fund as qualifying for this treatment. Qualifying dividends
generally are limited to dividends of domestic corporations. All dividends
(including the deducted portion) are included in your calculation of alternative
minimum taxable income.

Investment in Complex Securities. The Fund may invest in complex securities that
could require it to adjust the amount, timing and/or tax character (ordinary or
capital) of gains and losses it recognizes on these investments. This, in turn,
could affect the amount, timing and/or tax character of income distributed to
you. For example:

Derivatives. With respect to the Funds' investment in certain options, futures,
forwards or foreign currency contracts, it could be required to mark-to-market
these contracts and realize any unrealized gains and losses at its fiscal year
end even though it continues to hold the contracts. Under these rules, gains or
losses on the contracts generally would be treated as 60% long-term and 40%
short-term gains or losses, but gains or losses on certain foreign currency
contracts would be treated as ordinary income or losses. In determining its net
income for excise tax purposes, the Fund also would be required to
mark-to-market these contracts annually as of October 31 (for capital gain net
income) and December 31 (for taxable ordinary income), and to realize and
distribute any resulting income and gains.

Constructive Sales. The Fund's entry into a short sale transaction or an option
or other contract could be treated as the "constructive sale" of an "appreciated
financial position," causing it to realize gain, but not loss, on the position.

Tax Straddles. The Fund's investment in options, futures, forwards, or foreign
currency contracts in connection with certain hedging transactions could cause
it to hold offsetting

-58-

positions in securities. If the Fund's risk of loss with respect to specific
securities in its portfolio is substantially diminished by the fact that it
holds other securities, the Fund could be deemed to have entered into a tax
"straddle" or to hold a "successor position" that would require any loss
realized by it to be deferred for tax purposes. Under proposed regulations
issued by the Internal Revenue Service, securities acquired as part of a
"hedging transaction" may not be treated as a capital asset, and any gain or
loss on the sale of these securities would be treated as ordinary income (rather
than capital gain) or loss. These regulations, if ultimately adopted and deemed
applicable to the Fund, could apply to any offsetting positions entered into by
the Fund to reduce its risk of loss.

Securities Purchased at Discount. The Fund may invest in securities issued or
purchased at a discount, such as zero coupon, step-up or payment-in-kind (PIK)
bonds, that could require it to accrue and distribute income not yet received.
If it invests in these securities, the Fund could be required to sell securities
in its portfolio that it otherwise might have continued to hold in order to
generate sufficient cash to make these distributions.

PERFORMANCE CALCULATIONS

From time to time, performance information, such as yield or total return, may
be quoted in advertisements or in communications to present or prospective
shareholders. Performance quotations represent the Fund's past performance and
should not be considered as representative of future results. The current yield
will be calculated by dividing the net investment income earned per share by the
Fund during the period stated in the advertisement (based on the average daily
number of shares entitled to receive dividends outstanding during the period) by
the maximum net asset value per share on the last day of the period and
annualizing the result on a semi-annual compounded basis. The Fund's total
return may be calculated on an annualized and aggregate basis for various
periods (which periods will be stated in the advertisement). Average annual
return reflects the average percentage change per year in value of an investment
in the Fund. Aggregate total return reflects the total percentage change over
the stated period.

To help investors better evaluate how an investment in the Fund might satisfy
their investment objectives, advertisements regarding the Fund may discuss yield
or total return as reported by various financial publications. Advertisements
may also compare yield or total return to other investments, indices and
averages. The following publications, benchmarks, indices and averages may be
used: Lipper Mutual Fund Performance Analysis; Lipper Fixed Income Analysis;
Lipper Mutual Fund Indices; Morgan Stanley Indices; Lehman Brothers Treasury
Index; Salomon Smith Barney Indices; Dow Jones Composite Average or its
component indices; Standard & Poor's 500 Stock Index or its component indices;
Wilshire Indices; The New York Stock Exchange composite or component indices;
CDA Mutual Fund Report; Weisenberger-Mutual Funds Panorama and Investment
Companies; Mutual Fund Values and Mutual Fund Service Book, published by
Morningstar, Inc.; comparable portfolios managed by the Advisor; and financial
publications, such as Business Week, Kiplinger's Personal Finance, Financial
World, Forbes, Fortune, Money Magazine, The Wall Street Journal, Barron's, et
al., which rate fund performance over various time periods.

The principal value of an investment in the Fund will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. Any fees charged by banks or

-59-

other institutional investors directly to their customer accounts in connection
with investments in shares of the Fund will not be included in the Fund's
calculations of yield or total return.

Performance information for the various classes of shares of the Fund will vary
due to the effect of expense ratios on the performance calculations.

FINANCIAL STATEMENTS AND REPORTS OF INDEPENDENT AUDITORS

Because the Fund is new, financial statements are not yet available for the
Fund.

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APPENDIX A

CORPORATE DEBT RATINGS

Moody's Investors Service, Inc. describes classifications
of corporate bonds as follows:

Aaa. Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as
"gilt-edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.

Aa. Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as high
grade. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.

A. Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.

Baa. Bonds which are rated Baa are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.

Ba. Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.

B. Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.

CAA. Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.

Ca. Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.

C. Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.

A-1

Note: Moody's also supplies numerical indicators 1, 2, and 3 to rating
categories. The modifier 1 indicates the security is in the higher end of its
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates a ranking toward the lower end of the category.

Standard & Poor's Ratings Group describes classifications of corporate bonds as
follows:

AAA. This is the highest rating assigned by Standard & Poor's Ratings Group to a
debt obligation and indicates an extremely strong capacity to pay principal and
interest.

AA. Bonds rated AA also qualify as high-quality debt obligations. Capacity to
pay principal and interest is very strong and in the majority of instances, they
differ from the AAA issues only in small degree.

A. Bonds rated A have a strong capacity to pay principal and interest, although
they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.

BBB. Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this category than for bonds in the A category.

BB. Debt rated BB has less near-term vulnerability to default than other
speculative grade debt. However, it faces major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could lend
to inadequate capacity to meet timely interest and principal payments.

B. Debt rated B has a greater vulnerability to default but presently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial or economic conditions would likely impair capacity or willingness to
pay interest and repay principal.

CCC. Debt rated CCC has a current identifiable vulnerability to default, and is
dependent upon favorable business, financial and economic conditions to meet
timely payments of interest and repayment of principal. In the event of adverse
business, financial or economic conditions, it is not likely to have the
capacity to pay interest or repay principal.

CC. The rating CC is typically applied to debt subordinated to senior debt which
is assigned an actual or implied CCC rating.

C. The rating C is typically applied to debt subordinated to senior debt which
is assigned an actual or implied CCC rating.

D. Debt rated D is in default, or is expected to default upon maturity or
payment date.

CI. The rating CI is reserved for income bonds on which no interest is being
paid.

Plus (+) or minus (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.

A-2

APPENDIX B

SECONDARY RISKS

Listed below are the secondary risks of investing in the Fund.

Counterparty Risk The risk that when the Fund engages in repurchase, reverse
repurchase, derivative, when-issued, forward commitment, delayed settlement,
securities lending and swap transactions with another party, it relies on the
other party to consummate the transaction and is subject to the risk of default
by the other party. Failure of the other party to complete the transaction may
cause the Fund to incur a loss or to miss an opportunity to obtain a price
believed to be advantageous.

Credit Risk The risk that the issuer of a security, or the counterparty to a
contract, will default or otherwise be unable to honor a financial obligation.
Debt securities rated below investment grade are especially susceptible to this
risk.

Derivative Risk The risk that downward price changes in a security may result in
a loss greater than the Fund's investment in the security. This risk exists
through the use of certain securities or techniques that tend to magnify changes
in an index or market.

High Yield Risk The risk that the issuer of bonds with ratings of BB (S&P) or Ba
(Moody's) or below will default or otherwise be unable to honor a financial
obligation. These securities are considered to be of poor standing and are
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligations and involve
major risk exposure. Bonds in this category may also be called "high yield
bonds" or "junk bonds."

Non-Public Securities Risk The risk that there may be a less liquid market for
unlisted securities than for publicly traded securities. The Fund, therefore,
may not be able to resell its investments. In addition, less disclosure is
required from non-public companies. Although unlisted securities may be resold
in private transactions, the prices realized from the sale may be less than what
the investing Fund considers the fair value of the securities.

Prepayment Risk The risk that issuers will prepay fixed rate obligations when
interest rates fall, forcing the Fund to reinvest in obligations with lower
interest rates than the original obligations.

B-1

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THE UBS FUNDS

PART C

OTHER INFORMATION

ITEM 22. EXHIBITS

(a) Articles of Incorporation.

(1) Certificate of Trust of the Registrant dated August 9, 1993, as
filed with the Office of the Secretary of State of the State of
Delaware on August 13, 1993, is incorporated herein by reference
to Post-Effective Amendment No. 21 to Registrant's Registration
Statement on Form N-1A (Nos. 33-47287 and 811-6637) as filed
electronically with the U.S. Securities and Exchange Commission
("SEC") on September 15, 1998.

(i) Amendment to Certificate of Trust dated February 15, 2002
changing the Trust's name to The UBS Funds, is incorporated
herein by reference to Post-Effective Amendment No. 39 to
Registrant's Registration Statement on Form N-1A (Nos.
33-47287 and 811-6637) as filed electronically with the SEC
on September 30, 2002.

(2) Agreement and Declaration of Trust (the "Declaration") dated August
19, 1993, as amended, of the Registrant is incorporated herein by
reference to Post-Effective Amendment No. 21 to Registrant's
Registration Statement on Form N-1A (Nos. 33-47287 and 811-6637) as
filed electronically with the SEC on September 15, 1998.

(i) Amendments to the Declaration:

(A) Amendment No. 1 to the Declaration, dated May 21, 2001
is incorporated herein by reference to Post-Effective
Amendment No. 34 to Registrant's Registration Statement
on Form N-1A (Nos. 33-47287 and 811-6637) as filed
electronically with the SEC on July 31, 2001.

(B) Amendment No. 2 to the Declaration dated July 29, 2002
to change the principal place of business of the Trust,
is incorporated herein by reference to Post-Effective
Amendment No. 39 to Registrant's Registration Statement
on Form N-1A (Nos. 33-47287 and 811-6637) as filed
electronically with the SEC on September 30, 2002.

(ii) Certificates of the Secretary/Assistant Secretary of the
Registrant to the Declaration re: applicable resolutions
pertaining to:

(A) Meeting held August 9, 1993 designating initial eight
(8) Series of shares (from The Brinson Funds, Inc.) is
incorporated herein by reference to Post-Effective
Amendment No. 21 to Registrant's Registration Statement
on Form N-1A (Nos. 33-47287 and 811-6637) as filed
electronically with the SEC on September 15, 1998.

(B) Meeting held November 8, 1993 creating Class B Shares
and redesignating Class A Shares is incorporated herein
by reference to Post-Effective Amendment No. 21 to
Registrant's Registration Statement on Form N-1A (Nos.
33-47287 and 811-6637) as filed electronically with the
SEC on September 15, 1998.

(C) Meeting held February 21, 1995 adding Class A and B
shares to the Brinson Short-Term Global Income Fund and
Brinson U.S. Cash Management Fund and adding Class C
shares for all Series is incorporated herein by
reference to Post-Effective Amendment No. 21 to
Registrant's Registration Statement on Form N-1A (Nos.
33-47287 and 811-6637) as filed electronically with the
SEC on September 15, 1998.

(D) Meeting held May 22, 1995 redesignating Class A shares
to Brinson Class shares and Class C shares to SwissKey
Class shares is incorporated herein by reference to
Post-Effective Amendment No. 21 to Registrant's
Registration Statement on Form N-1A (Nos. 33-47287 and
811-6637) as filed electronically with the SEC on
September 15, 1998.

(E) Unanimous written consent of Trustees executed on July
27, 1995 changing the names of Series and redesignating
the Brinson Class and SwissKey Class is incorporated
herein by reference to Post-Effective Amendment No. 21
to Registrant's Registration Statement on Form N-1A
(Nos. 33-47287 and 811-6637) as filed electronically
with the SEC on September 15, 1998.

(F) Meeting held November 20, 1995 eliminating Brinson
Short-Term Global Income Fund is incorporated herein by
reference to Post-Effective Amendment No. 21 to
Registrant's Registration Statement on Form N-1A (Nos.
33-47287 and 811-6637) as filed electronically with the
SEC on September 15, 1998.

(G) Meeting held August 26, 1996 eliminating U.S. Cash
Management Fund and Non-U.S. Bond Fund is incorporated
herein by reference to Post-Effective Amendment No. 21
to Registrant's Registration Statement on Form N-1A
(Nos. 33-47287 and 811-6637) as filed electronically
with the SEC on September 15, 1998.

(H) Meeting held May 19, 1997 redesignating Brinson Fund
Class as Brinson Fund -- Class I and adding Brinson
Fund -- Class N is incorporated herein by reference to
Post-Effective Amendment No. 21 to Registrant's
Registration Statement on Form N-1A (Nos. 33-47287 and
811-6637) as filed electronically with the SEC on
September 15, 1998.

(I) Meeting held November 24, 1997 adding U.S. Large
Capitalization Equity Fund and adding Brinson Fund --
Class I Shares, SwissKey Fund Class and Brinson Fund --
Class N Shares to such Series is incorporated herein by
reference to Post-Effective Amendment No. 21 to
Registrant's Registration Statement on Form N-1A (Nos.
33-47287 and 811-6637) as filed electronically with the
SEC on September 15, 1998.

(J) Meeting held August 24, 1998 approving redesignation of
the SwissKey Class to the UBS Investment Funds Class is
incorporated herein by reference to Post-Effective
Amendment No. 27 to Registrant's Registration Statement
on Form N-1A (Nos. 33-47287 and 811-6637) as filed
electronically with the SEC on May 3, 1999.

(K) Meeting held August 24, 1998 approving redesignation of
the Non-U.S. Equity Fund to the Global (ex-U.S.) Equity
Fund is incorporated herein by reference to
Post-Effective Amendment No. 27 to Registrant's
Registration Statement on Form N-1A (Nos. 33-47287 and
811-6637) as filed electronically with the SEC on May
3, 1999.

(L) Meeting held August 24, 1998 establishing and
designating the U.S. Large Capitalization Growth Fund,
U.S. Small Capitalization Fund, High Yield Bond Fund,
Emerging Markets Equity Fund and Emerging Markets Debt
Fund and adding Brinson Fund - Class I Shares, UBS
Investment Funds Class Shares and Brinson Fund - Class
N Shares to such Series is incorporated herein by
reference to Post-Effective Amendment No. 27 to
Registrant's Registration Statement on Form N-1A (Nos.
33-47287 and 811-6637) as filed electronically with the
SEC on May 3, 1999.

(M) Meeting held November 23, 1998 redesignating the High
Yield Bond Fund to the High Yield Fund and U.S. Small
Capitalization Fund as the U.S. Small Capitalization
Growth Fund is incorporated herein by reference to
Post-Effective Amendment No. 27 to Registrant's
Registration Statement on Form N-1A (Nos. 33-47287 and
811-6637) as filed electronically with the SEC on May
3, 1999.

(N) Meeting held February 28, 2000 establishing and
designating the Global Technology Fund, Global Biotech
Fund, U.S. Small Cap Equity Fund, U.S. Value Equity
Fund and U.S. Real Estate Equity Fund and adding
Brinson Fund -- Class I Shares, UBS Investment Funds
class of shares and Brinson Fund -- Class N Shares to
such Series is incorporated herein by reference to
Post-Effective Amendment No. 30 to Registrant's
Registration Statement on Form N-1A (Nos. 33-47287 and
811-6637) as filed electronically with the SEC on May
2, 2000.

(O) Meeting held February 28, 2000 redesignating the U.S.
Large Capitalization Equity Fund, U.S. Large
Capitalization Growth and U.S. Small Capitalization
Growth Fund as the U.S. Large Cap Equity Fund, U.S.
Large Cap Growth Fund and U.S. Small Cap Growth Fund,
respectively, is incorporated herein by reference to
Post-Effective Amendment No. 30 to Registrant's
Registration Statement on Form N- 1A (Nos. 33-47287 and
811-6637) as filed electronically with the SEC on May
2, 2000.

(P) Meeting held August 21, 2000 redesignating the Global
(Ex-U.S.) Equity Fund as the International Equity Fund
is incorporated herein by reference to Post-Effective
Amendment No. 33 to Registrant's Registration Statement
on Form N-1A (Nos. 33-47287 and 811-6637) as filed
electronically with the SEC on December 7, 2000.

(Q) Form of Certificate for Meeting held May 21, 2001
redesignating the Global Fund as the Global Balanced
Fund is incorporated herein by reference to
Post-Effective Amendment No. 34 to Registrant's
Registration Statement on Form N-1A (Nos. 33-47287 and
811-6637) as filed electronically with the SEC on July
31, 2001.

(R) Form of Certificate for Meeting held May 21, 2001
creating Brinson Fund-Class A Shares, Brinson
Fund-Class B Shares and Brinson Fund-Class C Shares of
each Series is incorporated herein by reference to
Post-Effective Amendment No. 34 to Registrant's
Registration Statement on Form N-1A (Nos. 33-47287 and
811-6637) as filed electronically with the SEC on July
31, 2001.

(S) Form of Certificate for Meeting held May 21, 2001
redesignating the Brinson Fund-Class I Shares as the
Brinson Fund-Class Y Shares of each Series is
incorporated herein by reference to Post-Effective
Amendment No. 34 to Registrant's Registration Statement
on Form N-1A (Nos. 33-47287 and 811-6637) as filed
electronically with the SEC on July 31, 2001.

(T) Form of Certificate for Meeting held May 21, 2001
abolishing the UBS Investment Funds Class and Brinson
Fund - Class N Shares of each Series is incorporated
herein by reference to Post-Effective Amendment No. 34
to Registrant's Registration Statement on Form N-1A
(Nos. 33-47287 and 811-6637) as filed electronically
with the SEC on July 31, 2001.

(U) Unanimous written consent of Trustees executed June 20,
2002 changing the name of UBS Global Balanced Fund to
UBS Global Allocation Fund is incorporated herein by
reference to Post-Effective Amendment No. 38 to
Registrant's Registration Statement on Form N-1A (Nos.
33-47287 and 811-6637) as filed electronically with the
SEC on July 19, 2002.

(V) Meeting held June 3, 2002 regarding the liquidation and
dissolution of UBS Global Technology Fund and UBS
Global Biotech Fund is incorporated herein by reference
to Post-Effective Amendment No. 39 to Registrant's
Registration Statement on Form N-1A (Nos. 33-47287 and
811-6637) as filed electronically with the SEC on
September 30, 2002.

(b) By-Laws.

(1) By-Laws of The UBS Funds (f/k/a The Brinson Funds) dated August
9, 1993, are incorporated herein by reference to Post-Effective
Amendment No. 17 to Registrant's Registration Statement on Form
N-1A (Nos. 33-47287 and 811-6637) as filed electronically with
the SEC on August 29, 1996.

(i) Amendment to the By-Laws dated April 25, 2002 is
incorporated herein by reference to Post-Effective Amendment
No. 37 to Registrant's Registration Statement on Form N-1A
(Nos. 33-47287 and 811-6637) as filed electronically with
the SEC on July 19, 2002.

(1) Form of Specimen Share Certificate of The UBS Funds is
incorporated herein by reference to Post-Effective Amendment No.
21 to Registrant's Registration Statement on Form N-1A (Nos.
33-47287 and 811-6637) as filed electronically with the SEC on
September 15, 1998.

(2) The rights of security holders of the Registrant are further
defined in the following sections of the Registrant's By-Laws and
Declaration and are herein incorporated by reference to such
documents as applicable:

(i) By-Laws.

Article II - "Voting," Section 7 and Section 10.

(ii) Declaration.

Article III - "Shares" and Article IV - "Shareholders'
Voting Powers and Meetings."

(d) Investment Advisory Contracts.

(1) Investment Advisory Agreement dated July 1, 2002 between UBS
Global Asset Management (Americas) Inc. (the "Advisor") and the
Registrant on behalf of the UBS Global Allocation Fund is
incorporated herein by reference to Post-Effective Amendment No.
39 to Registrant's Registration Statement on Form N-1A (Nos.
33-47287 and 811-6637) as filed electronically with the SEC on
September 30, 2002.

(2) Investment Advisory Agreement dated July 1, 2002 between the
Advisor and the Registrant on behalf of the UBS Global Bond Fund
is incorporated herein by reference to Post-Effective Amendment
No. 39 to Registrant's Registration Statement on Form N-1A (Nos.
33-47287 and 811-6637) as filed electronically with the SEC on
September 30, 2002.

(3) Investment Advisory Agreement dated April 25, 1995 between the
Advisor and the Registrant on behalf of the UBS International
Equity Fund (f/k/a Global (Ex-U.S.) Equity Fund and Brinson
Non-U.S. Equity Fund) is incorporated herein by reference to
Post-Effective Amendment No. 21 to Registrant's Registration
Statement on Form N-1A (Nos. 33-47287 and 811-6637) as filed
electronically with the SEC on September 15, 1998.

(i) Certificate of the Secretary and resolutions redesignating
the Global (Ex-U.S.) Equity Fund as the International Equity
Fund is incorporated herein by reference to Post-Effective
Amendment No. 33 to Registrant's Registration Statement on
Form N-1A (Nos. 33-47287 and 811-6637) as filed
electronically with the SEC on December 7, 2000.

(4) Investment Advisory Agreement dated July 1, 2002, as amended and
restated on July 1, 2003, between the Advisor and the Registrant
on behalf of the UBS Global Equity Fund is incorporated herein by
reference to Post-Effective Amendment No. 40 to Registrant's
Registration Statement on Form N-1A (Nos. 33-47287 and 811-6637)
as filed electronically with the SEC on October 28, 2003.

(5) Investment Advisory Agreement dated July 1, 2002 between the
Advisor and the Registrant on behalf of the UBS U.S. Equity Fund
is incorporated herein by reference to Post-Effective Amendment
No. 39 to Registrant's Registration Statement on Form N-1A (Nos.
33-47287 and 811-6637) as filed electronically with the SEC on
September 30, 2002.

(6) Investment Advisory Agreement dated July 1, 2002 between the
Advisor and the Registrant on behalf of the UBS U.S. Allocation
Fund (f/k/a UBS U.S. Balanced Fund) is incorporated herein by
reference to Post-Effective Amendment No. 39 to Registrant's
Registration Statement on Form N-1A (Nos. 33-47287 and 811-6637)
as filed electronically with the SEC on September 30, 2002.

(7) Investment Advisory Agreement dated July 1, 2002 between the
Advisor and the Registrant on behalf of the UBS U.S. Bond Fund is
incorporated herein by reference to Post-Effective Amendment No.
39 to Registrant's Registration Statement on Form N-1A (Nos.
33-47287 and 811-6637) as filed electronically with the SEC on
September 30, 2002.

(8) Investment Advisory Agreement dated July 1, 2002 between the
Advisor and the Registrant on behalf of the UBS U.S. Large Cap
Growth Fund is incorporated herein by reference to Post-Effective
Amendment No. 39 to Registrant's Registration Statement on Form
N-1A (Nos. 33-47287 and 811-6637) as filed electronically with
the SEC on September 30, 2002.

(9) Investment Advisory Agreement dated July 1, 2002 between the
Advisor and the Registrant on behalf of the UBS U.S. Small Cap
Growth Fund is incorporated herein by reference to Post-Effective
Amendment No. 39 to Registrant's Registration Statement on Form
N-1A (Nos. 33-47287 and 811-6637) as filed electronically with
the SEC on September 30, 2002.

(10) Investment Advisory Agreement dated July 1, 2002 between the
Advisor and the Registrant on behalf of the UBS High Yield Fund
is incorporated herein by reference to Post-Effective Amendment
No. 39 to Registrant's Registration Statement on Form N-1A (Nos.
33-47287 and 811-6637) as filed electronically with the SEC on
September 30, 2002.

(11) Investment Advisory Agreement dated December 10, 1998 between the
Advisor and the Registrant on behalf of the UBS Emerging Markets
Equity Fund is incorporated herein by reference to Post-Effective
Amendment No. 25 to Registrant's Registration Statement on Form
N-1A (Nos. 33-47287 and 811-6637) as filed electronically with
the SEC on March 1, 1999.

(i) Form of Certificate of the Secretary and resolutions
restating the Investment Advisory Agreement of the UBS
Emerging Markets Equity Fund is incorporated herein by
reference to Post-Effective Amendment No. 34 to Registrant's
Registration Statement on Form N-1A (Nos. 33-47287 and
811-6637) as filed electronically with the SEC on July 31,
2001.

(12) Investment Advisory Agreement dated December 10, 1998 between the
Advisor and the Registrant on behalf of the UBS Emerging Markets
Debt Fund is incorporated herein by reference to Post-Effective
Amendment No. 25 to Registrant's Registration Statement on Form
N-1A (Nos. 33-47287 and 811-6637) as filed electronically with
the SEC on March l, 1999.

(i) Form of Certificate of the Secretary and resolutions
restating the Investment Advisory Agreement of the UBS
Emerging Markets Debt Fund is incorporated herein by
reference to Post-Effective Amendment No. 34 to Registrant's
Registration Statement on Form N-1A (Nos. 33-47287 and
811-6637) as filed electronically with the SEC on July 31,
2001.

(13) Investment Advisory Agreement dated May 23, 2000 between the
Advisor and the Registrant on behalf of the UBS U.S. Small Cap
Equity Fund is incorporated herein by reference to Post-Effective
Amendment No. 31 to Registrant's Registration Statement on Form
N-1A (Nos. 33-47287 and 811-6637) as filed electronically with
the SEC on August 29, 2000.

(i) Form of Certificate of the Secretary and resolutions
restating the Investment Advisory Agreement of the UBS U.S.
Small Cap Equity Fund is incorporated herein by reference to
Post-Effective Amendment No. 34 to Registrant's Registration
Statement on Form N-1A (Nos. 33-47287 and 811-6637) as filed
electronically with the SEC on July 31, 2001.

(14) Investment Advisory Agreement dated July l, 2002 between the
Advisor and the Registrant on behalf of the UBS U.S. Value Equity
Fund is incorporated herein by reference to Post-Effective
Amendment No. 39 to Registrant's Registration Statement on Form
N-1A (Nos. 33-47287 and 811-6637) as filed electronically with
the SEC September 30, 2002.

(15) Investment Advisory Agreement dated December 7, 2000 between the
Advisor and the Registrant on behalf of the UBS U.S. Real Estate
Equity Fund is incorporated herein by reference to Post-Effective
Amendment No. 34 to Registrant's Registration Statement on Form
N-1A (Nos. 33-47287 and 811-6637) as filed electronically with
the SEC on July 31, 2001.

(i) Form of Certificate of the Secretary and resolutions
restating the Investment Advisory Agreement of the UBS U.S.
Real Estate Equity Fund is incorporated herein by reference
to Post-Effective Amendment No. 34 to Registrant's
Registration Statement on Form N-1A (Nos. 33-47287 and
811-6637) as filed electronically with the SEC on July 31,
2001.

(16) Form of Investment Advisory Agreement between the Advisor and the
Registrant on behalf of the UBS Dynamic Alpha Strategy Fund is
electronically filed herewith as Exhibit No. EX-99.d.16.

(e) Underwriting Contracts.

(1) Principal Underwriting Contract, dated November 5, 2001, between
UBS Global Asset Management (US) Inc. (f/k/a Brinson Advisors,
Inc.) and the Registrant is incorporated herein by reference to
Post-Effective Amendment No. 37 to Registrant's Registration
Statement on Form N-1A (Nos. 33-47287 and 811-6637) as filed
electronically with the SEC on July 19, 2002.

(f) Bonus or Profit Sharing Contracts.

Not Applicable.

(g) Custodian Agreements.

(1) Custodial arrangements are provided under the Multiple Services
Agreement dated May 9, 1997, as amended, between Morgan Stanley
Trust Company and succeeded by JPMorgan Chase Bank (f/k/a The
Chase Manhattan Bank), and the Registrant on behalf of each
series of the Registrant is incorporated herein by reference to
Post-Effective Amendment No. 25 to Registrant's Registration
Statement on Form N-1A (Nos. 33-47287 and 811-6637) as filed
electronically with the SEC on March 1, 1999.

(i) Amendment dated May 9, 2000 relating to Fee Obligation and
Continuation of the Registrant's Multiple Services Agreement
is incorporated herein by reference to Post-Effective
Amendment No. 31 to Registrant's Registration Statement on
Form N-1A (Nos. 33-47287 and 811-6637) as filed
electronically with the SEC on August 29, 2000.

(ii) Amended Attachment A, as amended through August 19, 2003, to
the Registrant's Multiple Services Agreement is incorporated
herein by reference to Post-Effective Amendment No. 40 to
Registrant's Registration Statement on Form N-1A (Nos.
33-47287 and 811-6637) as filed electronically with the SEC
on October 28, 2003.

(iii)Revised Schedule B3, as approved through August 19, 2003 to
the Registrant's Multiple Services Agreement is incorporated
herein by reference to Post-Effective Amendment No. 40 to
Registrant's Registration Statement on Form N-1A (Nos.
33-47287 and 811-6637) as filed electronically with the SEC
on October 28, 2003.

(iv) Amended Schedule B1 and Schedule F, as amended through April
28, 2000, to the Registrant's Multiple Services Agreement is
incorporated herein by reference to Post-Effective Amendment
No. 31 to Registrant's Registration Statement on Form N-1A
(Nos. 33-47287 and 811-6637) as filed electronically with
the SEC on August 29, 2000.

(v) Amendment, dated May 21, 2001 relating to the Appointment of
Brinson Advisors, Inc. to serve as administrator to the
Trust is incorporated herein by reference to Post-Effective
Amendment No. 39 to Registrant's Registration Statement on
Form N-1A (Nos. 33-47287 and 811-6637) as filed
electronically with the SEC on September 30, 2002.

(h) Other Material Contracts.

(1) Administration Contract, dated May 21, 2001, as revised June 3,
2002, between UBS Global Asset Management (US) Inc. (f/k/a
Brinson Advisors Inc.) and the Registrant is incorporated herein
by reference to Post-Effective Amendment No. 37 to Registrant's
Registration Statement on Form N-1A (Nos. 33-47287 and 811-6637)
as filed electronically with the SEC on July 19, 2002.

(2) Transfer Agency and Related Services Agreement, dated August 20,
2001, between PFPC Inc. and the Registrant is incorporated herein
by reference to Post-Effective Amendment No. 37 to Registrant's
Registration Statement on Form N-1A (Nos. 33-47287 and 811-6637)
as filed electronically with the SEC on July 19, 2002.

(i) Amendment to Exhibit B to the Transfer Agency and Related
Services Agreement, approved August 19, 2003, between PFPC
Inc. and the Registrant is incorporated herein by reference
to Post-Effective Amendment No. 40 to Registrant's
Registration Statement on Form N-1A (Nos. 33-47287 and
811-6637) as filed electronically with the SEC on October
28, 2003.

(i) Legal Opinion.

(1) Legal Opinion of Stradley, Ronon, Stevens & Young, LLP, is
incorporated herein by reference to Post-Effective Amendment No.
39 to Registrant's Registration Statement on Form N-1A (Nos.
3347287 and 811-6637) as filed electronically with the SEC on
September 30, 2002.

(j) Other Opinions.

(1) Powers of Attorney appointing Amy R. Doberman, David M.
Goldenberg, Bruce G. Leto, Mark A. Sheehan and Jana L. Cresswell
as attorneys-in-fact and agents to Brian M. Storms, Frank K.
Reilly, Walter E. Auch, Edward M. Roob, Joseph Varnas and Paul H.
Schubert is incorporated herein by reference to Post-Effective
Amendment No. 40 to Registrant's Registration Statement on Form
N-1A (Nos. 3347287 and 811-6637) as filed electronically with the
SEC on October 28, 2003.

(2) Power of Attorney appointing Amy R. Doberman, David M.
Goldenberg, Bruce G. Leto, Mark A. Sheehan and Jana L. Cresswell
as attorneys-in-fact and agents to Adela Cepeda is electronically
filed herewith as Exhibit No. EX-99.j.2.

(3) Power of Attorney appointing Amy R. Doberman, David M.
Goldenberg, Bruce G. Leto, Mark A. Sheehan and Jana L. Cresswell
as attorneys-in-fact and agents to J. Mikesell Thomas is
electronically filed herewith as Exhibit No. EX-99.j.3.

(4) Power of Attorney appointing Mark F. Kemper, Keith A. Weller,
Todd Lebo, Natalie Bej, Bruce G. Leto, Mark A. Sheehan and Jana
L. Cresswell as attorneys-in-fact and agents to Joseph T. Malone
is electronically filed herewith as Exhibit No. EX-99.j.4.

(k) Omitted Financial Statements.

Not Applicable.

(l) Initial Capital Agreements.

(1) Letter of Understanding Relating to Initial Capital, dated July
1, 1992, is incorporated herein by reference to Post-Effective
Amendment No. 21 to Registrant's Registration Statement on Form
N-1A (Nos. 33-47287 and 811-6637) as filed electronically with
the SEC on September 15, 1998.

(m) Rule 12b-1 Plan.

(1) Shareholder Services Plan dated October 29, 2001, as revised
April 8, 2002, relating to Class A shares (f/k/a Brinson Fund
Class A shares) of each series of the Registrant is incorporated
herein by reference to Post-Effective Amendment No. 37 to
Registrant's Registration Statement on Form N-1A (Nos. 33-47287
and 811-6637) as filed electronically with the SEC on July 19,
2002.

(2) Rule 12b-1 Plan dated October 29, 2001, as revised April 8, 2002,
relating to the Class B shares (f/k/a/ Brinson Fund Class B
shares) of each series of the Registrant is incorporated herein
by reference to Post-Effective Amendment No. 37 to Registrant's
Registration Statement on Form N-1A (Nos. 33-47287 and 811-6637)
as filed electronically with the SEC on July 19, 2002.

(3) Rule 12b-1 Plan dated October 29, 2001, as revised April 8, 2002,
relating to the Class C shares (f/k/a Brinson Fund Class C
shares) of each series of the Registrant is incorporated herein
by reference to Post-Effective Amendment No. 37 to Registrant's
Registration Statement on Form N-1A (Nos. 33-47287 and 811-6637)
as filed electronically with the SEC on July 19, 2002.

(n) Rule 18f-3 Plan.

(1) Amended and Restated Multiple Class Plan pursuant to Rule 18f-3,
effective as of September 30, 2003, on behalf of each series of
the Registrant is incorporated herein by reference to
Post-Effective Amendment No. 40 to Registrant's Registration
Statement on Form N-1A (Nos. 33-47287 and 811-6637) as filed
electronically with the SEC on October 28, 2003.

(p) Codes of Ethics.

(1) Joint Code of Ethics of Registrant, the investment adviser, the
sub-adviser and the principal underwriter of the Registrant, is
incorporated herein by reference to Post-Effective Amendment No.
40 to Registrant's Registration Statement on Form N-1A (Nos.
33-47287 and 811-6637) as filed electronically with the SEC on
October 28, 2003.

ITEM 23. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE REGISTRANT

None.

ITEM 24. INDEMNIFICATION

Under the terms of the Delaware Statutory Trust Act ("DSTA") and the
Registrant's Agreement and Declaration of Trust, as amended, ("Declaration of
Trust"), no officer or trustee of the Registrant shall have any liability to the
Registrant, its shareholders, or any other party for damages, except to the
extent such limitation of liability is precluded by Delaware law, the
Declaration of Trust or the By-Laws of the Registrant.

Subject to the standards and restrictions set forth in the Declaration of Trust,
DSTA, Section 3817, permits a statutory trust to indemnify and hold harmless any
trustee, beneficial owner or other person from and against any and all claims
and demands whatsoever. DSTA, Section 3803 protects trustees, officers, managers
and other employees, when acting in such capacity, from liability to any person
other than the Registrant or beneficial owner for any act, omission or
obligation of the Registrant or any trustee thereof, except as otherwise
provided in the Declaration of Trust.

Indemnification of the Trustees and officers of the Registrant is provided for
in Article VII, Sections 2 through 4 of the Registrant's Declaration of Trust
dated August 9, 1993, as amended, as follows:

Section 2. Indemnification and Limitation of Liability. The Trustees shall
not be responsible or liable in any event for any neglect or wrong-doing of
any officer, agent, employee, Manager or Principal Underwriter of the
Trust, nor shall any Trustee be responsible for the act or omission of any
other Trustee, and, subject to the provisions of the Bylaws, the Trust out
of its assets may indemnify and hold harmless each and every Trustee and
officer of the Trust from and against any and all claims, demands, costs,
losses, expenses, and damages whatsoever arising out of or related to such
Trustee's performance of his or her duties as a Trustee or officer of the
Trust; provided that nothing herein contained shall indemnify, hold
harmless or protect any Trustee or officer from or against any liability to
the Trust or any Shareholder to which he or she would otherwise be subject
by reason of wilful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his or her office.

Every note, bond, contract, instrument, certificate or undertaking and
every other act or thing whatsoever issued, executed or done by or on
behalf of the Trust or the Trustees or any of them in connection with the
Trust shall be conclusively deemed to have been issued, executed or done
only in or with respect to their or his or her capacity as Trustees or
Trustee, and such Trustees or Trustee shall not be personally liable
thereon.

Section 3. Trustee's Good Faith Action, Expert Advice, No Bond or Surety.
The exercise by the Trustees of their powers hereunder shall be binding
upon everyone interested in or dealing with the Trust. A Trustee shall be
liable to the Trust and to any Shareholder solely for his or her own
willful misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of the office of Trustee and shall not
be liable for errors of judgment or mistakes of fact or law. The Trustees
may take advice of counsel or other experts with respect to the meaning and
operation of this Declaration of Trust and shall be under no liability for
any act or omission in accordance with such advice nor for failing to
follow such advice. The Trustees shall not be required to give any bond as
such, nor any surety if a bond is required.

Section 4. Insurance. The Trustees shall be entitled and empowered to the
fullest extent permitted by law to purchase with Trust assets insurance for
liability and for all expenses, reasonably incurred or paid or expected to
be paid by a Trustee or officer in connection with any claim, action, suit
or proceeding in which he or she becomes involved by virtue of his or her
capacity or former capacity with the Trust, whether or not the Trust would
have the power to indemnify him or her against such liability under the
provisions of this Article.

Indemnification of Registrant's advisors, custodian, transfer agent, accounting
services provider, administrator and distributor against certain stated
liabilities is provided for in the following documents:

(a) Each Series' investment advisory agreement between the Registrant, on
behalf of the series, and UBS Global Asset Management (Americas) Inc.,
all of which are incorporated herein by reference, as follows:

(1) Section 6 of the Investment Advisory Agreement on behalf of the
UBS International Equity Fund, dated April 25, 1995, as amended;

(2) Section 7 of the Investment Advisory Agreement on behalf of the
UBS U.S. Bond Fund, dated July 1, 2002;

(3) Section 7 of the Investment Advisory Agreement on behalf of the
UBS High Yield Fund, dated July 1, 2002;

(4) Section 7 of the Investment Advisory Agreement on behalf of the
UBS U.S. Allocation Fund, dated July 1, 2002;

(5) Section 7 of the Investment Advisory Agreement on behalf of the
UBS U.S. Equity Fund, dated July 1, 2002;

(6) Section 7 of the Investment Advisory Agreement on behalf of the
UBS U.S. Value Equity Fund, dated July 1, 2002;

(7) Section 7 of the Investment Advisory Agreement on behalf of the
UBS U.S. Large Cap Growth Fund, dated July 1, 2002;

(8) Section 7 of the Investment Advisory Agreement on behalf of the
UBS U.S. Small Cap Equity Fund, dated May 23, 2000, as amended;

(9) Section 7 of the Investment Advisory Agreement on behalf of the
UBS U.S. Small Cap Growth Fund, dated July 1, 2002;

(10) Section 7 of the Investment Advisory Agreement on behalf of the
UBS U.S. Real Estate Equity Fund, dated December 7, 2000, as
amended;

(11) Section 7 of the Investment Advisory Agreement on behalf of the
UBS Global Allocation Fund, dated July 1, 2002;

(12) Section 7 of the Investment Advisory Agreement on behalf of the
UBS Global Bond Fund, dated July 1, 2002;

(13) Section 7 of the Investment Advisory Agreement on behalf of the
UBS Global Equity Fund, dated July 1, 2002, as amended and
restated July 1, 2003;

(14) Section 6 of the Investment Advisory Agreement on behalf of the
UBS Emerging Markets Debt Fund, dated December 10, 1998, as
amended; and

(15) Section 6 of the Investment Advisory Agreement on behalf of the
UBS Emerging Markets Equity Fund, dated December 10, 1998, as
amended.

(16) Section 7 of the Form of Investment Advisory Agreement on behalf
of the Dynamic Alpha Strategy Fund Fund.

(b) Sections I.8(a), I.8(c)(iii), I.10, II.A.2, II.B.5, II.C.6, III.1.,
III.2.(b) through III.2.(e), III.4.(e) and III.9.(b) of the Multiple
Services Agreement dated May 9, 1997, as amended, between Morgan
Stanley Trust Company, as succeeded by JPMorgan Chase Bank (formerly
known as The Chase Manhattan Bank) and the Registrant, on behalf of
its series, which is incorporated herein by reference.

(c) Section 9(a) of the Principal Underwriting Contract between UBS Global
Asset Management (US) Inc. (formerly known as Brinson Advisors, Inc.)
and the Registrant on behalf of each series dated November 5, 2001,
which is incorporated herein by reference.

(d) Section 12 of the Transfer Agency and Related Services Agreement
between PFPC Inc. and the Registrant on behalf of each series dated
August 20, 2001, which is incorporated herein by reference.

(e) Sections 8 and 9 of the Administration Contract between UBS Global
Asset Management (US) Inc. (formerly known as Brinson Advisors, Inc.)
and the Registrant on behalf of each series dated May 21, 2001, as
revised on June 3, 2002, which is incorporated herein by reference.

ITEM 25. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT MANAGER

UBS Global Asset Management (Americas) Inc. provides investment advisory
services consisting of portfolio management for a variety of individuals and
institutions and as of June 30, 2003 had approximately $36.6 billion in assets
under management. It presently provides investment advisory services to three
other investment companies.

For information as to any other business, vocation or employment of a
substantial nature in which the Registrant's investment advisor and each officer
of the Registrant's investment advisor is or has been engaged for his or her own
account or in the capacity of director, officer, employee, partner or trustee,
within the last two fiscal years, see UBS Global Asset Management (Americas)
Inc.'s Form ADV (File #801-34910) filed under the Investment Advisers Act of
1940, as amended, which is incorporated herein by reference.

UBS Global Asset Management (New York) Inc. presently provides investment
sub-advisory services to some of the series of the Registrant. For information
as to any other business, profession, vocation or employment of a substantial
nature in which the series' investment sub-advisor, UBS Global Asset Management
(New York) Inc., and each director or officer of the series' investment
sub-advisor is or has been engaged for his or her own account or in the capacity
of director, officer, employee, partner or trustee within the last two fiscal
years, see UBS Global Asset Management (New York) Inc.'s Form ADV (File
#801-8957) filed under the Investment Advisers Act of 1940, as amended, which is
incorporated herein by reference.

ITEM 26. PRINCIPAL UNDERWRITER

(a) UBS Global Asset Management (US) Inc. serves as principal underwriter
and/or investment advisor, sub-advisor or manager for the following other
investment companies:

UBS Financial Sector Fund Inc.
UBS Index Trust
UBS Investment Trust
UBS Master Series, Inc.
UBS Money Series
UBS Securities Trust
UBS Series Trust
Global High Income Dollar Fund Inc.
Insured Municipal Income Fund Inc.
Investment Grade Municipal Income Fund Inc.
Liquid Institutional Reserves
Managed High Yield Plus Fund Inc.
UBS Pace Select Advisors Trust
Strategic Global Income Fund, Inc.
The UBS Funds
UBS Cashfund Inc.
UBS Managed Municipal Trust
UBS Municipal Money Market Series
UBS RMA Money Fund Inc.
UBS RMA Tax-Free Fund Inc.

(b) UBS Global Asset Management (US) Inc. is the Registrant's principal
underwriter. The directors and officers of UBS Global Asset Management (US)
Inc., their principal business addresses and their positions and offices
with UBS Global Asset Management (US) Inc. are identified in its Form ADV
filed with the SEC (registration number 801-13219) and such information is
incorporated herein by reference. The information set forth below is
furnished for those directors and officers of UBS Global Asset Management
(US) Inc. who also serve as directors or officers of the Registrant.

Positions and Offices with Positions and Offices with
Name and Business Address* Underwriter the Registrant

Joseph Varnas Managing Director, Chief President
Technology Officer and Head of
Product, Technology and
Operations

W. Douglas Beck Executive Director Vice President

Joseph T. Malone Director and Senior Manager of Treasurer and Principal
the Mutual Fund Finance Accounting Officer
Department

Thomas Disbrow Director and Senior Manager of Assistant Treasurer
the Mutual Fund Finance
Department

* The business address for all of the following persons, unless otherwise
indicated, is 51 West 52nd Street, New York, New York 10019-6114.

ITEM 27. LOCATION OF ACCOUNTS AND RECORDS

All accounts, books and other documents required to be maintained by Section
31(a) [15 U.S.C. 80a-3-(a)] and rules under that section, are maintained by
JPMorgan Chase Bank ("JPMorgan Chase"), 270 Park Avenue, New York, New York
10017 with the exception of those maintained by the Registrant's investment
advisor, UBS Global Asset Management (Americas) Inc., One North Wacker Drive,
Chicago, IL, 60606 and sub-advisor, UBS Global Asset Management (New York) Inc.,
51 West 52nd Street New York, New York 10019-6114.

JPMorgan Chase provides general sub-administrative, accounting, portfolio
valuation, and custodian services to the Registrant, including the coordination
and monitoring of any third-party service providers and maintains all such
records relating to these services.

ITEM 28. MANAGEMENT SERVICES

There are no management related service contracts not discussed in Part A or
Part B.

ITEM 29. UNDERTAKINGS

Not Applicable.

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended (the
"Securities Act") and the Investment Company Act of 1940, as amended, the
Registrant has duly caused Post-Effective Amendment No. 41/42 to this
registration statement to be signed on its behalf by the undersigned, duly
authorized, in the City of New York, and the State of New York on the 30th day
of July, 2004.

THE UBS FUNDS

By:/s/Joe Varnas
-------------------------------
Joe Varnas*
President

Pursuant to the requirements of the Securities Act, this Registration Statement
has been signed below by the following persons in the capacities and on the
dates indicated:

Signature Title Date
--------- ----- ----

/s/Frank K. Reilly Chairman and July 30, 2004
--------------------------- Trustee
Frank K. Reilly*

/s/Walter E. Auch Trustee July 30, 2004
---------------------------
Walter E. Auch*

/s/Edward M. Roob Trustee July 30, 2004
---------------------------
Edward M. Roob*

/s/Adela Cepeda Trustee July 30, 2004
---------------------------
Adela Cepeda*

/s/J. Mikesell Thomas Trustee July 30, 2004
---------------------------
J. Mikesell Thomas*

/s/Joseph T. Malone Treasurer and Principal July 30, 2004
--------------------------- Accounting Officer
Joseph T. Malone*

* By: /s/Jana L. Cresswell
--------------------------------------------
Jana L. Cresswell, Attorney-in-Fact
(Pursuant to Power of Attorney, filed herewith)

EXHIBITS INDEX

EXHIBITS EXHIBIT NO.

Form of Investment Advisory Agreement between the Registrant
and UBS Global Asset Management (Americas) Inc., on behalf
of UBS Dynamic Alpha Strategy Fund EX-99.d.16

Power of Attorney for Adela Cepeda EX-99.j.2

Power of Attorney for J. Mikesell Thomas EX-99.j.3

Power of Attorney for Joseph T. Malone EX-99.j.4