-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VHa7CyTbA9JTYTI+A/OMRQhkmFHOV07JuqvMQH2E93XdB0HR9MBxr8zwi9mOwA6y HUVO3O77xZERlI7pDE+PzA== 0000912057-02-027936.txt : 20020719 0000912057-02-027936.hdr.sgml : 20020719 20020719153827 ACCESSION NUMBER: 0000912057-02-027936 CONFORMED SUBMISSION TYPE: 485APOS PUBLIC DOCUMENT COUNT: 20 FILED AS OF DATE: 20020719 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UBS FUNDS CENTRAL INDEX KEY: 0000886244 IRS NUMBER: 367056204 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 485APOS SEC ACT: 1933 Act SEC FILE NUMBER: 033-47287 FILM NUMBER: 02706638 BUSINESS ADDRESS: STREET 1: 209 S LASALLE ST CITY: CHICAGO STATE: IL ZIP: 60604-1795 BUSINESS PHONE: 8001482430 MAIL ADDRESS: STREET 1: 209 S LASALLE ST CITY: CHICAGO STATE: IL ZIP: 60604-1795 FORMER COMPANY: FORMER CONFORMED NAME: BRINSON FUNDS INC DATE OF NAME CHANGE: 19920929 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UBS FUNDS CENTRAL INDEX KEY: 0000886244 IRS NUMBER: 367056204 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 485APOS SEC ACT: 1940 Act SEC FILE NUMBER: 811-06637 FILM NUMBER: 02706639 BUSINESS ADDRESS: STREET 1: 209 S LASALLE ST CITY: CHICAGO STATE: IL ZIP: 60604-1795 BUSINESS PHONE: 8001482430 MAIL ADDRESS: STREET 1: 209 S LASALLE ST CITY: CHICAGO STATE: IL ZIP: 60604-1795 FORMER COMPANY: FORMER CONFORMED NAME: BRINSON FUNDS INC DATE OF NAME CHANGE: 19920929 485APOS 1 a2084554z485apos.txt 485APOS UNITED STATES FILE NO. 33-47287 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FILE NO. 811-6637 FORM N-1A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Pre-Effective Amendment No. | | ------ Post Effective Amendment No. 37 |X| ------ REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 | | Amendment No. 38 |X| ------ THE UBS FUNDS ===================================== (Exact name of Registrant as Specified in Charter) 209 South LaSalle Street Chicago, Illinois 60604-1295 - ----------------- ---------- (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number, including Area Code 312-220-7100 ------------ 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) COPIES TO: Bruce G. Leto, Esq. Stradley, Ronon, Stevens & Young, LLP 2600 One Commerce Square Philadelphia, PA 19103-7098 APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: AS SOON AS PRACTICAL AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT. IT IS PROPOSED THAT THIS FILING BECOME EFFECTIVE: | | IMMEDIATELY UPON FILING PURSUANT TO PARAGRAPH (b) | | ON _____ __, ____ PURSUANT TO PARAGRAPH (b) | | 60 DAYS AFTER FILING PURSUANT TO PARAGRAPH (a)(1) |X| ON September 16, 2002 PURSUANT TO PARAGRAPH (a) (1) | | 75 DAYS AFTER FILING PURSUANT TO PARAGRAPH (a)(2) | | ON _____ __, ____ 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. ================================================================================ [Logo--Three keys design for UBS Global Asset Management] The UBS Funds UBS U.S. Bond Fund UBS High Yield Fund UBS U.S. Balanced Fund UBS U.S. Equity Fund UBS U.S. Value Equity Fund UBS U.S. Large Cap 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 -------------------- PROSPECTUS SEPTEMBER , 2002 ---------------------------------- This prospectus offers Class A, Class B, Class C and Class Y shares in the fourteen Funds listed above. 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 any Fund's shares or determined whether this prospectus is complete or accurate. To state otherwise is a crime. Not FDIC Insured. May lose value. No bank guarantee. - -------------------------------------------------------------------------------- ------------------------ The UBS Funds CONTENTS THE UBS FUNDS - -------------------------------------------------------------------------------- What every investor UBS U.S. Bond Fund should know about 4 Investment Objective, Strategies and Risks the Funds 5 Performance 7 Expenses and Fee Tables UBS High Yield Fund 8 Investment Objective, Strategies and Risks 9 Performance 11 Expenses and Fee Tables UBS U.S. Balanced Fund 12 Investment Objective, Strategies and Risks 13 Performance 15 Expenses and Fee Tables UBS U.S. Equity Fund 16 Investment Objective, Strategies and Risks 17 Performance 19 Expenses and Fee Tables UBS U.S. Value Equity Fund 20 Investment Objective, Strategies and Risks 21 Performance 22 Expenses and Fee Tables UBS U.S. Large Cap Equity Fund 24 Investment Objective, Strategies and Risks 25 Performance 27 Expenses and Fee Tables UBS U.S. Large Cap Growth Fund 29 Investment Objective, Strategies and Risks 30 Performance 32 Expenses and Fee Tables UBS U.S. Small Cap Equity Fund 33 Investment Objective, Strategies and Risks 34 Performance 35 Expenses and Fee Tables UBS U.S. Small Cap Growth Fund 37 Investment Objective, Strategies and Risks 38 Performance 40 Expenses and Fee Tables UBS U.S. Real Estate Equity Fund 41 Investment Objective, Strategies and Risks 42 Performance 43 Expenses and Fee Tables UBS Global Allocation Fund 44 Investment Objective, Strategies and Risks 45 Performance 47 Expenses and Fee Tables UBS Global Equity Fund 49 Investment Objective, Strategies and Risks 50 Performance 52 Expenses and Fee Tables
- -------------------------------------------------------------------------------- Prospectus Page 2 - -------------------------------------------------------------------------------- ------------------------ The UBS Funds UBS Global Bond Fund 54 Investment Objective, Strategies and Risks 55 Performance 57 Expenses and Fee Tables UBS International Equity Fund 58 Investment Objective, Strategies and Risks 59 Performance 60 Expenses and Fee Tables 61 Securities Selection Process
YOUR INVESTMENT - -------------------------------------------------------------------------------- Information for 65 Managing Your Fund Account managing your Fund --Flexible Pricing account --Buying Shares --Selling Shares --Exchanging Shares --Pricing and Valuation
ADDITIONAL INFORMATION - -------------------------------------------------------------------------------- Additional important 72 Management information about 74 Dividends and Taxes the Funds 75 Supplemental Performance Information 76 Financial Highlights
- -------------------------------------------------------------------------------- Where to learn more Back Cover about the Funds
The Funds are not a complete or balanced investment program. - -------------------------------------------------------------------------------- Prospectus Page 3 - -------------------------------------------------------------------------------- ------------------------ UBS U.S. Bond Fund UBS U.S. BOND FUND INVESTMENT OBJECTIVE, STRATEGIES AND RISKS - -------------------------------------------------------------------------------- FUND OBJECTIVE The Fund seeks to maximize total return, consisting of capital appreciation and current income. PRINCIPAL INVESTMENT STRATEGIES Under normal circumstances, the Fund invests at least 80% of its net assets in U.S. fixed income securities. Investments in fixed income securities may include debt securities of the U.S. government, its agencies and instrumentalities, debt securities of U.S. corporations, mortgage-backed securities and asset-backed securities. The Fund generally invests in investment-grade fixed income securities. Investment-grade fixed income securities possess a minimum rating of BBB by Standard & Poor's Ratings Group ("S&P") or Baa by Moody's Investors Services, Inc. ("Moody's") or, if unrated, are determined to be of comparable quality by UBS Global Asset Management (Americas) Inc., the Funds' investment advisor (the "Advisor"). 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. - - PREPAYMENT RISK -- The risk that issuers will prepay fixed rate obligations when interest rates fall, forcing the Fund to re-invest in obligations with lower interest rates than the original obligations. - - MARKET RISK -- The risk that the market value of a 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. Further discussion of the Fund's strategies is included in the section entitled "Securities Selection Process." - -------------------------------------------------------------------------------- Prospectus Page 4 - -------------------------------------------------------------------------------- ------------------------ UBS U.S. Bond Fund PERFORMANCE - -------------------------------------------------------------------------------- RISK/RETURN BAR CHART AND TABLE The following bar chart reflects performance information for the Class Y shares of the Fund, and the table reflects performance information for the Class Y and Class A shares of the Fund. Performance information for Class B and Class C Shares is not included because they have not completed one full year of operations. The bar chart and table give an indication of the Fund's risks and performance. The bar chart shows you how the Fund's performance has varied from year to year. The table compares the Fund's performance over time to that of a broad measure of market performance. WHEN YOU CONSIDER THIS INFORMATION, PLEASE REMEMBER THAT THE FUND'S PAST PERFORMANCE IS NOT NECESSARILY AN INDICATION OF HOW IT WILL PERFORM IN THE FUTURE. TOTAL RETURN OF CLASS Y SHARES (1996 IS THE FUND'S FIRST FULL CALENDAR YEAR OF OPERATION) EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
CALENDAR YEAR TOTAL RETURN 1996 3.53% 1997 9.64% 1998 8.37% 1999 -1.04% 2000 10.82% 2001
Total Return January 1 to June 30, 2002: % Best quarter during calendar years shown: : % Worst quarter during calendar years shown: : % AVERAGE ANNUAL TOTAL RETURNS as of December 31, 2001
CLASS Y SHARES (INCEPTION DATE: 8/31/95) 1 YEAR 5 YEAR LIFE OF CLASS - ------------------------- ------ ------ ------------- Return Before Taxes.................................... Return After Taxes on Distributions.................... Return After Taxes on Distributions and Sale of Fund Shares................................................. CLASS A SHARES* (INCEPTION DATE: 6/30/97) - ------------------------- N/A Return Before Taxes Lehman U.S. Aggregate Index (1)(2)..................... **
- --------- * The average annual total returns for the Class A shares have been calculated to reflect the Class A shares' current maximum front-end sales charge of 4.50%. - -------------------------------------------------------------------------------- Prospectus Page 5 - -------------------------------------------------------------------------------- ------------------------ UBS U.S. Bond Fund ** Performance since . (1) The Lehman U.S. Aggregate Index is an unmanaged index of investment grade fixed-rate debt issues, including corporate, government, mortgage-backed and asset-backed securities with maturities of at least one year. (2) As of April 1, 2002, the Fund's benchmark index was changed to the Lehman U.S. Aggregate Index from the Salomon BIG Index because the Lehman U.S. Aggregate Index is a more appropriate broad based index for the Fund. The returns for the Salomon BIG Index for the periods indicated were % for the one year period, % for the five year period, and % and % for the Class Y and Class A life of class periods, respectively. After-tax returns are calculated using the historical highest individual marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and are not relevant to investors who hold Fund shares in tax-deferred arrangements, such as 401(k) plans. After-tax returns for other classes will vary. - -------------------------------------------------------------------------------- Prospectus Page 6 - -------------------------------------------------------------------------------- ------------------------ UBS U.S. Bond Fund EXPENSES AND FEE TABLES - -------------------------------------------------------------------------------- FEES AND EXPENSES These tables describe the fees and expenses that you may pay if you buy 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)................................ 4.50% 5.00% 1.75% None Maximum Front-End Sales Charge (Load) Imposed on Purchases (as a % of offering price)................................ 4.50% None 1.00% None Maximum Contingent Deferred Sales Charge (Load) (CDSC) (as a % of offering price)................................ None 5.00% 0.75% None Exchange Fee................................................ None None None None
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets)*
CLASS A CLASS B CLASS C CLASS Y -------- -------- -------- -------- Management Fees............................................. 0.50% 0.50% 0.50% 0.50% Distribution and/or Service (12b-1) Fees.................... 0.25% 1.00% 0.75% None Other Expenses**............................................ ---- ---- ---- ---- Total Annual Fund Operating Expenses........................ ==== ==== ==== ==== Management Fee Waiver/Expense Reimbursements................ ---- ---- ---- ---- Net Expenses***............................................. 0.85% 1.60% 1.35% 0.60% ==== ==== ==== ====
- --------- * The operating expenses shown are based on expenses incurred during the Fund's most recent fiscal year ending June 30, 2002. ** 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, 2003, otherwise would exceed the "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. Prior to July 1, 2002, the Fund was subject to permanent expense caps for its classes of shares at identical rates. 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..................................................... Class B (assuming sale of all shares at end of period)...... Class B (assuming no sale of shares)........................ Class C (assuming sale of all shares at end of period)...... Class C (assuming no sale of shares)........................ Class Y.....................................................
- -------------------------------------------------------------------------------- Prospectus Page 7 - -------------------------------------------------------------------------------- ------------------------ UBS High Yield Fund UBS HIGH YIELD FUND INVESTMENT OBJECTIVE, STRATEGIES AND RISKS - -------------------------------------------------------------------------------- FUND OBJECTIVE The Fund seeks to provide high current income, as well as capital growth when consistent with high current income. PRINCIPAL INVESTMENT STRATEGIES The Fund invests in a portfolio of higher yielding, lower rated debt securities issued by foreign and domestic companies. Under normal conditions, at least 80% of the Fund's net assets are invested in fixed income securities that provide higher yields and are lower-rated. Lower-rated bonds are bonds rated in the lower rating categories of Moody's and S&P, including securities rated Ba or lower by Moody's or BB or lower by S&P. Securities rated in these categories are considered to be of poorer quality and predominantly speculative. Bonds in these categories may also be called "high yield bonds" or "junk bonds." The Fund will invest in securities that UBS Global Asset Management (New York) Inc. the Fund's sub-advisor (the "Sub-Advisor"), expects will appreciate in value as a result of declines in long-term interest rates or favorable developments affecting the business or prospects of the issuer which may improve the issuer's financial condition and credit rating. Up to 25% of the Fund's total assets may be invested in foreign securities, which may include securities of issuers in emerging markets. 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 predominantly speculative with respect to the 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 RISK -- The risk that issuers will prepay fixed rate obligations when interest rates fall, forcing the Fund to re-invest in obligations with lower interest rates than the original obligations. - - MARKET RISK -- The risk that the market value of a 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. - - FOREIGN INVESTING AND EMERGING MARKETS RISK -- The risk that prices of a 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. Further discussion of the Fund's strategies is included in the section entitled "Securities Selection Process." - -------------------------------------------------------------------------------- Prospectus Page 8 - -------------------------------------------------------------------------------- ------------------------ UBS High Yield Fund PERFORMANCE - -------------------------------------------------------------------------------- RISK/RETURN BAR CHART AND TABLE The following bar chart reflects performance information for the Class Y shares of the Fund, and the table reflects performance information for the Class Y and Class A shares of the Fund. Performance information for Class B and Class C Shares is not included because they have not completed one full year of operations. The bar chart and table give an indication of the Fund's risks and performance. The bar chart shows you how the Fund's performance has varied from year to year. The table compares the Fund's performance over time to that of a broad measure of market performance. WHEN YOU CONSIDER THIS INFORMATION, PLEASE REMEMBER THAT THE FUND'S PAST PERFORMANCE IS NOT NECESSARILY AN INDICATION OF HOW IT WILL PERFORM IN THE FUTURE. TOTAL RETURN OF CLASS Y SHARES (1998 IS THE FUND'S FIRST FULL CALENDAR YEAR OF OPERATION) EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
CALENDAR YEAR TOTAL RETURN 1998 7.75% 1999 4.85% 2000 -5.18% 2001
Total Return January 1 to June 30, 2002: % Best quarter during calendar years shown: : % Worst quarter during calendar years shown: : % AVERAGE ANNUAL TOTAL RETURNS as of December 31, 2001
CLASS Y SHARES (INCEPTION DATE: 9/30/97) 1 YEAR LIFE OF CLASS - ------------------------- -------------- -------------- Return Before Taxes....................................... Return After Taxes on Distributions....................... Return After Taxes on Distributions and Sale of Fund Shares.................................................... CLASS A SHARES* (INCEPTION DATE: 12/31/98) - -------------------------- Return Before Taxes Merrill Lynch High Yield Cash Pay Index (1)............... **
- --------- * The average annual total returns for the Class A shares have been calculated to reflect the Class A shares' current maximum front-end sales charge of 4.50%. - -------------------------------------------------------------------------------- Prospectus Page 9 - -------------------------------------------------------------------------------- ------------------------ UBS High Yield Fund ** Performance since . (1) The Merrill Lynch High Yield Cash Pay Index is an index of publicly placed non-convertible, coupon-bearing U.S. domestic debt with a term to maturity of at least one year. After-tax returns are calculated using the historical highest individual marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and are not relevant to investors who hold Fund shares in tax-deferred arrangements, such as 401(k) plans. After-tax returns for other classes will vary. - -------------------------------------------------------------------------------- Prospectus Page 10 - -------------------------------------------------------------------------------- ------------------------ UBS High Yield Fund EXPENSES AND FEE TABLES - -------------------------------------------------------------------------------- FEES AND EXPENSES These tables describe the fees and expenses that you may pay if you buy 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)................................ 4.50% 5.00% 1.75% None Maximum Front-End Sales Charge (Load) Imposed on Purchases (as a % of offering price)................................ 4.50% None 1.00% None Maximum Contingent Deferred Sales Charge (Load) (CDSC) (as a % of offering price)................................ None 5.00% 0.75% None Exchange Fee................................................ None None None None
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets)*
CLASS A CLASS B CLASS C CLASS Y -------- -------- -------- -------- Management Fees............................................. 0.60% 0.60% 0.60% 0.60% Distribution and/or Service (12b-1) Fees.................... 0.25% 1.00% 0.75% None Other Expenses**............................................ % % % % ---- ---- ---- ---- Total Annual Fund Operating Expenses........................ % % % % ==== ==== ==== ==== Management Fee Waiver/Expense Reimbursements................ % % % % ---- ---- ---- ---- Net Expenses***............................................. 0.95% 1.70% 1.45% 0.70% ==== ==== ==== ====
- --------- * The operating expenses shown are based on expenses incurred during the Fund's most recent fiscal year ending June 30, 2002. ** Includes an administrative fee of 0.075% paid by the Fund to 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, 2003, otherwise would exceed the "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. Prior to July 1, 2002, the Fund was subject to permanent expense caps for its classes of shares at identical rates. 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..................................................... Class B (assuming sale of all shares at end of period)...... Class B (assuming no sale of shares)........................ Class C (assuming sale of all shares at end of period)...... Class C (assuming no sale of shares)........................ Class Y.....................................................
- -------------------------------------------------------------------------------- Prospectus Page 11 - -------------------------------------------------------------------------------- ------------------------ UBS U.S. Balanced Fund UBS U.S. BALANCED FUND INVESTMENT OBJECTIVE, STRATEGIES AND RISKS - -------------------------------------------------------------------------------- FUND OBJECTIVE The Fund seeks to maximize total return, consisting of capital appreciation and current income. PRINCIPAL INVESTMENT STRATEGIES Under normal circumstances, the Fund invests at least 80% of its net assets in U.S. securities. The Fund will also invest, under normal circumstances, at least 25% of its net assets in fixed income securities and 25% of its net assets in equity securities. Investments in fixed income securities may include debt securities of the U.S. government, its agencies and instrumentalities, debt securities of U.S. corporations, mortgage-backed securities and asset-backed securities. To select equity securities for the Fund, the Advisor focuses on identifying discrepancies between a security's fundamental value (what, in the Advisor's assessment, the stock is worth) and its observed market price. These value estimates are then compared to current market prices and ranked against the other stocks in the valuation universe. Investments in equity securities may include common stock and preferred stock. 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. - - PREPAYMENT RISK -- The risk that issuers will prepay fixed rate obligations when interest rates fall, forcing the Fund to re-invest in obligations with lower interest rates than the original obligations. - - MARKET RISK -- The risk that the market value of a 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. - - 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. Further discussion of the Fund's strategies is included in the section entitled "Securities Selection Process." - -------------------------------------------------------------------------------- Prospectus Page 12 - -------------------------------------------------------------------------------- ------------------------ UBS U.S. Balanced Fund PERFORMANCE - -------------------------------------------------------------------------------- RISK/RETURN BAR CHART AND TABLE The following bar chart reflects performance information for the Class Y shares of the Fund, and the table reflects performance information for the Class Y and Class A shares of the Fund. Performance information for Class B and Class C Shares is not included because they have not completed one full year of operations. The bar chart and table give an indication of the Fund's risks and performance. The bar chart shows you how the Fund's performance has varied from year to year. The table compares the Fund's performance over time to that of a broad measure of market performance. WHEN YOU CONSIDER THIS INFORMATION, PLEASE REMEMBER THAT THE FUND'S PAST PERFORMANCE IS NOT NECESSARILY AN INDICATION OF HOW IT WILL PERFORM IN THE FUTURE. TOTAL RETURN OF CLASS Y SHARES (1995 IS THE FUND'S FIRST FULL CALENDAR YEAR OF OPERATION) EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
CALENDAR YEAR TOTAL RETURN 1995 25.48% 1996 11.32% 1997 13.22% 1998 9.92% 1999 -6.95% 2000 12.49% 2001
Total Return January 1 to June 30, 2002: % Best quarter during calendar years shown: : % Worst quarter during calendar years shown: : % AVERAGE ANNUAL TOTAL RETURNS as of December 31, 2001
CLASS Y SHARES (INCEPTION DATE: 12/31/94) 1 YEAR 5 YEAR LIFE OF CLASS - -------------------------- -------- -------- ------------- Return Before Taxes Return After Taxes on Distributions Return After Taxes on Distributions and Sale of Fund Shares CLASS A SHARES* (INCEPTION DATE: 6/30/97) - ------------------------- N/A Return Before Taxes U.S. Balanced Mutual Fund Index (1) ** Wilshire 5000 Equity Index (2) ** Lehman U.S. Aggregate Index (3)(4) **
- --------- * The average annual total returns for the Class A shares have been calculated to reflect the Class A shares' current maximum front-end sales charge of 5.50%. - -------------------------------------------------------------------------------- Prospectus Page 13 - -------------------------------------------------------------------------------- ------------------------ UBS U.S. Balanced Fund ** Performance since . (1) The U.S. Balanced Mutual Fund Index is the benchmark for the U.S. Balanced Fund, and is an unmanaged index compiled by the Advisor and represents a fixed composite of 65% Wilshire 5000 Equity Index and 35% Lehman U.S. Aggregate Index. (2) The Wilshire 5000 Equity Index is a broad-based, market capitalization weighted index that includes all U.S. common stocks. It is designed to provide a representative indication of the capitalization and return for the U.S. equity market. (3) The Lehman U.S. Aggregate Index is an unmanaged index of investment grade fixed-rate debt issues, including corporate, government, mortgage-backed and asset-backed securities with maturities of at least one year. (4) As of April 1, 2002, the fixed-income component of the Fund's benchmark index was changed to the Lehman U.S. Aggregate Index from the Salomon BIG Index because the Lehman U.S. Aggregate Index is a more appropriate broad based index for the Fund. The returns for the Salomon BIG Index for the periods indicated were % for the one year period, % for the five year period, and % and % for the Class Y and Class A life of class periods, respectively. After-tax returns are calculated using the historical highest individual marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and are not relevant to investors who hold Fund shares in tax-deferred arrangements, such as 401(k) plans. After-tax returns for other classes will vary. - -------------------------------------------------------------------------------- Prospectus Page 14 - -------------------------------------------------------------------------------- ------------------------ UBS U.S. Balanced Fund EXPENSES AND FEE TABLES - -------------------------------------------------------------------------------- FEES AND EXPENSES These tables describe the fees and expenses that you may pay if you buy 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% 2.00% None Maximum Front-End Sales Charge (Load) Imposed on Purchases (as a % of offering price)................................ 5.50% None 1.00% 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
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets)*
CLASS A CLASS B CLASS C CLASS Y -------- -------- -------- -------- Management Fees............................................. 0.70% 0.70% 0.70% 0.70% Distribution and/or Service (12b-1) Fees.................... 0.25% 1.00% 1.00% None Other Expenses**............................................ % % % % ---- ---- ---- ---- Total Annual Fund Operating Expenses........................ % % % % ==== ==== ==== ==== Management Fee Waiver/Expense Reimbursements................ % % % % ---- ---- ---- ---- Net Expenses***............................................. 1.05% 1.80% 1.80% 0.80% ==== ==== ==== ====
- --------- * The operating expenses shown are based on expenses incurred during the Fund's most recent fiscal year ending June 30, 2002. ** Includes an administrative fee of 0.075% paid by the Fund to 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, 2003, otherwise would exceed the "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. Prior to July 1, 2002, the Fund was subject to permanent expense caps for its classes of shares at identical rates. 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..................................................... Class B (assuming sale of all shares at end of period)...... Class B (assuming no sale of shares)........................ Class C (assuming sale of all shares at end of period)...... Class C (assuming no sale of shares)........................ Class Y.....................................................
- -------------------------------------------------------------------------------- Prospectus Page 15 - -------------------------------------------------------------------------------- ------------------------ UBS U.S. Equity Fund UBS U.S. EQUITY FUND INVESTMENT OBJECTIVE, STRATEGIES AND RISKS - -------------------------------------------------------------------------------- FUND OBJECTIVE The Fund seeks to maximize total return, consisting of capital appreciation and current income. PRINCIPAL INVESTMENT STRATEGIES Under normal circumstances, the Fund invests at least 80% of its net assets in U.S. equity securities. Investments in equity securities may include dividend- paying securities, common stock and preferred stock. In general, the Fund emphasizes large capitalization stocks, but also may hold small and intermediate capitalization stocks. To select securities for the Fund, the Advisor focuses on identifying discrepancies between a security's fundamental value (what, in the Advisor's assessment, the stock is worth) and its observed market price. These value estimates are then compared to current market prices and ranked against the other stocks in the valuation universe. 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: - - MARKET RISK -- The risk that the market value of a 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 COMPANY RISK -- The risk that investments in smaller companies may be more volatile than investments in larger companies, as smaller companies generally experience higher growth and failure rates. The trading volume of smaller company 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 the securities of smaller companies 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. Further discussion of the Fund's strategies is included in the section entitled "Securities Selection Process." - -------------------------------------------------------------------------------- Prospectus Page 16 - -------------------------------------------------------------------------------- ------------------------ UBS U.S. Equity Fund PERFORMANCE - -------------------------------------------------------------------------------- RISK/RETURN BAR CHART AND TABLE The following bar chart reflects performance information for the Class Y shares of the Fund, and the table reflects performance information for the Class Y and Class A shares of the Fund. Performance information for Class B and Class C Shares is not included because they have not completed one full year of operations. The bar chart and table give an indication of the Fund's risks and performance. The bar chart shows you how the Fund's performance has varied from year to year. The table compares the Fund's performance over time to that of a broad measure of market performance. WHEN YOU CONSIDER THIS INFORMATION, PLEASE REMEMBER THAT THE FUND'S PAST PERFORMANCE IS NOT NECESSARILY AN INDICATION OF HOW IT WILL PERFORM IN THE FUTURE. TOTAL RETURN OF CLASS Y SHARES (1995 IS THE FUND'S FIRST FULL CALENDAR YEAR OF OPERATION) EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
CALENDAR YEAR TOTAL RETURN 1995 40.58% 1996 25.65% 1997 24.76% 1998 18.57% 1999 -4.05% 2000 3.23% 2001
Total Return January 1 to June 30, 2002: % Best quarter during calendar years shown: : % Worst quarter during calendar years shown: : % AVERAGE ANNUAL TOTAL RETURNS as of December 31, 2001
CLASS Y SHARES (INCEPTION DATE: 2/28/94) 1 YEAR 5 YEAR LIFE OF CLASS - ------------------------- ------ ------ ------------- Return Before Taxes......................................... Return After Taxes on Distributions......................... Return After Taxes on Distributions and Sale of Fund Shares...................................................... CLASS A* SHARES (INCEPTION DATE: 6/30/97) - ------------------------- N/A ** Return Before Taxes Wilshire 5000 Equity Index (1).............................. **
- --------- * The average annual total returns for the Class A shares have been calculated to reflect the Class A shares' current maximum front-end sales charge of 5.50%. - -------------------------------------------------------------------------------- Prospectus Page 17 - -------------------------------------------------------------------------------- ------------------------ UBS U.S. Equity Fund ** Performance since . (1) The Wilshire 5000 Equity Index is a broad-based, market capitalization weighted index that includes all U.S. common stocks. It is designed to provide a representative indication of the capitalization and return for the U.S. equity market. After-tax returns are calculated using the historical highest individual marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and are not relevant to investors who hold Fund shares in tax-deferred arrangements, such as 401(k) plans. After-tax returns for other classes will vary. - -------------------------------------------------------------------------------- Prospectus Page 18 - -------------------------------------------------------------------------------- ------------------------ UBS U.S. Equity Fund EXPENSES AND FEE TABLES - -------------------------------------------------------------------------------- FEES AND EXPENSES These tables describe the fees and expenses that you may pay if you buy 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% 2.00% None Maximum Front-End Sales Charge (Load) Imposed on Purchases (as a % of offering price)................................ 5.50% None 1.00% 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
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets)*
CLASS A CLASS B CLASS C CLASS Y -------- -------- -------- -------- Management Fees............................................. 0.70% 0.70% 0.70% 0.70% Distribution and/or Service (12b-1) Fees.................... 0.25% 1.00% 1.00% None Other Expenses**............................................ % % % % ---- ---- ---- ---- Total Annual Fund Operating Expenses........................ % % % % ==== ==== ==== ==== Management Fee Waiver/Expense Reimbursements................ % % % % ---- ---- ---- ---- Net Expenses***............................................. 1.05% 1.80% 1.80% 0.80% ==== ==== ==== ====
- --------- * The operating expenses shown are based on expenses incurred during the Fund's most recent fiscal year ending June 30, 2002. ** Includes an administrative fee of 0.075% paid by the Fund to 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, 2003, otherwise would exceed the "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. Prior to July 1, 2002, the Fund was subject to permanent expense caps for its classes of shares at identical rates. 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................................................... Class B (assuming sale of all shares at end of period).... Class B (assuming no sale of shares)...................... Class C (assuming sale of all shares at end of period).... Class C (assuming no sale of shares)...................... Class Y...................................................
- -------------------------------------------------------------------------------- Prospectus Page 19 - -------------------------------------------------------------------------------- ------------------------ UBS U.S. Value Equity Fund UBS U.S. VALUE EQUITY FUND INVESTMENT OBJECTIVE, STRATEGIES AND RISKS - -------------------------------------------------------------------------------- FUND OBJECTIVE The Fund seeks to maximize total return, consisting of capital appreciation and current income. PRINCIPAL INVESTMENT STRATEGIES Under normal circumstances, the Fund invests at least 80% of its net assets in U.S. equity securities. Investments in equity securities may include dividend- paying securities, common stock and preferred stock. The Fund normally invests in companies whose stock prices, in the Advisor's opinion, do not reflect the company's full value. These expectations are based on the Advisor's assessment of a company's ability to generate profit and to grow the business in the future. The Advisor analyzes industry competitive strategy, structure and global integration. The Advisor's on-site company visits examine the characteristics of each company (i.e., balance sheet fundamentals, culture, productivity, pricing, etc.), and the Advisor determines which companies offer attractive valuation. PRINCIPAL RISK An investment in the Fund is not guaranteed; you may lose money by investing in the Fund. The principal risk presented by an investment in the Fund are: - - MARKET RISK -- The risk that the market value of a 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. Further discussion of the Fund's strategies is included in the section entitled "Securities Selection Process." - -------------------------------------------------------------------------------- Prospectus Page 20 - -------------------------------------------------------------------------------- ------------------------ UBS U.S. Value Equity Fund PERFORMANCE - -------------------------------------------------------------------------------- There is no performance information quoted for the Fund as the Fund did not commence investment operations until June 29, 2001 and therefore, does not have a full calendar year of performance information. - -------------------------------------------------------------------------------- Prospectus Page 21 - -------------------------------------------------------------------------------- ------------------------ UBS U.S. Value Equity Fund EXPENSES AND FEE TABLES - -------------------------------------------------------------------------------- FEES AND EXPENSES These tables describe the fees and expenses that you may pay if you buy 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% 2.00% None Maximum Front-End Sales Charge (Load) Imposed on Purchases (as a % of offering price)................................ 5.50% None 1.00% 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
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets)*
CLASS A CLASS B CLASS C CLASS Y -------- -------- -------- -------- Management Fees............................................. 0.70% 0.70% 0.70% 0.70% Distribution and/or Service (12b-1) Fees.................... 0.25% 1.00% 1.00% None Other Expenses**............................................ % % % % ---- ---- ---- ---- Total Annual Fund Operating Expenses........................ % % % % ==== ==== ==== ==== Management Fee Waiver/Expense Reimbursements................ % % % % ---- ---- ---- ---- Net Expenses***............................................. 1.10% 1.85% 1.85% 0.85% ==== ==== ==== ====
- --------- * The operating expenses shown are based on expenses incurred during the Fund's most recent fiscal year ending June 30, 2002. ** Includes an administrative fee of 0.075% paid by the Fund to 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 its fiscal year ending June 30, 2003, otherwise would exceed the "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. Prior to July 1, 2002, the Fund was subject to expense caps for its classes of shares at identical rates for the one-year period from September 1, 2001 through September 1, 2002. 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. - -------------------------------------------------------------------------------- Prospectus Page 22 - -------------------------------------------------------------------------------- ------------------------ UBS U.S. Value Equity Fund 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..................................................... Class B (assuming sale of all shares at end of period)...... Class B (assuming no sale of shares)........................ Class C (assuming sale of all shares at end of period)...... Class C (assuming no sale of shares)........................ Class Y.....................................................
- -------------------------------------------------------------------------------- Prospectus Page 23 - -------------------------------------------------------------------------------- ------------------------ UBS U.S. Large Cap Equity Fund UBS U.S. LARGE CAP EQUITY FUND INVESTMENT OBJECTIVE, STRATEGIES AND RISKS - -------------------------------------------------------------------------------- FUND OBJECTIVE The Fund seeks to maximize total return, consisting of capital appreciation and current income. PRINCIPAL INVESTMENT STRATEGIES Under normal circumstances, the Fund invests at least 80% of its net assets in U.S. equity securities. Investments in equity securities may include dividend- paying securities, common stock and preferred stock. Under normal circumstances, the Fund invests at least 80% of its net assets in equity securities of U.S. large capitalization companies. Large capitalization companies are those with a market capitalization of $6 billion or greater at the time of purchase. Investments in equity securities may include common stock and preferred stock. To select securities for the Fund, the Advisor focuses on identifying discrepancies between a security's fundamental value (what, in the Advisor's assessment, the stock is worth) and its observed market price. These value estimates are then compared to current market prices and ranked against the other stocks in the valuation universe. PRINCIPAL RISK An investment in the Fund is not guaranteed; you may lose money by investing in the Fund. The principal risk presented by an investment in the Fund is: - - MARKET RISK -- The risk that the market value of a 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. Further discussion of the Fund's strategies is included in the section entitled "Securities Selection Process." - -------------------------------------------------------------------------------- Prospectus Page 24 - -------------------------------------------------------------------------------- ------------------------ UBS U.S. Large Cap Equity Fund PERFORMANCE - -------------------------------------------------------------------------------- RISK/RETURN BAR CHART AND TABLE The following bar chart reflects performance information for the Class Y shares of the Fund, and the table reflects performance information for the Class Y and Class A shares of the Fund. Performance information for Class B and Class C Shares is not included because they have not completed one full year of operations. The bar chart and table give an indication of the Fund's risks and performance. The bar chart shows you how the Fund's performance has varied from year to year. The table compares the Fund's performance over time to that of a broad measure of market performance. WHEN YOU CONSIDER THIS INFORMATION, PLEASE REMEMBER THAT THE FUND'S PAST PERFORMANCE IS NOT NECESSARILY AN INDICATION OF HOW IT WILL PERFORM IN THE FUTURE. TOTAL RETURN OF CLASS Y SHARES (1999 IS THE FUND'S FIRST FULL CALENDAR YEAR OF OPERATION) EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
CALENDAR YEAR TOTAL RETURN 1999 -11.05% 2000 2.18% 2001
Total Return January 1 to June 30, 2002: % Best quarter during calendar years shown: : % Worst quarter during calendar years shown: : % AVERAGE ANNUAL TOTAL RETURNS as of December 31, 2001
CLASS Y SHARES (INCEPTION DATE: 4/30/98) 1 YEAR LIFE OF CLASS - ------------------------- ------ ------------- Return Before Taxes......................................... Return After Taxes on Distributions......................... Return After Taxes on Distributions and Sale of Fund Shares...................................................... CLASS A SHARES* (INCEPTION DATE: 4/30/98) - ------------------------- Return Before Taxes S&P 500 Index (1)........................................... **
- --------- * The average annual total returns for the Class A shares have been calculated to reflect the Class A shares' current maximum front-end sales charge of 5.50%. - -------------------------------------------------------------------------------- Prospectus Page 25 - -------------------------------------------------------------------------------- ------------------------ UBS U.S. Large Cap Equity Fund ** Performance since . (1) The S&P 500 Index is a broad capitalization market-weighted index that includes common stocks of the leading companies in the top industries in the U.S. It is designed to provide a representative indication of the capitalization and return of the large cap U.S. equity market. After-tax returns are calculated using the historical highest individual marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and are not relevant to investors who hold Fund shares in tax-deferred arrangements, such as 401(k) plans. After-tax returns for other classes will vary. - -------------------------------------------------------------------------------- Prospectus Page 26 - -------------------------------------------------------------------------------- ------------------------ UBS U.S. Large Cap Equity Fund EXPENSES AND FEE TABLES - -------------------------------------------------------------------------------- FEES AND EXPENSES These tables describe the fees and expenses that you may pay if you buy 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% 2.00% None Maximum Front-End Sales Charge (Load) Imposed on Purchases (as a % of offering price)................................ 5.50% None 1.00% 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
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets)*
CLASS A CLASS B CLASS C CLASS Y -------- -------- -------- -------- Management Fees............................................. 0.70% 0.70% 0.70% 0.70% Distribution and/or Service (12b-1) Fees.................... 0.25% 1.00% 1.00% None Other Expenses**............................................ % % % % ---- ---- ---- ---- Total Annual Fund Operating Expenses........................ % % % % ==== ==== ==== ==== Management Fee Waiver/Expense Reimbursements................ % % % % ---- ---- ---- ---- Net Expenses***............................................. 1.05% 1.80% 1.80% 0.80% ==== ==== ==== ====
- --------- * The operating expenses shown are based on expenses incurred during the Fund's most recent fiscal year ending June 30, 2002. ** Includes an administrative fee of 0.075% paid by the Fund to 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, 2003, otherwise would exceed the "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. Prior to July 1, 2002, the Fund was subject to permanent expense caps for its classes of shares at identical rates. 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. - -------------------------------------------------------------------------------- Prospectus Page 27 - -------------------------------------------------------------------------------- ------------------------ UBS U.S. Large Cap Equity Fund 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..................................................... Class B (assuming sale of all shares at end of period)...... Class B (assuming no sale of shares)........................ Class C (assuming sale of all shares at end of period)...... Class C (assuming no sale of shares)........................ Class Y.....................................................
- -------------------------------------------------------------------------------- Prospectus Page 28 - -------------------------------------------------------------------------------- ------------------------ UBS U.S. Large Cap Growth Fund UBS U.S. LARGE CAP GROWTH FUND INVESTMENT OBJECTIVE, STRATEGIES AND RISKS - -------------------------------------------------------------------------------- FUND OBJECTIVE The Fund seeks to provide long-term capital appreciation. PRINCIPAL INVESTMENT STRATEGIES Under normal circumstances, the Fund invests at least 80% of its net assets in equity securities of U.S. large capitalization companies. Large capitalization companies are those with a market capitalization of $6 billion or greater at the time of purchase. Up to 20% of the Fund's net assets may be invested in foreign securities. Investments in equity securities may include common stock and preferred stock. The Fund invests in companies that the Sub-Advisor believes possess a dominant market position and franchise, a major technical edge or a unique competitive advantage that, in the Sub-Advisor's opinion, should enable these companies to generate above average sales and profit growth. The Sub-Advisor expects that these companies can sustain an above-average return on invested capital at a higher level and over a longer period of time than is reflected in current market prices. The Fund is a non-diversified fund. 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: - - MARKET RISK -- The risk that the market value of a 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. - - FOREIGN INVESTING RISK -- The risk that prices of a 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. - - NON-DIVERSIFICATION RISK -- The risk that a non-diversified Fund will be more volatile than a diversified Fund because it invests its assets in a smaller number of issuers. The gains or losses on a single security may, therefore, have a greater impact on a non-diversified Fund's net asset value. Further discussion of the Fund's strategies is included in the section entitled "Securities Selection Process." - -------------------------------------------------------------------------------- Prospectus Page 29 - -------------------------------------------------------------------------------- ------------------------ UBS U.S. Large Cap Growth Fund PERFORMANCE - -------------------------------------------------------------------------------- RISK/RETURN BAR CHART AND TABLE The following bar chart reflects performance information for the Class Y shares of the Fund, and the table reflects performance information for the Class Y and Class A shares of the Fund. Performance information for Class B and Class C Shares is not included because they have not completed one full year of operations. The bar chart and table give an indication of the Fund's risks and performance. The bar chart shows you how the Fund's performance has varied from year to year. The table compares the Fund's performance over time to that of a broad measure of market performance. WHEN YOU CONSIDER THIS INFORMATION, PLEASE REMEMBER THAT THE FUND'S PAST PERFORMANCE IS NOT NECESSARILY AN INDICATION OF HOW IT WILL PERFORM IN THE FUTURE. TOTAL RETURN OF CLASS Y SHARES (1998 IS THE FUND'S FIRST FULL CALENDAR YEAR OF OPERATION) EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
CALENDAR YEAR TOTAL RETURN 1998 24.90% 1999 32.73% 2000 -16.10% 2001
Total Return January 1 to June 30, 2002: % Best quarter during calendar years shown: : % Worst quarter during calendar years shown: : % AVERAGE ANNUAL TOTAL RETURNS as of December 31, 2001
CLASS Y SHARES (INCEPTION DATE: 10/14/97) 1 YEAR LIFE OF CLASS - -------------------------- --------------- --------------- Return Before Taxes......................................... Return After Taxes on Distributions......................... Return After Taxes on Distributions and Sale of Fund Shares...................................................... CLASS A SHARES* (INCEPTION DATE: 12/31/98) - -------------------------- Return Before Taxes Russell 1000 Growth Index (1)............................... **
- --------- * The average annual total returns for the Class A shares have been calculated to reflect the Class A shares' current maximum front-end sales charge of 5.50%. - -------------------------------------------------------------------------------- Prospectus Page 30 - -------------------------------------------------------------------------------- ------------------------ UBS U.S. Large Cap Growth Fund ** Performance since . (1) The Russell 1000 Growth Index measures the performance of the 1,000 largest companies in the Russell 3000 Growth Index, which represents approximately 92% of the total market capitalization of the Russell 3000 Index. The Russell 1000 Growth Index measures the performance of those Russell 1000 companies with higher price-to-book ratios and higher forecasted growth values. After-tax returns are calculated using the historical highest individual marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and are not relevant to investors who hold Fund shares in tax-deferred arrangements, such as 401(k) plans. After-tax returns for other classes will vary. - -------------------------------------------------------------------------------- Prospectus Page 31 - -------------------------------------------------------------------------------- ------------------------ UBS U.S. Large Cap Growth Fund EXPENSES AND FEE TABLES - -------------------------------------------------------------------------------- FEES AND EXPENSES These tables describe the fees and expenses that you may pay if you buy 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% 2.00% None Maximum Front-End Sales Charge (Load) Imposed on Purchases (as a % of offering price)................................ 5.50% None 1.00% 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
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets)*
CLASS A CLASS B CLASS C CLASS Y -------- -------- -------- -------- Management Fees............................................. 0.70% 0.70% 0.70% 0.70% Distribution and/or Service (12b-1) Fees.................... 0.25% 1.00% 1.00% None Other Expenses**............................................ % % % % ---- ---- ---- ---- Total Annual Fund Operating Expenses........................ % % % % ==== ==== ==== ==== Management Fee Waiver/Expense Reimbursements................ % % % % ---- ---- ---- ---- Net Expenses***............................................. 1.05% 1.80% 1.80% 0.80% ==== ==== ==== ====
- --------- * The operating expenses shown are based on expenses incurred during the Fund's most recent fiscal year ending June 30, 2002. ** Includes an administrative fee of 0.075% paid by the Fund to 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, 2003, otherwise would exceed the "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. Prior to July 1, 2002, the Fund was subject to permanent expense caps for its classes of shares at identical rates. 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..................................................... Class B (assuming sale of all shares at end of period)...... Class B (assuming no sale of shares)........................ Class C (assuming sale of all shares at end of period)...... Class C (assuming no sale of shares)........................ Class Y.....................................................
- -------------------------------------------------------------------------------- Prospectus Page 32 - -------------------------------------------------------------------------------- ------------------------ UBS U.S. Small Cap Equity Fund UBS U.S. SMALL CAP EQUITY FUND INVESTMENT OBJECTIVE, STRATEGIES AND RISKS - -------------------------------------------------------------------------------- FUND OBJECTIVE The Fund seeks to maximize total return, consisting of capital appreciation and current income. PRINCIPAL INVESTMENT STRATEGIES Under normal circumstances, the Fund invests at least 80% of its net assets in equity securities of U.S. small capitalization companies. Small capitalization companies are those companies with market capitalizations of $2 billion or less at the time of purchase. The Fund looks for companies with strong and innovative management, good financial controls, increasing market share, diversified product/service offerings, and low market capitalization-to-sales ratios relative to similar companies. Investments in equity securities may include common stock and preferred stock. The Fund is a non-diversified fund. 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: - - MARKET RISK -- The risk that the market value of a 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 COMPANY RISK -- The risk that investments in smaller companies may be more volatile than investments in larger companies, as smaller companies generally experience higher growth and failure rates. The trading volume of smaller company 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 the securities of smaller companies 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. - - NON-DIVERSIFICATION RISK -- The risk that a non-diversified Fund will be more volatile than a diversified Fund because it invests its assets in a smaller number of issuers. The gains or losses on a single security may, therefore, have a greater impact on a non-diversified Fund's net asset value. Further discussion of the Fund's strategies is included in the section entitled "Securities Selection Process." - -------------------------------------------------------------------------------- Prospectus Page 33 - -------------------------------------------------------------------------------- ------------------------ UBS U.S. Small Cap Equity Fund 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. - -------------------------------------------------------------------------------- Prospectus Page 34 - -------------------------------------------------------------------------------- ------------------------ UBS U.S. Small Cap Equity Fund EXPENSES AND FEE TABLES - -------------------------------------------------------------------------------- FEES AND EXPENSES These tables describe the fees and expenses that you may pay if you buy 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% 2.00% None Maximum Front-End Sales Charge (Load) Imposed on Purchases (as a % of offering price)................................ 5.50% None 1.00% 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
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets)*
CLASS A CLASS B CLASS C CLASS Y -------- -------- -------- -------- Management Fees............................................. 1.00% 1.00% 1.00% 1.00% Distribution and/or Service (12b-1) Fees.................... 0.25% 1.00% 1.00% None Other Expenses**............................................ --% --% --% --% ---- ---- ---- ---- Total Annual Fund Operating Expenses........................ --% --% --% --% ==== ==== ==== ==== Management Fee Waiver/Expense Reimbursements................ --% --% --% --% Net Expenses***............................................. 1.40% 2.15% 2.15% 1.15% ==== ==== ==== ====
- --------- * The fees and expenses are based on estimates. ** Includes an administrative fee of 0.075% paid by the Fund to 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 its fiscal year ending June 30, 2003, otherwise would exceed the "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. Prior to July 1, 2002, the Fund was subject to expense caps for its classes of shares at identical rates for the one-year period from September 1, 2001 through September 1, 2002. 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 - -------------------------------------------------------------------------------- Prospectus Page 35 - -------------------------------------------------------------------------------- ------------------------ UBS U.S. Small Cap Equity Fund 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.................................................... Class B (assuming sale of all shares at end of period)..... Class B (assuming no sale of shares)....................... Class C (assuming sale of all shares at end of period)..... Class C (assuming no sale of shares)....................... Class Y....................................................
- --------- * The Fund has not projected expenses beyond the 3 year period shown because the Fund had not commenced investment operations as of the date of this prospectus. - -------------------------------------------------------------------------------- Prospectus Page 36 - -------------------------------------------------------------------------------- ------------------------ UBS U.S. Small Cap Growth Fund UBS U.S. SMALL CAP GROWTH FUND INVESTMENT OBJECTIVE, STRATEGIES AND RISKS - -------------------------------------------------------------------------------- FUND OBJECTIVE The Fund seeks to provide long-term capital appreciation. PRINCIPAL INVESTMENT STRATEGIES Under normal circumstances, the Fund invests at least 80% of its net assets in equity securities of U.S. small capitalization companies. Small capitalization companies are those companies with market capitalizations of $2 billion or less at the time of purchase. The Fund seeks to invest in companies with strong business franchises and attractive competitive positions that generate rapidly rising earnings (or profits). In the overall small capitalization universe, the Sub-Advisor targets companies with earnings growth in the top 40%. The Fund may also invest in securities of emerging growth companies, which are companies that the Sub- Advisor expects to experience above-average earnings or cash flow growth or meaningful changes in underlying asset values. Investments in equity securities may include common stock and preferred stock. The Fund may invest up to 20% of its net assets in foreign securities. 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: - - MARKET RISK -- The risk that the market value of a 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 COMPANY RISK -- The risk that investments in smaller companies may be more volatile than investments in larger companies, as smaller companies generally experience higher growth and failure rates. The trading volume of smaller company 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 the securities of smaller companies 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 RISK -- The risk that prices of a 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. Further discussion of the Fund's strategies is included in the section entitled "Securities Selection Process." - -------------------------------------------------------------------------------- Prospectus Page 37 - -------------------------------------------------------------------------------- ------------------------ UBS U.S. Small Cap Growth Fund PERFORMANCE - -------------------------------------------------------------------------------- RISK/RETURN BAR CHART AND TABLE The following bar chart reflects performance information for the Class Y shares of the Fund, and the table reflects performance information for the Class Y and Class A shares of the Fund. Performance information for Class B and Class C Shares is not included because they have not completed one full year of operations. The bar chart and table give an indication of the Fund's risks and performance. The bar chart shows you how the Fund's performance has varied from year to year. The table compares the Fund's performance over time to that of a broad measure of market performance. WHEN YOU CONSIDER THIS INFORMATION, PLEASE REMEMBER THAT THE FUND'S PAST PERFORMANCE IS NOT NECESSARILY AN INDICATION OF HOW IT WILL PERFORM IN THE FUTURE. TOTAL RETURN OF CLASS Y SHARES (1998 IS THE FUND'S FIRST FULL CALENDAR YEAR OF OPERATION) EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
CALENDAR YEAR TOTAL RETURN 1998 -6.70% 1999 41.70% 2000 22.44% 2001
Total Return January 1 to June 30, 2002: % Best quarter during calendar years shown: : % Worst quarter during calendar years shown: : % AVERAGE ANNUAL TOTAL RETURNS as of December 31, 2001
CLASS Y SHARES (INCEPTION DATE: 9/30/97) 1 YEAR LIFE OF CLASS - ------------------------- -------- --------------- Return Before Taxes......................................... Return After Taxes on Distributions......................... Return After Taxes on Distributions and Sale of Fund Shares...................................................... CLASS A SHARES* (INCEPTION DATE: 12/31/98) - -------------------------- Return Before Taxes Russell 2000 Growth Index (1)............................... **
- --------- * The average annual total returns for the Class A shares have been calculated to reflect the Class A shares' current maximum front-end sales charge of 5.50%. - -------------------------------------------------------------------------------- Prospectus Page 38 - -------------------------------------------------------------------------------- ------------------------ UBS U.S. Small Cap Growth Fund ** Performance since . (1) The Russell 2000 Growth Index is an unmanaged index composed of those companies in the Russell 2000 Index with higher price-to-book ratios and higher forecasted growth values. The Russell 2000 Index is an index composed of the 2,000 smallest companies in the Russell 3000 Index, which represents approximately 8% of the total market capitalization of the Russell 3000 Index. After-tax returns are calculated using the historical highest individual marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and are not relevant to investors who hold Fund shares in tax-deferred arrangements, such as 401(k) plans. After-tax returns for other classes will vary. - -------------------------------------------------------------------------------- Prospectus Page 39 - -------------------------------------------------------------------------------- ------------------------ UBS U.S. Small Cap Growth Fund EXPENSES AND FEE TABLES - -------------------------------------------------------------------------------- FEES AND EXPENSES These tables describe the fees and expenses that you may pay if you buy 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% 2.00% None Maximum Front-End Sales Charge (Load) Imposed on Purchases (as a % of offering price)................................ 5.50% None 1.00% 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
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets)*
CLASS A CLASS B CLASS C CLASS Y -------- -------- -------- -------- Management Fees............................................. 1.00% 1.00% 1.00% 1.00% Distribution and/or Service (12b-1) Fees.................... 0.25% 1.00% 1.00% None Other Expenses**............................................ % % % % ---- ---- ---- ---- Total Annual Fund Operating Expenses........................ % % % % ==== ==== ==== ==== Management Fee Waiver/Expense Reimbursements................ % % % % ---- ---- ---- ---- Net Expenses***............................................. 1.40% 2.15% 2.15% 1.15% ==== ==== ==== ====
- --------- * The operating expenses shown are based on expenses incurred during the Fund's most recent fiscal year ending June 30, 2002. ** Includes an administrative fee of 0.075% paid by the Fund to 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, 2003, otherwise would exceed the "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. Prior to July 1, 2002, the Fund was subject to permanent expense caps for its classes of shares at identical rates. 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..................................................... Class B (assuming sale of all shares at end of period)...... Class B (assuming no sale of shares)........................ Class C (assuming sale of all shares at end of period)...... Class C (assuming no sale of shares)........................ Class Y.....................................................
- -------------------------------------------------------------------------------- Prospectus Page 40 - -------------------------------------------------------------------------------- ------------------------ UBS U.S. Real Estate Equity Fund UBS U.S. REAL ESTATE EQUITY FUND INVESTMENT OBJECTIVE, STRATEGIES AND RISKS - -------------------------------------------------------------------------------- FUND OBJECTIVE The Fund seeks to maximize total return, consisting of capital appreciation and current income. PRINCIPAL INVESTMENT STRATEGIES Under normal circumstances, the Fund invests at least 80% of its net assets in real estate equity securities of U.S. issuers, which may include real estate investment trusts (REITs). REITs are publicly traded companies that own and often operate real property and/or invest in mortgage and mortgage-backed securities. REITs and other real estate securities may be of any market capitalization, including small capitalization (below $2 billion). Investments in equity securities may include common stock and preferred stock. The Fund is a non-diversified fund. 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: - - MARKET RISK -- The risk that the market value of a 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. - - INDUSTRY CONCENTRATION RISK -- The risk that changes in economic, political or other conditions may have a particularly negative effect on issuers in an industry or sector in which a Fund's investments are concentrated. The Fund invests principally in the real estate sector by purchasing securities issued by REITs. There is, therefore, a risk that changes in real estate values or interest rates, along with economic downturns, can have a substantial impact on the Fund's investments. The Fund's portfolio may be more volatile than a Fund with a broader range of investments. w - - PREPAYMENT RISK -- The risk that issuers will prepay fixed rate obligations when interest rates fall, forcing the Fund to re-invest in obligations with lower interest rates than the original obligations. - - SMALL COMPANY RISK -- The risk that investments in smaller companies may be more volatile than investments in larger companies, as smaller companies generally experience higher growth and failure rates. The trading volume of smaller company 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 the securities of smaller companies 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. - - NON-DIVERSIFICATION RISK -- The risk that a non-diversified Fund will be more volatile than a diversified Fund because it invests its assets in a smaller number of issuers. The gains or losses on a single security may, therefore, have a greater impact on a non-diversified Fund's net asset value. Further discussion of the Fund's strategies is included in the section entitled "Securities Selection Process." - -------------------------------------------------------------------------------- Prospectus Page 41 - -------------------------------------------------------------------------------- ------------------------ UBS U.S. Real Estate Equity Fund 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. - -------------------------------------------------------------------------------- Prospectus Page 42 - -------------------------------------------------------------------------------- ------------------------ UBS U.S. Real Estate Equity Fund EXPENSES AND FEE TABLES - -------------------------------------------------------------------------------- FEES AND EXPENSES These tables describe the fees and expenses that you may pay if you buy 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% 2.00% None Maximum Front-End Sales Charge (Load) Imposed on Purchases (as a % of offering price)................................ 5.50% None 1.00% 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
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets)*
CLASS A CLASS B CLASS C CLASS Y -------- -------- -------- -------- Management Fees............................................. 0.90% 0.90% 0.90% 0.90% Distribution and/or Service (12b-1) Fees.................... 0.25% 1.00% 1.00% None Other Expenses**............................................ % % % % ---- ---- ---- ---- Total Annual Fund Operating Expenses........................ % % % % ==== ==== ==== ==== Management Fee Waiver/Expense Reimbursements................ % % % % ---- ---- ---- ---- Net Expenses***............................................. 1.30% 2.05% 2.05% 1.05% ==== ==== ==== ====
- --------- * The fees and expenses are based on estimates. ** Includes an administrative fee of 0.075% paid by the Fund to 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 its fiscal year ending June 30, 2003, otherwise would exceed the "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. Prior to July 1, 2002, the Fund was subject to expense caps for its classes of shares at identical rates for the one-year period from September 1, 2001 through September 1, 2002. 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.................................................... Class B (assuming sale of all shares at end of period)..... Class B (assuming no sale of shares)....................... Class C (assuming sale of all shares at end of period)..... Class C (assuming no sale of shares)....................... Class Y....................................................
- --------- * The Fund has not projected expenses beyond the 3 year period shown because the Fund had not commenced investment operations as of the date of this prospectus. - -------------------------------------------------------------------------------- Prospectus Page 43 - -------------------------------------------------------------------------------- ------------------------ UBS Global Allocation Fund UBS GLOBAL ALLOCATION FUND INVESTMENT OBJECTIVE, STRATEGIES AND RISKS - -------------------------------------------------------------------------------- FUND OBJECTIVE The Fund (formerly known as UBS Global Balanced Fund) seeks to maximize total return, consisting of capital appreciation and current income. PRINCIPAL INVESTMENT STRATEGIES The Fund invests in equity and fixed income securities of issuers located within and outside the U.S. Under normal circumstances, the Fund will allocate its assets between fixed income securities and equity securities. 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, mortgage-backed securities and asset-backed securities. Investments in equity securities may include common stock and preferred stock. The Fund may invest in emerging market issuers by investing in other open-end investment companies advised by the Advisor. The Fund attempts to mitigate risks by investing in various countries, industries and securities around the world. In addition, the Fund attempts to generate positive returns through sophisticated currency management techniques. These decisions are integrated with analysis of global market and economic conditions. 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. - - PREPAYMENT RISK -- The risk that issuers will prepay fixed rate obligations when interest rates fall, forcing the Fund to re-invest in obligations with lower interest rates than the original obligations. - - MARKET RISK -- The risk that the market value of a 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. - - FOREIGN INVESTING AND EMERGING MARKET RISK -- The risk that prices of a 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 Further discussion of the Fund's strategies is included in the section entitled "Securities Selection Process." - -------------------------------------------------------------------------------- Prospectus Page 44 - -------------------------------------------------------------------------------- ------------------------ UBS Global Allocation Fund PERFORMANCE - -------------------------------------------------------------------------------- RISK/RETURN BAR CHART AND TABLE The following bar chart reflects performance information for the Class Y shares of the Fund, and the table reflects performance information for the Class Y and Class A shares of the Fund. Performance information for Class B and Class C Shares is not included because they have not completed one full year of operations. The bar chart and table give an indication of the Fund's risks and performance. The bar chart shows you how the Fund's performance has varied from year to year. The table compares the Fund's performance over time to that of a broad measure of market performance. WHEN YOU CONSIDER THIS INFORMATION, PLEASE REMEMBER THAT THE FUND'S PAST PERFORMANCE IS NOT NECESSARILY AN INDICATION OF HOW IT WILL PERFORM IN THE FUTURE. TOTAL RETURN OF CLASS Y SHARES (1993 IS THE FUND'S FIRST FULL CALENDAR YEAR OF OPERATION) EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
CALENDAR YEAR TOTAL RETURN 1993 11.15% 1994 -1.89% 1995 24.14% 1996 14.10% 1997 11.00% 1998 8.32% 1999 1.49% 2000 6.52% 2001
Total Return January 1 to June 30, 2002: % Best quarter during calendar years shown: : % Worst quarter during calendar years shown: : % AVERAGE ANNUAL TOTAL RETURNS as of December 31, 2001
CLASS Y SHARES (INCEPTION DATE: 8/31/92) 1 YEAR 5 YEAR LIFE OF CLASS - ------------------------- -------- -------- ------------- Return Before Taxes......................................... Return After Taxes on Distributions......................... Return After Taxes on Distributions and Sale of Fund Shares.................................................... CLASS A SHARES* (INCEPTION DATE: 6/30/97) - ------------------------- N/A Return Before Taxes GSMI Mutual Fund Index (1).................................. ** MSCI World Equity (Free) Index (2).......................... ** Salomon Smith Barney World Government Bond Index (3)........ **
- --------- * The average annual total returns for the Class A shares have been calculated to reflect the Class A shares' current maximum front-end sales charge of 5.50%. - -------------------------------------------------------------------------------- Prospectus Page 45 - -------------------------------------------------------------------------------- ------------------------ UBS Global Allocation Fund ** Performance since . (1) The Global Securities Markets Index (GSMI) is an unmanaged index compiled by the Advisor. It is currently constructed as follows: 40% Wilshire 5000 Equity Index, 22% MSCI World Ex USA (Free) Index, 21% Salomon BIG Index, 9% Salomon WGBI Non-U.S. Index, 3% Merrill Lynch High Yield Cash Pay Index, 3% MSCI Emerging Markets Free Index and 2% JP Morgan EMBI Global. (2) The MSCI World Equity (Free) Index is a broad-based securities index that represents the U.S. and developed international equity markets in terms of capitalization and performance. It is designed to provide a representative total return for all major stock exchanges located inside and outside the United States. (3) The Salomon Smith Barney World Government Bond Index represents the broad global fixed income markets and includes debt issues of U.S. and most developed international governments, governmental entities and supranationals. After-tax returns are calculated using the historical highest individual marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and are not relevant to investors who hold Fund shares in tax-deferred arrangements, such as 401(k) plans. After-tax returns for other classes will vary. - -------------------------------------------------------------------------------- Prospectus Page 46 - -------------------------------------------------------------------------------- ------------------------ UBS Global Allocation Fund EXPENSES AND FEE TABLES - -------------------------------------------------------------------------------- FEES AND EXPENSES These tables describe the fees and expenses that you may pay if you buy 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% 2.00% None Maximum Front-End Sales Charge (Load) Imposed on Purchases (as a % of offering price)................................ 5.50% None 1.00% 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............................................. 0.80% 0.80% 0.80% 0.80% Distribution and/or Service (12b-1) Fees.................... 0.25% 1.00% 1.00% None Other Expenses***........................................... ---- ---- ---- ---- Total Annual Fund Operating Expenses........................ ==== ==== ==== ==== Management Fee Waiver/Expense Reimbursements................ ---- ---- ---- ---- Net Expenses****............................................ 1.24% 1.99% 1.99% 0.99% ==== ==== ==== ====
- --------- * Please see the section entitled "Selling Shares" on page for additional information concerning the applicability of the redemption fee. ** The operating expenses shown are based on expenses incurred during the Fund's most recent fiscal year ending June 30, 2002. *** Includes an administrative fee of 0.075% paid by the Fund to 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, 2003, otherwise would exceed 1.35%, 2.10%, 2.10% and 1.10% of the Class A, Class B, Class C and Class Y shares, respectively. 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. Prior to July 1, 2002, the Fund was subject to permanent expense caps for its classes of shares at identical rates. 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 - -------------------------------------------------------------------------------- Prospectus Page 47 - -------------------------------------------------------------------------------- ------------------------ UBS Global Allocation Fund 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..................................................... Class B (assuming sale of all shares at end of period)...... Class B (assuming no sale of shares)........................ Class C (assuming sale of all shares at end of period)...... Class C (assuming no sale of shares)........................ Class Y.....................................................
- -------------------------------------------------------------------------------- Prospectus Page 48 - -------------------------------------------------------------------------------- ------------------------ UBS Global Equity Fund UBS GLOBAL EQUITY FUND INVESTMENT OBJECTIVE, STRATEGIES AND RISKS - -------------------------------------------------------------------------------- FUND OBJECTIVE The Fund seeks to maximize total return, consisting of capital appreciation and current income. PRINCIPAL INVESTMENT STRATEGIES Under normal circumstances, the Fund invests at least 80% of its net assets in equity securities. Investments in equity securities may include common stock and preferred stock of U.S. and foreign issuers. The Fund may invest in companies of any size. The Fund's construction process begins with analysis at the individual company and industry level, as well as broader analysis of economic and currency factors, and aims to find equity securities that offer attractive prices with opportunity for appreciation. 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: - - MARKET RISK -- The risk that the market value of a 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. - - FOREIGN INVESTING AND EMERGING MARKET RISK -- The risk that prices of a 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. Further discussion of the Fund's strategies is included in the section entitled "Securities Selection Process." - -------------------------------------------------------------------------------- Prospectus Page 49 - -------------------------------------------------------------------------------- ------------------------ UBS Global Equity Fund PERFORMANCE - -------------------------------------------------------------------------------- RISK/RETURN BAR CHART AND TABLE The following bar chart reflects performance information for the Class Y shares of the Fund, and the table reflects performance information for the Class Y and Class A shares of the Fund. Performance information for Class B and Class C Shares is not included because they have not completed one full year of operations. The bar chart and table give an indication of the Fund's risks and performance. The bar chart shows you how the Fund's performance has varied from year to year. The table compares the Fund's performance over time to that of a broad measure of market performance. WHEN YOU CONSIDER THIS INFORMATION, PLEASE REMEMBER THAT THE FUND'S PAST PERFORMANCE IS NOT NECESSARILY AN INDICATION OF HOW IT WILL PERFORM IN THE FUTURE. TOTAL RETURN OF CLASS Y SHARES (1995 IS THE FUND'S FIRST FULL CALENDAR YEAR OF OPERATION) EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
CALENDAR YEAR TOTAL RETURN 1995 21.93% 1996 17.26% 1997 10.72% 1998 14.03% 1999 12.87% 2000 -0.08% 2001
Total Return January 1 to June 30, 2002: % Best quarter during calendar years shown: : % Worst quarter during calendar years shown: : % AVERAGE ANNUAL TOTAL RETURNS as of December 31, 2001
CLASS Y SHARES (INCEPTION DATE: 1/31/94) 1 YEAR 5 YEAR LIFE OF CLASS - ------------------------- -------- -------- ------------- Return Before Taxes......................................... Return After Taxes on Distributions......................... Return After Taxes on Distributions and Sale of Fund Shares...................................................... CLASS A SHARES* (INCEPTION DATE: 6/30/97) - ------------------------- N/A Return Before Taxes MSCI World Equity (Free) Index (1).......................... **
- --------- * The average annual total returns for the Class A shares have been calculated to reflect the Class A shares' current maximum front-end sales charge of 5.50%. - -------------------------------------------------------------------------------- Prospectus Page 50 - -------------------------------------------------------------------------------- ------------------------ UBS Global Equity Fund ** Performance since . (1) The MSCI World Equity (Free) Index is a broad-based index that represents the U.S. and developed non-U.S. equity markets in terms of capitalization and performance. It is designed to provide a representative total return for all major stock exchanges located inside and outside the United States. After-tax returns are calculated using the historical highest individual marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and are not relevant to investors who hold Fund shares in tax-deferred arrangements, such as 401(k) plans. After-tax returns for other classes will vary. - -------------------------------------------------------------------------------- Prospectus Page 51 - -------------------------------------------------------------------------------- ------------------------ UBS Global Equity Fund EXPENSES AND FEE TABLES - -------------------------------------------------------------------------------- FEES AND EXPENSES These tables describe the fees and expenses that you may pay if you buy 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% 2.00% None Maximum Front-End Sales Charge (Load) Imposed on Purchases (as a % of offering price)................................ 5.50% None 1.00% 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............................................. 0.80% 0.80% 0.80% 0.80% Distribution and/or Service (12b-1) Fees.................... 0.25% 1.00% 1.00% None Other Expenses***........................................... ---- ---- ---- ---- Total Annual Fund Operating Expenses........................ ==== ==== ==== ==== Management Fee Waiver/Expense Reimbursements................ ---- ---- ---- ---- Net Expenses****............................................ 1.25% 2.00% 2.00% 1.00% ==== ==== ==== ====
- --------- * Please see the section entitled "Selling Shares" on page for additional information concerning the applicability of the redemption fee. ** The operating expenses shown are based on expenses incurred during the Fund's most recent fiscal year ending June 30, 2002. *** Includes an administrative fee of 0.075% paid by the Fund to 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, 2003, otherwise would exceed the "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. Prior to July 1, 2002, the Fund was subject to permanent expense caps for its classes of shares at identical rates. - -------------------------------------------------------------------------------- Prospectus Page 52 - -------------------------------------------------------------------------------- ------------------------ UBS Global Equity Fund 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..................................................... Class B (assuming sale of all shares at end of period)...... Class B (assuming no sale of shares)........................ Class C (assuming sale of all shares at end of period)...... Class C (assuming no sale of shares)........................ Class Y.....................................................
- -------------------------------------------------------------------------------- Prospectus Page 53 - -------------------------------------------------------------------------------- ------------------------ UBS Global Bond Fund UBS GLOBAL BOND FUND INVESTMENT OBJECTIVE, STRATEGIES 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 a portfolio of investment grade global debt securities that may also provide the potential for capital appreciation. Under normal circumstances, the Fund invests at least 80% of its net assets in fixed income securities. While the Fund may invest in debt securities of all types, it expects to emphasize debt securities of government issuers. 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, mortgage-backed securities and asset-backed securities. The Fund generally invests in fixed income securities that have an initial maturity of more than one year. The Fund is a non-diversified fund. 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. - - FOREIGN INVESTING AND EMERGING MARKET RISK -- The risk that prices of a 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. - - 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. Lower-rated bonds are more likely to be subject to an issuer's default or downgrade than investment grade (higher-rated) bonds. - - PREPAYMENT RISK -- The risk that issuers will prepay fixed rate obligations when interest rates fall, forcing the Fund to re-invest in obligations with lower interest rates than the original obligations. - - MARKET RISK -- The risk that the market value of a 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. - - NON-DIVERSIFICATION RISK -- The risk that a non-diversified Fund will be more volatile than a diversified Fund because it invests its assets in a smaller number of issuers. The gains or losses on a single security may, therefore, have a greater impact on a non-diversified Fund's net asset value. Further discussion of the Fund's strategies is included in the section entitled "Securities Selection Process." - -------------------------------------------------------------------------------- Prospectus Page 54 - -------------------------------------------------------------------------------- ------------------------ UBS Global Bond Fund PERFORMANCE - -------------------------------------------------------------------------------- RISK/RETURN BAR CHART AND TABLE The following bar chart reflects performance information for the Class Y shares of the Fund, and the table reflects performance information for the Class Y and Class A shares of the Fund. Performance information for Class B and Class C Shares is not included because they have not completed one full year of operations. The bar chart and table give an indication of the Fund's risks and performance. The bar chart shows you how the Fund's performance has varied from year to year. The table compares the Fund's performance over time to that of a broad measure of market performance. WHEN YOU CONSIDER THIS INFORMATION, PLEASE REMEMBER THAT THE FUND'S PAST PERFORMANCE IS NOT NECESSARILY AN INDICATION OF HOW IT WILL PERFORM IN THE FUTURE TOTAL RETURN OF CLASS Y SHARES (1994 IS THE FUND'S FIRST FULL CALENDAR YEAR OF OPERATION) EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
CALENDAR YEAR TOTAL RETURN 1994 -3.49% 1995 20.32% 1996 9.30% 1997 1.63% 1998 11.98% 1999 -6.27% 2000 1.36% 2001
Total Return January 1 to June 30, 2002: % Best quarter during calendar years shown: : % Worst quarter during calendar years shown: : % AVERAGE ANNUAL TOTAL RETURNS as of December 31, 2001
CLASS Y SHARES (INCEPTION DATE: 7/31/93) 1 YEAR 5 YEAR LIFE OF CLASS - ------------------------- ------ ------ ------------- Return Before Taxes......................................... Return After Taxes on Distributions......................... Return After Taxes on Distributions and Sale of Fund Shares.................................................... CLASS A SHARES* (INCEPTION DATE: 6/30/97) - ------------------------- N/A Return Before Taxes Salomon Smith Barney World Government Bond Index............ **
- --------- * The average annual total returns for the Class A shares have been calculated to reflect the Class A shares' current maximum front-end sales charge of 4.50%. - -------------------------------------------------------------------------------- Prospectus Page 55 - -------------------------------------------------------------------------------- ------------------------ UBS Global Bond Fund ** Performance since . (1) The Salomon WGBI Index represents the broad global fixed income markets and includes debt issues of U.S. and most developed non-U.S. governments, governmental entities and supranationals. After-tax returns are calculated using the historical highest individual marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and are not relevant to investors who hold Fund shares in tax-deferred arrangements, such as 401(k) plans. After-tax returns for other classes will vary. - -------------------------------------------------------------------------------- Prospectus Page 56 - -------------------------------------------------------------------------------- ------------------------ UBS Global Bond Fund EXPENSES AND FEE TABLES - -------------------------------------------------------------------------------- FEES AND EXPENSES These tables describe the fees and expenses that you may pay if you buy 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)................................ 4.50% 5.00% 1.75% None Maximum Front-End Sales Charge (Load) Imposed on Purchases (as a % of offering price)................................ 4.50% None 1.00% None Maximum Contingent Deferred Sales Charge (Load) (CDSC) (as a % of offering price)................................ None 5.00% 0.75% None Exchange Fee................................................ None None None None
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets)*
CLASS A CLASS B CLASS C CLASS Y -------- -------- -------- -------- Management Fees............................................. 0.75% 0.75% 0.75% 0.75% Distribution and/or Service (12b-1) Fees.................... 0.25% 1.00% 0.75% None Other Expenses**............................................ % % % % ---- ---- ---- ---- Total Annual Fund Operating Expenses........................ % % % % ==== ==== ==== ==== Management Fee Waiver/Expense Reimbursements................ % % % % ---- ---- ---- ---- Net Expenses***............................................. 1.15% 1.90% 1.65% 0.90% ==== ==== ==== ====
- --------- * The operating expenses shown are based on expenses incurred during the Fund's most recent fiscal year ending June 30, 2002. ** Includes an administrative fee of 0.075% paid by the Fund to 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, 2003, otherwise would exceed the "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. Prior to July 1, 2002, the Fund was subject to permanent expense caps for its classes of shares at identical rates. 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................................................... Class B (assuming sale of all shares at end of period).... Class B (assuming no sale of shares)...................... Class C (assuming sale of all shares at end of period).... Class C (assuming no sale of shares)...................... Class Y...................................................
- -------------------------------------------------------------------------------- Prospectus Page 57 - -------------------------------------------------------------------------------- ------------------------ UBS International Equity Fund UBS INTERNATIONAL EQUITY FUND - -------------------------------------------------------------------------------- FUND OBJECTIVE The Fund seeks to maximize total return, consisting of capital appreciation and current income by investing primarily in the equity securities of non-U.S. issuers. PRINCIPAL INVESTMENT STRATEGIES Under normal circumstances, the Fund invests at least 80% of its net assets in equity securities. Investments in equity securities may include common stock and preferred stock of issuers located throughout the world. The Fund may invest in stocks of companies of any size. The Fund's construction process begins with analysis at the individual company and industry level, as well as broader analysis of economic and currency factors, and aims to find equity securities that offer attractive prices with opportunity for appreciation. 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: - - MARKET RISK -- The risk that the market value of a 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. - - FOREIGN INVESTING RISK -- The risk that prices of a 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. Further discussion of the Fund's strategies is included in the section entitled "Securities Selection Process." - -------------------------------------------------------------------------------- Prospectus Page 58 - -------------------------------------------------------------------------------- ------------------------ UBS International Equity Fund PERFORMANCE - -------------------------------------------------------------------------------- RISK/RETURN BAR CHART AND TABLE The following bar chart reflects performance information for the Class Y shares of the Fund, and the table reflects performance information for the Class Y and Class A shares of the Fund. The bar chart and table give an indication of the Fund's risks and performance. The bar chart shows you how the Fund's performance has varied from year to year. The table compares the Fund's performance over time to that of a broad measure of market performance. WHEN YOU CONSIDER THIS INFORMATION, PLEASE REMEMBER THAT THE FUND'S PAST PERFORMANCE IS NOT NECESSARILY AN INDICATION OF HOW IT WILL PERFORM IN THE FUTURE. TOTAL RETURN OF CLASS Y SHARES (1994 IS THE FUND'S FIRST FULL CALENDAR YEAR OF OPERATION) EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
CALENDAR YEAR TOTAL RETURN 1994 0.94% 1995 15.55% 1996 12.75% 1997 5.74% 1998 14.39% 1999 19.16% 2000 -9.09% 2001
Total Return January 1 to June 30, 2002: % Best quarter during calendar years shown: : % Worst quarter during calendar years shown: : % AVERAGE ANNUAL TOTAL RETURNS as of December 31, 2001
CLASS Y SHARES (INCEPTION DATE: 8/31/93) 1 YEAR 5 YEAR LIFE OF CLASS - ------------------------- -------------- --------------- --------------- Return Before Taxes......................................... Return After Taxes on Distributions......................... Return After Taxes on Distributions and Sale of Fund Shares...................................................... CLASS A SHARES* (INCEPTION DATE: 6/30/97) - ------------------------- N/A Return Before Taxes MSCI World Ex USA (Free) Index (1).......................... **
- --------- * The average annual total returns for the Class A shares have been calculated to reflect the Class A shares' current maximum front-end sales charge of 5.50%. ** Performance since . (1) The MSCI World Ex USA (Free) Index is an unmanaged, market driven broad-based securities index which includes non-U.S. equity markets in terms of capitalization and performance. After-tax returns are calculated using the historical highest individual marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and are not relevant to investors who hold Fund shares in tax-deferred arrangements, such as 401(k) plans. After-tax returns for other classes will vary. - -------------------------------------------------------------------------------- Prospectus Page 59 - -------------------------------------------------------------------------------- ------------------------ UBS International Equity Fund EXPENSES AND FEE TABLES - -------------------------------------------------------------------------------- FEES AND EXPENSES These tables describe the fees and expenses that you may pay if you buy 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% 2.00% None Maximum Front-End Sales Charge (Load) Imposed on Purchases (as a % of offering price)................................ 5.50% None 1.00% 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............................................. 0.80% 0.80% 0.80% 0.80% Distribution and/or Service (12b-1) Fees.................... 0.25% 1.00% 1.00% None Other Expenses***........................................... % % % % ---- ---- ---- ---- Total Annual Fund Operating Expenses........................ % % % % ==== ==== ==== ==== Management Fee Waiver/Expense Reimbursements................ % % % % ---- ---- ---- ---- Net Expenses****............................................ 1.24% 1.99% 1.99% 0.99% ==== ==== ==== ====
- --------- * Please see the section entitled "Selling Shares" on page for additional information concerning the applicability of the redemption fee. ** The operating expenses shown are based on expenses incurred during the Fund's most recent fiscal year ending June 30, 2002. *** Includes an administrative fee of 0.075% paid by the Fund to UBS Global AM. **** The Advisor has agreed irrevocably to waive its fees and reimburse certain expenses so that total operating expenses of the Fund, exclusive of 12b-1 fees, do not exceed 1.00% for each of the Class A, Class B, Class C and Class Y shares, respectively. 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..................................................... Class B (assuming sale of all shares at end of period)...... Class B (assuming no sale of shares)........................ Class C (assuming sale of all shares at end of period)...... Class C (assuming no sale of shares)........................ Class Y.....................................................
- -------------------------------------------------------------------------------- Prospectus Page 60 - -------------------------------------------------------------------------------- ------------------------ The UBS Funds SECURITIES SELECTION PROCESS - -------------------------------------------------------------------------------- WHAT IS THE INVESTMENT PROCESS FOR THE UBS FUNDS THAT ARE INCLUDED IN THIS PROSPECTUS? Creating value-added investment portfolios is a three-stage process: 1) Research -- Identifying the Opportunity 2) Portfolio Construction & Risk Control -- Capturing the Opportunity 3) Execution -- Delivering the Portfolio RESEARCH The Advisor's research combines both TOP-DOWN and BOTTOM-UP analyses. The "top-down," analysis seeks to identify broad economic and market shaping trends that influence security prices. These encompass both long-term and short-term economic factors and market-shaping themes, ranging from global interest rate and inflation estimates to strategic sector and industry developments. The Advisor seeks to identify broad trends that will affect the investment landscape and to take advantage of them before other investors do. The "bottom-up," analysis includes researching the very specific factors that affect the cash flows of potential investments around the world. For example, when analyzing stocks, the Advisor often meets with companies' management teams, tours their facilities, speaks with their suppliers, competitors and distributors and will often engage industry-leading experts to better understand the intricacies of their businesses. Importantly, this research is integrated around the world, giving the Advisor the ability to take advantage of a wide array of investment opportunities. With more and more companies selling their goods and services to consumers around the world, the Advisor believes that a global presence is critical. Research teams are located in all of the world's major financial markets and utilize a consistent framework for researching and analyzing investments. The teams rank investment opportunities found in the global marketplace and evaluate the most likely risk and return scenarios that will occur within and across their focused sets of potential investments. PORTFOLIO CONSTRUCTION & RISK CONTROL Once the research teams have identified the opportunities, seasoned investment specialists select securities for the Funds' portfolios, taking into account both the potential return as well as the potential risks inherent in each investment. Because many of the factors that influence investments are interrelated, understanding how investments behave in relation to one another is a key part of constructing a sound investment portfolio. When a new security is considered for inclusion in a portfolio, a detailed analysis of how it will affect overall portfolio composition is undertaken. This involves evaluating absolute risk as well as the risk relative to the appropriate benchmark. The UBS Funds have a dedicated risk analysis team that uses risk analysis tools and techniques to augment the evaluation of investment risks. Working together with this team, the investment specialists select investments and determine the weights those investments will be given within the portfolios. EXECUTION The Advisor believes that "Execution supersedes intention." That is why a great deal of resources are devoted to attempting to ensure that investment decisions are implemented quickly and in the most cost-effective way for our clients. The Advisor's teams of traders are located around the world and have integral knowledge of the markets in which the Funds invest. By leveraging global resources, the Advisor is able to quickly and efficiently access financial markets around the globe to execute the investment strategies. ARE THERE CATEGORIES WITHIN WHICH EACH UBS FUND FALLS BASED ON ITS INVESTMENT STRATEGY? Each of the Funds included in this prospectus is categorized by portfolio type. This categorization is based on the investment strategy that is pursued for each Fund by the Advisor. The explanations that follow are intended to answer questions about why the categories exist and how securities are selected for each strategy type. WHAT ARE THE BROAD STRATEGY TYPES (OR ASSET CLASSES) FOR THE UBS FUNDS? There are five broadly defined asset classes represented in this prospectus: Multi-Asset Funds, Equity Funds, Specialty/Sector Funds, Fixed Income Funds and Global Funds. The Multi-Asset Fund invests in both equity and fixed income securities. Equity Funds invest primarily in - -------------------------------------------------------------------------------- Prospectus Page 61 - -------------------------------------------------------------------------------- ------------------------ The UBS Funds publicly traded equity securities -- stock issued by corporations. Specialty/Sector Funds may invest in both equity and fixed income securities but generally limit investment to a particular industry; e.g., real estate. Fixed Income Funds invest primarily in fixed income or debt securities issued by corporations and government entities. Global Funds invest in securities of foreign corporations or governments. WHICH UBS FUNDS ARE INCLUDED IN EACH CATEGORY? THE UBS FUNDS ARE CATEGORIZED AS FOLLOWS: MULTI-ASSET FUND: UBS U.S. Balanced Fund EQUITY FUNDS: GROWTH EQUITY FUNDS: UBS U.S. Large Cap Growth Fund UBS U.S. Small Cap Growth Fund CORE EQUITY FUNDS: UBS U.S. Equity Fund UBS U.S. Large Cap Equity Fund UBS U.S. Small Cap Equity Fund VALUE EQUITY FUND: UBS U.S. Value Equity Fund SPECIALTY/SECTOR FUND: UBS U.S. Real Estate Equity Fund FIXED INCOME FUNDS: UBS U.S. Bond Fund UBS High Yield Fund GLOBAL FUNDS: UBS Global Allocation Fund UBS Global Equity Fund UBS International Equity Fund UBS Global Bond Fund HOW ARE THE MULTI-ASSET FUNDS CONSTRUCTED? One of the most important investment decisions with respect to a Multi-Asset Funds is the ASSET ALLOCATION DECISION. This is the determination of the proportion of the Fund's assets to invest in each of the major asset classes (i.e., how much to invest in U.S. fixed income, U.S. equities, international fixed income, international equities, etc.). Fixed income securities are selected for this Fund using the approach described on page . Stocks are chosen for the Multi-Asset Funds using the core and value equity process described below. HOW ARE SECURITIES SELECTED FOR THE CORE AND VALUE EQUITY FUNDS DISCUSSED IN THIS PROSPECTUS? The Core and Value approach is simple. When the Advisor's estimation of an investment's FUNDAMENTAL VALUE is greater than its current MARKET PRICE, it is considered as a candidate for inclusion in the Funds' portfolios. FUNDAMENTAL VALUE is the Advisor's assessment of what a stock is worth. MARKET PRICE is the price investors will pay to acquire a particular asset in the investment marketplace today. For each stock under analysis, the Advisor estimates a fundamental value based upon detailed economic, industry and company analysis, and upon consideration of each company's management team, competitive advantage and core competencies. These value estimates are then compared to current market prices and ranked against the other stocks in our valuation universe. Portfolios are constructed by focusing on those stocks that rank in the top 20% of the valuation output. Each Fund's risk is carefully monitored, with consideration given to market sensitivity, common risk factor exposures (e.g., size, stock price, momentum), industry weightings and individual stock selection. HOW DO THE CORE AND VALUE FUNDS DIFFER? Although the same underlying security selection process is used for both the Core and Value Funds, the Value Fund has a different benchmark. A Value Fund will only invest in stocks contained in a value benchmark against which performance and risk is measured. HOW ARE SECURITIES SELECTED FOR THE GROWTH EQUITY FUNDS? In the growth universe, the Advisor seeks to invest in companies that possess a dominant market position and franchise, a major technical edge or a unique competitive advantage. Factors employed in the quantitative disciplines include earnings revision trends, positive stock price momentum and sales acceleration. The investment professionals then conduct intensive fundamental research on the universe of companies identified as attractive by the quantitative models. Portfolios are constructed and monitored with close adherence to risk control guidelines. WHAT IS DIFFERENT OR UNIQUE ABOUT THE SPECIALTY/SECTOR FUND? Specialty/Sector Funds are created in response to changing market conditions, and for the varied and dynamic needs of shareholders. The Specialty/Sector Fund discussed in this prospectus focu on narrower - -------------------------------------------------------------------------------- Prospectus Page 62 - -------------------------------------------------------------------------------- ------------------------ The UBS Funds market segments than the Core, Value and Growth Funds, and is intended to complement a diversified investment program. HOW ARE SECURITIES SELECTED FOR THE FIXED INCOME FUNDS DISCUSSED IN THIS PROSPECTUS? The Advisor uses an internally developed valuation model for fixed income securities selections for the Funds, which quantifies return expectations for all of the major bond markets. Inputs to this model include forecasts of inflation, risk premiums and interest rates. For the multi-country bond funds, the Advisor determines optimal country and currency weightings based on its assessments of global macroeconomic and political landscapes. The credit review process for all of the bond funds incorporates both a top-down strategy, which focuses on how macroeconomic forces shape various industry outlooks, and a bottom-up strategy, looking at specific debt securities, which relies on a combination of qualitative and quantitative factors. The qualitative assessment focuses on management strength, market position, competitive environment and financial flexibility. The quantitative assessment focuses on historical operating results, calculation of various credit ratios and an expected future outlook. With the exception of the UBS High Yield Fund, the fixed income selections generally include all categories of investment grade fixed income securities, which are considered to be of medium to high credit quality debt investments, and emphasize the higher quality securities in this spectrum (those with a credit rating of Baa or BBB and above and lower probability of default). The Advisor's fixed income strategies combine 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. Depending on market conditions, undervalued securities may be found in different countries, sectors and with different durations. Therefore, all investment decisions are interrelated and made using ongoing sector, security, duration, and (for global bonds) country/currency research. HOW ARE SECURITIES SELECTED FOR THE GLOBAL FUNDS DISCUSSED IN THIS PROSPECTUS? In the global universe, the Advisor uses a disciplined intrinsic or fundamental value approach that seeks to take advantage of anomalies in markets often created by human over-reactions to both good and bad news. For each stock under analysis, a fundamental value is estimated based upon detailed country, industry and company analysis, including visits to the company, its competitors and suppliers. The resulting fundamental value estimate is then compared to the company's current market stock price to ascertain whether a valuation anomaly exists. A stock with a market price below the estimated intrinsic or fundamental value would be considered a candidate for inclusion in a Fund's portfolio. This comparison between price and intrinsic or fundamental value allows comparisons across industries and countries. Each Fund's risk is carefully monitored with consideration given to the risk generated by individual positions, sector, country and currency views. For additional discussion of how asset allocation decisions are made for the UBS Global Allocation Fund, see "How is the Multi-Asset Fund Constructed?" on page of this prospectus. MANY OF THE FUNDS INVEST EITHER GLOBALLY OR INTERNATIONALLY. HOW DIVERSIFIED ARE THEY WITH RESPECT TO THE COUNTIES IN WHICH THEY INVEST? The Funds that invest either globally or internationally intend to diversify broadly among countries, but reserve the right to invest a substantial portion of their assets in one or more countries if economic and business conditions warrant such investments. WHAT INVESTMENT PRACTICES APPLY TO ALL OF THE UBS FUNDS INCLUDED IN THIS PROSPECTUS? Unless otherwise stated, the following policies apply to all of the Funds. - - CASH AND CASH EQUIVALENTS Each Fund may invest in cash or cash equivalent instruments, including shares of an affiliated investment company. When unusual market conditions warrant, a Fund may make substantial temporary defensive investments in cash equivalents, which may affect the Fund's ability to meet its objective. See the SAI for further information. - - PORTFOLIO TURNOVER Portfolio turnover rates are not a factor in making buy and sell decisions. Increased portfolio turnover may result in higher costs for brokerage commissions, dealer - -------------------------------------------------------------------------------- Prospectus Page 63 - -------------------------------------------------------------------------------- ------------------------ The UBS Funds mark-ups and other transaction costs. It may also result in taxable gains. Higher costs associated with increased portfolio turnover may offset gains in a Fund's performance. The portfolio turnover for the following Funds may exceed 100%: UBS Global Allocation, UBS Global Equity, UBS Global Bond, UBS U.S. Balanced, UBS U.S. Large Cap Equity, UBS U.S. Small Cap Growth, UBS U.S. Small Cap Equity, UBS U.S. Real Estate Equity, UBS High Yield and UBS U.S. Bond. WHAT ARE BENCHMARKS (OR INDICES) AND HOW ARE THEY USED? Benchmarks are indices comprised of securities that serve as standards of measurement for making risk and performance comparisons to actively managed investment portfolios. The Funds' total returns are compared to the total returns of their benchmarks in the Performance sections of this prospectus. Benchmarks give the Fund's shareholders an objective target against which to judge the Advisor's performance. The precise selection of benchmarks is often critical to understanding and evaluating performance. Today, nearly all institutional investors assign their investment advisors a benchmark against which the advisor's performance is evaluated. The UBS Funds have adopted widely recognized industry benchmarks against which they evaluate the performance of the Funds as well as the Funds' management teams. For some Funds, the Advisor has chosen a benchmark that is more narrowly defined, or that is more closely aligned to the types of investments held in the Funds. Benchmarks play a very important role in the investment process. The Funds' managers attempt to add value by employing various strategies of overweighting and underweighting broad country, sector and other factors such as market capitalization, volatility, earnings yield, etc. relative to the assigned benchmarks. For example, if the passive benchmark has 30% of its stock weightings in technology companies, one of the active management decisions that the Advisor makes is to hold more (overweight) or less (underweight) of the Fund's investments in technology companies. The same type of decision can then be made with respect to broadly aggregated factors like companies' earnings volatility or price/earnings ratios. The Advisor's risk management team utilizes tools to help ensure that the portfolios are diversified and that during the construction process, unintended risks relative to the benchmarks are mitigated. In cases where no suitable (or industry standard) benchmark exists, the Advisor constructs benchmarks by appropriately weighting and combining component benchmarks created by external data providers. WHAT DOES "NON-DIVERSIFIED" MEAN? Some Funds are referred to as "non-diversified funds." A non-diversified Fund may invest in fewer securities. This means that gains or losses on a single security or issuer held by the Fund can potentially result in increased fluctuations in the net asset value of the Fund. MANY OF THE EQUITY FUND NAMES MAKE REFERENCE TO THE "CAP" (OR MARKET CAPITALIZATION) OF THE INVESTMENTS THEY HOLD. WHAT DOES IT MEAN, AND WHAT IS ITS SIGNIFICANCE? The market capitalization of a stock is defined as the total number of shares of the stock that are outstanding multiplied by the current market price of the stock. It is a measure of the total dollar value (or size) of the company's outstanding stock positions. Larger companies have historically been viewed by investors as more stable than smaller companies; and their shares are generally more widely held, thus more easily and frequently traded. A company's market capitalization is most commonly classified as either "large," "mid or medium" or "small." WHAT ARE THE SPECIFIC DEFINITIONS OF "LARGE CAP" AND "SMALL CAP"? The market capitalization definition is flexible and is subject to review and adjustment depending on the Advisor's assessment of market levels and market activity generally. As of , the Advisor considers "large cap" securities to be securities with market capitalizations of $6 billion or greater at the time of purchase. Similarly, as of that date, "small cap" securities are defined as those securities with market capitalizations of $2 billion or less at the time of purchase. CAN A LARGE CAP OR SMALL CAP FUND INVEST IN SECURITIES THAT FALL OUTSIDE THESE MARKET CAPITALIZATION DEFINITIONS? Yes, both the large and small capitalization Funds will invest primarily in their respective market capitalization segments, however, they may also invest a portion of their assets in securities that fall outside of the ranges defined above. Further, if movement in the market price causes a security to change from one classification to another, the security is not required to be sold from the Fund's portfolio. - -------------------------------------------------------------------------------- Prospectus Page 64 - -------------------------------------------------------------------------------- ------------------------ The UBS Funds MANAGING YOUR FUND ACCOUNT - -------------------------------------------------------------------------------- FLEXIBLE PRICING The UBS Funds offer 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(s). Class Y shares are only available to certain types of investors. The UBS Funds have adopted separate plans of distribution pertaining to the Class A, Class B and Class C shares of the Funds under rule 12b-1 that allow the Funds to pay service and (for Class B and Class C shares) distribution fees for the sale of the Funds' shares and services provided to shareholders. Because the 12b-1 fees for Class B and Class C shares are paid out of a 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 a Fund. Class A shares pay an annual 12b-1 service fee of 0.25% of average net assets, but they pay no 12b-1 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 each Fund are described in the following tables: CLASS A SALES CHARGES - UBS U.S. Bond Fund, UBS High Yield Fund and UBS Global Bond Fund:
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 $100,000............................ 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)
CLASS A SALES CHARGES - UBS U.S. Balanced Fund, UBS U.S. Equity Fund, UBS U.S. Value Equity Fund, UBS U.S. Large Cap 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 and UBS International Equity Fund:
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 $100,000............................ 5.50% 5.82% 5.00% $100,000 to $249,999.......................... 4.50 4.71 4.00 $100,000 to $249,999.......................... 3.50 6.63 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 a Fund's Automatic Cash Withdrawal Plan are not subject to this charge. (2) UBS Global AM pays 1.00% to the dealer for sales of greater than $1 million but less than $3 million, 0.75% for sales of at least $3 million but less than $5 million, 0.50% for sales of at least $5 million but less than $50 million, and 0.25% for sales of $50 million or more. - -------------------------------------------------------------------------------- Prospectus Page 65 - -------------------------------------------------------------------------------- ------------------------ The UBS Funds 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 below:
PERCENTAGE (BASED ON AMOUNT OF INVESTMENT) BY WHICH THE SHARES' NET ASSET VALUE IS MULTIPLIED: ----------------------------------------- LESS $100,000 $250,000 $500,000 IF YOU SELL THAN TO TO TO SHARES WITHIN: $100,000 $249,999 $499,999 $999,999 - -------------- -------- -------- -------- -------- 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. 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 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 or any of its affiliates 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 Funds 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: - - First, Class B shares representing reinvested dividends, and - - Second, Class B shares that you have owned the longest. CLASS C SHARES Class C shares have a front-end sales charge that is included in the offering price of the Class C shares, as described in the following table. This sales charge is paid at the time of the purchase and is not invested in a Fund.
REALLOWANCE TO SELECTED DEALERS SALES CHARGE AS A PERCENTAGE OF: AS PERCENTAGE OF OFFERING PRICE NET AMOUNT INVESTED OFFERING PRICE - --------------------- ------------------- ---------------- 1.00% 1.01% 1.00%
Class C shares pay an annual 12b-1 distribution fee of 0.50% of average net assets for fixed income funds, and 0.75% of average net assets for equity funds, as well as an annual 12b-1 service fee of 0.25% of average net - -------------------------------------------------------------------------------- Prospectus Page 66 - -------------------------------------------------------------------------------- ------------------------ The UBS Funds 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% for equity funds and 0.75% for fixed income funds, 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% for equity funds and 0.75% for fixed income funds 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: - Originally paid a front-end sales charge on the shares; and - Reinvest the money within 60 days of the redemption date. The Funds' front-end sales charges will also not apply to Class A purchases by or through: 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 PaineWebber Financial Advisor who was formerly employed as an investment executive with a competing brokerage firm, and - you were the Financial Advisor's client at the competing brokerage firm; - 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 - you purchase an amount that does not exceed the total amount of money you received from the sale of the other mutual fund. CLASS C FRONT-END SALES CHARGE WAIVERS. Front-end sales charges will be waived if you buy Class C shares through a UBS PaineWebber Financial Advisor who was formerly employed as an investment executive with a competing brokerage firm, and - - you were the Financial Advisor's client at the competing brokerage firm; - - 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 - -------------------------------------------------------------------------------- Prospectus Page 67 - -------------------------------------------------------------------------------- ------------------------ The UBS Funds 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 - - you purchase an amount that does not exceed the total amount of money you received from the sale of the other mutual fund. CLASS A, CLASS B AND CLASS C SHARES CONTINGENT DEFERRED SALES CHARGE WAIVERS. The contingent deferred sales charge will be waived for: - - Redemptions of Class A shares by former holders of Class N shares; - - Exchanges between funds for which UBS Global AM or one of its affiliates serves as principal underwriter, if purchasing the same class of shares; - - Redemptions following the death or disability of the shareholder or beneficial owner; - - Tax-free returns of excess contributions from employee benefit plans; - - Distributions from employee benefit plans, including those due to plan termination or plan transfer; - - 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 - - Redemptions of shares purchased through retirement plans. SALES CHARGE REDUCTIONS FOR CLASS A SHARES (RIGHT OF ACCUMULATION/ CUMULATIVE QUANTITY DISCOUNT) A purchaser of Class A shares may qualify for a cumulative quantity discount by combining a current purchase with certain other Class A shares of Family Funds already owned. To determine if you qualify for a reduced front-end sales charge, the amount of your current purchase is added to the cost or current value, whichever is higher, of your other Class A shares as well as those Class A 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 shares of the Family Funds. Companies with one or more retirement plans may add together the total plan assets invested in Class A shares of the Family Funds to determine the front-end sales charge that applies. To qualify for the cumulative quantity 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. 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 Funds. 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 Class Y shares have no sales charge. Only specific types of investors can purchase Class Y shares. The following are eligible to purchase Class Y shares: - - 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; - - Retirement plans with 5,000 or more eligible employees or $100 million or more in plan assets; - - Retirement plan platforms/programs that include Fund shares if the platform/program covers plan assets of at least $100 million; - - Trust companies and bank trust departments purchasing shares on behalf of their clients in a fiduciary capacity; - - Banks, registered investment advisors and other financial institutions purchasing fund shares for their clients as part of a discretionary asset allocation model portfolio; - - Shareholders who owned Class Y shares of the Fund through the PACE Multi-Advisor Program as of November 15, 2001, will be eligible to continue to purchase Class Y shares of that Fund through the program; - - College savings plans organized under Section 529 of the IRC, if shareholder servicing fees are paid exclusively outside of the participating funds; and - -------------------------------------------------------------------------------- Prospectus Page 68 - -------------------------------------------------------------------------------- ------------------------ The UBS Funds - - Other investors as approved by the Funds' Board of Trustees. 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: - - Contacting your investment professional (if you have an account at a financial institution that has entered into a dealer agreement with UBS Global AM); - - Buying shares through the transfer agent as described below; or - - Opening an account by exchanging shares from another Family Fund. The Funds and UBS Global AM reserve the right to reject a purchase order or suspend the offering of shares. THROUGH FINANCIAL INSTITUTIONS/PROFESSIONALS As mentioned above, the Funds have 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 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 Funds. A Fund will be deemed to have received a purchase or redemption order when the Authorized Dealer or Sub-designee accepts the order. Such orders will be priced at the Fund's net asset value next computed after such order is accepted by the Authorized Dealer or Sub-designee. 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 Funds. It is the responsibility of such Authorized Dealers or Sub-designees to promptly forward purchase orders with payments to the Funds. The Advisor, or its affiliates, may, from their own resources, compensate Service Providers for services performed with respect to a Fund's Class Y shares. These services may include marketing, shareholder servicing, recordkeeping and/or other services. When these service arrangements are in effect, they are generally made available to all qualified Service Providers. MINIMUM INVESTMENTS: Class A, Class B and Class C shares: To open an account.................. $ 1,000 To add to an account................ $ 100 Class Y shares: To open an account.................. $10,000,000 To add to an account................ $ 2,500
The Funds may waive or reduce these amounts for: - - Employees of UBS Global AM or its affiliates; or - - Participants in certain pension plans, retirement accounts, unaffiliated investment programs or the Funds' automatic investment plan. In addition, the Funds will waive the minimum investment amounts for Class Y shares for: - - Shareholders who owned Class I shares of the Funds prior to their redesignation as Class Y shares; - - Retirement plans with 5,000 or more eligible employees in the plan or $100 million in plan assets; or - - Retirement plans offered through a common platform that have an aggregate $100 million in plan assets. MARKET TIMERS. The interests of the Funds' long-term shareholders and their ability to manage their investments may be adversely affected when their shares are repeatedly bought and sold in response to short-term market fluctuations -- also known as "market timing." When large dollar amounts are involved, a Fund may have difficulty implementing long-term investment strategies, because it cannot predict how much cash it will have to invest. Market timing also may force a 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 a Fund's performance and its shareholders. When UBS Global AM believes frequent trading would have a disruptive effect on a Fund's ability to manage its investments, UBS Global AM and the Fund may reject purchase orders and exchanges into the Fund by any person, group or account that UBS Global AM believes 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 - -------------------------------------------------------------------------------- Prospectus Page 69 - -------------------------------------------------------------------------------- ------------------------ The UBS Funds class you want to sell. If you do not, a Fund will assume that you want to sell shares 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, a 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 Funds' 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 Funds reserve 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 a 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 Funds money to maintain shareholder accounts. Therefore, the Funds reserve the right to repurchase all shares in any account that has a net asset value of less than $500. If a 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. A Fund will not repurchase shares in accounts that fall below $500 solely because of a decrease in the Fund's net asset value. REDEMPTION FEE (UBS GLOBAL ALLOCATION FUND, UBS GLOBAL EQUITY FUND AND UBS INTERNATIONAL EQUITY FUND ) If you sell or exchange Class A shares or sell Class Y shares of UBS Global Allocation Fund, UBS Global Equity Fund and UBS International Equity 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 applicable 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 for purposes of calculating the redemption fee. The redemption fee will not apply to Class A or Class Y shares of the above-referenced Funds that: - - 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; - - are sold or exchanged under automatic withdrawal plans; - - are held through certain managed account programs with automatic asset allocation rebalancing features; or - - are sold due to death or disability of the shareholder. EXCHANGING SHARES You may exchange Class A, Class B or Class C shares of a Fund for shares of the same class of most other Family Funds (except that you may not exchange shares into the GAM Money Market Account and Class B shares of the Fund as not exchangeable with Class B shares of any of the GAM 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 UBS Global Allocation Fund, UBS Global Equity Fund, and UBS International Equity 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 your 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 Funds' transfer agent, you may exchange your shares as explained below. The Funds may modify or terminate the exchange privilege at any time. - -------------------------------------------------------------------------------- Prospectus Page 70 - -------------------------------------------------------------------------------- ------------------------ The UBS Funds TRANSFER AGENT If you wish to invest in any of the Family Funds through the Funds' 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 Funds' transfer agent. Your letter must include: - - Your name and address; - - Your account number; - - 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; - - The dollar amount or number of shares you want to sell and/or exchange; and - - 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 Funds 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 P. O. Box 8950 Wilmington, DE 19899. You do not have to complete an application when you make additional investments in the same 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. Each Fund calculates net asset value on days that the New York Stock Exchange ("NYSE") is open. Each 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 a Fund does not price its shares, on most national holidays and on Good Friday. Your price for buying, selling or exchanging shares of a 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. Each Fund calculates its net asset value based on the current market value of its portfolio securities. Each 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 Funds' Board of Trustees. Each 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. Each Fund calculates the U.S. dollar value of investments that are denominated in foreign currencies daily, based on current exchange rates. A 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, a Fund's net asset value may change on days when you will not be able to buy and sell your Fund shares. If a 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 each Fund's net asset value fairly reflects security values as of the time of pricing. - -------------------------------------------------------------------------------- Prospectus Page 71 - -------------------------------------------------------------------------------- ------------------------ The UBS Funds MANAGEMENT - -------------------------------------------------------------------------------- INVESTMENT ADVISOR AND SUB-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 , 2002, the Advisor had approximately $ 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 $ billion in assets under management as of , 2002. UBS is an internationally diversified organization headquartered in Zurich, Switzerland, with operations in many areas of the financial services industry. The Advisor employs its affiliate, UBS Global Asset Management (New York) Inc. (the "Sub-Advisor"), to serve as sub-advisor to the UBS U.S. Large Cap Growth Fund, UBS U.S. Small Cap Growth Fund, UBS U.S. Real Estate Equity Fund and UBS High Yield Fund. The Sub-Advisor is also a subsidiary of UBS. As of , 2002, the Sub-Advisor had approximately $ billion in assets under management. The Sub-Advisor is located at 10 East 50th Street, New York, NY. Subject to the Advisor's control and supervision, the Sub-Advisor is responsible for managing the investment and reinvestment of a Fund's portfolio, including placing orders for the purchase and sale of portfolio securities. The Sub-Advisor also furnishes the Advisor with investment recommendations, asset allocation advice, research and other investment services subject to the direction of the Trust's Board and officers. PORTFOLIO MANAGEMENT Investment decisions for the Funds are made by investment management teams at the Advisor and the Sub-Advisor. No member of any investment management team is primarily responsible for making recommendations for portfolio purchases. ADVISORY FEES The investment advisory fees (expressed as a percentage of average net assets) payable to the Advisor, before fee waivers and/or expense reimbursements, if applicable, by each Fund are presented in the tables below. With regard to UBS U.S. Value Equity Fund, UBS U.S. Small Cap Equity Fund and UBS U.S. Real Estate Equity Fund, 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 Funds 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 Funds' fiscal year ending June 30, 2003. Thereafter, the expense limit for each of the applicable Funds 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 a 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 ADVISORY LIMIT FEE -------- -------- UBS U.S. Value Equity Fund..... 0.85% 0.70% UBS U.S. Small Cap Equity Fund......................... 1.15 1.00 UBS U.S. Real Estate Equity Fund......................... 1.05 0.90
On August 28, 2001, the Board of Trustees approved the submission of a proposal to shareholders of certain Funds that would eliminate each Fund's irrevocable fee waiver and expense reimbursement arrangement. At a meeting held on June 28, 2002, the shareholders of each Fund listed below approved the proposal to eliminate the irrevocable fee waiver and expense reimbursement arrangement. In accordance with such proposal, the irrevocable fee waiver and expense reimbursement arrangement has been replaced by a one-year contractual - -------------------------------------------------------------------------------- Prospectus Page 72 - -------------------------------------------------------------------------------- ------------------------ The UBS Funds fee waiver and/or expense reimbursement agreement in which the Advisor has contractually agreed to waive its fees and/or to reimburse certain expenses so that total operating expenses (excluding 12b-1 fees) of the Funds do not exceed the rates set forth below under "Total Expense Limit". The contractual fee waiver and/or expense reimbursement agreement will remain in place for the Funds' fiscal year ending June 30, 2003. Thereafter, the expense limit for each of the applicable Funds 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 a 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 ADVISORY LIMIT FEE -------- -------- UBS Global Allocation Fund..... 1.10% 0.80% UBS Global Equity Fund......... 1.00 0.80 UBS Global Bond Fund........... 0.90 0.75 UBS U.S. Balanced Fund......... 0.80 0.70 UBS U.S. Equity Fund........... 0.80 0.70 UBS U.S. Large Cap Equity Fund......................... 0.80 0.70 UBS U.S. Large Cap Growth Fund......................... 0.80 0.70 UBS U.S. Small Cap Growth Fund......................... 1.15 1.00 UBS U.S. Bond Fund............. 0.60 0.50 UBS High Yield Fund............ 0.70 0.60
With regard to UBS International Equity Fund, the Advisor has agreed irrevocably to waive its fee and reimburse certain expenses so that the total operating expenses (excluding 12b-1 fees) of the Fund do not exceed the amount listed in the table below under "Total Expense Limit":
TOTAL EXPENSE ADVISORY LIMIT FEE -------- -------- UBS International Equity Fund......................... 1.00% 0.80%
The Advisor pays the Sub-Advisor a portion of the fee the Advisor receives under its investment advisory agreement with each Fund sub-advised by the Sub- Advisor. See the SAI for further information. 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 Funds. UBS Global AM is an indirect wholly owned asset management subsidiary of UBS. Each Fund pays UBS Global AM at the annual contract rate of 0.075% of its average daily net assets for administrative services. - -------------------------------------------------------------------------------- Prospectus Page 73 - -------------------------------------------------------------------------------- ------------------------ The UBS Funds DIVIDENDS AND TAXES - -------------------------------------------------------------------------------- DIVIDENDS AND DISTRIBUTIONS Income dividends are normally declared, and paid, by each fixed income fund monthly, and by each equity fund and multi-asset fund annually. Capital gains, if any, are distributed in December. The amount of any distributions will vary, and there is no guarantee a Fund will pay either income dividends or capital gain distributions. 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 a 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 a Fund unless you notify your investment professional or the Fund in writing that you elect to receive them 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 a 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, a Fund must withhold a portion of your taxable distributions and redemption proceeds unless you: - - provide your correct social security or taxpayer identification number, - - certify that this number is correct, - - certify that you are not subject to backup withholding, and - - 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 a 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 subject to state and local taxes. Any foreign taxes a 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 a Fund. - -------------------------------------------------------------------------------- Prospectus Page 74 - -------------------------------------------------------------------------------- ------------------------ The UBS Funds SUPPLEMENTAL PERFORMANCE INFORMATION - -------------------------------------------------------------------------------- Because the Advisor has managed other advisory accounts for many years in a substantially similar manner to the way in which the Advisor manages certain Funds, the following supplemental performance information is being provided to assist prospective investors in making an informed investment decision. The tables below provide performance information for composites of other advisory accounts ("Account Composite Performance") managed by the Advisor in a substantially similar manner to the way in which the Advisor manages certain Funds' assets. The Account Composite Performance has been calculated in accordance with the recommended standards of the Association of Investment Management and Research ("AIMR"). AIMR has not been involved with the preparation or review of this data. AIMR is a non-profit membership and education organization that, among other things, has formulated a set of performance presentation standards for investment advisors. The Account Composite Performance was obtained from the records maintained by the Advisor, and is adjusted to reflect each applicable Fund's Class A current net expenses, which include the effect of fee waivers and/or expense reimbursements, as applicable. However, the performance information does not reflect the Class A front-end sales charge of 5.50%. The performance of an appropriate unmanaged benchmark index, not adjusted for any fees or expenses, is provided as well for each composite. Please note that the Account Composite Performance is not the Funds' own historical performance. The Account Composite Performance should not be considered a substitute for the Funds' performance, and the Account Composite Performance is not necessarily an indication of the Funds' future performance. The accounts included in the Account Composite Performance were not necessarily subject to certain investment limitations, diversification requirements and other restrictions imposed on mutual funds by the Investment Company Act of 1940 and the Code, which, if applicable, may have adversely affected the performance of these accounts. - -------------------------------------------------------------------------------- Prospectus Page 75 SUPPLEMENTAL PERFORMANCE INFORMATION FOR UBS U.S. BOND FUND Composite Performance: U.S. Bond Composite January 1, 1982 through December 31, 2001 [LINE GRAPH TO BE PROVIDED] Composite Performance: U.S. Bond Composite For periods ended June 30, 2002
- --------------------------------------------------------------- YEAR GROSS BENCHMARK NET RETURN (%) RETURN (%) RETURN (%) - --------------------------------------------------------------- 1 year 8.68 8.63 7.77 5 years 7.74 7.57 6.84 10 years 7.69 7.34 6.79 Since 11.15 10.54 10.22 inception
Composite Performance: U.S. Bond Composite January 1, 1982 through December 31, 2001
- ------------------------------------------------------ YEAR GROSS RETURN BENCHMARK NET RETURN (%) RETURN (%) (%) - ------------------------------------------------------ 1982 36.20 32.62 35.08 1983 7.70 8.37 6.79 1984 15.69 15.15 14.72 1985 22.25 22.11 21.24 1986 15.94 15.25 14.98 1987 4.58 2.76 3.70 1988 8.88 7.88 7.97 1989 13.69 14.53 12.74 1990 9.35 8.95 8.44 1991 18.30 16.00 17.31 1992 8.13 7.40 7.22 1993 10.54 9.75 9.61 1994 -2.30 -2.92 -3.13 1995 18.61 18.48 17.62 1996 4.39 3.63 3.51 1997 10.16 9.65 9.24 1998 8.22 8.67 7.32 1999 -0.13 -0.83 -0.97 2000 11.50 11.62 10.56 2001 8.84 8.44 7.93 - ------------------------------------------------------
The benchmark is the Lehman U.S. Aggregate. SUPPLEMENTAL PERFORMANCE INFORMATION FOR UBS GLOBAL ALLOCATION FUND Composite Performance: Global Securities Composite January 1, 1982 through December 31, 2001 [LINE GRAPH TO BE PROVIDED] Composite Performance: Global Securities Composite For periods ended June 30, 2002
- ------------------------------------------------------------ YEAR GROSS BENCHMARK NET RETURN (%) RETURN (%) RETURN (%) - ------------------------------------------------------------ 1 year 5 years 10 years Since inception
Composite Performance: Global Securities Composite January 1, 1982 through December 31, 2001
- ------------------------------------------------------- YEAR GROSS RETURN BENCHMARK NET RETURN (%) RETURN (%) (%) - ------------------------------------------------------- 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 - -------------------------------------------------------
The benchmark, the Global Securities Market Index, is produced internally from generally available indices and is a blended index incorporating percentages of various indices across certain capital markets. As of June 30, 2002, the Global Securities Market Index was constructed as follows: 40% Wilshire 5000 Equity Index, 22% MSCI World Ex USA (Free) Index, 21% Salomon BIG Index, 9% Salomon Smith Barney Non-U.S. World Government Bond Index, 3% Merrill Lynch High Yield Cash Pay Index, 3% MSCI Emerging Markets Free Index and 2% JP Morgan EMBI Global. The percentages may be periodically re-weighted to reflect changing capital market expectations. Prior to March 31, 1984, the Global Securities Composite is a subsector of a collective fund managed by the Advisor, including a cash allocation. SUPPLEMENTAL PERFORMANCE INFORMATION FOR UBS U.S. BALANCED FUND Composite Performance: U.S. Balanced Normal Equity Allocation 65% Composite January 1, 1982 through December 31, 2001 [LINE GRAPH TO BE PROVIDED] Composite Performance: U.S. Balanced Normal Equity Allocation 65% Composite For periods ended June 30, 2002
- ------------------------------------------------------------ YEAR GROSS BENCHMARK NET RETURN (%) RETURN (%) RETURN (%) - ------------------------------------------------------------ 1 year 5 years 10 years Since inception
Composite Performance: U.S. Balanced Normal Equity Allocation 65% Composite January 1, 1982 through December 31, 2001
- ------------------------------------------------------ YEAR GROSS RETURN BENCHMARK NET RETURN (%) RETURN (%) (%) - ------------------------------------------------------ 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 - ------------------------------------------------------
The benchmark is 65% Wilshire 5000 Index and 35% Lehman U.S. Aggregate. SUPPLEMENTAL PERFORMANCE INFORMATION FOR UBS GLOBAL EQUITY FUND Composite Performance: Global Equity Composite January 1, 1999 through December 31, 2001 [LINE GRAPH TO BE PROVIDED] Composite Performance: Global Equity Composite For periods ended June 30, 2002
- ------------------------------------------------------------ YEAR GROSS BENCHMARK NET RETURN (%) RETURN (%) RETURN (%) - ------------------------------------------------------------ 1 year Since inception
Composite Performance: Global Equity Composite January 1, 1999 through December 31, 2001
- ---------------------------------------------------------------- YEAR GROSS RETURN (%) BENCHMARK NET RETURN (%) RETURN (%) - --------------------------------------------------------------- 1999 2000 2001 - ---------------------------------------------------------------
The benchmark is the MSCI World Equity (Free) Index. SUPPLEMENTAL PERFORMANCE INFORMATION FOR UBS U.S. EQUITY FUND Composite Performance: U.S. Equity Composite January 1, 1982 through December 31, 2001 [LINE GRAPH TO BE PROVIDED] Composite Performance: U.S. Equity Composite For periods ended June 30, 2002
- ------------------------------------------------------------ YEAR GROSS BENCHMARK NET RETURN (%) RETURN (%) RETURN (%) - ------------------------------------------------------------ 1 year 5 years 10 years Since inception
Composite Performance: U.S. Equity Composite January 1, 1982 through December 31, 2001
- ------------------------------------------------------ YEAR GROSS RETURN BENCHMARK NET RETURN (%) RETURN (%) (%) - ------------------------------------------------------ 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 - ------------------------------------------------------
The benchmark is the Wilshire 5000 Index. Prior to November 30, 1991, the U.S. Equity Composite is a subsector of a collective fund managed by the Advisor, including a cash allocation. SUPPLEMENTAL PERFORMANCE INFORMATION FOR UBS U.S. LARGE CAP EQUITY FUND Composite Performance: U.S. Large Capitalization Equity Composite January 1, 1982 through December 31, 2001 [LINE GRAPH TO BE PROVIDED] Composite Performance: U.S. Large Capitalization Equity Composite For Periods Ended June 30, 2002
- ------------------------------------------------------------ YEAR GROSS BENCHMARK NET RETURN (%) RETURN (%) RETURN (%) - ------------------------------------------------------------ 1 year 5 years 10 years Since inception
Composite Performance: U.S. Large Capitalization Equity Composite January 1, 1982 through December 31, 2001
- ------------------------------------------------------ YEAR GROSS RETURN BENCHMARK NET RETURN (%) RETURN (%) (%) - ------------------------------------------------------ 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 - ------------------------------------------------------
The benchmark is the S&P 500 Index. Prior to June 30, 1997, the U.S. Large Capitalization Equity Composite is a carve-out of a collective fund managed by the Advisor, including a cash allocation. SUPPLEMENTAL PERFORMANCE INFORMATION FOR UBS U.S. VALUE EQUITY FUND Composite Performance: U.S. Value Equity Composite July 1, 1998 through December 31, 2001 [LINE GRAPH TO BE PROVIDED] Composite Performance: U.S. Value Equity Composite For Periods Ended June 30, 2002
- ------------------------------------------------------------ YEAR GROSS BENCHMARK NET RETURN (%) RETURN (%) RETURN (%) - ------------------------------------------------------------ 1 year Since inception
Composite Performance: U.S. Value Equity Composite July 1, 1998 through December 31, 2001
- -------------------------------------------------------- YEAR GROSS RETURN BENCHMARK NET RETURN (%) RETURN (%) (%) - -------------------------------------------------------- 1998* 1999 2000 2001 - --------------------------------------------------------
*Performance is presented for July 1, 1998 through December 1, 1998. The benchmark is the Russell 1000 Value Index. SUPPLEMENTAL PERFORMANCE INFORMATION FOR UBS U.S. LARGE CAP GROWTH FUND Composite Performance: U.S. Large Capitalization Growth Composite October 1, 1998 through December 31, 2001 [LINE GRAPH TO BE PROVIDED] Composite Performance: U.S. Large Capitalization Growth Composite For Periods Ended June 30, 2002
- ------------------------------------------------------------ YEAR GROSS BENCHMARK NET RETURN (%) RETURN (%) RETURN (%) - ------------------------------------------------------------ 1 year Since inception
Composite Performance: U.S. Large Capitalization Growth Composite October 1, 1998 through December 31, 2001
- ----------------------------------------------------------- YEAR GROSS RETURN BENCHMARK NET RETURN (%) (%) RETURN (%) - ----------------------------------------------------------- 1998* 1999 2000 2001 - -----------------------------------------------------------
* Performance is presented for October 1, 1998 through December 31, 1998. The benchmark is the Russell 1000 Growth Index. SUPPLEMENTAL PERFORMANCE INFORMATION FOR UBS U.S. SMALL CAP GROWTH FUND Composite Performance: U.S. Small Capitalization Growth Composite August 1, 1994 through December 31, 2001 [LINE GRAPH TO BE PROVIDED] Composite Performance: U.S. Small Capitalization Growth Composite For Periods Ended June 30, 2002
- ------------------------------------------------------------ YEAR GROSS BENCHMARK NET RETURN (%) RETURN (%) RETURN (%) - ------------------------------------------------------------ 1 year 5 years Since inception
Composite Performance: U.S. Small Capitalization Growth Composite August 1, 1994 through December 31, 2001
- ---------------------------------------------------------------- YEAR GROSS RETURN (%) BENCHMARK NET RETURN (%) RETURN (%) - ---------------------------------------------------------------- 1994* 1995 1996 1997 1998 1999 2000 2001 - ----------------------------------------------------------------
* Performance is presented for August 1, 1994 through December 31, 1994. The benchmark is the Russell 2000 Growth Index. Prior to May 1, 2000 the benchmark was the Russell 2000 Index. Certain investments in this strategy are initial public offerings and may have caused the performance of the composite to be higher than could have been achieved without such investments, which are of limited availability. SUPPLEMENTAL PERFORMANCE INFORMATION FOR UBS U.S. SMALL CAP EQUITY FUND Composite Performance: U.S. Small Capitalization Equity Composite January 1, 1987 through December 31, 2001 [LINE GRAPH TO BE PROVIDED] Composite Performance: U.S. Small Capitalization Equity Composite For Periods Ended June 30, 2002
- --------------------------------------------------------------- YEAR GROSS RETURN BENCHMARK NET RETURN (%) (%) RETURN (%) - --------------------------------------------------------------- 1 year 5 years 10 years Since inception
Composite Performance: U.S. Small Capitalization Equity Composite January 1, 1987 through December 31, 2001
- ------------------------------------------------------ YEAR GROSS RETURN BENCHMARK NET RETURN (%) RETURN (%) (%) - ------------------------------------------------------ 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 - ------------------------------------------------------
Effective July 1, 2000, the benchmark is the Russell 2000 Index. Prior to July 1, 2000, the benchmark was the Wilshire Small Stock Index. Certain investments in this strategy are initial public offerings and may have caused the performance of the composite to be higher than could have been achieved without such investments, which are of limited availability. SUPPLEMENTAL PERFORMANCE INFORMATION FOR UBS GLOBAL BOND FUND Composite Performance: Global Bond Composite January 1, 1982 through December 31, 2001 [LINE GRAPH TO BE PROVIDED] Composite Performance: Global Bond Composite For Periods Ended June 30, 2002
- --------------------------------------------------------- YEAR GROSS BENCHMARK NET RETURN RETURN (%) RETURN (%) (%) - --------------------------------------------------------- 1 year 5 years 10 years Since inception
Composite Performance: Global Bond Composite January 1, 1982 through December 31, 2001
- --------------------------------------------------------- YEAR GROSS RETURN BENCHMARK NET RETURN (%) (%) RETURN (%) - --------------------------------------------------------- 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 - ---------------------------------------------------------
The benchmark is the Salomon Smith Barney Global Government Bond Index. SUPPLEMENTAL PERFORMANCE INFORMATION FOR UBS HIGH YIELD FUND Composite Performance: U.S. High Yield Bond Composite May 1, 1995 through December 31, 2001 [LINE GRAPH TO BE PROVIDED] Composite Performance: U.S. High Yield Bond Composite For Periods Ended June 30, 2002
- ------------------------------------------------------------ YEAR GROSS BENCHMARK NET ASSET- ASSET- RETURN (%) WEIGHTED WEIGHTED RETURN (%) RETURN (%) - ------------------------------------------------------------ 1 year 5 years Since inception
Composite Performance: U.S. High Yield Bond Composite May 1, 1995 through December 31, 2001
- ------------------------------------------------------ YEAR GROSS RETURN BENCHMARK NET RETURN (%) RETURN (%) (%) - ------------------------------------------------------ 1995* 1996 1997 1998 1999 2000 2001 - ------------------------------------------------------
* Performance presented for May 1, 1995 through December 31, 1995. The benchmark is the Merrill Lynch High Yield Cash Pay Index. SUPPLEMENTAL PERFORMANCE INFORMATION FOR UBS REAL ESTATE EQUITY FUND Composite Performance: U.S. Real Estate Investment Trusts Composite October 1, 1996 through December 31, 2001 [LINE GRAPH TO BE PROVIDED] Composite Performance: U.S. Real Estate Investment Trusts Composite For Periods Ended June 30, 2002
- ------------------------------------------------------------ YEAR GROSS BENCHMARK NET RETURN (%) RETURN (%) RETURN (%) - ------------------------------------------------------------ 1 year 5 years Since inception
Composite Performance: U.S. Real Estate Investment Trusts Composite October 1, 1996 through December 31, 2001
- --------------------------------------------------------------- YEAR GROSS RETURN (%) BENCHMARK RETURN NET RETURN (%) (%) - --------------------------------------------------------------- 1996* 1997 1998 1999 2000 2001 - ---------------------------------------------------------------
* Performance presented for October 1, 1996 through December 31, 1996. The benchmark is the Morgan Stanley REIT Index. - -------------------------------------------------------------------------------- ------------------------ The UBS Funds FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- The financial highlights table is intended to help you understand a Fund's financial performance for the past five years (or, if shorter, the period of the Fund's operations). Certain information reflects financial results for a single Fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in each Fund (assuming reinvestment of all dividends and distributions). UBS GLOBAL ALLOCATION FUND, UBS GLOBAL EQUITY FUND, UBS GLOBAL BOND FUND, UBS U.S. BALANCED FUND, UBS U.S. EQUITY FUND, UBS U.S. LARGE CAP EQUITY FUND, UBS U.S. VALUE EQUITY FUND, UBS U.S. BOND FUND AND UBS INTERNATIONAL EQUITY FUND The selected financial information in the following table has been audited by the Funds' independent auditors, whose unqualified report thereon (the "Report") appears in the Funds' Annual Report to Shareholders dated June 30, 2002 (the "Annual Report"). Additional performance and financial data and related notes are contained in the Annual Report, which is available without charge upon request. The Funds' financial statements for the fiscal year ended June 30, 2002 and the Report are incorporated by reference into the SAI. UBS U.S. LARGE CAP GROWTH FUND, UBS U.S. SMALL CAP GROWTH FUND AND UBS HIGH YIELD FUND The UBS U.S. Large Cap Growth Fund, the UBS U.S. Small Cap Growth Fund and the UBS High Yield Fund (collectively, the "New Funds") are successors to the UBS Large Cap Growth Fund, the UBS Small Cap Fund and the UBS High Yield Bond Fund, respectively (collectively, the "Predecessor Funds"). Each Predecessor Fund, prior to its merger into a New Fund, operated as a separate portfolio of UBS Private Investor Funds, Inc., another investment company that was advised by another entity. The Predecessor Funds had fiscal years ending on December 31. On December 18, 1998, following the approval of the shareholders of each Predecessor Fund of an agreement and plan of reorganization, the UBS Large Cap Growth Fund, the UBS Small Cap Fund and the UBS High Yield Bond Fund series of UBS Private Investor Funds, Inc. were reorganized and merged into the UBS U.S. Large Cap Growth Fund, the UBS U.S. Small Cap Growth Fund and the UBS High Yield Fund series of The UBS Funds (formerly, The Brinson Funds), respectively. (These transactions are collectively referred to as the "Reorganizations".) The New Funds had no operations prior to the Reorganizations. The New Funds have fiscal years ending on June 30. The selected financial information in the following table, for the year ended June 30, 2002, has been audited by the Funds' independent auditors, Ernst & Young LLP, whose unqualified reports on the financial statements containing such information appear in the Annual Report. The selected financial information in the following table for the years ended June 30, 2000, June 30, 1999 and December 31, 1998 has been audited by the Funds' independent auditors, whose unqualified reports on the financial statements containing such information appear in the New Funds' Annual Report to Shareholders (collectively, the "New Funds' Reports") dated June 30, 1999 and December 31, 1998, respectively. The selected financial information in the following table for the year ended December 31, 1997 has been audited by the Predecessor Funds' independent auditors, whose unqualified reports on the financial statements containing such information (the "Predecessor Funds' Reports") appear in the Predecessor Funds' Annual Report to Shareholders dated December 31, 1997 (the "Predecessor Funds' Annual Report"). Additional performance and financial data and related notes are contained in the Annual Report, the New Funds' Reports and the Predecessor Funds' Annual Reports (collectively, the "New Funds' and Predecessor Funds' Reports"), which are available without charge upon request. The New Funds' financial statements for the fiscal year ended June 30, 2001 are incorporated by reference into the SAI. UBS U.S. SMALL CAP EQUITY FUND AND UBS U. S. REAL ESTATE EQUITY FUND No financial information is presented for these Funds as they were not publicly offered prior to the date of this prospectus - -------------------------------------------------------------------------------- Prospectus Page 76 - -------------------------------------------------------------------------------- ------------------------ The UBS Funds FINANCIAL HIGHLIGHTS (Continued) - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS -- FISCAL YEARS ENDED JUNE 30 AND DECEMBER 31 [The following financial highlights tables are intended to help you understand each Fund's financial performance for the periods shown. The tables show information for the Funds' Class Y shares (formerly Class I shares) and Class A shares (formerly Class N shares) because they were the only classes of shares outstanding for the periods shown. Certain information reflects financial results for a single Fund share. In the tables, "total investment return" represents the rate that an investor would have earned (or lost) on an investment in a Fund, assuming reinvestment of all dividends. This information has been derived from the Funds' and the Predecessor Funds' financial statements.] [FINANCIAL HIGHLIGHTS TO BE INCORPORATED BY SUBSEQUENT AMENDMENT] - -------------------------------------------------------------------------------- Prospectus Page 77 - -------------------------------------------------------------------------------- ------------------------ The UBS Funds If you want more information about the Funds, the following documents are available free upon request: ANNUAL/SEMI-ANNUAL REPORTS Additional information about the Funds' investments is available in the Funds' annual and semi-annual reports to shareholders. In the Funds' annual reports, you will find a discussion of the market conditions and investment strategies that significantly affected the Funds' performance during the last fiscal year. STATEMENT OF ADDITIONAL INFORMATION (SAI) The SAI provides more detailed information about the Funds and is incorporated by reference into this prospectus. You may discuss your questions about the Funds by contacting your investment professional. You may obtain free copies of the Funds' annual and semi-annual reports and the SAI by contacting the Funds directly at 1-800-647-1568. You may review and copy information about the Funds, 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 Funds: - - 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 - - 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 --------------- - -------------------------------------------------------------------------------- [Logo] The UBS Funds UBS Emerging Markets Debt Fund UBS Emerging Markets Equity Fund -------------------- PROSPECTUS SEPTEMBER , 2002 ---------------------------------- This prospectus offers Class A, Class B, Class C and Class Y shares in the two Funds listed above. 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 either Fund's shares or determined whether this prospectus is complete or accurate. To state otherwise is a crime. Not FDIC Insured. May lose value. No bank guarantee. - -------------------------------------------------------------------------------- ------------------------ The UBS Funds CONTENTS THE FUNDS - -------------------------------------------------------------------------------- What every investor UBS Emerging Markets Debt Fund should know about 3 Investment Objective, Strategies and Risks the Funds 5 Performance 6 Expenses and Fee Tables UBS Emerging Markets Equity Fund 7 Investment Objective, Strategies and Risks 9 Performance 10 Expenses and Fee Tables 11 Securities Selection Process
YOUR INVESTMENT - -------------------------------------------------------------------------------- Information for 14 Managing Your Fund Account managing your Fund --Flexible Pricing account --Buying Shares --Selling Shares --Exchanging Shares --Pricing and Valuation
ADDITIONAL INFORMATION - -------------------------------------------------------------------------------- Additional important 21 Management information about 22 Dividends and Taxes the Funds 24 Supplemental Performance Information
- -------------------------------------------------------------------------------- Where to learn more Back Cover about the Funds
The Funds are not a complete or balanced investment program. - -------------------------------------------------------------------------------- Prospectus Page 2 - -------------------------------------------------------------------------------- ------------------------ UBS Emerging Markets Debt Fund UBS EMERGING MARKETS DEBT FUND INVESTMENT OBJECTIVE, STRATEGIES AND RISKS - -------------------------------------------------------------------------------- FUND OBJECTIVE The Fund seeks to maximize total return, consisting of capital appreciation and current income. PRINCIPAL INVESTMENT STRATEGIES Under normal circumstances, the Fund invests at least 80% of its net assets in debt securities that are tied economically to emerging market countries. Such investments may include debt securities issued by governments, government-related entities (including participation in loans between governments and financial institutions), corporations and entities organized to restructure outstanding debt of issuers in emerging markets. The Fund intends to invest primarily in a portfolio of debt securities located in at least three emerging markets countries, which may be located in Asia, Europe, Latin America, Africa or the Middle East. The World Bank and other international agencies consider a country to be an "emerging markets" country on the basis of such factors as trade initiatives, per capita income and level of industrialization. As these markets change and other countries' markets develop, the Fund expects the countries in which it invests to change. Emerging market countries generally include every nation in the world except the U.S., Canada, Japan, Australia, New Zealand and most nations located in Western Europe. The Fund is a non-diversified fund. A substantial amount of the Fund's assets may be invested in higher-yielding, lower-rated bonds. Lower-rated bonds are bonds rated in the lower rating categories of Moody's Investors Services, Inc. ("Moody's") and Standard & Poor's Ratings Group ("S&P"), including securities rated Ba or lower by Moody's and BB or lower by S&P. Securities rated in these categories are considered to be of poorer quality and predominantly speculative. Bonds in these categories may also be called "high yield bonds" or "junk bonds." The Fund also invests in debt securities on which the return is derived primarily from other emerging market instruments, such as interest rate swap contracts and currency swap contracts. The Fund may also 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. 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 lower quality securities more than higher quality securities. - - FOREIGN INVESTING AND EMERGING MARKETS RISKS -- The risk that prices of the 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. - - 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 predominantly speculative with respect to the issuer's capacity to pay interest and repay principal in accordance with the terms of the obligations. High yield bonds are more likely to be subject to an issuer's default or downgrade than investment grade (higher rated) bonds. - - MARKET RISK -- The risk that the market value of the Fund's investments will fluctuate as the stock and bond - -------------------------------------------------------------------------------- Prospectus Page 3 - -------------------------------------------------------------------------------- ------------------------ UBS Emerging Markets Debt Fund markets fluctuate. Market risk may affect a single issuer, industry or section of the economy, or it may affect the market as a whole. - - GEOGRAPHIC CONCENTRATION RISK -- The risk that if the Fund has most of its investments in a single country or region, its portfolio will be more susceptible to factors adversely affecting issuers located in that country or region than would a more geographically diverse portfolio of securities. - - DERIVATIVES RISK -- The risk that the Fund's investments in derivatives may rise or fall more rapidly than other investments. - - NON-DIVERSIFICATION RISK -- The risk that a non-diversified Fund will be more volatile than a diversified Fund because it invests its assets in a smaller number of issuers. The gains or losses on a single security may, therefore, have a greater impact on a non-diversified Fund's net asset value. Further discussion of the Fund's strategies is included in the section entitled "Securities Selection Process." - -------------------------------------------------------------------------------- Prospectus Page 4 - -------------------------------------------------------------------------------- ------------------------ UBS Emerging Markets Debt Fund 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. - -------------------------------------------------------------------------------- Prospectus Page 5 - -------------------------------------------------------------------------------- ------------------------ UBS Emerging Markets Debt Fund EXPENSES AND FEE TABLES - -------------------------------------------------------------------------------- FEES AND EXPENSES These tables describe the fees and expenses that you may pay if you buy 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)................................ 4.50% 5.00% 1.75% None Maximum Front-End Sales Charge (Load) Imposed on Purchases (as a % of offering price)................................ 4.50% None 1.00% None Maximum Contingent Deferred Sales Charge (Load) (CDSC) (as a % of offering price)................................ None 5.00% 0.75% None Exchange Fee................................................ None None None None Redemption Fee (as a percentage of amount redeemed, if applicable)*.............................................. 1.00% None None 1.00%
- --------- * Please see the section entitled "Selling Shares" on page for additional information concerning the applicability of the redemption fee. ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets)*
CLASS A CLASS B CLASS C CLASS Y -------- -------- -------- -------- Management Fees............................................. 0.65% 0.65% 0.65% 0.65% Distribution and/or Service (12b-1) Fees.................... 0.25% 1.00% 0.75% None Other Expenses**............................................ % % % % ---- ---- ---- ---- Total Annual Fund Operating Expenses........................ % % % % ---- ---- ---- ---- Management Fees/Expense Reimbursements...................... % % % % ---- ---- ---- ---- Net Expenses***............................................. 1.40% 2.15% 1.90% 1.15% ==== ==== ==== ====
- --------- * The fees 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 its fiscal year ending June 30, 2003, otherwise would exceed the "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. Prior to July 1, 2002, the Fund was subject to expense caps for its classes of shares at identical rates for the one-year period from September 1, 2001 through September 1, 2002. 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..................................................... $586 $873 * * Class B (assuming sale of all shares at end of period)...... 732 999 * * Class B (assuming no sale of shares)........................ 218 673 * * Class C (assuming sale of all shares at end of period)...... 366 691 * * Class C (assuming no sale of shares)........................ 291 691 * * Class Y..................................................... 117 365 * *
- --------- * The Fund has not projected expenses beyond the three year period shown because the Class A, Class B, Class C and Class Y shares of the Fund were not operational as of the date of this prospectus. - -------------------------------------------------------------------------------- Prospectus Page 6 - -------------------------------------------------------------------------------- ------------------------ UBS Emerging Markets Equity Fund UBS EMERGING MARKETS EQUITY FUND INVESTMENT OBJECTIVE, STRATEGIES AND RISKS - -------------------------------------------------------------------------------- FUND OBJECTIVE The Fund seeks to maximize capital appreciation. PRINCIPAL INVESTMENT STRATEGIES Under normal circumstances, the Fund invests at least 80% of its net assets in equity securities that are tied economically to emerging market countries. Securities tied economically to emerging market countries include securities on which the return is derived from issuers in emerging market countries, such as equity swap contracts and equity swap index contracts. The Fund intends to invest primarily in a portfolio of equity securities of issuers located in at least three emerging markets countries, which may be located in Asia, Europe, Latin America, Africa, or the Middle East. The World Bank and other international agencies consider a country to be an "emerging markets" country on the basis of such factors as trade initiatives, per capita income and level of industrialization. As these markets change and other countries' markets develop, the Fund expects the countries in which it invests to change. Emerging market countries generally include every nation in the world except the U.S., Canada, Japan, Australia, New Zealand and most nations located in Western Europe. The Fund may also invest in securities of small capitalization companies. The Fund is a non-diversified fund. Up to 20% of the Fund's net assets may be invested in higher-yielding, lower-rated fixed income securities. These securities are rated in the lower rating categories of Moody's and S&P, including securities rated Ba or lower by Moody's and BB or lower by S&P. Securities rated in these categories are considered to be of poorer quality and predominantly speculative. Securities in these categories may also be called "high yield bonds" or "junk bonds." The Fund may also invest in Eurodollar securities, which are fixed income securities of a U.S. issuer or a foreign issuer that are issued outside of the United States. 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: - - 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. - - FOREIGN INVESTING AND EMERGING MARKETS RISKS -- The risk that prices of a 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. - - 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 lower quality securities more than higher 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 predominantly speculative with respect to the 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. - -------------------------------------------------------------------------------- Prospectus Page 7 - -------------------------------------------------------------------------------- ------------------------ UBS Emerging Markets Equity Fund - - SMALL COMPANY RISK -- The risk that investments in smaller companies may be more volatile than investments in larger companies, as smaller companies generally experience higher growth and failure rates. The trading volume of smaller company 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 the securities of smaller companies 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. - - GEOGRAPHIC CONCENTRATION RISK -- The risk that if the Fund has most of its investments in a single country or region, its portfolio will be more susceptible to factors adversely affecting issuers located in that country or region than would a more geographically diverse portfolio of securities. - - DERIVATIVES RISK -- The risk that the Fund's investments in derivatives may rise or fall more rapidly than other investments. - - NON-DIVERSIFICATION RISK -- The risk that a non-diversified Fund will be more volatile than a diversified Fund because it invests its assets in a smaller number of issuers. The gains or losses on a single security may, therefore, have a greater impact on a non-diversified Fund's net asset value. Further discussion of the Fund's strategies is included in the section entitled "Securities Selection Process." - -------------------------------------------------------------------------------- Prospectus Page 8 - -------------------------------------------------------------------------------- ------------------------ UBS Emerging Markets Equity Fund 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. - -------------------------------------------------------------------------------- Prospectus Page 9 - -------------------------------------------------------------------------------- ------------------------ UBS Emerging Markets Equity Fund EXPENSES AND FEE TABLES - -------------------------------------------------------------------------------- FEES AND EXPENSES These tables describe the fees and expenses that you may pay if you buy 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% 2.00% None Maximum Front-End Sales Charge (Load) Imposed on Purchases (as a % of offering price)................................ 5.50% None 1.00% 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, if applicable)*.............................................. 1.00% None None 1.00%
- --------- * Please see the section entitled "Selling Shares" for additional information concerning the applicability of the redemption fee. ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets)**
CLASS A CLASS B CLASS C CLASS Y -------- -------- -------- -------- Management Fees............................................. 1.10% 1.10% 1.10% 1.10% Distribution and/or Service (12b-1) Fees.................... 0.25% 1.00% 1.00% None Other Expenses***........................................... % % % % ---- ---- ---- ---- Total Annual Fund Operating Expenses........................ % % % % ---- ---- ---- ---- Management Fee Waiver/Expense Reimbursements................ % % % % ---- ---- ---- ---- Net Expenses****............................................ 1.85% 2.60% 2.60% 1.60% ==== ==== ==== ====
- --------- ** The fees and expenses are based on estimates. *** Includes an administrative fee of 0.075% paid by the Fund to 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 its fiscal year ending June 30, 2003, otherwise would exceed the "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. Prior to July 1, 2002, the Fund was subject to expense caps for its classes of shares at identical rates for the one-year period from September 1, 2001 through September 1, 2002. 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.................................................... $728 $1,100 * * Class B (assuming sale of all shares at end of period)..... 775 1,131 * * Class B (assuming no sale of shares)....................... 263 808 * * Class C (assuming sale of all shares at end of period)..... 460 900 * * Class C (assuming no sale of shares)....................... 360 900 * * Class Y (assuming sale of all shares at end of period)..... 463 811 * *
- --------- * The Fund has not projected expenses beyond the three year period shown because the Class A, Class B, Class C and Class Y shares of the Fund were not operational as of the date of this prospectus. - -------------------------------------------------------------------------------- Prospectus Page 10 - -------------------------------------------------------------------------------- ------------------------ The UBS Funds SECURITIES SELECTION PROCESS - -------------------------------------------------------------------------------- WHAT IS THE INVESTMENT PHILOSOPHY AND PROCESS OF THE UBS EMERGING MARKETS DEBT FUND? The investment approach of UBS Global Asset Management (Americas) Inc., the Fund's investment advisor (the "Advisor"), for the UBS Emerging Markets Debt Fund is based on the Advisor's conviction that there are discrepancies between market prices and fundamental values. The Advisor takes advantage of those discrepancies by using a disciplined approach to measure fundamental value from the perspective of a long-term investor. The Advisor's strategies reflect its decisions regarding the relative value of emerging markets debt, the individual countries and the particular debt securities. The Advisor has created an in-house macroeconomic database that is primarily based on macroeconomic forecasts. The Advisor's economic database allows it to objectively compare country fundamentals. It is used to create fundamental indicators which help determine the attractiveness of emerging debt as an asset class and to assess the relative attractiveness of individual countries. WHAT IS THE INVESTMENT PHILOSOPHY AND PROCESS OF THE UBS EMERGING MARKETS EQUITY FUND? The Advisor's investment philosophy aims to provide risk reduction and the potential for above-average performance from the long run perspective of an increasingly integrated global economy. The Advisor continually examines both newly emerging and re-emerging markets to gain appropriate diversification and to identify discrepancies between prices and fundamental values across these markets. The Advisor takes advantage of these discrepancies by using a disciplined approach to measure fundamental value from the perspective of a longer-term investor. The Advisor's emerging markets equity investment philosophy reflects the Advisor's judgment that these markets are not yet integrated into the global capital markets. Risk and potential rewards in emerging markets equity portfolios are driven by local risk in individual markets. The Advisor finds that an equally weighted portfolio within several broad country classes is the preferred policy to limit downside exposure to country-specific and region-specific risks. The Advisor categorizes the universe of 40 countries that comprise the MSCI Emerging Markets Free Index as well as the smaller developing markets into six broad classes. Key determinants of each class include economic and market potential; investability (as measured by market capitalization, industry and security concentration, and market access barriers); and realizable risk rewards for each market. This philosophical approach has been continually re-evaluated, including a detailed reassessment in the aftermath of the unusual volatility that prevailed in these markets after 1997. Although the broad classes have had to be reconstituted through time as fundamental conditions have changed, the Advisor believes there are still potential risk/return benefits of a fixed and more equal-weighted policy approach. HOW ARE SECURITIES SELECTED FOR THE UBS EMERGING MARKETS DEBT FUND? The investment decision-making process can be divided up into two parts -- country selection and security selection. COUNTRY SELECTION The Advisor decides on country over- and underweights relative to the benchmark (see benchmark section below) by using a price/value framework. The Advisor maintains its own macroeconomic database to construct objective relative comparisons across countries. Economic variables are organized into factors that have an impact on immediate serviceability, intermediate solvency and long-term structural strength. This data assists the Advisor in making objective comparisons between price (credit spreads) and value (risk). Other subjective judgements, such as political risk assessment, also affect the final country decision. SECURITY SELECTION The Advisor searches for bonds that will outperform, given the Advisor's country and market views. The Advisor also seeks to identify potential sales in the Fund's portfolio when risk is not being compensated by expected return. Typically, the Fund invests in U.S. dollar denominated sovereign bonds, but the Advisor also examines corporate and local currency opportunities. - -------------------------------------------------------------------------------- Prospectus Page 11 - -------------------------------------------------------------------------------- ------------------------ The UBS Funds The Advisor's analysis of emerging markets bonds is enhanced by an advanced in-house emerging markets bond analytics database. The database is specially designed to assimilate the characteristics of emerging market bonds; it allows the Advisor to perform detailed instrument-level analysis. In addition to macroeconomic research, bottom-up input -- such as liquidity considerations, volatility and company risk for specific bonds, to name but a few -- is also crucial in the Advisor's decision making process. HOW ARE SECURITIES SELECTED FOR THE UBS EMERGING MARKETS EQUITY FUND? The investment decision-making process can be divided up into two parts -- country selection and security selection. These selection processes run simultaneously. COUNTRY SELECTION Generally, the decision to over- or under-weight a country relative to the benchmark (see benchmark section below) requires the Advisor to develop an acceptable degree of confidence. Such confidence is measured by: - - VALUATION: this is aggregated from the research universe of company models maintained in each country, expressed both in local currency terms and translated into U.S. dollar terms. - - CURRENCY RISK: we maintain explicit models that monitor the risk of a major currency or financial crisis. - - MACRO-ECONOMIC FUNDAMENTALS: we maintain models that monitor various measures of debt sustainability, solvency and economic structure, based on a common platform developed in conjunction with the Emerging Markets Debt team. - - LIQUIDITY AND MONETARY CONDITIONS: we maintain in-house measures of long-term real interest rates, which are used to monitor actual monetary conditions. With economic risks explicitly modeled, the political risks associated with emerging markets can be more easily isolated. In cases where there are specific political risks facing the portfolio, we try to quantify how much of the risk is already embedded in the price and how much of the future is "knowable". We seek to make an active investment decision only when we believe that discernable, non-consensus information is available to us. SECURITY SELECTION The security valuation process requires a highly integrated approach that includes macroeconomic analysis and country and company visits by our investment specialists worldwide. Emerging market equities are evaluated within the context of the entire global investable capital market. From a foreign investor's perspective, relative long-term fundamental value of a security must focus on the following areas: balance sheet strength and survivability; competitive advantage; sustainable cash earnings level and growth rate; reasonable earnings; and transparency, accounting standards and minority shareholder rights. The Advisor's investment specialists are organized along country and sector lines. Through an intensive process of company visits and interactions with industry specialists, both within and outside of UBS Global Asset Management, analysts gain an understanding of both the company and the dynamics of the company's industry. There is a continuous effort to identify non-consensus sources of information. Analysts are able to draw on the resources of the entire UBS Global Asset Management global research team. This is increasingly important as more companies operate in a global context. The goal is to gain a clear understanding of the medium-term (up to five years) and long-term prospects of the company, and in particular, its ability to generate earnings. WHAT ARE BENCHMARKS (OR INDICES) AND HOW ARE THEY USED? Benchmarks are indices comprised of securities that serve as standards of measurement for making risk and performance comparisons to actively managed investment portfolios. The Funds' total returns will be compared to the total returns of their benchmarks in the performance section of this prospectus. Benchmarks give the Funds' shareholders an objective target against which to judge the Funds' performance. The precise selection of benchmarks is often critical to understanding and evaluating performance. The Funds have adopted widely recognized industry benchmarks against which investors evaluate the performance of the Funds, as well as the Funds' management teams. In addition, the Advisor may choose a benchmark that is more narrowly defined, or that is more closely aligned to the types of investments held in the Funds. Benchmarks play a very important role in the investment management process. The Advisor attempts to add value by overweighting and underweighting broad country, sector and other factors such as market capitalization, volatility, earnings yield, etc. relative to the assigned benchmarks. For example, if the passive benchmark has 30% of its stock weightings in technology companies, one of the active management decisions that the Advisor may make is to hold more (overweight) or less (underweight) of the Fund's investments in technology companies. - -------------------------------------------------------------------------------- Prospectus Page 12 - -------------------------------------------------------------------------------- ------------------------ The UBS Funds The Advisor's risk management team utilizes tools to help ensure that the portfolios are diversified and that during the construction process, unintended risks relative to the benchmarks are mitigated. In cases where no suitable (or industry standard) benchmark exists, the Advisor constructs benchmarks by appropriately weighting and combining component benchmarks created by external data providers. HOW DIVERSIFIED ARE THE FUNDS WITH RESPECT TO THE COUNTRIES THEY INVEST IN? The Funds intend to diversify broadly among countries, but reserve the right to invest a substantial portion of their assets in one or more countries if economic and business conditions warrant such investments. WHAT INVESTMENT PRACTICES APPLY TO BOTH FUNDS? - - CASH AND CASH EQUIVALENTS Each Fund may invest in cash or cash equivalent instruments, including shares of an affiliated investment company. When unusual market conditions warrant, a Fund may make substantial temporary defensive investments in cash equivalents, which may affect the Fund's ability to meet its objective. See the Statement of Additional Information ("SAI") for further information. - - PORTFOLIO TURNOVER Portfolio turnover rates are not a factor in making buy and sell decisions. Increased portfolio turnover may result in higher costs for brokerage commissions, dealer mark-ups and other transaction costs. It may also result in taxable gains. Higher costs associated with increased portfolio turnover may offset gains in a Fund's performance. The portfolio turnover rates for the Funds may exceed 100%. WHAT DOES "NON-DIVERSIFIED" MEAN? The Funds are referred to as "non-diversified funds." A non-diversified Fund invests in fewer securities than a diversified fund. Non-diversification means that gains or losses on a single security or issuer held by the Funds can potentially result in increased fluctuations in the net asset values of the Funds. - -------------------------------------------------------------------------------- Prospectus Page 13 - -------------------------------------------------------------------------------- ------------------------ The UBS Funds MANAGING YOUR FUND ACCOUNT - -------------------------------------------------------------------------------- FLEXIBLE PRICING The UBS Funds offer 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(s). Class Y shares are only available to certain types of investors. The UBS Funds have adopted separate plans of distribution pertaining to the Class A, Class B and Class C shares of the Funds under Rule 12b-1 that allow the Funds to pay service and (for Class B and Class C shares) distribution fees for the sale of the Funds' shares and services provided to shareholders. Because the 12b-1 distribution fees for Class B and Class C shares are paid out of a 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 a Fund. Class A shares pay an annual 12b-1 service fee of 0.25% of average net assets, but they pay no 12b-1 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 each Fund are described in the following tables: CLASS A SALES CHARGES - UBS Emerging Markets Debt Fund:
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 $100,000............................ 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)
CLASS A SALES CHARGES - UBS Emerging Markets Equity Fund:
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 a Fund's Automatic Cash Withdrawal Plan are not subject to this charge. (2) UBS Global AM pays 1.00% to the dealer for sales of greater than $1 million but less than $3 million, 0.75% for sales of at least $3 million but less than $5 million, 0.50% for sales of at least $5 million but less than $50 million, and 0.25% for sales of $50 million or more. - -------------------------------------------------------------------------------- Prospectus Page 14 - -------------------------------------------------------------------------------- ------------------------ The UBS Funds 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. For Class b shares purchased on or after the date of this prospectus, 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 below:
PERCENTAGE (BASED ON AMOUNT OF INVESTMENT) BY WHICH THE SHARES' NET ASSET VALUE IS MULTIPLIED: ----------------------------------------- LESS $100,000 $250,000 $500,000 IF YOU SELL THAN TO TO TO SHARES WITHIN: $100,000 $249,999 $499,999 $999,999 - -------------- -------- -------- -------- -------- 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. 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 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 or any of its affiliates serves as principal underwriter) purchased or acquired prior to November 5, 2001 and exchanged or converted (including conversions as part of a reorganization) for shares of the Funds 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: - First, Class B shares representing reinvested dividends, and - Second, Class B shares that you have owned the longest. CLASS C SHARES Class C shares have a front-end sales charge that is included in the offering price of the Class C shares, as described in the following table. This sales charge is paid at the time of the purchase and is not invested in a Fund.
REALLOWANCE TO SELECTED DEALERS SALES CHARGE AS A PERCENTAGE OF: AS PERCENTAGE OF OFFERING PRICE NET AMOUNT INVESTED OFFERING PRICE - --------------------- ------------------- ---------------- 1.00% 1.01% 1.00%
Class C shares pay an annual 12b-1 distribution fee of 0.50% of average net assets for the UBS Emerging Markets Debt Fund, and 0.75% of average net assets for the UBS Emerging Markets Equity Fund, as well as an - -------------------------------------------------------------------------------- Prospectus Page 15 - -------------------------------------------------------------------------------- ------------------------ The UBS Funds 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% for the UBS Emerging Markets Equity Fund and 0.75% for the UBS Emerging Markets Debt Fund, 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% for the UBS Emerging Markets Equity Fund and 0.75% for the UBS Emerging Markets Debt Fund 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: - Originally paid a front-end sales charge on the shares; and - Reinvest the money within 60 days of the redemption date. The Funds' front-end sales charge will also not apply to Class A purchases by or through: 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") whose sponsors or administrators have entered into an agreement with UBS Global AM or any of its affiliates to perform advisory or administrative services. 11. A UBS PaineWebber Financial Advisor who was formerly employed as an investment executive with a competing brokerage firm, and - you were the Financial Advisor's client at the competing brokerage firm; - 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 - you purchase an amount that does not exceed the total amount of money you received from the sale of the other mutual fund. CLASS C FRONT-END SALES CHARGE WAIVERS. Front-end sales charges will be waived if you buy Class C shares through - -------------------------------------------------------------------------------- Prospectus Page 16 - -------------------------------------------------------------------------------- ------------------------ The UBS Funds a UBS PaineWebber Financial Advisor who was formerly employed as an investment executive with a competing brokerage firm, and - you were the Financial Advisor's client at the competing brokerage firm; - 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 whenselling them or held those shares until the contingent deferred sales charge was waived; and - you purchase an amount that does not exceed the total amount of money you received from the sale of the other mutual fund. CLASS A, CLASS B AND CLASS C SHARES CONTINGENT DEFERRED SALES CHARGE WAIVERS. The contingent deferred sales charge will be waived for: - Redemptions of Class A shares by former holders of Class N shares; - Exchanges between funds for which UBS Global AM or one of its affiliates serves as principal underwriter, if purchasing the same class of shares; - Redemptions following the death or disability of the shareholder or beneficial owner; - Tax-free returns of excess contributions from employee benefit plans; - Distributions from employee benefit plans, including those due to plan termination or plan transfer; - 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 - Redemptions of shares purchased through retirement plans. SALES CHARGE REDUCTIONS FOR CLASS A SHARES (RIGHT OF ACCUMULATION/CUMULATIVE QUANTITY DISCOUNT) A purchaser of Class A shares may qualify for a cumulative quantity discount by combining a current purchase with certain other Class A shares of Family Funds already owned. To determine if you qualify for a reduced front-end sales charge, the amount of your current purchase is added to the cost or current value, whichever is higher, of your other Class A shares as well as those Class A 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 shares of the Family Funds. Companies with one or more retirement plans may add together the total plan assets invested in Class A shares of the Family Funds to determine the front-end sales charge that applies. To qualify for the cumulative quantity 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. 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 Funds. For more information, you should contact your investment professional or call 1-800-647-1568. If you want information on the Funds' Automatic Cash Withdrawal Plan, see the SAI or contact your investment professional. CLASS Y SHARES Class Y shares have no sales charge. Only specific types of investors can purchase Class Y shares. The following types of investors may be eligible to purchase Class Y shares: - 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; - Retirement plans with 5,000 or more eligible employees or $100 million or more in plan assets; - Retirement plan platforms/programs that include Fund shares if the platform/program covers plan assets of at least $100 million; - Trust companies and bank trust departments purchasing shares on behalf of their clients in a fiduciary capacity; - -------------------------------------------------------------------------------- Prospectus Page 17 - -------------------------------------------------------------------------------- ------------------------ The UBS Funds - Banks, registered investment advisors and other financial institutions purchasing fund shares for their clients as part of a discretionary asset allocation model portfolio, where the client is charges an advisory fee by the institution; - Shareholders who owned Class Y shares of the Fund through the PACE Multi-Advisor Program as of November 15, 2001, wil be eligible to continue to purchase Class Y shares of that Fund through the program; - College savings plans organized under Section 529 of the IRC, if shareholder servicing fees are paid exclusively outside of the participating funds; and - Other investors as approved by the Funds' Board of Trustees. Class Y shares do not pay ongoing 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: - Contacting your investment professional (if you have an account at a financial institution that has entered into a dealer agreement with UBS Global AM); - Buying shares through the transfer agent as described below; or - Opening an account by exchanging shares from another Family Fund. The Funds and UBS Global AM reserve the right to reject a purchase order or suspend the offering of shares. THROUGH FINANCIAL INSTITUTIONS/PROFESSIONALS As mentioned above, the Funds have 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 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 Funds. A Fund will be deemed to have received a purchase or redemption order when the Authorized Dealer or Sub-designee accepts the order. Such orders will be priced at the Fund's net asset value next computed after such order is accepted by the Authorized Dealer or Sub-designee. 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 Funds. It is the responsibility of such Authorized Dealers or Sub-designees to promptly forward purchase orders with payments to the Funds. The Advisor or its affiliates may, from their own resources, compensate Service Providers for services performed with respect to a Fund's Class Y shares. These services may include marketing, shareholder servicing, recordkeeping and/or other services. When these service arrangements are in effect, they are generally made available to all qualified Service Providers. MINIMUM INVESTMENTS Class A, Class B and Class C shares: To open an account................ $ 1,000 To add to an account.............. $ 100 Class Y shares: To open an account................ $10,000,000 To add to an account.............. $ 2,500
The Funds may waive or reduce these amounts for: - Employees of UBS Global AM or its affiliates; or - Participants in certain pension plans, retirement accounts, unaffiliated investment programs or the Funds' automatic investment plan. In addition, the Funds will waive the minimum investment amounts for Class Y shares for: - Shareholders who owned Class I shares of the Funds prior to their redesignation as Class Y shares; - Retirement plans with 5,000 or more eligible employees in the plan or $100 million in plan assets; or Retirement plans offered through a common platform that have an aggregate $100 million in plan assets. MARKET TIMERS. The interests of the Funds' long-term shareholders and their ability to manage their investments may be adversely affected when their shares are repeatedly bought and sold in response to short-term market fluctuations -- also known as "market timing." When large dollar amounts are involved, a Fund may have - -------------------------------------------------------------------------------- Prospectus Page 18 - -------------------------------------------------------------------------------- ------------------------ The UBS Funds difficulty implementing long-term investment strategies, because it cannot predict how much cash it will have to invest. Market timing also may force a 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 a Fund's performance and its shareholders. When UBS Global AM believes frequent trading would have a disruptive effect on a Fund's ability to manage its investments, UBS Global AM and the Fund may reject purchase orders and exchanges into the Fund by any person, group or account that UBS Global AM believes 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, a Fund will assume that you want to sell shares 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, a 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 Funds' 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 Funds reserve the right to pay redemptions "in kind" (i.e., payment in securities rather than cash) if the amount you are redeeming is large enough to affect a 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 Funds money to maintain shareholder accounts. Therefore, the Funds reserve the right to repurchase all shares in any account that has a net asset value of less than $500. If a 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. A Fund will not repurchase shares in accounts that fall below $500 solely because of a decrease in the Fund's net asset value. REDEMPTION FEE. If you sell or exchange Class A shares or sell Class Y shares of the UBS Emerging Markets Equity 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. 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 for purposes of calculating the redemption fee. The redemption fee will not apply to Class A or Class Y shares of the Fund that: - 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; - are sold or exchanged under automatic withdrawal plans; - are held through certain managed account programs with automatic asset allocation rebalancing features; or - are sold due to death or disability of the shareholder. EXCHANGING SHARES You may exchange Class A, Class B or Class C shares of a Fund for shares of the same class of most other Family Funds (except that you may not exchange shares into the GAM Money Market Account and Class B shares of the Fund as not exchangeable with Class B shares of any of the GAM 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 UBS Emerging Markets Equity 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 your 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. - -------------------------------------------------------------------------------- Prospectus Page 19 - -------------------------------------------------------------------------------- ------------------------ The UBS Funds 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 Funds' transfer agent, you may exchange your shares as explained below. The Funds may modify or terminate the exchange privilege at any time. TRANSFER AGENT If you wish to invest in any of the Family Funds through the Funds' 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 Funds' transfer agent. Your letter must include: - Your name and address; - Your account number; - 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; - The dollar amount or number of shares you want to sell and/or exchange; and - 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 Funds 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 P. O. Box 8950 Wilmington, DE 19899. You do not have to complete an application when you make additional investments in the same Fund. PRICING AND VALUATION The price at which you may buy, sell or exchange Fund shares is based on net asset value per share. Each Fund calculates net asset value on days that the New York Stock Exchange ("NYSE") is open. Each 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 a Fund does not price its shares, on most national holidays and on Good Friday. Your price for buying, selling or exchanging shares of a 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. Each Fund calculates its net asset value based on the current market value of its portfolio securities. Each 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 Funds' Board of Trustees. Each Fund normally uses the amortized cost method to value bonds that will mature in 60 days or less. Judgement plays a greater role in valuing thinly traded securities, including many lower-rated bonds, because there is less reliable, objective data available. Each Fund calculates the U.S. dollar value of investments that are denominated in foreign currencies daily, based on current exchange rates. A 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, a Fund's net asset value may change on days when you will not be able to buy and sell your Fund shares. If a 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 each Fund's net asset value fairly reflects security values as of the time of pricing. - -------------------------------------------------------------------------------- Prospectus Page 20 - -------------------------------------------------------------------------------- ------------------------ The UBS Funds 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 , the Advisor had approximately $ billion in assets under management. The Advisor is an indirect, wholly owned subsidiary of UBS AG ("UBS"), which had approximately $ billion in assets under management as of . 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 Funds 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 fees (expressed as a percentage of average net assets) payable to the Advisor, before fee waivers, by each Fund are 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 Funds do not exceed the amounts listed in the table below. The contractual fee waiver and/or expense reimbursement agreement will remain in place for the Funds' fiscal year ending June 30, 2003. Thereafter, the expense limit for each 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 a 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 ADVISORY EXPENSE FEE LIMIT -------- -------- UBS Emerging Markets Debt Fund 0.65% 1.15% UBS Emerging Markets Equity Fund 1.10 1.60
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 Funds. UBS Global AM is an indirect wholly owned asset management subsidiary of UBS. Each Fund pays. UBS Global AM at the annual contract rate of 0.075% of its average daily net assets for administrative services. - -------------------------------------------------------------------------------- Prospectus Page 21 - -------------------------------------------------------------------------------- ------------------------ The UBS Funds DIVIDENDS AND TAXES - -------------------------------------------------------------------------------- DIVIDENDS AND DISTRIBUTIONS Income dividends are normally declared, and paid, by each Fund annually. Capital gains, if any, are distributed in December. The amount of any distributions will vary, and there is no guarantee a Fund will pay either income dividends or capital gain distributions. 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 a 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 a Fund unless you notify your investment professional in writing that you elect to receive them 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 a 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, a Fund must withhold a portion of your taxable distributions and redemption proceeds unless you: - - provide your correct social security or taxpayer identification number, - - certify that this number is correct, - - certify that you are not subject to backup withholding, and - - 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 a 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 subject to state and local taxes. Any foreign taxes a 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 a Fund. - -------------------------------------------------------------------------------- Prospectus Page 22 - -------------------------------------------------------------------------------- ------------------------ The UBS Funds SUPPLEMENTAL PERFORMANCE INFORMATION - -------------------------------------------------------------------------------- Because the Advisor has managed other advisory accounts for many years in a substantially similar manner to the way in which the Advisor manages certain Funds, the following supplemental performance information is being provided to assist prospective investors in making an informed investment decision. The tables below provide performance information for composites of other advisory accounts ("Account Composite Performance") managed by the Advisor in a substantially similar manner to the way in which the Advisor manages certain Funds' assets. The Account Composite Performance has been calculated in accordance with the recommended standards of the Association of Investment Management and Research ("AIMR"). AIMR is a non-profit membership and education organization that, among other things, has formulated a set of performance presentation standards for investment advisors. AIMR has not been involved with the preparation or review of this data. The Account Composite Performance was obtained from the records maintained by the Advisor, and is adjusted to reflect the applicable Fund's Class A current net expenses which include the effect of fee waivers and/or expense reimbursements, as applicable. However, the performance information does not reflect the Class A front-end sales charge of 5.50%. The performance of an appropriate unmanaged benchmark index, not adjusted for any fees or expenses, is provided as well for each composite. Please note that the Account Composite Performance is not the Funds' own historical performance. The Account Composite Performance should not be considered a substitute for the Funds' performance, and the Account Composite Performance is not necessarily an indication of the Funds' future performance. The accounts included in the Account Composite Performance were not necessarily subject to certain investment limitations, diversification requirements and other restrictions imposed on mutual funds by the Investment Company Act of 1940 and the Internal Revenue Code, which, if applicable, may have adversely affected the performance of these accounts. - -------------------------------------------------------------------------------- Prospectus Page 23 - -------------------------------------------------------------------------------- The UBS Funds SUPPLEMENTAL PERFORMANCE INFORMATION FOR UBS EMERGING MARKETS EQUITY FUND - -------------------------------------------------------------------------------- Composite Performance: Emerging Markets Equity Composite August 1, 1995 through December 31, 2001 [LINE GRAPH TO BE PROVIDED] Composite Performance: Emerging Markets Equity Composite For Periods Ended June 30, 2002
GROSS BENCHMARK NET YEAR RETURN(%) RETURN(%) RETURN(%) - ------------------------------------------------------------ -------------- -------------- -------------- 1 year 5 years Since inception
Composite Performance: Emerging Markets Equity Composite August 1, 1995 through December 31, 2001
GROSS BENCHMARK NET YEAR RETURN(%) RETURN(%) RETURN(%) - ------------------------------------------------------------ -------------- -------------- -------------- 1995* -6.14 -4.13 -6.57 1996 9.83 6.03 8.65 1997 -9.79 -11.59 -10.78 1998 -23.31 -25.34 -24.17 1999 66.51 66.41 64.77 2000 -28.22 -30.61 -29.02 2001 0.22 -2.37 -0.88
- --------- * Performance presented for August , 1995 through December 31, 1995. The benchmark is the Morgan Stanley Capital International (MSCI) Emerging Markets Free Index. - -------------------------------------------------------------------------------- Prospectus Page 27 - -------------------------------------------------------------------------------- The UBS Funds SUPPLEMENTAL PERFORMANCE INFORMATION FOR UBS EMERGING MARKETS DEBT FUND - -------------------------------------------------------------------------------- Composite Performance: U.S. Emerging Markets Debt Composite August 1, 1995 through December 31, 2001 [LINE GRAPH TO BE PROVIDED] Composite Performance: U.S. Emerging Markets Debt Composite For Periods Ended June 30, 2002
GROSS BENCHMARK NET YEAR RETURN(%) RETURN(%) RETURN(%) - ------------------------------------------------------------ -------------- -------------- -------------- 1 year 5 years 10 years Since inception
Composite Performance: U.S. Emerging Markets Debt Composite August 1, 1995 through December 31, 2001
GROSS BENCHMARK NET YEAR RETURN(%) RETURN(%) RETURN(%) - ------------------------------------------------------------ -------------- -------------- -------------- 1995* 17.87 16.69 17.56 1996 45.28 39.31 44.37 1997 19.97 13.02 19.21 1998 -13.23 -14.35 -13.80 1999 31.91 25.97 31.08 2000 17.14 15.66 16.40 2001 10.97 1.36 10.26
- --------- * Performance presented for August 1, 1995 through December 31, 1995. Effective July 1, 2000 the benchmark is the J.P. Morgan Emerging Market Bond Index Global. Prior to July 1, 2000 the benchmark was the J.P. Morgan Emerging Market Bond Index Plus (EMBI+). - -------------------------------------------------------------------------------- Prospectus Page 28 - -------------------------------------------------------------------------------- ------------------------ The UBS Funds If you want more information about the Funds, the following documents are available free upon request: ANNUAL/SEMI-ANNUAL REPORTS: Additional information about the Funds' investments is available in the Funds' annual and semi-annual reports to shareholders. In the Funds' annual reports, you will find a discussion of the market conditions and investment strategies that significantly affected the Funds' performance during the last fiscal year. As the Funds have not had investment operations prior to the date of this prospectus, they have not yet issued any annual or semi-annual reports. STATEMENT OF ADDITIONAL INFORMATION (SAI): The SAI provides more detailed information about the Funds and is incorporated by reference into this prospectus. You may discuss your questions about the Funds by contacting your investment professional. You may obtain free copies of the Funds' annual and semi-annual reports and the SAI by contacting the Funds directly at 1-800-647-1568. You may review and copy information about the Funds, 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 can get copies of reports and other information about the Funds: - 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 - Free from the EDGAR Database on the SEC's Internet website at: http://www.sec.gov. [Logo] The UBS Funds Investment Company Act File No. 811-6637 --------------- - -------------------------------------------------------------------------------- THE UBS FUNDS ONE NORTH WACKER DRIVE CHICAGO, ILLINOIS 60606 STATEMENT OF ADDITIONAL INFORMATION DATED SEPTEMBER , 2002 The following funds (the "Funds") are series of The UBS Funds , an open-end management investment company (the "Trust"): UBS U.S. Bond Fund UBS U.S. Real Estate Equity Fund UBS High Yield Fund UBS Global Allocation Fund UBS U.S. Balanced Fund UBS Global Equity Fund UBS U.S. Equity Fund UBS Global Bond Fund UBS U.S. Value Equity Fund UBS International Equity Fund UBS U.S. Large Cap Equity Fund UBS Emerging Markets Debt Fund UBS U.S.Large Cap Growth Fund UBS Emerging Markets Equity Fund UBS U.S. Small Cap Equity Fund UBS U.S. Small Cap Growth Fund
UBS Global Asset Management (Americas) Inc. , an indirect wholly owned subsidiary of UBS AG ("UBS"), serves as the investment advisor for the Funds. UBS Global Asset Management (US) Inc. ("UBS Global AM") serves as the administrator and underwriter for the Funds. UBS Global AM is an indirect wholly owned asset management subsidiary of UBS. Portions of the Funds' Annual Report to Shareholders are incorporated by reference into this Statement of Additional Information ("SAI"). The Annual Report accompanies this SAI. You may obtain additional copies of the Funds' Annual Report without charge by calling toll-free 1-800-647-1568. This SAI is not a prospectus and should be read only in conjunction with the Funds' current Prospectuses, dated September , 2002. A copy of the Prospectuses may be obtained by calling your investment professional or by calling the Trust toll-free at 1-800-647-1568. The Prospectuses contain more complete information about the Funds. You should read them carefully before investing. TABLE OF CONTENTS GENERAL INFORMATION ABOUT THE TRUST......................... 4 Diversification Status.................................... 4 General Definitions....................................... 4 INVESTMENT STRATEGIES....................................... 5 INVESTMENTS RELATING TO ALL FUNDS........................... 5 Cash and Cash Equivalents................................. 5 Repurchase Agreements..................................... 6 Reverse Repurchase Agreements............................. 6 Borrowing................................................. 7 Loans of Portfolio Securities............................. 7 Swaps..................................................... 7 Futures................................................... 8 Options................................................... 9 Index Options............................................. 11 Special Risks of Options on Indices....................... 11 Rule 144A and Illiquid Securities......................... 12 Investment Company Securities and Investments in Affiliated Investment Companies......................... 13 Real Estate Investment Trusts (REITS)..................... 14 Issuer Location........................................... 14 Other Investments......................................... 14
INVESTMENTS RELATING TO THE UBS GLOBAL ALLOCATION FUND, UBS GLOBAL EQUITY FUND, UBS U.S. BALANCED FUND, UBS U.S. EQUITY FUND, UBS U.S. VALUE EQUITY FUND, UBS U.S. LARGE CAP 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 HIGH YIELD FUND, UBS INTERNATIONAL EQUITY FUND AND UBS EMERGING MARKETS EQUITY FUND...................................................... 15 Equity Securities......................................... 15 Exchange-Traded Index Securities.......................... 15 INVESTMENTS RELATING TO THE UBS GLOBAL FUNDS, UBS U.S. 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 AND UBS HIGH YIELD FUND...... 15 Eurodollar Securities..................................... 16 Foreign Securities........................................ 16 Forward Foreign Currency Contracts........................ 16 Non-Deliverable Forwards.................................. 16 Options on Foreign Currencies............................. 17 Short Sales............................................... 18 INVESTMENTS RELATING TO THE UBS GLOBAL ALLOCATION FUND, UBS GLOBAL BOND FUND, UBS U.S. BALANCED FUND, UBS U.S. REAL ESTATE EQUITY FUND, UBS U.S. BOND FUND, UBS HIGH YIELD FUND, UBS EMERGING MARKETS DEBT FUND AND UBS EMERGING MARKETS EQUITY FUND....................................... 18 Lower Rated Debt Securities............................... 18 Pay-In-Kind Bonds......................................... 19 Convertible Securities.................................... 20 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 Other Mortgage-Backed Securities.......................... 23 Asset-Backed Securities................................... 23 Zero Coupon and Delayed Interest Securities............... 24 INVESTMENTS RELATING TO THE UBS GLOBAL ALLOCATION FUND, UBS GLOBAL EQUITY FUND, UBS HIGH YIELD FUND, UBS INTERNATIONAL EQUITY FUND, UBS EMERGING MARKETS DEBT FUND AND UBS EMERGING MARKETS EQUITY FUND.............................. 25 Emerging Markets Investments.............................. 25 Risks of Investing in Emerging Markets.................... 27 Investments in Russian Securities......................... 28 SECONDARY RISKS............................................. 29 INVESTMENT RESTRICTIONS..................................... 29 MANAGEMENT OF THE TRUST..................................... 32 Trustees and Officers..................................... 32 Compensation Table........................................ 36 CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES......... 37 INVESTMENT ADVISORY, PRINCIPAL UNDERWRITING AND OTHER SERVICE ARRANGEMENTS...................................... 37 Advisor................................................... 37 Sub-Advisor............................................... 41 Administrative, Accounting and Custody Services........... 41 Principal Underwriting Arrangements....................... 42
2 Prior Distribution Arrangements........................... 44 Transfer Agency Services.................................. 46 Independent Auditors...................................... 46 Legal Counsel............................................. 46 Personal Trading Policies................................. 46 PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS............ 46 Portfolio Turnover........................................ 49 SHARES OF BENEFICIAL INTEREST............................... 50 REDUCED SALES CHARGES, ADDITIONAL EXCHANGE AND REDEMPTION INFORMATION AND OTHER SERVICES............................ 51 Sales Charge Reductions and Waivers....................... 51 Automatic Cash Withdrawal Plan............................ 53 Individual Retirement Accounts............................ 54 Transfer of Accounts...................................... 54 Transfer of Securities.................................... 54 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......................... 56 Taxes..................................................... 56 Redemption of Shares...................................... 57 PERFORMANCE CALCULATIONS.................................... 59 Total Return.............................................. 59 Yield..................................................... 65 FINANCIAL STATEMENTS AND REPORTS OF INDEPENDENT AUDITORS.... 66 CORPORATE DEBT RATINGS--APPENDIX A.......................... A-1 SECONDARY RISKS--APPENDIX B................................. B-1
3 GENERAL INFORMATION ABOUT THE TRUST The Trust currently offers shares of the following sixteen series representing separate portfolios of investments: UBS U.S. Bond Fund , UBS High Yield Fund , UBS U.S. Balanced Fund , UBS U.S. Equity Fund, UBS U.S. Value Equity Fund , UBS U.S. Large Cap 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 (formerly known as UBS Global Balanced Fund), UBS Global Equity Fund, UBS Global Bond Fund, UBS International Equity Fund, UBS Emerging Markets Debt Fund and UBS Emerging Markets Equity Fund. The Trust currently offers four classes of shares for each Fund: the Class A shares (formerly known as the Class N shares), the Class B shares, the Class C shares and the Class Y shares (formerly known as the Class I 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 expenses 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 expenses of 0.25% of average daily net assets. Class C shares have a front-end sales charge and a CDSC, and are subject to annual 12b-1 distribution fees of 0.50% or 0.75% of average daily net assets, as well as annual 12b-1 plan expenses 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 was organized as a Delaware business trust on December 1, 1993. DIVERSIFICATION STATUS Each of the UBS U.S. Bond Fund, UBS High Yield Fund, UBS U.S. Balanced Fund, UBS U.S. Equity Fund, UBS U.S. Value Equity Fund, UBS U.S. Large Cap Equity Fund, UBS U.S. Small Cap Growth Fund, UBS Global Allocation Fund, UBS Global Equity Fund and UBS International Equity Fund is "diversified" as that term is defined in the Investment Company Act of 1940, as amended (the "Act"). Each of the UBS U.S. Large Cap Growth Fund, UBS U.S. Small Cap Equity Fund, UBS U.S. Real Estate Equity Fund, UBS Global Bond Fund, UBS Emerging Markets Debt Fund and UBS Emerging Markets Equity Fund is classified as "non-diversified" for purposes of the Act, which means that each 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 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 each 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 Funds' administrator. "Advisor" shall mean UBS Global Asset Management (Americas) Inc., which serves as the Funds' investment advisor. "Board" shall mean the Board of Trustees of the Trust. "Code" shall mean the Internal Revenue Code of 1986, as amended. "Equity Funds" shall mean the UBS U.S. Balanced Fund, UBS U.S. Equity Fund, UBS U.S. Value Equity Fund, UBS U.S. Large Cap 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 International Equity Fund and UBS Emerging Markets Equity Fund. "Family Funds" shall mean the Funds and other funds for which UBS Global Asset Management (US) Inc. or any of its affiliates serves as principal underwriter. 4 "Fixed Income Funds" shall mean the UBS U.S. Bond Fund, UBS High Yield Fund, UBS Global Bond Fund and UBS Emerging Markets Debt Fund. "Funds" or "Series" shall mean collectively the UBS Global Allocation Fund, UBS Global Equity Fund, UBS Global Bond Fund, UBS U.S. Balanced Fund, UBS U.S. Equity Fund, UBS U.S. Value Equity Fund, UBS U.S. Large Cap 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 U.S. Bond Fund, UBS High Yield Fund, UBS International Equity Fund, UBS Emerging Markets Debt Fund and UBS Emerging Markets Equity Fund (or individually, a "Fund" or a "Series"). "Moody's" shall mean Moody's Investors Services, Inc. "SEC" shall mean the U.S. Securities and Exchange Commission. "S&P" shall mean Standard & Poor's Ratings Group. "Sub-Advisor" shall mean UBS Global Asset Management (New York) Inc., which serves as the sub-advisor to the UBS U.S. Large Cap Growth Fund, UBS U.S. Small Cap Growth Fund, UBS U.S. Real Estate Equity Fund and UBS High Yield Fund. "Sub-Advised Funds" shall mean the UBS U.S. Large Cap Growth Fund, UBS U.S. Small Cap Growth Fund, UBS U.S. Real Estate Equity Fund and UBS High Yield Fund. "Trust" shall mean The UBS Funds, an open-end management investment company registered under the Act. "UBS Global Funds" shall mean collectively the UBS Global Allocation Fund, UBS Global Equity Fund, UBS Global Bond Fund, UBS International Equity Fund, UBS Emerging Markets Debt Fund and UBS Emerging Markets Equity Fund (or individually, a "UBS Global Fund"). "Underwriter" or "UBS Global AM" shall mean UBS Global Asset Management (US) Inc., which serves as the Funds' underwriter. "U.S. Funds" shall mean collectively the UBS U.S. Balanced Fund, UBS U.S. Equity Fund, UBS U.S. Value Equity Fund, UBS U.S. Large Cap 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 U.S. Bond Fund and UBS High Yield Fund (or individually, a "U.S. Fund"). "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 objectives and policies set forth in the Prospectuses of the Funds. 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. INVESTMENTS RELATING TO ALL FUNDS CASH AND CASH EQUIVALENTS The Series may invest a portion of their 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 their assets in shares issued by money market mutual funds. When unusual market conditions warrant, a 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 a Series invests for defensive purposes, it may affect the attainment of the Series' investment objective. 5 Under the terms of an exemptive order issued by the SEC, each 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 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. A 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 a Series, as calculated monthly, then that Series will be unable to invest in the Supplementary Trust Series until additional investment advisory fees are owed by the Series. REPURCHASE AGREEMENTS When a 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 a 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. A 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, each 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 a 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. A 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, a 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 a 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. 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. 6 BORROWING The Series may borrow money as a temporary measure for extraordinary purposes or to facilitate redemptions. A Series will not borrow money in excess of 331 1/3% of the value of its total assets. A Series has no intention of increasing its net income through borrowing. 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%, a 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%. A Series will not pledge more than 10% of its net assets, or issue senior securities as defined in the Act, except for notes to banks and reverse repurchase agreements. 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) a Series may call the loan at any time and receive the securities loaned; (3) a 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 respective 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, a 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. SWAPS The Series (except for the UBS Global Equity Fund, UBS U.S. Equity Fund, UBS U.S. Large Cap Equity Fund, UBS U.S. Large Cap Growth Fund, UBS U.S. Small Cap Growth Fund, UBS High Yield Fund and UBS International Equity Fund) 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. A Series expects to enter into these transactions primarily 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 a 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, a 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 7 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 all aforementioned Series intend to invest involve agreements with a counterparty. The return to the Series on any equity swap contact 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. A 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 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 a 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 a 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 and indices. The UBS Global Funds, UBS U.S. 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 High Yield Fund and UBS U.S. Real Estate Equity Fund may also enter into contracts for the purchase or sale for future delivery of foreign currencies. A purchase of a futures contract means the acquisition of a contractual right to obtain delivery to a 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, a 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. A Series may enter into futures contracts and engage in options transactions related thereto to the extent that not more than 5% of the Series' total assets are required as futures contract margin deposits and premiums on options, and may engage in such transactions to the extent that obligations relating to such futures and related options on futures transactions represent not more than 25% of the Series' total assets. When a 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, all of 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 their common stocks that might otherwise 8 result; and they may purchase such contracts in order to offset increases in the cost of common stocks that they intend 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. 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, a 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 exposure to a particular securities market without directly investing in those securities. To the extent that market prices move in an unexpected direction, a Series may not achieve the anticipated benefits of futures contracts or may realize a loss. For example, if a 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. A 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, but will only engage in option strategies for non-speculative purposes. A Series may also purchase exchange-listed call options on particular market segment indices to achieve temporary exposure to a specific industry. The U.S. Funds may invest in options that are listed on U.S. exchanges or traded over-the-counter and the UBS Global Funds, the UBS U.S. 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 and UBS High Yield Fund 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 a Series' ability to effectively hedge its securities. The Series have been notified by the SEC that it considers over-the-counter options to be illiquid. Accordingly, a 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 a Series do not aggregate more than 20% of the Series' total assets. When a 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 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 a Series may alter portfolio characteristics and modify portfolio maturities without incurring the cost associated with transactions. 9 A 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 a 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 a 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. COVERED CALL WRITING--A Series may write covered 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 a Series of writing covered 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 covered 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 a 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 a Series to write another call option on the underlying security with either a different exercise price or expiration date or both. A 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 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, a 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 write call options only on a covered basis, which means that a Series will own the underlying security subject to a call option at all times during the option period. Unless a closing purchase transaction is effected, a Series would be required to continue to hold a security which it might otherwise wish to sell or deliver a security it would want to hold. The exercise price of a call option may be below, equal to or above the current market value of the underlying security at the time the option is written. 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. A 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, each Series will limit the aggregate value of the obligations underlying such put options to 50% of its total assets. 10 A put option purchased by a Series gives it the right to sell one of its securities for an agreed price up to an agreed date. The Series intend 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, a Series will lose the value of the premium paid. A 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. 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 a 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 a 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 a Series' portfolio at a price lower than the current market price of the security. In such event, a 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, a 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 depending upon whether a Series is an equity or bond series and sell such options in closing sale transactions for hedging purposes. A Series may purchase call options on broad market indices to temporarily achieve market exposure when the Series is not fully invested. In addition, the Series may purchase put options on stock and fixed income indices and sell such options in closing sale transactions for hedging purposes. A 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 a 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 a 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, a 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 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 them to the risks described below. 11 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 a 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 a 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, a 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 a 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 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; (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 a 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 each 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 are 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. The UBS U.S. Small Cap Equity Fund may invest up to 10% of its net assets in equity securities or interests in non-public companies that are expected to have an initial public offering within 18 months. 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 12 ensure that the Series continue 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 each Series to the extent that such purchases are consistent with that 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, a 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 such a Series would bear in connection with its own operations. The UBS Global Allocation Fund, UBS Global Equity Fund, UBS High Yield Fund, UBS International Equity Fund, UBS Emerging Markets Equity Fund and UBS Emerging Markets Debt Fund 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 only 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 UBS Global Allocation Fund, UBS Global Equity Fund and UBS International Equity Fund may invest that portion of their assets allocated to emerging market investments in the UBS Emerging Markets Equity Relationship Fund and, in the case of the UBS Global Allocation Fund, the UBS Emerging Markets Debt Relationship Fund. The investment objective of the UBS Emerging Markets Equity Relationship Fund and the UBS Emerging Markets Debt Relationship Fund is to maximize total return, consisting of capital appreciation and current income, while controlling risk. Under normal circumstances, the UBS Emerging Markets Equity Relationship Fund invests at least 80% of its net assets in equity securities that are tied economically to emerging market countries. Under normal circumstances, at least 80% of the net assets of the UBS Emerging Markets Debt Relationship Fund are invested in debt securities that are tied economically to emerging market countries. Securities tied economically to emerging market countries include debt securities issued by governments, government-related entities (including participations in loans between governments and financial institutions), corporations and entities organized to restructure outstanding debt of issuers in emerging markets and instruments whose return is derived from any of the foregoing. The UBS Emerging Markets Equity Relationship Fund is permitted to invest in the same types of securities that the UBS Global Allocation Fund, UBS Global Equity Fund and UBS International Equity Fund may invest in directly, and the UBS Emerging Markets Debt Relationship Fund is permitted to invest in the same types of securities that the UBS Global Allocation Fund may invest in directly. In lieu of investing directly in certain high yield, higher risk securities, the UBS Global Allocation Fund may invest a portion of its assets in the UBS High Yield Relationship Fund. The investment objective of the UBS High Yield Relationship Fund is to maximize total return, consisting of capital appreciation and current income, while controlling risk. Under normal circumstances, the UBS High Yield Relationship Fund invests at least 80% of its net assets in fixed income securities that provide higher yields and are lower rated. High yield, lower rated fixed income securities are those rated below investment grade. The UBS Global Allocation Fund currently intends to limit its investment in non-investment grade debt securities to no more than 10% of its net assets. Any investment in the UBS High Yield Relationship Fund will be considered within this limitation. In lieu of investing directly in equity securities issued by companies with relatively small overall market capitalizations, the UBS Global Allocation Fund may invest a portion of its assets in the UBS U.S. Small Cap Equity Relationship Fund. The investment objective of the UBS U.S. Small Cap Equity Relationship Fund is to maximize total U.S. dollar return, consisting of capital appreciation and current income, while controlling risk. 13 Under normal circumstances, the UBS Small Cap Equity Relationship Fund invests at least 80% of its net assets in equity securities of U.S. small capitalization companies. Each portfolio of UBS Relationship Funds in which the UBS Global Allocation Fund, UBS Global Equity Fund and UBS International Equity Fund may invest is permitted to invest in the same securities of a particular asset class in which the UBS Global Allocation Fund, UBS Global Equity Fund and UBS International Equity Fund are permitted to invest directly, and with similar risks. Pursuant to undertakings with the SEC, the UBS Global Allocation Fund, UBS Global Equity Fund and UBS International Equity Fund will not be subject to the imposition of double management or administration fees with respect to their investments in portfolios of UBS Relationship Funds. REAL ESTATE INVESTMENT TRUSTS (REITS) (THE UBS U.S. REAL ESTATE EQUITY FUND ONLY) 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 95% 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 UBS U.S. Real Estate Equity Fund, by investing in REITs indirectly through the Series, will bear not only his 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 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 REITs failure to maintain exemption from registration under the Act. 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. OTHER INVESTMENTS The Board may, in the future, authorize a Series to invest in securities other than those listed in this SAI and in the Prospectus, provided such investment would be consistent with that Series' investment objective and that it would not violate any fundamental investment policies or restrictions applicable to that Series. 14 INVESTMENTS RELATING TO THE UBS GLOBAL ALLOCATION FUND, UBS GLOBAL EQUITY FUND, UBS U.S. BALANCED FUND, UBS U.S. EQUITY FUND, UBS U.S. VALUE EQUITY FUND, UBS U.S. LARGE CAP 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 HIGH YIELD FUND, UBS INTERNATIONAL EQUITY FUND AND UBS EMERGING MARKETS EQUITY FUND 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, except for the UBS U.S. Small Cap Equity Fund and UBS U.S. Small Cap Growth Fund, expect their U.S. equity investments to emphasize large and intermediate capitalization companies. The UBS U.S. Small Cap Equity Fund and UBS U.S. Small Cap Growth Fund expect their U.S. equity investments to emphasize small capitalization companies. The UBS Global Allocation Fund, UBS U.S. Equity Fund, UBS U.S. Small Cap Equity Fund and UBS U.S. Small Cap Growth Fund may also invest in small capitalization equity markets. The equity markets in the non-U.S. component of the Series will typically include available shares of larger capitalization companies. Capitalization levels are measured relative to specific markets, thus large, intermediate and small capitalization ranges vary country by country. The UBS Global Allocation Fund and UBS U.S. Small Cap Equity Fund 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 UBS U.S. Small Cap Equity Fund may invest up to 20% of its total assets in small capitalization equity securities of publicly traded foreign corporations that were financed by venture capital partnerships. The UBS Global Allocation Fund, UBS Global Equity Fund and UBS International Equity Fund may also invest in open-end investment companies advised by the Advisor. The UBS Global Allocation Fund, UBS Global Equity Fund, UBS International Equity Fund and UBS Emerging Markets Equity Fund may invest in equity securities of issuers in 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 their own investment objectives, 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 a Series invests in these securities, the Series must bear these expenses in addition to the expenses of its own operation. INVESTMENTS RELATING TO THE UBS GLOBAL FUNDS, UBS U.S. 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 AND UBS HIGH YIELD FUND The following discussion of strategies, techniques and policies applies only to the UBS Global Funds, UBS U.S. 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 and UBS High Yield Fund. 15 EURODOLLAR SECURITIES The UBS Global Bond Fund, UBS U.S. Value Equity Fund, UBS U.S. Small Cap Equity Fund, UBS U.S. Real Estate Equity Fund, UBS High Yield Fund, UBS Emerging Markets Debt Fund and UBS Emerging Markets Equity Fund 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' Prospectuses, 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 them to enter into forward foreign currency exchange contracts, futures, options and interest rate swaps (in the case of the UBS Global Funds) 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. A 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 denominated in the currency being sold. Alternatively, when a 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. A non-deliverable forward is a transaction that represents an agreement between a 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 a 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 16 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 a 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, a 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, a 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, a Series could sustain losses on the non-deliverable forward transaction. A 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 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, a 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 a 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, a 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 17 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, a Series also may be required to forego all or a portion of the benefit which might otherwise have been obtained from favorable movements in exchange rates. The Series may write covered call options on foreign currencies. A call option written on a foreign currency by a 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 a 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, a 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 UBS U.S. 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 High Yield Fund, UBS Emerging Markets Debt Fund and UBS Emerging Markets Equity Fund 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 only enter into short sales for hedging purposes. 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 and a Series will not sell securities short if immediately after and as a result of the short sale, the value of all securities sold short by the Series exceeds 25% of its total assets. Each Series will also limit short sales of any one issuer's securities to 2% of its total assets and to 2% of any one class of the issuer's securities. 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 a Series may be unable to replace a borrowed security sold short. INVESTMENTS RELATING TO THE UBS GLOBAL ALLOCATION FUND, UBS GLOBAL BOND FUND, UBS U.S. BALANCED FUND, UBS U.S. REAL ESTATE EQUITY FUND, UBS U.S. BOND FUND, UBS HIGH YIELD FUND, UBS EMERGING MARKETS DEBT FUND AND UBS EMERGING MARKETS EQUITY FUND The following discussion applies to the UBS Global Allocation Fund, UBS Global Bond Fund, UBS U.S. Balanced Fund, UBS U.S. Real Estate Equity Fund, UBS U.S. Bond Fund, UBS High Yield Fund, UBS Emerging Markets Debt Fund and UBS Emerging Markets Equity Fund, except as otherwise noted. 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 18 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. 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. The UBS High Yield Fund, UBS Emerging Markets Debt Fund and UBS Emerging Markets Equity Fund do not intend to limit investments in lower rated securities. PAY-IN-KIND BONDS The UBS U.S. Real Estate Equity Fund, UBS High Yield Fund, UBS Emerging Markets Debt Fund and UBS Emerging Markets Equity Fund 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. 19 CONVERTIBLE SECURITIES (ALSO FOR UBS U.S. VALUE EQUITY FUND, UBS U.S. LARGE CAP GROWTH FUND, UBS U.S. SMALL CAP EQUITY FUND, UBS U.S. SMALL CAP GROWTH FUND AND UBS U.S. REAL ESTATE EQUITY FUND) 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. WHEN-ISSUED SECURITIES (ALSO FOR UBS U.S. LARGE CAP GROWTH FUND AND UBS U.S. SMALL CAP GROWTH FUND) 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 a Series will purchase such securities with the purpose of actually acquiring them unless a sale appears desirable for investment reasons. At the time a 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 a 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 20 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 a Series, the prepayment right of mortgagors may limit the 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 a 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. A 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 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 21 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 a 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 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. Most if not all newly-issued debt securities backed by pools of real estate mortgages will be issued as regular and residual interests in REMICs because, as of January 1, 1992, new CMOs which do not make REMIC elections will be treated as "taxable mortgage pools," a wholly undesirable tax result. Under certain transition rules, CMOs in existence on December 31, 1991 are unaffected by this change. 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 22 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 A 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 intend 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-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. 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 a Series' investment objective, policies and quality standards, consider making investments in such new types of mortgage-related securities. ASSET-BACKED SECURITIES (ALSO FOR UBS U.S. LARGE CAP GROWTH FUND AND UBS U.S. SMALL CAP GROWTH FUND) The Series may invest a portion of their 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). The UBS High Yield Fund will not invest in asset-backed securities with remaining effective maturities of less than thirteen months. 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 pay 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 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 23 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 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. 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 24 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 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 Series will not treat such privately stripped obligations to be U.S. government securities for the purpose of determining if the Series is "diversified," or for any other purpose, under the Act. 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, a 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. INVESTMENTS RELATING TO THE UBS GLOBAL ALLOCATION FUND, UBS GLOBAL EQUITY FUND, UBS HIGH YIELD FUND, UBS INTERNATIONAL EQUITY FUND, UBS EMERGING MARKETS DEBT FUND AND UBS EMERGING MARKETS EQUITY FUND EMERGING MARKETS INVESTMENTS The UBS Global Equity Fund and UBS International Equity Fund may each invest up to 15% of their total assets 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. The UBS Global Allocation Fund may invest up to 10% of its total assets 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, and up to 10% of its total assets 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 UBS Emerging Markets Debt Fund and the UBS Emerging Markets Equity Fund may invest substantially all of their assets in equity and debt securities of emerging market issuers, or securities with respect to which the return is derived from the equity or debt securities of issuers in emerging markets. The UBS High Yield Fund may invest up to 25% of its total assets in securities of foreign issuers, which may include securities of issuers in emerging markets. The Series also may invest in fixed income securities of emerging market issuers, including government and government-related entities (including participation in loans between governments and financial institutions), and of entities organized to restructure 25 outstanding debt of such issuers. 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 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 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. Except as noted, the Series' investments in the fixed income securities of emerging market issuers may include investments in Brady Bonds, Structured Securities, Loan Participation and Assignments (as such capitalized terms are defined below), and certain non-publicly traded securities. The UBS High Yield Fund, UBS Emerging Markets Debt Fund and UBS Emerging Markets Equity Fund 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, Jordan, Mexico, Nigeria, the Philippines, Poland, Uruguay, Panama, Peru and Venezuela. Brady Bonds have been issued only in recent years, and for that reason do not have a very long payment history. 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 UBS High Yield Fund, UBS Emerging Markets Debt Fund and UBS Emerging Markets Equity Fund 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 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 UBS High Yield Fund, UBS Emerging Markets Debt Fund and UBS Emerging Markets Equity Fund 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 26 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 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. RISKS OF INVESTING IN EMERGING MARKETS There are additional risks inherent in investing in less developed countries which are applicable to the UBS Global Allocation Fund, UBS Global Equity Fund, UBS High Yield Fund, UBS International Equity Fund, UBS Emerging Markets Debt Fund and UBS Emerging Markets Equity Fund. The Series consider 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 27 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 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 expect 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 UBS Global Allocation Fund, UBS Global Equity Fund, UBS International Equity Fund, UBS Emerging Markets Debt Fund and UBS Emerging Markets Equity Fund 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 a 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 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. 28 In addition, while registrars are liable under law for losses resulting from their errors, it may be difficult for a 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 a 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. SECONDARY RISKS The principal risks of investing in each of the Funds is described in the "Principal Risks" section of the Prospectuses. The secondary risks of investing in each of the Funds are described in Appendix B hereto. INVESTMENT RESTRICTIONS The investment restrictions set forth below are fundamental policies and may not be changed as to a 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 a Series' total assets will not be considered a violation. Each Fund (except for UBS International Equity Fund) may not: (i) Purchase the securities of any one issuer (other than the U.S. government or any of its agencies or instrumentalities or securities of other investment companies) if immediately after such investment: (a) more than 5% of the value of the Fund's total assets would be invested in such issuer; or (b) more than 10% of the outstanding voting securities of such issuer would be owned by the Fund, except that up to 25% of the value of the Fund's total assets may be invested without regard to such 5% and 10% limitations (this limitation does not apply to the UBS U.S. Equity Fund, UBS Global Bond Fund, UBS Global Technology Fund, UBS Global Biotech Fund, UBS U.S. Large Cap Growth Fund, UBS U.S. Small Cap Equity Fund, UBS U.S. Real Estate Equity Fund, UBS Emerging Markets Equity Fund and UBS Emerging Markets Debt Fund); (ii) Purchase or sell real estate, except that the Fund may purchase or sell securities of real estate investment trusts; (iii) 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; (iv) 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 up to 10% of the Fund's net assets to the extent permitted by the Act and any rule or order thereunder, or SEC staff interpretations thereof (this limitation does not apply to UBS Global Technology Fund, UBS Global Biotech Fund, UBS U.S. Large Cap Growth Fund, UBS U.S. Small Cap Growth Fund, UBS 29 U.S. Value Equity Fund, UBS High Yield Fund, UBS Emerging Markets Debt Fund and UBS Emerging Markets Equity Fund); (v) 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. With respect to UBS Global Technology Fund, UBS Global Biotech Fund, UBS U.S. Large Cap Growth Fund, UBS U.S. Small Cap Growth Fund, UBS U.S. Value Equity Fund, UBS U.S. Small Cap Equity Fund, UBS U.S. Real Estate Equity Fund, UBS High Yield Fund, UBS Emerging Markets Debt Fund and UBS Emerging Markets Equity Fund, (A) for purposes of (b), the Funds' restriction provides for the purchase of debt securities, loan participations and/or engaging in direct corporate loans in accordance with each Fund's investment objectives and policies, and (B) each Fund may also make loans to affiliated investment companies to the extent permitted by the Act or any exemptions therefrom that may be granted by the SEC; (vi) 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 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 (this limitation does not apply to UBS Global Technology Fund, UBS Global Biotech Fund, UBS U.S. Large Cap Growth Fund, UBS U.S. Small Cap Growth Fund, UBS U.S. Value Equity Fund, UBS U.S. Small Cap Equity Fund, UBS U.S. Real Estate Equity Fund, UBS High Yield Fund, UBS Emerging Markets Debt Fund and UBS Emerging Markets Equity Fund); (vii) 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) (this limitation does not apply to UBS Global Technology Fund, UBS Global Biotech Fund and UBS U.S. Real Estate Equity Fund); and (viii) Act as an underwriter, except to the extent the Fund may be deemed to be an underwriter when selling its own shares (this limitation does not apply to UBS Global Technology Fund, UBS Global Biotech Fund, UBS U.S. Large Cap Growth Fund, UBS U.S. Small Cap Growth Fund, UBS U.S. Value Equity Fund, UBS U.S. Small Cap Equity Fund, UBS U.S. Real Estate Equity Fund, UBS High Yield Fund, UBS Emerging Markets Debt Fund and UBS Emerging Markets Equity Fund). In addition, pursuant to a fundamental investment policy, the UBS U.S. Bond Fund, under normal circumstances, invests at least 65% of its total assets in investment grade U.S. debt securities, with an initial maturity of more than one year. UBS Global Technology Fund, UBS Global Biotech Fund, UBS U.S. Large Cap Growth Fund, UBS U.S. Small Cap Growth Fund, UBS U.S. Value Equity Fund, UBS U.S. Small Cap Equity Fund, UBS U.S. Real Estate Equity Fund, UBS High Yield Fund, UBS Emerging Markets Debt Fund and UBS Emerging Markets Equity Fund may not: (i) Borrow money, except that the Fund may borrow money from banks to the extent permitted by the Act, or to the extent permitted by any exemptions therefrom which may be granted by the SEC, or for temporary or emergency purposes, and then in an amount not exceeding 33 1/3% of the value of the Fund's total assets (including the amount borrowed); (ii) Act as underwriter, except to the extent the Fund may be deemed to be an underwriter when disposing of securities it owns or when selling its own shares; and (iii) Issue securities senior to the Fund's presently authorized shares of beneficial interest, except this restriction shall not be deemed to prohibit the Fund from (a) making any permitted borrowings, loans, mortgages 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 or any rule or order thereunder, or SEC staff interpretations thereof. 30 UBS International Equity Fund and UBS U.S. Equity Fund may not: As to 75% of the total assets of the Fund, purchase the securities of any one issuer, other than securities issued by the U.S. government or its agencies or instrumentalities, if immediately after such purchase more than 5% of the value of the total assets of the Fund would be invested in securities of such issuer; UBS International Equity Fund may not: (i) Invest in real estate or interests in real estate (this will not prevent the Fund from investing in publicly-held REITs or marketable securities of companies which may represent indirect interests in real estate), interests in oil, gas and/or mineral exploration or development programs or leases; (ii) Purchase or sell commodities or commodity contracts, but may enter into futures contracts and options thereon in accordance with its Prospectus. Additionally, the Fund may engage in forward foreign currency contracts for hedging and non-hedging purposes; (iii) Make investments in securities for the purpose of exercising control over or management of the issuer; (iv) Purchase the securities of any one issuer if, immediately after such purchase, the Fund would own more than 10% of the outstanding voting securities of such issuer; (v) Sell securities short or purchase securities on margin, except such short-term credits as are necessary for the clearance of transactions. For this purpose, the deposit or payment by the Fund for initial or maintenance margin in connection with futures contracts is not considered to be the purchase or sale of a security on margin; (vi) Make loans, except that this restriction shall not prohibit (a) the purchase and holding of a portion of an issue of publicly distributed or privately placed debt securities, (b) the lending of portfolio securities, or (c) entry into repurchase agreements with banks or broker-dealers; (vii) Issue senior securities or borrow money in excess of 33 1/3% of the value of its total assets, except as a temporary measure for extraordinary or emergency purposes to facilitate redemptions. All borrowings will be done from a bank and to the extent that such borrowing exceeds 5% of the value of the Fund's total assets, asset coverage of at least 300% is required. The Fund will not purchase securities when borrowings exceed 5% of the Fund's total assets; (viii) Purchase the securities of issuers conducting their principal business activities in the same industry, other than obligations issued or guaranteed by the U.S. government, its agencies or instrumentalities, if immediately after such purchase, the value of the Fund's investments in such industry would exceed 25% of the value of the total assets of the Fund across several countries; (ix) Act as an underwriter of securities, except that, in connection with the disposition of a security, the Fund may be deemed to be an "underwriter" as that term is defined in the 1933 Act; (x) Invest in securities of any open-end investment company, except that (i) the Fund may purchase securities of money market mutual funds, and (ii) in accordance with any exemptive order obtained from the SEC which permits investment by the Fund in other Series or other investment companies or series thereof advised by the Advisor. In addition, the Fund may acquire securities of other investment companies if the securities are acquired pursuant to a merger, consolidation, acquisition, plan of reorganization or a SEC approved offer of exchange; (xi) Invest in puts, calls, straddles or combinations thereof except to the extent disclosed in the Fund's Prospectus; and Invest more than 5% of its total assets in securities of companies less than three years old. Such three year periods shall include the operation of any predecessor company or companies. 31 MANAGEMENT OF THE TRUST The Trust is a Delaware business 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.
NUMBER OF TERM OF PRINICIPAL PORTFOLIOS IN POSITION OFFICE AND OCCUPATION(S) FUND COMPLEX NAME, ADDRESS HELD WITH LENGTH OF DURING PAST OVERSEEN & AGE TRUST TIME SERVED 5 YEARS BY TRUSTEE(1) - ------------------------ ------------- -------------------- ---------------------------------- -------------------- NON-INTERESTED TRUSTEES Walter E. Auch Trustee Term of Office is Retired; prior thereto, Chairman 39 Portfolios in two 6001 N. 62nd Place the lifetime of the and CEO of Chicago Board of registered Paradise Valley, AZ Trust Options Exchange 1979-1986; investment companies 85253 Length of Time Trustee, UBS Supplementary Trust advised by the Age: 81 Served: Since 1994 since 1997. Advisor Frank K. Reilly Chairman and Term of Office is Professor, University of Notre 40 Portfolios in College of Business Trustee the lifetime of the Dame since 1982; Trustee, UBS three registered Administration Trust Supplementary Trust since 1997; investment companies University of Length of Time and Director, Battery Park advised by the Notre Dame Served: Since 1993 Funds, Inc. 1995-2001. Advisor Notre Dame, IN 46556-0399 Age: 66 Edward M. Roob Trustee Term of Office is Retired; prior thereto, Senior 40 Portfolios in 841 Woodbine Lane the lifetime of the Vice President, Daiwa Securities three registered Northbrook, IL 60002 Trust America Inc. 1986-1993; Trustee, investment companies Age: 67 Length of Time UBS Supplementary Trust since advised by the Served: Since 1995 1997; Director, Brinson Trust Advisor Company since 1993; and Committee Member, Chicago Stock Exchange 1993-1999. OTHER DIRECTIONSHIPS NAME, ADDRESS HELD BY & AGE TRUSTEE - ------------------------ ---------------------------------- NON-INTERESTED TRUSTEES Walter E. Auch Trustee, Advisors Series Trust 6001 N. 62nd Place since 1997 (16 portfolios); Paradise Valley, AZ Trustee, Smith Barney Fund Complex 85253 since 1992 (27 portfolios); Age: 81 Trustee, Banyan Strategic Realty Trust since 1988; Director, Express America Holdings Corp. since 1992; Director, Semele Group, Inc. since 1987; and Trustee, Nicholas Applegate Institutional Funds since 1992 (19 portfolios). Frank K. Reilly Director, Discover Bank since College of Business 1993; Director, Morgan Stanley Administration Trust, FSB since 1996; and University of Director, NIBCO, Inc. since 1993. Notre Dame Notre Dame, IN 46556-0399 Age: 66 Edward M. Roob Director, CCM Fund Complex since 841 Woodbine Lane 2001 (9 portfolios). Northbrook, IL 60002 Age: 67
- ------------------------ (1) Each Trustee currently serves on the Board of the Trust and the Board of Trustees of UBS Relationship Funds. Messrs. Reilly and Roob also serve on the Board of Directors of Fort Dearborn Income Securities, Inc. 32
NUMBER OF TERM OF PRINICIPAL PORTFOLIOS IN POSITION OFFICE AND OCCUPATION(S) FUND COMPLEX NAME, ADDRESS HELD WITH LENGTH OF DURING PAST OVERSEEN & AGE TRUST TIME SERVED 5 YEARS BY TRUSTEE(1) - ------------------------ ------------- -------------------- ---------------------------------- -------------------- INTERESTED TRUSTEE Brian M. Storms Trustee and Term of Office as Chief Operating Officer since 39 Portfolios in two UBS Global Asset President Trustee is the September 2001 and President of registered Management (US) Inc., 51 lifetime of the UBS Global Asset Management (US) investment companies W. 52nd St., Trust Inc. since March 1999; Chief advised by the New York, NY 10019 Length of Time Executive Officer, UBS Global Advisor Age: 47 Served as Trustee: Asset Management (US) Inc. Since 2001 2000-2001; Director, President and Term of Office as Chief Operating Officer of the Officer is by Advisor since 2001; President and election of Trustees Chief Operating Officer of UBS Length of Time Global Asset Management (New York) Served as Officer: Inc. since October 2001; Since 2001 President, Prudential Investments, 1996-1999; President, Prudential mutual fund, annuity and managed money businesses 1996-1998; President and Trustee of UBS Relationship Funds and UBS Supplementary Trust since 2001; President of 22 other investment companies (consisting of 46 portfolios) for which UBS Global Asset Management (US) Inc., UBS Global Asset Management (Americas) Inc., UBS PaineWebber or one of their affiliates serves as investment advisor, sub-advisor or manager. Amy R. Doberman Vice Term of Office as Managing Director and General N/A UBS Global Asset President and Officer is by Counsel, UBS Global Asset Management (US) Inc., Secretary election of Trustees Management (US) Inc. since 2000; 51 West 52nd Street, Length of Time Vice President and Secretary of New York, NY 10019-6114 Served as Officer: the Trust since 2001; Vice Age: 40 Since 2001 President and Secretary, UBS Relationship Funds and UBS Supplementary Trust since 2001 (Vice President of UBS Supplementary Trust since 2002); General Counsel, Aeltus Investment Management, Inc. 1997-2000; previously, Assistant Chief Counsel, Division of Investment Management, SEC; Vice President and Secretary of 22 other investment companies (consisting of 46 portfolios) for which UBS Global Asset Management (US) Inc., UBS Global Asset Management (Americas) Inc., UBS PaineWebber or one of their affiliates serves as investment advisor, sub-advisor or manager. OTHER DIRECTIONSHIPS NAME, ADDRESS HELD BY & AGE TRUSTEE - ------------------------ ---------------------------------- INTERESTED TRUSTEE Brian M. Storms None UBS Global Asset Management (US) Inc., 51 W. 52nd St., New York, NY 10019 Age: 47 Amy R. Doberman N/A UBS Global Asset Management (US) Inc., 51 West 52nd Street, New York, NY 10019-6114 Age: 40
- ------------------------ (1) Each Trustee currently serves on the Board of the Trust and the Board of Trustees of UBS Relationship Funds. Messrs. Reilly and Roob also serve on the Board of Directors of Fort Dearborn Income Securities, Inc. 33
NUMBER OF TERM OF PRINICIPAL PORTFOLIOS IN POSITION OFFICE AND OCCUPATION(S) FUND COMPLEX NAME, ADDRESS HELD WITH LENGTH OF DURING PAST OVERSEEN & AGE TRUST TIME SERVED 5 YEARS BY TRUSTEE(1) - ------------------------ ------------- -------------------- ---------------------------------- -------------------- Paul H. Schubert Treasurer and Term of Office as Executive Director and Head of the N/A UBS Global Asset Principal Officer is by Mutual Fund Finance Department, Management (US) Inc., Accounting election of Trustees UBS Global Asset Management (US) Newport Center III, 499 Officer Length of Time Inc. since 1997; First Vice Washington Blvd., 14th Served as Officer: President and Senior Manager of Floor, Since 2001 the Mutual Fund Finance Jersey City, NJ Department, UBS Global Asset 07310-1998 Management (US) Inc. 1994-1997; Age: 39 Treasurer and Principal Accounting Officer of the Trust, UBS Relationship Funds and UBS Supplementary Trust since 2001; Vice President and Treasurer since 1997 of 22 other investment companies (consisting of 46 portfolios) for which UBS Global Asset Management (US) Inc., UBS Global Asset Management (Americas) Inc., UBS PaineWebber or one of their affiliates serves as investment advisor, sub-advisor or manager. David E. Floyd Assistant Term of Office as Director, UBS Global Asset N/A UBS Global Asset Secretary Officer is by Management (Americas) Inc. since Management (Americas) election of Trustees 2000; Associate Director, UBS Inc. Length of Time Global Asset Management (Americas) 209 S. LaSalle St., Served as Officer: Inc. 1998-2000; Associate, UBS Chicago, IL 60604-1295 Since 1998 Global Asset Management (Americas) Age: 33 Inc. 1994-1998; Trust Officer, Brinson Trust Company since 2000; Assistant Trust Officer, Brinson Trust Company 1998-2000; Assistant Secretary of the Trust since 1998; Assistant Secretary, UBS Relationship Funds since 1998; Assistant Secretary, UBS Supplementary Trust since 1998. OTHER DIRECTIONSHIPS NAME, ADDRESS HELD BY & AGE TRUSTEE - ------------------------ ---------------------------------- Paul H. Schubert N/A UBS Global Asset Management (US) Inc., Newport Center III, 499 Washington Blvd., 14th Floor, Jersey City, NJ 07310-1998 Age: 39 David E. Floyd N/A UBS Global Asset Management (Americas) Inc. 209 S. LaSalle St., Chicago, IL 60604-1295 Age: 33
- ------------------------ (1) Each Trustee currently serves on the Board of the Trust and the Board of Trustees of UBS Relationship Funds. Messrs. Reilly and Roob also serve on the Board of Directors of Fort Dearborn Income Securities, Inc. 34
NUMBER OF TERM OF PRINICIPAL PORTFOLIOS IN POSITION OFFICE AND OCCUPATION(S) FUND COMPLEX NAME, ADDRESS HELD WITH LENGTH OF DURING PAST OVERSEEN & AGE TRUST TIME SERVED 5 YEARS BY TRUSTEE(1) - ------------------------ ------------- -------------------- ---------------------------------- -------------------- David M. Goldenberg Vice Term of Office as Executive Director and Deputy N/A UBS Global Asset President and Officer is by General Counsel, UBS Global Asset Management (US) Inc., 51 Assistant election of Trustees Management (US) Inc. since 2002; W. 52nd St., Secretary Length of Time Vice President and Assistant New York, NY 10019 Served as Officer: Secretary of the Trust since 2002; Age: 35 Since 2002 Vice President and Assistant Secretary, UBS Relationship Funds and UBS Supplementary Trust since 2002; Director of Legal Affairs, Lazard Asset Management 2000-2002; Global Director of Compliance, SSB Citi Asset Management 1998-2000; Assoc. General Counsel, Smith Barney Asset Management 1996-1998; previously Branch Chief and Senior Counsel of SEC's Division of Investment Management; Vice President and Assistant Secretary of 24 other investment companies (consisting of 82 portfolios) for which UBS Global Asset Management (US) Inc., UBS Global Asset Management (Americas) Inc., UBS PaineWebber or one of their affiliates serves as investment advisor, sub-advisor or manager. Mark F. Kemper Assistant Term of Office as Executive Director, UBS Global N/A UBS Global Asset Secretary Officer is by Asset Management (Americas) Inc. Management (Americas) election of Trustees since 2001; Director, UBS Global Inc., Length of Time Asset Management (Americas) Inc. 209 S. LaSalle St., Served as Officer: 1997-2000; Partner, UBS Global Chicago, IL 60604-1295 Since 1999 Asset Management (Americas) Inc. Age: 44 1993-1996; Secretary, UBS Global Asset Management (Americas) Inc. since 1999; Assistant Secretary, UBS Global Asset Management (Americas) Inc. 1993-1999; Assistant Secretary, Brinson Trust Company since 1993; Secretary, UBS Global Asset Management (New York) Inc. since 1998; Assistant Secretary, Brinson Holdings, Inc. 1993-1998; Assistant Secretary of the Trust since 1999; Assistant Secretary, UBS Relationship Funds since 1999; Assistant Secretary, UBS Supplementary Trust since 1999. OTHER DIRECTIONSHIPS NAME, ADDRESS HELD BY & AGE TRUSTEE - ------------------------ ---------------------------------- David M. Goldenberg N/A UBS Global Asset Management (US) Inc., 51 W. 52nd St., New York, NY 10019 Age: 35 Mark F. Kemper N/A UBS Global Asset Management (Americas) Inc., 209 S. LaSalle St., Chicago, IL 60604-1295 Age: 44
- ------------------------ (1) Each Trustee currently serves on the Board of the Trust and the Board of Trustees of UBS Relationship Funds. Messrs. Reilly and Roob also serve on the Board of Directors of Fort Dearborn Income Securities, Inc. 35
NUMBER OF TERM OF PRINICIPAL PORTFOLIOS IN POSITION OFFICE AND OCCUPATION(S) FUND COMPLEX NAME, ADDRESS HELD WITH LENGTH OF DURING PAST OVERSEEN & AGE TRUST TIME SERVED 5 YEARS BY TRUSTEE(1) - ------------------------ ------------- -------------------- ---------------------------------- -------------------- Joseph T. Malone Assistant Term of Office as Director and a Senior Manager of N/A UBS Global Asset Treasurer Officer is by the Mutual Fund Finance Management (US) Inc., election of Trustees Department, UBS Global Asset Newport Center III, 499 Length of Time Management (US) Inc. since June Washington Blvd., 14th Served as Officer: 2001; Controller, AEA Investors Floor, Since 2001 Inc. 2000-2001; Manager, Jersey City, NJ Investment Management Services 07310-1998. Department, Age: 34 Pricewaterhouse-Coopers LLC. 1998-2000; Vice President, Mutual Fund Services Group, Bankers Trust & Co. prior to 1998; Assistant Treasurer of three investment companies for which UBS Global Asset Management (Americas) Inc., UBS Global Asset Management (US) Inc., UBS PaineWebber or one of their affiliates serves as investment advisor, sub-advisor or manager. OTHER DIRECTIONSHIPS NAME, ADDRESS HELD BY & AGE TRUSTEE - ------------------------ ---------------------------------- Joseph T. Malone N/A UBS Global Asset Management (US) Inc., Newport Center III, 499 Washington Blvd., 14th Floor, Jersey City, NJ 07310-1998. Age: 34
The Trustees, as of December 31, 2001, beneficially owned the following equity securities of the Trust and, on an aggregated basis, equity securities in any registered investment companies overseen by the Trustee within the same Fund Complex:
AGGREGATE DOLLAR RANGE OF EQUITY SECURITIES IN ALL REGISTERED INVESTMENT COMPANIES DOLLAR RANGE OF EQUITY OVERSEEN BY TRUSTEE IN FAMILY OF INVESTMENT NAME OF TRUSTEE SECURITIES IN THE TRUST COMPANIES --------------- ----------------------- ---------------------------------------------- Non-Interested Trustees [TO BE UPDATED} Walter E. Auch $10,001--$50,000 Frank K. Reilly Over $100,000 Edward M. Roob Over $100,000 Interested Trustee Brian M. Storms None
COMPENSATION TABLE TRUSTEES
AGGREGATE COMPENSATION TOTAL COMPENSATION FROM FROM TRUST FOR FISCAL YEAR TRUST AND FUND COMPLEX NAME AND POSITION HELD ENDED JUNE 30, 2002 PAID TO TRUSTEES(1) - ---------------------- -------------------------- ----------------------- Walter E. Auch, Trustee $ $ Frank K. Reilly, Trustee $ $ Edward M. Roob, Trustee $ $
- -------------------------- (1) This amount represents the aggregate amount of compensation paid to the Trustees for (a) service on the Board for the Trust's most recently completed fiscal year; and (b) service on the Board of Trustees of three other investment companies managed by the Advisor for the fiscal year ended June 30, 2002, with respect to Messrs. Reilly and Roob, and two other companies managed by the Advisor for the fiscal year ended June 30, 2002, with respect to Mr. Auch. During this period, the Trust had thirteen operating series. Mr. Storms did not receive any compensation from the Trust for the fiscal year ended June 30, 2002. 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 36 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. The Board has an Audit Committee, which has the responsibility, among other things, to: (i) recommend the selection of the Trust's independent auditors, (ii) review and approve the scope of the independent auditors' audit activity, (iii) review the audited financial statements, and (iv) review with such independent auditors the adequacy of the Trust's basic accounting system and the effectiveness of the Trust's internal controls. The Audit Committee met once during the fiscal year ended June 30, 2002. There is no separate nominating or investment committee. Items pertaining to these committees are submitted to the full Board. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES [THIS SECTION WILL BE UPDATED PRIOR TO PRINTING] As of , 2002, the officers and Trustees, unless otherwise noted, as a group owned less than 1% of the outstanding equity securities of the Trust and of each class of equity securities of the Trust. As of , 2002, the following persons owned, of record or beneficially, more than 5% of the outstanding voting shares of the UBS Fund--Class Y , UBS Fund--Class A , and UBS Fund--Class B and UBS Fund--Class C shares of the Series, as applicable: - -------------------------- * Person deemed to control the class within the meaning of the Act. Note that such persons possess the ability to control the outcome of matters submitted for the vote of shareholders of that class. + Person deemed to control the Series within the meaning of the Act. Note that such persons possess the ability to control the outcome of matters submitted for the vote of shareholders of that Series. Any person who owns beneficially, either directly or through one or more controlled companies, more than 25% of the voting securities of the Trust is presumed to control the Trust 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 Trust or a particular Fund. INVESTMENT ADVISORY, PRINCIPAL UNDERWRITING AND OTHER SERVICE ARRANGEMENTS ADVISOR UBS Global Asset Management (Americas) Inc., a Delaware corporation, is an investment management firm, managing as of June 30, 2002, approximately $ billion, primarily for institutional pension and profit sharing funds. The Advisor and its predecessor entities have managed domestic and international investment assets since 1974 and global investment assets since 1982. 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 $ billion in assets under management as of June 30, 2002. UBS has offices worldwide in addition to the Advisor's principal office at One North Wacker Drive, Chicago, IL 60606, headquartered in Zurich, Switzerland, is an internationally diversified organization with operations in many areas of the financial services industry. The Advisor also serves as the investment advisor to two other investment companies, UBS Relationship Funds and Fort Dearborn Income Securities, Inc., and as a sub-advisor to a series of the Vision Group of Funds and one fund within the UBS Family Funds. Pursuant to its investment advisory agreements (the "Agreements") with the Trust, on behalf of each Fund, the Advisor receives from each Fund a monthly fee at an annual rate (as described in the Prospectuses and below) multiplied by the average daily net assets of that Fund for providing investment advisory services. The Advisor is responsible for paying its expenses. Each Fund pays 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, 37 administrative 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. Under the Agreements, the Advisor is entitled to a monthly fee of the respective Fund's average daily net assets equal to annual rates of: 0.80% for the UBS Global Allocation Fund; 0.80% for the UBS Global Equity Fund; 0.75% for the UBS Global Bond Fund; 0.70% for the UBS U.S. Balanced Fund; 0.70% for the UBS U.S. Equity Fund; 0.70% for the UBS U.S. Value Equity Fund; 0.70% for the UBS U.S. Large Cap Equity Fund; 0.70% for the UBS U.S. Large Cap Growth Fund; 1.00% for the UBS U.S. Small Cap Equity Fund; 1.00% for the UBS U.S. Small Cap Growth Fund; 0.90% for the UBS U.S. Real Estate Equity Fund; 0.50% for the UBS U.S. Bond Fund; 0.60% for the UBS High Yield Fund; 0.80% for the UBS International Equity Fund; 1.10% for the UBS Emerging Markets Equity Fund; and 0.65% for the UBS Emerging Markets Debt Fund. The fees payable to the Advisor by the UBS Global Allocation Fund, UBS Global Equity Fund, UBS U.S. Small Cap Equity Fund, UBS U.S. Small Cap Growth Fund, UBS U.S. Real Estate Equity Fund, UBS International Equity Fund and UBS Emerging Markets Equity Fund are higher than the advisory fees paid by most other mutual funds, but are comparable to those of other mutual funds with similar investment objectives. On August 28, 2001, the Board of Trustees approved the submission of proposals to shareholders to amend each Fund's Investment Advisory Agreement to: (i) permit the Advisor to utilize the services of certain investment advisory personnel of UBS affiliates located throughout the world, (ii) permit the Advisor, on behalf of the Funds, to utilize investment sub-advisors, and (iii) eliminate the Funds' irrevocable fee waiver and expense reimbursement arrangements. At the Special Meeting of Shareholders held on June 28, 2002, shareholders of each Fund (except UBS International Equity Fund and UBS Global Technology Fund) approved each proposal. Accordingly, the Advisor, on behalf of each Fund (except UBS International Equity Fund), may utilize the services of investment advisory personnel of UBS affiliates located throughout the world, and may employ investment sub-advisors. In addition, in accordance with the proposal concerning the elimination of the irrevocable fee waiver and expense reimbursement arrangements, each Fund's (other than the UBS International Equity Fund and UBS Global Technology Fund) permanent expense cap has been replaced by a one-year contractual expense limit at the following rates of the respective Fund's average daily net assets, excluding any 12b-1 Plan fees: 1.10% for the UBS Global Allocation Fund; 1.00% for the UBS Global Equity Fund; 1.30% for the UBS Global Biotech Fund; 0.90% for the UBS Global Bond Fund; 0.80% for the UBS U.S. Balanced Fund; 0.80% for the UBS U.S. Equity Fund; 0.80% for the UBS U.S. Large Cap Equity Fund; 0.80% for the UBS U.S. Large Cap Growth Fund; 1.15% for the UBS U.S. Small Cap Growth Fund; 0.60% for the UBS U.S. Bond Fund; and 0.70% for the UBS High Yield Fund. The contractual fee waiver and/or expense reimbursement agreements will remain in place for the Funds' fiscal year ending June 30, 2003. Thereafter, the expense limit for each of the applicable Funds 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 agreements also provide 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 a 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. With regard to UBS Global Technology Fund and UBS International Equity Fund, the Advisor has agreed irrevocably to waive its fees and reimburse certain expenses to the extent that the total operating expenses (excluding 12b-1 fees) exceed 1.55% and 1.00%, respectively, of each Fund's average daily net assets. The Advisor has agreed to waive its fees and reimburse expenses to the extent that total operating expenses exceed the following rates of the respective Fund's average daily net assets, excluding any 12b-1 Plan fees: 0.85% for the UBS U.S. Value Equity Fund; 1.15% for the UBS U.S. Small Cap Equity Fund and UBS Emerging Markets Debt Fund; 1.05% for the UBS U.S. Real Estate Equity Fund; and 1.60% for the UBS Emerging Markets Equity Fund. The contractual fee waiver and/or expense reimbursement agreements will remain in 38 place for the Funds' fiscal year ending June 30, 2003. Thereafter, the expense limit for each 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 and/or expense reimbursement agreements also provide 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 a 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. Prior to July 1, 2002, each Fund was subject to an expense limit at the identical rate listed above for the Fund, for the one-year period from September 1, 2001 through September 1, 2002. General expenses of the Trust (such as costs of maintaining corporate existence, legal fees, insurance, etc.) will be allocated among the Funds in proportion to their relative net assets. Expenses which relate exclusively to a particular Fund, such as certain registration fees, brokerage commissions and other portfolio expenses, will be borne directly by that Fund. The Agreements for the Sub-Advised Funds permit the Advisor to engage the services of sub-advisors to assist in managing the assets of the Funds. Advisory fees accrued for the periods indicated below were as follows: A. FISCAL YEAR ENDED JUNE 30, 2002
GROSS ADVISORY NET ADVISORY FEES FUND EXPENSES FEES EARNED PAID PAID SERIES* BY ADVISOR AFTER FEE WAIVER BY ADVISOR - ------- -------------- ----------------- ------------- UBS Global Allocation Fund*.......................... $ $ $ UBS Global Equity Fund............................... $ $ $ UBS Global Bond Fund................................. $ $ $ UBS U.S. Balanced Fund............................... $ $ $ UBS U.S. Equity Fund................................. $ $ $ UBS U.S. Large Cap Equity Fund....................... $ $ $ UBS U.S.Value Equity Fund............................ $ $ $ UBS U.S. Large Cap Growth Fund....................... $ $ $ UBS U.S. Small Cap Growth Fund....................... $ $ $ UBS U.S. Bond Fund................................... $ $ $ UBS High Yield Fund.................................. $ $ $ UBS International Equity Fund........................ $ $ $
- -------------------------- * The UBS U.S. Small Cap Equity Fund, UBS U.S. Real Estate Equity Fund, UBS Emerging Markets Debt Fund and UBS Emerging Markets Equity Fund had not commenced operations as of the time period indicated Effective June 28, 2002, the UBS Global Balanced Fund changed its name to the UBS Global Allocation Fund. 39 B. FISCAL YEAR ENDED JUNE 30, 2001
GROSS ADVISORY NET ADVISORY FEES FUND EXPENSES FEES EARNED PAID PAID SERIES* BY ADVISOR AFTER FEE WAIVER BY ADVISOR - ------- -------------- ----------------- ------------- UBS Global Allocation Fund*.......................... $1,629,697 $1,629,697 $ 0 UBS Global Equity Fund............................... $ 516,271 $ 443,277 $ 72,994 UBS Global Technology Fund........................... $ 25,043 $ 0 $ 54,478 UBS Global Biotech Fund.............................. $ 23,776 $ 0 $ 52,816 UBS Global Bond Fund................................. $ 290,895 $ 206,610 $ 84,285 UBS U.S. Balanced Fund............................... $ 113,210 $ 57,778 $ 55,432 UBS U.S. Equity Fund................................. $1,050,438 $ 875,328 $175,110 UBS U.S. Large Cap Equity Fund....................... $ 48,938 $ 0 $ 86,264 UBS U.S. Large Cap Growth Fund....................... $ 65,657 $ 14,679 $ 50,978 UBS U.S. Small Cap Growth Fund....................... $ 507,842 $ 465,732 $ 42,110 UBS U.S. Bond Fund................................... $ 321,255 $ 237,585 $ 83,670 UBS High Yield Fund.................................. $ 317,198 $ 227,248 $ 89,950 UBS International Equity Fund........................ $2,413,368 $2,398,738 $ 14,630
- -------------------------- * The UBS U.S. Small Cap Equity Fund, UBS U.S. Real Estate Equity Fund, UBS Emerging Markets Debt Fund and UBS Emerging Markets Equity Fund had not commenced operations as of the time period indicated. The UBS U.S. Value Equity Fund commenced operations on June 29, 2001. Effective June 28, 2002, the UBS Global Balanced Fund changed its name to the UBS Global Allocation Fund. C. FISCAL YEAR ENDED JUNE 30, 2000
GROSS ADVISORY NET ADVISORY FEES FUND EXPENSES FEES EARNED PAID PAID SERIES* BY ADVISOR AFTER FEE WAIVER BY ADVISOR - ------- -------------- ----------------- ------------- UBS Global Allocation Fund*.......................... $2,899,741 $2,899,741 $ 0 UBS Global Equity Fund............................... $ 639,859 $ 585,500 $ 54,359 UBS Global Technology Fund........................... $ 549 $ 0 $ 4,639 UBS Global Biotech Fund.............................. $ 480 $ 0 $ 3,737 UBS Global Bond Fund................................. $ 597,228 $ 506,159 $ 91,069 UBS U.S. Balanced Fund............................... $ 199,072 $ 141,636 $ 57,436 UBS U.S. Equity Fund................................. $3,376,519 $3,216,420 $160,099 UBS U.S. Large Cap Equity Fund....................... $ 163,052 $ 54,768 $108,284 UBS U.S. Large Cap Growth Fund....................... $ 71,140 $ 0 $101,585 UBS U.S. Small Cap Growth Fund....................... $ 445,220 $ 375,907 $ 69,313 UBS U.S. Bond Fund................................... $ 452,989 $ 392,160 $ 60,829 UBS High Yield Fund.................................. $ 336,440 $ 248,712 $ 87,728 UBS International Equity Fund........................ $3,822,993 $3,822,993 $ 0
- -------------------------- * The UBS U.S. Value Equity Fund, UBS U.S. Small Cap Equity Fund, UBS U.S. Real Estate Equity Fund, UBS Emerging Markets Debt Fund and UBS Emerging Markets Equity Fund had not commenced operations as of the time period indicated.Effective June 28, 2002, the Global Balanced Fund changed its name to the Global Allocation Fund. At the March 18, 2002 meeting of the Trust's Board of Trustees, the Trustees considered and approved for a period of one-year the continuationof the Agreements between the Trust and the Advisor on behalf of the Funds, and the Investment Sub-Advisory Agreement with UBS Global Asset Management (New York) Inc. (the "Sub-Advisor") on behalf of UBS U.S. Large Cap Growth Fund, UBS U.S. Small Cap Growth Fund, UBS U.S. Real Estate Equity Fund and UBS High Yield Fund (the Investment Advisory Agreements and the Investment Sub-Advisory Agreement are together the "Advisory Agreements," and the "Advisor," for purpose of this section, includes the Sub-Advisor). In considering the continuance of the Advisory Agreements, the Trustees analyzed the nature, quality and scope of the Advisor's and Sub-Advisor's services, the revenues received and 40 expenses incurred (actual and projected) by the Advisor and the Sub-Advisor in performing the services required under the Advisory Agreements and the cost allocation methods used in calculating such expenses. The Trustees considered the fees paid to the Advisor under the Advisory Agreements, as well as any compensation paid to the Advisor, Sub-Advisor or their affiliates for other non-advisory services provided to the Funds. The Trustees also reviewed the Funds' fees and expense ratios in comparison to the fees and expenses of comparable funds. The Trustees also reviewed the Advisor's and the Sub-Advisor's profitability in managing the Funds; possible economies of scale to the Advisor; and the ability of the Advisor to continue to perform the services contemplated under the Advisory Agreements. The Trustees also evaluated (i) the performance of the Funds in comparison to the performance of funds with similar objectives and policies and the performance of the Funds benchmark indices, (ii) the relevant investment advisory personnel at the Advisor, and the Advisor's in-house research capabilities, as well as other resources available to the Advisor's personnel, including research services available to the Advisor as a result of securities transactions effected for the Funds and the Advisor's other investment advisory clients; and (iii) compliance with each Fund's investment restrictions, relevant tax and reporting requirements, procedures of the Advisor with respect to possible conflicts of interest, including the Advisor's code of ethics, trade allocation procedures for its various investment advisory clients, and best execution procedures. The Trustees gave substantial consideration to the fees payable under the Advisory Agreements. In this regard, the Trustees evaluated the Advisor's profitability with respect to the Funds, including consideration of so-called "fallout benefits" to the Advisor or its affiliates, such as, for example, value derived from serving as investment advisor to the Funds, and the research services available to the Advisor by reason of brokerage commissions from other funds. Based on these considerations and the overall high-quality of the personnel, operations, financial condition, investment advisory capabilities, methodologies, and performance of the Advisor, the Trustees concluded that the advisory fees paid under the Advisory Agreements were fair and reasonable, and the scope and quality of the Advisor's services to the Funds were consistent with the Funds' operational requirements and sufficient to approve the continuance of the Advisory Agreements between the Trust and the Advisor. SUB-ADVISOR The Advisor has entered into sub-advisory agreements with UBS Global Asset Management (New York) Inc. (formerly known as Brinson Partners (NY), Inc.,) (the "Sub-Advisor"), 10 East 50th Street, New York, New York, on behalf of each of the Sub-Advised Funds. The Sub-Advisor is an affiliate of the Advisor. Under the direction of the Advisor, the Sub-Advisor is responsible for managing the investment and reinvestment of a Fund's portfolio. The Sub-Advisor serves as sub-advisor to the UBS U.S. Large Cap Growth Fund, UBS U.S. Small Cap Growth Fund, UBS U.S. Real Estate Equity Fund and UBS High Yield Fund. The Sub-Advisor furnishes the Advisor with investment recommendations, asset allocation advice, research and other investment services subject to the direction of the Trust's Board and officers. Under the sub-advisory agreements, the Advisor is obligated to pay the Sub-Advisor a portion of the fees that the Advisor receives under its agreement with each Sub-Advised Fund as set forth in the table below. [For the fiscal year ended June 30, 2002, the Sub-Advisor agreed to waive its fee with respect to each Sub-Advised Fund.]
SUB-ADVISORY FEE PAID TO THE SUB-ADVISOR SERIES ADVISORY FEE BY ADVISOR - ------ ------------ --------------------- UBS U.S. Large Cap Growth Fund.............................. 0.70% 0.10% UBS U.S. Small Cap Growth Fund.............................. 1.00% 0.10% UBS U.S. Real Estate Equity Fund............................ 0.90% 0.10% UBS High Yield Fund......................................... 0.60% 0.10%
ADMINISTRATIVE, ACCOUNTING AND CUSTODY SERVICES ADMINISTRATIVE AND ACCOUNTING SERVICES. Effective November 5, 2001, UBS Global AM, with its principal office located at 51 West 52nd Street, New York, New York 10019-6114, serves as the Funds' administrator. The 41 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 Trust's operations. Under the Administration Contract, the Administrator will not be liable for any error of judgement or mistake of law or for any loss suffered by any 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 Funds' outstanding voting securities, on 60 days' written notice to the Administrator, or by the Administrator on 60 days' written notice to the Trust. J.P. Morgan Investors Services Co. ("J.P. Morgan") provides accounting, portfolio valuation and certain administrative services for the Funds under a Multiple Services Agreement between the Trust and J.P. Morgan Chase Bank ("Chase"). J.P. Morgan is located at 73 Tremont Street, Boston, MA 02108-3913 and is a corporate affiliate of Chase. Each 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 such Fund. This fee is the same amount that was previously paid to J.P. Morgan as the Trust's administrator. Until November 2, 2001, J.P. Morgan served as administrator and accounting and portfolio valuation agent under a Multiple Services Agreement, which also included the custodian services performed by Chase. J.P. Morgan served as transfer agent of the Trust until August 17, 2001. PFPC Inc. was appointed transfer agent of the Trust effective August 20, 2001. For the fiscal years ended June 30, 2002, 2001 and 2000, aggregate fees paid to J.P. Morgan for administration, accounting, portfolio valuation and transfer agency services were as follows:
FUND 2002* 2001* 2000* - ---- -------- -------- -------- UBS Global Balanced Fund*................................... $ $153,238 $265,531 UBS Global Equity Fund...................................... $ $ 10,950 $ 8,046 UBS Global Bond Fund........................................ $ $ 5,046 $ 4,425 UBS U.S. Balanced Fund...................................... $ $ 384 $ 1,442 UBS U.S. Equity Fund........................................ $ $ 7,682 $ 38,857 UBS U.S. Large Cap Equity Fund.............................. $ $ 207 $ 388 UBS U.S. Large Cap Growth Fund.............................. $ $ 1,271 $ 527 UBS U.S. Small Cap Growth Fund.............................. $ $ 1,460 $ 1,458 UBS U.S. Value Equity Fund.................................. N/A N/A UBS U.S. Bond Fund.......................................... $ $ 498 $ 1,098 UBS High Yield Fund......................................... $ $ 396 $ 1,087 UBS International Equity Fund............................... $ $ 85,387 $364,818
- -------------------------- * The UBS U.S. Small Cap Equity Fund, UBS U.S. Real Estate Equity Fund, UBS Emerging Markets Debt Fund and UBS Emerging Markets Equity Fund had not commenced investment operations as of the time periods indicated. The UBS U.S. Value Equity Fund commenced operations on June 29, 2001. Effective June 28, 2002, the UBS Global Balanced Fund changed its name to the UBS Global Allocation Fund. CUSTODY SERVICES. Chase, located at 270 Park Avenue, New York, New York 10017 ("Chase") provides custodian services for the securities and cash of the Funds. 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 and out-of-pocket expenses. Chase utilizes foreign sub-custodians under procedures approved by the Board in accordance with applicable legal requirements. PRINCIPAL UNDERWRITING ARRANGEMENTS UBS Global Asset Management (US) Inc. (the "Underwriter") acts as the principal underwriter of each class of shares of the Funds pursuant to a Principal Underwriting Contract with the Trust ("Principal Underwriting Contract"). The Principal Underwriting Contract requires the Underwriter to use its best efforts, 42 consistent with its other businesses, to sell shares of the Funds. 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 of distribution pertaining to the Class A, Class B and Class C shares of the Funds 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 Funds pay 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 Funds pay 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. Under the Class C Plan, the Funds pay the Underwriter a distribution fee, accrued daily and payable monthly, at the annual rate of 0.50% (for Fixed Income Funds) or 0.75% (for Equity Funds) of the average daily net assets of the class of shares. There is no distribution plan with respect to the Funds' Class Y shares and the Funds pay no service or distribution fees with respect to their 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 each 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 each Fund's Class B and Class C shares, respectively, and to offset each 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 and Class C 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 Funds 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 Funds exceed the service or distribution fees it receives, the Funds 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 Funds 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 a 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 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 a Fund's shares will not be used 43 to subsidize the sale of any other class of the Fund's shares. For the fiscal year ended June 30, 2002, the Funds did not pay (or accrue) any service and/or distribution fees to the Underwriter under the Plans. ] 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 Underwriter's 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 Funds attained and maintained significant asset levels. [INSERT AMOUNTS PAID UNDER CLASS A, CLASS B, AND CLASS C 12B-1 PLANS] PRIOR DISTRIBUTION ARRANGEMENTS Until November 5, 2001, a distribution plan, adopted pursuant to Rule 12b-1 under the Act, had related to the Trust's UBS Investment Funds class of shares of the UBS Global Allocation Fund, UBS Global Equity Fund, UBS Global Bond Fund, UBS U.S. Balanced Fund, UBS U.S. Equity Fund, UBS U.S. Large Cap Equity Fund, UBS U.S. Large Cap Growth Fund, UBS U.S. Small Cap Growth Fund, UBS U.S. Bond Fund, UBS High Yield Fund and UBS International Equity Fund (the "UBS Investment Plan I"). A separate distribution plan, adopted pursuant to Rule 12b-1 under the Act, had related to the Trust's UBS Investment Funds class of shares of the UBS Global Technology Fund, UBS Global Biotech Fund, UBS U.S. Value Equity Fund, UBS U.S. Small Cap Equity Fund and UBS U.S. Real Estate Equity Fund (the "UBS Investment Plan II", and together with UBS Investment Plan I, the "UBS Investment Plans"). The Board had also adopted a separate distribution plan (the "Class N Plan") pursuant to Rule 12b-1 under the Act, for each Series' Brinson Fund--Class N shares (the UBS Investment Plans and the Class N Plan are together the "Prior Plans"), which was in place until November 5, 2001. The Prior Plans had permitted each Series to reimburse Funds Distributor Inc., the Trust's former underwriter ("FDI"), the Advisor and others from the assets of the UBS Investment Funds class of shares and Brinson Fund--Class N shares with a quarterly fee for services and expenses incurred in distributing and promoting sales of UBS Investment Funds class of shares and Brinson Fund--Class N shares, respectively. These expenses had included, but were not limited to, preparing and distributing advertisements and sales literature, printing prospectuses and reports used for sales purposes, and paying distribution and maintenance fees to brokers, dealers and others in accordance with a selling agreement with the Trust on behalf of the UBS Investment Funds class of shares and the Brinson Fund--Class N shares or FDI. In addition, each Fund (as well as the Advisor, from the Advisor's own resources) had made payments directly to FDI for payment to dealers or others, or directly to others, such as banks, who had assisted in the distribution of the UBS Investment Funds class of shares or Brinson Fund--Class N shares or provided services with respect to the UBS Investment Funds class of shares or Brinson Fund--Class N shares. UBS, or one of its affiliates, pursuant to a selected dealer agreement, had provided additional compensation to securities dealers from its own resources in connection with sales of the UBS Investment Funds class of shares or Brinson Fund--Class N shares of the Funds. The aggregate distribution fees paid by the Funds from the assets of the respective UBS Investment Funds class of shares to FDI and others under the UBS Investment Plan I and UBS Investment Plan II could not exceed 0.90% and 1.00%, respectively, of a Fund's average daily net assets in any year (0.25% of which were service fees to be paid by the Series to FDI, dealers and others, for providing personal service and/or 44 maintaining shareholder accounts). The UBS Investment Plan I had provided, however, that the aggregate distribution fees for each subject Fund could not exceed the following maximum amounts for the fiscal year ending June 30, 2002: UBS Investment Fund--Global Balanced--0.65%, UBS Investment Fund--Global Equity--0.76%, UBS Investment Fund--Global Bond--0.49%, UBS Investment Fund--U.S. Balanced--0.50%, UBS Investment Fund--U.S. Equity--0.52%, UBS Investment Fund--U.S. Large Cap Equity--0.52%, UBS Investment Fund--U.S. Large Cap Growth--0.77%, UBS Investment Fund--U.S. Small Cap Growth--0.77%, UBS Investment Fund--U.S. Bond--0.47%, UBS Investment Fund--High Yield--0.85% and UBS Investment Fund--International Equity--0.84%. The UBS Investment Plan II had provided that the aggregate distribution fees for each subject Fund could not exceed the following maximum amounts for the fiscal year ending June 30, 2001: UBS Investment Fund--Global Technology--1.00%, UBS Investment Fund--Global Biotech--1.00%, UBS Investment Fund--U.S. Value Equity--1.00%, UBS Investment Fund--U.S. Small Cap Equity--1.00%, UBS Investment Fund--U.S. Real Estate Equity--1.00%, UBS Investment Fund--Emerging Markets Debt--1.00%, and UBS Investment Fund--Emerging Markets Equity--1.00%. The aggregate distribution fees paid by the Funds from the assets of the respective Brinson Fund--Class N shares to FDI and others under the Class N Plan could not exceed 0.25% of a Fund's average daily net assets in any year. The UBS Investment Plans did not apply to the Brinson Fund--Class I or the Brinson Fund--Class N shares of each Fund and those shares were not included in calculating the UBS Investment Plans' respective fees. The Class N Plan did not apply to the Brinson Fund--Class I or the UBS Investment Funds class of shares of each Fund and those shares were not included in calculating the Class N Plan's fees. The quarterly fees paid to FDI under the Plans were subject to the review and approval by the Trust's Trustees who were not "interested persons" (as defined in the Act) of the Advisor, and who could reduce the fees or terminate the Plans at any time. Amounts spent on behalf of each UBS Investment Funds class of shares pursuant to the UBS Investment Plans during the fiscal year ended June 30, 2002 are set forth below:
COMPENSATION COMPENSATION COMPENSATION COMPENSATION TO TO TO TO UBS SALES FUND* PRINTING UNDERWRITERS DEALERS PERSONNEL ADVERTISING OTHER - ----- ------------ ------------ ------------ ------------ ----------- -------- UBS Investment Fund--Global Allocation.................. UBS Investment Fund--Global Equity...................... UBS Investment Fund--Global Bond........................ UBS Investment Fund--U.S. Balanced.................... UBS Investment Fund--U.S. Equity...................... UBS Investment Fund--U.S. Large Cap Equity............ UBS Investment Fund--U.S. Large Cap Growth............ UBS Investment Fund--U.S. Small Cap Growth............ UBS Investment Fund--U.S. Bond........................ UBS Investment Fund--High Yield....................... UBS Investment Fund-- International Equity........
45 Amounts spent on behalf of each Fund's Class N shares pursuant to the Class N Plan during the fiscal year ended June 30, 2002 are set forth below:
COMPENSATION COMPENSATION COMPENSATION COMPENSATION TO TO TO TO UBS SALES FUND* PRINTING UNDERWRITERS DEALERS PERSONNEL ADVERTISING OTHER - ----- ------------ ------------ ------------ ------------ ----------- -------- UBS Global Allocation Fund-- Class N..................... UBS Global Equity Fund-- Class N..................... UBS Global Bond Fund-- Class N..................... UBS U.S. Balanced Fund-- Class N..................... UBS U.S. Equity Fund--Class N............... UBS U.S. Large Cap Equity Fund--Class N............... UBS U.S. Large Cap Growth-- Class N..................... UBS U.S. Small Cap Growth-- Class N..................... UBS U.S. Bond Fund--Class N.. UBS High Yield--Class N....... UBS International Equity Fund--Class N...............
- -------------------------- * The UBS U.S. Small Cap Equity Fund, UBS U.S. Real Estate Equity Fund, UBS Emerging Markets Debt Fund and UBS Emerging Markets Equity Fund had not commenced operations as of the time periods indicated. The UBS U.S. Value Equity Fund commenced operations on June 29, 2001. Effective June 28, 2002, the Global Balanced Fund changed its name to the Global Allocation Fund. TRANSFER AGENCY SERVICES Effective August 20, 2001, PFPC Inc. ("PFPC"), a subsidiary of PNC Bank, N.A., serves as the Trust's transfer and dividend disbursing agent. It is located at 400 Bellevue Parkway, Wilmington, DE 19809. INDEPENDENT AUDITORS Ernst & Young LLP, New York, New York, are the independent auditors of the Trust. LEGAL COUNSEL Stradley, Ronon, Stevens & Young, LLP, Philadelphia, Pennsylvania, is legal counsel to the Trust and the independent Trustees. PERSONAL TRADING POLICIES The Trust, the Advisor, the Underwriter and the Sub-Advisor have each adopted a Code of Ethics under Rule 17j-1 of the Act. Each Code of Ethics establishes standards by which certain personnel covered by the rule may invest in securities that may be purchased or held by the Funds but prohibits fraudulent, deceptive or manipulative conduct in connection with that personal investing. PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS The Advisor is responsible for decisions to buy and sell securities for the Funds and for the placement of the Funds' portfolio business and the negotiation of commissions, if any, paid on such transactions. Subject to the direction of the Advisor, the Sub-Advisor is responsible for decisions to buy and sell securities and for the 46 placement of portfolio business and the negotiation of commissions, if any, paid on such transactions, for the portion of each Fund's assets that the Sub-Advisor manages. Portfolio transactions placed by the Sub-Advisor may be effected through the Advisor's or the Sub-Advisor's trading desk. Fixed income securities in which the Funds invest 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 and the Sub-Advisor are responsible for effecting portfolio transactions and will do so in a manner deemed fair and reasonable to the Funds. Under its advisory agreements with the Funds, the Advisor is authorized to utilize the trading desk of its foreign affiliates to execute foreign securities transactions, but monitors the selection by such affiliates of brokers and dealers used to execute transactions for the Funds. 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, a 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 or the Sub-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 Funds, as to which the Advisor or the Sub-Advisor exercises investment discretion. In selecting and monitoring broker-dealers and negotiating commissions, the Advisor and the Sub-Advisor consider the firm's reliability, the quality of its execution services on a continuing basis and its financial condition. The Advisor and the Sub-Advisor may also consider the sale of shares of the Funds and other funds that they advise as a factor in the selection of brokers or dealers to effect transactions for the Funds, subject to the Advisor's and the Sub-Advisor's duties to seek best execution. 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 Funds, to the Advisor or to the Sub-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 and the Sub-Advisor to supplement their own investment research activities and obtain the views and information of others prior to making investment decisions. The Advisor and the Sub-Advisor are of the opinion that, because this material must be analyzed and reviewed by their staff, the receipt and use of such material does not tend to reduce expenses but may benefit the Funds by supplementing the Advisor's and the Sub-Advisor's research. The Advisor and the Sub-Advisor effect portfolio transactions for other investment companies and advisory accounts. Research services furnished by dealers through whom the Funds effect their securities transactions may be used by the Advisor or the Sub-Advisor in servicing all of their accounts; not all such services may be used in connection with the Funds. In the opinion of the Advisor and the Sub-Advisor, it is not possible to measure separately the benefits from research services to each of the accounts (including the Funds). The Advisor and the Sub-Advisor will attempt to equitably allocate portfolio transactions among the Funds and others whenever concurrent decisions are made to purchase or sell securities by the Funds and another. In making such allocations between the Funds 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 Funds and the others. In some cases, this procedure could have an adverse effect on the Funds. In the opinion of the Advisor and the Sub-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 Funds may pay commissions to brokers who are affiliated with the Advisor, the Sub-Advisor or the Funds. The Funds may purchase securities in certain underwritten offerings for which an affiliate of the Funds, the Advisor or the Sub-Advisor may act as an underwriter. The Funds may effect futures transactions through, and pay commissions to, futures commission merchants who are affiliated with the Advisor, the Sub-Advisor or the Funds in accordance with procedures adopted by the Board. 47 The Funds incurred brokerage commissions as follows:
FISCAL YEAR FISCAL YEAR FISCAL YEAR ENDED ENDED ENDED FUND* JUNE 30, 2000 JUNE 30, 2001 JUNE 30, 2002 - ----- ------------- ------------- ------------- UBS Global Allocation Fund......................... $ 458,131 $257,850 $ UBS Global Equity Fund............................. $ 307,473 $133,005 $ UBS Global Bond Fund............................... $ 0 $ 0 $ UBS U.S. Balanced Fund............................. $ 32,174 $ 19,501 $ UBS U.S. Equity Fund............................... $1,078,586 $273,507 $ UBS U.S. Value Equity Fund......................... $ N/A $ N/A $ UBS U.S. Large Cap Equity Fund..................... $ 74,174 $ 25,456 $ UBS U.S. Large Cap Growth Fund**................... $ 15,626 $ 11,376 $ UBS U.S. Small Cap Growth Fund**................... $ 271,215 $162,164 $ UBS U.S. Bond Fund................................. $ 0 $ 0 $ UBS High Yield Fund**.............................. $ 0 $ 0 $ UBS International Equity Fund...................... $1,256,390 $712,539 $
- -------------------------- * The UBS U.S. Value Equity Fund commenced operations on June 29, 2001. The UBS U.S. Small Cap Equity Fund, UBS U.S. Real Estate Equity Fund, UBS Emerging Markets Debt Fund and UBS Emerging Markets Equity Fund had not commenced operations as of the time periods indicated. For the fiscal year ended June 30, 2000, the UBS Global Allocation Fund, UBS Global Equity Fund, UBS U.S. Balanced Fund, UBS U.S. Equity Fund, UBS U.S. Large Cap Equity Fund, UBS U.S. Large Cap Growth Fund and UBS U.S. Small Cap Growth Fund paid brokerage commissions to Warburg, as follows:
AGGREGATE DOLLAR AMOUNT OF COMMISSIONS PAID FUND TO WARBURG - ---- ---------------- UBS Global Allocation Fund.................................. $ 61,971 UBS Global Equity Fund...................................... $ 7,061 UBS U.S. Balanced Fund...................................... $ 9,599 UBS U.S. Equity Fund........................................ $426,884 UBS U.S. Large Cap Equity Fund.............................. $ 28,014 UBS U.S. Large Cap Growth Fund.............................. $ 2,133 UBS U.S. Small Cap Growth Fund.............................. $ 9,675
For the fiscal year ended June 30, 2001, the UBS Global Allocation Fund, UBS Global Equity Fund, UBS U.S. Balanced Fund, UBS U.S. Equity Fund, UBS U.S. Large Cap Equity Fund, UBS U.S. Large Cap Growth Fund, UBS U.S. Small Cap Growth Fund, UBS Global Technology Fund and UBS Global Biotech Fund paid brokerage commissions to Warburg, as follows:
AGGREGATE DOLLAR AMOUNT OF COMMISSIONS PAID FUND TO WARBURG - ---- ---------------- UBS Global Balanced Fund.................................... $ 58,857 UBS Global Equity Fund...................................... $ 3,838 UBS U.S. Balanced Fund...................................... $ 3,449 UBS U.S. Equity Fund........................................ $107,381 UBS U.S. Large Cap Equity Fund.............................. $ 10,773 UBS U.S. Large Cap Growth Fund.............................. $ 2,356 UBS Global Technology Fund.................................. $ 1,346 UBS Global Biotech Fund..................................... $ 254
48 For the fiscal year ended June 30, 2002, the UBS Global Allocation Fund, UBS Global Equity Fund, UBS U.S. Balanced Fund, UBS U.S. Equity Fund, UBS U.S. Large Cap Equity Fund, UBS U.S. Large Cap Growth Fund, and UBS U.S. Small Cap Growth Fund paid brokerage commissions to Warburg, as follows:
AGGREGATE % OF AGGREGATE DOLLAR AMOUNT OF % OF AGGREGATE DOLLAR AMOUNT COMMISSIONS PAID COMMISSIONS PAID PAID FUND TO WARBURG TO WARBURG TO WARBURG - ---- ---------------- ---------------- -------------- UBS Global Balanced Fund........................ $ % % UBS Global Equity Fund.......................... $ % % UBS U.S. Balanced Fund.......................... $ % % UBS U.S. Equity Fund............................ $ % % UBS U.S. Large Cap Equity Fund.................. $ % % UBS U.S. Large Cap Growth Fund.................. $ % %
[For the fiscal year ended June 30, 2002, the Trust, the Advisor and the Sub-Advisor had no agreements or understandings with a broker, or otherwise through an internal allocation procedure, to cause the Funds' brokerage transactions to be directed to a broker because of research services provided.] PORTFOLIO TURNOVER The Funds are free to dispose of their 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 each Fund's respective investment objective. The Funds 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 Funds do not intend to use short-term trading as a primary means of achieving their investment objectives. 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 that 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. Under normal circumstances, the portfolio turnover rate for the UBS U.S. Equity Fund, UBS U.S. Value Equity Fund, UBS U.S. Large Cap Growth Fund and UBS International Equity Fund is not expected to exceed 100%. The portfolio turnover rates for the UBS Global Allocation Fund, UBS Global Equity Fund, UBS Global Bond Fund, UBS U.S. Large Cap Equity Fund, UBS U.S. Small Cap Equity Fund, UBS U.S. Real Estate Equity Fund, UBS High Yield Fund, UBS Emerging Markets Debt Fund and UBS Emerging Markets Equity Fund may exceed 100%, and in some years, 200%. The portfolio turnover rate for the UBS U.S. Small Cap Growth Fund may exceed 150%, and for the UBS U.S. Balanced Fund and UBS U.S. Bond Fund, the portfolio turnover rate may exceed 100% and in some years, 300%. High portfolio turnover rates (over 100%) may involve correspondingly greater brokerage commissions and other transaction costs, which will be borne directly by the Funds and ultimately by the Funds' shareholders. In addition, high portfolio turnover may result in increased short-term capital gains, which, when distributed to shareholders, are treated as ordinary income. 49 The portfolio turnover rate of each Fund for the fiscal years ended June 30, 2001 and 2002 was as follows:
FISCAL YEAR FISCAL YEAR ENDED ENDED FUND* JUNE 30, 2001 JUNE 30, 2002 - ----- -------------- -------------- UBS Global Balanced Fund*................................... 115% % UBS Global Equity Fund...................................... 81% % UBS Global Bond Fund........................................ 165% % UBS U.S. Balanced Fund...................................... 159% % UBS U.S. Equity Fund........................................ 54% % UBS U.S. Value Equity Fund.................................. N/A % UBS U.S. Large Cap Equity Fund.............................. 94% % UBS U.S. Large Cap Growth Fund.............................. 56% % UBS U.S. Small Cap Growth Fund.............................. 93% % UBS U.S. Bond Fund.......................................... 314% % UBS High Yield Fund......................................... 87% % UBS International Equity Fund............................... 62% %
- -------------------------- * The UBS U.S. Value Equity Fund commenced operations on June 29, 2001. The UBS U.S. Small Cap Equity Fund, UBS U.S. Real Estate Equity Fund, UBS Emerging Markets Debt Fund and UBS Emerging Markets Equity Fund had not commenced operations as of the time periods indicated. SHARES OF BENEFICIAL INTEREST The Trust currently offers four classes of shares for each 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. Each 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 applicable Fund and has identical voting, dividend, redemption, liquidation, and other rights and preferences as the other class of that 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 a Fund's fundamental investment objective and fundamental investment policies, changes to the Trust's investment advisory agreements 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 Funds 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 Funds into a greater or lesser number of shares so affected. In the case of a liquidation of a 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 a Fund. On any matters affecting only one Fund or class, only the shareholders of that Fund or class are entitled to vote. On matters relating to the Trust but affecting the Funds differently, separate votes by the affected Funds or classes are required. With respect to the submission to shareholder vote of a matter requiring separate voting by a Fund or class, the matter shall have been effectively acted upon with respect to any Fund or class if a majority of the outstanding voting securities of that Fund 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 Fund 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 Funds. 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 respective Funds. In addition, subject to certain conditions, shareholders of each Fund may apply to the Fund to 50 communicate with other shareholders to request a shareholders' meeting to vote upon the removal of a Trustee or Trustees. The Trust had previously been authorized to issue interests in the Funds in three classes of shares: the Brinson Fund--Class I, the Brinson Fund--Class N and the UBS Investment Funds class of shares. Effective October 29, 2001. Accordingly, effective October 29, 2001, Class I shares of the Funds were redesignated as Class Y shares of the Funds, and the Class N shares of the Funds were redesignated as the Class A shares of the Funds. On November 9, 2001, the UBS Investment Funds class of shares of each Fund was liquidated. Effective April 8, 2002, the name of each class of each Series was changed from the Brinson Fund--Class A to the UBS Fund--Class A, the Brinson Fund--Class B to the UBS Fund--Class B, the Brinson Fund--Class C to the UBS Fund--Class C, and the Brinson Fund--Class Y to the UBS Fund--Class Y. REDUCED SALES CHARGES, ADDITIONAL 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: - 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; - 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 - 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. The 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 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 PAINEWEBBER INSIGHTONE-SM- PROGRAM. Investors who purchase shares through the UBS PaineWebber 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 Funds. The UBS PaineWebber InsightOne-SM- Program offers a nondiscretionary brokerage account to UBS PaineWebber 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. 51 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 PaineWebber 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 PaineWebber and its affiliates are entitled to a waiver of this fee. Please contact your UBS PaineWebber Financial Advisor or UBS PaineWebber's correspondent firms for more information concerning mutual funds that are available through the PACE-SM- Multi Advisor Program. Shareholders who owned Class Y shares of a Fund through the PACE Multi-Advisor Program as of November 15, 2001, will be eligible to continue to purchase Class Y shares of that Fund through the program. ADDITIONAL EXCHANGE AND REDEMPTION INFORMATION. As discussed in the Prospectuses, eligible shares of a Fund may be exchanged for shares of the corresponding class of other Funds 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 a 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 a 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 a Fund's portfolio. Where a shareholder has requested redemption of all or a part of the shareholder's investment and where a 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 Funds, the Trust is permitted to pay redemptions in-kind to shareholders that are affiliated persons of the Funds by nature of a greater than 5% ownership interest in the Funds. A 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. 52 FINANCIAL INSTITUTIONS. The Funds may authorize financial institutions, or their agents, to accept on the Funds' behalf purchase and redemption orders that are in "good form" in accordance with the policies of those institutions. The Funds 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 a 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 a 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: - Class A and Class C shares. Minimum value of Fund shares is $5,000; minimum withdrawals of $100. - 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. 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 a Fund concurrent with withdrawals are ordinarily disadvantageous to shareholders because of tax liabilities and, for Class A and Class C 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 a 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 Inc. 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 53 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 a 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 a Fund that meet the Fund's investment objective and policies. Securities transferred to a Fund will be valued in accordance with the same procedures used to determine the Fund's net asset value at the time of the next determination of net asset value after such acceptance. Shares issued by a 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 a 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 a Fund will automatically convert to Class A shares of that 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 Each 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. 54 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 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 last available sale price on Nasdaq prior to valuation; 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 2001 TAX ACT. On June 7, 2001, President Bush signed into law the Economic Growth and Tax Relief Reconciliation Act of 2001. This Tax Act includes provisions that significantly reduce individual income tax rates, provide for marriage penalty relief, eliminate phase-outs of the standard deduction and personal exemptions, provide additional savings incentives for individuals (generally by increasing the maximum annual contribution limits applicable to retirement and education savings programs) and provide for limited estate, gift and generation-skipping tax relief. While these provisions have important tax impact on individual shareholders in a Fund, their impact on the taxation of a Fund are limited (as discussed in the following paragraphs). DISTRIBUTIONS DISTRIBUTIONS OF NET INVESTMENT INCOME. Each Fund receives income generally in the form of dividends and interest on its investments. This income, less expenses incurred in the operation of a Fund, constitutes a Fund's net investment income from which dividends may be paid to you. If you are a taxable investor, any income dividends a Fund pays are taxable to you as ordinary income. DISTRIBUTIONS OF CAPITAL GAINS CAPITAL GAIN DISTRIBUTIONS. A 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 a Fund generally are distributed once each year, and may be distributed more frequently, if necessary, to reduce or eliminate excise or income taxes on a Fund. TAXATION OF FIVE YEAR GAINS SHAREHOLDERS IN THE 10 AND 15% FEDERAL BRACKETS. If you are in the 10 or 15% individual income tax bracket, capital gain distributions generally are subject to a maximum rate of tax of 10%. However, if you receive distributions from the Fund's sale of securities held for more than five years, these gains are subject to a 55 maximum rate of tax of 8%. The Fund will inform you in January of the portion of any capital gain distributions you received for the previous year that were five year gains qualifying for this reduced rate of tax. SHAREHOLDERS IN HIGHER FEDERAL BRACKETS. If you are in a higher individual income tax bracket (25, 28, 33 or 35% when fully phased-in in the year 2006), capital gain distributions are generally subject to a maximum rate of tax of 20%. Beginning in the year 2006, any distributions from a Fund's sale of securities purchased after January 1, 2001 and held for more than five years will be subject to a maximum rate of tax of 18%. INVESTMENTS IN FOREIGN SECURITIES PASS-THROUGH OF FOREIGN TAX CREDITS. A Fund may be subject to foreign withholding taxes on income from certain foreign securities. This, in turn, could reduce a Fund's income dividends paid to you. If more than 50% of a 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 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). A 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 a 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 a Fund's ordinary income otherwise available for distribution to you. This treatment could increase or decrease a 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. A 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, a 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. INFORMATION ON THE AMOUNT AND TAX CHARACTER OF DISTRIBUTIONS. Each 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 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. TAXES ELECTION TO BE TAXED AS A REGULATED INVESTMENT COMPANY. Each Fund intends to elect and qualify or has elected to be treated as a regulated investment company under Subchapter M of the Code. Each Fund that has been in existence for more than one year has qualified as a regulated investment company for its most recent fiscal year, and intends to continue to qualify during the current fiscal year. As a regulated investment company, a 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 a 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 ordinary income dividends to the extent of the Fund's earnings and profits. 56 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: - 98% of its taxable ordinary income earned during the calendar year; - 98% of its capital gain net income earned during the twelve month period ending October 31; and - 100% of any undistributed amounts of these categories of income or gain from the prior year. Each 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. TAXATION OF FIVE YEAR GAINS - Shareholders in the 10 and 15% federal brackets. If you are in the 10 or 15% individual income tax bracket, gains from the redemption of your Fund shares generally are subject to a maximum rate of tax of 10%. However, if you have held your shares for more than five years, these gains are subject to a maximum rate of tax of 8%. - Shareholders in higher federal brackets. If you are in a higher individual income tax bracket (25, 28, 33 or 35% when fully phased-in), gains from the redemption of your Fund shares generally are subject to a maximum rate of tax of 20%. Beginning in the year 2006, any gains from the sale of Fund shares purchased after January 1, 2001, and held for more than five years will be subject to a maximum rate of tax of 18%. You may, however, elect to mark your Fund shares to market as of January 2, 2001. If you make this election, any Fund shares that you acquired before this date also will be eligible for the 18% maximum rate of tax, beginning in 2006. However, in making the election, you are required to pay tax on any appreciation in the value of your Fund shares as of January 2, 2001, and to restart your holding period in the shares as of that date. The election does not apply to Fund shares redeemed on or before January 2, 2002. 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 a 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 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. DEFERRAL OF BASIS. If you redeem some or all of your shares in a Fund, and then reinvest the redemption proceeds in the Fund or in another Family Fund within 90 days of buying the original shares, the sales charge that might otherwise apply to your reinvestment may be reduced or eliminated. In reporting any gain or loss on 57 your redemption, all or a portion of the sales charge that you paid for your original shares in the Fund is excluded from your tax basis in the shares sold and 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 a Fund. 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. DIVIDENDS-RECEIVED DEDUCTION FOR CORPORATIONS. For corporate shareholders, it is anticipated that a portion of the dividends paid by certain 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 a 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. A 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. If a Fund is permitted to invest 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. A 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. A Fund's investment in options, futures, forwards, or foreign currency contracts in connection with certain hedging transactions could cause it to hold offsetting positions in securities. If a 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 a Fund, could apply to any offsetting positions entered into by the Fund to reduce its risk of loss. SECURITIES PURCHASED AT DISCOUNT. A 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. Each of the investments described above is subject to special tax rules that could affect the amount, timing and/or tax character of income realized by a Fund and distributed to you. 58 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 Funds' 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 a 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 Funds' 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 a Fund. Aggregate total return reflects the total percentage change over the stated period. To help investors better evaluate how an investment in the Funds might satisfy their investment objectives, advertisements regarding the Funds 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 Funds 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 other institutional investors directly to their customer accounts in connection with investments in shares of the Funds will not be included in the Funds' calculations of yield or total return. Performance information for the various classes of shares of each Fund will vary due to the effect of expense ratios on the performance calculations. TOTAL RETURN Current yield and total return quotations used by the Funds (and classes of shares) are based on standardized methods of computing performance mandated by rules adopted by the SEC. As the following formula indicates, the average annual total return is determined by multiplying a hypothetical initial purchase order of $1,000 by the average annual compound rate of return (including capital appreciation/depreciation and dividends and distributions paid and reinvested) for the stated period less any fees charged to all shareholder accounts and annualizing the result. The calculation assumes that all dividends and distributions are reinvested at the net asset value on the reinvestment dates during the period. The quotation assumes the account was completely redeemed at the end of each period and deduction of all applicable charges and fees. According to the SEC formula: P(1+T)to the = ERV power of n where: P = a hypothetical initial payment of $1,000, T = average annual total return, n = number of years, ERV = ending redeemable value of a hypothetical $1,000 payment made at the beginning of the 1, 5 or 10 year periods at the end of the 1, 5 or 10 year periods (or fractional portion thereof).
59 Based on the foregoing calculations, the average annual total return for the UBS Fund--Class Y shares for the one and five year period ended June 30, 2002, and for the period from inception through June 30, 2002, are as follows
ONE FIVE SINCE FUND YEAR YEAR INCEPTION - ---- -------- -------- --------- UBS U.S. Bond Fund (performance inception August 31, 1995) UBS High Yield Fund (performance inception September 30, 1997) UBS U.S. Balanced Fund (performance inception December 31, 1994) UBS U.S. Equity Fund (performance inception February 28, 1994 ) UBS U.S. Value Equity Fund (performance inception ) UBS U.S. Large Cap Equity Fund (performance inception April 30, 1998) UBS U.S. Large Cap Growth Fund (performance inception October 31, 1997) UBS U.S. Small Cap Growth Fund (performance inception September 30 1997) UBS Global Allocation Fund (performance inception August 31, 1992) UBS Global Equity Fund (performance inception January 31, 1994) UBS Global Bond Fund (performance inception July 31, 1993) UBS International Equity Fund (performance inception August 31, 1993)
60 The average annual total returns for the UBS Fund--Class A shares for the one and five year period ended June 30, 2002, and for the period from inception through June 30, 2002, are as follows:
ONE FIVE SINCE FUND YEAR YEAR INCEPTION - ---- -------- -------- --------- UBS U.S. Bond Fund (performance inception June 30, 1997) UBS High Yield Fund (performance inception December 31, 1998) UBS U.S. Balanced Fund (performance inception June 30, 1997) UBS U.S. Equity Fund (performance inception June 30, 1997) UBS U.S. Value Equity Fund (performance inception June 29, 2001) UBS U.S. Large Cap Equity Fund (performance inception April 30, 1998) UBS U.S. Large Cap Growth Fund (performance inception December 31, 1998) UBS U.S. Small Cap Growth Fund (performance inception December 31, 1998) UBS Global Allocation Fund (performance inception June 30, 1997) UBS Global Equity Fund (performance inception June 30, 1997) UBS Global Bond Fund (performance inception June 30, 1997) UBS International Equity Fund (performance inception June 30, 1997)
TOTAL RETURN (AFTER TAXES ON DISTRIBUTIONS). As the following formula indicates, the average annual total return (after taxes on distributions) is determined by multiplying a hypothetical initial purchase order of $1,000 by the average annual compound rate of return (including capital appreciation/depreciation and dividends and distributions paid and reinvested) for the stated period less any fees charged to all shareholder accounts and annualizing the result. The calculation assumes that all distributions by a Fund, less the taxes due on such distributions, are reinvested at net asset value during the period According to the Commission formula: P(1+T)to the = ATV(D) power of n where: P = a hypothetical initial payment of $1,000 T = average annual total return (after taxes on distributions) n = number of years ATV(D) = ending value of a hypothetical $1,000 payment made at the beginning of the 1, 5 or 10 year periods at the end of the 1, 5 or 10 year periods (or fractional portion thereof), after taxes on fund distributions but not after taxes on redemption.
61 The average annual total return (after taxes on distributions) for the UBS Fund--Class Y shares for the one and five year period ended June 30, 2002, and for the period from inception through June 30, 2002, are as follows
ONE FIVE SINCE FUND YEAR YEAR INCEPTION - ---- -------- -------- --------- UBS U.S. Bond Fund (performance inception August 31, 1995) UBS High Yield Fund (performance inception September 30, 1997) UBS U.S. Balanced Fund (performance inception December 31, 1994) UBS U.S. Equity Fund (performance inception February 28, 1994 ) UBS U.S. Value Equity Fund (performance inception June 29, 2001) UBS U.S. Large Cap Equity Fund (performance inception April 30, 1998) UBS U.S. Large Cap Growth Fund (performance inception October 31, 1997) UBS U.S. Small Cap Growth Fund (performance inception September 30 1997) UBS Global Allocation Fund (performance inception August 31, 1992) UBS Global Equity Fund (performance inception January 31, 1994) UBS Global Bond Fund (performance inception July 31, 1993) UBS International Equity Fund (performance inception August 31, 1993)
62 The average annual total return (after taxes on distributions) for the UBS Fund--Class A shares for the one and five year period ended June 30, 2002, and for the period from inception through June 30, 2002, are as follows:
ONE FIVE SINCE FUND YEAR YEAR INCEPTION - ---- -------- -------- --------- UBS U.S. Bond Fund (performance inception June 30, 1997) UBS High Yield Fund (performance inception December 31, 1998) UBS U.S. Balanced Fund (performance inception June 30, 1997) UBS U.S. Equity Fund (performance inception June 30, 1997) UBS U.S. Value Equity Fund (performance inception June 29, 2001) UBS U.S. Large Cap Equity Fund (performance inception April 30, 1998) UBS U.S. Large Cap Growth Fund (performance inception December 31, 1998) UBS U.S. Small Cap Growth Fund (performance inception December 31, 1998) UBS Global Allocation Fund (performance inception June 30, 1997) UBS Global Equity Fund (performance inception June 30, 1997) UBS Global Bond Fund (performance inception June 30, 1997) UBS International Equity Fund (performance inception June 30, 1997)
TOTAL RETURN (AFTER TAXES ON DISTRIBUTIONS AND REDEMPTION). As the following formula indicates, the average annual total return (after taxes on distributions and redemption) is determined by multiplying a hypothetical initial purchase order of $1,000 by the average annual compound rate of return (including capital appreciation/depreciation and dividends and distributions paid and reinvested) for the stated period less any fees charged to all shareholder accounts and annualizing the result. The calculation assumes that all distributions by a Fund, less the taxes due on such distributions, are reinvested at net asset value during the period. The quotation assumes the account was completely redeemed at the end of each period and deduction of all applicable charges and fees. According to the Commission formula: P(1+T)to the = ATV(DR) power of n where: P = a hypothetical initial payment of $1,000 T = average annual total return (after taxes on distributions and redemption) n = number of years ATV(DR) = ending value of a hypothetical $1,000 payment made at the beginning of the 1, 5 or 10 year periods at the end of the 1, 5 or 10 year periods (or fractional portion thereof), after taxes on fund distributions and redemption.
63 The average annual total return (after taxes on distributions and redemption) for the UBS Fund--Class Y shares for the one and five year period ended June 30, 2002, and for the period from inception through June 30, 2002, are as follows
ONE FIVE SINCE FUND YEAR YEAR INCEPTION - ---- -------- -------- --------- UBS U.S. Bond Fund (performance inception August 31, 1995) UBS High Yield Fund (performance inception September 30, 1997) UBS U.S. Balanced Fund (performance inception December 31, 1994) UBS U.S. Equity Fund (performance inception February 28, 1994 ) UBS U.S. Value Equity Fund (performance inception June 29, 2001) UBS U.S. Large Cap Equity Fund (performance inception April 30, 1998) UBS U.S. Large Cap Growth Fund (performance inception October 31, 1997) UBS U.S. Small Cap Growth Fund (performance inception September 30 1997) UBS Global Allocation Fund (performance inception August 31, 1992) UBS Global Equity Fund (performance inception January 31, 1994) UBS Global Bond Fund (performance inception July 31, 1993) UBS International Equity Fund (performance inception August 31, 1993)
64 The average annual total return (after taxes on distributions and redemption) for the UBS Fund--Class A shares for the one and five year period ended June 30, 2002, and for the period from inception through June 30, 2002, are as follows:
ONE FIVE SINCE FUND YEAR YEAR INCEPTION - ---- -------- -------- --------- UBS U.S. Bond Fund (performance inception June 30, 1997) UBS High Yield Fund (performance inception December 31, 1998) UBS U.S. Balanced Fund (performance inception June 30, 1997) UBS U.S. Equity Fund (performance inception June 30, 1997) UBS U.S. Value Equity Fund (performance inception June 29, 2001) UBS U.S. Large Cap Equity Fund (performance inception April 30, 1998) UBS U.S. Large Cap Growth Fund (performance inception December 31, 1998) UBS U.S. Small Cap Growth Fund (performance inception December 31, 1998) UBS Global Allocation Fund (performance inception June 30, 1997) UBS Global Equity Fund (performance inception June 30, 1997) UBS Global Bond Fund (performance inception June 30, 1997) UBS International Equity Fund (performance inception June 30, 1997)
YIELD As indicated below, current yield is determined by dividing the net investment income per share earned during the period by the maximum offering price per share on the last day of the period and annualizing the result. Expenses accrued for the period includes any fees charged to all shareholders during the 30-day base periods. According to the SEC formula: a-b YIELD = 2 [ ( ---- +1 ) to the power of 6 -1 ] cd
where: a = dividends and interest earned during the period. b = expenses accrued for the period (net of reimbursements). c = the average daily number of shares outstanding during the period that were entitled to receive dividends. d = the maximum offering price per share on the last day of the period.
The yield of a Fund may be calculated by dividing the net investment income per share earned by the particular Fund during a 30-day (or one month) period by the net asset value per share on the last day of the period and annualizing the result on a semi-annual basis. A Fund's net investment income per share earned during the period is based on the average daily number of shares outstanding during the period entitled to receive dividends and includes dividends and interest earned during the period minus expenses accrued for the period, net of reimbursements. 65 FINANCIAL STATEMENTS AND REPORTS OF INDEPENDENT AUDITORS The Funds' financial statements for the fiscal year ended June 30, 2002 and the reports thereon of August , 2002, which are contained in the Funds' Annual Reports dated June 30, 2002 (as filed with the SEC on August , 2002, pursuant to Section 30(b) of the Act and Rule 30b2-1 thereunder (Accession Number 0000912057-02- )) are incorporated herein by reference. 66 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. 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 A-1 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 The chart below illustrates secondary risks of investing in the Funds.
FOREIGN COUNTER- COUNTRY & GEOGRAPHIC HIGH NON-PUBLIC PRE- PARTY CREDIT DERIVATIVE CURRENCY CONCENTRATION YIELD SECURITIES PAYMENT -------- -------- ---------- --------- ------------- -------- ---------- -------- UBS Global Allocation Fund.... * * * * * * UBS Global Equity Fund........ * * * UBS Global Bond Fund.......... * * * UBS U.S. Balanced Fund........ * * * * UBS U.S. Equity Fund.......... * * * UBS U.S Value Equity Fund..... * * * UBS U.S. Large Cap 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 U.S. Bond Fund............ * * * * UBS High Yield Fund........... * * * * * UBS International Equity Fund......................... * * UBS Emerging Markets Debt Fund......................... * * * * UBS Emerging Markets Equity Fund......................... * * * *
DEFINITIONS OF RISKS COUNTERPARTY RISK The risk that when a 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 a 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. FOREIGN COUNTRY AND CURRENCY RISKS The risk that prices of a 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. Foreign securities are sometimes less liquid and harder to value than securities of U.S. issuers. These risks are more severe for securities of issuers in emerging market countries. The World Bank and other international agencies consider a country to be an "emerging markets" country on the basis of such factors as trade initiatives, per capita income and level of industrialization. Emerging market countries generally include every nation in the world except the U.S., Canada, Japan, Australia, New Zealand and most nations located in Western Europe. GEOGRAPHIC CONCENTRATION RISK The risk that if a Fund has most of its investments in a single country or region, its portfolio will be more susceptible to factors adversely affecting issuers located in that country or region than would a more geographically diverse portfolio of securities. 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 B-1 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. A 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 re-invest in obligations with lower interest rates than the original obligations. B-2 THE UBS FUNDS FORM N-1A PART C. OTHER INFORMATION Item 23. 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) (the "Registration Statement"). /1/ (2)(a) Agreement and Declaration of Trust (the "Declaration") dated August 19, 1993, as amended through May 21, 2001. /1/ (b) Amendment No. 1 to the Declaration, dated May 21, 2001. /7/ (c) Certificates of the Secretary/Assistant Secretary of the Registrant re: applicable resolutions pertaining to: I. Meeting held August 9, 1993 designating initial eight (8) Series of shares (from The Brinson Funds, Inc.). /1/ II. Meeting held November 8, 1993 creating Class B Shares and redesignating Class A Shares. /1/ III. 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. /1/ IV. Meeting held May 22, 1995 redesignating Class A shares to Brinson Class shares and Class C shares to SwissKey Class shares. /1/ V. Unanimous written consent of Trustees executed on July 27, 1995 changing the names of Series, as follows and redesignating the Brinson Class and SwissKey Class: /1/ (a) Redesignation of the Brinson Global Fund to the Global Fund; (b) Redesignation of the Brinson Global Bond Fund to the Global Bond Fund; (c) Redesignation of the Brinson Non-U.S. Equity Fund to the Non-U.S. Equity Fund; (d) Redesignation of the Brinson Global Equity Fund to the Global Equity Fund; (e) Redesignation of the Brinson U.S. Equity Fund to the U.S. Equity Fund; (f) Redesignation of the Brinson U.S. Balanced Fund to the U.S. Balanced Fund; (g) Redesignation of the Brinson U.S. Bond Fund to the U.S. Bond Fund. VI. Meeting held November 20, 1995 eliminating Brinson Short-Term Global Income Fund. /1/ VII. Meeting held August 26, 1996 eliminating U.S. Cash Management Fund and Non-U.S. Bond Fund. /1/ VIII. Meeting held May 19, 1997 redesignating Brinson Fund Class as Brinson Fund-- Class I and adding Brinson Fund -- Class N. /1/ IX. 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. /1/ X. Meeting held August 24, 1998 approving redesignation of the SwissKey Class to the UBS Investment Funds Class. /3/ XI. Meeting held August 24, 1998 approving redesignation of the Non-U.S. Equity Fund to the Global (ex-U.S.) Equity Fund. /3/ XII. 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 of shares and Brinson Fund - Class N Shares to such Series. /3/ XIII. 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. /3/ XIV. 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. /4/ XV. 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. /4/ XVI. Meeting held August 21, 2000 redesignating the Global (Ex-U.S.) Equity Fund as the International Equity Fund. /6/ XVII. Meeting held May 21, 2001 redesignating the Global Fund as the Global Balanced Fund. /7/ XVIII. 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. /7/ XIX. Meeting held May 21, 2001 redesignating the Brinson Fund-Class I Shares as the Brinson Fund-Class Y Shares of each Series. /7/ XX. Meeting held May 21, 2001 abolishing the UBS Investment Funds Class of Shares of each Series. /7/ XXI Unanimous written consent of Trustees executed June 20, 2002 changing the name of UBS Global Balanced Fund to UBS Global Allocation Fund. + (b) By-Laws. (1) By-Laws of The Brinson Funds dated August 9, 1993, are incorporated herein by reference to Post-Effective Amendment No. 17 to Registrant's Registration Statement, as filed electronically with the Commission on August 29, 1996. (2) Amendment to the By-Laws dated April 25, 2002. + (c) Instruments Defining the Rights of Security Holders. (1) Form of Specimen Share Certificate of The Brinson Funds /1/ 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: a. By-Laws. Article II - "Voting", Section 7 and Section 10. b. Declaration. Article III - "Shares", Section 1, Section 2 and Section 6. (d) Investment Advisory Contracts. (1) Investment Advisory Agreement dated April 25, 1995 between UBS Global Asset Management (Americas) Inc. (formerly known as Brinson Partners, Inc.) (the "Advisor") and the Registrant on behalf of the Global Fund (f/k/a Brinson Global Fund) series, and Secretary's Certificate relating thereto. /1/ (a) Form of Certificate of the Secretary and resolutions redesignating the Global Fund as the Global Balanced Fund. /8/ (b) Form of Investment Advisory Agreement between the Advisor and the Registrant on behalf of UBS Global Allocation Fund. + (2) Investment Advisory Agreement dated April 25, 1995 between the Advisor and the Registrant on behalf of the Global Bond Fund (f/k/a Brinson Global Bond Fund) series, and Secretary's Certificate relating thereto. /1/ (a) Form of Investment Advisory Agreement between the Advisor and the Registrant on behalf of UBS Global Bond Fund. + (3) Investment Advisory Agreement dated April 25, 1995 between the Advisor and the Registrant on behalf of the Global (Ex-U.S.) Equity Fund (f/k/a Non-U.S. Equity Fund) series, and Secretary's Certificate relating thereto. /1/ (a) Certificate of the Secretary and resolutions redesignating the Global (Ex-U.S.) Equity Fund as the International Equity Fund. /7/ (4) Investment Advisory Agreement dated April 25, 1995 between the Advisor and the Registrant on behalf of the Global Equity Fund (f/k/a Brinson Global Equity Fund) series, and Secretary's Certificate relating thereto. /1/ (a) Form of Investment Advisory Agreement between the Advisor and the Registrant on behalf of UBS Global Equity Fund. + (5) Investment Advisory Agreement dated April 25, 1995 between the Advisor and the Registrant on behalf of the U.S. Equity Fund (f/k/a Brinson U.S. Equity Fund) series, and Secretary's Certificate relating thereto. /1/ (a) Form of Investment Advisory Agreement between the Advisor and the Registrant on behalf of UBS U.S. Equity Fund. + (6) Investment Advisory Agreement dated April 25, 1995 between the Advisor and the Registrant on behalf of the U.S. Balanced Fund (f/k/a Brinson U.S. Balanced Fund) series, and Secretary's Certificate relating thereto. /1/ (a) Form of Investment Advisory Agreement between the Advisor and the Registrant on behalf of UBS U.S. Balanced Fund. + (7) Investment Advisory Agreement dated April 25, 1995 between the Advisor and the Registrant on behalf of the U.S. Bond Fund (f/k/a Brinson U.S. Bond Fund) series, and Secretary's Certificate relating thereto. /1/ (a) Form of Investment Advisory Agreement between the Advisor and the Registrant on behalf of UBS U.S. Bond Fund. + (8) Investment Advisory Agreement dated November 24, 1997 between the Advisor and the Registrant on behalf of the U.S. Large Capitalization Equity Fund series. /1/ (a) Certificate of the Secretary and resolutions redesignating the U.S. Large Capitalization Equity Fund as the U.S. Large Cap Equity Fund. /4/ (b) Form of Investment Advisory Agreement between the Advisor and the Registrant on behalf of UBS U.S. Large Cap Equity Fund. + (9) Investment Advisory Agreement dated December 7, 2000 between the Advisor and the Registrant on behalf of the U.S. Large Cap Growth Fund series. /7/ (a) Form of Investment Advisory Agreement between the Advisor and the Registrant on behalf of UBS U.S. Large Cap Growth Fund. + (10) Investment Advisory Agreement dated December 7, 2000 between the Advisor and the Registrant on behalf of the U.S. Small Cap Growth Fund series. /7/ (a) Form of Investment Advisory Agreement between the Advisor and the Registrant on behalf of UBS U.S. Small Cap Growth Fund. + (11) Investment Advisory Agreement dated December 7, 2000 between the Advisor and the Registrant on behalf of the High Yield Fund series. /7/ (b) Form of Investment Advisory Agreement between the Advisor and the Registrant on behalf of UBS High Yield Fund. + (12) Investment Advisory Agreement dated December 10, 1998 between the Advisor and the Registrant on behalf of the Emerging Markets Equity Fund series. /2/ (a) Form of Certificate of the Secretary and resolutions restating the Investment Advisory Agreement of the Emerging Markets Equity Fund. /7/ (13) Investment Advisory Agreement dated December 10, 1998 between the Advisor and the Registrant on behalf of the Emerging Markets Debt Fund series. /2/ (a) Form of Certificate of the Secretary and resolutions restating the Investment Advisory Agreement of the Emerging Markets Debt Fund. /7/ (14) Investment Advisory Agreement dated December 7, 2000 between the Advisor and the Registrant on behalf of the Global Technology Fund series. /7/ (a) Form of Certificate of the Secretary and resolutions restating the Investment Advisory Agreement of the Global Technology Fund. /7/ (15) Investment Advisory Agreement dated December 7, 2000 between the Advisor and the Registrant on behalf of the Global Biotech Fund series. /7/ (a) Form of Certificate of the Secretary and resolutions restating the Investment Advisory Agreement of the Global Biotech Fund. /7/ (16) Investment Advisory Agreement dated May 31, 2000 between the Advisor and the Registrant on behalf of the U.S. Small Cap Equity Fund series. /5/ (a) Form of Certificate of the Secretary and resolutions restating the Investment Advisory Agreement of the U.S. Small Cap Equity Fund. /7/ (17) Investment Advisory Agreement dated May 23, 2000 between the Advisor and the Registrant on behalf of the U.S. Value Equity Fund series. /5/ (a) Form of Certificate of the Secretary and resolutions restating the Investment Advisory Agreement of the U.S. Value Equity Fund. /7/ (18) Investment Advisory Agreement dated December 7, 2000 between the Advisor and the Registrant on behalf of the U.S. Real Estate Equity Fund series. /7/ (a) Form of Certificate of the Secretary and resolutions restating the Investment Advisory Agreement of the U.S. Real Estate Equity Fund. /7/ (19) Sub-Advisory Agreement dated December 7, 2000 between the Advisor and UBS Asset Management (New York), Inc. and the Registrant on behalf of the U.S. Large Cap Growth Fund series. /7/ (20) Sub-Advisory Agreement dated December 7, 2000 between the Advisor and UBS Asset Management (New York), Inc. and the Registrant on behalf of the U.S. Small Cap Growth Fund series. /7/ (21) Sub-Advisory Agreement dated December 7, 2000 between the Advisor and UBS Global Asset Management (New York), Inc. and the Registrant on behalf of the High Yield Fund series. /7/ (22) Sub-Advisory Agreement dated December 7, 2000 between the Advisor and UBS Global Asset Management (New York), Inc. and the Registrant on behalf of the Global Technology Fund series. /7/ (23) Sub-Advisory Agreement dated December 7, 2000 between the Advisor and UBS Global Asset Management (New York), Inc. and the Registrant on behalf of the Global Biotech Fund series. /7/ (24) Sub-Advisory Agreement dated December 7, 2000 between the Advisor and UBS Global Asset Management (New York), Inc. and the Registrant on behalf of the U.S. Real Estate Equity Fund series. /7/ (e) Underwriting Contracts. (1) Principal Underwriting Contract, dated May 21, 2001, between Brinson Advisors, Inc. and the Registrant. + (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 through December 10, 1998, between Morgan Stanley Trust Company and succeeded by The Chase Manhattan Bank, and the Registrant on behalf of each series of the Registrant. /1/ (a) Amendment dated May 9, 2000 relating to Fee Obligation and Continuation of the Registrant's Multiple Services Agreement. /7/ (b) Amended Schedule A, as amended through April 28, 2000, to the Registrant's Multiple Services Agreement Securities Lending Authorization. /5/ (b.1) Amended Attachment A, as amended through December 31, 2000, to the Registrant's Multiple Services Agreement Securities Lending Authorization. /7/ (b.2) Amended Attachment A, as amended through June 30, 2001, to the Registrant's Multiple Services Agreement Securities Lending Authorization. /8/ (c) Revised Schedule B3, as approved through August 21, 2000, to the Registrant's Multiple Services Agreement. /4/ (c.1) Revised Schedule B3, as approved through February 16, 2001, to the Registrant's Multiple Services Agreement. /7/ (c.2) Revised Schedule B3, as approved through August 28, 2001, to the Registrant's Multiple Services Agreement. /8/ (d) Amended Schedule B1 and Schedule F, as amended through April 28, 2000, to the Registrant's Multiple Services Agreement. /5/ (h) Other Material Contracts. (1)(a) Administration Agreement, dated May 21, 2001, between Brinson Advisors, Inc. and the Registrant. + (1)(b) Administration Agreement, dated May 21, 2001, as revised June 3, 2002, between UBS Global Asset Management (US) Inc. and the Registrant. + (2) Transfer Agency and Related Services Agreement, dated August 20, 2001, between PFPC Inc. and the Registrant. + (i) Legal Opinion Legal Opinion of Stradley, Ronon, Stevens & Young, LLP, counsel to the Registrant, dated October 23, 2001. /8/ (j) Other Opinions and Consents. Not Applicable. (k) Omitted Financial Statements. Not applicable. (l) Initial Capital Agreements. Letter of Understanding dated July 1, 1992.* (m) Rule 12b-1 Plans. (1) Shareholder Services Plan dated October 29, 2001 as revised April 8, 2002, relating to the Class A shares of each series of the Registrant. + (2) 12b-1 Plan dated October 29, 2001 as revised April 8, 2002, relating to the Class B shares of each series of the Registrant. + (3) 12b-1 Plan dated October 29, 2001 as revised April 8, 2002, relating to the Class C shares of each series of the Registrant. + (4) The Selected Dealer and Selling Agreements as approved November 24, 1997 and amended through December 10, 1998 on behalf of each series of the Registrant. /2/ (n) Rule 18f-3 Plan. (1) Revised Multiple Class Plan adopted May 22, 1995, as amended through June 11, 1999, pursuant to Rule 18f-3 on behalf of each series of the Registrant. /4/ (a) Appendix A to the Registrant's Revised Multiple Class Plan adopted May 22, 1995, as amended through April 28, 2000, adding 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 pursuant to Rule 18f-3. /4/ (2) Amended and Restated Multiple Class Plan, adopted on May 22, 1995, as amended and restated on May 21, 2001, pursuant to Rule 18f-3 on behalf of each series of the Registrant. /7/ (o) Reserved. (p) (1) Code of Ethics pursuant to Rule 17j-1 relating to the Registrant. /4/ (2) Code of Ethics pursuant to Rule 17j-1 relating to the Advisor and Registrant's sub-advisor, UBS Global Asset Management (New York) ++ (3) Code of Ethics pursuant to Rule 17j-1 relating to the Registrant's underwriter, UBS Global Asset Management (US) Inc. /7/ (q) Power of Attorney. (1) Power-of-Attorney dated as of August 28, 2001, appointing Karl Hartmann, Gregory Pickard, Kathleen O'Neill, Ellen O'Brien, Patricia Leyne and Kelli Meidhoff as attorneys-in-fact and agents. /8/ (a) Form of Certificate of Secretary and resolution relating to the Power-of-Attorney. /8/ ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT. None. ITEM 25. INDEMNIFICATION. Indemnification of the Registrant's Trustees is provided for in Article VII, Sections 2 through 4 of the Registrant's Agreement and Declaration of Trust dated August 9, 1993, as amended through May 21, 2001, 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 custodian, transfer agent, accounting services provider, administrator and distributor against certain stated liabilities is provided until May 9, 1997 under the following documents: (a) Section 12 of Accounting Services Agreement, between the Registrant and Fund/Plan Services, Inc., incorporated herein by reference to Post-Effective Amendment No. 16 to Registrant's Registration Statement on Form N-1A (File Nos. 33-47287 and 811-6637), Exhibit 9(c) as filed electronically on February 15, 1996. (b) Section 8 of Administration Agreement between the Registrant and Fund/Plan Services, Inc., incorporated herein by reference to Post-Effective Amendment No. 16 to Registrant's Registration Statement on Form N-1A (File Nos. 33-47287 and 811-6637), Exhibit 9(b) as filed electronically on February 15, 1996. (c) Section 14 of Custodian Agreement between the Registrant and Bankers Trust Company, incorporated herein by reference to Post-Effective Amendment No. 13 to Registrant's Registration Statement on Form N-1A (File Nos. 33-47287 and 811-6637), Exhibit Nos. 8(a) and 8(b) as filed electronically on September 20, 1995. (d) Section 19 of Shareholder Services Agreement between Registrant and Fund/Plan Services, Inc., incorporated herein by reference to Post-Effective Amendment No. 16 to Registrant's Registration Statement on Form N-1A (File Nos. 33-47287 and 811-6637), Exhibit 9(a) as filed electronically on February 15, 1996. (e) Section 8 of the Underwriting Agreement between Registrant and Fund/Plan Broker Services, Inc. are incorporated herein by reference to Post-Effective Amendment No. 16 to Registrant's Registration Statement on Form N-1A (File Nos. 33-47287 and 811-6637), Exhibit No. (6) as filed electronically on February 15, 1996. Effective May 10, 1997, indemnification of Registrant's custodian, transfer agent, accounting services provider, administrator and distributor against certain stated liabilities is provided for in the following documents: (a) 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 through December 10, 1998, between Morgan Stanley Trust Company, as succeeded by The Chase Manhattan Bank, and the Registrant on behalf of each series of the Registrant is incorporated by reference to Post-Effective Amendment No. 25 to Registrant's Registration Statement (Nos. 33-47287 and 811-6637) as filed electronically on March 1, 1999. Effective November 5, 2001, indemnification of Registrant's distributor against certain stated liabilities is provided for in the following document: (b) Section 9(a) of the Principal Underwriting Contract between UBS Global Asset Management (US) Inc. and the Registrant on behalf of each series dated November 5, 2001. + ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISOR. UBS Global Asset Management (Americas) Inc. provides investment advisory services consisting of portfolio management for a variety of individuals and institutions and as of March 31, 2002 had $39 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, reference is made to the Form ADV (File #801-34910) filed by it under the Investment Advisers Act of 1940, as amended. Item 27 PRINCIPAL UNDERWRITER. (a.) UBS Global Asset Management (US) Inc. serves as principal underwriter and/or investment advisor for the following investment companies. UBS Securities Trust UBS Financial Services Fund, Inc. UBS Index Trust UBS Managed Investments Trust UBS Investment Trust UBS Master Series, Inc. UBS Pace Select Advisors Trust Liquid Institutional Reserves UBS Money Series UBS Series Trust UBS Painewebber Cashfund, Inc. UBS Painewebber Managed Municipal Trust UBS Painewebber RMA Money Fund, Inc. UBS Painewebber Municipal Money Market Series UBS Painewebber RMA Tax-Free Fund, Inc. The UBS Funds 2002 Target Term Trust Inc. Global High Income Dollar Fund Inc. Insured Municipal Income Fund Inc. Investment Grade Municipal Income Fund Inc. Managed High Yield Plus Fund Inc. Strategic Global Income Fund, Inc. (b.) UBS Global Asset Management (US) Inc. is the principal underwriter for the Registrant. UBS PaineWebber acts as dealer for the shares of the Registrant. 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, as filed with the Securities & Exchange Commission (registration number 801-13219). The directors and officers of UBS PaineWebber are identified in its Form ADV, as filed with the Securities & Exchange Commission (registration number 801-7163). The foregoing information is hereby incorporated by reference. The information set forth below is furnished by those directors and officers of UBS Global Asset Management (US) Inc. or UBS Painewebber who also serve as trustees or officers of the Registrant.
POSITION AND OFFICES POSITION AND OFFICES NAME WITH REGISTRANT UNDERWRITER OR DISTRIBUTOR ---- --------------- -------------------------- Brian M. Storms* Trustee and President Chief Operating Officer and President of UBS Global Asset Management (US) Inc. Amy R. Doberman* Secretary and Managing Director and Vice President General Counsel of UBS Global Asset Management (US) Inc. Paul H. Schubert** Treasurer and Executive Director and Principal Accounting the Head of the Mutual Officer Fund Finance Department David M. Goldenberg* Assistant Secretary Executive Director and Vice President Joseph T. Malone** Assistant Treasurer Director and a Senior Manager of the Mutual Fund Finance Department
- --------- * This person's business address is 51 West 52nd Street, New York, New York 10019-6114. ** This person's business address is Newport Center III, 499 Washington Blvd., 14th Floor, Jersey City, New Jersey 07310-1998. (c) Not applicable. ITEM 28. 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., 209 South LaSalle Street, Chicago, IL, 60604-1295 and sub-advisor, UBS Asset Management (New York), Inc. 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 29. MANAGEMENT SERVICES. There are no management-related service contracts not discussed in Part A or Part B. ITEM 30. UNDERTAKINGS. Not applicable. /1/ Incorporated herein by reference to Post-Effective Amendment No. 21 to Registrant's Registration Statement, as filed electronically with the Commission on September 15, 1998. /2/ Incorporated herein by reference to Post-Effective Amendment No. 25 to Registrant's Registration Statement, as filed electronically with the Commission on March 1, 1999. /3/ Incorporated herein by reference to Post-Effective Amendment No. 27 to Registrant's Registration Statement, as filed electronically with the Commission on May 3, 1999. /4/ Incorporated herein by reference to Post-Effective Amendment No. 30 to Registrant's Registration Statement, as filed electronically with the Commission on May 2, 2000. /5/ Incorporated herein by reference to Post-Effective Amendment No. 31 to Registrant's Registration Statement, as filed electronically with the Commission on August 29, 2000. /6/ Incorporated herein by reference to Post-Effective Amendment No. 33 to Registrant's Registration Statement, as filed electronically with the Commission on December 7, 2000. /7/ Incorporated herein by reference to Post-Effective Amendment No. 34 to the Registrant's Registration Statement, as filed electronically with the Commission on July 31, 2001. /8/ "Incorporated herein by reference to Post-Effective Amendment No. 37 as filed electronically with the Commission or October 26, 2001." ++ Incorporated herein by reference to Post-Effective Amendment No. 21 to the UBS Relationship Funds Registration Statement, as filed with the Commission on July 3, 2002. [Accession Number: 0000912057-02-026448] + Filed electronically herewith. 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. 37/38 to this registration statement to be signed on its behalf by the undersigned, duly authorized, in the City of Boston, and The Commonwealth of Massachusetts on the 19th day of July, 2002. THE UBS FUNDS /s/ David M. Goldenberg By: David M. Goldenberg Vice President and Assistant Secretary 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 date(s) indicated.
(SIGNATURE) (TITLE) (DATE) BRIAN M. STORMS* President and Trustee July 19, 2002 Brian M. Storms WALTER E. AUCH* Trustee July 19, 2002 Walter E. Auch EDWARD M. ROOB* Trustee July 19, 2002 Edward M. Roob FRANK K. REILLY* Chairman and Trustee July 19, 2002 Frank K. Reilly PAUL H. SCHUBERT* Treasurer, Principal July 19, 2002 Paul H. Schubert Accounting Officer
- -------------------------- *By: /s/ Gregory L. Pickard ---------------------- as Attorney-in-Fact and Agent pursuant to Power of Attorney THE UBS FUNDS INDEX TO EXHIBITS TO FORM N-1A EX-99.a.2.c.21 Certificate of Vice President and Assistant Secretary of the Funds Dated June 28, 2002. EX-99.b.2. Amendment to the By-Laws dated April 25, 2002. EX-99.d.1.b Form of Investment Advisory Agreement between the Advisor and the Registrant on behalf of UBS Global Allocation Fund. EX-99.d.2.a Form of Investment Advisory Agreement between the Advisor and the Registrant on behalf of UBS Global Bond Fund. EX-99.d.4.a Form of Investment Advisory Agreement between the Advisor and the Registrant on behalf of UBS Global Equity Fund. EX-99.d.5.a Form of Investment Advisory Agreement between the Advisor and the Registrant on behalf of UBS U.S. Equity Fund. EX-99.d.6.a Form of Investment Advisory Agreement between the Advisor and the Registrant on behalf of UBS U.S. Balanced Fund. EX-99.d.7.a Form of Investment Advisory Agreement between the Advisor and the Registrant on behalf of UBS U.S. Bond Fund. EX-99.d.8.b Form of Investment Advisory Agreement between the Advisor and the Registrant on behalf of UBS U.S. Large Cap Equity Fund. EX-99.d.9.a Form of Investment Advisory Agreement between the Advisor and the Registrant on behalf of UBS U.S. Large Cap Growth Fund. EX-99.d.10.a Form of Investment Advisory Agreement between the Advisor and the Registrant on behalf of UBS U.S. Small Cap Growth Fund. EX-99.d.11.b Form of Investment Advisory Agreement between the Advisor and the Registrant on behalf of UBS High Yield Fund. EX-99.e.1 Principal Underwriting Contract, dated May 21, 2001, between Brinson Advisors, Inc. and the Registrant. EX-99.h.1.a Administration Agreement, dated May 21, 2001, between Brinson Advisors, Inc. and the Registrant. EX-99.h.1.b Administration Agreement, dated May 21, 2001, as revised June 3, 2002, between UBS Global Asset Management (US), Inc. and the Registrant. EX-99.h.2 Transfer Agency and Related Services Agreement, dated August 20, 2001, between PFPC Inc. and the Registrant. EX-99.m.1 Shareholder Services Plan dated October 29, 2001 as revised April 8, 2002, relating to the Class A shares of each series of the Registrant. EX-99.m.2 12b-1 Plan dated October 29, 2001 as revised April 8, 2002, relating to the Class B shares of each series of the Registrant. EX-99.m.3 12b-1 Plan dated October 29, 2001 as revised April 8, 2002, relating to the Class C shares of each series of the Registrant. EX-99.A-2-A-C-21 3 a2084554zex-99_a2ac21.txt EXHIBIT 99.A.2.A.C.21 EX 99 a.2.a.c.21 CERTIFICATE OF THE ASSISTANT SECRETARY OF THE UBS FUNDS RESOLUTIONS RELATING TO THE REDESIGNATION OF THE GLOBAL BALANCED FUND TO THE GLOBAL ALLOCATION FUND Pursuant to Article V, Section 9 of the By-Laws, dated August 9, 1993, of The UBS Funds, a Delaware Business Trust (the "Trust"), the undersigned does hereby certify the following: 1. He is the duly elected, qualified and acting Vice President and Assistant Secretary of the Trust. 2. Attached hereto and incorporated by reference into the Trust's Agreement and Declaration of Trust dated August 9, 1993 (the "Declaration"), pursuant to Article III, Section 6 of the Declaration, is a true and complete copy of the resolutions adopted by the Board of Trustees of the Trust (the "Resolutions") redesignating the Global Balanced Fund as the Global Allocation series of the Trust. 3. The Resolutions were unanimously adopted by the Trust's Board of Trustees via unanimous written consent on June 20, 2002 and, unless subsequently amended by resolutions duly adopted by the Board of Trustees of the Trust, have remained in full force and effect as of the date hereof. IN WITNESS WHEREOF, the undersigned has caused this certificate to be signed on this 28th day of June 2002. (Trust Seal) /s/ David M. Goldenberg David M. Goldenberg Vice President and Assistant Secretary The UBS Funds RESOLUTIONS ADOPTED JUNE 20, 2002 AND INCORPORATED BY REFERENCE INTO THE AGREEMENT AND DECLARATION OF TRUST OF THE BRINSON FUNDS DATED AUGUST 9, 1993 PURSUANT TO ARTICLE III, SECTION 6 THEREOF RESOLUTIONS REDESIGNATING THE GLOBAL BALANCED FUND AS THE GLOBAL ALLOCATION FUND SERIES RESOLVED, that the Board, upon the recommendation of management of the Trust, hereby renames the series of the Trust currently named "UBS Global Balanced Fund" as "UBS Global Allocation Fund", which new name shall be effective upon the filing of a supplement to the Trust's registration statement with the Securities and Exchange Commission ("SEC"); and FURTHER that the Fund's non-fundamental investment policy requiring it RESOLVED, to invest, under normal circumstances, at least 25% of its net assets in fixed income securities and 25% of its net assets in equity securities is hereby eliminated, such change to become effective upon the filing of a supplement to the Trust's registration statement with the SEC; and FURTHER that the officers of the Trust, with the advice of Trust counsel, RESOLVED, are hereby authorized to make all appropriate filings with federal and state authorities, including filing an amended Certificate of Trust with the Secretary of State of the State of Delaware if deemed appropriate by Trust counsel, to reflect the changes described above; and FURTHER that the officers of the Trust, with the advice of Trust counsel, RESOLVED, are hereby authorized to take such additional actions as may be necessary or appropriate to accomplish the foregoing resolutions. EX-99.B-2 4 a2084554zex-99_b2.txt EXHIBIT 99.B.2 THE UBS FUNDS CERTIFICATE OF VICE PRESIDENT AND ASSISTANT SECRETARY I, David M. Goldenberg, Vice President and Assistant Secretary of The UBS Funds ("Trust"), hereby certify that the Board of Trustees ("Board") of the Trust duly adopted the following resolutions by unanimous written consent dated April 25, 2002 and that by adopting such resolutions amended the By-Laws of the Trust dated August 9, 1993 in accordance with Article IX of the By-Laws: "WHEREAS, the Board has previously acted to authorize the holding of a Special Meeting of Shareholders (the "Special Meeting") of the series of the Trust (the "Funds"), to be held on June 5, 2002; and WHEREAS, in conjunction with holding the Special Meeting, management of the Trust has recommended amending the Trust's By-laws, as amended from time to time (the "By-laws"), so as to permit the shareholders of the Trust to submit executed proxies for the Special Meeting via electronic and other means; and WHEREAS, management of the Trust has indicated that the expansion of the permissible means for executing and submitting proxies by shareholders is in the best interest of the Trust, the Funds and their shareholders, as it will result in a more efficient and timely tabulation of the shareholders' votes on the matters presented at the Special Meeting; NOW, THEREFORE, BE IT RESOLVED that Section 7 of the By-laws, which presently provides: SECTION 7. VOTING. Each shareholder shall have one vote for each full share and a fractional vote for each fractional share of stock having voting power held by such shareholder on the record date set pursuant to Section 5 on each matter submitted to a vote at a meeting of shareholders. Such vote may be made in person or by proxy. At all meetings of the shareholders, a quorum being present, all matters shall be decided by majority vote of the shares of beneficial interest entitled to vote held by shareholders present in person or by proxy, unless the question is one for which by express provision of the laws of the State of Delaware, the Investment Company Act of 1940, as from time to time amended, or the Declaration of Trust, a different vote is required, in which case such express provision shall control the decision of such question. At all meetings of shareholders, unless the voting is conducted by inspectors, all questions relating to the qualification of voters and the validity of proxies and the acceptance or rejection of votes shall be decided by the Chairman of the meeting; be amended to state: SECTION 7. VOTING. Each shareholder shall have one vote for each full share and a fractional vote for each fractional share of stock having voting power held by such shareholder on the record date set pursuant to Section 5 on each matter submitted to a vote at a meeting of shareholders. Such vote may be made in person or by proxy. At all meetings of the shareholders, a quorum being present, all matters shall be decided by majority vote of the shares of beneficial interest entitled to vote held by shareholders present in person or by proxy, unless the question is one for which by express provision of the laws of the State of Delaware, the Investment Company Act of 1940, as from time to time amended, or the Declaration of Trust, a different vote is required, in which case such express provision shall control the decision of such question. Every shareholder entitled to vote for Trustees or on any other matter that may properly come before the meeting shall have the right to do so either in person or by one or more agents authorized by a written proxy executed by the shareholder and filed with the Secretary of the Trust; PROVIDED, that an alternative to the execution of a written proxy may be permitted as described in the next paragraph of this Section 7. A proxy shall be deemed executed if the shareholder's name is placed on the proxy (whether by manual signature, typewriting, telegraphic transmission or 2 otherwise) by the shareholder or the shareholder's attorney-in-fact. An attorney-in-fact relationship between the shareholder and the shareholder's attorney-in-fact may be created by any electronic, telegraphic, telephonic, computerized, telecommunications or other reasonable alternative means. A valid proxy that does not state that it is irrevocable shall continue in full force and effect unless revoked by the shareholder executing it, or using one of the permitted alternatives to execution, described in the next paragraph, by a written notice delivered to the Secretary of the Trust prior to the exercise of the proxy or by the shareholder's attendance and vote in person at the meeting; PROVIDED, HOWEVER, that no proxy shall be valid after the expiration of eleven (11) months from the date of the proxy unless otherwise expressly provided in the proxy. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of the General Corporation Law of the State of Delaware. With respect to any shareholders' meeting, the Board, or, in case the Board does not act, the President, any Vice President or the Secretary, may permit proxies by any electronic, telephonic, computerized, telecommunications or other reasonable alternative to the execution of a written instrument authorizing the holder of the proxy to act. A proxy with respect to shares held in the name of two or more persons shall be valid if executed, or a permitted alternative to execution is used, by any one of them unless, at or prior to the exercise of the proxy, the Secretary of the Trust receives a specific written notice to the contrary from any one of them. At all meetings of shareholders, unless the voting is conducted by inspectors, all questions relating to the qualification of voters and the validity of proxies and the acceptance or rejection of votes shall be decided by the Chairman of the meeting; and FURTHER RESOLVED, that the appropriate officers of the Trust, with the advice of Trust counsel, be, and each of them hereby is, authorized 3 and directed to take any and all actions that the officer, in the officer's sole discretion, deems necessary and appropriate to carry out the intent and accomplish the purposes of the foregoing resolutions, the necessity or appropriateness thereof being conclusively proven by the actions taken by such officer or officers, to effectuate the foregoing resolutions and to carry out the purposes thereof; and FURTHER RESOLVED, that the appropriate officers of the Trust, be, and each of them hereby is, authorized and directed to revise the Trust's proxy statement on Schedule 14A under the Securities Exchange Act of 1934, as amended, as appropriate to reflect the aforementioned amendment; and FURTHER RESOLVED, that this consent may be executed in one or more counterparts, each of which shall be deemed an original, and when taken together shall constitute one and the same instrument; and FURTHER RESOLVED, that this consent shall be filed with the minutes of the Trust." Dated: July 1, 2002 By: /s/ DAVID M. GOLDENBERG ----------------------- David M. Goldenberg Vice President and Assistant Secretary The UBS Funds New York, New York (ss) Subscribed and sworn to before me this 1st day of July, 2002. /S/ EVELYN DE SIMONE Notary Public 4 EX-99.D-1-B 5 a2084554zex-99_d1b.txt EXHIBIT 99.D.1.B EX 99.d.1.b FORM OF INVESTMENT ADVISORY AGREEMENT AGREEMENT made this 1st day of July, 2002, by and between The UBS Funds, a Delaware business trust (the "Trust") and UBS Global Asset Management (Americas) Inc., a Delaware corporation (the "Advisor"). 1. DUTIES OF THE ADVISOR. The Trust hereby appoints the Advisor to act as investment advisor to the UBS Global Allocation Fund (the "Series") for the period and on such terms set forth in this Agreement. The Trust employs the Advisor to manage the investment and reinvestment of the assets of the Series, to continuously review, supervise and administer the investment program of the Series, to determine in its discretion the assets to be held uninvested, to provide the Trust with records concerning the Advisor's activities which the Trust is required to maintain, and to render regular reports to the Trust's officers and Board of Trustees concerning the Advisor's discharge of the foregoing responsibilities. The Advisor shall discharge the foregoing responsibilities subject to the control of the officers and the Board of Trustees of the Trust, and in compliance with the objectives, policies and limitations set forth in the Trust's Prospectus and Statement of Additional Information. The Advisor accepts such employment and agrees to render the services and to provide, at its own expense, the office space, furnishings, equipment and the personnel required by it to perform the services on the terms and for the compensation provided herein. With respect to foreign securities, at its own expense, the Advisor may obtain statistical and other factual information and advice regarding economic factors and trends from its foreign subsidiaries, and may obtain investment services from the investment advisory personnel of its affiliates located throughout the world to the extent permitted under interpretations of the federal securities laws. 2. PORTFOLIO TRANSACTIONS. The Advisor shall provide the Series with a trading department, and with respect to foreign securities, the Advisor is authorized to utilize the trading departments of its foreign affiliates. The Advisor shall select, and with respect to its foreign affiliates or the use of any sub-advisors, shall monitor the selection of, the brokers or dealers that will execute the purchases and sales of securities for the Series and is directed to use its best efforts to ensure that the best available price and most favorable execution of securities transactions for the Series are obtained. Subject to policies established by the Board of Trustees of the Trust and communicated to the Advisor, it is understood that the Advisor will not be deemed to have acted unlawfully, or to have breached a fiduciary duty to the Trust or in respect of the Series, or be in breach of any obligation owing to the Trust or in respect of the Series under this Agreement, or otherwise, solely by reason of its having caused the Series to pay a member of a securities exchange, a broker or a dealer a commission for effecting a securities transaction for the Series in excess of the amount of commission another member of an exchange, broker or 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 member, broker or dealer, viewed in terms of that particular transaction or the Advisor's overall responsibilities with respect to the Series and to other funds and advisory accounts for which the Advisor or any Sub-Advisor, as defined in Section 8 hereof, exercises investment discretion. The Advisor will promptly communicate to the officers and trustees of the Trust such information relating to the Series transactions as they may reasonably request. 3. COMPENSATION OF THE ADVISOR. For the services to be rendered by the Advisor as provided in Sections 1 and 2 of this Agreement, the Series shall pay to the Advisor within five business days after the end of each calendar month, a monthly fee of one twelfth of 0.80% of the Series' average daily net assets for the month. In the event of termination of this Agreement, the fee provided in this Section 3 shall be paid on a pro rata basis, based on the number of days when this Agreement was in effect. 4. REIMBURSEMENT OF FEE WAIVERS AND EXPENSE REIMBURSEMENTS. If on any day during which this Agreement is in effect, the estimated annualized Operating Expenses (as defined below) of the Series for that day are less than the Operating Expense Limit (as defined below), the Advisor shall be entitled to reimbursement by the Series of the investment management fees waived or reduced, and of any expense reimbursements or similar payments remitted by the Advisor to the Series pursuant to the Advisor's agreement to limit the Series' Operating Expenses (the "Reimbursement Amount") during any of the previous three (3) years, to the extent that the Series' annualized Operating Expenses, plus the amount so reimbursed, equals, for such day, the Operating Expense Limit, provided that such amount paid to the Advisor will in no event exceed the total Reimbursement Amount and will not include any amounts previously reimbursed by the Series to the Advisor. For purposes of this Section 4: (i) "Operating Expenses" shall include the ordinary operating expenses incurred by the Series in any fiscal year, including, without limitation, management fees paid to the Advisor, but excluding interest, taxes, brokerage commissions, other investment-related costs and extraordinary expenses not incurred in the ordinary course of the Series' business; and (ii) "Operating Expense Limit" shall mean the rate of the "Total Expense Limit" as a percentage of average daily net assets of the Series as stated in the then current registration statement of the Series, plus any distribution service fees under Rule 12b-1 under the Investment Company Act of 1940 and/or shareholder service fees as described in the then current registration statement of the Series, as determined from time to time by the Board of Trustees of the Trust. 5. REPORTS. The Series and the Advisor agree to furnish to each other such information regarding their operations with regard to their affairs as each may reasonably request. 6. STATUS OF ADVISOR. The services of the Advisor to the Series are not to be deemed exclusive, and the Advisor shall be free to render similar services to others so long as its services to the Series are not impaired thereby. 7. LIABILITY OF ADVISOR. In the absence of willful misfeasance, bad faith, gross negligence or reckless disregard by the Advisor of its obligations and duties hereunder, the Advisor shall not be subject to any liability whatsoever to the Series, or to any shareholder of the Series, for any error of judgment, mistake of law or any other act or omission in the course of, or connected with, rendering services hereunder including, without limitation, for any losses that may be sustained in connection with the purchase, holding, redemption or sale of any security on behalf of the Series. 8. DELEGATION OF RESPONSIBILITIES TO SUB-ADVISORS. The Advisor may, at its expense, select and contract with one or more affiliated or unaffiliated investment advisors registered under the Investment Advisers Act of 1940 ("Sub-Advisors") to perform some or all of the services for the Series for which it is responsible under this Agreement. The Advisor will compensate any Sub-Advisor for its services to the Series. The Advisor may terminate the services of any Sub-Advisor at any time in its sole discretion, and shall at such time assume the responsibility of such Sub-Advisor unless and until a successor Sub-Advisor is selected and the requisite approval of the Series' shareholders is obtained. The Advisor will continue to have responsibility for all advisory services furnished by any Sub-Advisor. 9. DURATION AND TERMINATION. This Agreement shall become effective on July 1, 2002 provided that first it is approved by the Board of Trustees of the Trust, including a majority of those trustees who are not parties to this Agreement or interested persons of any party hereto, in the manner provided in Section 15(c) of the Investment Company Act of 1940, as amended (the "1940 Act") and by the holders of a majority of the outstanding voting securities of the Series; and shall continue in effect until July 1, 2004. Thereafter, this Agreement may continue in effect only if such continuance is approved at least annually by: (i) the Trust's Board of Trustees; or (ii) by the vote of a majority of the outstanding voting securities of the Series; and in either event by a vote of a majority of those trustees of the Trust who are not parties to this Agreement or interested persons of any such party in the manner provided in Section 15(c) of the 1940 Act. This Agreement may be terminated by the Trust at any time, without the payment of any penalty, by the Board of Trustees of the Trust or by vote of the holders of a majority of the outstanding voting securities of the Series on 60 days' written notice to the Advisor. This Agreement may be terminated by the Advisor at any time, without the payment of any penalty, upon 60 days' written notice to the Trust. This Agreement will automatically terminate in the event of its assignment. Any notice under this Agreement shall be given in writing, addressed and delivered or mailed postpaid, to the other party at the principal office of such party. As used in this Section 9, the terms "assignment," "interested person," and "a vote of a majority of the outstanding voting securities" shall have the respective meanings set forth in Section 2(a)(4), Section 2(a)(19) and Section 2(a)(42) of the 1940 Act and Rule 18f-2 thereunder. 10. NAME OF ADVISOR. The parties agree that the Advisor has a proprietary interest in the name "UBS," and the Trust agrees to promptly take such action as may be necessary to delete from its corporate 2 name and/or the name of the Series any reference to the name of the Advisor promptly after receipt from the Advisor of a written request therefor. 11. SEVERABILITY. If any provisions of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of this 1st day of July, 2002. Attest: THE UBS FUNDS By: By: ------------------------------- ------------------------------------ Name: Name: David M. Goldenberg Title Title: Vice President Attest: UBS GLOBAL ASSET MANAGEMENT (AMERICAS) INC. By: By: ------------------------------- ------------------------------------ Name Name Title Title 3 EX-99.D-2-A 6 a2084554zex-99_d2a.txt EXHIBIT 99.D.2.A Ex 99.d.2.a FORM OF INVESTMENT ADVISORY AGREEMENT AGREEMENT made this 1st day of July, 2002, by and between The UBS Funds, a Delaware business trust (the "Trust") and UBS Global Asset Management (Americas) Inc., a Delaware corporation (the "Advisor"). 1. DUTIES OF THE ADVISOR. The Trust hereby appoints the Advisor to act as investment advisor to the UBS Global Bond Fund (the "Series") for the period and on such terms set forth in this Agreement. The Trust employs the Advisor to manage the investment and reinvestment of the assets of the Series, to continuously review, supervise and administer the investment program of the Series, to determine in its discretion the assets to be held uninvested, to provide the Trust with records concerning the Advisor's activities which the Trust is required to maintain, and to render regular reports to the Trust's officers and Board of Trustees concerning the Advisor's discharge of the foregoing responsibilities. The Advisor shall discharge the foregoing responsibilities subject to the control of the officers and the Board of Trustees of the Trust, and in compliance with the objectives, policies and limitations set forth in the Trust's Prospectus and Statement of Additional Information. The Advisor accepts such employment and agrees to render the services and to provide, at its own expense, the office space, furnishings, equipment and the personnel required by it to perform the services on the terms and for the compensation provided herein. With respect to foreign securities, at its own expense, the Advisor may obtain statistical and other factual information and advice regarding economic factors and trends from its foreign subsidiaries, and may obtain investment services from the investment advisory personnel of its affiliates located throughout the world to the extent permitted under interpretations of the federal securities laws. 2. PORTFOLIO TRANSACTIONS. The Advisor shall provide the Series with a trading department, and with respect to foreign securities, the Advisor is authorized to utilize the trading departments of its foreign affiliates. The Advisor shall select, and with respect to its foreign affiliates or the use of any sub-advisors, shall monitor the selection of, the brokers or dealers that will execute the purchases and sales of securities for the Series and is directed to use its best efforts to ensure that the best available price and most favorable execution of securities transactions for the Series are obtained. Subject to policies established by the Board of Trustees of the Trust and communicated to the Advisor, it is understood that the Advisor will not be deemed to have acted unlawfully, or to have breached a fiduciary duty to the Trust or in respect of the Series, or be in breach of any obligation owing to the Trust or in respect of the Series under this Agreement, or otherwise, solely by reason of its having caused the Series to pay a member of a securities exchange, a broker or a dealer a commission for effecting a securities transaction for the Series in excess of the amount of commission another member of an exchange, broker or 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 member, broker or dealer, viewed in terms of that particular transaction or the Advisor's overall responsibilities with respect to the Series and to other funds and advisory accounts for which the Advisor or any Sub-Advisor, as defined in Section 8 hereof, exercises investment discretion. The Advisor will promptly communicate to the officers and trustees of the Trust such information relating to the Series transactions as they may reasonably request. 3. COMPENSATION OF THE ADVISOR. For the services to be rendered by the Advisor as provided in Sections 1 and 2 of this Agreement, the Series shall pay to the Advisor within five business days after the end of each calendar month, a monthly fee of one twelfth of 0.75% of the Series' average daily net assets for the month. In the event of termination of this Agreement, the fee provided in this Section 3 shall be paid on a pro rata basis, based on the number of days when this Agreement was in effect. 4. REIMBURSEMENT OF FEE WAIVERS AND EXPENSE REIMBURSEMENTS. If on any day during which this Agreement is in effect, the estimated annualized Operating Expenses (as defined below) of the Series for that day are less than the Operating Expense Limit (as defined below), the Advisor shall be entitled to reimbursement by the Series of the investment management fees waived or reduced, and of any expense reimbursements or similar payments remitted by the Advisor to the Series pursuant to the Advisor's agreement to limit the Series' Operating Expenses (the "Reimbursement Amount") during any of the previous three (3) years, to the extent that the Series' annualized Operating Expenses, plus the amount so reimbursed, equals, for such day, the Operating Expense Limit, provided that such amount paid to the Advisor will in no event exceed the total Reimbursement Amount and will not include any amounts previously reimbursed by the Series to the Advisor. For purposes of this Section 4: (i) "Operating Expenses" shall include the ordinary operating expenses incurred by the Series in any fiscal year, including, without limitation, management fees paid to the Advisor, but excluding interest, taxes, brokerage commissions, other investment-related costs and extraordinary expenses not incurred in the ordinary course of the Series' business; and (ii) "Operating Expense Limit" shall mean the rate of the "Total Expense Limit" as a percentage of average daily net assets of the Series as stated in the then current registration statement of the Series, plus any distribution service fees under Rule 12b-1 under the Investment Company Act of 1940 and/or shareholder service fees as described in the then current registration statement of the Series, as determined from time to time by the Board of Trustees of the Trust. 5. REPORTS. The Series and the Advisor agree to furnish to each other such information regarding their operations with regard to their affairs as each may reasonably request. 6. STATUS OF ADVISOR. The services of the Advisor to the Series are not to be deemed exclusive, and the Advisor shall be free to render similar services to others so long as its services to the Series are not impaired thereby. 7. LIABILITY OF ADVISOR. In the absence of willful misfeasance, bad faith, gross negligence or reckless disregard by the Advisor of its obligations and duties hereunder, the Advisor shall not be subject to any liability whatsoever to the Series, or to any shareholder of the Series, for any error of judgment, mistake of law or any other act or omission in the course of, or connected with, rendering services hereunder including, without limitation, for any losses that may be sustained in connection with the purchase, holding, redemption or sale of any security on behalf of the Series. 8. DELEGATION OF RESPONSIBILITIES TO SUB-ADVISORS. The Advisor may, at its expense, select and contract with one or more affiliated or unaffiliated investment advisors registered under the Investment Advisers Act of 1940 ("Sub-Advisors") to perform some or all of the services for the Series for which it is responsible under this Agreement. The Advisor will compensate any Sub-Advisor for its services to the Series. The Advisor may terminate the services of any Sub-Advisor at any time in its sole discretion, and shall at such time assume the responsibility of such Sub-Advisor unless and until a successor Sub-Advisor is selected and the requisite approval of the Series' shareholders is obtained. The Advisor will continue to have responsibility for all advisory services furnished by any Sub-Advisor. 9. DURATION AND TERMINATION. This Agreement shall become effective on July 1, 2002 provided that first it is approved by the Board of Trustees of the Trust, including a majority of those trustees who are not parties to this Agreement or interested persons of any party hereto, in the manner provided in Section 15(c) of the Investment Company Act of 1940, as amended (the "1940 Act") and by the holders of a majority of the outstanding voting securities of the Series; and shall continue in effect until July 1, 2004. Thereafter, this Agreement may continue in effect only if such continuance is approved at least annually by: (i) the Trust's Board of Trustees; or (ii) by the vote of a majority of the outstanding voting securities of the Series; and in either event by a vote of a majority of those trustees of the Trust who are not parties to this Agreement or interested persons of any such party in the manner provided in Section 15(c) of the 1940 Act. This Agreement may be terminated by the Trust at any time, without the payment of any penalty, by the Board of Trustees of the Trust or by vote of the holders of a majority of the outstanding voting securities of the Series on 60 days' written notice to the Advisor. This Agreement may be terminated by the Advisor at any time, without the payment of any penalty, upon 60 days' written notice to the Trust. This Agreement will automatically terminate in the event of its assignment. Any notice under this Agreement shall be given in writing, addressed and delivered or mailed postpaid, to the other party at the principal office of such party. As used in this Section 9, the terms "assignment," "interested person," and "a vote of a majority of the outstanding voting securities" shall have the respective meanings set forth in Section 2(a)(4), Section 2(a)(19) and Section 2(a)(42) of the 1940 Act and Rule 18f-2 thereunder. 10. NAME OF ADVISOR. The parties agree that the Advisor has a proprietary interest in the name "UBS," and the Trust agrees to promptly take such action as may be necessary to delete from its corporate 2 name and/or the name of the Series any reference to the name of the Advisor promptly after receipt from the Advisor of a written request therefor. 11. SEVERABILITY. If any provisions of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of this 1st day of July, 2002. Attest: THE UBS FUNDS By: By: ------------------------------- ---------------------------- Name: Name: David M. Goldenberg Title: Title: Vice President Attest: UBS GLOBAL ASSET MANAGEMENT (AMERICAS) INC. By: By: ------------------------------- ---------------------------- Name: Name: David M. Goldenberg Title: Title: Vice President 3 EX-99.D-4-A 7 a2084554zex-99_d4a.txt EXHIBIT 99.D.4.A EX 99.d.4.a FORM OF INVESTMENT ADVISORY AGREEMENT AGREEMENT made this 1st day of July, 2002, by and between The UBS Funds, a Delaware business trust (the "Trust") and UBS Global Asset Management (Americas) Inc., a Delaware corporation (the "Advisor"). 1. DUTIES OF THE ADVISOR. The Trust hereby appoints the Advisor to act as investment advisor to the UBS Global Equity Fund (the "Series") for the period and on such terms set forth in this Agreement. The Trust employs the Advisor to manage the investment and reinvestment of the assets of the Series, to continuously review, supervise and administer the investment program of the Series, to determine in its discretion the assets to be held uninvested, to provide the Trust with records concerning the Advisor's activities which the Trust is required to maintain, and to render regular reports to the Trust's officers and Board of Trustees concerning the Advisor's discharge of the foregoing responsibilities. The Advisor shall discharge the foregoing responsibilities subject to the control of the officers and the Board of Trustees of the Trust, and in compliance with the objectives, policies and limitations set forth in the Trust's Prospectus and Statement of Additional Information. The Advisor accepts such employment and agrees to render the services and to provide, at its own expense, the office space, furnishings, equipment and the personnel required by it to perform the services on the terms and for the compensation provided herein. With respect to foreign securities, at its own expense, the Advisor may obtain statistical and other factual information and advice regarding economic factors and trends from its foreign subsidiaries, and may obtain investment services from the investment advisory personnel of its affiliates located throughout the world to the extent permitted under interpretations of the federal securities laws. 2. PORTFOLIO TRANSACTIONS. The Advisor shall provide the Series with a trading department, and with respect to foreign securities, the Advisor is authorized to utilize the trading departments of its foreign affiliates. The Advisor shall select, and with respect to its foreign affiliates or the use of any sub-advisors, shall monitor the selection of, the brokers or dealers that will execute the purchases and sales of securities for the Series and is directed to use its best efforts to ensure that the best available price and most favorable execution of securities transactions for the Series are obtained. Subject to policies established by the Board of Trustees of the Trust and communicated to the Advisor, it is understood that the Advisor will not be deemed to have acted unlawfully, or to have breached a fiduciary duty to the Trust or in respect of the Series, or be in breach of any obligation owing to the Trust or in respect of the Series under this Agreement, or otherwise, solely by reason of its having caused the Series to pay a member of a securities exchange, a broker or a dealer a commission for effecting a securities transaction for the Series in excess of the amount of commission another member of an exchange, broker or 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 member, broker or dealer, viewed in terms of that particular transaction or the Advisor's overall responsibilities with respect to the Series and to other funds and advisory accounts for which the Advisor or any Sub-Advisor, as defined in Section 8 hereof, exercises investment discretion. The Advisor will promptly communicate to the officers and trustees of the Trust such information relating to the Series transactions as they may reasonably request. 3. COMPENSATION OF THE ADVISOR. For the services to be rendered by the Advisor as provided in Sections 1 and 2 of this Agreement, the Series shall pay to the Advisor within five business days after the end of each calendar month, a monthly fee of one twelfth of 0.80% of the Series' average daily net assets for the month. In the event of termination of this Agreement, the fee provided in this Section 3 shall be paid on a pro rata basis, based on the number of days when this Agreement was in effect. 4. REIMBURSEMENT OF FEE WAIVERS AND EXPENSE REIMBURSEMENTS. If on any day during which this Agreement is in effect, the estimated annualized Operating Expenses (as defined below) of the Series for that day are less than the Operating Expense Limit (as defined below), the Advisor shall be entitled to reimbursement by the Series of the investment management fees waived or reduced, and of any expense reimbursements or similar payments remitted by the Advisor to the Series pursuant to the Advisor's agreement to limit the Series' Operating Expenses (the "Reimbursement Amount") during any of the previous three (3) years, to the extent that the Series' annualized Operating Expenses, plus the amount so reimbursed, equals, for such day, the Operating Expense Limit, provided that such amount paid to the Advisor will in no event exceed the total Reimbursement Amount and will not include any amounts previously reimbursed by the Series to the Advisor. For purposes of this Section 4: (i) "Operating Expenses" shall include the ordinary operating expenses incurred by the Series in any fiscal year, including, without limitation, management fees paid to the Advisor, but excluding interest, taxes, brokerage commissions, other investment-related costs and extraordinary expenses not incurred in the ordinary course of the Series' business; and (ii) "Operating Expense Limit" shall mean the rate of the "Total Expense Limit" as a percentage of average daily net assets of the Series as stated in the then current registration statement of the Series, plus any distribution service fees under Rule 12b-1 under the Investment Company Act of 1940 and/or shareholder service fees as described in the then current registration statement of the Series, as determined from time to time by the Board of Trustees of the Trust. 5. REPORTS. The Series and the Advisor agree to furnish to each other such information regarding their operations with regard to their affairs as each may reasonably request. 6. STATUS OF ADVISOR. The services of the Advisor to the Series are not to be deemed exclusive, and the Advisor shall be free to render similar services to others so long as its services to the Series are not impaired thereby. 7. LIABILITY OF ADVISOR. In the absence of willful misfeasance, bad faith, gross negligence or reckless disregard by the Advisor of its obligations and duties hereunder, the Advisor shall not be subject to any liability whatsoever to the Series, or to any shareholder of the Series, for any error of judgment, mistake of law or any other act or omission in the course of, or connected with, rendering services hereunder including, without limitation, for any losses that may be sustained in connection with the purchase, holding, redemption or sale of any security on behalf of the Series. 8. DELEGATION OF RESPONSIBILITIES TO SUB-ADVISORS. The Advisor may, at its expense, select and contract with one or more affiliated or unaffiliated investment advisors registered under the Investment Advisers Act of 1940 ("Sub-Advisors") to perform some or all of the services for the Series for which it is responsible under this Agreement. The Advisor will compensate any Sub-Advisor for its services to the Series. The Advisor may terminate the services of any Sub-Advisor at any time in its sole discretion, and shall at such time assume the responsibility of such Sub-Advisor unless and until a successor Sub-Advisor is selected and the requisite approval of the Series' shareholders is obtained. The Advisor will continue to have responsibility for all advisory services furnished by any Sub-Advisor. 9. DURATION AND TERMINATION. This Agreement shall become effective on July 1, 2002 provided that first it is approved by the Board of Trustees of the Trust, including a majority of those trustees who are not parties to this Agreement or interested persons of any party hereto, in the manner provided in Section 15(c) of the Investment Company Act of 1940, as amended (the "1940 Act") and by the holders of a majority of the outstanding voting securities of the Series; and shall continue in effect until July 1, 2004. Thereafter, this Agreement may continue in effect only if such continuance is approved at least annually by: (i) the Trust's Board of Trustees; or (ii) by the vote of a majority of the outstanding voting securities of the Series; and in either event by a vote of a majority of those trustees of the Trust who are not parties to this Agreement or interested persons of any such party in the manner provided in Section 15(c) of the 1940 Act. This Agreement may be terminated by the Trust at any time, without the payment of any penalty, by the Board of Trustees of the Trust or by vote of the holders of a majority of the outstanding voting securities of the Series on 60 days' written notice to the Advisor. This Agreement may be terminated by the Advisor at any time, without the payment of any penalty, upon 60 days' written notice to the Trust. This Agreement will automatically terminate in the event of its assignment. Any notice under this Agreement shall be given in writing, addressed and delivered or mailed postpaid, to the other party at the principal office of such party. As used in this Section 9, the terms "assignment," "interested person," and "a vote of a majority of the outstanding voting securities" shall have the respective meanings set forth in Section 2(a)(4), Section 2(a)(19) and Section 2(a)(42) of the 1940 Act and Rule 18f-2 thereunder. 10. NAME OF ADVISOR. The parties agree that the Advisor has a proprietary interest in the name "UBS," and the Trust agrees to promptly take such action as may be necessary to delete from its corporate 2 name and/or the name of the Series any reference to the name of the Advisor promptly after receipt from the Advisor of a written request therefor. 11. Severability. If any provisions of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of this 1st day of July, 2002. Attest: THE UBS FUNDS By: By: ------------------------------- ---------------------------------- Name: Name: David M. Goldenberg Title: Title: Vice President Attest: UBS GLOBAL ASSET MANAGEMENT (AMERICAS) INC. By: By: ------------------------------- ---------------------------------- Name Name Title Title 3 EX-99.D-5-A 8 a2084554zex-99_d5a.txt EXHIBIT 99.D.5.A Ex 99.d.5.a FORM OF INVESTMENT ADVISORY AGREEMENT AGREEMENT made this 1st day of July, 2002, by and between The UBS Funds, a Delaware business trust (the "Trust") and UBS Global Asset Management (Americas) Inc., a Delaware corporation (the "Advisor"). 1. DUTIES OF THE ADVISOR. The Trust hereby appoints the Advisor to act as investment advisor to the UBS U.S. Equity Fund (the "Series") for the period and on such terms set forth in this Agreement. The Trust employs the Advisor to manage the investment and reinvestment of the assets of the Series, to continuously review, supervise and administer the investment program of the Series, to determine in its discretion the assets to be held uninvested, to provide the Trust with records concerning the Advisor's activities which the Trust is required to maintain, and to render regular reports to the Trust's officers and Board of Trustees concerning the Advisor's discharge of the foregoing responsibilities. The Advisor shall discharge the foregoing responsibilities subject to the control of the officers and the Board of Trustees of the Trust, and in compliance with the objectives, policies and limitations set forth in the Trust's Prospectus and Statement of Additional Information. The Advisor accepts such employment and agrees to render the services and to provide, at its own expense, the office space, furnishings, equipment and the personnel required by it to perform the services on the terms and for the compensation provided herein. With respect to foreign securities, at its own expense, the Advisor may obtain statistical and other factual information and advice regarding economic factors and trends from its foreign subsidiaries, and may obtain investment services from the investment advisory personnel of its affiliates located throughout the world to the extent permitted under interpretations of the federal securities laws. 2. PORTFOLIO TRANSACTIONS. The Advisor shall provide the Series with a trading department, and with respect to foreign securities, the Advisor is authorized to utilize the trading departments of its foreign affiliates. The Advisor shall select, and with respect to its foreign affiliates or the use of any sub-advisors, shall monitor the selection of, the brokers or dealers that will execute the purchases and sales of securities for the Series and is directed to use its best efforts to ensure that the best available price and most favorable execution of securities transactions for the Series are obtained. Subject to policies established by the Board of Trustees of the Trust and communicated to the Advisor, it is understood that the Advisor will not be deemed to have acted unlawfully, or to have breached a fiduciary duty to the Trust or in respect of the Series, or be in breach of any obligation owing to the Trust or in respect of the Series under this Agreement, or otherwise, solely by reason of its having caused the Series to pay a member of a securities exchange, a broker or a dealer a commission for effecting a securities transaction for the Series in excess of the amount of commission another member of an exchange, broker or 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 member, broker or dealer, viewed in terms of that particular transaction or the Advisor's overall responsibilities with respect to the Series and to other funds and advisory accounts for which the Advisor or any Sub-Advisor, as defined in Section 8 hereof, exercises investment discretion. The Advisor will promptly communicate to the officers and trustees of the Trust such information relating to the Series transactions as they may reasonably request. 3. COMPENSATION OF THE ADVISOR. For the services to be rendered by the Advisor as provided in Sections 1 and 2 of this Agreement, the Series shall pay to the Advisor within five business days after the end of each calendar month, a monthly fee of one twelfth of 0.70% of the Series' average daily net assets for the month. In the event of termination of this Agreement, the fee provided in this Section 3 shall be paid on a pro rata basis, based on the number of days when this Agreement was in effect. 4. REIMBURSEMENT OF FEE WAIVERS AND EXPENSE REIMBURSEMENTS. If on any day during which this Agreement is in effect, the estimated annualized Operating Expenses (as defined below) of the Series for that day are less than the Operating Expense Limit (as defined below), the Advisor shall be entitled to reimbursement by the Series of the investment management fees waived or reduced, and of any expense reimbursements or similar payments remitted by the Advisor to the Series pursuant to the Advisor's agreement to limit the Series' Operating Expenses (the "Reimbursement Amount") during any of the previous three (3) years, to the extent that the Series' annualized Operating Expenses, plus the amount so reimbursed, equals, for such day, the Operating Expense Limit, provided that such amount paid to the Advisor will in no event exceed the total Reimbursement Amount and will not include any amounts previously reimbursed by the Series to the Advisor. For purposes of this Section 4: (i) "Operating Expenses" shall include the ordinary operating expenses incurred by the Series in any fiscal year, including, without limitation, management fees paid to the Advisor, but excluding interest, taxes, brokerage commissions, other investment-related costs and extraordinary expenses not incurred in the ordinary course of the Series' business; and (ii) "Operating Expense Limit" shall mean the rate of the "Total Expense Limit" as a percentage of average daily net assets of the Series as stated in the then current registration statement of the Series, plus any distribution service fees under Rule 12b-1 under the Investment Company Act of 1940 and/or shareholder service fees as described in the then current registration statement of the Series, as determined from time to time by the Board of Trustees of the Trust. 5. REPORTS. The Series and the Advisor agree to furnish to each other such information regarding their operations with regard to their affairs as each may reasonably request. 6. STATUS OF ADVISOR. The services of the Advisor to the Series are not to be deemed exclusive, and the Advisor shall be free to render similar services to others so long as its services to the Series are not impaired thereby. 7. LIABILITY OF ADVISOR. In the absence of willful misfeasance, bad faith, gross negligence or reckless disregard by the Advisor of its obligations and duties hereunder, the Advisor shall not be subject to any liability whatsoever to the Series, or to any shareholder of the Series, for any error of judgment, mistake of law or any other act or omission in the course of, or connected with, rendering services hereunder including, without limitation, for any losses that may be sustained in connection with the purchase, holding, redemption or sale of any security on behalf of the Series. 8. DELEGATION OF RESPONSIBILITIES TO SUB-ADVISORS. The Advisor may, at its expense, select and contract with one or more affiliated or unaffiliated investment advisors registered under the Investment Advisers Act of 1940 ("Sub-Advisors") to perform some or all of the services for the Series for which it is responsible under this Agreement. The Advisor will compensate any Sub-Advisor for its services to the Series. The Advisor may terminate the services of any Sub-Advisor at any time in its sole discretion, and shall at such time assume the responsibility of such Sub-Advisor unless and until a successor Sub-Advisor is selected and the requisite approval of the Series' shareholders is obtained. The Advisor will continue to have responsibility for all advisory services furnished by any Sub-Advisor. 9. DURATION AND TERMINATION. This Agreement shall become effective on July 1, 2002 provided that first it is approved by the Board of Trustees of the Trust, including a majority of those trustees who are not parties to this Agreement or interested persons of any party hereto, in the manner provided in Section 15(c) of the Investment Company Act of 1940, as amended (the "1940 Act") and by the holders of a majority of the outstanding voting securities of the Series; and shall continue in effect until July 1, 2004. Thereafter, this Agreement may continue in effect only if such continuance is approved at least annually by: (i) the Trust's Board of Trustees; or (ii) by the vote of a majority of the outstanding voting securities of the Series; and in either event by a vote of a majority of those trustees of the Trust who are not parties to this Agreement or interested persons of any such party in the manner provided in Section 15(c) of the 1940 Act. This Agreement may be terminated by the Trust at any time, without the payment of any penalty, by the Board of Trustees of the Trust or by vote of the holders of a majority of the outstanding voting securities of the Series on 60 days' written notice to the Advisor. This Agreement may be terminated by the Advisor at any time, without the payment of any penalty, upon 60 days' written notice to the Trust. This Agreement will automatically terminate in the event of its assignment. Any notice under this Agreement shall be given in writing, addressed and delivered or mailed postpaid, to the other party at the principal office of such party. As used in this Section 9, the terms "assignment," "interested person," and "a vote of a majority of the outstanding voting securities" shall have the respective meanings set forth in Section 2(a)(4), Section 2(a)(19) and Section 2(a)(42) of the 1940 Act and Rule 18f-2 thereunder. 10. NAME OF ADVISOR. The parties agree that the Advisor has a proprietary interest in the name "UBS," and the Trust agrees to promptly take such action as may be necessary to delete from its corporate 2 name and/or the name of the Series any reference to the name of the Advisor promptly after receipt from the Advisor of a written request therefor. 11. SEVERABILITY. If any provisions of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of this 1st day of July, 2002. Attest: THE UBS FUNDS By: By: -------------------------------- -------------------------- Name Name: David M. Goldenberg Title Title: Vice President Attest: UBS GLOBAL ASSET MANAGEMENT (AMERICAS) INC. By: By: -------------------------------- -------------------------- Name Name: Title Title: 3 EX-99.D-6-A 9 a2084554zex-99_d6a.txt EXHIBIT 99.D.6.A EX 99.d.6.a FORM OF INVESTMENT ADVISORY AGREEMENT AGREEMENT made this 1st day of July, 2002, by and between The UBS Funds, a Delaware business trust (the "Trust") and UBS Global Asset Management (Americas) Inc., a Delaware corporation (the "Advisor"). 1. DUTIES OF THE ADVISOR. The Trust hereby appoints the Advisor to act as investment advisor to the UBS U.S. Balanced Fund (the "Series") for the period and on such terms set forth in this Agreement. The Trust employs the Advisor to manage the investment and reinvestment of the assets of the Series, to continuously review, supervise and administer the investment program of the Series, to determine in its discretion the assets to be held uninvested, to provide the Trust with records concerning the Advisor's activities which the Trust is required to maintain, and to render regular reports to the Trust's officers and Board of Trustees concerning the Advisor's discharge of the foregoing responsibilities. The Advisor shall discharge the foregoing responsibilities subject to the control of the officers and the Board of Trustees of the Trust, and in compliance with the objectives, policies and limitations set forth in the Trust's Prospectus and Statement of Additional Information. The Advisor accepts such employment and agrees to render the services and to provide, at its own expense, the office space, furnishings, equipment and the personnel required by it to perform the services on the terms and for the compensation provided herein. With respect to foreign securities, at its own expense, the Advisor may obtain statistical and other factual information and advice regarding economic factors and trends from its foreign subsidiaries, and may obtain investment services from the investment advisory personnel of its affiliates located throughout the world to the extent permitted under interpretations of the federal securities laws. 2. PORTFOLIO TRANSACTIONS. The Advisor shall provide the Series with a trading department, and with respect to foreign securities, the Advisor is authorized to utilize the trading departments of its foreign affiliates. The Advisor shall select, and with respect to its foreign affiliates or the use of any sub-advisors, shall monitor the selection of, the brokers or dealers that will execute the purchases and sales of securities for the Series and is directed to use its best efforts to ensure that the best available price and most favorable execution of securities transactions for the Series are obtained. Subject to policies established by the Board of Trustees of the Trust and communicated to the Advisor, it is understood that the Advisor will not be deemed to have acted unlawfully, or to have breached a fiduciary duty to the Trust or in respect of the Series, or be in breach of any obligation owing to the Trust or in respect of the Series under this Agreement, or otherwise, solely by reason of its having caused the Series to pay a member of a securities exchange, a broker or a dealer a commission for effecting a securities transaction for the Series in excess of the amount of commission another member of an exchange, broker or 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 member, broker or dealer, viewed in terms of that particular transaction or the Advisor's overall responsibilities with respect to the Series and to other funds and advisory accounts for which the Advisor or any Sub-Advisor, as defined in Section 8 hereof, exercises investment discretion. The Advisor will promptly communicate to the officers and trustees of the Trust such information relating to the Series transactions as they may reasonably request. 3. COMPENSATION OF THE ADVISOR. For the services to be rendered by the Advisor as provided in Sections 1 and 2 of this Agreement, the Series shall pay to the Advisor within five business days after the end of each calendar month, a monthly fee of one twelfth of 0.70% of the Series' average daily net assets for the month. In the event of termination of this Agreement, the fee provided in this Section 3 shall be paid on a pro rata basis, based on the number of days when this Agreement was in effect. 4. REIMBURSEMENT OF FEE WAIVERS AND EXPENSE REIMBURSEMENTS. If on any day during which this Agreement is in effect, the estimated annualized Operating Expenses (as defined below) of the Series for that day are less than the Operating Expense Limit (as defined below), the Advisor shall be entitled to reimbursement by the Series of the investment management fees waived or reduced, and of any expense reimbursements or similar payments remitted by the Advisor to the Series pursuant to the Advisor's agreement to limit the Series' Operating Expenses (the "Reimbursement Amount") during any of the previous three (3) years, to the extent that the Series' annualized Operating Expenses, plus the amount so reimbursed, equals, for such day, the Operating Expense Limit, provided that such amount paid to the Advisor will in no event exceed the total Reimbursement Amount and will not include any amounts previously reimbursed by the Series to the Advisor. For purposes of this Section 4: (i) "Operating Expenses" shall include the ordinary operating expenses incurred by the Series in any fiscal year, including, without limitation, management fees paid to the Advisor, but excluding interest, taxes, brokerage commissions, other investment-related costs and extraordinary expenses not incurred in the ordinary course of the Series' business; and (ii) "Operating Expense Limit" shall mean the rate of the "Total Expense Limit" as a percentage of average daily net assets of the Series as stated in the then current registration statement of the Series, plus any distribution service fees under Rule 12b-1 under the Investment Company Act of 1940 and/or shareholder service fees as described in the then current registration statement of the Series, as determined from time to time by the Board of Trustees of the Trust. 5. REPORTS. The Series and the Advisor agree to furnish to each other such information regarding their operations with regard to their affairs as each may reasonably request. 6. STATUS OF ADVISOR. The services of the Advisor to the Series are not to be deemed exclusive, and the Advisor shall be free to render similar services to others so long as its services to the Series are not impaired thereby. 7. LIABILITY OF ADVISOR. In the absence of willful misfeasance, bad faith, gross negligence or reckless disregard by the Advisor of its obligations and duties hereunder, the Advisor shall not be subject to any liability whatsoever to the Series, or to any shareholder of the Series, for any error of judgment, mistake of law or any other act or omission in the course of, or connected with, rendering services hereunder including, without limitation, for any losses that may be sustained in connection with the purchase, holding, redemption or sale of any security on behalf of the Series. 8. DELEGATION OF RESPONSIBILITIES TO SUB-ADVISORS. The Advisor may, at its expense, select and contract with one or more affiliated or unaffiliated investment advisors registered under the Investment Advisers Act of 1940 ("Sub-Advisors") to perform some or all of the services for the Series for which it is responsible under this Agreement. The Advisor will compensate any Sub-Advisor for its services to the Series. The Advisor may terminate the services of any Sub-Advisor at any time in its sole discretion, and shall at such time assume the responsibility of such Sub-Advisor unless and until a successor Sub-Advisor is selected and the requisite approval of the Series' shareholders is obtained. The Advisor will continue to have responsibility for all advisory services furnished by any Sub-Advisor. 9. DURATION AND TERMINATION. This Agreement shall become effective on July 1, 2002 provided that first it is approved by the Board of Trustees of the Trust, including a majority of those trustees who are not parties to this Agreement or interested persons of any party hereto, in the manner provided in Section 15(c) of the Investment Company Act of 1940, as amended (the "1940 Act") and by the holders of a majority of the outstanding voting securities of the Series; and shall continue in effect until July 1, 2004. Thereafter, this Agreement may continue in effect only if such continuance is approved at least annually by: (i) the Trust's Board of Trustees; or (ii) by the vote of a majority of the outstanding voting securities of the Series; and in either event by a vote of a majority of those trustees of the Trust who are not parties to this Agreement or interested persons of any such party in the manner provided in Section 15(c) of the 1940 Act. This Agreement may be terminated by the Trust at any time, without the payment of any penalty, by the Board of Trustees of the Trust or by vote of the holders of a majority of the outstanding voting securities of the Series on 60 days' written notice to the Advisor. This Agreement may be terminated by the Advisor at any time, without the payment of any penalty, upon 60 days' written notice to the Trust. This Agreement will automatically terminate in the event of its assignment. Any notice under this Agreement shall be given in writing, addressed and delivered or mailed postpaid, to the other party at the principal office of such party. As used in this Section 9, the terms "assignment," "interested person," and "a vote of a majority of the outstanding voting securities" shall have the respective meanings set forth in Section 2(a)(4), Section 2(a)(19) and Section 2(a)(42) of the 1940 Act and Rule 18f-2 thereunder. 10. NAME OF ADVISOR. The parties agree that the Advisor has a proprietary interest in the name "UBS," and the Trust agrees to promptly take such action as may be necessary to delete from its corporate 2 name and/or the name of the Series any reference to the name of the Advisor promptly after receipt from the Advisor of a written request therefor. 11. SEVERABILITY. If any provisions of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of this 1st day of July, 2002. Attest: THE UBS FUNDS By: By: ------------------------------ --------------------------------- Name Name: David M. Goldenberg Title Title: Vice President Attest: UBS GLOBAL ASSET MANAGEMENT (AMERICAS) INC. By: By: ------------------------------ --------------------------------- Name Name Title Title 3 EX-99.D-7-A 10 a2084554zex-99_d7a.txt EXHIBIT 99.D.7.A EX 99.d.7.a FORM OF INVESTMENT ADVISORY AGREEMENT AGREEMENT made this 1st day of July, 2002, by and between The UBS Funds, a Delaware business trust (the "Trust") and UBS Global Asset Management (Americas) Inc., a Delaware corporation (the "Advisor"). 1. DUTIES OF THE ADVISOR. The Trust hereby appoints the Advisor to act as investment advisor to the UBS U.S. Bond Fund (the "Series") for the period and on such terms set forth in this Agreement. The Trust employs the Advisor to manage the investment and reinvestment of the assets of the Series, to continuously review, supervise and administer the investment program of the Series, to determine in its discretion the assets to be held uninvested, to provide the Trust with records concerning the Advisor's activities which the Trust is required to maintain, and to render regular reports to the Trust's officers and Board of Trustees concerning the Advisor's discharge of the foregoing responsibilities. The Advisor shall discharge the foregoing responsibilities subject to the control of the officers and the Board of Trustees of the Trust, and in compliance with the objectives, policies and limitations set forth in the Trust's Prospectus and Statement of Additional Information. The Advisor accepts such employment and agrees to render the services and to provide, at its own expense, the office space, furnishings, equipment and the personnel required by it to perform the services on the terms and for the compensation provided herein. With respect to foreign securities, at its own expense, the Advisor may obtain statistical and other factual information and advice regarding economic factors and trends from its foreign subsidiaries, and may obtain investment services from the investment advisory personnel of its affiliates located throughout the world to the extent permitted under interpretations of the federal securities laws. 2. PORTFOLIO TRANSACTIONS. The Advisor shall provide the Series with a trading department, and with respect to foreign securities, the Advisor is authorized to utilize the trading departments of its foreign affiliates. The Advisor shall select, and with respect to its foreign affiliates or the use of any sub-advisors, shall monitor the selection of, the brokers or dealers that will execute the purchases and sales of securities for the Series and is directed to use its best efforts to ensure that the best available price and most favorable execution of securities transactions for the Series are obtained. Subject to policies established by the Board of Trustees of the Trust and communicated to the Advisor, it is understood that the Advisor will not be deemed to have acted unlawfully, or to have breached a fiduciary duty to the Trust or in respect of the Series, or be in breach of any obligation owing to the Trust or in respect of the Series under this Agreement, or otherwise, solely by reason of its having caused the Series to pay a member of a securities exchange, a broker or a dealer a commission for effecting a securities transaction for the Series in excess of the amount of commission another member of an exchange, broker or 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 member, broker or dealer, viewed in terms of that particular transaction or the Advisor's overall responsibilities with respect to the Series and to other funds and advisory accounts for which the Advisor or any Sub-Advisor, as defined in Section 8 hereof, exercises investment discretion. The Advisor will promptly communicate to the officers and trustees of the Trust such information relating to the Series transactions as they may reasonably request. 3. COMPENSATION OF THE ADVISOR. For the services to be rendered by the Advisor as provided in Sections 1 and 2 of this Agreement, the Series shall pay to the Advisor within five business days after the end of each calendar month, a monthly fee of one twelfth of 0.50% of the Series' average daily net assets for the month. In the event of termination of this Agreement, the fee provided in this Section 3 shall be paid on a pro rata basis, based on the number of days when this Agreement was in effect. 4. REIMBURSEMENT OF FEE WAIVERS AND EXPENSE REIMBURSEMENTS. If on any day during which this Agreement is in effect, the estimated annualized Operating Expenses (as defined below) of the Series for that day are less than the Operating Expense Limit (as defined below), the Advisor shall be entitled to reimbursement by the Series of the investment management fees waived or reduced, and of any expense reimbursements or similar payments remitted by the Advisor to the Series pursuant to the Advisor's agreement to limit the Series' Operating Expenses (the "Reimbursement Amount") during any of the previous three (3) years, to the extent that the Series' annualized Operating Expenses, plus the amount so reimbursed, equals, for such day, the Operating Expense Limit, provided that such amount paid to the Advisor will in no event exceed the total Reimbursement Amount and will not include any amounts previously reimbursed by the Series to the Advisor. For purposes of this Section 4: (i) "Operating Expenses" shall include the ordinary operating expenses incurred by the Series in any fiscal year, including, without limitation, management fees paid to the Advisor, but excluding interest, taxes, brokerage commissions, other investment-related costs and extraordinary expenses not incurred in the ordinary course of the Series' business; and (ii) "Operating Expense Limit" shall mean the rate of the "Total Expense Limit" as a percentage of average daily net assets of the Series as stated in the then current registration statement of the Series, plus any distribution service fees under Rule 12b-1 under the Investment Company Act of 1940 and/or shareholder service fees as described in the then current registration statement of the Series, as determined from time to time by the Board of Trustees of the Trust. 5. REPORTS. The Series and the Advisor agree to furnish to each other such information regarding their operations with regard to their affairs as each may reasonably request. 6. STATUS OF ADVISOR. The services of the Advisor to the Series are not to be deemed exclusive, and the Advisor shall be free to render similar services to others so long as its services to the Series are not impaired thereby. 7. LIABILITY OF ADVISOR. In the absence of willful misfeasance, bad faith, gross negligence or reckless disregard by the Advisor of its obligations and duties hereunder, the Advisor shall not be subject to any liability whatsoever to the Series, or to any shareholder of the Series, for any error of judgment, mistake of law or any other act or omission in the course of, or connected with, rendering services hereunder including, without limitation, for any losses that may be sustained in connection with the purchase, holding, redemption or sale of any security on behalf of the Series. 8. DELEGATION OF RESPONSIBILITIES TO SUB-ADVISORS. The Advisor may, at its expense, select and contract with one or more affiliated or unaffiliated investment advisors registered under the Investment Advisers Act of 1940 ("Sub-Advisors") to perform some or all of the services for the Series for which it is responsible under this Agreement. The Advisor will compensate any Sub-Advisor for its services to the Series. The Advisor may terminate the services of any Sub-Advisor at any time in its sole discretion, and shall at such time assume the responsibility of such Sub-Advisor unless and until a successor Sub-Advisor is selected and the requisite approval of the Series' shareholders is obtained. The Advisor will continue to have responsibility for all advisory services furnished by any Sub-Advisor. 9. DURATION AND TERMINATION. This Agreement shall become effective on July 1, 2002 provided that first it is approved by the Board of Trustees of the Trust, including a majority of those trustees who are not parties to this Agreement or interested persons of any party hereto, in the manner provided in Section 15(c) of the Investment Company Act of 1940, as amended (the "1940 Act") and by the holders of a majority of the outstanding voting securities of the Series; and shall continue in effect until July 1, 2004. Thereafter, this Agreement may continue in effect only if such continuance is approved at least annually by: (i) the Trust's Board of Trustees; or (ii) by the vote of a majority of the outstanding voting securities of the Series; and in either event by a vote of a majority of those trustees of the Trust who are not parties to this Agreement or interested persons of any such party in the manner provided in Section 15(c) of the 1940 Act. This Agreement may be terminated by the Trust at any time, without the payment of any penalty, by the Board of Trustees of the Trust or by vote of the holders of a majority of the outstanding voting securities of the Series on 60 days' written notice to the Advisor. This Agreement may be terminated by the Advisor at any time, without the payment of any penalty, upon 60 days' written notice to the Trust. This Agreement will automatically terminate in the event of its assignment. Any notice under this Agreement shall be given in writing, addressed and delivered or mailed postpaid, to the other party at the principal office of such party. As used in this Section 9, the terms "assignment," "interested person," and "a vote of a majority of the outstanding voting securities" shall have the respective meanings set forth in Section 2(a)(4), Section 2(a)(19) and Section 2(a)(42) of the 1940 Act and Rule 18f-2 thereunder. 10. NAME OF ADVISOR. The parties agree that the Advisor has a proprietary interest in the name "UBS," and the Trust agrees to promptly take such action as may be necessary to delete from its corporate 2 name and/or the name of the Series any reference to the name of the Advisor promptly after receipt from the Advisor of a written request therefor. 11. SEVERABILITY. If any provisions of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of this 1st day of July, 2002. Attest: THE UBS FUNDS By: By: -------------------------------- ---------------------------------- Name Name: David M. Goldenberg Title Title: Vice President Attest: UBS GLOBAL ASSET MANAGEMENT (AMERICAS) INC. By: By: -------------------------------- ---------------------------------- Name Name Title Title EX-99.D-8-B 11 a2084554zex-99_d8b.txt EXHIBIT 99.D.8.B Ex 99.d.8.b FORM OF INVESTMENT ADVISORY AGREEMENT AGREEMENT made this 1st day of July, 2002, by and between The UBS Funds, a Delaware business trust (the "Trust") and UBS Global Asset Management (Americas) Inc., a Delaware corporation (the "Advisor"). 1. DUTIES OF THE ADVISOR. The Trust hereby appoints the Advisor to act as investment advisor to the UBS U.S. Large Cap Equity Fund (the "Series") for the period and on such terms set forth in this Agreement. The Trust employs the Advisor to manage the investment and reinvestment of the assets of the Series, to continuously review, supervise and administer the investment program of the Series, to determine in its discretion the assets to be held uninvested, to provide the Trust with records concerning the Advisor's activities which the Trust is required to maintain, and to render regular reports to the Trust's officers and Board of Trustees concerning the Advisor's discharge of the foregoing responsibilities. The Advisor shall discharge the foregoing responsibilities subject to the control of the officers and the Board of Trustees of the Trust, and in compliance with the objectives, policies and limitations set forth in the Trust's Prospectus and Statement of Additional Information. The Advisor accepts such employment and agrees to render the services and to provide, at its own expense, the office space, furnishings, equipment and the personnel required by it to perform the services on the terms and for the compensation provided herein. With respect to foreign securities, at its own expense, the Advisor may obtain statistical and other factual information and advice regarding economic factors and trends from its foreign subsidiaries, and may obtain investment services from the investment advisory personnel of its affiliates located throughout the world to the extent permitted under interpretations of the federal securities laws. 2. PORTFOLIO TRANSACTIONS. The Advisor shall provide the Series with a trading department, and with respect to foreign securities, the Advisor is authorized to utilize the trading departments of its foreign affiliates. The Advisor shall select, and with respect to its foreign affiliates or the use of any sub-advisors, shall monitor the selection of, the brokers or dealers that will execute the purchases and sales of securities for the Series and is directed to use its best efforts to ensure that the best available price and most favorable execution of securities transactions for the Series are obtained. Subject to policies established by the Board of Trustees of the Trust and communicated to the Advisor, it is understood that the Advisor will not be deemed to have acted unlawfully, or to have breached a fiduciary duty to the Trust or in respect of the Series, or be in breach of any obligation owing to the Trust or in respect of the Series under this Agreement, or otherwise, solely by reason of its having caused the Series to pay a member of a securities exchange, a broker or a dealer a commission for effecting a securities transaction for the Series in excess of the amount of commission another member of an exchange, broker or 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 member, broker or dealer, viewed in terms of that particular transaction or the Advisor's overall responsibilities with respect to the Series and to other funds and advisory accounts for which the Advisor or any Sub-Advisor, as defined in Section 8 hereof, exercises investment discretion. The Advisor will promptly communicate to the officers and trustees of the Trust such information relating to the Series transactions as they may reasonably request. 3. COMPENSATION OF THE ADVISOR. For the services to be rendered by the Advisor as provided in Sections 1 and 2 of this Agreement, the Series shall pay to the Advisor within five business days after the end of each calendar month, a monthly fee of one twelfth of 0.70% of the Series' average daily net assets for the month. In the event of termination of this Agreement, the fee provided in this Section 3 shall be paid on a pro rata basis, based on the number of days when this Agreement was in effect. 4. REIMBURSEMENT OF FEE WAIVERS AND EXPENSE REIMBURSEMENTS. If on any day during which this Agreement is in effect, the estimated annualized Operating Expenses (as defined below) of the Series for that day are less than the Operating Expense Limit (as defined below), the Advisor shall be entitled to reimbursement by the Series of the investment management fees waived or reduced, and of any expense reimbursements or similar payments remitted by the Advisor to the Series pursuant to the Advisor's agreement to limit the Series' Operating Expenses (the "Reimbursement Amount") during any of the previous three (3) years, to the extent that the Series' annualized Operating Expenses, plus the amount so reimbursed, equals, for such day, the Operating Expense Limit, provided that such amount paid to the Advisor will in no event exceed the total Reimbursement Amount and will not include any amounts previously reimbursed by the Series to the Advisor. For purposes of this Section 4: (i) "Operating Expenses" shall include the ordinary operating expenses incurred by the Series in any fiscal year, including, without limitation, management fees paid to the Advisor, but excluding interest, taxes, brokerage commissions, other investment-related costs and extraordinary expenses not incurred in the ordinary course of the Series' business; and (ii) "Operating Expense Limit" shall mean the rate of the "Total Expense Limit" as a percentage of average daily net assets of the Series as stated in the then current registration statement of the Series, plus any distribution service fees under Rule 12b-1 under the Investment Company Act of 1940 and/or shareholder service fees as described in the then current registration statement of the Series, as determined from time to time by the Board of Trustees of the Trust. 5. REPORTS. The Series and the Advisor agree to furnish to each other such information regarding their operations with regard to their affairs as each may reasonably request. 6. STATUS OF ADVISOR. The services of the Advisor to the Series are not to be deemed exclusive, and the Advisor shall be free to render similar services to others so long as its services to the Series are not impaired thereby. 7. LIABILITY OF ADVISOR. In the absence of willful misfeasance, bad faith, gross negligence or reckless disregard by the Advisor of its obligations and duties hereunder, the Advisor shall not be subject to any liability whatsoever to the Series, or to any shareholder of the Series, for any error of judgment, mistake of law or any other act or omission in the course of, or connected with, rendering services hereunder including, without limitation, for any losses that may be sustained in connection with the purchase, holding, redemption or sale of any security on behalf of the Series. 8. DELEGATION OF RESPONSIBILITIES TO SUB-ADVISORS. The Advisor may, at its expense, select and contract with one or more affiliated or unaffiliated investment advisors registered under the Investment Advisers Act of 1940 ("Sub-Advisors") to perform some or all of the services for the Series for which it is responsible under this Agreement. The Advisor will compensate any Sub-Advisor for its services to the Series. The Advisor may terminate the services of any Sub-Advisor at any time in its sole discretion, and shall at such time assume the responsibility of such Sub-Advisor unless and until a successor Sub-Advisor is selected and the requisite approval of the Series' shareholders is obtained. The Advisor will continue to have responsibility for all advisory services furnished by any Sub-Advisor. 9. DURATION AND TERMINATION. This Agreement shall become effective on July 1, 2002 provided that first it is approved by the Board of Trustees of the Trust, including a majority of those trustees who are not parties to this Agreement or interested persons of any party hereto, in the manner provided in Section 15(c) of the Investment Company Act of 1940, as amended (the "1940 Act") and by the holders of a majority of the outstanding voting securities of the Series; and shall continue in effect until July 1, 2004. Thereafter, this Agreement may continue in effect only if such continuance is approved at least annually by: (i) the Trust's Board of Trustees; or (ii) by the vote of a majority of the outstanding voting securities of the Series; and in either event by a vote of a majority of those trustees of the Trust who are not parties to this Agreement or interested persons of any such party in the manner provided in Section 15(c) of the 1940 Act. This Agreement may be terminated by the Trust at any time, without the payment of any penalty, by the Board of Trustees of the Trust or by vote of the holders of a majority of the outstanding voting securities of the Series on 60 days' written notice to the Advisor. This Agreement may be terminated by the Advisor at any time, without the payment of any penalty, upon 60 days' written notice to the Trust. This Agreement will automatically terminate in the event of its assignment. Any notice under this Agreement shall be given in writing, addressed and delivered or mailed postpaid, to the other party at the principal office of such party. As used in this Section 9, the terms "assignment," "interested person," and "a vote of a majority of the outstanding voting securities" shall have the respective meanings set forth in Section 2(a)(4), Section 2(a)(19) and Section 2(a)(42) of the 1940 Act and Rule 18f-2 thereunder. 10. NAME OF ADVISOR. The parties agree that the Advisor has a proprietary interest in the name "UBS," and the Trust agrees to promptly take such action as may be necessary to delete from its corporate 2 name and/or the name of the Series any reference to the name of the Advisor promptly after receipt from the Advisor of a written request therefor. 11. SEVERABILITY. If any provisions of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of this 1st day of July, 2002. Attest: THE UBS FUNDS By: By: -------------------------------- -------------------------- Name Name: David M. Goldenberg Title Title: Vice President Attest: UBS GLOBAL ASSET MANAGEMENT (AMERICAS) INC. By: By: -------------------------------- -------------------------- Name Name: Title Title: 3 EX-99.D-9-A 12 a2084554zex-99_d9a.txt EXHIBIT 99.D.9.A EX 99.d.9.a FORM OF INVESTMENT ADVISORY AGREEMENT AGREEMENT made this 1st day of July, 2002, by and between The UBS Funds, a Delaware business trust (the "Trust") and UBS Global Asset Management (Americas) Inc., a Delaware corporation (the "Advisor"). 1. DUTIES OF THE ADVISOR. The Trust hereby appoints the Advisor to act as investment advisor to the UBS U.S. Large Cap Growth Fund (the "Series") for the period and on such terms set forth in this Agreement. The Trust employs the Advisor to manage the investment and reinvestment of the assets of the Series, to continuously review, supervise and administer the investment program of the Series, to determine in its discretion the assets to be held uninvested, to provide the Trust with records concerning the Advisor's activities which the Trust is required to maintain, and to render regular reports to the Trust's officers and Board of Trustees concerning the Advisor's discharge of the foregoing responsibilities. The Advisor shall discharge the foregoing responsibilities subject to the control of the officers and the Board of Trustees of the Trust, and in compliance with the objectives, policies and limitations set forth in the Trust's Prospectus and Statement of Additional Information. The Advisor accepts such employment and agrees to render the services and to provide, at its own expense, the office space, furnishings, equipment and the personnel required by it to perform the services on the terms and for the compensation provided herein. With respect to foreign securities, at its own expense, the Advisor may obtain statistical and other factual information and advice regarding economic factors and trends from its foreign subsidiaries, and may obtain investment services from the investment advisory personnel of its affiliates located throughout the world to the extent permitted under interpretations of the federal securities laws. 2. PORTFOLIO TRANSACTIONS. The Advisor shall provide the Series with a trading department, and with respect to foreign securities, the Advisor is authorized to utilize the trading departments of its foreign affiliates. The Advisor shall select, and with respect to its foreign affiliates or the use of any sub-advisors, shall monitor the selection of, the brokers or dealers that will execute the purchases and sales of securities for the Series and is directed to use its best efforts to ensure that the best available price and most favorable execution of securities transactions for the Series are obtained. Subject to policies established by the Board of Trustees of the Trust and communicated to the Advisor, it is understood that the Advisor will not be deemed to have acted unlawfully, or to have breached a fiduciary duty to the Trust or in respect of the Series, or be in breach of any obligation owing to the Trust or in respect of the Series under this Agreement, or otherwise, solely by reason of its having caused the Series to pay a member of a securities exchange, a broker or a dealer a commission for effecting a securities transaction for the Series in excess of the amount of commission another member of an exchange, broker or 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 member, broker or dealer, viewed in terms of that particular transaction or the Advisor's overall responsibilities with respect to the Series and to other funds and advisory accounts for which the Advisor or any Sub-Advisor, as defined in Section 8 hereof, exercises investment discretion. The Advisor will promptly communicate to the officers and trustees of the Trust such information relating to the Series transactions as they may reasonably request. 3. COMPENSATION OF THE ADVISOR. For the services to be rendered by the Advisor as provided in Sections 1 and 2 of this Agreement, the Series shall pay to the Advisor within five business days after the end of each calendar month, a monthly fee of one twelfth of 0.70% of the Series' average daily net assets for the month. In the event of termination of this Agreement, the fee provided in this Section 3 shall be paid on a pro rata basis, based on the number of days when this Agreement was in effect. 4. REIMBURSEMENT OF FEE WAIVERS AND EXPENSE REIMBURSEMENTS. If on any day during which this Agreement is in effect, the estimated annualized Operating Expenses (as defined below) of the Series for that day are less than the Operating Expense Limit (as defined below), the Advisor shall be entitled to reimbursement by the Series of the investment management fees waived or reduced, and of any expense reimbursements or similar payments remitted by the Advisor to the Series pursuant to the Advisor's agreement to limit the Series' Operating Expenses (the "Reimbursement Amount") during any of the previous three (3) years, to the extent that the Series' annualized Operating Expenses, plus the amount so reimbursed, equals, for such day, the Operating Expense Limit, provided that such amount paid to the Advisor will in no event exceed the total Reimbursement Amount and will not include any amounts previously reimbursed by the Series to the Advisor. For purposes of this Section 4: (i) "Operating Expenses" shall include the ordinary operating expenses incurred by the Series in any fiscal year, including, without limitation, management fees paid to the Advisor, but excluding interest, taxes, brokerage commissions, other investment-related costs and extraordinary expenses not incurred in the ordinary course of the Series' business; and (ii) "Operating Expense Limit" shall mean the rate of the "Total Expense Limit" as a percentage of average daily net assets of the Series as stated in the then current registration statement of the Series, plus any distribution service fees under Rule 12b-1 under the Investment Company Act of 1940 and/or shareholder service fees as described in the then current registration statement of the Series, as determined from time to time by the Board of Trustees of the Trust. 5. REPORTS. The Series and the Advisor agree to furnish to each other such information regarding their operations with regard to their affairs as each may reasonably request. 6. STATUS OF ADVISOR. The services of the Advisor to the Series are not to be deemed exclusive, and the Advisor shall be free to render similar services to others so long as its services to the Series are not impaired thereby. 7. LIABILITY OF ADVISOR. In the absence of willful misfeasance, bad faith, gross negligence or reckless disregard by the Advisor of its obligations and duties hereunder, the Advisor shall not be subject to any liability whatsoever to the Series, or to any shareholder of the Series, for any error of judgment, mistake of law or any other act or omission in the course of, or connected with, rendering services hereunder including, without limitation, for any losses that may be sustained in connection with the purchase, holding, redemption or sale of any security on behalf of the Series. 8. DELEGATION OF RESPONSIBILITIES TO SUB-ADVISORS. The Advisor may, at its expense, select and contract with one or more affiliated or unaffiliated investment advisors registered under the Investment Advisers Act of 1940 ("Sub-Advisors") to perform some or all of the services for the Series for which it is responsible under this Agreement. The Advisor will compensate any Sub-Advisor for its services to the Series. The Advisor may terminate the services of any Sub-Advisor at any time in its sole discretion, and shall at such time assume the responsibility of such Sub-Advisor unless and until a successor Sub-Advisor is selected and the requisite approval of the Series' shareholders is obtained. The Advisor will continue to have responsibility for all advisory services furnished by any Sub-Advisor. 9. DURATION AND TERMINATION. This Agreement shall become effective on July 1, 2002 provided that first it is approved by the Board of Trustees of the Trust, including a majority of those trustees who are not parties to this Agreement or interested persons of any party hereto, in the manner provided in Section 15(c) of the Investment Company Act of 1940, as amended (the "1940 Act") and by the holders of a majority of the outstanding voting securities of the Series; and shall continue in effect until July 1, 2004. Thereafter, this Agreement may continue in effect only if such continuance is approved at least annually by: (i) the Trust's Board of Trustees; or (ii) by the vote of a majority of the outstanding voting securities of the Series; and in either event by a vote of a majority of those trustees of the Trust who are not parties to this Agreement or interested persons of any such party in the manner provided in Section 15(c) of the 1940 Act. This Agreement may be terminated by the Trust at any time, without the payment of any penalty, by the Board of Trustees of the Trust or by vote of the holders of a majority of the outstanding voting securities of the Series on 60 days' written notice to the Advisor. This Agreement may be terminated by the Advisor at any time, without the payment of any penalty, upon 60 days' written notice to the Trust. This Agreement will automatically terminate in the event of its assignment. Any notice under this Agreement shall be given in writing, addressed and delivered or mailed postpaid, to the other party at the principal office of such party. As used in this Section 9, the terms "assignment," "interested person," and "a vote of a majority of the outstanding voting securities" shall have the respective meanings set forth in Section 2(a)(4), Section 2(a)(19) and Section 2(a)(42) of the 1940 Act and Rule 18f-2 thereunder. 10. NAME OF ADVISOR. The parties agree that the Advisor has a proprietary interest in the name "UBS," and the Trust agrees to promptly take such action as may be necessary to delete from its corporate 2 name and/or the name of the Series any reference to the name of the Advisor promptly after receipt from the Advisor of a written request therefor. 11. SEVERABILITY. If any provisions of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of this 1st day of July, 2002. Attest: THE UBS FUNDS By: By: ------------------------------ ---------------------------------- Name Name: David M. Goldenberg Title Title: Vice President Attest: UBS GLOBAL ASSET MANAGEMENT (AMERICAS) INC. By: By: ------------------------------ ---------------------------------- Name Name Title Title 3 EX-99.D-10-A 13 a2084554zex-99_d10a.txt EXHIBIT 99.D.10.A EX 99.d.10.a FORM OF INVESTMENT ADVISORY AGREEMENT AGREEMENT made this 1st day of July, 2002, by and between The UBS Funds, a Delaware business trust (the "Trust") and UBS Global Asset Management (Americas) Inc., a Delaware corporation (the "Advisor"). 1. DUTIES OF THE ADVISOR. The Trust hereby appoints the Advisor to act as investment advisor to the UBS U.S. Small Cap Growth Fund (the "Series") for the period and on such terms set forth in this Agreement. The Trust employs the Advisor to manage the investment and reinvestment of the assets of the Series, to continuously review, supervise and administer the investment program of the Series, to determine in its discretion the assets to be held uninvested, to provide the Trust with records concerning the Advisor's activities which the Trust is required to maintain, and to render regular reports to the Trust's officers and Board of Trustees concerning the Advisor's discharge of the foregoing responsibilities. The Advisor shall discharge the foregoing responsibilities subject to the control of the officers and the Board of Trustees of the Trust, and in compliance with the objectives, policies and limitations set forth in the Trust's Prospectus and Statement of Additional Information. The Advisor accepts such employment and agrees to render the services and to provide, at its own expense, the office space, furnishings, equipment and the personnel required by it to perform the services on the terms and for the compensation provided herein. With respect to foreign securities, at its own expense, the Advisor may obtain statistical and other factual information and advice regarding economic factors and trends from its foreign subsidiaries, and may obtain investment services from the investment advisory personnel of its affiliates located throughout the world to the extent permitted under interpretations of the federal securities laws. 2. PORTFOLIO TRANSACTIONS. The Advisor shall provide the Series with a trading department, and with respect to foreign securities, the Advisor is authorized to utilize the trading departments of its foreign affiliates. The Advisor shall select, and with respect to its foreign affiliates or the use of any sub-advisors, shall monitor the selection of, the brokers or dealers that will execute the purchases and sales of securities for the Series and is directed to use its best efforts to ensure that the best available price and most favorable execution of securities transactions for the Series are obtained. Subject to policies established by the Board of Trustees of the Trust and communicated to the Advisor, it is understood that the Advisor will not be deemed to have acted unlawfully, or to have breached a fiduciary duty to the Trust or in respect of the Series, or be in breach of any obligation owing to the Trust or in respect of the Series under this Agreement, or otherwise, solely by reason of its having caused the Series to pay a member of a securities exchange, a broker or a dealer a commission for effecting a securities transaction for the Series in excess of the amount of commission another member of an exchange, broker or 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 member, broker or dealer, viewed in terms of that particular transaction or the Advisor's overall responsibilities with respect to the Series and to other funds and advisory accounts for which the Advisor or any Sub-Advisor, as defined in Section 8 hereof, exercises investment discretion. The Advisor will promptly communicate to the officers and trustees of the Trust such information relating to the Series transactions as they may reasonably request. 3. COMPENSATION OF THE ADVISOR. For the services to be rendered by the Advisor as provided in Sections 1 and 2 of this Agreement, the Series shall pay to the Advisor within five business days after the end of each calendar month, a monthly fee of one twelfth of 1.00% of the Series' average daily net assets for the month. In the event of termination of this Agreement, the fee provided in this Section 3 shall be paid on a pro rata basis, based on the number of days when this Agreement was in effect. 4. REIMBURSEMENT OF FEE WAIVERS AND EXPENSE REIMBURSEMENTS. If on any day during which this Agreement is in effect, the estimated annualized Operating Expenses (as defined below) of the Series for that day are less than the Operating Expense Limit (as defined below), the Advisor shall be entitled to reimbursement by the Series of the investment management fees waived or reduced, and of any expense reimbursements or similar payments remitted by the Advisor to the Series pursuant to the Advisor's agreement to limit the Series' Operating Expenses (the "Reimbursement Amount") during any of the previous three (3) years, to the extent that the Series' annualized Operating Expenses, plus the amount so reimbursed, equals, for such day, the Operating Expense Limit, provided that such amount paid to the Advisor will in no event exceed the total Reimbursement Amount and will not include any amounts previously reimbursed by the Series to the Advisor. For purposes of this Section 4: (i) "Operating Expenses" shall include the ordinary operating expenses incurred by the Series in any fiscal year, including, without limitation, management fees paid to the Advisor, but excluding interest, taxes, brokerage commissions, other investment-related costs and extraordinary expenses not incurred in the ordinary course of the Series' business; and (ii) "Operating Expense Limit" shall mean the rate of the "Total Expense Limit" as a percentage of average daily net assets of the Series as stated in the then current registration statement of the Series, plus any distribution service fees under Rule 12b-1 under the Investment Company Act of 1940 and/or shareholder service fees as described in the then current registration statement of the Series, as determined from time to time by the Board of Trustees of the Trust. 5. REPORTS. The Series and the Advisor agree to furnish to each other such information regarding their operations with regard to their affairs as each may reasonably request. 6. STATUS OF ADVISOR. The services of the Advisor to the Series are not to be deemed exclusive, and the Advisor shall be free to render similar services to others so long as its services to the Series are not impaired thereby. 7. LIABILITY OF ADVISOR. In the absence of willful misfeasance, bad faith, gross negligence or reckless disregard by the Advisor of its obligations and duties hereunder, the Advisor shall not be subject to any liability whatsoever to the Series, or to any shareholder of the Series, for any error of judgment, mistake of law or any other act or omission in the course of, or connected with, rendering services hereunder including, without limitation, for any losses that may be sustained in connection with the purchase, holding, redemption or sale of any security on behalf of the Series. 8. DELEGATION OF RESPONSIBILITIES TO SUB-ADVISORS. The Advisor may, at its expense, select and contract with one or more affiliated or unaffiliated investment advisors registered under the Investment Advisers Act of 1940 ("Sub-Advisors") to perform some or all of the services for the Series for which it is responsible under this Agreement. The Advisor will compensate any Sub-Advisor for its services to the Series. The Advisor may terminate the services of any Sub-Advisor at any time in its sole discretion, and shall at such time assume the responsibility of such Sub-Advisor unless and until a successor Sub-Advisor is selected and the requisite approval of the Series' shareholders is obtained. The Advisor will continue to have responsibility for all advisory services furnished by any Sub-Advisor. 9. DURATION AND TERMINATION. This Agreement shall become effective on July 1, 2002 provided that first it is approved by the Board of Trustees of the Trust, including a majority of those trustees who are not parties to this Agreement or interested persons of any party hereto, in the manner provided in Section 15(c) of the Investment Company Act of 1940, as amended (the "1940 Act") and by the holders of a majority of the outstanding voting securities of the Series; and shall continue in effect until July 1, 2004. Thereafter, this Agreement may continue in effect only if such continuance is approved at least annually by: (i) the Trust's Board of Trustees; or (ii) by the vote of a majority of the outstanding voting securities of the Series; and in either event by a vote of a majority of those trustees of the Trust who are not parties to this Agreement or interested persons of any such party in the manner provided in Section 15(c) of the 1940 Act. This Agreement may be terminated by the Trust at any time, without the payment of any penalty, by the Board of Trustees of the Trust or by vote of the holders of a majority of the outstanding voting securities of the Series on 60 days' written notice to the Advisor. This Agreement may be terminated by the Advisor at any time, without the payment of any penalty, upon 60 days' written notice to the Trust. This Agreement will automatically terminate in the event of its assignment. Any notice under this Agreement shall be given in writing, addressed and delivered or mailed postpaid, to the other party at the principal office of such party. As used in this Section 9, the terms "assignment," "interested person," and "a vote of a majority of the outstanding voting securities" shall have the respective meanings set forth in Section 2(a)(4), Section 2(a)(19) and Section 2(a)(42) of the 1940 Act and Rule 18f-2 thereunder. 10. NAME OF ADVISOR. The parties agree that the Advisor has a proprietary interest in the name "UBS," and the Trust agrees to promptly take such action as may be necessary to delete from its corporate 2 name and/or the name of the Series any reference to the name of the Advisor promptly after receipt from the Advisor of a written request therefor. 11. Severability. If any provisions of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of this 1st day of July, 2002. Attest: THE UBS FUNDS By: By: --------------------------------- --------------------------------- Name Name: David M. Goldenberg Title Title: Vice President Attest: UBS GLOBAL ASSET MANAGEMENT (AMERICAS) INC. By: By: --------------------------------- --------------------------------- Name Name Title Title 3 EX-99.D-11-B 14 a2084554zex-99_d11b.txt EXHIBIT 99.D.11.B EX 99.d.11.b FORM OF INVESTMENT ADVISORY AGREEMENT AGREEMENT made this 1st day of July, 2002, by and between The UBS Funds, a Delaware business trust (the "Trust") and UBS Global Asset Management (Americas) Inc., a Delaware corporation (the "Advisor"). 1. DUTIES OF THE ADVISOR. The Trust hereby appoints the Advisor to act as investment advisor to the UBS High Yield Fund (the "Series") for the period and on such terms set forth in this Agreement. The Trust employs the Advisor to manage the investment and reinvestment of the assets of the Series, to continuously review, supervise and administer the investment program of the Series, to determine in its discretion the assets to be held uninvested, to provide the Trust with records concerning the Advisor's activities which the Trust is required to maintain, and to render regular reports to the Trust's officers and Board of Trustees concerning the Advisor's discharge of the foregoing responsibilities. The Advisor shall discharge the foregoing responsibilities subject to the control of the officers and the Board of Trustees of the Trust, and in compliance with the objectives, policies and limitations set forth in the Trust's Prospectus and Statement of Additional Information. The Advisor accepts such employment and agrees to render the services and to provide, at its own expense, the office space, furnishings, equipment and the personnel required by it to perform the services on the terms and for the compensation provided herein. With respect to foreign securities, at its own expense, the Advisor may obtain statistical and other factual information and advice regarding economic factors and trends from its foreign subsidiaries, and may obtain investment services from the investment advisory personnel of its affiliates located throughout the world to the extent permitted under interpretations of the federal securities laws. 2. PORTFOLIO TRANSACTIONS. The Advisor shall provide the Series with a trading department, and with respect to foreign securities, the Advisor is authorized to utilize the trading departments of its foreign affiliates. The Advisor shall select, and with respect to its foreign affiliates or the use of any sub-advisors, shall monitor the selection of, the brokers or dealers that will execute the purchases and sales of securities for the Series and is directed to use its best efforts to ensure that the best available price and most favorable execution of securities transactions for the Series are obtained. Subject to policies established by the Board of Trustees of the Trust and communicated to the Advisor, it is understood that the Advisor will not be deemed to have acted unlawfully, or to have breached a fiduciary duty to the Trust or in respect of the Series, or be in breach of any obligation owing to the Trust or in respect of the Series under this Agreement, or otherwise, solely by reason of its having caused the Series to pay a member of a securities exchange, a broker or a dealer a commission for effecting a securities transaction for the Series in excess of the amount of commission another member of an exchange, broker or 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 member, broker or dealer, viewed in terms of that particular transaction or the Advisor's overall responsibilities with respect to the Series and to other funds and advisory accounts for which the Advisor or any Sub-Advisor, as defined in Section 8 hereof, exercises investment discretion. The Advisor will promptly communicate to the officers and trustees of the Trust such information relating to the Series transactions as they may reasonably request. 3. COMPENSATION OF THE ADVISOR. For the services to be rendered by the Advisor as provided in Sections 1 and 2 of this Agreement, the Series shall pay to the Advisor within five business days after the end of each calendar month, a monthly fee of one twelfth of 0.60% of the Series' average daily net assets for the month. In the event of termination of this Agreement, the fee provided in this Section 3 shall be paid on a pro rata basis, based on the number of days when this Agreement was in effect. 4. REIMBURSEMENT OF FEE WAIVERS AND EXPENSE REIMBURSEMENTS. If on any day during which this Agreement is in effect, the estimated annualized Operating Expenses (as defined below) of the Series for that day are less than the Operating Expense Limit (as defined below), the Advisor shall be entitled to reimbursement by the Series of the investment management fees waived or reduced, and of any expense reimbursements or similar payments remitted by the Advisor to the Series pursuant to the Advisor's agreement to limit the Series' Operating Expenses (the "Reimbursement Amount") during any of the previous three (3) years, to the extent that the Series' annualized Operating Expenses, plus the amount so reimbursed, equals, for such day, the Operating Expense Limit, provided that such amount paid to the Advisor will in no event exceed the total Reimbursement Amount and will not include any amounts previously reimbursed by the Series to the Advisor. For purposes of this Section 4: (i) "Operating Expenses" shall include the ordinary operating expenses incurred by the Series in any fiscal year, including, without limitation, management fees paid to the Advisor, but excluding interest, taxes, brokerage commissions, other investment-related costs and extraordinary expenses not incurred in the ordinary course of the Series' business; and (ii) "Operating Expense Limit" shall mean the rate of the "Total Expense Limit" as a percentage of average daily net assets of the Series as stated in the then current registration statement of the Series, plus any distribution service fees under Rule 12b-1 under the Investment Company Act of 1940 and/or shareholder service fees as described in the then current registration statement of the Series, as determined from time to time by the Board of Trustees of the Trust. 5. REPORTS. The Series and the Advisor agree to furnish to each other such information regarding their operations with regard to their affairs as each may reasonably request. 6. STATUS OF ADVISOR. The services of the Advisor to the Series are not to be deemed exclusive, and the Advisor shall be free to render similar services to others so long as its services to the Series are not impaired thereby. 7. LIABILITY OF ADVISOR. In the absence of willful misfeasance, bad faith, gross negligence or reckless disregard by the Advisor of its obligations and duties hereunder, the Advisor shall not be subject to any liability whatsoever to the Series, or to any shareholder of the Series, for any error of judgment, mistake of law or any other act or omission in the course of, or connected with, rendering services hereunder including, without limitation, for any losses that may be sustained in connection with the purchase, holding, redemption or sale of any security on behalf of the Series. 8. DELEGATION OF RESPONSIBILITIES TO SUB-ADVISORS. The Advisor may, at its expense, select and contract with one or more affiliated or unaffiliated investment advisors registered under the Investment Advisers Act of 1940 ("Sub-Advisors") to perform some or all of the services for the Series for which it is responsible under this Agreement. The Advisor will compensate any Sub-Advisor for its services to the Series. The Advisor may terminate the services of any Sub-Advisor at any time in its sole discretion, and shall at such time assume the responsibility of such Sub-Advisor unless and until a successor Sub-Advisor is selected and the requisite approval of the Series' shareholders is obtained. The Advisor will continue to have responsibility for all advisory services furnished by any Sub-Advisor. 9. DURATION AND TERMINATION. This Agreement shall become effective on July 1, 2002 provided that first it is approved by the Board of Trustees of the Trust, including a majority of those trustees who are not parties to this Agreement or interested persons of any party hereto, in the manner provided in Section 15(c) of the Investment Company Act of 1940, as amended (the "1940 Act") and by the holders of a majority of the outstanding voting securities of the Series; and shall continue in effect until July 1, 2004. Thereafter, this Agreement may continue in effect only if such continuance is approved at least annually by: (i) the Trust's Board of Trustees; or (ii) by the vote of a majority of the outstanding voting securities of the Series; and in either event by a vote of a majority of those trustees of the Trust who are not parties to this Agreement or interested persons of any such party in the manner provided in Section 15(c) of the 1940 Act. This Agreement may be terminated by the Trust at any time, without the payment of any penalty, by the Board of Trustees of the Trust or by vote of the holders of a majority of the outstanding voting securities of the Series on 60 days' written notice to the Advisor. This Agreement may be terminated by the Advisor at any time, without the payment of any penalty, upon 60 days' written notice to the Trust. This Agreement will automatically terminate in the event of its assignment. Any notice under this Agreement shall be given in writing, addressed and delivered or mailed postpaid, to the other party at the principal office of such party. As used in this Section 9, the terms "assignment," "interested person," and "a vote of a majority of the outstanding voting securities" shall have the respective meanings set forth in Section 2(a)(4), Section 2(a)(19) and Section 2(a)(42) of the 1940 Act and Rule 18f-2 thereunder. 10. NAME OF ADVISOR. The parties agree that the Advisor has a proprietary interest in the name "UBS," and the Trust agrees to promptly take such action as may be necessary to delete from its corporate 2 name and/or the name of the Series any reference to the name of the Advisor promptly after receipt from the Advisor of a written request therefor. 11. SEVERABILITY. If any provisions of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of this 1st day of July, 2002. Attest: THE UBS FUNDS By: By: ------------------------------- --------------------------------- Name: Name: David M. Goldenberg Title Title: Vice President Attest: UBS GLOBAL ASSET MANAGEMENT (AMERICAS) INC. By: By: ------------------------------- --------------------------------- Name Name Title Title 3 EX-99.E-1 15 a2084554zex-99_e1.txt EXHIBIT 99.E.1 EX 99.e.1 THE BRINSON FUNDS PRINCIPAL UNDERWRITING CONTRACT CONTRACT made as of November 5, 2001, between THE BRINSON FUNDS, a Delaware business trust, ("Fund") and BRINSON ADVISORS, INC., a Delaware corporation, ("Brinson Advisors"). WHEREAS the Fund is registered under the Investment Company Act of 1940, as amended ("1940 Act"), as an open-end management investment company and currently offers distinct series of shares of beneficial interest ("Series"), one of which correspond to distinct portfolios and for which the Fund's board of trustees ("Board") has established shares of beneficial interest as Class A shares, Class B shares, Class C shares and Class Y shares (referred to collectively as "Shares"); and WHEREAS the Fund desires to retain Brinson Advisors as principal underwriter in connection with the offering and sale of the Shares of the above-referenced Series and of such other Series as may hereafter be designated by the Board and have one or more classes of Class A shares, Class B shares, Class C shares and/or Class Y shares established and has adopted separate Plans of Distribution pursuant to Rule 12b-1 under the 1940 Act for its Class A shares, Class B shares and Class C shares (respectively, "Class A Plan", "Class B Plan" and "Class C Plan"); and WHEREAS Brinson Advisors is willing to act as principal underwriter of the Shares of each such Series on the terms and conditions hereinafter set forth; NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, it is agreed between the parties hereto as follows: 1. APPOINTMENT. The Fund hereby appoints Brinson Advisors as its exclusive agent to be the principal underwriter to sell and to arrange for the sale of the Shares on the terms and for the period set forth in this Contract. Brinson Advisors hereby accepts such appointment and agrees to act hereunder. It is understood, however, that this appointment does not preclude sales of the Shares directly through the Fund's transfer agent in the manner set forth in the Registration Statement. As used in this Contract, the term "Registration Statement" shall mean the currently effective registration statement of the Fund, and any supplements thereto, under the Securities Act of 1933, as amended ("1933 Act"), and the 1940 Act. 2. SERVICES AND DUTIES OF BRINSON ADVISORS. (a) Brinson Advisors agrees to sell Shares on a best efforts basis from time to time during the term of this Contract as agent for the Fund and upon the terms described in the Registration Statement. (b) Upon the later of the date of this Contract or the initial offering of Shares to the public by a Series, Brinson Advisors will hold itself available to receive purchase orders, satisfactory to Brinson Advisors, for Shares of that Series and will accept such orders on behalf of the Fund as of the time of receipt of such orders and promptly transmit such orders as are accepted to the Fund's transfer agent. Purchase orders shall be deemed effective at the time and in the manner set forth in the Registration Statement. (c) Brinson Advisors in its discretion may enter into agreements to sell Shares to such registered and qualified retail dealers, as it may select. In making agreements with such dealers, Brinson Advisors shall act only as principal and not as agent for the Fund. (d) The offering price of the Shares shall be the net asset value per share as next determined by the Fund following receipt of an order at Brinson Advisors' principal office plus the applicable initial sales charge, if any, computed as set forth in the Registration Statement. The Fund shall promptly furnish Brinson Advisors with a statement of each computation of net asset value. (e) Brinson Advisors shall not be obligated to sell any certain number of Shares. (f) To facilitate redemption of Shares by shareholders directly or through dealers, Brinson Advisors is authorized but not required on behalf of the Fund to repurchase Shares presented to it by shareholders and dealers at the price determined in accordance with, and in the manner set forth in, the Registration Statement. Such price shall reflect the subtraction of the contingent deferred sales charge, if any, computed in accordance with and in the manner set forth in the Registration Statement. (g) Brinson Advisors shall provide ongoing shareholder services, which include responding to shareholder inquiries, providing shareholders with information on their investments in the Shares and any other services now or hereafter deemed to be appropriate activities for the payment of "service fees" under Rule 2830 of the Conduct Rules of the National Association of Securities Dealers, Inc. ("NASD") (collectively, "service activities"). (h) Brinson Advisors shall have the right to use any list of shareholders of the Fund or any other list of investors which it obtains in connection with its provision of services under this Contract; provided, however, that Brinson Advisors shall not sell or knowingly provide such list or lists to any unaffiliated person. 3. AUTHORIZATION TO ENTER INTO DEALER AGREEMENTS AND TO DELEGATE DUTIES AS PRINCIPAL UNDERWRITER. With respect to the Shares of any or all Series, Brinson Advisors may enter into dealer agreements with any registered and qualified dealer with respect to sales of Shares or the provision of service activities. In a separate contract or as part of any such dealer agreement, Brinson Advisors also may delegate to any registered and qualified dealer any or all of its duties specified in this Contract, provided that such separate contract or dealer agreement imposes on the counterparty bound thereby all applicable duties and conditions to which Brinson Advisors is subject under this Contract. 4. SERVICES NOT EXCLUSIVE. The services furnished by Brinson Advisors hereunder are not to be deemed exclusive and Brinson Advisors shall be free to furnish similar services to others so long as its services under this Contract are not impaired thereby. Nothing in this Contract shall limit or restrict the right of any director, officer or employee of Brinson Advisors, who may also be a Board member, officer or employee of the Fund, to engage in any other business or to devote his or her time and attention in part to the management or other aspects of any other business, whether of a similar or a dissimilar nature. 2 5. COMPENSATION. (a) As compensation for its service activities under this contract with respect to Class A, B and C shares, Brinson Advisors shall receive from the Fund a service fee at the rate and under the terms and conditions of the Class A Plan, Class B Plan and Class C Plan, respectively, as amended from time to time, and subject to any further limitations on such fee as the Board may impose. (b) As compensation for its activities under this contract with respect to the distribution of the Class B and C shares, Brinson Advisors shall receive from the Fund a distribution fee at the rate and under the terms and conditions of the Class B Plan and Class C Plan, respectively, as amended from time to time, and subject to any further limitations on such fee as the Board may impose. (c) As compensation for its activities under this contract with respect to the distribution of Shares, Brinson Advisors shall retain the initial sales charge, if any, on purchases of Shares as set forth in the Registration Statement. Brinson Advisors is authorized to collect the gross proceeds derived from the sale of Shares, remit the net asset value thereof to the Fund upon receipt of the proceeds and retain the initial sales charge, if any. (d) As compensation for its activities under this contract with respect to the distribution of Shares, Brinson Advisors shall receive all contingent deferred sales charges imposed on redemptions of Shares. Whether and at what rate a contingent deferred sales charge will be imposed with respect to a redemption shall be determined in accordance with, and in the manner set forth in, the Registration Statement. (e) Brinson Advisors may reallow any or all of the initial sales charges, contingent deferred sales charges, distribution fees or service fees which it is paid under this Contract to such dealers as Brinson Advisors may from time to time determine. 6. DUTIES OF THE FUND. (a) The Fund reserves the right at any time to withdraw offering any class or classes of Shares of any or all Series by written notice to Brinson Advisors at its principal office. (b) The Fund shall keep Brinson Advisors fully informed of its affairs and shall make available to Brinson Advisors copies of all information, financial statements, and other documents which Brinson Advisors may reasonably request for use in connection with the distribution of Shares, including, without limitation, certified copies of any financial statements prepared for the Fund by its independent public accountant and such reasonable number of copies of the most current prospectus, statement of additional information, and annual and interim reports of any Series as Brinson Advisors may request, and the Fund shall cooperate fully in the efforts of Brinson Advisors to sell and arrange for the sale of the Shares of the Series and in the performance of Brinson Advisors under this Contract. (c) The Fund shall take, from time to time, all necessary action, including payment of the related filing fee, as may be necessary to register its Shares under the 1933 Act to the end that there will be available for sale such number of Shares as Brinson Advisors may be expected to sell. The Fund agrees to file, from time to time, such amendments, reports, and other documents as may be necessary in order that there will be no untrue statement of a material fact 3 in the Registration Statement, nor any omission of a material fact which omission would make the statements therein misleading. (d) The Fund shall use its best efforts to qualify and maintain the qualification of an appropriate number of Shares of each Series for sale under the securities laws of such states or other jurisdictions as Brinson Advisors and the Fund may approve, provided that the Fund shall not be required to amend its Declaration of Trust or By-Laws to comply with the laws of any jurisdiction, to maintain an office in any jurisdiction, to change the terms of the offering of the Shares in any jurisdiction from the terms set forth in its Registration Statement, to qualify as a foreign corporation in any jurisdiction, or to consent to service of process in any jurisdiction other than with respect to claims arising out of the offering of the Shares. Brinson Advisors shall furnish such information and other material relating to its affairs and activities as may be required by the Fund in connection with such qualifications. 7. EXPENSES OF THE FUND. The Fund shall bear all costs and expenses of registering the Shares with the Securities and Exchange Commission ("Commission") and qualifying the Shares for offer and sale with state and other regulatory bodies, and shall assume expenses related to communications with shareholders of each Series, including (i) fees and disbursements of its counsel and independent public accountant; (ii) the preparation, filing and printing of registration statements and/or prospectuses or statements of additional information required under the federal securities laws; (iii) the preparation and mailing of annual and interim reports, prospectuses, statements of additional information and proxy materials to shareholders; and (iv) the qualifications of Shares for sale under the securities laws of such jurisdictions as shall be selected by the Fund and Brinson Advisors pursuant to Paragraph 6(d) hereof, and the costs and expenses payable to each such jurisdiction for continuing qualification therein. 8. EXPENSES OF BRINSON ADVISORS. Brinson Advisors shall bear all costs and expenses of (i) preparing, printing and distributing any materials not prepared by the Fund and other materials used by Brinson Advisors in connection with the sale of Shares under this Contract, including the additional cost of printing copies of prospectuses, statements of additional information, and annual and interim shareholder reports other than copies thereof required for distribution to existing shareholders or for filing with any federal or state securities authorities; (ii) any expenses of advertising incurred by Brinson Advisors in connection with such offering; (iii) the expenses of registration or qualification of Brinson Advisors as a broker or dealer under federal or state laws and the expenses of continuing such registration or qualification; and (iv) all compensation paid to Brinson Advisors' employees and others for selling Shares, and all expenses of Brinson Advisors, its employees and others who engage in or support the sale of Shares as may be incurred in connection with their sales efforts. 9. INDEMNIFICATION. (a) The Fund agrees to indemnify, defend and hold Brinson Advisors, its officers and directors, and any person who controls Brinson Advisors within the meaning of Section 15 of the 1933 Act, free and harmless from and against any and all claims, demands, liabilities and expenses (including the cost of investigating or defending such claims, demands or liabilities and any counsel fees incurred in connection therewith) which Brinson Advisors, its officers, directors or any such controlling person may incur under the 1933 Act, or under common law or otherwise, arising out of or based upon any alleged untrue statement of a material fact contained in the Registration Statement or arising out of or based upon any alleged omission to state a material fact required to be stated in the Registration Statement or necessary to make the 4 statements therein not misleading, except insofar as such claims, demands, liabilities or expenses arise out of or are based upon any such untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with information furnished in writing by Brinson Advisors to the Fund for use in the Registration Statement; provided, however, that this indemnity agreement shall not inure to the benefit of any person who is also an officer or Board member of the Fund or who controls the Fund within the meaning of Section 15 of the 1933 Act, unless a court of competent jurisdiction shall determine, or it shall have been determined by controlling precedent, that such result would not be against public policy as expressed in the 1933 Act; and further provided, that in no event shall anything contained herein be so construed as to protect Brinson Advisors against any liability to the Fund or to the shareholders of any Series to which Brinson Advisors would otherwise be subject by reason of willful misfeasance, bad faith or gross negligence in the performance of its duties or by reason of its reckless disregard of its obligations under this Contract. The Fund shall not be liable to Brinson Advisors under this indemnity agreement with respect to any claim made against Brinson Advisors or any person indemnified unless Brinson Advisors or other such person shall have notified the Fund in writing of the claim within a reasonable time after the summons or other first written notification giving information of the nature of the claim shall have been served upon Brinson Advisors or such other person (or after Brinson Advisors or the person shall have received notice of service on any designated agent). However, failure to notify the Fund of any claim shall not relieve the Fund from any liability which it may have to Brinson Advisors or any person against whom such action is brought otherwise than on account of this indemnity agreement. The Fund shall be entitled to participate at its own expense in the defense or, if it so elects, to assume the defense of any suit brought to enforce any claims subject to this indemnity agreement. If the Fund elects to assume the defense of any such claim, the defense shall be conducted by counsel chosen by the Fund and satisfactory to indemnified defendants in the suit whose approval shall not be unreasonably withheld. In the event that the Fund elects to assume the defense of any suit and retain counsel, the indemnified defendants shall bear the fees and expenses of any additional counsel retained by them. If the Fund does not elect to assume the defense of a suit, it will reimburse the indemnified defendants for the reasonable fees and expenses of any counsel retained by the indemnified defendants. The Fund agrees to notify Brinson Advisors promptly of the commencement of any litigation or proceedings against it or any of its officers or Board members in connection with the issuance or sale of any of its Shares. (b) Brinson Advisors agrees to indemnify, defend, and hold the Fund, its officers and Board members and any person who controls the Fund within the meaning of Section 15 of the 1933 Act, free and harmless from and against any and all claims, demands, liabilities and expenses (including the cost of investigating or defending against such claims, demands or liabilities and any counsel fees incurred in connection therewith) which the Fund, its Board members or officers, or any such controlling person may incur under the 1933 Act or under common law or otherwise arising out of or based upon any alleged untrue statement of a material fact contained in information furnished by Brinson Advisors to the Fund for use in the Registration Statement, arising out of or based upon any alleged omission to state a material fact in connection with such information required to be stated in the Registration Statement necessary to make such information not misleading, or arising out of any agreement between Brinson Advisors and any retail dealer, or arising out of any supplemental sales literature or advertising used by Brinson Advisors in connection with its duties under this Contract. Brinson Advisors shall be entitled to participate, at its own expense, in the defense or, if it so elects, to assume the defense of any suit brought to enforce the claim, but if Brinson Advisors elects to assume the defense, the defense shall be conducted by counsel chosen by Brinson Advisors and satisfactory 5 to the indemnified defendants whose approval shall not be unreasonably withheld. In the event that Brinson Advisors elects to assume the defense of any suit and retain counsel, the defendants in the suit shall bear the fees and expenses of any additional counsel retained by them. If Brinson Advisors does not elect to assume the defense of any suit, it will reimburse the indemnified defendants in the suit for the reasonable fees and expenses of any counsel retained by them. 10. SERVICES PROVIDED TO THE FUND BY EMPLOYEES OF BRINSON ADVISORS. Any person, even though also an officer, director, employee or agent of Brinson Advisors, who may be or become an officer, Board member, employee or agent of the Fund, shall be deemed, when rendering services to the Fund or acting in any business of the Fund, to be rendering such services to or acting solely for the Fund and not as an officer, director, employee or agent or one under the control or direction of Brinson Advisors even though paid by Brinson Advisors. 11. DURATION AND TERMINATION. (a) This Contract shall become effective upon the date written above, provided that, with respect to any class of Shares of a Series, this Contract shall not take effect unless such action has first been approved by vote of a majority of the Board and by vote of a majority of those Board members who are not interested persons of the Fund and, for a class of Shares for which a Plan of Distribution has been adopted, also have no direct or indirect financial interest in the operation of the Plan of Distribution or in any agreements related thereto (all such Board members collectively being referred to herein as the "Independent Board Members"), cast in person at a meeting called for the purpose of voting on such action. (b) Unless sooner terminated as provided herein, this Contract shall continue in effect for two years from the above written date. Thereafter, if not terminated, this Contract shall continue automatically for successive periods of twelve months each, provided that such continuance is specifically approved at least annually (i) by a vote of a majority of the Independent Board Members, cast in person at a meeting called for the purpose of voting on such approval, and (ii) by the Board or with respect to a class of Shares of any given Series by vote of a majority of the outstanding voting securities of that class of Shares of such Series. (c) Notwithstanding the foregoing, with respect to a class of Shares of a Series, this Contract may be terminated at any time, without the payment of any penalty, by vote of the Board, by vote of a majority of the Independent Board Members or by vote of a majority of the outstanding voting securities of that class of Shares of the Series on sixty days' written notice to Brinson Advisors or by Brinson Advisors at any time, without the payment of any penalty, on sixty days' written notice to the Fund or such Series. This Contract will automatically terminate in the event of its assignment. (d) Termination of this Contract with respect to a class of Shares of any given Series shall in no way affect the continued validity of this Contract or the performance thereunder with respect to any other classes of Shares of that Series or any classes of Shares of any other Series. 12. AMENDMENT OF THIS CONTRACT. No provision of this Contract may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought. 6 13. NOTICE. Any notice required or permitted to be given by either party to the other shall be deemed sufficient upon receipt in writing at the other party's principal offices. 14. GOVERNING LAW. This Contract shall be construed in accordance with the laws of the State of New York, without giving effect to the conflicts of laws principles thereof, and in accordance with the 1940 Act, provided however that Section 15 below will be construed in accordance with the laws of the State of Delaware. To the extent that the applicable laws of the State of Delaware conflict with the applicable provisions of the 1940 Act, the latter shall control. As used in this Contract, the terms "majority of the outstanding voting securities," "interested person" and "assignment" shall have the same meaning as such terms have in the 1940 Act, subject to any exemption or interpretation as may be issued by the Commission by any rule, regulation or order or contained in any no-action or interpretive positions taken by the Commission staff. Where the effect of a requirement of the 1940 Act reflected in any provision of this Contract is revised by a rule, regulation, order or interpretation of the Commission or the Commission staff, whether of special or general application, such provision shall be deemed to incorporate the effect of such rule, regulation, order or interpretation. 15. LIMITATION OF LIABILITY OF THE BOARD MEMBERS AND SHAREHOLDERS OF THE FUND. The Board members and the shareholders of the Fund shall not be liable for any obligations of the Fund or any Series under this Contract, and Brinson Advisors agrees that, in asserting any rights or claims under this Contract, it shall look only to the assets and property of the Fund or the particular Series in settlement of such right or claims, and not to such Board members or shareholders. 16. MISCELLANEOUS. The captions in this Contract are included for convenience of reference only and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect. If any provision of this Contract shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Contract shall not be affected thereby. This Contract shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors. 7 IN WITNESS WHEREOF, the parties hereto have caused this Contract to be executed by their officers designated as of the day and year first above written. THE BRINSON FUNDS THE BRINSON FUNDS By: /s/ Amy R. Doberman By: /s/ Paul H. Schubert ------------------- -------------------- Name: Amy R. Doberman Name: Paul H. Schubert Title: Secretary Title: Treasurer and Principal Accounting Officer BRINSON ADVISORS, INC. BRINSON ADVISORS, INC. By: /s/ Stephen Fisher By: /s/ Julian Sluyters ------------------ ------------------- Name: Stephen Fisher Name: Julian Sluyters Title: Managing Director Title: Managing Director 8 EX-99.H-1-A 16 a2084554zex-99_h1a.txt EXHIBIT 99.H.1.A EX 99.h.1.a ADMINISTRATION CONTRACT Contract made as of May 21, 2001 between THE BRINSON FUNDS, a Delaware business trust ("Trust"), and BRINSON ADVISORS, INC. ("Brinson Advisors"), a Delaware corporation registered as an investment adviser under the Investment Advisers Act of 1940, as amended, and as a broker-dealer under the Securities Exchange Act of 1934, as amended ("1934 Act"), WHEREAS the Trust is registered under the Investment Company Act of 1940, as amended ("1940 Act"), as an open-end management investment company, and currently has multiple distinct series of shares of beneficial interest, which correspond to distinct portfolios and have been designated as the funds listed on Exhibit A, as it may be amended from time to time (each a "Fund" and, collectively, "Funds"); and WHEREAS the Trust desires to retain Brinson Advisors as administrator to furnish certain administrative services to the Trust with respect to the Funds, and Brinson Advisors is willing to furnish such services; NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, it is agreed between the parties hereto as follows: 1. APPOINTMENT. The Trust hereby appoints Brinson Advisors as administrator of the Trust and each Fund for the period and on the terms set forth in this Contract. Brinson Advisors accepts such appointment and agrees to render the services herein set forth, for the compensation herein provided. 2. DUTIES AS ADMINISTRATOR. Brinson Advisors shall furnish, at its own expense, the executive, supervisory and clerical personnel necessary in order to administer the affairs of the Trust and each Fund subject to the supervision of the Trust's Board of Trustees ("Board"). In carrying out the terms of this Contract, Brinson Advisors shall: (a) provide office space, equipment and facilities (which may be Brinson Advisors' or its affiliates') for maintaining the Trust's organization, for meetings of the Trust's Board and shareholders, and for performing administrative services hereunder; (b) supervise and manage all aspects of the Funds' operations (other than investment advisory activities), assist in the selection of and supervise relations with, and monitor the performance of, custodians, depositories, transfer and pricing agents, accountants, attorneys, underwriters, brokers and dealers, insurers and other persons in any capacity deemed to be necessary and desirable by the Board; (c) provide certain internal clerical and legal services, and stationery and office supplies; (d) provide accounting services, including: 1) determining and arranging for the publication of the net asset value of each Fund; 2) preparing financial information for presentation to the Trust's Board; 3) preparing and monitoring the Trust's annual expense budget, and establishing daily accruals; 4) calculating contractual expenses and coordinating payment of Fund expenses; 5) calculating periodic dividend rates to be declared in accordance with guidelines and supervising the Trust's transfer agent with respect to the payment of dividends and other distributions to shareholders; 6) calculating total return (and, if applicable, yield) information as described in the current prospectuses and statement of additional information; 7) coordinating audit packages for use by independent public accountants; 8) responding to regulatory audits; (e) provide non-investment related statistical and research data and such other reports, evaluations and information as the Funds may request from time to time; (f) monitor each Fund's compliance with the current registration statement, the 1940 Act, the Internal Revenue Code and other applicable laws and regulations; (g) prepare, to the extent requested by the Trust, and coordinate with Trust's counsel, prospectuses, statements of additional information, registration statements, proxy statements and annual and semi-annual reports to shareholders; (h) arrange for the printing and mailing (at the Funds' expense) of an annual list of shareholders, proxy statements and other reports or other materials provided to the Funds' shareholders; (i) supervise and facilitate the solicitation of proxies solicited by the Trust for all shareholder meetings, including the tabulation process for shareholder meetings; (j) support outside auditors in preparing and filing all the Funds' federal and state tax returns and required tax filings; (k) prepare periodic reports to and filings with the Securities and Exchange Commission (the "SEC") and state Blue Sky authorities with the advice of the Funds' counsel; (l) maintain the Trust's existence, and during such times as the shares of the Funds are publicly offered, maintain the registration and qualification of the Funds' shares under federal and state law; (m) coordinate the Trust's board meeting schedule, initiate the agenda and coordinate production of board meeting materials; (n) provide individuals acceptable to the Trustees for nomination, appointment, or election as officers of the Trust, who will be responsible for the management of certain of the Trust's affairs as determined by the Trustees; (o) keep and maintain the financial accounts and records of the Funds; (p) analyze and propose changes to shareholder services designed to enhance the value or convenience of the Funds as an investment vehicle; (q) obtain and keep in effect fidelity bonds and directors and officers/errors and omissions insurance policies for the Trust in accordance with the requirements of Rules 17g-1 and 17d-1(7) under the 1940 Act as such bonds and policies are approved by the Trust's Board of Trustees; (r) provide the Board on a regular basis with reports and analyses of each Fund's operations and the operations of comparable investment companies; and (s) take any other actions which appear to Brinson Advisors and the Board necessary to carry into effect the purposes of this Contract. 3. FURTHER DUTIES. In all matters relating to the performance of this Contract, Brinson Advisors will act in conformity with the Agreement and Declaration of Trust, By-Laws, and registration statement of the Trust and with the instructions and directions of the Board and will comply with the requirements of the 1940 Act, the rules thereunder, and all other applicable federal and state laws and regulations. 4. DELEGATION OF BRINSON ADVISORS' DUTIES AS ADMINISTRATOR. With respect to any or all Funds, Brinson Advisors may enter into one or more contracts ("Sub-Administration Contract") with one or more sub-administrators in which Brinson Advisors delegates to such sub-administrators any or all of its duties specified in Paragraph 2 of this Contract, provided that each Sub-Administration Contract imposes on the sub-administrator bound thereby all the corresponding duties and conditions to which Brinson Advisors is subject by Paragraph 2 of this Contract and all the duties and conditions of Paragraph 3 of this Contract. 5. SERVICES NOT EXCLUSIVE. The services furnished by Brinson Advisors hereunder are not to be deemed exclusive and Brinson Advisors shall be free to furnish similar services to others so long as its services under this Contract are not impaired thereby or unless otherwise agreed to by the parties hereunder in writing. Nothing in this Contract shall limit or restrict the right of any director, officer or employee of Brinson Advisors, who may also be a Trustee, officer or employee of the Trust, to engage in any other business or to devote his or her time and attention in part to the management or other aspects of any other business, whether of a similar nature or a dissimilar nature. 6. EXPENSES. (a) During the term of this Contract, each Fund will bear all expenses, not specifically assumed by Brinson Advisors, incurred in its operations and the offering of its shares. (b) Expenses borne by each Fund will include but not be limited to the following (or each Fund's proportionate share of the following): (i) fees payable to and expenses incurred on behalf of the Fund by Brinson Advisors under this Contract; (ii) expenses of organizing the Trust and the Fund; (iii) filing fees and expenses relating to the registration and qualifications of the Fund's shares and the Trust under federal and/or state securities laws and maintaining such registration and qualifications; (iv) fees and salaries payable to the Trust's Trustees and officers who are not interested persons of the Trust or Brinson Advisors; (v) all expenses incurred in connection with the Trustees' services, including travel expenses; (vi) taxes (including any income or franchise taxes) and governmental fees; (vii) costs of any liability, uncollectible items of deposit and other insurance and fidelity bonds; (viii) any costs, expenses or losses arising out of a liability of or claim for damages or other relief asserted against the Trust or Fund for violation of any law; (ix) legal, accounting and auditing expenses, including legal fees of special counsel for those Trustees of the Trust who are not interested persons of the Trust; (x) charges of custodians, transfer agents and other agents; (xi) costs of preparing share certificates; (xii) expenses of setting in type and printing prospectuses and supplements thereto, statements of additional information and supplements thereto, reports and proxy materials for existing shareholders; (xiii) costs of mailing prospectuses and supplements thereto, statements of additional information and supplements thereto, reports and proxy materials to existing shareholders; (xiv) any extraordinary expenses (including fees and disbursements of counsel, costs of actions, suits or proceedings to which the Trust is a party and the expenses the Trust may incur as a result of its legal obligation to provide indemnification to its officers, Trustees, agents and shareholders) incurred by the Trust or Fund; (xv) fees, voluntary assessments and other expenses incurred in connection with membership in investment company organizations; (xvi) cost of mailing and tabulating proxies and costs of meetings of shareholders, the Board and any committees thereof; (xvii) the cost of investment company literature and other publications provided by the Trust to its Trustees and officers; (xviii) costs of mailing, stationery and communications equipment; (xix) expenses incident to any dividend, withdrawal or redemption options; (xx) charges and expenses of any outside pricing service used to value portfolio securities; (xxi) interest on borrowings of the Trust; and (xxii) fees or expenses related to license agreements with respect to securities indices. (c) The Trust or a Fund may pay directly any expenses incurred by it in its normal operations and, if any such payment is consented to by Brinson Advisors and acknowledged as otherwise payable by Brinson Advisors pursuant to this Contract, the Fund may reduce the fee payable to Brinson Advisors pursuant to Paragraph 7 thereof by such amount. To the extent that such deductions exceed the fee payable to Brinson Advisors on any monthly payment date, such excess shall be carried forward and deducted in the same manner from the fee payable on succeeding monthly payment dates. (d) Brinson Advisors will assume the cost of any compensation for services provided to the Trust received by the officers of the Trust and by those Trustees who are interested persons of the Trust. (e) The payment or assumption by Brinson Advisors of any expenses of the Trust or a Fund that Brinson Advisors is not required by this Contract to pay or assume shall not obligate Brinson Advisors to pay or assume the same or any similar expense of the Trust or a Fund on any subsequent occasion. 7. COMPENSATION. (a) For the services provided and the expenses assumed pursuant to this Contract, each Fund will pay to Brinson Advisors a fee, computed daily and paid monthly, at an annual rate of 0.075% of average daily net assets of such Fund. No Fund shall be responsible for payment owed by any other Fund. (b) The fee shall be computed daily and paid monthly to Brinson Advisors on or before the first business day of the next succeeding calendar month. (c) If this Contract becomes effective or terminates before the end of any month, the fee for the period from the effective day to the end of the month or from the beginning of such month to the date of termination, as the case may be, shall be prorated according to the proportion which such period bears to the full month in which such effectiveness or termination occurs. 8. LIMITATION OF LIABILITY OF BRINSON ADVISORS. Brinson Advisors shall not be liable for any error of judgment or mistake of law or for any loss suffered by any Fund, the Trust or any of its shareholders, in connection with the matters to which this Contract relates, except to the extent that such a loss results from negligence, willful misfeasance, bad faith or gross negligence on its part in the performance of its duties or from reckless disregard by it of its obligations and duties under this Contract. Any person, even though also an officer, director, employee, or agent of Brinson Advisors, who may be or become an officer, Trustee, employee or agent of the Trust shall be deemed, when rendering services to any Fund or the Trust or acting with respect to any business of such Fund or the Trust, to be rendering such service to or acting solely for the Fund or the Trust and not as an officer, director, employee, or agent or one under the control or direction of Brinson Advisors even though paid by it. 9. LIMITATION OF LIABILITY OF THE TRUSTEES AND SHAREHOLDERS OF THE TRUST. No Trustee, shareholder, officer, employee or agent of any Fund shall be liable for any obligations of any Fund or the Trust under this Contract, and Brinson Advisors agrees that, in asserting any rights or claims under this Contract, it shall look only to the assets and property of the Trust in settlement of such right or claim, and not to any Trustee, shareholder, officer, employee or agent. Moreover, this Contract shall be deemed to create a separate agreement with the Trust acting on behalf of its respective series listed on Exhibit A hereto, as though the Trust had separately executed an identical agreement for all of its respective series. For each reference in this Agreement to Trust shall be deemed a reference solely to the particular series to which the provision relates. In no circumstances shall the rights, obligations or remedies with respect to a particular series constitute a right, obligation or remedy applicable to any other series. 10. CONFIDENTIALITY. Brinson Advisors shall have the right to use any list of shareholders of the Fund or any other list of investors which it obtains in connection with its provision of services under this Contract; provided, however, that Brinson Advisors shall not sell or knowingly provide such list or lists to any unaffiliated person. Brinson Advisors agrees on behalf of itself and its employees to treat confidentially all records and other information relative to the Trust and the Funds and its prior, present or potential shareholders. In accordance with Section 248.11 of Regulation S-P (17 CFR 248.1-248.30) ("Reg S-P"), Brinson Advisors will not directly, or indirectly through an affiliate, disclose any non-public personal information, as defined in Reg S-P, received from the Fund to any person that is not affiliated with the Fund or with Brinson Advisors and provided that any such information disclosed to an affiliate of Brinson Advisors shall be under the same limitations of non-disclosure. 11. EQUIPMENT FAILURES. In the event of equipment failures beyond Brinson Advisors' control, Brinson Advisors shall, at no additional expense to the Trust, take reasonable steps to minimize service interruptions but shall have no liability with respect thereto. Brinson Advisors shall develop and maintain a plan for recovery from equipment failures which may include contractual arrangements with appropriate parties making reasonable provision for emergency use of electronic data processing equipment to the extent appropriate equipment is available. 12. CERTAIN RECORDS. Brinson Advisors shall maintain customary records in connection with its duties as specified in this Agreement. Any records required to be maintained and preserved pursuant to Rules 31a-1 and 31a-2 under the 1940 Act which are prepared or maintained by Brinson Advisors on behalf of the Trust shall be prepared and maintained at the expense of Brinson Advisors, but shall be the property of the Trust and will be made available to or surrendered promptly to the Trust on request. In case of any request or demand for the inspection of such records by another party, Brinson Advisors shall notify the Trust and follow the Trust's instructions as to permitting or refusing such inspection; provided that Brinson Advisors may exhibit such records to any person in any case where it is advised by its counsel that it may be held liable for failure to do so, unless (in cases involving potential exposure only to civil liability) the Trust has agreed to indemnify Brinson Advisors against such liability. 13. TERMINATION. This Contract shall become effective upon the date hereinabove written and may be terminated at any time, with respect to any Fund without the payment of any penalty, by vote of the Board or by vote of a majority of a Fund's outstanding voting securities or on sixty days' written notice to Brinson Advisors or by Brinson Advisors at any time, without the payment of any penalty, on sixty days' written notice to the Trust. Termination of this Contract with respect to any given Fund shall in no way affect the continued validity of this Contract or the performance thereunder with respect to any other Fund. 14. AMENDMENT OF THIS CONTRACT. No provision of this Contract may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought. 15. GOVERNING LAW. This Contract shall be construed in accordance with the laws of the State of New York, without giving effect to the conflicts of laws principles thereof, and in accordance with the 1940 Act, provided, however, that Section 9 above will be construed in accordance with the laws of the State of Delaware. To the extent that the applicable laws of the State of New York or the State of Delaware conflict with the applicable provisions of the 1940 Act, the latter shall control. 16. MISCELLANEOUS. The captions in this Contract are included for convenience of reference only and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect. If any provision of this Contract shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Contract shall not be affected thereby. This Contract shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors. As used in this Contract, the terms "interested person," "investment adviser," "majority of outstanding voting securities" and "prospectus," shall have the same meaning as such terms have in the 1940 Act, subject to such exemption as may be granted by the Securities and Exchange Commission by any rule, regulation or order. Where the effect of a requirement of the 1940 Act reflected in any provision of this contract is relaxed by a rule, regulation or order of the Securities and Exchange Commission, whether of special or general application, such provision shall be deemed to incorporate the effect of such rule, regulation or order. IN WITNESS WHEREOF, the parties hereto have caused this instrument to be executed by their officers designated as of the day and year first above written. BRINSON ADVISORS, INC. BRINSON ADVISORS, INC. By: /s/ ROBERT P. WOLFANGEL By: /s/ EMIL A. POLITO ------------------------------------------ ------------------ Name: Robert P. Wolfangel Name: Emil A. Polito Title: Executive Director and Title: Executive Director Chief Financial Officer THE BRINSON FUNDS THE BRINSON FUNDS By: /s/ AMY R. DOBERMAN By: /s/ PAUL H. SCHUBERT --------------------- -------------------- Name: Amy R. Doberman Name: Paul H. Schubert Title: Vice President and Secretary Title: Vice President and Treasurer
EXHIBIT A 1. Global Balanced Fund 2. Global Equity Fund 3. Global Technology Fund 4. Global Biotech Fund 5. Global Bond Fund 6. U.S. Balanced Fund 7. U.S. Equity Fund 8. U.S. Value Equity Fund 9. U.S. Large Cap Equity Fund 10. U.S. Large Cap Growth Fund 11. U.S. Small Cap Equity Fund 12. U.S. Small Cap Growth Fund 13. U.S. Real Estate Equity Fund 14. U.S. Bond Fund 15. High Yield Fund 16. Emerging Markets Debt Fund 17. International Equity Fund 18. Emerging Markets Equity Fund EX-99.H-1-B 17 a2084554zex-99_h1b.txt EXHIBIT 99.H.1.B EX 99.h.1.b ADMINISTRATION CONTRACT Contract made as of May 21, 2001, as revised on June 3, 2002, between THE UBS FUNDS, a Delaware business trust ("Trust"), and UBS GLOBAL ASSET MANAGEMENT (US) INC. ("UBS Global AM"), a Delaware corporation registered as an investment adviser under the Investment Advisers Act of 1940, as amended, and as a broker-dealer under the Securities Exchange Act of 1934, as amended ("1934 Act"), WHEREAS the Trust is registered under the Investment Company Act of 1940, as amended ("1940 Act"), as an open-end management investment company, and currently has multiple distinct series of shares of beneficial interest, which correspond to distinct portfolios and have been designated as the funds listed on Exhibit A, as it may be amended from time to time (each a "Fund" and, collectively, "Funds"); and WHEREAS the Trust desires to retain UBS Global AM as administrator to furnish certain administrative services to the Trust with respect to the Funds, and UBS Global AM is willing to furnish such services; NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, it is agreed between the parties hereto as follows: 1. APPOINTMENT. The Trust hereby appoints UBS Global AM as administrator of the Trust and each Fund for the period and on the terms set forth in this Contract. UBS Global AM accepts such appointment and agrees to render the services herein set forth, for the compensation herein provided. 2. DUTIES AS ADMINISTRATOR. UBS Global AM shall furnish, at its own expense, the executive, supervisory and clerical personnel necessary in order to administer the affairs of the Trust and each Fund subject to the supervision of the Trust's Board of Trustees ("Board"). In carrying out the terms of this Contract, UBS Global AM shall: (a) provide office space, equipment and facilities (which may UBS Global AM's or its affiliates') for maintaining the Trust's organization, for meetings of the Trust's Board and shareholders, and for performing administrative services hereunder; (b) supervise and manage all aspects of the Funds' operations (other than investment advisory activities), assist in the selection of and supervise relations with, and monitor the performance of, custodians, depositories, transfer and pricing agents, accountants, attorneys, underwriters, brokers and dealers, insurers and other persons in any capacity deemed to be necessary and desirable by the Board; (c) provide certain internal clerical and legal services, and stationery and office supplies; (d) provide accounting services, including: 1) determining and arranging for the publication of the net asset value of each Fund; 2) preparing financial information for presentation to the Trust's Board; 3) preparing and monitoring the Trust's annual expense budget, and establishing daily accruals; 4) calculating contractual expenses and coordinating payment of Fund expenses; 5) calculating periodic dividend rates to be declared in accordance with guidelines and supervising the Trust's transfer agent with respect to the payment of dividends and other distributions to shareholders; 6) calculating total return (and, if applicable, yield) information as described in the current prospectuses and statement of additional information; 7) coordinating audit packages for use by independent public accountants; 8) responding to regulatory audits; (e) provide non-investment related statistical and research data and such other reports, evaluations and information as the Funds may request from time to time; (f) monitor each Fund's compliance with the current registration statement, the 1940 Act, the Internal Revenue Code and other applicable laws and regulations; (g) prepare, to the extent requested by the Trust, and coordinate with Trust's counsel, prospectuses, statements of additional information, registration statements, proxy statements and annual and semi-annual reports to shareholders; (h) arrange for the printing and mailing (at the Funds' expense) of an annual list of shareholders, proxy statements and other reports or other materials provided to the Funds' shareholders; (i) supervise and facilitate the solicitation of proxies solicited by the Trust for all shareholder meetings, including the tabulation process for shareholder meetings; (j) support outside auditors in preparing and filing all the Funds' federal and state tax returns and required tax filings; (k) prepare periodic reports to and filings with the Securities and Exchange Commission (the "SEC") and state Blue Sky authorities with the advice of the Funds' counsel; (l) maintain the Trust's existence, and during such times as the shares of the Funds are publicly offered, maintain the registration and qualification of the Funds' shares under federal and state law; (m) coordinate the Trust's board meeting schedule, initiate the agenda and coordinate production of board meeting materials; (n) provide individuals acceptable to the Trustees for nomination, appointment, or election as officers of the Trust, who will be responsible for the management of certain of the Trust's affairs as determined by the Trustees; (o) keep and maintain the financial accounts and records of the Funds; (p) analyze and propose changes to shareholder services designed to enhance the value or convenience of the Funds as an investment vehicle; (q) obtain and keep in effect fidelity bonds and directors and officers/errors and omissions insurance policies for the Trust in accordance with the requirements of Rules 17g-1 and 17d-1(7) under the 1940 Act as such bonds and policies are approved by the Trust's Board of Trustees; (r) provide the Board on a regular basis with reports and analyses of each Fund's operations and the operations of comparable investment companies; and (s) take any other actions which appear to UBS Global AM and the Board necessary to carry into effect the purposes of this Contract. 3. FURTHER DUTIES. In all matters relating to the performance of this Contract, UBS Global AM will act in conformity with the Agreement and Declaration of Trust, By-Laws, and registration statement of the Trust and with the instructions and directions of the Board and will comply with the requirements of the 1940 Act, the rules thereunder, and all other applicable federal and state laws and regulations. 4. DELEGATION OF UBS GLOBAL AM'S DUTIES AS ADMINISTRATOR. With respect to any or all Funds, UBS Global AM may enter into one or more contracts ("Sub-Administration Contract") with one or more sub-administrators in which UBS Global AM delegates to such sub-administrators any or all of its duties specified in Paragraph 2 of this Contract, provided that each Sub-Administration Contract imposes on the sub-administrator bound thereby all the corresponding duties and conditions to which UBS Global AM is subject by Paragraph 2 of this Contract and all the duties and conditions of Paragraph 3 of this Contract. 5. SERVICES NOT EXCLUSIVE. The services furnished by UBS Global AM hereunder are not to be deemed exclusive and UBS Global AM shall be free to furnish similar services to others so long as its services under this Contract are not impaired thereby or unless otherwise agreed to by the parties hereunder in writing. Nothing in this Contract shall limit or restrict the right of any director, officer or employee of UBS Global AM, who may also be a Trustee, officer or employee of the Trust, to engage in any other business or to devote his or her time and attention in part to the management or other aspects of any other business, whether of a similar nature or a dissimilar nature. 6. EXPENSES. (a) During the term of this Contract, each Fund will bear all expenses, not specifically assumed by UBS Global AM, incurred in its operations and the offering of its shares. (b) Expenses borne by each Fund will include but not be limited to the following (or each Fund's proportionate share of the following): (i) fees payable to and expenses incurred on behalf of the Fund by UBS Global AM under this Contract; (ii) expenses of organizing the Trust and the Fund; (iii) filing fees and expenses relating to the registration and qualifications of the Fund's shares and the Trust under federal and/or state securities laws and maintaining such registration and qualifications; (iv) fees and salaries payable to the Trust's Trustees and officers who are not interested persons of the Trust or UBS Global AM; (v) all expenses incurred in connection with the Trustees' services, including travel expenses; (vi) taxes (including any income or franchise taxes) and governmental fees; (vii) costs of any liability, uncollectible items of deposit and other insurance and fidelity bonds; (vii) any costs, expenses or losses arising out of a liability of or claim for damages or other relief asserted against the Trust or Fund for violation of any law; (ix) legal, accounting and auditing expenses, including legal fees of special counsel for those Trustees of the Trust who are not interested persons of the Trust; (x) charges of custodians, transfer agents and other agents; (xi) costs of preparing share certificates; (xii) expenses of setting in type and printing prospectuses and supplements thereto, statements of additional information and supplements thereto, reports and proxy materials for existing shareholders; (xiii) costs of mailing prospectuses and supplements thereto, statements of additional information and supplements thereto, reports and proxy materials to existing shareholders; (xiv) any extraordinary expenses (including fees and disbursements of counsel, costs of actions, suits or proceedings to which the Trust is a party and the expenses the Trust may incur as a result of its legal obligation to provide indemnification to its officers, Trustees, agents and shareholders) incurred by the Trust or Fund; (xv) fees, voluntary assessments and other expenses incurred in connection with membership in investment company organizations; (xvi) cost of mailing and tabulating proxies and costs of meetings of shareholders, the Board and any committees thereof; (xvii) the cost of investment company literature and other publications provided by the Trust to its Trustees and officers; (xviii) costs of mailing, stationery and communications equipment; (xix) expenses incident to any dividend, withdrawal or redemption options; (xx) charges and expenses of any outside pricing service used to value portfolio securities; (xxi) interest on borrowings of the Trust; and (xxii) fees or expenses related to license agreements with respect to securities indices. (c) The Trust or a Fund may pay directly any expenses incurred by it in its normal operations and, if any such payment is consented to by UBS Global AM and acknowledged as otherwise payable by UBS Global AM pursuant to this Contract, the Fund may reduce the fee payable to UBS Global AM pursuant to Paragraph 7 thereof by such amount. To the extent that such deductions exceed the fee payable to UBS Global AM on any monthly payment date, such excess shall be carried forward and deducted in the same manner from the fee payable on succeeding monthly payment dates. (d) UBS Global AM will assume the cost of any compensation for services provided to the Trust received by the officers of the Trust and by those Trustees who are interested persons of the Trust. (e) The payment or assumption by UBS Global AM of any expenses of the Trust or a Fund that UBS Global AM is not required by this Contract to pay or assume shall not obligate UBS Global AM to pay or assume the same or any similar expense of the Trust or a Fund on any subsequent occasion. 7. COMPENSATION. (a) For the services provided and the expenses assumed pursuant to this Contract, each Fund will pay to UBS Global AM a fee, computed daily and paid monthly, at an annual rate of 0.075% of average daily net assets of such Fund. No Fund shall be responsible for payment owed by any other Fund. (b) The fee shall be computed daily and paid monthly to UBS Global AM on or before the first business day of the next succeeding calendar month. (c) If this Contract becomes effective or terminates before the end of any month, the fee for the period from the effective day to the end of the month or from the beginning of such month to the date of termination, as the case may be, shall be prorated according to the proportion which such period bears to the full month in which such effectiveness or termination occurs. 8. LIMITATION OF LIABILITY OF UBS GLOBAL AM. UBS Global AM shall not be liable for any error of judgment or mistake of law or for any loss suffered by any Fund, the Trust or any of its shareholders, in connection with the matters to which this Contract relates, except to the extent that such a loss results from negligence, willful misfeasance, bad faith or gross negligence on its part in the performance of its duties or from reckless disregard by it of its obligations and duties under this Contract. Any person, even though also an officer, director, employee, or agent of UBS Global AM, who may be or become an officer, Trustee, employee or agent of the Trust shall be deemed, when rendering services to any Fund or the Trust or acting with respect to any business of such Fund or the Trust, to be rendering such service to or acting solely for the Fund or the Trust and not as an officer, director, employee, or agent or one under the control or direction of UBS Global AM even though paid by it. 9. LIMITATION OF LIABILITY OF THE TRUSTEES AND SHAREHOLDERS OF THE TRUST. No Trustee, shareholder, officer, employee or agent of any Fund shall be liable for any obligations of any Fund or the Trust under this Contract, and UBS Global AM agrees that, in asserting any rights or claims under this Contract, it shall look only to the assets and property of the Trust in settlement of such right or claim, and not to any Trustee, shareholder, officer, employee or agent. Moreover, this Contract shall be deemed to create a separate agreement with the Trust acting on behalf of its respective series listed on Exhibit A hereto, as though the Trust had separately executed an identical agreement for all of its respective series. For each reference in this Agreement to Trust shall be deemed a reference solely to the particular series to which the provision relates. In no circumstances shall the rights, obligations or remedies with respect to a particular series constitute a right, obligation or remedy applicable to any other series. 10. CONFIDENTIALITY. UBS Global AM shall have the right to use any list of shareholders of the Fund or any other list of investors which it obtains in connection with its provision of services under this Contract; provided, however, that UBS Global AM shall not sell or knowingly provide such list or lists to any unaffiliated person. UBS Global AM agrees on behalf of itself and its employees to treat confidentially all records and other information relative to the Trust and the Funds and its prior, present or potential shareholders. In accordance with Section 248.11 of Regulation S-P (17 CFR 248.1-248.30) ("Reg S-P"), UBS Global AM will not directly, or indirectly through an affiliate, disclose any non-public personal information, as defined in Reg S-P, received from the Fund to any person that is not affiliated with the Fund or with UBS Global AM and provided that any such information disclosed to an affiliate of UBS Global AM shall be under the same limitations of non-disclosure. 11. EQUIPMENT FAILURES. In the event of equipment failures beyond UBS Global AM's control, UBS Global AM shall, at no additional expense to the Trust, take reasonable steps to minimize service interruptions but shall have no liability with respect thereto. UBS Global AM shall develop and maintain a plan for recovery from equipment failures which may include contractual arrangements with appropriate parties making reasonable provision for emergency use of electronic data processing equipment to the extent appropriate equipment is available. 12. CERTAIN RECORDS. UBS Global AM shall maintain customary records in connection with its duties as specified in this Agreement. Any records required to be maintained and preserved pursuant to Rules 31a-1 and 31a-2 under the 1940 Act which are prepared or maintained by UBS Global AM on behalf of the Trust shall be prepared and maintained at the expense of UBS Global AM, but shall be the property of the Trust and will be made available to or surrendered promptly to the Trust on request. In case of any request or demand for the inspection of such records by another party, UBS Global AM shall notify the Trust and follow the Trust's instructions as to permitting or refusing such inspection; provided that UBS Global AM may exhibit such records to any person in any case where it is advised by its counsel that it may be held liable for failure to do so, unless (in cases involving potential exposure only to civil liability) the Trust has agreed to indemnify UBS Global AM against such liability. 13. TERMINATION. This Contract shall become effective upon the date hereinabove written and may be terminated at any time, with respect to any Fund without the payment of any penalty, by vote of the Board or by vote of a majority of a Fund's outstanding voting securities or on sixty days' written notice to UBS Global AM or by UBS Global AM at any time, without the payment of any penalty, on sixty days' written notice to the Trust. Termination of this Contract with respect to any given Fund shall in no way affect the continued validity of this Contract or the performance thereunder with respect to any other Fund. 14. AMENDMENT OF THIS CONTRACT. No provision of this Contract may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought. 15. GOVERNING LAW. This Contract shall be construed in accordance with the laws of the State of New York, without giving effect to the conflicts of laws principles thereof, and in accordance with the 1940 Act, provided, however, that Section 9 above will be construed in accordance with the laws of the State of Delaware. To the extent that the applicable laws of the State of New York or the State of Delaware conflict with the applicable provisions of the 1940 Act, the latter shall control. 16. MISCELLANEOUS. The captions in this Contract are included for convenience of reference only and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect. If any provision of this Contract shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Contract shall not be affected thereby. This Contract shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors. As used in this Contract, the terms "interested person," "investment adviser," "majority of outstanding voting securities" and "prospectus," shall have the same meaning as such terms have in the 1940 Act, subject to such exemption as may be granted by the Securities and Exchange Commission by any rule, regulation or order. Where the effect of a requirement of the 1940 Act reflected in any provision of this contract is relaxed by a rule, regulation or order of the Securities and Exchange Commission, whether of special or general application, such provision shall be deemed to incorporate the effect of such rule, regulation or order. IN WITNESS WHEREOF, the parties hereto have caused this instrument to be executed by their officers designated as of the day and year first above written. UBS GLOBAL ASSET UBS GLOBAL ASSET MANAGEMENT (US) INC. MANAGEMENT (US) INC. By: /s/ Robert P. Wolfangel By: /s/ Edward Janeczek, Jr. ----------------------- ------------------------ Name: Robert P. Wolfangel Name: Edward Janeczek, Jr. Title: Executive Director and Title: Executive Director Chief Financial Officer THE UBS FUNDS THE UBS FUNDS By: /s/ David M. Goldenberg By: /s/ Paul H. Schubert ----------------------- -------------------- Name: David M. Goldenberg Name: Paul H. Schubert Title: Vice President and Secretary Title: Vice President and Treasurer EXHIBIT A 1. UBS Global Balanced Fund 2. UBS Global Equity Fund 3. UBS Global Technology Fund 4. UBS Global Biotech Fund 5. UBS Global Bond Fund 6. UBS U.S. Balanced Fund 7. UBS U.S. Equity Fund 8. UBS U.S. Value Equity Fund 9. UBS U.S. Large Cap Equity Fund 10.UBS U.S. Large Cap Growth Fund 11.UBS U.S. Small Cap Equity Fund 12.UBS U.S. Small Cap Growth Fund 13.UBS U.S. Real Estate Equity Fund 14.UBS U.S. Bond Fund 15.UBS High Yield Fund 16.UBS Emerging Markets Debt Fund 17.UBS International Equity Fund 18.UBS Emerging Markets Equity Fund EX-99.H-2 18 a2084554zex-99_h2.txt EXHIBIT 99.H.2 EX 99.h.2 TRANSFER AGENCY AND RELATED SERVICES AGREEMENT THIS AGREEMENT is made as of August 20, 2001 by and between PFPC INC., a Massachusetts corporation ("PFPC"), and THE BRINSON FUNDS, a Delaware business trust (the "Fund"). W I T N E S S E T H: WHEREAS, the Fund is registered as an open-end management investment company under the Investment Company Act of 1940, as amended (the "1940 Act"); and WHEREAS, the Fund wishes to retain PFPC to serve as transfer agent, registrar, dividend disbursing agent and related services agent with respect to the Retail Share Classes (as hereinafter defined) to the Fund's Portfolios (as hereinafter defined) and PFPC wishes to furnish such services. NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, and intending to be legally bound hereby, the parties hereto agree as follows: 1. DEFINITIONS. AS USED IN THIS AGREEMENT: (a) "1933 ACT" means the Securities Act of 1933, as amended. (b) "1934 ACT" means the Securities Exchange Act of 1934, as amended. (c) "AUTHORIZED PERSON" means any officer of the Fund and any other person duly authorized by the Fund's Board of Trustees ("Board") to give Oral Instructions and Written Instructions on behalf of the Fund and listed on the Authorized Persons Appendix attached hereto and made a part hereof or any amendment thereto as may be received by PFPC. An Authorized 1 Person's scope of authority may be limited by the Fund by setting forth such limitation in the Authorized Persons Appendix. (d) "CEA" means the Commodities Exchange Act, as amended. (e) "ORAL INSTRUCTIONS" mean oral instructions received by PFPC from an Authorized Person or from a person reasonably believed by PFPC to be an Authorized Person. PFPC may, in its sole discretion in each separate instance, consider and rely upon instructions it receives from an Authorized Person via electronic mail as Oral Instructions. (f) "PORTFOLIO" means a series or investment portfolio of the Fund identified on Exhibit A hereto, as the same may from time to time be amended. (g) "RETAIL SHARE CLASSES" mean Class A, B, C and Y share classes of a Portfolio. (h) "SEC" means the Securities and Exchange Commission. (i) "SECURITIES LAWS" mean the 1933 Act, the 1934 Act, the 1940 Act and the CEA. (j) "SHARES" mean the shares of common stock or beneficial interest of any series or class of the Fund. (k) "WRITTEN INSTRUCTIONS" mean (i) written instructions signed by an Authorized Person and received by PFPC or (ii) trade instructions transmitted (and received by PFPC) by means of an electronic transaction reporting system access to which requires use of a password or other authorized identifier. The instructions may be delivered by hand, mail, tested telegram, cable, telex or facsimile sending device. 2. APPOINTMENT. The Fund hereby appoints PFPC to serve as transfer agent, registrar, dividend disbursing agent and related services agent to the Fund with respect to the Retail Share 2 Classes of each Portfolio in accordance with the terms set forth in this Agreement. PFPC accepts such appointment and agrees to furnish such services. 3. DELIVERY OF DOCUMENTS. The Fund (or a particular Portfolio, as appropriate) has provided or, where applicable, will provide PFPC with the following: (a) Certified or authenticated copies of the resolutions of the Fund's Board approving the appointment of PFPC to provide services to the Fund and approving this Agreement; (b) A copy of each executed broker-dealer agreement with respect to each Fund; and (c) Copies (certified or authenticated if requested by PFPC) of any post-effective amendment to the Fund's registration statement, advisory agreement, distribution agreement, shareholder servicing agreement and all amendments or supplements to the foregoing upon request. 4. COMPLIANCE WITH RULES AND REGULATIONS. PFPC undertakes to comply with all applicable requirements of the Securities Laws and any laws, rules and regulations of governmental authorities having jurisdiction with respect to the duties to be performed by PFPC hereunder. Except as specifically set forth herein, PFPC assumes no responsibility for such compliance by the Fund or any of its Portfolios. 5. INSTRUCTIONS. (a) Unless otherwise provided in this Agreement, PFPC shall act only upon Oral Instructions and Written Instructions. (b) PFPC shall be entitled to rely upon any Oral Instructions and Written Instructions it receives from an Authorized Person pursuant to this Agreement. PFPC may assume that any Oral Instruction or Written Instruction received hereunder is not in any way inconsistent 3 with the provisions of organizational documents or of any vote, resolution or proceeding of the Fund's Board or of the Fund's shareholders, unless and until PFPC receives Written Instructions to the contrary. (c) The Fund agrees to forward to PFPC Written Instructions confirming Oral Instructions so that PFPC receives the Written Instructions by the close of business on the next day after such Oral Instructions are received. The fact that such confirming Written Instructions are not received by PFPC shall in no way invalidate the transactions or enforceability of the transactions authorized by the Oral Instructions. Where Oral Instructions or Written Instructions reasonably appear to have been received from an Authorized Person, PFPC shall incur no liability to the Fund in acting upon such Oral Instructions or Written Instructions provided that PFPC's actions comply with the other provisions of this Agreement. 6. RIGHT TO RECEIVE ADVICE. (a) ADVICE OF THE FUND. If PFPC is in doubt as to any action it should or should not take, PFPC may request directions or advice, including Oral Instructions or Written Instructions, from the Fund. (b) ADVICE OF COUNSEL. If PFPC shall be in doubt as to any question of law pertaining to any action it should or should not take, PFPC may request advice at its own cost from such counsel of its own choosing (who may be counsel for the Fund, the Fund's investment adviser or PFPC, at the option of PFPC). (c) CONFLICTING ADVICE. In the event of a conflict between directions, advice or Oral Instructions or Written Instructions PFPC receives from the Fund, and the advice it receives from counsel, PFPC may rely upon and follow the advice of counsel. In the event PFPC so relies on 4 the advice of counsel, PFPC remains liable for any action or omission on the part of PFPC which constitutes willful misfeasance, bad faith, negligence or reckless disregard by PFPC of any duties, obligations or responsibilities set forth in this Agreement. (d) PROTECTION OF PFPC. PFPC shall be protected in any action it takes or does not take in reliance upon directions, advice or Oral Instructions or Written Instructions it receives from the Fund or from counsel and which PFPC believes, in good faith, to be consistent with those directions, advice or Oral Instructions or Written Instructions. Nothing in this section shall be construed so as to impose an obligation upon PFPC (i) to seek such directions, advice or Oral Instructions or Written Instructions, or (ii) to act in accordance with such directions, advice or Oral Instructions or Written Instructions unless, under the terms of other provisions of this Agreement, the same is a condition of PFPC's properly taking or not taking such action. Nothing in this Subparagraph shall excuse PFPC when an action or omission on the part of PFPC constitutes willful misfeasance, bad faith, negligence or reckless disregard by PFPC of any duties, obligations or responsibilities set forth in this Agreement. 7. RECORDS; VISITS. PFPC shall prepare and maintain in complete and accurate form all books and records necessary for it to serve as transfer agent, registrar, dividend disbursing agent and related services agent to each Portfolio, including (a) all those records required to be prepared and maintained by the Fund under the 1940 Act, by other applicable Securities Laws, rules and regulations and by state laws and (b) such books and records as are necessary for PFPC to perform all of the services it agrees to provide in this Agreement and any appendices attached hereto, including but not limited to the books and records necessary to effect the conversion of Class B shares, the calculation of any contingent deferred sales charges and the calculation of front-end sales 5 charges. The books and records pertaining to the Fund, which are in the possession or under the control of PFPC, shall be the property of the Fund. The Fund and Authorized Persons shall have access to such books and records in the possession or under the control of PFPC at all times during PFPC's normal business hours. Upon the reasonable request of the Fund, copies of any such books and records in the possession or under the control of PFPC shall be provided by PFPC to the Fund or to an Authorized Person. Upon reasonable notice by the Fund, PFPC shall make available during regular business hours its facilities and premises employed in connection with its performance of this Agreement for reasonable visits by the Fund, any agent or person designated by the Fund or any regulatory agency having authority over the Fund. 8. CONFIDENTIALITY. PFPC agrees to keep confidential all records of the Fund and information relating to the Fund and its shareholders (past, present and future), its investment adviser and its principal underwriter, unless the release of such records or information is otherwise consented to, in writing, by the Fund prior to its release. The Fund agrees that such consent shall not be unreasonably withheld and may not be withheld where PFPC may be exposed to civil or criminal contempt proceedings or when required to divulge such information or records to duly constituted authorities. 9. COOPERATION WITH ACCOUNTANTS. PFPC shall cooperate with the Fund's independent public accountants and shall take all reasonable actions in the performance of its obligations under this Agreement to ensure that the necessary information is made available to such accountants for the expression of their opinion, as required by the Fund. 10. DISASTER RECOVERY. PFPC shall enter into and shall maintain in effect with appropriate parties one or more agreements making reasonable provisions for periodic backup of 6 computer files and data with respect to the Fund and emergency use of electronic data processing equipment. In the event of equipment failures, PFPC shall, at no additional expense to the Fund, take reasonable steps to minimize service interruptions. PFPC shall have no liability with respect to the loss of data or service interruptions caused by equipment failure, provided such loss or interruption is not caused by PFPC's own willful misfeasance, bad faith, negligence or reckless disregard of its duties or obligations under this Agreement and provided further that PFPC has complied with the provisions of this Paragraph 10. 11. COMPENSATION. As compensation for services rendered by PFPC during the term of this Agreement, the Fund will pay to PFPC a fee or fees as may be agreed to from time to time in writing by the Fund and PFPC. 12. INDEMNIFICATION. (a) The Fund agrees to indemnify and hold harmless PFPC and its affiliates from all taxes, charges, expenses, assessments, penalties, claims and liabilities (including, without limitation, liabilities arising under the Securities Laws and any state and foreign securities and blue sky laws, and amendments thereto), and expenses, including (without limitation) reasonable attorneys' fees and disbursements, arising directly or indirectly from (i) any action or omission to act which PFPC takes (a) at the request or on the direction of or in reliance on the advice of the Fund or (b) upon Oral Instructions or Written Instructions or (ii) the acceptance, processing and/or negotiation of checks or other methods utilized for the purchase of Shares. Neither PFPC, nor any of its affiliates, shall be indemnified against any liability (or any expenses incident to such liability) arising out of PFPC's or its affiliates' own willful misfeasance, bad faith, negligence or reckless disregard of its duties and obligations under this Agreement. The Fund's liability to PFPC for 7 PFPC's acceptance, processing and/or negotiation of checks or other methods utilized for the purchase of Shares shall be limited to the extent of the Fund's policy(ies) of insurance that provide for coverage of such liability, and the Fund's insurance coverage shall take precedence over any obligations or liability incurred under this Agreement. (b) PFPC agrees to indemnify and hold harmless the Fund from all taxes, charges, expenses, assessments, penalties, claims and liabilities arising from PFPC's obligations pursuant to this Agreement (including, without limitation, liabilities arising under the Securities Laws, and any state and foreign securities and blue sky laws, and amendments thereto) and expenses, including (without limitation) reasonable attorneys' fees and disbursements arising directly or indirectly out of PFPC's or its nominee's own willful misfeasance, bad faith, negligence or reckless disregard of its duties and obligations under this Agreement. (c) In order that the indemnification provisions contained in this Paragraph 12 shall apply, upon the assertion of a claim for which either party may be required to indemnify the other, the party seeking indemnification shall promptly notify the other party of such assertion, and shall keep the other party advised with respect to all developments concerning such claim. The party who may be required to indemnify shall have the option to participate with the party seeking indemnification in the defense of such claim. The party seeking indemnification shall in no case confess any claim or make any compromise in any case in which the other party may be required to indemnify it except with the other party's prior written consent. (d) The members of the Board of the Fund, its officers and Shareholders, or of any Portfolio thereof, shall not be liable for any obligations of the Fund, or any such Portfolio, under this Agreement, and PFPC agrees that in asserting any rights or claims under this Agreement, it shall 8 look only to the assets and property of the Fund or the particular Portfolio in settlement of such rights or claims and not to such members of the Board, its officers or Shareholders. PFPC further agrees that it will look only to the assets and property of a particular Portfolio of the Fund, should the Fund have established separate series, in asserting any rights or claims under this Agreement with respect to services rendered with respect to that Portfolio and will not seek to obtain settlement of such rights or claims from the assets of any other Portfolio of the Fund. 13. INSURANCE. PFPC shall maintain insurance of the types and in the amounts deemed by it to be appropriate. To the extent that policies of insurance may provide for coverage of claims for liability or indemnity by the parties set forth in this Agreement, the contracts of insurance shall take precedence, and no provision of this Agreement shall be construed to relieve an insurer of any obligation to pay claims to the Fund, PFPC or other insured party which would otherwise be a covered claim in the absence of any provision of this Agreement. 14. SECURITY. PFPC represents and warrants that, to the best of its knowledge, the various procedures and systems which PFPC has implemented with regard to the safeguarding from loss or damage attributable to fire, theft or any other cause (including provision for twenty-four hours a day restricted access) of the Fund's blank checks, records and other data and PFPC's equipment, facilities and other property used in the performance of its obligations hereunder are adequate, and that it will make such changes therein from time to time as in its judgment are required for the secure performance of its obligations hereunder. PFPC shall review such systems and procedures on a periodic basis, and the Fund shall have reasonable access to review these systems and procedures. 9 15. RESPONSIBILITY OF PFPC. (a) PFPC shall be under no duty to take any action on behalf of the Fund except as specifically set forth herein or as may be specifically agreed to by PFPC in writing. PFPC shall be obligated to exercise care and diligence in the performance of its duties hereunder, to act in good faith and to use its best efforts in performing services provided for under this Agreement. PFPC shall be liable for any damages arising out of PFPC's failure to perform its duties under this Agreement to the extent such damages arise out of PFPC's willful misfeasance, bad faith, negligence or reckless disregard of such duties. (b) Without limiting the generality of the foregoing or of any other provision of this Agreement, PFPC shall not be under any duty or obligation to inquire into and shall not be liable for (A) the validity or invalidity or authority or lack thereof of any Oral Instruction or Written Instruction, notice or other instrument which conforms to the applicable requirements of this Agreement, and which PFPC reasonably believes to be genuine; or (B) subject to Paragraph 10, delays or errors or loss of data occurring by reason of circumstances beyond PFPC's control, including acts of civil or military authority, national emergencies, labor difficulties, fire, flood, catastrophe, acts of God, insurrection, war, riots or failure of the mails, transportation, communication or power supply. (c) Notwithstanding anything in this Agreement to the contrary, neither PFPC nor its affiliates shall be liable to the Fund for any consequential, special or indirect losses or damages which the Fund may incur or suffer by or as a consequence of PFPC's or its affiliates' performance of the services provided hereunder, whether or not the likelihood of such losses or damages was known by PFPC or its affiliates. 10 (d) Notwithstanding anything in this Agreement to the contrary, the Fund shall not be liable to PFPC nor its affiliates for any consequential, special or indirect losses or damages which PFPC or its affiliates may incur or suffer by or as a consequence of PFPC's performance of the services provided hereunder, whether or not the likelihood of such losses or damages was known by the Fund. 16. DESCRIPTION OF SERVICES. (A) SERVICES PROVIDED ON AN ONGOING BASIS, IF APPLICABLE. (i) Calculate 12b-1 payments to financial intermediaries, including brokers, and financial intermediary trail commissions; (ii) Develop, monitor and maintain, in consultation with the Fund, all systems necessary to implement and operate the four-tier distribution system, including Class B conversion feature, as described in the registration statement and related documents of the Fund, as they may be amended from time to time; (iii) Calculate contingent deferred sales charge amounts upon redemption of Fund shares and deduct such amounts from redemption proceeds; (iv) Calculate front-end sales load amounts at time of purchase of shares; (v) Determine dates of Class B conversion and effect the same; (vi) Establish and maintain proper shareholder registrations; (vii) Review new applications and correspond with shareholders to complete or correct information; (viii) Direct payment processing of checks or wires; (ix) Prepare and certify stockholder lists in conjunction with proxy solicitations; (x) Prepare and mail to shareholders confirmation of activity; (xi) Provide toll-free lines for direct shareholder use, plus customer liaison staff for on-line inquiry response; 11 (xii) Send duplicate confirmations to broker-dealers of their clients' activity, whether executed through the broker-dealer or directly with PFPC; (xiii) Provide periodic shareholder lists, outstanding share calculations and related statistics to the Fund; (xiv) Provide detailed data for underwriter/broker confirmations; (xv) Prepare and mail required calendar and taxable year-end tax and statement information (including forms 1099-DIV and 1099-B and accompanying statements); (xvi) Notify on a daily basis the investment adviser, accounting agent, and custodian of fund activity; (xvii) Perform, itself or through a delegate, all of the services, whether or not included within the scope of another paragraph of this Paragraph 16(a), specified on Exhibit B hereto; and (xviii) Perform other participating broker-dealer shareholder services as may be agreed upon from time to time. (b) SERVICES PROVIDED BY PFPC UNDER ORAL INSTRUCTIONS OR WRITTEN INSTRUCTIONS. (i) Accept and post daily Fund and class purchases and redemptions; (ii) Accept, post and perform shareholder transfers and exchanges; (iii) Pay dividends and other distributions; and (iv) Solicit and tabulate proxies. (c) PURCHASE OF SHARES. PFPC shall issue and credit an account of an investor, in the manner described in the Fund's prospectus, once it receives: (i) A purchase order; (ii) Proper information to establish a shareholder account; and (iii) Confirmation of receipt or crediting of funds for such order to the Fund's custodian. 12 (d) REDEMPTION OF SHARES. PFPC shall redeem Shares only if that function is properly authorized by the Fund's organizational documents or resolutions of the Fund's Board. Shares shall be redeemed and payment therefor shall be made in accordance with the Fund's or Portfolio's prospectus. (i) BROKER-DEALER ACCOUNTS. When a broker-dealer notifies PFPC of a redemption desired by a customer, and the Fund's custodian (the "Custodian") has provided PFPC with funds, PFPC shall (a) transfer by Fedwire or other agreed upon electronic means such redemption payment to the broker-dealer for the credit to, and for the benefit of, the customer's account or (b) shall prepare and send a redemption check to the broker-dealer, made payable to the broker-dealer on behalf of its customer. (II) FUND-ONLY ACCOUNTS. If Shares (or appropriate instructions) are received in proper form, at the Fund's request Shares may be redeemed before the funds are provided to PFPC from the Custodian. If the recordholder has not directed that redemption proceeds be wired, when the Custodian provides PFPC with funds, the redemption check shall be sent to and made payable to the recordholder, unless transfer authorizations are signed by the recordholder when Shares are held in book-entry form. 13 (e) DIVIDENDS AND DISTRIBUTIONS. Upon receipt of a resolution of the Fund's Board authorizing the declaration and payment of dividends and distributions, PFPC shall issue dividends and distributions declared by the Fund in Shares, or, upon shareholder election, pay such dividends and distributions in cash, if provided for in the appropriate Fund's or Portfolio's prospectus. Such issuance or payment, as well as payments upon redemption as described above, shall be made after deduction and payment of the required amount of funds to be withheld in accordance with any applicable tax law or other laws, rules or regulations. PFPC shall mail to the Fund's shareholders and the IRS and other appropriate taxing authorities such tax forms, or permissible substitute forms, and other information relating to dividends and distributions paid by the Fund (including designations of the portions of distributions of net capital gain that are 20% rate gain distributions and 28% rate gain distributions pursuant to IRS Notice 97-64) as are required to be filed and mailed by applicable law, rule or regulation within the time required thereby. PFPC shall prepare, maintain and file with the IRS and other appropriate taxing authorities reports relating to all dividends above a stipulated amount paid by the Fund to its shareholders as required by tax or other law, rule or regulation. (f) SHAREHOLDER ACCOUNT SERVICES. (i) PFPC will arrange, in accordance with the appropriate Fund's or Portfolio's prospectus, for issuance of Shares obtained through: - The transfer of funds from shareholders' accounts at financial institutions, provided PFPC receives advance Oral or Written Instruction of such transfer; - Any pre-authorized check plan; and 14 - Direct purchases through broker wire orders, checks and applications. (ii) PFPC will arrange, in accordance with the appropriate Fund's or Portfolio's prospectus, for a shareholder's: - Exchange of Shares for shares of another fund with which the Fund has exchange privileges; - Automatic redemption from an account where that shareholder participates in a systematic withdrawal plan; and/or - Redemption of Shares from an account with a checkwriting privilege. (g) COMMUNICATIONS TO SHAREHOLDERS. Upon timely Written Instructions, PFPC shall mail all communications by the Fund to its shareholders, including: (i) Reports to shareholders; (ii) Confirmations of purchases and sales of Fund shares; (iii) Monthly or quarterly statements; (iv) Dividend and distribution notices; (v) Proxy material; and (vi) Tax forms (including substitute forms) and accompanying information containing the information required by paragraph 16(e). If requested by the Fund, PFPC will receive and tabulate the proxy cards for the meetings of the Fund's shareholders and supply personnel to serve as inspectors of election. (h) RECORDS. PFPC shall maintain those records required by the Securities Laws and any laws, rules and regulations of governmental authorities having jurisdiction with respect to the duties to be performed by PFPC hereunder with respect to shareholder accounts or by transfer agents generally, including records of the accounts for each shareholder showing the following information: 15 (i) Name, address and United States Taxpayer Identification or Social Security number; (ii) Number and class of Shares held; (iii) Historical information regarding the account of each shareholder, including dividends and distributions paid, their character (e.g. ordinary income, net capital gain (including 20% rate gain and 28% rate gain), exempt-interest, foreign tax-credit and dividends received deduction eligible) for federal income tax purposes and the date and price for all transactions on a shareholder's account; (iv) Any stop or restraining order placed against a shareholder's account; (v) Any correspondence relating to the current maintenance of a shareholder's account; (vi) Information with respect to withholdings; and (vii) Any information required in order for the transfer agent to perform any calculations contemplated or required by this Agreement. (i) SHAREHOLDER INSPECTION OF STOCK RECORDS. Upon a request from any Fund shareholder to inspect stock records, PFPC will notify the Fund, and the Fund will issue instructions granting or denying each such request. Unless PFPC has acted contrary to the Fund's instructions, the Fund agrees and does hereby release PFPC from any liability for refusal of permission for a particular shareholder to inspect the Fund's shareholder records. 17. DURATION AND TERMINATION. (a) This Agreement shall be effective on the date first written above and shall continue for a period of three (3) years (the "Initial Term"). Upon the expiration of the Initial Term, this Agreement shall automatically renew for successive terms of one (1) year ("Renewal Terms") 16 each provided that it may be terminated by either party during a Renewal Term upon written notice given at least ninety (90) days prior to termination. During either the Initial Term or the Renewal Terms, this Agreement may also be terminated on an earlier date by either party for cause. (b) With respect to the Fund, cause includes, but is not limited to, (i) PFPC's material breach of this Agreement causing it to fail to substantially perform its duties under this Agreement. In order for such material breach to constitute "cause" under this Paragraph, PFPC must receive written notice from the Fund specifying the material breach and PFPC shall not have corrected such breach within a 15-day period; (ii) financial difficulties of PFPC evidenced by the authorization or commencement of a voluntary or involuntary bankruptcy under the U.S. Bankruptcy Code or any applicable bankruptcy or similar law, or under any applicable law of any jurisdiction relating to the liquidation or reorganization of debt, the appointment of a receiver or to the modification or alleviation of the rights of creditors; and (iii) issuance of an administrative or court order against PFPC with regard to the material violation or alleged material violation of the Securities Laws or other applicable laws related to its business of performing transfer agency services; (c) With respect to PFPC, cause includes, but is not limited to, the failure of the Fund to pay the compensation set forth in writing pursuant to Paragraph 11 of this Agreement. (d) Any notice of termination for cause in conformity with subparagraphs (a), (b) and (c) of this Paragraph by the Fund shall be effective thirty (30) days from the date of any such notice. Any notice of termination for cause by PFPC shall be effective 90 days from the date of such notice. 17 (e) Upon the termination hereof, the Fund shall pay to PFPC such compensation as may be due for the period prior to the date of such termination. In the event that the Fund designates a successor to any of PFPC's obligations under this Agreement, PFPC shall, at the direction and expense of the Fund, transfer to such successor all relevant books, records and other data established or maintained by PFPC hereunder including, a certified list of the shareholders of the Fund or any Portfolio thereof with name, address, and if provided, taxpayer identification or Social Security number, and a complete record of the account of each shareholder. To the extent that PFPC incurs expenses related to a transfer of responsibilities to a successor, other than expenses involved in PFPC's providing the Fund's books and records described in the preceding sentence to the successors, PFPC shall be entitled to be reimbursed for such extraordinary expenses, including any out-of-pocket expenses reasonably incurred by PFPC in connection with the transfer. (f) Any termination effected pursuant to this Paragraph shall not affect the rights and obligations of the parties under Paragraph 12 hereof. (g) Notwithstanding the foregoing, this Agreement shall terminate with respect to the Fund or any Portfolio or Retail Share Class upon the liquidation, merger, or other dissolution of the Fund or Portfolio or Retail Share Class or upon the Fund's ceasing to be a registered investment company. 18. REGISTRATION AS A TRANSFER AGENT. PFPC represents that it is currently registered with the appropriate federal agency for the registration of transfer agents, or is otherwise permitted to lawfully conduct its activities without such registration and that it will remain so registered or able to so conduct such activities for the duration of this Agreement. PFPC agrees that it will promptly notify the Fund in the event of any material change in its status as a registered transfer agent. Should PFPC fail to be registered with the SEC as a transfer agent at any time during this Agreement, and 18 such failure to register does not permit PFPC to lawfully conduct its activities, the Fund may, on written notice to PFPC, terminate this Agreement upon five days written notice to PFPC. 19. NOTICES. All notices and other communications, including Written Instructions, shall be in writing or by confirming telegram, cable, telex or facsimile sending device. Notices shall be addressed (a) if to PFPC, at 400 Bellevue Parkway, Wilmington, Delaware 19809; (b) if to the Fund, at the address of the Fund or (c) if to neither of the foregoing, at such other address as shall have been given by like notice to the sender of any such notice or other communication by the other party. If notice is sent by confirming telegram, cable, telex or facsimile sending device during regular business hours, it shall be deemed to have been given immediately; if sent at a time other than regular business hours, such notice shall be deemed to have been given at the opening of the next business day. If notice is sent by first-class mail, it shall be deemed to have been given three days after it has been mailed. If notice is sent by messenger, it shall be deemed to have been given on the day it is delivered. All postage, cable, telegram, telex and facsimile sending device charges arising from the sending of a notice hereunder shall be paid by the sender. 20. AMENDMENTS. This Agreement, or any term thereof, may be changed or waived only by a written amendment, signed by the party against whom enforcement of such change or waiver is sought. 21. ADDITIONAL PORTFOLIOS. In the event that the Fund establishes one or more investment series in addition to and with respect to which it desires to have PFPC render services as transfer agent, registrar, dividend disbursing agent and related services agent under the terms set forth in this Agreement, it shall so notify PFPC in writing, and PFPC shall agree in writing to provide such services, and such investment series shall become a Portfolio hereunder, subject to such additional terms, fees and conditions as are agreed to by the parties. 19 22. DELEGATION; ASSIGNMENT. (a) PFPC may, at its own expense, assign its rights and delegate its duties hereunder to any wholly-owned direct or indirect subsidiary of The PNC Financial Services Group, Inc., provided that (i) PFPC gives the Fund thirty (30) days' prior written notice; (ii) the delegate (or assignee) agrees with PFPC and the Fund to comply with all relevant provisions of the Securities Laws; and (iii) PFPC and such delegate (or assignee) promptly provide such information as the Fund may request, and respond to such questions as the Fund may ask, relative to the delegation (or assignment), including (without limitation) the capabilities of the delegate (or assignee). The assignment and delegation of any of PFPC's duties under this subparagraph (a) shall not relieve PFPC of any of its responsibilities or liabilities under this Agreement. (b) PFPC may delegate to Brinson Advisors, Inc. ("Brinson Advisors"), which may, in turn, further delegate to an affiliated or unaffiliated entity, with respect to certain brokerage clients who are also Fund shareholders, its obligation to perform the services described on Exhibit B hereto. In addition, PFPC may assign its rights and delegate its other duties hereunder to Brinson Advisors or its delegate, provided that (i) PFPC gives the Fund thirty (30) days' prior written notice; (ii) the delegate (or assignee) agrees with PFPC and the Fund to comply with all relevant provisions of the Securities Laws; and (iii) PFPC and such delegate (or assignee) promptly provide such information as the Fund may request, and respond to such questions as the Fund may ask, relative to the delegation (or assignment), including (without limitation) the capabilities of the delegate (or assignee). In assigning its rights and delegating its duties under this Subparagraph, PFPC may impose such conditions or limitations as it determines appropriate including the condition that PFPC be retained as a sub-transfer agent. 20 (c) In the event that PFPC assigns its rights and delegates its duties under this Subparagraph, no amendment of the terms of this Agreement shall become effective without the written consent of PFPC. 23. COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 24. FURTHER ACTIONS. Each party agrees to perform such further acts and execute such further documents as are necessary to effectuate the purposes hereof. 25. MISCELLANEOUS. (a) ENTIRE AGREEMENT. This Agreement embodies the entire agreement and understanding between the parties and supersedes all prior agreements and understandings relating to the subject matter hereof, provided that the parties may embody in one or more separate documents their agreement, if any, with respect to services to be performed and fees payable under this Agreement. (b) CAPTIONS. The captions in this Agreement are included for convenience of reference only and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect. (c) GOVERNING LAW. This Agreement shall be deemed to be a contract made in Delaware and governed by Delaware law, without regard to principles of conflicts of law. 21 (d) PARTIAL INVALIDITY. If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby. (e) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and permitted assigns. (f) FACSIMILE SIGNATURES. The facsimile signature of any party to this Agreement shall constitute the valid and binding execution hereof by such party. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the day and year first above written. PFPC, INC. By: /s/ Steven Turowski ------------------- Name: Steven Turowski Title: Senior Vice President THE BRINSON FUNDS By: /s/ Paul H. Schubert -------------------- Name: Paul H. Schubert Title: Vice President and Treasurer 22 AUTHORIZED PERSONS APPENDIX NAME (TYPE) SIGNATURE - ------------------------------------------ - ------------------------------------------ - ------------------------------------------ - ------------------------------------------ - ------------------------------------------ - ------------------------------------------ 23 EXHIBIT A The Brinson Funds - U.S. Bond Fund - High Yield Fund - U.S. Balanced Fund - U.S. Equity Fund - U.S. Large Cap Equity Fund - U.S. Large Cap Growth Fund - U.S. Small Cap Equity Fund - U.S. Small Cap Growth Fund - U.S. Real Estate Equity Fund - Global Balanced Fund - Global Equity Fund - Global Technology Fund - Global Biotech Fund - Global Bond Fund - International Equity Fund - U.S. Value Equity Fund 24 EXHIBIT B DELEGATED SERVICES The following transfer agency related services required to be performed under this Agreement are delegated by PFPC to Brinson Advisors, which may, in turn, further delegate any or all of such duties to an affiliated or unaffiliated entity. Brinson Advisors or its delegate shall provide the following services: a. Establish and maintain a dedicated service center with sufficient facilities, equipment and skilled personnel to address all shareholder inquiries received by telephone or mail regarding the Funds and their accounts; b. Provide timely execution of redemptions, exchanges and non-financial transactions directed to investment professionals and specifically requested by Fund shareholders; c. Issue checks from proceeds of Fund share redemptions to shareholders as directed by the shareholders or their agents; d. Process and maintain shareholder account registration information; e. With respect to customer accounts maintained through brokerage firms, review new applications and correspond with shareholders to complete or correct information; f. Prepare and mail monthly or quarterly consolidated account statements that reflect Fund balances and transactions (such information to be combined with other activity and holdings in investors' brokerage accounts); g. Establish and maintain a dedicated service center with sufficient facilities, equipment and skilled personnel to address all inquiries from dealers that sell Fund shares regarding operational issues and performance; h. Capture, process and mail required tax information to shareholders and report this information to the Internal Revenue Service; i. Provide the capability to margin Funds held within the client's brokerage account; j. Prepare and provide shareholder registrations for mailing of proxies, reports and other communications to shareholders; k. Develop, maintain and issue checks from the Automatic Cash Withdrawal Plan if offered within the client's brokerage account; 25 l. Maintain duplicate shareholder records and reconcile those records with those at the transfer agent; m. Process and mail duplicate monthly or quarterly statements to investment professionals; n. Establish and maintain shareholder distribution options (i.e., election to have dividends paid in cash, rather than reinvested in Fund shares); o. Process and mail purchase, redemption and exchange confirmations to Fund shareholders and investment professionals; p. Issue dividend checks to shareholders that select cash distributions to their brokerage account; q. Develop and maintain the automatic investment plan offered within the client's brokerage account; and r. Provide bank-to-bank wire transfer capabilities related to transactions in Fund shares. 26 EX-99.M1 19 a2084554zex-99_m1.txt EXHIBIT 99.M-1 EX 99.m.1 THE UBS FUNDS - CLASS A SHARES SHAREHOLDER SERVICES PLAN WHEREAS, The UBS Funds ("Fund") is registered under the Investment Company Act of 1940, as amended ("1940 Act"), as an open-end management investment company, and has eighteen distinct series of shares of beneficial interest ("Series"), which correspond to distinct portfolios and have been designated as UBS Global Balanced Fund, UBS Global Equity Fund, UBS Global Technology Fund, UBS Global Biotech Fund, UBS Global Bond Fund, UBS U.S. Balanced Fund, UBS U.S. Equity Fund, UBS U.S. Value Equity Fund, UBS U.S. Large Cap 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 U.S. Bond Fund, UBS High Yield Fund, UBS Emerging Markets Debt Fund, UBS International Equity Fund, and UBS Emerging Markets Equity Fund; and WHEREAS, UBS Global Asset Management (US) Inc. ("UBS Global AM") serves as Principal Underwriter of the Series and performs or contracts with other intermediaries to perform certain services for existing shareholders of Class A shares; NOW, THEREFORE, the Fund hereby adopts this Plan with respect to the Class A shares of the Series in accordance with Rule 12b-1 under the 1940 Act. 1. Class A shares of the Series will pay to UBS Global AM, as compensation for the provision of services to shareholders of Class A shares, a service fee at the rate of 0.25% on an annualized basis of the average daily net assets of such shares. Such fee shall be calculated and accrued daily and paid monthly or at such other intervals, as the Fund's Board of Trustees ("Board") shall determine. 2. The service fee received by UBS Global AM is for providing "personal service and/or the maintenance of shareholder accounts" as provided for in Section 2830(b)(9) of the NASD Conduct Rules, including expenditures for overhead and other expenses of UBS Global AM, and telephone and other communications expenses relating to the provision of shareholder services. If the NASD amends the definition of "service fee" or adopts a related definition intended to define the same concept, the services provided under the Plan shall be automatically amended, without further action of the parties, to conform to such definition. 3. This Plan must be approved, together with any related agreements, by votes of a majority of both (a) the Board and (b) those Board members of the Fund who are not "interested persons" of the Fund and have no direct or indirect financial interest in the operation of this Plan or any agreements related thereto ("Independent Board Members"), cast in person at a meeting (or meetings) called for the purpose of voting on such approval. 4. This Plan shall continue in full force and effect for so long as such continuance is specifically approved at least annually in the manner provided for approval of this Plan in Paragraph 3. 5. UBS Global AM shall provide to the Board and the Board shall review, at least quarterly, a written report of the amounts expended with respect to servicing shareholders of Class A shares and the purposes for which such expenditures were made. UBS Global AM shall submit only information regarding amounts expended for servicing shareholder accounts to the Board in support of the service fee payable hereunder. 6. This Plan may be terminated with respect to the Class A shares at any time by vote of the Board, by vote of a majority of the Independent Board Members, or by vote of a majority of the outstanding voting securities of the Class A shares. 7. This Plan may not be amended to increase materially the amount of service fee provided for in Paragraph 1 hereof unless such amendment is approved by a majority of the outstanding voting securities of the Class A shares. No material amendment to the Plan shall be made unless approved in the manner provided for initial approval in Paragraph 3 hereof. 8. The amount of the service fee payable to UBS Global AM is not related directly to expenses incurred by UBS Global AM on behalf of the Series or its Class A shares in providing services to shareholders. Neither the Series nor Class A Shares is obligated reimburse UBS Global AM for such expenses. The service fee set forth in Paragraph 1 hereof will be paid to UBS Global AM until the Plan is terminated or not renewed. If the Plan is terminated or not renewed, any service-related expenses incurred by UBS Global AM in excess of payments of the service fee specified in Paragraph 1 hereof that UBS Global AM has received or accrued through the termination date are the sole responsibility and liability of UBS Global AM, and are not obligations of the Series or Class A shares. 9. While this Plan is in effect, the selection and nomination of the Board members who are Independent Board Members of the Fund shall be committed to the discretion of the Independent Board Members. 10. As used in this Plan, the terms "majority of the outstanding voting securities" shall have the same meaning as those terms have in the 1940 Act. 11. The Fund shall preserve copies of this Plan (including any amendments thereto) and any related agreements and all reports made pursuant to Paragraph 5 hereof for a period of not less than six years from the date of this Plan, the first two years in an easily accessible place. 12. The Board members of the Fund and the shareholders of each Series shall not be liable for any obligations of the Fund or any Series under this Plan, and UBS Global AM or any other person, in asserting any rights or claims under this Plan, shall look only to the assets and property of the Fund or such Series in settlement of such right or claim, and not to such Board members or shareholders. 2 IN WITNESS WHEREOF, the Fund has executed this Shareholder Services Plan on the day and year set forth below in New York, New York. Date: October 29, 2001, as revised April 8, 2002 ATTEST: THE UBS FUNDS By: /s/ RITA RUBIN By: /s/ AMY R. DOBERMAN -------------- ------------------- Rita Rubin Amy R. Doberman Vice President and Secretary 3 EX-99.M2 20 a2084554zex-99_m2.txt EXHIBIT 99.M.2 EX 99.m.2 THE UBS FUNDS-CLASS B SHARES PLAN PURSUANT TO RULE 12b-1 UNDER THE INVESTMENT COMPANY ACT OF 1940 WHEREAS, The UBS Funds ("Fund") is registered under the Investment Company Act of 1940, as amended ("1940 Act"), as an open-end management investment company, and has eighteen distinct series of shares of beneficial interest ("Series"), which correspond to distinct portfolios and have been designated as UBS Global Balanced Fund, UBS Global Equity Fund, UBS Global Technology Fund, UBS Global Biotech Fund, UBS Global Bond Fund, UBS U.S. Balanced Fund, UBS U.S. Equity Fund, UBS U.S. Value Equity Fund, UBS U.S. Large Cap 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 U.S. Bond Fund, UBS High Yield Fund, UBS Emerging Markets Debt Fund, UBS International Equity Fund, and UBS Emerging Markets Equity Fund; and WHEREAS, the Fund desires to adopt a Plan pursuant to Rule 12b-1 under the 1940 Act ("Plan") with respect to the Class B shares ("Class B shares") of the above-referenced Series and of such other Series as may hereafter be designated by the Fund's board of trustees ("Board") and have Class B shares established; and WHEREAS, the Fund has entered into a Principal Underwriting Contract ("Contract") with UBS Global Asset Management (US) Inc. ("UBS Global AM") pursuant to which UBS Global AM has agreed to serve as Principal Underwriter of the Class B shares of each such Series; NOW, THEREFORE, the Fund hereby adopts this Plan with respect to the Class B shares of each Series in accordance with Rule 12b-1 under the 1940 Act. 1. A. Each Series is authorized to pay to UBS Global AM, as compensation for UBS Global AM's services as Principal Underwriter of the Series' Class B shares, distribution fees at the rate of 0.75%, on an annualized basis, of the average daily net assets of the Series' Class B shares. Such fees shall be calculated and accrued daily and paid monthly or at such other intervals as the Board shall determine. B. Each Series is authorized to pay to UBS Global AM, as compensation for UBS Global AM's services as Principal Underwriter of the Series' Class B shares, a service fee at the rate of 0.25%, on an annualized basis, of the average daily net assets of the Series' Class B shares. Such fee shall be calculated and accrued daily and paid monthly or at such other intervals as the Board shall determine. C. Any Series may pay a distribution or service fee to UBS Global AM at a lesser rate than the fees specified above, as agreed upon by the Board and UBS Global AM and as approved in the manner specified in Paragraph 4 of this Plan. 2. As Principal Underwriter of the Class B shares of each Series, UBS Global AM may spend such amounts as it deems appropriate on any activities or expenses primarily intended to result in the sale of the Class B shares of the Series or the servicing and maintenance of shareholder accounts, including, but not limited to, compensation to employees of UBS Global AM; compensation to and expenses, including overhead and telephone and other communication expenses, of UBS Global AM or other dealers who engage in or support the distribution of shares or who service shareholder accounts; reimbursement for the advance payment of sale commissions to selected dealers and their representatives; the printing of prospectuses, statements of additional information, and reports for other than existing shareholders; and the preparation, printing and distribution of sales literature and advertising materials. 3. If adopted with respect to Class B shares of a Series after any public offering of those shares, this Plan shall not take effect with respect to those shares unless it has first been approved by a majority of the voting securities of the Class B shares of that Series. This provision does not apply to adoption as an amended Plan where the prior Plan either was approved by a vote of a majority of the voting securities of the Class B shares of the applicable Series or such approval was not required under Rule 12b-1. 4. This Plan shall not take effect with respect to the Class B shares of any Series unless it first has been approved, together with any related agreements, by votes of a majority of both (a) the Board and (b) those Board members of the Fund who are not "interested persons" of the Fund and have no direct or indirect financial interest in the operation of this Plan or any agreements related thereto ("Independent Board Members"), cast in person at a meeting (or meetings) called for the purpose of voting on such approval; and until the Board members who approve the Plan's taking effect with respect to such Series' Class B shares have reached the conclusion required by Rule 12b-1(e) under the 1940 Act. 5. After approval as set forth in Paragraph 3 (if applicable) and Paragraph 4, this Plan shall take effect and continue in full force and effect for so long as such continuance is specifically approved at least annually in the manner provided for approval of this Plan in Paragraph 4. 6. UBS Global AM shall provide to the Board and the Board shall review, at least quarterly, a written report of the amounts expended with respect to the Class B shares of each Series by UBS Global AM under this Plan and the Contract and the purposes for which such expenditures were made. UBS Global AM shall submit only information regarding amounts expended for "distribution activities," as defined in this Paragraph 6, to the Board in support of the distribution fee payable hereunder and shall submit only information regarding amounts expended for "service activities," as defined in this Paragraph 6, to the Board in support of the service fee payable hereunder. For purposes of this Plan, "distribution activities" shall mean any activities in connection with UBS Global AM's performance of its obligations under this Plan or the Contract that are not deemed "service activities." "Service activities" shall mean activities in connection with the provision by UBS Global AM or a dealer of personal, continuing services to investors in the Class B shares of the Series; provided, however, 2 that if the National Association of Securities Dealers, Inc. ("NASD") adopts a definition of "service fee" for purposes of Section 2830(b)(9) of the NASD Conduct Rules that differs from the definition of "service activities" hereunder, or if the NASD adopts a related definition intended to define the same concept, the definition of "service activities" in this Paragraph shall be automatically amended, without further action of the parties, to conform to such NASD definition. Overhead and other expenses of UBS Global AM or a dealer related to their "distribution activities" or "service activities," including telephone and other communications expenses, may be included in the information regarding amounts expended for such activities. 7. This Plan may be terminated with respect to the Class B shares of any Series at any time by vote of the Board, by vote of a majority of the Independent Board Members, or by vote of a majority of the outstanding voting securities of the Class B shares of that Series. 8. This Plan may not be amended to increase materially the amount of distribution fees provided for in Paragraph 1A or the amount of service fees provided for in Paragraph 1B hereof unless such amendment is approved by a majority of the outstanding voting securities of the Class B shares of the affected Series and no material amendment to the Plan shall be made unless approved in the manner provided for initial approval in Paragraph 4 hereof. 9. The amount of the distribution and service fees payable by the Series to UBS Global AM under Paragraphs 1A and 1B hereof and the Contract is not related directly to expenses incurred by UBS Global AM on behalf of such Series in serving as Principal Underwriter of the Class B shares, and Paragraph 2 hereof and the Contract do not obligate the Series to reimburse UBS Global AM for such expenses. The distribution and service fees set forth in Paragraphs 1A and 1B hereof will be paid by the Series to UBS Global AM until either the Plan or the Contract is terminated or not renewed. If either the Plan or the Contract is terminated or not renewed with respect to the Class B shares of any Series, any distribution expenses incurred by UBS Global AM on behalf of the Class B shares of the Series in excess of payments of the distribution and service fees specified in Paragraphs 1A and 1B hereof and the Contract which UBS Global AM has received or accrued through the termination date are the sole responsibility and liability of UBS Global AM, and are not obligations of the Series. 10. While this Plan is in effect, the selection and nomination of the Board members who are not interested persons of the Fund shall be committed to the discretion of the Board members who are not interested persons of the Fund. 11. As used in this Plan, the terms "majority of the outstanding voting securities" and "interested person" shall have the same meaning as those terms have in the 1940 Act. 12. The Fund shall preserve copies of this Plan (including any amendments thereto) and any related agreements and all reports made pursuant to Paragraph 6 hereof 3 for a period of not less than six years from the date of this Plan, the first two years in an easily accessible place. 13. The Board members of the Fund and the shareholders of each Series shall not be liable for any obligations of the Fund or any Series under this Plan, and UBS Global AM or any other person, in asserting any rights or claims under this Plan, shall look only to the assets and property of the Fund or such Series in settlement of such right or claim, and not to such Board members or shareholders. IN WITNESS WHEREOF, the Fund has executed this Plan on the day and year set forth below in New York, New York. Date: October 29, 2001, as revised April 8, 2002 ATTEST: THE UBS FUNDS By: /s/ RITA RUBIN By: /s/ AMY R. DOBERMAN -------------- ------------------- Rita Rubin Amy R. Doberman Vice President and Secretary 4 EX-99.M3 21 a2084554zex-99_m3.txt EXHIBIT 99.M.3 EX 99.m.3 THE UBS FUNDS - CLASS C SHARES PLAN PURSUANT TO RULE 12b-1 UNDER THE INVESTMENT COMPANY ACT OF 1940 WHEREAS, The UBS Funds ("Fund") is registered under the Investment Company Act of 1940, as amended ("1940 Act"), as an open-end management investment company, and has eighteen distinct series of shares of beneficial interest ("Series"), which correspond to distinct portfolios and have been designated as UBS Global Balanced Fund, UBS Global Equity Fund, UBS Global Technology Fund, UBS Global Biotech Fund, UBS Global Bond Fund, UBS U.S. Balanced Fund, UBS U.S. Equity Fund, UBS U.S. Value Equity Fund, UBS U.S. Large Cap 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 U.S. Bond Fund, UBS High Yield Fund, UBS Emerging Markets Debt Fund, UBS International Equity Fund, and UBS Emerging Markets Equity Fund; and WHEREAS, the Fund desires to adopt a Plan pursuant to Rule 12b-1 under the 1940 Act ("Plan") with respect to the Class C shares ("Class C shares") of the above-referenced Series and of such other Series as may hereafter be designated by the Fund's board of trustees ("Board") and have Class C shares established; and WHEREAS, the Fund has entered into a Principal Underwriting Contract ("Contract") with UBS Global Asset Management (US) Inc. ("UBS Global AM") pursuant to which UBS Global AM has agreed to serve as Principal Underwriter of the Class C shares of each such Series; NOW, THEREFORE, the Fund hereby adopts this Plan with respect to the Class C shares of each Series in accordance with Rule 12b-1 under the 1940 Act. 1. A. Each Series listed below is authorized to pay to UBS Global AM, as compensation for UBS Global AM's services as Principal Underwriter of the Series' Class C shares, distribution fees at the rates (on an annualized basis) set forth below of the average daily net assets of the Series' Class C shares. Such fees shall be calculated and accrued daily and paid monthly or at such other intervals as the Board shall determine: UBS Global Balanced Fund 0.75% UBS Global Equity Fund 0.75% UBS Global Technology Fund 0.75% UBS Global Biotech Fund 0.75% UBS Global Bond Fund 0.50% UBS U.S. Balanced Fund 0.75% UBS U.S. Equity Fund 0.75% UBS U.S. Value Equity Fund 0.75% UBS U.S. Large Cap Equity Fund 0.75% UBS U.S. Large Cap Growth Fund 0.75% UBS U.S. Small Cap Equity Fund 0.75% UBS U.S. Small Cap Growth Fund 0.75% UBS U.S. Real Estate Equity Fund 0.75% UBS U.S. Bond Fund 0.50% UBS High Yield Fund 0.50% UBS Emerging Markets Debt Fund 0.50% UBS International Equity Fund 0.75% UBS Emerging Markets Equity Fund 0.75% B. Any Series hereafter established is authorized to pay to UBS Global AM, as compensation for UBS Global AM's services as Principal Underwriter of the Series' Class C shares, a distribution fee in the amount to be agreed upon in a written distribution fee addendum to this Plan ("Distribution Fee Addendum") executed by the Fund on behalf of such Series. All such Distribution Fee Addenda shall provide that they are subject to all terms and conditions of this Plan. C. Each Series is authorized to pay to UBS Global AM, as compensation for UBS Global AM' services as Principal Underwriter of the Series' Class C shares, a service fee at the rate of 0.25% on an annualized basis of the average daily net assets of the Series' Class C shares. Such fee shall be calculated and accrued daily and paid monthly or at such other intervals as the Board shall determine. D. Any Series may pay a distribution or service fee to UBS Global AM at a lesser rate than the fees specified above, as agreed upon by the Board and UBS Global AM and as approved in the manner specified in Paragraph 4 of this Plan. 2. As Principal Underwriter of the Class C shares of each Series, UBS Global AM may spend such amounts as it deems appropriate on any activities or expenses primarily intended to result in the sale of the Class C shares of the Series or the servicing and maintenance of shareholder accounts, including, but not limited to, compensation to employees of UBS Global AM; compensation to and expenses, including overhead and telephone and other communication expenses, of UBS Global AM or other dealers who engage in or support the distribution of shares or who service shareholder accounts; reimbursement for the advance payment of sale commissions to selected dealers and their representatives; the printing of prospectuses, statements of additional information, and reports for other than existing shareholders; and the preparation, printing and distribution of sales literature and advertising materials. 3. If adopted with respect to Class C shares of a Series after any public offering of those shares, this Plan shall not take effect with respect to those shares unless it has first been approved by a majority of the voting securities of the Class C shares of that Series. This provision does not apply to adoption as an amended Plan where the prior Plan either was approved by a vote of a majority of the voting securities of the Class C shares of the applicable Series or such approval was not required under Rule 12b-1. 2 4. This Plan shall not take effect with respect to the Class C shares of any Series unless it first has been approved, together with any related agreements, by votes of a majority of both (a) the Board and (b) those Board members of the Fund who are not "interested persons" of the Fund and have no direct or indirect financial interest in the operation of this Plan or any agreements related thereto ("Independent Board Members"), cast in person at a meeting (or meetings) called for the purpose of voting on such approval; and until the Board members who approve the Plan's taking effect with respect to such Series' Class C shares have reached the conclusion required by Rule 12b-1(e) under the 1940 Act. 5. After approval as set forth in Paragraph 3 (if applicable) and Paragraph 4, this Plan shall take effect and continue in full force and effect for so long as such continuance is specifically approved at least annually in the manner provided for approval of this Plan in Paragraph 4. 6. UBS Global AM shall provide to the Board and the Board shall review, at least quarterly, a written report of the amounts expended with respect to the Class C shares of each Series by UBS Global AM under this Plan and the Contract and the purposes for which such expenditures were made. UBS Global AM shall submit only information regarding amounts expended for "distribution activities," as defined in this Paragraph 6, to the Board in support of the distribution fee payable hereunder and shall submit only information regarding amounts expended for "service activities," as defined in this Paragraph 6, to the Board in support of the service fee payable hereunder. For purposes of this Plan, "distribution activities" shall mean any activities in connection with UBS Global AM's performance of its obligations under this Plan or the Contract that are not deemed "service activities." "Service activities" shall mean activities in connection with the provision by UBS Global AM or a dealer of personal, continuing services to investors in the Class C shares of the Series; provided, however, that if the National Association of Securities Dealers, Inc. ("NASD") adopts a definition of "service fee" for purposes of Section 2830(b)(9) of the NASD Conduct Rules that differs from the definition of "service activities" hereunder, or if the NASD adopts a related definition intended to define the same concept, the definition of "service activities" in this Paragraph shall be automatically amended, without further action of the parties, to conform to such NASD definition. Overhead and other expenses of UBS Global AM or a dealer related to their "distribution activities" or "service activities," including telephone and other communications expenses, may be included in the information regarding amounts expended for such activities. 7. This Plan may be terminated with respect to the Class C shares of any Series at any time by vote of the Board, by vote of a majority of the Independent Board Members, or by vote of a majority of the outstanding voting securities of the Class C shares of that Series. 3 8. This Plan may not be amended to increase materially the amount of distribution fees provided for in Paragraph 1A or Paragraph 1B hereof or the amount of service fees provided for in Paragraph 1C hereof unless such amendment is approved by a majority of the outstanding voting securities of the Class C shares of the affected Series and no material amendment to the Plan shall be made unless approved in the manner provided for initial approval in Paragraph 4 hereof. 9. The amount of the distribution and service fees payable by the Series to UBS Global AM under Paragraphs 1A, 1B and 1C hereof and the Contract is not related directly to expenses incurred by UBS Global AM on behalf of such Series in serving as Principal Underwriter of the Class C shares, and Paragraph 2 hereof and the Contract do not obligate the Series to reimburse UBS Global AM for such expenses. The distribution and service fees set forth in Paragraphs 1A, 1B and 1C hereof will be paid by the Series to UBS Global AM until either the Plan or the Contract is terminated or not renewed. If either the Plan or the Contract is terminated or not renewed with respect to the Class C shares of any Series, any distribution expenses incurred by UBS Global AM on behalf of the Class C shares of the Series in excess of payments of the distribution and service fees specified in Paragraphs 1A, 1B and 1B hereof and the Contract which UBS Global AM has received or accrued through the termination date are the sole responsibility and liability of UBS Global AM, and are not obligations of the Series. 10. While this Plan is in effect, the selection and nomination of the Board members who are not interested persons of the Fund shall be committed to the discretion of the Board members who are not interested persons of the Fund. 11. As used in this Plan, the terms "majority of the outstanding voting securities" and "interested person" shall have the same meaning as those terms have in the 1940 Act. 12. The Fund shall preserve copies of this Plan (including any amendments thereto) and any related agreements and all reports made pursuant to Paragraph 6 hereof for a period of not less than six years from the date of this Plan, the first two years in an easily accessible place. 4 13. The Board members of the Fund and the shareholders of each Series shall not be liable for any obligations of the Fund or any Series under this Plan, and UBS Global AM or any other person, in asserting any rights or claims under this Plan, shall look only to the assets and property of the Fund or such Series in settlement of such right or claim, and not to such Board members or shareholders. IN WITNESS WHEREOF, the Fund has executed this Plan on the day and year set forth below in New York, New York. Date: October 29, 2001, as revised April 8, 2002 ATTEST: THE UBS FUNDS By: /s/ Rita Rubin By: /s/ Amy R. Doberman Rita Rubin Amy R. Doberman Vice President and Secretary 5 -----END PRIVACY-ENHANCED MESSAGE-----