UBS Funds 497(c) as filed April 3, 2006

497 1 ubsfunds497c4306.htm UBS Funds 497(c) as filed April 3, 2006

[INSERT UBS LOGO]

The UBS Funds

UBS U.S. Mid Cap Growth Equity Fund

Prospectus

March 27, 2006

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

As with all mutual funds, the U.S. Securities and Exchange Commission ("SEC")
has not approved or disapproved the 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 should know about the Fund

Page

Investment Objective, Strategies, Securities Selection and Risks..........3
Performance...............................................................5
Expenses and Fee Tables...................................................6

Your Investment
Information for managing your Fund account

Managing Your Fund Account...............................................8
--Flexible Pricing
--Buying Shares
--Selling Shares
--Exchanging Shares
--Pricing and Valuation

Additional Information
Additional important information about the Fund

Management...............................................................18

Disclosure of Portfolio Holdings.........................................19

Dividends and Taxes......................................................19

Supplemental Portfolio Manager Performance Information...................21

Supplemental Advisor Performance Information.............................23

Financial Highlights.....................................................25

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

[The Fund is not a complete or balanced investment program.]

--------------------------------------------------------------------------------
UBS Global Asset Management 2

UBS U.S. Mid Cap Growth Equity Fund
--------------------------------------------------------------------------------

Investment Objective, Strategies, Securities Selection 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
(plus borrowings for investment purposes, if any) in equity securities of US mid
capitalization companies. The Fund considers mid capitalization companies to be
those companies that at the time of purchase have market capitalizations within
the range of market capitalizations of companies constituting the Russell
Midcap(R)Growth Index. The market capitalizations of companies in the Russell
Midcap Growth Index ranged from $996 million to $18.438 billion as of December
31, 2005. The capitalization range of companies in the Russell Midcap Growth
Index will change with the markets. Further, if movement in the market price
causes a security to change from one capitalization range to another, the Fund
is not required to dispose of the security. Investments in equity securities may
include common stock and preferred stock. Up to 20% of the Fund's net assets may
be invested in foreign securities. The Fund may (but is not required to) use
forward currency contracts, options and other derivatives as part of its
investment strategy or to help manage portfolio risks.

Under certain market conditions, the Fund may invest in companies at the time of
their initial public offering (IPO).

Securities Selection

In selecting securities for the Fund, the Advisor will select companies that it
believes exhibit the potential for superior growth based on factors such as:

o above-average growth in revenue and earnings

o strong competitive position

o strong management

o sound financial condition

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

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.

Mid Capitalization Company Risk--The risk that investments in mid capitalization
size companies may be more volatile than investments in larger companies, as mid
capitalization companies generally experience higher growth and failure rates
than larger capitalization companies. The trading volume of these securities is
normally lower than that of larger companies. Changes in the demand for these
securities generally have a disproportionate effect on their market price,
tending to make prices rise more in response to buying demand and fall more in
response to selling pressure than prices for larger companies.

Foreign Investing Risk--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

--------------------------------------------------------------------------------
UBS Global Asset Management 3

decline in the value of foreign currencies relative to the US 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 US issuers.

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

IPO Risk--Companies involved in initial public offerings (IPOs) generally have
limited operating histories, and prospects for future profitability are
uncertain. Prices of IPOs may also be unstable because of the absence of a prior
public market, the small number of shares available for trading, and limited
investor information. IPOs will frequently be sold within 12 months of purchase.
This may result in increased short-term capital gains, which will be taxable to
shareholders as ordinary income.

Other Information

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

--------------------------------------------------------------------------------
UBS Global Asset Management 4

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.

--------------------------------------------------------------------------------
UBS Global Asset Management 5

Expenses and Fee Tables

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

Shareholder Transaction Expenses (fees paid directly from your investment)*

Class A Class C Class Y

Maximum Front-End Sales Charge (Load) Imposed on
Purchases (as a % of offering price) 5.50% None None
Maximum Contingent Deferred Sales Charge (Load)
(CDSC) (as a % of purchase or sales price,
whichever is less) None** 1.00% None
Exchange Fee None None None

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

Class A Class C Class Y

Management Fees 0.85% 0.85% 0.85%
Distribution and/or Service (12b-1) Fees 0.25% 1.00% None
Other Expenses**** 1.04% 1.04% 1.04%
------ ------ ------

Total Annual Fund Operating Expenses 2.14% 2.89% 1.89%
====== ====== ======

Management Fee Waiver/Expense Reimbursements 0.69% 0.69% 0.69%
------ ------ ------

Net Expenses***** 1.45% 2.20% 1.20%
====== ====== ======

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

** Purchases of $1 million or more that were not subject to a front-end sales
charge are subject to a 1% CDSC if sold within one-year of the purchase
date.

*** The fees and expenses are based on estimates.

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

***** 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 management fees and/or to reimburse expenses to the extent
necessary so that the Fund's expenses, through the fiscal year ending June
30, 2007, otherwise do not exceed 1.45% for Class A shares, 2.20% for Class
C shares and 1.20% for Class Y shares. 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.

--------------------------------------------------------------------------------
UBS Global Asset Management 6

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

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

Class A $689 $1,120
Class C (assuming sale of all shares at end of period) $323 $830
Class C (assuming no sale of shares) $223 $830
Class Y $122 $527

--------------------------------------------------------------------------------
UBS Global Asset Management 7

Managing Your Fund Account

Flexible Pricing

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

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

You may qualify for a waiver of certain sales charges on Class A and Class C
shares. See "Sales Charge Waivers for Class A 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" later in this Prospectus.

Class A Shares

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

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

Class A Sales Charges:

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

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

(1) A contingent deferred sales charge of 1% of the shares' offering price or
the net asset value at the time of sale by the shareholder, whichever is
less, is charged on sales of shares made within one year of the purchase
date. Class A shares representing reinvestment of dividends are not subject
to this 1% charge. Withdrawals in the first year after purchase of up to
12% of the value of the fund account under the Fund's Automatic Cash
Withdrawal Plan are not subject to this charge.

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

If you intend to purchase more than $5 million of Class A shares, you should
instead purchase Class Y shares, which have lower on-going expenses.

--------------------------------------------------------------------------------
UBS Global Asset Management 8

Class C Shares

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

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

Sales Charge Waivers for Class A 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 Asset
Management (US) Inc. ("UBS Global AM (US)") or any of its affiliates serves
as principal underwriter if you:

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

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

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

1. Employees of UBS AG and its subsidiaries and members of the employees'
immediate families; and members of the Board of Directors/Trustees (and
former board members who retire from such boards after December 1, 2005) of
any investment company for which UBS Global AM (US) or any of its
affiliates serve as principal underwriter.

2. 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.

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

4. Broker-dealers and other financial institutions (including registered
investment advisers and financial planners) that have entered into a
selling agreement with UBS Global AM (US) (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.

5. 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 (US) (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.

6. Insurance company separate accounts.

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

8. Reinvestment of capital gains distributions and dividends.

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

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

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

o within 90 days of buying shares in the Fund, you sell shares of one or
more mutual funds that were principally underwritten by the competing
brokerage firm or its affiliates, and you either paid a sales charge
to buy those shares, pay a

--------------------------------------------------------------------------------
UBS Global Asset Management 9

contingent deferred sales charge when selling them or held those
shares until the contingent deferred sales charge was waived; and

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

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

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

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

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

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

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

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

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

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

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

o Redemptions of shares purchased through certain retirement plans.

Sales Charge Reductions for Class A Shares

Right of Accumulation

A purchaser of Class A shares may qualify for a reduction of the front-end sales
charge on purchases of Class A shares by combining a current purchase with
certain other Class A, Class B, Class C and/or Class P or Y shares of Family
Funds(1) already owned ("Family Funds" include other UBS Funds, UBS PACE Select
funds and other funds for which UBS Global AM (US) serves as principal
underwriter). To determine if you qualify for a reduction of the front-end sales
charge, the amount of your current purchase is added to the current net asset
value of your other Class A, Class B, Class C and/or Class P or Y shares, as
well as those Class A, Class B, Class C and/or Class P or Y shares of your
spouse and children under the age of 21 and who reside in the same household. If
you are the sole owner of a company, you may also add any company accounts,
including retirement plan accounts invested in Class A, Class B, Class C and/or
Class P or Y shares of the Family Funds. Companies with one or more retirement
plans may add together the total plan assets invested in Class A, Class B, Class
C and/or Class P or Y shares of the Family Funds to determine the front-end
sales charge that applies. To qualify for the discount on a purchase through a
financial institution, when each purchase is made, the investor or institution
must provide UBS Global AM (US) with sufficient information to verify that the
purchase qualifies for the privilege or discount. The right of accumulation may
be amended or terminated by UBS Global AM (US) at any time as to purchases
occurring thereafter.

Shares purchased through a broker/dealer may be subject to different procedures
concerning Rights of Accumulation. Please contact
your investment professional for more information.

Letter of Intent

Investors may also obtain reduced sales charges for Class A shares for
investments of a particular amount by means of a written Letter of Intent, which
expresses the investor's intention to invest that amount within a period of 13
months in shares of one or more Family Funds.(1) Each purchase of Class A shares
under a Letter of Intent will be made at the public offering price

--------------------------------------------------------------------------------
UBS Global Asset Management 10

applicable at the time of such purchase to a single transaction of the total
dollar amount indicated in the Letter of Intent. A Letter of Intent may include
purchases of Class A, Class C and/or Class Y shares made not more than three
months prior to the date that the investor signs a Letter of Intent and during
the 13-month period in which the Letter of Intent is in effect; however, the
13-month period during which the Letter of Intent is in effect will begin on the
date on which the Letter of Intent is signed.

___________________________________
(1) Please note that any Family Fund that is a money market fund will not count
for purposes of the right of accumulation discount or for purposes of satisfying
the forms of a Letter of Intent.

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

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

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

Note on Sales Charge Reductions and Waivers for Class A and Class C Shares

Additional information concerning sales charge reductions and waivers is
available in the Fund's Statement of Additional Information ("SAI"). If you
think you qualify for any of the sales charge waivers or reductions described
above, you may need to notify and/or provide documentation to UBS Global AM
(US). You will also need to notify UBS Global AM (US) of the existence of other
accounts in which there are holdings eligible to be aggregated to meet certain
sales load breakpoints. Information you may need to provide to UBS Global AM
(US) may include:

o Information or records regarding shares of the Fund or other funds held in
all accounts at any financial intermediary;

o Information or records regarding shares of the Fund or other funds held in
any account at any financial intermediary by related parties of the
shareholder, such as members of the same family; and/or

o Any information that may be necessary for UBS Global AM (US) to determine
your eligibility for a reduction or waiver of a sales charge.

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. Also, information regarding
the Fund's distribution arrangements and the applicable sales charge reductions
and waivers is available on the Fund's Web Site, free of charge, at
http://www.ubs.com/globalam.

Class Y Shares

Shareholders pay no front-end sales charges on Class Y shares. However, UBS
Global AM (US), as principal underwriter of the Fund, may make payments out of
its own resources, to affiliated (UBS Financial Services Inc.) and unaffiliated
dealers, pursuant to written dealer agreements as follows: a one time finder's
fee consistent with the Fund's Class A share Reallowance to Selected Dealers'
schedule (see page 8) and beginning in month 13 an ongoing fee in an amount up
to 20 basis points. UBS Global AM (US) does not make these payments on employee
related Class Y share accounts and reserves the right not to make these payments
if it determines, in its sole discretion, that a dealer has been acting to the
detriment of the Fund.

The following are eligible to purchase Class Y shares:

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

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

--------------------------------------------------------------------------------
UBS Global Asset Management 11

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

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

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

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

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

o Shareholders who invest a minimum initial amount of $5 million in the Fund.
An institutional investor may aggregate its holdings with holdings of
certain related institutional investors to meet the foregoing minimums;

o Foundations, Endowments and Religious and other charitable organizations
described in Section 501(c)(3) of the IRC that invest a minimum initial
amount of $2,500,000;

o Employees of UBS Global Asset Management (Americas) Inc. ("UBS Global AM
(Americas)") or UBS Global AM (US) as long as the employee establishes an
account in his or her name directly at the Fund's transfer agent and
purchases a minimum initial amount of $50,000; and

o Members of the Board of Directors/Trustees (and former board members who
retire from such boards after December 1, 2005) of any investment company
for which UBS Global AM (US) or any of its affiliates serves as principal
underwriter, subject to a minimum initial purchase amount of $50,000 in an
account established by the member in his or her name directly at the Fund's
transfer agent.

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 (US) has a dealer
agreement.

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

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

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

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

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

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

Through Financial Institutions/Professionals

As mentioned above, the Fund has entered into one or more sales agreements with
brokers, dealers or other financial intermediaries ("Service Providers"), as
well as with financial institutions (banks and bank trust departments) (each an
"Authorized Dealer"). The Authorized Dealer, or intermediaries designated by the
Authorized Dealer (a "Sub-designee"), may in some cases be authorized to accept
purchase and redemption orders that are in "good form" on behalf of the Fund.
The Fund will be deemed to have received a purchase or redemption order when the
Authorized Dealer or Sub-designee receives the order in good form. Such orders
will be priced at the Fund's net asset value next computed after such order is
received in good form by the Authorized Dealer or Subdesignee. These Authorized
Dealers may charge the investor a transaction fee or

--------------------------------------------------------------------------------
UBS Global Asset Management 12

other fee for their services at the time of purchase. These fees would not be
otherwise charged if you purchased shares directly from the Fund. It is the
responsibility of such Authorized Dealers or Sub-designees to promptly forward
purchase orders with payments to the Fund.

Additional Compensation to Affiliated Dealer

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

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

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

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

Minimum Investments:

Class A and Class C shares:

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

The Fund may waive or reduce these amounts for:

o Employees of UBS Global AM (US) or its affiliates; or

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

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

In addition, the nature of the Fund's portfolio holdings may allow a shareholder
to engage in a short-term trading strategy to take advantage of possible delays
between the change in the Fund's portfolio holdings and the reflection of that
change in the Fund's net asset value (often called "arbitrage market timing").
The Fund may be subject to arbitrage market timing because the Fund may have
significant holdings in smaller cap securities, which may have market prices
that do not accurately reflect the latest indications of value of these
securities at the time that the Fund calculates its net asset value due to,
among other reasons, infrequent trading or illiquidity. There is a possibility
that arbitrage market timing may dilute the value of Fund shares if redeeming
shareholders receive proceeds (and buying shareholders receive shares) based
upon a net asset value that does not reflect appropriate fair value prices. One
of the objectives of the Fund's fair value pricing procedures is to minimize the
possibilities of this type of arbitrage market timing.

The Board of Trustees of the Trust has adopted the following policies as a means
to discourage, detect and prevent market timing. The Fund will reject purchase
orders and exchanges into the Fund by any person, group or account that UBS
Global AM (Americas), as the Fund's Advisor and Administrator, determines to be
a market timer. UBS Global AM (Americas) maintains market timing prevention
procedures under which it reviews daily reports from the Fund's transfer agent
of all accounts that engaged in transactions in Fund shares that exceed a
specified monetary threshold and effected such transactions within a certain
period of time to evaluate whether any such account had engaged in market timing
activity. In evaluating the account transactions, UBS Global AM (Americas) will
consider the potential harm of the trading or exchange activity to the Fund or
its shareholders. If UBS Global AM (Americas) determines, in its sole
discretion, that a shareholder has engaged in market timing, the shareholder
will be permanently barred from making future purchases or exchanges into the
Fund. Additionally, in making a determination as to whether a shareholder has
engaged in market timing, the shareholder's

--------------------------------------------------------------------------------
UBS Global Asset Management 13

account may be temporarily barred from making additional investments into the
Fund pending a definitive determination. In addition, if a Financial Advisor is
identified as the Financial Advisor of two or more accounts that have engaged in
market timing, UBS Global AM (Americas) will attempt to prohibit the Financial
Advisor from making additional purchases of the Fund on behalf of its clients.

Shares of the Fund may be held through omnibus account arrangements, whereby a
broker-dealer, investment advisor, retirement plan sponsor or other financial
intermediary (each a "Financial Intermediary") maintains an omnibus account with
the Fund for trading on behalf of its customers or participants. Omnibus
accounts are accounts that aggregate the transactions of underlying
shareholders, thus making it difficult to identify individual underlying account
holder activity. UBS Global AM (Americas) reviews purchase and redemption
activity in omnibus accounts on a daily basis to seek to identify an unusual
pattern of trading activity within a short period of time. If UBS Global AM
(Americas) detects an unusual pattern of trading activity, UBS Global AM
(Americas) will notify the Financial Intermediary of the omnibus account and
will request that the Financial Intermediary use its best efforts to identify
and bar any customer or participant that is engaging in market timing, if
possible.

While the Fund will encourage Financial Intermediaries to apply the Fund's
market timing policies to their customers or participants who invest in the Fund
through an omnibus account, the Fund is limited in its ability to monitor the
trading activity or enforce the Fund's market timing policies with respect to
customers of Financial Intermediaries. For example, although UBS Global AM
(Americas) reviews the trading activity of omnibus accounts, UBS Global AM
(Americas) may not be able to detect market timing that may be facilitated by
Financial Intermediaries or made difficult to identify in the omnibus accounts
used by those Financial Intermediaries for aggregated purchases, exchanges and
redemptions on behalf of their customers or participants.

While the Fund will seek to take actions (directly and with the assistance of
Financial Intermediaries) that will detect market timing, the Fund's efforts may
not be completely successful in minimizing or eliminating such trading activity.

Certain types of transactions will also be exempt from the market timing
prevention procedures. These exempt transactions are purchases and redemptions
through the Automatic Cash Withdrawal Plan, purchases through an automatic
investment plan and redemptions by wrap fee accounts that have an automatic
rebalancing feature.

Selling Shares

You can sell your Fund shares at any time. If you own more than one class of
shares, you should specify which class you want to sell. If you do not, the Fund
will assume that you want to sell shares in the following order: Class A, then
Class C, and last, Class Y.

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

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

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

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

--------------------------------------------------------------------------------
UBS Global Asset Management 14

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

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

Exchanging Shares

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

You will not pay either a front-end sales charge or a deferred sales charge when
you exchange shares. You may have to pay a deferred sales charge if you later
sell the shares you acquired in the exchange. A fund will use the date of your
original share purchase to determine whether you must pay a deferred sales
charge when you sell the shares of the fund acquired in the exchange.

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

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

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

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

Transfer Agent

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

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

o Your name and address;

o Your account number;

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

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

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

Applications to purchase shares (along with a check), and letters requesting
redemptions of shares or

--------------------------------------------------------------------------------
UBS Global Asset Management 15

exchanges of shares through the transfer agent should be mailed to:

PFPC Inc.
UBS Global Asset Management
P.O. Box 9786
Providence, RI 02940

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

Pricing and Valuation

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

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

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

The Trust's Board of Trustees has delegated to the UBS Global Asset Management
Funds' Valuation Committee the responsibility for making fair value
determinations with respect to the Fund's portfolio securities. The types of
securities for which such fair value pricing may be necessary include, but are
not limited to: foreign securities under some circumstances, as discussed below;
securities of an issuer that has entered into a restructuring; securities whose
trading has been halted or suspended; fixed-income securities that are in
default and for which there is no current market value quotation; and securities
that are restricted as to transfer or resale. The need to fair value the Fund's
portfolio securities may also result from low trading volume in foreign markets
or thinly traded domestic securities, and when a security subject to a trading
limit or collar on the exchange or market on which it is primarily traded
reaches the "limit up" or "limit down" price and no trading has taken place at
that price.

The Fund expects to price most of its portfolio securities based on current
market value, as discussed above. Securities and assets for which market
quotations are not readily available may be valued based upon appraisals
received from a pricing service using a computerized matrix system or formula
method that takes into consideration market indices, matrices, yield curves and
other specific adjustments. This may result in the securities being valued at a
price different from the price that would have been determined had the matrix or
formula method not been used. Securities also may be valued based upon
appraisals derived from information concerning the security or similar
securities received from recognized dealers in those securities. If the Fund
concludes that a market quotation is not readily available for a portfolio
security for any number of reasons, including the occurrence of a "significant
event" (e.g., natural disaster or governmental action), after the close of
trading in its principal domestic or foreign market but before the close of
regular trading on the NYSE, the Fund will use fair value methods to reflect
those events. This policy is intended to assure that each Fund's net asset value
fairly reflects security values as of the time of pricing.

Valuing securities at fair value involves greater reliance on judgment than
valuing securities that have readily available market quotations. Fair value
determinations

--------------------------------------------------------------------------------
UBS Global Asset Management 16

can also involve reliance on quantitative models employed by a fair value
pricing service. There can be no assurance that the Fund could obtain the fair
value assigned to a security if it were to sell the security at approximately
the time at which the Fund determines its net asset value per share. As a
result, the Fund's sale or redemption of its shares at net asset value, at a
time when a holding or holdings are valued at fair value, may have the effect of
diluting or increasing the economic interest of existing shareholders.

The Fund may invest in securities that trade primarily in foreign markets that
trade on weekends or other days on which the Fund does not calculate its net
asset value. As a result, the Fund's net asset value may change on days when you
will not be able to buy and sell your Fund shares.

--------------------------------------------------------------------------------
UBS Global Asset Management 17

Management

Investment Advisor

UBS Global Asset Management (Americas) Inc. ("UBS Global AM (Americas)" or the
"Advisor"), a Delaware corporation located at One North Wacker Drive, Chicago,
IL 60606, is an investment advisor registered with the SEC. As of December 31,
2005, the Advisor had approximately $66.1 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
$581.5 billion in assets under management as of December 31, 2005. UBS is an
internationally diversified organization headquartered in Zurich and Basel,
Switzerland, with operations in many areas of the financial services industry.

Bank Holding Company Act Limitations. To the extent that UBS Global AM
(Americas) maintains a greater than 24.99% interest in the Fund, UBS Global AM
(Americas) will be deemed to "control" the Fund for purposes of the U.S. Bank
Holding Company Act of 1956, as amended ("BHCA"). Accordingly, the Fund may be
subject to certain limitations on its ability to own equity securities of
certain issuers set forth in the BHCA. These limitations may be eliminated as
UBS Global AM (Americas) reduces its percentage interest in the Fund through
redemptions.

Portfolio Management

Investment decisions for the Fund are made by an investment management team at
the Advisor. David J. Lettenberger and Nancy C. Barber are the portfolio
managers for the Fund and each of them are jointly and primarily responsible for
the day-to-day management of the Fund's portfolio. The portfolio managers have
access to members of the Mid Cap Growth investment management team, each of whom
has some responsibility for research and security selection. The portfolio
managers also may have access to additional portfolio managers and analysts
within the various asset classes and markets in which the Fund invests.
Information about Mr. Lettenberger and Ms. Barber is provided below.

David J. Lettenberger is Co-Head of the Mid Cap Growth team at UBS Global Asset
Management and a portfolio manager of the Fund since its inception. Mr.
Lettenberger joined UBS Global Asset Management in 2005. From 1999 until 2005,
Mr. Lettenberger was employed with U.S. Bancorp Asset Management. At U.S.
Bancorp Asset Management, Mr. Lettenberger was a Managing Director and Head of
the Mid and Large Cap Growth team.

Nancy C. Barber is Co-Head of the Mid Cap Growth team at UBS Global Asset
Management and a portfolio manager of the Fund since its inception. Ms. Barber
joined UBS Global Asset Management in 2005. From 1998 until 2005, Ms. Barber was
employed with U.S. Bancorp Asset Management. At U.S. Bancorp Asset Management,
Ms. Barber was a Vice President and Equity Portfolio Manager.

The Fund's SAI provides information about the Fund's portfolio managers'
compensation, other accounts managed by the portfolio managers and the portfolio
managers' ownership of Fund shares.

Advisory Fees

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

The Advisor has contractually agreed to waive its fees and/or reimburse certain
expenses so that the total operating expenses of the Fund do not exceed the
amounts listed in the footnote to the Fund's Expense Table. The contractual fee
waiver and/or expense reimbursement agreement will remain in place for the
Fund's fiscal year ending June 30, 2007. Thereafter, the expense limit for the
Fund will be reviewed each year, at which time the continuation of the expense
limit will be discussed by the Advisor and the Board of Trustees. The
contractual fee waiver agreement also provides that the Advisor is entitled to
reimbursement of fees it waived and/or expenses it reimbursed for a period of
three years following such fee waivers and expense

--------------------------------------------------------------------------------
UBS Global Asset Management 18

reimbursements, provided that the reimbursement by the Fund of the Advisor will
not cause the total operating expense ratio to exceed the contractual limit as
then may be in effect for the Fund.

Advisory Fee Breakpoint Schedule
Assets under Management Fee
$0 - $500 million 0.850%
On the next $500 million -
$1 billion 0.800%
Above $1 billion 0.775%

Administrator

UBS Global AM (Americas) is also the administrator of the Fund. The Fund pays
UBS Global AM (Americas) an annual contract rate of 0.075% of its average daily
net assets for administrative services.

Disclosure of Portfolio Holdings

The Fund will generally post on its Web Site at http://www.ubs.com/globalam, the
ten largest stock portfolio holdings of the Fund, and the percentage that each
of these holdings represents of the Fund's total assets, as of the most recent
calendar-quarter end, 14 calendar days after the end of the calendar quarter.
The Fund will file its complete schedule of portfolio holdings with the SEC for
the first and third quarters of each fiscal year on Form N-Q. The Fund's Forms
N-Q are available on the SEC's Web Site at www.sec.gov. The Fund's Forms N-Q may
be reviewed and copied at the SEC's Public Reference Room in Washington, D.C.
Information on the operation of the SEC's Public Reference Room may be obtained
by calling 1-202-551 8090. Additionally, you may obtain copies of Forms N-Q from
the Fund upon request by calling 1-800-647 1568. The Fund's complete schedule of
portfolio holdings for the second and fourth quarters of each fiscal year is
filed with the SEC on Form N-CSR and appears in the semi-annual and annual
reports, respectively, sent to shareholders. The semi-annual and annual reports
for the Fund will be posted on the Fund's Web Site at
http://www.ubs.com/globalam. Please consult the Fund's SAI for a description of
the policies and procedures that govern disclosure of the fund's portfolio
holdings.

Dividends and Distributions

Income dividends are normally declared and paid annually. Capital gains, if any,
are declared and distributed in December. The amount of any distributions will
vary, and there is no guarantee the Fund will pay either income dividends or
capital gain distributions.

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

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

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

Taxes

In general, if you are a taxable investor, Fund distributions are taxable to you
as either ordinary income or capital gains. This is true whether you reinvest
your distributions in additional Fund shares or receive them in cash. Every
January, you will receive a statement that shows the tax status of distributions
you received for the previous year. Distributions declared in December but paid
in January are taxable as if they were paid in December.

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. A portion of

--------------------------------------------------------------------------------
UBS Global Asset Management 19

income dividends designated by the Fund may be qualified dividend income
eligible for taxation by individual shareholders at long-term capital gains
rates, provided certain holding period requirements are met.

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

o provide your correct social security or taxpayer identification number,

o certify that this number is correct,

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

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

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

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

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

--------------------------------------------------------------------------------
UBS Global Asset Management 20

Supplemental Portfolio Manager Performance Information

Because David J. Lettenberger and Nancy C. Barber, the portfolio managers for
the Fund, have managed another mutual fund in a substantially similar manner to
the way that they will manage the Fund, the following supplemental performance
information is being provided to assist prospective investors in making an
informed investment decision. The tables that follow provide performance
information for the Mid Cap Growth Opportunities Fund, a series of First
American Investment Funds, Inc., a registered investment company previously
managed by the portfolio managers with substantially similar investment
objectives, policies and investment strategies as the Fund (the "MCGO Fund").
The return data provided on the next page represents the performance of the MCGO
Fund managed by the portfolio managers at U.S. Bancorp Asset Management, the
firm at which the portfolio managers were previously employed. The return data
of the MCGO Fund has been calculated based on publicly available records. The
portfolio managers had full discretionary authority over the selection of
investments for the MCGO Fund during the time periods presented.

The performance of the MCGO Fund is adjusted to reflect the Fund's Class A
estimated net expenses, which include the effect of contractual fee waivers and
expense reimbursements. The following presentation also shows the performance of
the MCGO Fund adjusted to reflect the Fund's Class A estimated net expenses,
which includes the effect of contractual fee waivers and expense reimbursements
and also reflects the Class A front-end sales charge of 5.50%. The performance
of the Fund's benchmark index, the Russell Midcap Growth Index, not adjusted for
any fees or expenses, is also provided.

Please note that the performance of the MCGO Fund is not the Fund's own
historical performance. The performance of the MCGO Fund should not be
considered a substitute for the Fund's performance, and the MCGO Fund's
performance is not necessarily an indication of the Fund's future performance.

--------------------------------------------------------------------------------
UBS Global Asset Management 21

Adjusted Performance of the MCGO Fund- The performance of the MCGO Fund has been
adjusted to reflect the fees and expenses of the Fund.

All periods ending August 31, 2005

---------------------------------- --------------- --------------- ------------ ---------------
All Periods ending 8/31/05 Net with Net without Gross Russell Midcap
sales load (1) sales load (2) Growth (3)

One Year 24.10% 31.32% 33.18% 26.45%
Five Years N/A N/A N/A N/A
Ten Years N/A N/A N/A N/A
Since inception (6/30/03)(4) 19.30% 22.45% 24.23% 20.02%
---------------------------------- --------------- --------------- ------------ ---------------

Adjusted Calendar Returns Since Inception(4) of the MCGO Fund- The performance
of the MCGO Fund has been adjusted to reflect the fees and expenses of the Fund.

---------------------------------- --------------- --------------- ------------ ---------------
Net with Net without Gross Russell Midcap
sales load (1) sales load (2) Growth (3)

From 7/1/03 to 12/31/03(5) 13.00% 19.57% 20.41% 20.19%
1/1/04 to 12/31/04 14.37% 21.03% 22.76% 15.48%
1/1/05 as of 8/31/05(5) 1.34% 7.23% 8.26% 6.98%
---------------------------------- --------------- --------------- ------------ ---------------

(1) Adjusted to reflect Class A shares' estimated net expenses and the maximum
front-end sales charge.

(2) Adjusted to reflect Class A shares' estimated net expenses but not adjusted
to reflect the maximum front-end sales charge.

(3) The benchmark index is the Russell Midcap Growth Index. The Russell Midcap
Growth Index is an unmanaged index that measures the performance of those
Russell mid cap companies with higher price-to-book ratios and higher forecasted
growth values.

(4) The "since inception" return presents the performance of the MCGO Fund from
the date when the Fund's portfolio managers began managing the MCGO Fund.

(5) Returns for the periods of less than one year have not been annualized.

--------------------------------------------------------------------------------
UBS Global Asset Management 22

Supplemental Advisor Performance Information

Because the Advisor has managed other advisory accounts in a substantially
similar manner to the way in which the Advisor will manage the Fund, the
following supplemental performance information is being provided to assist
prospective investors in making an informed investment decision. The tables on
the next page provide performance information for composites of all applicable
advisory accounts managed by the Advisor with substantially similar investment
objectives, policies and investment strategies as the Fund ("U.S. Mid Cap Growth
Equity Composite"). The U.S. Mid Cap Growth Equity Composite performance was
obtained from the records maintained by the Advisor.

The U.S. Mid Cap Growth Equity Composite performance is adjusted to reflect the
Fund's Class A estimated net expenses, which include the effect of contractual
fee waivers and expense reimbursements. The following presentation also shows
the U.S. Mid Cap Growth Equity Composite performance adjusted to reflect the
Fund's Class A estimated net expenses, which includes the effect of contractual
fee waivers and expense reimbursements and also reflects the Class A front-end
sales charge of 5.50%. The performance of the Fund's benchmark index, the
Russell Midcap Growth Index, not adjusted for any fees or expenses, is also
provided.

Please note that the U.S. Mid Cap Growth Equity Composite performance is not the
Fund's own historical performance. The U.S. Mid Cap Growth Equity Composite
performance should not be considered a substitute for the Fund's performance,
and the U.S. Mid Cap Growth Equity Composite performance is not necessarily an
indication of the Fund's future performance. The accounts included in the U.S.
Mid Cap Growth Equity 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 IRC, which, if applicable, may have adversely affected the performance of
these accounts.

The U.S. Mid Cap Growth Equity Composite performance may be calculated
differently than the method used for calculating Fund performance pursuant to
SEC guidelines. The U.S. Mid Cap Growth Equity Composite is asset weighted by
beginning-of-period asset values. Investment results are time-weighted
performance calculations representing total return. Returns are calculated using
geometric linking of monthly returns. The U.S. Mid Cap Growth Equity Composite
is valued at least monthly, taking into account cash flows. All realized and
unrealized capital gains and losses, as well as all dividends and interest from
investments and cash balances, are included. Interest income from fixed income
securities is accrued, and equity dividends are accrued as of the ex-dividend
date. Investment transactions are accounted for on a trade date basis.

--------------------------------------------------------------------------------
UBS Global Asset Management 23

Composite Performance - U.S. Mid Cap Growth Equity Composite
September 1, 2005 through February 28, 2006

---------------------------------- --------------- --------------- ------------ ---------------
Period ending 02/28/06(1) Net with sales Net without Gross Russell Midcap
load (2) sales load (3) Growth (4)

Since inception (9/1/05) 6.48% 12.67% 13.47% 9.69%
---------------------------------- --------------- --------------- ------------ ---------------

(1) Returns for the periods of less than one year have not been annualized.

(2) Adjusted to reflect Class A shares' estimated net expenses and the maximum
front-end sales charge.

(3) Adjusted to reflect Class A shares' estimated net expenses but not adjusted
to reflect the maximum front-end sales charge.

(4) The benchmark index is the Russell Midcap Growth Index. The Russell Midcap
Growth Index is an unmanaged index that measures the performance of those
Russell mid cap companies with higher price-to-book ratios and higher forecasted
growth values.

--------------------------------------------------------------------------------
UBS Global Asset Management 24

Financial Highlights

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

--------------------------------------------------------------------------------
UBS Global Asset Management 25

Ticker Symbol: Class A: BMDAX [INSERT UBS LOGO]
C: BMDDX
Y: BMDYX

If you want more information about the Fund, the following documents are
available free upon request:

Annual/Semi-Annual Reports

Additional information about the Fund's investments will be available in the
Fund's annual and semiannual reports to shareholders. As of the date of this
prospectus, annual and semi-annual reports are not yet available because the
Fund has not commenced operations.

Statement of Additional Information (SAI)

The SAI provides more detailed information about the Fund and is incorporated by
reference into this prospectus (i.e. it is legally considered a part of this
prospectus).

You may discuss your questions about the Fund by contacting your investment
professional. You may obtain free copies of the Fund's annual and semi-annual
reports and the SAI by contacting the Fund directly at 1-800-647 1568. Because
of limited investor requests for the SAI and the availability of the SAI via a
toll free number, the Advisor has not made the SAI available on its Web Site.

You may review and copy information about the Fund, including shareholder
reports and the SAI, at the Public Reference Room of the U.S. Securities and
Exchange Commission (SEC) in Washington, D.C. You may obtain information about
the operations of the SEC's Public Reference Room by calling the SEC at
1-202-551 8090. You may get copies of reports and other information about the
Fund:

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

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

The UBS Funds

Investment Company Act File No. 811-6637

[INSERT UBS LOGO]

The UBS Funds

UBS U.S. Mid Cap Growth
Equity Fund

Prospectus

March 27, 2006

[INSERT UBS LOGO]

The UBS Funds
UBS U.S. Mid Cap Growth Equity Fund

One North Wacker Drive
Chicago, Illinois 60606

STATEMENT OF ADDITIONAL INFORMATION

Dated March 27, 2006

The UBS U.S. Mid Cap Growth Equity Fund (the "Fund") is a series of The UBS
Funds, an open-end management investment company (the "Trust").

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

This SAI is not a prospectus and should be read only in conjunction with the
Fund's current Prospectus, dated March 27, 2006. A copy of the Prospectus may be
obtained by calling your investment professional or by calling the Trust toll
free at 1-800-647 1568. The Prospectus contains more complete information about
the Fund. You should read it carefully before investing.

Table of Contents

GENERAL INFORMATION ABOUT THE TRUST............................................3
Diversification Status......................................................3
General Definitions.........................................................3
INVESTMENT STRATEGIES..........................................................3
Cash and Cash Equivalents...................................................4
Repurchase Agreements.......................................................4
Reverse Repurchase Agreements...............................................4
Borrowing...................................................................5
Loans of Portfolio Securities...............................................5
Swaps.......................................................................5
Futures.....................................................................6
Options.....................................................................7
Index Options..............................................................10
Special Risks of Options on Indices........................................10
Rule 144A and Illiquid Securities..........................................11
Investment Company Securities and Investments in Affiliated
Investment Companies.....................................................11
Issuer Location............................................................12
Equity Securities..........................................................12
Exchange-Traded Index Securities...........................................12
Eurodollar Securities......................................................13
Foreign Securities.........................................................13

Forward Foreign Currency Contracts.........................................13
Non-Deliverable Forwards...................................................13
Options on Foreign Currencies..............................................14
Short Sales................................................................15
Convertible Securities.....................................................15
When-Issued Securities.....................................................16
Other Investments..........................................................16
SECONDARY RISKS...............................................................16
INVESTMENT RESTRICTIONS.......................................................16
MANAGEMENT OF THE TRUST.......................................................18
Trustees and Officers......................................................18
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES...........................24
INVESTMENT ADVISORY, PRINCIPAL UNDERWRITING AND OTHER SERVICE
ARRANGEMENTS..................................................................25
Advisor....................................................................25
Administrative, Accounting and Custody Services............................27
Principal Underwriting Arrangements........................................27
Transfer Agency Services...................................................29
Independent Registered Public Accounting Firm..............................29
Legal Counsel..............................................................29
Personal Trading Policies..................................................29
Proxy Voting Policies......................................................30
Portfolio Holdings Disclosure Policies And Procedures......................30
Bank Line of Credit........................................................33
PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS..............................33
Portfolio Turnover.........................................................34
SHARES OF BENEFICIAL INTEREST.................................................35
REDUCED SALES CHARGES, ADDITIONAL PURCHASE, EXCHANGE AND
REDEMPTION INFORMATION AND OTHER SERVICES.....................................35
Sales Charge Reductions and Waivers........................................35
Additional Information Regarding Purchases Through Letter
of Intent................................................................36
Automatic Cash Withdrawal Plan--Class A and Class C........................38
Individual Retirement Accounts.............................................38
Transfer of Accounts.......................................................38
Transfer of Securities.....................................................38
NET ASSET VALUE...............................................................39
TAXATION......................................................................39
Additional Information on Distributions and Taxes..........................39
Distributions..............................................................39
Investments in Foreign Securities..........................................40
Redemption of Shares.......................................................41
PERFORMANCE CALCULATIONS......................................................43
FINANCIAL STATEMENTS AND REPORTS OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM........................................................44
APPENDIX A - CORPORATE DEBT RATINGS..........................................A-1
APPENDIX B - SECONDARY RISKS.................................................B-1

GENERAL INFORMATION ABOUT THE TRUST

The Trust currently offers shares of the following seventeen series,
representing separate portfolios of investments: UBS U.S. Bond Fund, UBS High
Yield Fund, UBS U.S. Large Cap Equity Fund, UBS U.S. Large Cap Value Equity
Fund, UBS U.S. Large Cap Growth Fund, UBS U.S. Small Cap Equity Fund, UBS U.S.
Small Cap Growth Fund, UBS U.S. Real Estate Equity Fund, UBS Global Allocation
Fund, UBS Global Equity Fund, UBS Global Bond Fund, UBS Absolute Return Bond
Fund, UBS Dynamic Alpha Fund, UBS International Equity Fund, UBS Emerging
Markets Debt Fund, UBS Emerging Markets Equity Fund and UBS U.S. Mid Cap Growth
Equity Fund. This SAI relates to the UBS U.S. Mid Cap Growth Equity Fund (the
"Fund") only. The Fund currently offers three classes of shares: the Class A
shares, the Class C shares and the Class Y shares. Class A shares have a
front-end sales charge, a contingent deferred sales charge ("CDSC") on purchases
over $1 million and sold within one year of the purchase date, and are subject
to annual 12b-1 plan service fees of 0.25% of average daily net assets. Class C
shares have a CDSC and are subject to annual 12b-1 plan distribution fees of
0.75% of average daily net assets, as well as annual 12b-1 plan service fees of
0.25% of average daily net assets. Class Y shares, which are designed primarily
for institutional investors, have no sales charges and are not subject to annual
12b-1 plan expenses. The Trust is a Delaware statutory trust organized on August
13, 1993.

Diversification Status

The Fund is classified as "diversified" for purposes of the Investment Company
Act of 1940, as amended (the "Act").

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

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

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

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

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

"Fund" or "Series" shall mean the UBS U.S. Mid Cap Growth Equity Fund.

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

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

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

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

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

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

INVESTMENT STRATEGIES

The following discussion of investment techniques and instruments supplements
and should be read in conjunction with the investment objective and policies set
forth in the Fund's Prospectus. The investment

practices described below, except for the discussion of percentage limitations
with respect to portfolio loan transactions and borrowing, are not fundamental
and may be changed by the Board without the approval of the shareholders.

Cash and Cash Equivalents

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

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

Under the terms of an exemptive order issued by the SEC, the Series may invest
cash (i) held for temporary defensive purposes; (ii) not invested pending
investment in securities; (iii) that is set aside to cover an obligation or
commitment of the Series to purchase securities or other assets at a later date;
(iv) to be invested on a strategic management basis (i-iv are herein referred to
as "Uninvested Cash"); and (v) collateral that it receives from the borrowers of
its portfolio securities in connection with the Series' securities lending
program, in a series of shares of UBS Supplementary Trust (the "Supplementary
Trust Series") or a series of shares of UBS Relationship Funds ("Relationship
Funds Cash Series"). UBS Supplementary Trust is a private investment pool which
has retained the Advisor to manage its investments and UBS Relationship Funds is
a registered investment company advised by the Advisor. Certain Trustees of the
Trust also serve as Trustees of the UBS Supplementary Trust and UBS Relationship
Funds. The Supplementary Trust Series and Relationship Funds Cash Series each
invests in US dollar denominated money market instruments having a
dollar-weighted average maturity of 90 days or less, and operates in accordance
with Rule 2a-7 under the Act. The Series' investment of Uninvested Cash in
shares of the Supplementary Trust Series or Relationship Funds Cash Series will
not exceed 25% of the Series' total assets.

Repurchase Agreements

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

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

Reverse Repurchase Agreements

Reverse repurchase agreements involve sales of portfolio securities of the
Series to member banks of the Federal Reserve System or securities dealers
believed creditworthy, concurrently with an agreement by the Series to
repurchase the same securities at a later date at a fixed price which is
generally equal to

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

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

Borrowing

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

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

Loans of Portfolio Securities

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

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

Swaps

The Series may engage in swaps, including but not limited to interest rate,
currency and index swaps and the purchase or sale of related caps, floors,
collars and other derivative instruments. The Series expects to enter into these
transactions to preserve a return or spread on a particular investment or
portion of the portfolio's duration, to protect against any increase in the
price of securities the Series anticipates purchasing at a later date, or to
gain exposure to certain markets in the most economical way possible.

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

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

The use of swaps involves investment techniques and risks different from those
associated with ordinary portfolio security transactions. If the Advisor is
incorrect in its forecast of market values, interest rates and other applicable
factors, the investment performance of the Series will be less favorable than it
would have been if this investment technique was never used. Swaps do not
involve the delivery of securities or other underlying assets or principal, and
are subject to counterparty risk. If the other party to a swap defaults and
fails to consummate the transaction, the Series' risk of loss consists of the
net amount of interest payments that the Series is contractually entitled to
receive. Under Internal Revenue Service rules, any lump sum payment received or
due under the notional principal contract must be amortized over the life of the
contract using the appropriate methodology prescribed by the Internal Revenue
Service.

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

If there is a default by the counterparty to a swap contract, the Series will be
limited to contractual remedies pursuant to the agreements related to the
transaction. There is no assurance that a swap contract counterparty will be
able to meet its obligations pursuant to a swap contract or that, in the event
of a default, the Series will succeed in pursuing contractual remedies. The
Series thus assumes the risk that it may be delayed in or prevented from
obtaining payments owed to it pursuant to a swap contract. However, the amount
at risk is only the net unrealized gain, if any, on the swap, not the entire
notional amount. The Advisor will closely monitor, subject to the oversight of
the Board, the creditworthiness of swap counterparties in order to minimize the
risk of swaps.

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

Futures

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

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

deliver the securities or foreign currency underlying the contract at a
specified price on a specified date during a specified future month.

When the Series enters into a futures transaction, it must deliver to the
futures commission merchant (an "FCM") selected by the Series, an amount
referred to as "initial margin." The initial margin is required to be deposited
in cash or government securities with an FCM. Minimum initial margin
requirements are established by the futures exchange and FCMs may establish
initial margin requirements which are higher than the exchange requirements.
After a futures contract position is opened, the value of the contract is
marked-to-market daily. If a futures contact price changes to the extent that
the margin deposit does not satisfy margin requirements, payment of a "variation
margin" to be held by the FCM, will be required. Conversely, a reduction in the
contract value may reduce the required margin resulting in a repayment of excess
margin to the custodial accounts of the Fund. The Series may also effect futures
transactions through futures commission merchants who are affiliated with the
Advisor or the Series in accordance with procedures adopted by the Board.

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

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

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

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

Options

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

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

Purchasing Call Options--The Series may purchase call options on securities to
the extent that premiums paid by the Series do not aggregate more than 20% of
the Series' total assets. When the Series purchases a call option, in return for
a premium paid by the Series to the writer of the option, the Series obtains the
right to buy the security underlying the option at a specified exercise price at
any time during the term of the option. The writer of the call option, who
receives the premium upon writing the option, has the obligation, upon exercise
of the option, to deliver the underlying security against payment of the
exercise price. The advantage of purchasing call options is that the Series may
alter portfolio characteristics and modify portfolio maturities without
incurring the cost associated with transactions.

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

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

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

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

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

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

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

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

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

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

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

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

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

Series would write a secured put option at an exercise price which, reduced by
the premium received on the option, reflects the lower price it is willing to
pay.

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

Index Options

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

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

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

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

Special Risks of Options on Indices

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

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

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

If a Series holds an index option and exercises it before final determination of
the closing index value for that day, it runs the risk that the level of the
underlying index may change before closing. If such a change causes the
exercised option to fall "out-of-the-money," the Series will be required to pay
the

difference between the closing index value and the exercise price of the option
(times the applicable multiplier) to the assigned writer. Although the Series
may be able to minimize this risk by withholding exercise instructions until
just before the daily cutoff time or by selling rather than exercising the
option when the index level is close to the exercise price, it may not be
possible to eliminate this risk entirely because the cutoff times for index
options may be earlier than those fixed for other types of options and may occur
before definitive closing index values are announced.

Rule 144A and Illiquid Securities

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

The Board has instructed the Advisor to consider the following factors in
determining the liquidity of a security purchased under Rule 144A: (i) the
security can be sold within seven days at approximately the same amount at which
it is valued by the Series; (ii) there is reasonable assurance that the security
will remain marketable throughout the period it is expected to be held by the
Series, taking into account the actual frequency of trades and quotations for
the security (expected frequency in the case of initial offerings); (iii) at
least two dealers make a market in the security; (iv) there are at least three
sources from which a price for the security is readily available; (v) settlement
is made in a "regular way" for the type of security at issue; and (vi) for Rule
144A securities that are also exempt from registration under Section 3(c)(7) of
the Act, there is a sufficient market of "qualified purchasers" (as defined in
the Act) to assure that it will remain marketable throughout the period it is
expected to be held by the Series. Although having delegated the day-to-day
functions, the Board will continue to monitor and periodically review the
Advisor's selection of Rule 144A securities, as well as the Advisor's
determinations as to their liquidity. Investing in securities under Rule 144A
could have the effect of increasing the level of the Series' illiquidity to the
extent that qualified institutional buyers become, for a time, uninterested in
purchasing these securities. After the purchase of a security under Rule 144A,
however, the Board and the Advisor will continue to monitor the liquidity of
that security to ensure that the Series has no more than 15% of its net assets
in illiquid securities.

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

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

Investment Company Securities and Investments in Affiliated Investment Companies

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

The Series may invest in securities issued by other registered investment
companies advised by the Advisor pursuant to exemptive relief granted by the
SEC. The Series will invest in corresponding portfolios of UBS Relationship
Funds to the extent that the Advisor determines that such investments are a more
efficient means for the Series to gain exposure to the asset classes referred to
below than by the Series investing directly in individual securities. In
addition to the portfolios of UBS Relationship Funds described above, the Series
may invest in other portfolios of the UBS Relationship Funds or other affiliated
investment companies to the extent permitted by the exemptive relief granted by
the SEC. Each portfolio of UBS Relationship Funds in which the Series may invest
is permitted to invest in the same securities of a particular asset class in
which the Series is permitted to invest directly, and with similar risks.
Pursuant to undertakings with the SEC, the Series will not be subject to the
imposition of double management or administration fees with respect to its
investments in portfolios of UBS Relationship Funds.

Issuer Location

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

Equity Securities

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

Exchange-Traded Index Securities

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

Eurodollar Securities

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

Foreign Securities

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

Forward Foreign Currency Contracts

The Series may purchase or sell currencies and/or engage in forward foreign
currency transactions in order to expedite settlement of portfolio transactions
and to manage currency risk.

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

The Series will only enter into forward contracts to sell, for a fixed amount of
US dollars or other appropriate currency, an amount of foreign currency, to the
extent that the value of the short forward contract is covered by the underlying
value of securities denominated in the currency being sold. Alternatively, when
the Series enters into a forward contract to sell an amount of foreign currency,
the Series' custodian or sub-custodian will place Segregated Assets in a
segregated account of the Series in an amount not less than the value of the
Series' total assets committed to the consummation of such forward contracts. If
the additional Segregated Assets placed in the segregated account decline,
additional cash or securities will be placed in the account on a daily basis so
that the value of the account will equal the amount of the Series' commitments
with respect to such contracts.

Non-Deliverable Forwards

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

When the Series enters into a non-deliverable forward transaction, the Series'
custodian will place Segregated Assets in a segregated account of the Series in
an amount not less than the value of the

Series' total assets committed to the consummation of such non-deliverable
forward transaction. If the additional Segregated Assets placed in the
segregated account decline in value or the amount of the Series' commitment
increases because of changes in currency rates, additional cash or securities
will be placed in the account on a daily basis so that the value of the account
will equal the amount of the Series' commitments under the non-deliverable
forward agreement.

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

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

Options on Foreign Currencies

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

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

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

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

Similarly, instead of purchasing a call option to hedge against an anticipated
increase in the dollar cost of securities to be acquired, the Series could write
a put option on the relevant currency which, if rates move in the manner
projected, will expire unexercised and allow the Series to hedge such increased
cost up to the amount of the premium. As in the case of other types of options,
however, the writing of a

foreign currency option will constitute only a partial hedge up to the amount of
the premium, and only if rates move in the expected direction. If this does not
occur, the option may be exercised and the Series would be required to purchase
or sell the underlying currency at a loss which may not be offset by the amount
of the premium. Through the writing of options on foreign currencies, the Series
also may be required to forego all or a portion of the benefit which might
otherwise have been obtained from favorable movements in exchange rates.

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

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

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

Short Sales

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

Convertible Securities

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

When-Issued Securities

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

Other Investments

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

SECONDARY RISKS

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

INVESTMENT RESTRICTIONS

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

(i) Purchase the securities of any one issuer (other than the US 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;

(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 to the extent permitted by the Act and
any rule or order thereunder, or SEC staff interpretations thereof;

(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; (c) to the extent the
entry into a repurchase agreement is deemed to be a loan and (d) to affiliated
investment companies to the extent permitted by the Act or any exemptions 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;

(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 US government or any of its agencies); and

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

MANAGEMENT OF THE TRUST

The Trust is a Delaware statutory trust. Under Delaware law, the Board has
overall responsibility for managing the business and affairs of the Trust. Each
Trustee of the Trust is an Independent Trustee because he or she is not
considered an "interested person" of the Trust under the 1940 Act. 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.

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

Walter E. Auch(2) Trustee Since 1994 Mr. Auch is retired (since Mr. Auch is a trustee Mr. Auch is a
6001 N. 62nd Place 1986). of three investment Trustee/Director of
Paradise Valley, AZ companies (consisting Advisors Series Trust
85253 of 53 portfolios) for (16 portfolios);
Age: 84 which UBS Global AM Smith Barney
(Americas) or one of Allocation Series
its affiliates serves Inc. (8 portfolios);
as investment advisor, Smith Barney Multiple
sub-advisor or manager. Discipline Trust (4
portfolios); and
Nicholas Applegate
Institutional Funds
(15 portfolios). Mr.
Auch is also Chairman
of the Board of Sound
Surgical
Technologies, LLC.

Frank K. Reilly(2) Chairman and Since 1993 Mr. Reilly is a Professor Mr. Reilly is a Mr. Reilly is a
Mendoza College of Trustee at the University of Notre director or trustee of Director of Discover
Business Dame since 1982. four investment Bank, Morgan Stanley
University of Notre Dame companies (consisting Trust and FSB.
Notre Dame, IN of 54 portfolios) for
46556-5649 which UBS Global AM
Age: 70 (Americas) or one of
its affiliates serves
as investment advisor,
sub-advisor or manager.

Edward M. Roob(2) Trustee Since 1994 Mr. Roob is retired (since Mr. Roob is a director None.
841 Woodbine Lane 1993). or trustee of four
Northbrook, IL 60002 investment companies
Age: 71 (consisting of 54
portfolios) for which
UBS Global AM
(Americas) or one of
its affiliates serves
as investment advisor,
sub-advisor or manager.

Adela Cepeda(2) Trustee Since 2004 Ms. Cepeda is founder and Ms. Cepeda is a Ms. Cepeda is a
A.C. Advisory, Inc. president of A.C. director or trustee of director of Lincoln
161 No. Clark Street Advisory, Inc. (since four investment National Income Fund,
Suite 4975 1995). companies (consisting Inc. (since 1992) and
Chicago, IL 60601 of 54 portfolios) for MGI Funds (7
Age: 47 which UBS Global AM portfolios) (since
(Americas) or one of 2005). She is also a
its affiliates serves Director of
as investment advisor, Amalgamated Bank of
sub-advisor or manager. Chicago (since 2003).

J. Mikesell Thomas(2) Trustee Since 2004 Mr. Thomas is President Mr. Thomas is a Mr. Thomas is a
Federal Home Loan Bank and CEO of Federal Home director or trustee of director and chairman
of Chicago Loan Bank of Chicago four investment of the Audit
111 East Wacker Drive (since 2004). Mr. Thomas companies (consisting Committee for
Chicago, IL 60601 was an independent of 54 portfolios) for Evanston Northwestern
Age: 55 financial advisor (2001 to which UBS Global AM Healthcare. He is
2004). He was managing (Americas) or one of also a vice president
director of Lazard Freres its affiliates serves of the Board of
& Co. (1995 to 2001). as investment advisor, Trustees for Mid-Day
sub-advisor or manager. Club.
(1) Each Trustee holds office for an indefinite term.

(2) Messrs. Auch, Reilly and Roob are also Independent Trustees of UBS
Supplementary Trust and UBS Private Portfolios, which are both investment
companies advised by UBS Global AM (Americas) and are excluded from
registration under the Act in reliance on the exemptions afforded by
Section 3(c)(7) of the Act. Ms. Cepeda and Mr. Thomas are also Independent
Trustees of UBS Private Portfolios.

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

Joseph J. Allessie* Vice President Since 2005 Mr. Allessie is director and deputy general counsel at UBS Global AM
Age: 40 and Assistant (US) and UBS Global AM (Americas) (collectively, "UBS Global AM -
Secretary Americas region) (since 2005). Prior to joining UBS Global AM-Americas
region, he was senior vice president and general counsel of Kenmar
Advisory Corp. (from 2004 to 2005). Prior to that Mr. Allessie was
general counsel and secretary of GAM USA Inc., GAM Investments, GAM
Services, GAM Funds, Inc. and the GAM Avalon Funds (from 1999 to
2004). Such entities are affiliates of UBS Global AM - Americas
region. Mr. Allessie is a vice president and assistant secretary of 20
investment companies (consisting of 88 portfolios) for which UBS Global
AM - Americas region or one of its affiliates serves as investment
advisor, sub-advisor or manager.

W. Douglas Beck* President Since 2005 Mr. Beck is an executive director and head of product development and
Age: 38 management for UBS Global AM-Americas region (since 2002). From March
1998 to November 2002, he held various positions at Merrill Lynch, the
most recent being first vice president and co-manager of the managed
solutions group. Mr. Beck is president of 20 investment companies
(consisting of 88 portfolios) for which UBS Global AM - Americas region
or one of its affiliates serves as investment advisor, sub-advisor or
manager, and was vice president of such investment companies from 2003
to 2005.

Rose Ann Bubloski* Vice President Since 2004 Ms. Bubloski is an associate director and a senior manager of the
Age: 37 and Assistant mutual fund finance department of UBS Global AM-Americas region.
Treasurer Ms. Bubloski is vice president and assistant treasurer of four
investment companies (consisting of 54 portfolios) for which UBS Global
AM - Americas region or one of its affiliates serves as investment
advisor, sub-advisor or manager.

Thomas Disbrow* Vice President Since 2000 and Mr. Disbrow is a director, head of retail mutual fund operations and
Age: 40 and Assistant 2004, co-head of the mutual fund finance department of UBS Global AM-Americas
Treasurer respectively region. Mr. Disbrow is vice president and treasurer of 16 investment
companies (consisting of 34 portfolios) and vice president and
assistant treasurer of four investment companies (consisting of 54
portfolios) for which UBS Global AM - Americas region or one of its
affiliates serves as investment advisor, sub-advisor or manager.

Mark F. Kemper** Vice President Since 1999 and Mr. Kemper is general counsel of UBS Global AM-Americas region (since
Age: 48 and Secretary 2004, July 2004). Mr. Kemper is also a managing director of UBS Global
respectively AM-Americas region. He was deputy general counsel of UBS Global AM
(Americas) from July 2001 to July 2004. He has been secretary of UBS
Global AM - Americas region since 1999 and assistant secretary of UBS
Global Asset Management Trust Company since 1993. Mr. Kemper is
secretary of UBS Global AM - Americas region (since 2004). Mr. Kemper
is vice president and secretary of 20 investment companies (consisting
of 88 portfolios) for which UBS Global AM - Americas region or one of
its affiliates serves as investment advisor, sub-advisor or manager.

Tammie Lee* Vice President Since 2005 Ms. Lee is a director and associate general counsel of UBS Global
Age: 35 and Assistant AM-Americas region (since November 2005). Prior to joining UBS Global
Secretary AM-Americas region, she was vice president and counsel at Deutsche
Asset Management/Scudder Investments from April 2003 to October 2005.
Prior to that she was assistant vice president and counsel at Deutsche
Asset Management/Scudder Investments from July 2000 to March 2003.
Prior to joining Deutsche Asset Management/Scudder Investments, she was
assistant counsel at First Investors Corporation from August 1996 to
June 2000. Ms. Lee is a vice president and assistant secretary of
20 investment companies (consisting of 88 portfolios) for which UBS
Global AM - Americas region or one of its affiliates serves as
investment advisor, sub-advisor or manager.

Joseph T. Malone* Vice President, Since 2004 Mr. Malone is a director and co-head of the mutual fund finance
Age: 38 Treasurer and department of UBS Global AM-Americas region. From August 2000 through
Principal June 2001, he was controller at AEA Investors Inc. Mr. Malone is the
Accounting vice president and assistant treasurer of 16 investment companies
Officer (consisting of 34 portfolios) and vice president, treasurer and
principal accounting officer of four investment companies (consisting
of 54 portfolios) for which UBS Global AM - Americas region or one of
its affiliates serves as investment advisor, sub-advisor or manager.

Joseph McGill* Vice President Since 2004 Mr. McGill is managing director and chief compliance officer at UBS
Age: 43 and Chief Global AM-Americas region (since 2003). Prior to joining UBS Global
Compliance AM-Americas region, he was assistant general counsel at J.P. Morgan
Officer Investment Management (from 1999 to 2003). Mr. McGill is a vice
president and chief compliance officer of 20 investment companies
(consisting of 88 portfolios) for which UBS Global AM - Americas region
or one of its affiliates serves as investment advisor, sub-advisor or
manager.

Eric Sanders* Vice President Since 2005 Mr. Sanders is a director and associate general counsel of UBS Global
Age: 40 and Assistant AM-Americas Region (since July 2005). From 1996 until June 2005, he
Secretary held various positions at Fred Alger & Company, Incorporated, the most
recent being assistant vice president and associate general counsel.
Mr. Sanders is a vice president and assistant secretary of 20
investment companies (consisting of 88 portfolios) for which UBS Global
AM - Americas region or one of its affiliates serves as investment
advisor, sub-advisor or manager.

Keith A. Weller* Vice President Since 2004 Mr. Weller is an executive director and senior associate general
Age: 44 and Assistant counsel of UBS Global AM-Americas region. Mr. Weller is a vice
Secretary president and assistant secretary of 20 investment companies
(consisting of 88 portfolios) for which UBS Global AM - Americas region
or one of its affiliates serves as investment advisor, sub-advisor or
manager.
____________________
+ Officers of the Trust are appointed by the Trustees and serve at the
pleasure of the Board.
* This person's business address is 51 West 52nd Street, New York, NY
10019-6114.
** This person's business address is One North Wacker Drive, Chicago, IL
60606.

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

As of December 31, 2005, the Independent Trustees did not own any securities
issued by UBS Global AM (US) or any company controlling, controlled by or under
common control with UBS Global AM (US).

INFORMATION ABOUT TRUSTEE OWNERSHIP OF FUND SHARES

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

Walter E. Auch None $50,001 - $100,000

Frank K. Reilly None over $100,000

Edward M. Roob None over $100,000

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

J. Mikesell Thomas None None

+ Information regarding ownership is as of December 31, 2005.

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

COMPENSATION TABLE

Trustees

Pension or Total
Annual Retirement Compensation
Aggregate Benefits Accrued From the Trust and
Compensation As Part of Fund Fund Complex
Name and Position Held From the Trust(1) Expenses Paid to Trustees(2)

Walter E. Auch, Trustee $23,469 N/A $65,050
Frank K. Reilly, Trustee $22,310 N/A $64,500
Edward M. Roob, Trustee $22,310 N/A $64,500
Adela Cepeda, Trustee $23,678 N/A $63,050
J. Mikesell Thomas, Trustee $24,177 N/A $65,050

(1) Represents aggregate annual compensation paid by the Trust to each Trustee
indicated for the fiscal year ended June 30, 2005.

(2) This amount represents the aggregate amount of compensation paid to the
Trustees for service on the Board of Directors/Trustees of three (with
regard to Mr. Auch, Ms. Cepeda and Mr. Thomas) and four (with regard to
Messrs. Reilly and Roob) other investment companies managed by UBS Global
AM (Americas) or an affiliate for the fiscal year ended June 30, 2005.

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.

Each Independent Trustee receives, in the aggregate from the UBS Global AM
family of funds, an annual retainer of $40,000 for serving as a Board member, a
$5,000 retainer for serving as an Audit Committee member, and a $5,000 retainer
for serving as a Nominating, Compensation and Governance Committee member. In
addition, the chairman of the Board, for serving as chairman of the Board, and
the chairman of the Audit Committee, for serving as chairman of the Audit
Committee, receive, in the aggregate from the UBS Global AM family of funds, an
annual retainer of $10,000 and $5,000, respectively. The foregoing fees will be
allocated among all such funds as follows: (i) one-half of the expense will be
allocated pro rata based on the funds' relative net assets at the end of the
calendar quarter preceding the date of payment; and (ii) one-half of the expense
will be allocated equally according to the number of such funds (i.e., expenses
divided by number of funds). Each Independent

Trustee will receive $300 per Fund for each regular Board meeting (and each
in-person special meeting) actually attended from the Trust. In addition, each
Independent Trustee will receive $200 and $100, respectively, for each Audit
Committee meeting and Nominating Committee meeting actually attended from the
Trust. The Trust reimburses each Trustee and officer for out-of-pocket expenses
in connection with travel and attendance at Board meetings.

Each Trustee sits on the Trust's Audit Committee, which has the responsibility,
among other things, to: (i) select, oversee and set the compensation of the
Trust's independent registered public accounting firm; (ii) oversee the Trust's
accounting and financial reporting policies and practices, its internal controls
and, as appropriate, the internal controls of certain service providers; (iii)
oversee the quality and objectivity of the Fund's financial statements and the
independent audit(s) thereof; and (iv) act as a liaison between the Trust's
independent registered public accounting firm and the full Board. The Audit
Committee met four times during the fiscal year ended June 30, 2005.

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

The Nominating Committee will consider nominees recommended by Qualifying Fund
Shareholders if an Independent Trustee vacancy on the Board occurs. A Qualifying
Fund Shareholder is a shareholder that: (i) owns of record, or beneficially
through a financial intermediary,1/2of 1% or more of the Trust's outstanding
shares and (ii) has been a shareholder of at least1/2of 1% of the Trust's total
outstanding shares for 12 months or more prior to submitting the recommendation
to the Nominating Committee. In order to recommend a nominee, a Qualifying Fund
Shareholder should send a letter to the chairperson of the Nominating Committee,
Mr. Walter Auch, care of the Secretary of the Trust at UBS Global Asset
Management, One North Wacker Drive, Chicago, Illinois 60606 and indicate on the
envelope "Nominating Committee." The Qualifying Fund Shareholder's letter should
include: (i) the name and address of the Qualifying Fund Shareholder making the
recommendation; (ii) the number of shares of each class and series of shares of
the Trust which are owned of record and beneficially by such Qualifying Fund
Shareholder and the length of time that such shares have been so owned by the
Qualifying Fund Shareholder; (iii) a description of all arrangements and
understandings between such Qualifying Fund Shareholder and any other person or
persons (naming such person or persons) pursuant to which the recommendation is
being made; (iv) the name and address of the nominee; and (v) the nominee's
resume or curriculum vitae. The Qualifying Fund Shareholder's letter must be
accompanied by a written consent of the individual to stand for election if
nominated for the Board and to serve if elected by shareholders.

The Nominating, Compensation and Governance Committee met twice during the
fiscal year ended June 30, 2005.

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

CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES

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

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

INVESTMENT ADVISORY, PRINCIPAL UNDERWRITING AND OTHER SERVICE ARRANGEMENTS

Advisor

UBS Global Asset Management (Americas) Inc. manages the assets of the Fund
pursuant to its investment advisory agreement with the Fund (the "Agreement").
The Advisor is an investment management firm managing approximately $66.1
billion, as of December 31, 2005, primarily for institutional pension and profit
sharing funds. The Advisor is an indirect, wholly owned subsidiary of UBS AG
("UBS") and a member of the UBS Global Asset Management Division, which had
approximately $581.5 billion in assets under management as of December 31, 2005.

The Advisor also serves as the investment advisor or sub-advisor to twenty-two
other investment companies: The Park Avenue Portfolio - The Guardian UBS Large
Cap Value Fund, The Park Avenue Portfolio - The Guardian UBS Small Cap Value
Fund, The Guardian Variable Contracts Fund, Inc. - The Guardian UBS VC Large Cap
Value Fund, The Guardian Variable Contracts Fund, Inc. - The Guardian UBS VC
Small Cap Value Fund, John Hancock Trust - Global Allocation Trust, John Hancock
Trust - Large Cap Trust, John Hancock Funds II - Large Cap Fund, J.P. Morgan
Fleming Series Trust - JPMorgan Multi-Manager Small Cap Growth Fund, Principal
Investors Fund, Inc. - Partners SmallCap Growth Fund II, Principal Investors
Fund, Inc. - Partners LargeCap Value Fund I, Principal Variable Contracts Fund,
Inc. - SmallCap Growth Account, AXP Strategy Series Inc. - RiverSource Small Cap
Growth Fund, Lincoln Variable Insurance Products Trust - Global Asset Allocation
Fund, ING UBS U.S. Allocation Portfolio, ING UBS U.S. Large Cap Equity
Portfolio, BB&T International Equity Fund, TA IDEX UBS Large Cap Value, AXA
Enterprise Growth and Income Fund, EQ/UBS Growth and Income Portfolio, UBS
Relationship Funds, Fort Dearborn Income Securities, Inc. and SMA Relationship
Trust.

Pursuant to its Agreement with the Trust, on behalf of the Fund, the Advisor
will receive from the Fund for providing investment advisory services a monthly
fee at an annual rate according to the following fee schedule: 0.850% on the
first $500 million of assets under management; 0.800% on the next $500 million
to $1 billion of assets under management; and 0.775% above $1 billion of assets
under management. The Advisor is responsible for paying its expenses. The Fund
will pay the following expenses: (1) the fees and expenses of the Trust's
disinterested Trustees; (2) the salaries and expenses of any of the Trust's
officers or employees who are not affiliated with the Advisor; (3) interest
expenses; (4) taxes and governmental fees; (5) brokerage commissions and other
expenses incurred in acquiring or disposing of portfolio securities; (6) the
expenses of registering and qualifying shares for sale with the SEC and with
various state securities commissions; (7) auditing and legal costs; (8)
insurance premiums; (9) fees and expenses of the Trust's custodian,
administrator and transfer agent and any related services; (10) expenses of
obtaining quotations of the Fund's portfolio securities and of pricing the
Fund's shares; (11) expenses of maintaining the Trust's legal existence and of
shareholders' meetings; (12) expenses of preparation and distribution to
existing shareholders of reports, proxies and prospectuses; and (13) fees and
expenses of membership in industry organizations.

The Fund is subject to a one-year contractual expense limit at the rate of 1.45%
for Class A shares, 2.20% for Class C shares and 1.20% for Class Y shares of the
Fund's average daily net assets, excluding any 12b-1 Plan fees. The contractual
fee waiver and/or expense reimbursement agreement will remain in place until
June 30, 2007. Thereafter, the expense limit for the Fund will be reviewed each
year, at which time the continuation of the expense limit will be considered by
the Advisor and the Board of Trustees. The contractual fee waiver agreement also
provides that the Advisor is entitled to reimbursement of fees it waived and/or
expenses it reimbursed for a period of three years following such fee waivers
and expense reimbursements, provided that the reimbursement by the Fund of the
Advisor will not cause the total operating expense ratio to exceed the
contractual limit as then may be in effect for the Fund.

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

Portfolio Managers. UBS Global AM (Americas)'s investment professionals are
organized into investment management teams, with a particular team dedicated to
a specific asset class. Certain members of the Mid Cap Growth team are
responsible for the day-to-day management of the Fund. David J. Lettenberger and
Nancy C. Barber coordinate the team's management of the Fund's portfolio (the
"Portfolio Managers").

The following table provides information relating to other accounts managed by
the Portfolio Managers listed above as of December 31, 2005:

Other Pooled
Registered Investment
Investment Companies Vehicles Other Accounts
David J. Lettenberger
Number of Accounts Managed None None 9
Number of Accounts Managed with Performance-Based
Advisory Fees None None None
Assets Managed None None $120,230,151
Assets Managed with Performance-Based Advisory Fees None None None

Nancy C. Barber
Number of Accounts Managed None None 2
Number of Accounts Managed with Performance-Based
Advisory Fees None None None
Assets Managed None None $118,938,506
Assets Managed with Performance-Based Advisory Fees None None None

The portfolio management team's management of the Fund and other accounts could
result in potential conflicts of interest if the Fund and other accounts have
different objectives, benchmarks and fees because the portfolio management team
must allocate its time and investment expertise across multiple accounts,
including the Fund. The Portfolio Managers and their team manage the Fund and
other accounts utilizing a model portfolio approach that groups similar accounts
within a model portfolio. The Advisor manages accounts according to the
appropriate model portfolio, including where possible, those accounts that have
specific investment restrictions. Accordingly, portfolio holdings, position
sizes, and industry and sector exposures tend to be similar across accounts,
which may minimize the potential for conflicts of interest.

If a portfolio manager identifies a limited investment opportunity that may be
suitable for more than one account or model portfolio, the Fund may not be able
to take full advantage of that opportunity due to an allocation of filled
purchase or sale orders across all eligible model portfolios and accounts. To
deal with these situations, the Advisor has adopted procedures for allocating
portfolio trades across multiple accounts to provide fair treatment to all
accounts.

The management of personal accounts by a portfolio manager may also give rise to
potential conflicts of interest. The Advisor and the Trust have adopted Codes of
Ethics that govern such personal trading but there is no assurance that the
Codes will adequately address all such conflicts.

The compensation received by the portfolio managers at UBS Global AM (Americas),
including Mr. Lettenberger and Ms. Barber, includes a base salary and incentive
compensation as detailed below. UBS Global Asset Management's compensation and
benefits programs are designed to provide its investment professionals with
incentives to excel, and to promote an entrepreneurial, performance-oriented
culture. They also align the interests of the investment professionals with the
interests of UBS Global Asset Management's clients. Overall compensation can be
grouped into three categories:

o Competitive salary, benchmarked to maintain competitive compensation
opportunities.
o Annual bonus, tied to individual contributions and investment performance.
o UBS equity awards, promoting company-wide success and employee retention.

Base salary is fixed compensation used to recognize the experience, skills and
knowledge that the investment professionals bring to their roles. Salary levels
are monitored and adjusted periodically in order to remain competitive within
the investment management industry.

Annual bonuses are correlated with performance. As such, annual incentives can
be highly variable, and are based on three components: 1) the firm's overall
business success; 2) the performance of the respective asset class and/or
investment mandate; and 3) an individual's specific contribution to the firm's

results. UBS Global Asset Management strongly believes that tying bonuses to
both long-term (3-year) and shorter-term (1-year) portfolio pre-tax performance
closely aligns the investment professionals' interests with those of UBS Global
Asset Management's clients. Each portfolio manager's bonus is based on the
performance of each Fund the portfolio manager manages as compared to the Fund's
broad-based index over a three-year rolling period.

UBS AG Equity. Senior investment professionals may receive a portion of their
annual performance-based incentive in the form of deferred or restricted UBS AG
shares or employee stock options. UBS Global Asset Management believes that this
reinforces the critical importance of creating long-term business value and also
serves as an effective retention tool as the equity shares typically vest over a
number of years.

Broader equity share ownership is encouraged for all employees through "Equity
Plus." This long-term incentive program gives employees the opportunity to
purchase UBS stock with after-tax funds from their bonus or salary. Two UBS
stock options are given for each share acquired and held for two years. UBS
Global Asset Management feels this engages its employees as partners in the
firm's success, and helps to maximize its integrated business strategy.

As of the date of this SAI, the Portfolio Managers identified above owned no
shares of the Fund because the Fund has not yet been publicly offered.

Administrative, Accounting and Custody Services

Administrative and Accounting Services. UBS Global AM (Americas), with its
principal office located at One North Wacker Drive, Chicago, Illinois 60606,
serves as the Fund's administrator. The Administrator is an indirect wholly
owned asset management subsidiary of UBS.

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

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

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

Principal Underwriting Arrangements

UBS Global AM (US) (the "Underwriter"), with its principal office located at 51
West 52nd Street, New York, New York 10019-6114, acts as the principal
underwriter of each class of shares of the Fund pursuant to a Principal
Underwriting Contract with the Trust. The Principal Underwriting Contract
requires the Underwriter to use its best efforts, consistent with its other
businesses, to sell shares of the Fund. Shares of the Fund are offered
continuously. The Underwriter enters into dealer agreements with other
broker-dealers (affiliated and non-affiliated) and with other financial
institutions to authorize them to sell Fund shares.

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

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

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

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

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

UBS Global AM (US) may also make cash and non-cash payments to banks,
broker-dealers, insurance companies, financial planning firms and other
financial intermediaries (collectively, "Financial Intermediaries"), subject to
UBS Global AM (US)'s internal policies and procedures. UBS Global AM (US)
provides Financial Intermediaries with sales literature and advertising
materials relating to the registered investment companies advised by UBS Global
AM (US). UBS Global AM (US) also shares expenses with Financial Intermediaries
for costs incurred in hosting seminars for employees and clients of Financial
Intermediaries, subject to UBS Global AM (US)'s internal policies and procedures
governing payments for such seminars. These seminars may take place at UBS
Global AM (US)'s headquarters or other appropriate locations and may include
reimbursement of travel expenses (i.e., transportation, lodging and meals) of
employees of Financial Intermediaries in connection with training and education
seminars. Subject to UBS Global AM (US)'s internal policies and procedures, UBS
Global AM (US) may provide any or all of the following to employees of Financial
Intermediaries and their guest(s): (i) an occasional meal, a sporting event or
theater ticket or other comparable entertainment; (ii) gifts of less than $100
per person per year; and/or (iii) UBS Global AM (US)'s promotional items of
nominal value (golf balls, shirts, etc.). In addition, Financial Intermediaries
may have omnibus accounts and similar arrangements with UBS Global AM (US) and
may be paid by UBS Global AM (US) for providing sub-transfer agency and other
services. Such expenses paid by UBS Global AM (US) are included in the annual
operating expenses set forth in the Fund's prospectuses.

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

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

"interested 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
Fund's shares to such class based on the ratio of sales of shares of such class
to the sales of all three classes of shares. The fees paid by one class of the
Fund's shares will not be used to subsidize the sale of any other class of the
Fund's shares.

In approving the Class A Plan and the Class C Plan, the Board considered all the
features of the distribution system and the anticipated benefits to the Fund and
its shareholders. With regard to each Plan, the Board considered (1) the
advantages to the shareholders of economies of scale resulting from growth in
the Fund's assets and potential continued growth, (2) the services provided to
the Fund and its 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 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 Fund which fees would increase if the Plans were successful
and the Fund attained and maintained significant asset levels.

Transfer Agency Services

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

Independent Registered Public Accounting Firm

Ernst & Young LLP, New York, New York, is the independent registered public
accounting firm of the Fund.

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 and the Underwriter have adopted a Code of Ethics. The
Code of Ethics establishes standards by which employees of UBS Global Asset
Management (including all employees of the Advisor and Underwriter) (together,
"Covered Persons") must abide when engaging in personal securities trading
conduct.

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

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

transaction by the Trustee, such security was purchased or sold by the Fund, or
was being considered for purchase or sale by the Fund.

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

Proxy Voting Policies

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

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

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

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

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

Portfolio Holdings Disclosure Policies and Procedures

Introduction. UBS Global AM (Americas) and the Trust's Board of Trustees have
adopted portfolio holdings disclosure policies and procedures to govern the
disclosure of the portfolio holdings of the Fund. The Trust's policy with
respect to the release of portfolio holdings is to only release such information
consistent with applicable legal requirements and the fiduciary duties owed to
shareholders. Subject to the limited exceptions described below, the Trust will
not make available to anyone outside of UBS Global Asset Management non-public
information with respect to its portfolio holdings, until such time as the
information is made available to all shareholders or the general public. A
description of the type and frequency of portfolio holdings that are disclosed
to the public is contained in the Fund's Prospectus.

The portfolio holdings disclosure policies and procedures require that the UBS
Global AM (Americas) Legal and Compliance Departments address any material
conflicts of interest regarding a disclosure of portfolio holdings and determine
whether a disclosure of the Fund's portfolio holdings is for a legitimate
business purpose and in the best interest of the Fund's shareholders prior to an
officer of the Trust or an attorney in the UBS Global AM (Americas) Legal
Department authorizing the disclosure of portfolio holdings. The UBS Global AM
(Americas) Legal and Compliance Departments will periodically review how the
Fund's portfolio

holdings are being disclosed to and used by, if at all, service providers, UBS
Global AM (Americas) affiliates, fiduciaries, and broker-dealers to ensure that
such use is for legitimate business reasons and in the best interests of the
Fund's shareholders.

The Trust's Board of Trustees exercises continuing oversight of the disclosure
of Fund portfolio holdings by: (i) overseeing the implementation and enforcement
of the portfolio holdings disclosure policies and procedures, the Trust's code
of ethics and policies and procedures regarding the misuse of inside information
by the chief compliance officer of the Trust; (ii) considering reports and
recommendations by the chief compliance officer concerning any material
compliance matters (as defined in Rule 38a-1 under the Act and Rule 206(4)-7
under the Investment Advisers Act of 1940) that may arise in connection with any
portfolio holdings governing policies; and (iii) considering whether to approve
or ratify any amendment to any portfolio holdings governing policies. UBS Global
AM (Americas) and the Board reserve the right to amend the Trust's policies and
procedures regarding the disclosure of portfolio holdings of the Fund at any
time and from time to time without prior notice in their sole discretion.

Disclosure of Complete Portfolio Holdings to Service Providers Subject to
Confidentiality and Trading Restrictions. UBS Global AM (Americas), for
legitimate business purposes, may disclose Fund complete portfolio holdings at
times it deems necessary and appropriate to rating and ranking organizations,
financial printers, proxy voting service providers, pricing information vendors,
third-parties that deliver analytical, statistical or consulting services and
other third parties that provide services (collectively, "Service Providers") to
UBS Global Asset Management and/or the Fund.

Disclosure of complete portfolio holdings to a Service Provider is conditioned
on the Service Provider being subject to a duty of confidentiality, including a
duty not to trade on the basis of any material nonpublic information, pursuant
to the terms of the service agreement between the Service Provider and the Trust
or UBS Global AM (Americas), or the terms of a separate confidentiality
agreement. The frequency with which complete portfolio holdings may be disclosed
to a Service Provider, and the length of lag, if any, between the date of
information and the date on which the information is disclosed to the Service
Provider, is determined based on the facts and circumstances, including, without
limitation, the nature of the portfolio holdings information to be disclosed,
the risk of harm to the Fund and its shareholders, and the legitimate business
purposes served by such disclosure. Disclosure of Fund complete portfolio
holdings to a Service Provider must be authorized by an officer of the Trust or
by an attorney in the UBS Global Asset Management Legal Department.

Disclosure of Complete Portfolio Holdings to UBS Global Asset Management
Affiliates and Certain Fiduciaries Subject to Confidentiality and Trading
Restrictions. Fund complete portfolio holdings may be disclosed between and
among the following persons (collectively, "Affiliates and Fiduciaries") for
legitimate business purposes within the scope of their official duties and
responsibilities, subject to such persons' continuing duty of confidentiality
and duty not to trade on the basis of any material nonpublic information, as
such duties are imposed under the Trust's and/or UBS Global Asset Management's
code of ethics, the Trust's policies and procedures regarding the prevention of
the misuse of inside information, by agreement or under applicable laws, rules
and regulations: (i) persons who are subject to the codes of ethics or the
policies and procedures regarding the prevention of the misuse of inside
information; (ii) an investment adviser, distributor, administrator, transfer
agent or custodian to the Fund; (iii) an accounting firm, an auditing firm or
outside legal counsel retained by UBS Global Asset Management or the Trust; (iv)
an investment adviser to whom complete portfolio holdings are disclosed for due
diligence purposes when the adviser is in merger or acquisition talks with the
Fund's current adviser; and (v) a newly hired investment adviser or sub-adviser
to whom complete portfolio holdings are disclosed prior to the time it commences
its duties.

The frequency with which complete portfolio holdings may be disclosed between
and among Affiliates and Fiduciaries, and the length of the lag, if any, between
the date of the information and the date on which the information is disclosed
between and among the Affiliates and Fiduciaries, is determined by such
Affiliates and Fiduciaries based on the facts and circumstances, including,
without limitation, the nature of the portfolio holdings information to be
disclosed, and the risk of harm to the Fund and its shareholders, and the
legitimate business purposes served by such disclosure.

Arrangements to Disclose Portfolio Holdings to Service Providers and
Fiduciaries. As of the date of this SAI, the specific Service Providers and
Fiduciaries with whom the Trust has arrangements to provide portfolio holdings
in advance of their release to the general public in the course of performing or
to enable them to perform services for the Fund are:

o JP Morgan Chase Bank, the Fund's Custodian, receives portfolio holdings
information daily on a real-time basis.

o Thomson Corporation receives portfolio holdings information so that it may
assist the Fund in production of its quarterly fact sheet on a quarterly
basis. The portfolio holdings information is provided with a one-day lag
between the date of the portfolio holdings information and the date on
which the information is disclosed to Thomson Corporation.

o Ernst & Young LLP, the Fund's independent registered public accounting
firm, receives portfolio holdings information on an annual and semiannual
basis for reporting purposes. There is a 30-day lag between the date of
portfolio holdings information and the date on which the information is
disclosed to Ernst & Young. Ernst & Young also receives portfolio holdings
information once a year at a month-end for annual audit purposes. In this
case, there is no lag between the date of the portfolio holdings
information and the date on which the information is disclosed to Ernst &
Young.

o The rating agencies of Morningstar, Standard & Poor's and Lipper receive
portfolio holdings information on a monthly basis so that the Fund may be
included in each rating agency's industry reports and other materials.
There is a 30-day lag between the date of the portfolio holdings
information and the date on which the information is disclosed to the
rating agencies.

Disclosure of Portfolio Holdings to Broker-Dealers in the Normal Course of
Managing Fund Assets. An investment adviser, administrator or custodian for the
Fund may, for legitimate business purposes within the scope of their official
duties and responsibilities, disclose portfolio holdings (whether partial
portfolio holdings or complete portfolio holdings) and other investment
positions comprising the Fund to one or more broker-dealers during the course
of, or in connection with, normal day-to-day securities and derivatives
transactions with or through such broker-dealers subject to the broker-dealer's
legal obligation not to use or disclose material nonpublic information
concerning the Fund's portfolio holdings, other investment positions, securities
transactions or derivatives transactions without the consent of the Fund or its
agents. The Fund has not given its consent to any such use or disclosure and no
person or agent of UBS Global AM (Americas) is authorized to give such consent
except as approved by the Trust's Board of Trustees. In the event consent is
given to disclose portfolio holdings to a broker-dealer, the frequency with
which the portfolio holdings may be disclosed to a broker-dealer, and the length
of the lag, if any, between the date of the information and the date on which
the information is disclosed to the broker-dealer, is determined based on the
facts and circumstances, including, without limitation, the nature of the
portfolio holdings information to be disclosed, and the risk of harm to the Fund
and its shareholders, and the legitimate business purposes served by such
disclosure.

Disclosure of Non-Material Information. Policies and procedures regarding
non-material information permit the officers of the Trust, UBS Global Asset
Management Fund portfolio managers and senior officers of UBS Global AM
(Americas) Finance, Compliance and Legal Departments (collectively, "Approved
Representatives") to disclose any views, opinions, judgments, advice or
commentary, or any analytical, statistical, performance or other information, in
connection with or relating to the Fund or its portfolio holdings and/or other
investment positions (collectively, commentary and analysis) or any changes in
the portfolio holdings of the Fund that occurred after the most recent
calendar-quarter end (recent portfolio changes) to any person if such
information does not constitute material nonpublic information.

An Approved Representative must make a good faith determination whether the
information constitutes material nonpublic information, which involves an
assessment of the particular facts and circumstances. UBS Global AM (Americas)
believes that in most cases recent portfolio changes that involve a few or even
several securities in a diversified portfolio or commentary and analysis would
be immaterial and would not convey any advantage to a recipient in making an
investment decision concerning the Fund. Nonexclusive examples of commentary and
analysis about the Fund include: (i) the allocation of the Fund's portfolio
holdings and other investment positions among various asset classes, sectors,
industries and countries; (ii) the characteristics of the stock and bond
components of the Fund's portfolio holdings and other investment positions;
(iii) the attribution of Fund returns by asset class, sector, industry and
country; and (iv) the volatility

characteristics of the Fund. An Approved Representative may in its sole
discretion determine whether to deny any request for information made by any
person, and may do so for any reason or no reason.

Approved Representatives include persons employed by or associated with UBS
Global AM (Americas) who have been authorized by the UBS Global AM (Americas)'s
Legal Department to disclose recent portfolio changes and/or commentary and
analysis in accordance with the applicable policies and procedures.

Disclosure of Portfolio Holdings As Required by Applicable Law. Fund portfolio
holdings and other investment positions comprising a Fund shall be disclosed to
any person as required by applicable laws, rules and regulations. Examples of
such required disclosure include, but are not limited to, disclosure of Fund
portfolio holdings: (i) in a filing or submission with the SEC or another
regulatory body; (ii) in connection with seeking recovery on defaulted bonds in
a federal bankruptcy case; (iii) in connection with a lawsuit; or (iv) as
required by court order.

Prohibitions on Disclosure of Portfolio Holdings. No person is authorized to
disclose Fund portfolio holdings or other investment positions (whether online
at www.ubs.com, in writing, by fax, by e-mail, orally or by other means) except
in accordance with the applicable policies and procedures. In addition, no
person is authorized to make disclosure pursuant to these policies and
procedures if such disclosure is otherwise unlawful under the antifraud
provisions of the federal securities laws (as defined in Rule 38a-1 under the
Act). Furthermore, UBS Global AM (Americas), in its sole discretion, may
determine not to disclose portfolio holdings or other investment positions
comprising the Fund to any person who could otherwise be eligible to receive
such information under the applicable policies and procedures, or may determine
to make such disclosures publicly as provided by the policies and procedures.

Prohibitions on Receipt of Compensation or Other Consideration. The portfolio
holdings disclosure policies and procedures prohibit the Fund, its investment
adviser and any other person to pay or receive any compensation or other
consideration of any type for the purpose of obtaining disclosure of Fund
portfolio holdings or other investment positions. "Consideration" includes any
agreement to maintain assets in the Fund or in other investment companies or
accounts managed by the investment adviser or by any affiliated person of the
investment adviser.

Bank Line of Credit

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

PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS

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

The primary consideration in all portfolio transactions will be prompt execution
of orders in an efficient manner at the most favorable price. However, subject
to policies established by the Board of the Trust, the Fund may pay a
broker-dealer a commission for effecting a portfolio transaction for the Fund in
excess of the amount of commission another broker-dealer would have charged if
the Advisor determines in good faith that the commission paid was reasonable in
relation to the brokerage or research services provided by such broker-dealer,
viewed in terms of that particular transaction or such firm's overall
responsibilities with

respect to the clients, including the Fund, as to which the Advisor exercises
investment discretion. In selecting and monitoring broker-dealers and
negotiating commissions, the Advisor considers the firm's reliability, the
quality of its execution services on a continuing basis and its financial
condition. When more than one firm is believed to meet these criteria,
preference may be given to brokers who provide research or statistical material
or other services to the Fund or to the Advisor. Such services include advice,
both directly and in writing, as to the value of the securities; the
advisability of investing in, purchasing or selling securities; and the
availability of securities, or purchasers or sellers of securities, as well as
analyses and reports concerning issues, industries, securities, economic factors
and trends, portfolio strategy and the performance of accounts. This allows the
Advisor to supplement its own investment research activities and obtain the
views and information of others prior to making investment decisions. The
Advisor is of the opinion that, because this material must be analyzed and
reviewed by its staff, the receipt and use of such material does not tend to
reduce expenses but may benefit the Fund by supplementing the Advisor's
research.

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

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

The Fund maintains a commission recapture program with certain brokers for the
Fund. Under the program, a percentage of commissions generated by portfolio
transactions for the Fund is rebated to the Fund by the brokers.

Portfolio Turnover

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

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

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

SHARES OF BENEFICIAL INTEREST

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

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

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

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

Sales Charge Reductions and Waivers

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

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

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

o Acquire shares in connection with shares purchased by UBS Global AM (US) 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 and C Shareholders," below.

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

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

Payments by UBS Global AM (US)--Class Y Shares. Class Y shares are sold without
sales charges and do not pay ongoing 12b-1 distribution or service fees.
However, UBS Global AM (US), as principal underwriter of the Fund, may make
payments out of its own resources, to affiliated (UBS Financial Services Inc.)
and unaffiliated dealers, pursuant to written dealer agreements as follows: a
one time finder's fee consistent with the Fund's Class A share Reallowance to
Selected Dealers' schedule, as provided in the prospectus, and, beginning in
month 13, an ongoing fee in an amount up to 20 basis points. UBS Global AM (US)
does not make these payments on employee related Class Y share accounts and
reserves the right not to make these payments if it determines, in its sole
discretion, that a dealer has been acting to the detriment of the Fund.

Additional Compensation to Affiliated Dealer. UBS Global AM (US) pays its
affiliate, UBS Financial Services Inc., the following additional compensation in
connection with the sale of Fund shares:

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

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

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

Additional Information Regarding Purchases Through Letter of Intent

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

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

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

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

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

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

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

Automatic Investment Plan--Class A and Class C Shares. The Underwriter or your
investment professional offers an automatic investment plan with a minimum
initial investment of $1,000 through which the Fund will deduct $50 or more on a
monthly, quarterly, semi-annual or annual basis from the investor's bank account
to invest directly in the Fund's Class A 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 and Class C

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

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

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 during
the first year under the plan. Shareholders who elect to receive dividends or
other distributions in cash may not participate in the plan.

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

Individual Retirement Accounts

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

Transfer of Accounts

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

Transfer of Securities

At the discretion of the Trust, investors may be permitted to purchase Fund
shares by transferring securities to the Fund that meet the Fund's investment
objective and policies. Securities transferred to the Fund will be valued in
accordance with the same procedures used to determine the Fund's net asset value
at the time of the next determination of net asset value after such acceptance.
Shares issued by the Fund in exchange for securities will be issued at net asset
value per share of the Fund determined as of the same time. All dividends,
interest, subscription, or other rights pertaining to such securities shall
become the property of the Fund and must be delivered to the Fund by the
investor upon receipt from the issuer. Investors who are permitted to transfer
such securities will be required to recognize a gain or

loss on such transfer and pay tax thereon, if applicable, measured by the
difference between the fair market value of the securities and the investors'
basis therein. Securities will not be accepted in exchange for shares of the
Fund unless: (1) such securities are, at the time of the exchange, eligible to
be included in the Fund's portfolio and current market quotations are readily
available for such securities; (2) the investor represents and warrants that all
securities offered to be exchanged are not subject to any restrictions upon
their sale by the Fund under the 1933 Act, or under the laws of the country in
which the principal market for such securities exists, or otherwise; and (3) the
value of any such security (except US 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.

NET ASSET VALUE

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

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

TAXATION

Additional Information on Distributions and Taxes

Distributions

Distributions of Net Investment Income. The Fund receives income generally in
the form of dividends and interest on its investments. This income, less
expenses incurred in the operation of the Fund, constitutes the Fund's net
investment income from which income dividends may be paid to you. The Fund
calculates income dividends and capital gains distributions the same way for
each class. The amount of any income dividends per share will differ, however,
generally due to any differences in the distribution and service (Rule 12b-1)
fees applicable to the classes. If you are a taxable investor, any income
dividends the Fund pays are taxable to you as ordinary income, except that, a
portion of the income dividends designated by the Fund will be qualified
dividend income eligible for taxation by individual shareholders at long-term
capital gain rates.

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

Investments in Foreign Securities.

The next four paragraphs describe tax considerations that are applicable to the
Fund's investments in foreign securities.

Effect of Foreign Withholding Taxes. The Fund may be subject to foreign
withholding taxes on income from certain foreign securities. This, in turn,
could reduce the Fund's income dividends paid to you.

Pass-Through of Foreign Tax Credits. If more than 50% of the Fund's total assets
at the end of a fiscal year is invested in foreign securities, the Fund may
elect to pass through to you your pro rata share of 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 US federal income tax (subject to
limitations for certain shareholders). The Fund will provide you with the
information necessary to complete your personal income tax return if it makes
this election.

You should also be aware that use of foreign dividends, designated by the Fund
as dividends from qualifying foreign corporations and subject to reduced rates
of taxation on qualified dividend income, may reduce the otherwise available
foreign tax credits on your federal income tax return. Shareholders in these
circumstances should talk with their personal tax advisors about their foreign
tax credits and the procedures that they should follow to claim these credits on
their personal income tax returns.

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

PFIC Securities. The Fund may invest in securities of foreign entities that
could be deemed for tax purposes to be passive foreign investment companies
(PFICs). When investing in PFIC securities, the Fund intends to 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. You should also be aware
that the designation of a foreign security as a PFIC security will cause its
income dividends to fall outside of the definition of qualified foreign
corporation dividends. These dividends generally will not qualify for the
reduced rate of taxation on qualified dividends when distributed to you by the
Fund.

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

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

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

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

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

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

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

Redemption of Shares

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

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

Special Rule for Class A and C Shareholders. A special tax rule applies when a
shareholder sells or exchanges shares of the Fund within 90 days of purchase and
subsequently acquires 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
shares would be increased, or any loss would be decreased, by the amount of the
sales charge paid when those shares were bought, and that amount would increase
the basis in the Fund or Family Fund shares subsequently acquired.

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

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

Qualified Dividend Income for Individuals. For individual shareholders, it is
anticipated that a portion of the income dividends paid by the Fund will be
qualified dividend income eligible for taxation at long-term capital gain rates.
This reduced rate of taxation generally is available for dividends paid by the
Fund out of income earned on its investment in:

o domestic corporations, and

o qualified foreign corporations, including:

- corporations incorporated in a possession of the US,

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

- corporations whose stock is traded on domestic securities exchange.

Dividends from corporations exempt from tax, dividends from passive foreign
investment companies (PFICs), and dividends paid from interest earned by the
Fund on debt securities generally will not qualify for this favorable tax
treatment.

Both the Fund and the investor must meet certain holding period requirements to
qualify Fund dividends for this treatment. Specifically, the Fund must hold the
stock for at least 61 days during the 121-day period beginning 60 days before
the stock becomes ex-dividend. Similarly, investors must hold their Fund shares
for at least 61 days during the 121-day period beginning 60 days before the Fund
distribution goes ex-dividend. The ex-dividend date is the first date following
the declaration of a dividend on which the

purchaser of stock is not entitled to receive the dividend payment. When
counting the number of days you held your Fund shares, include the day you sold
your shares but not the day you acquired these shares.

While the income received in the form of a qualified dividend is taxed at the
same rates as long-term capital gains, such income will not be considered as a
long-term capital gain for other federal income tax purposes. For example, you
will not be allowed to offset your long-term capital losses against qualified
dividend income on your federal income tax return. Any qualified dividend income
that you elect to be taxed at these reduced rates also cannot be used as
investment income in determining your allowable investment interest expense. For
other limitations on the amount of or use of qualified dividend income on your
income tax return, please contact your personal tax advisor.

After the close of its fiscal year, the Fund will designate the portion of its
ordinary dividend income that meets the definition of qualified dividend income
taxable at reduced rates. If 95% or more of the Fund's income is from qualified
sources, it will be allowed to designate 100% of its ordinary income
distributions as qualified dividend income. This designation rule may have the
effect of converting small amounts of ordinary income or net short-term capital
gains, that otherwise would be taxable as ordinary income, into qualified
dividend income eligible for taxation at reduced rates.

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

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

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

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

Tax Straddles. The Fund's investment in options, futures, forwards, or foreign
currency contracts (or in substantially similar or related property) in
connection with certain hedging transactions could cause it to hold offsetting
positions in securities. If the Fund's risk of loss with respect to specific
securities in its portfolio is substantially diminished by the fact that it
holds other securities, the Fund could be deemed to have entered into a tax
"straddle" or to hold a "successor position" that would require any loss
realized by it to be deferred for tax purposes.

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

Short Sales and Securities Lending Transactions. The Fund's entry into a short
sale transaction or an option or other contract could be treated as the
"constructive sale" of an "appreciated financial position," causing it to
realize gain, but not loss, on the position. Additionally, the Fund's entry into
securities lending transactions may cause the replacement income earned on the
loaned securities to fall outside of the

definition of qualified dividend income. This replacement income generally will
not be eligible for reduced rates of taxation on qualified dividend income.

Non-US Shareholders. Non-US investors may be subject to US withholding or estate
tax, and are subject to special US tax certification requirements.

The United States imposes a flat 30% withholding tax (or lower treaty rate) on
US source dividends. Capital gain dividends paid by a Fund from long-term
capital gains are generally exempt from withholding. The American Jobs Creation
Act of 2004 also exempts from withholding dividends paid by a Fund from interest
income and short-term capital gains to the extent such income would be exempt if
earned directly by the non-US shareholder. Thus, capital gain dividends paid by
a Fund from either long-term or short-term capital gains (other than gain
realized on disposition of US real property interests) are not subject to US
withholding tax unless the gain is effectively connected with the conduct of a
trade or business in the United States or you are a nonresident alien individual
present in the United States for a period or periods aggregating 183 days or
more during the taxable year.

Similarly, interest-related dividends paid by a Fund from qualified interest
income are not subject to US withholding tax. "Qualified interest income"
includes, in general, (1) bank deposit interest, (2) short-term original
discount and (3) interest (including original issue discount, market discount,
or acquisition discount) on an obligation which is in registered form, unless it
is earned on an obligation issued by a corporation or partnership in which the
Fund is a 10-percent shareholder or is contingent interest, and (4) any
interest-related dividend from another RIC.

The exemption from withholding for short-term capital gain dividends and
interest-related dividends paid by a Fund is effective for dividends paid with
respect to taxable years of the Fund beginning after December 31, 2004 and
before January 1, 2008.

The American Jobs Creation Act of 2004 also provides a partial exemption from
U.S estate tax for stock in a Fund held by the estate of a nonresident decedent.
The amount treated as exempt is based upon the proportion of the assets held by
the Fund at the end of the quarter immediately preceding the decedent's death
that are debt obligations, deposits, or other property that would generally be
treated as situated outside the United States if held directly by the estate.
This provision applies to decedents dying after December 31, 2004 and before
January 1, 2008.

Special US tax certification requirements apply to non-US Shareholders both to
avoid US back up withholding imposed at a rate of 28% and to obtain the benefits
of any treaty between the United States and the shareholder's country of
residence. In general, a non-US shareholder must provide a Form W-8 BEN (or
other Form W-8 if applicable) to establish that you are not a US person, to
claim that you are the beneficial owner of the income and, if applicable, to
claim a reduced rate of, or exemption from, withholding as a resident of a
country with which the United States has an income tax treaty. A Form W-8BEN
provided without a US taxpayer identification number will remain in effect for a
period beginning on the date signed and ending on the last day of the third
succeeding calendar year unless an earlier change of circumstances makes the
information on the form incorrect.

You should consult your tax advisor about the federal, state, local or foreign
tax consequences of an investment in a Fund.

PERFORMANCE CALCULATIONS

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

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

The principal value of an investment in the Fund will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. Any fees charged by banks or other institutional investors directly to
their customer accounts in connection with investments in shares of the Fund
will not be included in the Fund's calculations of yield or total return.

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

FINANCIAL STATEMENTS AND REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM

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

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

A-1

circumstances are more likely to lead to a weakened capacity to pay principal
and interest for bonds in this category than for bonds in the A category.

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

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

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

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

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

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

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

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

A-2

APPENDIX B - SECONDARY RISKS

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

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

B-1

[UBS LOGO]
(This page has been left blank intentionally.)