-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GDVHOtNjCPRSwPuyCzSXWiFuZcgVveBCrJbmCRJcg/Ecv7svifvuFR5mvcwJgEML bq/vW5RPDj3mbdlIbjo3+g== 0001386893-08-000031.txt : 20080702 0001386893-08-000031.hdr.sgml : 20080702 20080702150112 ACCESSION NUMBER: 0001386893-08-000031 CONFORMED SUBMISSION TYPE: 485APOS PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 20080702 DATE AS OF CHANGE: 20080702 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UBS FUNDS CENTRAL INDEX KEY: 0000886244 IRS NUMBER: 367056204 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 485APOS SEC ACT: 1933 Act SEC FILE NUMBER: 033-47287 FILM NUMBER: 08933541 BUSINESS ADDRESS: STREET 1: 209 S LASALLE ST CITY: CHICAGO STATE: IL ZIP: 60604-1795 BUSINESS PHONE: 8001482430 MAIL ADDRESS: STREET 1: 209 S LASALLE ST CITY: CHICAGO STATE: IL ZIP: 60604-1795 FORMER COMPANY: FORMER CONFORMED NAME: BRINSON FUNDS INC DATE OF NAME CHANGE: 19920929 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UBS FUNDS CENTRAL INDEX KEY: 0000886244 IRS NUMBER: 367056204 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 485APOS SEC ACT: 1940 Act SEC FILE NUMBER: 811-06637 FILM NUMBER: 08933542 BUSINESS ADDRESS: STREET 1: 209 S LASALLE ST CITY: CHICAGO STATE: IL ZIP: 60604-1795 BUSINESS PHONE: 8001482430 MAIL ADDRESS: STREET 1: 209 S LASALLE ST CITY: CHICAGO STATE: IL ZIP: 60604-1795 FORMER COMPANY: FORMER CONFORMED NAME: BRINSON FUNDS INC DATE OF NAME CHANGE: 19920929

0000886244

S000023402 UBS Tax Free Short-Intermediate Bond Fund

C000068610 A

C000068611 C

C000068612 Y

485APOS 1 sai.htm

As filed with the U.S. Securities and Exchange Commission on July 2, 2008
File No. 033-47287 File No. 811-06637

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. __ [ ]
Post-Effective Amendment No. 58 [X]

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 59

(Check appropriate box or boxes.)

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

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

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

Mark F. Kemper
UBS Global Asset Management (US) Inc.
51 West 52nd Street
New York, NY 10019-6114
(Name and Address of Agent for Service)

Please send copies of all communications to:

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

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

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

If appropriate, check the following box:

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

This Post-Effective Amendment relates only to the UBS Tax Free
Short-Intermediate Bond Fund. No other information relating to any other series
of the Registrant is amended or superseded hereby.

[INSERT UBS LOGO]

Subject to completion July 2, 2008
The UBS Funds
UBS Tax Free Short-Intermediate Bond Fund
Prospectus

[_____________ ___], 2008

This prospectus offers Class A, Class C and Class Y shares in the UBS Tax Free
Short-Intermediate Bond 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.

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

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

Contents

The UBS Funds
What every investor should know about the Fund

Investment objective, strategies, securities selection and risks.....Page [___]
Performance..........................................................Page [___]
Expenses and fee tables..............................................Page [___]

Your investment
Information for managing your Fund account

Managing your Fund account...........................................Page [___]
- - Flexible pricing
- - Buying shares
- - Selling shares
- - Exchanging shares
- - Pricing and valuation

Additional information
Additional important information about the Fund

Management...........................................................Page [___]

Disclosure of portfolio holdings.....................................Page [___]

Dividends and taxes..................................................Page [___]

Financial highlights.................................................Page [___]

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

Please find the UBS Funds' privacy notice on page [___] of this prospectus

The Fund is not a complete or balanced investment program.

UBS Tax Free Short-Intermediate Bond Fund
- --------------------------------------------------------------------------------
Investment objective, strategies, securities selection and risks

Fund objective
The Fund seeks current income exempt from regular federal income tax, consistent
with preservation of capital. The Fund's investment objective is
non-fundamental, which means that it may be changed without shareholder
approval.

Principal investment strategies
Under normal market conditions, the Fund will invest at least 80% of its net
assets (plus borrowings for investment purposes, if any) in bonds that pay
income exempt from federal income tax, including the federal alternative minimum
tax. These are bonds and similar securities issued by or on behalf of the
states, territories and possessions of the United States (including the District
of Columbia) and their political subdivisions, agencies and instrumentalities
that are exempt from federal income tax (i.e., excludable from gross income for
individual income tax purposes but not necessarily exempt from state or local
taxes). The Fund is a non-diversified fund.

The Fund's investments in bonds may include, but are not limited to, general
obligation and revenue municipal bonds, tax-exempt commercial paper, short-term
municipal notes, tender option bonds, floating and variable rate obligations and
other municipal securities that pay income exempt from federal income tax. The
Fund may also invest in insured and uninsured municipal securities. Under normal
circumstances, the Fund will maintain a dollar-weighted average maturity of more
than two years, but less than five years, although it may invest in securities
of any maturity or duration.

The Fund normally invests at least 85% of its net assets in bonds rated, at the
time of purchase, A- or above by Standard & Poor's Ratings Group ("S&P"), or A3
or above by Moody's Investors Service, Inc. ("Moody's"), or an equivalent rating
from another nationally recognized statistical rating agencies ("NRSRO"), or
unrated securities that are deemed to be of equivalent quality by UBS Global
Asset Management (Americas) Inc., the Fund's investment advisor ("UBS Global AM
(Americas)" or the "Advisor"). The Fund may also invest up to 15% of its net
assets in bonds rated, at the time of purchase, below A-/A3 but above BBB-/Baa3
by S&P or Moody's respectively, or an equivalent rating from another NRSRO. If,
after purchase, the credit rating on a security is downgraded or the credit
quality deteriorates, the Advisor will determine in its sole discretion, whether
the security should be held or sold.

The Fund may, but is not required to, use derivative instruments ("Derivatives")
to help manage its portfolio duration and market exposures. Generally,
Derivatives are financial contracts whose value depends upon, or is derived
from, the value of an underlying asset or reference rate, and may relate to
stocks, bonds and interest rates. Examples of Derivatives include interest rate
futures contracts, swaps (including, but not limited to interest rate, total
return and credit default swaps), treasury futures, structured notes and
interest rate lock transactions.

Securities selection
The Advisor employs a disciplined investment process implementing three key
decisions: duration/ yield curve positioning (i.e., interest rate forecasting
and maturity allocation), sector allocation and security selection. Duration
decisions are derived through monitoring five key economic variables: monetary
policy, level of economic activity, inflation, real estate rates and market
psychology. The Advisor's sector allocation strategy examines relative value by
analyzing historical valuations, current fundamentals, and future trends through
in-depth research. Once the relationships between these sectors have been
established, the final decision of security selection is made by portfolio
managers with substantial input from the UBS Global AM (Americas) team, which
constantly monitors the municipal investment objective, strategies, securities
selection and risks market. This disciplined process looks to maximize returns
for each given level of risk. All decisions are supported by four vital types of
research: economic, quantitative, credit and market.

When market conditions warrant, the Fund may make substantial temporary
defensive investments in cash or money market instruments that pay taxable
interest. Since these investments provide relatively low income that is taxable,
a defensive position may not be consistent with achieving the Fund's investment
objective. However, the Fund also may invest in money market instruments that
pay tax-exempt interest as part of its ordinary investment strategy.

The Advisor actively manages the Fund. As such, the Fund may have high portfolio
turnover, which 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:

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

o Credit risk-- The risk that a municipal bond issuer may default or
otherwise be unable to honor a financial obligation, or may become less
willing or less able to do so. Municipal bonds with lower ratings may have
increased risks of default.

o Credit risk of insured municipal bonds-- Some municipal bonds are "insured
bonds," which means that a private insurer guarantees payment even if the
issuer of the bond defaults. Insured bonds are subject to credit risks
relating to both the issuer and the insurer, because if the market believes
that either of them has become less able to make payments, the value of the
municipal bond may decline. With respect to insured bonds, an event
involving a specific insurer could have a significant adverse effect on the
value of the bond insured by that insurance company and on the municipal
market as a whole. There is no assurance that insurers will meet their
claims. Bond insurance does not protect against interest rate or other
non-credit risks.

o Prepayment or call risk-- The risk that issuers will prepay municipal bond
obligations when interest rates fall, forcing the Fund to reinvest in
obligations with lower interest rates than the original obligations.
Municipal bonds subject to call provisions also may not benefit fully from
the rise in value that generally occurs for bonds when interest rates fall.

o Political risk-- The risk that the municipal bond market may be
significantly affected by political changes, including legislation or
proposals at either the state or the federal level to eliminate or limit
the tax-exempt status of a municipal bond fund's interest or the tax-exempt
status of a municipal bond fund's dividends. Similarly, reductions in tax
rates may make municipal bonds less attractive in comparison to taxable
bonds or other types of investments. Legislatures also may fail to
appropriate funds needed to pay municipal bond obligations. These events
could cause the value of the Fund's investments in municipal bonds to fall
and might adversely affect the tax-exempt status of the Fund's investments
or of the dividends that the Fund pays. During periods of uncertainty, the
prices of municipal securities may become volatile.

o Tax liability risk-- The risk of non-compliant conduct by a municipal bond
issuer, resulting in distributions by the Fund being taxable to
shareholders as ordinary income.

o Related securities concentration risk-- The risk that, because the Fund may
invest more than 25% of its net assets in municipal bonds that are issued
to finance similar projects, economic, business or political developments
or changes that affect one municipal bond also may affect other municipal
bonds in the same sector. As a result, the Fund is subject to greater risk
than funds that do not follow this practice.

o 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.

o Derivatives risk-- Derivatives involve risks different from, and possibly
greater than, the risks associated with investing directly in securities
and other instruments. Derivatives require investment techniques and risk
analyses different from those of other investments. If the Advisor
incorrectly forecasts the value of securities, interest rates, or other
economic factors in using derivatives, the Fund might have been in a better
position if the Fund had not entered into the Derivatives. While some
strategies involving Derivatives can protect against the risk of loss, the
use of Derivatives can also reduce the opportunity for gain or even result
in losses by offsetting favorable price movements in other Fund
investments. Derivatives also involve the risk of mispricing or improper
valuation, the risk that changes in the value of a Derivative may not
correlate perfectly with the underlying asset, rate, index, or overall
securities markets, and counterparty and credit risk (the risk that the
other party to a swap agreement or other derivative will not fulfill its
contractual obligations, whether because of bankruptcy or other default).
Gains or losses involving some options, futures, and other Derivatives may
be substantial (for example, for some Derivatives, it is possible for the
Fund to lose more than the amount the Fund invested in the Derivatives).
Some Derivatives tend to be more volatile than other investments, resulting
in larger gains or losses in response to market changes. Derivatives are
subject to a number of other risks, including liquidity risk (the possible
lack of a secondary market for Derivatives and the resulting inability of
the Fund to sell or otherwise close out the Derivatives) and interest rate
risk (some Derivatives are more sensitive to interest rate changes and
market price fluctuations). Finally, the Fund's use of Derivatives may
cause the Fund to realize higher amounts of short-term capital gains
(generally taxed at ordinary income tax rates) than if the Fund had not
used such instruments.

o Non-diversification risk-- The risk that the Fund will be more volatile
than a diversified fund because the Fund invests its assets in a smaller
number of issuers. The gains and losses on a single security may,
therefore, have a greater impact on the Fund's net asset value. In
addition, a fund that invests in a relatively small number of issuers is
more susceptible to risks associated with a single economic, political or
regulatory occurrence than a more diversified fund might be.

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.

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.

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)(1)

Class A Class C Class Y

Maximum front-end sales charge (load) imposed on
purchases (as a % of offering price)............ 2.50% None None
Maximum contingent deferred sales charge (load)
(CDSC) (as a % of purchase or sales price,
whichever is less) ............................. None(2) 0.35% None
Exchange fee.................................... None None None
Redemption fee (as a percentage of amount
redeemed within 15 days of purchase, if
applicable)(3).................................. 1.00% 1.00% 1.00%

Annual Fund operating expenses (expenses that are deducted from Fund assets)(4)

Class A Class C Class Y

Management fees................................. 0.25% 0.25% 0.25%
Distribution and/or service (12b-1) fees........ 0.15% 0.35% None
Other expenses(5)............................... 0.48% 0.48% 0.48%

Total annual Fund operating expenses............ 0.88% 1.08% 0.73%

Less management fee waiver/expense reimbursements 0.23% 0.23% 0.23%

Net expenses(6)................................. 0.65% 0.85% 0.50%

(1) Securities dealers or other financial institutions, including UBS Financial
Services Inc., may charge a fee to process a purchase or redemption of
shares. UBS Financial Services Inc. currently charges a fee of $5.25 for
such transactions.

(2) Purchases of $250,000 or more that were not subject to a front-end sales
charge are subject to a 0.35% CDSC if sold within one-year of the purchase
date.

(3) Please see the section entitled "Redemption fees" for additional
information concerning the applicability of the redemption fee.

(4) The fees and expenses are based on estimates.

(5) "Other Expenses" include, among other expenses, an administrative fee of
0.075% paid by the Fund to UBS Global AM (Americas). "Other Expenses" also
include the Fund's proportionate share of the fees and expenses of other
investment companies that the Fund indirectly pays as a result of its
investment in the investment companies, which is estimated to be less than
0.01% of the average net assets of the Fund.

(6) 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 (excluding
expenses incurred through investment in other investment companies and
interest expense) to the extent necessary so that the Fund's operating
expenses (excluding expenses incurred through investment in other
investment companies and interest expense), through the fiscal year ending
June 30, 2009, do not exceed 0.65% for Class A shares, 0.85% for Class C
shares and 0.50% 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.

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, except as
described below.* Although your actual costs may be higher or lower, based on
these assumptions, your costs would be:

1 year 3 years

Class A....................................................... $315 $501
Class C (assuming sale of all shares at end of period)........ $122 $321
Class C (assuming no sale of shares).......................... $87 $321
Class Y....................................................... $51 $210

* The costs described in the example reflect the "Net expenses" of the Fund
that would result from the contractual fee waiver and expense reimbursement
agreement with the Advisor for the first year only and the costs for the 3
years reflect the "Total annual fund operating expenses" without any fee
waiver and/or expense reimbursement. If the fee waiver and expense
reimbursement continues in effect beyond this year, your costs would be
expected to be lower than the amounts shown above under the 3 years
estimates.

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" later in this
prospectus. 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
0.15% 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.............. 2.50% 2.56% 2.00%
$50,000 to $99,999............. 2.00 2.04 1.75
$100,000 to $249,999........... 1.00 1.01 0.90
$250,000 and over (1).......... None None 0.35

(1) A contingent deferred sales charge of 0.35% 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 0.35% 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.

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.

Class C shares
Class C shares pay an annual 12b-1 distribution fee of 0.10% 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 0.35%, 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
0.35% 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 charges 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").

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, Class P and/or
Class 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, Class P and/or
Class Y shares, as well as those Class A, Class B, Class C, Class P and/or Class
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, Class P and/or Class 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, Class P and/or Class 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 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, which 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.

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

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
previously, 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 [__]) and beginning in month 13, an ongoing fee in an amount
up to 15 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 one time finder's fee is calculated on the
date of purchase and may be paid in four equal installments over the first 12
months of ownership. UBS Global AM (US) reserves the right to suspend these
payments at any time in its sole discretion.

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;

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 AM (Americas), UBS Global AM (US) or Adam
Street Partners 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 later in this
prospectus; 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 Sub-designee. These Authorized
Dealers may charge the investor a transaction fee or other fee for their
services at the time of purchase. These fees would not be otherwise charged if
you purchased shares directly from the 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.; and

o a monthly retention fee at the annual rate of 0.075% of the value of
the Fund's shares 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. Market timing also may materially
increase the Fund's transaction costs, administrative costs or taxes. These
factors may hurt the Fund's performance and its shareholders.

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 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) may 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 provide underlying account detail.
If UBS Global AM (Americas) identifies market timing activity, it will instruct
the Financial Intermediary to block the customer or participant from further
purchases of Fund shares. In the event that the Financial Intermediary cannot
identify and block the customer or participant, UBS Global AM (Americas) will
require the Financial Intermediary to block the particular plan from further
purchases of Fund shares. UBS Global AM (Americas) also will periodically
request underlying account detail for omnibus accounts for review and analysis.

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.

When it is determined that a Financial Intermediary's frequent trading policies
and procedures sufficiently protect Fund shareholders, the Fund and UBS Global
AM (Americas) may rely on the Financial Intermediary's frequent trading policies
and procedures with respect to transactions by shareholders investing through
the Financial Intermediary rather than applying the Fund's market timing
prevention procedures. The determination to rely on a Financial Intermediary's
frequent trading policies and procedures will be made after a review of the
policies and procedures by the Legal and Compliance Departments of UBS Global AM
(Americas). The Chief Compliance Officer of UBS Global AM (Americas) will
determine whether the policies and procedures sufficiently protect Fund
shareholders. The types of Financial Intermediaries that may have frequent
trading policies and procedures on which the Fund and UBS Global AM (Americas)
may rely may include broker-dealers, advisers, clearing firms, bank trust
departments, retirement plan administrators, other record keepers and certain
wrap fee program/platforms. In such cases, a Financial Intermediary through
which a shareholder may own Fund shares may impose frequent trading restrictions
that differ from those of the Fund. If you have purchased shares through a
Financial Intermediary as described above, you should contact your Financial
Intermediary to determine the frequent trading restrictions that apply to your
account.

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, redemptions by wrap fee accounts that have an automatic
rebalancing feature and that have been identified to the Fund's principal
underwriter and transfer agent, certain non-participant directed transactions in
retirement plans and purchases and redemptions by UBS funds of funds.

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 later in this prospectus.

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.

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.

Redemption fee
If you sell or exchange any class of shares of the Fund less than 15 days after
you purchased them, a redemption fee of 1.00% of the amount sold or exchanged
will be deducted at the time of the transaction, except as noted below. This
amount will be paid to the Fund, not to the Advisor or UBS Global AM (US). The
redemption fee is designed to offset the costs associated with fluctuations in
Fund asset levels and cash flow caused by short-term shareholder trading. Shares
held the longest will be redeemed first for purposes of calculating the
redemption fee. The redemption fee will not apply to shares of the Fund that:

o are held in certain omnibus accounts of certain Financial
Intermediaries, such as broker-dealers or qualified retirement plans
including 401(k), 403(b) or 457 plans or plans administered as college
savings programs under Section 529 of the IRC, if those institutions
have not implemented the system changes necessary to be capable of
processing the redemption fee. However, account holders whose
investments in the Fund are held in omnibus accounts through certain
other Financial Intermediaries may be subject to the redemption fee on
terms that are generally in accordance with the redemption fee terms
as described in this prospectus but that may differ in certain
details. For certain retirement plans treated as omnibus accounts by
the Fund's transfer agent or principal underwriter, the redemption fee
will be waived on non-participant initiated exchanges or redemptions;

o are sold or exchanged under automatic withdrawal plans;

o are held by investors in certain asset allocation programs that offer
automatic rebalancing or wrap-fee or similar fee-based programs and
that have been identified to the Fund's principal underwriter and
transfer agent, except to the extent that transactions in those
programs are shareholder initiated;

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

o UBS Global AM (Americas), in its sole discretion, deems reasonable, in
light of the circumstances.

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 but shareholders may be subject to a redemption fee as noted
above. Also, you may have to pay a deferred sales charge if you later sell the
shares you acquired in the exchange. The 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 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.

Transfer of account limitations
If you hold your shares with UBS Financial Services, Inc. or another securities
firm, please note that if you change securities firms, you may not be able to
transfer your Fund shares to an account at the new securities firm. Fund shares
may only be transferred to an account held with a securities dealer or financial
intermediary that has entered into an agreement with the Fund's principal
underwriter. If you cannot transfer your shares to another firm, you may choose
to hold the shares directly in your own name with the Fund's transfer agent,
PFPC Inc. Please contact your broker or financial advisor, for information on
how to transfer your shares to the Fund's transfer agent. If you transfer your
shares to the Fund's transfer agent, the Fund's principal underwriter may be
named as the dealer of record and you will receive ongoing account statements
from PFPC Inc.

Should you decide to sell your shares of the Fund in lieu of transfer, you will
pay a redemption fee or a CDSC if those fees are applicable. Should you have any
questions regarding the portability of your Fund shares, please contact your
broker or financial advisor.

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 and redemption
fees) 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 holdings. The Fund normally obtains market values for its securities
and other instruments from independent pricing services that use reported last
sales prices, or the price obtained is unreliable, current market quotations or,
if market prices are not readily available, valuations from computerized
"matrix" systems that derive values based on comparable securities or
instruments. If a market value is not available from an independent pricing
source for a particular security or instrument, that security or instrument 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
short-term obligations 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 holdings. The types of
securities and other instruments for which such fair value pricing may be
necessary include, but are not limited to: foreign securities and instruments
under some circumstances; securities of an issuer that has entered into a
restructuring; securities or instruments 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 or instruments that are
restricted as to transfer or resale. The need to fair value the Fund's portfolio
securities and other instruments may also result from low trading volume in
foreign markets or thinly traded domestic securities or instruments, 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 holdings based on current market
value, as discussed previously. 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 or other
instruments being valued at a price different from the price that would have
been determined had the matrix or formula method not been used. Securities and
other instruments also may be valued based upon appraisals derived from
information concerning the security or instrument or similar securities or
instruments received from recognized dealers in those holdings. If the Fund
concludes that a market quotation is not readily available for a portfolio
security or instrument 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 the Fund's net
asset value fairly reflects the value of its portfolio holdings as of the time
of pricing.

Valuing securities and other instruments at fair value involves greater reliance
on judgment than valuing securities and other instruments that have readily
available market quotations. Fair value determinations 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 or
instrument if it were to sell the security or instrument 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.

Management

Investment advisor
[TO BE PROVIDED IN RULE 485(b) FILING:] 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. UBS Global AM (Americas) serves as the investment
advisor to the Fund by managing the investment of assets of the Fund. As of June
30, 2008, the Advisor had approximately $[___] billion in assets under
management. The Advisor is an indirect, wholly owned subsidiary of UBS AG
("UBS") and a member of the UBS Global Asset Management Division, which had
approximately $[___] billion in assets under management as of June 30, 2008. UBS
is an internationally diversified organization headquartered in Zurich and
Basel, Switzerland, with operations in many areas of the financial services
industry.

The Fund had not yet commenced operations as of the date of this prospectus. A
discussion regarding the basis for the Board of Trustees' approval of the
investment advisory agreement between the Trust and Advisor on behalf of the
Fund will be available in a future annual or semiannual report to shareholders
of the Fund.

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
Elbridge Gerry and Philip Tartaglia are primarily responsible for the day-to-day
management of the Fund's portfolio. The Advisor's investment professionals are
organized into investment management teams, with a particular team dedicated to
a specific asset class. Mr. Gerry and Mr. Tartaglia have access to certain
members of the Municipal Bond Fixed-Income investment management team, each of
whom is allocated a specified strategy issue within the portfolio over which he
or she has independent responsibility for research. The team members also have
access to additional portfolio managers and analysts within the various asset
classes and markets in which the Fund invests. Mr. Gerry and Mr. Tartaglia, as
lead portfolio managers and coordinators for management of the Fund, have
responsibility for research, implementing strategies and reviewing the overall
composition of the portfolios. Information about Mr. Gerry and Mr. Tartaglia is
provided below.

Elbridge Gerry is a Managing Director-Municipal Fixed Income of UBS Global Asset
Management. Mr. Gerry has been a portfolio manager at the firm since 1996. Mr.
Gerry has been a portfolio manager of the Fund since its inception.

Philip Tartaglia is a Director of UBS Global Asset Management. Mr. Tartaglia has
been a portfolio manager at the firm since 2007. Prior to that, he was a
portfolio manager at M.D. Sass Investors Services since 1995. Mr. Tartaglia has
been a portfolio manager of the Fund since its inception.

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

Advisory fees
The investment advisory fee (expressed as a monthly fee at an annual rate
multiplied by the average daily net assets of the Fund) payable to the Advisor,
before fee waivers and/or expense reimbursements is: 0.250% on assets below $500
million; 0.225% on the next $500 million to $1 billion in assets; 0.200% on the
next $1 billion to $5 billion in assets; 0.175% on the next $5 billion to $10
billion in assets; and 0.150% on assets above $10 billion.

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, 2009. Thereafter, the expense limit for the
Fund will be reviewed each year, at which time the continuation of the expense
limit will be discussed by the Advisor and the Board of Trustees. The
contractual fee waiver agreement also provides that the Advisor is entitled to
reimbursement of fees it waived and/or expenses it reimbursed for a period of
three years following such fee waivers and expense reimbursements, provided that
the reimbursement by the Fund of the Advisor will not cause the total operating
expense ratio to exceed the contractual limit as then may be in effect for the
Fund.

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 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 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 semiannual and annual
reports, respectively, sent to shareholders. The semiannual 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, by the Fund monthly. Net
realized capital gains, if any, are declared and distributed at least annually
in December. The Fund may distribute such income dividends and capital gains
more frequently, if necessary, in order to reduce or eliminate federal excise or
income taxes of the Fund. The amount of any distributions will vary, and there
is no guarantee that 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 are a taxable investor and invest in the Fund shortly before the record
date of a taxable distribution, the distribution may lower the value of the
Fund's shares by the amount of the distribution and, in effect, you may receive
some of your investment back in the form of a taxable distribution. This is
known as "buying a dividend."

Taxes
Tax consequences. Fund dividends will consist primarily of exempt-interest
dividends from interest earned on municipal securities. Because of this tax
exemption, the Fund may not be a suitable investment for retirement plans and
other tax-exempt investments. Corporate investors should note that Fund
dividends may be fully taxable in states that impose corporate franchise taxes,
and the treatment for state corporate income tax purposes may vary.

In general, exempt-interest dividends are exempt from federal income tax. The
Fund, however, may invest a portion of its assets in securities that pay income
that is not tax-exempt. The Fund may also distribute to you any market discount
and net short-term capital gains from the sale of its portfolio securities. If
you are a taxable investor, Fund distributions from such income are taxable to
you as ordinary income. No part of any such ordinary income dividends will be
qualified dividend income eligible for taxation by individuals at reduced rates.

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. Any loss
incurred on the sale or exchange of Fund shares held for six months or less will
be disallowed to the extent of any exempt-interest dividends paid to you and any
remaining loss will be treated as a long-term capital loss to the extent of
long-term capital gain distributions received with respect to those shares.

Exempt-interest dividends are taken into account when determining the taxable
portion of your social security or railroad retirement benefits. The Fund may
invest a portion of its assets in private activity bonds. The income from these
bonds is a preference item for purposes of the alternative minimum tax and under
the income tax provisions of several states. Exempt-interest dividends from
interest earned on municipal securities of a state, or its political
subdivisions, generally are exempt from that state's personal income tax. Most
states, however, do not grant tax-free treatment to interest from municipal
securities of other states.

Backup withholding. By law, if you do not provide the Fund with your proper
taxpayer identification number and certain required certifications, you may be
subject to backup withholding on any distributions of income, capital gains or
proceeds from the sale of your shares. The Fund also must withhold if the IRS
instructs it to do so. When withholding is required, the amount will be 28% of
any distributions or proceeds paid.

Sale of Fund shares. If you are a taxable investor, when you sell Fund shares,
you may realize a capital gain or loss for tax purposes.

Other. The Fund intends to qualify each year as a regulated investment company
under the Internal Revenue Code. As a regulated investment company, the Fund
generally pays no federal income tax on the income and gains it distributes to
you. Distributions of ordinary income, capital gain, and gain from the sale of
your Fund shares generally will be subject to state and local taxes.

Taxable distributions to non-US investors may be subject to US withholding at a
30% or lower treaty tax rate. Non-US investors are subject to back-up
withholding at a rate of 28% on distributions and redemption proceeds paid to a
shareholder who fails to certify that they are not a US person. Non-US investors
also may be subject to US estate tax and are subject to special US tax
certification requirements.

This discussion of "Dividends and taxes" is not intended or written to be used
as tax advice. Because everyone's tax situation is unique, you should consult
your tax professional about federal, state, local or foreign tax consequences
before making an investment in the Fund.

Financial highlights

No financial information is presented for the Fund as it was not publicly
offered prior to the date of this prospectus.

Privacy Notice
This privacy notice is not a part of the prospectus.

UBS Family of Funds privacy notice

This notice describes the privacy policy of the UBS Family of Funds, the UBS
PACE Funds and all closed-end funds managed by UBS Global Asset Management
(collectively, the "Funds"). The Funds are committed to protecting the personal
information that they collect about individuals who are prospective, current or
former investors.

The Funds collect personal information in order to process requests and
transactions and to provide customer service. Personal information, which is
obtained from applications, may include name(s), address, social security number
or tax identification number, bank account information, other Fund holdings and
any affiliation the person has with UBS Financial Services Inc. or its
subsidiaries ("Personal Information").

The Funds limit access to Personal Information to those individuals who need to
know that information in order to process transactions and service accounts.
These individuals are required to maintain and protect the confidentiality of
Personal Information. The Funds maintain physical, electronic and procedural
safeguards to protect Personal Information.

The Funds may share Personal Information described above with their affiliates
for marketing and other business purposes, such as to facilitate the servicing
of accounts.

The Funds may share Personal Information described above with a non-affiliated
third party if the entity is under contract to perform transaction processing or
to service and maintain shareholder accounts on behalf of the Funds and
otherwise as permitted by law. Any such contract will include provisions
designed to ensure that the third party will uphold and maintain privacy
standards when handling Personal Information. The Funds may also disclose
Personal Information to regulatory authorities as required by applicable law.

Except as described in this privacy notice, the Funds will not use Personal
Information for any other purpose unless the Funds describe how such Personal
Information will be used and clients are given an opportunity to decline
approval of such use of Personal Information relating to them.

The Funds endeavor to keep their customer files complete and accurate. The Funds
should be notified if any Personal Information needs to be corrected or updated.
Please call 1-800-647 1568 with any questions or concerns regarding your
Personal Information or this privacy notice.

Privacy Notice
This privacy notice is not a part of the prospectus.

[INSERT UBS LOGO]

The UBS Funds
UBS Tax Free Short-Intermediate Bond Fund
Prospectus
[_________ __,],2008

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

Annual/semiannual 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 semiannual reports are not yet available because the Fund
had not yet 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 semiannual
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 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]

Subject to completion July 2, 2008

The UBS Funds
UBS Tax Free Short-Intermediate Bond Fund
Statement of Additional Information
Dated [___________], 2008

One North Wacker Drive
Chicago, Illinois 60606

The UBS Tax Free Short-Intermediate Bond 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, 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
subsidiary of UBS AG.

This Statement of Additional Information ("SAI") is not a prospectus and should
be read only in conjunction with the Fund's current Prospectus, dated
[______________], 2008. A copy of the Prospectus may be obtained by calling your
investment professional or by calling the Trust toll-free at 1-800-647 1568. The
Prospectus contains more complete information about the Fund. You should read it
carefully before investing.

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

Table of contents Page
General information about the Trust.......................................................................
Diversification status....................................................................................
General definitions.......................................................................................
Investment strategies.....................................................................................
Municipal bonds...........................................................................................
Municipal lease obligations...............................................................................
Industrial development bonds ("IDBs") and private activity bonds ("PABs").................................
Floating rate and variable rate obligations...............................................................
Demand features...........................................................................................
Participation interests...................................................................................
Tender option bonds.......................................................................................
Put bonds.................................................................................................
Insured obligations.......................................................................................
Tax-exempt commercial paper and short-term municipal notes................................................
Inverse floaters..........................................................................................
Mortgage subsidy bonds....................................................................................
US Treasury securities....................................................................................
Stand-by commitments......................................................................................
Yield factors and credit ratings..........................................................................
Duration..................................................................................................
Inflation linked securities...............................................................................
Pay-in-kind bonds.........................................................................................
Credit-linked securities..................................................................................
When-issued securities....................................................................................
Zero coupon and delayed interest securities...............................................................
Structured notes..........................................................................................
Cash and cash equivalents.................................................................................
Repurchase agreements.....................................................................................
Reverse repurchase agreements.............................................................................
Borrowing.................................................................................................
Loans of portfolio securities.............................................................................
Swaps.....................................................................................................
Futures...................................................................................................
Options...................................................................................................
Index options.............................................................................................
Special risks of options on indices.......................................................................
Illiquid securities.......................................................................................
Non-publicly traded securities, private placements and restricted securities..............................
Investment company securities and investments in affiliated investment companies..........................
Exchange-traded index securities..........................................................................
Equity securities.........................................................................................
Other investments.........................................................................................
Investment restrictions...................................................................................
Management of the Trust...................................................................................
Independent Trustees......................................................................................
Officers..................................................................................................
Information about Independent Trustee ownership of securities issued by UBS Global AM (Americas)
or UBS Global AM (US) or any company controlling, controlled by or under common control with UBS
Global AM (Americas) or UBS Global AM (US)................................................................
Information about Trustee ownership of Fund shares........................................................
Compensation table........................................................................................
Control persons and principal holders of securities.......................................................
Investment advisory, principal underwriting and other service arrangements................................
Advisor...................................................................................................
Portfolio manager.........................................................................................
Administrative, accounting and custody services...........................................................
Principal underwriting arrangements.......................................................................
Transfer agency services..................................................................................
Independent registered public accounting firm.............................................................
Legal counsel.............................................................................................
Personal trading policies.................................................................................
Proxy voting policies.....................................................................................
Portfolio holdings disclosure policies and procedures.....................................................
Bank line of credit.......................................................................................
Portfolio transactions and brokerage commissions..........................................................
Portfolio turnover........................................................................................
Shares of beneficial interest.............................................................................
Reduced sales charges, additional purchase, exchange and redemption information and other services........
Sales charge reductions and waivers.......................................................................
Additional information regarding purchases through letter of intent.......................................
Automatic cash withdrawal plan--Class A and Class C.......................................................
Individual retirement accounts............................................................................
Transfer of accounts......................................................................................
Transfer of securities....................................................................................
Net asset value...........................................................................................
Taxation..................................................................................................
Additional information on distributions and taxes.........................................................
Potential conflicts of interest...........................................................................
Performance calculations..................................................................................
Financial statements and report of independent registered public accounting firm..........................
Appendix A--Debt ratings..................................................................................

General information about the Trust

The Trust currently offers shares of the following twenty series, representing
separate portfolios of investments: UBS Dynamic Alpha Fund, UBS Global
Allocation Fund, UBS Global Frontier Fund, UBS Emerging Markets Equity Fund, UBS
Global Equity Fund, UBS International Equity Fund, UBS U.S. Equity Alpha Fund,
UBS U.S. Large Cap Equity Fund, UBS U.S. Large Cap Growth Fund, UBS U.S. Large
Cap Value Equity Fund, UBS U.S. Mid Cap Growth Equity Fund, UBS U.S. Real Estate
Equity Fund, UBS U.S. Small Cap Equity Fund, UBS U.S. Small Cap Growth Fund, UBS
Absolute Return Bond Fund, UBS Emerging Markets Debt Fund, UBS Global Bond Fund,
UBS High Yield Fund, UBS Tax Free Short-Intermediate Bond Fund and UBS U.S. Bond
Fund. This SAI relates to the UBS Tax Free Short-Intermediate Bond 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 $250,000 and sold within one year of the purchase date, and are subject to
annual 12b-1 plan service fees of 0.15% of average daily net assets of the Fund.
Class C shares have a CDSC and are subject to annual 12b-1 plan distribution
fees of 0.10% 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 "non-diversified" for purposes of the Investment
Company Act of 1940, as amended (the "Act"), which means that the Fund is not
limited by the Act with regard to the portion of its assets that may be invested
in the securities of a single issuer. To the extent that the Fund, as a
non-diversified Fund, makes investments in excess of 5% of its total assets in
the securities of a particular issuer, its exposure to the risks associated with
that issuer is increased. Because the Fund may invest in a limited number of
issuers, the performance of particular securities may adversely affect the
performance of the Fund or subject the Fund to greater price volatility than
that experienced by diversified investment companies.

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

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

"Administrator" or "UBS Global AM (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" shall mean the UBS Tax Free Short-Intermediate Bond 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 Fund has a fundamental investment policy of
investing, under normal market conditions, at least 80% of its net assets (plus
borrowing for investment purposes, if any) in bonds that pay income exempt from
federal income tax, including the federal alternative minimum tax ("AMT"). 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.

Municipal bonds
Municipal bonds are municipal obligations that are issued by states,
municipalities, public authorities or other issuers and that pay interest that,
in the opinion of issuers' counsel, is exempt from federal income tax. The two
principal classifications of municipal bonds are "general obligation" and
"revenue" bonds. General obligation bonds are secured by the issuer's pledge of
its full faith, credit and taxing power for the payment of principal and
interest. Revenue bonds are payable only from the revenues derived from a
particular facility or class of facilities or, in some cases, from the proceeds
of a special excise tax or other specific revenue source, such as from the user
of the facility being financed. Municipal bonds also include "moral obligation"
bonds, which are normally issued by special purpose authorities. For these
bonds, a government unit is regarded as morally obligated to support payment of
the debt service, which is usually subject to annual budget appropriations.
Various types of municipal bonds are described in the following sections.

Municipal lease obligations
Municipal bonds include municipal lease obligations, such as leases, installment
purchase contracts and conditional sales contracts, and certificates of
participation therein. Municipal lease obligations are issued by state and local
governments and authorities to purchase land or various types of equipment or
facilities and may be subject to annual budget appropriations. The Fund
generally invests in municipal lease obligations through certificates of
participation.

Although municipal lease obligations do not constitute general obligations of
the municipality for which its taxing power is pledged, they ordinarily are
backed by the municipality's covenant to budget for, appropriate and make the
payments due, under the lease obligation. The leases underlying certain
municipal lease obligations, however, provide that lease payments are subject to
partial or full abatement if, because of material damage or destruction of the
leased property, there is substantial interference with the lessee's use or
occupancy of such property. This "abatement risk" may be reduced by the
existence of insurance covering the leased property, the maintenance by the
lessee of reserve funds or the provision of credit enhancements, such as letters
of credit.

Certain municipal lease obligations contain "non-appropriation" clauses, which
provide that the municipality has no obligation to make lease or installment
purchase payments in future years unless money is appropriated for such purpose
on a yearly basis. Some municipal lease obligations of this type are insured as
to timely payment of principal and interest, even in the event of a failure by
the municipality to appropriate sufficient funds to make payments under the
lease. However, in the case of an uninsured municipal lease obligation, the
Fund's ability to recover under the lease in the event of a non-appropriation or
default will be limited solely to the repossession of leased property without
recourse to the general credit of the lessee, and disposition of the property in
the event of foreclosure might prove difficult.

Industrial development bonds ("IDBs") and private activity bonds ("PABs") IDBs
and PABs are issued by or on behalf of public authorities to finance various
privately operated facilities, such as airport or pollution control facilities.
These obligations are considered municipal bonds if the interest paid thereon is
exempt from federal income tax in the opinion of the bond issuer's counsel. IDBs
and PABs are in most cases revenue bonds and thus are not payable from the
unrestricted revenues of the issuer. The credit quality of IDBs and PABs is
usually directly related to the credit standing of the user of the facilities
being financed. IDBs issued after August 15, 1986 generally are considered PABs,
and to the extent the Fund invests in such PABs, shareholders generally will be
required to include a portion of their exempt-interest dividends from the Fund
in calculating their liability for the AMT. See "Taxes" below. The Fund may
invest up to 20% of its net assets in IDBs and PABs.

Floating rate and variable rate obligations
Floating rate and variable rate obligations are municipal bonds that bear
interest at rates that are not fixed, but that vary with changes in specified
market rates or indices. The interest rate on floating rate or variable rate
securities ordinarily is readjusted on the basis of the prime rate of the bank
that originated the financing or some other index or published rate, such as the
90-day US Treasury bill rate, or is otherwise reset to reflect market rates of
interest. Generally, these interest rate adjustments cause the market value of
floating rate and variable rate municipal securities to fluctuate less than the
market value of fixed rate obligations. Accordingly, as interest rates decrease
or increase, the potential for capital appreciation or capital depreciation is
less than for fixed rate obligations. Floating rate or variable rate obligations
typically permit the holder to demand payment of principal from the issuer or
remarketing agent at par value prior to maturity and may permit the issuer to
prepay principal, plus accrued interest, at its discretion after a specified
notice period. Frequently, floating rate or variable rate obligations and/or the
demand features thereon are secured by letters of credit or other credit support
arrangements provided by banks or other financial institutions, the credit
standing of which affects the credit quality of the obligations. Changes in the
credit quality of these institutions could cause losses to the Fund and
adversely affect its share price.

Demand features
A demand feature gives the Fund the right to sell the securities to a specified
party, usually a remarketing agent, on a specified date. A demand feature is
often backed by a letter of credit from a bank or a guarantee or other liquidity
support arrangement from a bank or other financial institution. As discussed
under "Participation Interests" below, to the extent that payment of an
obligation is backed by a letter of credit, guarantee or other liquidity support
that may be drawn upon demand, such payment may be subject to that institution's
ability to satisfy that commitment.

Participation interests
Participation interests are undivided interests in municipal bonds, including
IDBs, PABs and floating and variable rate obligations, that are owned by banks.
These interests carry a demand feature permitting the holder to tender them back
to the bank, which demand feature generally is backed by an irrevocable letter
of credit or guarantee of the bank. The demand feature permits the Fund to draw
on the letter of credit on demand, after specified notice, for all or any part
of the principal amount of the Fund's participation interest plus accrued
interest. Generally, the Fund expects to exercise the demand under the letters
of credit or other guarantees (1) upon a default under the terms of the
underlying bond, (2) to maintain the Fund's portfolio in accordance with its
investment objective and policies, or (3) as needed to provide liquidity to the
Fund in order to meet redemption requests. The ability of a bank to fulfill its
obligations under a letter of credit or guarantee might be affected by possible
financial difficulties of its borrowers, adverse interest rate or economic
conditions, regulatory limitations or other factors. The credit standing of such
bank affects the credit quality of the participation interests. UBS Global AM
(Americas) seeks to monitor the pricing, quality and liquidity of the
participation interests held by the Fund, and the credit standing of banks
issuing letters of credit or guarantees supporting such participation interests
on the basis of published financial information reports of rating services and
bank analytical services.

Tender option bonds
Tender option bonds are long-term municipal bonds sold by a bank or
broker-dealer subject to a "tender option" that gives the purchaser the right to
tender them to the bank at par plus accrued interest at designated times (the
"tender option"). The tender option may be exercisable at intervals ranging from
biweekly to semiannually, and the interest rate on the bonds is typically reset
at the end of the applicable interval in an attempt to cause the bonds to have a
market value that approximates their par value. The tender option generally
would not be exercisable in the event of a default on, or significant
downgrading of, the underlying municipal bonds. Therefore, the Fund's ability to
exercise the tender option will be affected by the credit standing of both the
bank or broker-dealer involved and the issuer of the underlying securities.

Put bonds
A put bond is a municipal bond that gives the holder the unconditional right to
sell the bond back to the issuer or a remarketing agent at a specified price and
exercise date, which is typically well in advance of the bond's maturity date.
The obligation to purchase the bond on the exercise date may be supported by a
letter of credit or other credit support arrangement from a bank, insurance
company or other financial institution, the credit standing of which affects the
credit quality of the obligation.

If the put is a "one time only" put, the Fund ordinarily will either sell the
bond or put the bond, depending upon the more favorable price. If the bond has a
series of puts after the first put, the bond will be held as long as, in the
judgment of UBS Global AM (Americas), it is in the best interest of the Fund to
do so. There is no assurance that the issuer of a put bond acquired by the Fund
will be able to repurchase the bond upon the exercise date, if the Fund chooses
to exercise its right to put the bond back to the issuer.

Insured obligations
The Fund may purchase municipal obligations that are insured as to their
scheduled payment of principal and interest. The insurance does not, however,
guarantee the market value of the insured obligation. Although the insurance
feature may reduce some financial risks, the premiums for insurance and the
higher market price sometimes paid for insured obligations may reduce the Fund's
current yield. In addition, changes in the claims-paying ability or ratings of
an insurer may affect the value of an insured obligation, and in some cases may
even cause the value of a security to be less than a comparable uninsured
obligation.

Tax-exempt commercial paper and short-term municipal notes
Municipal bonds include tax-exempt commercial paper and short-term municipal
notes, such as tax anticipation notes, bond anticipation notes, revenue
anticipation notes and other forms of short-term loans. Such notes are issued
with a short-term maturity in anticipation of the receipt of tax funds, the
proceeds of bond placements and other revenues.

Inverse floaters
The Fund may invest in municipal bonds on which the rate of interest varies
inversely with interest rates on other municipal bonds or an index. Such
obligations include components of securities on which interest is paid in two
separate parts - an auction component, which pays interest at a market rate that
is set periodically through an auction process or other method, and a residual
component, or "inverse floater," which pays interest at a rate equal to the
difference between the rate that the issuer would have paid on a fixed-rate
obligation at the time of issuance and the rate paid on the auction component.
The market value of an inverse floater will be more volatile than that of a
fixed-rate obligation and, like most debt obligations, will vary inversely with
changes in interest rates. Because of the market volatility associated with
inverse floaters, the Fund will not invest more than 10% of its total assets in
inverse floaters.

Because the interest rate paid to holders of inverse floaters is generally
determined by subtracting the interest rate paid to holders of auction
components from a fixed amount, the interest rate paid to holders of inverse
floaters will decrease as market rates increase and increase as market rates
decrease. Moreover, the extent of the increases and decreases in the market
value of inverse floaters may be larger than comparable changes in the market
value of an equal principal amount of a fixed rate municipal bond having similar
credit quality, redemption provisions and maturity. In a declining interest rate
environment, inverse floaters can provide the Fund with a means of increasing or
maintaining the level of tax-exempt interest paid to shareholders.

Mortgage subsidy bonds
The Fund also may purchase mortgage subsidy bonds that are normally issued by
special purpose public authorities. In some cases, the repayment of such bonds
depends upon annual legislative appropriations; in other cases, repayment is a
legal obligation of the issuer and, if the issuer is unable to meet its
obligations, repayment becomes a moral commitment of a related government unit
(subject, however, to such appropriations). The types of municipal bonds
identified above and in the Prospectus may include obligations of issuers whose
revenues are primarily derived from mortgage loans on housing projects for
moderate to low income families.

US Treasury securities
The Fund may invest in US Treasury securities which include bills, notes, bonds,
and other debt securities issued by the US Treasury. These are direct
obligations of the US government and differ mainly in the length of their
maturities.

Stand-by commitments
The Fund may acquire stand-by commitments pursuant to which a bank or other
municipal bond dealer agrees to purchase securities that are held in the Fund's
portfolio or that are being purchased by the Fund, at a price equal to (1) the
acquisition cost (excluding any accrued interest paid on acquisition), less any
amortized market premium or plus any accrued market or original issue discount,
plus (2) all interest accrued on the securities since the last interest payment
date or the date the securities were purchased by the Fund, whichever is later.
The Fund may acquire such commitments to facilitate portfolio liquidity.

The Fund would enter into stand-by commitments only with those banks or other
dealers that, in the opinion of UBS Global AM (Americas), present minimal credit
risk. The Fund's right to exercise stand-by commitments would be unconditional
and unqualified. A stand-by commitment would not be transferable by the Fund,
although the Fund could sell the underlying municipal bonds to a third party at
any time. The Fund may pay for stand-by commitments either separately in cash or
by paying a higher price for the securities that are acquired subject to such a
commitment (thus reducing the yield to maturity otherwise available for the same
securities). The acquisition of a stand-by commitment would not ordinarily
affect the valuation or maturity of the underlying municipal bonds. Stand-by
commitments acquired by the Fund would be valued at zero in determining net
asset value. Whether the Fund paid directly or indirectly for a standby
commitment, its cost would be treated as unrealized depreciation and would be
amortized over the period the commitment is held by the Fund.

Yield factors and credit ratings
The yield on a municipal bond depends on a variety of factors, including general
municipal and fixed income security market conditions, the financial condition
of the issuer, the size of the particular offering, the maturity, credit quality
and rating of the issue and expectations regarding changes in tax rates. The
Fund may invest in municipal bonds with a broad range of maturities, based on
UBS Global AM (Americas)'s judgment of current and future market conditions as
well as other factors, such as the Fund's liquidity needs. Generally, the longer
the maturity of a municipal bond, the higher the rate of interest paid and the
greater the volatility.

Moody's, S&P and other nationally recognized statistical rating agencies
("rating agencies") are private services that provide ratings of the credit
quality of bonds and certain other securities, including municipal bonds. A
description of the ratings assigned to municipal bonds by Moody's, S&P and Fitch
Inc., another rating agency, is included in the Appendix to this SAI. Credit
ratings attempt to evaluate the safety of principal and interest payments, but
they do not evaluate the volatility of a bond's value or its liquidity and do
not guarantee the performance of the issuer. Rating agencies may fail to make
timely changes in credit ratings in response to subsequent events, so that an
issuer's current financial condition may be better or worse than the rating
indicates. There is a risk that rating agencies may downgrade a bond's rating.
Subsequent to a bond's purchase by the Fund, it may cease to be rated or its
rating may be reduced below the minimum rating required for purchase by the
Fund. The Fund may use these ratings in determining whether to purchase, sell or
hold a security. It should be emphasized, however, that ratings are general and
are not absolute standards of quality. Consequently, municipal bonds with the
same maturity, interest rate and rating may have different market prices.

Opinions relating to the validity of municipal bonds and to the exemption of
interest thereon from federal income tax and (when available) from the AMT are
rendered by bond counsel to the respective issuing authorities at the time of
issuance. Neither the Fund nor UBS Global AM (Americas) reviews the proceedings
relating to the issuance of municipal bonds or the basis for such opinions. An
issuer's obligations under its municipal bonds are subject to the bankruptcy,
insolvency and other laws affecting the rights and remedies of creditors (such
as the federal bankruptcy laws) and federal, state and local laws that may be
enacted that adversely affect the tax-exempt status of interest on the municipal
bonds held by the Fund or the exempt-interest dividends received by the Fund's
shareholders, extend the time for payment of principal or interest, or both, or
impose other constraints upon enforcement of such obligations. There is also the
possibility that, as a result of litigation or other conditions, the power or
ability of issuers to meet their obligations for the payment of principal of,
and interest on, their municipal bonds may be materially and adversely affected.

Investment grade municipal bonds are rated in one of the four highest rating
categories or one of the two highest short-term rating categories by a rating
agency, such as Moody's or S&P, or, if unrated, are determined to be of
comparable quality by UBS Global AM (Americas). Medium grade municipal
securities are investment grade and are rated A, Baa3 or MIG-2 by Moody's, A,
BBB- or SP-2 by S&P, have received an equivalent rating from another rating
agency or are determined by UBS Global AM (Americas) to be of comparable
quality. Moody's considers bonds rated Baa (its lowest investment grade rating)
to have speculative characteristics. This means that changes in economic
conditions or other circumstances are more likely to lead to a weakened capacity
to make principal and interest payments than is the case for higher rated bonds.

Duration
Duration is a measure of the expected life of a bond on a present value basis.
Duration incorporates the bond's yield, coupon interest payments, final maturity
and call features into one measure and is one of the fundamental tools used by
UBS Global AM (Americas) in portfolio selection and yield curve positioning for
the Fund's bond investments. Duration was developed as a more precise
alternative to the concept of "term to maturity." Traditionally, a bond's "term
to maturity" has been used as a proxy for the sensitivity of the security's
price to changes in interest rates (which is the "interest rate risk" or
"volatility" of the security). However, "term to maturity" measures only the
time until the scheduled final payment on the bond, taking no account of the
pattern of payments prior to maturity.

Duration takes the length of the time intervals between the present time and the
time that the interest and principal payments are scheduled or, in the case of a
callable bond, expected to be made, and weights them by the present values of
the cash to be received at each future point in time. For any bond with interest
payments occurring prior to the payment of principal, duration is always less
than maturity. For example, depending on its coupon and the level of market
yields, a Treasury note with a remaining maturity of five years might have a
duration of 4.5 years. For mortgage-backed and other securities that are subject
to prepayments, put or call features or adjustable coupons, the difference
between the remaining stated maturity and the duration is likely to be much
greater.

Duration allows UBS Global AM (Americas) to make certain predictions as to the
effect that changes in the level of interest rates will have on the value of the
Fund's portfolio of bonds. For example, when the level of interest rates
increases by 1%, a bond having a positive duration of three years generally will
decrease by approximately 3%. Thus, if UBS Global AM (Americas) calculates the
duration of the Fund's portfolio of bonds as three years, it normally would
expect the portfolio to change in value by approximately 3% for every 1% change
in the level of interest rates. However, various factors, such as changes in
anticipated prepayment rates, qualitative considerations and market supply and
demand, can cause particular securities to respond somewhat differently to
changes in interest rates than indicated in the above example. Moreover, in the
case of mortgage-backed and other complex securities, duration calculations are
estimates and are not precise. This is particularly true during periods of
market volatility. Accordingly, the net asset value of the Fund's portfolio of
bonds may vary in relation to interest rates by a greater or lesser percentage
than indicated by the above example.

Futures, options and options on futures have durations that, in general, are
closely related to the duration of the securities that underlie them. Holding
long futures or call option positions will lengthen portfolio duration by
approximately the same amount as would holding an equivalent amount of the
underlying securities. Short futures or put options have durations roughly equal
to the negative duration of the securities that underlie these positions and
have the effect of reducing portfolio duration by approximately the same amount
as would selling an equivalent amount of the underlying securities.

There are some situations in which the standard duration calculation does not
properly reflect the interest rate exposure of a security. For example, floating
and variable rate securities often have final maturities of ten or more years;
however, their interest rate exposure corresponds to the frequency of the coupon
reset. Another example where the interest rate exposure is not properly captured
by the standard duration calculation is the case of mortgage-backed securities.
The stated final maturity of such securities is generally 30 years, but current
prepayment rates are critical in determining the securities' interest rate
exposure. In these and other similar situations, UBS Global AM (Americas) will
use more sophisticated analytical techniques that incorporate the economic life
of a security into the determination of its duration and, therefore, its
interest rate exposure.

Inflation linked securities
Inflation linked securities are debt securities whose principal and/or interest
payments are adjusted for inflation, unlike debt securities that make fixed
principal and interest payments. Inflation linked securities include Treasury
Inflation Protected Securities ("TIPS"), which are securities issued by the US
Treasury. The interest rate paid by TIPS is fixed, while the principal value
rises or falls based on changes in a published Consumer Price Index ("CPI").
Thus, if inflation occurs, the principal and interest payments on the TIPS are
adjusted accordingly to protect investors from inflationary loss. During a
deflationary period, the principal and interest payments decrease, although the
TIPS' principal amounts will not drop below their face amounts at maturity. In
exchange for the inflation protection, TIPS generally pay lower interest rates
than typical US Treasury securities. Only if inflation occurs will TIPS offer a
higher real yield than a conventional Treasury bond of the same maturity.

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

The value of inflation linked securities is expected to change in response to
changes in real interest rates. Real interest rates in turn are tied to the
relationship between nominal interest rates and the rate of inflation.
Therefore, if the rate of inflation rises at a faster rate than nominal interest
rates, real interest rates might decline, leading to an increase in the value of
inflation linked securities.

While inflation linked securities are expected to be protected from long-term
inflationary trends, short-term increases in inflation may lead to a decline in
value. If interest rates rise due to reasons other than inflation (for example,
due to changes in currency exchange rates), investors in these securities may
not be protected to the extent that the increase is not reflected in the bond's
inflation measure.

Any increase in the principal amount of an inflation linked security will be
considered taxable ordinary income, even though investors do not receive their
principal until maturity.

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

Credit-linked securities
The Fund may invest in credit-linked securities. Credit-linked securities are
debt securities that represent an interest in a pool of, or are otherwise
collateralized by, one or more corporate debt obligations or credit default
swaps on corporate debt or bank loan obligations. Such debt obligations may
represent the obligations of one or more corporate issuers. The Fund has the
right to receive periodic interest payments from the issuer of the credit-linked
security (usually the seller of the underlying credit default swap(s)) at an
agreed-upon interest rate, and a return of principal at the maturity date.

The Fund bears the risk of loss of its principal investment and the periodic
interest payments expected to be received for the duration of its investment in
the credit-linked security, in the event that one or more of the debt
obligations underlying bonds or debt obligations underlying the credit default
swaps, go into default or otherwise become non-performing. Upon the occurrence
of such a credit event (including bankruptcy, failure to timely pay interest or
principal or a restructuring) with respect to an underlying debt obligation
(which may represent a credit event of one or more underlying obligors), the
Fund will generally reduce the principal balance of the related credit-linked
security by the Fund's pro rata interest in the par amount of the defaulted
underlying debt obligation in exchange for the actual value of the defaulted
underlying obligation or the defaulted underlying obligation itself, thereby
causing the Fund to lose a portion of its investment. As a result, on an ongoing
basis, interest on the credit-linked security will accrue on a smaller principal
balance and a smaller principal balance will be returned at maturity. To the
extent that a credit-linked security represents an interest in underlying
obligations of a single corporate issuer, a credit event with respect to such an
issuer presents greater risk of loss to the Fund than if the credit-linked
security represented an interest in underlying obligations of multiple corporate
issuers.

In addition, the Fund bears the risk that the issuer of the credit-linked
security will default or become bankrupt. In such an event, the Fund may have
difficulty being repaid, or fail to be repaid, the principal amount of its
investment and the remaining periodic interest payments thereon.

An investment in credit-linked securities also involves reliance on the
counterparty to the swap entered into with the issuer to make periodic payments
to the issuer under the terms of the credit default swap. Any delay or cessation
in the making of such payments may be expected in certain instances to result in
delays or reductions in payments to the Fund as an investor in such
credit-linked securities. Additionally, credit-linked securities are typically
structured as limited recourse obligations of the issuer of such securities such
that the securities issued will usually be obligations solely of the issuer and
will not be obligations or responsibilities of any other person.

Most credit-linked securities are structured as Rule 144A securities so that
they may be freely traded among institutional buyers. The Fund will generally
only purchase credit-linked securities that are determined to be liquid in
accordance with the Fund's liquidity guidelines. However, the market for
credit-linked securities may be, or suddenly can become, illiquid. The other
parties to the transaction may be the only investors with sufficient
understanding of the derivative to be interested in bidding for it. Changes in
liquidity may result in significant, rapid and unpredictable changes in the
prices for credit-linked securities. In certain cases, a market price for a
credit-linked security may not be available or may not be reliable, and the Fund
could experience difficulty in selling such security at a price the investment
manager believes is fair. In the event a credit-linked security is deemed to be
illiquid, the Fund will include such security in calculating its limitation on
investments in illiquid securities.

The value of a credit-linked security will typically increase or decrease with
any change in the value of the underlying debt obligations, if any, held by the
issuer and the credit default swap. Further, in cases where the credit-linked
security is structured such that the payments to the Fund are based on amounts
received in respect of, or the value of performance of, any underlying debt
obligations specified in the terms of the relevant credit default swap,
fluctuations in the value of such obligation may affect the value of the
credit-linked security.

The collateral of a credit-linked security may be one or more credit default
swaps, which are subject to additional risks. See "Investment strategies--swaps"
for a description of additional risks associated with credit default swaps.

When-issued securities
The Fund may purchase securities offered on a "when-issued" or "delayed
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 delayed 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 delayed delivery security accrues to the purchaser. While
when-issued or delayed delivery securities may be sold prior to the settlement
date, it is intended that the Fund will purchase such securities with the
purpose of actually acquiring them unless a sale appears desirable for
investment reasons. At the time the Fund makes the commitment to purchase a
security on a when-issued or delayed 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 delayed delivery securities may be
more or less than the purchase price. The Advisor does not believe that the
Fund's net asset value or income will be adversely affected by its purchase of
securities on a when-issued or delayed delivery basis. The Fund's custodian will
maintain Segregated Assets equal in value to the purchase price and the interest
rate payable on the securities which are fixed on the purchase commitment date
or at the time of settlement for when-issued or delayed delivery securities,
marked-to-market daily in accordance with pertinent SEC positions.

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

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

Zero coupon securities include securities issued directly by the US Treasury,
and US Treasury bonds or notes and their unmatured interest coupons and receipts
for their underlying principal ("coupons") which have been separated by their
holder, typically a custodian bank or investment brokerage firm. A holder will
separate the interest coupons from the underlying principal (the "corpus") of
the US Treasury security. A number of securities firms and banks have stripped
the interest coupons and receipts and then resold them in custodial receipt
programs with a number of different names, including "Treasury Income Growth
Receipts" ("TIGRS") and Certificate of Accrual on Treasuries ("CATS"). The
underlying US Treasury bonds and notes themselves are held in book-entry form at
the Federal Reserve Bank or, in the case of bearer securities (i.e.,
unregistered securities which are owned ostensibly by the bearer or holder
thereof), in trust on behalf of the owners thereof. Counsel to the underwriters
of these certificates or other evidences of ownership of the US Treasury
securities has stated that for federal tax and securities purposes, in its
opinion, purchasers of such certificates, such as the Fund, most likely will be
deemed the beneficial holder of the underlying US government securities.

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

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

Structured notes
Structured notes are derivative debt securities, the interest rate and/or
principal of which is determined by an unrelated indicator. The value of the
principal of and/or interest on structured notes is determined by reference to
changes in the return, interest rate or value at maturity of a specific asset,
reference rate or index (the "reference instrument") or the relative change in
two or more reference instruments. The interest rate or the principal amount
payable upon maturity or redemption may be increased or decreased, depending
upon changes in the applicable reference instruments. Structured notes may be
positively or negatively indexed, so that an increase in value of the reference
instrument may produce an increase or a decrease in the interest rate or value
of the structured note at maturity. In addition, changes in the interest rate or
the value of the structured note at maturity may be calculated as a specified
multiple of the change in the value of the reference; therefore, the value of
such note may be very volatile. Structured notes may entail a greater degree of
market risk than other types of debt securities because the investor bears the
risk of the reference instrument. Structured notes may also be more volatile,
less liquid and more difficult to accurately price than less complex securities
or more traditional debt securities. In order to cover structured notes, the
Fund, to the extent required by the SEC, will maintain Segregated Assets in
accordance with SEC positions to cover its obligations with respect to such
instruments. The Fund may invest up to 20% of its net assets in structured
notes.

Cash and cash equivalents
The Fund 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 Fund may also invest a portion of its assets in shares issued by money
market mutual funds. When unusual market conditions warrant, the Fund may make
substantial temporary defensive investments in cash equivalents up to a maximum
of 100% of its net assets. Such investments may pay taxable interest. 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 Fund invests for defensive purposes, it may negatively affect
the attainment of the Fund's investment objective.

Under the terms of an exemptive order issued by the SEC, the Fund 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 Fund 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 Fund's 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 operate in accordance
with Rule 2a-7 under the Act. The Fund's investment of Uninvested Cash in shares
of the Supplementary Trust Series or Relationship Funds Cash Series will not
exceed 25% of the Fund's total assets.

Repurchase agreements
The Fund does not intend to enter into repurchase agreements, except as a
temporary measure and under unusual circumstances, because repurchase agreements
generate taxable income. The Fund is, however, authorized to enter into
repurchase agreements with US banks and dealers with respect to any obligation
issued or guaranteed by the US government, its agencies or instrumentalities,
and also with respect to commercial paper, bank certificates of deposit and
bankers' acceptances. When the Fund 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 Fund to the seller secured by the securities transferred to the Fund.
Repurchase agreements will be fully collateralized and the collateral will be
marked-to-market daily. The Fund 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 Fund, would
exceed 15% of the value of the net assets of the Fund.

Reverse repurchase agreements
Reverse repurchase agreements involve sales of portfolio securities of the Fund
to member banks of the Federal Reserve System or securities dealers believed
creditworthy, concurrently with an agreement by the Fund 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 Fund 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 Fund 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 Fund, or "earmark" such assets as segregated in the
Fund's custody records, in an amount equal to the repurchase price. Any assets
designated as segregated by the Fund, either physically or "earmarked" as
segregated, with respect to any reverse repurchase agreements, when-issued
securities, delayed delivery securities, to-be-announced securities, dollar
rolls, options, futures, forward contracts, swaps or other derivative
transactions shall be liquid, unencumbered and marked-to-market daily (any such
assets designated as segregated, either physically or "earmarked" 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 the Fund may decline below the price of the securities
the Fund 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 Fund's 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 Fund's obligation to repurchase the securities.
Reverse repurchase agreements are considered borrowings by the Fund and as such,
are subject to the same investment limitations.

Borrowing
The Fund may borrow money for temporary emergency or extraordinary purposes, or
to facilitate redemptions. The Fund may also borrow money for investment
purposes. The Fund will not borrow money in excess of 33 1/3% of the value of
its total assets (including amounts borrowed). 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 Fund 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%.

Loans of portfolio securities
The Fund 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 Fund
may call the loan at any time and receive the securities loaned; (3) the Fund
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 Fund.

When loaning portfolio securities, the Fund will initially require the borrower
to provide the Fund with collateral in an amount at least equal to 102% of the
current market value of the loaned securities with respect to US securities and
105% of the current market value of the loaned securities with respect to
foreign securities. Thereafter, collateral will be maintained in an amount at
least equal to 100% of the current market value of the loaned securities.
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, which may result in a loss of money by the Fund or a delay
in recovering the loaned securities. In addition, in the event of bankruptcy of
the borrower, the Fund could experience delays in recovering the loaned
securities or only recover cash or a security of equivalent value. Therefore,
the Fund 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 Fund may engage in swaps, including, but not limited to, interest rate,
credit default and total return swaps, and the purchase or sale of related caps,
floors, collars and other derivative instruments. The Fund may also enter into
interest rate lock transactions. The Fund expects to enter into these
transactions to preserve a return or spread on a particular investment or
portion of the portfolio's duration, to protect against any increase in the
price of securities the Fund anticipates purchasing at a later date, or to gain
exposure to certain markets or returns in the most economical way possible.

Interest rate swaps involve the exchange by the Fund 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. 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, total return of securities, interest
rates and other applicable factors, the investment performance of the Fund 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 Fund's risk of loss
consists of the net amount of interest payments that the Fund is contractually
entitled to receive.

If there is a default by the counterparty to a swap contract, the Fund 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 the swap contract or that, in the event
of a default, the Fund will succeed in pursuing contractual remedies. The Fund
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.

Total return swap contracts are agreements between two parties where one
counterparty pays the other the total return of a particular instrument (e.g., a
specified security, basket of securities or securities indices, including real
estate market indices, during the specified period) in return for periodic
payments based on a fixed or variable interest rate, typically at a floating
rate based on LIBOR, or the total rate of return on another financial
instrument. The "total return" includes interest payments from, along with any
change in value of, the referenced asset over a specified period. The Fund will
enter into total return swap contracts only on a net basis, i.e., the two
parties' obligations are netted out, with the Fund paying or receiving, as the
case may be, only the net amount of the payments. Total return swap contracts
may be used to obtain exposure to a security or market without owning or taking
physical custody of such security or investing directly in such market. The
value of the swap position as well as the payments required to be made by the
Fund or a counterparty will increase or decrease depending on the changes in
value of the underlying asset. Total return swap contracts may effectively add
leverage to the Fund's portfolio because, in addition to its total net assets,
the Fund would be subject to investment exposure on the notional amount of the
swap.

Total return swap transactions involve greater risks than if the Fund had
invested in the underlying asset directly. Total return swap transactions
involve counterparty risks, as discussed above, but also involve additional
risks, including interest rate risk and market risk. The total rate of return of
an investment on which a total return swap contract is based may exhibit
substantial volatility and, in any given period, may be positive or negative for
the specified period of the total return swap contract. If the Advisor is
incorrect in its forecast of the underlying asset's total return, the investment
performance of the Fund will be less favorable than it would have been if this
investment technique was never used. In the event the total rate of return of
the underlying asset is negative for the specified period of the swap contract,
the Fund will be required to make a payment to the counterparty in addition to
the periodic payment required by the swap contract to cover the decline in value
of the underlying asset. The Fund's risk of loss, therefore, is increased
because the Fund could lose an amount equal to the decrease in value of the
underlying asset for the specified period of time, in addition to the periodic
payments required by the total return swap contract.

The Fund also may engage in interest rate lock transactions. In an interest rate
lock transaction, the buyer locks in an interest rate at a future settlement
date. If the interest rate on the settlement date exceeds the lock rate, the
buyer pays the seller the difference between the two rates. If the lock rate
exceeds the interest rate on the settlement date, the seller pays the buyer the
difference between the two rates.

The Fund also may enter into credit default swap agreements. The Fund may enter
into a credit default swap on a single security or instrument or on a basket or
index of securities (sometimes referred to as a "CDX" transaction). The "buyer"
in a credit default contract typically is obligated to pay the "seller" a
periodic stream of payments over the term of the contract, provided that no
credit event with respect to any underlying reference obligation has occurred.
If a credit event occurs, the seller typically must pay the buyer the "par
value" (full notional value) of the reference obligation in exchange for the
reference obligation. The Fund may be either the buyer or the seller in the
transaction. If the Fund is a buyer and no credit event occurs, the Fund may
lose its investment and recover nothing. However, if a credit event occurs, the
buyer typically receives full notional value for a reference obligation that may
have little or no value. As a seller, the Fund typically receives a fixed rate
of income throughout the term of the contract, which typically is between six
months and three years, provided a credit event does not occur. If a credit
event occurs, the seller typically must pay the buyer the full notional amount
of the reference obligation.

Credit default swaps involve greater risks than if the Fund had invested in the
reference obligation directly, since, in addition to general market risks,
credit default swaps are subject to illiquidity risk, counterparty risk and
credit risk. A buyer also will lose its investment and recover nothing should no
credit event occur and the swap is held to its termination date. If a credit
event were to occur, the value of any deliverable obligation received by the
seller, coupled with the up-front or periodic payments previously received, may
be less than the full notional value the seller pays to the buyer, resulting in
a loss of value to the Fund. When the Fund acts as a seller of a credit default
swap, the Fund is exposed to many of the same risks of leverage since, if a
credit event occurs, the seller may be required to pay the buyer the full
notional value of the contract net of any amounts owed by the buyer related to
its delivery of deliverable obligations.

The Advisor and the Trust do not believe that the Fund's obligations under swap
contracts are senior securities and, accordingly, the Fund will not treat them
as being subject to the Fund's borrowing or senior securities restrictions.
However, with respect to swap contracts that provide for the netting of
payments, the net amount of the excess, if any, of the Fund's 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 maintained to cover the transactions
in accordance with SEC positions. With respect to swap contracts that do not
provide for the netting of payments by the counterparties, the full notional
amount for which the Fund is obligated under the swap contract 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 full
notional value will be maintained to cover the transactions in accordance with
SEC positions. To the extent that the Fund cannot dispose of a swap in the
ordinary course of business within seven days at approximately the value at
which the Fund has valued the swap, the Fund will treat the swap as illiquid and
subject to its overall limit on illiquid investments of 15% of the Fund's net
assets.

Futures
The Fund may enter into contracts for the purchase or sale for future delivery
of securities and indices, including municipal bond index futures contracts,
municipal debt future contracts and interest rate futures contracts. A purchase
of a futures contract means the acquisition of a contractual right to obtain
delivery to the Fund of the securities called for by the contract at a specified
price during a specified future month. When a futures contract is sold, the Fund
incurs a contractual obligation to deliver the securities underlying the
contract at a specified price on a specified date during a specified future
month.

A municipal bond index futures contract is a bilateral agreement pursuant to
which one party agrees to accept, and the other party agrees to make, delivery
of an amount of cash equal to a specified dollar amount times the difference
between the securities index value at the close of trading of the contract and
the price at which the futures contract is originally struck. No physical
delivery of the securities comprising the index is made. Generally, contracts
are closed out prior to the expiration date of the contract.

Municipal debt or interest rate futures contracts are bilateral agreements
pursuant to which one party agrees to make, and the other party agrees to
accept, delivery of a specified type of debt security at a specified future time
and at a specified price. Although such futures contracts by their terms call
for actual delivery or acceptance of debt securities, in most cases the
contracts are closed out before the settlement date without the making or taking
of delivery.

When the Fund enters into a futures transaction, it must deliver to the futures
commission merchant (an "FCM") selected by the Fund, 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 Fund may also effect futures transactions
through FCMs who are affiliated with the Advisor or the Fund in accordance with
procedures adopted by the Board.

The Fund will enter into futures transactions on domestic exchanges. In
addition, the Fund 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, an 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. Futures contracts can be terminated by entering into offsetting
transactions. In addition, the Fund may invest in futures contacts that are
contractually required to be "cash-settled," rather than requiring the delivery
of the securities. The Fund will cover its obligations under the futures
transactions in which it participates by either (i) holding offsetting positions
that appropriately equal the daily market value of the Fund's position in the
futures contract (less the initial margin and any variation margins deposited
with an FCM); or (ii) accruing such amounts on a daily basis and maintaining
Segregated Assets to cover the futures contract. With respect to a futures
contract that is not contractually required to "cash-settle," the Fund must
cover its open position by maintaining Segregated Assets equal to the contract's
full, notional value. However, the Fund may net non-cash settled futures
contracts if the futures have the same expiration date and underlying
instruments. With respect to a futures contract that is contractually required
to "cash-settle" the Fund is permitted to maintain Segregated Assets in an
amount equal to the Fund's daily marked-to-market (net) obligation (i.e., the
Fund's daily net liability if any) rather than the notional value. By setting
aside assets equal to only its net obligation under cash-settled future
contracts the Fund will have the ability to employ leverage to a greater extent
than if the Fund were required to segregate assets equal to the full notional
value of such contracts.

The Fund may enter into futures contracts to protect against the adverse effects
of fluctuations in security prices or interest exchange rates without actually
buying or selling the securities. For example, if interest rates are expected to
increase, the Fund 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 Fund. 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 Fund would increase at approximately the same
rate, thereby keeping the net asset value of the Fund 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 fluctuations in the
value of futures contracts should be similar to those of debt securities, the
Fund 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 Fund could then buy debt
securities on the cash market. The Fund 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.

Futures strategies also can be used to manage the average duration of the Fund's
portfolio. If UBS Global AM (Americas) wishes to shorten the average duration of
the Fund's portfolio, the Fund may sell a futures contract or a call option
thereon or purchase a put option on that futures contract. If UBS Global AM
(Americas) wishes to lengthen the average duration of the Fund's portfolio, the
Fund may buy a futures contract or a call option thereon or sell a put option
thereon.

To the extent that market prices move in an unexpected direction, the Fund may
not achieve the anticipated benefits of futures contracts or may realize a loss.
For example, if the Fund 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 Fund 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 Fund 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 Fund may be required to sell securities at a time when it may
be disadvantageous to do so.

The Fund may also engage in options on futures contracts. Options on futures
contracts are similar to options on securities, except that an option on a
futures contract gives the purchaser the right, in return for the premium, to
assume a position in a futures contract (a long position if the option is a call
and a short position if the option is a put), rather than to purchase or sell a
security, at a specified price at any time during the option term or at
specified times or at the expiration of the option, depending on the type of
option involved. Upon exercise of the option, the delivery of the futures
position to the holder of the option will be accompanied by delivery of the
accumulated balance that represents the amount by which the market price of the
futures contract exceeds, in the case of a call, or is less than, in the case of
a put, the exercise price of the option on the future. The writer of an option,
upon exercise, will assume a short position in the case of a call and a long
position in the case of a put.

Options
The Fund may purchase and write call or put options US securities and indices
and enter into related closing transactions. The Fund may also purchase
exchange-listed call options on particular market segment indices to achieve
temporary exposure to a specific industry. The Fund may invest in options that
are either listed on US 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 Fund's 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 Fund will
only invest in such options to the extent consistent with its 15% limit on
investments in illiquid securities.

Purchasing call options--The Fund may purchase call options on securities to the
extent that premiums paid by the Fund do not aggregate to more than 20% of the
Fund's total assets. When the Fund purchases a call option, in return for a
premium paid by the Fund to the writer of the option, the Fund 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 Fund may alter
portfolio characteristics and modify portfolio maturities without incurring the
cost associated with transactions.

The Fund 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 Fund 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 Fund
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 Fund 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 an event, it may not be possible to effect closing
transactions in particular options, with the result that the Fund 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 Fund may expire without any value
to the Fund, in which event the Fund would realize a capital loss, which will be
short-term unless the option was held for more than one year.

Call writing--The Fund 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 Fund's investment objective. The advantage to the Fund in
writing calls is that the Fund receives a premium which is additional income.
However, if the security rises in value, the Fund 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 Fund, 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 Fund to write
another call option on the underlying security with either a different exercise
price, expiration date or both. The Fund may realize a net gain or loss from a
closing purchase transaction depending upon whether the net amount of the
original premium received on the call option is more or less than the cost of
effecting the closing purchase transaction. Any loss incurred in a closing
purchase transaction may be partially or entirely offset by the premium received
from a sale of a different call option on the same underlying security. Such a
loss may also be wholly or partially offset by unrealized appreciation in the
market value of the underlying security. Conversely, a gain resulting from a
closing purchase transaction could be offset in whole or in part by a decline in
the market value of the underlying security.

If a call option expires unexercised, the Fund 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
Fund 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 Fund will generally write call options on a covered basis. A call option
written by the Fund is "covered" if the Fund 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 maintained as Segregated Assets by the Fund's custodian) upon
conversion or exchange of other securities held by the Fund. A call option is
also deemed to be covered if the Fund 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 as Segregated Assets by the Fund's custodian.

From time to time, the Fund will write a call option that is not covered as
indicated above but where the Fund's custodian will maintain Segregated Assets
for the term of the option having a value equal to the fluctuating market value
of the optioned securities or currencies, marked-to-market daily, in accordance
with SEC positions. 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 Fund to the risks of writing uncovered options.
When writing uncovered call options, the Fund 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 Fund's loss could be significant.

Purchasing put options--The Fund may only purchase put options to the extent
that the premiums on all outstanding put options do not exceed 20% of the Fund's
total assets. The Fund 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 Fund will limit the aggregate value of the obligations underlying
such put options to 50% of its total assets.

A put option purchased by the Fund gives it the right to sell one of its
securities for an agreed price up to an agreed date. The Fund 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 Fund to protect unrealized gains in an appreciated security in its portfolio
without actually selling the security. If the security does not drop in value,
the Fund will lose the value of the premium paid. The Fund may sell a put option
that 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 that is sold.

The Fund may sell put options purchased on individual portfolio securities.
Additionally, the Fund may enter into closing sale transactions. A closing sale
transaction is one in which the Fund, 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 Fund may also write put options on a secured basis
which means that the Fund's custodian will maintain 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 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 Fund. Secured put options will generally be written in
circumstances where the Advisor wishes to purchase the underlying security for
the Fund's portfolio at a price lower than the current market price of the
security. In such event, the Fund 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 Fund 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 Fund may not, however, effect such
a closing transaction after it has been notified of the exercise of the option.

Index options
The Fund may purchase exchange-listed call options on fixed income indices and
sell such options in closing sale transactions for hedging purposes. The Fund
also may purchase call options on indices primarily as a substitute for taking
positions in certain securities or a 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 Fund may purchase put options on fixed income indices and sell
such options in closing sale transactions. The Fund 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 Fund from a decline in the value of heavily weighted industries in the
Fund's portfolio. Put options on stock and fixed income indices may also be used
to protect the Fund's investments in the case of a major redemption.

The Fund may also write (sell) put and call options on fixed income indices.
While the option is open, the Fund's custodian will maintain Segregated Assets
to cover the transactions, marked-to-market daily in accordance with SEC
positions. 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 multiplied by a specified multiple (the "multiplier").

Special risks of options on indices
The Fund's 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 Fund 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 Fund 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 Fund would not be able to
close out options which it had purchased and the Fund 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 the Fund 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 Fund will be required to pay
the difference between the closing index value and the exercise price of the
option (multiplied by the applicable multiplier) to the assigned writer.
Although the Fund 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.

Illiquid securities
The term "illiquid securities" means securities that cannot be disposed of
within seven days in the ordinary course of business at approximately the amount
at which the Fund has valued the securities and includes, among other
securities, over-the-counter options purchased, repurchase agreements maturing
in more than seven days and municipal lease obligations (including certificates
of participation) other than those UBS Global AM (Americas) has determined are
liquid pursuant to guidelines established by the Board. The assets used as cover
for over-the-counter options written by the Fund will be considered illiquid
unless the options are sold to qualified dealers who agree that the Fund may
repurchase the options at a maximum price to be calculated by a formula set
forth in the option agreements. The cover for an over-the-counter option written
subject to this procedure would be considered illiquid only to the extent that
the maximum repurchase price under the formula exceeds the intrinsic value of
the option. The Fund may not be able to readily liquidate its investments in
illiquid securities and may have to sell other investments if necessary to raise
cash to meet its obligations. The lack of a liquid secondary market for illiquid
securities may make it more difficult for the Fund to assign a value to those
securities for purposes of valuing its portfolio and calculating its net asset
value.

The Board has delegated the function of making day-to-day determinations of
liquidity to UBS Global AM (Americas), pursuant to guidelines approved by the
Board. UBS Global AM (Americas) takes into account a number of factors in
reaching liquidity decisions, including:

(a) whether the security can be sold within seven days at approximately the
same amount at which it is valued by the Fund;

(b) whether at least two dealers make a market in the security;

(c) whether there is reasonable assurance that the security will remain
marketable throughout the period it is expected to be held by the Fund,
taking into account the actual frequency of trades and quotations for the
security (expected frequency in the case of initial offerings);

(d) whether the issuer is a reporting company under the Securities Exchange Act
of 1934;

(e) that the security is not in the same class as, or convertible into, any
listed security of the issuer;

(f) whether there are at least three sources from which a price for the
security is readily available;

(g) whether settlement is made in a "regular way" for the type of security at
issue; and

(h) for Rule 144A securities that are issued by funds excepted from regulation
under Section 3(c)(7) of the Investment Company Act, whether there is a
sufficient market of qualified purchasers to assure that the security will
remain marketable throughout the period it is expected to be held by the
Fund.

UBS Global AM (Americas) monitors the liquidity of securities in the Fund's
portfolio and reports periodically on liquidity decisions to the Board.

In making determinations as to the liquidity of municipal lease obligations, UBS
Global AM (Americas) will distinguish between direct investments in municipal
lease obligations (or participations therein) and investments in securities that
may be supported by municipal lease obligations or certificates of participation
therein. Since these municipal lease obligation-backed securities are based on a
well-established means of securitization, UBS Global AM (Americas) does not
believe that investing in such securities presents the same liquidity issues as
direct investments in municipal lease obligations.

The Fund will not invest more than 15% of its net assets in illiquid securities.
UBS Global AM (Americas) monitors the Fund's overall holdings of illiquid
securities. If the Fund's holdings of illiquid securities exceed its limitation
on investments in illiquid securities for any reason (such as a particular
security becoming illiquid, changes in relative market values of liquid and
illiquid portfolio securities or shareholder redemptions), UBS Global AM
(Americas) will consider what action would be in the best interest of the Fund
and its shareholders. Such action may include engaging in an orderly disposition
of securities to reduce the Fund's holdings of illiquid securities. However, the
Fund is not required to dispose of illiquid securities under these
circumstances.

Non-publicly traded securities, private placements and restricted securities
The Fund may invest in securities that are non-publicly traded securities,
including privately placed securities that the Fund buys directly from the
issuer. As a result of the absence of a public trading market for these
securities, they may be less liquid than publicly traded securities. Although
these securities may be resold in privately negotiated transactions, the prices
realized from these sales could be less than those originally paid by the Fund,
or less than what may be considered the fair value of such securities.
Furthermore, companies whose securities are not publicly traded may not be
subject to the disclosure and other investor protection requirements which would
be applicable if their securities were publicly traded. If such securities are
required to be registered under the securities laws of one or more jurisdictions
before being resold, the Fund may be required to bear the expense of
registration. Investments by the Fund in non-publicly traded securities, private
placements and restricted securities will be limited to the Fund's prohibition
on investing more than 15% of its net assets in illiquid securities.

Investment company securities and investments in affiliated investment companies
Subject to the provisions of any exemptive orders issued by the SEC, securities
of other investment companies may be acquired by the Fund to the extent that
such purchases are consistent with the Fund's investment objectives and
restrictions and are permitted under the Act. The Act requires that, as
determined immediately after a purchase is made, (i) not more than 5% of the
value of the Fund's total assets will be invested in the securities of any one
investment company, (ii) not more than 10% of the value of the Fund's 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 Fund. Certain exceptions to these limitations may
apply. As a shareholder of another investment company, the Fund 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 Fund would bear in connection with its own operations.

The Fund may invest in securities issued by other registered investment
companies advised by the Advisor beyond the above percentage maximums pursuant
to exemptive relief granted by the SEC or rules promulgated by the SEC. The Fund
may 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 Fund to gain exposure to certain asset classes than by the Fund investing
directly in individual securities.

Exchange-traded index securities
Subject to the limitations on investment in investment company securities and
its own investment objective, the Fund 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 investments, 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 Fund invests in these securities, the Fund must bear
these expenses in addition to the expenses of its own operation.

Equity securities
The Fund may invest in a range of equity securities of US issuers, including,
but not limited to, 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.

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

Investment restrictions

The investment restrictions set forth below are fundamental policies and may not
be changed as to the Fund without the approval of a majority of the outstanding
voting securities (as defined in the Act) of the Fund. Unless otherwise
indicated, all percentage limitations listed below apply to the Fund 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 Fund's total
assets will not be considered a violation. The Fund may not:

(i) Purchase or sell real estate unless acquired as a result of ownership of
securities or other instruments and provided that this restriction does not
prevent the Fund from (i) purchasing or selling securities or instruments
secured by real estate or interests therein, securities or instruments
representing interests in real estate or securities or instruments of
issuers that invest, deal or otherwise engage in transactions in real
estate or interests therein, and (ii) making, purchasing or selling real
estate mortgage loans;

(ii) Purchase or sell physical commodities, unless acquired as a result of
ownership of securities or other instruments and provided that this
restriction does not prevent the Fund from (i) engaging in transactions
involving currencies; futures contracts on securities, currencies, indices
or any other financial instrument; and options on such currencies or
futures contracts, or (ii) investing in securities or other instruments
that are secured by physical commodities;

(iii) Issue senior securities, except to the extent permitted by the 1940 Act or
any rules, exemptions or interpretations thereunder that may be adopted,
granted or issued by the SEC;

(iv) Make loans if, as a result, more than 33 1/3% of its total assets would be
lent to other persons, including other investment companies to the extent
permitted by the 1940 Act or any rules, exemptions or interpretations
thereunder that may be adopted, granted or issued by the SEC. This
limitation does not apply to (1) the lending of portfolio securities, (2)
the purchase of debt securities, other debt instruments, loan
participations and/or engaging in direct corporate loans in accordance with
its investment goals and policies, and (3) repurchase agreements to the
extent the entry into a repurchase agreement is deemed to be a loan;

(v) Borrow money, except to the extent permitted by the 1940 Act, or any rules,
exemptions or interpretations thereunder that may be adopted, granted or
issued by the SEC;

(vi) Invest more than 25% of the Fund's net assets in securities of issuers in
any one industry (other than securities issued or guaranteed by the U.S.
government or any of its agencies or instrumentalities or securities of
other investment companies); and

(vii) Act as an underwriter except to the extent the Fund may be deemed to be an
underwriter when disposing of securities it owns or when selling its own
shares.

With respect to (vi) above, although not part of the Fund's fundamental
investment restriction, consistent with SEC Staff interpretations and guidance,
governments or their political subdivisions that issue tax-exempt municipal
securities are not considered by the Fund to be members of any industry.

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 Act. The Trustees elect
the officers of the Trust, who are responsible for administering the day-to-day
operations of the Fund.

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. None of the Trustees is an "interested person" (as
defined in the Act) of the Trust. The Trustees may be referred to herein as
"Independent Trustees."

Independent Trustees
Term of
office(1)
Position( and length Number of portfolios Other
held with of time Principal occupation(s) during past 5 in Fund complex directorships held
Name, address and age Trust served years overseen by Trustee by Trustee
- ---------------------- --------- ---------- ------------------------------------- --------------------- ------------------
Walter E. Auch(2) Trustee Since 1994 Mr. Auch is retired (since 1986). Mr. Auch is a Mr. Auch is a
6001 N. 62nd Place trustee of three Trustee/Director
Paradise Valley, AZ investment companies of Advisors Series
85253 (consisting of 56 Trust (32
Age: 87 portfolios) for portfolios) and
which UBS Global AM Consulting Group
(Americas) or one of Capital Markets
its affiliates Funds (11
serves as investment portfolios). Mr.
advisor, sub-advisor Auch is also a
or manager. member of the
Board of Sound
Surgical
Technologies.

Frank K. Reilly(2) Chairman Since 1992 Mr. Reilly is a Professor at the Mr. Reilly is a Mr. Reilly is a
Mendoza College of Trustee University of Notre Dame since 1982. director or trustee Director of
Business of four investment Discover Bank.
University of Notre Dame companies
Notre Dame, IN (consisting of 57
46556-5649 portfolios) for
Age: 72 which UBS Global AM
(Americas) or one of
its affiliates
serves as investment
advisor, sub-advisor
or manager.

Edward M. Roob(2) Trustee Since 1995 Mr. Roob is retired (since 1993). Mr. Roob is a None.
841 Woodbine Lane director or trustee
Northbrook, IL 60002 of four investment
Age: 73 companies
(consisting of 57
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 president Ms. Cepeda is a Ms. Cepeda is a
A.C. Advisory, Inc. of A.C. Advisory, Inc. (since 1995). director or trustee director of MGI
161 No. Clark Street of four investment Funds (7
Suite 4975 companies portfolios) (since
Chicago, IL 60601 (consisting of 57 2005) and Director
Age: 50 portfolios) for of Amalgamated
which UBS Global AM Bank.
(Americas) or one of
its affiliates
serves as investment
advisor, sub-advisor
or manager.

J. Mikesell Thomas(2) Trustee Since 2004 Mr. Thomas is the former President Mr. Thomas is a Mr. Thomas is a
1353 Astor Street and CEO of the Federal Home Loan Bank director or trustee director and
Chicago, Illinois 60610 of Chicago (2004-March 2008). Mr. of four investment chairman of the
Age: 57 Thomas was an independent financial companies Audit Committee
advisor (2001-2004). (consisting of 57 for Evanston
portfolios) for Northwestern
which UBS Global AM Healthcare.
(Americas) or one of
its affiliates
serves as investment
advisor, sub-advisor
or manager.

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

(2) Each Trustee is also an Independent Trustee of UBS Supplementary Trust and
UBS Private Portfolios Trust, which are both investment vehicles 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.

Officers
Term of
office+ and
Position(s) held length of time
Name, address and age with the Trust served Principal occupation(s) during past 5 years
- --------------------- ----------------- -------------- -------------------------------------------------------------------------
Joseph J. Allessie* Vice President Since 2005 Mr. Allessie is an executive director (since 2007) and deputy general
Age: 42 and Assistant counsel (since Secretary 2005) at UBS Global AM (US) and UBS Global AM
Secretary (Americas) (collectively, "UBS Global AM--Americas region"). 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). Mr. Allessie is a vice president and assistant
secretary of 21 investment companies (consisting of 103 portfolios) for
which UBS Global AM--Americas region or one of its affiliates serves as
investment advisor, subadvisor or manager.

Thomas Disbrow* Vice President, Since 2004 Mr. Disbrow is an executive director (since 2007) (prior to which he
Age: 42 Treasurer and (Vice was a director) and head of the US mutual fund treasury administration
Principal President) and department (since 2006) of UBS Global AM--Americas region. Mr. Disbrow
Accounting 2006 is vice president, treasurer and principal accounting officer of 21
Officer (Treasurer and investment companies (consisting of 103 portfolios) for which UBS
Principal Global AM--Americas region or one of its affiliates serves as investment
Accounting advisor, sub-advisor or manager.
Officer)

Michael J. Flook* Vice President Since 2006 Mr. Flook is an associate director and a senior manager of the US
Age: 43 and Assistant mutual fund treasury administration department of UBS Global
Treasurer AM--Americas region (since 2006). Prior to joining UBS Global
AM--Americas region, he was a senior manager with The Reserve (asset
management firm) from May 2005 to May 2006. Prior to that he was a
senior manager with PFPC Worldwide since October 2000. Mr. Flook is a
vice president and assistant treasurer of 21 investment companies
(consisting of 103 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: 50 and Secretary 2004, 2004). Mr. Kemper is also a managing director of UBS Global AM--Americas
respectively region (since 2006). 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) 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 21 investment companies (consisting of 103
portfolios) for which UBS Global AM--Americas region or one of its
affiliates serves as investment advisor, sub-advisor or manager.

Joanne M. Kilkeary* Vice President Since 2006 Ms. Kilkeary is a director (since March 2008) and a senior manager
Age: 40 and Assistant (since 2004) of the US mutual fund treasury administration department
Treasurer of UBS Global AM--Americas region. Ms. Kilkeary is a vice president and
assistant treasurer of 21 investment companies (consisting of 103
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: 37 and Assistant AM--Americas region (since 2005). Prior to joining UBS Global
Secretary AM--Americas region, she was vice president and counsel at Deutsche
Asset Management/Scudder Investments from 2003 to 2005. Prior to that
she was assistant vice president and counsel at Deutsche Asset
Management/Scudder Investments from 2000 to 2003. Ms. Lee is a vice
president and assistant secretary of 21 investment companies
(consisting of 103 portfolios) for which UBS Global AM--Americas region
or one of its affiliates serves as investment advisor, sub-advisor or
manager.

Steven LeMire* Vice President Since 2007 Mr. LeMire is a director and senior manager of the US mutual fund
Age: 38 and Assistant treasury administration department of UBS Global AM--Americas region
Treasurer (since October 2007). Prior to joining UBS Global AM--Americas region,
he was an independent consultant with Third River Capital, LLC
(formerly Two Rivers Capital, LLC) (from 2005 to 2007). Prior to that,
he was vice president of operations and fund administration with
Oberweis Asset Management, Inc. (from 1997 to 2005). Mr. LeMire is a
vice president and assistant treasurer of 21 investment companies
(consisting of 103 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 (since 2006) and chief compliance
Age: 46 and Chief officer (since 2003) at UBS Global AM--Americas region. Prior to joining
Compliance UBS Global AM--Americas region, he was assistant general counsel at J.P.
Officer Morgan Investment Management (from 1999 to 2003). Mr. McGill is a vice
president and chief compliance officer for 21 investment companies
(consisting of 103 portfolios) for which UBS Global AM--Americas region
or one of its affiliates serves as investment advisor, sub-advisor or
manager.

Nancy Osborn* Vice President Since 2007 Mrs. Osborn is an associate director and a senior manager of the US
Age: 42 and Assistant mutual fund treasury administration department of UBS Global
Treasurer AM--Americas region (since 2006). Prior to joining UBS Global
AM--Americas region, she was an Assistant Vice President with Brown
Brothers Harriman since April 1996. Mrs. Osborn is a vice president and
assistant treasurer of 21 investment companies (consisting of 103
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: 42 and Assistant AM--Americas region (since 2005). From 1996 until June 2005, he held
Secretary 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 21
investment companies (consisting of 103 portfolios) for which UBS
Global AM--Americas region or one of its affiliates serves as investment
advisor, sub-advisor or manager.

Andrew Shoup* Vice President Since 2006 Mr. Shoup is a managing director and senior member of the global
Age: 51 and Chief treasury administration department of UBS Global AM--Americas region
Operating Officer (since July 2006). Prior to joining UBS Global AM--Americas region, he
was chief administrative officer for the Legg Mason Partner Funds
(formerly Smith Barney, Salomon Brothers and CitiFunds mutual funds)
from November 2003 to July 2006. Prior to that, he held various
positions with Citigroup Asset Management and related Companies with
their domestic and offshore mutual funds since 1993. Additionally, he
has worked for another mutual fund complex as well as spending eleven
years in public accounting. Mr. Shoup is a Vice President and chief
operating officer of 21 investment companies (consisting of 103
portfolios) for which UBS Global AM--Americas region or one of its
affiliates serves as investment advisor, sub-advisor or manager.

Kai R. Sotorp** President Since 2006 Mr. Sotorp is the head of the Americas for UBS Global Asset Management
Age: 49 (since 2004); a member of the UBS Group Managing Board (since 2003) and
a member of UBS Global Asset Management Executive Committee (since
2001). Prior to his current role, Mr. Sotorp was head of UBS Global
Asset Management--Asia Pacific (2002 to 2004), covering Australia,
Japan, Hong Kong, Singapore and Taiwan; head of UBS Global Asset
Management (Japan) Ltd. (2001 to 2004); representative director and
president of UBS Global Asset Management (Japan) Ltd. (2000 to 2004);
and member of the board of Mitsubishi Corp.--UBS Realty Inc. (2000 to
2004). Mr. Sotorp is president of 21 investment companies (consisting
of 103 portfolios) for which UBS Global Asset Management--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: 46 and Assistant counsel of UBS Global AM--Americas region (since 2005) and has been an
Secretary attorney with affiliated entities since 1995. Mr. Weller is a vice
president and assistant secretary of 21 investment companies
(consisting of 103 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 (Americas) or UBS Global AM (US) or any company controlling,
controlled by or under common control with UBS Global AM (Americas) or UBS
Global AM (US) As of December 31, 2007, the Independent Trustees did not own any
securities issued by UBS Global AM (Americas) or UBS Global AM (US) or any
company controlling, controlled by or under common control with UBS Global AM
(Americas) or 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
Name of Independent Trustees securities in Fund+ as investment advisor, sub-advisor or manager+
- --------------------------- ------------------------- --------------------------------------------------------
Walter E. Auch None over $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, 2007.

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
Annual aggregate Retirement benefits Total compensation from the
compensation from the accrued as part of Trust and Fund complex paid
Name and position held Trust(1) Fund expenses to Trustees(2)
- ----------------------------- --------------------- ------------------- ---------------------------
Walter E. Auch, Trustee $39,000 N/A $89,600
Frank K. Reilly, Trustee $40,000 N/A $106,600
Edward M. Roob, Trustee $38,000 N/A $97,600
Adela Cepeda, Trustee $38,000 N/A $97,600
J. Mikesell Thomas, Trustee(3) $36,000 N/A $99,004

(1) Represents aggregate annual compensation paid by the Trust to each Trustee
indicated for the fiscal year ended June 30, 2008.

(2) This amount represents the aggregate amount of compensation paid to the
Trustees for service on the Board of Directors/Trustees of four registered
investment companies (three registered investment companies with regard to
Mr. Auch) managed by UBS Global AM (Americas) or an affiliate for the
fiscal year ended June 30, 2008.

(3) These amounts include compensation paid to Mr. Thomas for his service as
the liaison for the Board of Trustees for purposes of the UBS Global AM
Profitability Working Group.

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 for his or her service to the Fund complex
(which consists of the Trust, three other registered investment companies and
two unregistered investment companies), an annual retainer of $160,000 paid
quarterly for serving as a Board member. In addition, the chairman of the Board,
for serving as chairman of the Board; the chairman of the Audit Committee, for
serving as chairman of the Audit Committee; and the chairman of the Nominating,
Compensation and Governance Committee, for serving as chairman of the
Nominating, Compensation and Governance Committee, each receive from the Fund
complex, for his or her service, an annual retainer of $20,000, $15,000 and
$7,500, respectively. The Fund complex also 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 three times during the fiscal year ended June 30, 2008.

Each Trustee sits on the Trust's Nominating, Compensation and Governance
Committee (the "Nominating 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 Trustee compensation and recommend any changes
to the Independent Trustees 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 five times during the
fiscal year ended June 30, 2008.

There is no separate Investment Committee. Items pertaining to these matters are
submitted to the full Board.

Control persons and principal holders of securities
As of the date of this SAI, UBS Global AM (Americas) 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 Trust is
presumed to control the Trust under the provisions of the Act. Note that a
controlling person possesses the ability to control the outcome of matters
submitted for shareholder vote of the Trust or the Fund.

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.

Investment advisory, principal underwriting and other service arrangements

Advisor
[TO BE PROVIDED IN RULE 485(b) FILING:]UBS Global Asset Management (Americas)
Inc., with its principal office located at One North Wacker Drive, Chicago,
Illinois 60606, 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 $[____] billion, as of June 30, 2008,
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 $[_____] billion in
assets under management as of June 30, 2008. The Advisor is also an affiliate of
UBS Financial Services, which provides certain sub-transfer agency and
administration services to the Fund.

[TO BE UPDATED IN RULE 485(b) FILING:] As of June 30, 2008, the Advisor also
serves as the investment advisor or sub-advisor to thirty-nine other investment
companies: BB&T International Equity Fund; Enterprise Growth & Income Fund; EQ
Advisors Trust: Growth and Income Fund; Fort Dearborn Income Securities, Inc.;
Global High Income Dollar Fund Inc.; ING UBS U.S. Allocation Portfolio; ING UBS
U.S. Large Cap Equity Portfolio; ING UBS U.S. Small Cap Growth Portfolio;
Insured Municipal Income Fund Inc.; Investment Grade Municipal Income Fund Inc.;
John Hancock Funds II: Large Cap Fund; John Hancock Trust: Global Allocation
Trust; John Hancock Trust: Large Cap Trust; John Hancock Trust: Strategic
Opportunities Trust; JPMorgan Multi-Manager Small Cap Growth Fund; Lincoln
Variable Insurance Products Trust: Global Asset Allocation Fund; Managed High
Yield Plus Fund Inc.; Principal Investors Fund, Inc.: Partners LargeCap Value
Fund I; Principal Investors Fund, Inc.: Partners SmallCap Growth Fund II;
Principal Variable Contracts Fund, Inc.: Small Cap Growth Fund; Riversource
Small Cap Growth Fund; RS Large Cap Value Fund; RS Large Cap Value VIP Series;
SMA Relationship Trust; Strategic Global Income Fund Inc.; TA IDEX UBS Dynamic
Alpha Fund; TA IDEX UBS Large Cap Value Portfolio; UBS Relationship Funds; UBS
Cashfund Inc.; UBS Index Trust; UBS Investment Trust; UBS Managed Municipal
Trust; UBS Master Series, Inc.; UBS Money Series; UBS Municipal Money Market
Series; UBS PACE Select Advisors Trust; UBS RMA Money Fund, Inc.; UBS RMA
Tax-Free Fund, Inc.; and UBS Series Trust.

Pursuant to its Agreement with the Trust, on behalf of the Fund, the Advisor
will receive from the Fund a monthly fee at an annual rate multiplied by the
average daily net assets of the Fund for providing investment advisory services
of 0.250% on assets below $500 million; 0.225% on the next $500 million to $1
billion in assets; 0.200% on the next $1 billion to $5 billion in assets; 0.175%
on the next $5 billion to $10 billion in assets; and 0.150% on assets above $10
billion. For purposes of calculating such fee, the Fund's average daily net
assets will be deemed to be the average daily value of the Fund's total assets
minus the sum of the Fund's liabilities. 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 0.50%
of the Fund's average daily net assets, excluding any 12b-1 Plan fees, expenses
incurred through investment in other investment companies. The contractual fee
waiver and/or expense reimbursement agreement will remain in place until June
30, 2009. 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 and/or expense
reimbursement 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,
certain 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 manager
Presented below is information about the individual identified as the portfolio
manager of the Fund in the Fund's Prospectus.

The following table provides information relating to other accounts managed by
the portfolio manager as of June 30, 2008:

[TO BE PROVIDED IN RULE 485(b) FILING:]

Registered Other pooled
investment companies investment vehicles Other accounts
Elbridge Gerry
Number of accounts managed [__] [__] [__]
Number of accounts managed with performance-based
advisory fees [__] [__] [__]
Assets managed (in millions) [__] [__] [__]
Assets managed with performance-based advisory fees
(in millions) [__] [__] [__]

Philip Tartaglia
Number of accounts managed [__] [__] [__]
Number of accounts managed with performance-based
advisory fees [__] [__] [__]
Assets managed (in millions) [__] [__] [__]
Assets managed with performance-based advisory fees
(in millions) [__] [__] [__]

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 manager and his 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 Asset
Management, including the Fund's portfolio manager, 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. A portfolio manager's bonus is based on the
performance of the 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, including the portfolio manager
of the Fund, 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 and/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 manager 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) also serves as
the Fund's administrator. The Administrator is an indirect wholly owned asset
management subsidiary of UBS AG.

As administrator, the Administrator supervises and manages all aspects (other
than investment advisory activities) of the Trust's operations. Under the
Administration Contract, the Administrator will not be liable for any error of
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.
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 0.15% and 0.10% of the average daily net assets
of Class A shares and Class C shares, respectively. Under the Class C Plan, the
Fund pays the Underwriter a distribution fee, accrued daily and payable monthly,
at the annual rate of 0.25% 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 0.15% and 0.10% of the aggregate investment amounts maintained in
the Fund for Class A shares and Class C shares, respectively, 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"), that sell
shares of the Fund, subject to UBS Global AM (US)'s internal policies and
procedures. The source of such payments may come from sales charges on such
shares, 12b-1 fees collected from the Fund and/or from the underwriter's own
resources (including through transfers from affiliates). Payments made out of
the underwriter's own resources are often referred to as "revenue sharing." 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 maintain omnibus accounts and/or have
similar arrangements with UBS Global AM (US) and may be paid by UBS Global AM
(US) for providing sub-transfer agency and other services. Financial
Intermediaries may be paid a sub-transfer agency or related fee out of Fund
assets similar to that which the Fund otherwise would have paid the Fund's
transfer agent. In addition, the Financial Intermediary, for the services
provided, may charge a higher fee than would be represented by the sub-transfer
agency or related fee. To the extent 12b-1 fees and sub-transfer agency or
related fees do not meet the charge, the underwriter or an affiliate will pay
the difference out of its own resources. Such payments are often referred to as
"revenue sharing." Such expenses, to the extent they are Fund expenses, are
included in the annual operating expenses set forth in the Fund's Prospectus.

You should ask your Financial Intermediary about any payment it receives from
the underwriter and any services provided.

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 of
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, 5 Times Square, New York, New York 10036, is the independent
registered public accounting firm of the Trust.

Legal counsel
Stradley, Ronon, Stevens & Young, LLP, Philadelphia, Pennsylvania, is legal
counsel to the Trust and the Independent Trustees.

Personal trading policies
The Trust, the Advisor 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; (iv) purchasing securities
issued by a supplier or vendor about which the Covered Person has information or
with whom the Covered Person is directly involved in negotiating a contract; and
(v) 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 the Advisor is based on its belief that voting rights
have economic value and must be treated accordingly. Generally, the Advisor
expects the boards of directors of companies issuing securities held by its
clients to act in the service of the shareholders, view themselves as stewards
of the company, exercise good judgment and practice diligent oversight of 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 principles, which
provide evidence of good corporate governance. The Advisor 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 the
Advisor's proxy voting policy.

When the Advisor's view of a company's management is favorable, the Advisor
generally supports current management initiatives. When the Advisor's view is
that changes to the management structure would probably increase shareholder
value, the Advisor may not support existing management proposals. In general,
the Advisor generally exercises voting rights in accordance with the following
principles: (1) with respect to board structure, (a) the roles of chairman and
chief executive should be separated, (b) board members should have appropriate
and diverse experience and be capable of providing good judgment and diligent
oversight of management, and (c) the board should include executive and
non-executive members and the non-executive members should provide a
challenging, but generally supportive environment; and (2) with respect to board
responsibilities, (a) the whole board should be fully involved in endorsing
strategy and in all major strategic decisions, and (b) the board should ensure
that, among other things, at all times the interests of executives and
shareholders are aligned and the financial audit is independent and accurate. In
addition, the Advisor focuses on the following areas of concern when voting its
clients' securities: economic value resulting from acquisitions or disposals;
operational performance; quality of management; independent board members not
holding management accountable; quality of internal controls; lack of
transparency; inadequate succession planning; poor approach to social
responsibility; inefficient management structure; and corporate activity
designed to frustrate the ability of shareholders to hold the board accountable
or realize the maximum value of their investment. The Advisor exercises its
voting rights in accordance with overarching rationales outlined by its proxy
voting policies and procedures that are based on the principles described above.

The Advisor 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, the Advisor 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 the Advisor is aware of a conflict
with respect to a particular proxy, the UBS Global AM Corporate Governance
Committee is required to review and resolve 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 "Disclosure Policy"). 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 Fund's portfolio holdings will not be made available to
anyone outside of UBS Global AM (Americas) unless and until the information has
been made available to all shareholders or the general public in a manner
consistent with the spirit and terms of the Disclosure Policy. A description of
the type and frequency of portfolio holdings that are disclosed to the public is
contained in the Fund's Prospectus.

The Disclosure Policy requires 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 the Treasurer, Assistant Treasurer,
Secretary or Assistant Secretary of the Trust or an attorney in the UBS Global
AM (Americas) Legal and Compliance Departments 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
by the Chief Compliance Officer of the Trust of the Disclosure Policy, the
Trust's code of ethics and policies and procedures regarding the misuse of
inside information; (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 policies governing portfolio
holdings; and (iii) considering whether to approve or ratify any amendment to
any policies governing portfolio holdings. The Disclosure Policy may be amended
from time to time, subject to approval by the Board of Trustees.

Disclosure of complete portfolio holdings to service providers subject to
confidentiality and trading restrictions. UBS Global AM (Americas), for
legitimate fund business purposes, may disclose the Fund's complete portfolio
holdings if it deems such disclosure 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, custodians or a redeeming party's custodian or transfer
agent, as necessary in connection with redemptions in-kind, and other third
parties that provide services (collectively, "Service Providers") to UBS Global
AM (Americas) and/or the Fund.

Disclosure of complete portfolio holdings to a Service Provider is conditioned
on the Service Provider being subject to a written duty of confidentiality,
including a duty not to trade on the basis of any material non-public
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 to be 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's shareholders, and the legitimate
fund business purposes served by such disclosure. Disclosure of Fund complete
portfolio holdings to a Service Provider must be authorized in writing by the
Treasurer, Assistant Treasurer, Secretary or Assistant Secretary of the Trust or
by an attorney in the UBS Global AM (Americas) Legal Department.

Disclosure of complete portfolio holdings to UBS Global Asset Management
affiliates and certain fiduciaries subject to confidentiality and trading
restrictions. The Fund's complete portfolio holdings may be disclosed between
and among the following persons (collectively, "Affiliates and Fiduciaries")
subject to authorization by the Treasurer, Assistant Treasurer, Secretary or
Assistant Secretary of the Trust, or an attorney in the UBS Global AM (Americas)
Legal and Compliance Departments, for legitimate fund business purposes within
the scope of their official duties and responsibilities, and subject to such
Affiliate/Fiduciary's 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 AM (Americas)'s Code of Ethics, the Fund'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 UBS Global AM (Americas)'s Codes of Ethics or the
policies and procedures regarding the prevention of the misuse of inside
information; (ii) an investment advisor, distributor, administrator,
sub-administrator, transfer agent, custodian or securities lending agent to the
Fund; (iii) an accounting firm, an auditing firm or outside legal counsel
retained by UBS Global AM (Americas) or the Fund; (iv) an investment advisor to
whom complete portfolio holdings are disclosed for due diligence purposes when
the advisor is in merger or acquisition talks with the Fund's current advisor;
and (v) a newly hired investment advisor or sub-advisor 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 to be determined by the UBS
Global AM (Americas) Legal and Compliance Departments 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 fund 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 Vestek 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 annually at year-end for 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 advisor, administrator or custodian for the
Fund may, for legitimate fund 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 non-public information
concerning the Fund's portfolio holdings, other investment positions, securities
transactions or derivatives transactions without the consent of the Trust or the
Treasurer, Assistant Treasurer, Secretary or Assistant Secretary of the Trust or
an attorney in the UBS Global AM (Americas) Legal and Compliance Departments.
The Trust has not given its consent to any such use or disclosure and no person
or Treasurer, Assistant Treasurer, Secretary or Assistant Secretary of the Trust
or an attorney in the UBS Global AM (Americas) Legal and Compliance Departments
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 to be 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 fund business purposes served by such
disclosure.

Disclosure of non-material information. Policies and procedures regarding
disclosure of 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, UBS Global AM (Americas) Legal and Compliance
Departments, and anyone employed by or associated with UBS Global AM (Americas)
who has been authorized by the UBS Global AM (Americas) Legal Department
(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 non-public information.

An Approved Representative must make a good faith determination whether the
information constitutes material non-public 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 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 his or
her sole discretion determine whether to deny any request for information made
by any person, and may do so for any reason or no reason.

Disclosure of portfolio holdings as required by applicable law. Fund portfolio
holdings and other investment positions comprising the Fund may 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, subpoena or similar process (e.g., arbitration
proceedings).

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 Disclosure Policy. In addition, no person is authorized
to make disclosure pursuant to the Disclosure Policy if such disclosure would be
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 might otherwise be
eligible to receive such information under the Disclosure Policy, or may
determine to make such disclosures publicly as described above.

Prohibitions on receipt of compensation or other consideration. Neither UBS
Global AM (Americas), the Fund nor any other person may 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 advisor or by
any affiliated person of the investment advisor.

Bank line of credit
The Fund participates with other funds managed by UBS Global AM (Americas) in a
$75 million committed credit facility (the "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 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 advisors, 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, FCMs 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 Tax
Free Short-Intermediate Bond Fund-Class A (the Class A shares), the UBS Tax Free
Short-Intermediate Bond Fund-Class C (the Class C shares) and the UBS Tax Free
Short-Intermediate Bond 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 classes 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 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. Strategic
Advisor Program. Investors who purchase shares through the UBS Financial
Services Inc. Strategic Advisor Program are eligible to purchase Class A shares
of the funds for which the Underwriter or its affiliates serve 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. Strategic
Advisor 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. The one
time finder's fee is calculated on the date of purchase and may be paid in four
equal installments over the first 12 months of ownership. UBS Global AM (US)
reserves the right to suspend these payments at any time in its sole discretion.

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 blended annual rate of 0.10% of the value of
the equity portion of the Fund and 0.075% of the value of the fixed income
portion 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.
Such payments are often referred to as "revenue sharing."

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 to determine
fairly 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, semiannual 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), semiannual (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 semiannual 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, Inc. ("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 obligations that mature in 60 days or less, which are valued as
described further below). All investments quoted in foreign currency will be
valued daily in U.S. dollars on the basis of the foreign currency exchange rate
prevailing at the time such valuation is determined by the Fund's custodian. The
foreign currency exchange transactions of the Fund conducted on a spot (that is,
cash) basis are valued at the spot rate for purchasing or selling currency
prevailing on the foreign exchange market. Generally, securities issued by
open-end investment companies are valued using their respective net asset values
or public offering prices, as appropriate, for purchase orders placed at the
close of the NYSE. Futures contracts are generally valued at the settlement
price established each day on the exchange on which they are traded. Forward
foreign currency contracts are valued daily using forward exchange rates quoted
by independent pricing services. 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 an independent 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 short-term 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 of net investment income. The Fund receives income generally in
the form of interest on its investments. This income, less expenses incurred in
the operation of the Fund, constitutes the Fund's net investment income from
which dividends may be paid to you.

Exempt-interest dividends. By meeting certain requirements of the Code, the Fund
qualifies to pay exempt-interest dividends to you. These dividends are derived
from interest income exempt from regular federal income tax, and are not subject
to regular federal income tax when they are paid to you. Exempt-interest
dividends that are excluded from federal taxable income may still be subject to
federal alternative minimum tax.

In addition, to the extent that exempt-interest dividends are derived from
interest on obligations of a state or its political subdivisions, or from
interest on qualifying US territorial obligations (including qualifying
obligations of Puerto Rico, the US Virgin Islands and Guam), they also may be
exempt from that state's personal income taxes. Most states, however, do not
grant tax-free treatment to interest on state and municipal securities of other
states. The right of a state to exempt from taxation interest on its own state
and local obligations while taxing the interest on out-of-state municipal
securities was recently affirmed by the United States Supreme Court in Kentucky
v. Davis (May 19, 208). A state court in Kentucky had previously ruled that the
Kentucky state income tax law, which exempts only interest on bonds from
in-state government entities, violates the Commerce Clause of the US
Constitution, by discriminating against other states' municipal bonds. The US
Supreme Court reversed the lower court's decision and held that the Kentucky
state income tax law did not violate the Commerce Clause of the US Constitution.
In so holding, however, the Supreme Court declined to address whether the
in-state exemption for private activity bonds violates the Commerce Clause,
leaving for future courts to consider any claim that differential treatment of
interest on private-activity bonds should be evaluated differently from the
treatment of municipal bond interest generally.

Dividends from taxable income. The Fund may earn taxable income from many
sources, including income from temporary investments, discount from stripped
obligations or their coupons, income from securities loans or other taxable
transactions, and ordinary income from the sale of market discount bonds. If you
are a taxable investor, any distributions by the Fund from this income will be
taxable to you as ordinary income, whether you receive them in cash or in
additional shares. Because the Fund invests primarily in tax-exempt debt
securities, it anticipates that none of the distributions will be treated as
qualified dividends that are subject to reduced rates of taxation for
individuals.

Distributions of capital gain. The Fund may realize a capital gain or loss in
connection with sales or other dispositions of its portfolio securities.
Distributions derived from the excess of net short-term capital gain over net
long-term capital loss will be taxable to you as ordinary income. Distributions
paid from the excess of net long-term capital gain over net short-term capital
loss will be taxable to you as long-term capital gain, regardless of how long
you have held your shares in the Fund. Any net short-term or long-term capital
gains realized by the Fund (after any reductions for capital loss
carry-forwards) generally will be distributed once each year, and may be
distributed more frequently, if necessary, to reduce or eliminate excise or
income taxes on the Fund.

Returns of capital. If the Fund's distributions exceed its taxable income and
capital gains realized during a taxable year, all or a portion of the
distributions made in the same taxable year may be recharacterized as a return
of capital to shareholders. A return of capital distribution will generally not
be taxable, but will reduce each shareholder's cost basis in the Fund and result
in a higher reported capital gain or lower reported capital loss when those
shares on which the distribution was received are sold. Any return of capital in
excess of your basis, however, is taxable as a capital gain if the shares are
held as a capital asset.

Information on the amount and tax character of distributions. The Fund will
inform you of the amount of your taxable ordinary income and capital gain
dividends at the time they are paid, and will advise you of their tax status for
federal income tax purposes shortly after the end of each calendar year,
including the portion of the distributions that on average are comprised of
exempt interest income, taxable income and the portion of exempt interest income
that is a tax preference item when determining your alternative minimum tax. If
you have not held Fund shares for a full year, the Fund may designate and
distribute to you, as ordinary, tax-exempt or tax-preference income or capital
gains, a percentage of income that may not be equal to the actual amount of this
type of income earned during the period of your investment in the Fund. Taxable
distributions declared by the Fund in December to shareholders of record in such
month but paid in January are taxed to you as if made in December.

Election to be taxed as a regulated investment company. The Fund intends to
elect to be treated as a regulated investment company under Subchapter M of the
Code and intends to so qualify during the current fiscal year. As a regulated
investment company, the Fund generally pays no federal income tax on the income
and gain it distributes to you. The Board reserves the right not to distribute
the Fund's net long-term capital gain or not to maintain the qualification of
the Fund as a regulated investment company if it determines such a course of
action to be beneficial to shareholders. If net long-term capital gain is
retained, the Fund would be taxed on the gain at the highest corporate tax rate,
and shareholders would be notified that they are entitled to a credit or refund
for the tax paid by the Fund. If the Fund fails to qualify as a regulated
investment company, 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.

In order to qualify as a regulated investment company for federal income tax
purposes, the Fund must meet certain asset diversification, income and
distribution specific requirements, including:

(i) The Fund must maintain a diversified portfolio of securities, wherein no
security, including the securities of a qualified publicly traded
partnership (other than US government securities and securities of other
regulated investment companies) can exceed 25% of the Fund's total assets,
and, with respect to 50% of the Fund's total assets, no investment (other
than cash and cash items, US government securities and securities of other
regulated investment companies) can exceed 5% of the Fund's total assets or
10% of the outstanding voting securities of the issuer;

(ii) The Fund must derive at least 90% of its gross income from dividends,
interest, payments with respect to securities loans, gains from the sale or
disposition of stock, securities or foreign currencies, or other income
derived with respect to its business of investing in such stock,
securities, or currencies, and net income derived from an interest in a
qualified publicly traded partnership; and

(iii) The Fund must distribute to its shareholders at least 90% of its
investment company taxable income and net tax-exempt income for each of its
fiscal years.

Excise tax distribution requirements. As a regulated investment company, the
Fund is required to distribute its income and gains on a calendar year basis,
regardless of the Fund's fiscal year end, as follows:

Required distributions-- To avoid a 4% federal excise tax, the Code requires the
Fund to distribute to you by December 31 of each year, at a minimum, the
following amounts: 98% of its taxable ordinary income earned during the calendar
year; 98% of its capital gain net income earned during the twelve-month period
ending October 31; and 100% of any undistributed amounts 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.

Post-October losses-- Because the periods for measuring a mutual fund's income
are different for excise and income tax purposes special rules are required to
protect the amount of earnings and profits needed to support excise tax
distributions. For instance, if a mutual fund that uses October 31st as the
measurement period for paying out capital gain net income realizes a net capital
loss after October 31 and before the close of its taxable year, the mutual fund
likely would have insufficient earnings and profits for that taxable year to
support the dividend treatment of its required distributions for that calendar
year. Accordingly, the Fund is permitted to elect to treat net capital losses
realized between November 1 and December 31 of each year (`'post-October loss")
as occurring on the first day of the following tax year (i.e., on July 1st).

Sales, exchanges and redemption of fund shares. If you are a taxable investor
sales, exchanges and redemptions (including redemptions in kind) of Fund shares
are taxable transactions for federal and state income tax purposes. If you
redeem your Fund shares, the IRS will require that you report any gain or loss
on your redemption. If you held your shares as a capital asset, the gain or loss
that you realize will be a capital gain or loss and will be long-term or
short-term, generally depending on how long you held 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 will be disallowed
to the extent of any exempt-interest dividends paid to you with respect to your
Fund shares, and any remaining loss will be treated as a long-term capital loss
to the extent of any long-term capital gain distributed to you by the Fund on
those shares.

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

Deferral of basis-- Class A shares only. In reporting gain or loss on the sale
of your Fund shares, you may be required to adjust your basis in the shares you
sell under the following circumstances:

IF:

o In your original purchase of Fund shares, you received a reinvestment right
(the right to reinvest your sales proceeds at a reduced or with no sales
charge),
o You sell some or all of your original shares within 90 days of their
purchase, and
o You reinvest the sales proceeds in the Fund or in another fund, and the
sales charge that would otherwise apply is reduced or eliminated;

THEN: In reporting any gain or loss on your sale, all or a portion of the sales
charge that you paid for your original shares is excluded from your tax basis in
the shares sold and added to your tax basis in the new shares.

US government securities. To the extent the Fund invests in certain US
government obligations, dividends paid by the Fund to shareholders that are
derived from interest on these obligations should be exempt from state and local
personal income taxes, subject in some states to minimum investment or reporting
requirements that must be met by the Fund. The income on portfolio investments
in certain securities, such as repurchase agreements, commercial paper and
federal agency-backed obligations (e.g., Government National Mortgage
Association (GNMA) or Federal National Mortgage Association (FNMA) securities),
generally does not qualify for tax-free treatment. The rules on exclusion of
this income may be different for corporate shareholders.

Qualified dividend income for individuals. Because the Fund's income is derived
primarily from interest rather than dividends, none or a nominal part of its
distributions are expected to be qualified dividend income eligible for taxation
by individuals at long-term capital gain rates.

Dividends-received deduction for corporations. Because the Fund's income is
derived primarily from interest rather than dividends, none or a nominal part of
its distributions are expected to qualify for the corporate dividends-received
deduction.

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-- The Fund is permitted to invest in certain options and futures
contracts. If it makes these investments, it could be required to mark-to-market
these contracts and recognize for federal income tax purposes 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. 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 to realize and distribute any resulting income and gains.

Tax straddles-- The Fund's investment in options and futures contracts could
cause the Fund 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.

Swap agreements-- The Fund may enter into swap agreements. The rules governing
the tax aspects of swap agreements that provide for contingent nonperiodic
payments of this type are in a developing stage and are not entirely clear in
certain aspects. Accordingly, while the Fund intends to account for such
transactions in a manner deemed to be appropriate, the IRS might not accept such
treatment. The Fund intends to monitor developments in this area. Certain
requirements that must be met under the Code in order for the Fund to qualify as
a regulated investment company may limit the extent to which the Fund will be
able to engage in swap agreements.

Investments in securities of uncertain tax character-- The Fund may invest in
securities the US Federal income tax treatment of which may not be clear or may
be subject to recharacterization by the IRS. To the extent the tax treatment of
such securities or the income from such securities differs from the tax
treatment expected by the Fund, it could affect the timing or character of
income recognized by the Fund, requiring the Fund to purchase or sell
securities, or otherwise change its portfolio, in order to comply with the tax
rules applicable to regulated investment companies under the Code.

Alternative minimum tax. Interest on certain private activity bonds, while
exempt from regular federal income tax, is a preference item for you when
determining your alternative minimum tax under the Code and under the income tax
provisions of several states. Private activity bond interest could subject you
to or increase your liability under the federal and state alternative minimum
taxes, depending on your personal or corporate tax position. If you are a person
defined in the Code as a substantial user (or person related to a user) of a
facility financed by private activity bonds, you should consult with your tax
advisor before buying shares of the Fund.

Treatment of interest on debt incurred to hold fund shares. Interest on debt you
incur to buy or hold Fund shares may not be deductible for federal income tax
purposes.

Loss of status of securities as tax-exempt. Failure of the issuer of a
tax-exempt security to comply with certain legal or contractual requirements
relating to the security could cause interest on the security, as well as Fund
distributions derived from this interest, to become taxable, perhaps
retroactively to the date the security was issued.

Backup withholding. By law, the Fund must withhold a portion of your taxable
dividends and sales 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 withholding
is required, the amount will be 28% of any dividends or proceeds paid. The
special US tax certification requirements applicable to non-US investors are
described under the "Non-US Investors" heading below.

Non-US investors. Non-US Investors (shareholders who, as to the United States,
are a nonresident alien individual, foreign trust or estate, foreign
corporation, or foreign partnership) may be subject to US withholding and estate
tax and are subject to special US tax certification requirements. Non-US
investors should consult their tax advisors about the applicability of US tax
withholding and the use of the appropriate forms to certify their status.

In general-- The United States imposes a flat 30% withholding tax (or a
withholding tax at a lower treaty rate) on US source dividends, including on
income dividends paid to you by the Fund, subject to certain exemptions for
dividends designated as long-term capital gain dividends and exempt-interest
dividends. However, notwithstanding such exemptions from US withholding at the
source, any dividends and distributions of income and capital gains, including
the proceeds from the sale of your Fund shares, will be subject to backup
withholding at a rate of 28% if you fail to properly certify that you are not a
US person.

Exempt interest dividends-- Exempt-interest dividends from interest earned on
municipal securities are not subject to US withholding tax.

Long-term capital gain dividends-- In general, capital gain dividends paid by
the Fund from long-term capital gains (other than gain realized on disposition
of US real property interests) are not subject to US withholding tax unless 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.

Short-term capital gain and interest-related dividends-- The exemptions from US
withholding for short-term capital gain and interest-related dividends paid by
the Fund to non-US investors terminated and no longer is available for dividends
paid by the Fund with respect to its taxable years beginning after December 31,
2007, unless such exemptions are extended or made permanent.

Other-- If you hold your Fund shares in connection with a US trade or business,
your income and gains will be considered effectively connected income and taxed
in the US on a net basis, in which case you may be required to file a
nonresident US income tax return.

US estate tax-- An individual who, at the time of death, is a non-US shareholder
will nevertheless be subject to US federal estate tax with respect to shares at
the graduated rates applicable to US citizens and residents, unless a treaty
exception applies. If a treaty exemption is available, a decedent's estate may
nonetheless need to file a US estate tax return to claim the exemption in order
to obtain a US federal transfer certificate. The transfer certificate will
identify the property (i.e., Fund shares) as to which the US federal estate tax
lien has been released. In the absence of a treaty, there is a $13,000 statutory
estate tax credit (equivalent to US situs assets with a value of $60,000). For
estates with US situs assets of not more than $60,000, the Fund may accept, in
lieu of a transfer certificate, an affidavit from an appropriate individual
evidencing that decedent's US situs assets are below this threshold amount.
Transfers by gift of shares of the Fund by a non-US shareholder who is a
nonresident alien individual will not be subject to US federal gift tax. The tax
consequences to a non-US shareholder entitled to claim the benefits of an
applicable tax treaty may be different from those described herein.

US tax certification rules-- 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-8BEN (or other applicable Form W-8) 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.

Effect of tax treaties-- The tax consequences to a foreign shareholder entitled
to claim the benefits of an applicable tax treaty may be different from those
described herein. Non-US shareholders are urged to consult their own tax
advisors with respect to the particular tax consequences to them of an
investment in the Fund.

Effect of future legislation; local tax considerations. The foregoing general
discussion of US federal income tax consequences is based on the Code and the
regulations issued thereunder as in effect on the date of this Statement of
Additional Information. Future legislative or administrative changes or court
decisions may significantly change the conclusions expressed herein, and any
such changes or decisions may have a retroactive effect with respect to the
transactions contemplated herein. Rules of state and local taxation of ordinary
income, qualified dividend income and capital gain dividends may differ from the
rules for US federal income taxation described above. Distributions may also be
subject to additional state, local and foreign taxes depending on each
shareholder's particular situation. Non-US shareholders may be subject to US tax
rules that differ significantly from those summarized above. Shareholders are
urged to consult their tax advisers as to the consequences of these and other
state and local tax rules affecting investment in the Fund.

This discussion of "Taxation" is not intended or written to be used as tax
advice and does not purport to deal with all federal tax consequences applicable
to all categories of investors, some of which may be subject to special rules.
You should consult your own tax advisor regarding your particular circumstances
before making an investment in the Fund.

Potential conflicts of interest

Activities of UBS Global Asset Management (Americas) Inc. and its affiliates
(collectively, "UBS Global AM"), UBS Securities LLC and UBS Financial Services
Inc. and their affiliates (collectively, "UBS") and Other Accounts Managed by
UBS

[TO BE PROVIDED IN RULE 485(b) FILING:] UBS Global AM is a large asset
management firm with approximately $[____] billion in assets under management
worldwide as of June 30, 2008.(1) UBS Global AM offers a full range of equity,
fixed income, cash management, asset allocation and alternative asset class
investment management styles with representation in both retail and
institutional channels, in the United States and in non-U.S. markets. UBS Global
AM has more than 3,500 employees in 23 countries and maintains a presence in
most key markets, including the United States, the United Kingdom, Asia,
Australia, the Middle East and Europe.

(1) [TO BE PROVIDED IN RULE 485(b) FILING:] UBS Global Asset Management
(Americas) Inc. manages approximately $[___] billion as of June 30, 2008.

UBS is a worldwide full-service investment banking, broker-dealer, asset
management and financial services organization. As a result, UBS Global AM and
UBS (including, for these purposes, their directors, partners, officers and
employees) worldwide, including the entities and personnel who may be involved
in the investment activities and business operations of the Fund, are engaged in
businesses and have interests other than that of managing the Fund. These
activities and interests include potential multiple advisory, transactional,
financial, consultative, and other interests in transactions, companies,
securities and other instruments that may be engaged in, purchased or sold by
the Fund. This section sets forth considerations of which investors in the Fund
should be aware, and which may cause conflicts of interest on the part of UBS
and UBS Global AM that could disadvantage the Fund. To address these potential
conflicts, UBS and UBS Global AM have established various policies and
procedures that are reasonably designed to detect and prevent these potential
conflicts of interest and prevent the Fund from being disadvantaged.

Prospective investors should carefully review the following, which more fully
describes these and other potential conflicts of interest presented by UBS
Global AM's and UBS' other businesses and interests.

Potential Conflicts Relating to Portfolio Decisions, the Sale of Fund Shares and
the Allocation of Investment Opportunities

UBS' Other Activities May Have an Impact on the Fund. UBS Global AM (Americas)
makes decisions for the Fund in accordance with its obligations as investment
advisor to the Fund. However, UBS' other activities may, at the same time have a
negative impact on the Fund. As a result of the various activities and interests
of UBS, it is likely that the Fund will have multiple business relationships
with, engage in transactions with, make voting decisions with respect to, or
obtain services from UBS and other entities for which UBS performs or seeks to
perform investment banking or other services. It is also likely that the Fund
will undertake transactions in securities in which UBS makes a market or
otherwise has other direct or indirect interests.

UBS conducts extensive broker-dealer, banking and other activities around the
world and provides investment banking, broker-dealer, prime brokerage,
administrative and other services to clients which may involve markets and
securities in which the Fund invests. These activities will give UBS broad
access to the current status of certain markets and investments. As a result of
the activities described in this paragraph and the access and knowledge arising
from those activities, parts of UBS may be in possession of information in
respect of markets and investments, which, if known to UBS Global AM (Americas),
might cause UBS Global AM (Americas) to seek to dispose of, retain or increase
interests in investments held by the Fund or acquire certain positions on behalf
of the Fund. UBS will be under no duty to make any such information available to
the Fund or personnel of UBS Global AM (Americas) making investment decisions on
behalf of the Fund and maintains information barriers designed to prevent the
misuse of such information. In general, personnel of UBS Global AM (Americas)
making investment decisions will make decisions based solely upon information
known by such decision makers without regard to information known by other UBS
personnel.

In conformance with the Fund's investment objectives and subject to compliance
with applicable law, UBS Global AM (Americas) may purchase securities for the
Fund during an underwriting or other offering of securities in which a
broker/dealer affiliate acts as a manager, co-manager, underwriter or placement
agent, or receives a benefit in the form of management, underwriting, or other
fees. Affiliates of UBS Global AM (Americas) may act in other capacities in such
offerings for which a fee, compensation, or other benefit will be received. From
time to time, affiliates of UBS Global AM (Americas) will be current investors
in companies engaged in an offering of securities which UBS Global AM (Americas)
may purchase on behalf of its clients. Such purchases may provide a direct or
indirect benefit to UBS Global AM's affiliates acting as a selling shareholder.
UBS Global AM may also participate in structured fixed income offerings of
securities in which a related person may serve as trustee, depositor, originator
service agent or other service provider in which fees will be paid to such
related person. Further, a related person may act as originator and/or servicing
agent of loans or receivables for a structured fixed income offering in which
UBS Global AM (Americas) may invest Fund assets. Participation in such offering
may directly or indirectly relieve financial obligations of related persons.

UBS Global AM may purchase or sell, or recommend for purchase or sale, for its
investment advisory clients securities of companies: (i) with respect to which
its affiliates act as an investment banker or financial adviser; (ii) with which
its affiliates have other confidential relationships; (iii) in which its
affiliates maintain a position or (iv) for which its affiliates make a market;
or in which it or its officers, directors or employees or those of its
affiliates own securities or otherwise have an interest. Except to the extent
prohibited by law or regulation or by client instruction, UBS Global AM may
recommend to its clients, or purchase for its clients, securities of issuers in
which UBS has an interest as described in this paragraph.

UBS' Financial and Other Interests and Relationships May Incentivize UBS to
Promote the Sale of Fund Shares. UBS, its personnel and other financial service
providers, have interests in promoting sales of the Fund. UBS Global AM may also
make cash and non-cash payments to banks, broker-dealers, insurance companies,
financial planning firms and other financial intermediaries, that sell shares of
the Fund, subject to UBS Global AM's internal policies and procedures. The
source of such payments may come from sales charges on such shares, 12b-1 fees
collected from the Fund and/or from the underwriter's own resources (including
through transfers from affiliates). Payments made out of the underwriter's own
resources are often referred to as "revenue sharing." Please read the section
entitled "Principal underwriting arrangements" for more information.

With respect to both UBS and its personnel, the remuneration and profitability
relating to services to and sales of the Fund or other products may be greater
than the remuneration and profitability relating to services to and sales of
other products that might be provided or offered by UBS or other third parties.
UBS and its sales personnel may directly or indirectly receive a portion of the
fees and commissions charged to the Fund or its shareholders. UBS and its
advisory or other personnel may also benefit from increased amounts of assets
under management. Fees and commissions charged to the Fund may also be higher
than for other products or services, and the remuneration and profitability to
UBS and such personnel resulting from transactions on behalf of or management of
the Fund may be greater than the remuneration and profitability resulting from
similar transactions for other funds or products.

UBS also may have relationships with, and purchase, or distribute or sell,
services or products from or to, distributors, consultants and others who
recommend the Fund, or who engage in transactions with or for the Fund. For
example, UBS regularly participates in industry and consultant sponsored
conferences and may purchase educational, data or other services from
consultants or other third parties that it deems to be of value to its personnel
and its business. The products and services purchased from consultants may
include, but are not limited to, those that help UBS understand the consultant's
points of view on the investment management process. Consultants and other
parties that provide consulting or other services to potential investors in the
Fund may receive fees from UBS or the Fund in connection with the distribution
of shares in the Fund or other UBS products. For example, UBS may enter into
revenue or fee sharing arrangements with consultants, service providers, and
other intermediaries relating to investments in mutual funds, collective trusts,
or other products or services offered or managed by UBS Global AM. UBS may also
pay a fee for membership in industry-wide or state and municipal organizations
or otherwise help sponsor conferences and educational forums for investment
industry participants including, but not limited to, trustees, fiduciaries,
consultants, administrators, state and municipal personnel and other clients.
UBS' membership in such organizations allows UBS to participate in these
conferences and educational forums and helps UBS interact with conference
participants and to develop an understanding of the points of view and
challenges of the conference participants. In addition, UBS' personnel,
including employees of UBS, may have board, advisory, brokerage or other
relationships with issuers, distributors, consultants and others that may have
investments in the Fund or that may recommend investments in the Fund. In
addition, UBS, including UBS Global AM, may make charitable contributions to
institutions, including those that have relationships with clients or personnel
of clients. UBS' personnel may also make political contributions. As a result of
the relationships and arrangements described in this paragraph, consultants,
distributors and other parties may have conflicts associated with their
promotion of the Fund or other dealings with the Fund that create incentives for
them to promote the Fund or certain portfolio transactions.

To the extent permitted by applicable law, UBS Global AM may make payments to
authorized dealers and other financial intermediaries ("Intermediaries") from
time to time to promote the Fund. The additional payments by UBS Global AM may
also compensate Intermediaries for sub-accounting, administrative and/or
shareholder processing services that are in addition to the fees paid for these
or similar services by such products. Payments made by UBS Global AM may vary
between different Intermediaries. Please read the section entitled "Principal
underwriting arrangements" and "Reduced sales charges, additional purchase,
exchange and redemption information and other services--Additional compensation
to affiliated dealer" for more information.

Potential Conflicts Relating to the Allocation of Investment Opportunities Among
the Fund and Other UBS Accounts. UBS Global AM manages accounts of certain
clients by means of separate accounts ("Separate Accounts"). With respect to the
Fund, UBS Global AM (Americas) may follow a strategy that is expected to be
similar over time to that delivered by the Separate Accounts. The Fund and the
Separate Account Clients are subject to independent management and, given the
independence in the implementation of advice to these accounts, there can be no
assurance that such investment advice will be implemented simultaneously.
Neither UBS Global AM (Americas) nor its affiliates will know when advice issued
has been executed (if at all) and, if so, to what extent. While each will use
reasonable endeavors to procure timely execution, it is possible that prior
execution for or on behalf of the Separate Accounts could adversely affect the
prices and availability of the securities, currencies and instruments in which
the Fund invests.

Other Potential Conflicts Relating to the Management of the Fund by UBS Global
AM Potential Restrictions and Issues Relating to Information Held by UBS. From
time to time and subject to UBS Global AM's policies and procedures regarding
information barriers, UBS Global AM may consult with personnel in other areas of
UBS, or with persons unaffiliated with UBS. The performance by such persons of
obligations related to their consultation with personnel of UBS Global AM could
conflict with their areas of primary responsibility within UBS or elsewhere.
There will be no obligation on the part of such persons to make available for
use by the Fund any information or strategies known to them or developed in
connection with their own client, proprietary or other activities. In addition,
UBS will be under no obligation to make available any research or analysis prior
to its public dissemination.

In connection with its management of the Fund, UBS Global AM may have access to
certain fundamental analysis and proprietary technical models developed by UBS
Global AM or its affiliates (including UBS). UBS Global AM will not be under any
obligation, however, to effect transactions on behalf of the Fund in accordance
with such analysis and models. In addition, neither UBS Global AM nor any of its
affiliates (including UBS) will have any obligation to make available any
information regarding their proprietary activities or strategies, or the
activities or strategies used for other accounts managed by them, for the
benefit of the management of the Fund and it is not anticipated that UBS Global
AM will have access to such information for the purpose of managing the Fund.
The proprietary activities or portfolio strategies of UBS Global AM and its
affiliates (including UBS) or the activities or strategies used for accounts
managed by them or other client accounts could conflict with the transactions
and strategies employed by UBS Global AM (Americas), and have adverse effects on
the Fund.

Potential Conflicts Relating to UBS' and UBS Global AM's Proprietary Activities
and Activities on Behalf of Other Accounts. Transactions undertaken by UBS or
client accounts managed by UBS ("Client Accounts") may adversely impact the
Fund. UBS and one or more Client Accounts may buy or sell positions while the
Fund is undertaking the same or a differing, including potentially opposite,
strategy, which could disadvantage the Fund. For example, the Fund may establish
a short position in a security and UBS or other Client Accounts may buy that
same security. The subsequent purchase may result in an increase of the price of
the underlying position in the short sale exposure of the Fund and such increase
in price would be to the Fund's detriment. Conversely, the Fund may buy a
security and UBS or Client Accounts may establish a short position in that same
security. The subsequent short sale may result in impairment of the price of the
security which the Fund holds. Conflicts may also arise because portfolio
decisions regarding the Fund may benefit UBS or other Client Accounts. For
example, the sale of a long position or establishment of a short position by the
Fund may impair the price of the same security sold short by (and therefore
benefit) UBS or other Client Accounts, and the purchase of a security or
covering of a short position in a security by the Fund may increase the price of
the same security held by (and therefore benefit) UBS or other Client Accounts.

The directors, officers and employees of UBS and UBS Global AM may buy and sell
securities or other investments for their own accounts or for seed capital
accounts (including through investment funds managed by UBS and UBS Global AM).
As a result of differing trading and investment strategies or constraints,
positions may be taken by directors, officers and employees that are the same,
different from or made at different times than positions taken for the Fund. To
reduce the possibility that the Fund will be materially adversely affected by
the personal or proprietary trading described above, the Fund, UBS and UBS
Global AM, has established policies and procedures that restrict securities
trading in the personal accounts of investment professionals and others who
normally come into possession of information regarding the Fund's portfolio
transactions. Please see the section entitled "Personal trading policies" for
more detailed information regarding these policies and procedures.

Gifts and Entertainment. From time to time, directors, officers and employees of
UBS and UBS Global AM may receive gifts and/or entertainment from clients,
intermediaries, or service providers to the Fund, UBS and UBS Global AM, which
could have the appearance of affecting or may potentially affect the judgment of
the directors, officers and employees or the manner in which they conduct
business on behalf of the Fund, UBS and UBS Global AM. To reduce the appearance
of impropriety and the possibility that the Fund may be materially adversely
affected by such gifts and entertainment, UBS and UBS Global AM have established
policies and procedures that restrict the receipt of gifts and entertainment
from clients, intermediaries, or service providers to the Fund.

UBS May In-Source or Outsource. Subject to applicable law, UBS, including UBS
Global AM, may from time to time and without notice to investors in-source or
outsource certain processes or functions in connection with a variety of
services that it provides to the Fund in its administrative or other capacities.
Such in-sourcing or outsourcing may give rise to additional conflicts of
interest.

Selection of Brokers and Dealers and Commission Rates

UBS Global Asset Management utilizes a common portfolio and trading platform for
its clients. Certain investment professionals and other employees of UBS Global
AM are officers of advisory affiliates and related persons and may provide
investment advisory services to clients of such affiliated entities. UBS Global
AM's personnel also provide research and trading support to personnel of certain
advisory affiliates. Research-related costs may be shared by advisory affiliates
and related persons and may benefit the clients of such advisory affiliates.
Since research services are shared between UBS Global AM and its advisory
affiliates, UBS Global AM and its advisory affiliates maintain an aggregated
soft dollar budget. Therefore, research services that benefit UBS Global AM's
clients may be paid for with commissions generated by clients of its advisory
affiliates. Similarly, research services paid for by commissions generated by
UBS Global AM's clients may benefit advisory affiliates and their clients. UBS
Global AM does not allocate the relative costs or benefits of research received
from brokers or dealers among its clients because UBS Global AM believes that
the research received is, in the aggregate, of assistance in fulfilling UBS
Global AM's overall responsibilities to its clients. The research may be used in
connection with the management of accounts other than those for which trades are
executed by the brokers or dealers providing the research. For example, equity
research may be used for fixed income funds and accounts.

Potential Regulatory Restrictions on Investment Adviser Activity

From time to time, the activities of the Fund may be restricted because of
regulatory requirements applicable to UBS and/or its internal policies designed
to comply with, limit the applicability of, or otherwise relate to such
requirements. A client not advised by UBS would not be subject to some of those
considerations. There may be periods when UBS Global AM may not initiate or
recommend certain types of transactions, or may otherwise restrict or limit its
advice with respect to certain securities or instruments issued by or related to
companies for which UBS is performing investment banking, market making or other
services or has proprietary positions or otherwise has come into possession of
material inside information. For example, when UBS is engaged in an underwriting
or other distribution of securities of, or advisory services for, a company, the
Fund may be prohibited from or limited in purchasing or selling securities of
that company. Similar situations could arise if UBS personnel serve as directors
of companies the securities of which the Fund wishes to purchase or sell. The
larger UBS Global AM's investment advisory business and UBS' businesses, the
larger the potential that these restricted list policies will impact investment
transactions. However, if permitted by applicable law, the Fund may purchase
securities or instruments that are issued by such companies or are the subject
of an underwriting, distribution, or advisory assignment by UBS, or in cases in
which UBS personnel are directors or officers of the issuer.

The investment activities of UBS for its proprietary accounts and for Client
Accounts may also limit the investment strategies and rights of the Fund. For
example, in regulated industries, in certain emerging or international markets,
in corporate and regulatory ownership definitions, and in certain futures and
derivative transactions, there may be limits on the aggregate amount of
investment by affiliated investors that may not be exceeded without the grant of
a license or other regulatory or corporate consent or, if exceeded, may cause
UBS, the Fund or other Client Accounts to suffer disadvantages or business
restrictions. If certain aggregate ownership thresholds are reached or certain
transactions undertaken, the ability of UBS Global AM on behalf of the Fund to
purchase or dispose of investments, or exercise rights or undertake business
transactions, may be restricted by regulation or otherwise impaired. As a
result, UBS Global AM on behalf of the Fund may limit purchases, sell existing
investments, or otherwise restrict or limit the exercise of rights (including
voting rights) when UBS Global AM, in its sole discretion, deems it appropriate.

UBS Global AM and its affiliates, including, without limitation, UBS and its
advisory affiliates, have proprietary interests in, and may manage or advise
with respect to, accounts or funds (including separate accounts, other funds and
collective investment vehicles) that have investment objectives similar to those
of the Fund and/or that engage in transactions in the same types of securities,
currencies and instruments as the Fund. UBS and its affiliates are also major
participants in the global currency, equities, swap and fixed income markets, in
each case both on a proprietary basis and for the accounts of customers. As
such, UBS and its affiliates may be actively engaged in transactions in the same
securities, currencies, and instruments in which the Fund invests. Such
activities could affect the prices and availability of the securities,
currencies, and instruments in which the Fund invests, which could have an
adverse impact on the Fund's performance. Such transactions, particularly in
respect of most proprietary accounts or client accounts, will be executed
independently of the Fund's transactions and thus at prices or rates that may be
more or less favorable than those obtained by the Fund. UBS Global AM has
developed policies and procedures consistent with regulatory requirements that
provide that it will allocate investment opportunities and make purchase and
sale decisions among the Fund and other client accounts in a manner that it
considers, in its sole discretion and consistent with its fiduciary obligation
to each account, to be reasonable. Allocations may be based on numerous factors
and may not always be pro rata based. Thus, this system may adversely affect the
size or price of the assets purchased or sold for the Fund.

The results of the Fund's investment activities may differ significantly from
the results achieved by UBS Global AM and its affiliates for their proprietary
accounts or other accounts (including investment companies or collective
investment vehicles) managed or advised by them. It is possible that UBS Global
AM and its affiliates and such other accounts will achieve investment results
that are substantially more or less favorable than the results achieved by the
Fund. Moreover, it is possible that the Fund will sustain losses during periods
in which UBS Global AM and its affiliates achieve significant profits on their
trading for proprietary or other accounts. The opposite result is also possible.

The investment activities of UBS Global AM and its affiliates for their
proprietary accounts and accounts under their management may also limit the
investment opportunities for the Fund in certain emerging and other markets in
which limitations are imposed upon the amount of investment, in the aggregate or
in individual issuers, by affiliated foreign investors.

From time to time, the Fund's activities may also be restricted because of
regulatory restrictions applicable to UBS Global AM and its affiliates, and/or
their internal policies designed to comply with such restrictions. As a result,
there may be periods, for example, when UBS Global AM, and/or its affiliates,
will not initiate or recommend certain types of transactions in certain
securities or instruments with respect to which UBS Global AM and/or its
affiliates are performing services or when position limits have been reached
where such securities or instruments otherwise would have been permissible
investments for the Fund. Additionally, the Fund or accounts may be licensed to
trade securities or engage in transactions in certain jurisdictions while the
Fund or other accounts are not licensed.

In addition, certain officers and certain employees of UBS Global AM are also
officers or employees of UBS, or its affiliated entities. As a result, the
performance by these officers and employees of their obligations to such other
entities may be a consideration of which investors in the Fund should be aware.

UBS Global AM may enter into transactions and invest in securities, instruments
and currencies on behalf of the Fund where customers of UBS or, to the extent
permitted by the SEC, UBS itself, serves as the counterparty, principal or
issuer. In such cases, such party's interests in the transaction will be adverse
to the interests of the Fund, and such party may have no incentive to assure
that the Fund obtains the best possible prices or terms in connection with the
transaction. In addition, the purchase, holding and sale of such investments by
the Fund may enhance the profitability of UBS Global AM and/or UBS. UBS and its
affiliates may also create, write or issue Derivatives for customers of UBS or
its affiliates, the underlying securities, currencies or instruments of which
may be those in which the Fund invests or which may be based on the performance
of the Fund. The Fund may, subject to applicable law, purchase investments that
are the subject of an underwriting or other distribution by UBS or its
affiliates and may also enter into transactions with other clients of UBS Global
AM or its affiliates where such other clients have interests adverse to those of
the Fund. At times, these activities may cause UBS Global AM or its affiliates
to give advice to clients that may cause these clients to take actions adverse
to the interests of the Fund. To the extent affiliated transactions are
permitted, the Fund will deal with UBS Global AM, UBS and its affiliates on an
arms-length basis. UBS Global AM or UBS may also have an ownership interest in
certain trading or information systems used by the Fund. The Fund's use of such
trading or information systems may enhance the profitability of UBS Global AM
and its affiliates.

It is also possible that, from time to time, UBS Global AM or any of its
affiliates may, although they are not required to, purchase and hold shares of
the Fund. Increasing the Fund's assets may enhance investment flexibility and
diversification and may contribute to economies of scale that tend to reduce the
Fund's expense ratio. UBS Global AM and its affiliates reserve the right to
redeem at any time some or all of the shares of the Fund acquired for their own
accounts. A large redemption of shares of the Fund by UBS Global AM or its
affiliates could significantly reduce the asset size of the Fund, which might
have an adverse effect on the Fund's investment flexibility, portfolio
diversification, expense ratio and may result in significant transaction costs.
UBS Global AM will consider the effect of redemptions on the Fund and other
shareholders in deciding whether and when to redeem its shares.

It is possible that the Fund may invest in securities of companies with which
UBS has or is trying to develop investment banking relationships as well as
securities of entities in which UBS Global AM or UBS has significant debt or
equity investments or in which UBS makes a market. The Fund also may invest in
securities of companies to which UBS Global AM or UBS provides or may someday
provide research coverage. Such investments could cause conflicts between the
interests of the Fund and the interests of other UBS Global AM or UBS clients.
In making investment decisions for the Fund, UBS Global AM is not permitted to
obtain or use material non-public information acquired by any division,
department or affiliate of UBS Global AM in the course of these activities. In
addition, from time to time, UBS' activities may limit the Fund's flexibility in
purchases and sales of securities. When UBS is engaged in an underwriting or
other distribution of securities of an entity, UBS Global AM may be prohibited
from purchasing or recommending the purchase of certain securities of that
entity for the Fund.

Present and future activities of UBS Global AM and its affiliates, in addition
to those described in this section, may give rise to additional conflicts of
interest.

UBS Global AM (Americas) may buy for the Fund securities or obligations of
issuers in which UBS or other funds or accounts have made, or are making, an
investment in securities or obligations that are subordinate or senior to
securities of the Fund. For example, the Fund may invest in debt securities of
an issuer at the same time that UBS or other funds or accounts are investing, or
currently have an investment, in equity securities of the same issuer. To the
extent that the issuer experiences financial or operational challenges which may
impact the price of its securities and its ability to meet its obligations,
decisions by UBS (including UBS Global AM (Americas)) relating to what actions
to be taken may also raise conflicts of interests and UBS may take actions for
certain accounts that have negative impacts on other advisory accounts.

While UBS Global AM (Americas) will make proxy voting decisions as it believes
appropriate and in accordance with UBS Global AM's policies designed to help
avoid conflicts of interest, proxy voting decisions made by UBS Global AM
(Americas) with respect to the Fund's portfolio securities may have the effect
of favoring the interests of other clients or businesses of other divisions or
units of UBS. UBS Global AM's proxy voting policy is discussed in more detail in
the section entitled "Proxy voting policies."

As a registered investment adviser under the Advisers Act, UBS Global AM
(Americas) is required to file a Form ADV with the SEC. Form ADV Part II
contains information about assets under management, types of fee arrangements,
types of investments, potential conflicts of interest, and other relevant
information regarding UBS Global AM (Americas). A copy of Part I of UBS Global
AM (Americas)'s Form ADV is available on the SEC's website
(www.adviserinfo.sec.gov). A copy of Part II of UBS Global AM (Americas)'s Form
ADV is available upon request.

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 semiannual 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 Capital International Indices; Lehman
Brothers Indices; 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 report of independent registered public accounting firm

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

Appendix A--Debt ratings

Description of Moody's municipal bond ratings

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 risk 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 payment 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 that rating category.

Description of S&P municipal debt ratings

AAA. An obligation rated AAA has the highest rating assigned by S&P. The
obligor's capacity to meet its financial commitment on the obligation is
extremely strong.

AA. An obligation rated AA differs from the highest rated obligations only in
small degree. The obligor's capacity to meet its financial commitment on the
obligation is very strong.

A. An obligation rated A is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than obligations in higher
rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.

BBB. An obligation rated BBB exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity of the obligor to meet its financial commitment on the
obligation.

BB, B, CCC, CC, C, D. Obligations rated BB, B, CCC, CC and C are regarded as
having significant speculative characteristics. BB indicates the least degree of
speculation and C the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.

BB. An obligation rated BB is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.

B. An obligation rated B is more vulnerable to nonpayment than obligations rated
BB, but the obligor currently has the capacity to meet its financial commitment
on the obligation. Adverse business, financial, or economic conditions will
likely impair the obligor's capacity or willingness to meet its financial
commitment on the obligation.

CCC. An obligation rated CCC is currently vulnerable to nonpayment and is
dependent upon favorable business, financial and economic conditions for the
obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial, or economic conditions, the obligor is not likely
to have the capacity to meet its financial commitment on the obligation.

CC. An obligation rated CC is currently highly vulnerable to nonpayment.

C. The C rating may be used to cover a situation where a bankruptcy petition has
been filed or similar action has been taken, but payments on this obligation are
being continued.

D. An obligation rated D is in payment default. The D rating category is used
when payments on an obligation are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition or the taking of a similar action if payments on
an obligation are jeopardized.

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.

Description of Moody's ratings of short-term obligations

There are three categories for short-term obligations that define an investment
grade situation. These are designated Moody's Investment Grade as MIG 1 (best
quality) through MIG-3. Short-term obligations of speculative quality are
designated SG.

In the case of variable rate demand obligations (VRDOs), a two-component rating
is assigned. The first element represents an evaluation of the degree of risk
associated with scheduled principal and interest payments, and the other
represents an evaluation of the degree of risk associated with the demand
feature.

The short-term rating assigned to the demand feature of a VRDO is designated as
VMIG. When either the long- or short-term aspect or a VRDO is not rated, that
piece is designated NR, e.g. Aaa/NR or NR/VMIG 1. MIG ratings terminate at the
retirement of the obligation, while a VMIG rating expiration will be a function
of each issue's specific structural or credit features.

MIG-1/VMIG-1. This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.

MIG-2/VMIG-2. This designation denotes high quality. Margins or protection are
ample although not so large as in the preceding group.

MIG-3/VMIG-3. This designation denotes favorable quality. Liquidity and cash
flow protection may be narrow and market access for refinancing is likely to be
less well established.

SG. This designation denotes speculative quality. Debt Instruments in this
category lack margins of protection.

Description of S&P's ratings of state and municipal notes and other short-term
loans:

A S&P note rating reflects the liquidity concerns and market access risks unique
to notes. Notes due in 3 years or less will likely receive a note rating. Notes
maturing beyond 3 years will most likely receive a long-term debt rating. The
following criteria will be used in making the assessment.

- Amortization schedule (the larger the final maturity relative to other
maturities, the more likely it will be treated as a note).

- Source of payment (the more dependent the issue is on the market for
its refinancing, the more likely it will be treated as a note).

SP-1. Strong capacity to pay principal and interest. Issues determined to
possess very strong characteristics are given a plus (+) designation.

SP-2. Satisfactory capacity to pay principal and interest with some
vulnerability to adverse financial and economic changes over the term of the
notes.

SP-3. Speculative capacity to pay principal and interest.

Description of short-term debt commercial paper ratings

Moody's short-term debt ratings are opinions of the ability of issuers to repay
punctually senior debt obligations. These obligations have an original maturity
not exceeding one year, unless explicitly noted. Moody's employs the following
three designations, all judged to be investment grade, to indicate the relative
repayment ability of rated issuers:

Prime-1. Issuers (or supporting institutions) assigned this highest rating have
a superior ability for repayment of senior short-term debt obligations. Prime-1
repayment ability will often be evidenced by the following characteristics:
Leading market positions in well established industries; high rates of return on
funds employed; conservative capitalization structures with moderate reliance on
debt and ample asset protection; broad margins in earnings coverage of fixed
financial charges and high internal cash generation; well established access to
a range of financial markets and assured sources of alternate liquidity.

Prime-2. Issuers (or supporting institutions) assigned this rating have a strong
ability for repayment of senior short-term debt obligations. This will normally
be evidenced by many of the characteristics cited above, but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.

Prime-3. Issuers (or supporting institutions) assigned this rating have an
acceptable capacity for repayment of senior short-term obligations. The effect
of industry characteristics and market composition may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.

Not prime. Issuers assigned this rating do not fall within any of the Prime
rating categories.

Commercial paper rated by S&P have the following characteristics:

A-1. A short-term obligation rated A-1 is rated in the highest category by S&P.
The obligor's capacity to meet its financial commitment on the obligation is
strong. Within this category, certain obligations are designated with a plus
sign (+). This indicates that the obligor's capacity to meet its financial
commitment on these obligations is extremely strong.

A-2. A short-term obligation rated A-2 is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor's capacity to meet
its financial commitment on the obligation is satisfactory.

A-3. A short-term obligation rated A-3 exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation.

B. A short-term obligation rated B is regarded as having significant speculative
characteristics. The obligor currently has the capacity to meet its financial
commitment on the obligation; however, it faces major ongoing uncertainties
which could lead to the obligor's inadequate capacity to meet its financial
commitments on the obligation.

C. A short-term obligation rated C is currently vulnerable to nonpayment and is
dependent upon favorable business, financial and economic conditions for the
obligor to meet its financial commitment on the obligation.

D. A short-term obligation rated D is in payment default. The D rating category
is used when payments on an obligation are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition or the taking of a similar action if payments on
an obligation are jeopardized.

Fitch Ratings Service describes international long-term credit ratings as
follows:

Investment grade

AAA. Highest credit quality. `AAA' ratings denote the lowest expectation of
credit risk. They are assigned only in the case of exceptionally strong capacity
for payment of financial commitments. This capacity is highly unlikely to be
adversely affected by foreseeable events.

AA. Very high credit quality. `AA' ratings denote expectations of very low
credit risk. They indicate very strong capacity for payment of financial
commitments. This capacity is not significantly vulnerable to foreseeable
events.

A. High credit quality. `A' ratings denote expectations of low credit risk. The
capacity for payment of financial commitments is considered strong. This
capacity may, nevertheless, be more vulnerable to changes in circumstances or in
economic conditions than is the case for higher ratings.

BBB. Good credit quality. `BBB' ratings indicate that there are currently
expectations of low credit risk. The capacity for payment of financial
commitments is considered adequate but adverse changes in circumstances and
economic conditions are more likely to impair this capacity. This is the lowest
investment grade category.

Speculative Grade

BB. Speculative. `BB' ratings indicate that there is a possibility of credit
risk developing, particularly as the result of adverse economic change over
time; however, business or financial alternatives may be available to allow
financial commitments to be met. Securities rated in this category are not
investment grade.

B. Highly speculative.

o For issuers and performing obligations, `B' ratings indicate that significant
credit risk is present, but a limited margin of safety remains. Financial
commitments are currently being met; however, capacity for continued payment is
contingent upon a sustained, favorable business and economic environment.

o For individual obligations, `B' ratings may indicate distressed or defaulted
obligations with potential for extremely high recoveries. Such obligations would
possess a Recovery Rating of `RR1' (outstanding).

CCC

o For issuers and performing obligations, `CCC' ratings indicate that default is
a real possibility. Capacity for meeting financial commitments is solely reliant
upon sustained, favorable business or economic conditions.

o For individual obligations, `CCC' ratings may indicate distressed or defaulted
obligations with potential for average to superior levels of recovery.
Differences in credit quality may be denoted by plus/minus distinctions. Such
obligations typically would possess a Recovery Rating of `RR2' (superior), `RR3'
(good) or `R4' (average).

o For issuers and performing obligations, `CC' ratings indicate that default of
some kind appears probable.

o For individual obligations, `CC' ratings may indicate distressed or defaulted
obligations with a Recovery Rating of `RR4' (average) or `RR5' (below average).

o For issuers and performing obligations, `C' ratings indicate that default is
imminent.

o For individual obligations, `C' ratings may indicate distressed or defaulted
obligations with potential for below-average to poor recoveries. Such
obligations would possess a Recovery Rating of `RR6' (poor).

RD. Indicates an entity that has failed to make due payments (within the
applicable grace period) on some but not all material financial obligations, but
continues to honor other classes of obligations.

D. Indicates an entity or sovereign that has defaulted on all of its financial
obligations. Default generally is defined as one of the following:

- - failure of an obligor to make timely payment of principal and/or interest
under the contractual terms of any financial obligation;

- - the bankruptcy filings, administration, receivership, liquidation or other
winding-up or cessation of business of an obligor; or

- - the distressed or other coercive exchange of an obligation, where creditors
were offered securities with diminished structural or economic terms
compared with the existing obligation.

Note: The modifiers "+" or "-" may be appended to a rating to denote relative
status within major rating categories. Such suffixes are not added to the `AAA'
Long-term rating category, to categories below `CCC', or to short-term ratings
other than `F1'. (The +/- modifiers are only used to denote issues within the
CCC category, whereas issuers are only rated CCC without the use of modifiers.)

The UBS Funds
UBS Tax Free Short-Intermediate Bond Fund
Statement of Additional Information

[____________], 2008

You should rely only on the information contained or referred to in the
Prospectus and this Statement of Additional Information. The Fund and its
principal underwriter have not authorized anyone to provide you with information
that is different. The Prospectus and this Statement of Additional Information
are not an offer to sell shares of the Fund in any jurisdiction where the Fund
or its principal underwriter may not lawfully sell those shares.

INSERT UBS LOGO]
(C)2008 UBS Global Asset Management (Americas) Inc.

THE UBS FUNDS

PART C

OTHER INFORMATION

ITEM 23. EXHIBITS

(a) Articles of Incorporation.

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

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

(2) Amended and Restated Agreement and Declaration of Trust (the
"Declaration") effective as of September 28, 2004, as amended March 8,
2007, is incorporated herein by reference to Post Effective Amendment
No. 55 to Registrant's Registration Statement on Form N-1A (Nos.
33-47287 and 811-06637) as filed electronically with the SEC on April
10, 2007.

(b) By-Laws.

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

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

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

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

(i) By-Laws.

Article II - "Meeting of Shareholders."

(ii) Declaration.

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

(d) Investment Advisory Contracts.

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

(i) Amendment dated July 1, 2004 to Investment Advisory Agreement
dated July 1, 2002 between the Advisor and the Registrant on
behalf of the UBS Global Allocation Fund is incorporated herein
by reference to Post-Effective Amendment No. 43 to Registrant's
Registration Statement on Form N-1A (Nos. 33-47287 and 811-6637)
as filed electronically with the SEC on October 28, 2004.

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

(i) Amendment dated July 1, 2004 to Investment Advisory Agreement
dated July 1, 2002 between the Advisor and the Registrant on
behalf of the UBS Global Bond Fund is incorporated herein by
reference to Post-Effective Amendment No. 43 to Registrant's
Registration Statement on Form N-1A (Nos. 33-47287 and 811-6637)
as filed electronically with the SEC on October 28, 2004.

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

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

(ii) Amendment dated July 1, 2004 to Investment Advisory Agreement
dated April 25, 1995 between the Advisor and the Registrant on
behalf of the UBS International Equity Fund is incorporated
herein by reference to Post-Effective Amendment No. 43 to
Registrant's Registration Statement on Form N-1A (Nos. 33-47287
and 811-6637) as filed electronically with the SEC on October 28,
2004.

(4) Amended Investment Advisory Agreement dated July 1, 2002, as amended
July 1, 2003 and January 1, 2004, between the Advisor and the
Registrant on behalf of the UBS Global Equity Fund is incorporated
herein by reference to Post-Effective Amendment No. 43 to Registrant's
Registration Statement on Form N-1A (Nos. 33-47287 and 811-6637) as
filed electronically with the SEC on October 28, 2004.

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

(i) Amendment dated February 17, 2004 to Investment Advisory
Agreement dated July 1, 2002 between the Advisor and the
Registrant on behalf of the UBS U.S. Large Cap Equity Fund (f/k/a
UBS U.S. Equity Fund) is incorporated herein by reference to
Post-Effective Amendment No. 43 to Registrant's Registration
Statement on Form N-1A (Nos. 33-47287 and 811-6637) as filed
electronically with the SEC on October 28, 2004.

(ii) Amendment dated July 1, 2004 to Investment Advisory Agreement
dated July 1, 2002 between the Advisor and the Registrant on
behalf of the UBS U.S. Large Cap Equity Fund (f/k/a UBS U.S.
Equity Fund) is incorporated herein by reference to
Post-Effective Amendment No. 43 to Registrant's Registration
Statement on Form N-1A (Nos. 33-47287 and 811-6637) as filed
electronically with the SEC on October 28, 2004.

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

(i) Amendment dated July 1, 2004 to Investment Advisory Agreement
dated July 1, 2002 between the Advisor and the Registrant on
behalf of the UBS U.S. Bond Fund is incorporated herein by
reference to Post-Effective Amendment No. 43 to Registrant's
Registration Statement on Form N-1A (Nos. 33-47287 and 811-6637)
as filed electronically with the SEC on October 28, 2004.

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

(i) Amendment dated July 1, 2004 to Investment Advisory Agreement
dated July 1, 2002 between the Advisor and the Registrant on
behalf of the UBS U.S. Large Cap Growth Fund is incorporated
herein by reference to Post-Effective Amendment No. 43 to
Registrant's Registration Statement on Form N-1A (Nos. 33-47287
and 811-6637) as filed electronically with the SEC on October 28,
2004.

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

(i) Amendment dated July 1, 2004 to Investment Advisory Agreement
dated July 1, 2002 between the Advisor and the Registrant on
behalf of the UBS U.S. Small Cap Growth Fund is incorporated
herein by reference to Post-Effective Amendment No. 43 to
Registrant's Registration Statement on Form N-1A (Nos. 33-47287
and 811-6637) as filed electronically with the SEC on October 28,
2004.

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

(i) Amendment dated July 1, 2004 to Investment Advisory Agreement
dated July 1, 2002 between the Advisor and the Registrant on
behalf of the UBS High Yield Fund is incorporated herein by
reference to Post-Effective Amendment No. 43 to Registrant's
Registration Statement on Form N-1A (Nos. 33-47287 and 811-6637)
as filed electronically with the SEC on October 28, 2004.

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

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

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

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

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

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

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

(i) Amendment dated February 17, 2004 to Investment Advisory
Agreement dated July 1, 2002 between the Advisor and the
Registrant on behalf of the UBS U.S. Large Cap Value Equity Fund
(f/k/a UBS U.S. Value Equity Fund) is incorporated herein by
reference to Post-Effective Amendment No. 43 to Registrant's
Registration Statement on Form N-1A (Nos. 33-47287 and 811-6637)
as filed electronically with the SEC on October 28, 2004.

(ii) Amendment dated July 1, 2004 to Investment Advisory Agreement
dated July 1, 2002 between the Advisor and the Registrant on
behalf of the UBS U.S. Large Cap Value Equity Fund (f/k/a UBS
U.S. Value Equity Fund) is incorporated herein by reference to
Post-Effective Amendment No. 43 to Registrant's Registration
Statement on Form N-1A (Nos. 33-47287 and 811-6637) as filed
electronically with the SEC on October 28, 2004.

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

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

(15) Form of Investment Advisory Agreement between the Advisor and the
Registrant on behalf of the UBS Dynamic Alpha Fund is incorporated
herein by reference to Post-Effective Amendment No. 42 to Registrant's
Registration Statement on Form N-1A (Nos. 33-47287 and 811-6637) as
filed electronically with the SEC on October 13, 2004.

(i) Form of Amendment Number One to Investment Advisory Agreement
between the Advisor and the Registrant on behalf of the UBS
Dynamic Alpha Fund is incorporated herein by reference to
Post-Effective Amendment No. 57 to Registrant's Registration
Statement on Form N-1A (Nos.33-47287 and 811-6637) as filed
electronically with the SEC on October 26, 2007.

(16) Form of Investment Advisory Agreement between the Advisor and the
Registrant on behalf of the UBS Absolute Return Bond Fund is
incorporated herein by reference to Post-Effective Amendment No. 44 to
Registrant's Registration Statement on Form N-1A (Nos. 33-47287 and
811-6637) as filed electronically with the SEC on December 21, 2004.

(17) Investment Advisory Agreement dated March 27, 2006 between the Advisor
and the Registrant on behalf of the UBS U.S. Mid Cap Growth Equity
Fund is incorporated herein by reference to Post-Effective Amendment
No. 51 to Registrant's Registration Statement on Form N-1A (Nos.
33-47287 and 811-06637) as filed electronically with the SEC on March
27, 2006.

(18) Form of Investment Advisory Agreement dated August 14, 2006 between
the Advisor and the Registrant on behalf of the UBS U.S. Equity Alpha
Fund is incorporated herein by reference to Post Effective Amendment
No. 55 to Registrant's Registration Statement on Form N-1A (Nos.
33-47287 and 811-06637) as filed electronically with the SEC on April
10, 2007.

(19) Form of Investment Advisory Agreement between the Advisor and the
Registrant on behalf of the UBS Global Frontier Fund is incorporated
herein by reference to Post-Effective Amendment No. 56 to Registrant's
Registration Statement on Form N-1A (Nos. 33-47287 and 811-06637) as
filed electronically with the SEC on June 22, 2007.

(20) Form of Investment Advisory Agreement between the Advisor and the
Registrant on behalf of the UBS Tax Free Short-Intermediate Bond Fund
is filed herewith as Exhibit No. EX-99(d)(20).

(e) Underwriting Contracts.

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

(f) Bonus or Profit Sharing Contracts.

Not Applicable.

(g) Custodian Agreements.

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

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

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

(iii) Amended Attachment A (approved borrowers) to the Registrant's
Multiple Services Agreement is incorporated herein by reference
to Post effective Amendment No. 54 to Registrant's Registration
Statement on Form N-1A (Nos. 33-47287 and 811-6637), as filed
electronically with the SEC on October 27, 2006.

(iv) Revised Schedule B3 (authorized signatories) to the Registrant's
Multiple Services Agreement is incorporated herein by reference
to Post effective Amendment No. 54 to Registrant's Registration
Statement on Form N-1A (Nos. 33-47287 and 811-6637), as filed
electronically with the SEC on October 27, 2006.

(v) Amended Schedule B1 and Schedule F to the Registrant's Multiple
Services Agreement is incorporated herein by reference to Post
effective Amendment No. 54 to Registrant's Registration Statement
on Form N-1A (Nos. 33-47287 and 811-6637), as filed
electronically with the SEC on October 27, 2006.

(vi) Revised Schedule A to the Registrant's Multiple Services
Agreement is incorporated herein by reference to Post effective
Amendment No. 53 to Registrant's Registration Statement on Form
N-1A (Nos. 33-47287 and 811-6637), as filed electronically with
the SEC on August 14, 2006.

(vii) Amendment dated as of April 1, 2007 to the Securities Lending
Authorization Amendment to the Multiple Services Agreement is
incorporated herein by reference to Post-Effective Amendment No.
56 to Registrant's Registration Statement on Form N-1A (Nos.
33-47287 and 811-06637) as filed electronically with the SEC on
June 22, 2007.

(h) Other Material Contracts.

(1) Form of Administration Contract, dated April 1, 2006, between UBS
Global Asset Management (Americas) Inc. and the Registrant is
incorporated herein by reference to Post-Effective Amendment No. 51 to
Registrant's Registration Statement on Form N-1A (Nos. 33-47287 and
811-6637) as filed electronically with the SEC on March 27, 2006.

(i) Amendment to Exhibit A, dated June 24, 2007, to Administration
Contract is incorporated herein by reference to Post-Effective
Amendment No. 56 to Registrant's Registration Statement on Form
N-1A (Nos. 33-47287 and 811-06637) as filed electronically with
the SEC on June 22, 2007.

(ii) Form of Amendment to Exhibit A to Administration Contract is
filed herewith as Exhibit No. EX-99(h)(1)(ii).

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

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

(ii) Amendment to Exhibit A, dated June 24, 2007, to the Transfer
Agency and Related Services Agreement is incorporated herein by
reference to Post-Effective Amendment No. 56 to Registrant's
Registration Statement on Form N-1A (Nos. 33-47287 and 811-06637)
as filed electronically with the SEC on June 22, 2007.

(i) Legal Opinion.

(1) Legal Opinion of Stradley, Ronon, Stevens & Young, LLP is incorporated
herein by reference to Post-Effective Amendment No. 56 to Registrant's
Registration Statement on Form N-1A (Nos. 33-47287 and 811-06637) as
filed electronically with the SEC on June 22, 2007.

(j) Other Opinions.

(1) Consent of Ernst & Young LLP, Independent Registered Public Accounting
Firm, is incorporated herein by reference to Post-Effective Amendment
No.57 to Registrant's Registration Statement on Form N-1A (Nos.
33-47287 and 811-6637) as filed electronically with the SEC on
December 26, 2007.

(2)(a) Powers of Attorney appointing Mark F. Kemper, Keith A. Weller,
Joseph J. Allessie, Mary Capasso, Michael Calhoun, Stephen Fleischer,
Eric Sanders, Tammie Lee, Bruce G. Leto, Mark A. Sheehan and Jana L.
Cresswell attorneys-in-fact and agents to Frank K. Reilly, Walter E.
Auch, Edward M. Roob, Adela Cepeda and J. Mikesell Thomas are
incorporated herein by reference to Post-Effective Amendment No. 48 to
Registrant's Registration Statement on Form N-1A (Nos. 33-47287 and
811-6637) as filed electronically with the SEC on December 20, 2005.

(b) Powers of Attorney appointing Mark F. Kemper, Keith A. Weller,
Joseph J. Allessie, Mary Capasso, Michael Calhoun, Stephen
Fleischer, Eric Sanders, Tammie Lee, Bruce G. Leto, Mark A.
Sheehan and Jana L. Cresswell attorneys-in-fact and agents to
Thomas Disbrow and Kai Sotorp are incorporated herein by
reference to Post-Effective Amendment No. 54 to Registrant's
Registration Statement on Form N-1A (Nos. 33-47287 and 811-6637)
as filed electronically with the SEC on October 27, 2006.

(k) Omitted Financial Statements.

Not Applicable.

(l) Initial Capital Agreements.

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

(m) Rule 12b-1 Plan.

(1) Form of Shareholder Services Plan, dated October 29, 2001, as revised
March 9, 2007, relating to Class A shares of each series of the
Registrant is incorporated herein by reference to Post-Effective
Amendment No. 56 to Registrant's Registration Statement on Form N-1A
(Nos. 33-47287 and 811-06637) as filed electronically with the SEC on
June 22, 2007.

(2) Form of Rule 12b-1 Plan relating to the Class B shares of each series
of the Registrant is incorporated herein by reference to
Post-Effective Amendment No. 43 to Registrant's Registration Statement
on Form N-1A (Nos. 33-47287 and 811-6637) as filed electronically with
the SEC on October 28, 2004.

(3) Form of Rule 12b-1 Plan, dated October 29, 2001, as revised March 9,
2007, relating to the Class C shares of each series of the Registrant
is incorporated herein by reference to Post-Effective Amendment No. 56
to Registrant's Registration Statement on Form N-1A (Nos. 33-47287 and
811-06637) as filed electronically with the SEC on June 22, 2007.

(i) Addendum to Rule 12b-1 Plan relating to the Class C shares of
each series of the Registrant is incorporated herein by reference
to Post Effective Amendment No. 55 to Registrant's Registration
Statement on Form N-1A (Nos. 33-47287 and 811-06637) as filed
electronically with the SEC on April 10, 2007.

(ii) Form of Addendum to Rule 12b-1 Plan relating to the Class C
shares of each series of the Registrant is filed herewith as
Exhibit No. EX-99(m)(3)(ii).

(4) Shareholder Services Plan relating to Class A shares on behalf of the
UBS Absolute Return Bond Fund is incorporated herein by reference to
Post Effective Amendment No. 55 to Registrant's Registration Statement
on Form N-1A (Nos. 33-47287 and 811-06637) as filed electronically
with the SEC on April 10, 2007.

(5) Form of Shareholder Services Plan relating to Class A shares on behalf
of the UBS Absolute Return Bond Fund and UBS Tax Free
Short-Intermediate Bond Fund is filed herewith as Exhibit No.
EX-99(m)(5).

(n) Rule 18f-3 Plan.

(1) Amended and Restated Multiple Class Plan pursuant to Rule 18f-3,
effective as of December 14, 2004, on behalf of each series of the
Registrant is incorporated herein by reference to Post-Effective
Amendment No. 44 to Registrant's Registration Statement on Form N-1A
(Nos. 33-47287 and 811-6637) as filed electronically with the SEC on
December 21, 2004.

(p) Codes of Ethics.

(1) Joint Code of Ethics of Registrant, the investment adviser, the
sub-adviser and the principal underwriter of the Registrant are
incorporated herein by reference to Post-Effective Amendment No. 54 to
Registrant's Registration Statement on Form N-1A (Nos. 33-47287 and
811-6637) as filed electronically with the SEC on October 27, 2006.

ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE REGISTRANT

None.

ITEM 25. INDEMNIFICATION

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

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

Indemnification of the Trustees and officers of the Registrant is provided for
in Article VII, Sections 2 through 4 of the Registrant's Declaration of Trust
effective as of September 28, 2004, as amended, as follows:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(15) Section 7 of the Investment Advisory Agreement on behalf of the UBS
Dynamic Alpha Fund;

(16) Section 7 of the Investment Advisory Agreement on behalf of the UBS
Absolute Return Bond Fund;

(17) Section 7 of the Investment Advisory Agreement on behalf of the UBS
U.S. Mid Cap Growth Equity Fund; and

(18) Section 7 of the Investment Advisory Agreement on behalf of the UBS
U.S. Equity Alpha Fund.

(19) Section 7 of the Investment Advisory Agreement on behalf of the UBS
Global Frontier Fund.

(20) Section 7 of the Investment Advisory Agreement on behalf of the UBS
Tax Free Short-Intermediate Bond Fund.

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

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

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

(e) Sections 8 and 9 of the Administration Contract between UBS Global Asset
Management (Americas) Inc. and the Registrant on behalf of each series,
which is incorporated herein by reference.

ITEM 26. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT MANAGER

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

ITEM 27. PRINCIPAL UNDERWRITER

(a) UBS Global AM (US) serves as principal underwriter for the following
investment companies:

UBS Cashfund Inc.,
UBS Index Trust,
UBS Investment Trust,
UBS Money Series,
UBS Managed Municipal Trust,
UBS Master Series, Inc.,
Master Trust
UBS Municipal Money Market Series,
UBS RMA Money Fund, Inc.,
UBS RMA Tax-Free Fund, Inc.,
UBS Series Trust,
Global High Income Fund Inc.,
Insured Municipal Income Fund Inc.,
Investment Grade Municipal Income Fund Inc.,
Managed High Yield Plus Fund Inc.,
Strategic Global Income Fund, Inc., and
UBS PACE Select Advisors Trust
SMA Relationship Trust
Fort Dearborn Income Securities, Inc.

(b) UBS Global AM (US) is the Registrant's principal underwriter. The
information set forth below is furnished for those directors and officers
of UBS Global AM (US) who also serve as directors or officers of the
Registrant.

Positions and Offices with Positions and Offices with
Name and Business Address* Underwriter the Registrant
- -------------------------------------------------------------------------------------------------------
Kai Sotorp** Head of the Americas for UBS President
Global Asset Management, a
member of the UBS Group
Managing Board and a member of
the UBS Global Asset
Management Executive Committee

Joseph J. Allessie* Director and Deputy General Vice President and
Counsel of UBS Global AM Assistant Secretary

Andrew Shoup* Managing Director and Head of Vice President and Chief
Global Treasury Administration Operating Officer
Department

Thomas Disbrow* Director and Head of the U.S. Vice President and Treasurer
Mutual Fund Treasury
Administration Department of
UBS Global AM

Mark F. Kemper** Managing Director, General Vice President and Secretary
Counsel and Secretary of UBS
Global AM

Joanne Kilkeary* Director and Senior Manager of Vice President and
the U.S. Mutual Fund Treasury Assistant Treasurer
Administration Department of
UBS Global AM

Michael Flook * Associate Director and Senior Vice President and
Manager of the U.S. Mutual Assistant Treasurer
Fund Treasury Administration
Department of UBS Global AM

Joseph McGill* Managing Director and Chief Vice President and Chief
Compliance Officer of UBS Compliance Officer
Global AM

Eric Sanders* Director and Associate General Vice President and
Counsel of UBS Global AM Assistant Secretary

Tammie Lee* Director and Associate General Vice President and
Counsel of UBS Global AM Assistant Secretary

Keith A. Weller* Executive Director and Senior Vice President and
Associate General Counsel of Assistant Secretary
UBS Global AM

Nancy Osborn* Associate Director and Senior Vice President and
Manager of the U.S. Mutual Assistant Treasurer
Fund Treasury Administration
Department of UBS Global AM

Steven LeMire* Director and Senior Manager of Vice President and
the U.S. Mutual Fund Treasury Assistant Treasurer
Administration Department of
UBS Global AM

* This person's business address is 51 West 52nd Street, New York, New York
10019-6114.

** This person's business address is One North Wacker Drive, Chicago, Illinois
60606.

ITEM 28. LOCATION OF ACCOUNTS AND RECORDS

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

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

ITEM 29. MANAGEMENT SERVICES

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

ITEM 30. UNDERTAKINGS

Not Applicable.

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended (the
"Securities Act") and the Investment Company Act of 1940, as amended, the
Registrant has duly caused Post-Effective Amendment No. 58/59 to this
registration statement to be signed on its behalf by the undersigned, duly
authorized, in the City of New York, and the State of New York on the 2nd day of
July 2008.

THE UBS FUNDS

By: /s/ Kai Sotorp
Kai Sotorp*
President and Principal Executive Officer

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

Signature Title Date

/s/ Kai Sotorp President and Principal July 2, 2008
Kai Sotorp* Executive Officer

/s/ Frank K. Reilly Chairman and July 2, 2008
Frank K. Reilly* Trustee

/s/ Walter E. Auch Trustee July 2, 2008
Walter E. Auch*

/s/ Edward M. Roob Trustee July 2, 2008
Edward M. Roob*

/s/ Adela Cepeda Trustee July 2, 2008
Adela Cepeda*

/s/ J. Mikesell Thomas Trustee July 2, 2008
J. Mikesell Thomas*

/s/ Thomas Disbrow Treasurer and Principal July 2, 2008
Thomas Disbrow* Accounting Officer

* By: /s/ Joseph J. Allessie
Joseph J. Allessie, Attorney-in-Fact
(Pursuant to Powers of Attorney incorporated herein by reference.)

EXHIBITS INDEX

EXHIBITS EXHIBIT NO.
- -------------------------------------------------------------------------------- ---------------
Form of Investment Advisory Agreement between the Advisor and the Registrant on
behalf of the UBS Tax Free Short-Intermediate Bond Fund EX-99.d.20

Form of Amendment to Exhibit A to Administration Contract EX-99.h.1.ii

Form of Addendum to Rule 12b-1 Plan relating to the Class C shares of each
series of the Registrant EX-99.m.3.ii

Form of Shareholder Services Plan relating to Class A shares on behalf of the
UBS Tax Free Short-Intermediate Bond Fund EX-99.m.5

EX-99.D.20 2 ex99d20.htm


                                                          Exhibit No. EX-99.d.20

                          INVESTMENT ADVISORY AGREEMENT


     AGREEMENT  made this ___ day of  _________,  2008,  by and  between The UBS
Funds, a Delaware  statutory trust (the "Trust") and UBS Global Asset Management
(Americas) Inc., a Delaware corporation (the "Advisor").

     1. Duties of the Advisor.  The Trust hereby  appoints the Advisor to act as
investment  advisor  to the UBS  Tax  Free  Short-Intermediate  Bond  Fund  (the
"Series")  for the  period and on such  terms set forth in this  Agreement.  The
Trust  employs  the Advisor to manage the  investment  and  reinvestment  of the
assets of the Series,  to  continuously  review,  supervise and  administer  the
investment  program of the Series,  to determine in its discretion the assets to
be held uninvested,  to provide the Trust with records  concerning the Advisor's
activities  which the  Trust is  required  to  maintain,  and to render  regular
reports to the Trust's  officers and Board of Trustees  concerning the Advisor's
discharge of the foregoing  responsibilities.  The Advisor  shall  discharge the
foregoing  responsibilities subject to the control of the officers and the Board
of Trustees of the Trust,  and in compliance with the  objectives,  policies and
limitations  set forth in the Trust's  Prospectus  and  Statement of  Additional
Information.  The  Advisor  accepts  such  employment  and  agrees to render the
services and to provide,  at its own  expense,  the office  space,  furnishings,
equipment and the personnel  required by it to perform the services on the terms
and for the compensation provided herein. With respect to foreign securities, at
its  own  expense,   the  Advisor  may  obtain  statistical  and  other  factual
information and advice  regarding  economic  factors and trends from its foreign
subsidiaries,  and may obtain investment  services from the investment  advisory
personnel of its affiliates located throughout the world to the extent permitted
under interpretations of the federal securities laws.

     2.  Portfolio  Transactions.  The Advisor  shall  provide the Series with a
trading  department,  and with  respect to foreign  securities,  the  Advisor is
authorized to utilize the trading  departments  of its foreign  affiliates.  The
Advisor shall select,  and with respect to its foreign  affiliates or the use of
any  sub-advisors,  shall  monitor the selection of, the brokers or dealers that
will  execute  the  purchases  and sales of  securities  for the  Series  and is
directed  to use its best  efforts to ensure that the best  available  price and
most favorable execution of securities transactions for the Series are obtained.
Subject  to  policies  established  by the  Board of  Trustees  of the Trust and
communicated  to the  Advisor,  it is  understood  that the Advisor  will not be
deemed to have acted  unlawfully,  or to have  breached a fiduciary  duty to the
Trust or in respect of the Series,  or be in breach of any  obligation  owing to
the Trust or in respect of the Series under this Agreement, or otherwise, solely
by reason  of its  having  caused  the  Series  to pay a member of a  securities
exchange,  a  broker  or a  dealer  a  commission  for  effecting  a  securities
transaction for the Series in excess of the amount of commission  another member
of an exchange, broker or dealer would have charged if the Advisor determines in
good faith that the commission  paid was reasonable in relation to the brokerage
or research services provided by such member,  broker or dealer, viewed in terms
of that particular  transaction or the Advisor's overall  responsibilities  with
respect to the Series and to other  funds and  advisory  accounts  for which the
Advisor or any Sub-Advisor, as defined in Section 8 hereof, exercises investment
discretion.  The Advisor will promptly  communicate to the officers and trustees
of the Trust such  information  relating to the Series  transactions as they may
reasonably request.

     3.  Compensation  of the  Advisor.  For the  services to be rendered by the
Advisor as provided in Sections 1 and 2 of this Agreement,  the Series shall pay
to the Advisor within five business days after the end of each calendar month, a
monthly fee of one twelfth of the effective  advisory fee rate multiplied by the
Series' average daily net assets for the month. The effective  advisory fee rate
is calculated according to the following fee schedule:  0.250% on the first $500
million  of assets  under  management;  0.225% on the next  $500  million  to $1
billion of assets under management;  0.200% on the next $1 billion to $5 billion
of assets  under  management;  0.175% on the next $5 billion  to $10  billion of
assets  under  management;   and  0.150%  above  $10  billion  of  assets  under
management.

     In the event of  termination  of this  Agreement,  the fee provided in this
Section 3 shall be paid on a pro rata  basis,  based on the  number of days when
this Agreement was in effect.

     4. Reimbursement of Fee Waivers and Expense  Reimbursements.  If on any day
during which this  Agreement is in effect,  the estimated  annualized  Operating
Expenses  (as  defined  below)  of the  Series  for that  day are less  than the
Operating  Expense  Limit (as defined  below),  the Advisor shall be entitled to
reimbursement by the Series of the investment management fees waived or reduced,
and of any expense reimbursements or similar payments remitted by the Advisor to
the Series  pursuant to the Advisor's  agreement to limit the Series'  Operating
Expenses  (the  "Reimbursement  Amount")  during any of the  previous  three (3)
years, to the extent that the Series' annualized  Operating  Expenses,  plus the
amount  so  reimbursed,  equals,  for such day,  the  Operating  Expense  Limit,
provided  that such amount paid to the Advisor will in no event exceed the total
Reimbursement  Amount and will not include any amounts previously  reimbursed by
the Series to the  Advisor.  For  purposes  of this  Section  4: (i)  "Operating
Expenses" shall include the ordinary  operating  expenses incurred by the Series
in any fiscal year, including,  without limitation,  management fees paid to the
Advisor,   but  excluding  interest,   taxes,   brokerage   commissions,   other
investment-related   costs,   expenses  incurred  through  investment  in  other
investment  companies  and  extraordinary  expenses not incurred in the ordinary
course of the Series'  business;  and (ii) "Operating  Expense Limit" shall mean
the rate of the "Total  Expense  Limit" as a  percentage  of  average  daily net
assets of the Series as stated in the then current registration statement of the
Series,  plus any  distribution  or service  fees  under  Rule  12b-1  under the
Investment Company Act of 1940 and/or  shareholder  service fees as described in
the then current  registration  statement of the Series, as determined from time
to time by the Board of Trustees of the Trust.

     5. Reports.  The Series and the Advisor agree to furnish to each other such
information  regarding their operations with regard to their affairs as each may
reasonably request.

     6. Status of Advisor.  The services of the Advisor to the Series are not to
be deemed exclusive, and the Advisor shall be free to render similar services to
others so long as its services to the Series are not impaired thereby.

     7. Liability of Advisor. In the absence of willful misfeasance,  bad faith,
gross  negligence or reckless  disregard by the Advisor of its  obligations  and
duties hereunder,  the Advisor shall not be subject to any liability  whatsoever
to the Series,  or to any shareholder of the Series,  for any error of judgment,
mistake of law or any other act or omission in the course of, or connected with,
rendering services hereunder including,  without limitation, for any losses that
may be sustained in connection with the purchase, holding, redemption or sale of
any security on behalf of the Series.

     8. Delegation of Responsibilities to Sub-Advisors.  The Advisor may, at its
expense,  select  and  contract  with  one or more  affiliated  or  unaffiliated
investment  advisors  registered  under  the  Investment  Advisers  Act of  1940
("Sub-Advisors") to perform some or all of the services for the Series for which
it is  responsible  under  this  Agreement.  The  Advisor  will  compensate  any
Sub-Advisor  for its  services to the Series.  The  Advisor  may  terminate  the
services of any  Sub-Advisor  at any time in its sole  discretion,  and shall at
such time  assume  the  responsibility  of such  Sub-Advisor  unless and until a
successor  Sub-Advisor  is selected  and the  requisite  approval of the Series'
shareholders is obtained.  The Advisor will continue to have  responsibility for
all advisory services furnished by any Sub-Advisor.

     9.  Duration and  Termination.  This  Agreement  shall become  effective on
___________  ___,  2008  provided  that  first it is  approved  by the  Board of
Trustees  of the Trust,  including  a  majority  of those  trustees  who are not
parties to this  Agreement or  interested  persons of any party  hereto,  in the
manner  provided in Section  15(c) of the  Investment  Company  Act of 1940,  as
amended  (the "1940 Act") and by the  holders of a majority  of the  outstanding
voting securities of the Series;  and shall continue in effect until ___________
___,  2008.  Thereafter,  this  Agreement  may  continue  in effect only if such
continuance is approved at least annually by: (i) the Trust's Board of Trustees;
or (ii) by the vote of a majority of the  outstanding  voting  securities of the
Series;  and in either  event by a vote of a majority  of those  trustees of the
Trust who are not parties to this  Agreement or  interested  persons of any such
party in the manner  provided in Section 15(c) of the 1940 Act.  This  Agreement
may be terminated by the Trust at any time,  without the payment of any penalty,
by the Board of Trustees of the Trust or by vote of the holders of a majority of
the  outstanding  voting  securities of the Series on 60 days' written notice to
the  Advisor.  This  Agreement  may be  terminated  by the  Advisor at any time,
without the payment of any penalty,  upon 60 days' written  notice to the Trust.
This Agreement will automatically terminate in the event of its assignment.  Any
notice under this Agreement  shall be given in writing,  addressed and delivered
or mailed postpaid, to the other party at the principal office of such party.

     As used in this Section 9, the terms "assignment," "interested person," and
"a vote of a  majority  of the  outstanding  voting  securities"  shall have the
respective  meanings set forth in Section 2(a)(4),  Section 2(a)(19) and Section
2(a)(42) of the 1940 Act and Rule 18f-2 thereunder.

     10. Name of Advisor.  The parties  agree that the Advisor has a proprietary
interest in the name "UBS," and the Trust agrees to promptly take such action as
may be necessary to delete from its corporate name and/or the name of the Series
any reference to the name of the Advisor promptly after receipt from the Advisor
of a written request therefor.

     11. Severability. If any provisions of this Agreement shall be held or made
invalid by a court decision,  statute, rule or otherwise,  the remainder of this
Agreement shall not be affected thereby.

     12.  Amendment of this  Agreement.  No provision of this  Agreement  may be
changed,  waived,  discharged or terminated orally, but only by an instrument in
writing  signed by the party against which  enforcement  of the change,  waiver,
discharge or termination is sought,  and no material amendment of this Agreement
shall  be  effective  until  approved  by  vote  of a  majority  of the  Series'
outstanding voting securities.


IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of this ___ day of __________, 2008.

THE UBS FUNDS                             THE UBS FUNDS


By: _______________________               By:_______________________
    Name:                                    Name:
    Title:                                   Title:


UBS GLOBAL ASSET MANAGEMENT               UBS GLOBAL ASSET MANAGEMENT
(AMERICAS) INC.                           (AMERICAS) INC.


By:_______________________                By:_______________________
   Name:                                     Name:
   Title:                                    Title:

EX-99.H.1.II 3 ex99h1ii.htm


                                                       Exhibit No. EX-99.h.1.ii.

                                                       Dated as of [___________]

                                    EXHIBIT A

    to Administration Contract dated April 1, 2006 between UBS Global Asset
                  Management (Americas) Inc. and The UBS Funds

1.       UBS Global Allocation Fund

2.       UBS Global Equity Fund

3.       UBS Global Bond Fund

4.       UBS U.S. Large Cap Equity Fund

5.       UBS U.S. Large Cap Value Equity Fund

6.       UBS U.S. Large Cap Growth Fund

7.       UBS U.S. Small Cap Equity Fund

8.       UBS U.S. Small Cap Growth Fund

9.       UBS U.S. Real Estate Equity Fund

10.      UBS U.S. Bond Fund

11.      UBS High Yield Fund

12.      UBS Emerging Markets Debt Fund

13.      UBS International Equity Fund

14.      UBS Emerging Markets Equity Fund

15.      UBS Dynamic Alpha Fund

16.      UBS Absolute Return Bond Fund

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

18.      UBS U.S. Equity Alpha Fund

19.      UBS Global Frontier Fund

20.      UBS Tax Free Short-Intermediate Bond Fund

EX-99.M.3.II 4 ex99m3ii.htm


                                                        Exhibit No. EX-99.m.3.ii

                         THE UBS FUNDS - CLASS C SHARES

                            DISTRIBUTION FEE ADDENDUM

                           PLAN PURSUANT TO RULE 12b-1

                    UNDER THE INVESTMENT COMPANY ACT OF 1940

     WHEREAS,  The UBS Funds ("Fund") is registered under the Investment Company
Act of 1940,  as amended  ("1940  Act"),  as an open-end  management  investment
company; and

     WHEREAS,  the Fund adopted a Plan pursuant to Rule 12b-1 under the 1940 Act
("Plan") on October 29, 2001, as amended from time to time,  with respect to the
Class C shares  ("Class C shares") of its existing  series of shares and of such
other series as may be designated by the Fund's board of trustees ("Board") that
have Class C shares established; and

     WHEREAS,  the Fund has  established a new series  designated as the UBS Tax
Free  Short-Intermediate  Bond Fund (the "Series") and the Fund desires to adopt
the Plan with respect to the Class C shares of the Series; and

     WHEREAS,  the Fund  has  entered  into a  Principal  Underwriting  Contract
("Contract")  with UBS Global  Asset  Management  (US) Inc.  ("UBS  Global  AM")
pursuant to which UBS Global AM has agreed to serve as Principal  Underwriter of
the Class C shares of the Series;

     NOW, THEREFORE, the Fund hereby executes this Distribution Fee Addendum and
adopts the Plan with  respect to the Class C shares of the Series in  accordance
with  Rule  12b-1  under the 1940 Act and  pursuant  to the  following  terms as
required by Paragraph 1B of the Plan:

     1.   The Series is authorized to pay to UBS Global AM, as compensation  for
          UBS Global AM's services as Principal Underwriter of the Series' Class
          C shares,  a  distribution  fee at the rate of 0.10% on an  annualized
          basis of the average  daily net assets of the Series'  Class C shares.
          Such fee shall be calculated  and accrued daily and paid monthly or at
          such other intervals as the Board shall determine.

     2.   The Series is authorized to pay to UBS Global AM, as compensation  for
          UBS Global AM's services as Principal Underwriter of the Series' Class
          C shares, a service fee at the rate of 0.25% on an annualized basis of
          the average daily net assets of the Series'  Class C shares.  Such fee
          shall be  calculated  and  accrued  daily and paid  monthly or at such
          other intervals as the Board shall determine.

     3.   The Series is subject to all the terms and conditions set forth in the
          Plan.

     IN WITNESS WHEREOF, the Fund has executed this Distribution Fee Addendum on
the day and year set forth below in New York, New York.

Date:  [___________]


ATTEST:                         THE UBS FUNDS

By:                             By:

EX-99.M.5 5 ex99m5.htm


                                                           Exhibit No. EX-99.m.5

                         THE UBS FUNDS - CLASS A SHARES

                            SHAREHOLDER SERVICES PLAN

     WHEREAS,  The UBS Funds ("Fund") is registered under the Investment Company
Act of 1940,  as amended  ("1940  Act"),  as an open-end  management  investment
company, and has twenty distinct series of shares of beneficial interest, two of
which are  governed  by this  plan  ("Series"),  which  correspond  to  distinct
portfolios and have been designated as the UBS Absolute Return Bond Fund and UBS
Tax Free Short-Intermediate Bond Fund; and

     WHEREAS,  UBS Global Asset Management (US) Inc. ("UBS Global AM") serves as
Principal  Underwriter  of the  Series  and  performs  or  contracts  with other
intermediaries to perform certain services for shareholders of Class A shares;

     NOW, THEREFORE,  the Fund hereby adopts this Plan with respect to the Class
A shares of the Series in accordance with Rule 12b-1 under the 1940 Act.

1.   Class A shares of the Series will pay to UBS Global AM, as compensation for
     the provision of services to shareholders of Class A shares,  a service fee
     at the rate of 0.15% on an annualized basis of the average daily net assets
     of such shares.  Such fee shall be  calculated  and accrued  daily and paid
     monthly  or at such  other  intervals,  as the  Fund's  Board  of  Trustees
     ("Board") shall determine.

2.   The  service  fee  received  by UBS  Global AM is for  providing  "personal
     service and/or the maintenance of shareholder  accounts" as provided for in
     Section  2830(b)(9) of the NASD Conduct Rules,  including  expenditures for
     overhead  and other  expenses  of UBS Global AM,  and  telephone  and other
     communications  expenses relating to the provision of shareholder services.
     If the NASD  amends the  definition  of  "service  fee" or adopts a related
     definition intended to define the same concept, the services provided under
     the Plan shall be  automatically  amended,  without  further  action of the
     parties, to conform to such definition.

3.   This Plan must be approved,  together with any related agreements, by votes
     of a majority of both (a) the Board and (b) those Board members of the Fund
     who are not "interested persons" of the Fund and have no direct or indirect
     financial  interest in the operation of this Plan or any agreements related
     thereto  ("Independent  Board  Members"),  cast in person at a meeting  (or
     meetings) called for the purpose of voting on such approval.

4.   This Plan  shall  continue  in full  force and  effect  for so long as such
     continuance  is  specifically  approved  at least  annually  in the  manner
     provided for approval of this Plan in Paragraph 3.

5.   UBS Global AM shall  provide to the Board and the Board  shall  review,  at
     least  quarterly,  a written report of the amounts expended with respect to
     servicing  shareholders  of Class A shares and the  purposes for which such
     expenditures  were  made.  UBS  Global  AM shall  submit  only  information
     regarding amounts expended for servicing  shareholder accounts to the Board
     in support of the service fee payable hereunder.

6.   This Plan may be terminated  with respect to the Class A shares at any time
     by  vote of the  Board,  by vote of a  majority  of the  Independent  Board
     Members,  or by vote of a majority of the outstanding  voting securities of
     the Class A shares.

7.   This Plan may not be amended to increase  materially  the amount of service
     fee provided for in Paragraph 1 hereof unless such amendment is approved by
     a majority of the outstanding  voting  securities of the Class A shares. No
     material  amendment to the Plan shall be made unless approved in the manner
     provided for initial approval in Paragraph 3 hereof.

8.   The amount of the  service  fee  payable  to UBS  Global AM is not  related
     directly to  expenses  incurred by UBS Global AM on behalf of the Series or
     its Class A shares in  providing  services  to  shareholders.  Neither  the
     Series  nor Class A Shares is  obligated  reimburse  UBS Global AM for such
     expenses.  The service fee set forth in  Paragraph 1 hereof will be paid to
     UBS Global AM until the Plan is terminated  or not renewed.  If the Plan is
     terminated or not renewed,  any  service-related  expenses  incurred by UBS
     Global AM in excess of payments of the service fee specified in Paragraph 1
     hereof that UBS Global AM has received or accrued  through the  termination
     date are the sole  responsibility  and  liability of UBS Global AM, and are
     not obligations of the Series or Class A shares.

9.   While this Plan is in effect,  the  selection  and  nomination of the Board
     members who are Independent Board Members of the Fund shall be committed to
     the discretion of the Independent Board Members.

10.  As used  in this  Plan,  the  terms  "majority  of the  outstanding  voting
     securities"  shall have the same  meaning  as those  terms have in the 1940
     Act.

11.  The Fund  shall  preserve  copies of this Plan  (including  any  amendments
     thereto)  and any  related  agreements  and all  reports  made  pursuant to
     Paragraph 5 hereof for a period of not less than six years from the date of
     this Plan, the first two years in an easily accessible place.

12.  The Board members of the Fund and the shareholders of each Series shall not
     be liable for any  obligations  of the Fund or any Series  under this Plan,
     and UBS Global AM or any other  person,  in asserting  any rights or claims
     under this Plan,  shall look only to the assets and property of the Fund or
     such  Series in  settlement  of such right or claim,  and not to such Board
     members or shareholders.

     IN WITNESS WHEREOF, the Fund has executed this Shareholder Services Plan on
the day and year set forth below in New York, New York.


Date:  December 14, 2004, as last revised [__________]



ATTEST:                                THE UBS FUNDS

By:                                    By:
Date:                                  Date:

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